ACIT, AJMER vs. SHREEJI SULZ PVT. LTD.,

ORDER PER: R.C. SHARMA, A.M. These are the appeal and cross appeal filed by the assessee and the revenue arose against the order of ld.CIT(A)-2, Udaipur dated 12/04/2016 for the A.Y. 2013-14 in the matter of order passed U/s 143(3) read with Section 153A/153B of the Income Tax Act, 1961 (in short, the Act).

3. By the impugned order, the ld. CIT(A), deleted the addition of Rs. 87,93,007.44 and upheld the addition of Rs. 19,73,296.56 after having a following observation: “3.3 I have gone through submission of the A/R and the record for the appeal.

3 ITA 507 & 669/JP/2016_ Shreeji Sulz P Ltd. Vs ACIT 3.3.1 The main crux of submission of the A/R is that there were not found any incriminating or credible evidence relating to any undisclosed income/activities during the search operations, therefore, the authorities have not followed the instructions of the CBDT and accordingly there were no reasons to believe as envisaged u/s 132 of the Act. I have carefully perused the submissions of the AR and find that he has not brought on record any evidence to show that the observations of the Hon'ble Supreme Court in the case of ITO vs. Seth Brothers were applicable to the facts of the case of the appellant. During the course of the search in case of the appellant, there had been undisclosed income of Rs. 1 Crore as per the statement of the Shri Navneet Somani recorded u/s 132(4) of the Act. Further, there is no evidence on record to. suggest that there had not been any information or reasons to believe for issuing warrant of authorization for conducting search and seizure operations in the case of the appellant. Reliance is placed on the finding of the Hon'ble Madras High Court in the case of Dr. P.G Viswahathan (W.P. No 20073 of 2003), V. Muthulakshmi (W.P. No. 20074 of 2003), K. Vishwanathan alias Kumar (W.P. No. 1279 of 2005), Dr. Aruna Vishwartathan (W.P. NO. 1280 of 2005), Dr. Anjarta Vi swanathan (W.P. No. 1281 of 2005) and Dr. Vikram Viswahanthan (W.P. NO. 1282 or 2005) vs. DIT (Inv) & Another (2013) 35 1 ITR 271 (Mad). The Hon'ble Madras High Court while dismissing the writ petition in the case has observed as follows:

"that the authority concerned, before issuing the warrant of authorization for search operations, should have reason to believe that it was necessary, in accordance with the provisions of sec. 132 of the IT Act, 1961. It is not for the High Court to indulge in the exercise of finding out the sufficiency or the relevance of the materials available with the authority concerned, for arriving at this conclusion. If the authority had some materials for his belief that certain documents and other relevant materials were secreted, it would be sufficient for giving him a reason to order the search and seizure. It

4 ITA 507 & 669/JP/2016_ Shreeji Sulz P Ltd. Vs ACIT would not appropriate for the court to analyze, in details, whether the decision of the Department to issue the warrants of authorization for search and seizure was perfect or logical in nature. Further the court cannot go into the question whether the materials available before the authority were adequate to prompt him to believe that a search was necessary. This satisfaction of the authority is a subjective satisfaction. Therefore, the court can only see whether the satisfaction of the authority is due to mala fide reasons or based on extraneous factors or mere rumors. It would be sufficient if there were certain materials, which could have prompted a prudent man to arrive at such a conclusion." The observations of the Hon'ble Madras High Court are applicable to the facts of the case of the appellant. Therefore, in absence of any evidence on record to the effect that the satisfaction of the authority before issuing the warrant of authorization was not proper or incorrect or was based on extraneous factors, this ground or appeal is dismissed.

4 Ground No. 1 and 3 are regarding the validity of assessment order and verifiability of the statement recorded u/s 132(4) of the Act, which has been relied upon by the Ld. AO for making additions to total income and which has been retracted by the assessee in post search proceedings. The main contentions raised by the appellant in this ground is relating to determination of the issue whether the Ld. AO was justified in making assessment only on the basis of the statement of Sh. Navneet Somani recorded u/s 132(4) of the Act. The said grounds of appeal are reproduced as under:

GROUND NO.1

Under the facts and the circumstances of the case and in law, the impugned assessment order dated 02.06.2014 u/s 143(3) r.w.s. 153A/153B of the Income Tax Act, 1961 passed by Ld. AO at Rs. 1,25,66,304/- is perverse, arbitrary, bad in law and without jurisdiction and without providing adequate opportunity of being heard. GROUND NO. 3

5 ITA 507 & 669/JP/2016_ Shreeji Sulz P Ltd. Vs ACIT Under the facts and circumstances of the case and in law, Ld. AO has erred in passing impugned assessment order: a. in the absence of any incriminating material found during the course of search b. without any corroborative documentary evidence on record c. by not considering the explanation/submission of the Appellant during the assessment proceedings without assigning/providing any substantial reasoning or evidence in support. d. Without providing an adequate opportunity of being heard

4.1 The A/R of the appellant attended during the course of proceedings and made submissions as follows:

4.1.1 At the outset, it is humbly submitted that the Ld. AO has merely relied on the so called declaration by Sh. Navneet Somani, Managing director of the Appellant Company made in the course of search and post search proceedings. For a statement to be a genuine admission, it has to be a voluntary act on the part of the person making the statement. The facts and circumstances in the present case prevailing at the time of making the statement were totally hostile and such a statement admitting of something cannot be a voluntary act. The hostile circumstances are as follows: i. The search itself is an act of hostility as it is an encroachment on the privacy of the individual. Of course, if it is a legal search, there can be no grievance. None the less, the pressure thus starts mounting. ii. The most torturous fact to be noted is that the search went on continuously for 43 hours, i.e., almost for 2 days and 2 nights.

