2022 (2) TMI 173 - AT - Income Tax

Search seizure and survey operation - Reliance on seized material or any incriminating material used by the Revenue - Addition of unaccounted proceeds out of waste cotton sales u/s.69A - HELD THAT - Addition of unaccounted sale of waste cotton is estimated only on the basis of statement of Cotton Clerk Shri B. Anandha Rajan on 29.06.2017 and Shri S. Thirumalai Kumar AGM (Admin) on 30.06.2017. We have gone through the statement reproduced by the AO in his order and noted that there is no reference to any seized material or any incriminating material used by the Revenue. Also gone through the orders of the lower authorities including case records and noticed that there is no reference to any seized materials on the basis of which unaccounted sales of cotton waste is estimated. We are conscious of the fact that the CBDT has issued instruction time and again as to how confession of additional income during the course of search seizure and survey operation is to be added. There is no incriminating material for making any estimation of unaccounted sale of waste cotton despite search was conducted. Even no substantial assets or cash was found from the assessee to support the claim of the Revenue. It seems that the total unaccounted cash found during the course of search was only 26, 36, 572/- out of which 20 lakhs belong to Shri Sadiq and it has been accepted by the Settlement Commission. The balance amount 6, 36, 572/- remains after the order of CIT(A). This cash cannot be equated with the quantum of addition made by the AO and confirmed by the CIT(A) at 42 lakhs in each of these six assessment years. Hence we have no hesitation in stating that the addition made by the AO and confirmed by CIT(A) is just mere on suspicion conjectures and surmises without any evidence. Assumption of jurisdiction for making addition u/s.69A - We noted that the amount determined by the AO as unaccounted sale of cotton waste is without any basis without any corroborative documentary evidence or any evidence found from the premises of the assessee during search seizure operation. In the given facts we are of the view that once there is no money bullion jewellery or other valuable article is found from the procession of the assessee during the course of search or there is no evidence seized or found or corroborated with the alleged unaccounted sale of cotton waste no addition can be made by invoking provisions of section 69A of the Act. Hence on this legal issue also addition is to be deleted. Addition of amount as already been declared as income in the application filed before the Hon ble Settlement Commission in the hands of M/s. Seyadu Beedi Company in which firm the managing director of the appellant is a partner - HELD THAT - As the assessee as well as the ld. Senior DR fairly agreed that the matter can be restored back to the file of the AO for verification and adjudication whether this cash is declared by the assessee before Settlement Commission as income in the hands of M/s. Seyadu Beedi Company and in case this is accepted by Settlement Commission the same can be deleted. This issue of the assessee s appeal is set aside and allowed for statistical purpose.

Summary

Issues Involved:
1. Addition of ?42 lakhs in each assessment year on account of alleged unaccounted proceeds from waste cotton sales under Section 69A of the Income Tax Act, 1961.
2. Addition of ?6,36,572 declared as income in the application filed before the Settlement Commission in the hands of M/s. Seyadu Beedi Company.

Detailed Analysis:

1. Addition of ?42 Lakhs for Unaccounted Proceeds from Waste Cotton Sales:

The primary issue in these appeals concerns the confirmation by the Commissioner of Income Tax (Appeals) [CIT(A)] of the Assessing Officer's (AO) action in making an addition of ?42 lakhs in each of the assessment years on account of alleged unaccounted proceeds from waste cotton sales under Section 69A of the Income Tax Act, 1961. The facts are identical across all six assessment years, and the case of AY 2018-19 was taken as a representative.

The assessee, a limited company and part of the Seyadu group, underwent a search and seizure operation under Section 132 of the Act on 28.06.2017. Based on the material gathered, notices under Section 147 were issued for AYs 2013-14 to 2018-19. The AO noted that while the sales of certain types of cotton waste were properly recorded and remittances received through RTGS, the sales of "waste cotton-others" were only partially recorded, with 50% of the sales value received in cash and not accounted for in the books.

The AO's addition was based on statements from employees during the search, which indicated unaccounted sales of cotton waste. However, the assessee argued that these statements were retracted and unsupported by any incriminating material or seized documents. The CIT(A) upheld the AO's decision, considering the statements as tangible material for the addition.

Upon appeal to the Tribunal, the assessee contended that the addition was made solely on the basis of employee statements without any corroborative evidence, citing CBDT instructions and judicial precedents emphasizing the need for credible evidence in such cases. The Tribunal noted the absence of any incriminating material or substantial assets found during the search to support the unaccounted sales claim. The Tribunal also highlighted the legal requirement under Section 69A for the presence of money, bullion, jewelry, or other valuable articles, which was not met in this case.

The Tribunal concluded that the addition was based on suspicion and conjecture without evidence, and thus, the addition of ?42 lakhs for each assessment year was deleted.

2. Addition of ?6,36,572 Declared as Income Before Settlement Commission:

The second issue pertains to the addition of ?6,36,572, which the assessee claimed was already declared as income in the application filed before the Settlement Commission in the hands of M/s. Seyadu Beedi Company. The assessee requested that this amount be verified and, if accepted by the Settlement Commission, be deleted.

Both the assessee's representative and the Department's Senior DR agreed that the matter should be remanded to the AO for verification and adjudication. The Tribunal restored this issue to the AO for verification, directing that if the amount was indeed declared and accepted by the Settlement Commission, it should be deleted.

Conclusion:

The appeals filed by the assessee in ITA Nos. 118, 119, 120, 121 & 122/Chny/2021 were allowed, and ITA No. 123/Chny/2021 was partly allowed for statistical purposes. The Tribunal's order was pronounced on 31st January 2022 at Chennai.