ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-3, GUWAHATI vs. M/S. SRINATH BUILDERS & HOUSING COMPANY PVT. LTD, GUWAHATI

आदेश /O R D E R PER BENCH:- This Revenue’s appeal for assessment year 2015-16 arises against the Commissioner of Income Tax (Appeals)-2 Gauhati’s order dated 31.03.2018 passed in acknowledgement No.380026151310118, involving proceedings u/s 143(3) of the Income Tax Act, 1961;in short ‘the Act’. Case called twice. None appears at the assessee’s behest. The registry has already sent an RPAD notice for today’s hearing. It is therefore proceeded ex parge.

ITA No.175/Gau/2019 A.Y. 2015-16 ACIT, Cir-3, Gau Vs. M/s Srinath Builders 7 Housing Co. Pvt. Ltd. Page 2 2. The Revenue’s sole substantive grievance challenges correctness of the CIT(A)’s action deleting the addition in question of ₹1,46,30,166/- made in the course of assessment frame by the Assessing Officer on 28.12.2017. The CIT(A)’s relevant findings relating to impugned issue reads as under:- “Decision I have gone through the relevant observations of the Ld. AO as well as the submission of the Appellant and also the ratio of judicial pronouncements as relied upon a referred to. The following undisputed facts and findings emerge after a careful consideration the matter and perusal of the assessment folder (including the folder containing the final survey report): a. That a survey was conducted at the business premises of the Appellant on 01/09/2015. b. That during the course of survey proceedings, the Appellant was asked produce 'documentary and supporting evidence' in respect of the. Expenses claimed by the Appellant for the above assessment year. c. That the Appellant could not produce the 'complete documentary evidences and supporting vouchers' in regard to the claim of expenses made at the time of survey. d. That but for a statement of the Appellant that “the Appellant was unable to produce 'complete documentary evidences and supporting vouchers' with regard to the claim of expenses", no incriminating material pertaining to the Appellant was found or impounded by the Survey Team of the Investigation Wing. e. That the purported vouchers, bills etc. which were comprised in the so called 'complete documentary evidences and supporting vouchers' with regard to the claim of expenses by the Appellant, were neither separately identified nor stated by the Survey Team of the Investigation Wing. f. That accordingly, before the Survey Team of the Investigation Wing, the Appellant had purportedly admitted additional income being net profit @ 8% of the turnover for the above assessment year, which amounted to Rs.1,46,30,166/-, which amount is the same amount which is under challenge in the instant ground of appeal. g. That the only basis which the Ld. AO had for making the addition is the said confessional statements made on behalf of the Appellant by one of its directors (and none else) before the Survey Team of the Investigation Wing. h. That the assessment itself was made by the Ld. AO completely on the basis of the statements made by the Director of the Appellant before the Investigation Wing during the course of Survey operations. i. That no material was adduced by the Investigation Wing to corroborate the adverse inferences drawn against the Appellant by the Investigation Wing solely on the basis of the statements of the Director of the Appellant recorded by the Investigation Wing during the course of Survey operations. j. That no other material exists in the assessment folder (including the folder containing the final survey report), perused by the undersigned, which points to any infirmity in the bills, vouchers or books of accounts of the Appellant. k. That the show-cause notice dated 06/12/2017, was issued by the Ld. AO to the Appellant solely on the basis of the statements made by the Director of the Appellant before the Investigation Wing during the course of Survey operations and that in the said show-cause notice no other material other

