Tribunal grants appeal, deletes Rs. 42 lakhs addition for unaccounted proceeds, remands Rs. 6,36,572 income declaration.

The Tribunal allowed the appeals filed by the assessee, resulting in the deletion of the addition of Rs. 42 lakhs for each assessment year concerning unaccounted proceeds from waste cotton sales under Section 69A of the Income Tax Act, 1961. Additionally, the Tribunal remanded the issue of the addition of Rs. 6,36,572, declared as income before the Settlement Commission, back to the Assessing Officer for verification and possible deletion if accepted by the Settlement Commission.

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Issues Involved:
1. Addition of Rs. 42 lakhs in each assessment year on account of alleged unaccounted proceeds from waste cotton sales under Section 69A of the Income Tax Act, 1961.
2. Addition of Rs. 6,36,572 declared as income in the application filed before the Settlement Commission in the hands of M/s. Seyadu Beedi Company.

Detailed Analysis:

1. Addition of Rs. 42 Lakhs for Unaccounted Proceeds from Waste Cotton Sales:

The primary issue in these appeals concerns the confirmation by the Commissioner of Income Tax (Appeals) [CIT(A)] of the Assessing Officer's (AO) action in making an addition of Rs. 42 lakhs in each of the assessment years on account of alleged unaccounted proceeds from waste cotton sales under Section 69A of the Income Tax Act, 1961. The facts are identical across all six assessment years, and the case of AY 2018-19 was taken as a representative.

The assessee, a limited company and part of the Seyadu group, underwent a search and seizure operation under Section 132 of the Act on 28.06.2017. Based on the material gathered, notices under Section 147 were issued for AYs 2013-14 to 2018-19. The AO noted that while the sales of certain types of cotton waste were properly recorded and remittances received through RTGS, the sales of "waste cotton-others" were only partially recorded, with 50% of the sales value received in cash and not accounted for in the books.

The AO's addition was based on statements from employees during the search, which indicated unaccounted sales of cotton waste. However, the assessee argued that these statements were retracted and unsupported by any incriminating material or seized documents. The CIT(A) upheld the AO's decision, considering the statements as tangible material for the addition.

Upon appeal to the Tribunal, the assessee contended that the addition was made solely on the basis of employee statements without any corroborative evidence, citing CBDT instructions and judicial precedents emphasizing the need for credible evidence in such cases. The Tribunal noted the absence of any incriminating material or substantial assets found during the search to support the unaccounted sales claim. The Tribunal also highlighted the legal requirement under Section 69A for the presence of money, bullion, jewelry, or other valuable articles, which was not met in this case.

The Tribunal concluded that the addition was based on suspicion and conjecture without evidence, and thus, the addition of Rs. 42 lakhs for each assessment year was deleted.

2. Addition of Rs. 6,36,572 Declared as Income Before Settlement Commission:

The second issue pertains to the addition of Rs. 6,36,572, which the assessee claimed was already declared as income in the application filed before the Settlement Commission in the hands of M/s. Seyadu Beedi Company. The assessee requested that this amount be verified and, if accepted by the Settlement Commission, be deleted.

Both the assessee's representative and the Department's Senior DR agreed that the matter should be remanded to the AO for verification and adjudication. The Tribunal restored this issue to the AO for verification, directing that if the amount was indeed declared and accepted by the Settlement Commission, it should be deleted.

Conclusion:

The appeals filed by the assessee in ITA Nos. 118, 119, 120, 121 & 122/Chny/2021 were allowed, and ITA No. 123/Chny/2021 was partly allowed for statistical purposes. The Tribunal's order was pronounced on 31st January 2022 at Chennai.

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