2021 (12) TMI 159 - AT - Income Tax

Unexplained investment in stock and gross profit thereon - as in search and seizure proceedings, certain loose papers in the form of Consignment memos, issued for the exhibition purpose which was in turn for the purpose of insurance, were seized by the Revenue - AO had compared these consignment memos with value of stock as per books and difference arising on such comparison was then added as unexplained investment in stock u/s 69 - Whether addition made is not based on any tangible evidence and is totally based on loose paper seized by the Revenue in the form of consignment memo for Exhibition Purpose? - HELD THAT - There are no corroborative evidences in the hands of Revenue to substantiate the allegations of unaccounted purchase. During search proceedings there were no evidences found in the form of unaccounted purchase bills or unaccounted sales or list of suppliers from whom unaccounted purchases made or payments made for such alleged unaccounted purchase etc. In the absence of such corroborative evidence, the loose paper seized (Consignment Memo) is nothing but a dumb document and do not possess any evidentiary value in the eyes of Law. If the assessee would be doing transactions of such high magnitude of unaccounted purchase/sales, the same would have been easily corroborated through aforesaid tangible evidences. But the Revenue couldn't bring such evidences even on account of extensive search undertaken because no such transactions were conducted by the assessee. Therefore, we are of the view that the addition made on the basis of overvalued stock in Consignment memos prepared for getting Insurance claims requires to be deleted as books of accounts found were found genuine and no corroborative evidence were brought on record. We are of the view that the ld. CIT(A) has rightly appreciated the facts and reached to the justified conclusion in the light of the relevant judicial pronouncements. Even before us, the Revenue could not controvert the findings of the ld. CIT(A) by bringing any tangible or contrary evidence on record. Therefore, we confirm the findings recorded by the ld. CIT(A) on this issue. Accordingly, ground nos. 1 2 raised by the Revenue are dismissed. Addition being @25% Travelling expenses conveyance expenses - AO made this addition @25% on account of personal use and ld. CIT(A) restricted the same to 10% on the ground that disallowance of expenses is on higher side - HELD THAT - On consideration of facts, we are of the view that such expenses are incurred for the business purpose. Since the addition is made by the Assessing Officer on estimation, the ld. CIT(A) is justified in restricting the same to 10%. Thus, we do not find any reason to interfere with the finding of the ld. CIT(A) on this issue. Accordingly, ground no.3 raised by the Revenue is also dismissed.

Summary

Issues Involved:
1. Deletion of additions made on the ground of unexplained investment in stock and gross profit thereon.
2. Treatment of seized papers as "dumb documents."
3. Restriction of disallowance of traveling expenses from 25% to 10%.

Detailed Analysis:

1. Deletion of Additions Made on the Ground of Unexplained Investment in Stock and Gross Profit Thereon:

The Revenue challenged the deletion of additions amounting to ?2,58,59,522/- made by the Assessing Officer (AO) on account of unexplained investment in stock. The AO had compared consignment memos, issued for exhibition purposes and insurance, with the value of stock as per books, finding a discrepancy. The CIT(A) deleted this addition, accepting the assessee's contention that the stock value was inflated for insurance purposes. The Tribunal upheld the CIT(A)'s decision, emphasizing that the books of accounts were duly audited under section 44AB of the Income Tax Act, and no defects were found. The Tribunal found no tangible evidence to support the AO's addition, noting that the inflated figures in consignment memos were for insurance purposes and did not represent actual stock.

2. Treatment of Seized Papers as "Dumb Documents":

The Tribunal agreed with the CIT(A) that the seized consignment memos were "dumb documents" and lacked evidentiary value. There were no corroborative evidences like unaccounted purchase bills or sales to substantiate the AO's allegations. The Tribunal cited various judicial pronouncements, including the Supreme Court's decision in Dhakeswari Cotton Mills Ltd. vs. CIT, which emphasized that assessments cannot be made on pure guesswork without evidence. The Tribunal concluded that the addition based on these loose papers was unjustified.

3. Restriction of Disallowance of Traveling Expenses from 25% to 10%:

The AO had disallowed 25% of traveling expenses, suspecting personal use. The CIT(A) reduced this disallowance to 10%, considering the AO's estimation to be on the higher side. The Tribunal upheld the CIT(A)'s decision, agreeing that the expenses were incurred for business purposes and that the CIT(A)'s restriction to 10% was justified.

Conclusion:

The Tribunal dismissed the Revenue's appeal, confirming the CIT(A)'s findings on all grounds. The Tribunal found that the additions made by the AO were not supported by tangible evidence and were based on erroneous comparisons and assumptions. The decision emphasized the importance of corroborative evidence in making additions and upheld the CIT(A)'s reasoned and justified conclusions.