TaxTMI 
TaxTMI 
2024 (7) TMI 896
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.... has further erred in confirming addition of Rs. 89,94,655/- out of total addition of Rs. 1,25,60,000/- made by ld.AO on account of excess stock, solely based on the admission obtained in the statements recorded on oath during the course of Survey and without considering the submissions made and evidences adduced. Thus, the addition of Rs. 89,94,255/- deserves to be deleted. 1.3 That, the ld. CIT(A) has further erred in confirming the addition of Rs. 10,77,000/- made by ld.AO on account of bogus expenses, solely on the basis of admission obtained from assessee in the statements during the course of survey. 1.4 That the Ld. CIT(A) has further erred in confirming addition of Rs. 1,00,71,655/- (i.e. Rs. 89,94,655/- on account of excess stock and Rs. 10,77,000/- on account of bogus expenses) merely on whims & fancies and without appreciating the fact that assessee had already offered additional income of Rs. 68,00,000/- worked out after completing books of accounts wherein all the entries contained in the seized records which do not find proper mention in the regular books of accounts maintained stood incorporated. Therefore confirming the addition made on mere assumptions without ....
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....of the firm surrendered a sum of Rs. 2,04,37,000/- on the following account as undisclosed income for the year under consideration: 1. Advances Given to Various persons Rs. 68,00,000/- 2. On account of Excess stock Rs. 1,25,60,000/- 3. On account of bogus expenses Rs. 10,77,000/- Rs. 2,04,37,000/ 3.2 During the course of assessment proceedings, on perusal of return of income filed for the year under consideration, it was noticed that the assessee firm has disclosed only Rs. 68,00,000/- in its return of income filed on 17.10.2016 instead of Rs. 2,04,37,000/- as surrendered income while filling the return of income. In this manner, the assessee disclosed surrendered income less by Rs. 1,36,37,000/-. 3.3 As the case was selected for scrutiny, notice u/s. 142(1) dated 09.12.2018 was issued to the assessee firm asking them to show cause as to why the difference of Rs. 1,36,37,000/- should not be added to the income for the year under consideration on account of excess stock and bogus expenses as declared in the statement. In compliance the assessee filed a detailed reply explaining that when the stock physically inventoried, the books of accounts were not com....
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....e on account of three reasons. However in the return of income filed subsequently the appellant has not honoured the statements made by its partner and has offered additional income only partly. The two accounts where the additional income has not been offered in the ITR or has been offered by a lesser sum are namely bogus cash expenses and unexplained excess stock. Bogus cash expenses (Rs. 10,77,000) Regarding the bogus cash expenses (Rs. 10,77,000) the appellant has claimed that the same gets covered by the undisclosed cash advances (Rs. 68 lakhs) due to telescoping on which surrender was made during the survey action and income on account of the same has been offered in the ITR and the income on account of bogus cash expenses (Rs. 10,77,000) has not been offered in the ITR. The appellant has claimed the telescoping without explaining the facts of the case behind the telescoping. The factual position in this regard is required to be laid out by the appellant and onus in this regard is on the appellant. The same has been held so in the below mentioned two judgements of Hon'ble Allahabad High Court and Hon'ble Calcutta High Court as under:- Bhaiyalal Shyam Behari v....
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....ere given after the unaccounted cash was generated out of bogus cash expenses. It is not shown by the appellant that the cash claimed to have been given for certain expenses which were found to be bogus was not given or utilized for something else. The assessee did not show the cash flow trail to show the generation and application of unaccounted cash. Another important crucial element is that nowhere in the survey statement it is was stated that the cash out of bogus expenses was given as cash advances and this amount was offered to tax as additional income even in addition to offered additional income on account of cash advances. The statement recorded during survey cannot be brushed aside. It has some evidentiary value. Such statement also reflects the original and initial response of the person giving statement whereas the replies/statements given thereafter are likely to be improved upon versions and after thoughts. In the case of Bachittar Singh v. Commissioner of Income-tax [2010] 328 ITR 400 it is held by the Hon'ble Punjab & Haryana High Court as under:- "6. It is not disputed that the statement was made by the assessee at the time of survey, which was retrac....
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....eme Court in Pullangode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 admission is an extremely important piece of evidence though it is not conclusive. Therefore, a statement made voluntarily by the assessee could form the basis of assessment. The mere fact that the assessee retracted the statement could not make the statement unacceptable. The burden lay on the assessee to establish that the admission made in the statement at the time of survey was wrong and, in fact, there was no additional income. This burden does not even seem to have been attempted to be discharged. Similarly, case P.K. Palwankar v. CGT [1979] 117 ITR 768 (MP) and CIT v. Mrs. Doris S. Luiz [1974] 96 ITR 646 (Ker.) on which also the learned counsel for the assessee placed reliance, are of no help to the assessee. The Tribunal's order is concluded by findings of fact and in our view, no question of law arises. The applications are, accordingly, rejected." (Emphasis supplied) (In the above case the referred statement is recorded during survey. The above judgement is thus in the context of evidentiary value of statement recorded during survey.) In view of the above discussion that the appellant h....
