D.C.I.T.,CIRCLE-9(1), KOLKATA vs. M/S SHREE ANJANI SAREES PVT. LTD., KOLKATA

ORDER

Per Shri A. T. Varkey, JM:

C.O. No. 13/Kol/2020 M/s Shree Anjani Sarees Pvt. Ltd. A.Y. 2016-17 3. Brief facts of the case is that the assessee has filed its return of income for AY 2016-17 disclosing the total income of Rs. 1,23,58,190/-. The AO notes that the case was selected for scrutiny manually under compulsory category as per guideline of the CBDT. The AO notes that during the relevant assessment year, the assessee was engaged in the business of trading in fabrics, lace, borders and sarees. The AO notes that a survey u/s 133A of the Income Tax Act, 1961 (hereinafter referred to as the Act) was conducted in the office premises as well as godown of the assessee company on 12.10.2015. And in the course of survey, according to AO, physical stock of sarees were inventorised and stock aggregating to Rs. 3,59,51,307/- was found. However the AO notes that the computerized books of account of the assessee reflected stock only at Rs. 1,10,80,923/- on the said date. Thus, according to AO, undisclosed stock of sarees amounting to Rs. 2,48,70,384/- was found [Rs. 3,59,51,307/- - Rs. 1,10,80,923/-]. According to AO the assessee’s director failed to reconcile the said stock on the day of survey and then, offered the same as its undisclosed stock for the purpose of taxation by making payments of additional advance tax amounting to Rs. 75 Lacs. Thereafter according to AO, during the assessment proceedings, it was found that neither the assessee has disclosed the undisclosed stock (Rs. 2,48,70,384/-) in its accounts nor in its return of income. Therefore, a show cause notice (SCN) was issued calling upon the assessee to show cause as to why the undisclosed stock amounting to Rs. 2,48,70,384/- found during the course of survey should not be added to its total income. In the SCN to the assessee it was also reminded to it that the director of the assessee company had admitted during the survey the difference of Rs. 2.50 crores as the assessee’s unexplained stock and consequently had also paid the additional amount as advance tax on the suppressed stock. Pursuant to the SCN, the assessee filed its reply denying the allegation of excess stock found during the survey by letter dated 21.12.2018 which according to AO is nothing but a new story to wriggle out of the situations and did not find any merit in the allegation/infirmities pointed out by the assessee in respect of the inventory made during the survey on page 76. Further in its reply the assessee had contended that page 76 of the inventory got prepared later and not during the survey by pointing out the apparent discrepancy viz., the handwriting on it 2 | P a g e C.O. No. 13/Kol/2020 M/s Shree Anjani Sarees Pvt. Ltd. A.Y. 2016-17 appears to have been not written on the survey spot/premises etc. According to assessee, a perusal of page 76 of inventory made by the survey team would reveal that all other pages have been written in a hurried manner (running hand and not legible) and only page 76 has been written in neat and legible hand writing in a peaceful atmosphere & circumstances; and further according to assessee, the inventories made also includes the dead stock of Rs. 8,79,415/-. In the assessment order the AO reproduced the relevant portion of the reply of the assessee from page 2 to 6 and thereafter the AO opined that there is no merit in the aforesaid reply and he repelled the allegation of assessee in respect of page 76 of the inventory made during survey by stating that the details of inventory were taken during the survey are written from page no. 1 to 86 wherein the signature/initial of the assessee’s director is affixed and the same initial/signature is seen at page 76 of the inventory also and since there are several officers who takes part in the survey operation, according to AO, it is natural that hand-writing differ and so he rejected the said claim/allegation of the assessee. Further he observed from the details of inventories recorded at page 76 that the value of each fancy sarees has been duly recorded which ranges between Rs. 3,200/- to Rs. 6,500/- and that the quantity of each saree in stock has also been recorded. And according to AO, the value of the sarees recorded in other pages is more or less same as that recorded in this page i.e. page 76. Thereafter the AO reproduced at page 6 and 7 of the assessment order few statements given by the Director of assessee company Shri Gopal Singrodia i.e. question and answer of question no. 8, 9 and 10 which is reproduced as under: “Q.8. In course of survey u/s 133A of the I.T. Act, 1961 stock found and inventorised aggregated to Rs. 3,59,51,307/- whereas the books of a/c shown the stock at Rs. 1,10,80,923/- as on date. Please explain the discrepancy? Ans: At the present moment I am not in a position to explain the discrepancy without going through the books of a/c. It may also be noted that the stock inventorised by you contains some dead stock. However, in order to by peace of mind I am disclosing the difference in stock of Rs. 2,50,00,000/- as my unexplained stock. Q.9. Do you agree with the method of stock taking. Ans: Yes. Q.10. Would you like to add or alter your above statement? Ans: Yes, I am giving six postdated cheques (five cheques of Rs. 13,00,000/- and one cheque of Rs. 10,00,000/-] as payment of additional advance tax on account of unexplained stock. 3 | P a g e C.O. No. 13/Kol/2020 M/s Shree Anjani Sarees Pvt. Ltd. A.Y. 2016-17 The cheques are payable on 20th of every month starting from 20th October, 2015 to 20th of February, 2016 and the last cheque will be payable on 15th of March, 2016.”

Thereafter the AO observed that from the aforesaid statement it is clear that the assessee company could not reconcile the difference in stock during survey as well as post survey proceedings. And since the director of the assessee company has accepted that there was unexplained stock of Rs. 2,48,47,384/- on the survey day and the assessee had already paid the additional advance tax on the said unexplained stock, he was of the opinion that excess stock of Rs. 2.48 crore discovered during survey since could not be properly explained /reconciled by the assessee needs to be taxed. Further the AO notes that the assessee in its reply also contended that even if there is unexplained stock of Rs. 2.48 crores, then also the same cannot be added in its entirety as the income of the assessee. This contention of the assessee according to AO signifies that the assessee is accepting that assessee had in its godown undisclosed stock of Rs. 2.48 crores which was suppressed by it. The AO, therefore, concluded that the undisclosed stock found in the course of survey was nothing but its undisclosed investment during the relevant financial year and the dead stock of Rs. 8,79,415/- has also been purchased by the assessee by using its own undisclosed funds. Thereafter, the AO notes that in its reply the assessee has pointed out certain arithmetical mistake i.e. as per page 86 of inventory though the total amount of stock was only amounting to Rs. 6,14,928/-, however the total amount of undisclosed stock was wrongly shown as amounting to Rs. 7,37,913/- instead of Rs. 6,14,928/- which give rise to a difference of Rs. 1,22,985/- [Rs. 7,37,913/- - Rs. 6,14,928/-]. The AO accepted the mathematical error and hence the AO excluded the said amount (Rs. 1,22,985/-) from the undisclosed stock. Thus, balance amount of Rs. 2,47,24,399/- was added to the total income of the assessee as per Section 69B of the Act and thereafter the AO notes that the assessee has offered gross profit @ 8.49% of its turnover. The AO justified the addition of entire stock of sarees by reasoning out that the assessee might have already claimed all the expenses to its profit and loss account for the relevant assessment year, so the undisclosed stock is nothing but the undisclosed investment of the assessee. Further the AO observed that the assessee has not reflected the undisclosed stock in its books, which fact, according to AO, 4 | P a g e C.O. No. 13/Kol/2020 M/s Shree Anjani Sarees Pvt. Ltd. A.Y. 2016-17 signifies that the assessee did not include the undisclosed stock in its closing stock, so according to AO, the assessee must have sold the said excess stock during relevant assessment year. While calculating the gross profit of the undisclosed stock which was supposed to have been sold, the AO excluded the dead stock of Rs. 8,79,415/- and thereafter the AO calculated the gross profit of the assessee @ 8.49% of Rs. 2,39,67,969/- [Rs. 2,48,47,384/- - Rs. 8,79,415/-] and thus made another addition of G.P of Rs. 20,34,881/-.

