Uncorroborated evidence cannot sustain additions for alleged unrecorded coal purchases or under-invoiced mill-scale sales without independent proof.
Income-tax additions for alleged unrecorded coal purchases require independent evidence linking third-party search material to the taxpayer. Where books are not rejected and no abnormality in production, consumption, input-output ratios or recorded sales is established, a net-profit estimate based on suspected outside-the-books trading is speculative and cannot stand. Likewise, alleged under-invoicing of mill-scale sales cannot be established solely through a retracted statement and CCTV footage when the cash is recorded and supported by available cash balances. Additions based on uncorroborated material, retracted statements and presumptive estimations are deleted.
Issues: (i) Whether addition based on alleged unrecorded cash purchases of coal, estimated from third-party search material, could be sustained by applying a net-profit rate; (ii) Whether addition for alleged under-invoicing of mill-scale sales could be sustained on a retracted statement and CCTV footage.
Issue (i): Whether addition based on alleged unrecorded cash purchases of coal, estimated from third-party search material, could be sustained by applying a net-profit rate.
Analysis: The alleged coal purchases were founded on material recovered in a third-party search without corroborative material connecting the purchases to the assessee. The books of account were not rejected, and no abnormality in production, consumption, input-output ratio, or recorded sales was established. Having found the alleged purchases themselves unsustainable, the residual net-profit addition rested only on speculation regarding possible outside-the-books coal trading.
Conclusion: The net-profit addition on alleged unrecorded coal purchases is deleted, in favour of the assessee.
Issue (ii): Whether addition for alleged under-invoicing of mill-scale sales could be sustained on a retracted statement and CCTV footage.
Analysis: The statement suggesting under-invoicing was retracted, and the cash seen in CCTV footage was explained as cash recorded in the books and supported by the available cash balance. No independent evidence established under-invoicing or unaccounted sales. A statement without material substantiating its contents could not support an addition, and the estimation was founded on presumptions and surmises.
Conclusion: The addition for alleged under-invoicing of mill-scale sales is deleted, in favour of the assessee.
Final Conclusion: Additions founded on uncorroborated third-party material, a retracted statement, and speculative estimations cannot be sustained.
Ratio Decidendi: An income-tax addition cannot rest on a retracted statement or uncorroborated material without independent evidence substantiating the alleged unaccounted transaction or income.