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Income Tax Appellate Tribunal, AHMEDABAD – BENCH ‘B’
Before: SHRI RAJPAL YADAV & SHRI AMARJIT SINGH
PER RAJPAL YADAV, JUDICIAL MEMBER: Assessee is in appeal before the Tribunal against order of ld.CIT(A), Gandhinagar dated 23.12.2016 passed for the assessment year 2012-13.
Grounds of appeal taken by the assessee are not in consonance with the Rule 8 of the Income Tax (Appellate Tribunal) Rules, 1963 - they are descriptive and argumentative in nature. In the first fold of grievance, the assessee has pleaded that the ld.CIT(A) has erred in confirming the addition of Rs.3,74,90,000/- which was made by the AO with help of outcome of survey carried out at the premises of the assessee.
2 3. Brief facts of the case are that survey under section 133A of the Act was carried out at the premises of the assessee on 19.10.2011. It has filed its return of income on 30.9.2012 electronically declaring taxable income at Rs.1,17,21,050/- which was revised on 30.10.2012 declaring total income at rs.1,22,22,060/-. The case of the assessee was selected for scrutiny assessment and notice under section 143(2) was issued and served upon the assessee. The ld.AO found that during the course of survey statement of Shri Nikil Prahladbhai Patel, partner of the assessee-firm was recorded wherein he has admitted an undisclosed receipt of Rs.3,74,79,000/-. This disclosure was made on the basis of recovery of a diary viz. “Vikram diary” containing pages 1 to 129 and taken into possession by the survey team as Annexure A. The ld.AO has confronted the assessee to show as to how it has not included the alleged undisclosed income admitted during the course of survey. The assessee submitted that no such diary was found during the course of survey. It has actually been created by the survey team at the early morning hours of October 20, 2011. An affidavit dated 20.11.2011 has been submitted to the AO to this effect and the affidavit has been reproduced by the AO in para 5.2 of the assessment order. The ld.AO has made an analysis of this affidavit as well as alleged diary and recorded a finding that names from whom money has been taken by the assessee are being reflected in the bookings accepted by the assessee for sale of shops and residential flats. The assessee has not produced any independent evidence indicating as to how this diary was created, and what was nature of threat. The ld.AO has also made reference about certain procedural defects in the affidavit viz. purchase of stamps, attestation etc. On an analysis of these evidences, the AO has made an addition of Rs.3,74,79,000/-. Appeal to the CIT(A) did not bring any relief to the assessee.
3 4. The ld.counsel for the assessee while impugning orders of the Revenue authorities raised two fold submissions. In his first fold of contentions, he submitted that the statement made during the course of survey under section 133A, was without administering on oath, and therefore, it does not carry any evidentiary value except as a corroborative piece of information for setting the machinery of investigation in motion. For buttressing his contentions, he relied upon the judgment of Hon’ble Supreme Court in the case of CIT Vs. S. Khader Khan Son, 25 taxmann.com 413 (SC). He relied upon the judgment of Hon’ble Kerala High Court in the case of Paul Mathews & Sons Vs. CIT reported in 263 ITR 101. He placed on record copy of judgment of Hon’ble Supreme Court in the case of S. Khader khan (supra) reported in 300 ITR 157. With regard to the recovery of diary, he alleged that an affidavit was filed by the assessee retracting the statement given at the time of survey and also alleged that this diary was created by the Revenue authorities. The ld.counsel for the assessee took an alternative plea whereby he contended that the AO himself has alleged that amounts reflected in the diary from 84 persons who have booked shops/residential flats which were reflected in the list of unit holders, therefore, at the most it could be construed as acceptance of on- money in cash. It is to be treated as part of total sale consideration and only the element of profit involved in such receipts ought to be treated as income of the assessee. For buttressing this contention, he relied upon the following decisions: i) DCIT Vs. Panna Corporation, Tax Appeal No.323 of 2000 (Guj) ii) CIT Vs. President Industries, 258 IR 654 (Guj) iii) CIT Vs. Balchand Ajit Kumar, 263 ITR 610 (MP) iv) Man Mohan Sadani Vs. CIT, 304 ITR 52 (MP)
4 5. In order to demonstrate the amount requires to be added back or quantification of the profit involved in the alleged on-money, he submitted that the assessee-firm has started its business from the Asstt.Year 2011-12 to 2016-17. The turnover and profit ratio has been compiled in tabular form, which has been filed along with synopsis during the course of hearing. He made reference to this material. They read as under:
Asst. Year Turnover Profit Ratio
2011-12 Rs. 1,62,25, 161/- Rs.38,35,927/- 23.65% 2012-13 Rs.5,44,29,724/- Rs.L28.32.868/- 23.58% 2013-14 Rs.2,20,87,315/- Rs.NIL- — 2014-15 Rs.80,61,000/- Rs.38,32,625/- 47.55% 2015-16 Rs.58,62.000/- Rs. 15,18,753/ - 25.91% 2016-17 Rs.58,32,000/- Rs.7,62,877/- 13.08% Total Rs. 11,24,97,200/- Rs.7,62,877/- 20.25%
6. On the strength of the above, he submitted that addition, if any, requires to be made then it should be restricted to Rs.75,89,498/- i.e. [20.25% of Rs.3,74,79,000]. This figure has been worked out by the assessee on the basis of weighted average of the profit starting from the Asstt.Year 2011-12 upto the Asstt.Year 2016-17.
