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2019 (6) TMI 652

no merit because the survey team and the jurisdictional Assessing Officer are well within their powers to issue the summon u/s 131 of the Act in order to complete the survey proceedings in the interest of revenue. Validity of retraction of the statement made in survey proceedings u/s 133A - HELD THAT:- The assessee has within a reasonable period of 3 months, after analysing various documents relating to purchase and sale of the stock, market price vis-a-vis the cost price of the products, deduction for defective goods and also on observing the stock of another sister concern M/s. Gayatri Coating Pvt. Ltd which was lying in the same premises and was wrongly included by the survey team in the unaccounted stock even when the stock of the sister concern M/s. Gayatri Coating Pvt. Ltd was duly disclosed in their regular books of accounts filed a retraction statement on 28.4.2014. It is always open for the revenue authorities to examine the correction of the retraction statement and should point out the errors in such retraction statement (if any). Therefore the action of Ld. A.O of outrightly rejecting the assessee’s retraction statement without pointing out any mistake in such ret .....

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e by the assessee under 133A proceedings is based on facts and may very kindly be accepted. 3. That the learned CIT(A) erred in upholding the action of the AO in making an addition of ₹ 2,09,44,333/-: (i) on account of excess stock being the difference of amount surrendered during the course of survey and the amount offered in the return of income filed; (ii) based solely on the statement of the assessee made uls 133A proceedings having no evidentiary value which is bad in law, unjustified and uncalled for and it is prayed that the said addition may very kindly be deleted. 4. That the learned CIT(A) erred in giving a relief of 5 on account of defective stock out of total stock instead of deleting the entire addition made by the AO on account of excess stock of ₹ 2,09,44,333/- which was valued at an exorbitant figure. 5. That the appellant craves leave to add, to alter, amend, modify, substitute, delete and/or rescind all or any of the grounds of appeal on or before final hearing, if necessity so arises. 3. Briefly stated facts as culled out from the records are that the assessee is an individual and runs business of trading and manufacturing of cloth under sole propriet .....

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on given by Ld. Counsel for the assessee reads as follows; Ground No. 1 The first ground of appeal is challenging the validity of Summons issued u/s 131 on 22.01.2014 requiring the assessee's presence on 22.01.2014 itself and then subsequently on 24.01.2014 which are in excess of jurisdiction vested in the AO by the LT. Act and thus bad in law and may very kindly be quashed. - Survey proceedings u/s 133A were conducted on 22.01.2014. The survey party immediately issued two summons both dated 22.01.2014 requiring the assessee's presence at 01:00PM on 22.01.2014 i.e. during the course of survey itself (copy at page 15) and the other for 24.01.2014 at 11:30AM at the AO's office. (copy at page 16). These summons u/s 131 have been issued in a routine manner without application of mind. This fact is supported by the fields in the letter of summons not being scored off and only the fields of date, time and place being filled in. What is seen in practice is, in more or less in every survey, the AO issues summon u/s 131 during the course of survey itself. The purpose of issuing such a notice is that the department can call the assessee after the survey is over but they cannot ca .....

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page 16), it is submitted that the income tax authorities have no power to issue notice if proceeding is not pending. Thus, the second summons has still no legal sanctity as no proceedings were pending as on 24.01.2014 as there was a concluding statement recorded on 22.01.2014 and the survey proceedings had concluded (copy at pages 25 to 27). So the statement recorded on 24.01.2014 (copy at pages 37 to 39) is invalid as the summons issued on 22.01.2014 to make compliance on 24.01.2014 was itself invalid. - So if these two summons u/s 131 are expunged from the survey proceedings declaring them invalid and in excess of jurisdiction vested upon the AO by the Income Tax Act 1961 what remains is a statement recorded u/s 133A during the course of survey proceedings which has no evidentiary value as has been decided by various appellate authorities. Sole reliance has been placed by the revenue while upholding the addition of ₹ 2.09 crores which has been separately challenged in Ground no. 3(ii) and deliberated there. - The contentions of the assessee finds support from the following case laws :- 1.Gheru Lal Bal Chand v. ITO (P & H High Court )[1982] 137 ITR 190 (copy at pages 0 .....

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be quashed. In turn the statements recorded on 22.01.2014 and 24.01.2014 have no evidentiary value, rendering the entire assessment proceedings as invalid as the assessment order is based solely on the statements recorded and may very kindly be quashed. Ground no. 2 The second ground of appeal is challenging the order of the Ld. CIT(A) in upholding the AO's action in rejecting the retraction of the statement made by the assessee during the course of survey u/s 133A relying solely on the statement recorded during survey proceedings u/s 133A on 22.01.2014. AND Ground no. 3(i) This ground of appeal is challenging the AO's action in making an addition of ₹ 2,09,44,333/- on account of excess stock being the difference of amount surrendered during the course of survey i.e. ₹ 3,91,60,110/- and the amount offered in the return of income filed i.e. ₹ 1,82,15,777/-. Since both these grounds are inter related, the same are dealt with together for the sake of brevity. In addition to the facts enumerated in ground no. 1, it is further stated that: 1. In the statement recorded on 22.01.2014 the assessee had expressed his inability to explain the difference of cash and .....

