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TMI Blog2024 (7) TMI 896X X X X Extracts X X X X X X X X Extracts X X X X ..... wer authority none of the condition is satisfied and thus same is not evident from the finding of the lower authority. Not only that the bench also observed that when the provision of section 145(3) is to be invoked the assessment is to be completed as per the manner provided in section 144 of the Act and the proper opportunity is required to be given by pointing out the defects in the books of account which we observe that the same is not followed and the order is passed u/s. 143(3) of the Act which is also not correct. We get strength to support our view based on the provision of the Act and decision of Pink City Developers [ 2017 (11) TMI 1082 - RAJASTHAN HIGH COURT] - Thus, we considered ground no. 1 in favour of the assessee. Gross profit added instead of excess stock found - The assessee has in the assessment proceeding placed on record all the possible documentary evidence in support of such claim but all the evidences furnished were brushed aside, without assigning a single reason / discrepancy in the same and that too without following the provision of section 145(3) of the Act. As we have while dealing with the ground no. 1 held that without finding any faults in the book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the hands of the assessee. Based on these observations ground no. 1.1 1.2 are allowed. Bogus expenses declared by the partner of the assessee firm at the time of survey - Cash available with assessee is of its own and though expenses were booked on paper was in fact not booked and thus, the cash of that expenses was very well available and remained with assessee to advance the money to the job worker. Therefore, the contention that the assessee was having the cash balance to the extent of Rs. 10,77,000/- to make the advances so disclosed and the benefit of the telescoping cannot be denied merely on the ground that there is no cash flow statement made available by the assessee. Based on these observations the ground no. 1.3, 1.4, 1.5 1.6 raised by the assessee are allowed. - DR. S. SEETHALAKSHMI, JM SHRI RATHOD KAMLESH JAYANTBHAI For the Appellant : Sh. Tarun Mittal, CA Sh. Harshit Agarwal, CA For the Respondent : Sh. Anoop Singh (Addl. CIT) ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM 1. The present appeal is filed by the assessee aggrieved from the order of the Commissioner of Income Tax (Appeals)-04, Jaipur dated 16/01/2024 [here in after ld. CIT(A)] for assessment year 2016-17 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dition made on notional basis deserves to be deleted. 2. The appellant craves the right to add, delete or amend any of the grounds of appeal either before or at the time of hearing of appeal. 3. Succinctly, the fact as culled out from the records is that the return of income for assessment year 2016-17 was e-filed on 17.10.2016 declaring total income of Rs. 1,68,13,781/-, which was processed u/s 143(1) of the IT Act, 1961. The case was selected for scrutiny under compulsory manual selection. Notice u/s 143(2) of the IT Act, 1961 was issued on 19.09.2017, which was duly served upon the assessee through e-filing website. Subsequently, upon change of incumbent, notices u/s 142(1) of the I.T. Act, 1961 were issued on 13.11.2018 and 09.12.2018 with digital signature requiring certain details / information through electronic mode. In compliance with these notices, the assessee uploaded replies on e-filing portal and submitted required details / explanation / justification which were perused and examined by ld. AO. Books of accounts were produced, which were examined on a test check basis by the ld. AO. The assessee firm engaged in the business of manufacturing of garments and home furnis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ply of the assessee was considered but was not found tenable by the ld. AO. 3.4 As regards other disclosure amount the assessee contended that bogus expenses have been utilized to give advances which was disclosed. Therefore, telescoping benefit was asked in the assessment proceeding. These contentions raised were considered but not tenable as contended by the ld. AO and accordingly, an addition of Rs. 1,36,37,000/- was made as undisclosed income of the assessee. 3.5 The ld. AO also noted that the books of the assessee are not complete and correct and thus he invoked the provision of section 145(3) of the Act and made a lump sum addition of Rs. 2,00,000/- in the income of the assessee. 3.6 Finally, ld. AO completed the assessment vide order dated 28.12.2018 at a total income of Rs. 3,06,44,480/- by making an addition of Rs. 1,36,37,000/- on account of undisclosed income declared less by the assessee and a further addition of Rs. 2,00,000/- on account of trading addition. 4. Aggrieved from the order of the assessment, assessee preferred an appeal before the ld. CIT(A). Based on the grounds so raised by the assessee, the ld. CIT(A) has partly allowed the appeal of the assessee. The r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be deemed to have express any opinion as to whether the peak credit theory is applicable to the fact and circumstances of the case or is not applicable to the facts and circumstances of the case. That question is left to be decided by the Tribunal on the basis of evidence, which may be adduced before them and they shall allow letting in of necessary evidence, if the assessee so desires. The limited question to be considered is whether the assessee is entitled to any benefit on the basis of peak credit theory . As per the above judgement the assessee is also required to adduce the evidence to claim credit of peak credit (similar for telescoping). In this regard, factual finding in the assessment order is as under:- The contention of the AR of the assessee that cash generated out of bogus expenses were utilised to give advances to various persons is not acceptable as it is not ascertained that whether the advances given after booking of bogus expenses. Moreover, the amount of bogus expenses might have been utilised for other purposes. The assessee could not prove the nexus between the amounts