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TMI Blog2019 (6) TMI 652X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k out of total stock instead of deleting the entire addition made by the AO on account of excess stock of ₹ 2,09,44,333/- which was valued at an exorbitant figure. 5. That the appellant craves leave to add, to alter, amend, modify, substitute, delete and/or rescind all or any of the grounds of appeal on or before final hearing, if necessity so arises. 3. Briefly stated facts as culled out from the records are that the assessee is an individual and runs business of trading and manufacturing of cloth under sole proprietary concern M/s. Gayatri Enterprises. Survey u/s 133A of the Act conducted at the premises of the assessee on 22.01.2014. During the course of survey excess cash of ₹ 9,45,500/- and excess stock of ₹ 3,91,60,110/- was found. After survey a retraction letter was filed on 28.4.2014 and the surrender made on amount of excess stock was revised to ₹ 1,82,15,777/- instead of ₹ 3,91,60,110/-. A return was filed on 28.9.2014 declaring a total income of ₹ 1,95,58,830/-. The assessment was completed u/s 143(3) of the Act at a total income of ₹ 4,07,27,240/- after making following additions; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ground No. 1 The first ground of appeal is challenging the validity of Summons issued u/s 131 on 22.01.2014 requiring the assessee's presence on 22.01.2014 itself and then subsequently on 24.01.2014 which are in excess of jurisdiction vested in the AO by the LT. Act and thus bad in law and may very kindly be quashed. - Survey proceedings u/s 133A were conducted on 22.01.2014. ~ The survey party immediately issued two summons both dated 22.01.2014 requiring the assessee's presence at 01:00PM on 22.01.2014 i.e. during the course of survey itself (copy at page 15) and the other for 24.01.2014 at 11:30AM at the AO's office. (copy at page 16). ~ These summons u/s 131 have been issued in a routine manner without application of mind. This fact is supported by the fields in the letter of summons not being scored off and only the fields of date, time and place being filled in. ~ What is seen in practice is, in more or less in every survey, the AO issues summon u/s 131 during the course of survey itself. The purpose of issuing such a notice is that the department can call the assessee after the surve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the assessment order. - So far as the second summons dated 22.01.2014 is concerned requiring compliance on 24.01.2014 at 1l:30AM (copy at page 16), it is submitted that the income tax authorities have no power to issue notice if proceeding is not pending. Thus, the second summons has still no legal sanctity as no proceedings were pending as on 24.01.2014 as there was a concluding statement recorded on 22.01.2014 and the survey proceedings had concluded (copy at pages 25 to 27). So the statement recorded on 24.01.2014 (copy at pages 37 to 39) is invalid as the summons issued on 22.01.2014 to make compliance on 24.01.2014 was itself invalid. - So if these two summons u/s 131 are expunged from the survey proceedings declaring them invalid and in excess of jurisdiction vested upon the AO by the Income Tax Act 1961 what remains is a statement recorded u/s 133A during the course of survey proceedings which has no evidentiary value as has been decided by various appellate authorities. Sole reliance has been placed by the revenue while upholding the addition of ₹ 2.09 crores which has been separately challenged in Ground no. 3(ii) and deliberated the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs u/s 133A exceeded his jurisdiction and the powers vested in him by the Income Tax Act 1961 and thus vitiating the procedure adopted by him. It is therefore prayed that the summons issued u/s 131 being invalid and having no legal sanctity are thus had in law and may very kindly be quashed. In turn the statements recorded on 22.01.2014 and 24.01.2014 have no evidentiary value, rendering the entire assessment proceedings as invalid as the assessment order is based solely on the statements recorded and may very kindly be quashed. Ground no. 2 The second ground of appeal is challenging the order of the Ld. CIT(A) in upholding the AO's action in rejecting the retraction of the statement made by the assessee during the course of survey u/s 133A relying solely on the statement recorded during survey proceedings u/s 133A on 22.01.2014. AND Ground no. 3(i) This ground of appeal is challenging the AO's action in making an addition of ₹ 2,09,44,333/- on account of excess stock being the difference of amount surrendered during the course of survey i.e. ₹ 3,91,60,110/- and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d., a company in which the assessee's son Shri Mahesh Toshniwal the assessee are Directors.