TaxTMI 
TaxTMI 
2019 (6) TMI 652
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....sted in the AO by the I.T. Act and are thus bad in law and may very kindly be quashed. 2. That the learned CIT(A) erred in upholding the action of the AO in rejecting the partial retraction of statement made by the assessee during the course of survey u/s 133A. That under the facts and in the circumstances of the case, the said partial retraction of statement made by the assessee under 133A proceedings is based on facts and may very kindly be accepted. 3. That the learned CIT(A) erred in upholding the action of the AO in making an addition of Rs. 2,09,44,333/-: (i) on account of excess stock being the difference of amount surrendered during the course of survey and the amount offered in the return of income filed; (ii) based solely on the statement of the assessee made uls 133A proceedings having no evidentiary value which is bad in law, unjustified and uncalled for and it is prayed that the said addition may very kindly be deleted. 4. That the learned CIT(A) erred in giving a relief of 5 on account of defective stock out of total stock instead of deleting the entire addition made by the AO on account of excess stock of Rs. 2,09,44,333/-....
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....ious judgments mentioned in the written synopsis extracted below, it was contended that it is well established that the additions during the survey proceedings u/s 133A of the Act cannot be made solely on the basis of statement taken during survey and revenue authorities should corroborate the material available on record with the amount mentioned in the statement and to the extent nexus is established, the addition should be made. Written submission given by Ld. Counsel for the assessee reads as follows; Ground No. 1 The first ground of appeal is challenging the validity of Summons issued u/s 131 on 22.01.2014 requiring the assessee's presence on 22.01.2014 itself and then subsequently on 24.01.2014 which are in excess of jurisdiction vested in the AO by the LT. Act and thus bad in law and may very kindly be quashed. - Survey proceedings u/s 133A were conducted on 22.01.2014. ~ The survey party immediately issued two summons both dated 22.01.2014 requiring the assessee's presence at 01:00PM on 22.01.2014 i.e. during the course of survey itself (copy at page 15) and the other for 24.01.2014 at 11:30AM at the AO's office. (copy at page....
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....s and therefore provisions of section 133A(6) were not applicable in this case. So the question of issuing summons u/s 131 never arose and the summons thus issued on 22.01.2014 requiring compliance on 22.01.2014 itself at 01:00PM loses its legal validity, is in excess of the jurisdiction and powers vested and in consequence the statement purported to be recorded of the assessee loses its validity and cannot form the basis of addition made in the assessment order. - So far as the second summons dated 22.01.2014 is concerned requiring compliance on 24.01.2014 at 1l:30AM (copy at page 16), it is submitted that the income tax authorities have no power to issue notice if proceeding is not pending. Thus, the second summons has still no legal sanctity as no proceedings were pending as on 24.01.2014 as there was a concluding statement recorded on 22.01.2014 and the survey proceedings had concluded (copy at pages 25 to 27). So the statement recorded on 24.01.2014 (copy at pages 37 to 39) is invalid as the summons issued on 22.01.2014 to make compliance on 24.01.2014 was itself invalid. - So if these two summons u/s 131 are expunged from the survey proceedings declaring the....
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....CIT reported in 250 ITR 354." - The Ld. CIT(A) in his order has dismissed this ground of appeal stating it as consequential in nature. - The elaborate submission made above and the judicial pronouncements vindicate the assessee's stand that the AD was not empowered to issue summons and by issuing summons u/s 131 during the survey proceedings u/s 133A exceeded his jurisdiction and the powers vested in him by the Income Tax Act 1961 and thus vitiating the procedure adopted by him. It is therefore prayed that the summons issued u/s 131 being invalid and having no legal sanctity are thus had in law and may very kindly be quashed. In turn the statements recorded on 22.01.2014 and 24.01.2014 have no evidentiary value, rendering the entire assessment proceedings as invalid as the assessment order is based solely on the statements recorded and may very kindly be quashed. Ground no. 2 The second ground of appeal is challenging the order of the Ld. CIT(A) in upholding the AO's action in rejecting the retraction of the statement made by the assessee during the course of survey u/s 133A relying solely on the statement recorded during survey ....
