SWATI INDUSTRIES D-74, PHASE-V FOCAL POINT, LUDHIANA,PUNJAB vs. THE DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-3, LUDHIANA , PUNJAB

“1. Whether upon facts and circumstances of the case, the Ld. CIT (A) was justified in treating the surrendered income as a normal business income instead of unexplained income under the deeming provisions of 69 of the I.T. Act, 1961 and to be taxed as per provision of section 115BBE of the iT, Act, 1961 by the AO, ignoring the facts involved in this case? 2. Whether upon the facts and circumstances of the case, the Id. CIT(A) was justified in ignoring the decision of Hon'ble: Hon’ble Punjab & Haryana High Court in the case of Khushi Ram & Sons of 2015 wherein Hon'ble High Court has held that merely carries on certain business, it does not necessarily follow that amounts surrendered by him are on account of business transactions ? 3. Whether upon the facts and circumstances of the case, the Ld. CIT(A) was rightly justified in deleting addition of Rs. 34,51,288/- on account of unexplained cash receipts as unexplained money u/s.69A of the Income Tax Act.

4. Whether upon the facts and circumstances of the case, the Ld. CIT(A) was rightly justified in deleting addition of Rs. 4,65,765/ on account of disallowance of commission expenses u/s 40(a)(ia) for non-deduction of TDS.

5. Whether upon the facts and circumstances of the case, the Ld.CITIA) was rightly justified in deleting addition of Rs. 15,00,000/- on account of unverified unsecured loan as unexplained cash credit u/s 68 of the Income Tax Act.

6. Whether upon the facts and circumstances of the case, the Id. CIT(A) was rightly justified in deleting addition of Rs. 1,98,89,964/- on account of unexplained expenditure u/s 69C of the Income Tax Act,

4 7. The appellant craves leave to add, amend, modify, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of appeal.”

6 that the decisions as relied upon by the department in the case of M/s Khushi Ram & Sons have been distinguished in the case of ‘Famina Knitfab’, reported in 176 ITD 246.

Department’s appeal (ITA 547/Chd/2024): 10. First two grounds in Revenue’s appeal are the same as discussed above regarding applicability of section 115BBE.

7 8,95,342/- since the same are through banking channel in respect of payment of salary and wages and the same has been mentioned under the column ‘bank’ in the seized document. The Ld. Counsel relied upon the finding of CIT(A) at pages 56 and 57 of his order.

is on account of deletion of addition of Rs. 4,65,765/- on account of disallowance of commission u/s 40. (a) (ia) for non- deduction of TDS on commission. It was argued that no TDS was liable to be deducted being, foreign commission and the agreement with the Foreign agent alongwith British passport and VAT certificate of Agent of United Kingdom has been submitted. On such evidences, the AO could not rebut in his remand report, accordingly, it was argued that the CIT(A) has rightly deleted the addition as per finding given at page 60 and 61 of the order of the CIT(A) and relied upon on such finding of CIT(A).

15. By way of ground No. 6, the addition of Rs. 1,89,89,964/- (wrongly mentioned at Rs. 1,98,89,964/-) in department appeal, have been challenged by the department. The AO has discussed this fact starting from page 20 onward and it was brought to our notice that during the course of survey, the list of the employees was drawn working in three units. It was found that salary of certain employees had not been recorded by the assessee in the regular books of accounts, accordingly, AO made the addition of Rs. 2,66,10,720/-. The assessee made submissions before the AO also, which have been reproduced in the order of the Assessing Officer. It was contended that the assessee had Zinc Plant installed in the business premises and since no skilled labour was available with the assessee and he is getting the job of ‘Zinc Plating’ with the help of skilled labour of certain other parties, names of such parties have been in the order AO and all such payments for such outside labourers, working in assessee’s ‘Zinc Plant’ are being made through banking channels by deducting TDS. The CIT(A) looking into all the submissions has given his finding in the order. He has given a relief of such labourers to the tune of Rs. 29,89,964/- (as per page 65 & 66 of the order) and also gave a benefit of Rs. 1.60 crores as offered during survey. Since that amount has not been utilized anywhere else. Thus, he has 9 confirmed the addition of Rs. 76,20,756/-, besides that he also confirmed the addition of Rs. 25,89,500/- as per seized document and applied the provisions of section 115BBE. The assessee is in cross appeal on these issues.

16. It was argued by the Ld. Counsel that due to heavy material, which keeps on coming in and going out in all the three units, in heavy vehicles (gave a list of the Vehicles along with documentary evidences of each and every vehicle on the dates of survey) and further argued that with each truck, four to five persons accompany for loading and unloading because of heavy material. All the invoices were also furnished, which were of the dates of survey only and copies of the bills, e-bills have been placed in the paper book. It was also argued that the finished goods are also being transported in trucks and for that transporters bring their own labourers and such outgoing finished material had been dispatched during the survey. All such evidences alongwith copies of sale bills, photographs and other evidences were furnished to CIT(A). Such evidences,were forwarded to the AO also during assessment proceedings. Not much has been said by the AO. It was further argued that all the bills of inward or outward have been duly accounted for in the books of accounts and the observation of the AO that such labourers are of the assessee, is against the documentary evidences furnished.

10 the extrapolation of the same for the complete year, which is not permissible in view of the judgment of Jurisdictional High Court in the case of V.M.Spinning Mills, reported in [2011] 16 taxmann.com 199, in which, there was evidence of 191 days of outside book sales and the same was extrapolated. The Hon'ble Punjab & Haryana High Court has held that the addition could be made only on the basis evidence of 191 days. Thus, it was argued that the extrapolation of wages for 12 months is without any evidence and, thus, the CIT (A) has erred in confirming the addition of Rs. 76,20,756/- and 25,89,500/- .

