2010 (8) TMI 1137 - AT - Income Tax

Summary

Issues Involved:
1. Addition of Rs. 1,75,00,000 to the income based on survey statement.
2. Addition of Rs. 1,67,92,212 on account of suppression of gross profit (GP).
3. Addition of Rs. 56,45,264 on account of alleged unaccounted rent and service charges.

Issue-wise Detailed Analysis:

1. Addition of Rs. 1,75,00,000 to the income based on survey statement:
The primary issue was whether the statement recorded during the survey under section 133A, where the director of the assessee company offered additional income, could be relied upon. The assessee argued that the statement was made under coercion and lacked evidentiary value as per the CBDT circular and the Kerala High Court's decision in Paul Mathews & Sons Vs. CIT. The Assessing Officer (AO) added Rs. 1.75 crores to the total income, treating it as unaccounted income. However, the Tribunal noted that the statement did not specify the additional income for A.Y. 2002-03 but rather a declaration of income. The Tribunal also highlighted the absence of any material evidence found during the survey to support the addition. Consequently, the Tribunal directed the deletion of the Rs. 1.75 crores addition, emphasizing that admissions are not conclusive and can be retracted if shown to be erroneous or made under a mistake.

2. Addition of Rs. 1,67,92,212 on account of suppression of gross profit (GP):
The AO made this addition based on the findings from the survey, which indicated suppression of sales and siphoning of cash out of the books. The AO estimated unaccounted sales at 13.5% of declared cash sales and added Rs. 1,67,92,212. The CIT(A) upheld this addition. The assessee argued that the IOMs (Internal Office Memos) were accounted for in the regular cash book and that the chitties represented internal cash transfers. The Tribunal noted that the AO did not reject the books of account for the impugned year and that the sales figures in the impounded and audited Profit and Loss accounts tallied. The Tribunal also considered the reconciliation statement provided by the assessee. Given the complexities and the lack of concrete evidence, the Tribunal decided on a middle path, directing an estimated addition of Rs. 25 lakhs on account of suppression of GP.

3. Addition of Rs. 56,45,264 on account of alleged unaccounted rent and service charges:
This issue arose from a debit note found during the survey, indicating higher service charges than those recorded in the books. The AO added the difference of Rs. 56,45,264, which was upheld by the CIT(A). The assessee contended that the debit note pertained to A.Y. 1999-2000 and was used for negotiating higher commissions from franchisees. The Tribunal noted that this issue had been restored to the AO for fresh consideration in previous years (A.Y. 2000-01 and 2001-02) to ensure consistency. Following this precedent, the Tribunal restored the issue to the AO for fresh consideration, instructing the AO to consider the written leave and license agreement and the assertion that the debit note was not intended to be acted upon.

Conclusion:
The Tribunal provided a balanced judgment by deleting the addition of Rs. 1.75 crores due to lack of evidence, estimating a reasonable addition for suppression of GP, and remanding the issue of unaccounted rent and service charges for fresh consideration. This approach ensured that the conclusions were based on facts and evidence, adhering to legal standards and precedents.