2020 (1) TMI 444 - AT - Income Tax

Additions us/ 69 / 69A towards undisclosed income found during the course of survey u/s 133A - unexplained stock - Addition based on the statement of the Director of the Company - retraction of the statement by way of letter - corroborative evidence to substantiate the addition - admission of additional evidence - Held that - The retraction, if any, has to be based on the records and with proper documentary evidences which prove that the documents based on which the disclosure or the additional income has been offered were faulty. CIT(A) deleted the addition by observing that, Assessing Officer has simply rejected the explanation of the assessee merely n the ground that valuation was accepted by the assessee before the survey party and difference was offered from taxation. In my opinion, if the assessee can demonstrate that valuation adopted by the survey party was wrong with reference to the materials on record, then addition cannot be justified merely on the ground that it was offered for taxation. Though, the admission of the assessee is piece of evidence but the assessee can demonstrate that admission was wrong. - Order of CIT(A) sustained - Decided against the revenue. Admission of additional evidences under Rules 46A - Held that - a conflict of opinions expressed by the revenue by holding that the submissions are only reiteration of earlier submissions and having grievance for allowing them under Rule 46A by the ld. CIT (A). - the ld. CIT (A) has given adequate reasons for admitting the additional evidences - Objection of the revenue rejected. Entitlement of deduction u/s 10A of the Act on the higher profits determined owing to the survey operation in a concern having unit at SEZ - Held that - the Section seeks to promote and boost new business undertakings situated in free trade zones by providing suitable deductions - It provides for a 100 percent deduction of profits and gains derived by undertakings engaged in export of articles or computer software. In the instant case, the amount determined by the revenue by the assessee does not partake the nature of manufacturing and export of goods or articles. Hence, the benefit of the provisions of Section 10A cannot be accorded to the assessee in the instant year. - the Cross Objection of the assessee is dismissed.

Summary

Issues Involved:
1. Deletion of addition of undisclosed income.
2. Admission of additional evidence under Rule 46A.
3. Entitlement for deduction under Section 10A of the Income Tax Act.

Detailed Analysis:

1. Deletion of Addition of Undisclosed Income:
The Revenue challenged the deletion of ?1,95,53,369/- by the CIT (A) related to undisclosed income accepted by the assessee during a survey under Section 133A of the Income Tax Act. The survey revealed discrepancies between the physical stock and the stock recorded in the books, leading to a declaration of additional income by the Director of the assessee company. However, the assessee later retracted this declaration, claiming overvaluation of stock and errors in inventory. The CIT (A) accepted the assessee's explanation, citing overvaluation and the need for corroboration of statements made during the survey. The ITAT upheld the CIT (A)'s decision, noting that the assessee demonstrated plausible reasons for the discrepancies and relied on the jurisdictional High Court's decision in Dhingra Metal Works, which emphasized that survey statements are not conclusive proof without corroborating evidence.

2. Admission of Additional Evidence under Rule 46A:
The Revenue argued that the CIT (A) erred in admitting additional evidence without allowing the Assessing Officer (AO) to comment on its merits. The CIT (A) had called for a remand report from the AO, who examined the submissions but found them unacceptable. The ITAT found no fault with the CIT (A)'s procedure, noting that the AO had the opportunity to review the additional evidence. The ITAT dismissed the Revenue's appeal on this ground, affirming that the CIT (A) provided adequate reasons for admitting the evidence.

3. Entitlement for Deduction under Section 10A:
The assessee's cross-objection claimed entitlement to deduction under Section 10A for income determined during the assessment year, arguing that the unit was in a Special Economic Zone (SEZ) and thus eligible for tax exemption. The ITAT examined Section 10A, which provides deductions for profits derived from export activities in SEZs. However, the ITAT concluded that the income determined by the Revenue did not arise from manufacturing or export activities, and therefore, the assessee was not entitled to the deduction under Section 10A.

Conclusion:
The ITAT dismissed both the Revenue's appeal and the assessee's cross-objection. The deletion of the addition by the CIT (A) was upheld due to the plausible explanation provided by the assessee regarding stock discrepancies. The admission of additional evidence by the CIT (A) was found to be procedurally correct. The claim for deduction under Section 10A was denied as the income did not derive from eligible activities. The order was pronounced in the open court on 19/12/2019.