20 We have considered the rival submissions alongwith ‘paper books’ filed by the assessee, alongwith brief synopsis. Facts are not disputed that the assessee is engaged in the manufacturing of scaffolding and there was a survey on 08.10.2018. During survey, the evidence of suppression of sale price of scrap was found, which have been mentioned in the surrender letter in the assessment order and since the source of the amount surrendered during survey to the tune of Rs. 1.60 crores were out of the business income and also during survey, no such other activity has been noticed, other than normal business activity, in which, the assessee is engaged in manufacturing of scaffolding. Even during survey, the statement of one partner, namely, Sh. Vaneet Garg was recorded, in which, he has offered such difference in the sale price of scrap as additional business income. Further, in respect of wages and salary, the partner also stated that the same is being considered for the purposes of surrender. Thus, under such circumstances, we are of the considered view that the finding of CIT(A) needs no interference. The Ld. CIT(A) has rightly given his finding as under:

“5:3.3. I have considered the reasoning given by the AQ in assessment order, submissions & documents submitted by the appellant, facts of the case and legal position.

12 (i) It is a fact that during the assessment proceedings, no satisfactory explanation was submitted by the assessee and during the remand proceedings only, the assessee filed additional evidences in the shape of regular bank account of the assessee' along with the copies of the sale bill to the regular parties of the assessee namely Paul Steel Pvt. Ltd. and Sharu Special Alloys Limited The same were admitted by my predecessor and forwarded to the AO concerned In remand report the A0 has reiterated that addition may be confirmed as no explanation was filed during the assessment proceedings On the merits of the addition, he had only stated that the confirmed copies of accounts of Paul Steel Pvt. Ltd. and Sharu, Special Alloys Limited have not been submitted The appellant has submitted these confirmations along with the reply to the remand report of the Assessing Officer.”

13 23. With regard to deletion of addition of Rs. 15 lacs on account of unsecured loan from Sh. Ashutosh Gupta, the source of source has been provided by the assessee and interest have been paid after deducting TDS. Further, the confirmation from Ashutosh Gupta alongwith ITR and Bank statement has been filed. Thus, the identity, genuineness of transaction and capacity of creditors stands proved. So, under such circumstances, the CIT(A) has rightly deleted the addition on this ground.

25. The CIT(A) has confirmed the extrapolation of the wages/salary for complete year, though, the evidence of the 14 same was found only upto 08.10.2018. The contention of the assessee is based on the documentary evidence of the invoices of the parties from whom, the material has been purchased on the date of survey i.e. 08/09 October 2018. Similarly, labourers of transporters for the outgoing material, which belongs to the transporter and the evidence of the same was also furnished during the period of survey. The contention of the assessee are as under:- i). All the copies of the bills of inward and outward material are of the dates of survey. ii). The said material has duly been accounted for in the books of accounts of the assessee and outgoing material have also been recorded in the books of accounts. iii). Because of heavy material, 4 to 5 laborers accompany each truck and which is evident from the photographs and, thus, the Assessing Officer had wrongly included such laborers as of the assessee, which is against the documentary evidences as the laborers are of the third party and wrongly counted by the department during survey of the assessee. iv). No enquiry at the time of survey has been made from the labourers. v). No evidence of extrapolation of wages and salary for 12 months.

26. The assessee’s reliance on the judgment of Jurisdictional High Court in the case of V.M. Spinning Mills is quite apt and in that case also, the extrapolation was made on the basis of sales outside the books for 190 days and it was held that no extrapolation could be made beyond 191 days as per following observation: - 15 “The Ld. Tribunal in further appeal by the Revenue as well as by the Assessee rejected the contention of the assessee in respect of addition of sales through 17 sale bills amounting to Rs. 1,11,99,427/- and affirm the finding that such sales were made outside the books of accounts. However, it held that there is no justification to infer that the assessee would have undertaken sales outside the books of accounts during this rest of financial year also, therefore, the assessment of unrecorded sales were limited to Rs. 1,11,99,427/- representing 17 unrecorded sale bills alone. The Tribunal partly granted relief, when it made addition of Rs. 20 lacs on account of unexplained investment made towards the working capital as against Rs.71,07,100/- added by the Assessing Officer and upheld by the Commissioner of Income Tax. The same view has upheld by the High Court.”

27. The assessee’s reliance on the judgment of Gurdip Cycle Industries in of Chandigarh Bench of the ITAT is applicable to the facts and circumstances of the case, wherein, the extrapolation was made on the basis of evidence of few days and it was held that such extrapolation could not be made. As such, we are in agreement with the findings on the basis of above said jurisdictional High Court and Coordinate Bench of the ITAT, Chandigarh Bench and hold that the extrapolation could not be made for 12 months. It is to be restricted to the evidence found during the course of search / survey i.e. upto 08.10.2018. The CIT(A) has also given the benefit of persons employed of other parties on the Zinc Plant. Thus, after considering the arguments of both the sides and by relying upon the judgment of Jurisdictional High Court and Chandigarh Bench, it is held that the payment of Salary and wages outside the books of accounts have to be considered only upto 08.10.2018 i.e. till the time of survey. There is availability of funds on account of surrendered amount of Rs. 1.60 crores, accordingly, addition as 16 confirmed by the CIT(A) to the tune of Rs. 1,02,10,256/- is deleted. Thus, Assessee’s appeal on this ground / issue is allowed.

Order pronounced in the open Court on 27.06.2025