2024 (4) TMI 450 - AT - Income Tax

Protective addition - Addition made on account of over invoicing in purchases - Assessment u/s 153A - AO made substantive addition on account of over-invoicing in hands of M/s IPCA Laboratories Ltd and correspondingly made protective addition in the hands of the assessee holding him to be the beneficiary of the over-invoicing - the assessee was found in possession of cash in the course of search conducted u/s 132 and he had admitted in his statement recorded u/s 132(4) of the Act that the amount belonged to M/s IPCA Laboratories Ltd and was generated out of over-invoicing done by M/s IPCA Laboratories Ltd. Later on, it is noted that the assessee had retracted his original statement HELD THAT - We have already held in the case of IPCA Laboratories Ltd 2024 (4) TMI 405 - ITAT MUMBAI that the company was not indulging in any over-invoicing of purchases and accordingly deleted the addition made by the AO held that although an admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It was held that, it is open to the assessee who made the admission to show that it is incorrect. A statement is only a piece of evidence, and the weight to be attached to it must depend on the circumstances in which it is made. It is open for the assessee to show it to be erroneous or untrue. Hence, the position which emerges is that a statement u/s 132(4) of the Act by itself cannot be reason enough to justify an addition, if the assessee is able to show that the facts admitted by him was purely based on wrong assumption of facts and able to adduce evidence/material to show that he was wrong on the facts he admitted. So when an admission u/s 132(4) of the Act has been retracted on the aforesaid reasons, then the AO should cross-examine the person again to ascertain the correct facts. The AO ought to conduct proper investigation into the affairs of the assessee and gather corroborative material which would negate such retraction and prove that the facts admitted originally is correct and thus retraction can be discarded. Unless, the AO is able to bring on record tangible material or evidence that the assessee had paid excess price and got back monies / cash from suppliers, according to us, merely because there were rates differential amongst purchases from different vendors cannot be sole reason to infer over-invoicing / inflation of purchases. AO himself had ultimately not given any relevance to the enquiry and comparison made by him, which although was extensively discussed in the assessment order. It is noted that the AO had ultimately made the addition based on the value of over-invoicing as stated by the employees in their statements and not based on his comparison/ independent enquiry from these vendors. Statements of the employees had no bearing in the given facts of the assessee s case as the over-invoicing component admitted by them was in relation to purchases made. Thus we are therefore in agreement with the Ld. CIT(A) that since the substantive addition itself has been held to be unjustified, the impugned protective addition has no legs to stand on. Decided in favour of assessee.

Issues Involved:
1. Deletion of protective addition made on account of over-invoicing of purchases.
2. Validity of statements made u/s 132(4) and their subsequent retraction.
3. Legitimacy of the AO's benchmarking exercise for price comparison.

Summary:

Issue 1: Deletion of Protective Addition on Account of Over-Invoicing of Purchases
The sole grievance of the Revenue in all these appeals relates to the Ld. CIT(A)'s action of deleting the protective addition made in the hands of the assessee on account of over-invoicing of purchases by M/s IPCA Laboratories Ltd. The AO had observed that the assessee was found in possession of cash during a search conducted u/s 132 of the Act and admitted that the amount belonged to M/s IPCA Laboratories Ltd and was generated out of over-invoicing. However, the assessee later retracted this statement, claiming the cash represented his own unaccounted income, which was accepted and assessed by the AO. The Ld. CIT(A) deleted the protective addition, leading to the Revenue's appeal.

Issue 2: Validity of Statements Made u/s 132(4) and Subsequent Retraction
The Tribunal examined the provisions of Section 132(4) of the Act, which allows statements made during search to be used as evidence. However, it emphasized that such statements must be voluntary and without coercion. The burden to prove otherwise lies on the maker of the statement. The Tribunal noted that an admission is an important piece of evidence but not conclusive, and the assessee can show it to be incorrect. The Tribunal found that the AO did not conduct proper investigations to corroborate the initial statements and relied solely on them for making additions.

Issue 3: Legitimacy of AO's Benchmarking Exercise for Price Comparison
The Tribunal found that the AO's inference of over-invoicing from purchases made from various vendors was based on flawed assumptions and selective data. The AO failed to consider functional, economic, and risk differences among vendors and did not bring tangible material or evidence to prove that the assessee had paid excess prices and received back monies from suppliers. The Tribunal held that the AO's comparison exercise lacked legal backing and was unreliable. The Tribunal also noted that the AO's ultimate addition was based on employee statements regarding transactions with M/s Reynolds Petro Chem Ltd, which did not involve the assessee.

Conclusion:
The Tribunal upheld the Ld. CIT(A)'s order, agreeing that the substantive addition was unjustified, and thus, the protective addition had no basis. The Tribunal directed the AO to delete the addition made on account of over-invoicing in purchases across all assessment years. Consequently, all appeals by the Revenue were dismissed.

Order Pronouncement:
The order was pronounced in the open court on 08/04/2024.

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