2020 (11) TMI 873 - HC - Income Tax

Treatment of sales as income from unexplained source - Allegation that, Assessee had created a false business with the objective of laundering its unaccounted income is based on the enquiries conducted by the AO under Section 133B - Assessee had failed to appear in person even after being summoned under Section 131(1) of the Act to clarify the position - HELD THAT - Quantum figure and the opening stock which stood accepted in the earlier years had to be taken as actual stock available with the Respondent-Assessee - the sales made by the Respondent-Assessee out of its opening stock were not treated as unexplained income, to be taxed as income from other sources. It thus manifests that the learned ITAT has taken into consideration the entire material placed on record including the report of the AO. ITAT has applied the rule of consistency and rejected the enquiry made by the AO in the relevant assessment year. Rule of consistency is a well-established and recognised principle applicable to the Income-Tax proceedings. Pertinently, the Respondent-Assessee had closed his business in July, 2015 after selling all the stocks and the survey carried out at a later stage would not have strong evidentiary value. Besides, all these aspects are completely factual in nature and we are unable to find any perversity in the impugned order. The factual findings recorded by the Income-Tax authorities, have been examined by the last fact-finding authority i.e. the learned ITAT. In absence of any perversity in the impugned order, we are not inclined to entertain the present appeal, which urges questions of law that are entirely resting on findings of fact.

Summary

Issues Involved:
1. Delay in filing and re-filing the appeal.
2. Legitimacy of the business activities and income declared by the Respondent-Assessee.
3. Validity of the addition made by the AO on account of unexplained credits.
4. Application of the rule of consistency in tax assessments.

Detailed Analysis:

1. Delay in Filing and Re-filing the Appeal:
- C.M.No.15852/2019 (delay in filing): The court condoned the delay of 70 days in filing the appeal based on the averments made in the application.
- C.M.No.15853/2019 (delay in re-filing): Similarly, the court condoned the delay of 140 days in re-filing the appeal, allowing the application.

2. Legitimacy of the Business Activities and Income Declared by the Respondent-Assessee:
- The Respondent-Assessee filed his ITR for AY 2014-15 declaring an income of ?41,60,010/-. The AO noticed discrepancies such as the business being listed in Mumbai while the ITR was filed with a Delhi address, and the absence of a weighing machine despite trading in fabrics.
- The AO conducted a physical verification under Section 133B of the Act and concluded that the business premises were abandoned, leading to the suspicion of money laundering. Consequently, the AO added ?4,20,62,550/- as unexplained credits.

3. Validity of the Addition Made by the AO on Account of Unexplained Credits:
- The CIT(A) upheld the AO's findings, noting the absence of a weighing machine and other inconsistencies. However, the ITAT overruled this, stating that the AO was not justified in treating the sales as income from unexplained sources.
- The ITAT emphasized that the opening stock, purchases, and sales had been accepted in earlier assessments, including scrutiny under Section 143(3) in AY 2007-08 and AY 2012-13. The ITAT found that the AO's inquiry conducted in FY 2016-17 (post-closure of the business) did not affect the legitimacy of the business activities in FY 2013-14.

4. Application of the Rule of Consistency in Tax Assessments:
- The ITAT applied the rule of consistency, noting that the Respondent-Assessee's trading activities and stock had been accepted in previous years. The ITAT held that the sales made out of the opening stock could not be treated as unexplained income.
- The court emphasized that the principles of res judicata do not apply to tax proceedings, but the rule of consistency is a recognized principle. The ITAT's findings were based on the entire material on record, including the AO's report, and there was no perversity in the ITAT's order.

Conclusion:
- The High Court dismissed the appeal, stating that no substantial question of law arose for consideration. The factual findings by the ITAT were upheld, and the appeal was dismissed.