TMI Blog2014 (1) TMI 1075X X X X Extracts X X X X X X X X Extracts X X X X ..... rate under any circumstance in such type of business and particular keeping in view the past history of the assessee. Stock has been increased by tampering the inventory-sheet by changing the quantity of stock items as pointed out by the hand-writing / forensic experts in their reports - The reports of hand-writing experts have not been considered either by the AO or by the ld. CIT(A), although, one such report was obtained by the AO himself - The entire survey proceeding was vide-graphed but despite repeated requests neither a copy of the same was supplied to the assessee nor it was used by the Department - The assessee also got a report from another hand-writing expert - As per the report of the expert appointed by the Department, it has been observed that there are manipulation in the inventory-sheet but thereafter he has qualified those mistakes/ manipulations as bonafide mistakes, by doing so, the expert has exceeded his jurisdiction - Moreover, in the report of expert got by the assessee also, such tampering with the stock inventory have been pointed out - There has been mistakes in taking stock position by the Revenue and the impugned inventory cannot be treated as a sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crores the sales of more than ₹ 2.02 crores (more than 81%) had already been shown and declared - The impact of the profit earned on such sales @ 76.02% should have been given to arrive at the actual stock as on the date of survey - The AO should have applied the gross profit rate of 76.02% as against 28.12% - Partly allowed in favour of assessee. - ITA No. 271/JP/2013, ITA No. 458/JP/2013 - - - Dated:- 18-12-2013 - SHRI HARI OM MARATHA AND SHRI N.K. SAINI, JJ. For the Appellant : Shri Satish Gupta For the Respondent : Shri A.K. Khandelwal ORDER PER HARI OM MARATHA, JM:- The above captioned appeals have been filed against the order of the ld. CIT(A) , Jaipur, dated 25-02-2013. 2. Briefly stated the facts of the case are that the assessee is a partnership firm which carries on business of manufacturing of handicraft items and is also retail trader of handicrafts/ and painting items. For the assessment year 2008-09, the assessee firm filed its return of income (ROI) on 30-09-2008 declaring total income of Rs. 1,28,44,240/-. A survey u/s 133A of the I.T. Act, 1961 'the Act' for short on 28-01-2008 was conducted in the business premises of the assessee-fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per them, there was no such difference in the inventories and there were a lot of irregularities in stock taking, counting, writing the figures verification and valuation of the same.'' The above contentions of the assessee are further qualified by specific explanations which were put forth through letter dated 14-12-2010, via its ld. AR, which can be summarized in the following points:- ''1. Assessee is dealing in art and handcraft items and mostly 1-2 pieces are manufactured and are kept in stock. 2. That there was no difference in the stock taken by the department during the course of survey u/s 133A of the Income-Tax Act, 1961 with the books of accounts on the date of survey. 3. That no proper physical verification of stock was done by the department. No proper counting of stock was done. No verification from the books of accounts was made in regard to valuation of closing stock. This fact is verifiable from the fact that in total working time of one day, such a stock in different design and variety and size cannot be counted and cannot be valued at survey place itself. 4. That the statement of partners were not voluntary and it is because that the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5000/- instead of Rs. 500/- resulting into a difference of Rs. 4500/-. xv) In Annexure S-1 at S. No. WDR-1764 the value has been taken at Rs. 50000/- instead of Rs. 5000/- resulting into a difference of Rs. 45000/-. xvi) The assessee has declared G.P. rate @ 76.02% for the year end consideration, hence deduction for G.P. rate @ 28.12% is unlawful and wrong. xvii) Discount to customers and deduction for G.P. rate has not been given in all cases. Total stock found as per department was of Rs. 73821822/- and the value taken after discount @ 20% and G.P. deduction @ 28.12% was Rs. 57572387/- which is wrong and should have been Rs. 42450500/-. Where as the value after applying 20% discount and G.P. 76.02% should have come Rs. 14161978/- only. xviii) Likewise for getting stock as on 28th January, 2008, the G.P. rate should have been applied @ 76.02% not at the rate of 28.12%. This submission is without prejudice to our belief that the system of valuation of closing stock in the middle of year at any date by applying G.P. rate is unlawful. xix) The value of stock of books as on date of survey has also not taken correctly. Kindly provide us the copy of stock statement given by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be made simply on the basis of statements taken at the time of survey. 9. That otherwise also addition can be made on corroborative material only. 10. That as per clarification of CBDT, declaration taken at the time of survey is unlawful. Kindly refer clarification No. F.No. 286/2/2003-IT(Inv.) dated 10/03/2003.'' However, the AO did not give much weight to the above contentions of the assessee and has given his pointwise reasons for not accepting the same. These reasons are as under:- 1. The contentions of the assessee firm that there was no difference in the stock taken by the department at the time of survey u/s 133A with the books of account on the date of survey is totally incorrect because the inventories of stock were prepared in the presence of partners and difference worked out was accepted by them. 2. The contention of the assessee firm that no physical verification of stock was done by the department is also not correct as the stock was inventorized and copies of the inventories were given to the assessee during the course of assessment proceedings. 3. The statements of partners were taken on oath and the same were given by them voluntarily. 