2025 (9) TMI 1483 - AT - Income Tax

Assessing Officer to verify mobilization/machinery advances; s.69C upheld for unexplained building shortfall; s.40A(3) vacated; ESI/PF additions upheld

ITAT (Raipur) restored the matter to the AO to verify the assessee's claim that mobilization/machinery advances were correctly included in gross receipts ... Addition u/s 68 - discrepancy of gross receipts - falls short of the amount disclosed in 'Form 26AS' - claimed to be mobilization/machinery advances - whether or not the A.O/CIT(Appeals) are right in law and facts of the case in making/sustaining the addition in the backdrop of the explanation filed by the assessee? - HELD THAT:- Based on a perusal of the 'reconciliation chart' that was filed by the assessee in the course of proceedings before the CIT(Appeals) [as had been culled out by us hereinabove). We cannot remain oblivion of the fact that the claim of the assessee that the amount had been disclosed by him in his gross receipts for the immediately succeeding year i.e. A.Y.2016-17 is not supported by any documentary evidence. Accordingly, we are of the view that the matter in all fairness requires to be restored to the file of the A.O with a direction to verify the authenticity of the aforesaid claim of the assessee. In case the aforesaid claim of the assessee that the mobilization and machinery advance received by him during the subject year was properly accounted for by him as part of his gross receipts of the succeeding year i.e. A.Y.2016-17 is found to be in order, then the impugned addition made by him during the subject year would stand vacated. Thus, the Grounds of appeal raised by the assessee are allowed for statistical purposes in terms of our aforesaid observations. Unexplained investment - Disclosure towards discrepancy in investment in construction of building - statement recorded u/s. 131 - shortfall/deficit in the investment towards construction of the subject property pertaining to the year under consideration - HELD THAT:- No justification for the assessee to have not offered the deficit/shortfall in the investment in the aforementioned property as his income for the year under consideration (as was agreed by him in his statement recorded u/s.131 of the Act), however, the issue for which our indulgence had been sought by the assessee is that as to whether or not there was justification on the part of the A.O to have made addition u/s. 69C of the Act. Additional income - HELD THAT:- On a perusal of the statement of the assessee recorded u/s. 131 of the Act, we find that the same revealed multi-facet discrepancies that had surfaced in the course of survey proceedings and were confronted to the assessee, viz. (i) payment to Shri Vikash Singh in contravention of Section 40A(3) of the Act : Rs. 6 lacs; (ii) payment made outside the books of account; (iii) unsubstantiated payments to related parties/employees viz. Shri Shaukat Ali, Shri Ramesh Pandey, Shri Pradeep Kumar Yadav etc.; and (iv) unreconciled claim of expenditure under the head URD purchases. As the assessee had offered additional business income i.e. @8% of his turnover/contract receipts [as against 5% of the last few years] to cover the aforementioned discrepancies, therefore, we are afraid that the short/deficit investment towards construction of subject building cannot be held to have been telescoped or subsumed in the additional business income so offered by him. Our aforesaid conviction is all the more fortified by the fact that the assessee on being confronted with the discrepancies in the investment made towards short/deficit investment in the construction of subject building, had, inter alia, separately surrendered an amount. Thus, we are of a firm conviction that the claim of the Ld. AR that the additional business income disclosed by the assessee i.e. by offer of net profit @8% of turnover (as against 5% of the last few years) would explain the source of short/deficit investment of Rs. 18,08,007/- (supra) towards construction of the subject property cannot be accepted and, thus, fails. Accordingly, the Ground of appeal No.2 raised by the assessee is dismissed in terms of the aforesaid observations. Making/sustaining an addition in the difference in turnover as disclosed in 'Form 26AS' vis-à-vis books of account of the assessee - HELD THAT:- On a perusal of the assessment order, it transpires that a similar observation that is recorded by the A.O at Para 6 of the assessment order in the case of the captioned assessee while making an addition towards short/deficit contract receipts, had also figured in the body of the assessment order of its 'sister concern' viz. M/s. Landmark Royal Engineer (India) Pvt. Ltd, Page 58 of APB. we restore the matter to the file of the A.O with a direction to verify the authenticity of the aforesaid claim of the assessee. In case, the assessee's claim that the disallowance made by the A.O is based on facts borrowed from/pertaining to the case of his sister concern i.e. M/s. Landmark Royal Engineer (India) Pvt. Ltd, is found to be in order, then the addition so made in the hands of the assessee shall stand vacated. Accordingly, the Ground of appeal No.3 raised by the assessee is allowed for statistical purposes in terms of our aforesaid observations. Disallowance u/s. 40A(3) - cash payment - HELD THAT:- We concur with the Ld. AR's claim that as the assessee had pursuant to his reply to Question No.17 of the statement recorded