ITA No. 751 of 2010 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 751 of 2010 Date of Decision: 9.5.2011 M/s Bassi Tubes Pvt. Ltd. ....Appellant. Versus C.I.T. ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL, ACTING CHIEF JUSTICE. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. S.K. Mukhi, Advocate for the appellant. AJAY KUMAR MITTAL, J. 1. This appeal has been preferred by the assessee under Section 260A of the Income Tax Act, 1961 (in short “the Act”) against the order dated 24.09.2009 passed by the Income Tax Appellate Tribunal, Chandigarh Bench “B” (hereinafter referred to as “the Tribunal”) in ITA No. 45/Chandi/2009, for the assessment year 2005-06, claiming the following substantial questions of law:- “A) Whether on the facts and circumstances of the case, the ITAT was justified in confirming the action of authorities below in making double addition of the surrendered amount of Rs.43 lacs which stood added in the profit and loss account and thereby adding the ITA No. 751 of 2010 -2- same independently while computing the taxable/ assessed income of the appellant company which is against the established principles of law as so held in the case of Laxmipati Singhania v. CIT, UP 72 ITR 291 (SC)? B) Whether the ITAT was justified in upholding the order of authorities below in rejecting the duly audited books of accounts u/s 145(1) without specifying any specific defect or discrepancy in the books of accounts irrespective of the fact for any discrepancies found during survey an amount of Rs.43 lacs was duly surrendered subject to no further additions which was so done to buy peace of mind and to avoid protracted litigation subject to no penalty while all these conditions of surrender were ignored but for acceptance of the surrendered amount which is against the established principles of law as laid down by this Hon'ble Court that the surrender has to be accepted in toto as so held in the case of CIT v. Smt. Sudershan Gupta (2008) 10 DTR (P&H) 184? C) Whether on the facts and circumstances of the case, the order of ITAT devoid of appreciation of merits of the case and thus bad in law, perverse and liable to be set aside?” 2. Briefly stated, the facts necessary for adjudication as narrated in the appeal are that the assessee is a company engaged in ITA No. 751 of 2010 -3- the business of manufacturing steel tubes. It filed its return for the assessment year 2005-06 on 29.10.2005 declaring an income of Rs.2,46,276/-. A survey was conducted at the business premises of the assessee on 9.12.2004. During the course of survey, the assessee surrendered a sum of Rs.43 lacs. After crediting the surrendered income of Rs.43 lacs in the profit and loss account, the gross profit rate declared was 5.51% as against 5.49% in the earlier assessment year and the net profit to turnover was 2.42% as against 2.14%. The Assessing Officer after excluding the aforesaid surrendered amount from the income found that there was net loss of Rs.15,03,175/- and the G.P. rate worked out to be 1.79% only. The net profit for the year under consideration was Rs.25,75,178/- and after making adjustment including current depreciation, the income came to Rs.26,93,645/- and after adjusting unabsorbed depreciation of the earlier years, the income was Rs.2,46,276/-. The Assessing Officer vide order dated 27.12.2007 while holding that the G.P. rate of the assessee was low made an addition of Rs.43 lacs. Penalty proceedings were also initiated separately against the assessee for furnishing inaccurate particulars. Feeling aggrieved, the assessee approached the Commissioner of Income Tax (Appeals) [in short “the CIT(A)”]. The CIT(A) vide order dated 23.12.2008 upheld the order of the Assessing Officer in principle but had scaled down the addition by a sum of Rs.2,89,000/-. Being not satisfied, the assessee approached the Tribunal who vide order dated 24.9.2009 partly allowed the appeal of the assessee. Still feeling dissatisfied, the assessee has approached this Court by way of instant appeal. ITA No. 751 of 2010 -4- 3. We have heard learned counsel for the assessee. 4. Learned counsel for the assessee submitted that during the course of survey, the assessee had surrendered an amount of Rs.43,00,000/- and he referred to Annexure A-5, a letter written by the assessee to the Assessing Officer that the same was surrendered in order to buy peace and to avoid protracted litigations and subject to the condition that no further addition would be made. According to the learned counsel, the aforesaid amount was shown while preparing the accounts and, therefore, no addition on that account could be made twice as had been done by the authorities below. Reference was made to judgments referred in the substantial questions of law claimed by the assessee. 5. After giving our thoughtful consideration to the submissions made by learned counsel for the assessee and perusing the orders passed by the authorities below, we do not find any substance in the same. The assessee had surrendered an income of Rs.43 lakhs during survey under Section 133A of the Act on 9.12.2004 under various heads as under:- (i) Rs.16,00,000/- on account of excess cash found over and above the cash in hand in the books of accounts; (ii) Rs.12,00,000/- on account of maximum negative cash in hand in the books during the period from 1.4.2004 to 8.12.2004; (iii) Rs.15,00,000/- on account of unexplained cash credits in the books of account as on 8.12.2004. 