of bogus expenses booked and were utilised for the advances given. In such circumstances, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 ITR 18 (SC) and Ester Industries Limited [2009] 316 ITR 260 (Delhi) relied upon by the assessee, even though it may be open to show an earlier statement or an entry to be erroneous, in the present case, the Tribunal was justified in holding that the earlier statement was not proved to be incorrect. As regards the judgment of the Madras High Court in S. Khader Khan Son[2008] 300 ITR 157. we are of the view that even if the statement under section 133A was not at par with the statement under section 132(4) and did not have that evidentiary value, such statement cannot be held to be irrelevant material so as to be ruled out of consideration in totality of facts, particularly in the absence of regular books of account. The Tribunal rightly followed the observations of the Allahabad High Court in Dr. SC. Gupta [2001] 248 ITR 782 and of this court in Surinder Kumar [2006] 282 (TR 78 (P H). Thus, having regard to the facts and circumstances of the case, the view taken by the Tribunal cannot be held to be perverse or illegal. (Emphasis supplied) (In the above case the referred statement is recorded during survey. The above judgement is thus in the context of evidentiary value of statemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und during the survey that this stock has been worked out after verification of the all details and also made a statement that this excess stock has been purchased by the firm out of the unexplained cash and such stock is out of the unexplained cash purchases and duly offered the same for the taxation as additional income. The Id. AO has rejected the books of accounts and made a lumpsum addition of Rs. 2 lakhs also. The Id. AO observed in this regard inter-alia that (a) the assessee has not maintained stock register of its business and also did not maintain day to day quantitative qualitative details of items. (b) valuation of closing stock has been made on estimated basis. (c) In the column No. 35(a) and 35(b) of Audit Report furnished in Form No. 3CD, regarding quantitative details of principal items the Auditor has mentioned remarks that Nil. (d) during the course of survey, excess stock was found and books of account were not found complete on the day of survey. (e) Since maintenance of quantitative and qualitative details of stock is necessary to ascertain the day-to-day activities of the business and to work out the correct trading results also. However, the assessee did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant in the books regarding the unrecorded purchases is not in synchronisation with the clarifications and affirmations made by the appellant (partner of appellant) during the survey. Some of the important statements and affirmations made by the partner are as under:- In none of the statements or the replies given by the partner of the firm in response to various questions including the questions on the issue of stock and purchases and sales and un-entered bills of the same and the physical quantification etc. nowhere there is not even any whisper from the partner that some stock has been received but the bills for the same were not yet received even when he has specifically mentioned in the statement that some of the job work and some miscellaneous petty expenses are remaining to be entered in books. As per the list of the unenetred bills submitted during the appeal it is seen that there are 47 such purchases which are claimed to have been unenetred in the books however the goods for the same were already part of the stock in trade of the Appellant. It is not a small number. Number of documents were impounded during the survey including the purchase and sale related document ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... affidavit or statement supported by convincing evidence. .Such retraction is required to be made as soon as possible or immediately after the statement of the assessee was recorded. Duration of time when such retraction is made assumes significance and in the present case retraction has been made by the assessee after almost eight months to be precise, 237 days. The above judgement is in the context of statement recorded u/s 132(4) / 131 However the part of the judgement providing general law regarding retraction is equally applicable to retraction of statement recorded during survey. In the case of Commissioner of Income-tax v. MAC Public Charitable Trust [2022] 144 taxmann.com 54 (Madras)/[2023] 450 ITR 368 (Madras) [31-10- 2022] it is held inter-alia that 63 Unless the retractions are made within a short span of time, supported by affidavit swearing that the contents are incorrect and it was obtained under force, coercion and by lodging a complaint with higher officials, the same cannot be treated as retracted. This position laid down in catena of decisions by the various High Courts in Lekh Raj Dhunna (supra), Bachittar Singh (supra), Rameshchandra Co. v. CIT [1987] 35 Taxman ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upplied) (In the above case the referred statement is recorded during survey. The above judgemerit is thus in the context of evidentiary value of statement recorded during survey.) In the case of Dr. S.C. Gupta v. Commissioner of Income-tax [2001] 118 Taxman 252 (Allahabad) it is held by Hon'ble Allahabad High Court that 6. As regards the assessee's contention that the statement having been retracted, the Assessing Officer should have independently come to a conclusion that there was additional income as sought to be assessed and that there was no material to support that there was such income, this contention in our view is not correct. As held by the Supreme Court in Pullangode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18 an admission is an extremely important piece of evidence though it is not conclusive. Therefore, a statement made voluntarily by the assessee could form the basis of assessment. The mere fact that the assessee retracted the statement could not make the statement unacceptable. The burden lay on the assessee to establish that the admission made in the statement at the time of survey was wrong and, in fact, there was no additional income. Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the view taken by the learned assessing officer that the so called unenterred purchase bills do not represent the actually unentered purchase bills for which the stock was already received by the appellant. The appellant has not maintained stock register of its business and also did not maintain day to day quantitative qualitative details of items. Valuation of closing stock has been made on estimated basis. In the column No. 35(a) and 35(b) of Audit Report furnished in Form No. 3CD, regarding quantitative details of principal items the Auditor has mentioned remarks that Nil. The appellant can not show that it has deduced its actual profits in the absence of such details. Accordingly, it is not even possible for the learned assessing officer to verify the claim of the appellant that the goods were actually received before the date of survey and the Bills and other documents were received after that date of survey and such goods were not entered in the books. Appellant can't take advantage of the fact that no stock details were maintained. In fact any bills could be submitted by appellant with the claim that material was received earlier. It is a settled law that no one can tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that would have no impact on the gross profit ratio maintained by the appellant and such excess stock naturally would be over and above such gross profit ratio. The excess cash could have been sourced from several other sources which are possible both from disclosed or undisclosed sources of the person or the source from which such cash was sourced and even in such a scenarios the excess stock would be over and above the gross profit ratio. Be that as it may, in the case of Roshan Di Hatti v. Commissioner of Income-tax [1977] 107 ITR 938 (SC)[08-03-1977] it is held by the Hon'ble Supreme Court as under:- Now, the law is well settled that the onus of proving the source of a sum of money found to have been received by an assessee is on him. If he disputes the liability for tax, it is for him to show either that the receipt was not income or that if it was, it was exempt from taxation under the provisions of the Act. In the absence of such proof, the revenue is entitled to treat it as taxable income. This was laid down as far back as 1958 when this court pointed out in A. Govindarajulu Mudaliar v. Commisioner of Income-tax [1958] 34 ITR 807, 810 (SC) that: There is ample authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l on the ground as reproduced hereinabove. To support the various grounds so raised by the ld. AR of the assessee, he has filed the written submissions and the same is reproduced herein below: Brief facts of the case are that assessee is a partnership firm and engaged in the manufacturing of garments and home furnishing items for domestic retail chain companies. Assessee is also engaged in export of the home furnishing items. A survey action u/s 133A was carried out at the business premises of the assessee and other sister concerns on 16.02.2016. During the course of survey, certain loose papers/documents were found and impounded, and the statements of the partner of the assessee firm, Sh. Avnesh Sharma were recorded on oath (APB 32- 67),wherein surrender of Rs. 2,04,37,000/- was obtained from him for the year under appeal on following items, based on incomplete books of accounts: 4. Advances Given to Various persons Rs. 68,00,000/- 5. On account of Excess stock Rs. 1,25,60,000/- 6. On account of bogus expenses Rs. 10,77,000/- Rs. 2,04,37,000/ After completion of survey, assessee completed the books of accounts, duly incorporating all the items noted in loose papers found and impou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of stock physically quantified and valued by the survey team and GP was worked out at Rs. 5,00,52,299.33 as against Rs. 4,47,34,326/- as per Trading account prepared by survey team during the survey and as such assessee computed additional gross profit of Rs. 53,17,973.33 (5,00,52,299.33 - 4,47,34,326) which was actual additional income offered on account of excess stock as admitted during the course of survey by one of the partner of the assessee. Thereafter, by taking the value of stock as quantified and valued by the survey team as the opening stock on the very next day, the closing stock as on the last day of the previous year was computed and in this manner the income of the assessee is increased by the amount of profit of Rs. 53,17,973.33 due to variation in the actual value of stock and as recorded in the books of accounts. Trading Account Pre Post Survey 01.04.2015 To 19.02.2016 Particulars Before Completion of Books After Completion of Books Particulars Before Completion of Books After Completion of Books Opening Stock 2,14,82,640.00 2,14,82,640.00 Sales 23,39,63,879.98 23,58,21,589.98 Purchases 11,75,81,188.50 12,58,21,313.50 Closing Stock 1,70,65,394.00 2,96,24,738.00 Di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f appeal no. 1,4 1.5, assessee has challenged action of ld. CIT(A) in making all the additions primarily due to admission made by assessee during survey and thus not considering the plea of assessee regarding purchases worth Rs. 82,40,125/, being entered in books of accounts after survey. In ground of appeal no.1.6, assessee has challenged action of ld. CIT(A) in computing income of assessee on notional basis, without showing any discrepancy in trading results shown by assessee, though no evidence was found in support of income being earned by assessee actually. As all the grounds of appeal, revolve around admission obtained from the assessee during survey, the same are inter-connected and are being dealt with together for the sake of convenience. At the outset, it is submitted that as is evident from order passed by ld. CIT (A), invocation of provisions of section 145(3) was upheld primarily, because no day to day quantitative stock register was maintained by assessee and stock physically available at the time of survey was found in excess to the stock as per books of accounts. In this regard, it is submitted that the assessee has