2015 (8) TMI 223 - AT - Income Tax

Addition u/s 69C - CIT(A) deleted the addition - Held that - In the instant case, we notice that the assessing officer has placed heavy reliance on certain documents first referring to the seized material. The AO himself observes that the page 81 pertains to Consignment Purchases. There should not be any dispute that the assessee would be acting as an agent only in respect of Consignment purchases and hence the concerned principal would be liable to answer the differences, if any, in the transactions. In respect of transactions found in page 82 relating to M/s Haryana Steels, the assessee has stated that they are also related to consignment purchase. We notice that the assessing officer has, in fact, examined Ledger account copy of the assessee as available in the books of M/s Haryana Steels and found that there are differences. Though the AO observes that the assessee could not reconcile the difference, yet we notice that there was a difference of a meager amount, which the assessee has explained that it could be a rebate difference. We notice that the assessing officer has not examined M/s Haryana Steels in order to disprove the claim of the assessee. Without examining the explanations given by the assessee and without disproving the same, we are of the view that the AO was not justified in drawing adverse inferences against the assessee. AO, in order to invoke the provisions of sec. 69C, should give a categorical finding that the assessee has incurred any expenditure. In the instant case, the assessing officer has not even attempted to find out as to whether the relevant transactions, in which the alleged rate difference was found, pertain to the assessee or not. In this regard, the AO should have examined the books of accounts maintained by the assessee, which he has failed to do. In our view, the AO could not have drawn adverse inference without examining the books of account in order to find out as to whether the said transactions belong to the assessee, particularly in view of the fact that the assessee has been acting as consignment agent also. Hence we are of the view that the rate difference noticed in the documents cannot come to the support of the AO. In the instant case, the view of the AO could have been upheld if he had made one to one comparison of purchase bills found during the course of search/survey with the entries recorded in the books of account, conducted necessary investigation/enquiries and then established the fact of unaccounted payments. Admittedly, in the instant case, the AO has failed to do this exercise. - Decided against revenue.

Summary

Issues Involved:
1. Legitimacy of additions made under Section 69C of the Income Tax Act.
2. Validity of the evidences and documents used by the Assessing Officer (AO) to support the additions.
3. Appropriateness of the AO's methodology in determining the purchase rate and alleged cash payments outside the books of account.

Issue-wise Detailed Analysis:

1. Legitimacy of Additions Made Under Section 69C of the Income Tax Act:
The main contention of the revenue was the addition made by the AO under Section 69C, which pertains to unexplained expenditure. The AO presumed that the assessee had made purchases at a higher rate than recorded in the books and paid the difference in cash outside the books. The AO based this on the practice of under-invoicing observed in another company, M/s Jindal Strips Ltd. However, the CIT(A) and the Tribunal found that the AO did not have substantial evidence to support this presumption. The Tribunal emphasized that for Section 69C to apply, it must be shown that the assessee incurred an expenditure and failed to satisfactorily explain the source of such expenditure. The Tribunal upheld the CIT(A)'s decision to delete the additions, concluding that the AO's assumptions were based on conjectures and not on concrete evidence.

2. Validity of the Evidences and Documents Used by the AO:
The AO relied on documents seized during the search, including statements from other parties and computer files from the assessee's premises. The CIT(A) observed that the AO did not provide the assessee an opportunity to cross-examine the evidence or verify the reconciliation statements provided by the assessee. The Tribunal noted that the AO's reliance on the statement of Shri Sandeep Bansal of M/s Jindal Strips Ltd was misplaced as the assessee did not purchase goods from M/s Jindal Strips Ltd. Furthermore, the Tribunal found that the AO did not substantiate the alleged under-billing with specific instances from the assessee's books. The Tribunal concluded that the AO's evidence was insufficient to justify the additions under Section 69C.

3. Appropriateness of the AO's Methodology in Determining the Purchase Rate and Alleged Cash Payments:
The AO determined an average purchase rate of Rs. 35 per kg based on seized documents and assumed the difference between this rate and the recorded purchase rate as cash paid outside the books. The CIT(A) found inconsistencies in the AO's approach, noting that the AO initially proposed different rates and did not have cogent material to support the Rs. 35 rate. The Tribunal agreed with the CIT(A), stating that the AO's methodology was flawed as it was based on assumptions rather than concrete evidence. The Tribunal highlighted that the AO failed to conduct a thorough investigation to establish the alleged unaccounted payments and relied heavily on generalized trade practices without specific proof. Consequently, the Tribunal upheld the CIT(A)'s decision to delete the additions.

Conclusion:
The Tribunal dismissed the revenue's appeals, upholding the CIT(A)'s decision to delete the additions made under Section 69C for the assessment years 2002-03 to 2004-05. The Tribunal found that the AO's additions were based on presumptions and lacked substantial evidence, and the AO failed to establish that the assessee incurred unexplained expenditure as required under Section 69C.