Tribunal remits matter to AO for verifying assessee's additional income declaration in closing WIP.

The Tribunal remitted the matter to the AO for verification of the factual submissions made by the assessee regarding the inclusion of the additional income declared during the survey in the closing WIP and the correct profit declaration. The AO was instructed to examine the accounts and grant the assessee an adequate opportunity of being heard.

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Issues Involved:
1. Addition under Section 68 of the Income Tax Act, 1961.
2. Disallowance of Rs. 6,00,00,000 debited to the profit and loss account under the head "WIP declared u/s. 133A survey".
3. Application of proviso to Section 69C of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Addition under Section 68 of the Income Tax Act, 1961:
The assessee, a partnership firm engaged in the business of builder and developer, filed its return of income for AY 2014-15 declaring a total income of Rs. 3,54,73,890. During a survey conducted under Section 133A on 08.11.2013, the assessee declared an additional income of Rs. 6 Crores to cover up differences in sales rates. The AO observed that the assessee credited Rs. 6 Crores under "Income declared u/s. 133A" and made a corresponding debit entry of Rs. 6 Crores under "WIP declared u/s. 133A". The AO added Rs. 2,45,26,110 to the income of the assessee under Section 68 read with Section 115BBE, treating it as deemed income since the amount was not explained satisfactorily. The AO noted that the declaration was made over and above the normal income and was not attributable to specific customers or entered in the books on the date of the survey.

2. Disallowance of Rs. 6,00,00,000 Debited to the Profit and Loss Account:
The CIT(A) confirmed the AO's action and further enhanced the assessment by Rs. 3,54,73,890, resulting in a total addition of Rs. 6,00,00,000. The CIT(A) rejected the assessee's claim that the Rs. 6 Crores declared during the survey was included in the closing work-in-progress (WIP). The CIT(A) observed that neither the assessee nor the auditors stated that the increased sum was reflected in the closing WIP. The CIT(A) concluded that the assessee had not adhered to the disclosure made during the survey and disallowed the Rs. 6 Crores debited to the profit and loss account as "WIP declared u/s. 133A survey".

3. Application of Proviso to Section 69C of the Income Tax Act, 1961:
The CIT(A) noted that the AO correctly pointed out the effect of wrong entries made by the assessee but did not fully grasp the adjustments made in the accounts. The CIT(A) held that the assessee effectively reduced the taxable income by debiting Rs. 6 Crores to the profit and loss account without including it in the closing WIP. Consequently, the CIT(A) enhanced the income by Rs. 3,54,73,890, resulting in a total assessed income of Rs. 9,54,73,863.

Remand to AO:
The Tribunal agreed with the assessee's counsel that the factual submissions regarding the inclusion of Rs. 6 Crores in the closing WIP and the correct profit declaration should be verified by the AO. The Tribunal remitted the issue to the AO for factual verification of the submissions regarding debits and entries in the profit and loss account. The Tribunal noted that the question of wrong application of Section 68 would arise only if the AO found the assessee's submissions incorrect. The AO was directed to grant the assessee adequate opportunity of being heard.

Conclusion:
The Tribunal remitted the matter to the AO for verification of the factual submissions made by the assessee regarding the inclusion of the additional income declared during the survey in the closing WIP and the correct profit declaration. The AO was instructed to examine the accounts and grant the assessee an adequate opportunity of being heard.

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