maintained regular books of accounts on day to day ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that it is the duty of the assessing officer to allow the assessee to complete its books of accounts and thereafter the onus shifted upon the AO to bring on record the errors and omissions in the completed books of accounts before invoking the provisions of section 145(3). Merely stating that the books of accounts were not complete at the time of survey and without pointing out any error in the entries incorporated after the survey, it cannot be said that claim made by the assessee on account of said incorporated entries is wrong merely on assumptions and presumptions as has been held in the present case by the ld. Ao as well as by ld. CIT(A). It is further submitted that as per section 145(3), books of accounts can be rejected only if AO records satisfaction that books of accounts maintained by assessee are either incomplete or incorrect, however in the instant case, ld.AO has failed to point out even a single discrepancy in books of accounts completed after the survey and audited by qualified chartered accountants and produced before him for examination. In this regard reliance is placed on the following: 329 ITR 336 CIT v. Forech India Ltd. (Delhi) Undisclosed stock- B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not challenge the quantity as well as value of stock as computed by survey team. However, assessee during the course of survey proceedings, in response to Question No 32, in clear and unambiguous terms stated that certain bills, vouchers etc. pertaining to the period prior to the date of survey were not received from parties and were yet to be recorded in books though the value to this extent has been applied on the goods physically available and valued by the department. Relevant extracts of the statements so recorded are reproduced herein below: During the course of assessment proceedings, it was submitted before ld. AO that there was raw material available with the assessee which was yet to be recorded in the regular books of accounts as some procedural formalities prior to its inclusion in the books were yet to be completed. Since the books of accounts were not complete in all respect as on the date of survey, the stock as per books of accounts as on the date of survey was Rs. 1,70,65,394/- as against stock physically found at Rs. 2,96,24,738/-. The survey team, after comparing the value of the stock physically verified and value of stock recorded as per its books of accounts, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is not a small number. Number of documents were impounded during the survey including the purchase and sale related documents and bills etc and there is no documents regarding the delivery challan or lorry details or any letter or any other document which could have shown that the goods were actually received by the appellant but the bills were not yet received. The claim of the appellant thus is highly improbable and contradictory to records found during survey. In this regard, so far as observation of ld. CIT(A) that there were 47 purchases, however not a single document was found showing actual delivery of goods prior to the date of survey, though bills thereof were received afterwards, is concerned, it is submitted that firstly, such purchases were made from 15 parties (and not 47), and all of them were regular suppliers of assessee. In fact, the purchases which were entered while completing the books of accounts are majorly from those entities with whom the assessee is dealing regularly and such invoices are issued in regular course. However, no effort was made by ld.CIT(A) to even verify such purchases. At this juncture List of inventory of documents found and seized duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee, was not in synchronization to the books of accounts. In this regard, statements referred by ld.CIT(A) and conclusions drawn are discussed as under: Ld. CIT(A) has concluded that there is no mention regarding stock received but not recorded in books. In this regard, it is submitted that in this question, query was raised if stock of firm was lying somewhere else or stock of assessee is kept somewhere else/sent out of job work. As there was no specific query about stock received but not yet entered in books, no specific reply was given on this aspect. Query was raised that how much stock was available as per books of accounts and it was stated by assessee that stock as per books would be around 1.5 to 1.75 crores and on actual verification also, stock as per books was found at Rs. 1,70,65,394/-, which tallied with such statements. However, ld. CIT(A) has stated that after inclusion of Rs. 82,40,125/- (i.e. purchases not recorded in books on the date of survey), stock value comes to Rs. 2,53,05,519/-, which is materially different from statements, In this regard, it is submitted that query was raised regarding stock as per books and such purchases was not yet recorded in boo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of respective day and can be verified from copy of day books impounded during the course of survey. Alter physical receipt of goods in the shape of bale, the same is got opened and measurement is being done. Thereafter the same is tested to check for quality and when the quality is approved the goods inward memo is prepared. On the basis of such goods inward memo, final entry in the books of accounts is made. A chart of total purchases of Rs. 82,40,125/- is enclosed containing the details like date of bill, name of party, bill no., amount, page number of inventory sheet prepared during the survey and its serial number. In support of the claim, we are also enclosing herewith the copies of all the bills of such purchases, copies of the goods delivery memo issued by the transporter at the time of taking the delivery of goods, copies of measurement sheets, copies of goods inspection reports and final goods inward memo prepared, based on which, final entry of purchases and stock records is made by the assessee. This claim was then made before the ld. CIT(A), who also failed to appreciate the facts and completely ignored the fact that after survey, books of