6 ITA 507 & 669/JP/2016_ Shreeji Sulz P Ltd. Vs ACIT iii. Sh. Navneet was not present at the factory premises of the Appellant Company when the search and survey proceedings were carried out and every update was communicated to him over telephone. This circumstance itself is enough to create mental duress on any normal person. iv. Around the same period both the parents of Sh. Navneet Somani were seriously ill and were hospitalized at Ahmedabad. These added factors are enough to cause mental breakdown of any normal person.

4.1.2 Under these circumstances, the declaration made by Sh. Navneet u/s 131 of the Act cannot be said to be voluntary and cannot be the sole ground to make the addition. Further, it is clarified that no declaration pertaining to the impugned addition was made by Sh. Navneet in his statement recorded u/s 132(4) of the Act at the time of search. Thus, the Ld. AO has erred in facts by relying upon the evidentiary value of statement recorded u/s 132(4) of the Act in the impugned assessment order.

4.1.3 The declaration made by the Sh. Navneet Somani u/s 131 of the Act in the case of the Appellant cannot be relied upon as the Appellant by submitting the necessary documentary evidences on record has rebutted the said statement. Thus, the statement though made by the Managing Director of the Appellant Company, remains orphan and unfair on the part of the Ld. AO to thrust it upon the Appellant while performing his quasi-judicial function of determining the true income.

4.1.4 In view of the above factual and legal position, the additions in question in the relevant assessment year are not corresponding to the actual position in the books of account of the Appellant Company and the true facts on record.

7 ITA 507 & 669/JP/2016_ Shreeji Sulz P Ltd. Vs ACIT 4.1.5 For the purpose of making the impugned addition, the Ld. AO has relied upon the following judicial precedents: i. Kanti Lal Prabhu Das Patel (93 ITD 117 — Indore) ii. Ramesh T Salve (75 ITD 75) iii. V. Kunhikannan (219 ITR 235 to 243): The aforesaid judgments relied upon by the Ld. AO in the impugned assessment order are pertaining to admission and retraction of the statement recorded u/s 132(4) of the Act. However, in the present case, no declaration was made by Sh. Navneet Somani u/s 132(4) of the Act for the purpose of impugned addition on account of alleged excess stock in the hands of the Appellant. Hence, the aforesaid judgments cannot be relied upon in the case of the Appellant. iv. Paramanand Builders Pvt. Ltd. (59 ITD 29 — Mumbai): In this case, the allegation of the appellant was that third degree methods were used by the authorities to make admissions. In our case, our Appellant has not made such type of allegations against the authorities but has merely described the actual circumstances prevailing at the time of search and post search proceedings which were sufficient to force the director of the Appellant Company to make the bald declaration. v. Dr. S.C. Gupta (248 ITR 782 — All): In this case, the retraction was not accepted as there was no attempt on the part of the assessee to discharge the burden to show that there is no additional income. Our case is different in so far as that there is nothing, save the bald statement to show that there is additional income. The Appellant has also discharged its burden to curtail the impugned addition by submitting the necessary documents and evidences.

8 ITA 507 & 669/JP/2016_ Shreeji Sulz P Ltd. Vs ACIT vi. Rameshchandra and Co. (168 ITR 375 - BOM): In this case, the assessee having declared suppression of sales, later on accepted it also in his statement. In our case, there is no such confirmation and hence, the said case is not applicable on us. vii. Rakesh Mahajan (14 CTR 218 — P&H): This decision is cited out of context as here the statement was made in contemplation of death. In our case, the Appellant and its director is consistently reiterating about the most adverse circumstances. viii. Surjeet Singh Chhabra (89 ELT 646):Since this case was under the Customs Act and FERA, it has no application in our case.

4.1.6 In view of the above, the impugned assessment order determining the total income at Rs. 1,25,66,304/- is perverse, arbitrary, bad in law.

4.1.7 Under the facts and circumstances of the case and in law, Ld. AO has erred in passing impugned assessment order: a. in the absence of any incriminating material found during the course of search 4.1.8 As stated earlier, during the course of search proceedings, no incriminating material was found by the respective income tax authorities. The search operations did not resulted in discovery of any incriminating material or any undisclosed source of income. The edifice of additions in the case of the Appellant is only disclosure made u/s 131 of the Act which was by and large extracted out from the Appellant by creating hostile and difficult conditions, some assumptions and presumptions. It is clearly evident from the impugned assessment order that the income tax authorities did not unearth any incriminating material or undisclosed income during the course of search operations.

