2005 (4) TMI 244 - AT - Income Tax

Tax Tribunal Upholds Rs. 24L Addition, Disallows Expense Claims; Revises Interest & Confirms 24% GP Rate for 1992-93.

The ITAT upheld the addition of Rs. 24 lakhs based on the partner's disclosure during a search, rejecting the retraction. The Rs. 6,15,800 addition in the ... Addition for unrecorded sales - Search And Seizure u/s 132 - Income derives from manufacturing and sale of sweets - unexplained cash, bank deposits and investment in shares - statement recorded u/s 132(4) - Whether unrecorded sale itself is income or only a net profit on such unrecorded sale is the income, would depend upon the facts of each case - Deletion of GP addition - HELD THAT:- It is a settled law that admission by a person is good piece of evidence though not conclusive and the same can be used against the person who makes it. The reason behind this is a person making a statement stops the opposite party from making further investigation. More over under the Income-tax Act the Legislature itself has provided that the statement given u/s 132(4) can be used against the person giving such statement. Therefore, the statement u/s 132(4) is an important piece of evidence against the assessee. However, the statement is not conclusive and the person giving the statement can retract the same under certain circumstances (i) The first circumstance is where the statement is not given voluntarily but it was obtained under coercion, threat or undue influence. But the burden is upon the person making the statement to prove that the statement given by him was not voluntary. The assessee can discharge this burden by giving a direct evidence of coercion or threat by the Authorised Officer or by circumstantial evidence in this regard. The time gap between the statement and the retraction of statement would also one of the important points to be taken into account while deciding whether the statement was voluntary or not. (ii) The other circumstance is where the statement was given under the mistaken belief of either fact or law. Here again the burden is upon the person giving the statement to prove that the statement given by him was factually incorrect or was untenable in law. Thus, we have already held that the statement given by Shri K.B. Kandoi was voluntary and there were corroborative evidences to support such statement, therefore, how the above sum of Rs. 24 lakhs was utilised or invested by the partners of the firm, is irrelevant and since no separate addition has been made for any such investment in gold ornaments, stock, furniture, renovation, sundry debtors, loans and advances to relatives, etc., we do not find it necessary to examine the assessee's contention with regard to the above investments/expenditure. n the case under consideration before us it is nowhere the claim of the assessee that any purchase or expenditure was not recorded in the books of account. The cash found at the time of search at Rs. 3,95,000 was explained to be out of unrecorded sale. This clearly shows that the entire unrecorded sale was income of the assessee because had part of the unrecorded sale been utilised for incurring any expenditure, the cash would not have been available. Moreover in the case under consideration before us the addition of Rs. 24 lakhs by the Assessing Officer is not made for unrecorded sale but the addition is made of the amount disclosed by Shri K.B. Kandoi at the time of search. Thus, we have held that the disclosure was voluntary and it is also corroborated with the evidence found at the time of search. We therefore reverse the order of the CIT(A) on this point and uphold the addition. However, while disposing of Ground No. 1 of Revenue's appeal, we have upheld the order of the Assessing Officer with regard to the addition which was made by him on the basis of disclosure made by Shri K.B. Kandoi in the case of the assessee-firm, therefore, no addition is required to be made in the hands of Shri K.B. Kandoi. We therefore allow Ground No. 2 of Revenue's appeal. Deletion of GP addition - While disposing of Ground No. 1 of Revenue's appeal we have sustained the addition made by the Assessing Officer on the basis of statement of Shri K.B. Kandoi. After considering the sum, the GP of the assessee would be more than 50% which is much more than the GP rate applied by the Assessing Officer. Therefore, there is no justification for sustaining any addition on account of low GP. We therefore reject Ground No. 3 of Revenue's appeal. In the result, appeal is partly allowed. Issues Involved:1. Addition of Rs. 24 lakhs based on unrecorded sales and subsequent retraction.2. Deletion of Rs. 6,15,800 from the firm's income and its assessment in the hands of the partner.3. Deletion of Gross Profit (GP) addition of Rs. 7,22,770.4. Direction to make an addition of Rs. 3,37,700 being 25% of unrecorded sales.5. Disallowance of Rs. 6,000 out of telephone expenses and Rs. 10,494 out of vehicle expenses.6. Charging of interest under section 234.7. Estimation of GP at the rate of 24% for the assessment year 1992-93.Detailed Analysis:1. Addition of Rs. 24 lakhs based on unrecorded sales and subsequent retraction:The assessee, a partnership firm engaged in the manufacturing and sale of sweets, was subjected to a search operation under section 132 of the Income-tax Act, 1961. During the search, a partner of the firm disclosed an additional income of Rs. 24 lakhs, which was not reflected in the return of income. The Assessing Officer added this amount to the firm's income. The CIT(A) reduced this addition to Rs. 3,37,700, representing 25% of unrecorded sales. The ITAT upheld the addition of Rs. 24 lakhs, rejecting the retraction made by the assessee three and a half months after the disclosure. The tribunal emphasized that the statement under section 132(4) is a significant piece of evidence and found corroborative evidence of unrecorded sales during the search.2. Deletion of Rs. 6,15,800 from the firm's income and its assessment in the hands of the partner:The CIT(A) held that Rs. 6,15,800 out of the disclosed Rs. 24 lakhs belonged to the partner individually and directed this amount to be assessed on a substantive basis in the partner's hands. However, the ITAT reversed this decision, holding that the entire Rs. 24 lakhs should be assessed in the hands of the firm, thereby deleting the protective addition of Rs. 6,15,800 in the partner's hands.3. Deletion of Gross Profit (GP) addition of Rs. 7,22,770:The Assessing Officer applied a GP rate of 30%, resulting in an addition of Rs. 7,22,770, which was deleted by the CIT(A). The ITAT upheld the CIT(A)'s deletion, noting that after including the Rs. 24 lakhs addition, the GP rate exceeded 50%, making any further GP addition unnecessary.4. Direction to make an addition of Rs. 3,37,700 being 25% of unrecorded sales:The CIT(A) directed the Assessing Officer to sustain an addition of Rs. 3,37,700, representing 25% of unrecorded sales of Rs. 13,50,799. The ITAT, having upheld the Rs. 24 lakhs addition, found no need for this separate addition and thus deemed the ground allowed.5. Disallowance of Rs. 6,000 out of telephone expenses and Rs. 10,494 out of vehicle expenses:These disallowances were not pressed by the assessee during the hearing. Consequently, the ITAT rejected these grounds.6. Charging of interest under section 234:Both parties agreed that the charging of interest under section 234 is consequential. The ITAT directed the Assessing Officer to recalculate the interest after determining the income as per the order.7. Estimation of GP at the rate of 24% for the assessment year 1992-93:For the assessment year 1992-93, the Assessing Officer applied a GP rate of 24%, resulting in an addition of Rs. 2,13,941, which was deleted by the CIT(A). The ITAT reversed the CIT(A)'s decision, upholding the Assessing Officer's GP rate application due to the absence of stock records and evidence of sales outside the books.Conclusion:- The ITAT upheld the addition of Rs. 24 lakhs based on the partner's disclosure during the search.- The addition of Rs. 6,15,800 in the partner's hands was deleted.- The deletion of GP addition of Rs. 7,22,770 was upheld.- The direction to add Rs. 3,37,700 was rendered moot by the Rs. 24 lakhs addition.- Disallowances of telephone and vehicle expenses were rejected.- Interest under section 234 was to be recalculated.- The GP rate of 24% for the assessment year 1992-93 was upheld.