2022 (3) TMI 339 - AT - Income Tax

Inflation in expenses or bogus/inflated purchases - Difference between the cost mentioned in the document vis-avis the expenditure claimed as per the books of account - Search proceedings - rejection of books of accounts - HELD THAT - Although, it is a case of search but no other incriminating or corroborative documents were found to establish that expenditure mentioned in seized document is true and correct. We find no purchase bills or bills of expenditure recovered to be said to be bogus or inflated. No cash, investment or any other asset has been found to be belonging to the assessee to show as outcome of such inflation of expenditure or generation of unaccounted income. We find merit in the finding of the learned Commissioner of Income-tax (Appeals) that had there been inflation in expenses or bogus/inflated purchases, then it should have been found during the search proceedings. Further, although, search action took place on February 4, 2010 however, the AO has only taken the figure up to September, 2009 and nothing has been mentioned regarding the period between October 1, 2009 to February 3, 2010. We find that the assessee is subjected to sales tax and excise duty and no adverse inference is on record to show that there is any difference between the sales and production figures in the audited accounts of the company. We further find on the basis of identical printout for the assessment years 2008-09 to 2010-11, the AO had raised identical queries for the assessment years 2008-09, 2009-10 and 2010-11. Although, no addition has been made in the assessment years 2008-09 and 2009-10 under identical facts and circumstances, however, we find the Assessing Officer deviated from his earlier stand and made huge addition for the impugned assessment year by rejecting the book results and extrapolating the profit which in our opinion is not justified. Since, the printouts of the hard disc clearly mentioned that forecast and since, the Assessing Officer in the two preceding assessment years has accepted the reply of the assessee and no addition has been made in the order passed under section 143(3) of the Act, therefore, following the rule of consistency, no addition can be made for the impugned assessment year, especially when no other corroborative evidence such as bogus purchases bills/bogus expenses or unexplained investment, etc., were found during the course of search. In this view of the matter and in view of the detailed reasoning given by the learned Commissioner of Income-tax (Appeals) while deleting the addition, we do not find any infirmity in his order. Accordingly, the same is upheld and the grounds raised by the Revenue are dismissed.

Issues Involved:
1. Whether the document recovered from the pen drive/hard disk during the search represents a forecast or actual transactions and profitability.
2. Whether the action of the Assessing Officer (AO) in rejecting the books of account under section 145(3) of the Income-tax Act, 1961 is justified.
3. Whether the AO's estimation of the assessee's income based on the seized document is correct.
4. Whether the AO's failure to consider certain expenditures while computing the income is justified.
5. Whether the principle of consistency applies in this case.

Issue-wise Detailed Analysis:

1. Forecast vs. Actual Transactions:
The primary issue was whether the data in the seized document represented actual transactions or mere forecasts. The assessee argued that the document was a forecast prepared by an executive and not actual financial data. The AO, however, treated it as actual transactions, leading to a significant addition to the assessee's income. The Commissioner of Income-tax (Appeals) [CIT(A)] observed that no corroborative evidence was found during the search to substantiate the document as actual transactions. The CIT(A) concluded that the document was indeed a forecast, not an actual reflection of the company's profitability.

2. Rejection of Books of Account:
The AO rejected the assessee's books of account under section 145(3) of the Act, citing discrepancies between the seized document and the audited accounts. The assessee contended that its accounts were audited and maintained in compliance with statutory requirements, including excise and sales tax regulations, with no discrepancies noted by auditors. The CIT(A) found that the AO did not identify any specific defects in the books of account and had not conducted a thorough examination of the same. Consequently, the CIT(A) held that the rejection of the books of account was unlawful.

3. Estimation of Income:
The AO estimated the assessee's income based on the seized document, extrapolating the net profit for the first six months to the entire year. The CIT(A) noted that the AO did not consider the actual books of account or other supporting documents. Additionally, no unaccounted assets or investments were found during the search to support the AO's estimation. The CIT(A) concluded that the estimation of income based on a standalone document without corroborative evidence was incorrect and deserved to be deleted.

4. Consideration of Expenditures:
The assessee argued that the AO did not consider certain expenditures, such as depreciation, foreign exchange differences, interest, and selling and distribution expenses, while computing the income. The CIT(A) found merit in this argument, noting that the AO had not allowed these expenditures despite their undisputed nature. The CIT(A) held that the AO should have accounted for these expenditures while computing the income.

5. Principle of Consistency:
The assessee highlighted that similar documents were found for the assessment years 2008-09 and 2009-10, but no additions were made for those years. The CIT(A) agreed with the assessee, emphasizing the principle of consistency. The CIT(A) noted that the AO had accepted the assessee's explanations for the previous years and should not deviate from this stance without any new material evidence. The CIT(A) cited the Supreme Court's decisions in Radhasoami Satsang v. CIT and CIT v. Excel Industries Ltd., which support the application of the consistency principle in tax assessments.

Conclusion:
The CIT(A) concluded that the AO's actions were not justified on multiple grounds, including the misinterpretation of the seized document, unlawful rejection of books of account, incorrect estimation of income, and failure to consider legitimate expenditures. The CIT(A) directed the AO to delete the addition, and the Tribunal upheld this decision, dismissing the Revenue's appeal. The Tribunal emphasized the importance of corroborative evidence and the principle of consistency in tax assessments.

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