( copy at pages 48 to 49) The said fact was also stated in reply to Q.No.3 of the preliminary statement of the assessee placed at page 18 of PB. b) During the course of survey, stock of M/s. Gayatri Processing Industries was separately marked. A separate inventory of the same was prepared. (copy at page 153) This stock was considered in the case of Harish Kumar Toshniwal who is the Proprietor of M/s. Gayatri Processing Industries where separate survey operations were carried out. c) So far as stock of M/s Gayatri Enterprises and M/s. Gayatri Coating Pvt. Ltd. was concerned, the stock was not separately identified and marked. The entire inventory was prepared in the name of M/s. Gayatri Enterprises. Thus, it is submitted that the inventory which was prepared by the survey party included the stock of M/s. Gayatri Coating Pvt. Ltd. to the tune of ₹ 51,15,200/-. This was verifiable from the records of M/s. Gayatri Coating Pvt. Ltd. This stock was purchased by M/s. Gayatri Coating Pvt. Ltd. out of its own funds. The purchases are duly reflected in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and more importantly the hearing impairment. h) The stock of the assessee was valued by the survey team at an exorbitant price. Even some of the defective stock was taken as fresh stock and valued accordingly. i) The assessee sold the stock found during the course of survey to unrelated parties at market rates which were much lower than the rates adopted by the survey party. A list of sale of stock found during survey to different parties is enclosed at pages 64 to 67 and copy of sale bills in support of the same is enclosed at pages 68 to 142. All these transactions were made with unrelated persons and were done through banking channels. The assessee even went on to state to the Ld. AO that these sale transactions could be verified and the assessee was willing to bear the cost. The AO and for that matter the Ld CIT(A) did not make any efforts to controvert the assessee's submission and make independent investigation. j) The assessee even obtained quotations of the sale price from independent parties (copy at pages 143 to 152). The defective items were separately marked and sold. The assessee even asked the AO to independently ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the date of survey, the case of mistaken belief of facts is also made out. r) The assessee in the post survey proceedings within a span of almost three months filed a retraction letter before the AO on 28.04.2014 as to what were the correct facts and filed evidences that supported his claim. Surprisingly the AO was unable to bring any material or evidence to the contrary. He has just relied on the statement made during the course of survey uls 133A which has no evidentiary yalue as discussed in detail in Ground no. 3(ii) and not controverted the assesseee's retraction on facts. Even the Ld. CIT(A) failed to controvert the submission when all documentary evidences were there before him. s) In support of the retraction of statement made uls 133A the assessee wishes to place reliance on some of the following judgments :- 1. Pullangode Rubber Products Co. Ltd. Vis State of Kerala 91 ITR 18 (SC) (copy at pages 06 to 08 of Case Laws PB) An admission in a statement recorded on oath is an extremely important piece of evidence but it cannot be said that it is conclusive and it is always open to the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y was at a higher price and the onus had shifted on the department but the department has failed to controvert the evidences filed by the assessee which means that the assessee was right in his contention so far as revised valuation of stock was concerned and failed to bring any evidence whatsoever to rebut the claim of the assessee. Since the AO and the Ld. CIT( A) have failed to controvert the retraction letter on facts and in view of the judicial pronouncements cited above, it is prayed that the retraction letter being based on facts and valid, the same may very kindly be accepted and the addition of Rs, 2,09,44,333/- may very kindly be deleted. Ground no. 3 (ii) This ground of appeal is challenging the action of Ld. CIT(A) in upholding the action of the AO in making an addition of ₹ 2,09,44,333/- based solely on the statement of the assessee made u/s 133A proceedings having no evidentiary value which is bad in law, unjustified and uncalled for and it is prayed that the said addition may very kindly be deleted. 1. As deliberated in ground no. 1 if the summons issued u/s 131(1) were invalid and in excess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son on oath-Held, admission made U/S 133A has no evidentiary value-Appeal dismissed (copy at pages 36 to 45 of Case Laws PB) 2. DIT Vis Pooranmall Sons 96 ITR 390 (SC) (copy at pages 46 to 59 of Case Laws PB) Confession cannot be made foundation of assessment. 3. CIT Vs. Dhingra Metal Works (Delhi High Court) 328 ITR 384 held that: Income from undisclosed sources-Addition-Addition on the basis of statement recorded during survey-Assessee's statement during the course of survey is not binding as evidence. (copy at pages 60 to 66 of Case Laws PB) 4. Ashok Manilal Thakkar Vis ACIT(ITAT, Ahmadabad) 279 ITR 145 (AT) (copy at pages 67 to 79 of Case Laws PB) Held that the statement of the Assessee recorded U/S 133A(3)(iii) could be said to be useful or relevant to the assessment proceedings only when there was material on record to prove the existence of any of the four activities on the basis of which the disclosure was stated to be made. The statement recorded U/S 133A cannot be given evidentiary value as such evidentiary value was not attached to it by the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s dismissed. 