Pages 27 to 40 are not found in the inventory report.

Part 3 (2nd half) comprising of Pages 41 to 43 is the inventory of fancy fabrics. Each Page of the said inventory has description showing item, brand, quantity, selling price per unit, cost price per unit and total cost price. This is a detailed inventory showing the length and breadth of fancy fabrics.

Pages 44 to 45 are not found in the inventory report.

Part 4 comprising of Pages 46 to 48 is the inventory of printed fabrics, dupian fabrics, saree borders, chinki fabrics etc. Each Page of the said inventory has description showing item, brand, quantity, selling price per unit, cost price per unit and total cost price. This is a detailed inventory showing the length and breadth of different kinds of fabrics.

Pages 49 to 60 are not found in the inventory report Part 5 comprising of Pages 61 to 70 is the inventory of embroidery sarees which is described as ‘fresh stock - finished goods’. Each Page from 61 to 69 of the said inventory has description showing Item, brand, code, quantity, selling price per unit. This is a detailed inventory showing the code of embroidery sarees. Page 70 contains the sum total of the value of embroidery sarees found at Pages 61 to 69 and also the value of fabrics found at Pages 71 to 77.

It is to be noted the total number of embroidery sarees from Pages 61 to 69 is 1053 sarees for the total value of Rs.28,98,050/-.

Part 6 comprising of Pages 71 to 85 inter alia include of the following Items:

Pages 71 to 73 is the inventory of visces, borders, art dupian, net embroidery laces taken from pooja room. Each Page of the said inventory has description showing item, quantity, cost price per unit and total cost price. This is a detailed inventory showing the description of different kinds and sizes of borders used on sarees.

Pages 74 to 75 comprises of fancy fabrics, art dupian, laces and borders taken from godown. Each Page of the said inventory has description showing item, quantity, cost price per unit and total cost price. This is a detailed inventory showing the description of different kinds and sizes of fabrics.

Page 76 is described as ‘finished sarees' comprising of inventory of embroidery sarees. No code of the items has been provided nor the location of the premises from which such items were found have been provided The handwriting appearing on this Page is different from the handwriting appearing on all after Pages.

It is to be noted that this is the disputed Page of the inventory which the appellant has retracted by filing an affidavit before the AO on 21.01.2016. In this Page the total number at sarees inventorized is 5596 sarees as against 1487 sarees found on 6 | P a g e C.O. No. 13/Kol/2020 M/s Shree Anjani Sarees Pvt. Ltd. A.Y. 2016-17 pages 61 to 69, 77 and 80 to 82 of the inventory report. The value of sarees inventorized on this Page is of Rs.2,38,88,000/- as against Rs.38,05,550/- found on Pages 61 to 69, 77 & 78 and 89 to 82 of the inventory report. Pages 77 to 78 is the inventory of fabrics, borders, laces, bandhni sarees and embroidery sarees (36 pieces), taken from order room. Each Page of the said inventory has description showing item, quantity, selling price (at some places) cost price per unit and total cost price. This is a detailed inventory showing the description of different of borders and laces. Page 79 is the inventory of ciffon synthetic, visces, cancon; taken from “upper three bonks’. The said inventory has description showing item, quantity, cost price per unit and total cost price. Page 80 is the inventory of embroidery sarees, taken from the 2nd row of the show room. The said inventory has description showing item, quantity, cost price per unit and total cost price. This is a detailed inventory showing the description of embroidery sarees found from each rack on the 2nd row of the showroom. Page 81 is the inventory of embroidery sarees, taken from the 3rd row of the show mom. The said inventory has description showing item, quantity, cost price per unit and total cost price. This is a detailed inventory showing the description of embroidery sarees found from each rack on the 3rd row of the showroom. Page 82 is the inventory of embroidery sarees, taken from the 4th row of the show room. The said inventory has description showing item, quantity, cost price per unit and total cost price. This is a detailed inventory showing the description of embroidery sarees found front each rack oh the 4th row of the showroom. Pages 83 to 84 is the inventory of satin, viscose, different nets etc. taken from raw material room, Each Page of the said inventory has description showing item, quantity, cost price per unit and total cost price. This is a detailed inventory showing the description of different of satin, viscose and nets. Page 85 is the inventory of velvet, tissue, traders etc. taken from the kitchen room. Part 7 comprising of Page 86 is the inventory of dupian fabrics, cut piece, lace and net. The said inventory has description showing item quantity, cost price per unit and total cost price. It is therefore seen that the complete inventory prepared during the course of survey proceedings has been discussed and analyzed in detail as above. According to the survey party there was a discrepancy between the physical stock of sarees and the stock reflected in the books of accounts. This was confronted to the Director of the appellant, in his statement recorded u/s 133A, the Director was unable to explain the discrepancy and therefore admitted to pay tax on the difference, if any, by way of unexplained stock. Subsequent to conclusion of survey, the appellant requested the AO to provide copy of the inventory report so that the explanation regarding the alleged discrepancy could be furnished. Pursuant to the request made by the appellant, a copy of the inventory report was handed over to them by the AO, On scrutiny of the said report, the appellant noted patent errors and discrepancies in the stock inspection report and therefore on 22.01.2016 the Director of the appellant 7 | P a g e C.O. No. 13/Kol/2020 M/s Shree Anjani Sarees Pvt. Ltd. A.Y. 2016-17 filed a retraction statement claiming that Page No. 76 of the stock taking report was false. The relevant extracts of the retraction affidavit are reproduced as below: “5. That my answer to. Question No. 8 in the said statement was given under duress and coercion and without being afforded and opportunity to peruse the book of accounts, stock register and the physical stock found during the course of survey.

In the appellate proceedings the A/R of the appellant reiterated the submissions made before the AO. The contentions raised by the appellant are two-fold which are as under:

(a) The physical stock taking report of fee Revenue, particularly Page No, 76 of the said report was materially false and hence it was claimed that stock of 5596 sarees recorded on that Page should be ignored. Once the same is overlooked, physical stock on the date of survey stands reconciled with books and addition of Rs. 2,47,34,399/- made u/s 69B stands deleted, and (b) without prejudice to (a), if it is held that there was discrepancy in stock even then it was only the gross profit margin embedded therein which could alone be assessed by way of undisclosed income of the appellant and not fee entire value of unexplained stock.

I have given due consideration to the facts arid the observations of the AO arid also the arguments put forth by the A/R of the appellant. The moot point in this appeal is regarding the veracity of Page No. 76 of the inventory report prepared during fee course of survey. The A/R of the appellant argued that the inventory was erroneous because it was physically impossible to store 7038 sarees in the appellant’s premises surveyed by the AO, In order to verify this contention, the following details/documents were called from the assessee along with the architect’s plan of the premises. - Layout plan of the shop and store room area covered during survey, - Diagrams of the rack sizes and the layout showing capacity and storage volume. - Photographs of the different sections of the shop and storage area to show how much sarees can be stored therein. - Closing stock of sarees and other fabrics for the last three years, - Monthly stock as per books in last thirty six months, and - Month- wise details of embroidery sarees sold in last three years. The appellant vide submission dated 30.10.2019 has submitted the schematic drawing of the showroom prepared by M/s Vikash Furniture which showed that the business premise of the appellant is divided into three sections namely, show room and two store rooms. The said drawing also contained the detailed description of the internal storage spaces along with rack sizes where the sarees are regularly stored. The A/R of the appellant also furnished few photographs of the showroom and storerooms where the stock of sarees and fabrics was stored. It has been certified by the architect that the stock room and showroom had the maxi mom capacity of storing 1680 and 780 embroidery sarees respectively.

