2025 (7) TMI 1488 - AT - Income Tax

Addition u/s 68 - peak credit of foreign remittances - as alleged no independent investigation or corroborative evidence. HELD THAT - The appellate orders have decided majority of the issues in assessee s favor primarily on the ground that no independent investigation was ever carried out by Ld. AO while framing the assessments. It is trite law that no addition could be made on the basis of presumptions conjectures and surmises. The Hon ble High Court of Madras in the case of Vignesh Kumar Jewellers 2008 (6) TMI 364 - MADRAS HIGH COURT observed that the additions were made only by relying on the findings of the custom authorities and the said findings which were the basis for making additions were set aside by the appellate authority. AO had not made any independent enquiry and also there was no corroborating evidence to support the case of the revenue. It was also found that even the assessee whose statement was recorded by the Department of Central Excise had not been examined by the AO. Assessee was not given an opportunity to cross-examine them. Therefore both the authorities were correct in deleting the additions made by the AO. The findings given by the authorities were based on valid materials and evidence and it was a question of facts and not perverse. Revenue had not produced any material evidence to take a view contrary to that of the Tribunal. Hence there was no error or illegality in the order of the Tribunal warranting interference. The order of the Tribunal was in accordance with law and the same was to be confirmed.

Summary

ISSUES:

Validity of reassessment proceedings initiated under section 147 of the Income Tax Act based on show-cause notices issued by Directorate of Revenue Intelligence (DRI) following search action.Whether additions made under section 68 for alleged bogus foreign remittances and exports are justified without independent investigation or corroborative evidence.Legitimacy of additions under section 69C for estimated unaccounted expenditure linked to alleged bogus transactions.Admissibility of export incentives such as DEPB and duty drawback as income and their impact on deduction claims under section 80-IB.Disallowance of expenses under section 40(a)(ia) for non-deduction of TDS on labor/job work charges and related documentary evidences.Estimation of business income and profit percentages in the absence of reliable books of account.Admissibility and effect of additional evidence (order dated 06-02-2024 by Principal Commissioner of Customs) produced at appellate stage.Scope and conditions for admission of additional evidence by the Tribunal under Rule 29 of Income Tax (Appellate Tribunal) Rules, 1963.

RULINGS / HOLDINGS:

Reassessment proceedings based solely on show-cause notices issued by DRI without independent investigation or corroborative evidence are not valid; additions made on such basis were deleted by the appellate authority.Additions under section 68 for foreign remittances and alleged bogus exports cannot be sustained without verification of source or opportunity to the assessee; 90% of export proceeds received through letters of credit backed by bankers negated presumption of bogus transactions.Additions under section 69C for estimated unaccounted expenditure linked to alleged bogus transactions were deleted due to lack of evidence and independent inquiry.Export incentives such as DEPB and duty drawback, disclosed in financial statements, cannot be treated as income for addition; deduction under section 80-IB is not allowable on export incentives as per precedent.Disallowance under section 40(a)(ia) for non-deduction of TDS on labor/job work charges was deleted where no violation of section 194C was found and demand under sections 201(1) & 201(1A) was deleted; however, disallowance for non-substantiated expenses was upheld where documentary evidence was lacking.Estimation of net profit at 5% on trading receipts was upheld where books of account were found unreliable; in such cases, separate disallowance of expenses is not warranted.Additional evidence in the form of a quasi-judicial order passed on 06-02-2024 by Principal Commissioner of Customs, which could not have been produced earlier, was admitted by the Tribunal for substantial cause and remanded for de-novo adjudication.Tribunal has the power under Rule 29 of Income Tax (Appellate Tribunal) Rules, 1963 to admit additional evidence for "substantial cause," similar to Order 41 Rule 27(b) CPC, and must record reasons for such admission.

RATIONALE:

The Court applied principles that additions to income must be based on credible evidence and independent investigation rather than mere allegations or show-cause notices; reliance solely on DRI notices without corroboration violates principles of natural justice and evidentiary standards.Precedents such as the decision of the Hon'ble High Court of Madras in Vignesh Kumar Jewellers and Hon'ble Apex Court in TRF Ltd. were followed to uphold the requirement of independent inquiry and reject additions based on conjecture.The legal framework under sections 68, 69C, 40(a)(ia), and 80-IB of the Income Tax Act was interpreted strictly, emphasizing the need for substantiation and adherence to procedural safeguards.Admission of additional evidence at the appellate stage was justified under Rule 29 of the ITAT Rules due to the evidence being unavailable at earlier stages and having material bearing on the outcome, reflecting a doctrinal approach that balances procedural fairness with substantive justice.The Court recognized the quasi-judicial nature of the order passed by the customs authority and accorded it due weight, thereby mandating reconsideration of the assessments in light of this new evidence.