SHRI SHRIRAM TOSHNIWAL,BURHANPUR vs. ACIT, KHANDWA

PER MANISH BORAD, AM.

The above captioned appeal is filed at the instance of assessee

pertaining to Assessment Year 2014-15 and is directed against the orders

of Ld. Commissioner of Income Tax (Appeals)-II (in short ‘Ld.CIT(A)’],

Indore dated 17.10.2018 which is arising out of the order u/s 143(3) of

the Income Tax Act 1961(In short the ‘Act’) dated 25.11.2016 framed by

ACIT-Khandwa.

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(i) on account of excess stock being the difference of amount surrendered during the course of survey and the amount offered in the return of income filed;

(ii) based solely on the statement of the assessee made uls 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.

Shriram Toshiniwal ITA No.02/Ind/2019 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

Rs.9,45,500/- and excess stock of Rs.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 Rs.1,82,15,777/- instead of

Rs.3,91,60,110/-. A return was filed on 28.9.2014 declaring a total

income of Rs.1,95,58,830/-. The assessment was completed u/s 143(3)

of the Act at a total income of Rs.4,07,27,240/- after making following

additions;

Returned Income 1,95,58,830 Add: 1. Difference of amount surrendered in survey 2,09,44,333 2. Disallowance u/s 14A 1,24,074 3. Total income assessed 4,07,27,237 4. Rounded off Rs.4,07,27,240 Aggrieved assessee preferred appeal before Ld. CIT(A) and partly

succeeded.

Shriram Toshiniwal ITA No.02/Ind/2019 5. Ld. Counsel for the assessee referring to the detailed written

submission challenged the validity of summons issued u/s 131 of the

Act dated 22.1.2014 submitted that the survey proceedings should be

declared invalid and in absence of jurisdiction as there was no

compelling circumstances to issue the notice on the very same day

when survey proceedings u/s 133A of the Act were going on. It was

also submitted that both the lower authorities erred in not accepting the retraction statement dated 28.4.2014 filed by the assessee even

when proper corroboration of the material found during the course of

survey was made by the assessee with the revised amount of

surrendered income towards excess stock of grey cloth.

appreciate that the actual amount to be surrendered was Rs.1,82,15,777/- and not Rs, 3,96,01,100/- which inadvertently

made by the assessee during the survey proceedings under stress.

synopsis extracted below, it was contended that it is well established

that the additions during the survey proceedings u/s 133A of the Act

cannot be made solely on the basis of statement taken during survey 4

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and revenue authorities should corroborate the material available on

record with the amount mentioned in the statement and to the extent

nexus is established, the addition should be made. Written

submission given by Ld. Counsel for the assessee reads as follows;

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 survey is over but they cannot call the assessee because no proceeding remains pending after the survey is concluded and hence as a mere practice, summon u/s 131 is issued during the course of survey. In the instant case also the AO slapped

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notices u/s 131 merely to give legal sanctity to the statement recorded during the course of survey proceedings.

~ Summons u/s 131 is a very important notice and the Income Tax authorities are expected to be well aware of its scope, power, misuse and consequences. The Income Tax authority may use this section as a weapon in their hands which is not permissible because various courts have also imposed certain limitations on it.

~ There are number of court decisions which say that notice U/S 131 during the course of survey should not be issued by the Income Tax authority unless the assessee does not cooperate with the survey team.

~ So, whether the AO was justified in issuing notices U/S 131 during the survey proceedings itself? Are such summons issued u/s 131 during the course of survey proceedings valid and carry a legal sanctity?

~ Summon u/s 131(1) cannot be issued during course of survey u/s 133A barring survey U//S 133A(6) and only when the circumstances are compelling. If the assessee during course of survey has not cooperated with the survey team, notice U/S 131(1) can be issued, but if the assessee has afforded all the facilities to the survey party for conducting survey and also for recording of statement, no notice u/s 131 can be issued.

- In the instant case, the assessee had afforded all possible cooperation during the survey proceedings u/s 133A right from verification of cash and stock to recording of statement. There is no shred of evidence to suggest that the assessee did not cooperate in the survey proceedings u/s 133A. Even there came no need to impound the books of accounts and therefore provisions of section 133A(6) were not applicable in this case. So the question of issuing summons u/s 131 never arose and the summons thus issued on 22.01.2014 requiring compliance on 22.01.2014 itself at 01:00PM loses its legal validity, is 6

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in excess of the jurisdiction and powers vested and in consequence the statement purported to be recorded of the assessee loses its validity and cannot form the basis of addition made 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 Rs. 2.09 crores which has been separately challenged in Ground no. 3(ii) and deliberated there.