C.O. No. 13/Kol/2020 M/s Shree Anjani Sarees Pvt. Ltd. A.Y. 2016-17 It is noted that the assessee besides dealing in sarees also deals in fabrics. There is no dispute with regard to the stock of fabrics whose details are noted at Page Nos. 1 to 60, 71 to 75, 79 and 83 to 86 of the inventory report. The stock details of sarees were noted on Pages 61 to 70, 76, 77 & 78 and 80 to 82 of the inventory report. Total value of sarees estimated by the survey team was Rs. 2,76,93,550/-. On scrutiny of the inventory report it is noted that barring Page No.76 which contained details of stock of 5596 sarees valued at Rs.2,38,88,000/-, the remaining Pages contained detailed description of the stock of sarees found totaling 1487 sarees for the value of Rs.38,05,550/-. These pages of Inventory have details which are found lacking in Page No. 76 of the inventory report. For example. Pages Nos. 77 & 78 of the inventory report contained details of sarees, fabrics, borders, laces etc. stored in ‘Order Room?, In these pages individual item wise description of the material found is given and the total serial numbers of sarees are 5 out of 29 and value of 36 sarees inventorized on these two pages was only Rs. 1,09,000/-, Pages 61 to 69 of inventory report contained detailed description of embroidered sarees which were described as ‘fresh stock’. The stock report claims this to be Part-5 of the inventory report. Front these pages it is observed that there are total 181 serially inventorized saree items giving details of the stock of 1053 sarees. On each Page the survey team recorded the quantities of sarees found of any particular description. It is observed that the number of sarees of any particular description found by the survey team ranged between 2-11 sarees. Page 70 of the inventory report contained the summary of stock of embroidered sarees detailed on Pages 61 to 69 from which k was noted that on each Page the total number of sarees recorded were as follows: Page No. Number of sarees Value 61 115 3,32,300 62 101 2,64,700 63 135 4,38,200 64 81 2,41,400 65 116 2,89,850 66 97 3,53,700 67 106 3,08,800 68 84 2,27,100 69 218 4,42,000 Total 1053 28,98,050/- From the said summary it is noted that on each Page the quantity of sarees found did not exceed maximum of 218 sarees and the value of sarees found was maximum at Rs. 4,42,000/-.The aggregate value of sarees noted on nine pages totalled Rs.28,98,050/-. Similarly Page Nos. 80 to 82 of the inventory report contained details of sarees found on 2nd , 3rd & 4th rack in the showroom. While preparing the inventory report, the survey party also noted the number of sarees in each rack. The maximum number of sarees inventoried in one particular rack is 16 sarees i.e. in Rack No. 6 of 2nd row of the showroom. From these Pages it was noted that the number of sarees stored in each rack ranged between 3-16 and the total number of sarees stored in showroom was only 425 having value of Rs.7,98,500/-, Except for the items inventoried in the Pages 61 to 70, 76, 77 & 78 and 80 to 82, the remaining Pages contained details of stock of fabrics, laces, borders etc. The total number of sarees noted on these Pages was 7083 sarees and corresponding value thereof was Rs.2,76,93,550/-. As opposed to 1487 number of sarees recorded on 16 Pages (61 to 10 | P a g e C.O. No. 13/Kol/2020 M/s Shree Anjani Sarees Pvt. Ltd. A.Y. 2016-17 70, 77 & 78 and 80 to 82) and together valued at Rs.38,05,550/-, Page No, 76 of the inventory report alone contained 5596 sarees valued at Rs. 2,38,88,000/-. Moreover it is notice that on Page No. 76, the code number, fo'catibn and the rack details are missing which can otherwise be found on other Pages inventorying sarees. In Page Nos, 61 to 70 and 77 to 82, the average number of sarees per Page was 93 sarees valued at Rs.2560/- each whereas Page No. 76 atone contained inventory of 5596 sarees valued at RsA27Q/- per saree in comparative terms, the number of sarees recorded on this single Page was more than three times the sarees found and recorded on 16 Pages of the inventory report. In value terms also the stock value noted on Page No. 76 was more than 6 times of the saree stock recorded on the other 16 pages. Further in respect of the stock recorded on Pages 6.1 to 70 and 80 to 82, the survey team had provided detailed description including the places from where the sarees were stored along with the code numbers etc. In respect of stock of sarees recorded on Page No. 76, it is noted no detailed description has been given nor the survey team specified the exact ideation from where such huge stock of 5596 sarees was found stored. On examination of the inventory report, I also note that the manner in which the entries were recorded by the survey team on other Pages, substantially differed from the manner in which the entries were recorded on Page No, 76. Even the handwriting of Page 76 differs significantly from the handwriting on other Pages of the inventory report. It was also noted that average value of embroidered sarees which were found on other Pages varied between Rs. 2000 to Rs. 4000 whereas on Page No. 76 the value of saree was taken to be between Rs.3200 to JRs.6500. Therefore it is observed that there are significant discrepancies in the stock of embroidery sarees recorded on Page No. 76 of the inventory report.

From the material brought before me, I find that the assessee’s business premises at P-16, Kalakar Street, 5th Floor, Kolkata - 700 007 which was subjected to survey admeasures only 800 sq, ft. As directed during the course of hearing, the A/R of the appellant furnished the layout plan of the showroom prepared by M/s Vikash Furniture which contained the detailed description of the internal storage spaces along with few photographs of the showroom and storerooms where the stock of sarees and fabrics was stored. On examination of the schematic drawings of the showroom and the photographs, it is observed that the number of racks located in the showroom & storerooms did not have adequate capacity to store 7083 embroidered sarees which is also been corroborated by the architect. In fact it is noted that on Page Nos. 61 to 70 and 76 to 82 where the survey party noted stock of other embroidered sarees, the average numbers of sarees stored per rack was in the range of 2-16 sarees. However on Page No. 76 the survey party has noted sarees in the range of 390 to 526 sarees per rack. The architect after having personally visited the premises has prepared an architectural diagram of the storage area. According to him the maximum storage capacity of the appellant’s premises was 2460 embroidery sarees. The appellant also vehement;, argued that the premises of the appellant in no way could accommodate or store more than 2500 embroidery sarees. Therefore to verify the explanation put forward by the assessee which was supported by the schematic drawings of the showroom and store rooms as prepared by the architect, the A/R of the appellant was asked to submit the details of average monthly stock of sarees for the immediate past three years and also provide the average monthly sales for the same period. On examination of the data provided by the appellant, it is noted the average number of embroidered sarees which the appellant kept in stock was 582, 1603 & 2230 for the financial years 2012-13, 2013-14 & 2014-15 respectively. 11 | P a g e C.O. No. 13/Kol/2020 M/s Shree Anjani Sarees Pvt. Ltd. A.Y. 2016-17 From these figures it is apparent that in none of past three years, the audited figures at any time showed thnr foe assessee maintained stock of 7083 sarees which the survey team Claimed to have found on the date of survey. From the details of average monthly sales, also note that average sale price realized by the assessee on sale of embroidered sarees was Rs.3,094/-, Rs.3,264/- & Rs,3,313/- for the financial years 2012-13, 2013-14 & 2014-15 respectively. On the contrary the average sale price adopted for valuing stock recorded on Page 76 was in the range of Rs.3200/- to Rs.6500/-. This material discrepancy in value and quantity supports the assessee’s contention that the stock recorded on Page No. 76 did not reflect the true state of affairs.

