2015 (7) TMI 1309 - AT - Income Tax

Undisclosed income surrendered - addition on account of stock - addition was made solely and wholly on the basis of statement recorded on 16.10.2006 and the surrender made there-under by the assessee - Held that - CIT(A) has recorded a finding that inventory of stock prepared on the date of survey on 05.10.2006 does not mention the location in which the said raw material has been found and inventorised when the same raw material has already been inventorised at page No. 2 of the list, as reproduced by the CIT(A). CIT(A) has recorded that on 05.10.2007, after receiving copy of stock statement and valuation of stock as on 05.09.2007, the assessee has retracted from the statement made on account of stock vide letter dated 05.10.2007. The account books of the assessee could not be relied upon as the same do not reflect correct state of affairs of the assessee. However, the addition made of ₹ 24,09,475/- was on higher side due to the facts narrated above and the ends of justice shall met if the addition is restricted to ₹ 10,00,000/- by way of estimate and preponderance of probabilities as against ₹ 24,09,475/- made by the AO on account of stock variation found at the time of survey. Ground No. 1 of appeal of the Revenue is partly allowed.

Summary

Issues: Appeal against deletion of addition of undisclosed income surrendered during survey operation.

The judgment pertains to an appeal by the Revenue against the deletion of an addition of undisclosed income surrendered during a survey operation for the assessment year 2007-08. The only ground of appeal raised by the Revenue was whether the CIT(A) erred in deleting the addition of Rs. 24,09,475 made on account of the undisclosed income surrendered. The Department conducted a survey operation where a difference in stock was found compared to the record of the assessee, leading to an initial surrender by the assessee of Rs. 24,75,000. However, the assessee retracted the statement after a year. The Revenue argued that the delay in retraction justified the addition made on account of the stock difference. The physical verification of stock was done, and the addition was not solely based on the assessee's statement but also on the inventory of stock found during the survey. The Tribunal found that while the addition was justified, the full amount added by the AO was not warranted. The supervisor of the assessee lacked knowledge of the stock prices, and the inventory did not mention the location of the raw material found during the survey. The Tribunal concluded that the account books of the assessee were unreliable, and restricted the addition to Rs. 10,00,000 as an estimate and on the preponderance of probabilities, instead of the original Rs. 24,09,475. Hence, the appeal of the Revenue was partly allowed, and the judgment was pronounced on 24th July 2015.