Tribunal remands issue for further examination on addition of machinery cost during survey operation

The Tribunal allowed the appeal for statistical purposes and remanded the issue to the CIT(A) for further examination and verification regarding the addition of Rs. 91,37,456/- on account of machinery surrendered during a survey operation. The Tribunal directed additional inquiries, including verification of supplier records and cross-examination, giving the assessee an opportunity to present more evidence.

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Issues Involved:
1. Addition of Rs. 91,37,456/- on account of machinery surrendered during the survey.
2. Validity of the statement recorded during the survey under pressure and its evidentiary value.
3. Examination of the source of acquisition of machinery under Section 69A of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Addition of Rs. 91,37,456/- on account of machinery surrendered during the survey:
The assessee, a partnership firm engaged in manufacturing footwear soles, was subjected to a survey operation under Section 133A of the Income-tax Act on 01/10/2010. During the survey, six new injection moulding machines and 20 moulds were found without corresponding bills or vouchers. The partner of the firm, under pressure, surrendered the value of these machines and moulds totaling Rs. 91,37,456/-. The assessee later retracted this surrender during the assessment proceedings, claiming the surrender was under duress and that the machines were returned to the vendor due to defects. However, the Assessing Officer (AO) did not accept this explanation and made the addition of Rs. 91,37,456/- to the assessee's income. The CIT(A) upheld this addition, finding inconsistencies in the assessee's explanation and supporting documents.

2. Validity of the statement recorded during the survey under pressure and its evidentiary value:
The assessee argued that the statement recorded during the survey was under pressure and should not be considered valid evidence. The Tribunal examined whether the statement was recorded under duress, noting that the statement was recorded on 01/10/2010 and concluded on 02/10/2010, which could imply it was recorded during the day. The Tribunal found no substantial evidence to support the claim of pressure or intimidation. Furthermore, the assessee honored the cheques corresponding to the tax liability on the surrendered amount, indicating voluntary compliance. The Tribunal also considered the legal precedent that statements recorded during surveys are not conclusive evidence unless corroborated by other evidence.

3. Examination of the source of acquisition of machinery under Section 69A of the Income-tax Act, 1961:
The Tribunal noted that under Section 69A, the onus was on the assessee to explain the source of acquisition of the machinery. The assessee claimed the machines were purchased from M/s Aman Hydraulics (India) and returned due to defects, without making any payment. However, the CIT(A) found various discrepancies in this explanation. The internal documents indicated that bills were passed, implying payments were made. The assessee failed to provide production records to substantiate the claim of low yield from the machines. Additionally, the receipt of the machines and their return were not recorded in the tax audit report. The Tribunal highlighted the necessity of further inquiries to verify the genuineness of the transactions and the documents provided by the assessee.

Conclusion:
The Tribunal restored the issue to the file of the CIT(A) for further inquiries, including verification of the supplier's records and cross-examination of the supplier. The Tribunal directed that the assessee be given an opportunity to present additional evidence and be heard. The appeal was allowed for statistical purposes, pending the outcome of these further inquiries.

Order:
The appeal is allowed for statistical purposes, and the issue is remanded to the CIT(A) for further examination and verification in accordance with the law.

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