ITA No.175/Gau/2019 A.Y. 2015-16 ACIT, Cir-3, Gau Vs. M/s Srinath Builders 7 Housing Co. Pvt. Ltd. Page 3 than the statements made by the Director of the Appellant before the Investigation Wing have been referred to. i. That reply, dated 13/12/2017, was furnished by the Appellant to the show-cause notice, dated 06/12/2017, issued by the Ld. AO to the Appellant and in the said reply the Appellant stated that all bills and documentary evidences were available with the Appellant and that these could be produced by the Appellant for the verification by the Ld. AO. It was further stated by the Appellant that books of accounts and other vouchers are always maintained properly by the Appellant. However, no attempt to verify the bills and documentary evidences was made by the Ld. AO during the course of assessment proceedings before passing of the assessment order. m. It is also noted that in the reply, dated 13/12/2017, furnished by the Appellant to the show-cause notice, dated 06/12/2017, issued by the Ld. AO to the Appellant, it was also stated by the Appellant that he had given the statements (during the course of Survey Operation) before the Investigation Wing under a lot of mental tension. n. That no material was adduced by the Ld. AO to corroborate the adverse inferences drawn against the Appellant by the Ld. AO solely on the basis of the statements of the Director of the Appellant recorded by the Investigation Wing during the course of Survey operations. That despite the reply, dated 13/12/2017, furnished by the Appellant to the show-cause notice, dated 06/12/2017, issued by the Ld. AO to the Appellant in which the Appellant stated that all bills and documentary evidences were available with the Appellant and that these could be produced by the Appellant for the verification by the Ld. AO, no attempt to verify the bills and documentary evidences was made by the Ld. AO during the course of assessment proceedings before passing of the assessment order. That the relevant observations of the Ld. AO, while making the impugned addition are being discussed as follows in the foregoing paras: - a. As is clear per para 4.1 of the order impugned, the impugned addition is solely based on statement recorded during the course of survey and subsequent statement of the Director of the Appellant. The admission of additional incomes is not based on any tangible material, leave apart any incriminating material discovered during the course of surveyor otherwise. Since this very contention of the Appellant is based on settled judicial pronouncements, for the sake of brevity, the said pronouncements are not being referred here under. I find that he Appellant had filed a separate compilation of judicial pronouncements in this regard, so as to bring home the contention that addition solely on the basis of statement made during the course of survey without there being any incriminating material, is bad in law. b. In his subsequent observation contained in Para 4.2, the Ld. AO had referred to a show cause issued by him to the Appellant on 06/12/2017, solely on the basis of statement given during the course of survey. The Ld. AO has extensively reproduced the said statement made during the course of survey and subsequent statement recorded under Section 131 of the Director of the Appellant [PS Page 91-101]. Thus, it is clear that the sum and substance of the show cause notice dated 06/12/2017 is solely based on statement given during the course of survey operation and nothing else. As such, the contents of the said show cause notice are to be disregarded. c. In his next observation contained in Para 4.3 of the order impugned, the Ld. AO has referred to the submissions dated 13/12/2017 filed by the Appellant during the course of assessment proceedings [PS Page No. 89 &

ITA No.175/Gau/2019 A.Y. 2015-16 ACIT, Cir-3, Gau Vs. M/s Srinath Builders 7 Housing Co. Pvt. Ltd. Page 4 90]. It is not just comprehensible as to why the Ld. AO had chosen not to examine the books of accounts, bills, documentary evidences, etc. more so when neither their existence nor the intention of the Appellant to produce the same had been adversely viewed by the AO. It is noted that a specific ground of appeal (Ground No. 6) has already been taken in this regard. However, the fact remains that on 13/12/2017 the Appellant had offered to the Ld AO to examine its bills and documentary evidence, which was not acceded to by the Ld AO. d. It is further noted that for the reasons completely alien to the assessment order and best known to the Ld. AO, the Ld. AO had completely brushed aside the contention of the Appellant that even in case the net profit was required to be estimated,' the same ought to have been estimated by considering the past assessments of the Appellant [PB Page No. 102 of comparative N.P. rate chart of the Appellant for A. Y. 2010-11 to 2015-16, a perusal whereof would reveal that while the turnover for the above A. Y. had almost doubled, so is the N.P., vis-a-vis A. Y. 2014-15 and even more, the N.P. ratio/rate is higher and better], OR by bringing on record, some instances of geographically similarly placed other assessees engaged in similar business as that of the Appellant and having financial status as that of the Appellant. e. In his next observation contained in Para 4.4 of the order impugned, the Ld. AO has referred to the inability of the Appellant to produce documentary and supporting evidence in support of the expenses claimed for AY in consideration on the date of survey, i.e. 01/09/2015 and also, on 03/09/2015, i.e. the date on which the subsequent statement of the Director of the Appellant company was recorded. It is pertinent to note that while the Ld. AO had stated that the Appellant could not produce documentary and supporting evidence in support of the expenses claimed for AY under consideration, there is no such finding of the Ld. AO that the documentary and supporting evidences were completely unavailable or that the Appellant did not have even a single documentary and supporting evidence in support of expenses claimed. Ironically, nothing, it has been noted, would have stopped the Survey Team in exercising the requisite powers during the course of survey. It is also noted and observed that the adverse inference has been drawn by the Assessing Officer merely on account of the fact that the documentary and supporting evidences were not produced merely on 01/09/2015 and 03/09/2015. Further, there is nothing on record that the said documentary and supporting evidences were not at all available or which were the specific documentary and supporting evidences which the Ld. AO was looking forward to. The Ld. AO had merely extrapolated the purported infirmity at the time of survey to the assessment proceedings and remained swayed away by such extrapolation despite the offer by the Appellant to produce all books of accounts, bill, vouchers, supporting documents etc. Under these circumstances, the observations contained in Para 4.4 of the impugned Assessment Order are held to be incorrect. f. In his next observation contained in Para 4.5 of the order impugned, the Ld. AO has observed that the Appellant had not filed any retraction or that Appellant had not filed any supporting evidence to show that the disclosure made had no substance. The mere fact that the specific word 'retraction' was not stated in any submission etc. filed by the Appellant company before the LD. AO would not and cannot be so construed so as to infer that the Appellant had not filed any retraction. In fact, the retraction which the Ld. AO

