2018 (3) TMI 1958 - AT - Income Tax

Revision u/s 263 - survey U/s 133A - excess stock worked out by the survey team and the stock adopted by the survey team as per books of account - Confession of additional Income during the course of search seizure and survey operation - Excess stock worked out by the survey team and the stock adopted by the survey team as per books of account are disputed by assessee - HELD THAT - ITO had referred to the fact that consequent upon the survey, the assessee had filed a revised return offering 8 per cent of the contract receipts as net profit before allowing deduction of salary payment made to partners - 8 per cent profit disclosed was deemed to have been arrived at after allowing depreciation and interest on capital paid to the partner - assessee had not paid the amount of ESI on due date and, accordingly, that amount and amount of P.F. were disallowed and added to the total income of the assessee. It could, thus, be seen that the ITO had not accepted the income declared by the assessee in a mechanical way but applied his mind to the various aspects of the matter before completing the assessment. In the statement in the course of survey, the managing partner only stated that an amount of ₹ 19 lakhs was introduced towards advance for sale of land but confirmed only six lakhs. It was on that basis that the balance of ₹ 13 lakhs was offered for the assessment year 1998-99. That was confirmed by the creditors. The Income-tax Officer also verified the above aspects. Therefore, the assumption that what was offered in the statement as ₹ 43 lakhs was in addition to what had been assessed and on that basis, that statement had got evidentiary value, was erroneous and materials collected during the course of survey had been borne in mind by the Assessing Officer who was well aware of the evidentiary value of the statement. At the same time, such survey conducted unearthed certain income and the ITO on the basis of accounts and offer made and admission made before him, came to the conclusion that what was offered in the written offer made by the assessee was reasonable. Admission contained in the statement of the managing partner of the assessee obtained under section 133A was only a qualified one and the assessee had clearly explained the same before the Assessing Officer by cogent materials and the same was accepted by the said officer. Para 18 The view taken by the ITO could not be said to be unsustainable in law, so as to call it an order passed erroneously. ITO had seized books of account and elicited certain answers which had no evidentiary value. ITO was satisfied about the actual amount received towards advances and only an amount of ₹ 6 lakhs out of the balance was to be further explained and they were telescoped. The entire sum of ₹ 19 lakhs was considered for the block assessment completed in the case of the creditor much before the survey. In those circumstances, the statement of the assessee that the amount of ₹ 13 lakhs offered by him in the statement during the course of survey was only a mistake of fact, could not be brushed aside. Further, in the light of the voluntary disclosure in the letter given in writing by the assessee, the facts given by him had been verified with the books of account and it was only after consideration of the various aspects of the matter and related facts, that the Assessing Officer accepted the offer made by the assessee. In such circumstances, the view taken by the ITO could not be said to be prejudicial to the revenue nor could it be said to be erroneous. Nothing was found in the order of the ITO to warrant a finding that it was unsustainable in law. The Commissioner was not justified in law in invoking the power under section 263 as the twin conditions precedent to exercise the power had not been satisfied in the instant case. Hence, the orders of the Tribunal and the Commissioner were set aside and the order of the ITO was confirmed - we allow the appeal of the assessee.

Summary

Issues Involved:
1. Addition on account of excess stock found during survey
2. Valuation methodology of marble and granite blocks
3. Reliance on statements recorded during survey
4. Adherence to CBDT guidelines on survey operations
5. Rejection of books of accounts

Detailed Analysis:

1. Addition on Account of Excess Stock Found During Survey:
The primary issue in these appeals is the confirmation of the addition on account of excess stock found during a survey conducted under Section 133A of the Income Tax Act, 1961. The survey revealed excess stock valued at ?4,73,04,940/-, out of which ?3,20,73,946/- was attributed to the assessee firm based on the statement of a partner, Shri Pradeep Choudhary. The assessee contested this valuation, claiming it was arbitrary and lacked a proper basis.

2. Valuation Methodology of Marble and Granite Blocks:
The assessee argued that the survey team valued marble blocks on a piece basis instead of weight, leading to significant discrepancies. The marble blocks, which constituted 90% of the total stock, were valued at ?4,21,68,000/-, but the valuation was done without considering weight, resulting in an erroneous and inflated valuation. Similarly, granite blocks were valued at ?26,000/- per block, whereas their actual cost was ?7,295/- per block. The valuation of marble slabs was also contested, as they were valued at ?30/- per sq.ft. against the actual cost of ?12.21/- per sq.ft.

3. Reliance on Statements Recorded During Survey:
The assessee contended that the addition was based solely on the statement of Shri Pradeep Choudhary, recorded under duress during the survey. The statement was not supported by any documentary evidence, and the assessee's books of accounts and purchase vouchers were ignored. The legal position, as established in various judgments, is that statements recorded during surveys under Section 133A are not conclusive evidence and cannot be the sole basis for addition unless corroborated by documentary evidence.

4. Adherence to CBDT Guidelines on Survey Operations:
The assessee highlighted that the survey team violated CBDT guidelines by obtaining a forced confession of undisclosed income. The CBDT has issued clear instructions that survey operations should focus on gathering evidence rather than obtaining confessions. The assessee cited several circulars and case laws supporting the position that confessions obtained under coercion during surveys are not valid for making additions.

5. Rejection of Books of Accounts:
The assessee's books of accounts were produced and examined during the assessment proceedings, and no defects were found. The rejection of books under Section 145(3) was solely based on the alleged excess stock found during the survey. The assessee argued that no unaccounted purchase or sale vouchers were found during the survey, and the sales as per books were accepted by the Assessing Officer. Therefore, the addition based on alleged excess stock was unjustified.

Conclusion:
The tribunal found merit in the assessee's arguments, noting that the valuation of stock by the survey team was arbitrary and not based on concrete evidence. The reliance on the statement of Shri Pradeep Choudhary, recorded under duress, was not justified without corroborating documentary evidence. The tribunal also emphasized adherence to CBDT guidelines, which discourage obtaining confessions during surveys. Consequently, the tribunal allowed the appeals, deleting the additions made on account of excess stock.