TaxTMI 
TaxTMI 
2021 (1) TMI 461
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....assessment years 2013-14 to 2016-17. During the appeal hearing, the Ld.DR submitted that all the grounds of appeals are related to the addition of under invoicing of sales and unaccounted purchases. Grounds of Appeal : 1. The order of the Ld. CIT (Appeals) is erroneous both on the facts and law. 2. The Ld. CIT (Appeals) ought not have held the assessment order passed u/s.143(3) r.w.s 153A as void when the Act prescribes issuance of notice u/s.153A for six assessment years, preceding the year of search, as mandatory when a search is initiated and also the CBDT vide para 65.5 of its Circular No.7 of 2003 (263 ITR 107 St.) explained the statute in clear terms, and the process of calling for returns u/s.153A has to end in completing the assessment. 3. The Ld. CIT (Appeals) ought to have appreciated the probative value of voluntary admission u/s 132(4) and upheld the addition made towards under invoicing of sales which is based on the assessee's voluntary admission u/s.132(4) and also based on circumstantial evidence. 4. The Ld. CIT (Appeals) ought to have appreciated the fact that the assessee failed to prove coercion in his admission of....
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....order of the Ld.CIT(A) in holding the assessment order as void and the remaining grounds of appeals for A.Y.2013-14 to 2016-17 are related to the merits of the case with regard to deletion of addition pertaining to under invoicing of sales. 4. Brief facts of the case: The facts are taken from I.T.A No197/Viz/2020 for the A.Y. 2013-14 which are applicable to all the pending appeals except change in the amounts. For the A.Y. 2013-14 the Assessing Officer(AO) made the addition of Rs. 67,19,801/- relating to under invoicing of sales to the returned Income. Shri Arunachalam Manickavel is the Proprietor of M/s Bharathi Soap Works and also the Chairman and Executive Director of the Company M/s Bharathi Consumer Care Products Pvt. Ltd., which is incorporated on 06.08.2009. For the A.Y.2013-14 the assessee filed the return of income on 30.09.2013 admitting loss of Rs. 1,34,93,053/-. A search u/s 132 of the Income Tax Act, 1961 (in short 'Act') was conducted on 30.08.2016 in the group cases of Sri Arunachalam Manickavel, Guntur which covered his residence as well as business concerns. Along with the assessee some of the distributors and suppliers of raw material were also covered u/s 132 ....
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.... incomes which were already admitted in the returns filed u/s 139(1) of the Act, thus retracted from the admission given u/s 132(4). The AO had issued the notices u/s 143(2) and 142(1) calling for various details and meanwhile, the assessee filed application before the Hon'ble Income Tax Settlement Commission (ITSC) on 19.11.2018 for the A.Ys 2011-12 to 2017-18 u/s 245C of the Act admitting additional incomes as under : Asst.Year Unaccounted income admitted at the time of search (in Rs.) Additional income admitted in the return filed in response to notices u/s 153A (in Rs.) Additional income admitted before the Hon'ble ITSC (in Rs.) 2011-12 Nil Nil Nil 2012-13 Nil Nil Nil 2013-14 67,19,801 Nil Nil 2014-15 2,12,80,600 Nil Nil 2015-16 5,58,53,658 Nil Nil 2016-17 9,15,67,314 Nil 94,97,907 2017-18 Nil Nil 1,75,95,157 Total 17,54,21,383 Nil 2,70,93,064 4.2. Hon'ble ITSC vide order dated 09.01.2019, u/s 245D(2C) of the Act treated the assessee's application as invalid and held it is not allowable, since, the application was found to be not constituting the full and true disclosu....
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....ses of the distributors. The assessee further submitted that no evidence was found by the AO with regard to suppression of sales, under invoicing of sales or with regard to receipt of cash. Thus, argued that the there is no case for making the addition on the basis of statement recorded u/s 132(4) on the assumption of receiving the cash back from the distributors. 5.2. The AO not being satisfied with the explanation of the assessee relying on the statement recorded from distributors who have stated that they were giving cash back to the assessee @ Rs. 50,000/- to Rs. 60,000/- per load, statements from the cashiers and the statement recorded from the assessee u/s 132(4) made the addition of Rs. 67,19,801/- to the returned income on account of under invoicing of sales. On identical facts the AO made the similar additions for the assessment years 2013-14 to 2016-17 as per the details given below: A.Y. Unaccounted income on account of under invoicing of sales (Rs.) 2011-12 nil 2012-13 nil 2013-14 67,19,801 2014-15 2,12,80,610 2015-16 5,58,53,658 2016-17 9,15,67,314 17,54,21,383 6. Against the order passed by the AO, the asses....
