2024 (7) TMI 502 - AT - Income Tax

Unaccounted business income - CIT(A) deleted addition on Acceptance of retraction of statement recorded u/s 132(4) - CIT(A) accepting the assessee's version as well as part retraction of statement and thereby agreeing that the cash payment of the assessee, along with its group entities, of 60 crores (over and above Rs 50 crores paid through banking channels) was made not out of suppressed cash sales but out of surplus cash available - HELD THAT - CIT(A) has categorically and rightly observed, taking support from the order of Rakesh Ramani 2018 (6) TMI 456 - BOMBAY HIGH COURT that there is no requirement in law that evidence in support must be produce only at the time when, the seizure has been made and not during the assessment proceedings. CIT(A) have elaborately made his observations qua the transactions under consideration in the present case, placing his reliance on Pullangode Rubber Produce Company Ltd 1971 (9) TMI 64 - SUPREME COURT that addition by ignoring the retracted statement without considering material brought on record during assessment proceedings, the action of Ld. AO cannot be held justifiable. CIT(A) on the issue of unaccounted business receipts have taken a note that since the amount of Rs. 7.00 Crores is part of sales proceeds of the assessee and due taxes have already been paid, thus, the utilization of such amount for making payment / investment with SBIL group as per MOU, taxing the impugned amount again as unaccounted income would lead to double taxation which is against the settled principle of law as laid down under various judicial pronouncements. CIT(A) also deliberated on the issue of incomplete books of assessee as examined and observed that the cash found from the office premises and residence of the assessee during the search was duly reconciled with the completed books of accounts, such facts were submitted before the Ld. AO also, who accepted the same and on such position of cash balance no negative inference was drawn. The cash sales of the assessee was also supported by the GST returns thus cannot be termed as an afterthought. Ld CIT(A) also observed that the assessee has made entries in the books of accounts on the basis of bills / vouchers / statements of branches, hence, the books completed are duly supported with lawful evidence. An important aspect regarding the sales of assessee that certain sale proceeds are received from IRCTC generated in Rajdhani Express through banking channel which had also remained to be entered in the books of accounts. Such error of the assessee cannot be treated as malafide or intentional as the same was duly included in the GST return of the assessee. With such observations, Ld. CIT(A) had concluded and rightly so that there is substance in the submission of the assessee that cash payment made to SBIL were not recorded in the books of accounts which are incomplete at the time of search for genuine and practical reasons. CIT(A) also analysed the comparative data of sales from GST returns and sales recorded in the completed / audited books and found that the same are matching with very paltry and insignificant variation. CIT(A) also after perusal of month wise sales figures of the assessee for the FY 2019-20 in comparison to previous FY 2018-19 have observed that there is no abnormal increase / decrease in total sales of the assessee, therefore, the sales figures shown for the year under consideration cannot be doubted. It is the observation of Ld. CIT(A) supported by the order of Jewel Emporium 2020 (9) TMI 761 - ITAT JAIPUR hat conclusion on the basis of incomplete books of accounts may give wrong picture of affairs of any assessee, the completion of the books cannot be denied without pointing out discrepancies. It is the observation of Ld. CIT(A) that the retraction from the statement by Shri Rahul Agrawal is found justifiable and acceptable as the same was backed by audited books of accounts and genuine reasons. Thus, we are of the considered view that the Ld. CIT(A) had correctly and judiciously adjudicated the issue, deleting the addition made by Ld. AO on account of unaccounted business income of the assessee, which in absence of any contrary argument, material, decision or evidence brought on record by the revenue, deserves to be affirmed, thus, we uphold the same. Resultantly, ground no. 1 of the revenue stands rejected. Error on the part of Ld. CIT(A) in accepting the assessee s version as well as part retraction from the statement, ignorance of incriminating material, acceptance of retraction by the key person of the assessee - Conclusions of the Ld AO are incomprehensible, wherein he is blowing hot and cold together as per convenience to enforce the additions, brushing aside all the substantial evidence (GST returns, sale bills, branch sale records, transactions in bank statements etc.) without depicting any cogent reason to suspect the same. Ld. AO kept himself confined up to the words stated in the statement u/s 132(4), without adverting to the retractions afterwards, whereas he was under abundant obligation to consider all the relevant facts, evidence / documents placed during the post search proceedings or during the assessment proceedings, so as to check the veracity of such statements before reaching at any logical conclusion. It is the trite law that the statement alone cannot, on a standalone basis, constitute incriminating material to empower the Assessing Officer (AO) to frame an assessment under Section 153A. Under such facts and circumstances, we are unable to persuade ourselves to subscribe to the findings of the Ld AO, wherein he attempted to contradict with the explanations and facts furnished by the assessee, but unable to dislodge the same with any reasonable and convincing observation, in absence of any valid or plausible interpretation, while making the addition on account of unaccounted business income. On a comparative evaluation of the aforesaid observations and decision of the Ld. CIT(A) as well as that of the Ld. AO, we find force and justification in the decision of the first appellate authority, who had considerately deliberated upon the issues with appropriate appreciation of the facts of the case, following the prescribed provisions of the Act, guided by the settled principle of law laid down by Hon ble Courts, thus, in absence of any further plausible, cogent or convincing explanation or contrary decision brought on record by the revenue, dislodging the aforesaid observations of the Ld CIT(A), supporting the action of Ld AO, are of the considered view that there was no infirmity in the decision of Ld. CIT(A) in deleting the addition made by Ld. AO, on account of unaccounted business income, thus, we uphold the same. Consequently, ground no. 2 to 7 of the department, dehors proving / establishing any error in the order of Ld CIT(A) are rejected in terms of our aforesaid observations.