4. The arit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under:- ''1) Income as shown in the return Rs.1,28,44,240/- Add: Value of surrendered stock as discussed above Rs. 50443016/-(Rs.5,08,98,166 - Rs. 4,55,150/- on a/c of arithmetic errors) Rs.5,04,43,016/- Less: Discount allowed as per para 3 above Rs. 13,58,942/- Taxable income Rs.6,19,28,314/- Round off Rs. 6,19,28,310/-'' 2.2 Aggrieved, the assessee went before the first appellate authority by raising various legal as well as meritorious grounds. The ld. CIT(A), after considering the submissions of the parties, has given a part relief which is reflected in the following chart:-. Tag price of entire stock found = 7,38,21,822 (APB 291) Less : Stock as per books = 66,74,221 = 6,71,47,601 Less : Reduction for GP @ 28.12% = 1,88,81,905 4,82,65,696 Less : Reduction for discount @ 20% = 96,53,139 = 3,86,12,557 Less : Relief allowed by CIT(A) for "Stock on approval" (Para 3 Pg.28 of her order) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 By closing stock 24902695.00 To direct exp 4911953.00 To gross profit 15391065.00 Total 45149777.00 Total 45149777.00 Statement of Trading Account for the period 29/01/2008 to 31/03/2008. To opening stock 24902695.00 By sales 4736144.00 To purchases 1383315.00 By closing stock 26177706.00 To direct exp 1027603.00 To gross profit 3600237.00 Total 30913850.00 Total 30913850.00 vi That Ld. CIT(A) also erred in making calculation of relief allowed by her. She has allowed the appeal of assessee on the ground that the deduction of G.P. @ 28.12% and deduction of discount @ 20% should be given on the entire stock. She has further allowed the credit of goods on approval to the extent of Rs. 38,60,871/-. Therefore, the amount of resultant addition should have been as under:- Total stock found (Gross Value) 7,38,21,822 Less: Discount of G.P. @ 28.12% 2,07,58,696 5,30 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mstances of the case Ld. A.O. grossly erred in not proving the copy of videography taken on the date of survey by the department rather Ld. CIT(A) rejected this plea on the logic that assessment did not provide the same. In fact, Ld. CIT(A) never asked to do so. xi. That Ld. CIT(A) also erred in not relying on the case laws cited by the appellant and also in giving some adverse comments. xii. That Ld. CIT(A) also erred in holding the affidavit filed before her as self serving document and as an inadmissible evidence without proving the contents of affidavit wrong. xiii. That Ld. A.O. made the huge additions even after accepting the books of accounts. No provision of section 145(3) was invoked and the declared G.P. is better than the preceding year. The Revenue has raised following grounds in its appeal:- Whether on the facts and in the circumstances of the case and in law the ld. CIT(A) was justified in :- 1. Allowing further relief of Rs. 1,27,40,759/- on account of discount @ 20% and gross profit @ 28.12% on the value of entire stock of Rs. 7,38,21,822/- whereas the relief on these grounds have already been allowed and the working of excess stock was duly admitted by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order. Further, it was argued by the ld. AR that the assessee has been maintaining regular books of account which are duly audited under the provisions of Section 44AB of the Act and which are further supported by necessary bills, vouchers and other relevant evidences and all these were furnished before the AO and are a part of the assessment records. It was argued that the AO has not disturbed the purchases and sales recorded in the books. He stated that without rejecting the books of account as per the settled law, no trading addition can be made. He also stated that the gross profit rate shown in this year is better than that disclosed in the past year. He further stated that statements were recorded in the late night on the date of survey and in the early morning of next day and in such a way the statement givers were coerced and felt pressurized to make surrender. 3.4 Per contra, the ld. CIT - DR Shri A.K. Khandelwal has strongly objected to the above submissions of the ld. AR and has stated that impugned addition is not based solely on the statements. It is also based on the physical inventory prepared during survey. In order to bring home his point, he further stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in those statements and the assessee made surrender of income. The assessee has a right to retract any admission even if it is a valid admission and to disprove any such admission even if it is made under the proceedings conducted u/s 132 of the Act. Therefore, we ignore the admission part of the statement recorded u/s 133A. However, physical verification of stock if found to be correct and difference of stock vis-a-vis the stock recorded in the books of account is found then addition on account of such excess or undisclosed stock inventories is possible. Now we will see if any addition can be made or sustained with reference to physical inventories prepared during the course of survey, after considering the defects etc. pointed out by the ld. AR in recording thereof. 3.5 It was argued by the ld. AR that during the course of survey that no proper physical inventorization of stock was done and it is based on sheer estimation. It was stated that the assessee-firm has retracted the so called statement of surrender on various occasions. The assessee had not included the surrendered amount and appended a Note on The Financial Statements enclosed alongwith return of income whereby ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mation sought by the AO. Past History: In the immediately preceding assessment years i.e. A.Yrs. 2006-07 and 2007-08, the assessments was completed u/s 143(3) of the I.T. Act, 1961. Finally the returned income for A.Y. 2006-07 which was marginally varied by the AO, ultimately stood assessed at the returned income after second appeal in Appeal No658/JP/2009. The addition of Rs. 1.00 lac sustained by the Ld. CIT(A) for A.Y. 2007-08 was accepted by the assessee and no second appeal was preferred before the ITAT for the cost effectiveness as the cost of filing of appeal and cost of pursuing it would have been much more than the amount of tax involved. In this way the assessment orders for both the preceding years have become final as no appeal has been preferred by the department in the first case before the