2022 (9) TMI 1589 - AT - Income Tax

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

ITAT Cuttack confirmed CIT(A)'s deletion of additions made by AO based on seized materials. The assessment violated natural justice principles as ... Assessment Based on Seized Materials - violation of natural justice - Addition based on estimate basis - HELD THAT:- Foundation on the basis of which the assessment has been done, being the so called extracts from BDJC-27 and CWJ-12, are not available with the department, nor they were provided to the assessee for his rebuttal. Coming to the appraisal report, though the CIT-DR refers to the same as the excel sheet prepared by the AO, this statement of the AO in his assessment order the comparison with the same with appraisal report, shows that these are nothing but the figures dawn out by the investigation wing in the appraisal report. The gold bars have been quantified at 98,284.36 gms and the old gold ornaments purchased net weight has been determined at 492.929 gms. The appraisal report, thus, determines the computation of purchases of Cuttack branch for the assessment year 2011-2012 at 126.555 gms whereas the sales have been determined at 50101.66 to be the transfer to the Bhubaneswar branch head office is 8572 gms. Even these are the information relating to the assessment year 2011-2012. The impugned first year of appeal is assessment year 2012-2013. After this excel sheet shows wherein for the assessment year 2012-2013, the net closing stock has been determined at 29,799 gms and in respect of silver in the assessment year 2012-2013, a net negative stock of 11,456 gms has been determined. As against this, the excel chart at page 15 shows positive figures for the four branches of the assessee being, Cuttack, Bhubaneswar, Angul and Guragaon for both gold and silver. On what basis the appraisal report has been prepared showing negative figures are also not known. Thus, clearly the assessment made is unsupported by any of the seized materials. No stock statement of the inventory as on the date of search is also produced. The revenue has been unable to produce any of the seized material to substantiate any of the figures for any of the assessment years. The so-called “working copy” of the hard disk being BDJC-27 has also not been produced before the Tribunal nor before the ld. CIT(A). CIT(A) was absolutely right in facts in arriving at the conclusion that the additions have been made in all the three assessment years under consideration in total violation of the principle of natural justice and that the additions have been made clearly on estimate basis. Wfind no error in the order of the ld. CIT(A) which calls for any interference. In these circumstances, the findings of the ld. CIT(A) on the issue for all the three assessment years under consideration, stands confirmed.Decided in favour of assessee. 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.