2013 (6) TMI 666 - AT - Income Tax

Determination of income - addition towards estimated G.P. on unaccounted sale of Gutkha and Pan Masala - Held that - AO has supported its finding by the statement of the Assessee recorded on 02.04.2009 post survey carried on 05.02.2009. As find from the record that the AO supplied the copy of the said statement to the Assessee but did not supply the other documents/record requisitioned from the Sales Tax Department based on which the unaccounted sale was worked out by AO. Assessee vide its letter demanded the alleged record though AO has referred the notice u/s 142(1) to show that the copies of the documents were shown to Assessee for examination. It is pertinent to note that no documents can be used against the Assessee without giving him proper opportunity to rebute the same or to produce counter evidence. The assess denied that the alleged record belongs to the Assessee and demanded the cross-examination of the panchnama on this point. The whole case of the department is based on the presumption that the Assessee is C & F Agent of Godhwat Industries for sale of Gutkha and Pan Masala. AO made the estimated GP addition by working out the unaccounted sale whereas in case of C & F Agent the income is only the commission as agreed between the parties and not any profit margin from purchase and sale because the purchase is made by the traders and dealers and the sale is made by the manufacturer. There cannot be any purchase and sale by the C & F Agent but it facilitates the purchase and sale between the Trader/Dealer and the manufacturer. AO adopted the GP rate admitted by the Assessee on its business of Trade which is not permitted to be adopted for the income being commission of C & F Agent. AO worked out unaccounted sale for 10 months on the reason that the search was conducted by the Sales Tax Department on 20th January. Therefore the 10 months sale was worked out from the April 2007 to January. 2008. But it is material to note that the search was conducted on 20th January.2009 and not on 20th Janyary.2008, therefore the record found during the search cannot be said to be upto to 20th January.2008 so that the unaccounted sale on the basis of that record can be worked out upto 20th January.2008. Also when the Sales Tax Department who carried out the search and seizure operation and seized the record in question has come to the conclusion that the unaccounted sale is from the purchase from outside state then the view of the AO that the unaccounted sale is from the purchases made within the state is not sustainable. Thus set-aside the orders of the authorities below qua this issue and delete the addition of estimated GP towards unaccounted sales. Addition on account of cash payment - Held that - Since the addition is made on the basis of the seized material by the Sales Tax Department therefore in view of finding in respect of the issue of addition on account of unaccounted sale as well as the conflicting view taken by the Sales Tax Authority and Income Tax Authorities on the same evidence this addition is deleted.

Summary

Issues Involved:

1. Confirmation of the assessment order determining the total income.
2. Validity of the statement on oath and its retraction.
3. Reliance on the statement dated 02.04.2009 for assessing income.
4. Addition of estimated Gross Profit (GP) on alleged unaccounted sales.
5. Rejection of the appellant's claim regarding cash payments.
6. Handling charges as the basis for income assessment.

Issue-wise Detailed Analysis:

1. Confirmation of the assessment order determining the total income:
The appellant contended that the CIT(A) erred in confirming the assessment order passed by the Assessing Officer (AO) which determined the total income at Rs. 3,11,20,215/-. This issue was considered general and dependent on the outcome of other specific grounds raised by the appellant.

2. Validity of the statement on oath and its retraction:
The appellant argued that the statement recorded on 02.04.2009 under section 131 of the IT Act was retracted within two days via affidavits dated 04.04.2009 and 08.04.2009. The CIT(A) rejected this contention. The tribunal noted that the statement was recorded post-survey and retracted immediately, hence, it required corroborative evidence to be considered valid for making additions.

3. Reliance on the statement dated 02.04.2009 for assessing income:
The appellant contended that the CIT(A) wrongly relied on parts of the statement dated 02.04.2009, which indicated that the business in Gutkha was carried out on behalf of the Ghodawat Group. The tribunal found that the AO did not provide the alleged seized material to the appellant, nor was the appellant given the opportunity to cross-examine the evidence. The tribunal emphasized that no addition could be made solely on the basis of a retracted statement without corroborative evidence.

4. Addition of estimated Gross Profit (GP) on alleged unaccounted sales:
The AO estimated unaccounted sales at Rs. 32,04,31,758/- and applied a GP rate of 9.65%, resulting in an addition of Rs. 2,97,36,067/-. The appellant argued that the AO made an addition based on a statement retracted immediately and without providing the seized materials for verification. The tribunal noted discrepancies in the AO's approach, including the incorrect period considered for unaccounted sales and the conflicting conclusions of the Sales Tax Department and the Income Tax Authorities. The tribunal set aside the orders of the authorities and deleted the addition of estimated GP towards unaccounted sales.

5. Rejection of the appellant's claim regarding cash payments:
The AO made an addition of Rs. 10,19,182/- based on seized documents indicating cash payments. The CIT(A) confirmed this addition. The appellant argued that the documents did not belong to them. The tribunal, considering the conflicting views of the Sales Tax Department and the Income Tax Authorities and the lack of corroborative evidence, deleted this addition.

6. Handling charges as the basis for income assessment:
The appellant contended that if any income were to be assessed, it should be based on handling charges of Rs. 75 per Gunny Bag, as stated in the retracted statement. This ground was not pressed during the hearing and was dismissed as not pressed.

Conclusion:
The tribunal found significant issues with the AO's approach, including reliance on a retracted statement without corroborative evidence and discrepancies in the period considered for unaccounted sales. The tribunal deleted the additions made by the AO and partly allowed the appeal of the assessee. The order was pronounced on 14th June 2013.