2006 (6) TMI 420 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of the addition of Rs. 61,61,090 on account of excess stock found during the survey.
2. Non-levy of surcharge in the block assessment.

Issue-Wise Detailed Analysis:

1. Deletion of the Addition of Rs. 61,61,090 on Account of Excess Stock Found During Survey

Facts and Submissions:
- The IT Department conducted a search and seizure operation under section 132(1) of the Income-tax Act, 1961, at the business and residential premises of the assessee on 6th April 2000.
- During the survey under section 133A at the brick kiln, a stock inventory was prepared, which showed a value of Rs. 1,19,11,392 as against Rs. 21,13,205 in the books.
- The assessee pointed out several defects in the stock inventory, including the absence of responsible persons during the survey, the physical impossibility of stacking the reported stock in the available space, and the lack of actual physical counting.
- Affidavits from Sh. Gian Chand and Sh. Ranjit Singh, who were present during the survey, supported the claim that the stock inventory was not accurately prepared.
- The CIT(A) deleted the addition, accepting the assessee's submissions regarding the flaws in the inventory and the inadequacy of space to store the reported stock.

Revenue's Arguments:
- The revenue argued that the stock inventory was prepared by a responsible authorized officer and should not be dismissed.
- It was contended that the CIT(A)'s finding regarding the space was not based on valid evidence and that at least a part of the addition should have been maintained.

Assessee's Arguments:
- The assessee reiterated the flaws in the stock inventory and the absence of responsible persons during the survey.
- It was emphasized that the space available was insufficient to store the reported stock and that the survey team did not conduct an actual physical count.
- The assessee provided evidence, including photographs and revenue records, to support the claim that the adjoining land was used for agricultural purposes and not for storing bricks.

Tribunal's Findings:
- The Tribunal noted that the stock inventory was not prepared in the presence of responsible persons and that affidavits from Sh. Gian Chand and Sh. Ranjit Singh were not controverted by the revenue.
- The Tribunal found that the survey team did not carry out a physical count of the stock and that the authorized officer's claims regarding the presence of other responsible persons were factually incorrect.
- The Tribunal observed that the space available was insufficient to store the reported stock and that the adjoining land was used for agricultural purposes.
- The Tribunal upheld the CIT(A)'s decision to delete the addition, concluding that the stock inventory was not based on actual counting and suffered from serious flaws.

2. Non-Levy of Surcharge in the Block Assessment

Facts and Submissions:
- The Assessing Officer levied a surcharge on the undisclosed income determined during the block period.
- The CIT(A) deleted the surcharge, relying on the judgment of the Tribunal, Amritsar Bench, which held that surcharge was not leviable before 1st June 2002, as the amendment was not made retrospectively applicable.

Revenue's Arguments:
- The revenue relied on the order of the Assessing Officer.

Assessee's Arguments:
- The assessee relied on the Tribunal's order in the case of Harmanpreet Singh, which held that no surcharge could be imposed for searches conducted before 1st June 2002.

Tribunal's Findings:
- The Tribunal found that the issue was covered by its earlier decisions, which held that surcharge could not be levied for searches conducted before 1st June 2002.
- The Tribunal upheld the CIT(A)'s decision to delete the surcharge, confirming that the amendment to section 113 was not applicable retrospectively.

Conclusion:
The appeal filed by the revenue was dismissed, with the Tribunal upholding the CIT(A)'s decisions on both issues. The deletion of the addition of Rs. 61,61,090 was justified due to the flaws in the stock inventory, and the non-levy of surcharge was confirmed based on the applicable legal precedents.