2019 (1) TMI 744 - AT - Income Tax

Assessment u/s 153A - Unaccounted manufacturing of goods - unaccounted turnover between assessee and Balaji Marketing - purchases from open market - Held that - Assessee was subjected to excise duty on the goods manufactured by it. CIT(A) has also held that excise duty was being imposed on the assessee on the basis of deemed production based upon number of machines installed and their capacity. The assessee being engaged in excisable goods was not found to have manufactured goods in excess of capacities of machines. No documentary evidence was available in the seized material which established any unaccounted turnover between assessee and Balaji Marketing. Further during course of search, no document related to unaccounted manufacturing of goods was found. We find that proprietor of Balaji Marketing had accepted its unaccounted turnover and he had also stated that he had purchased the goods from open market to meet out the increased demand. In view of the above facts and circumstances, we do not find any infirmity in the order of learned CIT(A). Admission of additional evidence - Held that - We find that the so called additional evidence is a copy of letter exchanged by ACIT, Circle-1 to Jt. CIT, Central Circle, a copy of which is placed at pages 72 to 76 of the paper book and the contents of which have also been reproduced by learned CIT(A) in his order from para 4(10)(i) of his order. The assessee had filed this letter during appellate proceedings and the case of the Revenue is that this letter was not confronted to the Assessing Officer. CIT(A) has not allowed relief to the assessee on the basis of this letter only and in his earlier paragraphs he has already decided the issue in favour of the assessee. The said letter, being part of the official record of the Revenue, cannot be said to be a document to which the Assessing Officer had no access. In this letter, which is claimed by the Revenue to be additional evidence, the Assessing Officer has only expressed its opinion on the addition made by the Assessing Officer and has written to Jt.CIT that the additions were not sustainable. CIT(A) has not much relied on the letter and has in fact already decided the issue in favour of the assessee

Issues Involved:
1. Deletion of additions based on seized/incriminating material.
2. Acceptance of additional evidence without giving the Assessing Officer an opportunity to respond.

Detailed Analysis:

1. Deletion of Additions Based on Seized/Incriminating Material:
The Revenue appealed against the deletion of additions by the CIT(A), arguing that the additions were made on the basis of seized material found during a search. The search and seizure operation under Section 132 of the Act was conducted on the Shimla Kayam Gutkha Group on 06/02/2013, during which several documents, books of account, loose papers, and computers were seized. The Assessing Officer (AO) observed that the assessee, a partnership firm, was engaged in the manufacturing of Pan Masala, Gutkha, and allied products. The AO also noted that Balaji Marketing, a sole proprietorship of Shri Ashok Kumar Gupta (spouse of one of the partners of the assessee), was involved in selling the products produced by the assessee. A hard disk seized during the search contained data related to the business transactions of Balaji Marketing, some of which were recorded under the name "Ghee."

The AO concluded that Balaji Marketing had recorded a significant undeclared turnover not reflected in the books of the assessee. Despite Shri Ashok Kumar Gupta admitting to the unaccounted turnover and claiming it was from open market purchases, the AO rejected this explanation, assuming that "Guru" in the tally accounts was a code name for the assessee. Consequently, the AO treated the unrecorded turnover of Balaji Marketing as that of the assessee and added 50% of the unaccounted turnover to the assessee's income.

The CIT(A) deleted these additions, stating that there was no evidence to substantiate that the unrecorded turnover of Balaji Marketing was derived from the assessee's sales. The CIT(A) analyzed the factual position and held that the disclosed turnover of the assessee and Balaji Marketing did not support the AO's findings. The CIT(A) noted that there was no evidence in the seized material to establish unaccounted trading between the assessee and Balaji Marketing. Furthermore, the CIT(A) highlighted that the assessee's manufacturing activities were governed by the compounded levy scheme of the Excise Rules, which did not indicate any excess production beyond the declared capacities. The CIT(A) concluded that the AO's addition was based on presumptions without corroborative evidence.

The Tribunal upheld the CIT(A)'s findings, noting that the Revenue failed to contradict the exhaustive analysis provided by the CIT(A). The Tribunal agreed that no documentary evidence was found during the search to establish unaccounted turnover between the assessee and Balaji Marketing. The Tribunal also noted that the proprietor of Balaji Marketing had accepted the unaccounted turnover and stated that the goods were purchased from the open market. Thus, the Tribunal found no infirmity in the CIT(A)'s order.

2. Acceptance of Additional Evidence Without Giving the Assessing Officer an Opportunity to Respond:
The Revenue contended that the CIT(A) accepted additional evidence without giving the AO an opportunity to respond, violating Rule 46 of the I.T. Rules. The so-called additional evidence was a letter exchanged between the ACIT, Circle-1, and the Jt. CIT, Central Circle, which was part of the official record of the Revenue. The CIT(A) reproduced the contents of this letter in his order but did not rely solely on it to grant relief to the assessee. The Tribunal found that the CIT(A) had already decided the issue in favor of the assessee based on other grounds before considering the letter. Therefore, the Tribunal concluded that the ground relating to the admission of additional evidence without confronting the AO had no force.

Conclusion:
Both appeals by the Revenue were dismissed. The Tribunal upheld the CIT(A)'s deletion of additions, finding no evidence to substantiate the AO's claims of unaccounted turnover between the assessee and Balaji Marketing. The Tribunal also dismissed the Revenue's contention regarding the acceptance of additional evidence, noting that the CIT(A) had not relied solely on the letter to grant relief. The order was pronounced in the open court on 11/01/2019.

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