Karnataka HC: Search Additions Cannot Rest on Statements Alone; Corroborative Evidence Essential for Suppression of Sales and Section 69A Additions

PCIT Vs Kanva Diagnostic Services Pvt Ltd (Karnataka High Court)

Karnataka HC: Search Additions Cannot Rest on Statements Alone; Corroborative Evidence Essential for Suppression of Sales and Section 69A Additions

The Karnataka High Court upheld the ITAT’s decision deleting additions made towards alleged suppression of sales and unexplained cash under Section 69A, reiterating that mere statements recorded during a search, without independent corroborative evidence, cannot justify tax additions. The Court noted that although the Revenue alleged that the assessee had suppressed sales and possessed unexplained cash based on materials gathered during a search under Section 132 and statements of employees, the Tribunal had found that no incriminating material was produced to substantiate these allegations. There was no evidence of unaccounted investments, unexplained assets, expenditure, or any material linking the cash to undisclosed income. The Tribunal also recorded a factual finding that the source of the alleged suppressed turnover had already been disclosed and the corresponding income had been offered to tax in the returns. Accepting these findings, the High Court held that the Tribunal’s conclusions were purely factual, based on appreciation of evidence, and did not give rise to any substantial question of law under Section 260A. Accordingly, the Revenue’s appeals were dismissed, affirming that search assessments cannot be sustained on suspicion or uncorroborated statements alone.

FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT

Heard learned counsel Sri M. Dilip for Sri Y.V. Ravi Raj for the appellants-revenue and learned counsel Sri Prasanna Urala for the respondent-assessee in both the appeals.

2. The above appeals are filed on the common substantial questions of law, which reads as follows:

“1. Whether on the facts and in the circumstances of the case, the Tribunal was correct in not considering the extensive and credible corroborative evidence brought on record during the course of search and assessment proceedings to show that the assessee was engaged in suppression of sales?

2. Whether on the facts and in the circumstances of the case, the Tribunal was correct in not considering that the unexplained cash which was in possession of the assessee ought to have been brought to tax under Section 69A?”

3. The brief facts of the case are that the respondent-assessee was engaged in the business of providing medical and diagnostic services and was subjected to search under Section 132 of the Income Act, 1961 (for short ‘the Act’). It is stated that the incriminating materials and information were collected during the course of search and the statement of employees were recorded in the search.

4. It is the case of the appellant that certain admitted amounts were not offered to tax in the returns filed under Section 153A of the Act. Accordingly, a show cause notice came to be issued in respect of above added unaccounted cash, which was due to suppression of sales. Against the order of the Assessing Officer, the respondent filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) dismissed the appeal for the Assessment Year 2014-15 to 2017-18 but allowed the assessee’s appeal on the additions for the Assessment Year 2014-15 to 2017-18. For the Assessment Year 2018-19, the CIT(A) deleted the addition made on account of suppression of sale. However, confirmed the addition on account of cash found as unexplained money under Section 69A of the Act. Being aggrieved by the order of CIT(A) appeal, both the revenue as well as the assessee filed appeal before the Income Tax Appellate Tribunal, ‘A’ Bench, Bangalore (for short, “the Tribunal”). The Tribunal, dismissed the revenue’s appeal and allowed the assessee’s cross objection and appeal. Aggrieved by dismissal of the revenue’s appeal and allowing of the respondent-assessee’s appeal, the revenue is in appeal raising the above stated substantial questions of law.

5. We have gone through the order passed by the Tribunal. The Tribunal has clearly held that no materials were placed to substantiate the suppression of sales or unaccounted cash. The Tribunal has specifically found that the allegation of suppression of sales is based solely on the statements and there is no corroborative material in support of such statement. The Tribunal also found that there is no unaccounted investment, unexplained asset or expenditure. Material on record would indicate that source of suppressed turnover was disclosed and included in the return. Furthermore, income has been taxed, as found by the Tribunal. As there is no material to substantiate the case of the revenue, the Tribunal is justified in allowing the assessee’s appeal and dismissing the revenue’s appeal. The Tribunal has come to a factual finding and this Court cannot venture into examining or interfering with the said factual finding. As such, no substantial question of law would arise for consideration.

Accordingly, the appeals stand rejected.