Ita/230/2015 Of Commissioner Of Income Tax Gurgaon v. M/S Punjab Plywood Industries Ltd

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH ITA No.230 of 2015Date of decision: 28.9.2015 Commissioner of Income Tax (Central), Gurgaon .....- Appe M/s Punjab Plywood Industries Limited ....mesponden CORAM: HON’BLE MR. JUSTICE AJAY KUMAR MITTALHON’ BLE MR. JUSTICE RAMENDRA JAIN 1. Whether Reporters of local papers may be allowed to see the judgment?2. To be referred to the Reporters or not?2. To be referred to the Reporters or not? 3. Whether the judgment should be reported 1n the Digest? Present: Mr. Rajesh Sethi, Sr. Standing counsel with Mr. Arun Biriwal, Advocate for the appellant-revenue. Ajay Kumar Mittal,J, inThis order shall dispose of ITA Nos.201 to 203, 230, 284, 285,286 and 287 of 2015 as according to the learned counsel for the appellant-revenue, the issues involved in all these appeals are identical. However, thefacts are being extracted from ITA No.230 of 2015. |ITA NO.230 of 2015 has been preferred by the revenue underSection 260A of the Income tax Act, 1961 (in short, “the Act’) against theorder dated 28.8.2014, Annexure A.3 passed by the Income Tax AppellateTribunal, Chandigarh Bench ‘A’ in ITA No.1171/CHD/2013 for theassessment year 2007-08, claiming following substantial questions of law:- *'1) Whether as per law and in the facts and circumstances of thcase, the Hon'ble ITAT 1s justified in deleting addition of423,63,243/- on account of unexplained expenditure under head“wages” without appreciating the fact that the assessee failed tofurnish any documentary evidence that the list of workersprepared during the search contained the names of the workersworking in the sister concern of assessee 1.e. M/s AggarwalWood Industries? 11) Whether as per law and 1n the facts and circumstances of thecase, the Hon'ble ITAT 1s justified in deleting addition of=3,35,405/- on account of income of Smt.Meena Garg, Prop. ofM/s Punjab Timber Trading Company being treated as incomeof the assessee on substantive basis considering that the AO hasgiven clear finding that during the search, Smt.Meena Gargrefused of doing any timber business when her statement wasrecorded under oath” l11) Whether as per law and in the facts and circumstances ofthe case, the Hon'ble [TAT 1s justified in deleting addition ofL70,33,524/- on account of difference in valuation of building onthe basis of report of the valuation officer without appreciatingthe fact that the assessee failed to substantiate the source of thesaid income from which unexplained expenditure was made bythe assessee? 1v) Whether as per law and in the facts and circumstances of thecase, the Hon'ble ITAT 1s justified in deleting addition of410,98,211/- on account of estimated profit on short stock foundon the date of search without appreciating the fact that theassessee concealed the income earned from the unaccountedsale of stock? v) Whether the impugned order (Annexure A.3) dated 11.7.2014(correct date being 28.8.2014) passed by ITAT 1s neithersustainable in the eyes of law nor maintainable in the facts andcircumstances of the case and 1s perverse in nature?” ITA No.230 of 2015 3)A tew facts relevant for the decision of the controversy;involved as narrated in ITA No.230 of 2015 may be noticed. The assessee 1sa firm engaged in the business of manufacturing and treading of core veneerwhich 1s consumed by the plyboard industry as also ply and ply board. Asearch and seizure operation under Section 132(1) of the Act was conductedon Punjab Plywood Group of cases on 20.3.2007. Pursuant to search andseizure operation, case of the assessee for the assessment year 2007-08 wascompleted under scrutiny vide assessment order under section 143(3) of theAct on 30.12.2008, Annexure A.1. Certain additions/disallowances weremade which were contested by the assessee before the Commissioner ofIncome Tax (Appeals) [CIT(A)] and subsequently before the Tribunal,Certain deletions by the CIT(A) were contested by the revenue before theTribunal. The issues which were decided by the Tribunal in favour of theassessee are as under:- 1)Addition ofL23.63,243/=on account of unexplained expenditure onlabour: Prior to search which was conducted on 20.3.2007, a surveywas conducted at the business premises of the assessee on 9.9.2004. Thedocument pertaining to number of workers employed by the assesseeprepared during the said survey formed the basis of additions on account ofsuppression of expenditure on labour for production to the extent of423,63,243/- for the year under consideration. The books of account werefound to be not reliable. The assessee was given opportunity of hearing toshow cause as to why difference 1n wages worked out at.