7. The ld.DR, on the other hand, relied upon the orders of the Revenue authorities, and contended that addition is not based simply on the basis of the statement recorded during the course of survey, rather it is based on evidences found during the course of survey. Thus, judgment of the Hon’ble Supreme Court in the case of S. Khaderkan(supra) is not applicable in the present case. As far as restriction of addition to the extent of element of profit is concerned,
5 he submitted that this is the receipt which has not been included in the overall receipts reflected in the book, though expenditure must have been debited in the book. Therefore, total are required to be added.
We have duly considered rival submissions, and gone through the record carefully. As far as the argument of the ld.counsel for the assessee is concerned that statement recorded during the course of survey does not carry evidentiary value and on the strength of such evidence no addition can be made is concerned, we are of the view that in the present case, addition has not been solely on the basis of the statement. The addition has been made on the cumulative settings of the disclosure made by a partner during the course of survey coupled with discovery of a diary containing details of on-money received by the assessee from 84 persons. The partner, Shri Nikil Prahladbhai Patel though filed an affidavit deposing therein that this diary was prepared during the course of survey by the survey-team, but it is to be seen that the names of 84 persons are written in this diary, neither the assessee has produced any one nor the AO has called for any one, whether they have given money in cash to the assessee. If the names reflected in the diary are common with ultimate purchasers of the shops/residential flats, then it is difficult to construe that the diary was created with fictitious names. The stand of the AO is that head of survey team, Shri Mohan Kumar is a non-Gujarati and it was difficult for him to arrange a list of 84 persons in the early hours of the morning for incorporating in the diary, if any one of the buyers has not paid on-money in cash. Thus, to our mind, evidence of conclusive nature is not available either in favour of the allegations made by the assessee or against that allegation produced by the AO. Nevertheless, for the purpose of income- tax proceedings, we construe that diary was found wherein details of 84 persons to whom the assessee has ultimately sold shops/residential flats are available, who have allegedly given certain money to the assessee in cash.
6 Therefore, as far as evidence found during the course of survey against the assessee is concerned, we are satisfied that department is able to lay its hand on sufficient evidence which call for making addition on account of on- money received by the assessee for sale of flats/shops. The next question is, whether gross receipts are to be added or treated at par qua receipts received through account payee cheque, in other words, whether addition of total amount is to be made or, it is to be confined to the profit element involved in this receipt. Before adverting to this aspect, we would like to note the finding of the AO that this on-money received by the assessee on sale of flats/shops to 84 persons whose accounts are reflected in the books, which is recorded in page no.24-25 of the order. It reads as under:
“It is not possible to collect a blank diary at early morning and to prepare the name and address of the persons by an outsider officer i.e. Shri Mohan Kumar S., who belongs to/non Gujarati and how he can imaging the names of the persons which reflected in the diary. Further, the names of 84 persons who have booked shops and residential flats, which reflected in the list of unit holders provided by the assessee i.e. these names are matched with the record, hence, how the assessee said these 84 persons as fictitious ? The diary is containing 129 pages, which is not possible to make it in one morning hours.”
9. At this stage, we would like to take note of the finding of the Hon’ble Gujarat High Court in the case of DCIT Vs. Panna Corporation where similar circumstance arose. The question which was formulated by the Hon’ble High Court and relevant part of conclusion made in this case read as under:
Whether the Appellate Tribunal is right in law and on facts in deleting the addition made on account of undisclosed income earned by the assessee out of on money" receipts from the sale of row houses done during the block period?"