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.... And in view of the discrepancies, the books of accounts of the assesse were rejected in the assessment order. The appellant has submitted that as per Trading Account as per finalized books for the period 01.04.2015 to 19.02.2016. the GP is worked out at Rs. 5,00,52,299.33, as against GP Rs. 4,47, 34,326/- as per the trading account as on the date of survey prepared on the basis of incomplete books of accounts. In this manner assessee has declared additional income of Rs. 53,17,973.33 (5,00,52,299.33 - 4,47,34,326) on account of excess stock. However, as per submission of appellant, it is observed that this G.P. of Rs. 5,00,52,299 is after including the excess stock found during survey i.e. taking the actual stock (Rs. 2,96,24,738) found during survey. At the turnover of Rs. 23,58,21,590 the G.P. ratio works out to 21.22%. Whereas the G.P. of Rs. 4,47,34,326 during survey was as per the books of accounts as per stock in books (Rs. 1,70,65,394) and not by taking the actual stock found during survey. As per the submissions of the appellant the gross profit ratio for the year from the beginning of the year till the date of survey is 21.32% and from the date of survey to the en....
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....ade as per books of accounts was Rs. 1.5 cr. to 1.75 cr. and lateron upon the examination of the books of accounts the figure was actually found to be matching as the stock in trade as per books of accounts was found to be little over 1.7 cr. However if the claim of the appellant regarding unentered bills is accepted this takes the figure of stock in trade as per books of accounts to more than 2.5 cr which is almost 60% more than the figure informed by the partner during the survey and also is thus much less reliable than the figure which was found during the survey and which was matching with partner statement. RETRACTION Another important crucial element is that the statement recorded during survey cannot be brushed aside. It has evidentiary value even if not equal to the value of statement u/s 132(4) and statement u/s 131 of the Act. Statement recorded during survey also reflects the original and initial response of the person giving statement whereas the replies/statements given thereafter are likely to be improved upon versions and after thoughts. The subsequent responses given after much time has elapsed after the date of survey needs to be proved by the taxpayer with m....
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....rded during survey. In the case of Bachittar Singh v. Commissioner of Income-tax [2010] 328 ITR 400 it is held by the Hon'ble Punjab & Haryana High Court as under:- "6. It is not disputed that the statement was made by the assessee at the time of survey. which was retracted on May 28, 2003, and he did not take any further action for a period of more than two months. In such circumstances, the view taken by the Tribunal that retraction from the earlier statement was not permissible, is definitely a possible view. The mere fact that some entries were made in a diary could not be held to be sufficient and conclusive to hold that the statement earlier made was false. The assessee failed to produce books of account which may have been maintained during regular course of business or any other authentic contemporaneous evidence of agricultural income. In the circumstances the statement of the assessee could certainly be acted upon. 7. As regards the judgments in Pullangode Rubber Produce Co.[1973] 91 IIR 18 (SC) and Ester Industries Limited [2009] 316 ITR 260 (Delhi) relied upon by the assessee, even though it may be open to show an earlier statement or an entry to be erroneous,....
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....findings of fact and in our view, no question of law arises. The applications are, accordingly, rejected." (Emphasis supplied) (In the above case the statement was recorded during survey. The above judgement is thus in the context of evidentiary value of statement recorded during survey.) In view of the above judgements:- The mere fact that the assessee retracted the statement could not make the statement unacceptable. The burden lay on the assessee to establish that the admission made in the statement at the time of survey was wrong. Even if the statement under section 133A was not at par with the statement under section 132(4) and did not have that evidentiary value, such statement cannot be held to be irrelevant material so as to be ruled out of consideration in totality of facts Unless the retractions are made within a short span of time, supported by affidavit swearing that the contents are incorrect and it was obtained under force, coercion and by lodging a complaint with higher officials, the same cannot be treated as retracted. Retraction is required to be made as soon as possible or immediately after the statement of the assessee was recorded. Duration of time....