ITA No.175/Gau/2019 A.Y. 2015-16 ACIT, Cir-3, Gau Vs. M/s Srinath Builders 7 Housing Co. Pvt. Ltd. Page 5 was trying to find out was required to be appreciated by way of surrounding circumstances, such being non-offering of the additional income in the return of income for the above AY filed on 28/09/2015, i.e. merely after four weeks of the date of survey as well as from the explicit contents of submissions dated 13/12/2017. It is pertinent to observe here that there is a complete bar in enticing confessional statements made during search and surveys, as well as, on account of the settled judicial pronouncements as well as clear CBDT Instructions that confessional statements must be backed by incriminating material, the said fact alone that there was no incriminating material, itself constitutes a bona-fide belief on the part of the Appellant that no separate retraction was required. g. In his next observation contained in Para 4.6 of the order impugned, the Ld. AO had observed that a survey is a real-time action in which the ground realities as to the mode and conduct of the business as well as that of the books of accounts as also, the true and correct affairs of the business of the assessee are verified. The Ld. AO had further stated that the Appellant was not having complete documentary and supporting evidences at the time of survey and even after that, but had failed to appreciate the following vital points: i) That while the intention and the purpose of a survey is highly appreciable, nothing has placed any bar/restriction on the survey team to have impounded the inconsistent bills vouchers etc. as also to have a detailed list of such documentary and supporting evidences which were NOT found at the time of survey. The very factum, that neither the existence, nor the correctness nor even the completeness of the books of accounts at the time of surveyor even subsequently have been adversely observed, leaves not even an iota of doubt as to the existence of the books of accounts and other documentary evidences. The existence of the books of accounts and other documentary evidences of the Appellant is further proved by the reply, dated 13/12/2017, furnished by the Appellant to the show-cause notice, dated 06/12/2017, issued by the Ld. AO to the Appellant in which the Appellant stated that all bills and documentary evidences were available with the Appellant and that these could be produced by the Appellant for the verification by the Ld. AO. ii) That while the Ld. AO has statedly observed that the Appellant was not having complete documentary and supporting evidences on the day of survey, the Ld. AO had not stated as to which of the purported documents would have fallen into his definition of documentary and supporting evidence. It is further not comprehensible as to the usage of expression 'complete' by the Ld. AO in so far as whether the said expression means all or substantial or major or many. In any case, there is no specific details or infirmities but for usage of a vague expression 'complete documentary and supporting evidence'. iii) That the observation of the Ld. AO that the Appellant did not have complete documentary and supporting evidence even after the survey also is factually incorrect in so far as it was the Ld. AO who had himself chosen not to examine the books of accounts of the Appellant even though the Appellant has undertaken to produce all books of accounts, bill, vouchers as well as the 'complete documentary and supporting evidence' vide his reply, dated 13/12/2017, furnished by the Appellant to the show-cause notice, dated 06/12/2017, issued by the Ld. AO to the Appellant in which the Appellant stated that all bills and documentary evidences were available with the