accounts were completed to inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... GP rate of 23.9% by completely ignoring the fact that there is almost 50% rise in turnover and it is not possible for any business to achieve both increase in turnover and a simultaneous jump in profit also. In fact, in normal circumstances, increase in turnover is coupled with decrease in GP rate, whereas assessee has been able to maintain GP rate. It is submitted that Income Tax Act provides two basic mechanisms for computing income, i.e. (i) presumptive taxation, whereby profit is computed by applying a fixed rate to turnover in the event assessee does not maintain proper books of accounts and (ii) profit computed on the basis of regular books of accounts maintained by assessee and duly audited. Whenever, department is not satisfied with the income declared by the assessee on the basis of regular books of accounts, it resorts to make trading addition. However, it is trite law that such addition cannot be arbitrary as has been done by ld.CIT(A) in present case. Ld. CIT(A) has grossly ignored the fact that if actual additional stock as offered by assessee (i.e. Rs. 53,17,973/- is reduced), resultant GP would be Rs. 4,72,93,568/-, giving GP rate of 18.26%, which is in parity with p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfirmation of some of the suppliers duly confirming sale of such goods to assessee and receipt of payments in due course, thus the due credit of such goods should be allowed for working out any excess stock. It was further submitted that as per page No. 18 of the inventory sheets prepared by the survey team which contained the details of goods available in Grey Outside packed and the goods are in Bale , which further proves the contention of the assessee that certain goods were available with the assessee which was in packed form and was not yet opened. Thus, assessee clarified the reason for difference in value of stock found and recorded in books of accounts along with all the possible documentary evidences in support of such submission. On the other hand, explanation so furnished and documentary evidences filed were brushed aside, without assigning a single reason /discrepancy in the same. It was also submitted that certain expenses were also incurred which remained to be recorded in the books of accounts as on the date survey, thus after completion of survey proceedings which continued for almost three days, all such purchase bills and expenses vouchers were recorded in the boo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on oath and the Hon ble Supreme Court time and again affirmed such statements to be of no legal consequence. This hon ble bench in numerous cases has held that no addition could be made on the basis of the admission taken on oath from the assessee in the statements recorded u/s 133A and such orders also get confirmation from the hon ble jurisdictional high court. Few of the decisions are as under: Shri Anu Milk Products (P) Ltd., ITA No. 122/JP/12 upheld by Hon ble High Court in Appeal No. 74/2014 dated 18.09.2017. Maverick Share Brokers (P) Ltd., ITA No. 701/JP/12, upheld by Hon ble High Court in Appeal No. 14/2016. Roshan Lal Lodha, Rajasthan High Court (Appeal No. 185/2014 order dated 03/11/2015) Ratan Textiles (P) Ltd. ITA No.525-528/JP/2016 As a matter of repetition, it is once again reiterated that the ld. AO as well as ld. CIT(A) have failed to rebut the additional income offered by the assessee with any documentary evidence and solely proceeded with the surrender made by the partner in the statements recorded during the course of survey, thus such addition is not tenable. Your goodself would appreciate that section 133A(3)(iii) empowers an IT authority to record the stateme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficials). It is pertinent to note here that sum of Rs. 2,04,37,000/- (additional income admitted) represented receipts as well as payments as appearing in the loose papers which were alleged as not recorded in the books of accounts without full and proper verification and also the value of excess stock. Such admission was made on the dotted lines as was asked to be admitted as additional income over and above the regular income by the survey officials who recorded the statements (APB 32-67). After the survey, upon receipt of the copies of loose papers and documents so impounded, books of accounts were completed and whatever additional income was noticed on completion of books of accounts, same was offered for taxation. However, ld. AO observed that Shri Avnesh Sharma, partner of the assessee firm, in his statements recorded during the course of survey u/s 133A on 18.02.2016 (APB 32-67), has admitted the additional income of Rs. 2,04,37,000/- for the year under appeal and thus made addition of Rs. 1,36,37,000/- holding the same as differential amount and ignored the fact that in addition to Rs. 68.00 lacs offered in the computation of income, assessee further offered a sum of Rs. 53 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Sons Vs. CIT (Ker.) 263 ITR 101 The provision also enables the income-tax authority to impound and retain in his custody for such period as he thinks fit any books of account or other documents inspected by him, provided the authority records his reasons for doing so and also shall not retain the books of account for a period not exceeding 15 days. Section 133A(3)(iii) enables the authority to record the statement of any person which may be useful for, or relevant to, any proceeding under the Act. Section 133A, however, enables the income-tax authority only to record any statement of any person which may be useful, but does not authorize taking any sworn statement. On the other hand, we find that such a power to examine a person on oath is specifically conferred on the authorised officer only under section 132(4) of the Income-tax Act in the course of any search or seizure. Thus, the Income-tax Act, whenever it thought fit and necessary to confer such power to examine a person on oath, the same has been expressly provided whereas section 133A does not empower any Income- tax Officer to examine any person on oath. Thus, in contradistinction to the