- - The contentions of the assessee finds support from the following case laws :-

1.Gheru Lal Bal Chand v. ITO (P & H High Court )[1982] 137 ITR 190 (copy at pages 01 to 03 of Case Laws PB)

"The ITO can, however, resort to powers under Sub-sections (1) and (2) of Section 131 of the Act, in case the assessee refuses or evades to co-operate in terms of Sub-section (6) of Section 133A. It is undisputed that the petitioner neither refused nor evaded to co-operate on 11th April, 1978. Under these circumstances, the ITO had no jurisdiction to resort to the powers under Sub- 7

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sections (1) and (2) of Section 131 of the Act while surveying the accounts of the petitioner under Section 133A on 11th April, 1978. It is obvious that the ITO issued notices (annexs. P-1 to P- 4) under Section 131 of the Act to the petitioner in excess of the jurisdiction vested in him. These notices are, consequently, liable to be quashed."

2.The Hon'ble Calcutta High Court in the case of Dr. Vijay Pahwa v. Samir Mukhopadhyay, Deputy CIT [2001] 250 ITR 354 considered the case where the survey was conducted on April 17, 1995, the summons under Section 131 (1) were served upon him on the spot and the same were executed within thirty minutes or so. The books and other documents, when produced before the authority in the Income Tax office, were impounded immediately. (copy at pages 04 to 05 of Case Laws PB)

"Therefore, we hold that Revenue has no jurisdiction to resort the powers under subsection (1) & (2) of Section 131 of the Act while surveying the accounts of assessee u/s. 133A of the Act. It is because, in the instant case the assessee neither refused nor evaded with the competent authority. In this regard, we find support and guidance from the Hon 'ble jurisdictional High Court in the case of Dr. Vijay Pahwa vs. DCIT reported in 250 ITR 354."

- The Ld. CIT(A) in his order has dismissed this ground of appeal stating it as consequential in nature.

- The elaborate submission made above and the judicial pronouncements vindicate the assessee's stand that the AD was not empowered to issue summons and by issuing summons u/s 131 during the survey proceedings u/s 133A exceeded his jurisdiction and the powers vested in 8

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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 Rs. 2,09,44,333/- on account of excess stock being the difference of amount surrendered during the course of survey i.e. Rs. 3,91,60,110/- and the amount offered in the return of income filed i.e. Rs. 1,82,15,777/-.

Since both these grounds are inter related, the same are dealt with together for the sake of brevity.

In addition to the facts enumerated in ground no. 1, it is further stated that:

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inability to explain the difference of cash and stock found at that point of time. (Ref page 26-27) Still without taking cognizance of the assessee's inability to explain the difference on account of stock found a separate declaration was taken on the letter head of Gayatri Enterprise on 22.01.2014 itself where the assessee allegedly surrendered Rs. 3,91,60,110/- on account of excess stock. (copy at pages 32 to 33) 2. It was under a state of acute pressure, to avoid any litigation and a desire that the survey action be completed at the earliest the assessee was left with no choice but to co-operate with the department and make a surrender of Rs. 3,91,60,110/- by accepting the valuations of the stock as made by the survey party. 3. After the completion of survey proceedings the assessee came to know of the discrepancies in the stock valued by the survey party when he actually sold the stock in the market and came to know of the actual valuation of stock. 4. After the survey proceedings the assessee filed a retraction letter with the ITO, Burhanpur on 28.04.2014.(copy at pages 46 to 53) The basis of retraction was two fold i) Stock of sister concern Gayatri Coating Pvt. Ltd was lying in the same premises and ii) valuation of stock of the assessee appellant was made at an exorbitant price. 5. As per this letter the assessee revised the surrender made on account of excess stock to Rs. 1,82,15,777/- instead of Rs. 3,91,60,110/- made earlier at the time of survey u/s 133A.