In this factual background the AO before passing of the impugned order should have objectively considered the appellant’s retraction statement dated 21.01 .2016 wherein he bad categorically dented the contents of Page No. 76 of the inventory report and the statement of the Director recorded u/s 133A with reference to the said inventory report admitting additional income of Rs. 2,50,00,000/-. This retraction statement has been filed by the appellant within one week of the receipt of the copy of the stock inventory report prepared during the course of survey so it cannot be said that it was an after-thought. From the perusal of the assessment order, I note that although the appellant had made submissions denying the contents of Page No. 76 of the inventory report yet the addition was made solely on the ground that the Director in his statement u/s 133A had admitted to pay tax on income of Rs. 2,50,00,000/-, However this statement has subsequently been retracted on the ground that it was given under duress in a stressful state of mind during the course of survey without properly going through the inventory report. The appellant after having critically examined the stock inventory report has filed a retraction statement with a detailed explanation as to why the inventory is not correct, particularly with, regard to Page No. 76 of the inventory report. The AO however has not made any enquiry or investigation in the context of the retraction statement filed. Except relying on the statement u/s 133A, the AO did not bring on record any further material to negate the appellant's contention or to corroborate the addition. In this background therefore, the material question to be answered is whether based solely on the statement recorded in the course of survey (which was subsequently retracted) any addition can be made. This very issue was considered by the Hon’ble Madras Court in the case of CIT Vs S Khader Khan (300 ITR 157) wherein the Court recorded following findings:

“In the instant case, there was a survey operation conducted under section 133A of the Act in the assessee's premises and a statement was recorded from one of the partners. Assuming there-were discrepancies and irregularities in the books of account maintained by the assessee, an offer of additional income for the respective assessment years was made by the partner of the firm. But, such statement, in view of the scope and ambit of the materials collected during the course of survey action under section 133A shall not have any evidentiary value, as rightly held by the Commissioner and the Tribunal since such statement was not attached to the provisions of section I33A of the Act. 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. Since there was no material on record to prove the existence of such disclosed income or earning of such income in C.O. No. 13/Kol/2020 M/s Shree Anjani Sarees Pvt. Ltd. A.Y. 2016-17 the hands of the assessee, it could not be said that the Revenue had lost lawful tax payable by the assessee.

The Hon’ble High Court in the said judgment has laid down the following principles of law regarding the evidentiary value of statement recorded in the course of survey u/s 133A of the Act. (i) An admission is an extremely 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 and that the assessee should be given a proper opportunity to show that the books of account do not correctly disclose the correct state of facts, vide decision of the apex court in Pulkngode Rubber Produce Co. Ltd. vs. State of Kerala [1973] 91 ITR 18: (ii) In contradistinction to the power under section 133A, section 132(4) of the Income-tax Act enables the authorised 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 section 133A of the Income- tax Act is not given any evidentiary value obviously for the reason that the officer is not authorised to administer oath and to take any sworn statement which alone has evidentiary value as contemplated under law, vide Paul Mathews and Sons v. CIT [2003] 263 ITR 101 (Ker): (iii) The expression such other materials or Information as are available with the Assessing Officer" contained in section 158BB of the Income-tax Act. 1961, would include the materials gathered during the survey operation under section 133A, vide CIT v. G. K. Senniuppan [2006] 284 ITR 220 (Mad): (iv) The material or information found in the course of survey proceeding could not be a basis for making any addition in the block assessment, vide decision of this court in T. C (A) No. 2620 of2006 (between CIT v. S Ajit Kumar [2008] 300 ITR 152 (Mad) (v) Finally, the word "may" used in section !33A(3)(iii) of the Act. viz., "record the statement of any person which may be useful for, or relevant to, any proceeding under this Act", as already extracted above, makes it clear that the materials collected and the statement recorded during the survey under section !33A are not conclusive piece of evidence by itself. The above judgment of the Hon’ble Madras Court was upheld by the Hon’ble Supreme Court in 352 ITR 480. Similar view was expressed by the Hon’ble Delhi High Court in its judgment in the case of Dhigra Metal Works Vs CIT (196 Taxman 488). The facts of the said case are that a survey action was conducted at the premises of the assesses and discrepancies in the physical stock, vis-a-vis book stock were found. One of the partners of the assessee firm could not explain the said difference at that particular point of time and, therefore, to buy peace of mind, certain additional income was offered for assessment. Subsequently, the assessee 13 | P a g e C.O. No. 13/Kol/2020 M/s Shree Anjani Sarees Pvt. Ltd. A.Y. 2016-17 firm submitted that the statement of partner about stock was incorrect; and that the impugned discrepancy had been reconciled as it was only a mistake. The assessee therefore withdrew the offer for additional income on account of excess stock. The AO however relying on the statement of the partner given in survey u/s 133A added the excess stock found as the income of the assessee. On appeal the Hon’ble High Court held as under:

"From the aforesaid, it is apparent that while section 132(4) of the Act specifically authorizes an officer to examine a person on oath, section I33A does not permit the same.

13. The Kerala High Court in Paul Mathews & Sons v, CIT[2003] M3 JTR 101 and Madras High Court in C/T v. S. Khader Khan Son [2008] 300 ITR 137 have also taken a similar view. The relevant portion of the Kerala High Court judgment in the case of Paul Mathews & Sons (supra) is reproduced hereinbelow :— "The provision also enables the income-tax authority to impound and retain in his custody for such period as he thinks fit any books of account or other documents inspected by him, provided the authority records his reasons for doing so and also shall not retain the books of account for a period not exceeding 15 days. Section 133A(3)(iii) enables the authority to record the statement of any person which may be useful for, or relevant to, any proceeding under the Act. Section 133A. however, enables the income-tax authority only to record any statement of any person which may be useful, but does not authorize taking any sworn statement. On the other hand, we find that such a power to examine a person on oath is specifically conferred on the authorised 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 authorised officer to examine a person on oath and any statement made by such person daring such examination can also be used in evidence under the income-tax Act. On the other hand, whatever statement is recorded under section 133A of the income-tax Act it is not given any evidentiary value obviously for the reason that the officer is not authorised to administer oath and to take any sworn statement which alone has evidentiary value as contemplated under law. Therefore, there is much force in the argument of learned counsel for the appellant that the statement elicited during the survey operation has no evidentiary value and the Income-tax Officer was well aware of this,"

14. Moreover, the word 'may' used in section 133A(3)(iii) of the Act clarifies beyond doubt that the material collected and the statement recorded during, the survey is not a conclusive piece of evidence by itself.

