TaxTMI 
TaxTMI 
2025 (10) TMI 1476
X X X X Extracts X X X X
X X X X Extracts X X X X
....ccount of cash purchases for Rs. 3,64,13,598/- only. 2.1 The relevant facts are that the assessee is an individual and running two proprietary concerns namely M/s Srinath Enterprise and M/s Aishwarya Trading Corporation. Likewise, the assessee wife of Smt. B.S. Mamtha is also running a proprietary concern in the name and style of M/s Sanjana Trading Corporation. The main business carried on by the assessee and his wife is the wholesale trading of Maize/corn. The assessee and her wife also incorporated a private company namely M/s Shree Gluco Biotech Pvt Ltd. which is into manufacturing of Starch Powder, Liquid Glucose, Maltodextrin, High Maltos Syrup etc. 2.3 A search under section 132 of the Act was carried out as on 20th February 2019 on the assessee in connection with search proceedings conducted in case of M/s Sri Bhagyalakshmi Group. Accordingly, assessment proceedings under section 153A of the Act were initiated for A.Ys. 2013-14 to 2018-19. 2.4 The AO during the search at the office premises of M/s ShreeGluco Biotech Pvt. Ltd. noticed that the purchase bill/vouchers related to M/s Aishwarya Trading Corporation and M/s Sanjana Trading Corporation (assessee wife Smt. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ellery. 2.7 Hence, the AO proposed to make addition on account of cash purchases at 25%. The AO worked the proposed amount of disallowance in case of assessee's proprietary concern (M/s Aishwarya Trading Corporation) for F.Y. 2012-13 to 2017-18 at Rs. 12,15,43,896/- and out of which Rs. 3,64,13,598/- pertains to the year under consideration i.e. A.Y. 2014-15. In response, the assessee explained that the proposed disallowance of 25% of cash purchases is not correct either in facts or in law. Purchases of maize were paid in cash, but they were properly recorded in the books and supported by vouchers showing quantity and the amount. These purchases were agricultural produce, and the same were sold to well-known registered entities. The assessee also maintained stock records, VAT returns, and books of accounts which were all audited under section 44AB of the Act. 2.8 It was argued that the proposal to make an arbitrary disallowance of 25% has no basis in law. Treating 25% or 20% of the purchases as non-genuine lacks rationality for the reason that if 75% of the purchases are accepted as genuine, there is no reason to treat the balance as bogus. In support of the argument, the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rmers through agents. The assessee was confronted with this evidence, and his sworn statement was recorded under section 132(4) of the Act, in which he admitted that such purchases were made, that part of the expenditure was inflated, and that about 25% of the cash purchases were non-genuine. The assessee further admitted that such inflation was done to reduce taxable profit. Subsequent to the search proceeding (3 months after search), the assessee in the statement recorded under section 131(1) of the Act, again confirmed the non-genuine cash purchases but reduced the ratio from 25% to 20% of cash purchases. 2.14 The assessee later attempted to retract the admission, but the retraction was made after a long delay of over 14 months and was not supported by any corroborative evidence. The AO found that statements recorded under section 132(4) carry strong evidentiary value, and retractions must be immediate and supported by proof of coercion or mistake. In this case, the assessee has not discharged his burden of proof to show that the admission was involuntary or incorrect. In support the AO placed reliance on the ruling of Hon'ble Supreme Court in the case of M/s Bannalal Jat Con....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rchases and the seized material established both inflation and diversion of cash, extrapolation of inflation at 25% of purchases is reasonable. Accordingly, the addition of Rs.3,64,13,598/- is made to the returned income of the assessee for the relevant assessment years on account of inflated and non-genuine purchases. 3. The aggrieved assessee preferred an appeal before the learned CIT(A). 3.1 Before the learned CIT(A), the assessee submitted that the addition made is based only on the statement recorded during the course of search. The assessee had admitted certain income in that statement, but later on, after properly reviewing the facts and legal position, it was found that such admission had no factual or legal basis. The assessee in support of his argument filed additional evidence in the form of an affidavit dated 12-03-2019. The date of affidavit is within a short span of time from the date of search (20th February 2019). In this affidavit, the assessee explained that the statement was signed under mental strain and stress after continuous questioning by the search party for long hours over several days, and therefore, the declaration was not voluntary. The affidavit ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....purchases can be termed as bogus. Therefore, the ad-hoc disallowance of 25% is arbitrary and without basis. Hon'ble Courts and tribunals have consistently held that such arbitrary disallowances are not permissible unless specific defects or unverifiable vouchers are identified, which is not the case here. 3.5 It is also shown that if 25% disallowance is sustained, the gross profit ratio shoots up to abnormal and unrealistic levels, which are impossible to achieve in the assessee's line of business where purchases are order-based and margins are low. This proves that the addition is commercially absurd. Further, the average price of registered and unregistered dealer purchases per quintal is almost the same, showing there is no inflation or suppression in recording of purchases. 3.6 In view of these facts, legal provisions, and judicial precedents, the assessee contends that the purchases are genuine, fully accounted for, and cannot be disallowed arbitrarily. Therefore, the addition made by the AO deserves to be deleted in full. 4. The learned CIT(A) forwarded the additional evidence being affidavit dated 12-03-2019 and argument of the assessee to the AO for remand report. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the remand report are not sustainable. The affidavit dated 12.03.2019 was executed within 20 days of the search and was duly notarised. It was sought to be filed before the authority during the post search proceeding as well as before the AO during the assessment, but they dismissed it as a self-serving document and refused to accept it. This fact is clearly stated in the application for admission of additional evidence. The remand report does not dispute either the existence of the affidavit or the date of its execution. 