Ashish Sureshbhai Shah, Ahmedabad vs Assessee

ु द , लेखा सद#य एवं कुल भारत, नया यक सव ी ी अ नल चतव ् सदसय ् के सम( । BEFORE S/SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER AND KUL BHARAT, JUDICIAL MEMBER)

ITA No.2661/Ahd/2011 [Asstt.Year : 2008-2009]

Shri Ashish Sureshbhai Shah बनाम/Vs. Addl. CIT, Range-6 Prop: La-Pharmaceuticals Ahmedabad. 465 Phase-II, GIDC Estate Vatva, Ahmedabad 382 445. PAN : ACDPS 9782 L

(अपीलाथ+ / Appellant) (,-यथ+ / Respondent)

नधा रती क ओर से/ : Shri P.M. Mehta with Assessee by Shri Hiren Trivedi

राज व क ओर से/ : Revenue by Smt.Sonia Kumar, Sr.DR सन ु वाई क तार ख/ : Date of Hearing 8th May, 2015

घोषणा क तार ख/ : Date of Pronouncement 15-05-2015

आदे श / O R D E R

PER KUL BHARAT, JUDICIAL MEMBER : This appeal of the assessee is

directed against the order of the Commissioner of Income-Tax (A)-XI, Ahmedabad dated 23.8.2011.

2. The assessee has raised concise grounds of appeal as under:

"1. On the facts and in the circumstances of the case, the Departmental authorities erred in not accepting the assessee's version that he had incurred labour expenses of Rs.2 lacs for realizing sale proceeds of miscellaneous items of Rs.5,50,000 and they further erred in taking the corresponding income at Rs.5,50,000 in place of assessee's figure of Rs.3,50,000.

ITA No.2661/Ahd/2011 2. On the facts and in the circumstances of the case, the CIT(A) erred in not accepting the assessee's plea that no disallowance was warranted out of telephone and vehicle expenses and he further erred in quantifying such disallowance in a sum of Rs.14,836.

3. The appellant craves leave to add, alter, amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal."

3. At the outset, the learned counsel for the assessee submitted that he does not wish to press ground no.2 of the appeal. Sr. DR has no objection to the same. Accordingly, the ground no.2 of the appeal of the assessee is dismissed as not pressed.

4. The ground no.3 is general in nature, needs no adjudication.

5. The only effective ground, now left in this appeal, is against the confirmation of addition of Rs.2 lakhs made as undisclosed income.

6. Briefly stated facts of the case are that a survey under section 133A of the Income Tax Act, 1961 (hereinafter referred to as "the Act") was carried out at the business premises of the assessee. Subsequently, during the survey seven items were treated as undisclosed income. Thereafter, the assessee in the return of income declared total income of Rs.1,92,88,640/-. The return was picked up for scrutiny assessment, and the assessment under section 143(3) of the Act was framed vide order dated 29.3.2010, thereby, the AO made disallowance of Rs.2.00 lakhs towards undisclosed income, R.9,457/- towards telephone expenses, Rs.20,216 towards vehicle expenses and Rs.25,000/- towards sales promotion and general expenses. Against these additions, the assessee has filed appeal before the ld. CIT(A), who, after considering the submissions of the assessee partly allowed the appeal. The learned CIT(A) while partly allowing the appeal, confirmed the addition of Rs.2.00 lakhs and deleted the disallowance of Rs.25,000/-.

-2- ITA No.2661/Ahd/2011 7. The assessee feeling aggrieved with the order of the ld. CIT(A) is, now in appeal before us.

8. The only effective ground of the appeal is against the confirmation of Rs.2.00 lakhs. The learned counsel for the assessee reiterated the submissions made in the statement of facts-cum-synopsis assessee. On the contrary, learned DR submitted that there is no infirmity in the order of the CIT(A) and supported the orders of the authorities below.

9. We have considered rival submissions and materials available on record. In the synopsis, the assessee has made the following submission:

"Facts to the extent relevant are that assessee is an individual and runs a pharmaceutical enterprise in the industrial estate of Vatva (Ahmedabad). Survey operations u/s.133A were initiated at his business premises on 28.9.2007. Department detected some unaccounted cash and some papers with ratings and jottings. Assessee's statement was recorded with reference to the same in great detail on 28.9.2007 and 29.9.2007. That statement in vernacular runs into 16 pages but for our purpose first seven pages thereof are not relevant. Hence, copies of 8 to 16 thereof are enclosed for ready reference - Annexure-A. 15 of that statement Question No.24 as put by the Department a list of seven items which are treated as undisclosed income.

That list is as follows:-

Rs.

(1) Construction and renovation of 15,00,000 Factory/office (2) Unaccounted Cash 2,05,000 (3) Debtors receivable 20,00,000 (4) Expenditure on Gift items and sales 9,70,000 promotion (5) Sale of wastage and packing material 5,50,000 (6) Labour charges paid 2,00,000 (7) Difference in inventory 10,37,500 Total : 64,62,500

It is important to note that that list is a part of that question which is put to the assessee by the Department. In other words, that list is not drawn

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up by the assessee though he has in reply to that question No.24 not questioned the correctness of its contents.

