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TaxTMI 
TaxTMI 
TaxTMI 
2014 (8) TMI 1013
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....'the Act'). 2. The sister concern of the assessee M/s Aggarwal Wood Industries has filed an appeal against the order of the Commissioner of Income Tax(Appeals)(Central), Gurgaon dated 31.1.2014 relating to assessment year 2007-08 against the order passed under section 153A r.w.s. 143(3) of Income Tax Act, 1961. 3. All the appeals relating to the two assessees on similar issue were heard together and are being disposed off by this consolidated order for the sake of convenience. 4. The learned A.R. for the assessee has pointed out that there are two main issues arising in all the appeals, first is in relation to the addition on account of un-explained expenditure booked under the head 'wages' and the second issue is on account of the income of Meena Garg being added as income of the assessee on substantive basis from year to year. We proceed to decide these two issues and thereafter consider the grounds of appeal raised in the respective assessment years. 5. The assessee in ITA No.300/Chd/2014 has raised following grounds of appeal: "1. That the learned CITA has erred in law and facts in confirming an addition of Rs. 2,67,443/- on account of unexplained expenditure under the he....
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.... thereafter pointed out that the list of workers prepared on the date of survey was confronted to the partners Shri Naresh Garg, who in turn had signed the said list and it was never pointed out by him that the list contained the names of the workers working in the factory of M/s Aggarwal Wood Industries also. It is the finding of the Assessing Officer that both the concerns are sister concerns and the premises of both the concerns were independent gates. It was further pointed out by the Assessing Officer that during the assessment proceedings, the assessee had not furnished any documentary evidence that the list contained the names of the workers working in M/s Aggarwal Wood Industries. In view thereof, the addition of Rs. 2,67,443/- was made in the hands of the assessee on account of unexplained expenditure. 7. The CIT (Appeals) upheld the addition made by the Assessing Officer. 8. The plea of the assessee before us was that the list of the workers were drawn on the date of survey and the sad list comprised of two concerns i.e. M/s Punjab Plywood Industries and M/s Aggarwal Wood Industries. Further the Assessing Officer has applied the ratio of labour to sales to compute the e....
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..../-. Similar addition has been made in assessment years 2002-03 to 2006-07. 12. The plea of the assessee before us was two folds that first of all the discrepancy, if any, in the number of workers detected under survey at the premises of the assessee on 9.9.2004 could not be utilized for computing unexplained expenditure on account of wages while completing the assessment under section 143 (3) r.w.s. 153A of the Act pursuant to search carried out at the premises of the assessee on 20.3.2007. The second plea raised by the learned A.R. for the assessee before us was that the list of the workers prepared by the survey team comprised of the workers of sister concerns and merely because the assessee had not pointed out the said fact during the course of survey, does not change the fact situation. We find merit in the plea of the assessee in this regard. First of all, the assessment in the case has been completed under section 143 (3) r.w.s. 153A of the Act vide order dated 30.12.2008. The said assessment was made pursuant to the search operation carried out at the premises of the assessee on 20.3.2007. During the course of search the team had detected suppression in sale in the hands o....
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....rned CITA has erred in law and facts in con firming an addition of Rs. 1,82,867/- on account of unexplained expenditure under the head "wages". (para 4 page 2-4 of Assessment order) (para 6.1 page 5 of CIT(A) order) l(a) That authorities below has erred in law and facts in making additions on account of unexplained expenditure under the head "wages" without rejecting the books of accounts. 2. That learned CITA has erred in law and facts in confirming an addition of Rs. 1,44,210/- being income of Meena Garg Prop Punjab Timber Trading Co. as Income of appellant on substantive basis. (para 5 page 5-8 of Assessment order) (para 6.1 page 5 of CIT(A) order) 3. That appellant craves leave to add, alter, amend or to substitute the above grounds of appeal either before or at the time of hearing of case." 14. The assessee in ITA No.301/Chd/2014 has raised two issues. The ground No.1 raised by the assessee is against the addition made on account of unexplained expenditure under the head 'wages'. The facts and circumstances of the present issue are identical to the facts and circumstances of the issue raised in assessment year 2001-02. Following the same parity of reasoning we allow the ....
