2015 (7) TMI 1167 - HC - Income Tax

Unaccounted sales - variation in stock at the time of search - Tribunal has allowed the appeals on the ground that other than the papers seized by the Department there was no direct or indirect documents to prove that the assessees indulged in unaccounted sales - Held that - Appellate Authority while dealing with this aspect of the matter has come to the conclusion that it is not the case of the assessees that the entries recorded are untrue and they do not relate to the assessees and accordingly held that Section 292C would not come in aid of the Department to draw an inference that all entries relate to sale. The Tribunal has further come to the conclusion that there is nothing in the seized material to show that unaccounted sales were found in the course of search. This finding of the ITAT is factually incorrect. As observed supra the Assessing Authority has referred to the sale invoices to an extent of 5, 40, 765/- and deducted the said amount as can be gathered form para 6.17 of the assessment order. The order of the Assessing Authority is cogent and well reasoned. Every minute detail is reflecting in the said order. In a case of search of seizure the revenue may discover assessees failure to account several transactions which ought to have been brought to tax. It is only in such circumstances that the provisions of search and seizure are invoked. Assessee took a definite stand that the entries found in the loose sheets were reflecting in the regular books. The assessees were given a fair and reasonable opportunity to substantiate their stand. Both the assessee and the chartered accountant failed to substantiate the same. There is no doubt with regard to the possession of documents in question. It is clearly recorded in the order of assessment that the partner S.Rudramuniyappa and the Chartered Accountant who accompanied him miserably failed to substantiate their claim. On facts we are convinced that there is no dispute with regard to the seizure of documents and the assessee as well as the Chartered Accountant were given sufficient opportunity to substantiate their claim but they miserably failed justify their stand.The substantial questions of law raised in these appeals are answered in favour of the revenue.

Summary

Issues Involved:
1. Legitimacy of additions made based on seized documents during a search.
2. Corroboration of seized documents with other evidence.
3. Estimation of unaccounted sales and income.
4. Inclusion of receivables/debtors in the assessment.
5. Validity of the Tribunal's findings on the above issues.

Detailed Analysis:

1. Legitimacy of Additions Based on Seized Documents:
The Revenue's case hinges on the legitimacy of additions made based on documents seized during a search conducted under Section 132 of the Income Tax Act. The documents included loose sheets and a yellow file containing details of unaccounted sales and receipts. The Assessing Authority correlated these entries with other documents and information from the Commercial Tax Department, concluding that there was a significant discrepancy between the turnover declared to the Sales Tax Department and the Income Tax Department. The Assessing Authority computed the turnover and unaccounted sales based on these seized documents, leading to the determination of undisclosed income.

2. Corroboration of Seized Documents with Other Evidence:
The Tribunal held that the additions of Rs. 5,38,145 and Rs. 3,01,027 were not corroborated by other evidence, and thus could not be added back. The Revenue argued that the seized documents, including invoices and the respondent's admissions, were sufficient to corroborate the entries. The Tribunal's view that there was no direct or indirect evidence beyond the seized documents was challenged by the Revenue, emphasizing that the documents and admissions during the search should be considered adequate corroboration.

3. Estimation of Unaccounted Sales and Income:
The Tribunal also questioned the addition of Rs. 8,14,907, stating it was based on material other than the seized documents. The Assessing Authority had estimated the turnover and unaccounted sales for different periods, using the seized documents as a basis. The Tribunal's stance was that the assessment should not be based on estimated figures without concrete evidence. However, the Revenue maintained that the Assessing Authority's estimates were reasonable and based on the seized documents and other corroborative evidence.

4. Inclusion of Receivables/Debtors in the Assessment:
The Tribunal found that the addition of Rs. 21,28,815 against receivables/debtors was not justified as the Assessing Officer had not corroborated the entries by examining the persons shown in the papers. The Revenue argued that the assessee and their Chartered Accountant failed to substantiate their claim that these receivables were included in the regular books of accounts. The Assessing Authority had given the assessee multiple opportunities to prove their stand, which they failed to do, leading to the inclusion of these amounts in the assessment.

5. Validity of the Tribunal's Findings:
The Revenue contended that the Tribunal erred in its findings by not considering the corroborative evidence and admissions made by the assessee. The Tribunal's conclusion that there was no unaccounted trading based on the absence of stock variation at the time of the search was also challenged. The High Court found that the Assessing Authority's order was detailed and well-reasoned, and the Tribunal's decision to set aside the additions was unsustainable in law.

Conclusion:
The High Court allowed the appeals filed by the Revenue, answering the substantial questions of law in favor of the Revenue. It set aside the Tribunal's orders, upholding the Assessing Authority's findings and the additions made based on the seized documents and corroborative evidence. The Court emphasized that the assessee was given ample opportunity to substantiate their claims, which they failed to do, justifying the additions made by the Assessing Authority.