2024 (10) TMI 850 - AT - Income Tax

Addition u/s 69B u/s 69A - excess stock of jewellery found during search - action of AO in invoking provisions of sec.115BBE - difference in physical and recorded stock of the assessee - main reason for difference in physical and stock as per books as explained by the assessee was that the quantity of goods received on approval but not entered in the books and the quantities received but bills are pending or the bills are yet to be received from the supplier therefore, entries of such stock was pending on the date of search HELD THAT - The revenue authorities are under abounded obligation by virtue of CBDT s circular to focus on gathering evidence during Search/Survey and to strictly avoid obtaining admission of undisclosed income under coercion/undue influence. Such instructions from CBDT shows that corroborative evidence should be given preference over the oral statements of assessee or preferably the statement should be correlated with the material evidence to reach at a true and correct conclusion. In the present case all the evidence may be after the search but are substantiated and could not be dislodged by the revenue. Even when the proceedings u/s 133(6) have been initiated all the concern parties have submitted their response and confirmed the transactions recorded in the seized documents. Such facts and circumstantial evidence favours the submissions of the assessee, at the same time the presumptive thoughts of the revenue authorities dehors any cogent support that the transactions in the seized documents which on the contrary were supported by the assessee by submitting evidence in the form of bills of the supplier parties considering the same as just a concocted story, after thought, colourable device cannot be concurred with. The observation of the department regarding the high ratio of purchase transactions and return of goods by the assessee should be considered as nothing but managed for making the unaccounted stock to accounted, cannot be subscribed to for the reason that such transactions have been duly found in the GST return of the counter parties and the said parties have also submitted relevant documents and confirmed such transactions while the enquiry was made under the provisions of Section 133(6) of the Act, none of such evidences could be dislodged by the revenue, neither any evidence or material could be brought on record by the revenue to rescue their findings Regarding retraction by the assessee, Ld CIT(A) observed that the appellant has admitted and surrendered the entire excess stock during the search, also the stock found at residence of the assessee was not stated by the assessee as business stock during the course of search when the statement of the assessee were recorded. The retraction was only a concocted story and after thought. The appellant has failed to discharge his onus regarding substantiating the retraction. On this issue, after thoughtfully deliberating upon the submission of the assessee and various evidence, we are of the considered view that the supporting evidence like confirmation from the supplier parties, quantity tally between the seized documents and the final bills from the suppliers and similar quantity of stock in aggregate from the shop and the residence establishes that the onus cast upon the assessee to support the retraction has been duly discharged, therefore, the contention raised through retraction substantiated with corroborative evidence cannot be rejected at threshold, therefore, we do not found any substance in finding of Ld. CIT(A), which are totally on the foundation of assumptions, therefore, on this count also the decision of Ld. CIT(A) is liable to be struck down. We find force in the submissions and contentions raised by the assessee that the excess stock pertains to the business of the assessee, difference in such stock which is physically found at the time of search with the recorded stock in the books of the assessee was duly explained by way of reconciliation of the same supported with corroborative evidence like bills from the suppliers, much less the same has been fortified when the parties were put to notice u/s 133(6) and they have submitted the requisite documents a/w their confirmation, validating the contentions of the assessee. Assessee has submitted a letter to the ADIT (Inv.)-II, Raipur within seven days of the conclusion of the search offering unaccounted stock but the same was never disposed off by the authority concern, this is against the mandate of law and in violation of principle of natural justice, as decided by the ITAT, Raipur in the case of DCIT vs. Rajendra Sharma 2019 (7) TMI 2040 - ITAT RAIPUR - Under such facts and circumstances, we do not find any substance in the decision of the Ld. CIT(A) to approve the same. We set aside the order of Ld. CIT(A) to the extent the addition made by the Ld. AO has been sustained and direct to vacate the entire addition made u/s 69A 69B. Confirmation of action of Ld. AO in invoking provisions of section 115BBE - In terms of our observations and decision in qua ground No. 1 of the present appeal, since it is concluded that the excess physical stock found at the business premises and residence of the assessee and the same pertains to business of the assessee, accordingly, provisions of Section 115BBE cannot be triggered in the present case. Resultantly, ground no. 2 of the assessee is also decided affirmative in favour of the assessee .

Summary

Issues Involved:

1. Confirmation of addition under Sections 69A and 69B on account of excess stock of jewellery.
2. Invocation of provisions of Section 115BBE.
3. Admission of additional grounds challenging the validity of the assessment due to alleged procedural lapses in the approval under Section 153D.

Issue-wise Detailed Analysis:

1. Confirmation of Addition under Sections 69A and 69B:

The core issue revolves around the addition of Rs. 9,19,34,043/- made by the Assessing Officer (AO) and partially sustained by the Commissioner of Income Tax (Appeals) [CIT(A)] under Sections 69A and 69B of the Income Tax Act. This addition was based on the excess stock of jewellery found during a search operation conducted on the assessee's premises. The AO's contention was that the jewellery found at the business and residential premises was unexplained and thus liable for addition under the aforementioned sections.

The assessee argued that the stock was part of the business inventory, received on approval basis, and not accounted for due to pending bills. The assessee provided a reconciliation statement and supporting documents, including confirmations from suppliers, to substantiate the claim that the stock was part of the business and not unexplained personal assets. The tribunal found merit in the assessee's argument, noting that the AO's reliance on the assessee's statement during the search was not corroborated by substantial evidence. The tribunal emphasized the necessity of corroborative evidence over mere statements, aligning with judicial precedents that caution against undue reliance on confessional statements obtained during search operations.

2. Invocation of Provisions of Section 115BBE:

The AO invoked Section 115BBE, which deals with the taxability of income referred to in Sections 68, 69, 69A, 69B, 69C, and 69D, at a higher rate. The tribunal's decision to vacate the addition under Sections 69A and 69B inherently nullified the applicability of Section 115BBE. The tribunal concluded that since the stock was part of the business inventory, the provisions of Section 115BBE were not applicable, thereby ruling in favor of the assessee.

3. Admission of Additional Grounds:

The assessee sought to introduce additional grounds challenging the validity of the assessment order due to alleged procedural lapses in obtaining approval under Section 153D. The assessee argued that the approval was granted mechanically without proper application of mind, violating the mandatory requirements of law. The tribunal admitted the additional grounds, acknowledging them as legal grounds that touch upon the jurisdictional aspect of the assessment. However, since the appeal was decided in favor of the assessee on the substantive issues, the tribunal refrained from adjudicating the additional grounds, leaving them open for consideration if necessary.

Conclusion:

The tribunal allowed the appeal in favor of the assessee, setting aside the additions made under Sections 69A and 69B and ruling out the applicability of Section 115BBE. The decision underscored the importance of corroborative evidence in substantiating additions based on search operations and highlighted procedural safeguards in obtaining statutory approvals. The tribunal's approach was consistent with established judicial principles, emphasizing the need for evidence-based assessments over reliance on statements obtained under duress.