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TMI Blog2010 (7) TMI 839X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellate orders passed by the Commissioner of Income-tax (Appeals)-VI, at Bangalore, on June 22, 2009. The Commissioner of Income-tax (Appeals) has passed a common order in respect of Mangalore showroom and another common order in respect of Puttur showroom. All these appeals arise out of the assessments completed under section 143(3) read with section 153A of the Income-tax Act, 1961. The assessee-firm in this case is a regular assessee to income-tax. The assessee-firm had filed its regular returns of income for all the assessment years 2001-02 to 2007-08. Thereafter a search was carried out in the premises of the assessee-firm including both its showrooms. In the course of search, no incriminating materials were recovered against the assessee, except for the assessment year 2007-08 in the case of Mangalore showroom which related to a case of stock variation. Except for the above singular deviation, the main defect pointed out by the search officers was that the assessee-firm had made a number of payments in contravention of law stated in section 40A(3) while indulging in purchases from unregistered dealers. This violation by way of payments made other than by way of crossed che ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... governing factors. The Commissioner of Income-tax (Appeals) held that wherever the assessee could explain the bona fides of the payments made in cash which were made out of compelling circumstances, such payments should be accepted as genuine and not to be made a ground to make additions. On the basis of the above finding and in the light of the judicial pronouncements, the Commissioner of Income-tax (Appeals) deleted the additions made by the Assessing Officer on the ground of violation of section 40A(3). But in the light of the admission made by the assessee at the time of search and survey, the Commissioner of Income-tax (Appeals) felt that a reasonable amount of addition was called for in all the assessment years under appeal. He has come to the above finding particularly on the basis of the fact that the assessee has retracted his earlier statements made in the course of search and survey and has gone back from offering the income for taxation to the extent it was originally offered at the time of search and survey. The Commissioner of Income-tax (Appeals) has not accepted the contentions of the assessee regarding the legality of the retraction of the statements made by him i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of stock variation pointed out for the assessment year 2007-08, the assessee had admitted an amount of Rs. 50 lakhs representing the excess stock found in the course of search/survey. Apart from the above statements obtained from the assessee, the search did not yield any incriminating materials nor the officers have gone beyond that. The moment the assessee has made the offer regarding violated cash payments and excess stock variation, the officers closed the process of enquiries and worked out the probable amount of evasion as admitted by the assessee. There were no fruitful enquiries conducted once the admissions were obtained from the assessee. In this regard it is very useful to refer to the circular issued by the Central Board of Direct Taxes on matters of confession vis-a-vis searches through their instruction F. No. 286/2/2003-IT (Inv. II), dated March 10, 2003, which reads as below : "Confession of additional income during the course of search and seizure and survey operation. Instances have come to the notice of the Board where the assessees have claimed that they have been forced to confess the undisclosed income during the course of the search and seizure and su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admission made by the assessee in the course of search was not unconditional. The assessee has reiterated that the violation of payments pointed out against the assessee need to be examined and reverified so also the legal position regarding genuine payments had to be ascertained. The above admission made by the assessee has to be further examined in the light of the statement of facts filed by the assessee before the Commissioner of Income-tax (Appeals) in paragraph 1.2. The said statement reads as follows : "1.2 The Assistant Director of Income-tax (Investigation) has arrived at an aggregate amount of Rs. 1,69,37,290 for payments made in excess of Rs. 20,000 by way of cash and bearer cheques and stated that, it is violation of section 40A(3) and compelled the assessee to declare 20 percent of the said amount, i.e., Rs. 33,87,458 for the year under question as undisclosed income. Out of the said unregistered purchases amounting to Rs. 1,69,37,290 only a sum of Rs. 75,10,199 was payment made in contravention of the provisions of section 40A(3) as alleged by the Assessing Officer. Accordingly, to buy peace from the Department, the partner of the appellant Mr. Aboobacker vide hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to purchase those gold ornaments and make payments in cash. And now whatever may be the pros and cons of these explanations regarding the disallowances to be made under section 40A(3), the Commissioner of Income-tax (Appeals) had no materials before him to make 10 percent additions on the ground of inflated purchases. It is to be seen that even the Assessing Officer has not made any addition to the returned income of the assessee on the ground of inflated purchases. The additions have been made by way of disallowances under section 40A(3). For making such disallowance/addition, the assessing authority has not relied upon any exact quantification of such violated payments, but on the admission made by the assessee during the course of search/survey. When there is no case of inflated purchase, either admitted by the assessee or found out by the assessing authority, we do not think it is proper on the part of the Commissioner of Income-tax (Appeals) to make additions on the ground of inflated purchases. Therefore, the change of head of the addition made by the Commissioner of Income-tax (Appeals) from "section 40A(3)" to "inflated purchases" is somewhat intriguing and not easily diges ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the addition should be modified to Rs. 25 lakhs on the ground of stock variation. The assessee has already returned an amount of Rs. 22,81,149 under the above head. The Commissioner of Income-tax (Appeals) accordingly directed the addition of the differential amount of Rs. 2,18,851 so as to make the stock variation at the value of Rs.25 lakhs. We have already discussed in detail about the veracity and reality of admissions made by the assessee during the course of search/survey. In the light of the said detailed discussion, we find that the Commissioner of Income-tax (Appeals) is justified in confining the value of stock variation at Rs. 25 lakhs. As the assessee has already returned an amount of Rs.22,81,149 under the above category, the Commissioner of Income-tax (Appeals) is justified in making an addition of the differential amount of Rs. 2,18,851. Accordingly, the order of the Commissioner of Income-tax (Appeals) on this point is upheld. Now coming to the appeals filed by the Revenue for the assessment years 2006-07 and 2007-08 in respect of Mangalore and Puttur showrooms, the common grounds are against the modification granted by the Commissioner of Income-tax (Appea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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