Tribunal decision: Part appeal allowed, addition upheld for fabrics, deletion of yarn addition.

The Tribunal dismissed the appeal of the revenue and partly allowed the appeal of the assessee. It upheld the addition of Rs. 3,237.36 for grey fabric and Rs. 5,662.80 for finished fabric but directed the deletion of the entire addition of Rs. 1,02,46,949.32 under the head of yarn. The Tribunal concluded that the statement recorded under section 132(4) was not the sole basis for the assessment, and the assessee had provided enough documentary evidence to refute the addition.

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Issues Involved:
1. Validity of the assessment order.
2. Verifiability and retraction of the statement recorded under section 132(4) of the Income Tax Act.
3. Addition on account of alleged excess stock found during the search and post-search proceedings.
4. Adequacy of opportunity provided to the assessee for being heard.

Detailed Analysis:

1. Validity of the Assessment Order:
The assessee contended that the assessment order dated 02.06.2014 under section 143(3) read with sections 153A/153B was perverse, arbitrary, and without jurisdiction. The primary argument was that the assessment was made solely based on the statement of Sh. Navneet Somani recorded under section 132(4) of the Income Tax Act, which was retracted later. The assessee argued that no incriminating material was found during the search, and the assessment was made without any corroborative documentary evidence. The Tribunal noted that the AO had given adequate opportunities to the assessee during the assessment proceedings and found no violation of natural justice. Therefore, the Tribunal dismissed this ground of appeal.

2. Verifiability and Retraction of the Statement Recorded under Section 132(4):
The assessee argued that the statement made by Sh. Navneet Somani under section 132(4) was not voluntary and was made under duress. The Tribunal observed that the statement recorded under section 132(4) was a significant factor but not the sole basis for the assessment. The Tribunal noted that the statement was retracted by the assessee, and the AO did not make any further inquiry or adverse comments on the documentary evidence provided by the assessee. The Tribunal partially allowed this ground, acknowledging the perennial debate on the issue of admission and retraction.

3. Addition on Account of Alleged Excess Stock Found during the Search and Post-Search Proceedings:
The AO made an addition of Rs. 1,07,66,304 based on the alleged excess stock of grey fabric, finished fabric, and yarn found during the search. The CIT(A) deleted Rs. 87,93,007.44 of the addition and upheld Rs. 19,73,296.56. The Tribunal analyzed the reconciliation of stock provided by the assessee and found that the AO's calculation of excess stock was incorrect in several instances. Specifically:

- Grey Fabric: The Tribunal upheld the CIT(A)'s decision to delete the addition related to non-posting of grey folding data entries in the computer for the period 24.09.2012 to 25.09.2012, resulting in a minor difference of 86.10 meters valued at Rs. 3,237.36.
- Finished Fabric: The Tribunal upheld the CIT(A)'s decision to delete the addition related to calculation mistakes by the department, resulting in a minor difference of 616.10 meters valued at Rs. 5,662.80.
- Yarn: The Tribunal found that the department had taken an incorrect value of yarn purchases and upheld the deletion of Rs. 87,93,007.44. However, the Tribunal did not find justification for upholding the addition of 11,182.31 kg of yarn valued at Rs. 19,64,396.40, which was actually waste and not fresh yarn. The Tribunal directed the AO to delete the entire addition of Rs. 1,02,46,949.32 under the head of yarn.

4. Adequacy of Opportunity Provided to the Assessee for Being Heard:
The assessee argued that the AO did not provide an adequate opportunity to be heard before passing the assessment order. The Tribunal found that the AO had given sufficient opportunities to the assessee during the assessment proceedings and that the assessee had filed various submissions and documentary evidence. Therefore, the Tribunal dismissed this ground of appeal.

Conclusion:
The Tribunal dismissed the appeal of the revenue and partly allowed the appeal of the assessee. The Tribunal upheld the CIT(A)'s order to the extent of confirming the addition of Rs. 3,237.36 for grey fabric and Rs. 5,662.80 for finished fabric. The Tribunal directed the AO to delete the entire addition of Rs. 1,02,46,949.32 under the head of yarn. The Tribunal concluded that the statement recorded under section 132(4) was not the sole basis for the assessment and that the assessee had provided sufficient documentary evidence to rebut the addition.

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