2017 (12) TMI 988 - AT - Income Tax

Unexplained investment u/s 69 - suppression of value of stock - statement u/s 131 recorded - Held that - Statement recorded u/s. 133A of the Act we find that no allegation of suppression of physical stock has been charged against the assessee. The addition has been made and sustained by Ld. CIT(A) merely on the basis of statement recorded during survey proceedings and Revenue has not pointed out any defect in the books of account / stock register maintained by assessee suggesting that assessee has suppressed the stock. In the absence of any documentary evidence, the addition cannot stand merely on the basis of statement recorded during survey proceedings From the survey proceedings, we find that prescribed format has not been used by the survey team. Therefore, the information gathered during survey proceedings cannot be relied upon. Simply the tax paid by assessee during survey proceedings does not mean that assessee has admitted undisclosed income. In our considered view, for finding out the undisclosed income of assessee there had to be tangible materials available on record which in the instant case are missing. We also find that the statement recorded during the survey proceedings u/s. 131 of the Act does not have any evidentiary value. Therefore, the same cannot be used as a basis for making such addition. The materials found in the course of survey could not be the basis for making any addition in the assessment. The word may used in section 133A(3)(iii) makes it clear that the material collected and statement recorded during the survey u/s 133A are not conclusive piece of evidences by itself. - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the addition of ?3,06,28,425/- as unexplained investment under Section 69 of the Income Tax Act, 1961, due to alleged suppression of stock, was justified.

Issue-Wise Detailed Analysis:

1. Addition of ?3,06,28,425/- as Unexplained Investment under Section 69:

Background and Facts:
The assessee, a private limited company engaged in the manufacturing/trading of bidi and electronic goods, filed its return of income declaring a total consolidated income of ?2,35,99,186/-. A survey conducted at the Aurangabad factory on 29.03.2010 revealed discrepancies in the stock. The assessee's director, during the survey, admitted to an under-valuation of closing stock amounting to ?3,06,28,425/-, but this was not reflected in the return of income filed.

Survey Proceedings and Statements:
During the survey, statements were recorded under Sections 131 and 133A of the Income Tax Act. The director admitted to discrepancies in stock valuation and agreed to disclose an additional income of ?3 crore for the current year. However, the assessee later retracted this statement, claiming it was made under coercion.

Assessee's Submissions:
The assessee argued that:
- The survey was limited to the Aurangabad factory, and no physical inspection was conducted at the other branches.
- No discrepancies were found in the books of account.
- The statement under Section 131 was recorded under duress.
- The retraction was delayed because the certified copy of the statement was not provided promptly.

Assessing Officer's (AO) Findings:
The AO disregarded the assessee's submissions, stating:
- The survey team has the discretion to choose survey locations.
- No coercion was applied during the survey.
- The retraction statement was filed after three years.
- The assessee voluntarily offered ?1 crore as tax on the under-valuation of stock.

Commissioner of Income Tax (Appeals) [CIT(A)] Findings:
The CIT(A) upheld the AO's decision, noting:
- The survey team found excess stock, and the assessee could not rebut this finding.
- The addition was based on stock-taking during the survey, not merely on the statement recorded.

Appellate Tribunal's Analysis:
The Tribunal found several infirmities in the orders of the authorities below:
- The survey team did not visit other branches, making the stock information unreliable.
- Statements under Section 131 during survey proceedings are not permissible unless there is non-cooperation from the assessee.
- The assessee cooperated fully during the survey, and no discrepancies were found in the books of account.
- The addition was based solely on the statement recorded under Section 131, which has no evidentiary value.
- The CBDT guidelines emphasize gathering evidence during surveys and avoiding coercion.

Tribunal's Decision:
The Tribunal concluded that:
- The survey team's failure to visit other branches rendered the stock discrepancy findings unreliable.
- The statement recorded under Section 131 during the survey was not valid as there was no non-cooperation from the assessee.
- The addition based solely on the statement without any documentary evidence was unsustainable.
- The retraction statement was delayed due to the revenue's failure to provide the certified copy of the statement promptly.

Conclusion:
The Tribunal reversed the orders of the authorities below and directed the AO to delete the addition of ?3,06,28,425/- as unexplained investment under Section 69. The assessee's appeal was allowed.

Order Pronounced:
The order was pronounced in open court on 10/11/2017.