2019 (10) TMI 194 - AT - Income Tax

Tribunal limits undisclosed receipts & labor expenses in tax assessment appeal

M/s. Shiv Pujan Develpers C/o. Jigneshkuamr Purushottambhai Patel Versus ITO, Ward-3 Mehsana.

The Tribunal partially allowed the appeal, directing the AO to limit the addition for undisclosed receipts to Rs. 75,89,498 and the disallowance of labor ... Disallowance out of labour expenses - profit estimation - HELD THAT:- We are of the view that only element of profit embedded in these receipts are required to be treated as unaccounted income. Since the ld.CIT(A) has restricted the disallowance at 12.5% on the basis of finding recorded in the Asstt.Year 2011-12, but that finding of the ld.CIT(A) was not upheld by the ITAT, and has scaled down to 2%. Therefore, respectfully following the order of the Co-ordinate Bench, we allow this ground of appeal and direct the AO to compute disallowance out of labour expenses at 25% of the total labour payment made by the assessee. In other words, it should 2% (two percent) of ₹ 1,90,43,133/-. This ground of appeal is partly allowed. Issues Involved1. Addition of Rs. 3,74,90,000 based on survey findings.2. Addition of Rs. 23,80,391 out of total labor expenses.Detailed AnalysisIssue 1: Addition of Rs. 3,74,90,000 Based on Survey FindingsThe first issue pertains to the addition of Rs. 3,74,90,000 made by the Assessing Officer (AO) based on the outcome of a survey conducted at the assessee's premises. The survey, conducted under section 133A of the Income Tax Act on 19.10.2011, led to the discovery of a diary referred to as the 'Vikram diary,' which allegedly contained undisclosed receipts. The AO confronted the assessee regarding this undisclosed income. The assessee, however, denied the existence of such a diary, claiming it was fabricated by the survey team.The assessee filed an affidavit retracting the statement made during the survey, asserting that the diary was created by the Revenue authorities. The AO, however, found that the names in the diary matched those of individuals who had booked shops and residential flats with the assessee. The AO thus made an addition of Rs. 3,74,79,000, which was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)].The assessee argued that statements made during a survey do not have evidentiary value as they are not made under oath, relying on the Supreme Court judgment in CIT Vs. S. Khader Khan Son. Additionally, the assessee contended that even if the diary's contents were accepted, only the profit element from the alleged on-money should be taxed, not the entire receipt. The assessee provided a profit ratio analysis from various assessment years to argue that the addition should be limited to 20.25% of the undisclosed receipts, amounting to Rs. 75,89,498.The Tribunal noted that the addition was not solely based on the survey statement but also on the corroborative evidence of the diary. It was observed that the diary contained names of 84 persons who had booked properties with the assessee, making it difficult to dismiss the diary as fictitious. The Tribunal referred to the Gujarat High Court's decision in DCIT Vs. Panna Corporation, which held that only the profit element in such undisclosed receipts should be taxed. Consequently, the Tribunal directed the AO to restrict the addition to Rs. 75,89,498, calculated as 20.25% of Rs. 3,74,79,000.Issue 2: Addition of Rs. 23,80,391 Out of Total Labor ExpensesThe second issue involved the disallowance of Rs. 23,80,391 out of total labor expenses of Rs. 1,90,43,133. The AO had disallowed 50% of the total labor expenses, amounting to Rs. 95,21,567, which was later reduced to 12.5% by the CIT(A).The assessee argued that similar disallowances in earlier years had been reduced by the Tribunal to 2% of the total labor expenses. The Tribunal found no disparity in the facts and noted that all supporting evidence, including PAN numbers, bank accounts, and income tax returns of the labor contractors, were provided. The Tribunal observed that while there were certain defects in the labor bills, these did not conclusively prove that the expenses were bogus.Following its earlier decision for the assessment year 2011-12, the Tribunal directed the AO to restrict the disallowance to 2% of the total labor expenses, amounting to Rs. 3,80,862.ConclusionThe Tribunal partly allowed the appeal, directing the AO to restrict the addition on account of undisclosed receipts to Rs. 75,89,498 and the disallowance of labor expenses to Rs. 3,80,862. The judgment emphasizes the importance of corroborative evidence in tax assessments and the principle of taxing only the profit element in undisclosed receipts.