2016 (4) TMI 1446 - AT - Income Tax

Survey proceedings - Excess stock of Narma was found - method of weighment - survey party drew inventory of the said excess stock, on the basis of weighment of the Narma - grievance of the assessee is that such weighment was not done in accordance with the provisions of the Standards of Weights and Measures Act, 1976, by any standardized scale using standard weights and measures, but by adhoc weighing of the Narma by using cartons - HELD THAT - The mandate of the section 133A(1) is that it is the surveying Authority who is to 'require' the person attending to or helping in the business carried on at the premises under survey to be afforded the necessary facility to check or verify the stock found during the survey. It is only on such requirement having been expressed by the surveying Authority, that the said authority shall essentially be afforded such facility for checking or verification of the stock found in the survey. Income-tax Authorities must help the assessees, not otherwise. The Authority cannot withhold such legal requirement from the assessee prejudicially and then, on the contrary, hold the assessee liable for not making good such legal requirement. Even the DBCT, in its Circular no.l4(XI-35) of 1995, dated 11.4.55, has directed that Officers of the department must not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assist a taxpayer in every reasonable way, particularly in the matter of claiming and securing relief and in this regard the officers should take the initiative in guiding a tax payer where the proceedings or other particulars before them indicate that some refund or relief is due to them. CIT(A) has remained oblivious of the above extant provisions of law and has, therefore, erroneously put the shoe on the wrong foot. CIT(A) has illegally rest the burden on the assessee by observing that it was the assessee who did not provide the requisite facility of weighment under the Standards of Weights and Measures Act, 1976 to the surveying Authority, whereas, as discussed hereinabove, the position is quite diametrically opposite. So, it was the surveying Authority who arbitrarily never required the assessee to provide him with the weightment facility and it was not the assessee who refused to do so. Per contra, the assessee in fact did not have any occasion whatsoever to make such a refusal. Remarkably, it was the assessee who objected, at ground zero itself, against the action of the survey Authority, of weighing the Narma not as per the provisions of the Standards of Weights and Measures Act, 1976 , but by using cartons. This objection, however, was overruled. This fact has also not been repudiated by the Department, though it is patent on record. Therefore, the reasoning adopted by the ld. CIT(A) is unsustainable in law, for which, the addition could not have been made and the same cannot be upheld. The same, accordingly, is deleted. Ground Nos. 1 to 3 are, hence, allowed. Disallowance of various expenses - HELD THAT - As there has been no dispute on the part of the assessee that as observed by the ld. CIT(A), there was no mechanism for verifying the purported expenses being recorded in the books of the assessee. The only grievance raised is that the relief granted is less. As to how it is so, nothing has been brought on record. Therefore, this action of the ld. CIT(A) is justified and is confirmed. As such, Ground no.4 is rejected.

Summary

Issues Involved:
1. Addition of ?6,85,270/- on account of alleged excess stock of Narma.
2. Compliance with the Standards of Weights and Measures Act, 1976 during weighment.
3. Provision of standardized weighment facilities by the assessee.
4. Disallowance of ?1,50,000/- out of various expenses, reduced to ?50,000/- by CIT(A).

Issue-wise Detailed Analysis:

1. Addition of ?6,85,270/- on account of alleged excess stock of Narma:
The assessee, running a cotton factory, was subject to a survey that revealed an excess stock of Narma amounting to 155.39 quintals. The Assessing Officer (AO) added ?6,85,270/- to the assessee's income, valuing the excess stock at ?4,900/- per quintal, after allowing a 10% discount for moisture and non-standard weighment. The CIT(A) confirmed this addition, stating that the assessee failed to provide a standardized weighment facility, thus validating the survey's adhoc method.

2. Compliance with the Standards of Weights and Measures Act, 1976 during weighment:
The assessee contended that the weighment was not conducted as per the Standards of Weights and Measures Act, 1976, which mandates the use of standardized weights and measures. The CIT(A) held that there was no evidence of the assessee providing the necessary facility for standardized weighment. However, the Tribunal noted that the survey team was obligated to require the necessary facility for standardized weighment, which they failed to do.

3. Provision of standardized weighment facilities by the assessee:
The CIT(A) argued that the assessee did not provide a standardized weighment facility. However, the Tribunal clarified that it was the responsibility of the survey team to require such a facility, as stipulated under section 133A of the Income-tax Act, 1961. The Tribunal emphasized that the survey team did not make this requirement known to the assessee, who had objected to the adhoc weighment method during the survey itself.

4. Disallowance of ?1,50,000/- out of various expenses, reduced to ?50,000/- by CIT(A):
The AO disallowed ?1,50,000/- due to incomplete self-made vouchers, which the CIT(A) reduced to ?50,000/-, considering the assessee's returned income. The assessee's grievance was that the relief granted was insufficient, but failed to substantiate this claim. The Tribunal upheld the CIT(A)'s decision, finding no mechanism to verify the expenses recorded in the assessee's books.

Conclusion:
The Tribunal allowed the appeal partly. It deleted the addition of ?6,85,270/- for excess stock of Narma due to the survey team's failure to comply with the Standards of Weights and Measures Act, 1976, and the improper requirement of standardized weighment facilities. However, it confirmed the disallowance of ?50,000/- out of various expenses, as the assessee did not provide sufficient evidence to contest this reduction.