2023 (7) TMI 1480 - AT - Income Tax

Rejection of books of accounts - estimating the income @ 8% of gross receipts - declaration in survey u/s.133A - assessee submitted that the assessee himself while making the statement u/s.133A has admitted and accepted to surrender its income following the provisions of Section 145(3) showing net profit @8% of the total turnover - HELD THAT - On a thoughtful analysis of the factual matrix of the present case, apparently the assessee has provided its books of accounts maintained on computer, however, supporting documents and vouchers were not produced before the survey team during the survey proceedings u/s.133A of the Act but all the books of accounts, bills and vouchers with supporting evidences were submitted by the assessee before the AO during the assessment proceedings but the same were summarily rejected by the ld. AO stating that it seems that assessee has manipulated the books of accounts and other documents, hence, the same cannot be relied upon. Such an observation of the AO shows that AO has made an observation on his own preconceived notion, without taking into the documents i.e. books of accounts etc. submitted by the assessee, which is against the principle of law laid down in the case of Vijay Kumar Kesar 2009 (8) TMI 675 - CHHATTISGARH HIGH COURT as well as against the settled principle of law laid down in the case of S Kader Khan Son 2013 (6) TMI 305 - SC ORDER wherein it was held that undue emphasis should not be given to confessional statement without material on the same. The settled position of law was further supported by the CBDT Circular No.F.No.286/2/2003-IT(Inv), dated 10th March, 2003 and Circular No.F.No.286/98/2013-IT (Inv.II), dated 18th December, 2014, thereby issuing guidelines to the revenue authorities to be observed/overseen and to be followed by collecting the evidence during the course of search/survey operations. First contention of the assessee that merely on the basis of confessional statement of the assessee which were recorded u/s.133A which could not be considered as sacrosanct or decisive having no supporting evidence to substantiate such confession, any addition made by the AO is subjected to be set aside. This contention of the assessee is worth acceptance in terms of judicial pronouncements. CIT(A) has accepted the said contention of the assessee under the situation when books of accounts and bills and vouchers along with supporting evidence etc. were submitted by the assessee, however, the same were summarily rejected by the AO without examining the same on the basis of presumption, surmises and having a preconceived notion. CIT(A) has rightly reversed the finding of the AO by deleting the addition made in the assessment order. Since the observation of the CIT(A) was based on the facts, settled position of law and on proper appreciation of submissions along with material on record, respectfully following the judicial pronouncements which are binding to decide the issue in hand, we find no interference in the findings of the ld. CIT(A) in this regard and, therefore, without hesitation, the same is upheld. Thus, the controversy raised by the revenue in its grounds of appeal is dismissed.

Summary

Issues Involved:

1. Justification of deletion of income addition by CIT(A) after AO's rejection of books of accounts.
2. Application of Section 145(3) of the Income Tax Act, 1961.
3. Consideration of fresh evidence by CIT(A) without AO's examination.
4. Reliance on statements recorded under Section 133A.
5. Alleged errors in CIT(A)'s decision-making process.

Issue-wise Detailed Analysis:

1. Justification of Deletion of Income Addition by CIT(A):

The primary issue was whether the CIT(A) was justified in deleting the addition of Rs. 2,32,59,204 made by the AO. The AO had rejected the books of accounts under Section 145(3) and estimated the net profit at 8% of the gross receipts. The CIT(A) found that the rejection of books and estimation of profit was based merely on the statement of the assessee's partner under Section 133A, without substantial supporting evidence. The CIT(A) relied on judicial precedents, including the jurisdictional High Court's decision in ITO Vs. Vijay Kumar Kesar, which held that addition based solely on confession during a survey, later retracted, without supporting evidence, cannot be sustained.

2. Application of Section 145(3) of the Income Tax Act, 1961:

The AO applied Section 145(3) to reject the books of accounts, citing discrepancies and manipulation post-survey. However, the assessee argued that the books were maintained as per statutory requirements and were produced during the assessment proceedings. The CIT(A) accepted the books, noting that the AO's rejection was based on presumption without examining the books submitted during assessment, thus contravening the principles of natural justice.

3. Consideration of Fresh Evidence by CIT(A) Without AO's Examination:

The revenue contended that CIT(A) accepted fresh evidence without allowing the AO to examine it, allegedly violating Rule 46A of the Income Tax Rules. However, the CIT(A) found that the books of accounts and supporting documents were produced during the assessment, and the AO's refusal to accept them was unjustified. The CIT(A) emphasized the need for a fair examination of evidence, aligning with judicial principles.

4. Reliance on Statements Recorded Under Section 133A:

The AO's addition relied heavily on statements recorded during the survey under Section 133A, which the assessee later retracted, citing undue pressure and medical stress. The CIT(A) noted that statements under Section 133A have no evidentiary value if not corroborated by material evidence, as upheld by the Supreme Court in CIT vs. S Khader Khan Son. The CIT(A) found the AO's reliance on such statements without further inquiry unsustainable.

5. Alleged Errors in CIT(A)'s Decision-Making Process:

The revenue argued that CIT(A)'s decision contradicted judicial precedents and lacked a factual basis. However, the CIT(A) meticulously analyzed the facts, legal principles, and precedents, concluding that the AO's addition was not justified. The Tribunal upheld CIT(A)'s findings, noting that the CIT(A) acted within the legal framework and appropriately applied judicial principles.

Conclusion:

The Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s order. It concluded that the CIT(A) rightly deleted the addition, as the AO's rejection of books was based on presumption rather than evidence. The Tribunal emphasized the importance of fair assessment procedures and adherence to judicial precedents, reinforcing the principles of natural justice and evidentiary standards in tax proceedings.