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.... the Ld.CIT(A) observed that during the course of search, no material was found except gold and cash which was seized. With regard to under invoicing of sales and the cash stated to have been received back by the assessee from the distributors, the Ld.CIT(A) given a finding that from the statements recorded from Sri Pasumarthi Chandrakanth and Sri Veesam Narasimha Reddy and others though the AO used the statements against the assessee, copies of the same were not supplied to the assessee and the AO also did not allow the cross examination of the witnesses. She further observed that no material was found in the premises of the distributors with regard to the unaccounted cash payments made to the assessee, though the searches were conducted on random basis in the case of distributors also. No addition was made by the AO in the hands of the distributors in respect of cash payment made to the assessee u/s 69C of the Act, thus held that the statement of distributors does not give any scope to the AO to view that the assessee had received the unaccounted cash. Similarly she observed with regard to the statements recorded from the cashiers, no details or the corroborative evidence was fou....
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....to have remitted the matter back to the file of the AO or confirmed the additions. Apart from the above, the Ld.CIT (DR) argued that in the instant case, even Hon'ble ITSC has rejected the application of the assessee, since, the assessee has not come before the ITSC with full and true disclosure, thus argued that the CIT(A) ought to have sustained the addition. The Ld.CIT(DR) submitted that there is no justification for deletion of additions made by the AO, hence requested to sustain the additions and allow the appeals of the revenue. 8. Per contra, the Ld.AR argued that there is no evidence whatsoever found during the course of search in the residential as well as business premises of the assessee evidencing the receipt of cash back from the distributors or the understatement of income. The assessee has given a statement u/s 132(4) in a stress due to continuous pressure without understanding its implications. He submitted that in fact, the Assistant Director of Income tax Investigation computed the undisclosed income on the basis of returns of income filed by the assessee on pure guess work and made to sign the statements. He further argued that due to continuous recording of t....
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....the cash outside the books of accounts. The Ld.AR submitted that the entire purchases and sales were duly accounted in the books of accounts. Thus argued that the Ld.CIT(A) rightly held that there is no case for making addition in the hands of the assessee without having corroborative evidence, solely on the basis of the statement recorded u/s 132(4). Hence, requested to uphold the order of the Ld.CIT(A) and dismiss the appeal of the revenue. The Ld.AR also heavily relied on the order of the Ld.CIT(A) on both the issues. 9. We have heard both the parties and perused the material placed on record. First we take the case on merits since, the issue covers all the appeals. Search u/s 132 was conducted in the instant case on 30.08.2016 and the search assessment was completed u/s 153A r.w.s. 143(3) on total loss of Rs. 62,12,345/-. The assessment resulted in addition of Rs. 67,19,801/- relating to under invoicing of sales. The allegation of the AO is that the assessee was involving in under invoicing the sales and receiving the cash back from the distributors. For this purpose, the AO referred answer to question No.27, wherein, the assessee stated that he had under invoiced the sales ....
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....er cannot proceed on presumption u/s 134(2) of the Act and there must be something more than bare suspicion to support the assessment or addition. In the present case, though the revenue's case is based on disclosure of the assessee stated to have been made during the search u/s 132(4) of the Act, there is no reference to any undisclosed cash, jewellery, bullion, valuable article or documents containing any undisclosed income having been found during the search." The appellant also relies upon the decision of the Hon'ble Delhi High Court in C.I.T Vs. Harjeev Agarwal, reported in (2016) 70 Taxmann .cam 95 (Delhi). Peres 19, 20 and 21 of the above judgement are extracted below: 2. In view of the settled legal position, the first and foremast issue to be addressed is whether a statement recorded under section 132(4) of the Act would by itself be sufficient to assess the income, as disclosed by the assessee in its statement under the provisions of Chapter XIV-B of the Act. 3. In our view a plain reading o section 158BB(1) of the Act does not contemplate computing of undisclosed income solely on the basis of a statement recorded during the search, The words ev....
