Tribunal rejects unaccounted cash sales addition due to lack of evidence

Oriental Containers Ltd. Versus ACIT

Oriental Containers Ltd. Versus ACIT - [2010] 41 SOT 23 (MUM.) (URO) Issues Involved:
1. Legitimacy of the addition of Rs. 3,05,80,428 as unaccounted cash sales of scrap based on loose papers found during the search.
2. Validity of the statement and subsequent retraction by Mr. P.R. Kabra.
3. Evaluation of the evidence provided by the assessee to counter the allegations of unaccounted sales.
4. Assessment of the procedural and legal aspects of the search and seizure under section 132 of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Legitimacy of the Addition of Rs. 3,05,80,428:
The core issue is whether the addition of Rs. 3,05,80,428 as unaccounted cash sales of scrap is justified based on loose papers found during the search. The Assessing Officer (AO) based the addition on the difference in the sale rates of scrap mentioned in the loose papers and the invoices. The AO noted that Mr. P.R. Kabra admitted to receiving the difference in cash, which was used for unaccounted expenses. The CIT(A) confirmed the addition, emphasizing the suspicious delay in filing the retraction affidavit and the lack of supporting evidence for the retraction. However, the Tribunal found that the loose papers alone, without corroborative evidence of actual cash transactions or unaccounted assets, do not substantiate the claim of unaccounted income.

2. Validity of the Statement and Retraction by Mr. P.R. Kabra:
Mr. Kabra's statement recorded under section 132(4) during the search admitted to unaccounted cash sales, but he later retracted this statement through an affidavit, claiming it was made under duress. The AO and CIT(A) dismissed the retraction due to the delay and lack of immediate complaint of coercion. The Tribunal, however, noted that statements under section 132(4) are not conclusive and can be retracted if proven to be made under pressure. The Tribunal found Mr. Kabra's retraction credible, especially given the lack of corroborative evidence supporting the initial statement.

3. Evaluation of Evidence Provided by the Assessee:
The assessee provided several pieces of evidence to counter the allegations, including:
- Comparable rates of scrap sales from other companies.
- Statements from purchasing parties denying any cash transactions.
- Invoices and records showing scrap sales at market rates.
- Details of excise examinations with no adverse remarks.
The Tribunal found this evidence compelling, indicating that the scrap sales were accounted for in the books and no unaccounted cash transactions occurred. The Tribunal also noted that the AO failed to find any unaccounted cash or assets during the search, which would support the claim of unaccounted income.

4. Procedural and Legal Aspects of the Search and Seizure:
The Tribunal emphasized the need for search and seizure operations under section 132 to be conducted strictly according to the provisions of the Act. The objective of such searches is to uncover undisclosed income, not merely to find loose papers or documents. The Tribunal highlighted that the loose papers found must be linked to actual undisclosed income or assets. In this case, the Tribunal found that the loose papers did not meet this criterion, as they were not backed by evidence of actual unaccounted income or assets.

Conclusion:
The Tribunal concluded that the addition of Rs. 3,05,80,428 as unaccounted cash sales of scrap was not justified. The evidence provided by the assessee, the retraction of Mr. Kabra's statement, and the lack of corroborative evidence from the AO led to the deletion of the addition. The appeal of the assessee was allowed, and the order pronounced in open court on 16th July 2010.