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TMI Blog2021 (1) TMI 671X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee was paid unaccounted cash by the distributors. The AO could not rebut the submissions of the assessee with regard to sale price and under invoicing with relevant facts and evidences - additions made on the basis of statement u/s 132(4) without having corroborating evidence is unsustainable and accordingly we uphold the order of the Ld.CIT(A) and dismiss the appeals of the revenue on this issue. Unaccounted purchases of Acid Slurry - In response to the show cause notice issued by the AO, the assessee filed explanation stating that the component of acid slurry in soap manufacture is 20% and the entire purchases made from the supplier was duly accounted and no unaccounted purchases was made by the assessee - HELD THAT:- In the instant case, search was conducted on 30.08.2016 and the assessee filed the return of income on 10.04.2017 admitting the income, which was declared in original return of income, thus, made it clear that the assessee has gone back from the admission given u/sec. 132(4). The assessee also retracted the statement subsequently, once the assessee retracted the statement recorded u/sec. 132(4), it is incumbent on the AO to prove the unaccounted purchases a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 27.07.2020 for the Assessment Years (A.Y.) 2011-12 2012-13, Appeal No.305 to 308/2019- 20/CIT(A)-3/VSP/2020-21 dated 27.07.2020 for the A.Ys 2013-14 to 2016-17. The appeals are filed with the delay of 3 days along with condonation petition stating administrative reasons and requested to condone the delay. We have heard both the parties and condone the delay and admit the appeals of the revenue. 2. The Revenue has raised the following grounds which are common for all the assessment years. 1. The order of the Ld.CIT(A) is erroneous both on the facts and in law. 2. The Ld. CIT (Appeals) ought to have appreciated the probative value of voluntary admission u/s.132(4) and upheld the additions made towards under invoicing of sales and unaccounted purchase of acid slurry which is based on the assessee s voluntary admission u/s.132(4) and also based on circumstantial evidence. 3. The Ld. CIT (Appeals) ought to have appreciated the fact that the assessee failed to prove coercion in his admission of income u/s. 132[4]. 4. The Ld. CIT (Appeals) failed to appreciate that even the entry in books of account can be incriminating when the assessee failed to explain it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s quite apparent from the assessment order that the opportunity was afforded due to the time and logistics involved. 12. While passing the original order dt: 27.07.2020 as well as the modification order (Corrigendum) dt: 12.08.2020, the Ld.CIT(A) ought to have taken into account the fact that the ITSC has not accepted the version of the assessee with regard to income from Real Estate etc. and therefore the Ld.CIT(A) should have sustained the entire addition made in the Assessment Order by the Assessing Officer. 13. Any other ground that maybe urged at the time of hearing. Since the facts are identical, all the appeals are clubbed, heard together and a common order is being passed for the sake of convenience. 2.1. During the appeal hearing the Ld.DR submitted that all the grounds of appeal are related to the addition of under invoicing of sales and unaccounted purchases. 3. Brief facts of the case: The facts are taken from I.T.A No.202/Viz/2020 for the A.Y. 2011-12 which are applicable to all the appeals except change in the amounts. All the grounds of appeal are related to the addition of ₹ 5,81,04,956/- comprising of under invoicing of sales of ₹ 3, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .Y.2011-12 to 2016-17 on account of under invoicing of sales as under : A.Y. Unaccounted income on account of under invoicing of sales (Rs.) 2011-12 3,80,55,836 2012-13 5,22,20,398 2013-14 6,02,28,092 2014-15 6,59,72,863 2015-16 6,79,97,020 2016-17 9,40,17,546 37,84,91,758 3.1. Simultaneously a Survey u/s 133A was conducted in the business premises of M/s Mahaveer Surfactants Pvt. Ltd., Pondicherry (in short Mahaveer ) who deals in acid slurry and supplies to the assessee. During the course of survey, it was noticed by investigation wing that the assessee is indulging in unaccounted purchase of acid slurry which is used in manufacturing of detergent powder and detergent cakes. During the course of survey in the premises of Mahaveer Surfactants, some material was found and marked as Annexure/KGA/MSPL/IMP-B D, page No.76 of Annexure which shows some noting about loads ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,78,45,920 2013-14 1,93,33,080 2014-15 2,08,37,376 2015-16 1,65,60,720 9,46,26,216 3.3. Subsequently, AO issued notice u/s 153A calling for the return of income for the A.Y. 2011-12 to 2016-17 and in response to which the assessee filed the return of income on 10.04.2017 admitting same incomes which were already admitted in the returns filed u/s 139(1) of the Act, thus retracted from the admission given u/s 132(4). The AO had issued