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....he addition made solely depending on the confession statement is void as no reference to the incriminating material was made while recording the sworn statements during the search proceedings. The statement recorded from the MD of the company without referring to any incriminating document is held to be not having any evidentiary value, and hence making addition taking shelter under the above statement is not valid and sustainable. Further the Retailers Price List referred to in the statement u/s 134 cannot be considered as "incriminating material", as this write list only indicates the Prices of the products of the appellant company at which the goods are to be sold by the Retailers, and this price list changes from time to time. Thus, viewed from any angle, the statement recorded u/s 132(4) from the M.D. of the company solely basing and relying on the above price list can under no circumstances be termed as "incriminating material". For these reasons the addition made on account of under invoicing of sales relying on the above statement is not proper and justified. The following case law describes the spirit of section 132(4) which is applicable to the present facts of the appell....
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....ssee, under a mistake, misconception or on not being properly instructed, is over assessed, the authorities under the Act are required to assist him and ensure that only legitimate taxes due are collected [S.R.Koshti v. CIT (2005) 193 CTR (Guj) 518] . The ITO is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all, There must be something more than bare suspicion to support the assessment or addition. [Dhakeswari Cotton Mills Ltd. v. CIT (1954)26 ITR 775 (SC)). It is true that an apparent statement must be considered real until it was shown that there were reasons to believe that the apparent was not the real, Science has not yet invented any instrument to test the reliability of the evidence placed before e Court or Tribunal. Therefore, the Courts and Tribunals have to judge the evidence before them by applying the test of human probabilities (CIT v Durga Prasad More 1973 CTR (SC) 500: (1971) 82 lTR 540 (SC)]. In the light of above discussion, we apply the ratio of Apex Court in the case of Durga Prasad (supra), i.e. test of human probabilities, we do not find any material on record on which basis it can be hold that the....
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....f the extracts of statements in the assessment order it is seen that except stating vaguely that they have collected the money and given to the assessee , they have not given the details of cash received distributor wise, date wise amounts accounted in the books and unaccounted. The assessee has stated that they receive cash regularly from distributors which was collected by the cashiers and duly accounted in the books of accounts and there was no unaccounted cash. This fact was not disputed by the department. This aspect was not verified by the AO and no details were furnished by the cashiers. In the absence of specific details of distributor wise, date wise cash receipt and verification with the cash book with regard to their accounting and arrives at the difference of unaccounted cash, if any, the statement of cashiers also cannot be taken as evidence to hold that the unaccounted money was passed on to the assessee, since, the assessee's business involve the cash sales also. 9.3. The entire addition was made on the statement recorded from the assessee on 02.09.2016 on the basis of invoice No.2135 dated 30.07.2016 related to the sale invoice of Lakshmi Agencies which was bille....
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.... retailer is Paying Rs. 450/-for each case and in question No.26, the Assessee categorically told that Distributor is paying to the company Rs,361.53 for each case. Hence between Rs. 361.53 and Rs. 450/- per each case there are two layers namely distributors and wholesalers. Benefitting of Rs. 88.47 will be known when the invoices of Distributor, wholesaler and retailer is seen. But in the present case no such effort was made by the department to find out the sale invoices during search proceedings and also in post search proceedings. 5. From the assessee to the distributor Rs. 361.53-and from the Distributor to the Wholesaler Rs. 367.20 (including VAT). From the Wholesaler to the retailer also there will be price and from Retailer to consumer there will be price. Hence ultimately the end user will get per one case Rs. 450/-. 6. The question No.27 contains Who is benefitting of Rs. 88.47/. posed by the investigation department is vague because how does the Assessee knows at what price the distributors, wholesalers and retailers are selling the products. The Assessee is not concerned about the prices and profits of others. The Assessee is concerned to the ....
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....orded from the Chairman and said invoice was duly accounted in the books, hence, there is no case for drawing adverse inference on the basis of an invoice which was accounted in the books of accounts. The said invoice was accounted in the books of accounts and there was no difference. Assessee was continuously attending to the investigation teams and cooperating with the teams continuously from 30.08.2016 to 03.09.2016 with the interval of few hours. Multiple statements were recorded thus we do not hesitate to agree with the assessee that the assessee was under constant pressure and the statement was given under mental stress and pressure with an intention to somehow to get rid of the departmental officers and take some relief from the searches. Therefore we, are of the considered view that the admissions made under such circumstances without the corroborative evidence cannot be made basis for making the additions. Neither evidence was found nor the AO made out a case with the date wise, party wise cash of receipt from each distributor which was said to be unaccounted. As discussed earlier, no other evidence of concealed/undisclosed asset or income was found during the course of se....