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....ding Co. as Income of appellant on substantive basis. (para 5 page 5-8 of Assessment order) (para 7.1 page 8 of CIT(A) order) 3. That appellant craves leave to add, alter, amend or to substitute the above grounds of appeal either before or at the time of hearing of case." 20. The assessee in ITA No.302/Chd/2014 vide ground No.1 has raised the issue against the addition on account of unexplained expenditure under he head 'wages'. The facts and circumstances of the present issue are identical to the facts and circumstances in the issue raised in assessment year 2001-02. Following the same parity of reasoning we allow the claim of the assessee and delete the addition of Rs. 3,20,921/- made by the Assessing Officer. The ground of appeal No.1 raised by the assessee is thus allowed. 21. The issue in ground No.2 raised by the assessee on account of addition of Rs. 1,41,060/- being income of Smt.Meena Garg, proprietary of M/s Punjab Timber Trading Company. The facts, circumstances and issue raised vide ground No.2 is identical to the ground No.2 raised in assessment year 2002-03 and following the same parity of reasoning we find no merit in the said addition. We direct the Assessing Of....
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....as erred in law and facts in making additions on account of unexplained expenditure under the head "wages" without rejecting the books of accounts. 2. That learned CITA has erred in law and facts in confirming an addition of Rs. 2,99,680/- being income of Meena Garg Prop Punjab Timber Trading Co. as Income of appellant on substantive basis. (para 5 page 5-8 of Assessment order) (para 9.1 page 9 of CIT(A) order) 3. That appellant craves leave to add, alter, amend or to substitute the above grounds of appeal either before or at the time of hearing of case." 26. The assessee in ITA No.304/Chd/2014 vide ground No.1 has raised the issue against the addition on account of unexplained expenditure under he head 'wages'. The facts and circumstances of the present issue are identical to the facts and circumstances in the issue raised in assessment year 2001-02. Following the same parity of reasoning we allow the claim of the assessee and delete the addition of Rs. 4,69,176/- made by the Assessing Officer. The ground of appeal No.1 raised by the assessee is thus allowed. 27. The issue in ground No.2 raised by the assessee on account of addition of Rs. 2,99,680/- being income of Smt.Meen....
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....nd No.2 is identical to the ground No.2 raised in assessment year 2002-03 and following the same parity of reasoning we find no merit in the said addition. We direct the Assessing Officer to delete the addition of Rs. 3,57,316/-. The ground of appeal No.2 raised by the assessee is thus allowed. 31. Another issue raised by the assessee vide ground No.3 is on account of addition of Rs. 13,840/-. The learned A.R. for the assessee pointed out that the said addition had been made in the hands of the assessee on account of valuation of particular stock. However, the search team had counted the stock of falli, one of the byproduct of wood as stock of fatti, which is another byproduct and costs less. The case of the assessee before us is that because of the similarity in names, there was a discrepancy in counting stock and hence the addition. 32. The learned D.R. for the Revenue placed reliance on the orders of the authorities below. 33. We have heard the rival contentions and perused the record. On the perusal of record and evidence produced by the assessee, we find merit in the plea of the assessee especially in view of the fact of similar sounding names. The assessee had placed evide....
