Valuation of sales taken in two different years by AO held inappropriate, ITAT

Facts in Brief:

1. In assessment, the assessee filed return of income declaring income.

2. Survey under section 133A (of Income Tax Act, 1961) was conducted in the business premises of the assessee.

3. Assessee disclosed an amount of Rs. 2.5 Crores during the course of survey.

4. The Assessing Officer made certain additions on account of disallowance of expenditure.

5. Further, as per Profit & Loss Account submitted by assessee, it was noted that assessee company has shown income from sale of land for Rs. 3,45,82,206/-.

6. The assessee was asked to give break-up of the same and assessee furnished Sale Deed of the land sold in Khanpur by the assessee company.

7. Assessment was completed by making minor additions.

8. The assessee challenged minor additions.

9. On appeal CIT(A) confirmed it.

On appeal ITAT held,

10. We are of the view addition of Rs. 28,36,772/- in assessment year 2006-07 would amount to double addition. It is not in dispute that survey was conducted in the case of the assessee on 22.03.2007 and assessee surrendered Rs. 2.5 Cr in the hands of the assessee as well as two of its Directors in both assessment years under appeal and assessee also paid taxes thereon. In assessment year 2006-07, assessee surrendered Rs. 26.22 lacs and in assessment year 2007-08 assessee surrendered Rs. 157.84 lacs and paid the taxes thereon. The rest of the amount was surrendered in the hands of the Directors. PB-31 is the trading and Profit & Loss Account ending 31.03.2007 in which assessee has declared sales of land at Rs. 3.45 Cr and the net profit as per surrender is shown at Rs. 157.84 lacs.

11. In normal course, such a huge profit could not have been earned on the sale of Rs. 3.45 Cr. Thus, assessee declared the entire sale consideration in assessment year 2007-08 and declared income thereon and also paid the taxes on the same. Thus the income of Rs. 157.84 lacs declared in assessment year 2007-08 would be on the total sales of Rs. 3.45 Cr. The assessee in the surrender letter explained that this surrender is made to cover up the past discrepancies in the sale/purchase of lands etc.

12. Therefore, if Assessing Officer wanted to bifurcate the figure of sales of Rs. 3.45 Cr in two assessment years above, then the corresponding surrender in assessment year 2007-08 should have also been reduced for the purpose of making addition in assessment year 2006-07. The Assessing Officer, however, did not do so and accepted the surrendered income in both the assessment years as per return of income filed by the assessee. While passing the assessment order also, no corresponding reduction have been made in assessment year 2007-08.

13. Therefore, assessee rightly contended that it would amount to double addition because on one hand, Assessing Officer accepted surrendered income in both the assessment years but while making addition in assessment year 2006-07 of Rs. 28,36,772/- on the basis of bifurcation of the sales of Rs. 3.45 Cr, no further benefits have been allowed to the assessee by reducing the income from computation of income in assessment year 2007-08.

14. Since assessee explained that surrender was made to cover up discrepancies in the sales, therefore, the course adopted by the Assessing Officer to take the valuation of sales in two different years would be wholly inappropriate and unjustified. We may also note that the Assessing Officer in the computation of tax liability, has taxed the income of the assessee @ 33.66% in both assessment years. Therefore, rate of tax is same for both the assessment years under appeals and as such, whether higher surrender is made in assessment year 2007-08, would not make any difference and revenue is not going to loose anything in this way.

15. Hon'ble Supreme Court in the case of CIT Vs Excel Industries Ltd. & another 358 ITR 295 held as under :

Thirdly, the real question concerning us is t h e y e a r i n wh i c h t h e a s s e s s e e i s r e q u i r e d t o pay tax. T here is no dispute that in the subsequent accounting year, the assessee did make impor ts and did derive benef its under the advance licence and the duty entitlement pass book and paid tax thereon. Theref ore, it is not as if the Revenue has been deprived of any tax. We are told that the rate of tax rema i n e d t h e s a m e i n t h e p r e s e n t a s s e s s me n t y e a r a s we l l a s i n t h e s u b s e q u e n t a s s e s s me n t year. Theref ore, the dispute raised by the Revenue is entirely academic or at best may have a minor tax effect. There was, theref ore, n o n e e d f o r t h e R e v e n u e t o c o n t i n u e wi t h t h i s l i t i g a t i o n wh e n i t wa s q u i t e c l e a r t h a t n o t o n l y w a s i t f r u i t l e s s ( o n me r i t s ) b u t a l s o t h a t i t m a y n o t h a v e a d d e d a n y t h i n g mu c h t o t h e p u b l i c coffers.

16. Considering the above discussion in the light of the decision of Hon'ble Supreme Court in the case of Excel Industries Ltd.(supra), we set aside the orders of authorities below for assessment year 2006-07 and delete the addition of Rs. 28,36,772/-. Resultantly, the remaining grounds of assessee in assessment year 2006- 07 would stand dismissed as not pressed. Appeal of assessee in assessment year 2007-08 would stand dismissed as no further interference is called for in the matter.

17. In the result, appeal of the assessee in assessment year 2006-07 is partly allowed and appeal of the assessee in assessment year 2007-08 is dismissed.

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