THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1,, GUTNUR vs. ARUNACHALAM MANICKVEL,, GUTNUR

Per Bench :

These appeals are filed by the revenue against the orders of the Commissioner of Income Tax (Appeals)-3, Visakhapatnam in Appeal No.312 & 313/2019-20/CIT(A)-3/VSP/2020-21 dated 27.07.2020 for the Assessment Years (A.Y.) 2011-12 & 2012-13, Appeal No.305 to 308/2019-

2 I.T.A. No.202/Viz/2020 to 207/Viz/2020, A.Y.2011-12 to 2016-17 Sri Arunachalam Manickavel

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.

3 I.T.A. No.202/Viz/2020 to 207/Viz/2020, A.Y.2011-12 to 2016-17 Sri Arunachalam Manickavel

4 I.T.A. No.202/Viz/2020 to 207/Viz/2020, A.Y.2011-12 to 2016-17 Sri Arunachalam Manickavel

report, when it is quite apparent from the assessment order that the opportunity was afforded due to the time and logistics involved.

Since the facts are identical, all the appeals are clubbed, heard together and a common order is being passed for the sake of convenience.

M/s Bharathi Soap Works and also the Chairman and Executive Director of the Company M/s Bharathi Consumer Care Products Pvt. Ltd., which is incorporated on 06.08.2009. The assessee is in the manufacture of detergent products in the trade name of ‘XXX’ since 1981. For the A.Y.2011-12 the assessee filed the return of income on 28.09.2011 admitting total income of Rs.5,72,60,700/-. A search u/s 132 was conducted on 30.08.2016 in the group cases of Sri Arunachalam Manickavel, Guntur and covered his residence as well as the business concerns of the assessee. Along with the assessee, some of the distributors of the assessee and the supplier of raw material i.e acid slurry were also covered u/s 132 / 133A of the Act. During the course of search, Income Tax Department Investigation wing (in short ‘department/investigation wing’) noticed that the company is indulging in under invoicing of sales by billing the sale price at lower rate than that of the actual sale price and receiving the difference amount in cash from the distributors. The said difference was estimated to be in the range of 8 to 10 percent of the actual sales. A statement u/s 132(4) of the Act was recorded from Mr. Arunachalam Manickavel, the proprietor of Bharathi Soap Works and the Chairman and the Executive Director of the company M/s Bharathi Consumer Care Products Ltd and he admitted that he was receiving back

6 I.T.A. No.202/Viz/2020 to 207/Viz/2020, A.Y.2011-12 to 2016-17 Sri Arunachalam Manickavel

the differential amount in cash, in response to Q.27 of the statement recorded on 02.09.2016. According to the statement, the assessee has admitted that he was doing under invoicing of sale price at lower rates and selling the same at higher price and the difference amount was received back from the distributors in cash. In the statement he also admitted that under invoicing was done to the extent of 8% of the actual sale value and no further expenditure was incurred. The cash was stated to be received by Sri Subbaiah Jagan, petty cashier of group concerns and remitted the same to Mr.Rama Shankar, Head Cashier, who in turn remitted the same to the assessee. Further the assessee also admitted the undisclosed income of Rs.37,84,91,758/- in the hands of M/s Bharathi Soap Works, Proprietary concern of the assessee from the F.Y.2010-11 to 2015-16, relevant to A.Y.2011-12 to 2016-17 on account of under invoicing of sales as under : Unaccounted income A.Y. 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

7 I.T.A. No.202/Viz/2020 to 207/Viz/2020, A.Y.2011-12 to 2016-17 Sri Arunachalam Manickavel

8 I.T.A. No.202/Viz/2020 to 207/Viz/2020, A.Y.2011-12 to 2016-17 Sri Arunachalam Manickavel

also stated that the goods were sent in hired tanker / lorries and once the goods are reached the destination without being checked midway, the invoices were destroyed at both the ends. Sri Suresh Kumar Surana also furnished the details of acid slurry supplied to Bharathi Group for the period relating the A.Y. 2010-11 to 2014-15 as under: Quantity Year Value (Rs.) No. of loads Weight in MTS 2010-11 14 224 2,00,49,220 2011-12 12 192 1,78,45,920 2012-13 13 208 1,93,33,080 2013-14 14 224 2,08,37,376 2014-15 11 176 1,65,60,720 Total 9,46,26,216