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....the assessee is thus allowed. 36. The issue in ground No.2 raised by the assessee on account of addition of Rs. 3,35,405/- being income of Smt.Meena Garg, proprietary of M/s Punjab Timber Trading Company. The facts, circumstances and issue raised vide ground No.2 is identical to the ground No.2 raised in assessment year 2002-03 and following the same parity of reasoning we find no merit in the said addition. We direct the Assessing Officer to delete the addition of Rs. 3,35,405/-. The ground of appeal No.2 raised by the assessee is thus allowed. 37. The issue in ground No.4 raised by the assessee is against the addition made on account of difference in valuation of building on the basis of report of the Valuation Officer. 38. The learned A.R. for the assessee at the outset pointed out that the books of account of the assessee were not rejected and consequently no addition on account of difference in valuation of the Valuation Officer was warranted in view of the ratio laid down by the Hon'ble Supreme Court in Sargam Cinema Vs. CIT [328 ITR 513 (SC)]. 39. The learned D.R. for the Revenue has fairly admitted that the books of account were not rejected. 40. We are of the view....
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.... partner Sh. Kewal Garg along with the witnesses. However, when he was confronted to the fact that as per the above stock inventory, the value of the stock found is short by Rs. 82,57,226/- with the book stock as on the date of the search, he was not able to furnish any explanation for the same. c) The assessee at no point of the post search proceedings filed any objection/valuation of the stock. In view of the above GP on Rs. 82,57,226/- @ 13.3% is 10,98,211/-as discussed above is being added back to the income of the assessee." 44. Before the CIT (Appeals) the assessee contended that the search was carried out on 20.3.2007 and after the search on 23.3.2007 the assessee requisitioned DDIT (Investigation), Ambala to give the copy of stock inventory prepared on the date of search. The DDIT issued letter to the assessee pointing out discrepancy in the stock taken on search vide letter dated 2.4.2007 and copy of the inventory was enclosed. Vide letter dated 11.4.2007 the assessee filed copy of explanation alongwith reconciliation of stock found on the date of search and value as per books of account. The DDIT had forwarded the alleged discrepancies found during the search to the Ex....
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....ventory as per notings at page 109 of the Paper Book. The learned A.R. for the assessee pointed out that another letter was addressed to the DDIT(Investigation) on 12.4.2007 pointing out that the stock valuation was not done properly by the search party. 47. The learned D.R. for the Revenue pointed out that no explanation was furnished before the search team and the stock was counted in the presence of the assessee and hence there was no merit in the claim made by the assessee in this regard. 48. The learned A.R. for the assessee pointed out that Ground No.3 raised by the assessee is linked to ground No.5 under which the addition on account of falli was proposed to be made by the Assessing Officer as per the documents seized which are placed at pages 106 to 113 of the Paper Book. Notional sales of the said item were computed and separate addition was made by the Assessing Officer, but the same was to be set off against the addition made on account of difference in the stock. 49. The learned D.R. for the Revenue pointed out that the assessee had admitted to the fact of unaccounted sales totaling Rs. 4,41,345/- and addition on that account was made in the hands of the assessee. 5....
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.... However,, we find that the partner had made an endorsement on stock list itself, prepared at the time of search, which is available on record. The Assessing Officer also observed that in post search proceedings no objection/valuation of the stock was filed by the assessee and consequently the GP on the difference in the stock of Rs. 82,57,226/-@ 13.3% i.e. Rs. 10,98,211/- was added as income of the assessee. 52. The assessee before the CIT (Appeals) has pointed out the consequences of post search proceedings and has refuted the claim of the Assessing Officer that the assessee at no point in post search proceedings had filed any objection to the valuation of stock. The facts as narrated by the assessee are reproduced at pages 28 and 29 of the appellate order, which read as under: a) Physical'stock inventory taken at the time of search has many defects. The firm has two partners, namely Sh. Naresh Garg and Sh. Kewal Garg. During the entire period of search, Sh. Naresh Garg was held at the residence in Madhu Colony, Yamuna Nagar and he was not aware how and when the stock inventory was prepared. Sh. Kewal Garg second partner was busy in replying to the queries of the authorise....