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....it ratio for the period upto the date of survey (as found during the survey) (excluding excess stock) is 18.97% which is very much similar to immediately preceding year. Considering the totality of facts, trading results shown for the year are not reliable and are rejected. The decision of the ld. AO in the assessment order regarding rejecting the books of accounts is hereby upheld. The income is to be assessed considering the gross profit ratio of 18.94% (excluding excess stock i.e. the stock will be over and above this G.P.) which is exactly similar as immediately preceding year and also take care for the some expenses left over and not entered in the books of accounts on date of survey. This gives the meaning that had the survey not taken place on 19.02.2016 (which is just 1 month and little over 1 week prior than the end of year) the appellant would have shown a gross profit at the rate of 18.94% (excluding excess stock) considering the best of probabilities and considering judicial pronouncements about using the preceding year G.P. ratio when the books in the current year are rejected. As per the gross profit ratio of 18.94% (excluding excess stock), the details for the ye....
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....an Mohammad Hanif v. Commissioner of Income-tax [1963] 50 ITR 1 (SC) [08-02-1963] it is held by the Hon'ble Supreme Court as under:- "It seems to us that the answer to this question must be in the affirmative and that is how it was answered by the High Court. It is well established that the onus of proving the source of a sum of money found to have been received by the assessee is on him. If he disputes liability for tax, it is for him to show either that the receipt was not income or that if it was, was exempt from taxation under the provisions of the Act. In the absence of such proof, the Income-tax Officer is entitled to treat it as taxable income: see A. Govindarajulu Mudaliar v. Commissioner of Income-tax [1958] 34 [TR 807 (SC)". As per judgements of Hon'ble Supreme Court in the case of CIT v. M.Ganapathi Mudaliar [1964] 53 ITR 623 (SC)/A. Govindarajulu Mudaliar v. CIT [1958] 34 ITR 807 (SC), where the assessee has failed to prove satisfactorily the source and nature of a credit entry in his books, and it is held that the relevant amount is the income of the assesse, it is not necessary for the department to locate its exact source. The above legal principles are....
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.... were completed later on and got audited. Accordingly, in the return of income filed u/s 139(1) of the Act, on 17.10.2016: 1. Additional income of Rs. 68,00,000/- was offered under the head "Income from Business or Profession" [as additional income actually determined on the basis of alleged advances found noted in the loose papers and not recorded in books and accounts on the date of survey]. 2. Cash expenses of Rs. 10,77,000/- for which admission was obtained by alleging the same as bogus, the same were claimed as telescoped and were set off against the advances of Rs. 68,00,000/- and therefore no separate income was offered on that count. 3. So far as admission obtained on allegation of excess stock is concerned, after completion of Survey, assessee prepared Trading account till the date of survey after duly incorporating sales bills, purchase bills and expenses vouchers which remained to be incorporated in books as on the date of survey. Accordingly, as against excess stock of Rs 1,25,59,344/- computed during the course of survey, adjustment towards purchase bills worth Rs. 82,40,125/-, expenses vouchers of Rs. 8,58,956/- and sales bills of Rs. 18,57,710/- was made and ac....
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....978 26,54,46,327.98 Thus to summarize, it is submitted as under: Stock as per Books of Accounts as on Date of Survey 1,70,65,394/- Add: Excess Stock found during the course of survey 1,25,59,344/- Total Value of Closing Stock as on 19.02.2016 (Just after survey) 2,96,24,738/- Break up of Excess Stock found during the course of Survey 1,25,59,344/- Less: Pertaining to pending entries of Purchases 82,40,125/- Excess Stock offered for Tax as part of Closing Stock 53,17,973/- However, ld.AO completed the assessment, without considering the submission made and evidences adduced by assessee and also without pointing out any specific error or omission in the working of excess stock or in the bills and vouchers submitted in support of the same, had rejected the books of accounts and made trading addition of Rs. 2,00,000/- and addition of Rs. 1,25,60,000/- on account of excess stock (solely on the basis of admission obtained during survey) and further added Rs,10,77,000/- on account of bogus expenses by rejecting the plea of assessee regarding telescoping of the same against advances made of Rs. 68,00,000/- as admitted by assessee and duly honoured by paying taxes. ....
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....defect therein. It is an admitted fact that at the time of survey, books of accounts were incomplete and department has impounded certain loose papers containing the purchases bills, sales bills and expenses vouchers which remained to be incorporated in the books of accounts. Therefore, after the conclusion of survey proceedings, assessee obtained he copies of such loose papers and documents impounded during the course of survey and incorporated the same in the books of accounts. During the course of assessment proceedings, such completed books of accounts alongwith copies of bills and vouchers of purchases, sales and expenses which were incorporated in the books of accounts after survey were produced before the ld.AO who also examined the same on test check basis and found no defect. Solely because the books of accounts were incomplete and excess stock was found, it was alleged that assessee is not maintaining proper books of accounts and ld. AO invoked the provisions of section 145(3) of the Income Tax Act, 1961. In this regard, at the outset, it is submitted that it is an established law that the books of accounts, if found incomplete as on the date of survey, the assessee sho....