Hon'ble High Court and in the second case before the Hon'ble ITAT by the assessee as well as the department. Trading results of both the above assessment years are tabulated as under: S. No. Assessment Year Sales in Rs. in Rs. Gross Profit % Trading addition made by AO Relief given by CIT Appeal Relief g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lude the so called admission of additional income and the return of income was filed annexing therewith a note as below: "A survey u/s 133A was conducted by the Income Tax Officials of the department on dated 28/01/2008. During the survey physical verification of stock was also done. As per partners of the firm they were forced to make a surrender of Rs.5,08,98,166/- being the difference in the stock. As per them there was no such difference in the inventory and there were a lot of irregularities in stock taking, counting, writing the figures, verification and valuation of the sales". All the details and objections along with books of accounts and vouchers were furnished before the Assessing Officer and the Assessing Officer after allowing the benefit of Rs.13,58,942/- on account of discount not allowed by the survey team on the stock inventorized at Raghu Vihar Premises where no tag price was mentioned on the items, finalized the assessment by making an addition of Rs.4,90,84,070/- fully ignoring the most valid objections taken before the AO by making oral and written submissions. However, the Ld. AO having found the books of accounts maintained in order did not app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thakkar V/S ACIT and the case law reported in 300 ITR 157 (Madras). This also deserves to be given prime consideration that the survey was conducted without involving independent witnesses during the entire survey proceedings which is unlawful. The ld. CIT(A) has placed reliance on the decision of hon'ble Jaipur bench of ITAT in the case of B.D. Dall Oil Industries reported in 40ITD180 (Jp) is not relevant as after the said judgment, the hon'ble supreme court in the case of S.Khader Khan Sons, referred to above, has categorically held that statements recorded on oath during the survey u/s 133A has no evidentiary value thus observations of ld. CIT(A) deserves to be ignored and excluded. During the course of survey no proper physical inventorisation of stock whatsoever was done and based on mere estimation of the stock during survey the surrender on account of alleged excess stock was taken by compelling the partners who all suffered the persecution-mania and signed on the dotted lines. The statements were recorded in the late night on the date of survey and on the early morning on the next day and the recording of statements in the midnight when the assessee is almost bro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner has no evidentiary value as they were not supported by any documentary evidence. 2. DCIT V/s Sadhuram Wadhwani 81 TTJ (Nag) Additions made on the basis of statement being not voluntary admission was incorrect. Addition made by AO on that count was not sustainable. Further held that whether statement recorded u/s 132(4) can be a binding force or evidence as an admission on behalf of Assessee. 3. DIT V/s Pooranmall Sons 96 ITR 390 (SC) Confession cannot be made foundation of assessment. 4. Bansal Strips (P) Ltd. V/s ACIT (ITAT, Delhi Bench) 99 ITD 177 "..... During the course of search proceedings, the search authorities had attempted to verify the stock details kept by the Assessees by comparing the stock as per books with inventory of physical stock taken during the course of search. The entire exercise in the cases of about half a dozen business concerns was commenced and completed within a few hours...... That being so, the finding of excess stock being found during the course of search operation had been given by the authorities below on grossly inadequate material. That finding would no be sustained even under the parameters of income tax assessment p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Computation of undisclosed income solely on the basis of confessional statement of Assessee was not justified, inter alia, where the conduct of affairs by the Revenue Authorities showed that good amount of psychological pressure was built on the Assessee to make the said statement and all material found during search was duly explained by Assessee on which no adverse comment was made by AO. 8. CIT V/s C.Jayantilal 199 Taxman 34 (Madras) 9. CIT V/s Dhingara Metal Works (Del) 328 ITR 384(2010)- Admission during the survey is not a conclusive evidence and addition cannot be made simply on the basis of statements. Copies of stock sheets (Physical Verification) in this case supplied as late as December, 2010 that too during the assessment proceedings which were controverted in detail before the AO. It may also be considered that the CBDT has clarify by clarification dated 10/03/2003 (No. 286/2/2003-Income Tax) where it is specifically stated that while recording statement during the course of search and seizure and survey operations no attempt should be made to obtain confession as to the undisclosed income. We, therefore, submit that the confessional statements obtained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ejecting this ground without properly and legally appreciating the case laws cited before her. The decision in the case of Khader Khan (supra) rendered by the Hon'ble Supreme Court also fully supports the assessee's contention. Pullangode Rubber Products Co . Ltd. V/s State of Kerala 91 ITR 18 (SC) An admission in a statement recorded on oath is an extremely important piece of evidence but it cannot be said that it is conclusive and it is always open to the person who made the admission to show that it is incorrect. Krishnan V/s Kurukshetra University AIR 1976 SC 377 Held that any admission made in ignorance of legal rights or under duress cannot bind the maker of admission. Explaining further, the Hon'ble Apex court observed that mere admission cannot be bedrock or found of an assessment and it is always open to the assessee who made the admission to show that what he admitted was not correct. ACIT Vs. Jagdish Narain Ratan Kumar 22 TW 573 (JP) Sohan Lal Jain V/s ACIT 22 TW 529 (JP) Whether a confession/ admission