the notices u/s 143(2) and 142(1) calling for various details and meanwhile, the assessee filed application before the Income Tax Settlement Commission (ITSC) on 19.11.2018 for the A.Ys 2011-12 to 2017-18 u/s 245C of the Act admitting additional incomes as under : Asst.Year Unaccounted income admitted at the time of search (in Rs.) Additional income admitted in the return filed in response to notices u/s 153A (In Rs.) Additional income admitted before the Hon ble ITSC (in Rs.) 2011-12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee explained that assessee sold the stock to the distributor and distributors sold the stock to the wholesaler Sri Lakshmi Kirana, Draksharamam at ₹ 367.20/- and the wholesaler sells the stock to the retailer. The assessee further stated that the distributor is paying the sum of ₹ 361.53/- to the assessee and the assessee is not getting any benefit out of the difference amount ₹ 88.47/- which is distributed among the distributor, wholesaler and the retailer. Thus, submitted that, ultimately retailer gets the goods at ₹ 450/- per case and it is not the assesse who gets the sum of ₹ 450/- and there was neither under invoicing nor the assessee was receiving the unaccounted cash back from the distributors. Thus the assessee submitted that the assessee is not concerned about the price to the extent of ₹ 450/-, which is ultimate price to the end consumer and only concerned to the extent of ₹ 361.53/- per case to the distributor. The assessee further stated that no evidence was found by the AO with regard to receipt of cash back from the distributors either in the premises of the assessee or in the premises of the distributors. The assessee f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 2,00,49,120/- to the returned income on account of unaccounted purchases of acid slurry . Identical additions were made by the AO for the A.Ys 2012-13 to 2014-15. The details of addition made by the AO relating to under invoicing of sales and unaccounted purchases assessment year wise are as under : A.Y. Under invoicing of sales Unaccounted purchases 2011-12 3,80,55,836 2,00,49,120 2012-13 5,22,20,398 1,78,45,920 2013-14 6,02,28,092 1,93,33,080 2014-15 6,59,72,863 2,08,37,376 2015-16 6,79,97,020 1,65,60,720 Total 37,84,91,755 9,46,26,216 6. Against the order passed by the AO, the assesse went on appeal before the CIT(A) and challenged the order of the AO with regard to legal validity of making the additions u/s 153A without having the incriminating material as well as on merits. On merits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t from the statements recorded from Sri Pasumarthi Chandrakanth and Sri Veesam Narasimha Reddy and others, though the AO used against the assessee, copies of the same were not supplied to the assesse and the AO also did not allow the cross examination of the witnesses. She further observed that no material was found in the premises of the distributors though the searches were conducted on random basis in the case of distributors also. No addition was also made by the AO in the hands of the distributors, thus held that the statement of distributors does not give any scope to the AO to view that the assessee had received the unaccounted cash. Similarly she observed with regard to the statements recorded from the cashiers no details or corroborative evidence was found except the vague statements thus viewed that the statements of the cashiers are also not helpful to the department to support the revenue s case. She found that sole basis for the addition was the reply of assessee in question No.27, wherein he stated initially that he had received back t 8% of the under invoicing on actual sale value in cash. The foundation for the addition was the invoice of the company bearing N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble time. The assesse did not retract the statement within the reasonable time, thus, argued that even entries made in the books of accounts can be incriminating when the assesse failed to explain the same with the proof. The Ld.CIT(DR) further submitted that as per the circumstantial evidence, the Ld.CIT(A) ought to have taken the holistic view of the proof gathered during search. The Ld.DR further submitted that the assessee, both the cashiers of the assessee, distributors together have confirmed that the assessee was receiving the cash back from the distributors which supports the view that the assessee had received the cash back, hence, argued that the Ld.CIT(A) ought to have upheld the addition made by the AO. With regard to the statement recorded from the Director of Mahaveer Surfactants Pvt. Ltd., he stated that M/s Mahaveer supplied the raw material to the assessee without the bills and the assessee failed to prove that he has not made purchases outside the books of accounts. The assessee requested for cross examination in the 11th hour, hence, the AO could not give opportunity for cross examination of the witnesses and thus argued that not providing the opportunity to c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, evidencing under invoicing sale bills and the receipt of cash back from the