Survey statement and defective stock valuation: uncorroborated admission could not sustain excess stock addition, and reassessment was required.

A survey statement recorded under section 133A was treated as insufficient by itself to sustain an addition for alleged excess stock, particularly where the assessee retracted the admission, the books were not rejected under section 145(3), and no independent corroboration supported the survey inventory. The stock valuation was also found defective because of cuttings, overwriting and improper computation, requiring a more realistic discount and gross profit adjustment, with credit for goods received on approval but not yet entered in the books. On these facts, the addition was not sustainable to the extent made and the valuation-based relief was upheld.

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Issues: (i) Whether a statement recorded during survey under section 133A could, by itself, sustain the addition for alleged excess stock; (ii) Whether the valuation of the stock found during survey, including discount, gross profit adjustment and goods received on approval, was correctly worked out.

Issue (i): Whether a statement recorded during survey under section 133A could, by itself, sustain the addition for alleged excess stock.

Analysis: The survey statement was treated as unreliable because a statement under section 133A has no evidentiary value by itself. The addition could not rest only on the purported surrender where the assessee had retracted the admission and the books of account were not rejected under section 145(3). The finding was also supported by the absence of independent corroborative material apart from the survey inventory and statement.

Conclusion: The issue was decided in favour of the assessee and against the Revenue.

Issue (ii): Whether the valuation of the stock found during survey, including discount, gross profit adjustment and goods received on approval, was correctly worked out.

Analysis: The stock inventory was found to contain cuttings, overwriting and valuation defects, and the assessee produced material showing that the stock position on the survey date had been wrongly computed. The proper valuation required more realistic discounting and gross profit adjustment, and credit was also warranted for stock received on approval but not yet recorded in the books. On the facts, the assessee was entitled to a greater reduction than that allowed by the lower authorities, and the Revenue's challenge to the relief granted failed.

Conclusion: The issue was decided partly in favour of the assessee and the valuation-based relief was sustained to a greater extent.

Final Conclusion: The addition for alleged excess stock was not sustainable to the extent originally made, the assessee obtained further relief on valuation, and the Revenue's appeal failed.

Ratio Decidendi: A survey statement under section 133A cannot, without independent corroboration, sustain an addition, and where survey inventory is demonstrably defective, stock valuation must be reassessed on reliable material rather than on an uncorroborated admission.

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