=a23,63,243/- maynot be treated as expenses incurred out of income from undisclosed sources. ITA No.230 of 2015 were of two premises 1.e. M/s Punjab Plywood Industries and adjoiningsister concern M/s Aggarwal Wood Industries. The assessee did not furnishany documentary evidence during the course of assessment proceedings thatthe list in dispute also included the workers working in M/s Aggarwal WoodIndustries. Thus, amount of |LT23,63,243/- was computed as unexplainedexpenditure on labour and added back to the total income of the assesseevide assessment order dated 30.12.2008, Annexure A.l. The assessee wentin appeal before the CIT(A)(C). Vide order dated 24.10.2013, AnnexureA.2, the CIT(A)(C) dismissed the appeal. The assessee approached theTribunal. The Tribunal allowed the appeal holding that the facts andcircumstances of the present issue were identical to the facts andcircumstances in the issue raised 1n the assessment year 2001-02 in the caseof the assessee and allowed the claim of the assessee and deleted theaddition on this issue. 11) Addition ofL3.35,405/=on account of benami Concern being run inthe name of Smt.Meena Garg: During the search, it was found that a proprietary concernnamely M/s Punjab Timber Trading Co. of Smt.Meena Garg wife of ShriNaresh Garg who is one of the partners in the assessee firm was doingbusiness. She denied of having any knowledge of the business activitiesbeing conducted in her name. It was concluded that the business was notbeing done by her but only her name was being used for tax avoidancepurpose. Accordingly, income of=a3,35,405/- from her proprietary concernwas substantively taxed in the hands of the assessee firm. The assessee wasgiven opportunity of hearing. It was submitted by the assessee that theconcern of Smt.Meena Garg was actually doing business and investments by ITA No.230 of 2015 5 her were well established. The Assessing Officer did not accept thesubmissions of the assessee on the ground that the issue of existence ofbusiness was not under challenge and what was under challenge was thefact that she was actually not doing business but her name was being usedby the assessee for tax avoidance purpose. Thus amount of |=a3,35,405/-was computed as income of benami concern being run in the name ofSmt.Meena Garg and added back to the total income of the assessee. TheCIT(A)(C) upheld the addition of|=a3,35,405/- on this issue. The Tribunalallowed the appeal filed by the assessee on this issue following the decisiontaken on this issue in the assessment year 2002-03. i) Addition of=78,15.026/=on account of unexplained investment inconstruction of factory building: 5 her were well established. The Assessing Officer did not accept thesubmissions of the assessee on the ground that the issue of existence ofbusiness was not under challenge and what was under challenge was thefact that she was actually not doing business but her name was being usedby the assessee for tax avoidance purpose. Thus amount of |=a3,35,405/-was computed as income of benami concern being run in the name ofSmt.Meena Garg and added back to the total income of the assessee. TheCIT(A)(C) upheld the addition of|=a3,35,405/- on this issue. The Tribunalallowed the appeal filed by the assessee on this issue following the decisiontaken on this issue in the assessment year 2002-03. i) Addition of=78,15.026/=on account of unexplained investment inconstruction of factory building: During the year under consideration, the assessee had madeadditions to the factory building. The matter was referred to the valuationOfficer under Section 142A of the Act. The valuation department reportedthat the assessee had declared =13,83,674/- as investment/new constructionas shown on layout plan whereas the valuation officer valued the cost ofconstruction asTL1,08,22,000/-. The assessee was asked to show cause as towhy the difference ofa94,.38,326/- should not be added to the income othe assessee being unexplained investment. The assessee submitted that ithad also got its factory valued from a government approved valuer who hadestimated the value