Kanahaya Metal Works Vs CIT (Appeals) (Punjab and Haryana High Court)
Summary: The Punjab and Haryana High Court, in Kanahaya Metal Works Vs Commissioner of Income Tax (Appeals), dismissed two appeals filed by the assessee under Section 260A of the Income-tax Act, 1961, relating to Assessment Years 1994-95 and 1995-96. The dispute arose following a search and seizure procedures” target=”_blank” rel=”noopener”>search and seizure operation conducted on 5 August 1994 at the residential premises of the firm’s partners and its business premises, during which documents relating to unaccounted transactions were recovered. The Assessing Officer made additions for unexplained expenditure, unrecorded rolling charges and undisclosed sales. Although the Commissioner of Income Tax (Appeals) granted partial relief, the Income Tax Appellate Tribunal, by its common order dated 30 May 2008, partly allowed the Revenue’s appeals and restored certain additions. For AY 1994-95, the High Court examined an addition of ₹3,50,000 based on unexplained cash payments reflected in seized records. The assessee claimed that some entries belonged to its sister concern, M/s B.R. Metals, or related to another assessment year. However, it failed to produce supporting evidence. The Court therefore upheld the addition under Section 69C, holding that the assessee had not satisfactorily explained the source of the expenditure.
The Court also considered additions arising from unrecorded rolling charges reflected in seized document A-1. For AY 1994-95, the Assessing Officer had determined undisclosed rolling charges of ₹4,64,536. The CIT(A) restricted the addition to 25% of those receipts and deleted ₹3,48,402 by allowing an estimated deduction for expenses. The Tribunal restored the deleted amount because the assessee failed to establish that the claimed expenses had actually been incurred. The High Court agreed, observing that the assessee neither disputed the receipt of rolling charges nor produced evidence supporting the expenditure claimed against those receipts. Similarly, for AY 1995-96, the Court upheld the Tribunal’s restoration of an addition of ₹3,76,726 relating to rolling charges recorded outside the regular books of account. The assessee had not demonstrated that the relevant transactions or associated expenditure were properly accounted for. Consequently, the Court found no justification for interfering with the Tribunal’s findings on either assessment year.
For AY 1995-96, the High Court further examined the treatment of undisclosed sales of ₹37,87,735 recorded in documents seized from the assessee’s partners. The Assessing Officer had applied a gross profit rate of 8%, whereas the CIT(A) reduced the rate to 2%. The Tribunal restored the Assessing Officer’s determination, including the disputed addition of ₹7,29,697, because the assessee failed to establish that the transactions did not belong to the firm or provide any valid justification for reducing the gross profit rate. The High Court held that the CIT(A) had given no adequate reasons for adopting the lower rate and that the 8% rate could not be regarded as excessive in the circumstances. It therefore affirmed the Tribunal’s findings concerning unexplained expenditure, unrecorded rolling charges and undisclosed sales. Finding no merit in either appeal, the High Court dismissed both appeals and disposed of the miscellaneous applications, if any. The decision emphasised the importance of supporting evidence when disputing transactions reflected in seized documents or claiming deductions against unrecorded receipts.
FULL TEXT OF THE JUDGMENT/ORDER OF PUNJAB AND HARYANA HIGH COURT
1. The aforementioned appeals have been preferred under Section 260-A of the Income Tax Act, 1961 (for short “the Act”) against the order dated 30.05.2008 passed by learned Income Tax Appellate Tribunal (for short “the Tribunal”) whereby two appeals filed by the revenue against appellant-assessee had been partly allowed. As both these appeals have been filed on identical facts and are substantially having the same questions of law, therefore, they are being disposed of by this common order.
2. The relevant facts sans unnecessary details are that the appellant-assessee had filed returns for the assessment year (for short “A.Y.”) 1994-95 and 1995-96 within statutory period. Those returns had been processed under Section 143 (1) (a) of the Act. A search and seizure operation at the residential premises of the partners of the appellant as well as its business premises was conducted on 05.08.1994 and some incriminating documents relating to the appellant-Firm for the relevant assessment years had been found. The cases of both assessment years were taken up for scrutiny and notices under different provisions of the Act were issued against it. After considering the replies filed by the appellant, the assessing officer vide order dated 27.03.1997 passed order qua A.Y. 1994- 95 and an order was passed on 27.03.1998 qua A.Y. 1995-96. Additions were made in the taxable income of the appellant for the relevant assessment years and proceedings for charging interest and imposition of penalty were ordered to be initiated separately.