a) Three enterprises are run from the same premises i.e. Udhyog Nagar, Burhanpur viz

i. M/s. Gayatri Enterprises (The assessee is Proprietor)

ii. M/s. Gayatri Processing Industries (Proprietor Harish Kumar 10

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Toshniwal (assessee's son)

iii. M/s Gayatri Coating P. Ltd., 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 Rs. 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 books of M/s. Gayatri Coating Pvt. Ltd. The assessee even stated that these purchases could be duly verified by the department at the assessee's cost from various suppliers. d) It would be illogical if the stand of the survey party is accepted that the stock of M/s. Gayatri Coating Pvt. Ltd. at the time of survey was NIL because even on 31.03.2013 as per the audited accounts the stock of Gayatri Coating as per audited accounts as on 31.03.2013 (Rs. 46,67,240/- (refer retraction letter, relevant page at 49 of PB) is reasonable and coming out of records as on 22.01.2014 it stood at Rs. 51,15,200/- and was in parity. Detail of stock of Gayatri Coating Pvt. 11

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Ltd. showing valuation along with supporting is enclosed at pages 57 to 63. A copy of trading account as on 22.01.2014 of Gayatri Coating and an affidavit of the Director of Gayatri Coating Pvt. Ltd. are enclosed at pages 56 and 54-55 respectively. The same was not rebutted by the AO and the Ld CIT(A).

e) The AO and the Ld CIT(A) have relied on the reply give by the assessee to Q. no, 15 (copy at page 21) where the assessee under a bona fide belief had stated that the stock of any other person or organization was not kept in this premises. The assessee at that moment thought that the question was for outsiders or non related parties. In fact stock of all three concerns viz. M/s Gayatri Enterprises (Assessee's Proprietorship) M/s Gayatri Processing Industries (Assessee's son's Proprietary concern) and Gayatri Coating Pvt. Ltd. was lying in the same premises. So mistakenly he did not name the other two concerns whose stock was also lying there.

f) The survey party prepared a separate inventory of Gayatri Processing Industries which is on record of the department and considered in the hands of Shri Harish Toshniwal Proprietor of Gayatri Processing Industries. This proves that its stock also lay there but the assessee in his reply to Q. No. 15 had not mentioned M/s Gayatri Processing Industries.

g) On the same premise, the assessee did not consider Gayatri Coating Pvt. Ltd. as an outside entity and hence did not name it also in the reply to the query whereas its stock was also lying there. This confusion happened due to acute mental pressure/stress which the assessee was undergoing during survey 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 12

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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 verify it at his cost. (copy at page 51) k) Entries of all the defective items was separately marked as damaged in Annexure B, A separate list for the sale of defective items was also prepared and is also enclosed at pages 64 to 67. All the defective items were sold to unrelated parties and through banking channels. The assessee even asked the Ld. AO to verify all these transactions from the respective parties and the assessee was willing to bear the cost.

1) The total sale of the stock belonging to Gayatri Enterprises came to Rs. 2,03,85,207/-. A gross profit rate of 6 was applied on this sale which was the rate applied by the survey party. After deducting the stock as per books of Rs.I0,15,550/- the amount comes to Rs. 1,82,15,577/- which was the revised surrendered amount. A chart showing the same calculation is enclosed at page 52 of PB). This amount was duly returned

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in the income tax return and tax was duly paid.

m) The AO while dealing in the assessment order in response to the retraction letter filed by the assessee has simply brushed aside the retraction letter by stating it merely as baseless, an afterthought and a cooked up story to avoid the payment of tax on the amount surrendered during the course of survey. (Refer page 8 of Assessment order) n) The AO has chosen to place total reliance on the statement recorded during the course of survey totally denying the assessee his right to retract from his statement made under pressure during the course of survey. More importantly the retraction was backed by documentary evidence which the AO & the Ld CII(A) both failed to controvert.

0) The moot point arises again is whether the assessee was right in retracting from the statement made by him during the course of survey proceedings u/s 133A?

p) It is an established position of Law that if a disclosure is made by the assessee either under mistaken belief of facts and law due to mental pressure from the survey party or under coercion can retract the statement and the admission so made.

q) In the present case when the assessee has furnished all the supporting documents leading to the correct valuation of stock in the post survey proceedings and scrutiny assessment proceedings which was valued at a higher price by the survey party on 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 14

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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 :-

t) Even the Ld. CIT(A) has dismissed this ground of the assessee stating it as consequential in nature. u) It is reiterated that elaborate submissions were filed before the Ld. AO via the retraction letter on 28.04.2014. The assessee submitted evidence in support of his retraction apropos sale of stock found during the course of survey and also sale of defective/damaged stock with supporting. The assessee even asked the Ld. AO to verify the sale, the rates at which the sale was made as well as the quotations of rates submitted before him. The retraction letter was filed on 28.04.2014 and the assessment order was passed by the Ld. AO on 25.11.2016. So after the filing of retraction letter