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....bunal that stock related to import purchases verifiable from customs records- Accounts reconciled later- Finding of fact- Income-tax Act, 1961. 396 ITR 580 -Principal CIT Vs. Marg Ltd. (Bom) [DOD: 20.07.2017]: Best judgment assessment - Scope of section 144 - Condition precedent - Rejection of books of account by Assessing Officer - Nothing on record to show satisfaction of Assessing Officer that books incorrect, incomplete or unreliable - Provisions of section 144 cannot be invoked - Income Tax Act, 1961, ss. 144, 145(3). 146 TTJ 476 Asstt. CIT vs. Intermedia Cable Communication (P) Ltd. (Pune 'B') Accounts - Rejection - Absence of defects/discrepancies in the accounts vis-à- vis estimation of income - AO cannot reject the books of accounts unless the accounts of the assessee suffer from either of the twin reasons specified in s. 145(3) i.e., incompleteness or incorrectness - AO having nowhere expressly rejected the books of accounts of the assessee nor enlisted inaccuracies or incompleteness of the accounts by implication, rejection of books of accounts impliedly made by the AO and the estimation of income for the relevant years cannot be sustained. In the circum....
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....344/. After completion of survey, during the course of assessment proceedings, assessee supplied copy of revised Trading account (APB 86) after duly incorporating all the pending entries, including purchases worth Rs. 82,40,125/- and adopting value of stock derived at Rs. 2,96,24,738/- and consequently gross profit was also revised at Rs. 5,00,52,299.33 as against gross profit of Rs. 4,47,34,326/- computed from Trading account prepared on the date of survey (APB -86). Thereafter by taking he value of the stock at Rs. 2,96,24,738/- i.e. the value worked out by survey team had completed the books of accounts for the year ended on 31.3.2016 and in this way assessee itself included he additional profit of Rs. 53,17,973.33 on account of excess stock in the net profit declared at the end of the year. In support of such revised Trading account, assessee also furnished copies of complete bills/ vouchers (APB 164-538) of which a detailed chart was also furnished to ld. AO at APB 84-85. However, as submitted above, ld.AO without pointing out any single discrepancy in the working and without doubting any such bill / voucher, brushed aside the Revised Trading account prepared by assessee in ....
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....oduced as under for ready reference: It is submitted that out of above documents, except at serial no. 7 and 9, all other documents are in the nature of "Tally printouts" of books of accounts taken during the course of survey. Even in Annexure 7 also, there are certain tally printouts as well as certain vouchers. It is submitted that the survey proceedings continued for 3 days and no effort was made by the survey officials to collect evidences apart from tally printouts i.e. purchase bills, freight receipt etc. At this juncture, kind attention of your goodself is invited to relevant extracts of Budget Speech of Finance Minister for F.Y.2003-04: "Simplifying the procedure and methods employed during search and seizure, and during survey by the Income Tax department. First, hereafter, stocks found during the course of a search and seizure operation will not be seized under any circumstances. Second, no confession shall be obtained during such search and seizure operations. Third, no survey operation will be authorized by an officer below the rank of Joint Commissioner of Income Tax. Finally, books of account impounded during survey will not be retained beyond ten days, without th....
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....that time and the reply was given by assessee on the basis of incomplete books of accounts. With regards to Question No.32 (as reproduced in above paras), ld. CIT(A) has observed that assessee did not mention anything about stock received but not recorded, it is noteworthy to mention here that no specific query was made regarding stock and assessee clearly stated that some of the bills/vouchers were not entered. With regards to Question No.37, wherein surrender was obtained, it is submitted that surrender so made was not willful and stood retracted after completion of books of accounts. With regards to question no. 38, 39 and 41, wherein assessee is sought to explain nature of documents found during survey, ld. CIT(A) has concluded that how it is possible that no delivery documents were not found with respect to stock found, for which corresponding purchase bills were entered after survey. In this regard, firstly as submitted above, it is reiterated that in a survey, which continued for as long as 3 days, department has merely seized printouts taken from Tally data and has not put effort to collect/ seize and analyse the supporting documentary evidences, which clearly proves ....
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....ted to incorporate all pending entries and effect thereof was duly appearing in revised profit as worked out by assessee at Rs. 5,00,52,299.33 (till the date of survey), accordingly GP rate of entire year was computed at Rs. 5,26,11,541 giving GP rate of 20.32%. In fact, ld. CIT(A) applied his own analogy and recomputed the gross profit of assessee by firstly, applying gross profit rate of 18.94% (i.e. GP rate of A.Y. 2015-16) on total turnover of Rs. 25,89,59,093/- giving GP at Rs, 4,90,46,852/- and then adding entire excess stock of Rs. 1,25,59,344/- as admitted during survey to such gross profit, giving GP of Rs. 6,16,06,196/- and GP rate of 23.9%. Accordingly, difference between GP so computed at Rs. 6,16,06,196/- and GP declared by assessee at Rs. 5,26,11,541/-, i.e. Rs. 89,94,655/- was added as Trading Addition. If the due credit of the entries for purchases and expenses totaling to Rs. 84,40,125/- remained to incorporated in the books of accounts at the time of survey is given to the assessee out of the additions confirmed by the ld. CIT(A) the resultant addition remained would be of Rs. 5,54,530/- only which is mainly due to the estimation only and deserves to be deleted. ....
