2023 (9) TMI 1033 - AT - Income Tax

Tribunal overturns tax assessment, ruling against excess stock addition based on survey discrepancy.

The Tribunal allowed the appeal of the assessee, directing the deletion of the addition made by the AO regarding alleged excess stock-in-trade based on a ... Difference of stock of silver - Addition on account of alleged excess stock-in-trade on the date of survey - reliance on statement recorded on oath during the survey u/s 133A of the Act about stock of silver to the tune of 200 Kg of silver - according to the AO, when the physical inventory of silver was being carried out, mob of locals/association of traders came inside the shop and disrupted the survey operation; and in the ruckus created by the unruly mob, the physical inventory couldn’t be completed and the papers prepared by them, were torn and resultantly, the survey team had to leave the jewellery premise without completing their assigned task. HELD THAT:- As statement u/s 133A of the Act recorded on 06.01.2012 cannot be held to be voluntarily given; and the assessee’s explanation shows that he made the statement on estimation which includes both pure & impure silver. And since no physical inventory was prepared (due to disturbance) there is no other material in the hands of the AO/Ld. CIT(A) to make/confirm the allegation of excess stock of silver, therefore the addition made of Rs. 1,84,080/- was not warranted. As assessee has explained within 15 days the difference of stock as admitted during survey and reflected in books, which is a plausible view, so assessee’s appeal is allowed. Therefore, the addition made by AO cannot be sustained and so directed to be deleted. Appeal of the assessee is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether an admission recorded during a survey under section 133A can, by itself, be treated as conclusive evidence of stock for the purpose of making an assessment addition where no physical inventory was completed. 2. Whether a subsequent explanation given by the assessee during assessment proceedings (recorded under section 131) that the earlier survey admission was an estimate given under pressure, and that the stock included impure material, negates the evidentiary value of the survey statement for making an addition. 3. Whether the Assessing Officer (and the appellate authority) may sustain an addition based solely on the difference between stock quantity stated during survey and stock shown in books where books/stock register have been test-checked and no defect in books has been found. 4. Whether precedents recognizing that voluntary admissions under section 133A can be used in assessment proceedings are applicable where the assessee has provided a plausible, un-rejected clarification under section 131 and no physical inventory or corroborative material exists. ISSUE-WISE DETAILED ANALYSIS Issue 1: Admissibility and evidentiary weight of statements recorded under section 133A for establishing stock Legal framework: Survey provisions under section 133A permit recording of information and statements at the premises; however, statutory scheme distinguishes survey-recorded statements from statements under the search provisions (section 132) which have specific evidentiary treatment. Statements under section 131 are recorded during assessment proceedings and form part of the record subject to appraisal by the AO. Precedent Treatment: The Court recognized higher-court authority holding that statements recorded during survey do not possess the same evidentiary value as statements recorded under search provisions and therefore cannot be equated with the latter. It also acknowledged contrary authorities holding that voluntary admissions under section 133A may form the basis of assessment if voluntary and corroborated. Interpretation and reasoning: The Court examined the context of the survey - including the disruption that prevented physical verification - and emphasized that a bare admission during survey cannot automatically be elevated to conclusive proof of stock when there is no completed physical inventory or corroborative material. The Court noted the statutory and jurisprudential distinction between survey-recorded statements and search-recorded statements, concluding that absent voluntariness and corroboration, a survey admission lacks sufficient evidentiary weight to support an addition. Ratio vs. Obiter: Ratio - statement under section 133A, by itself and without corroboration or voluntariness, is not sufficient to sustain an addition based on alleged excess stock when other explanations exist. Obiter - general references to authorities allowing voluntary admissions under section 133A to be used where facts support voluntariness. Conclusions: The survey statement alone cannot justify the impugned addition in the absence of physical inventory or other corroborative material establishing the alleged stock quantity. Issue 2: Effect of subsequent clarification recorded under section 131 that the survey statement was an estimate given under pressure and that stock included impure material Legal framework: Section 131 allows the AO to record statements during assessment proceedings; such statements may be considered by the AO in evaluating earlier statements and in forming conclusions, subject to assessment of credibility and whether explanations are rejected. Precedent Treatment: The Court considered authority establishing that voluntary admissions during survey can be relied upon, but distinguished