2013 (12) TMI 664 - AT - Income Tax

Surrender of stock - During the course of survey u/s 133A Excess stock of Rs. 4,73,155/- was found on physical verification of stock - Held that - The assessee surrendered the value of stock of Rs. 4,73,155/-. The assessee has clearly calculated the excess stock and has paid taxes thereon The assessee has also disclosed to that extent in the return of income Decided in favour of assessee.

Issues:
1. Discrepancy in stock valuation during survey proceedings.
2. Validity of statement recorded during survey proceedings.
3. Addition of undisclosed income based on surrendered value.
4. Charging of interest under sections 234B and 234C of the Act.

Discrepancy in Stock Valuation during Survey Proceedings:
The appellant, engaged in the business of Dye, Dye Stuff, Caustic, Chem, faced a controversy regarding excess stock found during a survey under section 133A of the Act. The appellant agreed to surrender the value of the excess stock at Rs. 4,73,155 during the survey, but later declared only Rs. 1,37,935 in the return of income. The Assessing Officer added the remaining amount to the total income, which was contested before the CIT(A) and subsequently before the ITAT Jodhpur. The ITAT held that statements recorded during survey proceedings cannot solely be the basis for additions. The appellant had explained the discrepancy in stock valuation, paid taxes on the excess stock, and disclosed it in the return of income. Therefore, the ITAT ordered to delete the impugned addition, citing that the appellant had properly calculated and disclosed the excess stock.

Validity of Statement Recorded during Survey Proceedings:
The ITAT considered the arguments presented by both parties regarding the validity of the statement recorded during the survey proceedings. The appellant contended that statements made during survey proceedings should not hold evidentiary value, relying on various court decisions, including the Supreme Court's ruling in C IT Vs. Vijay Nagindas Mehta. The ITAT agreed with the appellant, emphasizing that the statement recorded during the survey cannot be the sole basis for making additions, especially when discrepancies are explained by the assessee. The ITAT concluded that the statement recorded during the survey proceedings should not be given evidentiary value in this case.

Addition of Undisclosed Income Based on Surrendered Value:
The ITAT analyzed the issue of adding undisclosed income based on the surrendered value of excess stock found during the survey. The appellant had initially agreed to surrender a specific amount but declared a lesser sum in the return of income. The Assessing Officer added the remaining amount to the total income, a decision upheld by the CIT(A). However, the ITAT ruled in favor of the appellant, stating that any further addition solely based on the admission of the assessee, when the excess stock was properly calculated, disclosed, and taxes paid on it, cannot be sustained. Therefore, the ITAT ordered to delete the impugned addition, allowing ground No.1 of the appeal.

Charging of Interest under Sections 234B and 234C of the Act:
The second ground of the appeal related to the charging of interest under sections 234B and 234C of the Act. The ITAT acknowledged that charging interest under these sections is mandatory and consequential, thus not constituting a gross error. Consequently, the ITAT concluded that this ground cannot be allowed. In the end, the ITAT partly allowed the appeal of the assessee, deleting the impugned addition based on the surrendered value of excess stock but upholding the charging of interest under sections 234B and 234C of the Act.

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