In unabated assessments, additions must be based on incriminating material found during a search; otherwise, they are not sustainable.

आदेश / ORDER

Per BENCH:

1.1 The revenue is in further appeal for Assessment Years (AY) 2011- 12 to 2018-19 whereas the assessee is in further appeal for AYs 2016- 17 to 2018-19. These appeals have common issues and the same arises out of a common order passed by learned Commissioner of Income Tax (Appeals)-19, Chennai [CIT(A)] on 31.03.2023 in the matter of separate assessments framed by Ld. Assessing Officer [AO] u/s.143(3) r.w.s 153A & 153C of the Act on 27.09.2021. The facts as well as issues are admittedly identical in all these years. For the purpose of adjudication, AY 2011-12 has been taken to be the lead year.

1.2 The grounds raised by the revenue for AY 2011-12 read as under: - 1. The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law.

2. The Ld.CIT(A) erred in restricting the disallowance of quarry expenses of Rs.1,12,04,385/- made in the assessment to 30% of such expenses.

2.1 The Ld.CIT(A) failed to appreciate that though the quarry licences were in the name of S.A. Subbiah and Shri. B. Kubendran, it was established that they were persons of no means. The assessee had also not produced any evidence substantiating expenses for quarrying.

2.2 The Ld.CIT(A) failed to appreciate that the assessee submitted that the rough stones were received from the quarry license holders by M/s Rasi blue metals, to the extent of value of expenditure incurred including for provision of facilities to the license holders. In such a scenario, there must be a clear bifurcation of quarry excavation expenses and the valuation of rough stone to justify the incurring of the quarry expenses, but the assessee failed to submit the same.

2.3 The ld. CIT(A) failed to appreciate that the assessee was unable to produce any verifiable accounts for the purchase of rough stones from quarry license holders to substantiate the claim of quarry expenses incurred. The explanation for not maintaining stock books and purchase books was not accepted by the assessing officer as the assessee is required by law to maintain correct accounts, with all evidences in support of expenses claimed.

2.4 Having observed that the assessee failed to prove the correctness of the quantum of quarry expenses debited in the books of accounts of M/s. Rasi Blue Metals, the CIT(A) ought to have confirmed the disallowance of entire quarry expenses made by the assessing officer.

3.The Ld.CIT(A) erred in deleting the addition made towards unaccounted sale of blue metals amounting to Rs.12,82,67,697/- with a direction to recalculate the unaccounted sales based on the excess quantity of excavation of rough stones quantified by RDO order and to treat 40% GP of such unaccounted sales as undisclosed income of the assessee.

3.1 The Ld. CIT(A) failed to appreciate that in the absence of maintenance of proper records by the assessee like stock book, purchase register etc, the department made reference to the valuation cell to quantify the actual quantity of rough stone excavated from both quarries and the Departmental Valuation officer used scientific method i.e Aerial Photogrammetric method to arrive the quantity excavated from both quarries. The Ld. CIT(A) erred in relying on Inspection report by the State Government authorities in respect of quarry land under the license of Shri. S.A. Subbiah.

3.2 The Ld. CIT(A) erred in directing to adopt gross profit embedded in the unaccounted sales recalculated in the manner discussed in the order, worked out 40% of such unaccounted sales as undisclosed income of the assessee, without appreciating that the assessee had claimed entire excavation expenses already in the books of accounts and hence, gross profit theory was not applicable to the facts of the case.

4. The Ld.CIT(A) erred in deleting the entire addition made towards disallowance of quarry expenses and unaccounted sale of blue metals holding that the additions were made without reference to incriminating materials in respect of the unabated assessments.

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