The facts of the impugned case are similar. In the present case also, excess stock was found by survey patty u/s 133A which was admitted by the Director to buy peace of mind. Subsequently however the appellant had retracted the statement of the Director by way of a sworn affidavit. The AO however without rebutting the affidavit and the contentions raised therein regarding the discrepancies pointed out in the inventory report simply proceeded to make addition based on the statement of the Director recorded u/s 133A of the Act. Therefore, on conjoint reading of these judgments it is noted that the statement of an assessee recorded in the course of survey u/s 133 A cannot be the conclusive evidence tor justifying an addition to the asses, income. It is necessary for the AO to substantiate the said statement with corroborative evidence and in absence of any tangible material to support admission by an assessee, it is not open for the AO to make addition solely based on the admission made in the course of survey. Applying this judicial principle to the present case, it is noted that there were obvious and patent discrepancies and infirmities the inventory report prepared by the survey team. The statement of the Director on the basis of which the AO justified the addition was retracted by the Director of the appellant in writing on 21.01.2016. Thereafter the AO did not bring on record any tangible material to justify the addition.

It is observed from the appellant’s statement that according to them at best 2500 embroidery sarees could have been physically found from its premises. As noted above, the Director of the appellant has pointed out the discrepancies noted on Page No.76 of inventory report. It is however never disputed by the appellant either before the AO or before the undersigned that the stock physically found on the date of survey could be fully reconciled with the stock records maintained. The case of the appellant rests on the fact that maximum upto 2500 sarees could be accommodated at his own premises, Therefore, even by assesses's own admission the capacity of the appellant’s showroom to hold sarees was approximately 2500 sarees, whereas as per the appellant’s books number of sarees held in stock at the time of survey was 1572. Apparently therefore the number of sarees available with the assesses at the time of survey was excess by 928 sarees. As per the appellant’s books for the relevant year, the average cost of embroidered sarees was approximately Rs.3000/- and therefore 1 hold that at the time of survey the value of excess stock of 928 sarees was Rs.27,84,000/- (928 X 3000) I thus uphold the addition of Rs 27,84,000/- being value of excess stock of 928 sarees and the remaining sum o1 Rs. 2,19,40,399/- (2,47,24,399 - 27,84,000) stands deleted.

Since the said stock did not reflect in the appellant’s books for the relevant financial year, I agree with the AO’s proposition that such excess stock was sold outside the books and thereby gross profit at the rate of 8.49% was required to be further added as appellant’s income. Accordingly the addition of Rs. 2,36,362/- (8.49% of 15 | P a g e C.O. No. 13/Kol/2020 M/s Shree Anjani Sarees Pvt. Ltd. A.Y. 2016-17 Rs.27,84,000) is retained and the remaining sum of Rs. 17,98,519/- (20,34,881- 2,36,362) is deleted. Overall, addition made by the AO is restricted to Rs. 30,20,362/-. Therefore these grounds in appeal are partly allowed. IV. In view of the above the appeal of the assessee treated as partly allowed.

of the department alleging violation of Rule 46A is without merits and for this proposition he relied on the decision of this Tribunal in DCIT vs. Century Plyboards (I) Ltd. in for AY 2014-15 dated 04.11.2020 wherein similar issue had come up for adjudication, and the Tribunal in that case held as under:

29. ………………………. We note that it was with a view to further verify the averments of the assessee and in exercise of his co-terminus powers that the ld. CIT(A)had issued enhancement notice u/s 251 of the Act and, thereafter made suo moto enquiries in exercise of the powers vested in him u/s 250(4) of the Act. Hence, it was a clear case of exercise of overriding power by ld. CIT(A) in terms of Rule 46A(4) and it was not a case where the assessee on his own volition had furnished additional evidence or fresh document, which would have been subjected to sub- rule (1) to (3) of Rule 46A of the Rules. In the instant case, the explanations regarding the factors influencing the higher profitability of the eligible Assam Unit had come on the record of the ld. CIT(A), because he had decided to examine the facts of the case in depth and then adjudicate upon the matter on the basis of evidence and material, thus, gathered. We note that the ld. CIT(A) was empowered to do so under the provisions of section 250(4) of the Act. The result of such enquiry conducted by him could have either gone to further cement or enhance the case made out by the AO or help out the assessee against the findings of the AO. In the instant case, the results of the enquiries thus conducted supported the case of the assessee and not that of the Revenue. However, the fact remains that such material was gathered by the ld. CIT(A) on his own motion, and therefore there was no requirement, in law for him, to consult the AO on the same. Our foregoing proposition is supported by the following judicial precedents: − CIT vs Sagar Construction (P) Ltd. (56 taxmann.com 434) [Patna HC] − PCIT vs KM Sugar Mills Ltd. [ITA No. 187 of 2016] [Allahabad HC] − ITO vs Industrial Roadways (112 ITD 293)[ITAT, Mumbai] − DCIT vs NE Technologies India (P) Ltd. (47 taxmann.com 405) [ITAT Hyderabad] 17 | P a g e C.O. No. 13/Kol/2020 M/s Shree Anjani Sarees Pvt. Ltd. A.Y. 2016-17

30. Hence, we do not find any merit in the ld. CIT. DR’s plea for sending the issue back to the file of the AO. Moreover, we find that the ld. CIT, DR was also unable to point out any perversity in the factual findings recorded by Ld. CIT(A), therefore, sending this issue back to AO will be abuse of process of law.”