create any estoppel and can be made the foundation of assessment - Held no 26 TW 135 Ashok Kumar Soni Vs. ACIT (ITAT Jd.) Whether statement of assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t find any loose paper or document showing unrecorded purchases, expenses or sales. Therefore, there was no material to prove undisclosed income. The closing stock taken by the Assessee @ Rs. 2,61,77,707/- as on 31/03/2008 is on the Gross Profit @ 76.02%. If the figure of the closing stock obtained by the department during the course of survey is put in the trading account as on 31/03/2008 the Gross Profit would arrive at 268% which is an impossible rate of profit under any circumstances more particularly where the past history of the Assessee does not suggest any such profit rate and the return of income filed by the assessee have been accepted as declared by the Assessee in the past. We are submitting herewith a list (APB 296 to 305) of total inventory of stock where the survey team has increased the quantity of stock items after survey on a substantially higher figure to get the surrender as per their desire on the predetermined income. This allegation is verifiable from the naked eyes by observing difference in writing and flow and design of figures. This allegation can also be verified from the fact that in Assessee's line of business quantity of one item is generally one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mentioned that these overwriting, additions and alterations of digit are made afterwards. Ld. CIT(A) also at last para at page 33 of her order has observed that both the forensic experts have admitted the fact of overwriting in the inventories but it is absolutely wrong on her part to assume that the cuttings and overwriting have been done in consultation with the assessee which situation is absolutely abnormal and impossible as the assessee's allegation as stood before the Ld. CIT(A) and as that stands now before the Hon'ble Bench is that the alterations, corrections have been done malafidely and behind the back of assessee to simply arrive at a much much higher figure of the stock then what it actually was. This may also be considered that the statements as recorded were not independent and were taken by generating heat and under duress and coercion which has become the order of the day and deserves to be taken a judicial notice whereof by the Hon'ble Bench. Moreover, any bonafide mistake in taking quantity can not go to the extent that over 10 inventory sheets are involved and 350 entries are intercepted which will be verifiable from APB 296 to 305. Such a malafide temper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h has been reproduced by the AO at para 3 pf page 2 of assessment order. Detailed retraction was also made on 14-10-2010 by the assessee, the details of which are also at page 2, 3 4 of the Assessment order. This detailed retraction was totally objective as it was made after receiving the copies of stock inventories which were supplied to the assessee despite several repeated requests and taking rounds of the department which ultimately yielded the delivery of the inventory sheets after 10-12-2010 i.e. nearly before 3 - 4 days of the completion of the assessment which is an undisputed fact and the admission of the AO on this aspect would be found at para 1 of page 5 of assessment order. The assessee's allegation further gets strengthened from the fact that the goods of Assessee were lying at three spots mainly i.e. M.I. Road, Hathroi and Raghu Vihar and if the inventory list of M.I. Road is perused, it would be found that there are more than 3360 items and the stock quantity of each items are generally 1, 2 or 3 piece and in only few cases it has exceed 1, 2 or 3 of each item. Likewise in the Raghu Vihar Premises also generally the items are 1, 2 or 3 and likewise at Hathroi al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that the discount given @ 20% is also on lessor sale. One of the partner has requested to the survey team that discount given is 40% to 50%. If this ratio of difference in taking inventory is applied on all items of inventory, there will be no excess stock. It is further submitted that total time taken during the course of survey was 20-22 hrs. Inclusive of food timings and night timings and therefore we humbly that in such a short time no proper counting of the items and valuation of the items can be done. It was impossible to tell cost price by anyone. We further submit that following mistakes were also noticed in the physical inventory sheets which were submitted before the Assessing Officer and are as follows:- The Ld. Assessing Officer accepted some of the mistakes and allowed credit of Rs. 4,55,150/- only while making assessment but Ld. Assessing Officer did not deal with lawfully raised contentions which shows a total non-application of mind for the reasons best known to him. On the contrary he has designed his own reasons for not accepting the assessee's submissions which are as below:- (i) The inventory was prepared in the presence of the partners and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per books of accounts as on the date of survey by taking G.P. rate of the immediately preceding assessment year is not a proper method more particularly when the G.P. in the case of the assessee has great variation. During the year under appeal, the assessee has declared gross profit @ 76.02% as against the G.P. rate of 28.12% declared in the immediately preceding assessment year and G.P. rate of more than 40% was declared in the assessment year subsequent to the year under appeal. It is also a matter of fact that the trading results declared by the assessee were accepted by the Ld. AO who had not doubted the gross profit rate declared by assessee for the year under appeal, therefore, the working of the stock as per books of account as on the date of survey should have been based on the G.P. rate of the year in which the survey took place more particularly when the survey has taken place on 28.01.2008 i.e. almost after the expiry of 10 months of the commencement of financial year under reference and out of the total turnover of around Rs 2.49 crores the sales of more than 2.02 crores [more than 81%] had already been shown, therefore, the impact