at|TL27,07,000/-. The objections of the assessee werereferred to the Valuation Officer. The Assessing Officer after considering thematter allowed 15% of the total value arrived at by the Valuation Officer in|favour of the assessee and thus made an addition of=a78,15,026/- to the ITA No.230 of 2015 by the assessee, the CIT(A)(C) allowed further benefit of 10% of —478,15,026/- 1n view of the fact that some expenditure was admittedlyincurred in assessment years 2001-02 and 2003-04 whereas the AssessingOfficer added the entire amount in this year. The assessee filed AppealNo.1171/CHD/2013 regarding sustaining of additions by CIT(A)(C)including addition ofLv70,33,524/- on this count whereas revenue filedappeal No.1190/CHD/2013 against the order of CIT(A)(C) allowing partialrelief to the assessee. The Tribunal disallowed the appeal of the departmentwhereas the appeal of the assessee was partly allowed and the addition of|470,33,524/- sustained by CIT(A)(C) was also deleted following thejudgment of the Apex Court inSargam Cinema vs. CIT, (2010) 328 ITR4513. iv) Addition of<10,98,211/=on account of difference in stock: During the course of search, it was found that stock as perbooks was Ly2,/6,77,856/- whereas as per physical verification by thesearch team, the stock was found to be wortha1,94,20,630/-. The assesseewas asked to show cause as to why GP on the difference of stock of=82,)/6,226/- should not be added to the income of the assessee being GPearned on sales made outside books of account. The assessee submitted thatphysical verification of the voluminous stock was not proper and that theexcise department had found stock tallying with its books of account on17.7.2007. The Assessing Officer did not accept the submission of theassessee and sum ot |<a10,98,211 being GP at the rate of 13.3% on thedifference of stock of“a82,)/7,226/- was computed on account of differencin stock and the same was added back to the total income of the assessee. On appeal, the CIT(A)(C) upheld the entire addition of a10,98,211/-. Theassessee went in appeal before the Tribunal. The Tribunal allowed theappeal filed by the assessee. Hence the instant appeals by the revenue. | 4 We have heard learned counsel for the appellant-revenue. On appeal, the CIT(A)(C) upheld the entire addition of a10,98,211/-. Theassessee went in appeal before the Tribunal. The Tribunal allowed theappeal filed by the assessee. Hence the instant appeals by the revenue. | 4 We have heard learned counsel for the appellant-revenue. 4 The Assessing Officer made additions on all the issuesmentioned above. On appeal by the assessee, the CIT(A)(C) upheld theadditions except on issue No.(i11) where partial relief was given to theassessee. The Tribunal deleted the additions made by the Assessing Officerand upheld by the CIT(A)(C). The findings of the Tribunal on each issueare aS under:- On_ Issue No.(ion~The Tribunal for the assessment year 2007-08 hadfollowed the reasoning recorded for the assessment year 2001-02 wheresimilar addition was deleted with the undernoted observations:- “Ill. We have heard the rival contentions and perused threcord. In the facts of the present case before us, survey undersection 133A of the Act at the premises of the assessee was firstconducted on 9.9.2004. Thereafter search and _ seizuOperations were carried out under section 132 of the Act both atthe business and residential premises of the assessee. Duringthe course of survey, the team had prepared the list of workersunder which it was reported that the total persons working inthe premises of the assessee were 59 on monthly roll and 16 onper piece basis. The assessee had booked the expenditure of |44,67,424/- in assessment year 2005-06 1.e. the year in whichsurvey was conducted. However, in assessment year 2002-03the total expenditure booked by the assessee wasL1,82,798/-,The Assessing Officer on the basis of the suppressed salesdetected consequent to the search carried on at the premises ofthe assessee on 20.3.2007 applied the ratio of expenses on labour and production and worked out the ratio of 1:19.6 andcomputed the expenditure for assessment year 2001-02 atL4,50,241/- and made an addition of —Ly2,67,443/-. Similaraddition has been made in assessment years 2002-03 to 2006-O7. 