7. Thereafter coming to the merits, the Ld. A.R submitted that survey took place on 12.10.2015 and it would be clear from the reply given by the assessee to question no. 8 (supra) that the assessee’s director expressed his inability to explain the discrepancy without going through the books of accounts; and since the survey was continuing till early hours of night and next day morning, and the director being an elderly person was under tremendous pressure and had made the statement under duress with a view to buy peace of mind. So according to him, the conditional offer disclosing the difference of stock as unexplained stock cannot be the basis for addition of entire stock. And thereafter according to Ld. A.R, the assessee had moved an application before the AO to give a copy of the inventories prepared by the survey team; and pursuant to same, the assessee received the copy of inventory prepared by the survey team only in the month of December, 2015; and after going through the contents of the inventory report made by the survey team to their astonishment found glaring discrepancies especially in page 76 of survey report, on the basis of which the assessee’s director had retracted the statement in respect of undisclosed stock by filing a letter dated 20.01.2016 and drew our attention to page 104 to 106 of PB wherein an Affidavit sworn by Shri Gopal Singrodia, director of assessee company is found placed. And from a perusal of the same, it reveals that Shri Gopal Singrodia admits about the survey u/s 133A which was conducted on the business premises of the assessee on 12.10.2015 wherein his statement was recorded by ITO, Ward-9(4), Kolkata during the wee hours/mid night on 12.10.2015. According to Director, at the time of recording of the statement he was not in proper state of mind and was under immense pressure and, therefore, the contents of the statement recorded by survey team are not fully correct and especially the answer given by him to question no. 8 was obtained under duress and due to coercion; and the Ld. AR pointed out that from a perusal of the answer to question no. 8, it can be noticed that the answer was given with a caveat that for giving the answer to the 18 | P a g e C.O. No. 13/Kol/2020 M/s Shree Anjani Sarees Pvt. Ltd. A.Y. 2016-17 said question he needs to look into the books of accounts, stock register vis-a-vis the physical stock found during the course of survey. Further it was submitted in the affidavit that after having received the copies of inventories/stock statement only on 20.11.2015, he found that page 76 of the said inventory is false and concocted, so erroneous inasmuch as the contents therein appears to be cooked up/fabricated/incorrect and according to assessee, if this page 76 is removed and some arithmetical errors are corrected, then assessee can reconcile the stock physically examined vis a vis its regular books maintained by it on that date on its computer; and according to him, the answer to question no. 8 offering sum of Rs. 2.50 crores by way of difference in stock need to be appreciated in this back ground as well as was given without understanding the correct facts and provision of law and that too under duress and coercion, so according to him could not have been acted upon by the AO against the assessee. In the light of the aforesaid facts, the director of Assessee Company contends in his affidavit that there was no understatement or undisclosed stock as on 12.10.2015 which document we note has been notarized. According to Ld. A.R since the survey statement recorded u/s 133A has been retracted in few weeks after receipt of the copy of inventories recorded and since the admission made was on the basis of mistake of fact which the assessee could demonstrate, the admission made by the assessee during the survey operation cannot be used against him (assessee) as held by the Hon’ble Supreme Court in CIT vs. S. Khader Khan & Sons in [2013] 352 ITR 480 (SC)] and since it (survey statement) was based on wrong facts and given under duress does not have any evidentiary value, it cannot be used against the assessee. According to Ld. A.R, from a perusal of page 76 of inventory (placed at pg.89 of PB) it can be seen that all other pages of the inventory found placed from page 44 to 99 (Pg 1 to 86) have been written in an illegible manner, in hurry and it included the code numbers of designer sarees which fact can be specifically seen. However, according to Ld. AR, a perusal of page 76 would reveal that it has been written legibly and in good hand writing and the total quantity of sarees in that page 76 alone is more than 5,596 pieces of sarees in numbers whereas in all other inventories/sarees recorded from 43 to 99 of paper book does not cross in a page more than 110 to 200 sarees and all the sarees 19 | P a g e C.O. No. 13/Kol/2020 M/s Shree Anjani Sarees Pvt. Ltd. A.Y. 2016-17 recorded from page 1 to 85 (except page 76) the total piece of sarees is only 1487 and total cost of sarees was only Rs 38,05,550/-. The Ld. A.R thereafter drew our attention to the fact the survey team had inventoried sarees at page nos. 61 to 65 of the stock report where different category and designs and different serial numbers had been clearly jotted down. In contra distinction at page no. 76 (page 89 of PB) the Ld. AR pointed out to us that no reference has been made to the specific category or design or serial number of the alleged embroidery sarees found therein by the survey team. The Ld. A.R also pointed out that all the pages of the stock report, i.e. page 1-86 except page no. 76, indicate as to from which part of the premises the stock has been taken. However, page no. 76 does not indicate the same and apparently stands out as completely different and an isolated page from the other pages i.e. 1 to 86. All these facts, according Ld. A.R when considered cumulatively support the assessee’s case that page no. 76 (page 89 of PB) did not belong to it and it was an afterthought to bring/tally the value of excess stock to Rs.2.50 cr. and for that they fabricated the same at page 76; and the Ld. CIT(A) taking note of these glaring errors, and the assessee’s assertion that in its premises/show room/stock room/passages even if the entire area is stocked with sarees/designer sarees it is impossible to stock more than 2460 sarees. So the Ld. CIT(A) appreciating these facts have exercised his suo-motto power u/s 250(4) of the Act and ordered the assessee to produce the architectural drawing etc., which was necessary to unfold the mystery of page 76 (page 89 of paper book) and its irreconcilable contradiction with the space assessee had in its possession ; and the Ld. CIT(A) in the quest of truth has given the suo moto direction for finding out the excess stock of sarees which action of Ld. CIT(A) should be appreciated and upheld. Thus, after the assessee had provided all the details before the Ld. CIT(A) and the Ld. CIT(A) appreciated the same and after analyzing the facts was pleased to give partial relief to the assessee by adding only the cost of 928 sarees i.e. Rs. 27,84,000/- and also gross profit of @ 8.49% on the sales of it which does not require any inference from our part and so he prayed for dismissal of Revenue Appeal.

C.O. No. 13/Kol/2020 M/s Shree Anjani Sarees Pvt. Ltd. A.Y. 2016-17 7. Coming to cross objection filed by the assessee, it is noted that assessee has preferred the same against the partial confirmation of addition by Ld CIT(A). According to Ld. A.R, the Hon’ble Calcutta High Court in a similar case i.e. PCIT vs. Subarna Rice Mills in [2-18] 96 taxmann.com 286 (Cal) has held that in a case of detection of un-disclosed stock, the value of entire stock undisclosed need not be made and only the profit embedded in it need to be taxed and drew our attention to the Hon’ble High Court decision wherein it was held as under:

“The legal issue that the Revenue has raised in this appeal is whether the Appellate Tribunal could have disregarded the value of the unaccounted purchases made by the assessee and required additional tax to be imposed by taking into account notional sales when no corresponding sales had taken place during the relevant assessment year.

In course of survey operations conducted on March 24, 2010 at the rice mill of the assessee, it was discovered that there were large quantities of undisclosed stocks. The assessing officer did not weigh the additional stocks but went by the number of bags since the bags, presumably, were of uniform or standard weight.

The assessing officer discovered the undisclosed quantum of paddy to be to the extent of 37647 quintal. The excess stock of rice was to the extent of 581 quintal and the excess stock of bran was to the extent of 45 quintal. It also appears that the undisclosed, excess stocks were corroborated by the entries in certain registers maintained at the relevant point of time at the rice mill and certain confessional statements were made by or on behalf of the assessee. On the basis of the additional stocks found, the assessing officer assessed the total taxable income to be to the extent of Rs.3.92 crore and a tax demand in excess of Rs.1.61 crore was made on the assessee.

The assessee's appeal before the Commissioner (Appeals) failed and by an order of August 25, 2014, the assessment order of March 28, 2013 was upheld. The Commissioner looked into the facts, the statements made by or on behalf of the assessee and the books of the assessee that had been looked into at the time of survey which the assessee subsequently claimed had been lost or destroyed and, in respect whereof, no complaint had been lodged by the assessee. On facts, the Commissioner (Appeals) found no grounds to interfere with the quantum of excess stocks discovered by the assessing officer in course of the survey. The Commissioner also agreed with the assessing officer as to the quantum of income which had escaped assessment.

There are two aspects to the order impugned dated June 30, 2015 passed by the Appellate Tribunal: the factual findings of the Commissioner (Appeals) as appear to have been interfered with by the Appellate Tribunal; and, the direction given for taking sales of rice and bran into account before arriving at the additional income which could be said to have escaped assessment.

Before the Commissioner (Appeals), the assessee had relied on a document signed by an official of the Food Corporation of India that evidenced the stock figures at the relevant point of time. The Commissioner (Appeals) dealt with such aspect of the matter in great detail and by referring to the admitted statements of the representatives of the assessee, which were not sought to be controverted at any point of time on behalf of the assessee, C.O. No. 13/Kol/2020 M/s Shree Anjani Sarees Pvt. Ltd. A.Y. 2016-17 concluded that it was the physical verification of the stocks undertaken by the Assessing Officer in course of the survey operation that was to be given primacy. Indeed, the Commissioner (Appeals) found that there was no evidence that the FCI official who had issued the certificate had undertaken any physical verification of the stock at the rice mill of the assessee and the document appeared to have been filled up by the assessee and merely signed by the FCI official. Such part of the order of the Commissioner (Appeals) was unexceptionable and could not have been interfered with by the Appellate Tribunal. Indeed, no reasons have been furnished by the Appellate Tribunal in disregarding the physical verification of the stocks carried out by the Assessing Officer. Further, the area of the godown as indicated in the FCI certificate was of no consequence since the Assessing Officer found stocks piled outside the godown at the time of the survey.