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and all throughout the assessment proceedings till the passing of assessment order on 25.11.2016, the Ld AO had ample time almost 26 months to refute the claim made by the assessee but there was failure on his part to rebut the assessee's claims factually. Instead the Ld AO harped only on the statement of the assessee recorded during the course of survey proceedings and brushed aside the retraction letter stating it to be an afterthought, cooked up story and only to avoid payment of tax on the surrendered amount and went on to add the difference between the amount surrendered i.e. Rs 4,01,05,610/- and that filed in the return of income i.e. Rs. 1,91,61,277/- amounting to Rs. 2,09,44,333/-.

v) The findings of the Ld CIT(A) are on page 38-39 of the appellate order. The Ld. CIT(A) has overlooked the submission and the evidences filed by the assessee. The Ld. CIT(A) having coterminous powers failed to controvert the documents and merely relied on the statement u/s 133A. w) The assessee with the help of documents successfully proved that the valuation done by the survey party 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 Rs. 2,09,44,333/- based solely on the 16

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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.

(iii) record the statement of any person which may be useful for, or relevant to, any proceeding under this Act

4.Now the section itself makes it amply clear that the Income Tax Authority 'may' record a statement which may be useful for or relevant to any survey proceedings. There is no ambiguity in law that the AO has no power to record any statement on oath u/s 133A(3)(iii) as contrary to power envisaged u/s 132(4) which gives a power to the AO to examine any person on oath during search and seizure operations and record any statement which can be used as an evidence in search and seizure proceedings. 5. Your Honour's kind attention is also drawn to Board Circular F. No.

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286/2/2003/IT (Inv) dated 10.03.2003 which is further reiterated by CBDT Instruction F. No. 286/98/2013-IT (Inv.II) dated 18.l2.2014. (copy at pages 154 to 155). The Board directed that the assessment should be made on the basis of evidence/material collected in the course of survey operation or thereafter while framing the relevant assessment order. Tacitly, the Board also agreed that no addition should be made simply on the basis of statement recorded during the course of survey. 6. Further, the legal position as to the evidentiary value of statement recorded u/s 133A(3)(iii) is also clear. Strong reliance is placed on the following decisions':

"Survey-Powers of ITO U/S 133A-Examination of person on oath-Held, admission made U/S 133A has no evidentiary value-Appeal dismissed”

(copy at pages 36 to 45 of Case Laws PB)

DIT Vis Pooranmall & Sons 96 ITR 390 (SC) (copy at pages 46 to 59 of Case 2. Laws PB)

Confession cannot be made foundation of assessment.

"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)

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

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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 provisions of section 133A. Thus, it could not be said solely on the basis of the statement given by the Assessee that the disclosed income was assessable as lawful income of the Assessee.

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. Thus, it is trite law that Section 133A does not empower any Income tax authority to examine any person on oath and then use it as evidence to make addition. In such a situation, no addition can be made or sustained only on the basis of the statement recorded during the survey Vis 133A of the Act. Once the assessee has retracted from the statement then it was on the A.O. to establish beyond any doubt the issues on which the addition has been made. Considering all these aspects, we find no merit in sustaining the addition only based on the statement recorded during the course of survey. Hence grounds No. 1 to 5 of the appeal are allowed.

"It is also a settled position of law that the addition cannot be sustained merely on the basis of the statement. There has to be some material corroborating the contents of the statement. "

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Additions which were solely made on the basis of the statement recorded during the course of survey were deleted.

"We put a specific query to the learned departmental representative to place on record any evidence or material other than statements of assessee's partners supportive of the impugned addition. He replied in negative. We are of the opinion in these peculiar facts and circumstances that the impugned addition based on mere survey statement is not sustainable. A catena of case law as discussed hereinabove supports the same view. The Revenue fails to point out any distinction on facts or law therein. We affirms CIT(A) 's findings under challenge accordingly. 5. This Revenue's appeal is dismissed. "

"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 Rs.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

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taken into consideration.