9 ITA 507 & 669/JP/2016_ Shreeji Sulz P Ltd. Vs ACIT 4.1.9 It is evident from impugned assessment order itself that no incriminating documents/papers were found during the course of search proceedings and reliance has been totally placed by the Ld. AO only on the statement recorded under section 132(4) and 131 of the Act of Sh. Navneet Somani. However, statement u/s 132(4) of the Act recorded at the residence of Shri Navneet Somani, cannot be relied upon as no disclosure was made on account of alleged excess stock in such statement. This makes it prima facie clear that search assessments in the case of the Appellant were a result of guess-work and not based on any worthwhile material, information or documentary evidence. b. without any corroborative documentary evidence on record 4.1.10 Clarification regarding inappropriate reliance being placed on the statement record u/s 132(4) of the Act of Mr. Navneet Somani by the Ld. AO has already been made in submissions to ground no. 1 above. However, the Ld. AO has also placed reliance on the statement u/s 131 of Sh. Navneet recorded during the course of post search proceedings. The relevant extract of the statement u/s 131 of the Act is reproduced herein below for ready reference:

4.1.11 From the aforesaid answer to Question No. 18, it is evident that Sh. Navneet undoubtedly stated that as per the calculation of the authorities if any stock is found excess, the tax due as per law shall be deposited. The declaration made

10 ITA 507 & 669/JP/2016_ Shreeji Sulz P Ltd. Vs ACIT was ambiguous, unclear, abstruse, indistinct and vague. No clear and definite acceptance of the impugned addition in the hands of the Appellant Company was made by Sh. Navneet Somani. Further, it was also stated by him that advance bills and challans must have been prepared for alleged excess stock of Grey Fabric which was left unconsidered by the Ld. AO before making the impugned addition of Rs. 4,05,975/-- for Grey Fabric.

4.1.12 Further, regarding the evidentiary value of the statement recorded during the course of survey proceedings, the Appellant places reliance on the following judicial pronouncements:

COMMISSIONER OF INCOME-TAX, SALEM V S. KHADER KHAN SON [2012] 254 CTR 228 (SC): "Section 133A does not empower any ITO to examine any person .on oath; so statement recorded under section 133A has no evidentiary value and any admission made during such statement cannot be made basis of addition.

An admission is extremely an important piece of evidence but it cannot be said that it is conclusive; and it is open to the person who made the admission to show that it is incorrect."

PAUL MATHEWS AND SONS V. CIT [2003J 263 ITR 101 (KERALA): "We find that such a power to examine a person on oath is specifically conferred on the authorized 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, section 132(4) of the Income-tax Act enables the authorized officer to examine a person on oath and any statement made by; such person during such examination can also be used in evidence under the Income-tax Act. On the other hand, whatever statement is recorded under 11 ITA 507 & 669/JP/2016_ Shreeji Sulz P Ltd. Vs ACIT section 133A of the Income-tax Act it is not given any evidentiary value obviously for the reason that the officer is not authorized to administer oath and to take any sworn statement which alone has evidentiary value as contemplated under law. Therefore, the statement elicited during the survey operation has no evidentiary value and the Income-tax Officer was well aware of this. (Emphasis supplied)"

3.1 Thus, it is evident from the facts/documents available on the record, that there had been no piece of evidence found during the course of search/survey relating to any undisclosed activity or source of income in the case of the Appellant. c. by not considering the explanation/submission of the Appellant during the assessment proceedings without assigning/providing any substantial reasoning or evidence in support.

4.1.13 In this regard, it is submitted that the Appellant during the post search proceedings repeatedly submitted various documentary evidences to establish the fact that there was no difference on account of alleged excess stock in its hands. The list of replies submitted during the course of assessment proceedings by the Appellant wherein explanations were filed to depict the correct stock taking and calculations is enumerated herein below: Sr. No Particulars PB No. 1 Copy of the reply dated 28.10.2013 in response to notice 90-116 u/s 142(1) for the A.Y 2007-08 to 2012-13 containing various documents, ledgers, statements, reports for establishing the veracity of the stock as per books of accounts of the Appellant 2 Copy of reply dated 06.05.2014 in response to notice dated 128-148 02.04.2014 u/s 142(1) of the Act. 3 Copy of reply dated 04.02.2014 in response to the notice 152-159 u/s 142(1) of the Act. Containing calculation of G.P. ratio for the period 01.04.2012 to 26.09.2012 and 27.09.2012 to 31.03.2013

12 ITA 507 & 669/JP/2016_ Shreeji Sulz P Ltd. Vs ACIT 4 Copy of reply dated. 20.01.2014 in response to the notice 160 u/s 142(1) of the Act 5 Copy of reply dated 19.03.2014 in response to the notice 161-165 u/s 142(1) of the Act containing Quantity and valuation wise details of closing stock 4.1.14 With reference to the above list, it is further submitted that the Ld. AO has erred by ignoring the fact that the Appellant through hiS various aforesaid replies submitted various documentary evidences to substantiate his claim that there was no undisclosed income in its hands on account of alleged excess stock. The alleged difference worked out by the department between stock as per physical verification and stock as per books was duly explained and proved by submitting all the documents and evidences by the Appellant. The declaration made by Sh. Navneet u/s 131 of the Act was incorrect and should not be relied upon. Further, the Ld. AO didn't make any further enquiry/adverse inference/comments on the documents placed by the Appellant on record and simply, brushed aside such supporting evidences on record whereas it is an undisputed fact that documentary evidences produced by Appellant had been found duly verifiable. Thus, the Ld. AO acted against the principles of natural justice by not considering the explanation/submission of the Appellant without assigning/providing any substantial reasoning or evidence in support.

