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Facts
The assessee, a partnership firm engaged in steel fabrication, filed its return of income. During a survey under Section 133A, the assessee surrendered an amount. The Assessing Officer made additions based on a survey statement of an employee, which was not confronted to the partners. The CIT(A) confirmed these additions.
Held
The Tribunal held that additions based on employee statements recorded during survey are not sustainable without an opportunity for cross-examination. Such statements lack evidentiary value. The Tribunal restricted the addition over Rs. 8 lacs to Rs. 5 lacs.
Key Issues
Whether additions made solely on the basis of employee statements recorded during survey, without providing an opportunity for cross-examination, are valid. Whether such statements possess sufficient evidentiary value for making additions.
Sections Cited
133A, 143(3), 69C, 115BBE, 127
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Income Tax Appellate Tribunal, CHANDIGARH BENCH, ‘A’, CHANDIGARH
Before: SHRI LALIET KUMAR & SHRI KRINWANT SAHAY
Order Per Krinwant Sahay, AM : Appeal in this case has been filed by the assessee against the order dated 18.10.2021 passed by the Ld. Commissioner of Income Tax(Apepals)-3, Gurgaon for the Assessment Year 2019-20.
Grounds of appeal are as under:
1. That the Ld. CIT(A) has erred in confirming the addition of Rs. 6 lacs as per para 6.5, page 48
1. 366-Chd-2025 L.M. Fabrication, Distt. Solan 2 of the order and have also erred in holding that corroborated evidence was found for sustaining of addition of Rs. 6 lacs.
2. That the Ld. CIT(A) has confirmed the addition without allowing the cross examination of the statement recorded during survey of the employees and having not allowed the cross examination, the very basis of addition as confirmed by the CIT(A) is not in order as per the judgment of Hon'ble Apex Court in the case of M/s Andaman Timber Store, reported in 281 CTR 241.
3. That the Ld. CIT (A) has erred in giving the finding that the addition is based by some corroborated evidence, which is against the facts and circumstances of the case.
4. Notwithstanding the above said ground, the Ld. CIT(A) has erred in treating Rs. 6 lacs as unexplained expenditure u/s 69C read with section 11588E of the Income Tax Act.
5. That the Ld. CIT(A) has erred in confirming the addition of Rs. 3,80,000/- as per para 3.5 of the order and further treating the same as unexplained expenditure u/s 69C read with section 115BBE of the Income Tax Act.
6. That the Ld. CIT(A) has confirmed the addition without allowing the cross examination of the statement recorded during survey of the employees and having not allowed the cross examination, the very basis of addition as confirmed by the CIT(A) is not in order as per the judgment of Hon'ble Apex Court in the case 366-Chd-2025 L.M. Fabrication, Distt. Solan 3 of M/s Andaman Timber Store, reported in 281 CTR 241.
7. That the Ld. CIT(A) has erred in confirming the addition of Rs. 15 lacs as per para 9.2 read with para 9.4 of the order, which is against the facts and circumstances of the case.
8. That the Ld. CIT(A) has failed to appreciate that the whole of the addition is based on the statement recorded during survey and which has no evidencery value at all.
9. Notwithstanding the above said ground of appeal
, the entire addition of the amount of Rs. 15 lacs is not justified and only the appropriate addition of profit could have been made by the Ld. CIT(A).
10. That the appellant craves leave to add or amend any grounds of appeal before the appeal is finally heard or disposed off.
Brief facts of the case, as per the written submissions of the Assessee are as under: -
The Assessee is a case of Partnership Firm (Partners- Dr Bhupesh Gupta and Neelam Gupta) and it had been filing the Income Tax returns year after year and all the assessments of the company have been completed and there is no dispute with regard to any of the assessments framed earlier.
