2018 (4) TMI 607 - AT - Income Tax

Addition on account of excess cash found during the course of survey - Held that - Section 133A does not empower any Income tax authority to examine any person on oath and then use it as evidence to make addition. In such a situation, no addition can be made or sustained only on the basis of the statement recorded during the survey U/s 133A of the Act. Once the assessee has retracted from the statement then it was on the A.O. to establish beyond any doubt the issues on which the addition has been made. Once the assessee has submitted up to date cash book and stock register then it was duty of the Assessing Officer to pin point the defects in such books of account particularly with regard to the issues, on which the statement was recorded during the survey. Further in the case of Shri Pawan Kumar, even the Assessing Officer recorded his statement but he has not asked any question with regard to amount of advance of ₹ 10.00 lacs for which the addition has been made only on the basis of a piece of paper, which was not signed by Shri Pawan Kumar. Similarly in the case of debtors, once the assessee has retracted then it was the duty of the Assessing Officer to examine these debtors to establish the truthfulness of the debt. - Decided in favour of assessee Invoking the provisions of Section 145(3) - estimating the turnover and G.P. - Held that - The assessee himself admitted that part of the sales/purchases are being made in unaccounted manner. As regards estimation of profit, after invoking the provisions of sec. 145(3) of IT Act, it may be stated that it is a settled law that even after invoking the provisions of sec. 145(3), the AO is not empowered to assess the income at whatever figures he wants and the AO is supposed to make an honest estimation either based on the past history of the appellant s own case or on the basis of any comparable case - in the immediate preceding year the appellant has shown G.P. rate of 13.24%. Therefore it will be fair and reasonable to apply G.P. rate of 13.24% on estimated sales of ₹ 1800000/- and accordingly the gross profit is arrived at 2383200/- as against G.P. rate shown by the assessee for ₹ 2240422/-. Accordingly trading addition of ₹ 142778/- is made. The appellant gets relief of ₹ 316800/-. - no merits in the pleadings of the assessee

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Addition of ?8,04,155/- on account of excess cash found during the survey.
3. Addition of ?10,00,000/- on account of unaccounted advance.
4. Addition of ?13,62,000/- on account of unaccounted debtors.
5. Addition of ?28,43,039/- on account of alleged excess stock found during the survey.
6. Invocation of provisions of Section 145(3) and estimation of turnover and Gross Profit (G.P.).
7. Benefit of telescoping and set-off of the additions.

Detailed Analysis:

1. Condonation of Delay:
The Bench noticed a delay of 331 days in filing the appeal. The assessee filed an application for condonation of delay, which was objected to by the Revenue. After hearing both sides, the Bench condoned the delay, stating that the assessee had a sufficient cause for not filing the appeal on time, thus admitting the appeal in the interest of justice and equity.

2. Addition of ?8,04,155/- on Account of Excess Cash:
The assessee argued that the statement recorded during the survey was not voluntary and was obtained under duress. The statement indicated excess cash, but the assessee contended that the books were not complete at the time of the survey. The Tribunal noted that the Assessing Officer (A.O.) did not find any fault in the updated cash books submitted during the assessment proceedings. The Tribunal relied on the Supreme Court's decision in CIT Vs S. Khader Khan Son, which held that statements recorded during surveys have no evidentiary value if retracted. Consequently, the Tribunal deleted the addition.

3. Addition of ?10,00,000/- on Account of Unaccounted Advance:
The assessee contended that the addition was made based on a piece of paper without any signature or corroborative evidence. The A.O. recorded the statement of the alleged recipient, Shri Pawan Kumar, but did not ask about the advance. The Tribunal held that the A.O. failed to establish the correctness of the undisclosed amount through further investigation. The addition was deleted.

4. Addition of ?13,62,000/- on Account of Unaccounted Debtors:
The assessee argued that the addition was based on a dumb document written in a single ink. The Tribunal noted that the A.O. did not verify any of the alleged debtors and relied solely on the retracted statement. The Tribunal deleted the addition, emphasizing the need for the A.O. to investigate further once the statement was retracted.

5. Addition of ?28,43,039/- on Account of Alleged Excess Stock:
The assessee claimed that the survey team valued the stock at MRP, whereas the purchase price was much lower. The Tribunal observed that the A.O. did not verify the assessee's claim regarding the valuation difference. The Tribunal deleted the addition, reiterating that statements recorded during surveys cannot be the sole basis for additions.

6. Invocation of Provisions of Section 145(3) and Estimation of Turnover and G.P.:
The A.O. rejected the books of accounts under Section 145(3) due to incomplete records and unaccounted transactions. The A.O. estimated the sales at ?1,80,00,000/- and applied a G.P. rate of 15%. The CIT(A) adjusted the G.P. rate to 13.24%, based on the previous year's rate, resulting in a trading addition of ?1,42,778/-. The Tribunal upheld the CIT(A)'s decision, finding no merit in the assessee's pleadings.

7. Benefit of Telescoping and Set-Off:
The assessee alternatively pleaded for the benefit of telescoping. Since the Tribunal did not sustain the additions in grounds 1 to 5, there was no scope for telescoping.

Conclusion:
The appeal was partly allowed. The Tribunal deleted the additions based on the retracted statements recorded during the survey and upheld the CIT(A)'s decision on the invocation of Section 145(3) and the estimation of G.P. The benefit of telescoping was not applicable as the primary additions were deleted.

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