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2019 (6) TMI 652

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..... s 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 retraction statement is devoid of merit and is uncalled for. We therefore allow Ground No.2 raised by the assessee . Unaccounted/ unexplained investment made in excess stock - HELD THAT:- The assessee has successfully demonstrated with the help of various documentary evidence in the form of the invoices for selling of goods post survey, quotations of grey cloth regularly purchased by the assessee, financial statement showing the gross profit rate, proof of the stock belonging to Ms/ Gayatri Coating Pvt. Ltd wrongly included in the unaccounted stock of the assessee and the fact that no other discrepancy has been pointed out in the regular books of accounts maintained by the assessee, we are therefore inclined to hold that the assessee has rightly valued the unaccounted stock at ₹ 1,82,15,777/- which has been offered to tax and Ld. A.O erred in making the addition for ₹ 2 .....

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..... 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 proprietary concern M/s. Gayatri Enterprises. Survey u/s 133A of the Act conducted at the premises of the assessee on 22.01.2014. During the course of survey excess cash of ₹ 9,45,500/- and excess stock of ₹ 3,91,60,110/- was found. After survey a retraction letter was filed on 28.4.2014 and the surrender made on amount of excess stock was revised to ₹ 1,82,15,777/- instead of ₹ 3,91,60,110/-. A return was filed on 28.9.2014 declaring a total income of ₹ 1,95,58,830/-. The assessment was completed u/s 143(3) of the Act at a total income of ₹ 4,07,27,240/- after making following additions; Returned Income 1,95,58,830 Add: 1. Difference of amount surrendered in survey 2,09,44,333 2. Disallowance u/s 14A 1,24,074 3. Total income assessed 4,07,27,237 4. Rounded off ₹ 4,07,27,240 Aggrieved assessee preferred appeal before Ld. CIT(A) and partl .....

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..... 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 call the assessee because no proceeding remains pending after the survey is concluded and hence as a mere practice, summon u/s 131 is issued during the course of survey. In the instant case also the AO slapped notices u/s 131 merely to give legal sanctity to the statement recorded during the course of survey proceedings. Summons u/s 131 is a very important notice and the Income Tax authorities are expected to be well aware of its scope, power, misuse and consequences. The Income Tax authority may use this section as a weapon in their hands which is not permissible because various courts have also imposed certain limitations on it. There are number of court decisions which say that notice U/S 131 during the course of survey should not be issued by the Income Tax authority unless the assessee does not cooperate with the survey team. So, whether the AO was justified in issuin .....

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..... ed 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 01 to 03 of Case Laws PB) "The ITO can, however, resort to powers under Sub-sections (1) and (2) of Section 131 of the Act, in case the assessee refuses or evades to co-operate in terms of Sub-section (6) of Section 133A. It is undisputed that the petitioner neither refused nor evaded to co-operate on 11th April, 1978. Under these circumstances, the ITO had no jurisdiction to resort to the powers under Sub sections (1) and (2) of Section 131 of the Act while surveying the accounts of the petitioner under Section 133A on 11th April, 1978. It is obvious that the ITO issued notices (annexs. P-1 to P- 4) under Section 131 of the Act to the petitioner in excess of the jurisdiction vested in him. These notices are, consequently, liable to be quashed." 2.The Hon'ble Calcutta High Court in the case of Dr. Vijay Pahwa v. Samir Mukhopadhyay, Deputy CIT [2001] 250 ITR .....

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..... 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 stock found at that point of time. (Ref page 26-27) Still without taking cognizance of the assessee's inability to explain the difference on account of stock found a separate declaration was taken on the letter head of Gayatri Enterprise on 22.01.2014 itself where the assessee allegedly surrendered ₹ 3,91,60,110/- on account of excess stock. (copy at pages 32 to 33) 2. It was under a state of acute pressure, to avoid any litigation and a desire that the survey action be completed at the earliest the assessee was left with no choice but to co-operate with the department and make a surrender of ₹ 3,91,60,110/- by accepting the valuations of the stock as made by the survey party. 3. After the completion of survey proceedings the assessee came to know of the discrepancies in the stock valued by the survey party when he actually sold the stock in the market an .....

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..... ey 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. Detail of stock of Gayatri Coating Pvt. Ltd. showing valuation along with supporting is enclosed at pages 57 to 63. A copy of trading account as on 22.01.2014 of Gayatri Coating and an affidavit of the Director of Gayatri Coating Pvt. Ltd. are enclosed at pages 56 and 54-55 respectively. The same was not rebutted by the AO and the Ld CIT(A). e) The AO and the Ld CIT(A) have relied on the reply give by the assessee to Q. no, 15 (copy at page 21) where the assessee under a bona fide belief had stated that the stock of any other person or organization was not kept in this premises. The assessee at that moment thought that the question was for outsiders or non related parties. In fact stock of all three concerns viz. M/s Gayatri Enterprises (Assessee's Proprietorship) M/s Gayatri Processing Industries (Assessee's son's Proprietary concern) and Gayatri Coating Pv .....

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..... ) 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 surrendered amount. A chart showing the same calculation is enclosed at page 52 of PB). This amount was duly returned in the income tax return and tax was duly paid. m) The AO while dealing in the assessment order in response to the retraction letter filed by the assessee has simply brushed aside the retraction letter by stating it merely as baseless, an afterthought and a cooked up story to avoid the payment of tax on the amount surrendered during the course of survey. (Refer page 8 of Assessment order) n) The AO has chosen to place total reliance on the statement recorded during the course of survey totally denying the assessee his right to retract from his statement made under pressure during the course of survey. More importantly the retraction was backed by documentary evidence which the AO & the Ld CII(A) both failed to controvert. 0) The moot point arises again is .....

