2024 (4) TMI 977 - AT - Income Tax

Survey operations u/s 133A - evidentiary value of statement recorded u/s 131 - retraction letter given for statement made in survey proceedings - retraction to be made on an immediate basis - HELD THAT - Firstly the retraction letter has been filed within a short span of two weeks from conclusion of the survey proceedings duly supported by an affidavit of the assessee which has been filed before the AO as well as copy thereof has been filed before the senior authority i.e; Addl. CIT, Sangrur. As far as the intervening period is concerned, the assessee duly explained that being a senior citizen, he was under great shock and mental agony and once he was able to recover from the shock of the survey proceedings, he has written the letter to the AO retracting from the surrender so made. Therefore as far as period within which the retraction has been made, we find that the same has been made within a reasonable period of two weeks of close of the survey proceedings and therefore it is not a case where the assessee has filed the return of income retracting from the surrender so made and/or waited for issuance of the show cause by the AO and thereafter, he has retracted from the surrender so made. We are therefore unable to subscribe to the view of the ld CIT(A) where he says that where the retraction is not made on an immediate basis, the same loose relevance after a course of time and appear to be an afterthought to evade the due taxes . The decision of the Hon ble Delhi High Court in case of Avinash Satia 2017 (5) TMI 172 - DELHI HIGH COURT doesn t support the case of the Revenue as in that case, the retraction was made after a gap of two years. Similarly, the decision of MAC Public Charitable Trust 2022 (11) TMI 137 - MADRAS HIGH COURT doesn t support the case of the Revenue as in that case, the retraction was made after a period of eight months. In our considered view, given the fact that the retraction has been made within a short period of two weeks of conclusion of the survey proceedings and even for intervening period of two weeks, the assessee has provided the necessary explanation which we find reasonable given the facts and circumstances of the present case, the retraction so made doesn t loses its significance and clearly cannot be held as an afterthought. Basis of retraction of the surrender so made by the assessee , we find that the surrender was originally made in respect of alleged excess stock, alleged excess cash and alleged unexplained advances. Regarding excess stock, we find that the assessee has duly demonstrated before the AO as well as during the appellate proceedings that the surrender towards excess stock has been wrongly taken by the survey team and the same is evident from the findings of the Ld. CIT(A). Therefore, where the AO during the assessment proceedings has accepted that as against the value of stock as per books of account taken at the time of survey amounting to Rs. 1,05,94,990/-, the actual stock as per the books of account was Rs. 65,74,354/- the same supports the contention advanced by the assessee that the surrender has been wrongly taken by survey team based on the incorrect facts. Both the value of stock as per books of account and stock physically found, the survey team has completely faltered in determining and seeking surrender and therefore where the assessee in the retraction letter claims that there was no excess stock found during the course of survey and surrender taken under coercion and threat, we have no hesitation in accepting the said contention advanced by the assessee. Therefore, the retraction towards excess stock is concerned, the assessee has duly demonstrated that the statement initially recorded during the course of survey was factually incorrect and was therefore recorded under coercion and threat by the survey team. Alleged advances - As gone through the seven pages of the diary marked as Prince seized during the course of survey and find that there are certain names and the amounts which have been written against these names. There are no dates, no description in terms of whether the amount written against the respective names are received by the assessee or paid by the assessee and the date of receipts / payments and falling under which financial year. No other documentary material has been found during the course of survey which corroborates such entries /contains complete identity details of these persons so found mention in the said diary and the nature of transaction so referred therein - no hesitation in accepting the contention advanced by the assessee that such notings have no link or connection with the business of the assessee and even the identity of those alleged persons was not verified and therefore there was no material in possession of the survey team to seek surrender and the surrender so taken was therefore a surrender under coercion and threat and which cannot be sustained in the eyes of law. Therefore, the retraction as far as alleged advances is concerned, we again find that the assessee has duly demonstrated that the statement initially recorded in this regard during the course of survey was factually incorrect and was therefore recorded under coercion and threat by the survey team. Excess cash - We find that there was cash physically found at the time of survey and cash inventory was duly prepared by the survey team. As per copy of the cash inventory available at page 77 of APB, there was cash amounting to Rs 982,579/- which was found, counted in presence of the assessee and subsequently handed over to him. It is also not in dispute that cash as per books of accounts as on the date of survey was Rs 57,579/-. Therefore, as far as retraction regarding differential cash over and above recorded in the books of accounts of Rs 9,25,000/- is concerned, we find that the retraction so made by the assessee is not factually correct and the same therefore cannot be accepted. The action of the AO in bringing to tax excess cash of Rs 925,000/- so found during the course of survey and upheld by ld CIT(A) is hereby confirmed and the contentions advanced in this regard on behalf of the assessee are rejected. As far as excess stock and alleged advances there is no basis to make the addition solely basis the statement so made by the assessee as the assessee has duly demonstrated that the surrender so made was factually incorrect and taken under coercion and threat and the same deserve to be set-aside. GP estimation - Coming back to the findings of the CIT(A), we find that the ld CIT(A) while deleting the addition towards the excess stock had recorded a finding that there was in fact shortage of stock - We have no hesitation in confirming the same as the same has been arrived at basis material provided by the assessee during the assessment and appellate proceedings, duly verified by the AO during the remand proceedings and thus basis material available on record and therefore, cannot be in dispute. Therefore, the various contentions so raised by the assessee which are more in the context of survey proceedings cannot be accepted. The ld CIT(A) has considered the shortage of stock as out of books sales and directed to apply gross profit rate of 10% which is hereby restricted to 8.02% as per accepted gross profit rate for the year under consideration and to this limited extent, the alternate contention of the assessee is accepted.

