2015 (12) TMI 1504 - AT - Income Tax

ITAT upholds deletion of unaccounted income addition due to lack of evidence

ACIT, Circle, Hardwar Versus M/s Neeraj Clinic Pvt. Ltd.

The Income Tax Appellate Tribunal (ITAT) upheld the decision to delete the addition of Rs. 36,72,074/- as unaccounted income. The ITAT agreed that the ... Undisclosed receipts through post office - source of information - CIT(a) deleted the addition - Held that:- CIT (A) rightly observed that third party information is important for the purposes of assessment but it should be corroborated by relevant documentary evidences otherwise it cannot be acted upon to saddle the assessee with additions. Though the source of the information is a government organization, like in this case is a post office, the correctness of that information is countered by the assessee with by another piece of evidence emanating from the very same source, then the Post Master is duty bound to establish that the information supplied by him is correct by production of documents from where he has supplied the information to AO at the first place. In this regard, the ld. CIT (A) has noted that the information supplied by the post office to the AO was on monthly basis whereas it was supplied to the assessee on dayto- day basis. Thus, the contention of the assessee that there can be posting or compilation or totaling error cannot be ruled out unless the AO had called for the records from the post office and verified the same. Without doing the said exercise, the AO ought not to have made the addition simply by relying on the information given by the post office, when the assessee also has documentary evidence certified by the Post Master to support its claim. We further take note of the fact that the Post Master issued the certificates duly signed and stamped on day-to-day basis in the regular course of its business and which was the basis of audited books of accounts maintained by the assessee. We find force in the contention of the ld. AR that without rejecting the books of accounts maintained by the assessee company, the addition made simply on the basis of information from the post office without being corroborated or verified cannot be accepted. We further find that from a perusal of the statement of facts filed by the AO along with the appeal, vide letter dated 17.02.2005, the post office has brought to the notice of the AO that the documents for a period from 1999 to March 2002 has been weeded out. It was clearly mentioned that documents pertaining to period from April 2003 to July 2004 comprising of 1353 pages has been taken away by the Investigation Officer, C.O. Dalanwala, Dehradun on 04.09.2004. So, from the said letter, we can safely infer that records pertaining to the relevant assessment year i.e. 2003-04 (financial year 2002-03) was available with the concerned post office. We find that the AO has not taken any pains to call for the records before he passed the assessment order dated 31.03.2006 which he could have easily done. Further, we find that pursuant to the ld. CIT (A)'s seeking remand report, the AO simply stated vide letter dated 24.11.2008 that records of FY 2002-03 are not available. When insisted by the ld. CIT (A) vide letter dated 27.02.2009 a copy of statement on oath of Shri Lalit Mohan Joshi, the Post Master was recorded on 25.02.2009 which has been incorporated verbatim at page 3 of the ld. CIT (A)'s order wherein he simply states that the information given by them must have been based on the basis of cash book and money order payment book and could not be based on wrong facts and the documents have been weeded out. So, we find that the AO, during the original assessment, could have summoned the documents and could have verified the veracity of the statement of the assessee qua the information supplied by the post office. Without doing so, the AO could not have made the addition. We find that though the documents for the next assessment year were taken away by the Investigation Officer, C.O., Dalanwala, Dehradun for the period April 2003 to July 2004 comprising of 1353 pages, we find that the AO in the next assessment year i.e. 2004-05 has not made any addition and has accepted the return filed by the assessee - Decided against revenue Issues Involved:1. Discrepancy in the total receipts reported by the assessee and those reported by the Post Office.2. Addition of Rs. 36,72,074/- as unaccounted income by the Assessing Officer (AO).3. Admissibility and reliability of third-party information for assessment purposes.4. Verification of documentary evidence and records by the AO.5. Directions under Section 150 read with Section 153(3) of the Income Tax Act.Issue-wise Detailed Analysis:1. Discrepancy in Total Receipts:The core issue revolves around a discrepancy of Rs. 36,72,074/- between the total receipts reported by the assessee and those provided by the Post Office. The assessee reported total receipts of Rs. 11,24,57,934/- based on daily certificates issued by the Post Office, while the Post Office reported a higher figure of Rs. 11,61,30,008/-.2. Addition as Unaccounted Income:The AO, unsatisfied with the explanation provided by the assessee, treated the difference of Rs. 36,72,074/- as unaccounted income. The AO's stance was that the Managing Director (MD) of the assessee company had received the money on behalf of the assessee and its sister concern, and the difference could not be reconciled.3. Admissibility and Reliability of Third-Party Information:The Commissioner of Income-tax (Appeals) [CIT (A)] noted that third-party information, especially from a government organization like the Post Office, carries weight but must be substantiated with relevant documentary evidence. The CIT (A) highlighted that the information provided by the Post Office to the AO was a secondary document (monthly compilation), whereas the daily certificates issued to the assessee constituted primary evidence.4. Verification of Documentary Evidence:The CIT (A) directed the AO to seek clarification from the Post Office, which led to the recording of a statement by the Post Master. The Post Master indicated that the discrepancy could not be clarified without reference to the records, which had been weeded out as per departmental rules. The AO's failure to obtain documentary evidence or verify the records before making the addition was a critical point. The CIT (A) emphasized that the AO should have corroborated the third-party information with primary evidence before making the addition.5. Directions under Section 150 read with Section 153(3):The CIT (A) observed that if definite evidence substantiating the information supplied to the AO was received from the Post Office, the amount should be taxed in the hands of the MD, Dr. R.K. Gupta. The CIT (A) protected the revenue's interest by allowing the AO to initiate proceedings under Section 147 if such evidence surfaced.Conclusion:The Income Tax Appellate Tribunal (ITAT) upheld the CIT (A)'s decision to delete the addition of Rs. 36,72,074/-. The ITAT agreed that the AO had not substantiated the third-party information with relevant documentary evidence and had not rejected the audited books of accounts maintained by the assessee. The ITAT emphasized the importance of corroborating third-party information with primary evidence and confirmed the CIT (A)'s order, dismissing the revenue's appeal.