4.1.15 It is to be also appreciated that evidences filed by the Appellant has not been disapproved/rejected by giving any specific reasons/contrary evidence. The only reasons for not accepting the explanation of the Appellant is blind acceptance of the statement recorded u/s 131 of the Act of Mr. Navneet. Rather it is evident from the record, that Ld. AO was satisfied with sufficiency and veracity of the documentary evidences placed by the Appellant as no discrepancy has been found/noted in the impugned assessment order regarding the documentary evidences submitted in rebuttal of declaration made in statement u/s 131 of the Act. This established the case of the 13 ITA 507 & 669/JP/2016_ Shreeji Sulz P Ltd. Vs ACIT Appellant beyond doubt that statement made u/s 131 was under duress and not correct.

4.1.16 It is further submitted that the Ld. AO in para 4 of Pg No. 2 of the impugned assessment order has stated that various documentary evidences filed by the Appellant were obtained, verified and placed on record This also establishes the fact that no discrepancy was found by the Ld. AO in the documentary evidences submitted by the Appellant during the course of assessment proceedings. d. Without providing an adequate opportunity of being heard 4.1.17 The assessment proceedings in the case of the Appellant Company was initiated by the Ld AO after the completion of the search proceedings. No addition was made on the basis of any incriminating material found during the course of search proceedings. The basis for the impugned addition of Rs. 1,07,66,304/- were the documents and books of accounts submitted by the Appellant during the post search proceedings. After the Appellant was confronted with the additions to be made, various documentary evidences were submitted as enumerated in Para No. 3.7 above. However, the Ld. AO by not making any adverse inference/comments on the documentary evidences placed on record and not further confronting the Appellant regarding the basis and reasons of making the additions, acted in utter disregard of the legal position. After submission of reply dated 19.03.2014 enclosed at Pg No. 161-165 of PB, no further communication was received by the Appellant from the Ld. AO and the assessment order was directly passed on 02.06.2014. This establishes beyond doubt that before passing the impugned assessment order, the Appellant was not afforded with a reasonable opportunity of being heard which is in violation of the principle of natural justice.

14 ITA 507 & 669/JP/2016_ Shreeji Sulz P Ltd. Vs ACIT 4.1.18 Thus, in view of the above submissions, the above ground of the Appellant be upheld.

4.2 I have considered the submissions made by the appellant, material placed on record and the content of the assessment order. 4.2.1 From the perusal of the assessment order following facts are clear: (a) The AO has given adequate opportunities since issuing of first notice u/s u/s 143(2) on 22.11.2013 to completing the assessment order on 02.06.2014. (b) The AO took cognizance of the disclosure u/s 132(4) by Shri Navneet Somani during the search on 26.09.2012 and issued show cause notice u/s 142(1) dated 03.01.2014 as well as order sheet noting dated 21.01.2014 and the response there by the appellant vide his submission on 06.05.2014/19.03.2014 which refers an affidavit by Shri Navneet Somani retracting the disclosure. (c) The AO cited certain case laws which are perceived to be supporting his case to make the addition based on the disclosure -u/s 132(4) by the appellant. Therefore, for the contention of the appellant that no adequate opportunity was granted, I do not accept the submission of the AR as ample opportunities have been granted to the Appellant during the course of assessment proceeding. The appellant has also filed its submissions during assessment proceedings. In the above process adopted by the AO, I do not find any perversity of fact of omission of law or violation of natural justice. Just because the decision of the AO is not acceptable to the appellant it does not make the assessment order as perverse, arbitrary, bad in law. At the most it can be said debatable and the appellant can always appeal against the same. Therefore, the first ground of the appeal stands dismissed.

4.2.2 Coming to the third ground of appeal, the crux of the all grievances of the appellant is that the AO should not have treated the disclosure u/s 132(4) by Shri Navneet Somani as the factor in making the addition though it was one

15 ITA 507 & 669/JP/2016_ Shreeji Sulz P Ltd. Vs ACIT of the factor to evaluate the addition regarding excess stock in the case of the appellant. It would not be appropriate to give blanket finding in abstract for such ground of appeal as the issue of admission and retraction is of perennial debate without conclusion in particular. Of course, while dealing with specific addition it would be apt to import relevant aspects of the facts to adjudicate the specific addition. Subject to this finding, this ground is dismissed. For statistical purpose, this ground is treated as partly allowed.

5 The forth ground of appeal is relating to addition of Rs. 1,07,66,304/-. The same reads as under:- Under the facts and the circumstances of the case and in law, the Ld. A.D. has erred in making an addition of Rs. 1,07,66,304/- on account of alleged excess stock found during the course of search and post search:

5.1 The AO discussed this issue regarding excess stock found during the course of search in para No. 6 on page 2 to 24 of the assessment order. The Ld. AO took the cognizance of the statement of Shri Navneet Somani for making the addition regarding excess stock, which is agitated by the appellant on the basis that even in the statement recorded u/s 132(4) of the Act, there had not been any disclosure regarding excess stock in the hands of the appellant company. The Ld. AO made addition of excess for various items of stock as under: - S.No. Items Amount (in Rs.) 1. Grey Fabric 4,05,974 2. Finished Fabrics 1,13,381 3. Yarn 1,02,46,949 Total 1,07,66,304

5.2 The A/R of the appellant attended the proceedings and made submissions as follows:

5.2.1 At the outset, it is humbly submitted that during the course of search proceedings carried out at the factory premises of the Appellant