Learned counsel for the revenue, Shri Sudhir Mehta submitted that the Tribunal committed a serious error in reversing the order of the Assessing Officer. He submitted that the on money collection by the respondent - assessee firm was established. The Tribunal having 7 confirmed such findings, ought not to have rescinded the directions for collection of tax, interest etc.
On the other hand, learned senior counsel Shri S. N. Soparkar appearing for the respondent - assessee opposed the appeal contending that no question of law arises. He drew out attention to section 260- A of the Income Tax Act to contend that even after admission of the appeal, it would be open for the assessee to contend that no question of law arises.
He submitted that even if the on money collection of Rs.62 lakhs is believed, what could be taxed in the hands of the assessee is only the income and not the entire receipt. He submitted that the Tribunal having accepted that such income could not exceed Rs.26 lakhs out of total receipt of Rs.62 lakhs, no interference is called for, since estimation of income could not give rise to any substantial question of law.
8. In support of his contentions, the counsel relied on several decisions, reference to which we may make at slightly later stage.
Having heard the learned counsel for the parties and having perused the orders under consideration, what emerges is that the findings arrived at by the Assessing Officer that the respondent - partnership firm received on money of Rs.62 lakhs during the block period for sale of the flats, is not seriously in dispute. The Tribunal confirmed such findings arrived at by the Assessing Officer. However, the Tribunal did not permit the revenue to collect the tax on the entire receipt believing the it was only the income embedded in such receipt which can be subjected to tax.
10. As pointed out by the counsel for the respondent, this Court in the case of Commissioner of Income Tax v. President Industries, reported in (2002) 258 ITR 654 had taken a similar view. In the said case, during the course of survey conducted on the premises of the assessee, from the excise records found, an inference was drawn by the Assessing Officer that sales accounting to Rs.29 lakhs and odd had not been disclosed in the books of account. The Assessing Officer made addition of the entire sum of the said undisclosed sales as income of the assessee for the assessment year 1994-95. Such addition was confirmed by the Commissioner (Appeals). The Tribunal, however, held that the entire sales could not have been added as income of the assessee, but only to the extent the estimated profits embedded in the sales for which the net 8 profit rate was adopted entailing addition of income on the suppressed amount of sales. Such decision was carried in appeal by the revenue before the High Court. The High Court rejected the appeal, observing that unless there is a finding to the effect that investment by way of incurring the cost in acquiring the goods which have been sold has been made by the assessee and that has also not been disclosed, such addition could not be sustained. It was observed that in absence of such findings of fact, the question whether the entire sum of undisclosed sale proceeds can be treated as income of the relevant assessment year answers by itself in the negative. The High Court rejected the appeal holding that no question of law which requires to be referred arises.
In the case of Commissioner of Income Tax v. Gurubachhan Singh J. Juneja, reported in (2008) 302 ITR 63 (Guj.), once again a somewhat similar issue came up before this Court. In the said case, the assessee was engaged in the business of trading of tyres. Search proceedings were carried out at the residential and business premises of the assessee. On the basis of loose sheets which were seized during such search operation, the Assessing Officer held that sales to the extent of Rs.10.85 lakhs was not found in the books of account. Such amount was included in the total income of the assessee. The Commissioner (Appeals) gave substantial relief to the assessee and reduced the income on the basis of gross profit rate. The Tribunal confirmed the order of the Commissioner (Appeals). On further appeal before the High Court by the revenue, the High Court refused to refer any question holding that in absence of any material on record to show that there was any unexplained investment made by the assessee which was reflected by the alleged undisclosed sales, the finding of the Tribunal that only the gross profit on the said amount can be brought to tax does not call for any interference.
Counsel also relied on the decision in the case of Commissioner of Income Tax v. Samir Synthetics Mill, reported in (2010) 326 ITR 410, wherein the High Court confirmed the view of the Tribunal accepting only the profit of unaccounted sale for the purpose of collecting tax.
13. Our attention was also drawn to the decision of the M. P. High Court in the case of Man Mohan Sadani v. Commissioner of Income Tax, reported in (2008) 304 ITR 52, wherein referring to and relying upon the decision of this Court in the case of Commissioner of Income Tax v. President Industries (supra) and other decisions of other High Courts, the M. P. High Court had also taken a similar view. It was 9 observed that entire sale proceeds of the assessee should not be added in his income and that the Tribunal has erred in doing so.”