6. The assessee had declared the surrendered amount of Rs.43 lacs on account of specific discrepancies which was not relatable ITA No. 751 of 2010 -5- to any manufacturing activity. The assessee as per its letter had surrendered the aforesaid amount to cover the discrepancies in cash, stocks and unexplained cash credits. Thus, the income disclosed by the assessee for the assessment year in question ought to be more by this amount. However, the assessee disclosed an income of Rs.27,96,824/- including the surrendered amount of Rs.43 lacs. In other words, the assessee tried to show huge loss between 9.12.2004 and before the close of the financial year. After excluding Rs.43 lacs from the profit and loss account, the gross profit rate for the year under consideration worked out to 1.79% against over 5% during the last three assessment years. The Assessing Officer, CIT(A) and the Tribunal had not accepted the plea of the assessee. The Tribunal while upholding the findings of the CIT(A) and the Assessing Officer with respect to the surrender of Rs.43,00,000/- and rejecting the said plea of the assessee had recorded as under:- “6. We have considered the rival submissions carefully. As the conspectus of facts show, in the instant case, the assessee filed a return of income declaring income of Rs.2,46,276/- which include an income of Rs.43 lacs surrendered during the course of survey on 9.12.2004. On the basis, the Assessing Officer deduced that in effect, other than the surrendered income, the assessee had incurred a loss of Rs.15,03,175/-. Clearly the onus to satisfactorily explain such loss was of the assessee. The Assessing Officer required the assessee to ITA No. 751 of 2010 -6- explain the low yield of the finished goods and higher burning loss/scrap declared during the year viz-a-viz the results of the immediately preceding year. The reasons explained by the Assessing Officer are in para 11.1 of the assessment order. 7. Evidently, apart from making general observations regarding the fluctuations in the prices of the raw material and quality of the raw material etc., there are no specific reasons pointed out for the lower yield and the higher burning/production loss during the year. In our view, the explanation has been rightly rejected by the Assessing Officer. For the aforesaid reasons, we find justifiable reasons with the Assessing Officer to have held the book results declared by the assessee as unreliable. In so far as the adoption of the G.P. rate of 5.51% to compute the income is concerned, herein also we find no reasons to interfere with the action of the Assessing Officer. The CIT(Appeals) has varied the additions by a sum of Rs.2,89,000/- on account of re-computing the turnover of the assessee. On this score, the addition has been worked out to Rs.40,11,000/-. We hereby affirm the decision of the CIT(Appeals) in sustaining the stand of the Assessing Officer, though modified as above. 8. Regarding the plea of the assessee that the ITA No. 751 of 2010 -7- addition on account of low G.P. rate to be set off against the amount surrendered of Rs.43 lacs, we find no justification for the same. The surrender was made by the assessee vide communication dated 22.12.2004, a copy of which is in the Paper Book at pages 1 & 2. From its perusal, it is evident that out of Rs.43 lacs, a sum of Rs.16 lacs has been surrendered on account of excess cash found; Rs.12 lacs on account of maximum negative cash balance in the books upto the period 8.12.2004; and Rs.15 lacs on the account of unexplained cash credits in the books of accounts up to 8.12.2004. It is, therefore, clear that the amount of Rs.43 lacs surrendered during the survey is on account of specific discrepancies and is not relatable to any manufacturing activity. Therefore, to say that such a surrender would cover the addition on account of un- reliability in the manufacturing/trading results of the assessee, would be wrong. Hence, we find no justification for the plea of the assessee to set off the income surrendered during the survey against the addition made by the Assessing Officer on account of trading results. Hence, on this issue the assessee fails.” 7. No error or perversity could be pointed out in the aforesaid finding recorded by the Tribunal. The CIT(A) and the Tribunal after ITA No. 751 of 2010 -8- allowing benefit of Rs.2,89,000/- on account of re-computation of turnover of the assessee had sustained the addition of Rs.40,11,000/-. The judgments on which reliance had been placed, being based on individual fact situation involved therein, do not advance the case of the assessee in the light of the concurrent findings recorded by the Assessing Officer, CIT(A) and the Tribunal. 8. In view of the above, no substantial question of law arises in this appeal. The appeal is accordingly dismissed. (AJAY KUMAR MITTAL) JUDGE May 9, 2011 (ADARSH KUMAR GOEL) gbs ACTING CHIEF JUSTICE