16 ITA 507 & 669/JP/2016_ Shreeji Sulz P Ltd. Vs ACIT Company on 26.09.2012, physical verification of stock was carried out. (PB No. 8-9). The physical stock was duly reconciled with the stock as per books and found verifiable by the search team. No excess stock was found during the search investigation. Further, statement u/s 132(4) of the Managing Director of the Appellant Company i.e., Mr. Navneet Somani was recorded at midnight wherein undue mental pressure was mounted on him to declare unaccounted income of Rs. 1,00,00,000/, Sh. Navneet Somani was made to declare undisclosed income on account of alleged excess stock in another Group Company i.e., Shreeji Textiles Pvt. Ltd. The relevant portion of the statement of Navneet Somani recorded u/s 132(4) of the Act is reproduced herein below for reference purpose:

5.2.2 It is clearly evident from the above and full statement recorded u/s 132(4) of the Act of Sh. Navneet Somani enclosed at Pg No. 55-62 of PB that no declaration, disclosure, admission, surrender or whatsoever was made on account of alleged excess stock in the hands of the Appellant Company. Whatever was stated by Sh. Navneet was only pertaining to Shreeji Textiles Private Limited and not to the Appellant Company. The statement u/s 132(4) of the Act does not contains any declaration of income in the hands of the Appellant. However, the Ld. AO has grossly erred in facts and in law by relying upon the statement recorded u/s 132(4) of Sh. Navneet Somani for the purpose of making the impugned addition in the hands of the Appellant. This also establishes beyond that during the course of search, no incriminating material was found concerning any alleged excess stock in the hands of the Appellant and the authorities were duly contented with the physical stock as well as the stock as per books of accounts. 5.2.3 It is further submitted that during the post search investigation, after being duly satisfied with the stock of Shreeji Textiles Pvt. Ltd., the alleged excess stock of Rs. 107.66 lacs was worked out, on the basis of wrong calculations,

17 ITA 507 & 669/JP/2016_ Shreeji Sulz P Ltd. Vs ACIT whims and fancies of the income tax authorities. The alleged excess stock was fully explained during the course of assessment proceedings with books of accounts, records, documents, evidences and supporting pertaining to the period 01.04.2012 to 26.09.2012. The same is hereby explained in the table given herein below:

18 ITA 507 & 669/JP/2016_ Shreeji Sulz P Ltd. Vs ACIT 5.2.4 In view of the above, it is further submitted that: a. Incorrect total of quantity of purchase was taken by the authorities for the purpose of calculation of yarn purchase for the period 01.04.2012 to 26.09.2012. The correct total of Yarn purchase was Rs. 1,88,907.134 as against the total of Rs. 2,50,942.395 taken by the authorities in the calculation sheet as reproduced in Pg No. 12 of the impugned assessment order. The stc:temeni of month-wise yarn purchases was also submitted by the Appellant to the authorities which was not considered by the authorities as supporting document to correctly calculate the stock as per books. b In the Annexure S-1 enclosed at Pg No. 8 and 97 of PB, the authorities themselves found the stock 39,011 kg of accumulated wastage of yarn which established beyond doubt that the Revenue Department accepted the fact that wastage occurred during the processing of Yarn and stock of yarn found during the survey, also included wastage. c. In Annexure No. 18 of the audited financial statements of the Appellant as on 31.03.2013 enclosed at Pg No. 48 of PB, the closing stock at the year-end includes all the above mentioned stock of grey fabric, finished fabric and yarn.

19 ITA 507 & 669/JP/2016_ Shreeji Sulz P Ltd. Vs ACIT d. Wastage of stock has been duly taken into consideration in the books and wastage has only negligible market value and the same cannot be valued at the same rate at which the finished stock is valued. e. During the course of search proceedings, the income tax authorities prepared the calculation sheets for the physical stock as found at the time of search/survey but no excess stock was found at the time of survey. However, later for comparison purpose the authorities has taken arbitrary calculations/basis to determine stock as per books of accounts of the Appellant. The said basis of calculations of book stock is not supported with any evidence/document found during the course of search/survey. Therefore, the very basis of calculating the alleged excess stock is arbitrary and without any evidences.

5.2.5 Therefore, in view of the aforesaid table and submissions, it is evident that the Appellant has duly explained the position of stock as per its books during the course of assessment proceedings and there was no excess stock in its hands as alleged by the Ld. AO. Thus, the impugned addition of Rs. 1,07,66,304/- on account of alleged excess stock deserves to be deleted.

5.2.6 Without prejudice to the above, the submissions regarding the findings and allegations of the Ld. AO are made herein below: a. Some discrepancies were noticed and during post search investigation you have carried out many adjustments to match the corresponding figures of physical verification and books of accounts.

In this regard, it is submitted that the Ld. AO during the course of assessment proceedings has worked out the alleged difference between the physical stock and the stock as per books on the basis of documentary evidences submitted by the Appellant. No such difference existed at the time of search. The authorities have done adjustments to match the targeted figure of 20 ITA 507 & 669/JP/2016_ Shreeji Sulz P Ltd. Vs ACIT declaration of alleged unaccounted money and not the Appellant. Moreover, the Ld. AO's allegation that adjustments have been carried out by the Appellant is incorrect in view of the fact that the Appellant has established its case by submitting true and correct evidences to curb and curtail the impugned addition. b. It is brought to your notice that difference of Rs.1.07.66,304/-(Rs.52,50,000/- during search operation and Rs. 55,16,305/- during post search investigation) on account of excess stock was worked out and same was admitted and disclosed by you.