9 I.T.A. No.202/Viz/2020 to 207/Viz/2020, A.Y.2011-12 to 2016-17 Sri Arunachalam Manickavel

10 I.T.A. No.202/Viz/2020 to 207/Viz/2020, A.Y.2011-12 to 2016-17 Sri Arunachalam Manickavel

by the AO and the assessee has filed the writ petition on 14.02.2019 before Hon’ble High Court of Andhra Pradesh challenging the order of the ITSC which was rejected by the Hon’ble High Court of Andhra Pradesh on 30.10.2019. 5. The AO again has taken up the assessment proceedings after rejection of writ petition by the Hon’ble High Court of Andhra Pradesh and proposed to make the additions of under invoicing of sales, unaccounted purchase of acid slurry as admitted in the statement recorded u/s 132(4) apart from the income admitted before the ITSC and the assessee was called for explanation as to why the said income should not be assessed as undisclosed income.

assessee sold the stock to the distributor and distributors sold the stock to the wholesaler Sri Lakshmi Kirana, Draksharamam at Rs.367.20/- and the wholesaler sells the stock to the retailer. The assessee further stated that the distributor is paying the sum of Rs.361.53/- to the assessee and the assessee is not getting any benefit out of the difference amount Rs.88.47/- which is distributed among the distributor, wholesaler and the retailer. Thus, submitted that, ultimately retailer gets the goods at Rs.450/- per case and it is not the assesse who gets the sum of Rs.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 Rs.450/-, which is ultimate price to the end consumer and only concerned to the extent of Rs.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 further submitted that no evidence was found by the AO with regard to suppression of sales, under invoicing of sales or with regard to receipt of cash. Thus, argued that the there is no case for making the addition on the basis of statement recorded u/s 132(4) on the assumption of receiving the cash back from the distributors.

12 I.T.A. No.202/Viz/2020 to 207/Viz/2020, A.Y.2011-12 to 2016-17 Sri Arunachalam Manickavel

13 I.T.A. No.202/Viz/2020 to 207/Viz/2020, A.Y.2011-12 to 2016-17 Sri Arunachalam Manickavel

has given contradictory statements which cannot be relied upon and also submitted that the department neither provided the statement recorded u/s 133A from the Shri Suresh Kumar Surana, nor shown the evidences collected from the supplier of acid slurry to the assessee, thus the same cannot be used against the assessee. The assessee has asked for cross examining Sri Suresh Kumar Surana, Director of Mahaveer Surfactants Pvt. Ltd., but the AO could not provide the cross examination since the assessments were time barring. Thus, the AO relying on the admission given u/s 132(4) and the statement recorded from third party i.e Sri Suresh Kumar Surana, Director of Mahaveer Surfactants Pvt. Ltd. made the addition of Rs.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

14 I.T.A. No.202/Viz/2020 to 207/Viz/2020, A.Y.2011-12 to 2016-17 Sri Arunachalam Manickavel

15 I.T.A. No.202/Viz/2020 to 207/Viz/2020, A.Y.2011-12 to 2016-17 Sri Arunachalam Manickavel

for the A.Ys 2011-12 to 2014-15 and relied on the decisions of ITAT in the case of DCIT Vs. Lingam Tulsi Prasad [2016] 49 ITR 218 Hyderabad, the decision of AP High Court in the case of CIT Vs. AMR India Ltd. in ITTA No.354 of 2014 dated 12.06.2014 and the decision of this Tribunal in the case of Y.V.Anjaneyulu Vs. Dy.CIT reported in 88 taxmann.com 568 and also the decision of this Tribunal in the case of Bhavanasi Anjaneyulu Vs. ACIT in I.T.A.No.261,262,263, 349 & 354/Viz/2017 dated 19.01.2018. 6. 2. The Ld.CIT(A) considered the submissions of the assessee and held that in completed assessments, additions should be made on the material found during the course of search, thus deleted the additions made in assessment order passed u/s 143(3) r.w.s. 153A and accordingly allowed the appeals of the assessee for the AYs 2011-12 to 2014-15. The Ld.CIT(A) relied on the decision of this Tribunal as well as the juri ictional High Court decisions referred above apart from the number of other decisions mentioned in the appellate order.

