2010 (10) TMI 29 - HC - Income Tax

Discrepancy in Stock and cash - a survey under section 133A of the Act was conducted on the respondent-assessee s business premises. During the course of survey, the tax officials noticed some discrepancies in stock and cash in hand. During the said survey, the respondent-assessee surrendered an amount of ₹ 99,50,000 and offered the same for the purposes of taxation. Held that - since the assessee had been able to explain the discrepancy in stock found during the course of survey by production of relevant record including the excise register of its associate company, the Assessing Officer could not have made the addition solely on the basis of the statement made on behalf of the assessee during the course of survey.

Summary

Issues Involved:
1. Evidentiary value of statements recorded under section 133A of the Income-tax Act, 1961.
2. Validity of retraction of statements made during a survey.
3. Justification for the addition of income based on survey findings.

Detailed Analysis:

1. Evidentiary Value of Statements Recorded Under Section 133A of the Income-tax Act, 1961:
The primary issue in this case is whether statements recorded under section 133A of the Income-tax Act hold evidentiary value. The court observed that section 133A does not mandate that any statement recorded during a survey would have evidentiary value. For a statement to be considered as evidence, the survey officer must be authorized to administer an oath and record a sworn statement, which is not permitted under section 133A. This is contrasted with section 132(4), which explicitly allows an officer to examine a person on oath. The court cited judgments from the Kerala High Court in Paul Mathews and Sons v. CIT and the Madras High Court in CIT v. S. Khader Khan Son, which support the view that statements under section 133A do not have evidentiary value because the officer is not authorized to administer an oath.

2. Validity of Retraction of Statements Made During a Survey:
The respondent-assessee retracted the statement made during the survey, which initially offered additional income for taxation. The court noted that an admission, although an important piece of evidence, is not conclusive and can be contested. The respondent-assessee provided a reconciliation of the stock discrepancy, supported by relevant records, including the excise register of its associate company. The court emphasized that the material collected and statements recorded during the survey are not conclusive evidence by themselves, as indicated by the use of the word "may" in section 133A(3)(iii).

3. Justification for the Addition of Income Based on Survey Findings:
The Assessing Officer (AO) added income based on the statement made during the survey, which the respondent-assessee later retracted. The Commissioner of Income-tax (Appeals) (CIT(A)) deleted the addition, noting that the AO did not conduct an independent inquiry and failed to demonstrate that the surrendered amount was not included in the final books of account. The Income-tax Appellate Tribunal (ITAT) upheld the CIT(A)'s decision, stating that the addition was based solely on the survey statement without considering the reconciliation and evidence provided by the assessee. The court concurred with the ITAT, stating that the AO could not rely solely on the survey statement, especially when the respondent-assessee had explained the discrepancy with supporting records.

Conclusion:
The court dismissed the appeal, concluding that the statement recorded under section 133A during the survey did not have evidentiary value. The respondent-assessee's retraction and subsequent explanation of the stock discrepancy were valid, and the AO's addition of income based solely on the survey statement was unjustified.