distributors. What was stated to have been explained by the assessee was that sum of ₹ 361.53 was the price for distributor and ₹ 450/- was the sale price of the end consumer. In between, there were three layers who share the profit that is distributor, wholesaler and the retailer. The statements recorded from the cashiers also cannot be taken against the assessee since, no supporting evidence was found with regard in respect of date wise, party wise cash receipts. Further assessee receives cash regularly from the sales made to the distributors towards the realization of debts which is accounted in the books of accounts. Similarly, the Ld.AR argued that no asset was found during the course of search outside the books of accounts. The Ld.AR further argued that no evidence was found with regard to purchases made outside the books of accounts by the assessee in the premises. All the purchases were duly accounted in the books of accounts and no incriminating material was found in the premises of the assessee to support unaccounted purchases. The Ld.AR submitted that the entire purchases and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2016-17 9,40,17,546 2017-18 Nil 37,84,91,758 10.1. Similarly, the assessee also accepted that he had made purchases outside the books of accounts and admitted the additional income of income of ₹ 9,46,00,000/- for assessment years 2011-12 to 2015-16 as under: A.Y. Undisclosed income (Rs.) 2011-12 2,00,49,120 2012-13 1,78,45,920 2013-14 1,93,33,080 2014-15 2,08,37,376 2015-16 1,65,60,720 9,46,26,216 10.2. In respect of under invoicing of sales the Ld.CIT(A) deleted the addition holding that the without having corroborative evidence, addition made solely on the basis of statement recorded u/s 132(4) is unsustainable. For the sake of convenience we, extract para No,12.1 in page No.57 of the CIT(A) order which reads as under: 12.1. CIT(A) Decision (Against Ground no: 5, 7, 11, 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er a statement recorded under section 132(4) of the Act would by itself be sufficient to assess the income, as disclosed by the assessee in its statement under the provisions of Chapter XIV-5 of the Act. 20. In our view, a plain reading of section 158BB(1) of the Act does not contemplate computing of undisclosed income solely on the basis of a statement recorded during the search. The words 'evidence found as a result of search' would not take within its sweep statements recorded during search and seizure operations. However, the statements recorded would certainly constitute information and if such Information is relatable to the evidence or material found during search, the same could certainly be used in evidence in any proceedings under the Act as expressly mandated by virtue of the explanation to section 132(4) of the Act. However, such statements on a standalone basis without reference to any other material discovered during search and seizure operations would not empower the AO to make a block assessment merely because any admission was made by the assessee during search operation. 21. .. A statement of a person, which is not relatable to any incr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arch was continuously conducted in the business premises of the assessee and recorded statement u/s 132(4) in multiple premises regularly without giving sufficient interval. Thus there is a possibility of building up pressure on the assessee which resulted in confusion in his mind. Though the Investigation Officer recorded statements u/s 132(4) from the distributors, they did not specify the date wise amounts paid and out of which the sums accounted in the books of accounts and unaccounted amounts were not furnished. No evidence was found in the premises of the assessee as well as the distributors evidencing the unaccounted cash payments though the premises of the distributors were also searched on random basis simultaneously. The statements recorded from the distributors are very vague and general. The assessee enclosed the assessment orders in the case of distributors and the AO did not make any addition in the hands of the distributors in respect of the so-called cash payments made to the assessee u/s 69C of the Act. Thus, we cannot hold the statement recorded from the distributors as valid evidence to make the addition. Similarly, the AO recorded statement from Shri Subbaiah Ja ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the show cause notice also the assessee furnished detailed explanation regarding the pricing mechanism and objections with regard to admission u/s 132(4) by the assessee which reads as under: 1. During the course of search proceedings, the department has found the retailers price list but not manufacturer price list. Hence the comparison of retailer price list with assessee s sale bill cannot be made. There are three stages between the Assessee and the ultimate consumer. These are Distributors, Wholesalers and retailers. The prices will vary between various stages. 