9911796707
TMI Blog2014 (1) TMI 1075X X X X Extracts X X X X X X X X Extracts X X X X ..... d. The assessee has three separate business premises and all the three were covered under this survey. The value of stock at the three places, as per inventories prepared during survey, is as under:- S.N. Location of premises Value of stock worked out as per inventories prepared 1. Showroom atM.I. Road, Jaipur Rs. 1,21,92,293 2. Factory and Godown at Raghu Vihar Rs. 1,29,93,905 3. Showroom at Hotel Ashish Rs. 3,23,86,189 Total Rs. 5,75,72,387 2.1 The above stock was valued, after giving benefit of discount @ 20% and considering the gross profit rate at 28.12% being the rate declared in assessment year 2007-08 at Rs. 5,75,72,387/-. The total value of stock as per books of account of the assessee, maintained regularly during the course of business, on the day of survey were found at Rs. 66,74,221/-. The stock inventories were prepared in the presence of the partner(s) and their sons. The statements recorded were under oath in which when question regarding excess stock found was put to Shri Manohar Lal Agarwal, partner/ father of other partners vide question no. 23, he has admitted that the firm had earned undisclosed income amounting to Rs. 5,08,98,166/- which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng and mistake in the calculation. 6. We are mentioning herewith some of instances from which it will be clear that the stock taking was not correct and lawful:- i) In annexure S-H-2 at S. No. 139 the value of stock has been taken at Rs. 2,60,000/- instead of Rs. 26,000/- resulting into a difference of Rs. 2,34,000/-. ii) In Annexure S-H-4 at page No. 3 at S. No. 54 the value has been taken at Rs. 1,69,000/- instead of Rs. 16,900/- resulting into a difference of Rs. 1,52,100/-. iii) In Annexure S-H-4 at S. No. 189 the value has been taken at Rs. 7800/- instead of Rs. 4800/- resulting into a difference of Rs. 3000/-. iv) In Annexure S-H-1 at page No. 6 the total has been taken at Rs. 8,19,800/- instead of Rs. 7,88,300/- resulting into a difference of Rs. 31,500/-. v) In Annexure S-H-1 at page No. 11 the total has been taken at Rs. 488000/- instead of Rs. 478000/- resulting into a difference of Rs. 10000/-. vi) In Annexure S-H-1at S. No. 221 at page No. 13 the value has been taken at Rs. 56000/- instead of Rs. 50000/- resulting into a difference of Rs. 6000/-. vii) In Annexure S-H-4 at S. No. 161 at page No. 9 the value has been taken at Rs. 13600/- instead of Rs. 12600/- resu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... items. Department has engaged and taken videography of entire stock at all places on the date of survey, kindly provide us the copy of videography, so we can submit our explanation in this respect also. xxi) Department has not found any difference in the physical stock taking at M.I. Road showroom as the department has accepted the quantitative statement of assessee only obtained from the computer of the assessee. xxii) The physical verification was not done in presence of responsible person/partner at Raghuvihar and the sheet was got signed from the Raj Agarwal partner at Ajmer Road, office at a later time because the Raj Agarwal was present at the M.I. Road and the one person cannot be present at two places at the same time. xxiii) AT Hathroi also the stock verification was not done in presence of responsible person knowing about the cost price. Signature of M.L. Agarwal partner were obtained later on. xxiv) It was practically not possible to count down the entire stock and valuation thereafter and statement of partners also in total 20 to 22 hours time. This time include the night time also and the time of food etc. it is therefore clear that no stock was actually counted. xx ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive at the figures of excess stock benefit of discount @ 20% and gross profit margin @ 28.12% was also given keeping in view the g.p. margin for the A.Y. 2007-08. Further the contention of the AR that gross profit rate should have been applied at 76.02% is baseless. 6. The contention of the assessee that physical verification of stock was not carried out in the presence of responsible persons is also not acceptable as the same has been carried out in the presence of partners and the fact has been accepted by them in the statement given during the course of survey proceedings. 7. Another contention of the assessee that it was not possible to count the entire stock and valuation and thereafter statement of the partners within 20 to 24 hours is also not correct because there were sufficient officers and officials of the department who participated in the survey proceedings. 8. Another contention of the assessee that deduction for discount @ 20% is also unlawful as Shri Raj Aggarwal while answering question no. 160 at page no 11 of the statement has specifically told that discount is given by the employees @ 40% to 50% is also not correct because he has only stated that employees ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - i. That the addition is unlawful, simply made on the basis of statements, without having any material and ignoring the legal position that statements taken u/s 133A are not on oath, not binding and no declaration can be taken in the light of circular/clarification No. 286 dated 10/03/2003 of CBDT. ii. That the physical inventory prepared by the survey team was faulty, wrong, illegal and was altered and amended by survey team to get the predetermined value of stock. Ld. CIT(A) also erred in not considering the report of handwriting expert Dr. Dinesh Sethi in a positive manner and rather holding that alterations were done in consultation with the partners. iii. That the valuation of stock taken by the survey team was also faulty, wrong, excessive, illegal, estimated and was not made from the books. 