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TMI Blog2019 (6) TMI 388X X X X Extracts X X X X X X X X Extracts X X X X ..... the survey party has valued the stock physically and arrived at a figure of Rs. 10,61,59,636/-. Accordingly, the difference of Rs. 2,42,69,000/- was proposed to be added in the income of the assessee. As per the A.O., statement of sales Director of company Shri Sanjeev Agarwal was recorded wherein he agreed to offer the difference as income of the assessee. During the course of survey following difference in inventory was alleged. As per the A.O., difference when confronted to Shri Sanjeev Agarwal Marketing Director of the assessee Company, while recording his statement he admitted the difference and offered the same for tax. Particulars BOA Survey Team Difference Difference in % Quantity Material in Sq. Mtr. 1,13,058.54 1,09,055.60 -4,002.94 -3.54% Sand Stone (Cobble) in M.T. 755.53 637.00 -118.53 -15.69% Sand Stone in CFT 1,341.86 1,491.00 149.14 11.11% Total 1,15,155.93 1,11,183.60 Rate Material in Sq. Mtr. 700.00 951.00 251.00 26.39% Sand Stone (Cobble) in M.T. 3,000.00 3,000.00 - 0.00% Sand Stone in CFT 360.00 360.00 - 0.00% Total 4,060.00 4,311.00 Value Material in Sq. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the process cost. The survey team relied on the unsubstantiated / unverified figure of processing charges as admitted by the directors of the assessee Company. Even initially, while replying to question no. 17 the process cost conveyed was Rs. 211 only. However, subsequently, under misconception and under normal pressure of such survey action the process cost was admitted at a higher figure of Rs. 462. The survey team in question no. 19 has taken the processing cost at Rs. 2,35,00,000 and has sought the reply in the background of processing cost. There is no basis available from where this figure was derived by the survey team. The director of the Company got misplaced and confused by this figure. 6. By the impugned order, the ld. CIT(A) confirmed the action of the A.O., against which the assessee is in further appeal before the ITAT. 7. We have considered the rival contentions and carefully gone through the orders of the authorities below. We had also deliberated on the judicial pronouncements referred by the lower authorities in their respective orders as well as cited by the ld. AR and ld. DR during the course of hearing before us in the context of factual matrix of the case. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; Note Particulars As per Assessee As per Survey Material Rate Average Purchase Cost 350.00 350.00 Freight 75.00 75.00 Wastage 64.00 64.00 Processing Cost 211.00 462.00 TOTAL 700.00 951.00 From perusal of table above it is evident that the difference in physical quantity was insignificant (difference of 3.67% in sq.mtr material and 1.44% in remaining material). The difference arose due to difference in processing cost taken by the department at Rs. 462/- as compared to processing cost worked out at Rs. 211/- as per books of account, as on the date of survey. Even during the course of assessment proceedings, the assessee had furnished complete break up processing cost for the entire year under consideration and also for immediately preceding year, which was as under: Particulars Amount (In Rs.) F.Y. 2012-13 F.Y. 2011-12 Stores, Consumable materials 1,95,80,836 1,96,77,101 Electric, Power, Fuel & Water 54,77,544 52,46,588 Labour Processing 32,02,336 25,91,962 Repairs to Building 5,66,023 3,15,018 Repairs to Machinery 12,50,266 7,20,148 Tota ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disclose the correct state of facts, vide decision of the apex court in Pullangode Rubber Produce Co. Ltd. vs. State of Kerala & Another, 91- 1TR-18: (ii) In contradiction to the power under section 133A. section 132(4) of the Income Tax Act enables the authorized officer to examine a person on oath and any statement made by such person during such examination can also be used in evidence under the Income Tax Act. On the other hand, whatever statement is recorded under section 133A of the Income Tax Act is not given any evidentiary value obviously for the reason that the officer is not authorized to administer oath and to take any sworn statement which alone has evidentiary value as contemplated under law, vide Paul Mathews and Sons v. CIT [2003] 263 ITR 101 (Ker.); (iii) The expression "such other materials or Information as are available with the Assessing Officer" contained in section 158BB of the Income Tax Act, 1961 would include the materials gathered during the survey operation under section 133A, vide CIT v. G. K. Senniappan [2006] 284 1TR 220 (Mad.); (iv) The material or information found in the course of the survey proceedings could not be a basis for making any ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee firm in next year as opening stock which will reduce profits of next year. The assessment of assessee for A.Y. 2010-11 has been completed u/s 143 (3) wherein opening stock was taken by assessee as that was shown by him as closing stock in this A.Y. 2009-10. Thus no benefit of enhancement of closing stock was claimed or allowed in A.Y. 2010-11. This exercise is essentially revenue neutral between two years and/or in subsequent years. The Hon'ble Supreme Court in the case of CIT Vs. Excel Industries Ltd.