2022 (3) TMI 151 - AT - Income Tax

Assessment u/s 153A - Addition of undisclosed income on sales made to one party - estimation of undisclosed income on sales made to M/s. Hari Iron India Limited - entire premise of the AO is based on a statement of Sri Amit Gupta who was Chief Operating Officer of M/s. Hari Iron India Limited, who was distributor of various companies dealing with iron and steel bars including the assessee company - HELD THAT - From the reading of entire assessment order as well as appellate order, it is an uncontroverted fact that during the course of search, no incriminating material or evidence was found in the course of search in the case of the assessee relating to any of the AYs i.e. 2009-10 to 2013-14. The assessment of these years had attained finality on the date of search on 20.01.2015. Thus, in terms of Second Proviso to section 153A, they cannot be reckoned as abated assessments. Now, it is well established law that especially the law laid down by Hon ble jurisdictional High Court in catena of judgments, no addition can be made over and above the assessee s income which had completed prior to the date of search without any incriminating material or documents found during the course of search. This has been categorically held so by the Hon ble jurisdictional High Court in the case of CIT vs. Kabul Chawla AND 2015 (9) TMI 80 - DELHI HIGH COURT AND Meeta Gutgutia Prop. M/s. Ferns N Petals 2017 (5) TMI 1224 - DELHI HIGH COURT - Thus additions which have been made by the AO right from AYs 2009-10 to 2013-14 are beyond the scope of assessment u/s 153A and, therefore, the same are directed to be deleted. Statement of third party - Inference drawn on the basis of the statement of a third party in a different search, the same cannot be considered to be an incriminating material found during the course of search in the case of assessee. It is not a case here that any incriminating statement of any of the Director or any of the employee of the assessee company was recorded u/s 132(4) based on which any adverse inference has been drawn, albeit it is a statement of different person unrelated to the assessee during the course of another search of a third party, M/s. Hari Iron India Limited. Thus, his statement solely cannot be the basis for any addition in the case of the assessee. Here in this case admittedly the assessee has been maintaining regular books of account and all statutory records under the sales-tax and excise laws and each and every entry of steel and iron has been recorded as well as the corresponding sales. AO was in possession of all the records including the books of account wherein he has neither found any defect or has rejected the books of account which can at least empower him to make any estimation of any profit. The entire manufacturing and trading account including the sales have not been rejected or commented upon. Therefore, in these circumstances, the sales cannot be estimated and consequently any GP or NP rate. Accordingly, all the additions made by the AO on account of undisclosed income on sales to M/s. Hari Iron India Limited in case of both the assessee companies are directed to be deleted. Addition on account of difference in stock found during the course of search - We are of the opinion that ld. CIT (A) should decide this issue clearly and assessee may substantiate this issue before the ld. CIT (A). Accordingly, this ground relating is remanded back to the file of the ld. CIT (A). Addition on undisclosed income on the sales made out of books on the information received from Excise Department for AY 2012-13 - First of all, it is an admitted fact that the assessment in AY 2012- 13 was not abated and this addition is not based on any incriminating document or seized material albeit it is information received from Excise Department during the course of assessment proceedings. Therefore, such an addition is beyond the scope of statement u/s 153A and is directed to be deleted. Disallowance of brought forward depreciation - We direct the AO to verify the claim of brought forward depreciation and allow the same in accordance with law after giving an opportunity of being heard to the assessee to substantiate the figures of brought forward depreciation.

Summary

Issues Involved:
1. Addition on account of undisclosed income on sales made to M/s. Hari Iron India Ltd.
2. Addition based on third-party statements.
3. Addition on account of difference in stock found during the search.
4. Addition based on information from the Excise Department.
5. Claim of brought forward depreciation.

Issue-wise Detailed Analysis:

1. Addition on Account of Undisclosed Income on Sales Made to M/s. Hari Iron India Ltd.
The primary issue revolves around additions made due to alleged undisclosed income from sales to M/s. Hari Iron India Ltd. The Assessing Officer (AO) based the additions on a statement from Amit Gupta, Chief Operating Officer of M/s. Hari Iron India Ltd., who admitted that 30% of sales were made without bills. The AO inferred that the assessee companies, Rathi Bars Ltd. and Rathi Special Steels Ltd., had also made unaccounted sales. The AO estimated the undisclosed income by applying a 30% ratio of sales outside the books and calculated the profit accordingly. However, the Tribunal found that no incriminating material was discovered during the search on the assessee's premises to support these additions. The Tribunal held that the additions for AYs 2009-10 to 2013-14 were beyond the scope of assessment under section 153A and directed their deletion.

2. Addition Based on Third-Party Statements
The Tribunal observed that the entire addition was based on the statement of Amit Gupta, recorded during a search on M/s. Hari Iron India Ltd., a third party. The Tribunal emphasized that such statements cannot be considered incriminating material against the assessee unless corroborated by evidence found during the search on the assessee. The Tribunal noted that the assessee maintained statutory records under sales-tax and excise laws, and no discrepancies were found in these records. Therefore, the Tribunal concluded that the statement of a third party alone could not justify the additions and directed their deletion.

3. Addition on Account of Difference in Stock Found During the Search
In the case of Rathi Bars Ltd. for AY 2015-16, the AO made an addition based on discrepancies in stock found during the search. The AO added ?58,40,136/- for excess stock of raw material and suppressed sales. The CIT(A) accepted the assessee's reconciliation for the stock and deleted the addition of ?40,73,065/- but did not clearly address the addition of ?17,67,071/- for suppressed sales. The Tribunal remanded the issue of ?17,67,071/- back to the CIT(A) for a clear decision.

4. Addition Based on Information from the Excise Department
For AY 2012-13, the AO made an addition of ?9,39,813/- based on information from the Excise Department regarding sales made out of books. The Tribunal noted that this assessment year was not abated, and the addition was not based on any incriminating material found during the search. Therefore, the Tribunal directed the deletion of this addition as it was beyond the scope of section 153A.

5. Claim of Brought Forward Depreciation
For AY 2014-15, the assessee claimed brought forward depreciation of ?59,38,469/-, which the AO did not allow. The Tribunal directed the AO to verify the claim and allow the brought forward depreciation in accordance with the law after giving the assessee an opportunity to substantiate the figures.

Conclusion:
The Tribunal allowed the appeals for AYs 2009-10 to 2013-14 for both Rathi Special Steels Ltd. and Rathi Bars Ltd., directing the deletion of additions made on account of undisclosed income from sales to M/s. Hari Iron India Ltd. For AY 2014-15, the Tribunal allowed the appeal for statistical purposes, directing the AO to verify the claim of brought forward depreciation. For AY 2015-16, the Tribunal partly allowed the appeal for statistical purposes, remanding the issue of ?17,67,071/- back to the CIT(A) for a clear decision. The order was pronounced in open court on February 28, 2022.