16 I.T.A. No.202/Viz/2020 to 207/Viz/2020, A.Y.2011-12 to 2016-17 Sri Arunachalam Manickavel

from the distributors, the Ld.CIT(A) given a finding that 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 No.2135 dated 30.07.2016 for Rs.361.53 per case. The assessee having retracted the admission, the AO cannot make the addition on the sole basis of statement recorded u/s 17 I.T.A. No.202/Viz/2020 to 207/Viz/2020, A.Y.2011-12 to 2016-17 Sri Arunachalam Manickavel

132(4) thus, held that the additions made by the AO are unsustainable, accordingly deleted the additions on account of under invoicing the sales.

premises of M/s Mahaveer Surfactants, Pondicherry evidencing the unaccounted purchases, the additions cannot be made in the hands of the assessee. Considering the arguments of the assessee, the Ld.CIT(A) held that the additions made are unsustainable, accordingly deleted the addition. The Ld.CIT(A) also passed corrigendum order on 12.08.2020. 8. Against the order of the Ld.CIT(A), the revenue has come on appeal before us. During the appeal hearing, the Ld.DR argued that the assesse has admitted the income u/s 132(4) voluntarily, therefore, the admission made in the statement recorded u/s 132(4) is valid, hence, submitted that the same is to be considered as admissible evidence and requested to uphold the addition made by the AO. The Ld.DR further argued that the assessee ought to have retracted the statement within the reasonable 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 19 I.T.A. No.202/Viz/2020 to 207/Viz/2020, A.Y.2011-12 to 2016-17 Sri Arunachalam Manickavel

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 cross examine the assessee should not be viewed adversely against the department. Apart from the above, the Ld.CIT(DR) submitted that in the instant case, even Hon’ble ITSC has rejected the application of the assessee, since, the assessee has not come before the ITSC with full and true disclosure, thus argued that the CIT(A) grossly erred in deleting the addition. The Ld.CIT(DR) submitted that there is no justification for deletion of additions made by the AO, hence requested to sustain the additions and allow the appeals of the revenue.

20 I.T.A. No.202/Viz/2020 to 207/Viz/2020, A.Y.2011-12 to 2016-17 Sri Arunachalam Manickavel

premises of the assessee evidencing the receipt of cash back from the distributors or making unaccounted purchases. The assessee has given a statement u/s 132(4) in a stress due to constant pressure without understanding and its implications. He submitted in fact Assistant Director of Income tax Investigation computed the undisclosed income on the basis of returns of Income filed by the assessee and made to sign the statements. He further argued that due to continuous recording of the statements from the assessee without giving time gap, the assessee suffered lot of pressure and signed the statements even without referring the same. He referred page No.1 of the paper book and shown us that the search was commenced in the residential premises of the assessee at 8:30 am on 30.08.2016 and concluded at 9:15 am on the next day on 31.08.2016. Similarly in the case of proprietary concern, commenced at 4 pm and concluded at 4:30 pm on 31.08.2016. Again in the case of residence of the assessee, search was commenced at 4:20 pm on 31.08.2016 and continued till 03.09.2016 and the assessee was attending the department continuously in all the days of search with few hours of interval, which shows that there was no time to apply the mind and signed the statements without even understanding what it was. Thus argued that admissions made in the statement recorded u/s 132(4) cannot be taken at face value without having corroborative

21 I.T.A. No.202/Viz/2020 to 207/Viz/2020, A.Y.2011-12 to 2016-17 Sri Arunachalam Manickavel

evidence, which will cause huge financial injury to the assessee. The Ld.AR further submitted that from the plain reading of the assessment order, the seized material, no incriminating material was found during the course of search in the business premises of the assessee, 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 Rs.361.53 was the price for distributor and Rs.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