The Ld CIT(A) has dismissed this plea of the assessee stating it be consequential. In view of the detailed submission and the various judicial pronouncements, CBDT Instructions, it is most humbly prayed that the addition of Rs, 2,09,44,333/- made on account of difference of amount surrendered on account of valuation of stock solely based on the statement recorded during the course of survey on 22.01.2014 which has no evidentiary value may very kindly be deleted.

Cases Relied:

Court) (1973) 91 ITR 18. 4. Shri Krishan Vs. The Kurukshetra University (Hon'ble Supreme Court) (1976)

1976 AIR 376 5. Kalpana Biri Mfg. Co. Pvt. Ltd Vs. ACIT (Kolkatta Tribunal) (2017) Income-tax Act,

1961,/1020/KOL/2014 6. CIT Vs. CIT Vs. Khader Khan ( Madras HC) (2007) 352 ITR 0480 7. CIT Vs. CIT Vs. Khader Khan (SC) (2012) 352 ITR 0480 8. DIT (Investment) & Anr. Vs. Pooran Mal & Sons & Anr (Hon'ble Supreme Court)

(1974) 96 ITR 0390 9. CIT Vs. Dhingra Metal works (Delhi HC) (2010) 328 ITR 384 10. Ashok Manilal Thakkar Vs. ACIT (Ahmedabad Tribunal) (2005) 279 ITR 143

Shriram Toshiniwal ITA No.02/Ind/2019 11. ACIT Vs. Sudeep Maheshwari (Indore Tribunal) (2019) Income-tax Act, 1961,/524/Ind/2013 12. Shri Ashok Vani Vs. ITO (Indore Tribunal)(2018) Income-tax Act, 1961,/303/Ind/2017 13. ACIT Vs. Parshwa Enterprises (Ahmedabad Tribunal) (2016) Income-tax Act, 1961,/1663/Ahd/2011 14. Pr. CIT Vs. Parshwa Enterprises (Gujarat HC) (2017) Appeal No.372 of 2017 15. Satish Chand Agrawal Vs. ITO (Jaipur Tribunal) (2018) 64 ITR 0713

supporting the orders of lower authorities and submitted that the

assessee has himself offered the undisclosed income in the survey

proceedings and revised surrendered amount is merely an after

thought cooked story and therefore the findings of Ld. CIT(A) should

be confirmed. 9. We have heard rival contentions 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 Rs.9,45,500/- and

Shriram Toshiniwal ITA No.02/Ind/2019 unaccounted stock of Rs.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 Rs.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

Rs.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 mentioned in the retraction statement

dated 28.4.14 valuing at Rs.1,82,15,577/-, however Ld. A.O was not

convinced and just took the basis of the statement given during the

course of survey proceedings and adopted the value of excess stock at

Rs.3,91,60,100/- thereby making the addition for the difference of Rs.

2,09,44,333/-. Against this addition Ld. CIT(A) gave a part relief by

directing the Ld. A.O to reduce the value of unaccounted stock by 5%

towards defective stock. Assessee is now in appeal before us raising 23

Shriram Toshiniwal ITA No.02/Ind/2019 various issues through Ground No. 1 to 5. 11. Apropos Ground No.1 validity of the survey proceedings have been challenged by pleading that during the course of survey proceedings itself without there being any compelling circumstantial evidence revenue has issued summon u/s 131(1) of the Act even when the assessee cooperated with the survey team. We however are of the considered view that Ground No.1 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. Therefore Ground No.1 of the assessee’s appeal is dismissed.

Shriram Toshiniwal ITA No.02/Ind/2019 assessee with the help of necessary documents prepared the basis of

value of investment in unaccounted stock at Rs. 1,82,15,777/-

thereby reducing the surrendered income of unaccounted stock by

Rs.2,09,44,333/-. Now before us the issue is that whether both the

lower authorities were justified in rejecting the retraction statement

filed on 28.4.14. 13. Hon’ble Apex Court in the case of CIT V/s Khader Khan Son

(supra) has laid down the ratio that “the statements given during the

course of survey u/s 133A of the Act have no evidentiary value and

any admission made during such statement 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 25

Shriram Toshiniwal ITA No.02/Ind/2019 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 decisions as well as on examining all the facts of the instant appeal, we find 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 26

