Mere affidavits of typo-error by typist/CA not enough as assessee maintained duplicate accounts

Mere affidavits of typographical error by typist & CA in Audit Report not enough when assessee was found to maintain duplicate accounts – Supreme Court

ABCAUS Case Law Citation:
ABCAUS 3735 (2023) (05) SC

Important Case Laws relied upon:
CST vs. Esufali (HM) Abdulali (HM) (1973) 90 ITR 271 (SC)
Nalinakshi N. Rai & Ors vs. Indira Shetty, (1999) 9 SCC 248
State of Kerala & Anr vs. Mohd. Kunhi (Dead) By Lrs & Ors.(2005) 10 SCC 139
Chandrika Singh (Dead) By LRs and Anr vs. Sarjug Singh & Anr. (2006) 12 SCC 49
Dharmarajan & Ors vs. Valliammal & Ors., AIR 2008 SC 850
Dnyanoba Bhaurao Shemade vs. Maroti Bhaurao Marnor, AIR 199 SC 864
Hero Vinoth (Minor) vs. Seshammal, AIR 2006 SC 2234.

In the instant case, the Income Tax Department (Revenue) had challenged the order passed by the Hon’ble High Court in deleting the addition u/s 69-C of the Income Tax Act, 1961 (the Act).

The respondent was a partnership firm, engaged in the business of import of rough diamonds, manufacturing and export of polished diamonds.

During the course of assessment proceedings for the relevant Assessment Year, the Assessing Officer noticed that as per Form No. 3CD to the Audit Report, in the quantitative details there was excess consumption of rough diamonds  against the rough diamonds available for consumption.

The assessee was asked to explain the difference in the consumption of rough diamonds with reference to the audit report and the figure reported in the submission.

The assessee gave its explanation that it was only a typographical error in Tax Audit Report and submitted a correction certificate from the Chartered Accountant (the Auditor).

The Assessing Officer recorded the statement of the Auditor under Section 131 of the Act in which, the Auditor admitted to have committed the typing mistake by the Typist. The partner of the assessee firm also gave a statement to that effect and gave the correct calculations.

Despite the explanation, the Assessing Officer made an addition u/s 69-C of the Act for the said difference in quantitative details.

The CIT(A) deleted the addition. However, the ITAT reversed the order of the CIT (Appeals) and held that the CIT (Appeals) was not correct in deleting the addition made by the Assessing Officer. The excess consumption of rough diamonds represents only the purchase of the rough diamonds outside the books of account of the assessee.

The matter travelled to Hon’ble High Court with the question as to moot question to whether the alleged consumption of excess stock is merely a typographical error or whether the appellant–assessee has, in fact, purchased rough diamonds outside the books of accounts and whether the provisions of Section 69C of the Act?

The Hon’ble High Court observed that if the consumption figure is taken what was upheld by the ITAT, the yield becomes very much above the average use of rough diamonds.

The Hon’ble High Court observed that there was no documentary evidence to even slightly support the allegation that the alleged consumption of rough diamonds is nothing but the purchases made by the appellant outside the books of accounts and such a huge addition was made and confirmed by the Tribunal merely on the basis of assumption and presumption.

The Hon’ble High Court stated that it cannot refuse to entertain such appeals merely on the ground that the finding recorded by the Tribunal is finding of fact and no question of law much less any substantial question of law arises out of the order of the Tribunal.

The Hon’ble High Court observed that all manufacturing records, stock records and cost records as per the books of accounts reveal the consumption as explained by the assessee.

The Hon’ble High Court opined that the typing error in Form No. 3CD of the Tax Audit Report was committed by the Typist of the Auditor with respect to quantitative details.

Accordingly, the Hon’ble High Court allowed the appeal of the respondent assessee and deleted the addition made.

Aggrieved by the judgment of the Hon’ble High Court, the Revenue approached the Hon’ble Supreme Court.

The Hon’ble Supreme Court observed that the ITAT, upheld the addition on appreciation of the entire   material on record and even after taking into consideration the remand order subsequent to filing of affidavits before it of the Typist and the Chartered   Accountant.

However, the High Court set aside the order passed by the ITAT solely relying upon the two affidavits and accepted the submission on behalf of the assessee that there was a typographical error in the audit report.

The Hon’ble Supreme Court observed that the High Court did not properly  appreciate and considered the fact that the affidavits were filed for the first time before the ITAT. 

The Hon’ble Supreme Court observed that the High Court had also not at all considered the conduct on the part of the assessee, considered in detail by the ITAT. It was found that there had been a search in the case of the assessee and its group   concern and during the course of the search, duplicate cash book, ledger and other books showing the unaccounted manufacturing and trading arrived at by the   assessee in diamonds were found. The ITAT also noted that the huge addition was made in the case of assessee’s group in the block assessment on the basis of the   books so found.  Therefore, it was found that the assessee was maintaining the books of accounts outside the regular books.

The Hon’ble Supreme Court observed that the above aspect had not at all been considered by the High Court, while passing the impugned order.

Accordingly, the Division Bench of the Hon’ble Supreme Court quashed and set aside the impugned judgment and order passed by the High Court and restored the order   passed by the ITAT.

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