9911796707
TMI Blog2011 (3) TMI 1791X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmission made by the assessee and accept the book results of the assessee. The Ld. CIT(A) ought to have considered the legal position that the statement recorded during survey has no evidentiary value. 3 The learned CIT(A) erred at law and on facts in confirming the addition of ₹ 23,614/- u/s 69C of the IT Act on account of difference in the closing balance as per the assessee's books and M/s Unicorn Corporation. 4 The assessee reserves right to add, amend or alter any or all grounds of appeal on or before the date of hearing of appeal." 2. Adverting first to ground nos.1 and 2 in the appeal, facts, in brief, as per relevant orders are that return declaring income of ₹ 15,58,730/- filed on 31-10-2002 by the assessee, engaged in selling plywood and allied items, was selected for scrutiny with the service of a notice u/s 143(2) of the Income-tax Act,1961[hereinafter referred to as the 'Act'] on 11-12-2002 . In this case a survey u/s 133A of the Act was conducted on 31.1.2002,when the assessee stated that books of accounts of the assessee reflected stock of ₹ 4,99,032/- on the date of survey while the inventory of physical stock taken in presence of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... method, and valued on cost basis as explained above." 2.1. On perusal of trading account prior to the date of survey and after the date of survey ,without including the unaccounted stock found during the survey and after considering the said unaccounted stock as detailed on page 3 & 4 of the assessment order , the AO observed that the assessee had shown gross profit[GP] @ 73.45% for the period prior to survey while for the post survey period, loss of ₹ 6,02,012/- was arrived at, yielding negative GP @ 48.06%. The GP for the whole year worked out at 40.38%. In view of negative GP in the post survey period, the assessee was asked to explain the reasons for abnormal results. The assessee vide letter dated 08-03-2004 submitted that (a) Sales made during the period 01-02-2002 to compared to rates quoted in survey on physical stock valuation as on 3101-2002 (b) Sales were made at lower rate due to recession in the market and there was a slack season due to riots taken place in Gujarat on 28-02-2002 onwards for two months (c) Assessee has to make payments of Rs,9,38,133/- and was having a financial problem due to lower sales at lower rates. (d) Payment made during the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, the qualitative value of closing stock was not verifiable with the purchase and sales bills. Even in an related firm of the assessee, dealing in the same commodities from the same premises, gross profit was shown @ 83.17% during the post survey period. Accordingly, while rejecting the book results for the post survey period, having recourse to provisions of sec. 145(3) of the Act, there being no cogent reasons for the negative G P for the post survey period and since the assessee had shown closing stock of ₹ 8,05,973/- as on 31st March 2002, adopting the G.P @ 10%(in consonance with the G.P declared in the Asst year 2001-02), for the post survey period sales of ₹ 18,50,593/- (25,08,860[485503+2171063] + 1,47,006 - 8,05,973), the AO added an amount of ₹ 1,85,059/- . 2.4 As already observed, since the assessee did not explain the source of investment in the excess stock of ₹ 21,71,063/- found during the survey, in her statement recorded on 4.2.2002, the assessee offered the amount attributable to unaccounted stock to tax and subsequently paid the tax thereon. The AO also noticed that the assessee did not maintain the stock records for the entire financia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to sell the stock at lower price. It was claimed that the G.P. in the last year was 9.69% and the average G.P. for the whole during the year was 40.38%. Therefore, there was no reason for making any further addition u/s. 69 of the Act by the treating the excess stock as unexplained investment during the year. The A.O. had wrongly recasted the trading account and the profit and loss account and determined the excess stock at ₹ 21,71,063/- as on the date of survey. The A.O. had further erred in adopting the G.P. rate of 10% for the post survey period as against the actual G.P. of (-)48.08%. Since, the excess amount for which the A.O had made an addition u/s. 69 was already recorded in the books of account. Therefore, the addition made by the A.O. was unwarranted end deserves to be deleted. I have considered the submissions of the appellant and the findings of the A.O. and observe that as per the details filed by the assessee before the A.O. the appellant has taken closing stock for pre survey period at ₹ 25,08,860/- which is the value of stock determined on physical stock taking at the time of survey. The sales have also been reflected at a good figure of ₹ 33 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hand, supported the findings of the learned CIT(A) and contended that the assessee herself in her statements recorded on 31.1.2002 during the course of survey and in her subsequent statement recorded u/s 131 of the Act on 4.2.2002 offered the amount to tax since she could not explain the source of investment in the unaccounted stock found during the survey. Even books of accounts were found incomplete while no stock records were maintained. The assessee did not furnish any cogent explanation for showing GP @ 73.45% before the survey and loss thereafter. Moreover, the husband of the assessee reflected GP of 83.17% in similar business for the post survey period. While relying upon the decisions in Sanjeev Kumar Pandhi vs. CIT, 305 ITR 128 (Pb.) and certain other decisions, the ld. DR added that since neither the books of account were maintained during the course of business nor stock register while excess stock of ₹ 21,71,063/- was found, the Assessing Officer was justified in rejecting the book results of the post survey period besides adding unexplained investment in stock. 