10 iv. That the signatures on statements were taken forcely under threat for which appellant has filed affidavit before Ld. CIT(A) and made the retractions by not depositing tax, by mentioning retraction note in financial statement and by not showing the alleged surrender in the return of income. v. That value of the stock on the date of survey was not taken correctly as after the ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.12% only as against current year's G.P. of 76.02% and deduction of discount @ 20% only as against 40-50% generally available in the industry and stated by one of the partner. viii That the Ld. CIT(A) grossly erred in giving the credit of stock of Rs. 38,60,871/- only available in the stock of the goods received on challan basis as against claim of assessee for Rs. 85,32,913/- (Cost of goods Rs. 65,70,346/- + Exp. Rs. 19,62,567/-). ix On the fact and circumstance of the case lower authorities grossly erred in holding that there was excess stock on the date of survey for Rs. 3,42,96,531/-. In fact there was no excess stock. a. Because physical stock was not done correctly and was not in presence of responsible persons. b. Because there are so many overwriting, cuttings etc. in the physical verification sheets. Report of the department expert forensic was unlawfully accepted whereas the report of appellant's expert was not properly evaluated. c. Because the quantity of stock found actually has been increased to get the desired results. d. Because the stock noted down in the physical verification sheets cannot be placed in the Ajmer Road ground floor showroom. e. Because the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,822/-; and has also assailed the relief of Rs. 38,60,871/- granted in the valuation of the stock by treating unsubstantiated purchases as purchases against- challans. In fact, issues involved in both the appeals is regarding determination of the value of stock found during the survey. The valuation of the stock has been challenged on various counts. We are proceeding to decide them simultaneously and may be under different heads. 3.2 Before us both parties have reiterated their earlier stands. Their ld. Representative through the relevant portions of the orders of the authorities below and also took us to the specific pages of the paper books and written submissions filed by them, in order to substantiate their respective points of view on the contentious issues. After cogitating them, we found that undeniably, the AO has made stock addition based on following pieces of evidences:- 1. 'Physical-stock inventory' prepared during the course of survey vis-a-vis the stock shown in the books of account. 2. 'Statements of the parties recorded during the course of survey. &n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard, the decision of Hon'ble Supreme Court rendered in the case of CIT vs. Khader Khan Son reported in (2012) 254 CTR 229 is relevant. In this case, their lordships have held that Section 133A of the Act does not empower any income tax authority to examine any person on oath, and therefore, any admission made in a statement recorded during survey cannot, by itself, be made the basis for addition. The Hon'ble Madras High Court while deciding the case of CIT vs. S. Khader Khan Son reported in (2008), 300 ITR 157, which has been upheld by the Hon'ble Apex Court as discussed above, has held that in view of the scope and ambit of the materials collected during the course of survey action u/s 133A shall not have any evidentiary value. It could not be said solely on the basis of the statement given by one of the partners of the assessee - firm that the disclosed income was assessable as lawful income of the assessee. Similar view has been taken by Hon'ble Kerala High Court while deciding the case Paul Mathews and Sons vs. CIT reported in (2003) 263 ITR 101. In the very strong words, the Hon'ble Kerala High Court observed that during survey operation, if any statement is recorded, it ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee. Thus the ld. AR has disputed the inventory sheets which have been supplied after a period of three years from the date of survey on 28-01-2008. Therefore, he has disputed the correctness of the inventory on various counts. Apart from imputing tampering of inventory items with respect to their quantity and value, specifically it was yelled stated that the value of stock has not been correctly adopted as the assessee has been giving a huge discount upto 50% on its sales. Other point of attack on the correctness of the inventory is that the goods of the assessee firm were lying at three business premises and correct verification was not done. The