2021 (1) TMI 671 - AT - Income Tax

Tribunal upholds CIT(A)'s decision on additions for A.Ys 2011-12 to 2016-17

Dy. Commissioner of Income Tax Central Circle-1 Guntur Versus Sri Arunachalam Manickavel Prop : M/s Bharathi Soap Works

The Tribunal upheld the CIT(A)'s decision to delete the additions made by the AO for the A.Ys 2011-12 to 2016-17. The Tribunal found that the AO did not ... Voluntary admission u/s.132(4) - under invoicing of sales and unaccounted purchase of acid slurry - whether entry in books of account can be incriminating when the assessee failed to explain it with proof as in the instant case, the assessee failed to explain the variation in charging different rates in sale invoices and admitted the income on account of it - HELD THAT:- Hon’ble Supreme Court in Pullangode Rubber Produce Co. Ltd..v.State of Kerala, [1971 (9) TMI 64 - SUPREME COURT] held that an admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It is open to the person who made the admission to show that it is incorrect. In the instant case there was no evidence found in the premises of the assessee to show that the assessee is under invoicing the sales. No other material was found and seized from the premises of the assessee with regard to receipt of cash from the distributors. No evidence was found in the premises of the distributors also to establish that the assessee was paid unaccounted cash by the distributors. The AO could not rebut the submissions of the assessee with regard to sale price and under invoicing with relevant facts and evidences - additions made on the basis of statement u/s 132(4) without having corroborating evidence is unsustainable and accordingly we uphold the order of the Ld.CIT(A) and dismiss the appeals of the revenue on this issue. Unaccounted purchases of Acid Slurry - In response to the show cause notice issued by the AO, the assessee filed explanation stating that the component of acid slurry in soap manufacture is 20% and the entire purchases made from the supplier was duly accounted and no unaccounted purchases was made by the assessee - HELD THAT:- In the instant case, search was conducted on 30.08.2016 and the assessee filed the return of income on 10.04.2017 admitting the income, which was declared in original return of income, thus, made it clear that the assessee has gone back from the admission given u/sec. 132(4). The assessee also retracted the statement subsequently, once the assessee retracted the statement recorded u/sec. 132(4), it is incumbent on the AO to prove the unaccounted purchases alleged to have been made by the assessee as discussed earlier in this order while discussing the issue of ‘under invoicing’ as held by the Hon'ble Jurisdictional High Courts and other cases relied upon by the assessee. No sale bills issued by the supplier to the assessee which was found to be unaccounted in the books of the assessee were available in the premises of M/s Mahaveer Surfactants Pvt. Ltd., during the course of survey. No lorry receipts for transportation of goods, weighment slips etc. were available with the supplier. AO also did not place any evidence regarding the assessment made in the hands of supplier M/s Mahaveer Surfactants with regard to discrepancy found during the course of survey, specifically with regard to the assessee. It is obligation of the AO to make necessary enquiries to ascertain the correctness of the statement recorded from Mahaveer Surfactants and make out a case for addition in the hands of the assessee as well as Mahaveer Surfactants Pvt. Ltd., No such exercise was made by the AO. Thus, we hold that the addition made by the AO on account of acid slurry solely on the basis of statement recorded u/sec. 132(4) without any tangible evidence is unsustainable. - Decided against revenue. Validity of making additions u/sec. 153A without having the seized material - HELD THAT:- In search cases once the assessment is completed or unabated the assessing officer is not permitted to make the additions without having the seized material. There is no dispute that the entire addition was made on the statement recorded u/s 132(4) without having any incriminating material. Thus in completed assessments the AO is not permitted to make additions without having the seized material/ incriminating material. Accordingly we, uphold the orders of the Ld.CIT(A) to the extent of deleting the addition without having the seized material and dismiss the appeal of the Revenue on this issue. Issues Involved:1. Condonation of delay in filing appeals.2. Validity of additions made under Section 153A without incriminating material.3. Admissibility