5. We have heard both the parties and gone through the facts of the case as also the decisions relied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... calculation of unaccounted stock and resultant addition made by the AO suffers from any infirmity. There is no force in the contentions of the ld. AR that husband of the assessee should have been questioned, especially when the assessee herself in her statement recorded subsequent to the survey on 4.2.2002 and even in her letter dated 4.2.2005 during the course of assessment proceedings, admitted the unaccounted stock and offered the unaccounted income attributed to the said stock to tax and consequently paid the tax. It is well nigh impossible that the said disclosure was made and reiterated without the consent of husband of the assessee. In view of the foregoing, we do not find any mistake in the approach of the ld. CIT(A) in upholding the addition of unaccounted stock to the extent of ₹ 21,71,063/- . 5.1 Adverting now to the argument of the ld. AR that the statement recorded during the course of survey does not have any evidentiary value, as already mentioned hereinbefore, the assessee herself in her statement recorded subsequent to the survey on 4.2.2002 and even in her letter dated 4.2.2005 during the course of assessment proceedings, admitted the unaccounted stock as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... den that was laid on the assessee to establish that the admission made in the statement at the time of survey was wrong and that there was no additional income was not even attempted to be discharged and thus, the order of the Tribunal was based on facts and no question of law arose from it. Hon'ble High Court clearly held that "As regards the assessee's contention that the statement having been retracted the Assessing Officer should have independently come to a conclusion that there was additional income as sought to be assessed and that there was no material to support that there was such income, this contention in our view is not correct. As held by the Supreme Court in Pullangode Rubber Produce Co. Ltd v. State of Kerala [1973] 91 ITR 18 an admission is an extremely important piece of evidence though it is not conclusive. Therefore, a statement made voluntarily by the assessee could form the basis of assessment. The mere fact that the assessee retracted the statement could not make the statement unacceptable. The burden lay on the assessee to establish that the admission made in the statement at the time of survey was wrong and in fact there was no additional income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on law it applies only to representations about past or present facts." 5.4 The relevant provisions of section 115 of the Evidence Act are also quite apposite and the case of the assessee squarely falls thereunder. Section 115 of the Evidence Act reads as under: "115. When one person has, by his declaration, act or omission, intentionally caused or permitted another person to believe a thing to be true and to act upon such belief, neither he nor his representative shall be allowed, in any suit or proceeding between himself and such person or his representative, to deny the truth of that thing." 5.5. In Chuharmal v. CIT [1988] 172 ITR 250, 255, the Hon'ble Supreme Court held that what is meant by saying that the Evidence Act does not apply to income-tax proceedings under the Act is that the rigour of the rules of evidence contained in the Evidence Act is not applicable but that does not mean that when the taxing authorities are desirous of invoking the principles of the Evidence Act in proceedings before them, they are prevented from doing so. Besides, section 115 of the Evidence Act incorporates a salutary principle of common law based on the maxim allegan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made on the basis of the facts admitted in the statement recorded under section 131 of the Income-tax Act, 1961. A statement may still form the sole basis for addition if the assessee fails to prove the incorrect or erroneous nature of the facts admitted or stated in the statement at the earliest possible opportunity from the statement/confession. The view that we have taken above is supported by several judicial authorities some of which are as follows. In Surjeet Singh Chhabra's case, it has been held that the Customs Officials are not police officers and the confession, though retracted, is an admission and binds the confessor. The Hon'ble Court held: "... Since the dispute concerns the confiscation of the jewellery, whether at conveyor belt or at the green channel, perhaps the witnesses were required to be called. But in view of confession made by him, it binds him and, therefore, in the facts and circumstances of this case the failure to give him the opportunity to cross-examine the witness is not violative of principle of natural justice. It is contended that the petitioner had retracted within six days from the confession. Therefore, he is entitled to cross-e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment year 1969-70. The said orders were affirmed in appeal by the Appellate Assistant Commissioner. The Income-tax Appellate Tribunal , however, held that even though the explanation about the nature and sources of the purchase money was not satisfactory but in the facts and circumstances of the case it was not possible for the assessee to earn the amount invested in the properties and that by no stretch of imagination could the assessee be credited with having earned this income in the course of the assessment year or was even in a position to earn it for a decade or more. The Tribunal took the view that although the explanation of the assessee was liable to be rejected, section 69 of the Act conferred only a discretion on the Income.