power under section 133A, secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is a cardinal principle of law that only real income should be taxed and no hypothetical income could be added. In the case of assessee, books of accounts were duly audited by chartered accountant without any adverse remarks and thus did not call for any addition. However, ld .CIT (A) has re computed profit of assessee on his own presumptions without bringing any rebutting documentary evidences, on the basis of assessee has computed excess stock. By doing so, ld. CIT(A) has taxed the income, which was never earned by assessee, solely on the basis of statements of Sh. Avnesh Sharma, which remained uncorroborated. In this regard reliance is placed on the following: Hon ble Supreme Court judgement in the case of CIT vs Godhra Electricity Ltd. has held as under (225 ITR 746) Income Tax is a levy on income. No doubt, the Income Tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of income and its receipt, but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book keeping, an entry is made about a hypothetical income, which does not materialize. With regards to not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertain case laws related to peak working and has thus concluded that assessee could not provide the linking between cash available and advances made. In this regard, it is submitted that peak credit theory is usually applied to compute additional income in the case assessee has borrowed as well as lent money/ made cash deposits as well as withdrawals whereas in the instant case, cash available with assessee is of its own and though expenses were booked, cash to that extent actually remained with assessee. In view of above, it is submitted that assessee has rightly claimed telescoping set off of bogus expenses of Rs. 10,77,000/- towards surrender of Rs. 68,00,000/- made towards advances made and the same deserves to be allowed as such. 6. To support the contention so raised in the written submission reliance was placed on the following evidence / records: S. No. PARTICULARS PAGE NOS. 1. Copy of ITR and computation of income for A.Y.2016-17 1-5 2. Copy of Tax Audit Report for the year ending 31.03.2016 6-20 3. Copy of Balance Sheet and Trading Profit Loss account for the year ended 31.03.2016 along with its schedules 21-31 4. Copy of statements of Shri. Avnesh Sharma , Partner record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said amount was considered by the assessee as part of the closing stock and is part of the books of account of the assessee and therefore, without considering that aspects no additions can be made. 7.2 In the assessment proceeding the assessee submitted as to how they have adhered to the disclosure and the said fact is duly mentioned in the assessment order at page 8. The relevant part of the submission made by the assessee during the assessment proceeding is reproduced here in below for the sake of convenience: Besides this certain expenses were also incurred which remained to be recorded in the books of accounts as on the date survey, thus after completion of survey proceedings which continued for almost three days, all such purchases bills and expenses vouchers were recorded in the books of accounts. A trading account as on the date of survey is prepared where all such claims of purchases and expenses has been made and the value of stock physically inventoried as closing stock is taken as assessee never challenged the quantity and valuation of stock carried out by survey team, which is as under: Trading Account as per books from 01.04.2015 to 19.02.2016 Particulars Amount Partic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gross profit and statement recorded at the time of survey. The relevant observation of the ld. CIT(A) while dealing with the issue is reproduced here in below: As per the submissions of the appellant the gross profit ratio for the year from the beginning of the year till the date of survey is 21.32% and from the date of survey to the end of the year is 11.06%, From the above it is clear that there is abnormally low gross profit shown by the appellant in the period after the survey and this further goes on to show that the trading results shown for the year are not reliable coupled with the fact that excess undisclosed stock and other discrepancies were found during the survey. Also, as noted by the Id. AO, the appellant has not maintained stock register of its business and also did not maintain day to day quantitative qualitative details of items. Valuation of closing stock has been made on estimated basis. In the column No. 35(a) and 35(b) of Audit Report furnished in Form No. 3CD, regarding quantitative details of principal items the Auditor has mentioned remarks that Nil. 8. Though ld. CIT(A) aware of the arguments of the assessee, remained silent on the issue. On being asked a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cate from Auditor is being furnished for the first time, however it is merely clarification by auditor of factual position already available on record and no new fact is being broughton record by way of this application; 8. That, an affidavit in support of the facts mentioned above is being submitted alongwith this application. Therefore, in the background of abovementioned facts, it is submitted that the Certificate furnished herewith as Additional evidence, goes to the root of the main issue involved in the present appeal, therefore, it is prayed that in the interests of justice and proper adjudication of appeal may please be admitted. 