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....-, giving GP rate of 18.26%, which is in parity with previous year. Basically, ld.CIT(A) has computed trading addition on pick and choose method, i.e. firstly applied GP rate of A.Y. 2015-16 to entire turnover and then by further adding the alleged excess stock to GP so derived without allowing any credit for entries remained to be incorporated in the books of accounts at the time when such excess stock was computed by the survey team. With regards to observations of ld. CIT(A), wherein action of ld.AO in doubting the purchases of Rs. 82,40,125/- incorporated by assessee is affirmed, as stated above, it is reiterated that during the course of assessment proceedings itself, assessee furnished complete details as well as bills of suppliers. So, if there was any doubt regarding genuineness of such purchases, ld.AO was having ample powers to conduct direct enquiries u/s 133(6) to issue summons to such parties, however the same was not exercised. It is submitted that the parties from whom such purchases was made are regular suppliers and to whom payment is made through banking channels. Moreover, ld. CIT(A) has added entire excess stock as worked during survey (to GP computed by app....
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.... such purchase bills and expenses vouchers were recorded in the books of accounts. A trading account as on the date of survey was prepared where all such claims of purchases and expenses were made and the value of stock physically inventoried as closing stock was taken as assessee never challenged the quantity and valuation of stock carried out by survey team, which is as under: Trading Account as per books from 01.04.2015 to 19.02.2016 Particulars Amount Particulars Amount Opening Stock 2,14,82,640.00 Sales 23,58,21,589.98 Purchases 12,58,21,313.50 Closing Stock 2,96,24,738.00 Direct Expenses 6,80,90,075.15 Gross Profit 5,00,52,299.33 Total 26,54,46,327.98 Total 26,54,46,327.98 From the perusal of the above, the GP is worked out at Rs. 5,00,52,299.33, as against GP Rs. 4,47, 34,326/- as per the trading account as on the date of survey prepared on the basis of incomplete books of accounts. In this manner assessee has declared additional income of Rs. 53,17,973.33 (5,00,52,299.33 - 4,47,34,326) on account of excess stock. In this manner assessee has included the excess stock actually available with it and incorporated the same ....
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....urvey, thus such addition is not tenable. Your goodself would appreciate that section 133A(3)(iii) empowers an IT authority to record the statement of any person which may be useful for or relevant to any proceedings under the Act. However, section does not authorises IT authority to administer oath and therefore such statements do not have evidentiary value and cannot be the solely relied upon for making addition in the absence of any other tangible evidence. No cognizance therefore, can be attached on such statements. The same therefore deserves to be ignored. Your honours would appreciate that unlike statements recorded u/s 132(4), during the course of search, which are permitted to be used as evidence in any proceeding under either the 1922 or the present Act, there is no such sanctity conferred on a statement recorded under Section 133A(iii). The utility of a statement recorded in the course of survey is limited to the extent to which it is useful or relevant to any proceeding under the Act. Thus, a statement recorded in the course of survey can, at best, support a proceeding for assessment; that is, where the Assessing Officer has some corroborative material / documentary....
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....ferential amount and ignored the fact that in addition to Rs. 68.00 lacs offered in the computation of income, assessee further offered a sum of Rs. 53,17,973.33 which is included in the profit so declared. In this regard reliance is also placed on following case law: CIT vs S. Khader Khan Son (Supreme Court) 323 ITR 480: Relevant extracts of the said judgement are reproduced herewith: "From the foregoing discussion, the following principles can be culled out: (i) .............. (ii) In contradistinction to the power under section 133A, section 132(4) of the Income-tax Act enables the authorised officer to examine a person on oath and any statement made by such person during such examination can also be used in evidence under the Income-tax Act. On the other hand, whatever statement is recorded under section 133A of the Income-tax Act is not given any evidentiary value obviously for the reason that the officer is not authorised to administer oath and to take any sworn statement which alone has evidentiary value as contemplated under law, vide Paul Mathews and Sons v. CIT [2003] 263 ITR 101 (Ker.); (iii) The expression "such other materials or Information as are av....