2. During the course of search proceedings, the department has identified the accounted sale bill dated 30.07.2016 to Sai Lakshmi Agencies (who is the distributor) which worked at ₹ 361.53/- 3. In turn Sai Lakshmi agencies has sold the stock to the wholesaler Sri Lakshmi Kirana, Draksharamam at ₹ 367.20 4. The question posed by investigation department vide No.27 of the statement recorded on 02.09.2016 it was asked that the distributor is selling for ₹ 450/- which was not correct because in question No.25, the Assessee replied that retailer is paying ₹ 450/- for each case and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f under invoicing was not based on the any evidences and hence addition on this ground cannot be justified, 10.5. From the plain reading of the reply of the assessee, it is clear that he has gone back from the admission and explained the pricing mechanism and margin stated to be goes to distributor, wholesaler and the retailer and emphasized that he was receiving only ₹ 361.53 which was duly accounted. In the return filed in response to the notice issued u/s153A, the assessee filed the income originally returned and thus made it very clear at the time of filing the return itself that the admission made u/s 132(4) is retracted. In the circumstances it is the mandatory obligation of the AO to collect the evidences to support the additions and the statement recorded u/s 132(4) cannot help the AO. It is for the AO to address each and every objection raised in the written submissions made by the assessee and to bring tangible evidence to support the addition. In the assessment order we, do not find any material to support the addition except the statement recorded u/s 132(4) on ₹ 361.53 per case which the assessee retracted. Statement was recorded from the assessee in hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ations altogether, ensue. The situation resembles the one, which arises on retraction from the statement recorded under section 164 of the Code of Criminal Procedure. The evidentiary value of a retracted statement becomes diluted and it loses the strength, to stand on its own. Once the statement is retracted, the assessing authority has to garner some support, to the statement for passing an order of assessment. 11. In I. T. T. A. No. 112 of 2003 (see CIT v. Naresh Kumar Agarwal [2014] 369 ITR 171/[2015] 53 taxmann.com 306 (AP) this court dealt with the very aspect and held that a retracted statement cannot constitute the sole basis for fastening liability upon the assessee. 12. In the instant case, the appellants specifically pleaded that the statements were recorded from them by applying pressure, till midnight, and that they have been denied access outside the society. The Assessing Officer made an effort to depict that the withdrawal or retraction on the part of the appellants is not genuine. We do not hesitate to observe that an Assessing Officer does not have any power, right or jurisdiction to tell, much less to decide, upon the nature of withdrawal or retraction. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examined the constitutional validity of certain parts of Section 132 itself. Even while upholding the provision, their Lordships stressed the importance of fair play and reasonableness. After referring to the protection given under the constitution against self-incrimination, their Lordships observed: In other words, search and seizure for the purposes of preventing or detecting crime reasonably enforced was not inconsistent with the constitutional guarantee against search and seizure. It was held in that case that the search of the appellant by a police officer was not justified by the warrant nor was it open to the officer to search the person of the appellant without taking him before a Justice of the Peace Nevertheless it was held that the court had a discretion to admit the evidence obtained as a result of the illegal search and the constitution protection against search of person or property without consent did not take away the discretion of the court. Following Kuruma v. Queen [1955] A.C. 197 (P.C.) the court held that it was open to the court not to admit the evidence against the accused if the court was of the view that the evidence had been obtained by conduct of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r facts identical view was taken by the Hon High court of Andhra Pradesh in Commissioner of Income-tax-II, Hyderabad. v.Naresh Kumar Agarwal, [2015] 53 taxmann.com 306 (Andhra Pradesh).The assessee relied on number of decisions including the decision of Hon ble Madras High Court in M.Narayanan Bros v Assistant commissioner of Income tax (Special Range) wherein Hon ble High courts have expressed the similar views. Hon ble Supreme Court in Pullangode Rubber Produce Co. Ltd..v.State of Kerala, [1973] 91 ITR 18 (SC) held that an admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It is open to the person who made the admission to show that it is incorrect. In the instant case there was no evidence found in the premises of the assessee to show that the assessee is under invoicing the sales. No other material was found and seized from the premises of the assessee with regard to receipt of cash from the distributors. No evidence was found in the premises of the