9. As the assessee submitted an affidavit of the partner of the firm and thereby also submitted a clarification of CA certifying the fact that the excess stock found during survey dated 16.02.2016 is incorporated in the final accounts. The content of the affidavit given by the partner of the assessee firm reads as under: 10. In support of the affidavit a certificate cum clarification on facts was also placed on record as certified by an independent Chartered Accountant who has signed the tax audit report. The content of the that CA certificate is r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t we represent the firm in the Income Tax assessments also as authorized representative thus have filed the final accounts duly audited by us before the Assessing Authority considering the figures on the date of survey (ie. prior to completion of Books of Accounts) and after incorporating the pending entries (ie. post completion of Books of Accounts) as on 19.02.2016: Stock as per Books of Accounts as on date of Survey 1,70,65,394/- Add: Excess Stock found during the course of survey 1,25,59,344/- Total Value of Closing Stock as on 19.02.2016 2,96,24,738/- Break up of Excess Stock found during the course of Survey 1,25,59,344/- Less: Pertaining to pending entries of Purchases 82,40,125/- Excess Stock offered for Tax 53,17,973/- It is further certified that an amount of Rs. 53,17,973/- has been offered for tax as excess stock found during the course of survey and has been included in the total stock as appearing in the Balance Sheet as on 31.03.2016. This certificate had been issued on the specific request of the client and as per the documents produced before us. 11. The ld. AR of the assessee submitted that all the purchase bills which were submitted are also placed on record alon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for Tax as part of Closing Stock 53,17,973/- [ in support affidavit and CA certificate placed on record] 13. As the above excess stock worked out was stated to be forming part of the closing stock disclosed by the assessee which the lower authority has not decided the issue. Therefore, the additional evidence was required and the same was submitted by the ld. AR by an application dated 30.04.2024 and the matter was kept for hearing on 14.05.2024. The ld. DR was given time to rebut the submission of the assessee. The matter was posted for hearing on 28.05.2024 and ultimately heard on 29.05.2024. The ld. DR did not controvert the content of the CA certificate clarifying the correct position of the stock being inclusive of the excess stock derived in the closing stock. There is is no dispute about the working and the valuation done to arrive at the stock at the time of survey. But after the survey proceeding over, the assessee corrected the records by reconciling the working derived with that of the goods received but remained entered in the purchase records on the date of survey. To support the contention so raised the ld. AR of the assessee filed a list of parties (APB-84-85) for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght. There is no nexus on this aspect provided by the assessee and the arguments are general in nature. While recording the statement in question no. 43 no telescoping was sought. The ld. DR submitted that ld. CIT(A) denied that telescoping benefit as the assessee claimed the same without explaining any cash flow statement and reasons as to why the telescoping benefit be given. 14.1 As regards the addition on account of the excess stock, the value of the stock has been taken in the presence of the assessee. The value of excess stock has been derived after comparing the physical stock with that of the book stock. The books of account were rejected by the ld. CIT(A) based on the reasons that no stock register is maintained, valuation of stock is made on estimated, Tax auditor stated in the report that the assessee did not maintain the quantitative records. As on the date of the survey the books of account were not complete and thus the trading results cannot be verified. The very basis of the disputing the excess stock itself is not believable the ld. AR of the assessee contended that the bills of purchases not accounted and that too for an amount of Rs. 82,40,125/- is not correct. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l the items noted in loose papers found and impounded. While doing so it was noted that purchases worth Rs. 82,40,125/-, which though were physically available at assessee s premises, but bills were not entered in the books of account. As the books of accounts were incomplete on the date of survey, the same were completed later and got them audited. While filling the return of income as per provision of section 139(1) of the Act, the assessee has included income of Rs. 68,00,000/- disclosed as advance given to various persons. In the return of income so filed the assessee telescoped the disclosed bogus expenses of Rs. 10,77,000/- as source of given the advances given to various persons. The case of the assessee was selected for manual scrutiny. Notices were issued to the assessee and the same were replied by the assessee. The ld. AO noted that the assessee submitted details / explanation / justification which were perused and examined along with the books of accounts and consequently the assessment was completed u/s. 143(3) of the Act on 28.12.2018. While completing the assessment the ld. AO made addition on three aspects. First Rs. 10,77,000/- disclosure of unexplained expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d no quantitative records maintained. As regards the valuation of stock we note from the column 14(a) of the tax audit report the auditor has mentioned the method of valuation as cost or market price whichever is lower. The stock found and computed is not disputed by the revenue and the assessee as the same is based on the regular method of accounting followed and therefore, there cannot be any reasons to reject the books of account. As regards the quantitative records not maintained on day-to-day basis, we note that since the survey was conducted on 16.02.2016 and the stock calculated physically is not disputed the reasons advanced for non- maintenance of stock records should not be a reason or basis of rejection of the book results which are otherwise verified, and no defects were found by the ld. AO and ld. CIT(A) confirmed the view of the ld. AO. Thus, as the provision of section 145(3) is invoked, it would be better go through the provision that section and the same reads as under : Method of accounting. 145. (1) Income chargeable under the head Profits and gains of business or profession or Income from other sources shall, subject to the provisions of sub-section (2), be comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction (2), have not been regularly followed by the assessee, the Assessing Officer may make an assessment in the manner provided in section 144. 