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.... on oath, the same has been expressly provided whereas section 133A does not empower any Income- tax Officer to examine any person on oath. Thus, in contradistinction to the power under section 133A, section 132(4) of the Income-tax Act enables the authorised officer to examine a person on oath and any statement made by such person during such examination can also be used in evidence under the Income-tax Act. On the other hand, whatever statement is recorded under section 133A of the Income-tax Act it is not given any evidentiary value obviously for the reason that the officer is not authorised to administer oath and to take any sworn statement which alone has evidentiary value as contemplated under law. Therefore, there is much force in the argument of learned counsel for the appellant that the statement elicited during the survey operation has no evidentiary value and the Income-tax Officer was well aware of this. Hon'ble Supreme Court in the case of Pullangode Rubber Produce Co. Ltd. Vs. State of Kerala and another 91 ITR 18 has held that "Such admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It is open to the assessee who....
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....eipt, but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book keeping, an entry is made about a hypothetical income, which does not materialize." With regards to not allowing benefit of telescoping of expenses to the tune of Rs. 10,77,000/- alleged as bogus, it is submitted that while filing the Return of Income after survey, additional income of Rs. 68.00 lacs was offered, being income surrendered on account of advances made to job workers. As against this, assessee claimed benefit of telescoping of Rs. 10,77,000/- on the contention that cash generated due to such bogus expenses would have been utilized for making advances and if separate addition is made on both the counts, the same would tantamount of double addition. However, both ld.AO rejected the claim of telescoping, which stood confirmed by ld.CIT(A). In this regard, it is submitted that basically during the course of survey, on the basis of pages 14 and 15 of Annexure AS 7, which were in the nature of self- made vouchers of Wages dated 31.12.2015 and 04.02.2016 of 4,97,000/- and Rs. 5,80,000/- respectively. Similarly, on the basis of page no 4 of A....
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.....2016-17 1-5 2. Copy of Tax Audit Report for the year ending 31.03.2016 6-20 3. Copy of Balance Sheet and Trading & Profit & Loss account for the year ended 31.03.2016 along with its schedules 21-31 4. Copy of statements of Shri. Avnesh Sharma , Partner recorded during survey conducted on 18.02.2016 along with Annexure S : Detailed Stock Inventory taken during Survey 32-67 5. Copy of e-proceeding response acknowledgement dated 19.11.2018 along with enclosures. 68-71 6. Copy of notice u/s 142(1) dated 09.12.2018. 72-74 7. Copy of e-proceeding response acknowledgement dated 18.12.2018 along with enclosures. 75-76 8. Copy of e-proceeding response acknowledgement dated 18.12.2018 along with enclosures. 77-86 9. Copy of CIT submission acknowledgement dated 19.01.2021 along CIT written submission. 87-105 10. Copy of Purchase Register. 106-163 11. Copy of Purchase bills along with supporting documents recorded post survey date 164-538 12. Copy of bank statement. 539-558 7. In addition to the written submission at the time of hearing of the appeal, the ld. AR of the assessee vehemently argued that the survey team conducted a detailed survey on three days ....
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....ases and expenses has been made and the value of stock physically inventoried as closing stock is taken as assessee never challenged the quantity and valuation of stock carried out by survey team, which is as under: Trading Account as per books from 01.04.2015 to 19.02.2016 Particulars Amount Particulars Amount Opening Stock 2,14,82,640.00 Sales 23,58,21,589.98 Purchases 12,58,21,313.50 Closing Stock 2,96,24,738.00 Direct Expenses 6,80,90,075.15 Gross Profit 5,00,52,299.33 Total 26,54,46,327.98 Total 26,54,46,327.98 From the perusal of the above, the GP is worked out at Rs. 5,00,52,299.33, as against GP Rs. 4,47, 34,326/- as per the trading account as on the date of survey prepared on the basis of incomplete books of accounts. In this manner assessee has declare additional income of Rs. 53,17,973.33 (5,00,52,299.33-4,47,34,326) on account of excess stock. In this manner assessee has included the excess stock actually available with it is incorporated in the books of accounts and net result of the same is reflected in the GP which is increased by a sum of Rs. 53,17,973.33 and ultimately resulted into the increase in net profit f....
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....qualitative details of items. Valuation of closing stock has been made on estimated basis. In the column No. 35(a) and 35(b) of Audit Report furnished in Form No. 3CD, regarding quantitative details of principal items the Auditor has mentioned remarks that Nil." 8. Though ld. CIT(A) aware of the arguments of the assessee, remained silent on the issue. On being asked about the clarity on the claim that the closing stock disclosed by the assessee is covering the excess stock found or not? How the same can be considered as included in the closing stock. Based on that question raised by the bench on the next date of the hearing the ld. AR of the assessee relying to the books of account, tax audit report already on record also filed an application under rule 29 wherein to bring the following facts on record: "Kindly refer to the appellate proceedings in progress in the case of above stated assessee. In this regard, the humble appellant presents this application under Rule 29 of the Income Tax Appellate Tribunal Rules. 1963 with the following facts for your kind consideration. (Relevant to Grounds of Appeal Nos. 01 to 1.4): 1. That, income tax assessment conducted survey u/s 133....