22 I.T.A. No.202/Viz/2020 to 207/Viz/2020, A.Y.2011-12 to 2016-17 Sri Arunachalam Manickavel

purchases and sales were duly accounted in the books of accounts. With regard to statement recorded u/s 133A in respect of M/s Mahaveer Surfactants Pvt. Ltd the Ld.AR argued that sales made outside the books of accounts required to be taxed in the hands of the other party / supplier, but not in the hands of the assessee unless it is established with proper evidence that the assessee has made purchases outside the books of accounts from the said supplier. Mere statements recorded u/s 133A without proper evidence cannot be basis of addition in the hands of the asessee. Thus argued that the Ld.CIT(A) rightly held that there is no case for making the addition in the hands of the assessee without having corroborative evidence. In the instant case as discussed above, no incriminating material was found, thus argued that there is no case for department, hence requested to uphold the order of the Ld.CIT(A) and dismiss the appeal of the revenue. The Ld.AR also heavily relied on the order of the Ld.CIT(A) on both the issues.

23 I.T.A. No.202/Viz/2020 to 207/Viz/2020, A.Y.2011-12 to 2016-17 Sri Arunachalam Manickavel

income of Rs.12,53,66,870/-. The assessment resulted in addition of Rs.6,81,05,672/- relating to under invoicing of sales, un accounted purchases and un accounted payment to Chinnathorai for Rs. 1.00 crore. The allegation of the AO is that the assessee is involved in under invoicing of sales and receiving the cash back from the distributors. For this purpose, the AO referred answer to question No.27, wherein, the assessee stated that he had under invoiced the sales and received the cash back from the distributor to the extent of 8% of actual sale value and admitted the additional income to the extent of Rs.37.84 crores from the A.Y.2011-12 to 2017-18 as under: Unaccounted income on A.Y. account of under invoicing of sales 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 2017-18 Nil 37,84,91,758

income of Rs.9,46,00,000/- for assessment years 2011-12 to 2015-16 as under: Undisclosed income A.Y. (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

25 I.T.A. No.202/Viz/2020 to 207/Viz/2020, A.Y.2011-12 to 2016-17 Sri Arunachalam Manickavel

"Para 5 of the above judgment is extracted below:

"

“19. In view of the settled legal position, the first and foremost issue to be addressed is whether 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.”

26 I.T.A. No.202/Viz/2020 to 207/Viz/2020, A.Y.2011-12 to 2016-17 Sri Arunachalam Manickavel

“21. ….. A statement of a person, which is not relatable to any incriminating document or material found during search and seizure operation cannot, by itself, trigger a block assessment. The undisclosed income of an assessee has to be computed on the basis of evidence and material found during search. The statement recorded under section 132(4) of the Act may also be used for making the assessment, but only to the extent it is relatable to the incriminating evidence/material unearthed or found during search. In other words, there must be a nexus between the statement recorded and the evidence/material found during search In order to for an assessment to be based on the statement recorded' In view of the reasons discussed above, I hold that the addition made solely depending on the confession statement is void as no reference to the incriminating material was made while recording the sworn statements during the search proceedings. The statement recorded from the MD of the company without referring to any incriminating document is held to be not having any evidentiary value, and hence making addition taking shelter under the above statement is not valid and sustainable. Further , the “Retailers Price List” referred to in the statement u/s 132(4) cannot be considered as "incriminating material", as this price list only indicates the Prices of the products of the appellant company at which the goods are to be sold by the Retailers, and this price list changes from time to time . Thus, viewed from any angle, the statement recorded u/s.132(4) from the M.D. of the company solely basing and relying on the above price list can under no circumstances be termed as "incriminating material". For these reasons the addition made on account of under invoicing of sales relying on the above statement is not proper and justified. The Ld.CIT(A) also relied on the case law in the case of [2005] 148 TAXMAN 35 (AHD.) (MAC.) ITAT AHMEDABAD BENCH B ASSISTANT COMMISSIONER OF INCOME-TAX V. JORAWAR SINGH M. RATHOD”

