P.S.R. TILES PARK,KARAIKKAL vs. ACIT, CIRCLE-2(1), TRICHY

4. The CIT(Appeals), Chennai – 18 failed to appreciate that in the absence of an independent exercise in examining the difference in the total physical stock and the books of accounts, the disputed addition made and sustained in a mechanical manner by merely relying upon the statement recorded during the course of survey should be reckoned as bad in law.

:-3-: ITA. No:947 /Chny/2025 erroneous, incorrect, invalid, unjustified and not sustainable both on facts and in law.

10. The CIT(Appeals), Chennai – 18 failed to appreciate that there was no proper opportunity given before passing of the impugned order and any order passed in violation of the principles natural justice would be nullity in law.

3. In brief, the solitary issue raised by the assessee in the present appeal is that the ld. CIT(A) has erred in confirming the action of the AO in making an addition on account of unaccounted stock based on statement recorded during the survey amounting to Rs.74,28,135/-.

Subsequently the case of the assessee was selected for scrutiny since the assessee did not file a revised return to account for the unreported stock difference. A survey u/s.133A of the Income Tax Act, 1961(hereinafter referred to as “the Act”) was conducted on 12.03.2018 and during the course of survey, stock discrepancy of Rs.1,23,80,225/- was detected. Of this discrepancy, an allowance of Rs.49,00,000/- was made for damaged stock, while the remaining difference of Rs.74,28,135/- remained unexplained.

During the course of survey proceedings u/s.133A of the Act, the managing partner Shri Sivakumar had accepted to offer such income by filing a revised return of income for the AY 2017-18 and pay taxes on the same by 20.03.2018 under the head of difference in stock of Rs.74,28,135/-.

:-4-: ITA. No:947 /Chny/2025 Subsequently, the assessee resiled from his commitment by not filing a revised return of income for the AY 2017-18 reflecting the additional income.

Accordingly, the AO added the same into total income of the assessee for the financial year 2016-17 relevant to AY 2017-18 as unexplained stock difference amounting to Rs.74,28,135/- to the total income declared by the assessee after observing as under: -

“The assessee firm has not replied to the above declaration made during the survey. As the case falls under 44AB, wherein. Audit is mandatory, it is inferred that the entire expenses has been incurred. In the absence of any explanation, the disclosed unaccounted sales of Rs.74,28,135/- is brought to tax and added to the returned income”

5. Aggrieved by the assessment order of the AO, the assessee preferred an appeal before the ld. CIT(A). The ld. CIT(A) agreed with the AO’s view and confirmed the addition made by the AO and dismissed the assessee’s appeal on this matter after considering the facts in totality by holding as under: -

“5.5.3. The Hon’ble Supreme Court in CIT v S Khadar Khan Son (2012) 25 taxmann.com 413 (SC) upheld the ruling of the Hon’ble Madras High Court in CIT v S Khadar Khan Son (2008) 300 ITR 157 (Mad), which held that statements recorded under Section 133A are not conclusive evidence. The Court further observed that an admission is an important piece of evidence, but it cannot be treated as final and is subject to rebuttal. During the appellate proceedings, other than submitting that statement has no validity, the submissions of the appellant are merely arguments without any evidences. Hence, ground nos 4 and 5 are dismissed. 6.In conclusion, the appeal for AY 2017-18 is dismissed.”

6. Aggrieved by the order of the ld. CIT(A), the assessee is in appeal before us.

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7. Before us, the ld. AR for the assessee submitted that the ld. CIT(A) has erred in confirming the action of the AO in making an addition on account of unaccounted stock based on statement taken during the survey amounting to Rs.74,28,135/-. ld. AR filed paper book containing page Nos 1 to 490 and reiterated the submissions made before the lower authorities. The ld. AR also stated that the stock discrepancy noted by the survey team does not relate to the impugned year.

7.1 However, the AO on the basis of the statement recorded during the survey on 12.03.2018 has erroneously added the unaccounted stock during the impugned year. Further the ld. AR submitted that the assessee was maintaining stock register and filed VAT returns regularly. Furthermore, ld. AR submitted that statement recorded during survey has no evidentiary value and any admission solely made during the statement recorded during the survey u/s.133A of the Act, cannot be allowed to be the basis of addition to the total income of the assessee. He has relied upon judgments passed by the Hon’ble Supreme Court in the case of Commissioner of Income Tax, Salem vs. S. Kader Khan & Son reported in (2012) 25 taxmann.com 413(SC), the judgement passed by the Hon’ble Madras High Court in the case of Commissioner of Income Tax v S. Kader Khan & Son (2008) 300 ITR 0157 (Mad). Copies of each of the judgment relied upon by the ld.AR has been duly submitted before the authorities below and before us as well. He has further relied upon the circular issued by the CBDT being F. No. 286/2/2003 - IT(INV) dated 10.03.2003, the contents whereof is reproduced hereinbelow:

:-6-: ITA. No:947 /Chny/2025

“Instances have come to the notices of the Board where assessee’s have claimed that they have been forced to confess the undisclosed income during the course of the search and seizure and survey operations. Such confessions is not based upon credible evidence are later retracted by the concerned assessee’s while filing return of income. In these circumstances, on confessions during the course of search and seizure and survey operations, do not serve any useful purpose. It is, therefore, advised that there should be focus and concentration on collection evidence income which leads to information on what has not been disclosed or is not likely to be disclosed before the Income tax Department. Similarly, while recording the statement during the Course, of search and seizure and survey operations no attempt should be made to obtain confession as to the undisclosed income. An action on the contrary shall be viewed adversely. Further, in respect of pending, assessment proceedings also, the Assessing Officers should rely upon the evidences/ material gathered during the course of search/survey operations or there after while framing the relevant assessment orders.

8. The ld.AR contended that the statement given during the course of survey is not a statement on oath as given u/s.132(4) of the Act and had no evidentiary value and further contended that reliance should have been place upon the evidence/ material gathered during the course of survey operations while framing the assessment orders and therefore prayed that the findings in the impugned order are completely opposed to the ratio laid down by the Hon’ble Apex Court herein referred supra and therefore the additions made by the AO and confirmed by ld. CIT(A) on account of unaccounted stock based on statement taken during the survey amounting to Rs.74,28,135/- be deleted in the interest of justice.

9. Per contra, the ld. DR on the other hand, strongly relied on the impugned order of the ld. CIT(A) and that of the AO and prayed for confirming the addition by dismissing the appeal of the assessee.

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11. During the course of survey proceedings u/s.133A of the Act, the managing partner Shri Sivakumar had accepted to offer such income by filing a revised return of income and pay taxes on the same by 20.03.2018 for the AY 2017-18 under the head of difference in stock of Rs.74,28,135/- but the assessee did not file a revised return of income nor pay tax on such income. Therefore, the AO treated the income as the income for the AY 2017-18 by making additions to the total income of the assessee. Admitted, the survey was conducted on 12.03.2018 which is in the financial year 2017-18 relevant to AY 2018-19. The AO has, however, made an addition of Rs.74,28,135/- in impugned year towards alleged undisclosed stock. The only evidence brought on record by the AO in support of such addition is the statement of the Managing Partner, Shri. Sivakumar, recorded during the course of survey. Beyond this statement, no corroborative material has been placed to :-8-: ITA. No:947 /Chny/2025 establish that the alleged undisclosed stock existed as on 31.03.2017 or that it related to the financial year 2016-17 relevant to the impugned year. It is also pertinent to note that neither the AO nor the ld. CIT(A) have recorded any independent finding demonstrating such nexus of the undisclosed stock to the impugned year. In the absence of any independent finding by either the ld. CIT(A) or the AO and in the absence of any documents corroborating the nexus of the alleged undisclosed stock to the financial year relevant to A.Y. 2017–18, the addition rests solely on the uncorroborated statement of the Managing Partner, Shri.Sivakumar, recorded during the course of a survey conducted in the AY 2018-19. Hence, no addition can be made in an earlier AY 2017-18 merely based on a statement recorded in a later year i.e. AY 2018-19, based on the discrepancy found in the stock on hand in that A.Y 2018-19. Thus, after considering the Hon’ble Supreme Court and the Jurisdictional High Court, cited by the assessee supra and the settled legal position, it is evident that statements recorded u/s.133A of the Act, during the course of a survey, do not possess any evidentiary value by themselves. It is a well-established principle that an addition made solely on the basis of such statement, without any corroborative material or supporting evidence on record, is not sustainable in the eyes of law. In the instant case, since the addition of Rs.74,28,135/- is made exclusively upon the statement given by the assessee during the survey proceedings, which relates to the A.Y. 2018- 19 and no independent evidence has been brought on record to substantiate the same, we are of the considered view that such additions cannot be upheld

:-9-: ITA. No:947 /Chny/2025 and hence we are inclined to set aside the order of the ld. CIT(A) and direct the AO to delete the additions amounting to Rs.74,28,135/-.

Order pronounced in the court on 22nd October, 2025 at Chennai.