2. In view of this list the assessee disclosed a sum of Rs.65 lacs obviously by rounding off Rs.64,62,500 to Rs.65,00,000 and there is no dispute about this aspect of rounding off. In the return of income the assessee disclosed a sum of Rs.63,00,000 which comprised of all the seven items listed hereinabove except for the fact that against item No.5 for income from sale proceeds of packing material etc. he adopted a net figure of Rs.3,50,000 by claiming that a sum of Rs.2 lacs was paid to labour for realizing the aforesaid sale proceeds of Rs.5,50,000 and hence the net income from those sale proceeds was Rs.3,50,000 only. The Departmental authorities have rejected assessee's this claim. The Assessing Officer has treated it as an afterthought and the CIT(A) has given has own reasons, which are not valid.

3. In this regard it is submitted that on page-13 of assessee's that statement (Annexure-A) question No.22 is directly referring to the paper on whose basis the aforesaid addition is based. Free English rendering of that question No.22 would be somewhat as follows:

Q.22. A loose paper is found in which Rs.5,50,000 are shown as sale proceeds of wastage material and from this figure Rs.2 lacs are shown as paid for labour. So, please explain where this Rs.5,50,000 for sale is recorded in your books.

4. Thus, the Departmental office who was conducting the survey himself interpreted that loose paper as showing receipt of sale proceeds as Rs.5,50,000 and payment of labour charges of Rs.2 lacs against the same.

5. Assessee's reply to that question No.22 starts from the bottom of page 13 and free English rendering thereof would be somewhat as follows:

Ans.22 For production of things in our factory some packing material like drums, boxes, plastic bags and bottles etc. are bought and out of that material some is left and rejected. That rejected packing material and wastage is sold for Rs.5,50,000 and out of that receipt Rs.2 lacs is incurred as expenditure for payment to different persons with the result that out of total receipt of Rs.5,50,000 Rs.2 lacs is incurred as expenditure but this receipt and expenditure is not recorded in my regular books of account the above mentioned figures viz. Rs.5,50,000 and Rs.2 lacs I surrender for income of the current year.

-4- ITA No.2661/Ahd/2011 6. Thus, even in the reply is clearly mentioned by the assessee that sale proceeds of packing material etc. were Rs.5,50,000 and for realizing those receipts a sum of Rs.2 lacs was paid as labour to different workers and the net result is surrendered for income of the current year. It is important to note that on this aspect of the figures of Rs.5,50,000 and Rs.2 lacs for labour payment there is no other clarification sought or modification attempted in the aforesaid statement of the assessee recorded even by the Departmental officer who was conducting the survey.

7. It is submitted that question No.22 as put by the Departmental officer as well as answer thereto as given by the assessee clearly shows that the relevant paper itself has shown clearly that against sale proceeds of Rs.5,50.000 a sum of Rs.2 lacs was paid as labour charges. It is submitted that the relevant paper found was clearly understood by the Departmental officer who conducted the survey and framed the questions including question No.22 as showing that against sale proceeds of Rs.5,50,000 an expenditure of Rs.2 lacs was incurred. Similar was the position emerging from the answer to question No.22 as given by the assessee. It is submitted that the paper found itself contained the information of Rs.2 lacs for labour having been incurred for realizing the sale proceeds of Rs.5,50,000 on sale of waste material etc. Therefore, there is no question of this being taken by the assessee as an afterthought.

8. It is further submitted that the Assessee's stand is fully supported by the seized paper. A copy thereof is annexed as Annexure - B. It reads somewhat as follows:

"Accumulated packing material Wastage-no vechan (Sale of ) Rs.5,50,000/-

Less: paid for wages Rs.2,00,000/- Balance Rs.3,50,000/-

This leaves absolutely no doubt about the correctness of the Assessee's stand.

9. In the interest of completeness it may also be mentioned that in the list of seven items as appearing in question No.24 for total of Rs.64,62,500 there is another item of Rs.2 lacs at Sr. No.6 for cash payment to labour. This item of Rs.2 lacs is thus separately added for quantifying the surrendered income. The confusion perhaps has arisen on account of the figure being same viz. 2 lacs and the description also being same being labour payment. Correct position is that against sale proceeds of Rs.5,50,000 one is deductible from the total sale proceeds and the other

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item of Rs-2 lacs appearing at Sr. No.6 of the above mentioned list is utilization of cash for payment of other labour charges.

10. In the interest of completeness again it may further be mentioned that the list of seven items totalling Rs.64,62,500 in Question No.24 does not take into account the deduction of labour payment of Rs.2 lacs out of the sale proceeds of Rs.5,50,000 (appearing at Sr. No.5) for sale of waste material. It is submitted that when in question No.22 and in reply thereto it had been dearly understood that Rs.2 lacs was separately paid out of sale proceeds of Rs.5,50,000 the omission of that deduction of Rs.2 lacs from the sale proceeds of Rs.5.50 lacs in question No.24 as framed by the Departmental officer was merely an omission of the nature of mistake apparent from record. Assessee's only fault was that at the spur of the moment he did not point out that mistake then and there."

10. We find force in the contentions of the learned counsel for the assessee, as the assessee, in its synopsis submitted that Rs.5,50,000/- represented the receipts and Rs.2.00 lakhs represents wages. If the Revenue has treated Rs.5,50,000/- as receipts, then the corresponding expenditure mentioned in the same paper should have been allowed. Accordingly, the AO is directed to delete the impugned addition. Thus, this ground of appeal of the assessee is allowed.

11. In the result, the appeal of the assessee is partly allowed. Order pronounced in Open Court on the date mentioned hereinabove.

Sd/- Sd/- (अ नल चतव ु द / ANIL CHATURVEDI) (कुल भारत/KUL BHARAT) लेखा सद#य /ACCOUNTANT MEMBER नया यक ् सदसय/JUDICIAL ् MEMBER Copy of the order forwarded to:

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