2019 (6) TMI 652 - AT - Income Tax

Validity of Summons issued u/s 131 - additions during the survey proceedings u/s 133A - addition made solely on the basis of statement taken during survey - HELD THAT - Assessee's Ground has no merit because the survey team and the jurisdictional Assessing Officer are well within their powers to issue the summon u/s 131 of the Act in order to complete the survey proceedings in the interest of revenue. Validity of retraction of the statement made in survey proceedings u/s 133A - HELD THAT - The assessee has within a reasonable period of 3 months, after analysing various documents relating to purchase and sale of the stock, market price vis-a-vis the cost price of the products, deduction for defective goods and also on observing the stock of another sister concern M/s. Gayatri Coating Pvt. Ltd which was lying in the same premises and was wrongly included by the survey team in the unaccounted stock even when the stock of the sister concern M/s. Gayatri Coating Pvt. Ltd was duly disclosed in their regular books of accounts filed a retraction statement on 28.4.2014. It is always open for the revenue authorities to examine the correction of the retraction statement and should point out the errors in such retraction statement (if any). Therefore the action of Ld. A.O of outrightly rejecting the assessee s retraction statement without pointing out any mistake in such retraction statement is devoid of merit and is uncalled for. We therefore allow Ground No.2 raised by the assessee . Unaccounted/ unexplained investment made in excess stock - HELD THAT - The assessee has successfully demonstrated with the help of various documentary evidence in the form of the invoices for selling of goods post survey, quotations of grey cloth regularly purchased by the assessee, financial statement showing the gross profit rate, proof of the stock belonging to Ms/ Gayatri Coating Pvt. Ltd wrongly included in the unaccounted stock of the assessee and the fact that no other discrepancy has been pointed out in the regular books of accounts maintained by the assessee, we are therefore inclined to hold that the assessee has rightly valued the unaccounted stock at ₹ 1,82,15,777/- which has been offered to tax and Ld. A.O erred in making the addition for ₹ 2,09,44,333/- and the same deserves to be deleted. We therefore set aside the findings of both the lower authorities and allow the assessee s Ground of the instant appeal.

Issues Involved:
1. Validity of summons issued under Section 131 during survey proceedings.
2. Rejection of partial retraction of the statement made by the assessee during the survey.
3. Addition of ?2,09,44,333 on account of excess stock.
4. Relief of 5% given for defective stock instead of deleting the entire addition.

Issue-wise Detailed Analysis:

1. Validity of Summons Issued Under Section 131:
The assessee challenged the validity of the summons issued under Section 131 of the Income Tax Act during the survey proceedings on 22.01.2014 and 24.01.2014, arguing that they were issued without compelling circumstances and were thus invalid. The tribunal dismissed this ground, stating that the survey team and the jurisdictional Assessing Officer were within their powers to issue the summons under Section 131 to complete the survey proceedings in the interest of revenue.

2. Rejection of Partial Retraction of Statement:
The assessee contended that the lower authorities erred in not accepting the retraction statement dated 28.04.2014, which revised the surrendered amount of excess stock from ?3,91,60,110 to ?1,82,15,777. The tribunal noted that the assessee had provided necessary documents and details supporting the revised value. The tribunal referred to the Supreme Court's rulings in CIT vs. Khader Khan Son and Pullangode Rubber Produce Co. vs. State of Kerala, which held that statements made during survey proceedings under Section 133A have no evidentiary value and can be retracted. Consequently, the tribunal allowed the assessee's ground, holding that the revenue authorities should not have rejected the retraction statement without pointing out any mistakes in it.

3. Addition of ?2,09,44,333 on Account of Excess Stock:
The assessee argued that the addition of ?2,09,44,333 based solely on the survey statement was unjustified. The tribunal observed that the assessee had provided evidence, including invoices and quotations, to support the revised valuation of the unaccounted stock. The tribunal found that the survey team had overvalued the stock by 30-40% and included stock belonging to another entity, Gayatri Coating Pvt. Ltd., in the assessee's inventory. The tribunal held that the revenue authorities failed to rebut the assessee's evidence and that the addition was not justified. Therefore, the tribunal deleted the addition of ?2,09,44,333.

4. Relief of 5% for Defective Stock:
The assessee challenged the partial relief of 5% given by the CIT(A) for defective stock, arguing that the entire addition should be deleted. The tribunal found that this ground became academic since it had already deleted the entire addition of ?2,09,44,333. Consequently, the tribunal dismissed this ground as infructuous.

Conclusion:
The tribunal partly allowed the assessee's appeal, dismissing the ground challenging the validity of the summons issued under Section 131 but allowing the grounds related to the retraction of the statement and the addition of ?2,09,44,333. The tribunal held that the revenue authorities should have accepted the retraction statement and deleted the addition based on the evidence provided by the assessee. The partial relief for defective stock was deemed academic and dismissed.

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