4.6 The affidavit is consistent with the facts already placed before the search party, the AO, and also before the ld. CIT(A). The AO has himself dealt with the retraction in detail in his assessment order by relying on case laws, which shows that the department was aware of the retraction even at the time of assessment. Therefore, the affidavit cannot be treated as a new or afterthought document. Admission of this affidavit will not prejudice the department in any way as it forms part of the assessee's defence. 4.7 The case laws relied upon by the AO in the remand report are distinguishable. The legal position remains that an admission is not conclusive an....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... that the retraction is without strong supporting evidence and hence, could not be accepted. 4.11 The learned CIT(A) further held that at one hand, the assessee claimed that all purchases were genuine and recorded, while on the other hand, he admitted that around 20-25% of the cash purchases were non-genuine. It was noted that the assessee increased the figure of cash purchases during the post search proceedings while recording the statement under section 131 of the Act claiming such figure arrived after verification of book but did not show how such verification was made. No documentary evidence or proper basis was provided either before the AO or during appellate proceedings to support the claim. The details filed showed that a significant portion of purchases in both ATC and STC were in cash, but these were supported only by self-made vouchers, which were unverifiable. The huge volume of such unverifiable purchases created practical difficulty in confirming their genuineness, especially as they were made from unregistered dealers. 4.12 The ld. CIT(A) observed that the assessee did not prove how the genuineness of cash purchases was established, and merely argued that if di....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ath in his statement under section 132(4). That statement itself was contradictory, later retracted, and explained as having been made under mistaken facts during the stress of the search. It is well settled that an admission, unless supported by independent corroborative evidence, cannot be the sole basis of an addition. Reliance was placed on judicial pronouncement like S. Kahder Khan (Madras High Court 300 ITR 157), M. Narayanan & Bros. 339 ITR 192 (Madras), and Pramukh Builders (Third Member decision of ITAT Ahmedabad, 112 ITD 179), which held that a retracted statement without corroboration has no evidentiary value. 5.4 The learned AR further pointed out that the AO himself adopted inconsistent stands-sometimes stating that alleged bogus purchases resulted in jewellery investments, and at other times alleging that they were used for cash loans. No such jewellery or loans were identified or seized. Even additions under the Wealth-tax Act had been partly deleted by the CIT(A), showing contradictions in the Revenue's case. 5.5 It was also argued that if the addition is sustained even partially, it would lead to absurd results. For example, in the year under consideration, t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....out 25% of cash purchases were nongenuine/ inflated; (iii) In a later statement under section 131(1) of the Act, he reiterated non-genuineness but sought to restrict the disallowance at 20%; and (iv) An affidavit dated 12-03-2019 purporting to retract was filed allegedly without corroborating books-based reconciliation or third-party evidence. 7.1 The learned CIT(A) therefore rejected the retraction and sustained the 25% of the addition as made by the AO in the assessment order. 7.2 Before going to the issue, we find pertinent to discuss the evidentiary value of statements recorded during the search and during the post search proceeding. The Hon'ble Supreme Court in Pullangode Rubber Produce Co. Ltd. v. State of Kerala reported in 91 ITR 18 holds that an admission is a very important piece of evidence, but it is not conclusive; the maker can show it was incorrect. On the other hand, where a voluntary statement under oath is clear and later retraction is belated or unsupported, the statement shall be treated as reliable evidence as held by the several courts including Hon'ble Supreme Court in the case of Bannalal Jat Constructions (P) Ltd. v. ACIT (SC) report....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 7.6 Therefore, in our considered opinion, there was no incriminating material found during the course of search to support the allegation of the bogus purchases. Hence entire basis of disallowing the certain portion (25%) of cash purchases as non-genuine is based on admission made in the statement recorded under section 132(4)/ 131 of the Act only. Hence, considering the judicial precedence as discussed in the preceding paragraph, we hold that such admission cannot be conclusive, and no addition can be made solely based on such statement without bringing corroborative material. The CBDT also vide circular No. No. 286/2/2003-IT (Inv. II), dated 10 March 2003 and Circular No. 286/98/2013-IT (Inv. II), dated 18 December 2014 discourage the AO not to make addition based on statement only. The CBDT underscores that no attempt should be made to obtain a confession of undisclosed income during search operations. Instead, the focus should be exclusively on collecting objective evidence or material of undisclosed income. 7.7 Furthermore, the assessee has retracted from the admission which has been acknowledged by the AO but not accepted for the reason that the retraction has been filed ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... addition of Rs. 17,84,893/- as interest income. 8.1 The relevant facts are that during the search proceeding at the residence of the assessee certain documents were found marked as page 103, 104 & 105 of the annexure A/SBS/B-4/18-19/01 suggesting that the assessee has advanced cash loan to various parties on interest at the rate of 12-15% per annum compounded every 3 months. The search team confronted the impugned seized materials to which the assessee admitted that he has given cash loan of Rs. 64,37,775/- to various person during the financial year 2011-12 to 2013-14 and earned undisclosed income of Rs. 18,65,704/- out of such undisclosed loan by way of interest thereon. 8.2 During the post search proceedings, the assessee was again questioned regarding the cash loan as discussed above while recording his statement under section 131(1) of the Act. The assessee in reply to the questions stated the sources of the impugned cash loan was gift received from various person including father and wife, personal saving etc. The assessee also admitted that on the impugned loan and advance, an interest for the period from December 2011 to February 2014 was receivable for Rs. 19,77,064....
