1994 (11) TMI 167 - AT - Income Tax

Tribunal Rules in Favor of Assessee, Overturns Assessing Officer's Decision

The Tribunal overturned the Assessing Officer and CIT(A)'s decisions, ruling in favor of the assessee. The Tribunal found the assessee's explanation ... Additional Evidence, Assessing Officer, Incentive Bonus, So Included Issues Involved:1. Discrepancies in Sales Figures2. Explanation and Evidence Provided by the Assessee3. Actions and Findings of the Assessing Officer4. Decision of the CIT(A)5. Arguments by the Assessee's Counsel6. Arguments by the Departmental Representative7. Tribunal's Analysis and Findings1. Discrepancies in Sales Figures:A search and seizure operation under section 132 was carried out at the assessee's premises on 19-7-1989. During the search, a statement (Annexure A-24) was found and seized, which detailed the incentive bonus payable by the assessee to its distributors based on sales increases over targets. The Assessing Officer compared this statement with the sales register and found discrepancies in the sales figures for assessment years 1988-89 and 1989-90. For 1988-89, discrepancies were found for three parties, totaling Rs. 18,84,175. For 1989-90, discrepancies were found for 17 parties, totaling Rs. 61,28,207.2. Explanation and Evidence Provided by the Assessee:The assessee explained that the discrepancies arose because the incentive bonus was calculated based on sales made directly to the distributors and sales made through other parties introduced by these distributors. The assessee provided a reconciliation statement and confirmations from two distributors for 1988-89. The assessee also maintained that proper records were kept, which formed part of the seized material. The explanation was supported by the books of account, sale bills, and a register showing the basic value of turnover for various dealers.3. Actions and Findings of the Assessing Officer:The Assessing Officer did not accept the assessee's explanation, considering it an 'innovative one and afterthought.' He concluded that the sales figures in the incentive bonus statement were correct and treated the difference as sales outside the books. The Assessing Officer added the difference to the income, including excise duty and sales tax for 1988-89, resulting in an addition of Rs. 24,87,111. For 1989-90, the addition was Rs. 61,28,207, without adding excise duty and sales tax.4. Decision of the CIT(A):The CIT(A) confirmed the Assessing Officer's view, stating that the assessee had not established that sales to other parties should be considered for working out the incentive bonus. For 1989-90, the CIT(A) confirmed the addition of Rs. 58,24,911 on account of suppressed sales but remitted the matter back to the Assessing Officer for verification of discrepancies for three parties.5. Arguments by the Assessee's Counsel:The assessee's counsel contended that the only basis for the additions was the incentive bonus statement seized during the search. The explanation provided was corroborated by two out of three dealers for 1988-89. The counsel argued that the Assessing Officer had not placed any material on record to rebut the assessee's claim and had acted arbitrarily. The counsel also pointed out that the assessee had been paying incentive bonuses on the same basis in the past, which had been accepted. The counsel relied on the J & K High Court decision in International Forest Co. v. CIT, arguing that the onus to prove suppression of sales was on the revenue.6. Arguments by the Departmental Representative:The Departmental Representative argued that the additions were rightly made based on the seized document. The burden to explain the discrepancies lay on the assessee, and this burden had not been discharged. The DR contended that no scheme for payment of incentive bonus was found or produced, and the assessee's claim was not supported by evidence. The DR also pointed out discrepancies in the amounts when the assessee included sales made to other dealers for computing incentive bonuses.7. Tribunal's Analysis and Findings:The Tribunal noted that the burden lies on the assessee to explain discrepancies found in documents seized during search operations. However, if the assessee furnishes an explanation supported by evidence, the onus shifts back to the revenue. The Tribunal found that the assessee had provided a plausible explanation supported by books of account, sale bills, a register, and confirmations from two dealers. The Assessing Officer had not made further inquiries or collected material to rebut the assessee's claim. The Tribunal emphasized that fair assessments require objective consideration of the assessee's explanation and evidence. The Tribunal concluded that the additions made by the Assessing Officer were unwarranted and deleted the additions of Rs. 24,87,111 for 1988-89 and Rs. 61,28,207 for 1989-90 on account of suppressed sales.