2010 (2) TMI 636 - HC - Income Tax

Unexplained expenditure - Mistake in Balance Sheet - The statements on the affidavits of the typist as well as the chartered accountant clearly reveal that the typist has committed the mistake in typing the figures of consumption during the year. The chartered accountant, being a professional, having his responsibility of submitting of a correct report, when a mistake was committed, which was admitted by him as well as his typist, there is no reason not to believe these vital documents. Considering the facts of the case and looking to the approach adopted by the Tribunal, the court has no hesitation to hold that the impugned order passed by the Tribunal is devoid of any merit, based on assumptions and presumptions and relevant evidence are not considered. - Tribunal was not right in law in upholding the addition of Rs. 17,50,00,000 as unexplained expenditure under section 69C of the Act as there was no evidence before the Tribunal to hold that the appellant-assessee had incurred unexplained expenditure of Rs. 17,50,00,000 in purchase of rough diamonds. Addition not justified

Issues Involved:
1. Addition of Rs. 17,50,00,000 as unexplained expenditure under section 69C.
2. Evidence before the Tribunal regarding the unexplained expenditure.
3. Determination of the addible amount based on peak investment.
4. Deduction under section 80HHC in respect of the added or addible income.

Detailed Analysis:

1. Addition of Rs. 17,50,00,000 as Unexplained Expenditure under Section 69C:
The appellant-assessee, a partnership firm engaged in the diamond business, faced an addition of Rs. 17,50,00,000 under section 69C of the Income-tax Act, 1961, due to a discrepancy in the reported consumption of rough diamonds. The Assessing Officer noted an excess consumption of 1,40,000 carats, which was attributed to a typographical error. Despite explanations and correction certificates provided by the appellant, the Assessing Officer made the addition based on the erroneous figure.

The Commissioner of Income-tax (Appeals) deleted the addition, emphasizing that the Assessing Officer should not have passed the order without adequate opportunity for the appellant to be heard, especially given the magnitude of the addition. The Commissioner noted that the addition was based on a typographical error and that the correct figures were supported by the appellant's books of account and other records.

The Tribunal, however, reversed this decision, upholding the addition by suggesting that the excess consumption indicated purchases outside the books of account. The Tribunal rejected the appellant's contention that the addition was due to a typographical error and did not accept the supporting affidavits and statements as valid evidence.

2. Evidence Before the Tribunal Regarding the Unexplained Expenditure:
The Tribunal's decision was challenged on the grounds that it was based on assumptions and not supported by concrete evidence. The appellant argued that the actual consumption of rough diamonds was 2,90,701.14 carats, as corroborated by various records and statements, including those from the auditor and the appellant's partner. These documents were dismissed by the Tribunal on the basis that they were not available to the Assessing Officer initially, despite being considered in the remand report.

The High Court found that the Tribunal's inference lacked supporting evidence and that the addition was based on a typographical error. The court noted that the correct consumption figure was consistently reflected in the appellant's records and supported by affidavits from the typist and the chartered accountant, which were not given due consideration by the Tribunal.

3. Determination of the Addible Amount Based on Peak Investment:
The appellant contended that the alleged purchases were made throughout the year, and the peak investment should be considered instead of the total amount. The Tribunal rejected this argument, maintaining the addition of Rs. 17,50,00,000.

The High Court, however, did not find it necessary to address this issue separately, given its findings on the primary issues.

4. Deduction Under Section 80HHC in Respect of the Added or Addible Income:
The appellant also argued for a deduction under section 80HHC on the added income, which the Tribunal rejected. Given the High Court's decision on the primary issues, it did not need to address this argument separately.

Conclusion:
The High Court concluded that the addition of Rs. 17,50,00,000 as unexplained expenditure under section 69C was not justified. The court found that the discrepancy was due to a typographical error, as supported by the appellant's records and affidavits. Consequently, the Tribunal's order was set aside, and the appeal was allowed without costs. The interim order was merged into the final order, relieving the appellant and its partners from their obligations and directing the refund or adjustment of the deposited amount against any outstanding demand.

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