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TMI Blog2017 (5) TMI 1783X X X X Extracts X X X X X X X X Extracts X X X X ..... f the retraction made by the assessee and the statement given before the survey team, without any material, the addition made cannot stand the scrutiny of law. CIT(A) rightly took note of the fact that the AO has not pointed out any specific item of stock or entry which is not entered into the books of account. As we noted earlier, the survey team could not point out that there was any excess stock or unrecorded stock found either during survey or during the assessment proceedings. The sole basis of making the addition was based on the statement recorded during survey on 28.03.2011 and 131 statement recorded on 12.04.2011 which cannot be the basis for making the addition when the facts remain that the assessee has retracted the statement. As in the case of Pullangode Rubber Produce Co. Ltd.[ 1971 (9) TMI 64 - SUPREME COURT] held that the assessee should be given opportunity to say that admission is incorrect or does not say the correct state of facts. Since the assessee has produced the books of account as well as the purchase bills which have been verified by the AO, the addition made by the AO has rightly been deleted by the Ld. CIT(A). CIT(A) has also took note of the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - I.T.A. No. 1860/Kol/2014 - - - Dated:- 24-5-2017 - SHRI A. T. VARKEY, JM AND DR. A. L. SAINI, AM For the Appellant : Shri Saurabh Kumar, Addl. CIT, DR For the Respondent : Shri Sunil Sharma, FCA ORDER Per Shri A.T. Varkey, JM This is an appeal filed by the assessee against the order of Ld. CIT(A)-XII, Kolkata dated 11.07.2014 for AY 2011-12. 2. Ground no. 1 is against the action of the Ld. CIT(A) in deleting an addition of Rs.3,33,17,953/- made by the AO on account of undisclosed closing stock. Brief facts of the case as noted by the Ld. CIT(A) is that the assessee company during the relevant assessment year was engaged in the business of sarees. A Survey operation u/s. 133A of the Income-tax Act, 1961 (hereinafter referred to as the Act ) was conducted in the business premises of the assessee on 20.03.2011. When the case of the assessee was scrutinized the AO noted that during the course of survey, an inventory of stock was taken physically by the survey team and valuation of stock was determined at Rs.4,34,99,660/- whereas as per books of account, the value of closing stock was shown at Rs.1.65 cr. The AO noted that the survey team had valued in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computer report (Rs.3480/41 P) Rs.43,50,000/- Defective 200 Pcs @ 1000/- As per Management decision Rs. 2,00,000/- 161 Pcs @ 1500/- As per Management decision Rs. 2,41,500 Rs.47,91,500/- As regards to sarees plain, there were 4299 Pcs of sarees which were considered by the management as defective after taking its physical report out of 24299 Pcs, and shall fetch maximum of Rs.1000/- per piece, hence the valuation of saree (Plain) has been valued as under: Sarees Plain 20000 Pcs @ 370/- As per computer report (Rs.368/57 P) Rs.74,00,000 Defective 4299 Pcs @ 100/- As per Management decision Rs.4,29,900/- Rs.78,29,900/- So the valuation of stock of sarees as on 31.3.2011 stock as under: Sarees Rs.47,91,500/- Sarees Plain Rs.78,29,900/- Rs.1,26,21,400/- Valuation of shares Rs.12,35,5000/- Taking note of the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the survey operation, the survey team confronted the director about the value of the stock shown in the books of account. The survey team has taken note of the fact that the assessee has shown in its books stock valued at Rs.1.65 cr. The survey team valued the stock at Rs.4.30 cr (approx.) as per the statement of the director. We note that the survey team while physically examining the sarees has found out that there were 24534 pieces of sarees. We take note of an important fact that the survey team has not made any reference to the quantity/number of sarees shown by the assessee in its books of account on the date of survey. We note that the survey team all along has only confronted the director of assessee company with the difference in valuation of sarees i.e. the assessee had shown the value of the stock held by it at Rs.1.65 cr. whereas according to the survey team based on the statement of the director the value should have been Rs.4.30 cr. to Rs.4.40 cr (approx.) . So, from the recorded statement of the director which has been verbatim reproduced in the assessment order and reproduced above, we note that the survey team though has referred to the discrepancy in valuatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on estimated by the survey team. We note that other than the statement recorded by the survey team of one of its director there is no other basis for making the addition. The sole basis of the addition is the statement which has been made during the survey which cannot be the basis of making addition. It should be noted that the assessment should be based on papers found and impounded during the course of survey, which can show that there is undisclosed income of the assessee and not on the basis of admission/contention recorded during survey. Taking note of this undesirable practice only that the CBDT has issued circular dated 10.03.2003 wherein the judgment of the Hon ble Madras High Court in the case of CIT Vs. S. Khader Khan Son (2008) 300 ITR 157 (Mad) which was confirmed by the Hon ble Supreme Court in of CIT Vs. S. Khader Khan Son (2013) 352 ITR 480 (SC) has been taken note of and CBDT clarified that in the course of survey, the department should not insist on making any disclosure and further such disclosure made in the course of survey should not be relied on. And the assessment should be based on the papers found and impounded during the course of survey. We note that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 131 of the Act. The Ld. CIT(A) rightly held that the survey team failed to bring any evidence of any concealed income or under valuation of stock and, therefore, in the light of the retraction made by the assessee and the statement given before the survey team, without any material, the addition made cannot stand the scrutiny of law. The Ld. CIT(A) rightly took note of the fact that the AO has not pointed out any specific item of stock or entry which is not entered into the books of account. As we noted earlier, the survey team could not point out that there was any excess stock or unrecorded stock found either during survey or during the assessment proceedings. The sole basis of making the addition was based on the statement recorded during survey on 28.03.2011 and 131 statement recorded on 12.04.2011 which cannot be the basis for making the addition when the facts remain that the assessee has retracted the statement. The Hon ble Supreme Court in the case of Pullangode Rubber Produce Co. Ltd. Vs. State of Kerala Anr. 91 ITR 18 (SC) held that the assessee should be given opportunity to say that admission is incorrect or does not say the correct state of facts. Since the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue is in before us. 7. We have heard rival submissions and gone through facts and circumstances of the case. We note that the AO partly disallowed the discount allowed to Awatram Sons and Pooja Sarees totaling Rs.9,00,019/- on the ground that from the initial reply the AO got from the said parties he could not verify the veracity of the claim made by the assessee. However, when the assessee was confronted with the said fact, the assessee confronted the said parties who after verification of their books handed over the confirmation of the discount given by the assessee which was duly produced by the assessee before the AO. However, the AO did not accept the said confirmation from the parties on the ground that there were difference in the letter heads of both the parties when compared with that of the initial reply given by the said parties to the AO. We note that the AO has not doubted the sales to the said parties. However, he doubted the genuineness of the confirmation given taking note of the different letter heads used by the said parties. When the AO confronted the assessee with the initial reply, the AO got from the said parties u/s. 133(6) of the Act, the assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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