u/s. 131 of the Act, dated 30.01.2018 offered an additional business income @8% of turnover (supra) to, inter alia, cover the contravention of Section 40A(3) of the Act, therefore, he could not have been separately visited with a disallowance under the aforesaid statutory provision. Our aforesaid view is fortified by the judgment of the Hon'ble High Court of Punjab and Haryana in the case of CIT Vs. Smt. Santosh Jain, [2006 (8) TMI 167 - PUNJAB AND HARYANA HIGH COURT], wherein it was held by the Hon'ble High Court that where the income of the assessee has been computed by applying a gross profit rate, there is no need to look into the provisions of Section 40A(3) of the Act, as applying the gross profit rate takes care of expenses otherwise than by way of crossed cheque also. Deduction of delayed deposit of employees share of contribution towards ESI/PF - HELD THAT:- The issue is squarely covered against the assessee by the judgment of the Hon'ble Supreme Court in the case of Checkmate Services Pvt. Ltd. Vs. CIT, [2022 (10) TMI 617 - SUPREME COURT (LB)], therefore, we find no infirmity in the view taken by the lower authorities who had rightly made/sustained the aforesaid addition, and thus, uphold the same. ISSUES PRESENTED AND CONSIDERED 1. Whether an addition can be made where gross receipts as per Form 26AS exceed books by amounts claimed to be mobilization/machinery advances, absent documentary proof that such amounts were included in subsequent year receipts. 2. Whether an assessment-order addition under revisional/set-aside proceedings must be vacated or the matter restored to the Assessing Officer for verification when taxpayer files a reconciliation alleging timing-difference treatment of advances. 3. Whether unexplained investment disclosed in survey statements can be taxed under section 69C where the assessee subsequently offered additional business income (surrender) and/or claimed that the offered amount covers the source of investment. 4. Whether a turnover/receipt difference arising from an apparent typographical/clerical error (mixing up amounts of sister concern) warrants addition, and whether the AO must verify attribution before sustaining the addition. 5. Whether disallowance under section 40A(3) is maintainable where (a) assessee's income is estimated by applying a gross profit/net profit rate (as voluntarily offered in survey), or (b) the assessee has not claimed the disputed expenditure in the year. 6. Whether delayed deposit of employees' PF/ESIC contributions can be disallowed where Supreme Court authority is said to be against the assessee. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Addition for discrepancy between Form 26AS and books where taxpayer alleges amounts are mobilization/machinery advances Legal framework: Assessment may add unexplained receipts where books do not account for amounts reflected in third-party data (Form 26AS). Mobilization/machinery advances are prima facie advances and not income unless adjusted/forfeited or otherwise realized. Precedent treatment: Tribunal and High Court decisions recognise that mere TDS reflected in Form 26AS does not automatically convert an advance into income; documentary proof of accounting treatment is relevant. Interpretation and reasoning: The Court found the factual shortfall between Form 26AS and books (Rs. ~1.36 crore). Assessee produced a reconciliation claiming that Rs.1.56 crore of advances were partly taken to gross receipts in year and balance included in next year. The Tribunal held that contention cannot be summarily accepted in absence of documentary proof showing that the disputed amount was actually brought to tax in the subsequent year; therefore AO's addition could not be outrightly reversed without verification. Ratio vs. Obiter: Ratio - where taxpayer asserts timing treatment to explain Form 26AS discrepancy, the matter should ordinarily be verified by AO before deletion of addition; absence of documentary corroboration justifies restoration for verification. Obiter - references to authorities on mobilization advances not being income are cited but not treated as conclusive absent evidence. Conclusion: Addition sustained provisionally but appeal allowed for statistical purposes; matter restored to AO to verify assessee's claim that the disputed amount was included in the following year's gross receipts; if verified, addition to be vacated. Issue 2 - Restoring assessment to AO for verification when reconciliation submitted Legal framework: AO empowered to verify books, records and third-party data; appellate forum may remit matter where primary facts remain unverified. Precedent treatment: Remand appropriate where appellate tribunal finds prima facie explanation but documentary proof is lacking or requires primary fact-finding. Interpretation and reasoning: Tribunal accepted that assessee filed reconciliation and detailed schedule but stressed that claim that balance was included in next year was unsupported by contemporaneous documentary evidence. It therefore remitted the matter to AO for verification of authenticity rather than deciding merits in appeal. Ratio vs. Obiter: Ratio - remand is appropriate where on record an explanation exists but requires AO's verification of documentary authenticity and subsequent year accounting entries. Conclusion: Matter remitted to AO with direction to verify claimed accounting in succeeding year; if verified, addition to be vacated. Issue 