2024 (11) TMI 428 - AT - Income Tax

Revenue cannot shift burden to prove expense genuineness without contrary search findings or corroborating evidence

ITAT Bangalore ruled in favor of the assessee regarding additions based on search statements and unsupported expense vouchers. The AO disallowed route ... Additions based statements of assessee recorded during a search - certain expenses were not supported by proper vouchers - AO disallowed these “route expenses” - assessee has made a surrender of Rs. 13 crores for all the years covered under search action - HELD THAT:- In our opinion the Revenue cannot shift the burden on an assessee to prove the genuineness of the expenses, when nothing contrary found in the search operations. Further the finding recorded by the AO during the course of assessment proceedings would show that the AO has not doubted the genuineness and allow ability of the expenses rather harped upon the production of drivers before him, ignoring the factum of search. So far as the reliance of the AO on the statement of assessee under section 132(4) and thereafter under section 131(1) we observe that recently in the case of Harjiv [2016 (3) TMI 329 - DELHI HIGH COURT] as no evidentiary value and hence cannot be termed as incriminating material. Similar view has been reiterated in the case of Best Infrastructure [2017 (8) TMI 250 - DELHI HIGH COURT] Therefore, merely because the drivers not available at the time of assessment no addition is permissible in this case, in absence of any corroborating material. It is not the case of the revenue that there was any material showing that these expenses were either bogus or not incurred for the purpose of business, or there was some material which would prove that the invoices of these vouchers were fake. Additions sustained by the CIT(A) that 60% of the hypothetical surrender is not tenable in law. Hence, we delete all these additions sustained by CIT(A). Appeals filed by the assessee are allowed. Issues Involved:1. Legitimacy of additions made by the Assessing Officer (AO) based on uncorroborated statements during a search.2. Validity of disallowance of 'route expenses' claimed by the assessee.3. Applicability of estoppel against statute in the context of additional income offered during search proceedings.4. Entitlement of the assessee to relief for additional income offered in the return.5. Consequential levy of interest under section 234B.Detailed Analysis:1. Legitimacy of Additions by AO:The primary issue was whether the AO was justified in adding the difference between the returned income and the surrender made during the search as undisclosed investment or bogus expenses. The assessee contended that the additions were based on uncorroborated statements made under pressure during the search. The Tribunal noted that the statement made by the assessee during the search lacked corroborative material and was made under coercion. It was emphasized that the Central Board of Direct Taxes (CBDT) instructed officers to focus on collecting evidence rather than obtaining confessional statements. The Tribunal concluded that the additions made by the AO were not supported by any corroborative material found during the search.2. Disallowance of 'Route Expenses':The AO disallowed 'route expenses' claimed by the assessee, alleging they were not supported by proper vouchers. The assessee argued that these expenses were duly recorded in the books and supported by vouchers. The Tribunal observed that the AO's disallowance was based on assumptions without any evidence from the search operations indicating the expenses were bogus. The Tribunal held that the AO's reliance on the assessee's statement without corroborative evidence was insufficient to sustain the disallowance.3. Estoppel Against Statute:The Tribunal addressed whether the additional income offered during the search could be taxed merely because it was offered by the assessee. It was highlighted that there cannot be an estoppel against statute, meaning that if an income is not taxable under the law, it cannot be made taxable merely because the assessee offered it under a misconception. The Tribunal referred to the judgment of the Hon'ble Calcutta High Court in Mayank Poddar (HUF) v. WTO, which established that a property not chargeable to tax cannot become taxable due to an assessee's misunderstanding or admission.4. Relief for Additional Income Offered:The assessee sought relief for the additional income offered in the return, arguing that no material was unearthed during the search to justify the addition. The Tribunal noted that the AO accepted the revised offer of additional income made by the assessee while filing the return, implying acceptance of the revised figure. The Tribunal found that the CIT(A) erred in sustaining 60% of the hypothetical surrender and deleted the additions, as they were not tenable in law.5. Levy of Interest under Section 234B:The issue of interest under section 234B was deemed consequential. The Tribunal concluded that since the primary additions were deleted, the interest levy would also be affected accordingly.In conclusion, the Tribunal allowed the appeals filed by the assessee, deleting the additions made by the AO and sustained by the CIT(A), and emphasized the necessity of corroborative evidence to support additions in search proceedings. The Tribunal reiterated the principle that statements made during searches, without supporting evidence, lack evidentiary value.