Survey stock verification requires prior demand for proper weighment; excess stock addition deleted, but expense disallowance upheld.

In a survey under section 133A, stock verification addition was held unsustainable where the survey authority did not first require the assessee to provide the necessary facility for standardized weighment, and the stock had been weighed ad hoc rather than by proper weights and measures. Applying the statutory scheme and natural justice, the excess stock addition was deleted. On expenses, the assessee accepted that self-made vouchers were incomplete and genuineness could not be fully verified; the appellate estimate was not shown to be arbitrary, so the restricted disallowance was upheld. The matter thus succeeded only partly for the assessee.

---

---

Issues: (i) Whether the addition on account of alleged excess stock found during survey could be sustained when the stock was weighed ad hoc and not by a standardized scale, and the survey authority did not first require the assessee to provide the necessary facility of weighment under the Income-tax Act, 1961 and the Standards of Weights and Measures Act, 1976; (ii) Whether the restricted disallowance of expenses sustained by the appellate authority called for interference.

Issue (i): Whether the addition on account of alleged excess stock found during survey could be sustained when the stock was weighed ad hoc and not by a standardized scale, and the survey authority did not first require the assessee to provide the necessary facility of weighment under the Income-tax Act, 1961 and the Standards of Weights and Measures Act, 1976.

Analysis: The statutory scheme of section 133A shows that, during survey, the income-tax authority must require the person attending to or helping in the business to afford the necessary facility to check or verify stock. Section 133A(6) likewise proceeds on the footing that a person is first required to afford such facility and, only on refusal or evasion, can coercive powers under section 131 be invoked. The plain language of the provision, read with the rule of natural justice, places the initial obligation on the survey authority to make the requirement known. The assessee had objected at the time of survey to weighment by cartons instead of standardized weights and measures, and the record did not show that any lawful requirement to provide standardized weighment facility had been made and refused.

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

Issue (ii): Whether the restricted disallowance of expenses sustained by the appellate authority called for interference.

Analysis: The assessee did not dispute the finding that the expenses were supported by incomplete self-made vouchers and that there was no effective mechanism to verify the genuineness of the claimed expenditure. The appellate authority had already reduced the disallowance substantially on an estimated basis, and no material was brought to show that the reduced estimate was excessive or arbitrary.

Conclusion: The disallowance sustained by the appellate authority was upheld and remained against the assessee.

Final Conclusion: The appeal succeeded only in part, with the addition for alleged excess stock deleted and the disallowance of expenses sustained.

Ratio Decidendi: In a survey under section 133A, the obligation to afford facility for verification of stock arises only after the survey authority first requires such facility, and an addition based on stock verification cannot be sustained where that statutory requirement was not properly invoked or complied with.

---