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..... fore 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 was made as well as the quotations of rates submitted before him. The retraction letter was filed on 28.04.2014 and the assessment order was passed by the Ld. AO on 25.11.2016. So after the filing of retraction letter and all throughout the assessment proceedings till the passing of assessment order on 25.11.2016, the Ld AO had ample time almost 26 months to refute the claim made by the assessee but there was failure on his part to rebut the assessee's claims factually. Instead the Ld AO harped only on the statement of the assessee recorded during the course of survey proceedings and brushed aside the retraction letter stating it to be an afterthought, cooked up story and only to avoid payment of tax on the surrendered amount and went on to add the difference between the amount surrendered i.e. ₹ 4,01,05,610/- and that filed in the return of income i.e. ₹ 1 .....

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..... l 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 133A(3)(iii) as contrary to power envisaged u/s 132(4) which gives a power to the AO to examine any person on oath during search and seizure operations and record any statement which can be used as an evidence in search and seizure proceedings. 5. Your Honour's kind attention is also drawn to Board Circular F. No. 286/2/2003/IT (Inv) dated 10.03.2003 which is further reiterated by CBDT Instruction F. No. 286/98/2013-IT (Inv.II) dated 18.l2.2014. (copy at pages 154 to 155). The Board directed that the assessment should be made on the basis of evidence/material collected in the course of survey operation or thereafter while framing the relevant assessment order. Tacitly, the Board also agreed that no addition should be made simply on the basis of statement recorded during the course of survey. 6. Further, the legal position as to the evidentiary value of statement record .....

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..... d. 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 (ITAT Indore) (copy at pages 93 to 105 of Case Laws PB) Additions which were solely made on the basis of the statement recorded during the course of survey were deleted. 8. ACIT Vs Parshwa Enterprises (ITAT Ahmedabad) (copy at pages 106 to 111 of Case Laws PB) "We put a specific query to the learned departmental representative to place on record any evidence or material other than statements of assessee's partners supportive of the impugned addition. He replied in negative. We are of the opinion in these peculiar facts and circumstances that the impugned addition based on mere survey statement is not sustainable. A catena of case law as discussed hereinabove supports the same view. The Revenue fails to point out any distinction on facts or law therein. We affirms CIT(A) 's findings under challenge accordingly. 5. This Revenue's appeal is dismissed. " .....

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..... 1. 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 (Gujarat HC) (2017) Appeal No.372 of 2017 15. Satish Chand Agrawal Vs. ITO (Jaipur Tribunal) (2018) 64 ITR 0713 8. Per contra Departmental Representative vehemently argued supporting the orders of lower authorities and submitted that the assessee has himself offered the undisclosed income in the survey proceedings and revised surrendered amount is merely an after thought cooked story and therefore the findings of Ld. CIT(A) should be confirmed. 9. We have heard rival contentions and perused the records placed before us and also gone through various judgments referred and relied by the Ld. Counsel for the assessee. 10. The issues raised in various grounds of appeal arise out of the fact that survey proceedings u/s 133A of the Act was conducted at the assessee s premises on 22.1.2014. Excess cash of ₹ 9,45,500/- and unaccounted stock of ₹ 3,91,61,110/- was allegedly f .....

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..... tement 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/-. Now before us the issue is that whether both the lower authorities were justified in rejecting the retraction statement filed on 28.4.14. 13. Hon ble Apex Court in the case of CIT V/s Khader Khan Son (supra) has laid down the ratio that the statements given during the course of survey u/s 133A of the Act have no evidentiary value and any admission made during such statement cannot, by itself, be made the basis for addition . Similarly in another judgment Hon ble Apex Court in the case of Pullangode Rubber Produce Co. V/s State of Kerala (supra) held that 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 addition to show that it is incorrect . Hon ble Apex Court further in the case of Shri Krishan v/s The Kurukshetrea University(supra) held .....

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..... ed 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/-. Following reasons were given for the revised value of surrendered amount of stock. (i) Quantity of stock belonging to Gayatri Coating Pvt. Ltd valuing at ₹ 51,15,200/- was wrongly included in the unaccounted stock valued by the survey team. (ii) Value assigned to unaccounted quantity is 30 to 40% higher than the market price. (iii) No rebate/deduction for defective stock was given. (iv) Gross profit element has not been reduced to arrive at the cost of the unaccounted stock. 18. It is well established rule of law that if the assessee is found to possess unaccounted stock, then the addition towards the investment in such unaccounted stock needs to be taxed. Investment here means the price paid by the assessee for purchase of such unaccounted stock in other words the cost price. Price fetched by the assessee over and above such cost price could be taxed only when the g .....

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..... ype 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 measuring 152622 metres survey team has adopted rate of ₹ 25 per metre whereas as per the quotation of Brahma Shakti Udyog dated 28.01.14 the same item has been offered for sale at ₹ 16.45 per metre. It clearly shows that the price adopted by the survey team are 30 to 40% higher than the cost price as prevailing in the market. 22. In the given facts and circumstances of the case where Ld. Counsel for the assessee has successfully demonstrated with the help of various documentary evidence in the form of the invoices for selling of goods post survey, quotations of grey cloth regularly purchased by the assessee, financial statement showing the gross profit rate, proof of the stock belonging to Ms/ Gayatri Coating Pvt. Ltd wrongly included in the unaccounted stock of the assessee and the fact that no other discrepancy has been pointed out in the regular books of accounts .....

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