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k of M/s Gayatri Enterprises and M/s. Gayatri Coating Pvt. Ltd. was concerned, the stock was not separately identified and marked. The entire inventory was prepared in the name of M/s. Gayatri Enterprises. Thus, it is submitted that the inventory which was prepared by the survey party included the stock of M/s. Gayatri Coating Pvt. Ltd. to the tune of ₹ 51,15,200/-. This was verifiable from the records of M/s. Gayatri Coating Pvt. Ltd. This stock was purchased by M/s. Gayatri Coating Pvt. Ltd. out of its own funds. The purchases are duly reflected in the books of M/s. Gayatri Coating Pvt. Ltd. The assessee even stated that these purchases could be duly verified by the department at the assessee's cost from various suppliers. d) It would be illogical if the stand of the survey party is accepted that the stock of M/s. Gayatri Coating Pvt. Ltd. at the time of survey was NIL because even on 31.03.2013 as per the audited accounts the stock of Gayatri Coating as per audited accounts as on 31.03.2013 (₹ 46,67,240/- (refer retraction letter, relevant page at 49 of PB) is reasonable and coming out of records as on 22.01.2014 it stood at ₹ 51,15,200/- and was in parity. .....

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ld be verified and the assessee was willing to bear the cost. The AO and for that matter the Ld CIT(A) did not make any efforts to controvert the assessee's submission and make independent investigation. j) The assessee even obtained quotations of the sale price from independent parties (copy at pages 143 to 152). The defective items were separately marked and sold. The assessee even asked the AO to independently verify it at his cost. (copy at page 51) k) Entries of all the defective items was separately marked as damaged in Annexure B, A separate list for the sale of defective items was also prepared and is also enclosed at pages 64 to 67. All the defective items were sold to unrelated parties and through banking channels. The assessee even asked the Ld. AO to verify all these transactions from the respective parties and the assessee was willing to bear the cost. 1) The total sale of the stock belonging to Gayatri Enterprises came to ₹ 2,03,85,207/-. A gross profit rate of 6 was applied on this sale which was the rate applied by the survey party. After deducting the stock as per books of Rs.I0,15,550/- the amount comes to ₹ 1,82,15,577/- which was the revised surr .....

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91 ITR 18 (SC) (copy at pages 06 to 08 of Case Laws PB) 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. 2. Krishnan Vis Kurukshetra University AIR 1976 SC 376 (copy at pages 09 to 17 of Case Laws PB) 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 foundation of an assessment and it is always open to the assessee who made the admission to show that what he admitted was not correct. t) Even the Ld. CIT(A) has dismissed this ground of the assessee stating it as consequential in nature. u) It is reiterated that elaborate submissions were filed before the Ld. AO via the retraction letter on 28.04.2014. The assessee submitted evidence in support of his retraction apropos sale of stock found during the course of survey and also sale of defective/damaged stock with supporting. The assessee even asked the Ld. AO to verify the sale, the rates at which the sale wa .....

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ons issued u/s 131(1) were invalid and in excess of jurisdiction conferred on the AO during the course of survey proceedings u/s 133A what remained was only the statement recorded u/s 133A(3)(iii) having no evidentiary value. 2. So far as the statement recorded during the course of survey proceedings u/s 133A is concerned it is reiterated once again that the AO exceeded his powers by issuing summons u/s 131 when the assessee had fully cooperated during the survey proceedings and was not covered u/s 133A(6). 3. So the statement which is heavily relied on by the AO while rejecting the retraction letter is nothing but a statement recorded u/s 133A(3)(iii). It would be apt to draw your Honour's kind attention to section 133A(3)(iii) which reads as under: 3. An income-tax authority acting under this section may,- (iii) record the statement of any person which may be useful for, or relevant to, any proceeding under this Act 4.Now the section itself makes it amply clear that the Income Tax Authority 'may' record a statement which may be useful for or relevant to any survey proceedings. There is no ambiguity in law that the AO has no power to record any statement on oath u/s 13 .....

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rwal Vs. ITO (ITAT Jaipur) (copy at pages 115 to 126 of Case Laws PB) Section 133A, however, enables the income tax authority only to record any statement of any person which may be useful, but does not authorize taking any sworn statement. Thus, it is trite law that Section 133A does not empower any Income tax authority to examine any person on oath and then use it as evidence to make addition. In such a situation, no addition can be made or sustained only on the basis of the statement recorded during the survey Vis 133A of the Act. Once the assessee has retracted from the statement then it was on the A.O. to establish beyond any doubt the issues on which the addition has been made. Considering all these aspects, we find no merit in sustaining the addition only based on the statement recorded during the course of survey. Hence grounds No. 1 to 5 of the appeal are allowed. 6. ACIT Vs Sudeep Maheshwari (ITAT Indore) (copy at pages 80 to 92 of Case Laws PB) "It is also a settled position of law that the addition cannot be sustained merely on the basis of the statement. There has to be some material corroborating the contents of the statement. " 7. Ashok Wani Vs ITO Ratlam ( .....