other angle from which inventory has been assailed is the adoption of value for ascertaining the stock. For ready reference, we would like to to incorporate various angles from which assessee firm has challenged and assailed the correctness of the inventories and the legal position of the surrender made during survey through written submission of the ld. AR which, reads as under:- ''Facts of the case- Assessee Appellant is a partnership firm and is a dealer in the line of manufacturing and trading of Handicraft items made of Marble and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal income for taxation. It is submitted that the preparation of inventories was done in an absolutely hurried manner and without any application of mind and further without in any manner understanding the true nature of business, the product vis-à-vis the valuation placed for working out the actual stock on the date of survey. The glaring example would be found at page 291 to 294 (1st part) of the paper book. The entire exercise of inventorisation was full of errors of omission and commission which will be indicated later in this submission. The chart of physical inventory valuation sheet valued by the survey team: Chart of closing stock (Bal. fig.) as per Books on the date of survey i.e. 28.01.2008 taken up by the officer of the Department (on the basis of G.P. Rate of preceding year i.e. 28.12%) To opening stock 8001286.00 By sales 20247082.00 To purchases 10275127.00 By closing stock 6674221.00 To direct exp. 2949386.00 To gross profit 5695504.00 TOTAL 26921303.00 26921303.00 Owing to the improper working of the stock inventorization and considering the errors of the nature of omission and commission and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in appeal before the Hon'ble Bench. Ground of Appeal No. 1 (i) & (xi): The Ld. Assessing Officer has made the additions on the sole basis of statements recorded ON OATH and the surrender was obtained on the basis of such statements. It is therefore submitted at the outset that statements recorded on oath cannot be made basis for making addition as there was no occasion to administer oath thus the user of such statements for assessment is illegal and void-ab-initio. During the survey proceedings the Assessee offered every cooperation and facilitated the survey proceedings which is a matter of record as there is no adverse observation by the survey team with reference to the conduct, cooperation and behaviour of the assessee. Thus, in the case of Assessee before your honours, the statements recorded being unwarranted and unjustified, cannot be used for completing the assessment. Reliance is placed on Hon'ble Supreme Court in the case of S.Khader Khan Son 79 DTR 184 and 263 ITR 101 in the case of Paul Mathews & Sons (Kerala), where it has been held that whatever recorded u/s 133A has no evidentiary value obviously for the reason that the officer is not authorized to administer oat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther by submitting a detailed reply to Ld AO on 14-12-2010. It is important to submit that copy of stock inventory sheets were supplied only after 10-12-2010 which is undisputed and have been agreed by Ld. AO at page 5 of assessment order (Page 1, S.N. 2) the copies of the inventory sheets made during the survey are legally required to be supplied to the assessee on the spot at the conclusion of the survey which has deliberately not been done and inspite of having taken several rounds of the AO's office, the same have been supplied after a period of nearly 3 years from the date of survey which was conducted on 28.01.2008. The Ld. Assessing Officer after receiving the return of income has slept for over more than 2 years to make any further enquiry in relation to the retraction made which further strengthens the plea of the Assessee that except the alleged surrender no other material was found during the course of survey which can indicate any undisclosed income of the Assessee Firm. It is also verifiable from the assessment order where Ld. A.O. has not discussed any such material. We therefore, submitted that the statements recorded deserve to be ignored and excluded. The relian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could not be said that the Revenue had lost lawful tax payable by the Assessee. The view adopted by the Assessing Officer in the assessment order passed u/s 143(3) was not unsustainable in law and was one possible view. Thus, the Commissioner had wrongly exercised his power u/s 263 for both the years and his orders were quashed for both the years. 