2020 (9) TMI 761 - AT - Income Tax

Unexplained cash found during the course of search - statement recorded on oath u/s 132(4) and 131 relied upon - HELD THAT - We found that as on the date of search, the books of account of M/s Jewels Emporium were incomplete and the printouts of cash books as taken by the search team did not reflect the true and correct balance available which is made part of the seized papers. Cash balance as appearing in such incomplete books of accounts and taken as recorded cash balance as per books as on the date of search is wrong being not updated. The statements recorded u/s 132(4) cannot be made the sole basis for making additions unless it is supported by any documentary evidence. CBDT has clarified by clarification dated 10/03/2003 (No. 286/2/2003-Income Tax) that while recording statement during the course of search and seizure and survey operations no attempt should be made to obtain confession as to the undisclosed income. Additions based on the alleged surrender obtained during the course of search are in contravention to the circular and instruction of the CBDT and therefore the same deserves to be deleted. One major fact was ignored by the AO as well as by ld. CIT(A) that the sale was duly recorded in the books of accounts and after inclusion of the same in total sales, cash balance, profits and stocks were derived which were accepted by both the authorities without any doubts - further addition by alleging the same as excess cash tantamount to taxation of an income twice. One in the shape of sales and profits embedded therein and again by making addition by alleging the same as unexplained excess cash - we do not find any merit in the addition upheld by the ld. CIT(A) on account of excess cash. The A.O. is directed to delete the same. Excess stock found during search and admitted by partner in the statements recorded during the search operation - HELD THAT - Statement of Shri Anup Bohra was recorded many times in bits and pieces and he was naturally under tremendous pressure, and he was satisfied about the inventory of physical stock so prepared in so far as quantity of the items are concerned but he is not a person well versed with the accounting principles, he accepted the working of the excess stock so done by the search team in good faith and without going deep into the accounting principles that from the market value of stock so estimated by the approved valuer, the Gross Profit embedded in it is to be reduced for arriving at the cost price for proper and fair comparison with the stock as per books of accounts. There is no retraction from the side of the assessee inasmuch as that the assessee has not retracted or disputed the inventory of the physical stock in quantitative term and has also not disputed the estimated market value of the various items. It is only the calculation part of the arriving at the value of the excess stock that the accounting mistake occurred at the time of search which should be rectified while working out the quantum of excess stock found, if any. As during the course of assessment proceedings before AO, assessee had filed a table showing party-wise purchases made in the preceding six and half years by the assessee in respect of few item which is placed at paper book pages 60-80 according to which the average rate of gold per gram works out to ₹ 2262/- which is very much lower than the rate adopted by DVO (₹ 2714/- per gram). Similarly, average rate of purchase of emerald comes to ₹ 1390/- per ct. as against average fair market rate / value taken by DVO at ₹ 4500/- per ct. Similar is a position in respect of diamond where average purchase cost is ₹ 18567/- per ct. whereas DVO has taken the rate ₹ 25438/- per ct. Thus, this argument of the AO for not allowing deduction of GP embedded in the estimated market value, is devoid of any merit - we uphold the deletion of addition in respect of excess stock found during the course of search - Decided against revenue.

Summary

Issues Involved:
1. Addition of unexplained cash found during the search.
2. Addition of undisclosed excess stock found during the search.
3. Deletion of initiating penalty proceedings under Section 271AAB of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Addition of Unexplained Cash Found During the Search:

The assessee's appeal contested the addition of ?33,57,039/- as unexplained cash found during the search. The assessee argued that this cash was from sales amounting to ?30,80,745/- that were not incorporated in the books at the time of the search but were later included. The assessee contended that the addition led to double taxation since the sales and profit were already declared in the total income. The Tribunal noted that the books of accounts were incomplete as of the search date, and the cash balance taken by the search team was based on outdated records. The Tribunal found that the assessee had completed its books post-search and recorded the sales, which explained the cash discrepancy. It was held that the AO and CIT(A) failed to appreciate the facts and evidence provided, and thus the addition of ?33,57,039/- was deleted.

2. Addition of Undisclosed Excess Stock Found During the Search:

The revenue's appeal challenged the deletion of ?6,14,97,858/- added as excess stock. During the search, stock valued at ?26,62,93,376/- was found, while the books showed ?20,47,95,518/-. The difference was added as unexplained stock based on the partner's admission during the search. The Tribunal noted that the stock was valued at market price, while the books recorded it at cost price. After accounting for the gross profit margin, the stock as per books was comparable to the physical stock found. The Tribunal upheld the CIT(A)'s finding that the stock valuation should consider the gross profit margin and that no excess stock was found when adjusted for this. The Tribunal also noted that the addition would be revenue-neutral as the closing stock value would adjust in the subsequent year's opening stock. Thus, the deletion of the addition by the CIT(A) was upheld.

3. Deletion of Initiating Penalty Proceedings Under Section 271AAB:

The revenue's grounds included the deletion of initiating penalty proceedings under Section 271AAB. However, the Tribunal's decision primarily focused on the substantive additions of cash and stock. The Tribunal upheld the CIT(A)'s order, which did not find merit in the penalty proceedings given the explanations and adjustments provided by the assessee.

Conclusion:

The Tribunal allowed the assessee's appeal by deleting the addition of ?33,57,039/- as unexplained cash and upheld the CIT(A)'s deletion of ?6,14,97,858/- added as excess stock. The revenue's appeal was dismissed, and the Tribunal found no basis for the penalty proceedings under Section 271AAB. The judgment emphasized the importance of considering the completeness of books and the valuation methods used during searches.