2017 (12) TMI 988 - AT - Income Tax

Tribunal reverses decision, directs deletion of unexplained investment under Income Tax Act

M/s Kalpana Biri Mfg. Co. Pvt. Ltd. Versus ACIT, Circle, Berhampur

M/s Kalpana Biri Mfg. Co. Pvt. Ltd. Versus ACIT, Circle, Berhampur - TMI Issues Involved:1. Whether the addition of Rs. 3,06,28,425/- as unexplained investment under Section 69 of the Income Tax Act, 1961, due to alleged suppression of stock, was justified.Issue-Wise Detailed Analysis:1. Addition of Rs. 3,06,28,425/- as Unexplained Investment under Section 69:Background and Facts:The assessee, a private limited company engaged in the manufacturing/trading of bidi and electronic goods, filed its return of income declaring a total consolidated income of Rs. 2,35,99,186/-. A survey conducted at the Aurangabad factory on 29.03.2010 revealed discrepancies in the stock. The assessee's director, during the survey, admitted to an under-valuation of closing stock amounting to Rs. 3,06,28,425/-, but this was not reflected in the return of income filed.Survey Proceedings and Statements:During the survey, statements were recorded under Sections 131 and 133A of the Income Tax Act. The director admitted to discrepancies in stock valuation and agreed to disclose an additional income of Rs. 3 crore for the current year. However, the assessee later retracted this statement, claiming it was made under coercion.Assessee's Submissions:The assessee argued that:- The survey was limited to the Aurangabad factory, and no physical inspection was conducted at the other branches.- No discrepancies were found in the books of account.- The statement under Section 131 was recorded under duress.- The retraction was delayed because the certified copy of the statement was not provided promptly.Assessing Officer's (AO) Findings:The AO disregarded the assessee's submissions, stating:- The survey team has the discretion to choose survey locations.- No coercion was applied during the survey.- The retraction statement was filed after three years.- The assessee voluntarily offered Rs. 1 crore as tax on the under-valuation of stock.Commissioner of Income Tax (Appeals) [CIT(A)] Findings:The CIT(A) upheld the AO's decision, noting:- The survey team found excess stock, and the assessee could not rebut this finding.- The addition was based on stock-taking during the survey, not merely on the statement recorded.Appellate Tribunal's Analysis:The Tribunal found several infirmities in the orders of the authorities below:- The survey team did not visit other branches, making the stock information unreliable.- Statements under Section 131 during survey proceedings are not permissible unless there is non-cooperation from the assessee.- The assessee cooperated fully during the survey, and no discrepancies were found in the books of account.- The addition was based solely on the statement recorded under Section 131, which has no evidentiary value.- The CBDT guidelines emphasize gathering evidence during surveys and avoiding coercion.Tribunal's Decision:The Tribunal concluded that:- The survey team's failure to visit other branches rendered the stock discrepancy findings unreliable.- The statement recorded under Section 131 during the survey was not valid as there was no non-cooperation from the assessee.- The addition based solely on the statement without any documentary evidence was unsustainable.- The retraction statement was delayed due to the revenue's failure to provide the certified copy of the statement promptly.Conclusion:The Tribunal reversed the orders of the authorities below and directed the AO to delete the addition of Rs. 3,06,28,425/- as unexplained investment under Section 69. The assessee's appeal was allowed.Order Pronounced:The order was pronounced in open court on 10/11/2017.