TMI Blog2019 (6) TMI 916X X X X Extracts X X X X X X X X Extracts X X X X ..... the CIT(A) for confirming addition of 86.10 Mtrs. Found excess @ ₹ 37.60 resulting into upholding addition to the extent of ₹ 3,237.36. Addition made on account of finished fabrics - CIT(A) found that it was on account of calculation mistake done by the department while applying blanket rate of ₹ 100 per meter on various items of sample - HELD THAT:- After recording detailed findings, CIT(A) upheld the addition of 616.10 meters resulting into addition of ₹ 5,662.80 out of total addition of ₹ 1,13,380.90 made by the A.O.. We do not find any infirmity in the order of the ld. CIT(A) so far as the grey fabrics and finished fabrics is concerned. Addition made in respect of yarn - CIT(A) has deleted the addition to the extent of ₹ 82,82,552.60 - HELD THAT:- CIT(A) has observed that the department has taken incorrect value of yarn purchase for the month of July 2012, the said explanation of the assessee was found correct supported with documents and substantially explain the excess stock to the extent of 47148.36 Kg. After giving effect of the correct value of yarn purchase for the month of July 2012. There is no infirmity in this part of findi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7,66,304/- on account of alleged excess stock accepted by the assessee. 3. By the impugned order, the ld. CIT(A), deleted the addition of ₹ 87,93,007.44 and upheld the addition of ₹ 19,73,296.56 after having a following observation: 3.3 I have gone through submission of the A/R and the record for the appeal. 3.3.1 The main crux of submission of the A/R is that there were not found any incriminating or credible evidence relating to any undisclosed income/activities during the search operations, therefore, the authorities have not followed the instructions of the CBDT and accordingly there were no reasons to believe as envisaged u/s 132 of the Act. I have carefully perused the submissions of the AR and find that he has not brought on record any evidence to show that the observations of the Hon'ble Supreme Court in the case of ITO vs. Seth Brothers were applicable to the facts of the case of the appellant. During the course of the search in case of the appellant, there had been undisclosed income of ₹ 1 Crore as per the statement of the Shri Navneet Somani recorded u/s 132(4) of the Act. Further, there is no evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... traneous factors, this ground or appeal is dismissed. 4 Ground No. 1 and 3 are regarding the validity of assessment order and verifiability of the statement recorded u/s 132(4) of the Act, which has been relied upon by the Ld. AO for making additions to total income and which has been retracted by the assessee in post search proceedings. The main contentions raised by the appellant in this ground is relating to determination of the issue whether the Ld. AO was justified in making assessment only on the basis of the statement of Sh. Navneet Somani recorded u/s 132(4) of the Act. The said grounds of appeal are reproduced as under: GROUND NO.1 Under the facts and the circumstances of the case and in law, the impugned assessment order dated 02.06.2014 u/s 143(3) r.w.s. 153A/153B of the Income Tax Act, 1961 passed by Ld. AO at ₹ 1,25,66,304/- is perverse, arbitrary, bad in law and without jurisdiction and without providing adequate opportunity of being heard. GROUND NO. 3 Under the facts and circumstances of the case and in law, Ld. AO has erred in passing impugned assessment order: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t recorded u/s 132(4) of the Act at the time of search. Thus, the Ld. AO has erred in facts by relying upon the evidentiary value of statement recorded u/s 132(4) of the Act in the impugned assessment order. 4.1.3 The declaration made by the Sh. Navneet Somani u/s 131 of the Act in the case of the Appellant cannot be relied upon as the Appellant by submitting the necessary documentary evidences on record has rebutted the said statement. Thus, the statement though made by the Managing Director of the Appellant Company, remains orphan and unfair on the part of the Ld. AO to thrust it upon the Appellant while performing his quasi-judicial function of determining the true income. 4.1.4 In view of the above factual and legal position, the additions in question in the relevant assessment year are not corresponding to the actual position in the books of account of the Appellant Company and the true facts on record. 