and reliance on statements recorded under Section 132(4).4. Allegations of under-invoicing of sales.5. Allegations of unaccounted purchases of acid slurry.6. Right to cross-examine witnesses.7. Holistic view of circumstantial evidence and proof gathered during search.Issue-wise Detailed Analysis:1. Condonation of delay in filing appeals:The appeals were filed with a delay of 3 days. The delay was attributed to administrative reasons, and both parties were heard on this matter. The delay was condoned, and the appeals were admitted.2. Validity of additions made under Section 153A without incriminating material:The assessee argued that the additions made for the Assessment Years (A.Y.) 2011-12 to 2014-15 were not based on any incriminating material found during the search. The Commissioner of Income Tax (Appeals) [CIT(A)] agreed, holding that in completed assessments, additions should be made only on the basis of material found during the search. This was supported by various judicial precedents, including decisions of the ITAT and jurisdictional High Court. Consequently, the CIT(A) deleted the additions made by the Assessing Officer (AO).3. Admissibility and reliance on statements recorded under Section 132(4):The Revenue contended that the assessee's voluntary admission under Section 132(4) was sufficient to uphold the additions. However, the CIT(A) and the Tribunal found that statements recorded under Section 132(4) without corroborative evidence cannot be the sole basis for additions. The Tribunal cited various judicial precedents, including decisions from the Gujarat High Court and Delhi High Court, which emphasized that such statements need to be supported by incriminating material found during the search.4. Allegations of under-invoicing of sales:The AO alleged that the assessee was involved in under-invoicing of sales and receiving the differential amount in cash. This was based on a statement recorded under Section 132(4) and some circumstantial evidence. The assessee retracted the statement and provided detailed explanations about the pricing mechanism, which involved multiple layers (distributor, wholesaler, retailer) before reaching the end consumer. The CIT(A) found that no incriminating material was found during the search to support the allegation of under-invoicing. The Tribunal upheld the CIT(A)'s decision, noting that the AO did not provide specific details or corroborative evidence to substantiate the claim.5. Allegations of unaccounted purchases of acid slurry:The AO alleged unaccounted purchases of acid slurry based on a survey conducted at M/s Mahaveer Surfactants Pvt. Ltd. and a statement from its director. The assessee admitted the unaccounted purchases under pressure but later retracted the statement. The CIT(A) found that the AO did not provide any tangible evidence to support the allegation, such as unaccounted sale bills or transportation documents. The Tribunal upheld the CIT(A)'s decision, emphasizing that additions cannot be made solely based on statements recorded under Section 132(4) without corroborative evidence.6. Right to cross-examine witnesses:The assessee argued that they were not given the opportunity to cross-examine the witnesses whose statements were used against them. The CIT(A) noted that the AO did not allow cross-examination of the witnesses and relied on vague statements without corroborative evidence. The Tribunal agreed, stating that the AO should have provided the opportunity for cross-examination, especially when the statements were a significant basis for the additions.7. Holistic view of circumstantial evidence and proof gathered during search:The Revenue argued that the CIT(A) should have taken a holistic view of the circumstantial evidence and proof gathered during the search. However, the CIT(A) and the Tribunal found that the evidence presented by the AO was insufficient to substantiate the allegations. The Tribunal emphasized that the AO must provide specific details and corroborative evidence to support the claims, rather than relying solely on statements recorded under Section 132(4).Conclusion:The Tribunal upheld the CIT(A)'s decision to delete the additions made by the AO for the A.Ys 2011-12 to 2016-17. The Tribunal found that the AO did not provide sufficient corroborative evidence to support the allegations of under-invoicing of sales and unaccounted purchases of acid slurry. The Tribunal also emphasized the importance of providing the opportunity for cross-examination and the need for incriminating material to substantiate additions in completed assessments. The appeals of the Revenue were dismissed.