Gujarat HC quashed the Addition of Unexplained Income without Detailed Enquiry: SC upholds the Order of ITAT and AO [Read Order]

The Supreme Court of India in its recent judgement upheld the order of the Income Tax Appellate Tribunal (ITAT) and Assessing Officer (AO) since the court found that Gujarat High Court quashed the addition of unexplained income under the Income Tax Act, 1961 without enquiry into details.

The Income Tax department challenged the impugned judgment and order passed by the High Court of Gujarat at Ahmedabad passed in a Tax Appeal, by which the High Court has allowed the said Appeal preferred by M/s Kantilal Exports, the assessee and has reversed the judgment and order passed by the ITAT restoring the Assessment Order passed by the Assessing Officer upholding the additions of Rs.17,15,00,000/- as unexplained expenditure under Section 69C of the Income Tax Act, 1961.

The Assessing Officer made additions of Rs. 17,15,00,000/- as unexplained expenditure under Section 69C of the Act taking into consideration the actual consumption of diamonds as 4,30,701.14 carats as mentioned in the audit report and after considering the consistent trend on yield which was found to be between 10-18%. 

The assessee claimed deductions as expenditure under Section 80HHC of the Act. The CIT (Appeals) reversed the addition.  The ITAT, on appreciation of the entire material on record and even after taking into consideration the remand order which was necessitated due to the affidavits filed before the ITAT of the Typist and the Chartered Accountant, reversed the order passed by the CIT (Appeals) and restored the Assessment Order by upholding the addition of Rs.17,50,00,000/- as unexplained expenditure under Section 69C of the Act. 

On appeal, the High Court has set aside the order passed by the ITAT solely relying upon the two affidavits - one of the Typist and another of the Chartered Accountant and accepted the submission on behalf of the assessee that there was a typographical error in the audit report in which the consumption was shown at 4,30,701.14 carats and that the actual consumption was 2,90,701.14 carats.

The department contended that, in the audit report, it was specifically mentioned that the consumption was 4,30,701.14 carats. The Assessing Officer proceeded further and considered that the difference between the declared carats and the carats mentioned in the audit report can be said to be unaccounted for.

It was argued that, while passing the impugned judgment and order, the High Court has solely relied upon the affidavits of the Typist and the Chartered Accountant and the High Court has not at all considered the conduct on the part of the assessee and its associates, which came to be considered by the Assessing Officer as well as the ITAT. 

It was evident that the High Court has also not properly appreciated and considered the fact that the affidavits were filed for the first time before the ITAT.  The ITAT has also noted that a huge addition was made in the case of the assessee’s group in the block assessment based on the books so found.  Therefore, it was found that the assessee was maintaining the books of accounts outside the regular books.

While allowing the appeal, the two-judge bench comprising Justice M R Shah and C T Ravikumar quashed and set aside the High Court Order and restored the order passed by the ITAT as well as the Assessment Order.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates