Facts of the Case

The assessee company was engaged in the manufacturing and sale of agricultural equipment such as chaff cutters, Osai fans, cane crushers, and threshers. A survey under Section 133A was conducted on 27.08.2009 at the premises of the assessee and its Chartered Accountant. Subsequently, assessment proceedings were initiated under Section 153A on the premise of a search under Section 132.

The Assessing Officer (AO) made various additions, including:

  • Alleged undisclosed income from sales outside books
  • Additions based on loose papers and impounded documents
  • Discrepancies in purchases, consumption, and closing stock
  • Alleged extra profits
  • Certain expense disallowances

Issues Involved

  1. Whether assessment under Section 153A is valid in absence of a search under Section 132 when only a survey under Section 133A was conducted.
  2. Whether additions based on loose papers and impounded documents without corroborative evidence are sustainable.
  3. Whether discrepancies in stock, purchases, and consumption justified recasting of accounts and addition of income.
  4. Whether alleged unaccounted sales detected from seized material were taxable.
  5. Whether certain disallowances and additions upheld by CIT(A) were justified.

Petitioner’s (Assessee’s) Arguments

  • No search under Section 132 was conducted; only a survey under Section 133A took place. Therefore, proceedings under Section 153A were illegal and void.
  • Books of accounts were duly maintained, audited, and supported by stock registers.
  • Transactions reflected in loose papers were either recorded in books or represented routine business dealings.
  • Discrepancies, if any, arose from clerical or human errors and not from suppression of income.
  • Purchases and sales were genuine and supported by documentation.
  • Rejection of books without invoking Section 145(3) was improper.

Respondent’s (Revenue’s) Arguments

  • The survey unearthed evidence of undisclosed income and discrepancies in stock and purchases.
  • Loose papers indicated unrecorded transactions and cash dealings.
  • Differences between audit reports and impounded documents showed manipulation of accounts.
  • Certain sales were made outside the books and rightly brought to tax.
  • Additions made by the AO were justified based on material gathered during proceedings.

Court Order / Findings (ITAT)

The Tribunal delivered a detailed order addressing each issue:

Validity of Proceedings u/s 153A

The Tribunal observed that only a survey under Section 133A had been conducted and not a search under Section 132. Therefore, initiation of proceedings under Section 153A lacked jurisdiction and was unsustainable in law.

Additions Based on Alleged Unaccounted Sales

Where discrepancies were attributable to clerical or posting errors in stock registers, the Tribunal held that the assessee could not be saddled with tax liability merely on account of human error.

Transactions Recorded in Books

Additions relating to amounts already recorded in the books and offered for taxation were deleted.

Loose Papers / Impounded Documents

Where the Revenue failed to establish nexus between loose papers and undisclosed income, additions were deleted. However, where explanations were unsupported or evidence indicated genuine unaccounted transactions, additions were sustained.

Stock, Purchases, and Consumption Differences

The Tribunal examined comparative quantitative details. It accepted explanations where discrepancies arose due to limited scope of documents (e.g., relating only to certain raw materials), but upheld additions where purchases or payments could not be satisfactorily explained.

Expense Disallowances

Minor disallowances lacking justification were deleted, while justified adjustments were upheld.

Overall, both assessee’s appeals and Revenue’s appeals were partly allowed.

Important Clarification

  • Survey proceedings under Section 133A do not confer jurisdiction for assessment under Section 153A, which requires a valid search under Section 132.
  • Loose papers or kaccha documents alone cannot justify additions without corroborative evidence.
  • Human errors in stock records do not automatically establish undisclosed income.
  • The burden lies on the assessee to substantiate deductions and purchases claimed in accounts.

Link to download the order –

https://itat.gov.in/public/files/upload/1610521321-BUNCH%20ITA%20632%20152%20633%20179%20CO%2016%20Balaji%20Agricultural%20industries%20final.pdf

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