Shriram Toshiniwal ITA No.02/Ind/2019 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 and hold that the revenue authorities should have not rejected the retraction statement filed by the assessee on 28.4.2014. 16. Apropos Ground No.3 raised on merits of the case, the assessee has pleaded that Ld. CIT(A) erred in upholding the action of the Ld. A.O of making the addition of Rs.2,09,44,333/- except for giving minor relief of 5% for the defective stock. 17. We observe that the assessee is in the business of purchase and sale of grey cloth and manufacturing of printed fabrics. Survey u/s 133A of the Act was conducted on 28.3.2014. Unaccounted stock of grey clothes was recorded by the survey team as per the details at page 29,30,31 of the paper book dated 11.3.2019. Value was assigned to the type the grey cloth found unaccounted in physical form and the same was valued at Rs.3,91,61,110/-. Assessee also signed the inventory valuation sheet. Thereafter on 28.4.14 assessee filed a retraction statement revising the surrendered amount at Rs. 1,82,15,577/-. Following reasons were given for the revised value of surrendered amount of stock. 27

Shriram Toshiniwal ITA No.02/Ind/2019 (i) Quantity of stock belonging to Gayatri Coating Pvt. Ltd valuing at Rs.51,15,200/- was wrongly included in the unaccounted stock valued by the survey team. (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.

Shriram Toshiniwal ITA No.02/Ind/2019 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 course of survey affirm the assessee’s plea and hold that the stock of Rs.51,15,200/- belonging to M/s. Gayatri Coating Pvt. Ltd have been wrongly included in the alleged unaccounted stock of Rs.3,91,60,110/- and the assessee deserves to the deduction of Rs.51,15,200/-. Further in the support of the revised value of stock following statement have been filed in which assessee has adopted the sale proceed figure of the stock (including excess stock) sold after the survey date and made necessary deductions to arrive at the cost price of the unaccounted stock:-

Sale proceeds of stock found during survey 2,03,85,207 Less: Gross Profit @6% (20385207 x 6/106) (11,53,880) Cost of stock found during survey 1,92,31,327 Less: Stock of cloth as per books (10,15,550) Revised surrendered amount of stock 1,82,15,777 20. The value of sale proceeds of the stock lying with the assessee as on the date of survey i.e. amount of unaccounted stock is duly supported by the invoices placed on record and the particulars of grey cloth mentioned therein are the same which are appearing in the inventory sheet made during the course of survey. Deduction of gross 29

Shriram Toshiniwal ITA No.02/Ind/2019 profit of 6% is also rightly claimed as the assessee shows same gross

profit consistently. Thereafter there is a deduction of stock of cloth as

per books which is not disputed and the remaining amount which the

value of surrendered stock i.e Rs.1,82,15,577/-. Sales realisation of

the stock has already taken care of the reduced rates for sale of

defective stock (if any) made by the assessee. Revenue authorities

have not pointed out any mistake or error in the above mentioned computation. 21. We have also gone through the quotation of the purchases of the

grey clothes placed by the assessee at page 143 to 152 of the paper

book and observe that the price assigned by the survey team is much

higher to the actual cost price. For instance the grey cloth of the type

40x40 – 26 x 24 – 45” of the quantity of 1122858 metres has been

valued at Rs. 15 per metre by survey team whereas as per the

quotation of M.L. Textiles dated 25.01.2014 the same type of goods

are costing at Rs. 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 Rs.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 Rs.16.45 per metre. It clearly shows that the 30

Shriram Toshiniwal ITA No.02/Ind/2019 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 assessee has rightly valued the unaccounted stock at Rs.1,82,15,777/- which has been offered to tax and Ld. A.O erred in making the addition for Rs. 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 No.3 of the instant appeal. 23. Apropos Ground No.4 challenging the part relief given by Ld. CIT(A) for defective stock at 5%, in our view needs no adjudication as the same becomes merely academic in nature because we have 31

Shriram Toshiniwal ITA No.02/Ind/2019 already deleted the addition of Rs.2,09,44,333/- and thus Ground No.4 of the assessee is dismissed as infructuous. 24. Ground No.5 of the assessee is general in nature which needs no adjudication. 25. In the result appeal the assessee is partly allowed.

The order pronounced in the open Court on 11.04.2019.

Sd/- Sd/-

( KUL BHARAT) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER �दनांक /Dated : 11 April, 2019 /Dev

Copy to: The Appellant/Respondent/CIT concerned/CIT(A) concerned/ DR, ITAT, Indore/Guard file.

By Order, Asstt.Registrar, I.T.A.T., Indore