4.1.5 For the purpose of making the impugned addition, the Ld. AO has relied upon the following judicial precedents: i. Kanti Lal Prabhu Das Patel (93 ITD 117 - Indore) ii. Rames ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the facts and circumstances of the case and in law, Ld. AO has erred in passing impugned assessment order: a. in the absence of any incriminating material found during the course of search 4.1.8 As stated earlier, during the course of search proceedings, no incriminating material was found by the respective income tax authorities. The search operations did not resulted in discovery of any incriminating material or any undisclosed source of income. The edifice of additions in the case of the Appellant is only disclosure made u/s 131 of the Act which was by and large extracted out from the Appellant by creating hostile and difficult conditions, some assumptions and presumptions. It is clearly evident from the impugned assessment order that the income tax authorities did not unearth any incriminating material or undisclosed income during the course of search operations. 4.1.9 It is evident from impugned assessment order itself that no incriminating documents/papers were found during the course of search proceedings and reliance has been totally placed by the Ld. AO only on the statement recorded under section 132(4) an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... show that it is incorrect. PAUL MATHEWS AND SONS V. CIT [2003J 263 ITR 101 (KERALA): We find that such a power to examine a person on oath is specifically conferred on the authorized officer only under section 132(4) of the Income-tax Act in the course of any search or seizure. Thus, the Income-tax Act, whenever it thought fit and necessary to confer such power to examine a person on oath, the same has been expressly provided whereas section 133A does not empower any Income-tax Officer to examine any person on oath. Thus, in contradistinction 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 it 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. Therefore, the statement elicited during the survey operation has no evidentiary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 161-165 4.1.14 With reference to the above list, it is further submitted that the Ld. AO has erred by ignoring the fact that the Appellant through hiS various aforesaid replies submitted various documentary evidences to substantiate his claim that there was no undisclosed income in its hands on account of alleged excess stock. The alleged difference worked out by the department between stock as per physical verification and stock as per books was duly explained and proved by submitting all the documents and evidences by the Appellant. The declaration made by Sh. Navneet u/s 131 of the Act was incorrect and should not be relied upon. Further, the Ld. AO didn't make any further enquiry/adverse inference/comments on the documents placed by the Appellant on record and simply, brushed aside such supporting evidences on record whereas it is an undisputed fact that documentary evidences produced by Appellant had been found duly verifiable. Thus, the Ld. AO acted against the principles of natural justice by not considering the explanation/submission of the Appellant without assigning/providing any substantial reasoning or evidence in support. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Appellant was not afforded with a reasonable opportunity of being heard which is in violation of the principle of natural justice. 4.1.18 Thus, in view of the above submissions, the above ground of the Appellant be upheld. 4.2 I have considered the submissions made by the appellant, material placed on record and the content of the assessment order. 4.2.1 From the perusal of the assessment order following facts are clear: ( a) The AO has given adequate opportunities since issuing of first notice u/s u/s 143(2) on 22.11.2013 to completing the assessment order on 02.06.2014. ( b) The AO took cognizance of the disclosure u/s 132(4) by Shri Navneet Somani during the search on 26.09.2012 and issued show cause notice u/s 142(1) dated 03.01.2014 as well as order sheet noting dated 21.01.2014 and the response there by the appellant vide his submission on 06.05.2014/19.03.2014 which refers an affidavit by Shri Navneet Somani retracting the disclosure. ( c) The AO cited certain case laws which are perceived to be supporting his case to make the additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hands of the appellant company. The Ld. AO made addition of excess for various items of stock as under: - S. No. Items Amount (in Rs.) 1. Grey Fabric 4,05,974 2. Finished Fabrics 1,13,381 3. Yarn 1,02,46,949 Total 1,07,66,304 5.2 The A/R of the appellant attended the proceedings and made submissions as follows: 5.2.1 At the outset, it is humbly submitted that during the