Summary

Issues Involved:
1. Validity of assessment order under Section 143(3).
2. Justification of addition of Rs. 7 crores as unaccounted business income.
3. Acceptance of retraction of statement recorded under Section 132(4).
4. Consideration of incomplete books of accounts during the search.
5. Legitimacy and implications of the Memorandum of Understanding (MOU).
6. Double taxation concerns.
7. Rejection of books of accounts under Section 145(3).

Detailed Analysis:

1. Validity of Assessment Order under Section 143(3):
The assessee challenged the validity of the assessment order on grounds such as lack of opportunity to be heard, absence of show-cause notice, and reliance on statements without incriminating material. The CIT(A) found that the assessment order was passed following due procedure, with the assessee having complied with various notices. Therefore, the order under Section 143(3) was not bad in law, and principles of natural justice were followed.

2. Justification of Addition of Rs. 7 Crores as Unaccounted Business Income:
The AO made an addition of Rs. 7 crores, treating it as unaccounted business income based on statements and incomplete books of accounts. The CIT(A) observed that the books of accounts were incomplete at the time of the search due to practical reasons like software upgradation and time lag in entries. The completed books, supported by GST returns and other evidence, showed that the cash payment was from regular sales proceeds. The CIT(A) concluded that the addition was unjustified, as it would lead to double taxation.

3. Acceptance of Retraction of Statement Recorded under Section 132(4):
The AO relied heavily on the statement of Shri Rahul Agrawal, who initially admitted to suppression of sales but later retracted, stating the cash was from surplus sales. The CIT(A) accepted the retraction, supported by completed books of accounts and valid reasons. The CIT(A) cited judicial precedents allowing retraction of statements if backed by evidence, concluding that the retraction was justifiable.

4. Consideration of Incomplete Books of Accounts During the Search:
The AO did not consider the completed books of accounts, which were later presented by the assessee. The CIT(A) found that the incomplete books at the time of search could give a wrong picture. The completed books, supported by valid documents, should have been considered. The CIT(A) noted that the AO did not point out any specific defects in the completed books.

5. Legitimacy and Implications of the Memorandum of Understanding (MOU):
The AO dismissed the MOU as an afterthought to avoid tax, as it was not presented during the search and was not registered. The CIT(A) found no evidence to prove the MOU was not in existence at the time of the search and noted that the AO did not disprove its genuineness. The CIT(A) observed that the terms of the MOU were followed, and the revenue was shared as per the MOU, making it a valid piece of evidence.

6. Double Taxation Concerns:
The CIT(A) noted that the addition of Rs. 7 crores would lead to double taxation, as the sales were already recorded in the books and the resultant profit was offered for tax. The CIT(A) cited judicial precedents against double taxation and concluded that the addition was not justified.

7. Rejection of Books of Accounts under Section 145(3):
The AO did not reject the books of accounts under Section 145(3) but still made the addition. The CIT(A) found this approach incorrect, as additions to total income are not sustainable if the books of accounts are not rejected under Section 145(3). The CIT(A) concluded that the AO was not justified in making the addition without pointing out any defects or rejecting the books of accounts.

Conclusion:
The CIT(A) deleted the addition of Rs. 7 crores, finding the AO's approach unjustified and the retraction of the statement acceptable. The completed books of accounts, supported by valid evidence, were considered, and the MOU was found to be genuine. The decision was upheld by the ITAT, dismissing the revenue's appeal and confirming the CIT(A)'s order.