Other decisions referred by the ld.counsel for the assessee are also to similar facts. Therefore, we are of the view that only element of profit embedded in these receipts are required to be treated as unaccounted income. For quantifying that, at the cost of repetition, we would like to note of profit ratio shown by the assessee in different years, which reads as under:
Asst. Year Turnover Profit Ratio
2011-12 Rs. 1,62,25, 161/- Rs.38,35,927/- 23.65% 2012-13 Rs.5,44,29,724/- Rs.L28.32.868/- 23.58% 2013-14 Rs.2,20,87,315/- Rs.NIL- — 2014-15 Rs.80,61,000/- Rs.38,32,625/- 47.55% 2015-16 Rs.58,62.000/- Rs. 15,18,753/ - 25.91% 2016-17 Rs.58,32,000/- Rs.7,62,877/- 13.08% Total Rs. 11,24,97,200/- Rs.7,62,877/- 20.25%
11. A perusal of the above would indicate that weighted average of profit is 20.25%, which is reasonable one. Therefore, we direct the AO to restrict the assessment of income on this issue at Rs.75,89,498/- as against the addition of Rs.3,74,79,000/-. This ground of appeal is partly allowed.
12. In the next fold of grievance, the assessee has pleaded that the ld.CIT(A) has erred in confirming the addition of Rs.23,80,391/- out of total labour expenses.
Brief facts of the case are that the assessee has debited labour expenditure at Rs.1,90,43,133/-. The ld.AO has disallowed 50% of the total
10 labour expenses and made an addition of Rs.95,21,567/-. The ld.CIT(A) has restricted this disallowance to 12.50% i.e. confirmed an addition of Rs.23,80,391/-. This addition was confirmed by the ld.CIT (A) on the basis of finding recorded by his predecessor in earlier years, where similar addition was made. The ld.counsel for the assessee at the very outset submitted in the Asstt.Year 2011-12 this issued travelled to the Tribunal in wherein the Tribunal has confirmed the disallowance to 2% of the total expenditure. Thus, he contended that the issue in dispute is squarely covered in favour of the assessee by the decision of the Tribunal in the Asstt.Year 2011-12. The ld.CIT(A) has followed the decision of his predecessor in the Asstt.Year 2011-12 and that disallowance has been further scaled down by the Tribunal. The ld.DR was unable to controvert this contention of the ld.counsel for the assessee.
We find that there is no disparity on facts. All the details have been considered by the Tribunal in its order for the Asstt.Year 2011-12. The relevant finding of the Tribunal reads as under:
“6. We have heard the rival contentions and perused the materials available on record. In the instant case, the labor expenses incurred by the assessee was disallowed by the AO on the ground that the labor expenses were bogus. How the ld CIT(A) reduced the disallowance made by the AO to the tune of 5% of the total labor expenses. Now the issue before us arises whether the expenses incurred by the assessee represents the bogus expenses in the given facts and circumstances. In this regard, we note that the assessee has constructed a building, which was named as ‘Shivam Plaza’. It is a fact on record that the AO duly accepted all the expenses incurred by the assessee in relation to the building construction during the assessment proceedings. The major reason for the disallowance was that the labor contractors could not prove the regular payment to the laborers. It was also observed that the assessee has not released entire payment to the labor contractors till the end of the financial year under consideration. Therefore, it was doubted on the payment to the laborers made by the labor contractors. However, we note that all the supporting evidence of the parties such 11 as their PAN No., bank account, bills, income tax return were duly furnished, which is available on record. The AO has not doubted in any of the documents filed by the assessee during the assessment proceedings.
We also note that there was a certain defects in the amount of bills furnished by the labor contractors during the assessment proceedings, but that does not lead to the conclusive evidence that the payment to the laborers is bogus. Therefore, we are of the view, that the justice will be served to the assessee if the disallowance made by the CIT(A) is reduced to 2% of the total labor expenses. Accordingly, we direct the AO to restrict the disallowance of labour expenses to the tune of 2% in the given facts and circumstances. Hence the ground of appeal of the assessee is partly allowed.”
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 Rs.1,90,43,133/-. This ground of appeal is partly allowed.
In the result, appeal of the assessee is partly allowed.
Order pronounced in the Court on 1st October, 2019 at Ahmedabad.