12. The plea of the assessee before us was two folds that firstof all the discrepancy,if any, in the number of workers detectedunder survey at the premises of the assessee on 9.9.2004 couldnot be utilized for computing unexplained expenditure onaccount of wages while completing the assessment undersection 143(3) read with section 153A of the Act pursuant tosearch carried out at the premises of the assessee on20.3.2007. The second plea raised by the learned AR for theassessee before us was that the list of the workers prepared bythe survey team comprised of the workers of sister concernsand merely because the assessee had not pointed out the saidfact during the course of survey, does not change the factsituation. We find merit in the plea of the assessee in thisregard. First of all, the assessment in the case has beencompleted under section 143(3) read with section 153A of theAct vide order dated 30.12.2008. The said assessment wasmade pursuant to the search operation carried out at thepremises of the assessee on 20.3.2007. During the course ofsearch the team had detected suppression 1n sale in the handsof the assessee and had computed income of the assessee afterthe said detection by making various disallowances undervarious heads of expenditure. One said head of expenditurewas on account of unexplained expenditure on labour. Theconclusion of the authorities below was that the assessee hadnot booked the complete expenditure on wages in its books ofaccount as the number of the workers found during the courseof survey were more than the list of workers available in thebooks of account. First of all the said survey was conducted atthe premises of the assessee on 9.9.2004 when the said list was prepared. The conclusion of the said survey could not beapplied while completing the assessment pursuant to searchcarried out at the premises of the assessee under section 132 ofthe Act. Secondly, there was no merit in the said additionbeing made in the hands of the assessee as the explanation ofthe assessee that the workers of the two concerns were totallyconsidered in the list of workers prepared by the survey teamfor the assessee firm cannot be ignored. The said list of 59workers was prepared on 9.9.2004 and the plea of the assesseewas that the said 59 workers as on the date of survey belongedto the assessee and its sister concern. The requisite list ofworkers employed with either of the concerns were filed onrecord. Merely because the said statement was confronted toone of the partners who had signed the list does not establishthat the workers belonged to the firm in which he was apartner 1.e. the assessee firm before us. In the absence of anyconcrete evidence found, we find no merit in the orders of theauthorities below and no addition 1s warranted in the hands ofthe assessee on the basis of said list prepared by the surveyteam where the assessee had clearly explained its case that thesaid total number of workers belonged to two concerns and notto the assessee itself. In any case, the additions in the hands ofthe assessee for the years under consideration have been madeon pure estimation as no evidence of excess workers wasfound in the years under appeal. In view thereof, we find nomerit 1n the addition ofa2,67,443/- and direct the AssessingOfficer to delete the same. The grounds of appeal raised by theassessee are thus allowed.’ On Issue No.(i1) “The issue in ground No.2 raised by the assessee on account ofaddition of Lv3,35,405/- being income of Smt.Meena Garg,proprietary of M/s Punjab Timber Trading Company. The facts,circumstances and issue raised vide ground No.2 1s identical to the ground No.2 raised in assessment year 2002-03 andfollowing the same parity of reasoning we find no merit in thesaid addition. We direct the Assessing Officer to delete theaddition of =a3,35,405/-. The ground of appeal No.2 raised bythe assessee is thus allowed.’ The Tribunal had followed the reasoning for the assessment year 2002-03which is as under:- “18. We have heard the rival contentions and perused therecord. The Tribunal in ITA Nos.115 to 1170/Chd/2013 in thecase of Smt.Meena Garg relating to assessment years 2002-03to 2007-08, vide order dated 26.2.2014 have held that theincome arising from M/s Punjab Timber Trading Company wasthe sole proprietary concern of Smt. Meena Garg, consequent towhich the income arising from the said concern was to beassessed in the hands of Smt.Meena Garg. The learned AR forthe assessee has placed on record copy of the Tribunal's orderdated 26.2.2014. In view of the income arising to M/s PunjabTimber Trading Company being assessed on substantive basisin the hands of Smt.Meena Garg, after holding that the assesseeis the sole proprietary of the business being run under the nameand style of M/s Punjab Timber Trading Co, there is no merit inmaking any addition in the hands of the assessee in this regard.Accordingly, we direct the Assessing Officer to delete theaddition of=a1,44,210/-. The ground of appeal No.2 raised bythe assessee 1s thus allowed| On issue No.