3 - Taxability under section 69C of unexplained investment disclosed in survey and relation to voluntary surrender (additional business income) Legal framework: Section 69C deals with unexplained investments; survey statements (section 131/133A) and subsequent surrender/offers of income are relevant both as admissions and as sources available to explain investments. Precedent treatment: Admissions in survey/statements can be basis for additions; however, whether surrendered/estimated income covers specific investment depends on nexus and whether the surrendered amount is demonstrably applied to that investment. Interpretation and reasoning: Assessee during survey offered enhanced net profit @8% (instead of ~5%) and also separately admitted unexplained investment figures in relation to a building, including an explicit separate surrender of Rs.18,08,007 for the 2016-17 shortfall. Tribunal examined whether the surrender of additional profits could be said to subsume the unexplained investment. It held that multifaceted discrepancies exposed in survey (cash payments, unsubstantiated expenses, etc.) meant that the extra business income was offered to cover general discrepancies and could not be taken to automatically explain the specific shortfall in investment; further, assessee had separately admitted the investment discrepancy in statement. Ratio vs. Obiter: Ratio - where taxpayer expressly surrenders an amount specifically in respect of unexplained investment, that admission supports addition under section 69C; a general surrender of estimated profit does not necessarily extinguish the specific unexplained investment unless the taxpayer shows the surrendered income was used for that purpose. Conclusion: Addition under section 69C of Rs.18,08,007 upheld; surrender of general additional profit did not negate AO's power to tax specific unexplained investment when assessee had separately admitted the discrepancy. Issue 4 - Turnover discrepancy arising from typographical/clerical error and addition of small difference Legal framework: Additions based on Form 26AS vs books must be premised on correct identification of payee and receipt; clerical errors or misattribution require AO verification. Precedent treatment: Where AO's addition appears to be based on facts pertaining to another closely related entity, remand for verification is appropriate. Interpretation and reasoning: Assessee contended the Rs.3,43,651 discrepancy arose from AO mistakenly relying on figures of a sister concern due to typographical error. Tribunal found similar observations in sister concern's order and remitted the matter to AO to verify authenticity of attribution before confirming addition. Ratio vs. Obiter: Ratio - AO must verify attribution when the source of discrepancy may relate to another entity; appellate tribunal may remit where factual misattribution is alleged. Conclusion: Ground allowed for statistical purposes; matter remitted to AO to verify whether addition was based on borrowed facts; if borne out, addition to be vacated. Issue 5 - Disallowance under section 40A(3) when income is estimated by applying a gross/net profit rate or disputed expenditure not claimed Legal framework: Section 40A(3) disallows expenditure paid otherwise than by account payee cheque/draft beyond prescribed limits; however when income is computed by application of a gross profit rate (estimative), courts have held such computation may subsume disallowances for unverified payments. Precedent treatment: High Court authority (Punjab & Haryana) held that when income is determined by applying gross profit rate, Section 40A(3) need not be separately examined because the gross profit computation accounts for unspecified/unsubstantiated payments. Interpretation and reasoning: Tribunal accepted that assessee had offered income @8% during survey to cover multiple discrepancies including alleged payments in contravention of s.40A(3). Where AO computed income on that basis and assessee had not claimed the disputed payment as a deductible expense, separate disallowance was unnecessary and double counting would result. Accordingly, disallowance of Rs.6,00,000 (AY 2017-18) and Rs.4,17,448 (AY 2018-19) were viewed as not sustainable and were deleted. Ratio vs. Obiter: Ratio - where income is accepted/estimated by applying a profit rate to cover discrepancies and the taxpayer does not claim the specific expenditure, a separate s.40A(3) disallowance is not warranted; this approach follows established High Court authority. Conclusion: Disallowances under section 40A(3) set aside / deleted to avoid double counting; ground allowed. Issue 6 - Disallowance for delayed deposit of employees' PF/ESIC contributions Legal framework: Delay in depositing employees' statutory contributions can lead to disallowance of related deductions where law/precedent so provides. Precedent treatment: The Supreme Court authority (Checkmate Services) was cited against the assessee and applied by lower authorities. Interpretation and reasoning: Tribunal found the issue squarely covered against the assessee by controlling Supreme Court precedent and therefore upheld the AO's disallowance of Rs.84,398 for delayed deposit. Ratio vs. Obiter: Ratio - where higher court precedent mandates disallowance for delayed deposits, AO's disallowance should be sustained absent distinguishing facts. Conclusion: Disallowance for delayed PF/ESIC deposits upheld; ground dismissed.