2020 (2) TMI 722 - AT - Income Tax

Deemed unaccounted scrap sale - only evidence that has been found in the course of survey by the survey team was excess cash found - AO made addition towards unaccounted scrap sale by estimating the sale of scrap at 0.162% on total sales and after deducting the scrap sales declared by the assessee in the return of income, he made addition for the difference towards unaccounted scrap sales for various assessment years - whether the ld. CIT(A) was justified in reducing the said addition for each of the assessment years under consideration? - HELD THAT - We find that the statement given by the cashier subsequently confirmed by the Director had been later retracted on 01/10/2015 by the Director by filing an affidavit which are enclosed. But we find that the Director in his original statement had given a complete modus operandi of generation of unaccounted income and its utilization in his various businesses. Hence, the source as well as the application of unaccounted income had been discussed in detail in the statement recorded from the Director. We find that the only evidence that has been found in the course of survey by the survey team was excess cash found in the sum of ₹ 7,51,327/- based on the cash books in the months of July, August and September 2015 which admittedly pertains to A.Y.2016-17. CIT(A) had considered ₹ 7.5 Lakhs as the scrap sale of three months and had extrapolated the same for the whole year and arrived on the total scrap sale of ₹ 30 lakhs for A.Y.2015-16, when the actual data pertains to A.Y.2016-17. Hence, the whole basis of placing reliance on a document which does not pertain to the year under consideration itself makes the addition on a weaker footing. We find based on the estimation of scrap sale made for A.Y.2015-16 in the sum of ₹ 30 lakhs, the ld. CIT(A) had back worked and arrived on the estimated scrap sale for ₹ 28 lakhs for A.Y.2013-14; ₹ 24 lakhs for A.Y.2012-13; ₹ 20 lakhs for A.Y.2011-12 and ₹ 14 lakhs for A.Y.2010-11. For none of these estimations, there was any basis furnished by the ld. CIT(A). However, considering the totality of facts and circumstances of the case and the survey conducted in the premises of the assessee, we hold that the assessee would be entitled for relief of 50% of the total additions made by the ld. CIT(A) ultimately and in our considered opinion, this would meet the ends of the justice. The ld. AO is directed accordingly. Cash found during search and survey - HELD THAT - Tabulation furnished by the assessee has not been controverted by the revenue before us. Hence, the entire cash found at the time of search and survey has been properly explained by the assessee with reference to the entries in the books of accounts. Considering this valid explanation given by the assessee, we find that the ld. AO had not made any addition towards cash found at the time of search and survey. Grounds raised by the assessee are partly allowed.

Summary

Issues:
Whether addition on account of deemed unaccounted scrap sale could be made and whether the reduction by the ld. CIT(A) was justified.

Analysis:
The appeals before the ITAT Mumbai involved the common issue of whether the addition on account of deemed unaccounted scrap sale was valid and if the reduction by the ld. CIT(A) was justified for multiple assessment years. The assessee, engaged in manufacturing, faced a search and seizure action leading to the recording of a statement from the cashier regarding scrap sales. The ld. AO estimated unaccounted scrap sales based on this statement, leading to additions for various assessment years. However, the ld. CIT(A) reduced these additions based on different estimations for each year. The ITAT noted that the only basis for the addition was the cashier's statement, which was later retracted by the Director. The ITAT also highlighted discrepancies in the extrapolation of data for the estimation. Despite the lack of appeal by the revenue against the CIT(A)'s estimation, the ITAT assessed the fairness of the estimation and granted relief to the assessee by reducing the additions by 50% for all years.

The ITAT further emphasized that the assessee had provided a detailed explanation for the cash found during the search and survey, which was supported by entries in the books of accounts. This explanation was not challenged by the revenue, leading to no additions by the ld. AO regarding the cash found. Consequently, the ITAT partly allowed the grounds raised by the assessee, resulting in the partial allowance of the appeals.

In conclusion, the ITAT Mumbai partially allowed the appeals of the assessee, considering the validity of the addition on account of unaccounted scrap sales and the explanations provided for the cash found during the search and survey, ultimately granting relief by reducing the additions made by the ld. CIT(A) by 50% for all assessment years.