2024 (9) TMI 1855 - AT - Income Tax

Suppressed sales based only on survey statement: full tax addition rejected, but profit estimated at 15% and addition capped

Whether addition for alleged suppressed sales could be sustained solely on a survey statement was decided by holding that, absent any incriminating ... Net profit determination on the suppressed sales - addition was confirmed on the basis of the summation of monthly sales HELD THAT:- Assessee declared turnover of Rs. 3,94,39,103/- in financial statement during impugned assessment year. AO has not been able to bring any incriminating material during the survey related to suppression of sales except the statement. The addition on the basis of mere statement is not acceptable evidence, considering the judgement of S. Kader Khan & Sons [2013 (6) TMI 305 - SC ORDER] and Paul Mahews & Sons [2003 (2) TMI 25 - KERALA HIGH COURT] - We accept the submission of the Ld. AR. Further, we are not ignoring the argument of the DR. The assessee had not surrendered the suppressed sales in the return of income of the impugned assessment year and not even offered the excess profit of suppressed sales. Accordingly, we are determining the net profit @15% on the suppressed sales. Accordingly, the addition is restricted amount to Rs. 11,00,000/-. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether an addition for 'suppressed sales' could be sustained when it was based substantially on a statement recorded during survey under section 133A that was subsequently retracted, and when the revenue authorities did not rely on or demonstrate independent incriminating material beyond that statement. (ii) If the full suppressed-sales addition is not sustainable, what is the appropriate basis and rate for taxing income relatable to the alleged suppressed turnover, given that the assessee did not offer any profit element of such turnover in the return. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i): Evidentiary basis of addition for suppressed sales founded on retracted survey statement Legal framework (as discussed by the Tribunal): The Tribunal treated a statement recorded under section 133A as not being on oath and, at best, having corroborative value; hence, a mere survey statement, particularly when retracted, was not accepted as sufficient standalone evidence to sustain the full addition. Interpretation and reasoning: The Tribunal found that although suppressed turnover was determined during survey and admitted in the survey statement, the statement was retracted within about a month and supported by an affidavit. The Tribunal noted that the assessing authority did not take cognizance of the retraction and there was no denial or rebuttal of the affidavit by the authorities. Critically, the Tribunal concluded that the assessing authority failed to bring any incriminating material relating to suppression of sales beyond the statement, and therefore an addition resting on a mere statement was not acceptable evidence on the facts of the case. Conclusions: The Tribunal held that the full addition of the alleged suppressed sales amount could not be sustained merely on the basis of the survey statement, particularly in the absence of corroborative incriminating material and in view of the retraction and affidavit remaining unaddressed. Issue (ii): Quantum of addition-whether to tax entire suppressed turnover or only profit element, and at what rate Legal framework (as applied by the Tribunal): Having rejected the sustainability of taxing the entire suppressed turnover as income solely on the basis of the survey statement, the Tribunal proceeded to determine taxable income by estimating an appropriate net profit rate on the suppressed turnover. Interpretation and reasoning: The Tribunal balanced two findings: (a) the revenue could not sustain addition of the entire suppressed sales amount as income on the evidentiary basis available; and (b) the assessee had not surrendered the suppressed sales in the return and had also not offered any excess profit arising from such suppressed sales. While the assessee proposed offering profit at 10% of the suppressed turnover and the revenue opposed any restriction, the Tribunal determined that profit should be estimated at 15% of the suppressed turnover. Applying 15% to the suppressed turnover of Rs. 72,93,493, the Tribunal computed income of Rs. 10,94,023 and rounded it to Rs. 11,00,000. Conclusions: The Tribunal restricted the addition to the estimated net profit on the suppressed turnover at 15%, resulting in a sustained addition of Rs. 11,00,000 (rounded), and granted partial relief by deleting the balance of the earlier addition.