2024 (11) TMI 562 - AT - Income Tax

Estimation of GP - unexplained investment/sales -Addition based on five notebooks and diaries as seized - AO analyzed the same and based on sworn statements and certain whatsapp conversations, arrived at a conclusion of unaccounted sales - HELD THAT - These notebooks contain details of expenditure incurred by the assessee out of unaccounted sales. It is trite law that only real income could be subject to tax. Though there are unaccounted sales, there are unaccounted expenditure also. AO can not accept a part of the transaction. On the facts of the case, it could be seen that Ld. CIT(A) has estimated the profit on the unaccounted sales by applying regular Gross Profit rate shown by the assessee in respective years. The same, in our considered opinion, is quite logical and reasonable. Therefore, the methodology of Ld. CIT(A), in applying GP rates, could not be faulted with. AR has urged that this estimation has been made on circular transactions also which merely represents circular amount received from another group entity viz. M/s V.V. Minerals and these receipts have been returned back to the group entity. Such circular transactions form part of above receipts. The fact of circular transaction has also been accepted by Ld. CIT(A) in the impugned order. In our considered opinion, circular transactions within group entities would not partake the character of income in the hands of the assessee. Accordingly, the receipt could not be held to be part of unaccounted sales receipts and therefore, the same are to be excluded while estimating the profit on these transactions. Therefore, Ld. AO is directed to exclude the same while making the computations for respective years. Bogus Expenditure - The ledger accounts would show that the assessee has not made any payment to the said vendors and therefore, the question of receiving back the cash would not arise at all. The Ld. AO has not made any independent enquiries and no material evidence has been brought on record to prove that the cash was actually received back from the vendors. The Ld. CIT(A), in our considered opinion, has clinched the issue in correct perspective and was quite logical in estimating the disallowance by following various judicial decisions holding the field. The estimation of 12.5% is quite reasonable and justified enough to plug the leakages of revenue. Therefore, we see no reason to interfere in the same. Unaccounted Cash Receipts - We find that the additions for AYs 2014-15 2015-16 are based on certain excel sheet as exchanged in e-mail between Shri Jegatheesan (Partner of M/s V.V. Minerals) and Smt. Jeyanthi (an employee of M/s V.V. Minerals). However, these sheets are unsigned sheets and unless corroborated by independent evidences, would bear no evidentiary value. The Ld. AO has not made any enquiries to corroborate the notings in the excel sheet. The Ld. CIT(A) has correctly noted that Ld. AO did not examine / confront the excel sheets to any of the parties. In the absence of valid details and the circumstances in which the excel sheet was prepared and the corresponding entries, the same could not be relied upon to make impugned additions in the hands of the assessee. The evidences relied upon by the AO in the form of excel sheets does not constitute adequate evidence to draw adverse inference against the assessee, in the absence of any other corroborative evidences. We concur with all these findings of Ld. CIT(A) and also confirm reliance on the decision of Sant Lal 2020 (3) TMI 692 - DELHI HIGH COURT holding that the assessee could not be put to any liability on the action of a third-person where the material was not found from the premises of the assessee nor was it in the handwriting of the assessee since the third person may write the name of any person at his sweet will and the revenue did not make any effort to gather corroborative evidences in this relation. Additions based on notebooks as seized from Shri S. Raja who was not an employee of the assessee company - Considering the inconsistencies in generation and accounting of unaccounted sales by the assessee company, Ld. CIT(A) has examined the factual position and applied Gross Profit Rate to the un-reconciled receipts and sustained the additions to that extent. On the facts and circumstances of the case, the aforesaid estimation, in our considered opinion, is quite logical and reasonable which do not call for any interference on our part. Addition for alleged manipulation in the accounts - CIT(A) noted that this addition was merely based on e-mail communication between Shri J. Thangadurai and Shri V. Subramanian - HELD THAT - In the said e-mail, there was no incriminating noting to suggest that the stated accounting adjustments were manipulations to evade the tax liability. It was only the view of the person handling taxation issues of the assessee company. It was the duty of Ld. AO to examine each issue by analyzing the books to prove that the suggestions in the e-mail actually resulted in tax evasion by the assessee. The said communication could not be presumed to be accounting manipulations carried out by the assessee company in the absence of any corroboration thereof. As further observed that the books of account of the assessee-company were duly audited by an Independent Firm of Chartered Accountants. There was no adverse noting either in the Statutory Audit Report or in the Tax Audit Report relating to valuation of Ilmenite, stock-in-process and depreciation claim. No incriminating material was found during the course of search to prove that the contents of the e-mail communication between Shri J. Thangadurai and Shri V. Subramanian were an outcome of a planned accounting manipulation. Therefore, the impugned addition was deleted.

