2025 (8) TMI 1185 - AT - Income Tax

Addition under s.69B unjustified where 0.47% survey stock variance caused by estimated non-metal materials in gold jewellery

Mahendra Kumar Agarwal Versus The DCIT, Central Circle-1, Jaipur.

Mahendra Kumar Agarwal Versus The DCIT, Central Circle-1, Jaipur. - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether an addition under section 69B (unexplained investment/stock) is warranted where a minor discrepancy between stock as per physical survey valuation and stock as per books exists, particularly in trade involving jewellery with inherent estimation variances. 2. Whether the invocation of special taxation under section 115BBE on an addition confirmed under sections 68/69 series is appropriate where the underlying addition is contested and the factual basis for the addition is a minor variance found during survey. 3. (Ancillary / implicit) The evidentiary value and effect of admissions or surrenders made during a survey under section 133A when the assessee subsequently explains or retracts the apparent surrender; and whether such issues required separate adjudication where the primary addition is deleted. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Addition under section 69B for excess stock: legal framework Legal framework: Section 69B permits inclusion in income of unexplained investments/stock found during survey/inspection where the assessee fails to satisfactorily account for the discrepancy between recorded and found stock. The validity of such addition depends on whether the discrepancy is unexplained and whether the assessing authority has correctly attributed stock to the assessee after considering explanations and surrounding facts. Precedent Treatment The Tribunal acknowledges that survey inventory and valuation form the basis of AO's additions but reiterates settled positions that (i) factual explanations given by the assessee during or after survey must be examined, and (ii) minor, reasonable discrepancies arising from valuation methodology, particularly in trades involving estimation (e.g., jewellery), may not justify additions. Any cited high-court authority was not applied by the Tribunal to sustain the addition. Interpretation and reasoning The Tribunal examined the factual matrix: (a) the large majority of stock found was gold jewellery where valuation depends on estimated deductions (dori, wax, beads, impurities) and thus subject to measurement/estimation variation; (b) there was a contemporaneous explanation that stock of a related proprietorship (son's concern) was located on the same premises and some items were included in the other concern's inventory during survey; (c) the AO accepted the inclusion/explanation regarding the son's stock in computing the net discrepancy; and (d) the remaining difference amounted to Rs. 1,13,941, which was 0.47% of total stock found. The Tribunal found that such a de minimis variance, arising plausibly from estimation differences and potential physical counting error, is reasonable and should be ignored. Ratio vs. Obiter Ratio: Where a disputed discrepancy in jewellery stock is minuscule (0.47% in this case) and plausibly attributable to inherent estimation and counting variances in valuation of jewellery, an addition under section 69B is not justified; the assessing authority must consider and accept reasonable explanations addressing valuation methodology and related-party stock placement. Obiter: Observations that statements recorded during survey are not sacrosanct and may be retracted or explained are explanatory and were not necessary to decide the appeal once the addition was deleted, thus are treated as academic in the present decision. Conclusion on Issue 1 The Tribunal set aside the addition of Rs. 1,13,941 under section 69B, directing deletion, on the ground that the minor discrepancy was reasonably explained by valuation/weighting differences inherent to jewellery trade and by the inclusion of related-party stock in the survey inventory. The deletion is a binding outcome for the appeal; related evidentiary issues were not adjudicated further as they became academic. Issue 2 - Applicability of section 115BBE on the addition Legal framework Section 115BBE prescribes special taxation for income found and assessed under certain unexplained income provisions; its applicability depends on confirmation of the underlying addition. Precedent Treatment The Tribunal notes the CIT(A)'s view that once an addition under sections such as 68/69 is confirmed, section 115BBE becomes applicable; however, the Tribunal did not follow this line in substance because it set aside the underlying addition. Interpretation and reasoning The Tribunal reasoned that if the primary addition under section 69B is deleted on merits, the question of taxing that amount under section 115BBE becomes infructuous. Therefore, no separate adjudication on the applicability of section 115BBE was necessary. Ratio vs. Obiter Ratio: Taxation under section 115BBE cannot stand where the underlying addition to income under sections 68/69 is deleted; thus, applicability of section 115BBE is contingent on a validly sustained addition. This follow-on principle is central to the decision. Conclusion on Issue 2 The ground invoking section 115BBE was dismissed as infructuous because the Tribunal deleted the underlying addition of Rs. 1,13,941 under section 69B; no separate ruling on the correctness of applying section 115BBE was rendered. Issue 3 - Evidentiary value of survey statements and surrenders (ancillary) Legal framework Statements recorded during survey under section 133A and any surrender made therein may be used by the revenue but do not of themselves constitute conclusive evidence; the authorities must still examine explanations, corroborative material, and the facts. Precedent Treatment The Tribunal reiterates established principles that survey statements are not sacrosanct and that admissions during survey may be retracted or explained; however, because the Tribunal decided the appeal on the narrower factual ground of reasonable valuation variance, it did not decide or lay down new law on the admissibility or effect of survey surrenders. Interpretation and reasoning The Tribunal observed that although the AO relied on the survey inventory and the assessee's on-the-spot statement, the assessee provided a plausible contemporaneous explanation (inclusion/misallocation of related-party stock and estimation error in jewellery weight) which the AO and CIT(A) ought to have considered; once that explanation sufficed to neutralize the discrepancy, questions about evidentiary weight of the survey surrender were rendered academic. Ratio vs. Obiter Obiter: Statements on the non-sacrosanct nature of survey admissions and on reasons why such admissions may be unreliable (stressful circumstances, estimation errors, retraction) are explanatory and not essential to the decision because the Tribunal disposed of the appeal on the substantive valuation point. Conclusion on Issue 3 No definitive determination was made on the broader legal effect of survey surrenders because the Tribunal's deletion of the addition made further adjudication unnecessary; the Tribunal left open any general rule beyond endorsing that survey statements do not carry conclusive evidentiary weight when reasonable explanations are offered and accepted. Cross-references See Issue 1 conclusion for the operative decision deleting the section 69B addition; see Issue 2 conclusion for the corollary that section 115BBE was not adjudicated because the underlying addition was deleted; see Issue 3 for the Tribunal's non-decision on evidentiary doctrines rendered academic by the outcome.