366-Chd-2025 L.M. Fabrication, Distt. Solan 4
The Assessee Firm is doing the business of manufacturing of steel fabrication at Village Bagbania. The raw material i.e Iron, Iron Sheets & SS Sheets are cut into pieces according to the requirement of the clients. The copy of Income tax return alongwith computation of income and Audited Profit and account and Balance Sheet for the year under consideration was enclosed. The returned income for the year under consideration was Rs. 916810/-. An Income tax survey under section 133A of the Act was conducted on the premises of the Assessee on 22.02.2019 alongwith M/s Akash Hospital & Diagnostic Centre, Nalagarh. The case of the Assessee was centralized and was transferred to DCIT/ACIT(Central) Shimla vide order dated 03.12.2020 u/sec 127 of the Act. The Assessee Firm duly surrendered an amount of Rs. 8,00,000/- during the survey proceedings. The Assessment in the case of the Assessee for the AY 2019-20 being the survey year, was completed u/sec 143(3) of the Act vide order dated 26.09.2021 wherein additions were made by the department on the basis of statement of employee of the Assessee firm i.e Sh Aman Gupta
366-Chd-2025 L.M. Fabrication, Distt. Solan 5 which was not even confronted to the partners of the Assessee Firm.
The Assessee was show caused by the Assessing Officer to furnish its detailed explanation in respect of the additions on account of difference in stock as on the date of survey. On considering the reply of the Assessee, the AO found it not to be tenable because the Assessee has just dismissed the document as dump document rather than accepting the transaction and reconciling the same as per the provisions of the Act. The AO found that the Assessee has under reported his income in consequence to misrepresentation and thereby made certain additions in the hands of the Assessee.
Aggrieved, the Assessee preferred an appeal before the CIT(A) who also confirmed the additions so made by the Assessing Officer.
The ld. counsel submitted that the CIT(A) has failed to appreciate that the whole of the additions is based on the statement recorded during survey which has no evidentiary value at all and as such the entire addition of 366-Chd-2025 L.M. Fabrication, Distt. Solan 6 Rs. 15 lacs are not justified and only the appropriate addition of profit could have bene made by the Ld. CIT(A). Further, the whole basis for making the addition is the statement of employee of the Assessee firm for which even no opportunity to cross examine was given by the Assessing Officer. The Ld. counsel relied on the decision of the Hon'ble Supreme Court in ‘CIT vs S Khader Khan Son, 25 taxmann.com 413 (SC) along with decisions of the other High Courts, wherein, it has been held that the statement recorded during the course of survey proceedings have no evidentiary value and cannot be relied on. It is further been contended that the noting recovered during survey are rough noting and no addition can be made based on the same. Similarly, it has been submitted that on the basis of stock statement, no addition can be made. Even if unaccounted sales are accepted, addition of only GP rate of 14.09% can be applied on alleged unaccounted sales. It has also been submitted that the benefit of set off from the surrendered amount has also not been provided and as such the whole
366-Chd-2025 L.M. Fabrication, Distt. Solan 7 basis of making the additions is on estimations. However, the AR fairly submitted that in respect of both the additions a sum of Rs. 3.5 lacs is payable by the Assessee over and above sum of Rs. 8 lacs.
Per contra that the Ld. DR submitted that the entire addition is required to be upheld.
We have gone through the written submissions of the Counsel of the Assessee, heard the arguments of the ld. Counsel, findings of the Assessing Officer given in the assessment order and the findings of the Ld. CIT(A) in the appellate order and the material available on record. We have also heard the Ld. DR who supported the order of the authorities below and submitted the entire additions are required to be upheld. After considering the totality of facts and circumstances, we are of the considered view that the addition over and above of Rs. 8 lacs is restricted to Rs. 5 lacs as no addition can be made in the hands of the Assessee on the basis of the statement given by the employee of the Assessee unless an opportunity to cross examine the same has been provided to the Assessee and 366-Chd-2025 L.M. Fabrication, Distt. Solan 8 something contrary is found. We also find support from the decision of the Hon'ble Supreme Court in CIT vs S Khader Kah Son (supra). Accordingly, Assessee, appeal is allowed partly.
In the result, appeal of the Assessee is partly allowed.
Order pronounced on 23.07.2025.