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Facts
The assessee company, engaged in manufacturing, trading, and export of polished diamonds, filed its return of income. During a search operation, the Assessing Officer (AO) found discrepancies in stock and evidence of bogus salary expenses paid to employees' wives. The AO made additions based on these findings.
Held
The Tribunal held that the ground regarding unexplained stock addition is restored to the CIT(A) for fresh examination of additional evidence admission. Regarding the bogus salary expenses, the Tribunal found no infirmity in the lower authorities' orders confirming the disallowance, as the HR manager's statement and other evidence supported the finding of bogus payments made on the management's instructions.
Key Issues
Whether the addition for unexplained stock and bogus salary expenses were justified, and whether the assessee was denied a fair opportunity to present additional evidence.
Sections Cited
143(3), 132, 131
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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
1. This appeal is filed by assessee against the appellate order passed by Commissioner of Income-tax (Appeals)-48, Mumbai [the learned CIT (A)], for A.Y. 2017-18, wherein the appeal filed by the assessee against the assessment order passed by Dy. Commissioner of Income Tax, Central Circle 2(1), Mumbai, passed under Section 143(3) of the Act dated 7th December, 2018, was dismissed.
2. Assessee has raised following grounds of appeal:-
ALLEGED UNEXPLAINED STOCK
1.1 On facts and circumstances of the case and in law, the Learned Commissioner (Appeals) erred in sustaining the addition made by the Respondent of Rs. 1,09,10,518 on account of alleged unexplained stock.
1.2 The Learned Commissioner (Appeals) failed to appreciate and ought to have held that there were no anomalies in actuality so as to warrant the addition made by the Respondent and the entire stock of diamonds was duly reconciled / reconcilable by the Appellant.
1.3 The Learned Commissioner (Appeals) further erred in rejecting the application for admission of additional evidences filed by the Appellant to support and substantiate its contentions.
1.4 Without prejudice, the Learned Commissioner (Appeals) also erred in sustaining the addition by accepting the Respondent's contention of adopting a rate of Rs. 1,34,764 per carat of polished diamonds to the alleged unexplained stock.
ALLEGED BOGUS SALARY EXPENSES
3 The Learned Commissioner (Appeals) also failed to appreciate that the addition was made by the Respondent merely on the basis of surmises and conjectures and thus, the disallowance was unsustainable and liable to be reversed.”
The brief fact of the case shows that assessee is a company engaged in the business of manufacturing, trading and export of polished diamonds. It filed its return of income on 18th November, 2017, on total income of ₹24,94,58,340/-. Search took place under Section 132 of the Act on 29th June, 2019. Subsequently, the return of income was picked up for scrutiny.
The learned Assessing Officer found that during the search it revealed that assessee has booked bogus salary expenses in the names of wives of employees and some incriminating documents of payments vouchers were found. Assessee was questioned by letter dated 17th October, 2017, to furnish the details of the employees along with their PF and ESIC payments and the register of employees along with the work done. The assessee filed
The learned Assessing Officer further found that during the course of search stock of ₹41,534.60 carets of diamond was found and inventorized. As per the books of account, the stock of diamond was 45,435.76 carets for the different of Mr. Siddharth Mehta, was questioned. In his 132(4) statement, in reply to question no.40, he was unable to explain the difference. During the course of assessment proceedings, the assessee was asked about the difference of 61.84 carets, which was explained weighing difference of stock lying with more than 26 departments and with 1200 workers. It was further stated that there is also difference in valuation between polish diamond and rough diamond. The learned Assessing Officer rejected the contention of the assessee and found that polish diamonds as per books of accounts is 2,025.36 carets and as per physical verification 2,106.32 carets were found leaving a difference of 80.86 carets and further, the rate for caret is 1,34,764 and therefore, the addition of ₹1,09,10,518/- was made.
Accordingly, the assessment order was passed under Section 143(3) of the Act at ₹26,17,12,920/-.
The assessee preferred the appeal before the learned CIT (A), wherein the addition of ₹13,44,058/- as bogus expenditure on payment of salary to the wives of the
The claim of the learned Authorized Representative with respect to the bogus salary expenditure that all the salary payments are genuine. Further, the addition is made purely on the basis of statement of the HR manager, assessee has also submitted that no incriminating material such as voucher etc, was provided to the assessee. Therefore, the addition in the hands of the assessee is incorrectly made. It was further stated that the addition is merely made on the basis of the statement of the HR Manager and therefore, same without granting assessee cross examination it cannot be used.
With respect to the addition on alleged unaccounted stock, he submitted that the assessee has given Annexure A to Annexure M along with the screen shots and payments to show that if these evidences are not examined there is no difference in the stock. The learned CIT (A) did not allow to admit those evidences.
The learned Departmental Representative supported the orders of the lower authorities.
We have carefully considered the rival contentions and perused the orders of the lower authorities.
Ground no.1 is with respect to the alleged unexplained stock addition of ₹1,09,10,518/-. During the course of
In the result, appeal of assessee is partly allowed for statistical purposes.
Order pronounced in the open court on 28.02. 2024.