2014 (1) TMI 1075 - AT - Income Tax

Tribunal's Ruling on Income Tax Appeal: Survey Statements Dismissed, Stock Valuation Adjusted

M/s. Unique Art Age Versus The ACIT, Jaipur

M/s. Unique Art Age Versus The ACIT, Jaipur - [2014] 29 ITR (Trib) 547 (ITAT [Jai]) Issues Involved:1. Evidentiary Value of Statements Recorded During Survey2. Valuation of Excess Stock3. Rejection of Books of Account4. Allowance of Discount and Gross Profit Rate5. Adjustment for Stock on ApprovalIssue-wise Detailed Analysis:1. Evidentiary Value of Statements Recorded During Survey:The tribunal held that statements recorded under Section 133A of the Income Tax Act, 1961, during a survey cannot be relied upon as evidence against the assessee. The statements made during the survey are not on oath and do not have evidentiary value as per the Supreme Court's decision in CIT vs. Khader Khan Son. Therefore, the addition made solely based on such statements was not justified.2. Valuation of Excess Stock:The tribunal found that the valuation of excess stock was not conducted correctly. The stock was valued at the tag price, and the gross profit rate of 28.12% from the previous year was applied. However, the tribunal noted discrepancies in the inventory sheets, including over-writings and alterations, which were confirmed by handwriting experts. The tribunal concluded that the stock valuation was based on pure estimation and not on actual physical verification. The tribunal also noted that the gross profit rate for the year under consideration was 76.02%, and the discount rate should be 40% instead of 20%.3. Rejection of Books of Account:The tribunal observed that the Assessing Officer (AO) did not reject the books of account maintained by the assessee, which were duly audited under Section 44AB of the Act. The AO did not invoke the provisions of Section 145(3) of the Act, which is necessary to reject the books of account. Therefore, the declared results should have been accepted without any variation, especially when the trading results were better than the previous years.4. Allowance of Discount and Gross Profit Rate:The tribunal allowed a discount rate of 40% on the total inventory found during the survey, as against the 20% allowed by the AO. The tribunal also directed the application of the gross profit rate of 76.02% for the year under consideration, instead of the 28.12% applied by the AO. This adjustment was necessary to arrive at the actual stock value as on the date of the survey.5. Adjustment for Stock on Approval:The tribunal accepted the assessee's claim that certain goods were received on approval and were not included in the books of account as the bills were not received by the date of the survey. The tribunal allowed a set-off for such goods amounting to Rs. 38,60,871/-, as accepted by the Commissioner of Income Tax (Appeals) (CIT(A)).Conclusion:The tribunal partly allowed the appeal of the assessee and dismissed the appeal of the Revenue. The tribunal directed the AO to re-compute the excess stock by applying a 40% discount and a gross profit rate of 76.02%, and to consider the stock on approval as allowed by the CIT(A). The tribunal emphasized that this decision was based on the peculiar facts of this case and should not be treated as a precedent for other cases.