of the profit earned on such sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck of Rs 66,74,221/- on date of survey to explain the discrepancy. S. No. Particulars Amount 1. Stock as per books on the date of survey taken by the AO (This is balancing figure calculate on Gross Profit @ 28.12%) Rs. 66,74,221/- 2. Sales made after the date of survey as per books of accounts accepted by AO Rs. 47,36,144/- 3. If we apply similar rate of Gross Profit i.e. 28.12% on this amount of sales, Gross Profit comes Rs. 13,31,804/- 4. Purchases made after the date of survey Rs. 13,38,315/- 5. Direct expenses incurred after the date of survey Rs. 10,27,603/- On this calculation stock figures comes as under:- Opening stock 66,74,221 Sales 47,36,144 Purchases 13,83,315 Closing stock 56,80,799 Direct Exp 10,27,603 Gross profit 13,31,804 Total 1,04,16,943 Total 1,04,16,943 Whereas, the Assessee has shown closing stock of Rs.2,61,17,706/- as on 31-03- 2008. Hence th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oks of accounts of the assessee as on the date of survey and by applying the G.P. rate 28.12% declared in the immediately preceding assessment year, the stock as per books of accounts was worked out at 66,74,221/- and the same was further reduced from the value of goods at 5,75,72,379/- and accordingly the excess stock was worked out at 5,08,98,158/- for which the alleged surrender was obtained. As is evident from the above, the gross value of the stock physically verified by the department at the time of survey was reduced by two components i.e. (i) deduction on account of discount and (ii) deduction on account of G.P. however, such deductions were not allowed on the entire value of stock, thus the assessee made this claim during the assessment proceedings before Ld. AO who partly accepted the contention by giving a relief of Rs 18,14,092/- In appeal Ld CIT (A) accepted the assessee's appeal on the issue that the assessee should be allowed deduction for discount @ 20% and deduction for gross profit @ 28.12% on the entire stock. However being aggrieved from the decision of LD CIT (A) the assessee submits as under:- A. Deduction on account of discount: In this regard, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng any reasons, though he himself has accepted the trading results of the assessee which were prepared and declared on the basis of the books of accounts maintained by the assessee and were also made basis for working out the stock as on the date of survey. It is, therefore, requested that the total value of the goods worked out as on the date of survey deserves to be further scaled down by taking G.P. rate of 76.02% out of which deduction of G.P. rate of 28.12% have already been allowed, thus if another 47.9% is reduced from the total value of goods as on the date of survey computed at Rs. 7,38,21,822/-, the inventory should be reduced by another Rs. 2,47,52,456/- [(76.02% of (73821822 - 2,21,46,547)] and as a result the total additions deserves to be reduced by this figure. This fact is also verifiable from the actual comparison of sale value from the physical stock value (APB 266 267) where the sale value is only Rs. 1,56,727/- of the stock taken of Rs 500500/- of some of the items sold subsequently. Ground of appeal No. 1(viii) and Department Appeal Ground No 2:- During the course of survey there were certain stock available with the assessee which were received on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and adverse inference, if any, is to be taken; the same should have been taken on the basis of the completed books of accounts. Reliance is placed on the following decisions: 37 DTR 363 CIT Vs. Forech India Ltd. (Del.) INCOME FROM UNDISCLOSED SOURCES-ADDITION UNDER S. 69- Excess stock found during survey-Where CIT(A) and the Tribunal have given concurrent findings while deleting the addition of excess stock found during survey observing that the purchases made by the assessee prior to the survey were genuine which remained to be recorded in the incomplete books of account at the time of survey, and the stock position was reconciled these were pure findings of fact which did not require any interference. 107 Taxman 85 [Mag.] Vasaji Manilal Thakkar Vs. ACIT (Ahd.) It was incumbent on authorized officer doing search or Assessing Officer doing assessment to insist upon updating the books of accounts. With the above submission, the facts which would emerge for consideration are as under: 1. Ld. AO did not consider the issue without assigning any reasons for is doing so. 2. Every material / circumstantial evidences / statements of the assessee were available / m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee that at the time of survey it was in possession of the certain goods which were received on approval and for which the bills were not received. It is therefore humbly prayed that the equivalent value of such goods cost of which comes to Rs. 85,32,913/- [cost of goods Rs. 65,70,346.00 + expenses Rs. 19,62,567.00] should have been reduced from the total goods valued at Rs. 7,38,21,822/- at the time of survey. The precise working of the said goods to bring the value of the same as equivalent value to the price taken in the inventory sheet prepared during the course of survey is as under: Cost of goods as per Bills 65,70,346.00 Expenses as claimed 19,62,567.00 85,32,913.00 [To bring this cost to equivalent price as per survey valuation] [1] Factor of G.P. (28.12%) [100 - 28.12] [8532913 / 71.88 100] 1,18,71,053.00 [2] Factor of Discount @ 20% [100 - 20] [11871053 / 80 100] 1,48,38,816.00 Value of stock received not accounted for as on the date of survey in absence of bills and on approv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... invoking the provision of section 145, no addition can be made. Department Appeal Ground of Appeal No. (1) During the assessment proceeding it was submitted before LD Assessing Officer that total alleged stock found at the Business Premises of the Assessee before allowing deduction for discount @ 20% and deduction for the Gross Profit @ 28.12% was Rs.7,38,21,822/- and after allowing the deduction for discount @ 20% and deduction for Gross Profit @ 28.12% the alleged physical stock should have come to Rs. 4,24,50,500/- and not Rs. 5,75,72389/-. Therefore