2012 (10) TMI 256 - AT - Income Tax

Addition made on account of excess stock & excess cash - CIT(A) restricted the addition - Held that - The case of the assessee is entirely based upon provisional trading account prepared at the time of survey showing the figure of purchase and sales differently as against the figures pointed out by the assessee. Also that the assessee prepared the working of the purchase and sales figures on the basis of the impounded bills and value of the sale was arrived at ₹ 67,58,352/- and the purchases have been found at ₹ 71,79,376/- as against the sales and purchases of ₹ 74,20,097/- and ₹ 49,00,581/- as per the provisional trading account. The correct figures pointed out by the assessee of sales and purchases were based upon the impounded documents. As the CIT(A) verified all the figures at the appellate stage in the presence of the AO and after verification of purchase and sales found that correct figures have been pointed out by the assessee. Thus, the sole basis of making addition, i.e., provisional trading account was not having correct figures of purchase and sales. Whatever items have been declared by the assessee on account of excess stock have been given benefit correctly by the CIT(A). Since the figures of the sales and purchases were based on factual figures, therefore, it is a case of factual mistake committed by the Survey Party as well as by the AO, which has been rightly corrected by CIT(A). Thus, the assessee on the basis of seized material itself has been able to show that the admission made at the time of survey surrendering the additional income on account of excess stock was not correct and did not show correct state of facts. Therefore, no addition could be made against the assessee on the basis of mere admission according to the facts and circumstances of this case - in favour of assessee.

Summary

Issues Involved:
1. Addition on account of excess stock found during the survey.
2. Addition on account of excess cash found during the survey.
3. Rejection of books of account under section 145(3).
4. Validity of admission made during the survey as evidence.

Detailed Analysis:

1. Addition on Account of Excess Stock Found During the Survey:
The Revenue challenged the order of the CIT(A) in restricting the addition made on account of excess stock to Rs. 1,68,795 as against the addition of Rs. 37,11,782 made by the AO. The assessee argued that the provisional trading account prepared by the survey party was incorrect because the sales and purchase figures were not accurately worked out. The CIT(A) found that the correct figures of sales and purchases, based on impounded documents, were Rs. 67,58,352 and Rs. 71,79,376 respectively, as opposed to the provisional figures of Rs. 74,20,097 and Rs. 49,00,581. Consequently, the CIT(A) reworked the trading account and determined the excess stock to be Rs. 8,33,645, of which Rs. 6,64,850 was already declared by the assessee, resulting in an additional undisclosed stock of Rs. 1,68,795.

2. Addition on Account of Excess Cash Found During the Survey:
The AO added Rs. 2,14,000 under section 69A for excess cash found during the survey, which was declared by the partner of the firm. The CIT(A) confirmed this addition, noting that the excess cash was declared as the firm's unaccounted income and was not included in the partner's individual income.

3. Rejection of Books of Account Under Section 145(3):
The AO rejected the books of account under section 145(3) on the grounds that the books were not maintained correctly, as evidenced by the discrepancies in stock and cash found during the survey. The CIT(A) did not specifically address the rejection of the books of account but focused on the correctness of the figures used in the provisional trading account.

4. Validity of Admission Made During the Survey as Evidence:
The AO argued that the admission made during the survey was the best evidence, citing various case laws. However, the CIT(A) and the Tribunal found that admissions made during the survey are not conclusive and can be rebutted by the assessee with supporting evidence. The Tribunal upheld the CIT(A)'s findings that the assessee successfully rebutted the provisional figures with correct figures based on impounded documents, thereby reducing the addition for excess stock.

Conclusion:
The Tribunal dismissed the departmental appeal and upheld the CIT(A)'s order, which restricted the addition on account of excess stock to Rs. 1,68,795 and confirmed the addition of Rs. 2,14,000 for excess cash. The Tribunal emphasized that admissions made during surveys are not conclusive and must be corroborated with documentary evidence. The cross-objection by the assessee was dismissed as withdrawn.