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 Jagan, petty cashier as well as Sri Rama Shankar who have confirmed that they have collected cash from the distributors and handed over to the assessee. However, from the perusal of the extracts of statements in the assessment order, it is seen that except stating vaguely that they have collected the money and given to the 28 I.T.A. No.202/Viz/2020 to 207/Viz/2020, A.Y.2011-12 to 2016-17 Sri Arunachalam Manickavel

assessee , they have not given the details of cash received distributor-wise, date-wise amounts received and accounted in the books and unaccounted. The assessee has stated that they receive the cash regularly from sales which was collected by the cahiers and duly accounted in the books of accounts and there was no unaccounted cash. This aspect was not verified by the AO and no details were furnished by the cashiers. In the absence of specific details of distributor wise date wise cash receipt with evidence and compared with the cash book and arrives at the difference of unaccounted cash if any, the statement of cashiers also cannot be taken as the basis to hold that the unaccounted money was passed on to the assessee, since, the assessee’s business involve the cash sales also.

invoicing of sales in respect of earlier years. In his statement recorded on 02.09.2016 in question No.23 the assessee clearly explained that distributor supplies the case of soaps consisting of 100 soaps to retailer at Rs 450/-. In question No.22 the assessee clarified that the total value of case of ‘mini more wash’ including basic excise duty+ VAT was Rs.361. 53. Thus it is clear from the statement recorded from the assessee that it fixes the rate to distributor at Rs.361.53 and from the distributor to the retailer it reaches at Rs.450/- and in between one more middlemen involved is wholesaler. In response to 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:

30 I.T.A. No.202/Viz/2020 to 207/Viz/2020, A.Y.2011-12 to 2016-17 Sri Arunachalam Manickavel

categorically told that Distributor is paying to the company Rs.361.53 for each case. Hence between Rs.361.53 and Rs.450/- per each case there are two layers namely distributors and wholesalers. Benefitting of Rs.88.47 will be known when the invoices of Distributor, wholesaler and retailer is seen. But in the present case no such effort was made by the department to find out the sale invoices during search proceedings and also in post search proceedings.

31 I.T.A. No.202/Viz/2020 to 207/Viz/2020, A.Y.2011-12 to 2016-17 Sri Arunachalam Manickavel

mechanism and margin stated to be goes to distributor, wholesaler and the retailer and emphasized that he was receiving only Rs.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 Rs.361.53 per case which the assessee retracted. Statement was recorded from the assessee in his proprietary concern and the invoice stated to be company invoice without mentioning the name. Thus there is clear ambiguity with regard to the identity of the invoice also. Even otherwise, the said invoice was stated to be duly accounted in the books, hence there is no case for drawing adverse inference on the basis of an invoice which was accounted in the books of accounts. The assessee was continuously attending to the investigation teams and cooperating with the teams continuously from 30.08.2016 to 32 I.T.A. No.202/Viz/2020 to 207/Viz/2020, A.Y.2011-12 to 2016-17 Sri Arunachalam Manickavel

statement in the concerned proceedings but also in other proceedings that are pending, by the time the statement was recorded.

34 I.T.A. No.202/Viz/2020 to 207/Viz/2020, A.Y.2011-12 to 2016-17 Sri Arunachalam Manickavel

that was not a rule of evidence but a rule of prudence and fair play. It would thus be seen that in India, as in England, where the test of admissibility of evidence lies in relevancy, unless there is an express or necessarily implied prohibition in the Constitution of other law of evidence obtained as a result of illegal search or seizure is not liable to be shut out."

36 I.T.A. No.202/Viz/2020 to 207/Viz/2020, A.Y.2011-12 to 2016-17 Sri Arunachalam Manickavel

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 under invoicing with relevant facts and evidences. Therefore we, hold that the 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 for the A.Ys 2011-12 to 2016-17. 11. The next issue is with regard to unaccounted purchases of Acid Slurry amounting to Rs.2,00,49,120/- from M/s Mahaveer Surfactants Pvt. Ltd. A survey u/s 133A was conducted in the business premises of M/s