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....nterprises (The assessee is Proprietor) ii. M/s. Gayatri Processing Industries (Proprietor Harish Kumar Toshniwal (assessee's son) iii. M/s Gayatri Coating P. Ltd., a company in which the assessee's son Shri Mahesh Toshniwal & the assessee are Directors.( copy at pages 48 to 49) The said fact was also stated in reply to Q.No.3 of the preliminary statement of the assessee placed at page 18 of PB. b) During the course of survey, stock of M/s. Gayatri Processing Industries was separately marked. A separate inventory of the same was prepared. (copy at page 153) This stock was considered in the case of Harish Kumar Toshniwal who is the Proprietor of M/s. Gayatri Processing Industries where separate survey operations were carried out. c) So far as stock of M/s Gayatri Enterprises and M/s. Gayatri Coating Pvt. Ltd. was concerned, the stock was not separately identified and marked. The entire inventory was prepared in the name of M/s. Gayatri Enterprises. Thus, it is submitted that the inventory which was prepared by the survey party included the stock of M/s. Gayatri Coating Pvt. Ltd. to the tune of Rs. 51,15,200/-. This was verifiable from the ....
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....s confusion happened due to acute mental pressure/stress which the assessee was undergoing during survey and more importantly the hearing impairment. h) The stock of the assessee was valued by the survey team at an exorbitant price. Even some of the defective stock was taken as fresh stock and valued accordingly. i) The assessee sold the stock found during the course of survey to unrelated parties at market rates which were much lower than the rates adopted by the survey party. A list of sale of stock found during survey to different parties is enclosed at pages 64 to 67 and copy of sale bills in support of the same is enclosed at pages 68 to 142. All these transactions were made with unrelated persons and were done through banking channels. The assessee even went on to state to the Ld. AO that these sale transactions could be verified and the assessee was willing to bear the cost. The AO and for that matter the Ld CIT(A) did not make any efforts to controvert the assessee's submission and make independent investigation. j) The assessee even obtained quotations of the sale price from independent parties (copy at pages 143 to 152). The defective items ....
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....he survey party on the date of survey, the case of mistaken belief of facts is also made out. r) The assessee in the post survey proceedings within a span of almost three months filed a retraction letter before the AO on 28.04.2014 as to what were the correct facts and filed evidences that supported his claim. Surprisingly the AO was unable to bring any material or evidence to the contrary. He has just relied on the statement made during the course of survey uls 133A which has no evidentiary yalue as discussed in detail in Ground no. 3(ii) and not controverted the assesseee's retraction on facts. Even the Ld. CIT(A) failed to controvert the submission when all documentary evidences were there before him. s) In support of the retraction of statement made uls 133A the assessee wishes to place reliance on some of the following judgments :- 1. Pullangode Rubber Products Co. Ltd. Vis State of Kerala 91 ITR 18 (SC) (copy at pages 06 to 08 of Case Laws PB) An admission in a statement recorded on oath is an extremely important piece of evidence but it cannot be said that it is conclusive and it is always open to the person who made the admis....
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....nt has failed to controvert the evidences filed by the assessee which means that the assessee was right in his contention so far as revised valuation of stock was concerned and failed to bring any evidence whatsoever to rebut the claim of the assessee. Since the AO and the Ld. CIT( A) have failed to controvert the retraction letter on facts and in view of the judicial pronouncements cited above, it is prayed that the retraction letter being based on facts and valid, the same may very kindly be accepted and the addition of Rs, 2,09,44,333/- may very kindly be deleted. Ground no. 3 (ii) This ground of appeal is challenging the action of Ld. CIT(A) in upholding the action of the AO in making an addition of Rs. 2,09,44,333/- based solely on the statement of the assessee made u/s 133A proceedings having no evidentiary value which is bad in law, unjustified and uncalled for and it is prayed that the said addition may very kindly be deleted. 1. As deliberated in ground no. 1 if the summons issued u/s 131(1) were invalid and in excess of jurisdiction conferred on the AO during the course of survey proceedings u/s 133A what remained was only the statement....
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....y at pages 46 to 59 of Case Laws PB) Confession cannot be made foundation of assessment. 3. CIT Vs. Dhingra Metal Works (Delhi High Court) 328 ITR 384 held that: "Income from undisclosed sources-Addition-Addition on the basis of statement recorded during survey-Assessee's statement during the course of survey is not binding as evidence." (copy at pages 60 to 66 of Case Laws PB) 4. Ashok Manilal Thakkar Vis ACIT(ITAT, Ahmadabad) 279 ITR 145 (AT) (copy at pages 67 to 79 of Case Laws PB) Held that the statement of the Assessee recorded U/S 133A(3)(iii) could be said to be useful or relevant to the assessment proceedings only when there was material on record to prove the existence of any of the four activities on the basis of which the disclosure was stated to be made. The statement recorded U/S 133A cannot be given evidentiary value as such evidentiary value was not attached to it by the provisions of section 133A. Thus, it could not be said solely on the basis of the statement given by the Assessee that the disclosed income was assessable as lawful income of the Assessee. 5. Satish Chand Agarwal Vs. ITO (ITAT Jaipur) (copy at....
