2019 (6) TMI 1115 - AT - Income Tax

Rejection of books of accounts - trading addition - suppression of yield by the assessee - blank delivery challan books were found from the premises of the assessee which were susceptible to manipulation - different ink was used to fill the weight in the delivery challans - HELD THAT - There in not even an iota of submission that raw material was not supplied to the assessee. The payments to all the suppliers were made by the assessee through banking channels. No discrepancies have been found in the ledger statements of these suppliers. Nothing has been brought on record to establish that any cash got exchanged between the assessee and these suppliers on account of alleged bogus supplies. The allegations that these suppliers were in collusion with the assessee is not supported by any material. No discrepancy has been pointed out by survey team in physical stock of raw material or finished goods on the date of survey. No evidence of suppressed sales, unaccounted cash / investments / sales have been brought on record. No defect has been pointed out either in cash or in stock during survey. The revenue is unable to point out that except for statements, any incriminating material was found during the course of survey proceedings. Pitied against the same was the fact that the assessee was a corporate entity and its books were duly audited as per law over the years. The auditors have not made any adverse comment on quantitative details being maintained by the assessee. So far as the rejection of books of accounts is concerned , we find that no specific discrepancy or defects have been pointed out by AO in the books of accounts. In fact, the addition has been made by Ld. AO merely by disturbing the figures of purchase of raw material without disturbing any other component of books of accounts. We find that the assessee s books were subjected to Audit under Income Tax Act as well as under The Companies Act and the same could not be rejected in a light manner. This Tribunal rendered in ITO V/s M/s Eternity Jewels 2019 (2) TMI 1649 - ITAT MUMBAI wherein it has been observed that AO could not reject the books merely on the basis of surmises and conjectures without pointing out any defect in the books of accounts. Also see TIME SPACE HAULERS 2018 (7) TMI 1997 - BOMBAY HIGH COURT as held that without pointing any particular defect in the audited accounts, it was not correct to reject the books u/s 145(3) - Thus the given factual matrix does not inspire us to sustain the stand of Ld. AO in rejecting the assessee s books of accounts. Veracity of statement recorded u/s 133A - suppression of yield by the assessee - contradictory statement by employee of the assessee and MD of the assessee - AO followed the statement of employee adopted an arbitrary yield of 87% as against the yield of around 83% - HELD THAT - It is settled law that statements recorded during survey proceedings would have no evidentiary value unless corroborated with circumstantial evidences or cogent material to substantiate the same. See S. KHADAR KHAN SONS 2007 (7) TMI 182 - MADRAS HIGH COURT We find that the assessee was reflecting yield in the range of 80% to 81% from AYs 2004-05 to 2011-12. Thereafter, the yield has shown improvement which stood explained by the fact that there were additions in the Plant Machinery from 01/04/2010 onwards which further corroborates assessee s stand. CIT(A) was justified in deleting the quantum additions as made by Ld. AO on account of alleged suppression of yield. By confirming the same, we dismiss the appeal. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reassessment proceedings under Section 147.
2. Deletion of addition on account of suppression of yield.
3. Reliability of statements recorded during survey under Section 133A.
4. Rejection of books of accounts.

Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147:
The assessee contested the validity of reassessment proceedings initiated by the Assessing Officer (AO) under Section 147, which were based on the findings for AY 2011-12. The Commissioner of Income-Tax (Appeals) [CIT(A)] upheld the reassessment, stating that the AO had specific information of suspected purchases and tangible material at the time of issuing notice under Section 148. Since the revenue’s appeal on merits was dismissed, the issue of reassessment became academic and was not further deliberated. Consequently, the assessee’s appeals on this ground were dismissed as infructuous.

2. Deletion of Addition on Account of Suppression of Yield:
The AO added ?1097.13 Lacs to the income of the assessee for AY 2011-12, alleging suppression of yield. The CIT(A) deleted this addition, noting several key points:
- The AO’s addition was based on statements recorded during a survey under Section 133A, which lacked corroborative evidence.
- The AO failed to point out specific defects in the books of accounts, which were duly audited.
- The AO’s estimation of yield at 87% was arbitrary and not supported by any expert opinion or technical evidence.
- The assessee provided technical reports from government bodies (CPPRI & SRI) supporting the yield reflected in the books, which the AO did not counter with any technical evidence.
- The CIT(A) observed that no incriminating material regarding unaccounted cash, purchases, sales, or investments was found during the survey.

3. Reliability of Statements Recorded During Survey under Section 133A:
The AO relied heavily on statements made by the assessee’s employees and Managing Director (MD) during the survey. However, the CIT(A) and the Tribunal found these statements to be unreliable as they were not supported by any documentary evidence. The MD’s statement indicating a yield of 83.44% was corroborated by the actual yield on the date of the survey. The Tribunal emphasized that statements recorded under Section 133A do not have evidentiary value unless corroborated with circumstantial evidence or cogent material. This principle was supported by judicial precedents, including the decision of the Hon’ble Madras High Court in CIT vs. S. Khader Khan and the Hon’ble Supreme Court.

4. Rejection of Books of Accounts:
The AO rejected the assessee’s books of accounts, alleging that the yield was understated by inflating purchases. The CIT(A) and the Tribunal found this rejection unjustified because:
- No specific discrepancies or defects were pointed out in the books, which were audited.
- The AO’s estimation of yield was arbitrary and not based on any sound basis or technical evidence.
- The suppliers confirmed the genuineness of sales to the assessee and were regularly filing their tax returns.
- No discrepancies were found in the physical stock of raw material or finished goods during the survey.

Conclusion:
The Tribunal upheld the CIT(A)’s decision to delete the addition on account of suppression of yield, finding that the AO’s conclusions were based on unreliable statements and lacked corroborative evidence. The rejection of the books of accounts was also deemed unjustified. Consequently, the revenue’s appeals were dismissed, and the assessee’s cross-objections were rendered infructuous.