6. Jain Trading Co. V/s ITO, Mumbai Tribunal, ITA No. 5935/Mum/2002, Benched, Dt. 30th October,2006 It is not correct to state that an Assessee is bound by his offer of an additional income for all time to come. But at the same time the burden cast upon an Assessee who chooses to retract his earlier statement is very heavy. The Assessee has completely explained entire business transactions leading upto the date of survey. The Assessee has given during the curse of assessment proceedings the details of activity from which the Assessee has demonstrated that the rate of gross profit varied from item to item and transaction to transaction. Once every purchase is collated with the sale thereof in terms of quantum as well as value, no further burden remains to be discharged by the Assessee unless any discrepancy or falsity is pointed out in s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... team during the survey had suffered persecution-mania which is a most normal human disposition in such circumstances particularly when he was not permitted to take advise from his counsel or his tax advisor and not even was permitted to take or make the phone calls. Thus the atmosphere was deliberately converted into a charged atmosphere where normalcy of the human mind is bound to disappear. This fact is verifiable from the way in which the statements have been recorded and the survey action had proceeded. The assessee submitted before the Ld. Assessing Officer that there is no difference in the stock and the officers of the department or the employees of the Assessee are not valuation experts. It is an exercise to be made from the books of accounts to value the cost of each and every items which takes a lot of time and not possible rather impossible in 20-22 hrs. of total survey period. We rely on Hon'ble Supreme Court 237 ITR 1 in the case of Saraswati Industrial Syndicate Limited V/s CIT where it has been held that valuation done by the person without any technical competence should not be considered. Ld. CIT(A) at page 15 of her order have rejected these submissions & held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 84,074/- which stands reduced to Rs 3,42,96,531/- by Ld CIT(A) on account of excess stock found during the course of survey on 28/01/2008. The basis on which additions were made was the alleged surrender made by the partner of the firm and physical stock inventorisation done and valuations placed over the same. We have already explained that the alleged surrender was illegal and was also retracted. In regards to physical inventory of stock & valuation we submit that no proper inventorisation of stock & valuation was done and there were material mistakes in the inventorisation as well as valuation. Kindly, peruse the inventory sheets (APB 16 to 260). Your goodself would observe that the entire inventorisation is on estimate basis and was unrealistic. Your honours will kindly appreciate that in the immediate two preceding years Assessee's trading records were accepted by the department. Therefore, the closing stock as on 31/03/2007 accepted by the department was Rs. 80,01,286/- and therefore the opening stock taken up by the Assessee of Rs. 80,01,286/- is also an accepted figure. Moreover Assessing Officer has accepted the declared purchases, the declared direct expenses and the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... survey, thus several number of items were increased either by putting a number before the quantity noted or after the quantity noted of particular items. The details of such distortions would be available at APB 296 to 305. If your goodself would kindly peruse APB 115 which is SH page No 1 S.N. 2 Marble Duck with Watch. The actual quantity was 1 which was altered to 15 by using the figure 5. Likewise in the same sheet S.N 5 is Marble Pot. The actual quantity was 1 which was altered to 14 by using the figure 4 after 1. When the matter was referred to Handwriting expert by the Department and the Hand Writing expert submitted his report which is at APB 587 & 588. Where in the first part of the report he has accepted that there are cuttings & overwriting however taking a summersault he further expressed his opinion that these cuttings & overwriting are bonafide, it may be submit here that the bonafide or malafide of cutting in a document like this cannot at all be done unless such cuttings and overwriting are verified by the effected party on the very moment it is done. The assessee also obtained report from another Handwriting expert Sh. Dinesh Sethi who has given his report in de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 56,727/- as against the inventorized to Rs. 500500/- (APB 266 to 290) which clearly proves that the valuation of stock done during the survey is totally unreliable and based on arbitrary valuations taken for the same with the calculated motive to arbitrarily take a very very higher figure of stock for recovering equally higher tax from the assessee by incriminating him on record with the design as has been described above and which would be further strengthened in the ongoing paras. In this case the assessee filed an affidavit before the Hon'ble CIT (A) at APB 620-621, where he mentioned all the facts about the survey but the Ld. CIT (A) without examining the deponent rejected the affidavit holding the same as unreliable evidence. This action of Ld CIT (A) is totally unlawful. We rely on Hon'ble Supreme court in the case of Mehta Pareek & Co 30 ITR 181 that unless the deponent is cross examine that the affidavit cannot be rejected. It is further submitted that the aseessee appellant by conduct retracted from the statements by not depositing the tax for which the cheques were already given and further by not including the alleged surrender in the return of income and also by putti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oor the alleged quantity of physical stock found cannot even be housed which