9. Pr CIT-2 Vs Parshwa Enterprises (Gujarat High Court) (copy at pages 112 to 114 of Case Laws PB) In appeal, the CIT(A) deleted the addition primarily on the ground that no addition can be made solely on the basis of a retracted statement made during the survey operation, particularly, when proper justification for retraction was also offered. It is this view, which the Tribunal confirmed in the impugned judgement. We see no error. No question of law arises. Tax appeal is dismissed. So in view of the above judicial pronouncements it is clear that the statement recorded u/s 133A(3)(iii) having no evidentiary value cannot form the basis of rejecting the retraction letter and making an addition of ₹ 2,09,44,333/-. The charge of the Ld. AO that the retraction made was to evade payment of taxes on the surrendered amount is ill founded as the assessee has made only a partial retraction based on proper working of stock valuation and abided by the payment of taxes all throughout the proceedings. So the conduct of the assessee has also to be taken into consideration. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontentions and perused the records placed before us and also gone through various judgments referred and relied by the Ld. Counsel for the assessee. 10. The issues raised in various grounds of appeal arise out of the fact that survey proceedings u/s 133A of the Act was conducted at the assessee s premises on 22.1.2014. Excess cash of ₹ 9,45,500/- and unaccounted stock of ₹ 3,91,61,110/- was allegedly found out of books and the same was surrendered by the assessee through a statement taken by the survey team. Subsequently on 28.4.2014 retraction letter was filed by the assessee revising the value of surrendered stock to ₹ 1,82,15,577/- mentioning that revenue authorities have valued the unaccounted quantity of stock at 30 to 40% higher than the market price, no rebate given for discount and damaged stock and also no deduction was given for the stock of another party namely Gayatri Coating Pvt. Ltd valuing at ₹ 51,15,200/- wrongly included in the physical stock taken by the survey team. During the course of assessment proceedings through written submissions assessee gave necessary details in support of value of surrendered stock mentione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tement cannot, by itself, be made the basis for addition . Similarly in another judgment Hon ble Apex Court in the case of Pullangode Rubber Produce Co. V/s State of Kerala (supra) held that an admission in a statement recorded on oath is an extremely important piece of evidence but it cannot be said that it is conclusive and it is always open to the person who made the addition to show that it is incorrect . Hon ble Apex Court further in the case of Shri Krishan v/s The Kurukshetrea University(supra) held that any admission made in ignorance of legal rights or under duress cannot bind the maker of admission . Explaining further Hon ble court observed that mere admission cannot be bedrock or foundation of an assessment and it is always open to the assessee who made the admission to show that what he admitted was not correct . 14. Co-ordinate Bench in the case of ACIT vs. Sudeep Maheshwari (supra) held that it is also a settled position of law that the addition cannot be sustained merely on the basis of statement. There has to be some material corroborating the contents of the statement . 15. In the light of the above judgments and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (ii) Value assigned to unaccounted quantity is 30 to 40% higher than the market price. (iii) No rebate/deduction for defective stock was given. (iv) Gross profit element has not been reduced to arrive at the cost of the unaccounted stock. 18. It is well established rule of law that if the assessee is found to possess unaccounted stock, then the addition towards the investment in such unaccounted stock needs to be taxed. Investment here means the price paid by the assessee for purchase of such unaccounted stock in other words the cost price. Price fetched by the assessee over and above such cost price could be taxed only when the goods are ultimately sold. Therefore we are of the considered opinion that only the element of price paid by the assessee for the purchase of unaccounted stock comes under tax ambit for unaccounted/ unexplained investment made in excess stock. 19. As far as the assessee s plea that stock of another sister concern M/s. Gyatri Coating Pvt. Ltd has been included in the physical stock found by the survey team, we after going through the statements given during the cours ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re by survey team whereas as per the quotation of M.L. Textiles dated 25.01.2014 the same type of goods are costing at ₹ 8.65 per metre. Similarly for the grey cloth of description 40x60-50x60 46 which is measuring 152622 metres survey team has adopted rate of ₹ 25 per metre whereas as per the quotation of Brahma Shakti Udyog dated 28.01.14 the same item has been offered for sale at ₹ 16.45 per metre. It clearly shows that the price adopted by the survey team are 30 to 40% higher than the cost price as prevailing in the market. 22. In the given facts and circumstances of the case where Ld. Counsel for 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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