2009 (1) TMI 856 - AT - Income Tax

Addition on undisclosed income - Rejection of books of account - survey action u/s.133A - difference in the amount surrendered by the assessee during the course of survey and the amount shown in the return of income. The main issue is about the deletion of addition of ₹ 28 85 lakhs which was made by the Assessing Officer on the ground that the assessee had not offered such amount in the return of income even though it was admitted at the time of survey. HELD THAT - In our considered opinion the books of account of the assessee cannot be held to be properly maintained in view of the fact that the survey transpired the discrepancy in the stock as per the books of account and that found on physical verification. The books of account are said to be properly maintained when correct income can be deduced there from. It is not only the arithmetical inaccuracy in the books of account which would call for the resorting to the provisions of section 145(3). Obviously in the face of the fact that the stock physically found was not tallying with the books of account, in our considered opinion it cannot be said that the books were properly maintained. We therefore, overturn the finding given by the ld. CIT (A) on this issue. Going by the verdict of the two Hon'ble High Courts i.e. Paul Mathew Sons vs. CIT 2003 (2) TMI 25 - KERALA HIGH COURT , CIT Vs. S. Khader Khan Son 2007 (7) TMI 182 - MADRAS HIGH COURT and the position reaffirmed by the CBDT through its Circular, it becomes abundantly clear that no addition can be made or sustained simply on the basis of statement recorded at the time of Survey search. In order to make an addition on the basis of surrender during search or survey, it is sine qua non that there should be some other material to co-relate the undisclosed income with such statement. We find that only to the extent of ₹ 21.14 lakhs, there is a material to co-relate with the admission, representing the excess stock found at the lime of survey. Evidently the surrender made by the assessee at the time of survey to that extent and offered for taxation in the return of income is in order - But insofar as the amount in dispute to the tune of ₹ 28.85 lakhs is concerned we observe that such surrender was specifically made Towards any other discrepancy , There is no mention in the assessment order of any such discrepancy found as a result of survey throwing light on the undisclosed income. Even the ld D.R. could not point out any material showing the existence of undisclosed income earned by the assessee which was unearthed during the course of survey. There is nothing on record which could co-relate such additional income offered by the assessee during the course of survey with any other discrepancy. Under these circumstances we are of the considered opinion that there is no basis for sustaining the addition in question. In the light of the foregoing discussion, we hold that the view taken by CIT (A) is unimpeachable, which is hereby upheld. In the result, the appeal is dismissed.

Summary

Issues:
Deletion of addition of Rs. 28,85,584 - difference in amount surrendered during survey and shown in return of income.

Analysis:

Issue 1: Proper maintenance of books of account
The appeal concerned the deletion of an addition of Rs. 28,85,584 by the Commissioner of Income Tax (Appeals) related to the assessment year 2003-2004. The Assessing Officer rejected the books of account due to discrepancies in the stock found during a survey compared to the books of account. The Assessing Officer added the amount agreed upon by the assessee during the survey but not offered for taxation. The first appeal deleted this addition. The Appellate Tribunal considered whether the books of account were properly maintained. The Tribunal noted that discrepancies in physical stock compared to the books indicated improper maintenance of accounts. It was observed that correct income could not be deduced from the books due to the stock variance, leading to the overturning of the CIT (A)'s finding on this issue.

Issue 2: Addition of undisclosed income based on survey surrender
The main issue was the deletion of the addition of Rs. 28,85,584 by the Assessing Officer, as the assessee retracted the surrender made during the survey. The Tribunal analyzed the evidentiary value of statements recorded during surveys. Referring to legal precedents, it was established that statements under section 133A hold no evidentiary value and cannot be the sole basis for additions. The Tribunal highlighted the necessity for other material to corroborate surrendered amounts. In this case, the surrender was towards "any other discrepancy," but no undisclosed income was linked to this discrepancy during the survey. As a result, the Tribunal upheld the deletion of the addition, emphasizing the lack of basis for sustaining the disputed amount. The Tribunal dismissed the appeal, concluding that the addition was not justified based solely on the survey surrender without further substantiating evidence.

In conclusion, the Appellate Tribunal upheld the deletion of the addition of Rs. 28,85,584, emphasizing the importance of proper maintenance of books of account and the necessity for additional evidence to support additions based on survey surrenders.