TaxTMI 
TaxTMI 
2013 (1) TMI 84
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....f Rs.75 lakhs and Rs.50 lakhs was made for AYs 2005-06 and 2006-07 respectively to cover up various deficiencies. The company accordingly revised its return for AY 2005-06, declaring an additional income of Rs.75 lakhs for that year on 19.9.2006 (PB pages 1, 2) toward additional value of Work-in-Progress (WIP), paying tax thereon, as committed. The same was accepted by the Revenue as such. This was followed by the return of income for AY 2006-07 on 30.11.2006, admitting an income of Rs. 134.63 lakhs. The same was selected for scrutiny under CASS. The assessee claimed the increased value of WIP (Rs. 75 lacs) for the preceding year (i.e., AY 2005-06) by increasing correspondingly the value of the opening WIP for the current year. That was only logical in view of the revised return for AY 2005-06, offering an additional income toward additional value of WIP. However, the Assessing Officer (AO) did not accept the same, stating that there was no provision in the Act for allowing deduction for additional income offered for earlier years(s) to cover up the deficiencies in the books of account. He, further, also sought to disturb the value of the closing WIP for the current year, by alloca....
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....operations, but to concentrate on collection of evidence/material during such proceedings, and base the assessments thereon, placing a copy thereof on record. 2.3 The ld. Departmental Representative (DR), on the other hand, relied on the impugned order for the disallowance of Rs.75 lakhs, alluding to paras 5.2 and 5.3 thereof. No material to substantiate its claim regarding the additional WIP was furnished even before the ld. CIT(A); the assessee as much as not even providing any details of WIP before any authority. For the second addition, the AO had clearly made a more scientific working of the WIP than the ad-hoc addition of 10% of the direct expenditure included by the assessee toward indirect expenditure in valuing the WIP as at the year end. The same, thus, ought to be restored, he averred. As regards the Circular by CBDT, there is no evidence of any confession having been elicited from the assessee, who had by all counts made a voluntary admission upon detection of some discrepancies, including qua the lower rate of profit. The same, therefore, cannot come to its assistance. He would then take us through the celebrated decision by the apex court in the case of Anantharam ....
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....yderabad which is reasonable. However, in order to purchase peace from the Department and in order to avoid litigation, the company comes forward to admit an income of Rs.75 lakhs (Rupees Seventy five lakhs only) for the Asst. Year 2005-06 over and above the admitted income of 1.39 Crores and Rs.50 lakhs (Rupees fifty lakhs only) for the Asst. year 2006-07 over and above the estimated income as on today. The company will pay additional tax and file the revised return for the Asst. Year 2005-06 before March, 2006. The company will also pay Advance tax taking into account the additional income offered of Rs.50 lakhs (Rupees fifty lakhs) for the Asst. Year 2006- 07." There is no other question in the said Statement, either in relation to any discrepancy in accounts, including WIP or its valuation, or inadequacy of profits disclosed, or share application money, or - the question also alluding to - land purchased by the assessee-company, in the said Statement. In fact, even the learned counsel referred only to this part of the Statement. There is no whisper of the WIP or its valuation, much less of any discrepancy therein, in the said Statement. As such, the ld. CIT(A) is correct in ....
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....ure (i.e., assuming its detection during survey), forming part of WIP, which constitutes the assessee's stock-in-trade, is inadmissible u/s. 69C, so that the same would stand to be included in the assessment for the current year, the survey date being 16.02.2006 and, further, not allowed set off as expenditure. 3.3 In fact, profits, inadequacy of which is alluded to in the said Statement, would, rather than being augmented thereby, get deflated in view of a part of the disclosure, i.e., as offered by the assessee for the immediately preceding year, being sought to be set off against the profit for the current year, for which, inexplicably, the disclosure is not honoured. The disclosure, thus, operates at cross purposes with its purported intent, i.e., to cover up the deficiencies in accounts and the shortfall in the disclosed profits and, thus, in the tax payable, which by implication would obtain for both the years under reference. We say so as it needs to be appreciated that if the difference/s or discrepancy/s as found, or to cover up which, including low profit (which again is only the operating result of working as reflected per the accounts), the said disclosure is made, d....
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....bject matter of assessee's Ground No. 2 (Ground No.1 being general in nature, warranting no adjudication) nor has any been brought to our notice, for us to interfere therewith, i.e., in result. On the contrary, as sought to be clarified hereinabove, the assessee's claim is not maintainable from all angles. 4.1 As regards the second issue, we again find the impugned order to be in agreement with the material on record as well as the law in the matter. Once it has been found as a fact that the disclosure made in survey had no reference to WIP or its valuation, there is no question of disturbing the assessee's opening WIP for the current year with reference thereto. This is precisely what the ld. CIT(A) has said. In fact, the AO has, while making the impugned addition of Rs.84.93 lakhs, concerned himself with a different, new aspect, i.e., valuation of WIP, deeming the allocation of indirect expenditure to the unbilled direct expenditure as made by the assessee, i.e., at 10% of the direct expenditure, as insufficient, so that the entire of it (indirect expenditure), has to be allocated to the proportionate extent, i.e., in the ratio of unbilled direct expenditure to the total direc....
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.... are unable to make any definite comments thereon, i.e., as to the manner and extent to which indirect expenses are to be loaded to the direct expenditure in valuing the inventory as at the end of the accounting period, apart from stating that some loading is indeed warranted. This is so as some indirect expenditure, viz. interest cost, depreciation on plant and machinery or equipment, though period costs, do indeed contribute to the cost in bringing the inventory of goods being valued to their present state and location; while some are purely administrative costs, which would in any case be incurred or are in relation to different functional aspects of business, viz. sales; while others are semi-variable in nature, having a relation - though not linear - with the volume of production/activity. The matter is entirely factual, toward which we find nothing on record to even suggest an application of mind by the Assessing Officer in this regard. In this view of the matter, we are both incapacitated and disinclined to even venture to issue any finding. In other words, the assessee's method of valuation, i.e., by loading 10% of the direct expenditure toward allocation of indirect expend....
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....d. CIT(A) allowed relief on the basis that the same was paid on the shifting of the machinery. When called upon by the Bench to explain the basis of the said finding by the ld. CIT(A); his order indicating none, the ld. A.R. conceded to the matter being restored back to the file of the Assessing Officer for proper verification, averring that entry tax is also paid on old machinery, when moved/transported from one State to another. We wonder why, then, the assessee did not or could not substantiate its claim with evidence before either authority, who have also, we are afraid to say, not examined the matter properly, issuing definite findings of fact. While the AO presumes that entry tax is only for fresh purchase, the ld. CIT(A) admits and accepts assessee's explanation at face value, i.e., de hors any material. The question is not if the machinery is old or new, as the assessee could well have purchased some old machinery, but whether it is a purchase or acquisition of a capital asset or not. Further, questions incident to the assessee's explanation arise, and which are conspicuous by their absence: From where to where, and for what purpose, is the machinery being moved (?). Then, ....