2022 (10) TMI 76 - AT - Income Tax

Ruling holds s.133A survey statements lack evidentiary value, deletes loan and stock additions, applies s.115BBE only to cash

ITAT Indore partly allowed the assessee's appeal. Additions for alleged unexplained loans/advances based on a survey statement and a diary were deleted, ... Undisclosed income u/s 68 and 69 - survey u/s 133A(1) was carried out on the business premises of the appellant - appellant submitted that statement recorded during survey has no evidentiary value and further contended that the diary found from the business premises is a dumb document - HELD THAT:- As statement which has already been claimed to have been retracted by the assessee though the same has not been taken into consideration by the Revenue, even otherwise cannot be relied upon since the same was recorded u/s 133A having no evidentiary value in the eye of law. We are enlightened and inspired by several judgments passed by different judicial forums including that of the judgments cited hereinabove. Moreso, we find no enquiry was conducted by the AO from even a single person named in the so called diary, if at all, to strengthen the finding of Revenue culminating with addition. It is the duty of Revenue to collect necessary evidence which may provide an acceptable narration to various entries relied upon, in the absence of which, merely on the basis of piece of paper, without having any details thereof in regard to the transaction as we have already discussed, hereinabove, the addition is not found to be sustainable. The impugned addition on account of loans/advances is, hereby, deleted. Addition of excess stock - assessee surrendered on account of excess stock found during the course of survey - The assessee submitted that the audited books of accounts are correct and submitted that addition has been made only on the basis of the statement recorded during survey. No unaccounted cells/purchase invoices were found during the survey. No unaccounted lorry receipt, no unaccounted party Ledger found during the said survey. It was further contended by the Ld. AR that the survey team could not have counted and physically could have verified the stock within a limited time period of certain hours of survey. Even the colour pertaining to number of item(pieces/box/pockets/bori) and column of quantity per item(length/area/volume/weight is not mentioned. Such case made out by the assessee has not been able to be controverted by the Ld.DR. Hence, in the absence of any valid documents, the addition made in regard to excess stock found to be not sustainable. Thus, the same is thus quashed. The third component being excess cash found during survey could not be explained by the assessee. The same is, therefore, confirmed. Applicability of Section 115BBE - We find that the assessee is a partnership firm and other than individual. The only source of income of the assessee is the business income; unlike an individual partnership firm cannot have several source of income. It is further observed that the assesee had disclosed income of Rs 1 crore to buy mental peace. Business transaction, thus, in such circumstances, in our considered opinion the income cannot be said to be from undisclosed sources attracting section 115BBE. Hon’ble ITAT, Guwahati in Abdul Hamid [2020 (8) TMI 141 - ITAT GAUHATI] held that section 115BBE is not applicable to the undisclosed income embedded in undisclosed business receipts / turnover. In these decisions and many other, the judicial view is that section 115BBE does not apply to the income, the source of which is business. Thus in conclusion, it is held the income of Rs. 1 Crore shall not attract section 115BBE but the undisclosed income attributable to excess cash shall attract section 115BBE. This Ground is therefore, partly, allowed. This identical ground partly allowed in view of no change in circumstances. Addition on account of fringe benefit tax u/s 40(a)(ic) - HELD THAT:- As the assessee had repeatedly asked the Ld. AO to provide the source of FBT expenditure as alleged. But the Ld. AO has not communicated to the assessee. However, the assessee has made working from P&L A/c and somehow calculated that the sum is on account of total of certain expenses which are allowable under the act. We are satisfied with the submission of assessee. Accordingly, we delete the addition made by Ld. AO. This Ground is accordingly allowed. Disallowance of interest, business expenses and towards excessive purchases - HELD THAT:- We find that the assessee in spite of given several opportunities not filed any written submission before the authorities below. Hence these three additions are found to be sustainable in the absence of any written/oral submission filed before us. These three additions are, therefore, confirmed. Issues Involved:1. Addition of Rs.3,11,56,849/- under Section 69.2. Addition of Rs.1,00,00,000/- and Rs.3,11,56,849/- under Section 115BBE.3. Disallowance of genuine business expenses as Fringe Benefit Tax.4. Overall addition of Rs.4,11,56,849/-.5. Addition under Section 69.6. Disallowance of interest, business expenses, and excessive purchases.Issue-wise Detailed Analysis:1. Addition of Rs.3,11,56,849/- under Section 69:The assessee contested the addition of Rs.3,11,56,849/- as undisclosed income under Section 69, claiming the amount was not income and the provisions of Sections 68 and 69 were inapplicable due to a surrender obtained during a survey under Section 133A based on uncorroborated documents. The tribunal noted that the statement recorded during the survey had no evidentiary value and any admission made could not be the basis for addition. The tribunal cited judgments from the Supreme Court and various High Courts, emphasizing that statements under Section 133A lack evidentiary value and corroborative evidence is required for additions. The tribunal found the diary used as evidence to be a 'dumb document' with no clear details or corroboration, thus the addition was deemed unsustainable and deleted.2. Addition of Rs.1,00,00,000/- and Rs.3,11,56,849/- under Section 115BBE:The tribunal examined the applicability of Section 115BBE, which deals with tax on income from undisclosed sources. It was found that the assessee, being a partnership firm, had business income as its sole income source, and the disclosed income of Rs.1 crore was for mental peace. The tribunal held that business income could not be considered undisclosed income under Section 115BBE. However, the tribunal upheld that the excess cash of Rs.9,68,572/- found during the survey, which could not be explained by the assessee, would attract Section 115BBE. Thus, the income of Rs.1 crore was not subject to Section 115BBE, but the undisclosed cash was.3. Disallowance of genuine business expenses as Fringe Benefit Tax:The assessee argued against the disallowance of Rs.21,59,044/- as Fringe Benefit Tax under Section 40(a)(ic), claiming no such liability existed and the amount represented genuine business expenses. The tribunal found that the AO did not provide the source of the alleged Fringe Benefit Tax expenditure. The assessee later identified the amount as composed of various business expenses. The tribunal accepted the assessee's explanation and deleted the disallowance.4. Overall addition of Rs.4,11,56,849/-:This ground was addressed in conjunction with the first issue. The tribunal found the addition unsustainable based on the lack of corroborative evidence and the inadmissibility of the survey statement, leading to the deletion of the addition.5. Addition under Section 69:This issue was linked with the first issue. The tribunal reiterated that the addition under Section 69 was unsustainable due to the lack of corroborative evidence and the inadmissibility of the survey statement, resulting in the annulment of the addition.6. Disallowance of interest, business expenses, and excessive purchases:For the disallowance of interest of Rs.9,61,545/-, business expenses of Rs.5,60,686/-, and excessive purchases of Rs.8,25,010/-, the tribunal noted that the assessee did not file any written submissions despite several opportunities. In the absence of any defense, these disallowances were confirmed.Conclusion:The tribunal partly allowed the appeals, deleting the additions based on the survey statement and the alleged dumb document, but upheld the disallowance of unexplained cash and the specific disallowances where the assessee failed to provide submissions.