Accordingly, to the extent that the Appellate Tribunal accepted the quantum of additional stocks on the basis of the certificate issued by the concerned FCI official, such order is unacceptable and is set aside. The order of the Commissioner (Appeals) in such regard is restored. The additional quantum as discovered during the course of the survey operation will fasten to the assessee.

However, the other aspect of the matter was dealt with by the Appellate Tribunal on a point of principle and such matter does not call for any interference.

According to the Appellate Tribunal the value of the entire quantity of additional stocks that were discovered in course of the survey operation could not be regarded as the additional income of the assessee and amenable to tax. There was a specific ground taken before the Appellate Tribunal, which was a legal question, as to whether the undisclosed purchase could be taken as the additional income without reference to the possible sale of the paddy when converted.

The assessee refers to a judgment of the Gujarat High Court reported at 388 ITR 377. The principle enunciated in such judgment is that when undisclosed purchases of such nature are discovered, it is only the profit embedded in the transaction which can be added to the total income. The Gujarat High Court relied on some of its previous judgments to hold that "not the entire purchase price but only the profit element embedded in such purchases can be added to the income of the assessee."

In the circumstances and particularly since the factual findings rendered by the Commissioner (Appeals) as to the quantum of additional stocks have now been restored, the order impugned on the methodology for the ascertainment of the income which escaped assessment would pass muster. The Appellate Tribunal merely directed the gross profit that the additional purchase was capable of generating to be regarded as the additional income for tax to be assessed on such basis. Such view of the Appellate Tribunal does not call for any interference.

Accordingly, ITAT No.196 of 2015 and GA No.4047 of 2015 are disposed of by modifying the judgment and order of the Appellate Tribunal dated June 30, 2015 as indicated.”

Therefore according to Ld AR, in a case of detection of un-disclosed stock, the value of entire stock undisclosed need not be made and only the profit embedded in it need to be taxed and he prayed that the partial addition sustained by Ld CIT(A) of Rs. C.O. No. 13/Kol/2020 M/s Shree Anjani Sarees Pvt. Ltd. A.Y. 2016-17 27,84,000/- may be deleted and we may only confirm the gross profit percentage of undisclosed stock if any.

8. We have heard both the parties and perused the records. We note that the assessee in this relevant assessment year (AY 2016-17) returned an income of Rs. 1,23,58,190/-. It is noted that the assessee is engaged in the business of trading in fabrics, laces, borders and sarees. A survey u/s 133A of the Act was carried out at the business premises of the assessee on 12.10.2015. According to AO, during the survey physical stock of sarees/goods were inventorized and stock amounting to Rs. 3,59,51,307/- was discovered. But, according to AO the computerized books of the assessee as on the date (12.10.2015) reflected only stock of Rs. 1,10,80,923/-. Thus, according to AO, there was a stock difference of undisclosed stock amounting to Rs. 2,48,70,384/- was discovered in the shop & godowns. According to AO, during survey, the assessee was confronted with the difference of stock which was discovered, but the director of assessee Shri Gopal Singrodia failed to reconcile or give satisfactory explanation regarding the undisclosed stock and in fact in his statement the director of assessee Shri Gopal Singrodia has admitted the fact of undisclosed stock and agreed to remit the advance tax on it and gave post dated cheque amounting to Rs. 75 Lakhs. However, later during the scrutiny assessment, the AO noticed that the assessee while filing the return of income (ROI) did not disclose the undisclosed stock which was admitted by its’ director during the survey; and when confronted by him, the assessee turned 360 degrees and took a stand that there was no undisclosed stock by pointing out some discrepancy about page 76 of the inventory made by the survey team which is found placed at page 89 of PB. However, the AO brushed aside the objections/discrepancies pointed out by the assessee and did not accept the post survey stand of the assessee and made an addition of undisclosed investment in stock of sarees at Rs. 2,47,24,399/-; and further according to AO, since the assessee has not shown the undisclosed stock found during survey in its regular books as closing balance of stock, the AO presumed that assessee had sold the same. Thus the AO made the gross profit (G.P) addition of 8.49% of Rs. 2,47,24,399/- i.e. Rs. 20,34,881/- (which was supposed to have been 23 | P a g e C.O. No. 13/Kol/2020 M/s Shree Anjani Sarees Pvt. Ltd. A.Y. 2016-17 sold). On appeal, the Ld. CIT(A) gave partial relief to the assessee by confirming Rs. 27,84,000/- [investment in undisclosed sarees numbering 928 pieces at a cost of Rs. 3000/- each] and on the same reasoning as adopted by the AO, he sustained at G.P. of 8.49 % of Rs. 27,84,000/- i.e. Rs. 2,36,362/-. Aggrieved by the aforesaid action of deletion of addition made by the Ld. CIT(A), the Revenue is in appeal and the assessee has preferred the cross objection against the addition partly sustained by the Ld. CIT(A).

9. The first question before us is whether the Ld. CIT(A) was justified to give relief to the assessee by calling for architectural plan, schematic diagram of the shelf/racks/show room, stock room, photos, etc. to interfere/discard with the physical verification carried out by the survey team. We note that the AO’s case is that physical verification of stock was carried out by the survey team in the assessee’s premises and the stock/sarees found therein has been inventorised by the survey team, and the director of assessee company admitted during survey his inability to reconcile the difference in stock of Rs 2.5 crores and offered undisclosed stock of Rs 2.5crores along with post dated cheque amounting to Rs 75 lakhs as advance tax. We note that after the conclusion of the survey, the assessee had sought copies of the stock taking report (inventory report), and the impounded documents like impounded books of accounts and the statement given u/s 133A of the Act, so as to enable them to arrive at the final disclosure and the correct income which has to be offered to tax in the financial year 2015-16/AY 2016-17. And we note that a copy of survey report was provided to the assessee in December 2015 which comprised of 86 pages which corresponds to page 44 to 99 of PB. However, we note that in the PB filed before us there are only 55 pages (Page 44 to 99) of the inventory report prepared by the survey team. On an enquiry from us, as to the remaining pages the Ld. A.R filed the following chart reconciling the pages of PB with that of the inventory report which is self explanatory [i.e. 26 blank pages (27-40, 44-45 & 49-60) among page 1to 86 were not given to assessee by AO and the Ld CIT(A) has noted about this fact at page 10 of the impugned order supra]. The chart is given below:

C.O. No. 13/Kol/2020 30/Kol/2020 & C.O. No. 13/Kol/2020 M/s Shree Anjani Sarees Pvt. Ltd. Shree Anjani Sarees Pvt. Ltd. A.Y. 2016-17