No admission or declaration whatsoever pertaining to any addition in the hands of the Appellant was made by Sh. Navneet in the statement recorded u/s 132(4) of the Act. The disclosure was made only in the statement u/s 131 of the Act during the post search proceedings. However, regarding the evidentiary value of statement recorded u/s 131 of the Act, the Appellant places reliance on the submissions made in Para No. 4.1 above. c. Why unaccounted investment of Rs.1,07,66,305/- on account of excess stock should not be added to the total income as you have admitted in the statement recorded u/s 132(4) during the course of search operation d. It is evident that the assessee never backed out from the surrender made during search or post search proceedings. e. The retraction of the assessee from his statement u/s. 132(4) is not acceptable as he himself offered this income. f. During the course of search, all the statements are taken on oath and duly consented and signed by director of Assessee Company in full conscious, after reading carefully and without pressure, coercion and duress.

21 ITA 507 & 669/JP/2016_ Shreeji Sulz P Ltd. Vs ACIT g. Statement recorded during the course of search action U/s 132 of I.T. Act being in presence of independent witnesses has overriding of effect over subsequent retraction. h. The subsequent retraction from the surrender without having evidences in proof of retraction is not permissible in the eyes of law.

It is pertinent to mention that the aforesaid findings and allegations of the Ld. AO from point no. (c) to (h) are pertaining to admission and retraction of the statement recorded u/s 132(4) of the Act. However, in the present case, no declaration was made by Sh. Navneet Somani u/s 132(4) of the Act for the purpose of impugned addition on account of alleged excess stock in the hands of the Appellant. Hence, the aforesaid allegations of the Ld. AO are incorrect as per the facts of the case and cannot be relied upon. i. The submission of the assessee is perused and considered and the same is not acceptable for the reasons that the stock was taken in the presence of employees of the assessee company.

During the course of assessment proceedings, affidavits of employees of the Appellant Company were submitted which are enclosed at Pg No. 166-169 of PB. In the said affidavits, the employees have clearly stated the following: i. That Mr. Navneet Somani, Director of the Appellant Company was not present when the search operations were carried out. ii. That the correct stock taking was not carried out by the income tax authorities. iii. That a part of stock was not present in the factory due to weaving and sizing job. The same was not considered for the purpose of physical verification of stock. iv. That stock as per books of accounts kept at the city office of the Appellant Company was also not considered while calculating the alleged difference. v. That stock of wastage of yarn was taken as stock of fresh yarn.

22 ITA 507 & 669/JP/2016_ Shreeji Sulz P Ltd. Vs ACIT vi. Thus, it is evident from the above that the employees that were present at the time of stock taking have themselves stated that the verification was not carried out by the Department in correct and accurate manner j. The difference in stock has been accepted by him as income of M/s Shreeji Sulz Pvt. Ltd. It is submitted that the admission of the Sh. Navneet u/s 131 of the Act cannot be relied upon as it was given under duress and immense psychological pressure. Further, the evidentiary value of the statement recorded u/s 131 has already been discussed in Para No. 3.5 above. k. It is established that the assessee has duly offered the undisclosed income for taxation during the course of search as well as post search proceedings on the above count. The allegation of the Ld. AO is not in correspondence with the facts of the present case as no disclosure pertaining to income of the Appellant was made by Mr. Navneet during the course of search proceedings and statement recorded u/s 131 of the Act was rebutted by submitting documentary evidences on record. l. From the above facts, circumstances, admittance of the assessee u/s 132(4)/131, it is established that the contention of the assessee has not been supported with cogent evidences. The issue of excess stock found during, search remained unexplained on the part of the assessee and the same is liable to tax in the hands of the assessee. The aforesaid allegation of the Ld. AO is not corresponding to the true facts of the case which are given herein below: i. All the necessary explanations were filed during the course of assessment proceedings which were not further questioned and thus, duly accepted by the Ld. AO. ii. No admittance pertaining to alleged excess stock was made u/s 132(4) of the Act. iii. Declaration u/s 131 of the Act was rebutted by filing documents, evidences and explanations.

23 ITA 507 & 669/JP/2016_ Shreeji Sulz P Ltd. Vs ACIT 5.2.7 Further, the judicial pronouncements relied upon by the Ld. AO have been dealt with in submissions made in Para .No. 1.6 above. 5.2.8 Thus, in view of the above facts & circumstances of the case and the detailed submissions in this regard, the impugned addition of Rs. 1,07,66,304/- deserves to be deleted. 5.3 I have considered the content of the assessment order, the submissions made by the appellant along with the material placed on record. 5.3.1 It is undisputed fact that Shri Navneet Somani himself in his statement recorded u/s 132(4) of the Act has made disclosure of income of Rs. 1 Crore under various heads. However, it is also undisputed fact that statement of the appellant was recorded in mid night and it was only general question put before him by the search parties. The relevant question no. 47 is reproduced as under:-

5.3.2 Obviously, the said question was asked at the time of conclusion of the search proceedings and there is no evidence/documents being referred at least for fact of excess stock while asking this question, which shows that there is no evidence found during the course of search.