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videntiary value may very kindly be deleted. Cases Relied: 1. Gheru Lal Bal Chand Vs. ITO (Punjab HC) (1982) 137 ITR 190 2. Vijay Pahwa Vs. Samir ukhopadhyay, Deputy CIT (Calcutta HC) (2001) 250 ITR 354. 3. Pullangode Rubber Produce Co. Vs. State of Kerala and Anr (Hon'ble Supreme Court) (1973) 91 ITR 18. 4. Shri Krishan Vs. The Kurukshetra University (Hon'ble Supreme Court) (1976) 1976 AIR 376 5. Kalpana Biri Mfg. Co. Pvt. Ltd Vs. ACIT (Kolkatta Tribunal) (2017) Income-tax Act, 1961,/1020/KOL/2014 6. CIT Vs. CIT Vs. Khader Khan ( Madras HC) (2007) 352 ITR 0480 7. CIT Vs. CIT Vs. Khader Khan (SC) (2012) 352 ITR 0480 8. DIT (Investment) & Anr. Vs. Pooran Mal & Sons & Anr (Hon'ble Supreme Court) (1974) 96 ITR 0390 9. CIT Vs. Dhingra Metal works (Delhi HC) (2010) 328 ITR 384 10. Ashok Manilal Thakkar Vs. ACIT (Ahmedabad Tribunal) (2005) 279 ITR 143 11. ACIT Vs. Sudeep Maheshwari (Indore Tribunal) (2019) Income-tax Act, 1961,/524/Ind/2013 12. Shri Ashok Vani Vs. ITO (Indore Tribunal)(2018) Income-tax Act, 1961,/303/Ind/2017 13. ACIT Vs. Parshwa Enterprises (Ahmedabad Tribunal) (2016) Income-tax Act, 1961,/1663/Ahd/2011 14. Pr. CIT Vs. Parshwa Enterprises (Gujara .....

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antial evidence revenue has issued summon u/s 131(1) of the Act even when the assessee cooperated with the survey team. We however are of the considered view that Ground No.1 has no merit because the survey team and the jurisdictional Assessing Officer are well within their powers to issue the summon u/s 131 of the Act in order to complete the survey proceedings in the interest of revenue. Therefore Ground No.1 of the assessee s appeal is dismissed. 12. Apropos Ground No.2 through which the assessee has challenged the order of Ld. CIT(A) upholding the action of Ld. A.O rejecting the retraction of the statement made by the assessee filed on 28.4.2014, we find that the original statement during the course of survey proceedings u/s 133A of the Act the assessee accepted the valuation of unaccounted stock at ₹ 3,91,61,110/-. Thereafter as mentioned in the retraction statement dated 28.4.14 which is approximately 3 months from the date of survey i.e. 22.1.2014, the assessee with the help of necessary documents prepared the basis of value of investment in unaccounted stock at ₹ 1,82,15,777/- thereby reducing the surrendered income of unaccounted stock by ₹ 2,09,44,333/-. .....

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tly rejecting the assessee s retraction statement without pointing out any mistake in such retraction statement is devoid of merit and is uncalled for. We therefore allow Ground No.2 raised by the assessee and hold that the revenue authorities should have not rejected the retraction statement filed by the assessee on 28.4.2014. 16. Apropos Ground No.3 raised on merits of the case, the assessee has pleaded that Ld. CIT(A) erred in upholding the action of the Ld. A.O of making the addition of ₹ 2,09,44,333/- except for giving minor relief of 5% for the defective stock. 17. We observe that the assessee is in the business of purchase and sale of grey cloth and manufacturing of printed fabrics. Survey u/s 133A of the Act was conducted on 28.3.2014. Unaccounted stock of grey clothes was recorded by the survey team as per the details at page 29,30,31 of the paper book dated 11.3.2019. Value was assigned to the type the grey cloth found unaccounted in physical form and the same was valued at ₹ 3,91,61,110/-. Assessee also signed the inventory valuation sheet. Thereafter on 28.4.14 assessee filed a retraction statement revising the surrendered amount at ₹ 1,82,15,577/-. Fo .....

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ein are the same which are appearing in the inventory sheet made during the course of survey. Deduction of gross profit of 6% is also rightly claimed as the assessee shows same gross profit consistently. Thereafter there is a deduction of stock of cloth as per books which is not disputed and the remaining amount which the value of surrendered stock i.e ₹ 1,82,15,577/-. Sales realisation of the stock has already taken care of the reduced rates for sale of defective stock (if any) made by the assessee. Revenue authorities have not pointed out any mistake or error in the above mentioned computation. 21. We have also gone through the quotation of the purchases of the grey clothes placed by the assessee at page 143 to 152 of the paper book and observe that the price assigned by the survey team is much higher to the actual cost price. For instance the grey cloth of the type 40x40 - 26 x 24 - 45 of the quantity of 1122858 metres has been valued at ₹ 15 per metre by survey team whereas as per the quotation of M.L. Textiles dated 25.01.2014 the same type of goods are costing at ₹ 8.65 per metre. Similarly for the grey cloth of description 40x60-50x60 - 46 which is measurin .....

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