3. Aggrieved by the orders passed by the assessing officer qua the additions made to its income, the appellant filed appeals before the Commissioner of Income Tax (Appeals), Shimla (for short “CIT (A)”) who vide separate orders dated 03.03.2001 as passed in those appeals, granted partial relief to the appellant thereby deleting certain additions. The revenue then filed appeals before the Tribunal which were allowed vide a common order dated 30.05.2008 which has been assailed by the appellant by filing the aforementioned appeals.
4. The Tribunal allowed addition to the tune of Rs.3,50,000/- and Rs.3,48,402/- qua the A.Y. 1994-95 and allowed additions of Rs.3,76,726/- and Rs,7,29,697/- respectively qua the A.Y. 1995-96. We will firstly take up the contentions raised by learned counsel for the parties with regard to the additions made in the income of the appellant qua the A.Y. 1994-95.
5. The first contention as raised by learned counsel for the appellant is that the order passed by the assessing officer making addition of an amount of Rs.8,36,936/- was illegal as while calculating this amount, the fact that all the figures were not pertaining to the relevant assessment year 1994-95 and they also included the purchases of goods made by the sister concern of appellant namely, M/s B.R. Metals, had not been considered. It is revealed from the order passed by assessing officer on 27.03.1997 that a document bearing No.32 that was seized during search, had been taken into consideration and the appellant had been asked to explain the entries as made therein. The appellant had claimed that some figures shown therein were qua the purchases made by it from its sister concern namely, M/s B.R. Metals and the amount of money as shown in this document was the amount of difference at which the goods mentioned therein could be sold in the market after being processed and the figures of the amount at which they had been actually purchased were also given. The assessing officer also observed that the entries as made in the searched document tallied with the entries of purchases as shown to be made in the books of account of the appellant, but observed that there was a difference of amount of Rs.8,36,936/- between these entries, since the books of account showed payment of amount in cheques but the entries made in the searched document showed payment by cash amount. The Tribunal after excluding the entries which were found to be not pertaining to the relevant assessment year, had calculated the amount as shown to be paid in cash by the appellant from undisclosed sources approximately as Rs.3,50,000/-. The order passed by the Tribunal has been challenged before this Court by the appellant only on the ground that the addition of Rs.8,36,936/- as made in the income of the assessee did not pertain to the year under scrutiny and some of the said amount related to the purchases made by M/s B.R. Metals. However, neither before the authorities below nor before this Court, the appellant could bring any material on record to show that the addition of Rs.3,50,000/- was not pertaining to the A.Y. 1994-95 or the same related to purchases not made by it but by its sister concern namely, M/s B.R. Metal. The assessee is proved to have incurred expenditure qua the relevant year but could not offer any explanation about the sources of expenditure or part thereof. The explanation as offered by him that the addition did not pertain to the year under scrutiny and was qua the purchases made by its sister concern had not been found to be satisfactory by the authorities below. As such, under the provisions of Section 69-C of the Act, such amount will certainly be deemed to be income of the assessee for the year 1994-95. Accordingly, we find no reason as to why the order passed by the Tribunal thereby making addition to the tune of Rs.3,50,000/- in the income of the appellant as income from undisclosed sources is liable to be interfered with. Hence, the argument so raised by the appellant is rejected.
