TMI Blog2005 (1) TMI 311X X X X Extracts X X X X X X X X Extracts X X X X ..... of this undisclosed income was stated to be unaccounted sale of materials cut from the ships, from the business activity of Kwality Steel Suppliers. Based on the entries found in the seized material, assessee gave following application of this unaccounted income: Rs. 1. Unaccounted loan given and interest accrued thereon till date. 1,14,00,000 2. Unexplained investment in 4 winches 20,00,000 3. Unexplained investment in residential premises and office 10,00,000 4. Unexplained investment in cranes 20,00,000 5. Expenses incurred as per Annex. A-4 2,18,000 6. Unexplained investment in gold and jewellery 3,91,437 7. Unexplained household expenses investment in miscellaneous items 5,00,000 8. Unexplained cash 1,00,000 Total 1,76,09,437 ALANG At the ship breaking plot of Alang various stock of ferrous and non-ferrous items and other items were found, which were inventorised as per Annexures X, P, N, K, M and since the grounds raised by the assessee were argumentative, the assessee furnished concise grounds of appeal—2. These items were val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sept., 1996, has accepted that there was no pressure/coercion for making disclosure. 5. Further, the assessee did not make any retraction in reasonably immediate future after the search proceedings were over. This is an important point because, if the disclosure is made wrongly and because of pressure, the assessee was expected to make retraction within a reasonable period of time, if not during the search proceedings itself. Making a retraction after a lapse of 4 months is indicative of the retraction being an afterthought with a view to reduce the extent of taxable undisclosed income. 6. Assessee's contention that the stock of ferrous and non-ferrous materials and other things can come only out of the ship being cut at the site (M.V. Dikson) is without any evidence. The concerned stock may be the materials taken out from some other ship or this may be got from other sources. Exact source of this material is well known to the assessee itself. The relevant point is that assessee repeatedly accepted these stocks as undisclosed investment. 7. It should also be noted that no stock register or records is maintained by the assessee and, therefore, assessee was unable to prove t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement regarding investment was given because of mental pressure and confusion. (e) The assessee further stated in his statement dt. 26th Sept., 1996, that the stocks found were admitted as undisclosed investment during the search, because factual position as well as legal consequences were not clear to him." The learned Authorised Representative submitted that the assessee had retracted the disclosure of Rs. 22,63,761, since the same was made on account of ignorance of the facts and a detailed note was filed along with the return of block assessment explaining fully the justification for the retraction of the disclosure which was erroneously made. The contents of the said note pointed out by the learned Authorised Representative are reproduced as below : "1. Consequent upon the search that has taken place at the business as well as residential premises of the under signed in the month of September, 1995, and in response to the notice under s. 158BC of the IT Act, 1961, issued by the Dy. CIT (Assessment), Special Range-3, Ahmedabad, the return of income in the prescribed Form 2B is being furnished for the captioned period. 2. The profit/loss for the period from 1st April ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the undersigned recorded under s. 132(4), over and above the other disclosures, the undersigned had made a disclosure of Rs. 22,63,761 on account of the excess of physical stock of ship breaking material over the book stock as on the date of search. It is submitted in this regard that this statement was factually wrong because of the following reasons: (A) In ship breaking industry it is the ship as a whole which is being purchased and broken for selling the same in the form of scrap. In the circumstances, the question of unaccounted stock of scrap does not arise if the total purchase is fully accounted for. (B) It is not possible to weigh the ship lying in stock at any particular point of time. The closing stock of the ship and of the other scrap is thus always subject-matter of estimation. The chances of deviation between actual physical stock and the book stock can, therefore, never be ruled out. (C) Even the book stock as worked out on the search was only estimated book stock after considering the approximate weight loss. Similarly, the physical stock of uncut ship as taken by the IT Department was also based on estimation only. (D) Without prejudice to what has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng assessment proceedings also, AOs should rely upon the evidence/materials gathered during the course of search/survey operations or thereafter while framing the relevant assessment orders." 4. The alternative submission of learned Authorised Representative was that if at all it is treated as unaccounted purchase which represents stock, the same is allowable expenses as amendment in s. 69C was made w.e.f. 1st April, 1999. He relied upon the order of Tribunal, Ahmedabad, in ITA No. 423/Ahd/1997 for asst. yr. 1994-95 order dt. 8th Aug., 2003. 5. The learned Departmental Representative, on the other hand, relied upon the order of AO and submitted that stock was not found correctly recorded in the books of account and excess stock was found. The assessee himself has made the disclosure. The assessee did not maintain stock details. In the absence of such details the AO has correctly made the estimation. The learned Departmental Representative relied upon the following decisions: (i) Manharlal Katurchand Chokshi vs. Asstt. CIT (1997) 57 TTJ (Ahd) 639 : (1997) 61 ITD 55 (Ahd) (ii) V. Kunhambu Sons vs. CIT (1996) 131 CTR (Ker) 396 : (1996) 219 ITR 235 (Ker) (iii) Hotel Ki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertain aspects. The book value of stock estimated by the AO by adopting 15 per cent of burning and cutting shortage whereas the past record of the assessee shows that this was about 12 per cent. If this percentage is adopted then there would not be any excess stock. As regard addition on account of stock, we are of the view that such addition is only warranted in the circumstances where the assessee maintained correct stock in the books of account and excess actual physical stock is found out at the time of search or survey. Though such addition is warranted in those circumstances where corroborate evidence or material is found, in the case under consideration, we find that the assessee has retracted the disclosure by proper reasons and evidences. Looking to the peculiar circumstances/facts of the case wherein estimation of stock is arbitrary and on suspicious circumstances, admitted position of facts that all purchases were found accounted for and if burning loss as per past record by the assessee is considered, then there was no excess stock. Under the circumstances, we are of the view that addition is not warranted. The controversy is entirely based on facts, therefore, the deci ..... X X X X Extracts X X X X X X X X Extracts X X X X
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