37 I.T.A. No.202/Viz/2020 to 207/Viz/2020, A.Y.2011-12 to 2016-17 Sri Arunachalam Manickavel

Mahaveer Surfactants Pvt. Ltd on 30.08.2016 and a statement was recorded from Sri Suresh Kumar Surana, the Director of the company M/s Mahaveer Surfactants Pvt. Ltd. On the basis of the statement recorded from Sri Suresh Kumar Surana, the assessee had admitted the additional income of Rs. 2,00,49,120/- for the A.Y 2011-12 and admitted the aggregate sum of Rs.9,46,26,216/- for the AYs 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

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. The assessee further stated that while recording the statement u/s 132(4) the department officials did not place any material or even did not show the statement recorded from the supplier u/s 133A and made the assessee to admit the income. The assessee also requested for cross examining the 38 I.T.A. No.202/Viz/2020 to 207/Viz/2020, A.Y.2011-12 to 2016-17 Sri Arunachalam Manickavel

supplier and the AO did not give opportunity to cross examine the supplier under the pretext of time barring and made the addition on the basis of statement recorded u/s 132(4). A survey u/sec. 133A was conducted in the business premises of M/s.Mahaveer Surfactants Pvt. Ltd. and during the course of survey, the department stated to have found a noting in the name of M/s. Bharathi which contain the details of acid slurry load supplied 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

39 I.T.A. No.202/Viz/2020 to 207/Viz/2020, A.Y.2011-12 to 2016-17 Sri Arunachalam Manickavel

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 of M/s.Mahaveer Surfactants Pvt. Ltd. in respect of sales made to the assessee cash bills were generated in the name of fake parties, thus there were no sale bills raised in the name of the assessee outside the books of account. Since the supply invoices were stated to be destroyed at both the ends with regard to the transport of goods there is no evidence with regard to supply of goods to the assessee also. Thus, the statement of Mr. Suresh Kumar Surana without the proper evidence cannot come to the help of Revenue to make the addition in the hands of the assessee in respect of purported unaccounted purchases allegedly made by the assessee. In the absence of tangible evidence merely on the basis of noting in “Bharathi” it cannot be inferred that the same pertained to unaccounted sales of the assessee. Thus, the notings stated to have been available with the M/s.Mahaveer Surfactants Pvt. Ltd. is also a dumb document which is of no help. The AO as per the material gathered from M/s.Mahaveer Surfactants Pvt. Ltd. confronted with the assessee and the assessee had admitted the income of Rs. 9,46,26,216/- from the A.Ys. 2011-12 to 2011 & 2015-16 as per the details given in this order and subsequently retracted. The assessee also alleged that the ADIT has 40 I.T.A. No.202/Viz/2020 to 207/Viz/2020, A.Y.2011-12 to 2016-17 Sri Arunachalam Manickavel

computed the unaccounted income on the basis of returns filed and made the assessee to sign the statement. Though search was conducted on 30.08.2016 no evidence was found in the residential as well as business premises of the assessee with regard to the unaccounted purchases made by the assessee. The search was continued from 30th August to 3rd September with a time gap of few hours between 9.15 AM to 4.20 PM on 31.08.2016 as per panchanama enclosed in paper book. Thus, it is evident that the assessee was continuously under pressure. The assessee stated that 18% to 20% acid slurry constitutes main product. The AO did not make out the details of production and actual consumption of acid slurry, accounted consumption and the difference if any, to arrive at the unaccounted expenditure in slurry acid consumption. In the absence of the above exercise, it is not possible to hold that there was unaccounted expenditure incurred for the purchase of raw material. Since the assessee stated that he has accounted all the purchases, in the absence of any evidence found during the course of survey or search it is not possible 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 41 I.T.A. No.202/Viz/2020 to 207/Viz/2020, A.Y.2011-12 to 2016-17 Sri Arunachalam Manickavel

