2024 (11) TMI 432 - AT - Income Tax

Addition of specific findings during the survey operation on the assessee s premises - AO made addition to the income of the assessee by enhancing the value of closing stock in the assessment framed u/s 143(3) - HELD THAT - As during the course of survey, a statement was recorded by the survey team, however, no incriminating material was found during the course of survey. Therefore, in absence of having any incriminating material, the statement recorded has no evidentiary value as in the held in S Kader Khan Sons 2007 (7) TMI 182 - MADRAS HIGH COURT wherein it has been held that the statement recorded u/s 133A has no evidentiary value and any admission made during the course of survey cannot be the basis for making the addition. AO has mainly harped on GP declared during the course survey proceedings. We even note that CIT(A) has specifically mentioned that the AO has not mentioned any basis for taking G.P. rate of 17.43% whereas overall GP was 13.08%. It is not open to AO to make the addition merely on the basis of surmises and conjectures unless the books of account are rejected which was also observed by the ld CIT(A) while allowing the appeal of the assessee. CIT(A) even examined the comparative gross profit rate from AY 2014-15 to 2016- 17 and find that the G.P. Rate during the year is more or less consistent. Therefore, the addition made by the AO was deleted by the CIT(A). CIT(A) noted that the AO has not disallowed the purchases or disbelieved the purchases but only enhanced the closing stock which could have the effect the enhancing the opening stock in the subsequent assessment year. Appeal of the revenue is dismissed.

Summary

Issues:
Appeal against deletion of addition based on survey operation findings.

Analysis:
The appeal pertains to the deletion of an addition of Rs. 2,39,89,250/- made by the Assessing Officer (AO) based on specific findings during a survey operation on the assessee's premises. The assessee had filed its return of income declaring total income under normal provisions and book profit provisions for the assessment year 2016-17. Subsequently, a survey operation was conducted, leading to the selection of the case for scrutiny proceedings. The AO, noting discrepancies in the declared gross profit and absence of purchase bills, made the addition to the income of the assessee. The assessee appealed to the Ld. Commissioner of Income Tax (Appeals) [CIT(A)], who allowed the appeal, citing lack of incriminating material to support the addition. The CIT(A) also referred to relevant case laws, including a decision by the Hon'ble Supreme Court, to support the deletion of the addition.

The Appellate Tribunal, after considering the contentions and evidence on record, observed that the survey operation had recorded a statement from the assessee but did not yield any incriminating material. The AO's reliance on the gross profit declared during the survey was questioned, especially as the CIT(A) highlighted inconsistencies in the AO's approach. The Tribunal emphasized that additions cannot be made solely on presumptions and conjectures without rejecting the books of account. Additionally, the Tribunal noted the consistency in the gross profit rate over the years, further supporting the deletion of the addition. The Tribunal concurred with the CIT(A) that the AO's action was tax-neutral as enhancing closing stock would impact the opening stock in subsequent years. Ultimately, the Tribunal upheld the CIT(A)'s decision to delete the addition, dismissing the revenue's appeal.

In conclusion, the Tribunal found no grounds to interfere with the CIT(A)'s order, emphasizing the lack of evidentiary value in the survey statement and the absence of incriminating material to support the addition. The decision underscores the importance of concrete evidence and proper verification in making additions to an assessee's income, highlighting the need for a substantive basis for such adjustments.