those authorities where admissions were not later plausibly explained or where voluntariness was clear. The Court relied on the principle that an explanation provided during assessment proceedings, if not expressly rejected by the AO, must be given weight. Interpretation and reasoning: The assessee, within 15 days of the survey, gave a detailed explanation under section 131 that (i) the earlier figure was an estimate given under mental pressure, and (ii) the stated stock included both pure and impure silver with lower purity percentages. The AO examined books and stock register and found no defects but did not reject the section 131 explanation. The Court held that where the AO does not discredit or rebut the section 131 clarification, it is impermissible to treat the original survey admission as a conclusive, involuntary admission supporting an addition. Ratio vs. Obiter: Ratio - a plausible, unrejected explanation recorded under section 131 that negates voluntariness or accuracy of a prior survey admission will defeat an addition premised solely on that survey admission. Obiter - observations on the time gap and the significance of the AO's duty to either accept or properly discredit such explanations. Conclusions: The unrejected explanation under section 131 negated the evidentiary value of the survey admission; consequently the survey statement could not sustain the addition. Issue 3: Reliance on books/stock register and the legality of additions when books are accepted on test-check Legal framework: Assessment must be based on relevant material and credible evidence; where books and stock records are produced and test-checked without finding defects, additions should not be made on speculative or uncorroborated bases. Precedent Treatment: The Court reviewed authorities which permit reliance on admissions where corroborative material exists, and those which permit additions where books are unreliable. It distinguished those authorities on factual matrices where books were defective or admissions remained unchallenged and corroborative. Interpretation and reasoning: The AO had examined and test-checked the books and stock register and did not find defects; nonetheless, he proceeded to add the difference between the survey admission and book stocks. The Court found this approach legally unsustainable because the AO neither completed physical verification (blocked by disturbance) nor produced other corroborative material displacing the books; further, the AO did not repudiate the assessee's section 131 explanation. Ratio vs. Obiter: Ratio - an addition premised on discrepancy between a survey admission and books is untenable where books are found acceptable on verification, physical inventory was not completed for valid reasons, and the assessee's subsequent explanation is not discredited. Obiter - commentary that facts distinguishing prior cases render them inapplicable where books are intact and plausible explanations exist. Conclusions: The addition based solely on the purported excess (derived from survey admission minus book stock) cannot be sustained where books were accepted on test-check and no physical inventory or corroborative material supports the alleged excess. Issue 4: Applicability of authorities allowing use of voluntary admissions under section 133A where the factual matrix includes voluntariness and absence of plausible explanation Legal framework: Jurisprudence allows use of voluntary admissions made during survey as the basis for assessment when voluntariness and accuracy are established and where corroboration or lack of plausible explanation supports reliance. Precedent Treatment: The Court acknowledged decisions upholding reliance on voluntary survey admissions as well as higher-court holdings limiting evidentiary value of survey statements vis-à-vis search statements. It treated earlier decisions permitting additions on survey admissions as distinguishable where voluntariness, corroboration, or absence of plausible explanation were absent. Interpretation and reasoning: The Court compared the present factual matrix with cases cited for the revenue; it found those cases distinguishable because in the present matter the assessee promptly offered a plausible clarification recorded under section 131, the AO did not reject that clarification, there was no physical verification possible due to disturbance, and books were accepted on test-check. Hence the precedents relied upon by the revenue did not support sustaining the addition. Ratio vs. Obiter: Ratio - precedents allowing assessment additions on voluntary survey admissions are fact-sensitive and do not apply where the admission is plausibly explained away, unrejected, and where no corroboration or physical verification exists. Obiter - observations on the necessity for AO to expressly disbelieve or rebut subsequent explanations when relying on survey admissions. Conclusions: Authorities permitting reliance on voluntary admissions are inapplicable on these facts; the addition must be deleted. Overall Conclusion and Disposition The Court concluded that the addition of the alleged excess stock (valued at the contested amount) based solely on the survey-recorded admission could not be sustained in the absence of physical inventory or corroborative evidence, particularly because the assessee furnished a plausible, unrejected explanation under section 131 and the books/stock register were accepted on test-check. Consequently, the impugned addition was deleted.