2019 (4) TMI 1218 - AT - Income Tax

Addition on the basis of statement in survey u/s 133A - Difference in the closing stock and excess cash found - Addition on account of difference in cash and stock as per books of accounts and actual found by the Income Tax Official - Assessee filed certain reconciliation statement regarding the discrepancy in cash and valuation of closing stock - HELD THAT - The assessee during the course of assessment proceedings had filed the movement of stock from 1st April, 2007 till 17th May, 2007. It has also given the quantity and rate of the stock found during the course of survey. We find AO, instead of examining the same has gone by the statement of the partner during the course of survey. No doubt, the assessee, in the instant case, had surrendered certain amount during the course of survey on the basis of certain discrepancies pointed out to one of the partners regarding the discrepancy in cash and the discrepancy in the valuation of closing stock. However, the same, in our opinion, cannot be conclusive and binding on the assessee once the assessee is able to substantiate with evidence to the satisfaction of the A.O. regarding the discrepancies. The lower authorities in the instant case appears to have made the addition solely on the basis of the statement recorded during the course of survey instead of examining thoroughly the reconciliation statement filed by the assessee during the course of assessment proceedings regarding the difference in the cash found and the difference in the valuation of closing stock - restore the issue to the file of the AO with a direction to thoroughly examine the reconciliation statement filed by the assessee - grounds allowed for statistical purposes.

Summary

Issues:
1. Discrepancies in cash and stock valuation found during survey u/s 133A
2. Addition made by Assessing Officer based on discrepancies
3. CIT(A) upholding Assessing Officer's action
4. Assessee's appeal before Tribunal challenging addition and CIT(A)'s order
5. Arguments presented by both parties before Tribunal

Issue 1: Discrepancies in cash and stock valuation found during survey u/s 133A
During a survey u/s 133A, discrepancies in cash amounting to ?7,24,967 and in stock valuation of ?83,75,000 were found. The partner of the firm surrendered additional income of ?90,99,967 for these discrepancies. The Assessing Officer rejected the contention that stock valuation was arbitrary and discrepancies in cash were not justified.

Issue 2: Addition made by Assessing Officer based on discrepancies
The Assessing Officer made an addition of ?90,99,967 to the total income of the assessee based on the discrepancies in cash and stock valuation found during the survey. The assessee's total income was determined at ?99,71,560.

Issue 3: CIT(A) upholding Assessing Officer's action
The CIT(A) upheld the action of the Assessing Officer regarding the addition made to the total income of the assessee. The CIT(A) rejected the arguments presented by the assessee against the addition.

Issue 4: Assessee's appeal before Tribunal challenging addition and CIT(A)'s order
The assessee appealed before the Tribunal challenging the addition made by the Assessing Officer and the decision of the CIT(A) upholding the addition. The grounds of appeal included arguments related to the discrepancies in cash and stock valuation, violation of natural justice, and the right to add, alter, or amend grounds of appeal.

Issue 5: Arguments presented by both parties before Tribunal
The assessee's counsel argued that the discrepancies arose due to withdrawals not entered in the cash book and arbitrary valuation of stock during the survey. The counsel requested the matter to be re-examined by the Assessing Officer. The Revenue strongly opposed the arguments, citing lack of evidence from the assessee to justify the discrepancies. The Revenue relied on court decisions to support its position.

In the final decision, the Tribunal allowed the assessee's appeal for statistical purposes. The Tribunal directed the issue to be restored to the file of the Assessing Officer for a thorough examination of the reconciliation statement filed by the assessee regarding the discrepancies in cash and stock valuation. The Tribunal emphasized the importance of substantiating discrepancies with evidence and ensuring due process in the assessment proceedings.