(ill) "37. The issue in ground No.4 raised by the assessee 1s againstthe addition made on account of difference 1n valuation ofbuilding on the basis of report of the Valuation Officer. 38. the learned AR for the assessee at the outset pointed outthat the books of account of the assessee were not rejectedand consequently no addition on account of difference invaluation of the Valuation Officer was warranted in view of the ratio laid down by the Hon'ble Supreme Court in SargamCinema vs. CIT (328 ITR 513 (SC)] 39. The learned DR for the revenue has fairly admitted that thebooks of account were not rejected. On issue No.(ill) "37. The issue in ground No.4 raised by the assessee 1s againstthe addition made on account of difference 1n valuation ofbuilding on the basis of report of the Valuation Officer. 38. the learned AR for the assessee at the outset pointed outthat the books of account of the assessee were not rejectedand consequently no addition on account of difference invaluation of the Valuation Officer was warranted in view of the ratio laid down by the Hon'ble Supreme Court in SargamCinema vs. CIT (328 ITR 513 (SC)] 39. The learned DR for the revenue has fairly admitted that thebooks of account were not rejected. 40. We are of the view that the ratio laid down by the Hon'bleApex Court in Sargam Cinema (supra) 1s squarely applicableto the facts of the present case where the books of accountwere not rejected by the Assessing Officer. On the other hand,the Assessing Officer had referred valuation of the building tothe Valuation Officer who had reported the value of thebuilding atLC78,15.026/- as against the cost of the buildingshown by the assessee at.|70,33,524/-. In view of the ratiolaid down by the Hon'ble Supreme Court, no addition on thisaccount can be made in the hands of the assessee where thebooks of account had not been rejected. Accordingly, wedelete the said addition made by the Assessing Officer andreverse the order of the ClI(Appeals) in this regard. Theground of appeal No.4 raised by the assessee 1s thus allowed. On Issue No.(iv) *’S7.1n the totality of the facts and circumstances where the Grate declared by the assessee has been accepted by theAssessing Officer, we find merit in the plea of the assesseethat the same rate should be applied while preparing tradingaccount as on the date of search. During the year underconsideration, the assessee had shown fall in GP rate and theexplanation of the assessee was that due to huge increase inthe turnover there was marginal fall in GP rate, whichundoubtedly has been accepted by the Assessing Officer intoto. In view of the totality of the facts and circumstanceswhere we have already upheld the addition ofzy4,41,345/- onaccount of sale depicted in the seized documents being outsidethe books of account and on account of the explanation givenby the assessee that the discrepancy stands reconciled onaccount of the GP rate to be applied and other discrepancies explained by the assessee, there 1s no merit in any furtheraddition. Another aspect to be kept in mind 1s that theinformation gathered by the Income tax Department during thesearch proceedings were forwarded to the excise departmentwho in turn visited the premises of the assessee and found nodiscrepancy in the stock. In the totality of the facts andcircumstances, we find no merit in the addition of ©=10,98,211/- made on account of estimated profit of short stockfound on the date of search. The ground of appeal No.5 raisedby the assessee 1s thus allowed.” 6]Learned counsel for the appellant revenue has not been able toshow that the approach of the Tribunal 1s erroneous or that the findingsrecorded by it are based on misreading or misapplication of evidence ormaterial on record which may call for interference by this Court. Thus, nosubstantial question of law arises. All the appeals stand dismissed. September 28, 2015‘gs! (Ajay Kumar Mittal)Judge(Ramendra Jain)Judge