there is a mistake in calculation and survey team has not allowed deductions fully on account of reasoning that on some of the goods there was no tag price hence, the price stated was cost price. LD Assessing Officer agreed to the contention of the Assessee at first Para Page No.6 of the Assessment Order and agreed to allow the deductions but the calculation of discount and deduction in respect of Raghu Vihar Premises was wrong and the fact that some deduction was not allowed in Hathroi Premises also was not considered. LD Assessing Officer in Para 2 Page No. 1 of Assessment Order has given a table showing value of stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... giving deduction for discount @ 20% and deduction for Gross Profit @ 28.12% comes to Rs. 4,24,50,500/-. Therefore, the Assessing Officer has taken the figure of excess stock in excess by Rs.1,51,21,887/-. In the last it is very humbly prayed that the assessee's appeal be kindly allowed and that of the department be dismissed. Submitted for kind consideration.'' 3.6 On the other hand, the ld. CIT -DR justified the action of the AO by referring to various excerpts from the auditors report and the statement of the partner of the assessee firm and also trading account ended on 31-03-2006 etc. The ld. CIT - DR has even challenged the relief granted by the ld. CIT(A) to the assessee. For ready reference, we accept the entire written submission filed on behalf of the Revenue through ld. CIT - DR is reproduced as under:- ''The department herein submits the following written submission in addition to the oral arguments made during the course of the hearing in the above appeals. Brief facts of the case : The assessee is a manufacturer and dealer of handicraft (wooden, marble, brass items etc.), paintings, carpets etc. On 28.01.2008, a survey action u/s 133A of the IT Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had earned undisclosed income of Rs. 5,08,98,166/- and the same had been invested in stock. He further stated that he has gone through all the inventories prepared and was in agreement with the value of stock worked out and disclosed Rs. 5 crores as undisclosed income of F.Y. 2007-08. This statement was also signed by other partners namely S/Shri Ashish Agarwal and Raj Agarwal to endorse their agreement with the statement made by Shri M.L. Agarwal(Father). 2.3 However, the assessee firm did not surrendered income in the Return filed for A.Y. 2008-09 for the reasons mention in Annx. J enclosed with the return - "A survey u/s 133A was conducted by the Income-tax officials of the department on 28/01/2008. During the survey physical verification of stock was also done. As per partners of the firm they were forced to make a surrender of Rs.5,08,98,166/- being the difference in stock. As per them there was no such difference in the inventories and there were a lot of irregularities in stock taking, counting, writing the figures verification and valuation of the same." 2.4 Before the Assessing Officer, the assessee made various claims which included claim relating to 'ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ror of allowing excess relief to the extent of Rs. 13,58,942/- (already allowed by AO). ITA No. 458/JP/13 by Department 4. Ground No. 1: Relief @ 28.12% for GP and Discount @ 20% against the entire value of stock Rs. 7,38,21,822/. The decision of Ld. CIT(A) is not acceptable on the following counts:- Firstly, total value of stock of Rs. 5,75,72,387/- was worked out after giving the benefit of discount @ 20% and GP Ratio @ 28.12%. The total value of stock as per Books was at Rs. 66,74,221.Thus, the stock amounting to Rs. 5,08,98,166/- was found in excess. The physical valuation of stock as well as working of excess stock was arrived at after due consideration of all the aspects during the course of survey proceedings by the partners of the Firm and they have duly put their signature also in the end of the statement as well (APB Pg 360 statement of Sh. M.L. Agarwal). The assessee did not raise any objection after the survey until 14.12.2010 when for first time letter was written to AO during assessment proceedings. Thus, this is nothing but an afterthought. Without prejudice to this, the Ld.AO has already allowed benefit of arithmetical error of Rs. 4,55,150/- and 20% dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice" or the items are in the nature of Packing Material/Raw Material. It is also interesting to note that during the course of survey proceedings, Shri Raj Agarwal partner was confronted with certain instances where goods were even sold above the "tag price" and he admitted that it is not necessary that discount is compulsory given to all customers. So, it is unacceptable to allow discount in all the cases in a mechanical manner. Shri Raj Agarwal in reply to 217 (APB Pg 343 344) admitted that is not necessary to allow discount to each customer. In such circumstances, the allowance of 20% discount against the stock of all category in a "blanket manner" is totally unjustified and devoid of any logic. Ground No. 2: Relief of Rs. 38,60,871/- for purchases made before date of Survey but bill received after the date of survey. The assessee, By filing additional evidence under Rule 46A for the first time claimed before the Ld.CIT(A) that reduction from the value of excess stock to be allowed for the following items:- Goods received before the date of survey on challan (not entered in purchase A/c as Bills not received till date of survey) (APB Pg. 265 and 361-366) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tual delivery" of goods before the date of survey. Thus, ld. CIT(A) erred in allowing relief without verifying the cogent evidences relevant to prove the genuineness of the claim (iv) On verification of the Bills issued by these parties, it is noticed that mostly the Bills are in continuous serial nos. inspite of having gaps in the dates. This peculiar aspect of the matter should have caught the attention the ld. CIT(A). (Pl. refer APB Pgs. 361-366 and corresponding Bills.) (v) It is also not evident from records that ld. CIT(A) on her part had carried out any exercise to tally the items shown in Bills vis-a-vis shown in the stock Inventory. This aspect is important for the reasons that all the items shown in "So Called Bills" are not claimed as part of inventory (but few of them). So, this is not a case of item-to-item tally. Thus, the Ld. CIT(A) committed error of allowing relief without carrying out any specific verification and issue was decided in favour of the assessee summarily. At best, she could have remanded the matter to AO for verification before allowing such relief to the assessee. (vi) The falsity of claim of the assessee is further proved by the fact M/s Ramja ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me were found not acceptable. She has also reproduced all the relevant Questions/Answers in the body of appellate order (at Pg 6 to 13). After analysing these statements she concluded as under -(CIT(A) order Pg 13-14) (1) There is coherence and congruence between the statements of all the partners and employees regarding 'coded tag price' and the 'decoding of the same' while taking value of stock found at the time of survey. These statements corroborated each other regarding quantity and valuation of stock physically verified during the survey proceedings. (2) It is factually incorrect to say that AO has relied only on statements of one partner. In fact, Partners separately also in their statements admitted to excess stock and also affirmed the surrender made by the senior most partner Sh. M.L. Agarwal by putting their signatures with him. (3) Through stock taking was done with the assistance of partners namely Sh. Raj Agarwal and Sh. Ashish Agarwal and employees over a period 20 to 21 hours after decoding the tag value. Thus, the allegation that valuation was done in haste or was merely estimated was duly demolished by ld. CIT(A). (4) After ascertaining the value of stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aving different facts. Therefore, the ratio decided in the cases referred by the assessee cannot be imported and applied to the facts of this case. Further, the department sought to rely the following decisions (Copy enclosed) in support of its case. (i) BD Dal Oil Industries 40 ITD (JP) 180 (ii) Bachittar Singh V/s CIT 328 ITR 400 (P H) (iii) Dr. S.C. Gupta V/s CIT 248 ITR 782 (All) (iv) Surinder Kumar Charanjit Kumar V/s CIT 282 ITR 78 (P H) (f) The assessee also tried to take the shelter behind the CBDT Instruction F.No. 286/2/2003-ITC (Inv- II) dated 10.03.2003 wherein CBDT has clarified that while recordings the statement during the course of search and survey operations, no attempt should be made to obtain confession as to the "undisclosed income". On this basis, it has been claimed by the assessee that the confession statement taken by the officers of the department was unlawful. On this point, it is to be submitted that above referred document is not a circular but an instruction issued for the officers of the department and not meant for public consumption. This does not have a "binding force" as is the case with Circulars issued by the CBDT. Further there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly baseless but also amount to casting aspertions on the conduct of the officers/officials of the department. (c ) As pointed out by the Ld. CIT(A) and rightly so, if the assessee had any problems regarding fudging of these inventories at the time their preparation, then he should have mentioned the same in the statement taken during the course of survey. The assessee did not bring out this fact to the Higher Authorities, nor he did file any letter before any authority what so ever till 14/12/2010 (after 4 and half year). This is not understandable as to why the assessee did not retract his own statement which was causing grevisus harm to his self- interest. By merely writing a letter or filing an affidavit after a lapse of 4 and half year, create serious doubts about the genuineness of the claim which is not based on any evidence. In this case of Bachittar Singh Vs CIT 328 ITR 400 (P H), it has been held that in the fact and circumstances, the order of CIT(A) could not be upheld as retraction from statement had to be at the earliest opportunity, in absence of which voluntary statement recorded in the presence of family members was an important material which could be acted upo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Reference APB Pg No 2006-07 28.17% 576 2007-08 28.12% 576 2008-09 76.02% 294 2009-10 32.46% 653 2010-11 40.70% 653 The above stated picture goes to fortify the findings of CIT(A) that A.Y. 2008-09 is an "aberration year" where for the reasons best known to the assessee exceptional GP was shown. However, it is settled law that for adoption of GP Rate, a normal year has to be selected and GP rate should be applied which is prevalent in the industry/business. (iii) The assessee also failed to provide any comparative data relating to other firms engaged in the similar line of business to establish that such a huge super profit @ 76.02% is prevailing in this business sphere. Such a huge "super profit" can only be earned in a "monopolistic" condition of the market or the assessee is dealing in some niche product which nobody is manufacturing/trading. (iv) It is also a matter of record that in reply to Q 19, (APB pg 355) Sh. M.L. Agarwal worked out the value of closing stock at Rs.66,74,221/- after preparing the Trading A/c on the basis of Account Books. Therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such expense is directly connected to the goods purchased before the date of survey. In absence of any cogent material, deduction for direct cost is not allowable. (iii) Thirdly, by allowing GP rate @ 28.12% reduction on the 'tag price', the survey team has indirectly considered the stock at cost price. Therefore, no further deduction for any direct cost need to be allowed. Ground (i) (ix) (a to g) General in nature and will be argued orally. Gound (i) (x) to (xiii) To be argued orally. On the basis of above submission, it is to request that the matter may be decided in favour of department. It is prayed accordingly. '' 3.7 After considering the entire conspectus of facts of this case and after examining various facets of the issue in question involved in the appeals and after giving apt ratiocination to them all, we give our finding with respect to each and every point in the following paragraphs. 