2020 (1) TMI 454 - AT - Income Tax

Estimation of profit on undisclosed turnover - Addition @50% and granting relief @50% - assessment u/s 153A after search and seizure proceedings - Reliance of the statements u/s 132(4) of the assessee and third parties - retracted statements - Held that - a sworn statement, though binds the assessee, it cannot be the sole basis for making the assessment. It is open to the assessee to show the circumstances in which confessional statements were recorded and once the assessee proves that confessional statements were recorded under threat and coercion and retracts from the same, the confessional statements cannot be the sole basis for making assessments or for making any addition in the hands of the assessee. From the circular, Circular, it is amply clear that the CBDT has emphasized on its officers to focus on gathering evidences during search/survey operations and strictly directed to avoid obtaining admission of undisclosed income under coercion/under influence. Keeping in view the guidelines issued by the CBDT from time to time regarding statements obtained during search and survey operations, it is undisputedly clear that the lower authorities have not collected any other evidence to prove that the impugned income was earned by the assessee. From the details of seized document, The Assessing Officer presumed that it represents the sale of wheat products. There is no basis for such assessment order. The Assessing Officer had not examined any of the parties mentioned therein and he presumed that Shri P.K. Kunjumoideen was acted on behalf of the assessee and he was selling the wheat products like maida, sooji, atta and bran. For this, the Assessing Officer relied on the sworn statement of Shri P.K. Kunjumoideen, Shri Premil Deep and Shri Sabarigireesan. Further, these statements have no evidentiary value in view of retraction made by these persons immediately the next day. Hence, what was left to rely on was the seized document cited supra. The seized document suggest that the assessee was engaged in the sale of wheat products from Tee Kay Rice Mills. The sole basis on which the Assessing Officer presumed that the assessee was selling the wheat products through Shri P.K. Kunjumoideen is collapsed. The estimation of production of wheat products and selling thereof have no basis and it is only a presumption without any basis. In our opinion, the entire evidence has to be appreciated in a wholesome manner and even where there is documentary evidence, the same can be overlooked. If there are surrounding circumstances to show that the claim of the assessee is opposed to the normal course of human thinking and conduct or human probabilities. Even applying this principle to the present case, there was difficulty in rejecting the assessee s plea as opposed to the normal course of human conduct. The circumstances surrounding the case were not strong enough to justify the rejection of assessee s plea as untrue. Accordingly, we delete the additions made by the Assessing Officer towards undisclosed sales of wheat products for all the assessment years. Thus, the appeals of the assessee are allowed.

Issues Involved:
1. Legitimacy of transactions between the assessee and Shri P.K. Kunjumoideen.
2. Validity of statements recorded under Section 132(4) of the Income Tax Act.
3. Basis for estimating undisclosed income and profit margins.
4. Consideration of retraction statements.
5. Assessment of VAT as income.

Detailed Analysis:

1. Legitimacy of Transactions Between the Assessee and Shri P.K. Kunjumoideen:

The Assessing Officer (AO) claimed that the assessee used Shri P.K. Kunjumoideen as a front to show fictitious sales of wheat, which were actually processed and sold as wheat products by the assessee. The AO concluded that the transactions between the assessee and Shri P.K. Kunjumoideen were not genuine, based on statements recorded during the search. However, the assessee provided evidence of legitimate sales transactions, including credit invoices, stock register entries, and bank transactions. The VAT authorities also inspected the assessee’s premises and found no discrepancies. The tribunal concluded that the transactions were genuine and not merely paper transactions.

2. Validity of Statements Recorded Under Section 132(4) of the Income Tax Act:

The AO relied heavily on statements recorded under Section 132(4) from various individuals, including Shri P.K. Kunjumoideen, Shri M. Premil Deep, and Shri Sabarigireesan, which were later retracted. The tribunal noted that retracted statements alone cannot be the basis for making additions unless corroborated by independent evidence. The statements were retracted immediately, and the AO did not confront the assessee with these statements for cross-examination, reducing their evidentiary value.

3. Basis for Estimating Undisclosed Income and Profit Margins:

The AO estimated the profit margins from the alleged sale of wheat products based on the production yield and market rates, leading to substantial additions in the assessee’s income. The Commissioner of Income Tax (Appeals) [CIT(A)] reduced these additions by 50%, considering the AO's estimates as excessive. However, the tribunal found that there was no cogent material to support the AO's estimation of profits and that the entire estimation was based on assumptions and presumptions without any concrete evidence.

4. Consideration of Retraction Statements:

The tribunal emphasized that retracted statements must be corroborated by other independent and cogent evidence to be relied upon. The statements recorded under Section 132(4) were retracted by affidavits, and no additional evidence was provided by the AO to substantiate the claims made in the statements. The tribunal held that the retracted statements could not be the sole basis for making additions.

5. Assessment of VAT as Income:

The AO added the VAT component as income, assuming that the assessee collected VAT but did not remit it to the authorities. The tribunal found no evidence to support this claim and noted that the VAT authorities had conducted inspections without any adverse findings. Therefore, the addition of VAT as income was not justified.

Conclusion:

The tribunal concluded that the additions made by the AO were not based on any concrete evidence and were merely assumptions and presumptions. The retracted statements could not be relied upon without independent corroboration. Consequently, the tribunal allowed the appeals of the assessee and deleted the additions made by the AO. The appeals filed by the Revenue were dismissed as infructuous.

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