Facts of the Case

The assessee firm was subjected to search proceedings, following which assessment under section 143(3) was completed for AY 2010-11. The Assessing Officer made multiple additions, including:

  • ₹87,94,292 for alleged suppressed sales
  • ₹2,66,73,629 for alleged unaccounted purchases
  • Disallowance of diesel expenses
  • Addition for unexplained expenditure through “Deshawar account”
  • Various ad hoc disallowances of business expenses

The CIT(A) granted substantial relief by deleting major additions but sustained certain minor disallowances. Both the Revenue and the assessee filed cross appeals before the Tribunal.

Issues Involved

  1. Whether suppressed sales can be inferred from discrepancies in seized records without clear identification and correlation.
  2. Whether purchases recorded in computerized books but absent in a manual register can be treated as unaccounted.
  3. Whether diesel expenses and other business expenses can be disallowed in absence of log books or external vouchers.
  4. Whether cash transactions through internal accounts indicate unexplained expenditure.

Petitioner’s Arguments (Assessee)

The assessee contended that the Assessing Officer’s trading account was prepared from unidentified seized material and did not reconcile with audited books, which showed higher sales and profits than those alleged by the Revenue.

It was argued that purchases alleged to be unaccounted were duly recorded in computerized accounts, backups of which were seized during the search. Differences arose because employees maintained incomplete manual registers for convenience.

Regarding diesel expenses and Deshawar account transactions, the assessee submitted that these represented normal business practices and expenditures incurred through partners for operational needs.

Respondent’s Arguments (Revenue)

The Revenue maintained that discrepancies detected from seized documents justified additions for suppressed sales and unaccounted purchases. It also contended that lack of supporting evidence such as log books and vouchers justified disallowance of expenses.The Tribunal observed that the Assessing Officer had not clearly identified the seized material forming the basis of the trading account. Moreover, the assessee’s audited books reflected higher sales, purchases, and profits than those computed by the Assessing Officer.

It also noted that the Assessing Officer compared figures for different periods (up to the search date versus end of month), rendering the analysis flawed. Accordingly, the deletion of ₹86,94,292 by the CIT(A) was upheld, while a nominal addition of ₹1,00,000 was sustained due to unresolved discrepancies in a branch’s records.

Important Clarification

The Tribunal emphasized that additions based on search material must be supported by clear identification, proper correlation with books of account, and objective analysis. Incomplete records or assumptions cannot justify large additions when audited accounts and quantitative details support the assessee’s claims.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1771063171_ACITALLAHABADVS.MSKESARWANICO.ALLAHABAD.pdf

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