ITA No.175/Gau/2019 A.Y. 2015-16 ACIT, Cir-3, Gau Vs. M/s Srinath Builders 7 Housing Co. Pvt. Ltd. Page 6 Appellant and that these could be produced by the Appellant for the verification by the Ld. AO. In view of the above, the observation contained in Para 4.6 of the impugned order is held as incorrect, perverse and wrong. h. In his next observation contained in Para 4.7 of the order impugned, the Ld. AO had observed that the absence of documentary evidence to support the claim made in the books of accounts is in the nature of incriminating evidence itself and accordingly, the Ld. AO had tried to brush aside the submission dated 13/12/2017 of the Appellant. The very observation of the Ld. AO is evident of prejudiced mind-set to make an addition in this regard, since while in para 4.6, the AO is observing that the Appellant was not having 'complete' documentary and supporting evidences on the day of survey, in the instant Para, the AO had used the expression 'not having' evidence which connotes absence of the evidence. Thus, while at one hand, the AO had stated that Appellant was not having 'complete' documentary evidence, at the other hand, the Ld. AO had stated that the Appellant was 'not having' evidence. Unfortunately, in neither of the case, any attempt has been made by the AO to identify the specific infirmities or specific documentary evidences or bills which were not available with the Appellant. In view of the above, it is clear in this case there is non- application of mind on the part of the Ld. AO. i. In his last observation contained in Para 4.7 of the order impugned, the Ld. AO had tried to justify the basis of adoption of the net profit rate at 8% by stating that the said rate has been referred under Section 44AD of the Act. It is highly ironical that the Ld AO had just transgressed the divide between a large assessee as is the Appellant whose turnover is around Rs. 60 crores and other assessees whose total turnover is well below the monetary limit prescribed to get the accounts audited under Section 44AB of the Act, which limit as applicable during the above assessment year was Rs. 1 crores. It appears that the Ld AO has completely overlooked the fact that the said rate of presumptive net profit as is referred under Section 44AB of the Act is only for small assessee so as to absolve them from requirement of keeping and maintaining the books of accounts. In any case, even under the said Section 44AD, an option has been permitted to such assessee's who claims a lower rate of profit to claim the said lower profit rate, subject howsoever to such an assessee getting his books of accounts maintained and also to get these books of accounts audited. It is thus, clear that the contention of adoption of 8% NP rate based on what has been provided under Section 44AD is incorrect more-so, when the said Section duly recognizes a claim of lower net profit rate also. Be that as it may be, the fact remains that Section 44AD is not applicable to the Appellant and there cannot be any comparison of an assessee having turnover of Rs.1 crores with another having turnover of around 60 crores, qua personal/hired management, scale of operations, investments and cost involved, business risk, profit rate, scale of operations etc. On the contrary, even at the cost of repetition, no instances of geographically & similarly placed other assessees engaged in similar business as that of the Appellant and having financial status as that of the Appellant have been brought on records by the Ld AO, leave apart considering the past history of the Appellant and also the lower rate of 6% as per Section 44AD of the Act.