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....tock found during survey dated 16.02.2016 is incorporated in the final accounts. The content of the affidavit given by the partner of the assessee firm reads as under: 10. In support of the affidavit a certificate cum clarification on facts was also placed on record as certified by an independent Chartered Accountant who has signed the tax audit report. The content of the that CA certificate is reproduced here in below: "Re: Clarification on consideration of Excess Stock found during the course of Survey (dated 16.02.2016) as incorporated in the final accounts Please refer to the discussions held with yours Shri Subodh Pugalia on 29.04.2024 with reference to the treatment given in the books of accounts regarding the excess stock as found during survey (i.e. on 16.02.2016), while finalizing the audit u/s 44AB of the Income Tax Act, 1961 for the year ended on 31.03.2016. Apropos it is clarified that during survey action by the Income Tax Department on 16.02.2016 which concluded on 18.02.2016, certain amount of stock was found in excess as compared to the recorded in books of accounts, which worked out to Rs. 1,25,59,344/- [reference to the statements recorded of the partner Sh....
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....hat an amount of Rs. 53,17,973/- has been offered for tax as excess stock found during the course of survey and has been included in the total stock as appearing in the Balance Sheet as on 31.03.2016. This certificate had been issued on the specific request of the client and as per the documents produced before us." 11. The ld. AR of the assessee submitted that all the purchase bills which were submitted are also placed on record along with the details of the payment made of those bills with the lower authority. The ld. AR submitted that none of the purchase bill are paid in cash. The parties from the purchases are made are regular parties and that regular dealing is already part of the records seized. Despite these details being placed on record, the ld. AO made another addition of the same purchases which are already reflected in the books. The ld. AR submitted that even the ld. CIT(A) has not considered the argument of the assessee. During the hearing the ld. AO through the ld. DR did not controvert the facts being placed on record with the paper book so filed. The ld. DR also did not controvert the affidavit of the partner of the assessee firm and that of the CA certificate....
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.... of the excess stock derived in the closing stock. There is is no dispute about the working and the valuation done to arrive at the stock at the time of survey. But after the survey proceeding over, the assessee corrected the records by reconciling the working derived with that of the goods received but remained entered in the purchase records on the date of survey. To support the contention so raised the ld. AR of the assessee filed a list of parties (APB-84-85) for an amount of Rs. 82,40,125/- whose goods were received but the invoice to be entered in the books vide submission filed before the ld. AO in an online mode. The ld. AO has not made any independent enquiries with any of the parties to verify the contention raised by the assessee in those purchase bills. As it is evident from the records placed on record the bills were also supported with the transport receipt wherever required and all the invoices were before the date of survey. 14. Per contra, the ld. DR relied on the findings of the lower authorities and more particularly advanced the similar contentions as stated in the order of the ld. CIT(A). He vehemently submitted that since the books of accounts of the assessee....
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....ained, valuation of stock is made on estimated, Tax auditor stated in the report that the assessee did not maintain the quantitative records. As on the date of the survey the books of account were not complete and thus the trading results cannot be verified. The very basis of the disputing the excess stock itself is not believable the ld. AR of the assessee contended that the bills of purchases not accounted and that too for an amount of Rs. 82,40,125/- is not correct. So, relying on the statement, calculation of the stock found is duly dealt with in the orders of the ld. AO and that of the ld. CIT(A). The question no. 32 (APB-39) wherein the assessee was asked specific question on purchase remained to be accounted where the assessee has not given the details. The assessee has not filed any retraction statement after the statement is recorded so the plea taken by the assessee at time of assessment is not correct. Even the ld. CIT(A) has in detailed discussed the trading results given substantial relief to the assessee. 15. In the rejoinder the ld. AR of the assessee relied upon the judgment the S. Khader Khan Son(Supra). The ld. AR submitted that the assessee has submitted the bil....
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....s selected for manual scrutiny. Notices were issued to the assessee and the same were replied by the assessee. The ld. AO noted that the assessee submitted details / explanation / justification which were perused and examined along with the books of accounts and consequently the assessment was completed u/s. 143(3) of the Act on 28.12.2018. While completing the assessment the ld. AO made addition on three aspects. First Rs. 10,77,000/- disclosure of unexplained expenditure telescoped with the disclosure of Rs. 68,00,000/- was not considered and secondly excess stock of Rs. 1,25,60,000/- was added as the assessee has not adhered to the disclosure. The third addition made was for an adhoc trading addition of Rs. 2,00,000/- by observing that the assessee's book does not reflect the complete and correct profit of the business. 17. The assessee challenged that finding of the ld. AO before ld. CIT(A). The ld. CIT(A) sustained the addition of Rs. 10,77,000/- and as regards the addition of excess stock and lump sum trading addition he hold that the profit is to be computed @ 18.94 % and accordingly he sustained the addition of Rs. 89,94,655 being the difference of gross profit estimated a....