8. Taking into considerations, the overall facts and circumstances of the case, we are of the opinion that the Tribunal while confirming the order passed by the Commissioner of Income-tax (Appeals) has not committed any error, therefore, the issue is answered in favour of the assessee and against the Department. Based on the discussion so recorded we considered ground no. 1 in favour of the assessee. 20. Ground no. 1 1.1 relates to the gross profit added instead of excess stock found of Rs. 1,25,60,000/- [ Actual excess stock works out to Rs. 1,25,59,344/- ] and added by the ld. AO. The brief facts as emerges related to the addition is that survey u/s. 133A of the Act was conducted on 16.02.2016 at the business premises of the assessee. The survey team worked out the inventory of the goods found at the business premises at Rs. 2,96,24,738/-. That working of the stock was confronted to the assessee vide question no. 33 of the statement recorded at the time of survey and partner of the firm confirmed that working done by the survey team. Bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee offered in the closing stock. The ld. AO did not consider this explanation of the assessee and made the addition of Rs. 1,25,60,000/-. When the matter was challenged before the ld. CIT(A), the ld. CIT(A) sustained the addition of Rs. 89,94,655/- holding that: Considering the totality of facts, trading results shown for the year are not reliable and are rejected. The decision of the ld. AO in the assessment order regarding rejecting the books of accounts is hereby upheld. The income is to be assessed considering the gross profit ratio of 18.94% (excluding excess stock i.e. the stock will be over and above this G.P.) which is exactly similar as immediately preceding year and also take care for the some expenses left over and not entered in the books of accounts on date of survey. This gives the meaning that had the survey not taken place on 19.02.2016 (which is just 1 month and little over 1 week prior than the end of year) the appellant would have shown a gross profit at the rate of 18.94% (excluding excess stock) considering the best of probabilities and considering judicial pronouncements about using the preceding year G.P. ratio when the books in the current year are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upplier, bill number and supporting evidence attached to the bills. All this evidence corroborates with the accounting records wherein the name of the suppliers is repeated. The ld. AO as well as the ld. CIT(A) does not feel it to be tested or verified by using the power vested u/s. 133(6) of the Act. The details submitted to ld. AO as well as to the ld. CIT(A) has not been controverted. The books of account produced were not found to be faulty on any of the entries or bills as referred by the assessee. The version of the assessee that bills remained to be accounted get strength from the page 18 of the inventory prepared wherein that inventory sheet prepared by the survey team itself shows written as Grey Outside packed and the goods are in Bale , this aspect further proves the contention of the assessee that certain goods were available with the assessee which was in packed form and was not yet opened. Thus, this version of the assessee get support for the alleged difference in value of stock found and remained to be recorded in books of accounts. The assessee has in the assessment proceeding placed on record all the possible documentary evidence in support of such claim but all t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llate Tribunal) Amandment Rules, 1973] - The parties to the appeal shall not be entitled to produce additional evidence either oral or documentary before the Tribunal, but if the Tribunal requires any document to be produced or any witness to be examined or any affidavit to be filed to enable it to pass orders or for any other substantial cause, or , if the income-tax authorities have decided the case without giving sufficient opportunity to the assessee to adduce evidence either on points specified by them or not specified by them, the Tribunal, for reasons to be recorded, may allow such document to be produced or witness to be examined or affidavit to be filed or may allow such evidence to be adduced.] 20.6 As the assessee has already raised the contention that they have disclosed the amount of Rs. 53,17,973/- in the closing stock at the time of survey and this contention were not examined by the lower authority. The bench directed to ld. AR of the assessee to justify the claim and for that the partner of the firm filed an affidavit and the CA certificate to support the contention raised by the assessee. Considering that additional evidence were called for by the to enable to pas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o pages are self-made vouchers of wages dated 31.12.2015 and 04.02.2016 of Rs. 4,97,000/- and Rs. 5,80,000/- respectively. Similarly, page no. 4 of Annexure AS-9 and the back side of that page, certain advances were found noted. Based on that evidence the assessee disclosed Rs. 68,00,000/- as advances given to job worker. The assessee contended that both the vouchers for bogus expenses and payments as advances made were found in loose papers and were treated as unexplained and cumulative figure was taken as additional undisclosed income of the assessee. The assessee contended that such cash was available on account of bogus expenses as recorded in books, ultimately formed source in cash for making the advance. The ld. AO as well as of the ld. CIT(A) not allowed the benefit of telescoping solely by alleging that assessee has failed to establish the nexus between cash advances and bogus expenses. As argued that so far as expenses were treated as bogus, i.e. not incurred, cash to that extent was available with assessee throughout the period. Moreover, no instance whatsoever has been brought on record for any such utilization of cash so generated elsewhere nor any material was found du ..... X X X X Extracts X X X X X X X X Extracts X X X X
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