ITA No.175/Gau/2019 A.Y. 2015-16 ACIT, Cir-3, Gau Vs. M/s Srinath Builders 7 Housing Co. Pvt. Ltd. Page 7 Having held so that the observations of the Ld. AO based on which the impugned addition has been made to be incorrect & baseless and the addition being solely made on the basis of statement recorded at the time of survey, without there being any incriminating or corroborative material discovered during the course of surveyor brought on record by the Ld AO, the impugned addition of Rs.1,46,30,166/- is hereby held as incorrect, wrong in facts and is hereby directed to be deleted. During the course of appellate proceedings, the Appellant had relied upon plethora of judgments so as to contend that the statement recorded during the course of survey has no evidentary value and in the absence of any incriminating material no addition can be made solely on the basis of the said statement. In this case, the Appellant has filed his return along with regular books of accounts which are duly audited by an auditor under Section. 44AB of the Act and the entries therein are duly supported by evidences. The Appellant has also referred to the (BDT Instructions in this regard wherein it has been stressed that confessional statements taken during the course of search and survey must be backed by incriminating material. For the sake of brevity, more so, when the case laws and the CBDT Instructions relied upon by the Appellant have already been reproduced earlier, the same are not being reproduced. However, I hold that the ratio of all these judgments and the CBDT Instructions are well applicable in the case of the Appellant mutatis mutandis. The Hon'ble Supreme Court of India in the case of CIT vs. S. Khader Khan Son [(2013) 352 ITR 0480]: "A survey was conducted in the premises of the assessee-firm. One of the partners in his statement offered an additional income of Rs. 20 lakhs for the assessment year 2001-02 and Rs. 30 lakhs for the assessment year 2002-03 but the statement was retracted by the assessee stating that the partner from whom the statement was recorded during the survey operation under Section 133A of the Income-tax Act, 1961, was new to the management and had agreed to an ad hoc addition. The Assessing Officer based on the admissions made by the assessee recomputed the assessment. The order was set aside by the Commissioner (Appeals) and this order was upheld by the Tribunal. On appeal to the High Court, the High Court held that in view of the scope and ambit of the materials collected during the course of survey, the action under Section 133A would not have any evidentiary value and that it could not be said solely on the basis of the statement given by one of the partners of the assessee-firm that the disclosed income was assessable as lawful income of the assessee. On appeal to the Supreme Court: The Supreme Court dismissed the appeal in view of the concurrent findings of fact." There being no evidence, apart from the specious admission of disclosure obtained during survey, the impugned addition made to the total income of the Appellant was bad in law. Therefore, taking into consideration the factual as well as the legal position on the issue [including the judgment of the Hon'ble Apex Court of India and also CBDT Instructions], I find NO justification in sustaining the impugned addition of Rs.1,46,30,166/- made solely on the basis of an unsubstantiated statement of disclosure obtained from the Appellant by the Investigation Wing during survey operation under Section 133A of the Act. This ground of appeal is, accordingly, allowed in favor of the Appellant and the addition impugned of Rs. 1,46,30,166/- is, hereby, deleted.”

ITA No.175/Gau/2019 A.Y. 2015-16 ACIT, Cir-3, Gau Vs. M/s Srinath Builders 7 Housing Co. Pvt. Ltd. Page 8 3. Mr. Singh has strongly argued during the course of hearing that the assessee had made the corresponding admission in the department’s survey action and therefore, the Assessing Officer had rightly made the addition in question without any retraction. He further quotes hon'ble Delhi high court’s decision in Bhagirath Aggarwal vs. CIT in ITA No. 28/2012 decided on 22.01.2013. We see no reason to express our concurrence with the Revenue’s instant argument. Suffice to say, apart from the CIT(A)’s order having discussed a catena of case law regarding the procedure to be adopted in search / survey exercise, we make it clear that the CBDT has itself issued circular(s) i.e. on 10.03.2003 and 19.12.2014 that mere admission by the searched or surveyed assessee in absence of any evidence collected by the departmental authorities; does not carry weight. We posed a specific query to Mr. Singh as to whether the Assessing Officer had taken into consideration any such material against the assessee than going by his mere admission. The reply received is in negative. We thus conclude that the CIT(A) has rightly deleted the impugned addition going by various legal precedent. This instant former substantive ground fails accordingly.

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आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. अपीलाथ�/Appellant-ACIT, Circle-3, R.No.714, 7th Fl. Aayakar Bhawan, G.S. Road Guwahati-781005 2. ��यथ�/Respondent-M/s Srinath Builders & Housing Co. Pvt. Ltd., 3rd Floor, Anil Paza-1, G.S. Road, Guwahati-781005 3. संबं2धत आयकर आयु3त गृवाहाठ8 / Concerned CIT Guwahati 4. आयकर आयु3त- अपील / CIT (A) Guwahati 5. ;वभागीय �&त&न2ध, आयकर अपील�य अ2धकरण, गूवाहाठ8 खंङपीठ / DR, ITAT, Guwahati 6. गाडA फाइल / Guard file. By order/आदेश से, /True Copy/ Sr. Private Secretary (on tour) आयकर अपील�य अ2धकरण, गूवाहाठ� ।