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....ection of the book results which are otherwise verified, and no defects were found by the ld. AO and ld. CIT(A) confirmed the view of the ld. AO. Thus, as the provision of section 145(3) is invoked, it would be better go through the provision that section and the same reads as under : Method of accounting. 145. (1) Income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. (2) The Central Government may notify in the Official Gazette from time to time income computation and disclosure standards to be followed by any class of assessees or in respect of any class of income. (3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) has not been regularly followed by the assessee, or income has not been computed in accordance with the standards notified under sub-section (2), the Assessing Officer may make an assessment in the manner provided....
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....rks out to Rs. 1,25,59,344/- ] and added by the ld. AO. The brief facts as emerges related to the addition is that survey u/s. 133A of the Act was conducted on 16.02.2016 at the business premises of the assessee. The survey team worked out the inventory of the goods found at the business premises at Rs. 2,96,24,738/-. That working of the stock was confronted to the assessee vide question no. 33 of the statement recorded at the time of survey and partner of the firm confirmed that working done by the survey team. Before that vide question no. 32 the assessee confronted by the survey team about the completeness and correctness of the books of account and the relevant question and answer is reproduced here in below: 20.1 At the time of the survey as per the books available in the computer the closing stock was at Rs. 1,70,65,394/-. Thus, the said book stock figure was compared with that of the actual stock taken by the survey team. The difference of Rs. 1,25,59,344/- was considered as excess stock in the hands of the assessee. Accordingly, the statement of the partner of the assessee firm was recorded wherein the partner of the firm admitted the working and valuation of stock. Based ....
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....ilar as immediately preceding year and also take care for the some expenses left over and not entered in the books of accounts on date of survey. This gives the meaning that had the survey not taken place on 19.02.2016 (which is just 1 month and little over 1 week prior than the end of year) the appellant would have shown a gross profit at the rate of 18.94% (excluding excess stock) considering the best of probabilities and considering judicial pronouncements about using the preceding year G.P. ratio when the books in the current year are rejected. As per the gross profit ratio of 18.94% (excluding excess stock), the details for the year are worked out as under:- 20.3 The ld. AR of the assessee stated that the list of the purchases remaining to be entered on the date of the survey were placed before the lower authority and same forms part of the paper book page 84-85 and all the bills along with the details of the payment made in the paper book filed. The ld. AR of the assessee placed on record the acknowledgement of the online response submitted by the assessee whereby the assessee submitted all those bills before the assessing officer. This fact has not been controverted by th....
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....d wherein that inventory sheet prepared by the survey team itself shows written as "Grey Outside packed" and the goods are in 'Bale', this aspect further proves the contention of the assessee that certain goods were available with the assessee which was in packed form and was not yet opened. Thus, this version of the assessee get support for the alleged difference in value of stock found and remained to be recorded in books of accounts. The assessee has in the assessment proceeding placed on record all the possible documentary evidence in support of such claim but all the evidences furnished were brushed aside, without assigning a single reason / discrepancy in the same and that too without following the provision of section 145(3) of the Act. As we have while dealing with the ground no. 1 held that without finding any faults in the books of account the same cannot be rejected. Not only that if the revenue intends to invoke the provision of section 145(3), there is a procedure to be followed which has not been followed. We note that the addition was made merely based on the fact that the assessee has disclosed the excess stock and the same is not adhered to in full by the assessee.....
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....r witness to be examined or affidavit to be filed or may allow such evidence to be adduced.] 20.6 As the assessee has already raised the contention that they have disclosed the amount of Rs. 53,17,973/- in the closing stock at the time of survey and this contention were not examined by the lower authority. The bench directed to ld. AR of the assessee to justify the claim and for that the partner of the firm filed an affidavit and the CA certificate to support the contention raised by the assessee. Considering that additional evidence were called for by the to enable to pass order and substantial cause of justice the same is considered for decided the issue on hand. Thus, in totality of the fact if we considered that the details of the purchase remained to be entered in the books of accounts and non-disputed working of the excess stock of Rs. 1,25,59,344/-. The working of the income disclosed or not is determined as under: Excess stock [ not disputed by both the parties ] Rs. 1,25,59,344/- Less : Purchases accounted after the date of survey for which stock was available but bills were entered after the date of survey Rs. 82,40,125/- Less: Purchase related expenses vouchers Rs....