course of search proceedings carried out at the factory premises of the Appellant Company on 26.09.2012, physical verification of stock was carried out. (PB No. 8-9). The physical stock was duly reconciled with the stock as per books and found verifiable by the search team. No excess stock was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken by the authorities for the purpose of calculation of yarn purchase for the period 01.04.2012 to 26.09.2012. The correct total of Yarn purchase was ₹ 1,88,907.134 as against the total of ₹ 2,50,942.395 taken by the authorities in the calculation sheet as reproduced in Pg No. 12 of the impugned assessment order. The stc:temeni of month-wise yarn purchases was also submitted by the Appellant to the authorities which was not considered by the authorities as supporting document to correctly calculate the stock as per books. b In the Annexure S-1 enclosed at Pg No. 8 and 97 of PB, the authorities themselves found the stock 39,011 kg of accumulated wastage of yarn which established beyond doubt that the Revenue Department accepted the fact that wastage occurred during the processing of Yarn and stock of yarn found during the survey, also included wastage. c. In Annexure No. 18 of the audited financial statements of the Appellant as on 31.03.2013 enclosed at Pg No. 48 of PB, the closing stock at the year-end includes all the above mentioned stock of grey fabric, finished fabric and yarn. d. Wastage of stock has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earch operation and ₹ 55,16,305/- during post search investigation) on account of excess stock was worked out and same was admitted and disclosed by you. No admission or declaration whatsoever pertaining to any addition in the hands of the Appellant was made by Sh. Navneet in the statement recorded u/s 132(4) of the Act. The disclosure was made only in the statement u/s 131 of the Act during the post search proceedings. However, regarding the evidentiary value of statement recorded u/s 131 of the Act, the Appellant places reliance on the submissions made in Para No. 4.1 above. c. Why unaccounted investment of ₹ 1,07,66,305/- on account of excess stock should not be added to the total income as you have admitted in the statement recorded u/s 132(4) during the course of search operation d. It is evident that the assessee never backed out from the surrender made during search or post search proceedings. e. The retraction of the assessee from his statement u/s. 132(4) is not acceptable as he himself offered this income. f. During the course of search, all the statements are t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment in correct and accurate manner j. The difference in stock has been accepted by him as income of M/s Shreeji Sulz Pvt. Ltd. It is submitted that the admission of the Sh. Navneet u/s 131 of the Act cannot be relied upon as it was given under duress and immense psychological pressure. Further, the evidentiary value of the statement recorded u/s 131 has already been discussed in Para No. 3.5 above. k. It is established that the assessee has duly offered the undisclosed income for taxation during the course of search as well as post search proceedings on the above count. The allegation of the Ld. AO is not in correspondence with the facts of the present case as no disclosure pertaining to income of the Appellant was made by Mr. Navneet during the course of search proceedings and statement recorded u/s 131 of the Act was rebutted by submitting documentary evidences on record. l. From the above facts, circumstances, admittance of the assessee u/s 132(4)/131, it is established that the contention of the assessee has not been supported with cogent evidences. The issue of excess stock fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial was found for the said undisclosed income. Shri Navneet Somani stated that if after the necessary verification, any undisclosed income is found, the necessary amount shall be offered for taxation purpose. No clear or specific declaration was made by Shri Navneet Somani in the statement recorded u/s 131 of the Act. 5.3.5 Later on the appellant has filed affidavits before the Hon'ble CBDT, after the search, and further the fact of retraction has been mentioned in the returns filed u/s 139(1), therefore, it is established that Shri Navneet Somani has retracted from his statement recorded u/s 132(4). 