Income Tax Addition On Unaccounted Sales And Purchases Can't Be Solely Based On Loose Slips: ITAT Bangalore

The Banglore Bench of Income Tax Appellate Tribunal (ITAT) has deleted the income tax addition of Rs. 1.36 crore on alleged unaccounted sales and purchases that were solely based on loose slips.

The bench of Keshav Dubey (Judicial Member) and Chandra Poojari (Accountant Member) has observed that the onus lies upon the Department to collect cogent evidence to corroborate the notings on the loose sheets. The additions cannot be made merely on the basis of notings on the loose sheet papers, which are in the nature of “dumb documents” having no evidentiary value.

The respondent/assessee is a partnership firm engaged in the business of trading in gold jewellery and silver articles.

The department initiated an action against assessee 132. For the AY 2013–14, there was no material seized evidencing any escapement of income. However, during the course of the search, a statement was recorded from Mr. R. Ravish, managing partner of the firm, under the provisions of Section 132(4).

Though there was no evidence relevant to A.Y. 2013–14, the search party has taken a statement in which a declaration of Rs. 2,00,00,000 was recorded as undisclosed sales for A.Y. 2013–14, even though no incriminating material was found.

The assessee, however, has retracted his statement during the course of assessment proceedings for the reason that there was no evidence or incriminating material in support of the declaration, and hence no income accrued for the A.Y. 2013–14.

The Assessing Officer has concluded the assessment, in which an addition of Rs. 2,00,00,000 was made to the income declared.

The assessee challenged the addition in appeal, and the CIT(Appeals) has allowed the assessee's appeal. The CIT (Appeals) has held that the return for assessment year 2015–2016 falls under the category of an unabated assessment case as there were no pending assessment proceedings when the search was initiated and that no incriminating material relevant to assessment year 2015–2016 was found during the course of the search. The CIT (Appeals) has also observed that all the seized material belongs to the assessment year 2016–2017, based on which the admission was made by the assessee for the assessment year 2015–2016 on account of undisclosed sales and unaccounted purchases, and that the statement was also later retracted.

The assessee contended that the assessing officer has made the addition relying solely on the statement recorded and without any supporting evidence to corroborate or any incriminating material for such quantification. The evidence relied upon for the declaration by the search party relates to FY 2016–17 relevant to FY 2017–18 and not FY 2012–13 relevant to FY 2013–14. There was no incriminating material found during the course of the search for FY 2013–14.

The department contended that during the course of the search, various incriminating documents and material were found and seized. Loose sheets inventoried and marked as 'A/SRS/04' contain loose sheets numbered 113. These loose sheets are actually estimates of sales figures given to customers who wish to purchase gold jewellery. The estimate itself serves as proof of the purchase of jewellery from the assessee in case the customer does not insist on a proper bill. The assessee was confronted with the evidence found.

The tribunal has noted that notice issued under Section 143(2) was barred by limitation, as on the date of search, the assessment shall be considered completed and no assessment could be made in the absence of incriminating material found during the course of the search.

The tribunal held that to make an addition in the case of a completed assessment year, there should be positive seized material or incriminating material found during the course of the search action. In the absence of seized material or incriminating material, AO is precluded from making any additions.

The tribunal quashed the assessment under Section 153A for AYs 2013-14 and 2014-15 in respect of the search operation and deleted the additions.

Counsel For Assessee: C. Ramesh

Counsel For Department: Neera Malhotra

Case Title: ITO Versus M/s. Ramachandra Setty & Sons SRS Building

Case No.: ITA Nos.1163 to 1165/Bang/2023

Click Here To Read The Order