X X X X Extracts X X X X
X X X X Extracts X X X X
....factually and legally incorrect. 8.7 Further, the assessee highlighted that even if the matter were treated as a loan transaction, his statements confirmed that neither the principal nor interest had been received after FY 2013-14, making it clear that no accrual of interest or repayment occurred. When the principal itself is not repaid, the question of taxing interest does not arise. It was further argued that the handwritten sheet was not part of the books of account, had no names or clear description, and even if considered, would not be corroborative in nature unless independent evidence to establish liability is brought on record. 8.8 The assessee also referred to the Hon'ble Supreme Court's decision in V.C. Shukla's case, emphasizing that loose papers cannot by themselves be the sole basis of addition unless corroborated by independent material. He contended that the computer printout shows total interest of Rs. 18,65,704/- whereas the correct total of impugned computer printout is of Rs.16,06,951/-. Thus, there is no basis for taxing Rs.19,77,064/- as relied upon in the show cause notice. It was further pointed out that assessments under section 153A can only cover six....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ings. 9.1 The learned CIT(A) after considering the facts in totality confirmed the addition made by the AO in part by observing as under: 10.5 I have perused the assessment order and the written submissions of the appellant. The computer printout and the handwritten seized document was also perused. The handwritten document contains various amounts with a handwritten narration of 12% per annum. The contents of the documents are clear from the replies submitted by the appellant to the questions posed while recording the sworn statements. The appellant had submitted that these were amounts advanced by him to various persons whose names he does not remember, and he charged 12-15% interest per annum which will be compounded every 3 months. 10.6 The appellant has not been able to substantiate the sources for advancing such amounts. The replies given in the sworn statements regarding the source are contradictory. Hence the AO has correctly brought the undisclosed interest income to tax. 10.7 The computer printout which formed the basis of the addition is based on the seized handwritten document. The computer printout contains the details of the principal amo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....further argued that the only material relied upon was a loose sheet and a computerised printout prepared by the search team. The loose sheet itself did not contain particulars of any party, loan, or interest and was not part of the books of account. Even assuming the loose sheet at face value, the figures were odd and uncorroborated, and therefore could not form the basis of an addition. Reliance was placed on judicial precedents such as Nagarjuna Construction 23 taxmann.com 239 (Hyderabad ITAT), Katrina Turcotte 87 taxmann.com 116 (Mumbai), and Mudduveerappa & Sons 45 ITD 12 (Bangalore), which have held that loose papers without independent corroboration are "dumb documents" and cannot justify an addition. 10.3 The ld. AR also pointed out that there was no evidence of actual receipt or utilisation of any alleged interest income. The Revenue had not found any asset or investment corresponding to the alleged income. On the contrary, the retraction affidavit and subsequent returns showed that no such income was received. Even if loans were assumed to have been advanced, interest thereon could not be said to have accrued when neither the loans nor the interest were recovered, relyi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... This principle has been followed consistently in several rulings, including Common Cause v. Union of India (394 ITR 220, SC) and various Hon'ble High Courts. 12.3 On the other hand, the Department's reliance on the assessee's statement is misplaced. It is trite law that an admission during search must be read as a whole. Here, the assessee clarified that the 12% referred to was interest paid by him and not interest received. The Hon'ble Supreme Court in Pullangode Rubber Produce Co. Ltd. v. State of Kerala (91 ITR 18) has held that an admission is an important piece of evidence but not conclusive, and it is open to the assessee to explain or rebut the same. In this case, the assessee's explanation is consistent with the absence of corroborative evidence on record. 12.4 Further, the addition of interest income on a notional basis is contrary to the settled principle that income must accrue or arise with reasonable certainty. The Hon'ble Supreme Court in E.D. Sassoon & Co. Ltd. v. CIT (26 ITR 27) has held that income accrues only when the assessee acquires a right to receive it. The relevant observation of Hon'ble supreme court is extracted as under: Income may accrue....