Summary

Issues Involved:
1. Retraction of Surrender
2. Addition on Account of Alleged Shortage in Stock
3. Addition on Account of Alleged Advances
4. Addition of Excess Cash as Unexplained Money
5. Application of Section 69A and Section 115BBE
6. General Grounds of Appeal

Issue-wise Summary:

1. Retraction of Surrender:
The assessee retracted the surrender of Rs. 34,50,000/- made during a survey under section 133A, claiming it was extracted under pressure and coercion. The retraction was made within 14 days through a letter and affidavit. The Tribunal noted that the retraction was timely and supported by an affidavit, and the department did not rebut the contents of the retraction letter. The Tribunal emphasized that statements recorded under section 133A have no evidentiary value unless corroborated by further material evidence.

2. Addition on Account of Alleged Shortage in Stock:
During the survey, the stock was valued at Rs. 1,08,84,989/-, but the actual stock as per books was Rs. 65,74,354/-. The assessee demonstrated that the survey team had overvalued the stock. The Tribunal upheld the CIT(A)'s finding that there was a shortage of stock amounting to Rs. 12,66,486/-, which was considered as out-of-books sales. The Tribunal accepted the gross profit rate of 8.02% instead of 10% applied by the CIT(A).

3. Addition on Account of Alleged Advances:
The survey team found a diary with names and amounts, but no corroborative evidence. The assessee claimed these were false entries made under pressure. The Tribunal found no tangible material to support the alleged advances and noted that the AO did not examine the persons mentioned in the diary. The Tribunal accepted the assessee's retraction and held that the addition of Rs. 22,35,000/- could not be sustained.

4. Addition of Excess Cash as Unexplained Money:
The survey found excess cash of Rs. 9,82,579/-, while the books showed Rs. 57,579/-. The Tribunal confirmed the addition of Rs. 9,25,000/- as unexplained money under section 69A, rejecting the assessee's retraction on this point.

5. Application of Section 69A and Section 115BBE:
The CIT(A) applied sections 69A and 115BBE to the alleged excess cash and advances. The Tribunal upheld the addition of excess cash under section 69A but deleted the addition of alleged advances, as the retraction was accepted.

6. General Grounds of Appeal:
The Tribunal partly allowed the appeal, confirming the addition of excess cash but deleting the addition of alleged advances and modifying the gross profit rate applied to the shortage in stock.

Conclusion:
The Tribunal partly allowed the appeal, confirming the addition of excess cash, deleting the addition of alleged advances, and modifying the gross profit rate applied to the shortage in stock. The retraction of the surrender was accepted as timely and valid.