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

The CIT(Appeals), Chennai – 18 erred in adding a sum of Rs.74,28,135/- being the presumed difference between the total physical stock found in the premises of the appellant (Rs.3,96,68,966/-) and the total stock as per the books of account (Rs.2,72,88,741/-) after reckoning damaged stock @ Rs.40,00,000/- to 45,00,000/- by the survey team during survey on 12.03.2018 as unaccounted income of the appellant in the computation of taxable total income without assigning proper reasons and justifications.

The CIT(Appeals), Chennai – 18 failed to appreciate that the disputed addition being made solely on the basis of the sworn statement recorded at the time of survey in the absence of any independent collaborative evidence in support of the difference quantified by the survey team, the disputed additions sustained by them in this regard should accordingly be reckoned as bad in law.

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.

The CIT(Appeals), Chennai – 18 failed to appreciate that having surveyed the premises of the appellant on 12.03.2018, during the financial year 2017-18 relevant to assessment year 2018-19, the assessment of such sum as income of the appellant for the assessment year 2017-18 should be reckoned as bad in law.

The CIT(Appeals), Chennai – 18 failed to appreciate that, in the event, having not independently examined the nature of differential stock quantified (If any) during the course of assessment proceedings, was wrong, erroneous, incorrect, invalid, unjustified and not sustainable both on facts and in law.

The CIT(Appeals), Chennai – 18 failed to appreciate that the presumption of excess stock based on the physical verification at the time of survey was wholly unjustified and ought to have appreciated that the said presumption had no sanctity as well no scientific basis.

The CIT(Appeals), Chennai – 18 failed to appreciate that having not shared fully the methodology of estimation of excess stock, the components which were relevant and pertinent to validate the books of accounts were not gone into properly, thereby vitiating the theory of excess stock mooted by the revenue.

The CIT(Appeals), Chennai – 18 failed to appreciate that the entire computation of taxable total income was wrong was wrong,

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.

The Appellant craves leave to file additional grounds/arguments at the time of hearing.

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/-.

The brief facts of the case are that the assessee is a firm, engaged in the tile business. For the impugned year, the assessee filed its original return of income on 30.10.2017 declaring a total income of Rs.41,02,150/-. 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/-.

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.

In conclusion, the appeal for AY 2017-18 is dismissed.”

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

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.

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:

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.

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.

We have heard both the parties, perused materials available on record and gone through orders of the authorities below along with the paper book and case laws relied by the assessee. From the material available on record, we note that the sole issue is that the AO has made an addition on account of unaccounted stock based on statement taken during the survey amounting to Rs.74,28,135/-. There is no dispute regarding the fact that a survey u/s.133A of the Act was conducted on 12.03.2018 on the assessee and the survey team detected stock discrepancy of Rs.1,23,80,225/-. 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 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

In the result, appeal filed by the assessee is allowed.

अपीलाथ /Appellant 2.  यथ /Respondent 3.आयकर आयु!त/CIT– Chennai/Coimbatore/Madurai/Salem 4. वभागीय तन%ध/DR 5. गाड( फाईल/GF