(2013) 358 ITR 295 has held that addition in such revenue neutral exercise should not be made by department. Thus on both the counts, there is no justification to make addition for difference valuation of stock and Ld. CIT (A) is wrong and has erred in law in confirming addition of Rs. 30,96,050/- in the hands of assessee as unexplained excess stock found in course of survey which deserves to be deleted..."[CLC 120-121] Hon'ble ITAT after considering the arguments held as under: "..13.1 Apropos Ground No. 5 of the assessee, we find merit in the arguments of the ld. counsel for the assessee that increase in valuation of the closing stock is to be allowed in next year as inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of sole evidence in the form of statement recorded during the course of survey operation other than this statement, no corroborative material was brought on record by the department. It is pertinent to mention here that Shri Sanjeev Agarwal, whose statement was recorded was looking after marketing work of the assessee company, therefore, not aware of the costing aspect as well as valuation of the inventory. In contrast of this even during the course of assessment proceedings, complete details of quantity and valuation of the inventory as on the date of survey was submitted which has not been disputed by the A.O. nor any discrepancy was pointed therein. However, the A.O. has ignored the same. 13. The prevalence of forced confession has now been recognized by the Finance Minister himself during the course of his Budget Speech, 2003 followed up by a Board Circular No. 286/2/2003 IT (Inv.) dated 10.3.2003 requiring the Assessing Officers to avoid such compulsion. The Privy Council in Bhuboni Sahu Vs. The King [AIR 1949 PC 1257] had pointed out to the tendency on the part of the officials to extort confession by intimidation and coercion and required independent corroboration of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n cannot know the nitty-gritties and intricacies of the costing model of any product. Further, we observe that the director whose statements were recorded initially stated the processing cost to be Rs. 211 and, thereafter, under pressure he stated a higher processing cost to be Rs. 462. 14.2 Ld. CIT(A) while going through the annual average of processing cost i.e., Rs. 173, observed that the total quantity manufactured i.e., 1,74,036.87 was total of quantities in different units of measurement. We observe that admittedly the total was calculated taking into account quantity in square meter as well as in metric tonne. Since, the inventory in metric tonne was raw material on which no processing was done, the assessee company should have totaled only the inventory which was in square meters. 14.3 Further, ld. CIT(A) in Para (ix) Page 23 stated that while working out the average processing cost of Rs. 173 the assessee company have not taken Yield Percentage into consideration. In this regard we observe that even if the average yearly processing cost is revised taking into consideration the observations as stated above, then also the average yearly processing cost will be Rs. 208.29 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, actual process cost as arrived in books of account is to be taken for valuation of stock. 16. Even if the said difference in the physical quantity so taken by the department is accepted the resultant valuation (as per the rates adopted by the assessee company) will be as under: Particulars As per Survey Qty (Q 21) Rate Amount Material in MT 637.00 3,000.00 19,11,000.00 Material in CFT 1,491.00 360.00 5,36,760.00 Material in SqMtrs 1,09,055.60 700.00 7,63,38,920.00 Total of above 7,87,86,680.00 Total Stock as per assessee Company 8,18,90,637.60 17. It is clear from the above chart that even if the tentative quantity taken by the department with the rates as per books of account is taken total stock works out at Rs. 7,87,86,680/- as against the stock as per books of account at Rs. 8,18,90,637/-. Thus, there is shortage of stock as on the date of survey amounting to Rs. 31,03,957/- which can be considered as having been sold but not recorded in the books of account on the date of survey. At the most, the department can add GP earned on such shortage of stock, in so far as the A.O. has not doubted that all th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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