24 ITA 507 & 669/JP/2016_ Shreeji Sulz P Ltd. Vs ACIT 5.3.3 During the post search proceedings, statement u/s 131 of the Act of the Shri Navneet Somani was recorded on 25.10.2012 (Pg No. 63 to 82 of PB). The Question No. 3 and the answer of Shri Navneet Somani is as under:

5.3.4 It is visible from the aforesaid answer of the Shri Navneet Somani that no undisclosed income was categorically accepted by Shri Navneet Somani wherein no incriminating paper/material was found for the said undisclosed income. Shri Navneet Somani stated that if after the necessary verification, any undisclosed income is found, the necessary amount shall be offered for taxation purpose. No clear or specific declaration was made by Shri Navneet Somani in the statement recorded u/s 131 of the Act. 5.3.5 Later on the appellant has filed affidavits before the Hon'ble CBDT, after the search, and further the fact of retraction has been mentioned in the returns filed u/s 139(1), therefore, it is established that Shri Navneet Somani has retracted from his statement recorded u/s 132(4).

25 ITA 507 & 669/JP/2016_ Shreeji Sulz P Ltd. Vs ACIT 5.3.6 It is seen that the appellant has disputed that very basis of making the calculation of excess stock of Rs.1,07,66,304/-. The appellant has submitted regarding verifiability of each item of stock with the books of accounts produced during post search proceedings and even during assessment proceedings before the Ld. AO. The reconciliation of stock given by the appellant before the Ld. AO is reproduced as under:

26 ITA 507 & 669/JP/2016_ Shreeji Sulz P Ltd. Vs ACIT 5.3.7 It is seen that except the statement recorded u/s 132(4) of the Act and departmental calculations of excess stock at Rs. I,07,66,304/-, there is no basis being relied upon by the AO to make aforesaid addition, which has been agitated by the appellant by plausible evidences.

5.3.8 These supporting evidences mentioned in the above table have not been confronted or found incorrect or controverted by the Ld. AO.

5.3.9 Further even by going through the disclosure made in the statement recorded u/s 132(4) or 131, there is no categorical admission of any excess stock in the hands of the appellant company by Shri Navneet Somani.

5.3.10 In absence of specific categorical evidence to establish the fact that appellant had excess stock of Rs.1,07,66,304/-and very timing of the declaration of the appellant makes it susceptible to perception that it might have been taken under duress.

27 ITA 507 & 669/JP/2016_ Shreeji Sulz P Ltd. Vs ACIT 5.3.11 In view of the aforesaid facts and circumstances, it is important to decide the issue on the basis of documentary evidences put forth by the appellant to counter the impugned addition. The AO has made the addition in respect of three items of the stock as under: S.N. Items Physical Quantity as per Alleged Rate Amount Quantity Books Difference 1. Grey Fabric 79,116.93 68,319.70 10,797.20 37.60 4,05,974.72 (in Meters) 2. Finished fabrics 1,26,445.00 1,24,721.10 1,723.90 65.77 1,13,380.90 (in Meters)

Impugned addition on account of alleged excess stock 1,07,66,304.94 5.3.12 As regards the addition of Grey Fabrics of 10,797.20 Meters valued @ Rs. 37.60 amounting to Rs. 4,05,974.72/-, it is seen that substantial difference is on account of non-posting of grey folding data entries in the computer for the period 24.09.2012 to 25.09.2012, due to search going on the search premises and the difference of 10797.20 Meters and the same is explained by the appellant by the accounting entries in its books, thus, there is no excess stock to the extent of 10797.20 Meters. However, that still leave a miner difference of 86.10 Meters, the AO is directed to tax the same @ Rs. 37.60 amounting to Rs. 3,237.36.

5.3.14 Coming to the addition of Finished Fabric of 1723.90 Meters, the explanation of the appellant is found substantially correct and the same is mainly on account of the calculation mistake done by the department, while applying blanket rate of Rs.100 per meter on various item of sample lumps (Pb No. 28). However, that still leave a negative difference (Shortage of stock) of 616.10 Meters, the AO is directed to tax the same @ Rs. 65.77 amounting to Rs. 5,662.80.

28 ITA 507 & 669/JP/2016_ Shreeji Sulz P Ltd. Vs ACIT 5.3.15 Then coming to the addition for yarn of 58,330.67 Kg quantity valued at Rs. 175.67 totaling to Rs. 10246949.32, it is seen that department has taken incorrect value of yarn purchase for the month of July 2012, the said explanation of the appellant is found correct & supported with documents and substantially explain the excess stock to the extent of 47148.36 Kg. after giving effect of the correct value of yarn purchase for the month of July 2012. However, that still leave a difference for excess stock of yarn by 11182.31 Kgs in quantity. The same is tried to be explained by the AIR as being covered by the quantity of waste found during the course of survey as inventoried by the department at 39011 Kgs (page no. 48 of paper book). I fail to understand how the excess stock of finished goods Yarn 11182.31 Kgs quantity could be matched and mapped with the quantity of waste found during the course of survey as inventoried by the department at 39011 Kgs. There is no allegation of the appellant that the quantity of waste found during the course of survey as inventoried by the department at 39011 Kgs. was treated as Finished Yarn by the department. The appellant keeps accounting of the quantity of waste from time to time and claims credits for the quantity of such waste and there is no instance that department have denied of such credit. Therefore, I do not agree with the submission of the appellant that remaining unexplained excess stock of finished goods of Yam 11182.31 Kgs in quantity is included in quantity of waste found during the course of survey. In absence of satisfactory explanation, the AO is directed to tax the unexplained excess stock of finished goods Yarn 11182.31 Kgs @ Rs. 175.67amounting to Rs. 19,64,396.40/-.