distributors also to establish that the assessee was paid unaccounted cash by the distributors. The AO could not rebut the submissions of the assessee with regard to sale price and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Bharathi group. On an enquiry made from the Director of M/s.Mahaveer Surfactants Pvt. Ltd., initially he stated that the same represent the notings made by the lab technician for quality control and they pertain the number of loads of acid slurry sales made to M/s. Bharathi Group over and above the sales recorded in their books. Later on, he changed the version and stated that since M/s. Bharathi Group insisted for supplies outside the books of account, bills were generated against some other name and booked as cash sales in their books. In response to question No.18, Shri Suresh Kumar Surana also told that they used to send hired tanker lorries through which the goods will be sent. For transport, invoice and way bill will be sent. If the goods reached the destination without being checked midway, the invoice will be destroyed at the both ends. Thus, it is amply clear from the statement recorded from Shri Suresh Kumar Surana that except the notings made in the M/s. Bharathi Group, there was no other evidence available with M/s.Mahaveer Surfactants Pvt. Ltd. to hold that it has made the sales to the assessee outside the books of account. As per their own version of the Director o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to arrive at the unexplained expenditure in the manufacture of detergents and make addition. The department has recorded the statement u/sec.132(4) without even showing the statement recorded u/s 133A from Mahaveer Surfactants and the evidences gathered from the M/s Mahaveer which shows that admission was on undue stress and pressure. As observed from the orders of the lower authorities, the AO neither provided the material collected from the premises of M/s.Mahaveer Surfactants Pvt. Ltd. nor provided copies of statements recorded u/sec. 133A to the assessee and simply worked out the unaccounted income on the basis of material stated to be supplied to the assessee which is incorrect. As per settled law the AO is not permitted to use the evidence gathered behind the back against the assessee without giving opportunity to the assessee. In the instant case, search was conducted on 30.08.2016 and the assessee filed the return of income on 10.04.2017 admitting the income, which was declared in original return of income, thus, made it clear that the assessee has gone back from the admission given u/sec. 132(4). The assessee also retracted the statement subsequently, once the assessee r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds of appeal, the appellant questioned the legality of the addition made in unabated assessment without any incriminating material, on the ground that the Assessing Officer has no jurisdiction to make the addition in an unabated assessment in the absence of incriminating material found in the course of search. The appellant s contention is that in the statement recorded from the appellant Sri Arunachalam Manickaval, no documentary evidence was referred to show that it has been under invoicing of sales and the cash back was received form the Distributors I Dealers. The asst. order does not contain any reference to the outcome of the search or any inference drawn from the search for making the addition. It is further submitted that the assessment made u/s 153 A of the IT Act for the instant assessment year is an unabated assessment and the additions in search assessment shall be based on only incriminating material found in the course of search. Since in the present assessment year under consideration the addition was made without referring to any incriminating document, the asst. becomes void and legally unsustainable. In support of the above contention the appellant relied on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... criminating materials found during course of search [In favour of assessee] 2. Hon'ble A.P. High Court ma judgement dat6th12,7,2003 in JTA No266 of 2013 In case of MIs. Hyderabad House Pvt, Ltd. Upheld the decision of the ITAT Hyderabad bench, wherein it is held that computation of undisclosed income' u/s 153,4/1530 of the Act must be in reference to the incriminating material found as a result of search, 3. Where assessment proceedings on basis of return filed being already culminated by operation of law and no incriminating material being found during subsequent search, there could not be any assessment under section 153A/153C [2019] 101 taxmann.com 89 (Chennai - Trib,) IN THE ITAT CHENNAL BENCH 'B' Assistant Commissioner of Income-tax, Central Circle-2(2), Chennai v, RPD Earth Movers (P.) Ltd. 4. The following are some land mark decisions on the scope of assessments u/s 153A with reference to used of incriminating material : i) CIT Vs Anil Kumar Bhatia [2013] 352 ITR 493 J) CIT Vs. Chetan Des Lachman Das[2012] 25 taxmann.com 227 k) CIT Vs. Lanch constructions [2016] 237 Taxman 728 (kar) l) CIT V Kabul Chawla [2015J 380 ITR 573 ..... 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