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....hen proper justification for retraction was also offered. It is this view, which the Tribunal confirmed in the impugned judgement. We see no error. No question of law arises. Tax appeal is dismissed." So in view of the above judicial pronouncements it is clear that the statement recorded u/s 133A(3)(iii) having no evidentiary value cannot form the basis of rejecting the retraction letter and making an addition of Rs. 2,09,44,333/-. The charge of the Ld. AO that the retraction made was to evade payment of taxes on the surrendered amount is ill founded as the assessee has made only a partial retraction based on proper working of stock valuation and abided by the payment of taxes all throughout the proceedings. So the conduct of the assessee has also to be taken into consideration. The Ld CIT(A) has dismissed this plea of the assessee stating it be consequential. In view of the detailed submission and the various judicial pronouncements, CBDT Instructions, it is most humbly prayed that the addition of Rs, 2,09,44,333/- made on account of difference of amount surrendered on account of valuation of stock solely based on the statement recorded during t....
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....etraction letter was filed by the assessee revising the value of surrendered stock to Rs. 1,82,15,577/- mentioning that revenue authorities have valued the unaccounted quantity of stock at 30 to 40% higher than the market price, no rebate given for discount and damaged stock and also no deduction was given for the stock of another party namely Gayatri Coating Pvt. Ltd valuing at Rs. 51,15,200/- wrongly included in the physical stock taken by the survey team. During the course of assessment proceedings through written submissions assessee gave necessary details in support of value of surrendered stock mentioned in the retraction statement dated 28.4.14 valuing at Rs. 1,82,15,577/-, however Ld. A.O was not convinced and just took the basis of the statement given during the course of survey proceedings and adopted the value of excess stock at Rs. 3,91,60,100/- thereby making the addition for the difference of Rs. 2,09,44,333/-. Against this addition Ld. CIT(A) gave a part relief by directing the Ld. A.O to reduce the value of unaccounted stock by 5% towards defective stock. Assessee is now in appeal before us raising various issues through Ground No. 1 to 5. 11. Apropos Ground No.1....
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....re admission cannot be bedrock or foundation of an assessment and it is always open to the assessee who made the admission to show that what he admitted was not correct". 14. Co-ordinate Bench in the case of ACIT vs. Sudeep Maheshwari (supra) held that "it is also a settled position of law that the addition cannot be sustained merely on the basis of statement. There has to be some material corroborating the contents of the statement". 15. In the light of the above judgments and decisions as well as on examining all the facts of the instant appeal, we find that the assessee has within a reasonable period of 3 months, after analysing various documents relating to purchase and sale of the stock, market price vis-a-vis the cost price of the products, deduction for defective goods and also on observing the stock of another sister concern M/s. Gayatri Coating Pvt. Ltd which was lying in the same premises and was wrongly included by the survey team in the unaccounted stock even when the stock of the sister concern M/s. Gayatri Coating Pvt. Ltd was duly disclosed in their regular books of accounts filed a retraction statement on 28.4.2014. It is always open for the revenue authoritie....
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....ssee for the purchase of unaccounted stock comes under tax ambit for unaccounted/ unexplained investment made in excess stock. 19. As far as the assessee's plea that stock of another sister concern M/s. Gyatri Coating Pvt. Ltd has been included in the physical stock found by the survey team, we after going through the statements given during the course of survey affirm the assessee's plea and hold that the stock of Rs. 51,15,200/- belonging to M/s. Gayatri Coating Pvt. Ltd have been wrongly included in the alleged unaccounted stock of Rs. 3,91,60,110/- and the assessee deserves to the deduction of Rs. 51,15,200/-. Further in the support of the revised value of stock following statement have been filed in which assessee has adopted the sale proceed figure of the stock (including excess stock) sold after the survey date and made necessary deductions to arrive at the cost price of the unaccounted stock:- Sale proceeds of stock found during survey 2,03,85,207 Less: Gross Profit @6% (20385207 x 6/106) (11,53,880) Cost of stock found during survey 1,92,31,327 Less: Stock of cloth as per books (10,15,550) Revised surrendered amount of stock 1,82,15,777 ....