ITAT upholds deletion of additions under sections 69A and 69B, finds seized document was strategic presentation not actual operations

The ITAT Delhi dismissed the Revenue's appeals against the assessee company. The tribunal upheld CIT(A)'s deletion of additions made under sections 69A and 69B. Regarding loyalty incentive income, the tribunal found the assessee had properly recognized the income in its books per accounting standards and agreements with suppliers. For unexplained investment and stock undervaluation additions, the tribunal noted these were based on a seized document showing 44.82% valuation difference, which was prepared for strategic presentation to investors, not actual business operations. The MD's statement during search was given under stress and later clarified. The tribunal found no merit in Revenue's grounds, confirming CIT(A)'s decision to delete all additions.

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Issues Involved:
1. Deletion of addition made u/s 69A for over-invoicing of purchases.
2. Deletion of addition made u/s 69B for under-valuation of stock.

Summary:

Issue 1: Deletion of addition made u/s 69A for over-invoicing of purchases

The Revenue challenged the deletion of an addition of Rs. 23,30,303/- made u/s 69A by the AO. The AO's addition was based on an excel sheet "Adjustment.xlsx" found during a search, which allegedly showed over-invoicing of purchases. The CIT(A) deleted the addition, noting that the excel sheet did not pertain to the relevant assessment year and that the statements of employees admitting over-invoicing were retracted. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO cannot cherry-pick evidence and must consider the entire material found during the search. The Tribunal also noted that the loyalty incentive agreements found during the search supported the assessee's explanation.

Issue 2: Deletion of addition made u/s 69B for under-valuation of stock

The Revenue also contested the deletion of an addition of Rs. 39,68,55,017/- made u/s 69B by the AO for alleged under-valuation of stock. The AO's addition was based on a seized document showing a notional valuation of stock for presentation to investors. The CIT(A) deleted the addition, finding that the valuation was notional and prepared for strategic purposes, not reflecting any actual financial implications. The Tribunal agreed with the CIT(A), stating that no addition can be made on a notional basis and that the AO erred in ignoring other seized materials and the context of the document.

In related appeals (ITA Nos. 947/Del/2021 & 948/Del/2021), similar additions were made for other group companies based on the same type of seized documents and retracted employee statements. The Tribunal, following the same reasoning as in ITA No. 1846/Del/2020, dismissed the Revenue's appeals, upholding the CIT(A)'s deletion of the additions.

Order pronounced in the open Court on 04th April, 2024.

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