further supports the assessee's contention. Regarding valuation of inventory taken on tag price after reducing discount and deduction for Gross Profit rate or alleged cost price after reducing discount and deduction for Gross Profit rate is much higher than the actual sale price of the same items made by the Assessee. We are submitting herewith a list of sales (APB 266 to 267) compared with the value of the stock taken of the same item. After perusal of this list Your Honour will be satisfied that the physical stock as taken by department during the course of survey of Rs 5,00,500/- was sold in Rs 156727/- only and the difference of value taken at the time of inventorisation comes to Rs.3,43,773/- which is more than 219% of the sale price. It clearly proves that neither the physical counting of stock or the valuation of stock was done in proper manner and in lawful manner and was purely on estimate basis to get the predetermined result and therefore cannot be relied upon. Due to this it was also submitted that the discount given @ 20% is also on lessor sale. One of the partner has requested to the survey ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... better as compared to the past. It is further submitted that the entire additions are based on illegal survey, unlawful statements, estimations in the valuation and assumption and approximation in the stock inventorisation. The Hon'ble Delhi Bench of ITAT in the case of Bansal Strips Pvt. Ltd. V/s ACIT reported in 1999 ITD 177 has held that the assumption and inadequate material cannot be foundation of addition on account of excess stock. Ground of Appeal No. 1(V): During the course of survey, since the stock available with assessee was valued at sale price, to arrive at the cost price, deduction on account of G.P. embedded therein was given by taking the G.P. rate at 28.12% being the G.P. declared in immediately preceding year. In this regard, it is submitted that the assessee firm is dealing in handicraft items where neither the sale price is fixed nor the cost of the material input is static thus the gross profit cannot be remained static over a period of time and therefore, the method adopted by the survey team for working out the value of stock 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 prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 in provision para 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 / Double Addition 96,95,561.00 It tantamounts to double addition because assessee has paid taxes on this amount while filing the return of income. We are submitting a chart taking stock 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. 47,36,14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of survey was reduced by Rs. 86,01,926/- being the amount of G.P. @ 28.12%, however this deduction was also not allowed on the entire stock thus the same was agitated before CIT (A). it was also agitated before Ld A.O. & Ld CIT (A) that the discount should have been allowed @ 50% & the deduction for gross profit should have been allowed @ 76.02%. After reducing the two deductions on pick & choose method as stated above, the resultant value of the goods was worked out at Rs. 5,75,72,379/- and a trading account was prepared wherein the purchases and sales upto the date of survey were taken as recorded in the books 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he date of survey at Rs. 7,38,21,822/-, the inventory should be reduced by another Rs. 2,21,46,546/- and as a result the total additions deserves to be reduced by this figure. B. Deduction on account of Gross Profit: It is further submitted that the gross value of stock as worked out during the course of survey was reduced by the element of gross profit and the same was computed by taking G.P. rate of 28.12% as against the G.P. rate declared during the year @ 76.02% by the assessee. This contention was raised before the Ld. AO who has taken double standards by holding the same as baseless without assigning 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 com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hout making any cogent observation denying the claim in the assessment order. It is further submitted that since the books of accounts as on the date of survey were not completed therefore, after the survey, the assessee got the books of accounts completed by incorporating all the bills which were not received at the time of the survey though the goods were received and also the pending entries for the expenses incurred before the date of survey. It is the settled law that where the books of accounts were not completed at the time of survey, the assessee should have been allowed to complete the same 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 ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovided by the assessee from its computer and the same was titled as "Annexure S-3", a reference of which is also appearing in question No. 15 put before Shri Raj Agarwal, appearing at page 9 of his statements which is reproduced as under: From the perusal of the aforesaid statement of Shri Raj Agarwal, it is evident that there were certain goods available at the premises at M.I. Road which were received on approval and were not forming part of the total