-tax Officer to deal with the investment as income of the assessee and that it did not make it mandatory on his part to deal with the investment as income of the assessee as soon as the latter's explanation happened to be rejected. On that view, the Tribunal allowed the appeals of the assessee and cancelled the assessment made by the Incometax Officer. Thereafter, the Tribunal at the instance of the Revenue referred the question to the High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and is binding on a person who makes it. The Legislature was well aware that under the general law mere admission may not be conclusive one. The Income-tax Act is a specific Act and assessment has to be made on the basis of material gathered by the Assessing Officer. For this purpose, vast powers have been conferred on the Income-tax Authorities for making investigation including the powers of survey. If the assessee makes some admission, he debars the authorities from making further investigation. In view of this, Legislature in its wisdom has provided that such statement can be used in evidence and the assessment can be made on the basis of such statement. The sanctity of such provision would be lost if the assessee is allowed to contend that no addition can be made on the basis of such admission. 5.10. In the case of Bhimraj Rajpurohit Vs. ITO 105 TTJ 899(Jodhpur) , a survey action revealed the availability of excess stock and shortage in cash that necessitated the making of surrender of ₹ 55,000 which is apparent from computation of income filed by the assessee. The ITAT held that when both the cash and stock were not correct, how it can be inferred that the books of ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the course of survey, undisputedly, GP rate worked out to 73.45% in the pre-survey period while in the post survey period ,it worked out to (-) 48.08%. Only dispute before us is regarding application of GP rate and the resultant addition. Though the assessee pleaded before the lower authoriies that sales were made at lower rates due to recession and Godhra riots and the assessee faced financial constraints, these statements were not supported by any evidence ,especially when the assessee was not maintaining any stock register nor could explain the steep fall in GP in the post survey period with any cogent material. Even the inventory was not found verifiable vis-à-vis purchases and sales and the sales rates exceeded purchase rates in post survey period. The AO applied GP rate of 10% in consonance with GP rate in the preceding year and added an amount of ₹ 1,85,059/-, resulting in determination net profit of ₹ 1,74,215/- for the year under consideration. The ld. CIT(A),however, adopted GP rate of 8.67% computed by the assessee for the pre survey period and directed the AO to recompute the addition. The ld. AR appearing before us did not adduce any reasons at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Omprakash Vs. CIT,132 ITR 640(Orissa), Awadhesh Pratapsingh Abdul Raheman & Bros vs CIT (1994) 210 ITR(All) and decision of the Hon'ble Supreme Court in the case of CIT Vs. KY Pilliah And Sons, 63 ITR 411(SC).As regards estimation of profits, no doubt the AO/CIT(A) should try to make an honest and fair estimate of the income even in a best judgment assessment and should not act totally arbitrarily, but there is necessarily some amount of guess work involved in a best judgment assessment, and it is the assessee himself who is to blame as he did not submit proper accounts and details.[ Kachwala Gems Vs JCIT, 288 ITR 10 (2007)(SC) ]. Since the assessee did not substantiate the trading results with cogent evidence before the AO or the ld. CIT(A) nor even any material has been placed before us so as to take a different view in the matter, we do not find any infirmity in the findings of the learned CIT(A) while upholding rejection of book results and sustaining the addition , applying the GP rate of 8.67% for the pre-survey, therebeing no cogent explanation for the abnormal fall in GP rate in the post survey period .Even the husband of the assessee, carrying on similar business from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee, resulting in an addition of ₹ 23,615/- u/s 69C of the Act. 8. On appeal, the ld. CIT(A) upheld the addition observing as under: "It was noted by the A.O. that closing balance in the books of Unicorn Corporation was shown at ₹ 3,500/- whereas, in the books of the assessee it was reflected at ₹ 20,144/-. The assessee was confronted with this difference for which the assessee explained that a deposit of ₹ 25,000/- was made to Bhutan Boards Ltd., of which Unicorn Corporation was the distributor. The amount of ₹ 23,614/- (₹ 20,144 - 3,500) payable to Unicorn Corporation was not actually paid because the deposit of ₹ 25,000/- had not been received back by the assessee, therefore, the said payable amount became disputed. Similar arguments were taken by the appellant at the time of the hearing of appeal but no documentary evidence in support of the arguments was furnished. Therefore, the addition made by the A.O. is confirmed." 9. The assessee is now in appeal against the aforesaid finding. At the outset, the ld. A.R. while referring to an application dated 19.5.2009 for admission of additional evidence in the form of a credit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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