2015 (3) TMI 149 - AT - Income Tax

Unaccounted purchases of gold bars and unexplained cash - AO formed the view from the excel sheets found during the course of search that the gold bars and cash shown in the blocks in the excel sheets was the sale consideration received in exchange of jewellery sold and therefore made additions - Held that - Additions made by the AO and by the Ld. CIT(A) forming contradictory opinion from the entries on the excel sheets are on the basis of just their assumptions and presumptions whereas the assessee has discharged its burden to explain the relevant entries. As decided in Jitendra Kumar Jain v. DCIT 2014 (1) TMI 1181 - ITAT MUMBAI such type of mere assumptions cannot be said to be having any value of evidence in the eyes of law and even the assessee cannot be called to disapprove such type of assumptions and presumptions based on mere suspicions. No doubt in this case the initial burden was upon the assessee to explain about the entries made in the excel sheets however once the assessee had explained the entries the burden shifted upon the AO to prove that the explanation given by the assessee was wrong or that the entries made in the excel sheets were pertaining to sale transactions as alleged by the AO or the entries relating to gold bar was unaccounted purchase as has been alleged by the Ld. CIT(A). Since both the authorities i.e. AO as well as the Ld. CIT(A) could not prove their case hence additions made by them on the basis of mere assumptions/presumptions and suspicions are not sustainable in the eyes of law and the same are accordingly ordered to be deleted. - Decided in favour of assessee. Deductions U/s 10A/10AA denied - CIT(A) allowed the claim - Held that - Ld. CIT(A) directed the assessee to submit the complete details of imports and Exports made through these units and the approval of the Custom and Central Excise department and also to submit the documents relating to shipment Import and Export Clearance Invoices of import Rs. 2 crore before 7.8.2008 as cheque if in cash then on 01.08.2008. The assessee has explained that the deal did not materialize and was cancelled hence there was no question of payment of Rs. 2 crore in cash. It is not disputed that the property latter on was purchased by the Group company of the assessee M/s Gia Exports. When the assessee neither has purchased the property in question nor there is any mention in the seized documents that the assessee in fact has made the payment of Rs. 2 Crores then the addition merely on the basis of assumption that the assessee might have made the payments in our view is not sustainable in the eyes of law. - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of Rs. 1,64,21,516/- as alleged unaccounted purchases of gold bars.
2. Addition of Rs. 17,91,780/- as alleged unexplained cash.
3. Addition of Rs. 15,67,742/- by allocating expenses from non-SEZ unit to SEZ unit.
4. Enhancement of income by CIT(A).
5. Addition towards unexplained expenditure and ad hoc estimated addition.
6. Addition towards discrepancy in stock.
7. Addition of Rs. 2 crore as payment made in cash for the purchase of property.

Detailed Analysis:

Issue 1 & 2: Addition of Rs. 1,64,21,516/- as alleged unaccounted purchases of gold bars & Addition of Rs. 17,91,780/- as alleged unexplained cash:
The assessee was engaged in the manufacturing and trading of gold jewelry. During a search operation, various documents and computer files, including Excel sheets, were seized, indicating unaccounted transactions. The AO concluded that the assessee was involved in unaccounted sales and purchases under the guise of approval transactions. The CIT(A) found that the goods sent on approval were returned and orders were booked properly, with invoices reflecting in the books. However, the CIT(A) held that the gold bars and cash entries in the Excel sheets indicated unaccounted purchases and cash, leading to additions in different assessment years. The Tribunal found that both the AO and CIT(A) made assumptions without conclusive evidence and deleted the additions, noting that the burden of proof was on the Revenue to disprove the assessee's explanations.

Issue 3: Addition of Rs. 15,67,742/- by allocating expenses from non-SEZ unit to SEZ unit:
The AO disallowed the deduction claimed under section 10A for SEZ units, alleging that no manufacturing activities were carried out. The CIT(A), after verifying the import and export documents and approvals from Customs and Central Excise, held that the assessee was eligible for the deduction. However, the CIT(A) allocated additional expenses to the SEZ units based on the total turnover, leading to additions for certain assessment years. The Tribunal upheld the CIT(A)'s decision, finding no discrepancy in the documents and noting that the department allowed the deduction in subsequent years.

Issue 4: Enhancement of income by CIT(A):
The CIT(A) enhanced the income by making additions towards unexplained purchases of gold bars and unexplained cash, which were not made by the AO. The Tribunal, having deleted the additions on account of unaccounted purchases and cash, found the additional ground of appeal by the assessee to be infructuous and dismissed it.

Issue 5: Addition towards unexplained expenditure and ad hoc estimated addition:
The AO added gross profits from alleged bogus entities and made an ad hoc addition of Rs. 28 lakh for each year, assuming expenses to create paper entities. The CIT(A) upheld these additions. The Tribunal found the entities to be paper entities but deleted the ad hoc addition of Rs. 28 lakh, noting no evidence of such expenses and avoiding double taxation since the net profits of these entities were already taxed.

Issue 6: Addition towards discrepancy in stock:
The AO found discrepancies in the stock of gold jewelry and gold bars during the search, leading to a substantial addition. The CIT(A) upheld the addition. The Tribunal noted that the assessee was not provided with inventory statements except for one premise and found errors in the consolidated inventory prepared by the AO. The Tribunal accepted the assessee's explanation regarding combined entries for different gold categories and found no evidence of excess stock. The Tribunal deleted the addition for jewelry and directed the AO to compute gross profits on the shortage of jewelry. For gold bars, the Tribunal rejected the assessee's explanation of job work and upheld the addition for the excess stock found.

Issue 7: Addition of Rs. 2 crore as payment made in cash for the purchase of property:
The AO added Rs. 2 crore based on seized documents indicating a cash payment for property purchase. The CIT(A) upheld the addition. The Tribunal found no evidence of actual payment in the seized documents and noted that the property was later purchased by a group company. The Tribunal deleted the addition, finding it unsustainable without evidence of payment.

Conclusion:
The Tribunal partly allowed the assessee's appeals, deleting several additions made on assumptions and without conclusive evidence, and dismissed the Revenue's appeals. The Tribunal emphasized the need for the Revenue to provide substantial proof before making additions based on assumptions and presumptions.