5.3.6 It is seen that the appellant has disputed that very basis of making the calculation of excess stock of ₹ 1,07,66,304/-. The appellant has submitted regarding verifiability of each item of stock with the books of accounts produced during post search proceedings and even during assessment proceedings before the Ld. AO. The reconciliation of stock given by the appellant before the Ld. AO is reproduced as under: 5.3.7 It is seen that except the statement recorded u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Impugned addition on account of alleged excess stock 1,07,66,304.94 5.3.12 As regards the addition of Grey Fabrics of 10,797.20 Meters valued @ ₹ 37.60 amounting to ₹ 4,05,974.72/-, it is seen that substantial difference is on account of non-posting of grey folding data entries in the computer for the period 24.09.2012 to 25.09.2012, due to search going on the search premises and the difference of 10797.20 Meters and the same is explained by the appellant by the accounting entries in its books, thus, there is no excess stock to the extent of 10797.20 Meters. However, that still leave a miner difference of 86.10 Meters, the AO is directed to tax the same @ ₹ 37.60 amounting to ₹ 3,237.36. 5.3.14 Coming to the addition of Finished Fabric of 1723.90 Meters, the explanation of the appellant is found substantially correct and the same is mainly on account of the calculation mistake done by the department, while applying blanket rate of ₹ 100 per meter on various item of samp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.3.18 Before parting, it must be mentioned that the A/R has relied upon the various judgment to support its contention that statement recorded u/s 132(4) is only a piece of evidence which is rebuttable. For this he has placed reliance on various judgments. It is held that the case of the appellant is substantially covered, to the extent of excess stock is explained with plausible documents, by settled law on admission and retraction by ratios of following judgments in cases of: PULLANGODE RUBBER PRODUCE CO. LTD. V. STATE OF KERALA [1973] 91 ITR 18 (SC): C.I.T. V. BHANWARLAL 225 ITR 870 (RAJ): KAILASHBEN MANHARLAL CHOKSHI VS CIT (2008) 14 DTR 257 (GUJ.): 5.3.19 In view of above finding it is also held that, the inescapable conclusion to a great extent in the present case is that, the statement recorded u/s 132(4) of the Act was not the only piece of evidence for making assessment u/s 153A1143(3) of the Act for the Ld. Assessing Officer. In contradistinction to the same, the appellant has discharged its burden to a great extent by filing the affidavit before CBDT as well as the AO to establish that the alleged excess s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act, assessee should have disclosed the same in the return but the same was not done by the assessee. The appellant crave, leave or reserving the right to amend modify, alter add or forego any ground (s) of appeal at any time before or during the hearing of this appeal. 7. We have heard the rival contentions and carefully gone through the orders of the authorities below. We have considered the detailed arguments of the ld AR on the legal issues raised by him as well as merit of the additions so made. We have also considered the detailed written submissions filed by the ld DR with respect to legal issues so raised with supports of the various judicial pronouncements of the Coordinate Bench. From the record we found that there was a search at assessee s premises. During the course of search, disclosure and surrender of ₹ 1.00 crore was made by the assessee in respect of following accounts: S. No. Particulars Amount (Rs.) 1. Excess stock of Cloths (5000 Mtrs.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .. We do not find any infirmity in the order of the ld. CIT(A) so far as the grey fabrics and finished fabrics is concerned. 10. However, with respect to addition made in respect of yarn, the ld. CIT(A) has deleted the addition to the extent of ₹ 82,82,552.60. The ld. CIT(A) has observed that the department has taken incorrect value of yarn purchase for the month of July 2012, the said explanation of the assessee was found correct supported with documents and substantially explain the excess stock to the extent of 47148.36 Kg. After giving effect of the correct value of yarn purchase for the month of July 2012. There is no infirmity in this part of finding of the ld. CIT(A), accordingly, we uphold action of the ld. CIT(A) to the extent of deleting the addition of ₹ 87,93,007.44 under the head yarn. 11. We found that in the stock of yarn, the assessee has included yarn of 11182.31 KG which was actually waste and found during the course of survey. However, the department has valued it as stock of fresh yarn. Accordingly, we do not find any justification in upholding the addition of 11182.31 KG of yarn amounting to ₹ 19,6 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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