5.3.17 In view of the above facts and circumstances, this addition of Rs.1,07,66,304/- is partly confirmed to the extent of Rs. 3,237.36, Rs. 5,662.80 & Rs. 19,64,396.40 and remaining amount of addition of Rs.1,07,66,304/- made by the AO partly deleted to the extent of Rs. 87,93,007.44 as discussed & quantified in para 5.3.14 to 5.3.16 above.

5.3.18 Before parting, it must be mentioned that the A/R has relied upon the various judgment to support its contention that statement recorded u/s 132(4) is only a 29 ITA 507 & 669/JP/2016_ Shreeji Sulz P Ltd. Vs ACIT piece of evidence which is rebuttable. For this he has placed reliance on various judgments. It is held that the case of the appellant is substantially covered, to the extent of excess stock is explained with plausible documents, by settled law on admission and retraction by ratios of following judgments in cases of: PULLANGODE RUBBER PRODUCE CO. LTD. V. STATE OF KERALA [1973] 91 ITR 18 (SC): " C.I.T. V. BHANWARLAL 225 ITR 870 (RAJ): " KAILASHBEN MANHARLAL CHOKSHI VS CIT (2008) 14 DTR 257 (GUJ.): 5.3.19 In view of above finding it is also held that, the inescapable conclusion to a great extent in the present case is that, the statement recorded u/s 132(4) of the Act was not the only piece of evidence for making assessment u/s 153A1143(3) of the Act for the Ld. Assessing Officer. In contradistinction to the same, the appellant has discharged its burden to a great extent by filing the affidavit before CBDT as well as the AO to establish that the alleged excess stock was explainable to a great extent.

5.3.20 In view of the above facts and circumstances, the legal position discussed in above referred judgments, decisions, and departmental Instructions, this addition of Rs.1,07,66,304/- is partly confirmed to the extent of Rs. 19,73,296.56 (Rs. 3,237.36/-, Rs. 5,662.80/- & Rs. 19,64,396.40/-) partly deleted to the extent of Rs. 87,93,007.44 as discussed & quantified in para 5.2.17 above. Thus, this ground of appeal stand partly allowed.”

4. Against the above order of the ld. CIT(A), both the assessee and the revenue are in further appeals before the ITAT.

5. The grounds taken by the assessee reads as under:

“1. Under the facts and circumstances of the case and in law, the Appellate Order dated 12.04.2016 passed by the Ld. CIT(A)-2, Udaipur is perverse, arbitrary, illegal, void and bad in law.

30 ITA 507 & 669/JP/2016_ Shreeji Sulz P Ltd. Vs ACIT 2. Under the facts & circumstances of the case and in law, the Ld. CIT(A)-2, Udaipur has erred in confirming the impugned search action against the Appellant.

3. Under the facts & circumstances of the case and in law, the Ld. CIT(A)is not justified in confirming the action of the Ld. AO in passing the assessment order in the absence of any incriminating material found during the course of search.

.”

6. The grounds taken by the Revenue reads as under:

1. Whether on the facts and in the circumstances of the case the CIT(A) was right in deleting the addition of Rs. 87,93,007.44/- out of the total addition of Rs.1,07,66,304/-made by the AO on account of excess stock surrendered by the assessee without appreciating the facts that when the assessee has itself worked out quantity and valuation of stock found during the course of search and post search proceedings and accepted the excess stock of Rs.1,07,66,304/- as assessee's income in the statement recorded u/s 131 of the Act, assessee should have disclosed the same in the return but the same was not done by the assessee. The appellant crave, leave or reserving the right to amend modify, alter add or forego any ground (s) of appeal at any time before or during the hearing of this appeal.

33 ITA 507 & 669/JP/2016_ Shreeji Sulz P Ltd. Vs ACIT purchase for the month of July 2012, the said explanation of the assessee was found correct & supported with documents and substantially explain the excess stock to the extent of 47148.36 Kg. After giving effect of the correct value of yarn purchase for the month of July 2012. There is no infirmity in this part of finding of the ld. CIT(A), accordingly, we uphold action of the ld. CIT(A) to the extent of deleting the addition of Rs. 87,93,007.44 under the head yarn.

34 ITA 507 & 669/JP/2016_ Shreeji Sulz P Ltd. Vs ACIT 13. In the result, the appeal of the revenue is dismissed whereas the appeal of the assessee is allowed in part in terms indicated hereinabove.

Order pronounced in the open court on 30th May, 2019.

Sd/- Sd/- ¼fot; iky jko½ ¼jes'k lh 'kekZ½ (VIJAY PAL RAO) (RAMESH C SHARMA) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 30th May, 2019 *Ranjan आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू vihykFkhZ@The Appellant- Shreeji Sulz Private Limited, Bhilwara. 1. izR;FkhZ@ The Respondent- The A.C.I.T., Central Circle, Ajmer 2. vk;dj vk;qDr@ CIT 3. vk;dj vk;qDr¼vihy½@The CIT(A) 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5. xkMZ QkbZy@ Guard File (ITA No. 507 & 669/JP/2016) 6. vkns'kkuqlkj@ By order,

सहायक पंजीकार@Aेेज. त्महपेजतंत