2022 (9) TMI 1589 - AT - Income Tax

Assessment additions based on seized materials deleted due to unavailable foundation documents and natural justice violations

ACIT (Central) Cuttack. Versus Bishandayal Jewellers AND (Vice-Versa)

ACIT (Central) Cuttack. Versus Bishandayal Jewellers AND (Vice-Versa) - TMI Issues Involved:1. Validity of additions based on seized materials.2. Admissibility of statements recorded u/s 132(4).3. Alleged non-provision of seized materials to the assessee.4. Confirmation of cash seizure as undisclosed income.Summary:1. Validity of Additions Based on Seized Materials:The revenue's appeals were directed against the order of the CIT(A) which had deleted the additions made by the AO based on the appraisal report from a search. The AO had issued a notice u/s 153A and made additions based on inventory items found during the search, such as loose sheets, a register, a hard disk, and a pen drive. The CIT(A) found that the AO had not made any independent enquiry and had relied solely on the appraisal report. The seized materials were not confronted to the assessee, violating the principles of natural justice. The Tribunal upheld the CIT(A)'s order, noting that the AO's assessment was unsupported by any seized materials and was made on an estimate basis.2. Admissibility of Statements Recorded u/s 132(4):The CIT-DR argued that the partner's statement u/s 132(4), admitting to a disclosure of Rs. 10 crores, should be upheld despite the retraction. The Tribunal noted that for a retraction to be valid, it must be made promptly and supported by evidence. The assessee's retraction was made after 22 months, and no evidence was provided to show coercion or inducement. However, the Tribunal found that the additions were not corroborated by seized materials, and thus, the CIT(A)'s decision to delete the additions was upheld.3. Alleged Non-Provision of Seized Materials to the Assessee:The assessee contended that the seized materials were not provided, and the AO had not made any independent enquiry. The CIT(A) found that the AO had not confronted the seized materials to the assessee. The Tribunal agreed, noting that the Mahazarnama did not show that the AR of the assessee had come with a computer and software to extract data. The Tribunal concluded that the foundation for the assessment was not available with the department, and the additions were made on an estimate basis.4. Confirmation of Cash Seizure as Undisclosed Income:The assessee's cross objection challenged the addition of Rs. 23,28,690/- as undisclosed income. The Tribunal upheld the AO and CIT(A)'s findings, noting that the assessee had not produced any evidence to explain the cash found during the search. The Tribunal denied accepting fresh evidence and dismissed the cross objection.Conclusion:The Tribunal dismissed the revenue's appeals and the assessee's cross objection, upholding the CIT(A)'s order that the additions were made in violation of natural justice and on an estimate basis. The Tribunal confirmed the addition of Rs. 23,28,690/- as undisclosed income.