Salary paid Outside the Books of Account cannot be considered as Concealed Profit, No Addition to Income sustained: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Chandigarh bench comprising Shri N K Saini, vice president & Shri Sudhanshu Srivastava, has held that salary paid outside the books of account cannot be recognised as concealed profit and no addition can be made to the income of the assessee on such account.

The assessee firm belongs to M/s Roop Square Group of companies in which the return of income of Rs.7,67,200/- was submitted in response to notice issued u/s 153A of the Income Tax Act. The assessment was completed in terms of provisions of section 153A r.w.s. 143(3) of the Act at an income of Rs. 1,43,00850/- after making additions of alleged unexplained expenditure on salary u/s 69C of the Act, concealed net profit, undisclosed investment for earning the alleged concealed net profit.CIT (A) dismissed the assessee’s challenge to the assessment being framed u/s 153A of the Act.

The appellant submitted that CIT(A) has erred in confirming the action of the Assessing Officer in issuing notice u/s 153A and passing the order u/s 153A/143(3) since there was no search on the partnership concern and it was only a survey. Further contended that the addition of Rs. 23,37,618/- against the addition of Rs. 39,88,288/- on account of unrecorded payments to the employees.

 The AO made additions by taking the unrecorded payment to employees as the base. The assessee also furnished a table before the CIT (A) and submitted that if the concealed net profit is to be worked out based on the alleged salary sheet, then the figures mentioned in such chart ought to have been adopted. CIT (A) accepted this contention of the assessee and restricted the additions on account of concealed profits to the extent indicated in the chart submitted by the assessee.

The Tribunal observed that the AO has not adopted a correct approach in tabulating such alleged concealed profit and set aside the order of the CIT (A) on the issue of concealed net profits and direct the AO to delete the same. The appeal filed by the assessee was partly allowed, whereas the appeal of the revenue was dismissed. The assessee was represented by Sudhir Sehgal and the Revenue was represented by Vivek Nangia.

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