2007 (12) TMI 321 - AT - Income Tax

Assessment u/s 153A - Unexplained moneys - search operation under section 132 - Addition on account of suppressed turnover - basis of assumption and surmises - Estimated profit after rejecting the book result - HELD THAT - No material was also found to indicate that there was any suppressed production in the aforesaid assessment years. The Assessing Officer finding that material was seized relating to the assessment year 2004-05 in the search indicating suppressed production and sales existed in the assessment year 2004-05, on the basis of this, he presumed that there might have been suppressed production and sales in the assessment years 2000- 01 to 2003-04 also. Hence, he taking the consumption of electricity as basis and on the further assumption and presumption arrived at some suppressed production and sales for the said assessment years. It is not in dispute that no defect in the books of account maintained for the aforesaid years was found. In absence of any material being found during the search relevant to the aforesaid assessment years, in our considered opinion, the learned CIT(A) was justified in deleting the addition made for these years only on the basis of assumption and surmises. We do not find any error in the order of the learned CIT(A) insofar as he rejected the estimate of suppressed sales by the Assessing Officer. Further, the rate of profit assumed by the learned CIT(A) being more than the rate of profit estimated by the Assessing Officer, the Revenue cannot have any grievance against the same. Thus, the learned CIT(A). It is confirmed and the ground of appeal of the Revenue is dismissed. The Revenue has not brought any material on record to corroborate the finding of the Assessing Officer for suppressed production and sales merely on the basis of variation in electricity consumption. The revenue has also failed to point out any specific error in the order of the learned CIT(A). Therefore, the findings of the learned CIT(A) which is confirmed and the grounds of appeals of the assessee are dismissed. Protective addition - Cash seized during search - We find that during the course of search cash was seized from the residence of Shri Dilip Jani, who was also a director of the assessee-company. The said director accepted the ownership of the said money, shown the same as his income in the return which was subsequently filed and paid tax thereof. The Revenue could not bring any material before us to show that the said cash was the property of the assessee-company. Hence, the order of the learned CIT(A) which is confirmed and the grounds of appeal of the revenue are dismissed. In the result, the appeals of the Revenue are dismissed.

Summary

Issues Involved:

1. Deletion of addition made by the Assessing Officer by estimating profit after rejecting the book results for assessment years 2000-01 to 2004-05.
2. Addition on account of unaccounted investment for the assessment year 2000-01.
3. Addition on account of unexplained money on a protective basis for the assessment year 2004-05.

Detailed Analysis:

1. Deletion of Addition by Estimating Profit:

The Assessing Officer (AO) rejected the book results and estimated profits based on electricity consumption for the assessment years 2000-01 to 2004-05, alleging suppressed production and sales. The AO noted discrepancies in electricity consumption and assumed unaccounted production and sales, resulting in additions of Rs. 18,53,716 (2000-01), Rs. 45,39,160 (2001-02), Rs. 59,56,760 (2002-03), Rs. 17,91,891 (2003-04), and Rs. 65,85,747 (2004-05).

The CIT(A) found that the AO's reliance on electricity consumption alone was not scientifically validated and lacked corroborative evidence. The CIT(A) noted that the books of account were audited and regularly maintained without any specific defects. The CIT(A) concluded that the AO's approach was arbitrary and not supported by empirical evidence, leading to the deletion of the additions for the assessment years 2000-01 to 2003-04.

For the assessment year 2004-05, the CIT(A) acknowledged evidence of suppressed sales amounting to Rs. 24 lakhs from seized documents. The CIT(A) estimated understated sales at Rs. 32 lakhs and applied a 50% net profit rate, sustaining an addition of Rs. 16 lakhs while deleting the balance addition. The Tribunal upheld the CIT(A)'s findings, noting that the AO's calculations lacked a scientific basis and were based on assumptions.

2. Addition on Account of Unaccounted Investment (2000-01):

The AO estimated an unaccounted investment of Rs. 9,26,858 based on the turnover estimated from electricity consumption. The CIT(A) found no cogent evidence to support this addition, noting that the factory operations did not indicate a scale justifying such an inference. The Tribunal confirmed the CIT(A)'s deletion of the addition, emphasizing the lack of material evidence indicating any undisclosed investment by the assessee.

3. Addition on Account of Unexplained Money on Protective Basis (2004-05):

During a search, Rs. 1,19,45,750 was seized from the residence of a director, who claimed it as his income from land dealings. The AO added Rs. 37,60,003 on a protective basis, suspecting it was generated from unaccounted sales by the assessee-company. The CIT(A) deleted the protective addition, noting that the director had owned up the cash and paid tax on it. The Tribunal upheld the CIT(A)'s decision, finding no evidence that the seized cash belonged to the assessee-company.

Conclusion:

The Tribunal confirmed the CIT(A)'s orders, dismissing the revenue's appeals. The additions based on estimated profits from electricity consumption were deleted due to lack of corroborative evidence and scientific validation. The addition for unaccounted investment was also deleted for lack of evidence. The protective addition for unexplained money was deleted as the cash was owned by the director and not linked to the assessee-company.