6. The appellant has further challenged before this Court, the addition of a sum of Rs.4,64,536/- which was ordered to be made by the assessing officer in its income on account of unrecorded rolling charges. The record shows that one document numbered as A-1 was seized during the course of search. The appellant had not disputed the ownership of this document but had claimed that the entries made therein were not relevant to the assessment year under consideration. This document contained entries giving details of weight of flat and hot pattis (sheets), rolled and dispatched and the details of the certain amounts in the form of accounts in the name of different parties. It was observed by the assessing officer that the appellant was engaged in job work on flat sheets/pattis and had been receiving payment as shown in document A-1 in lieu thereof. Since the amount as shown in this document was not recorded in the regular books of account of the appellant for the relevant year, therefore, by calculating rolling charges @2.75 paise per kg and on taking into consideration, the weight of the sheets, the assessing officer had calculated the undisclosed income of the assessee as above i.e. Rs.4,64.536/-. The CIT (A) deleted the addition of an amount of Rs.3,48,402/- out of the said amount by considering that the addition so made was unrecorded income of the appellant but by observing that the entire rolling charges could not be taken as deduction as that would include element of profit and expenses also. The CIT (A) had calculated the net profit on the job receipts @25% only which came to be Rs.1,16,134/- and thereby deletion of an amount of Rs.3,48,402/- had been made. The Tribunal had restored addition of this amount on the ground that the appellant had failed to prove that it had incurred any expenses. Learned counsel for the appellant failed to point out any irregularity or illegality in the order as passed by learned Tribunal on this point. The appellant did not dispute that the fact that the entries made in document A-1 were qua the amount received as rolling charges. It could not produce any material on record to prove that the expenses which were shown to be incurred in respect of job work charges and received from various parties, were recorded in the books of account. As such, the appellant was certainly not entitled to deduction to the extent of 75% in the amount as shown and was liable to addition thereof. Resultantly, no intervention is required to be made by this Court in the order of Tribunal.
7. Let us now take up the arguments raised in the second appeal which is related to the A.Y. 1995-96.
8. Learned counsel for the appellant argued that the assessing officer had made an addition of an amount of Rs.5,76,726/- in the income of the appellant for the A.Y. 1995-96 on account of rolling charges received outside the books of account and the CIT (A) had allowed deduction @75% from the addition so made and had allowed addition to the extent of 25% only after calculating the net profit on job receipts. He argued that the Tribunal had illegally restored the addition of the said 75% on the ground that the transaction was not disputed by the appellant. On perusal of the orders passed by the authorities below, it is explicit that neither there was any challenge by the appellant of the fact that the entries made in the seized document were related to it nor it could establish that the transactions as shown in these seized document were recorded in its books of account. In our opinion, in the absence of any material being brought on record by the appellant to explain that the expenditure shown to have been incurred by it as per the entries made in the seized document, was recorded in the books of account,no fault can be found in the order passed by the Tribunal restoring addition of amount of Rs.3,76,726/-. As such, the order of the Tribunal on this point also deserves to be affirmed.
9. Challenge was further made by the appellant to the order passed by the Tribunal whereby gross profit was calculated @8% of sales shown to be made to the tune of Rs.37,87,735/- in the seized document. The addition of the abovementioned amount had been made by the assessing officer in the income of the appellant by treating the sales as shown in the seized document to be belonging to the appellant. It was observed that though the relevant documents were seized from the partners of the appellant-Firm but since those partners were not found engaged in the transaction of business in their individual capacity, therefore, it was the appellant who was liable to pay the same. The plea taken by the appellant that the sales of the account as shown in the seized document did not pertain to it, had been rejected by the authorities below. The assessing officer had assessed gross profit @8% on the sales whereas the CIT (A) had reduced the gross profit and assessed it @2%. The Tribunal had restored the deletion of a sum of Rs.7,29,697/- by way of reduction made in the gross rate from 8% to 2% on the ground that since there was no challenge on the part of the appellant qua the finding that the transactions shown in the searched document related to it and as no valid reason could be shown for reduction in the rate of profit which was normally applicable, therefore, the order as passed by the assessee deserved to be restored. The observations as made by the assessing officer and affirmed by the Tribunal on this point do not deserve any interference in view of the fact that the CIT (A) had not given any justification for reduction of the same. The gross profit calculated @8% cannot be stated to be on higher side at all and is reasonable one. As such, the finding given by the Tribunal on this point also deserve to be affirmed.
10. In view of the discussion as made above, it is held that there is no merit in the appeals as filed by the appellant. Consequently, the same are dismissed.
11. Miscellaneous application(s), if any, also stand disposed of.
