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2023 (1) TMI 122 - AT - Income TaxAdditions of surrendered amount as excess stock during the survey proceedings - Whether section 133A of the Act does not envisage recording of statement of the assessee and his wife on oath and therefore, the Ld. AO could not, in law rely on such statements? - HELD THAT - We are of the view that the survey officer is vested with the power u/s 133A(3)(iii) to record the statement of the assessee which may be useful for or relevant to any proceedings under the Act. But he is not authorised to administer oath. Since the survey officer had recorded the statement of the assessee and his wife on oath in the case under our consideration, we hold that the action of the survey officer was not in accordance with law. Consequently, such statement cannot be conclusive piece of evidence by itself and it is open to the assessee to show that the same was incorrect. Accordingly, both the additional grounds are decided in favour of the assessee. Excess stock the assessee had replied to the question No. 36 that in order to purchase peace he surrendered the excess stock and in the letter of retraction, the assessee asserted that heavy paper reels weighed in average about 300 kgs 400 kgs per reel. The survey team had not taken reels of paper for weighment they did not have any equipment to verify the weight or value of stock. No physical inventory was ever prepared by the survey team and the value of stock was assumed without any basis or physical inventory and that the assessee was forced to accept the excess stock under pressure. The contention of the assessee before the Ld. AO/CIT(A) was that the average weight per reel is 346 kgs whereas the survey team had taken average weight of one reel as 680 kgs which is completely misplaced. The paper is an excisable item and the assessee had filed stock returns with the Custom Central Excise Department and the returns for the period from April, 2007 to September, 2007 was placed before the Ld. AO/CIT(A) and no discrepancy was found either by the Central Excise Department or by the Revenue Authorities therein. During assessment proceedings production of stock register was insisted upon, though the assessee in reply to question No. 34 has stated that he is not maintaining any stock register because it involves various sizes, weight and quality of the paper. This statement of the assessee has completely been ignored by the Revenue Authorities. We, therefore, hold that the excess stock as worked out by the survey team does not rest on solid foundation as it has been arrived at by incorrect assumptions. AO imposed penalty under section 271D for violation of provisions of section 269SS of the Act for obtaining cash loans by the assessee - However, the penalty has been deleted by the Ld. CIT(A) by accepting the explanation of the assessee that cash was collected in the morning of 20th September, 2007 by the assessee from his friends and relatives in order to get banker cheque favouring DCIT Circle 39(1). It may, not be out of place to mention that the Revenue s appeal against the order (supra) of the Ld. CIT(A) stands dismissed by the Tribunal 2016 (9) TMI 1642 - ITAT DELHI AO rejected the assessee s explanation merely relying on the statement of the assessee recorded during survey. In fact, except cash of Rs. 22,143/- no more cash was available with the assessee and the survey team erred in treating the funds arranged by the assessee for depositing tax as excess cash available with the assessee. The addition is not sustainable and is deleted. Addition on account of investment in construction WIP - As it was explained in the letter of retraction and during assessment proceedings that certain renovations were carried out in the year 2005-06 and the amount spent was duly reflected in the books of account. At the time of survey no renovation work was going on. The only basis of the impugned addition is the statement of the assessee during survey which has been retracted. The explanation of the assessee could have been verified with reference to the books of account which has not been done. The impugned addition does not rest on any solid legal basis and is therefore, deleted. Accordingly, we decide ground No. 2, 3 4 in favour of the assessee. Additions challenged in these grounds were made on the basis of statement recorded on oath during the course of survey under section 133A which was retracted by the assessee. It is now well established that any admission made during statement recorded under section 133A cannot by itself, be made the basis for addition in the absence of any corroborative material brought on record by the Revenue. We have earlier observed that these additions are not sustainable even on merits. 50% disallowance out of rent paid by the assesee to his wife which has been confirmed by the Ld. CIT(A) - AO accepts that business letters of the assessee are being received at the premises for which rent is being paid by the assesee. The case of the assessee is that the premises was being used for placement of orders for purchase, meeting with suppliers, arranging dispatches, delivery etc. In none of the earlier years disallowance out of such rent has been made in assessments completed under section 143(3) of the Act. We agree with the submissions of the assessee and hold that no such adhoc disallowances based on surmises alone can be sustained. The impugned disallowance is deleted.
Issues Involved:
1. Jurisdiction of the CIT(A). 2. Confirmation of additions of surrendered amounts as excess stock, excess cash, and unexplained investments. 3. Recording of statements on oath under section 133A. 4. Disallowance of rent paid under section 40A(2)(b). Detailed Analysis: 1. Jurisdiction of the CIT(A): The assessee challenged the jurisdiction of the CIT(A) but did not seriously contest it during the proceedings. Consequently, this ground was dismissed as not pressed. 2. Confirmation of Additions: The CIT(A) confirmed the additions of Rs. 56,71,600/- as excess stock, Rs. 9,78,800/- as excess cash, and Rs. 8,50,000/- as unexplained investments, all of which were initially surrendered by the assessee during survey proceedings but later retracted. 3. Recording of Statements on Oath under Section 133A: The Tribunal addressed the additional grounds raised by the assessee, which questioned the legality of recording statements on oath under section 133A. It was noted that section 133A does not authorize the survey officer to record statements on oath, unlike section 132(4). The Tribunal referred to the judgments of the Hon'ble Supreme Court and High Courts, which held that statements recorded under section 133A do not have evidentiary value. Consequently, the Tribunal held that the statements recorded on oath during the survey could not be used as conclusive evidence. 4. Disallowance of Rent Paid under Section 40A(2)(b): The Tribunal considered the disallowance of 50% of the rent paid by the assessee to his wife. The AO had accepted that business letters were received at the rented premises, and the premises were used for business activities. The Tribunal found that no disallowance had been made in earlier years under section 143(3) and concluded that the adhoc disallowance based on surmises could not be sustained. Thus, the disallowance was deleted. Conclusion on Additions: The Tribunal found that the additions based on the statements recorded during the survey were not sustainable as they lacked corroborative evidence. The assessee's explanations regarding excess stock, excess cash, and investments in construction WIP were found credible. The Tribunal noted that the survey team did not prepare a physical inventory of cash or stock and relied on incorrect assumptions. Consequently, the additions were deleted. Final Order: The appeal was partly allowed, with the Tribunal ruling in favor of the assessee on the major issues of additions and disallowance of rent, while dismissing the ground related to jurisdiction. The judgment was pronounced on 19th December 2022.
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