Unreliable survey stock inventory and non-retrospective surcharge provision bar additions and surcharge in block assessment.

An addition for alleged excess stock found during survey was unsustainable because the inventory was not shown to have been physically verified in the presence of responsible persons, the affidavits supporting the assessee were not rebutted, and surrounding facts indicated a slip-shod inventory; the deletion in favour of the assessee was upheld. Surcharge was also held not leviable on undisclosed income assessed in block proceedings where the search occurred before the prospective insertion of the proviso to section 113, so the relief granted to the assessee was sustained. The revenue's appeal failed on both issues.

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Issues: (i) Whether the addition made on account of alleged excess stock found during survey was sustainable, and (ii) whether surcharge was leviable on the undisclosed income determined in block assessment where the search had taken place before the insertion of the proviso to section 113.

Issue (i): Whether the addition made on account of alleged excess stock found during survey was sustainable.

Analysis: The survey inventory was found unreliable because the stock was not shown to have been physically counted in the presence of responsible persons, the affidavits of the persons present were not controverted, and the assessee's repeated request for a site verification was not accepted. The surrounding circumstances, including the admitted inadequacy of coal measurement, the kiln capacity, the available space, the condition of adjoining land, and the absence of comparable discrepancies in related brick kilns, supported the conclusion that the inventory was prepared on a slip-shod basis and did not reflect actual stock.

Conclusion: The addition for alleged excess stock was not sustainable and was rightly deleted in favour of the assessee.

Issue (ii): Whether surcharge was leviable on the undisclosed income determined in block assessment where the search had taken place before the insertion of the proviso to section 113.

Analysis: The governing principle applied was that the proviso to section 113 introducing surcharge was inserted with effect from 1 June 2002 and was not retrospective. Since the search in the present case took place before that date, surcharge could not be imposed on the undisclosed income determined in block assessment.

Conclusion: Surcharge was not leviable and the relief granted to the assessee was ly upheld.

Final Conclusion: The revenue's appeal failed on both issues, and the order in favour of the assessee was sustained in its entirety.

Ratio Decidendi: An addition based on a survey stock inventory cannot be sustained where the inventory is not supported by reliable physical verification and surrounding evidence shows it to be unreliable, and surcharge on block assessment tax is not leviable for searches conducted before the prospective insertion of the proviso to section 113.

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