stock as recorded since their bills were not received, thus all these facts further strengthens the contention of the 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 g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... voke the provision of section 145 of the Income Tax Act 1961 which is sine quanon, for disturbing the book result & making additions towards the difference in stock which was properly reflected in the book of accounts. The assessee also would like to stress and reiterate that the book results were also better this year. It is therefore clear that there was no irregularity in the books of accounts & without rejecting the books of accounts, without 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement for doing so in earlier paras, (at Page No.1 Para 2, at S.No. 5 Page No.5, at Para 3 Page No.6 of Assessment Order) has erred in not allowing the full deduction @ 20% on account of discount and @ 28.12% on account of Gross Profit Rate. Further, LD Assessing Officer also erred arithmetically when he allowed the discount of Rs.13,58,942/- only in Para 3 Page No.6 of Assessment Order in fact the total amount of closing stock after 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (which was prepared in their presence) accepted the excess stock. On being confronted and asked to explain the reasons of excess stock amounting to Rs. 5,08,98,166/-, Shri M.L. Agarwal, partner in reply to Q. No. 23 of his statement, admitted that firm 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken by Ld. CIT(A). Thus, Ld.CIT(A) committed a factual error 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 benefi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst the items where value was taken at "Cost Price" 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 sur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Ramjan Bhatt & Sons, Suraj Sharma and Rajkumar Prajapati did not furnish any reply t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 as per Books, the excess amount of stock was determined. (5) The inventories were prepared an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 no evidence that "any confession" was obtain. On the contrary, the assessee was confronted with the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 upon. (d ) The issue relating to filing of an "affidavit" has already been discussed somewhere in this written sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove 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. Therefore, it is not understandable, inspite of figures of opening stock, purchases and sales remaining the same (as stated at the time of survey), how GP can rise from 28.12% to 76.02% (APB Pg 294). This is nothing but simply fudging done in the figures ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as 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 same in the earlier part of this order. No admission made in a statement recorded u/s 133A on oath during survey can be relied as evidence against the maker or the assessee. Undeniably, the AO has made impugned addition on the basis of the statement of Shri Manohar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pe 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 interest of Revenue. The AO being a quasi-judicial authority cannot be selective and partial. 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 manipulati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 considered by the ld. CIT(A). In the facts and the circumstances of the case, we can safely conclude that the assessee has verily retracted the statement. We have found that the copies of inventory-sheets were supplied to the assessee after 10-12-2010 i.e. after the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 been forced to declare much high rate of profit, more than other assessment years. 3.11 During the course of survey, the stock available with the assessee was valued at sale price to arrive at the cost price. The deduction on account of gross profit embedded therein wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 amounts to double addition because the assessee has already paid tax on this amount while filing the return of income. This discrepancy becomes clear from the following position of stock taking of Rs. 66,74,221/- on the date of survey which is as under"- 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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. The Revenue has already allowed deduction @ 28.12% , therefore, further 47.9% is directed to be reduced from the total value of the goods as on the date of survey computed at Rs.7,38,21,822/-. 3.17 By our this findings, the grounds of Revenue's appeal are also simultaneously disposed off. Since we have allowed the grounds of appeal raised by the assessee to a greater extent and more than what was allowed by the ld. CIT(A). Therefore, both the grounds of the Revenue stand dismissed. Accordingly, the appeal of the assessee is partly allowed and that of the Revenue is dismissed. Before parting, we may add that this appeal has been decided after considering the peculiar facts of this year. However, this ..... X X X X Extracts X X X X X X X X Extracts X X X X
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