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....se of assessment proceedings alongwith annexures. Copy of letter is being enclosed. i] The kind attention of your honor is invited to the fact that learned AO has accepted value of closing stock as on 31.03.2007 and the said stock was arrived at after making adjustment of purchases and sales between 20.03.2007 to 31.03.2007. Once she accepted our stock position as on 31.03.2007, there is no scope of disbelieving that stock as on 20.03.2007. In fact the stand of revenue is for convenience to make additions to the returned Income. Rejection of Books of Accounts It is to bring to your kind notice that as per the provisions of Income Tax Act it is open to AO to reject the books of accounts if he is not satisfied with correctness or completeness of the accounts of the assessee as per the provisions of s. 145(3) and can complete the assessment in the manner provided u/s. 144. The learned Assessing Officer has accepted our book results as such she has not rejected the book results and assessment is not completed in the manner of s. 144. That it is a settled principles of law that there is no justification in making any trading additions without disbelieving the book results. Your kind ....
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....k and the sales outside the books of account. 57. In the totality of the facts and circumstances where the GP rate declared by the assessee has been accepted by the Assessing Officer, we find merit in the plea of the assessee that the same rate should be applied while preparing trading account as on the date of search. During the year under consideration, the assessee had shown fall in GP rate and the explanation of the assessee was that due to huge increase in the turnover there was marginal fall in GP rate, which undoubtedly has been accepted by the Assessing Officer in toto. In view of the totality of the facts and circumstances where we have already upheld the addition of Rs. 4,41,345/- on account of sale depicted in the seized documents being outside the books of account and on account of the explanation given by the assessee that the discrepancy stands reconciled on account of the GP rate to be applied and other discrepancies explained by the assessee, there is no merit in any further addition. Another aspect to be kept in mind is that the information gathered by the Income Tax Department during the search proceedings were forwarded to the Excise Department, who in turn visi....
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....e assessment order computed that the plyboard and ply manufactured from core would be approximately 90,000 sq.mtr., as against which as per RG-1 register, the production was approximately 31248.60 sq.mtr. The Assessing Officer thus worked out the alleged suppression in the manufacturing of ply and plyboard and as per para 7.8 of the assessment order show caused the assessee as to why addition of Rs. 60 lacs should not be made. The assessee refuted the allegations of the Assessing Officer. However, the Assessing Officer in view of the seized documents computed the addition in the hands of the assessee of Rs. 39,90,000/- by adopting GP rate of 13.3% on production worth Rs. 3 crores. 61. Before the CIT (Appeals) the assessee explained that the seized documents pertained to the period 27.10.2006 to 31.1.2007 and the actual production of ply and plyboard during the relevant year was 57791 sq.mtr. and not 31248.60 sq.mtr. as alleged by the Assessing Officer. The assessee submitted the reconciliation of core used in ply and plyboard production and pointed out that there is no basis for taking the actual production of ply and board as 50:50, whereas the actual production were 86:14. The r....
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....at 309138 sq mt as against the higher amount of 414614 sq mt worked out by the assessee. The RG-1 showed the production at 31,248.6 sq mt only for the given 52 days from both the Presses. So, 1 am inclined to hold that more than adequate leverage has been afforded to the assessee. The AO calculated the minimum production at 90,000 sq mt for the 52 days ie for period 27.10.2006 to 19.1.2007 as against the disclosed production in RG-l of 31,248 sq mt. In other words there is suppression of production of at least l/3rd viz. 60,000 sq mt. On applying the average sale price of Rs. 82/- sq mt the value comes to Rs. 48,00,000/-approx. and extrapolating it for the whole year, an amount of Rs. 39,90,000/- was added on applying the GP of 13.3%. Having perused and conceding that the assessee has no evidence that the core used is 50:50 for ply and plyboard, 1 am however of the view that taking equal apportionment is not really justifiable though the claim of the assessee of 86:14 is also unverifiable. The objection of total production in RG-I for the 52 days was not 31,248 sq mt but 57,791 sq mts which apparently was submitted to the AO in reply to the show cause notice has not been commente....