2012 (11) TMI 843 - AT - Income Tax

Set off of Loss and Shortage of Stock retraction of surrendered income - Held that - the assessee having declared the sales of Rs.17.92 lacs in the trading account and inspite of the fact that shortage of stock amounting to Rs.17.92 lacs has not been explained will not make any effect on the profitability of the assessee. Once there is no defect in the books of account pointed out by the AO and the surrender made is proved to be false, then the assessee has right to retract from the statement made during the course of survey and declare the correct income as per books of account. In the present case, having not pointed out any defect by the AO in the accounts of the assessee, assessee has rightly declared the income by claiming the loss as per books of account. In such facts and circumstances of the case, even if the assessee accepts any invalid addition, he is at liberty to challenge the same - AO is not justified in making any addition either of loss or stock - order of CIT(A) is reversed - grounds of appeal of the assessee are allowed.

Issues Involved:
1. Legality of the addition of Rs.22,36,320/- to the taxable income.
2. Validity of the undertaking given by the assessee during the survey.
3. Justification of the addition based on assumptions and presumptions.

Detailed Analysis:

1. Legality of the Addition of Rs.22,36,320/- to the Taxable Income:
The primary issue is whether the addition of Rs.22,36,320/- to the taxable income, confirmed by the CIT(A), is legally justified. The assessee argued that the addition was made without any material evidence and was based on assumptions. The AO relied on the discrepancies found during the survey and the undertaking given by the assessee to file a return of income not less than Rs.2,00,000/-. However, the assessee filed a return declaring a loss of Rs.20,36,320/-. The AO and CIT(A) justified the addition based on the undertaking, but the Tribunal found that no defects were pointed out in the books of accounts maintained by the assessee. The Tribunal concluded that the addition was not justified as the assessee had the right to retract from the statement made during the survey and declare the correct income as per the books of accounts.

2. Validity of the Undertaking Given by the Assessee During the Survey:
The second issue concerns the validity of the undertaking given by the assessee during the survey to file a return of income not less than Rs.2,00,000/-. The Tribunal noted that the undertaking was given under the pressure of the survey and based on ignorance of law. The Tribunal emphasized that what is otherwise not taxable cannot become taxable because of the admission of the assessee, and there can be no waiver of the right otherwise available to the assessee in law. The Tribunal found that the assessee had rightly declared the income by claiming the loss as per the books of accounts, and the undertaking given during the survey could not be used to justify the addition.

3. Justification of the Addition Based on Assumptions and Presumptions:
The third issue is whether the addition was justified based on assumptions and presumptions. The Tribunal observed that the AO did not point out any defects in the books of accounts maintained by the assessee. The addition was primarily based on the discrepancies found during the survey and the undertaking given by the assessee. However, the Tribunal found that the assessee had explained the discrepancies and the loss incurred due to the sale of old/defective stock. The Tribunal concluded that the addition was based on assumptions and presumptions without any material evidence, and therefore, the addition was not justified.

Conclusion:
The Tribunal allowed the appeal of the assessee, reversing the order of the CIT(A) and holding that the addition of Rs.22,36,320/- was not justified. The Tribunal emphasized that the assessee had the right to retract from the statement made during the survey and declare the correct income as per the books of accounts. The Tribunal also noted that the addition was based on assumptions and presumptions without any material evidence.

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