The case at hand revolves around the applicability of Section 69C of the Income Tax Act, which deals with unexplained expenditure. The assessee-firm in question was involved in the import of rough diamonds, as well as the manufacturing and export of polished diamonds. The Assessing Officer (AO) noticed that there was an excess consumption of rough diamonds amounting to 1.4 lakh carats, contrary to the assessee’s claim that it was a typographical error. According to the assessee, the actual consumption of rough diamonds was 2.90 lakh carats, not 4.30 lakh carats as stated in the audit report. As a result, the AO made an addition of Rs. 17.50 crores under Section 69C.
The assessee appealed the AO’s decision to the Commissioner (Appeals), who deleted the addition. However, the Tribunal later restored the addition, stating that the excess consumption of rough diamonds represented the purchase of rough diamonds that were not accounted for in the assessee’s books. The High Court then set aside the Tribunal’s order, primarily relying on two affidavits—one from the typist and another from the Chartered Accountant. The High Court accepted the assessee’s argument that there was a typographical error in the audit report, which erroneously stated the consumption as 4.30 lakh carats instead of the actual 2.90 lakh carats. However, it is worth noting that apart from the assessee’s statement, no additional evidence was presented to substantiate the claim that the figure of 4.30 lakh carats was a typing mistake.
The High Court failed to adequately appreciate the fact that the affidavits of the typist and Chartered Accountant were filed for the first time before the Tribunal. Additionally, it disregarded the fact that during a search operation conducted on the assessee and its group concern in 1999, duplicate cash books, ledgers, and other books were discovered. These documents indicated unaccounted manufacturing and trading activities related to diamonds. Consequently, significant additions were made to the assessee’s group based on the findings of these books. The fact that the assessee maintained separate books of accounts outside of its regular books was entirely overlooked by the High Court in its impugned order.
In light of these considerations, it is evident that the High Court’s order should be set aside, and the Tribunal’s decision confirming the addition should be reinstated. The affidavits provided by the typist and Chartered Accountant alone are insufficient to delete the addition made by the AO. The High Court failed to properly evaluate the evidence and neglected crucial aspects, such as the existence of separate books of accounts maintained by the assessee outside of its regular books. Therefore, the judgment rendered by the Supreme Court in the case of ACIT, Surat v. Kantilal Exports Surat (2023) 150 taxmann.com 172 (SC) favors the revenue, and the order of the Tribunal must be restored.