Summary

Issues Involved:
1. Jurisdiction and validity of the assessment order.
2. Approval under Section 153D.
3. Lack of Document Identification Number (DIN).
4. Addition for unaccounted cash sales.
5. Sales suppression.
6. Unexplained investments.
7. Bogus expenses.
8. Unaccounted cash receipts.
9. Alleged manipulation in accounts.

Detailed Analysis:

1. Jurisdiction and Validity of the Assessment Order:
The appellant argued that the assessment order was without jurisdiction, bad in law, and barred by limitation. However, these legal grounds were not pressed during the hearing, and thus, no findings were rendered on these issues.

2. Approval under Section 153D:
The appellant contended that the approval accorded by the Range Head under Section 153D was mechanical, rendering the assessment order invalid. This issue was not elaborated upon in the judgment, indicating it was not a focal point of contention in the appeals.

3. Lack of Document Identification Number (DIN):
The appellant claimed that the assessment order lacked a DIN as mandated by the CBDT Circular, which should render the order invalid. This issue was not further discussed in the judgment, suggesting it was not a decisive factor in the tribunal's decision.

4. Addition for Unaccounted Cash Sales:
The tribunal examined the addition made towards unaccounted cash sales. The CIT(A) had sustained additions based on gross profit rates applied to unaccounted sales, correcting errors such as double additions and totaling mistakes. The tribunal found the methodology of applying gross profit rates logical and reasonable, but directed the exclusion of circular transactions within group entities from the unaccounted sales, as these did not constitute income.

5. Sales Suppression:
Sales suppression was alleged based on WhatsApp chats and statements recorded during the search. The CIT(A) confirmed the addition for sales suppression as the cash generated was corroborated with evidence. The tribunal upheld these findings as the appellant did not contest this ground.

6. Unexplained Investments:
Additions were made for unexplained investments based on email communications indicating on-money payments for land purchases. The CIT(A) deleted these additions due to lack of incriminating material and absence of registration of land in the appellant's name. The tribunal upheld these deletions, noting the absence of corroborative evidence.

7. Bogus Expenses:
The tribunal addressed the issue of bogus expenses, where the CIT(A) had deleted additions due to lack of evidence and failure of the AO to conduct inquiries. However, considering possible inflation of expenses, the CIT(A) estimated an addition at 12.5% of alleged bogus expenses, which the tribunal found reasonable and justified.

8. Unaccounted Cash Receipts:
Additions for unaccounted cash receipts were based on excel sheets and notebooks found during the search. The tribunal concurred with the CIT(A) that these documents lacked evidentiary value due to absence of corroboration and authentication. The tribunal upheld the CIT(A)'s approach of estimating profit on unreconciled receipts using gross profit rates.

9. Alleged Manipulation in Accounts:
The addition for alleged manipulation in accounts was based on email communications suggesting accounting adjustments. The CIT(A) found no incriminating evidence to support tax evasion, and the tribunal agreed, noting the absence of adverse audit findings and corroborative evidence.

Conclusion:
The tribunal partly allowed the appellant's appeals for AYs 2015-16 and 2016-17, directing exclusion of circular transactions from unaccounted sales and upholding the CIT(A)'s estimation of profit on unaccounted transactions. Other appeals were dismissed, affirming the CIT(A)'s findings on various issues.