3.8 Effect of admission made in statements recorded during survey u/s 133A of the Act The position of law regarding the evidentiary value of admissions made in such statements is now settled. After considering the rival stands on this issue, we have already discussed the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it rate of 76.02%. If the closing stock considered by the AO is added in the trading account as on 31-03-2008, the gross profit rate would become 268% and this figure seems to be just impossible to be treated as a gross profit rate under any circumstance in such type of business and particular keeping in view the past history of the assessee. We find force in the submissions of the ld. AR that stock has been increased by tampering the inventory-sheet by changing the quantity of stock items as pointed out by the hand-writing / forensic experts in their reports. The ld. AR has invited our attention towards the reports of hand-writing experts which have not been considered either by the AO or by the ld. CIT(A), although, one such report was obtained by the AO himself. Thus, there seems to be some hide seek and selective use of evidence collected by the AO. This conclusion is further strengthened by the fact that the entire survey proceeding was vide-graphed but despite repeated requests neither a copy of the same was supplied to the assessee nor it was used by the Department. Obviously, it gives a presumption that if these reports were to be used these would have gone against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artment to obtain another report from the expert of their choice would not allow such tampering. The assessee has been clamouring that entire survey proceedings was video-graphed but the Revenue through its CIT -DR has completely refused this factual position. These pieces of evidence coupled with the factual matrix of this case compel us to believe that there are cuttings etc. which have been done at the back of the assessee. In so far as putting of signatures on the inventory sheet by the partners is concerned, this is a routine matter and the assessee has been stating it all along that in the charged atmosphere at the time of survey whatever was recorded by the concerned officer after putting one of them to Oath the signatures of another partner of the firm may be easily obtained as they want to escape the trauma of that situation. We cannot believe such statements which the Revenue has no right to record on Oath during survey proceedings and officer is supposed to know the legal position. The Revenue cannot really depend on this statement for making such additions. This fact has been supported by and duly attested affidavit given from the assessee side and the same has not been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew of the legal position. The entries in the books of account are presumed to be true and correct unless proved otherwise in view of the provision of Section 34 of the Evidence Act, 1881. The AO has accepted the books of account of the assessee and he has not rejected them, at all. He has even not invoked the provision of 145 (3) of the Act. Therefore, the declared results should have been accepted without any variation, especially when the assessee's trading results are better as compared to the immediate past year. On the first sight of reason why in the year of survey only the gross profit rate is around 76% whereas in the past and future assessment years this rate is on the lower side is due to manipulation of the assessee- firm . Yes, one can be carried away by this argument and can believe the version of Revenue but this fact alone cannot give power to the AO to make an adhoc addition, as he has done. There are numerous reasons for the rise in the gross profit rate in any year. When the AO accepted lower gross profit rates in the past and in future then this inference is found to be not justified. Rather the AO must be satisfied that in the year of survey, the assessee has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de after the date of Survey 47,36,144.00 3,09,13850.00 Less:-Direct Expenses after the date of Survey 10,27,603.00 2,98,86,247.00 Less:-Purchase after the date of Survey 13,83,315.00 2,85,02932.00 Less:-Gross Profit Part on the rates for the Period 29.01.2008 To 31.03.2008 to get the value of cost of goods sold. 36,00,237.00 2,49,02,695.00 If we further reduce the amount of purchases expenses incurred before the period of Survey but entered in the books after the period of Survey for which the assessee is in agitation via separate ground Ld CIT (A) has accepted part of it than the book stock on the date of Survey shall come as under:- Book Stock Calculated as above 2,49,02,695.00 Less:-Purchase Expenses incurred earlier entered later (65,70,346 + 19,62,567) 85,32,913.00 Book Stock on the date of Survey 1,63,69,782.00 Book Stock taken by the Department 66,74,221.00 Difference / 96,95,561.00 Therefore, it becomes obvious that the above addition amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 18,14,092/- and as against that the ld. CIT(A) has accepted that the assessee is entitled to deduction on account of discount @ 20% and deduction for gross profit @ 28.12% on the entire stock. The Revenue is also in appeal against these two points. 3.15 As we have discussed above after considering the submissions of both the parties and even keeping in mind the statement recorded during survey, wherein it was stated that discount @ 35% to 45% commission is given to Travellers for parking their buses before a showroom dealing in similar kinds of articles. Keeping in view the special and peculiar circumstances of this business, we allow 40% discount as against 20% already allowed and give further benefit of 20% from the total inventory found on the date of survey at Rs. 7,38,21,822/- and the total difference deserves to be deleted. Accordingly, this issue is partly allowed in favour of the assessee. 3.16 Regarding deduction on account of gross profit rate, we have already discussed this issue. The total value of goods worked out as on the date of survey needs to be further reduced by taking gross profit rate of 76.02% declared and accepted in the year under consideration. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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