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 retracted the statement recorded u/sec. 132(4), it is incumbent on the AO to prove the unaccounted purchases alleged to have been made by the assessee as discussed earlier in this order while discussing the issue of ‘under invoicing’ as held by the Hon'ble Juri ictional High Courts and other cases relied upon by the assessee. No sale bills issued by the supplier to the assessee which was found to be unaccounted in the books of the assessee were available in the premises of M/s Mahaveer Surfactants Pvt. Ltd., during the course of 42 I.T.A. No.202/Viz/2020 to 207/Viz/2020, A.Y.2011-12 to 2016-17 Sri Arunachalam Manickavel

survey. No lorry receipts for transportation of goods, weighment slips etc. were available with the supplier. The AO also did not place any evidence regarding the assessment made in the hands of supplier M/s Mahaveer Surfactants with regard to discrepancy found during the course of survey, specifically with regard to the assessee. It is obligation of the AO to make necessary enquiries to ascertain the correctness of the statement recorded from Mahaveer Surfactants and make out a case for addition in the hands of the assessee as well as Mahaveer Surfactants Pvt. Ltd., No such exercise was made by the AO. Thus, we hold that the addition made by the AO on account of acid slurry solely on the basis of statement recorded u/sec. 132(4) without any tangible evidence is unsustainable. Accordingly, we uphold the order of Ld.CIT(A) and dismiss the appeal of the Revenue. Accordingly, the appeals of the revenue for the A.Y. 2011-12 to 2015-16 on this issue are dismissed.

43 I.T.A. No.202/Viz/2020 to 207/Viz/2020, A.Y.2011-12 to 2016-17 Sri Arunachalam Manickavel

to make the additions without having the seized material. The Ld.CIT(A) followed the decision of this Tribunal as well as the decision of juri ictional High Court in the case of A.M.R. India Pvt. Ltd. (supra) and deleted the additions. We have deleted the entire addition on merits, hence, the issue is only of academic interest. The Ld.CIT(A) deleted the addition as per the discussion made in para No.10.1 which reads as under: 10.1.CIT(Appeals) Decision Ground Nos. 2,3, 5 and 25 : In the above grounds 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 juri iction 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 number of case laws in support of its contention.

incriminating material found at the time of search Further, the other case laws and the ITAT's orders referred to by the appellant in its written submissions also stand in favour of the appellant on the above issue. On considering the facts and circumstances prevailing in this case, in the case of pending assessment which abated on initiation of search, the Assessing Officer can make the assessment in the normal manner after scrutiny of the regular books and utilizing incriminating evidence discovered in the course of search. The concluded assessments need not disturb as otherwise the same will effect the assessments. In support its submission, the appellant relied on number of case laws and ITAT orders. The appellant placed reliance in support of his claim that no addition can be made in an unabated assessment without any incriminating material on the following case taws: 1. 2017] 88 taxmann corn 568 (Visakhapatnam - Trib.) IN THE ITAT VISAKHAPATNAM BENCH Y, V. Anjaneyulu v. Deputy Commissioner of Income Tax, Central Circle, Vijayawada Section 153A of the Income-tax Act, 1961 - Search and seizure - Assessment in case of (Absence of Incriminating material) - Assessment years 2004-05 and 2005-06 - Assessing Officer has no Juri iction to make additions in respect of concluded assessments in absence of any Incriminating materials found during course of search [In favour of assessee]

order either on merits or from the angle of legality.”

There is no dispute that the entire addition was made on the statement recorded u/s 132(4) without having any incriminating material. The Ld.CIT(A) followed the order of this Tribunal and the decision A.P. High court supra.

Therefore respectfully following the decision of Hon’ble AP High court and the decision of coordinate Bench we hold that in completed assessments the AO is not permitted to make additions without having the seized material/ incriminating material. Accordingly we, uphold the orders of the Ld.CIT(A) to the extent of deleting the addition without having the seized material and dismiss the appeal of the Revenue on this issue.

46 I.T.A. No.202/Viz/2020 to 207/Viz/2020, A.Y.2011-12 to 2016-17 Sri Arunachalam Manickavel

आदेश की प्रतितिति अग्रेतिि/Copy of the order forwarded to:- 1. रधजस्व/The Revenue - Dy.Commissioner of Income Tax, Central Circle-1 Guntur 2. ननधधाऩरती/ The Assessee - Sri Arunachalam Manickavel, Prop : M/s Bharathi Soap Works, 11/25, Amaravathi Road, Gorantla, Guntur

Sr. Private Secretary ITAT, Visakhapatnam