The Banglore Bench of Income Tax Appellate Tribunal ( ITAT ) has held that the addition on unaccounted sales and purchases under the income tax act solely based on loose slips is invalid and deleted the income tax addition on alleged unaccounted sales and purchases.
M/s. Ramachandra Setty & Sons SRS Building, the respondent/assessee is a partnership firm engaged in the business of trading in gold jewellery and silver articles. The department initiated an action against assessee 132. For the AY 2013–14, there was no material seized evidencing any escapement of income. During search, a statement was recorded from Mr. R. Ravish, managing partner of the firm, under the provisions of Section 132(4). Though there was no evidence relevant to A.Y. 2013–14, the search party has taken a statement in which a declaration of Rs. 2,00,00,000 was recorded as undisclosed sales for A.Y. 2013–14, even though no incriminating material was found.
The assessee retracted his statement during the course of assessment proceedings for the reason that there was no evidence or incriminating material in support of the declaration, and hence no income accrued for the A.Y. 2013–14. The Assessing Officer has concluded the assessment, in which an addition of Rs. 2,00,00,000 was made to the income declared.
The assessee challenged the addition in appeal, and the CIT(Appeals) has allowed the assessee’s appeal. On appeal, the CIT (Appeals) has held that the return for assessment year 2015–2016 falls under the category of an unabated assessment case as there were no pending assessment proceedings when the search was initiated and that no incriminating material relevant to assessment year 2015–2016 was found during the course of the search.
The assessee contended that the assessing officer has made the addition relying solely on the statement recorded and without any supporting evidence to corroborate or any incriminating material for such quantification. On the other hand, the department contended that during the search, various incriminating documents and material were found and seized. Loose sheets inventoried are actually estimates of sales figures given to customers who wish to purchase gold jewellery. The estimate itself serves as proof of the purchase of jewellery from the assessee in case the customer does not insist on a proper bill. The assessee was confronted with the evidence found.
The two member bench of Keshav Dubey (Judicial Member) and Chandra Poojari (Accountant Member) has observed that the Department failed to collect cogent evidence to corroborate the notings on the loose sheets. Therefore the additions cannot be made merely based on notings on the loose sheet papers, which are “dumb documents” having no evidentiary value.
Further found that notice issued under Section 143(2) was barred by limitation, as on the date of search, the assessment shall be considered completed and no assessment could be made in the absence of incriminating material found during the course of the search. The ITAT held that in the absence of seized material or incriminating material, AO is precluded from making any additions. While allowing the appeal, the tribunal quashed the assessment under Section 153A for AYs 2013-14 and 2014-15 in respect of the search operation and deleted the additions
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