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....ed, the fate thereof must be decided by law meaning thereby, a superior forum and not by the very authority, who is alleged to have exerted force. 13. It is not as if the retraction from a statement by an assessee would put an end to the procedure that ensued on account of survey or search. The Assessing Officer can very well support his findings on the basis of other material. If he did not have any other material, in a way, it reflects upon the very perfunctory nature of the survey. We find that the appellate authority and the Tribunal did not apply the correct parameters, while adjudicating the appeals filed before them. On the undisputed facts of the case, there was absolutely no basis for the Assessing Officer to fasten the liability upon the appellants. Our conclusion find support from the Circular dated March 10, 2003, issued by the Central Board of Direct Taxes, which took exception to the initiation of the proceedings on the basis of retracted statements. 14. Therefore, I. T. T. A Nos. 268, 273 and 308 of 2003 are allowed and the orders of assessment dated December 1, 1998, are set aside. Since the orders of assessment are set aside, I. T. T. A. Nos. 287,....
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....e. But that was not a rule of evidence but a rule of prudence and fair play. It would thus be seen that in India, as in England, where the test of admissibility of evidence lies in relevancy, unless there is an express or necessarily implied prohibition in the Constitution of other law of evidence obtained as a result of illegal search or seizure is not liable to be shut out." 22. We are therefore of the view that the effect of explanation to Section 132(4) of the Act is that the assessing officer can rely upon it in respect of pending proceedings also, as a piece of evidence, but not as the sole basis for imposing additional financial liability upon an assessee either in the form of denial of benefits which an assessee is otherwise entitled to, or subjecting him to prosecution. To be more precise, if there exists any other supportive material, the statement recorded under Section 132(4) can certainly be taken aid of. Conversely, in the absence of other supporting material, a statement of that nature cannot constitute the basis to burden an assessee. 23. The second question which is referable to the observation of the Honble Supreme Court, namely, whether the stat....
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....vant facts and evidences. Therefore we, hold that the additions made solely on the basis of statement u/s 132(4) without having corroborating evidence is unsustainable and accordingly we uphold the order of the Ld.CIT(A) and dismiss the appeals of the revenue for the A.Ys 2013-14 to 2016-17 on this issue. 10. The next issue in this case is validity of making additions u/sec. 153A without having seized material. The ld. CIT(A) deleted the addition holding that the AO is not permitted to make the addition without having seized material. In search cases once the assessment is completed or unabated the assessing officer is not permitted to make the additions without having the seized material. The Ld. CIT(A) followed the decision of this tribunal as well as the decision of jurisdictional High Court in the case of A.M.R. India Pvt. Ltd. (supra) and deleted the additions. We have deleted the entire addition on merits, hence, the issue is only of academic interest. The Ld.CIT(A) deleted the addition in para 10.1 & 10.2 of the appeal order for the A.Y.2013-14 which reads as under : "10.1. I have considered the submissions of the appellant, contents of the assessment order and t....
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....pellant's submissions and case law extracted above, I am in agreement with one appellant's suibmissions. In the instant case, the impugned addition was made without referring to any incriminating document found and seized at the time of search operations which is not permissible as per law. As submitted by the appellant, there are number of case laws on this issue, out of which one case law is more relevant to the appellant's case, is extracted above. In view of the submissions of the appellant and the case laws cited in support of appellant's contention, I am of the opinion that the appellant's submissions in this respect deserve to succeed and the addition made is liable for deletion. Accordingly grounds raised are allowed." 10.1. There is no dispute that the entire addition was made on the statement recorded u/s 132(4) without having any incriminating material. The Ld.CIT(A) followed the order of this Tribunal and the decision A.P. High court in the case of A.M.R. India Pvt. Ltd. supra. Therefore respectfully following the decision of Hon'ble AP High Court and the decision of Coordinate Bench, we hold that in completed assessments the AO is not permitted to make additi....