10. We note that after receipt of the stock taking report receipt of the stock taking report in December 2015, n December 2015, and other impounded documents, other impounded documents, the assessee noticed that the quantitative that the quantitative details as well as the corresponding values allegedly reported by the department on physical stock as the corresponding values allegedly reported by the department on physical stock as the corresponding values allegedly reported by the department on physical stock taken team was incorrect and erroneous. was incorrect and erroneous. According to assessee, o According to assessee, on a detailed scrutiny of the inventory report it was found that there were discrepancies there were discrepancies in particular at Page No.76 of the stock report Page No.76 of the stock report (corresponding to page 89 to page 89 of PB) which was completely different and was completely different and the stock supposed to be reflected therein the stock supposed to be reflected therein therefore did not belong to the assessee. T . The Ld. A.R pointed out that the details of the inventorie he details of the inventories, the value assigned, quantit quantity, and the nature of product were significantly different significantly different 25 | P a g e C.O. No. 13/Kol/2020 M/s Shree Anjani Sarees Pvt. Ltd. A.Y. 2016-17 from the business and functional profile of the assessee company. Accordingly, the assessee brought these glaring discrepancies immediately to the notice of the AO by way of retraction statement filed on 22.01.2016 wherein the contents of Page No.76 (Page 89 of PB) were contested/denied to be that of the assessee. Therefore Return of Income was filed at Rs. 1,23,58,190 and these facts were again reiterated to the AO in the course of regular assessment. Apart from the foregoing, according to Ld. A.R there was other minor reconciliation issues, inter-alia involving valuation of dead stock and ad hoc addition of 20% on a particular page, which was also pointed out to the AO. Accordingly, a detailed reconciliation statement was filed by the assessee before the AO wherein it was claimed that there was no discrepancy between the physical stock taken at the time of survey and the stock appearing as per the books of accounts. However, according to Ld. AR, the AO completely disregarded the discrepencies/infirmities put forth regarding Page No.76 (Page 89 of PB) of the inventory report and instead took the same into account for justifying addition of Rs. 2.47 cr & Rs. 20.34 lakhs. We note that the assessee has enclosed in the paper book the inventory report (Page 44 to 99 of PB) report prepared by the department in the course of survey and has brought to our notice why the other pages are not filed in the paper book and the reason for not filing along with the other pages can be discerned from a perusal of the chart itself which is self-explanatory and as discussed 26 pages out of this 86 pages are blank pages which fact has been noted by Ld. CIT(A) at page 10 of his order (supra). On perusal of the survey report we note that only the Page No.76 is in a different hand writing and different style, which is altogether different from the other pages when we compare with the rest of the report. Unlike the other total 85 pages, it is apparent that this Page No. 76 (Page 89 of PB) was written by some other person in good handwriting in a leisurely manner which makes it standalone page from all other pages of inventory report, which raises doubt as to whether it was written at the time of physical stock taking in to consideration the flow of writing, the language used and the way of writing which is completely distinguishable. We note that when all other pages appear to have been written in a hurry in running hand (illegibly) and callous manner, Page 76 is written with good hand writing giving an impression as if someone was just copying the 26 | P a g e C.O. No. 13/Kol/2020 M/s Shree Anjani Sarees Pvt. Ltd. A.Y. 2016-17 contents on it after it has been prepared/finalized elsewhere. In the other 85 pages abbreviations have been used and the sign ‘-do-” have been used wherever same items were found and repeated in the stock report. However in Page No.76 it can be seen that each of the 13 line item although being of the exact same nature has been written and repeated every time which normally during survey etc. officers don’t have the luxury to sit and write patiently each and every such details again and again. These facts apart, the most glaring fact which is discernible from this single Page No. 76 (Page 89 of PB) is regarding the total quantities of sarees i.e. 5,596 pieces of embroidery sarees have been listed, whereas sarees in all the other 85 pages taken together total comes to only 1487. Moreover, it is noted that the value of sarees at Page No.76 is the convenient approximation of the alleged difference found by the Department in the stock record i.e. Rs. 2.5 crores and which was the undisclosed figure confronted to the director of the assessee to explain. The Ld. A.R drew our attention to the fact the survey team had inventorized embroidery sarees at page nos. 61 to 65 of the stock report where different category and designs and different serial numbers had been clearly jotted down. In contrast drawing our attention to page no. 76 (page 89 of PB) he brought to our notice that no reference has been made to the specific category or design or serial number of the alleged embroidery sarees found and inventories by the survey team. The Ld. A.R also pointed out that all the pages of the stock report, except page no. 76, indicate as to from which part of the premises the stock has been taken/accounted for. However, page no. 76 does not indicate the same and apparently stands out as completely different and an isolated page from the others as discussed. All these facts, according Ld. A.R when considered cumulatively support the assessee’s case that page no. 76 (page 89 of PB) did not belong to it and was therefore incorrect/fabricated/cooked up; and on appeal, the Ld. CIT(A) taking note of these glaring errors as one of the reasons have exercised his suo-motto power u/s 250(4) of the Act and ordered the assessee to produce the architectural drawing etc. Another important fact that was brought to our notice was that the assessee runs its business involving trading of sarees from only a part of the 1st Floor premises having an area of 800 sq. ft. And according to Ld. A.R if one takes into account the area of the assessee’s premises, it shall be practically impossible to fit in 5,596 27 | P a g e C.O. No. 13/Kol/2020 M/s Shree Anjani Sarees Pvt. Ltd. A.Y. 2016-17 embroidered sarees over and above the stock of sarees & fabrics found in the other 85 pages. According to him, it is common knowledge that the weight of an average embroidered saree is between 1.5 Kg to 5 Kg and considering the nature and craft involved in making these sarees, they are generally not kept together because it will damage the saree kept below. And so only maximum 4 or 5 embroidered sarees are kept in an average rack space and also because it is easy to take out the sarees and display before the customer. Thus taking into account the total area available with the assessee for storing the sarees and presuming that each and every available places/racks are filled up with only embroidery sarees (although the assessee also maintains stock of fancy sarees and fabrics) then also it can be seen that utmost 2460 number of sarees could have been stored at the assessee’s premises. In view of the foregoing facts, it was pointed out by the assessee that it is highly improbable that the survey team could have found a total by 7083 sarees at the assessee’s premises when it was practically impossible to maintain stock of such stock of sarees in such little space; and according to Ld AR, the Ld. CIT(A) in order to examine this factual claim of assessee along with the other infirmities pointed out at page 76, exercised his power u/s 250(4) of the Act calling for photos, drawing etc.

15. The Ld. AR thereafter submitted that the notings across the inventory report showed that the survey team had jotted down the selling/item code details and the corresponding selling price printed on the sarees, fabrics, garments etc. Understandably therefore, the sum total of the value of inventory set out in the report was the selling price, which was required to be adjusted by the gross profit, so as to arrive at the cost price of the products. Having regard to the foregoing, the Ld. AR now invited our attention to the right hand corner of the sheet (Pg. 101 of the Paper book), where the survey team had taken the figure of cost price (hereinafter referred to as ‘C/P’) of stock at Rs.3,59,51,307/- (equivalent to Rs.3.60 crs). This C/P was back calculated according to him by applying the gross profit rate of the preceding FY 2014-15 i.e., 6.74% so as to arrive at the approximate selling value of Rs.3,81,89,000/-. According to him, this figure was further adjusted and back calculated with reference to the selling value of stock which was actually physically found and noted on the 85 pages of the inventory report [except Pg. No. 76] i.e. Rs. 1,43,00,000/- (noting on top left hand corner of the Sheet placed at page 101 of paper book) so as to arrive at the difference of Rs.2,38,89,000/-, which the survey team had to add to the inventory report so as to justify the extracted disclosure of Rs.2.5 crs. He further pointed out that this figure of Rs.2,38,89,000/- was further broken up and divided by the survey team into 13 line items with the corresponding selling value and number of sarees, and the same was jotted down just below these notings on the bottom half of the same sheet. The Ld. AR submitted that it was only when the calculations made on this working sheet reconciled so as to justify the extracted disclosure that the survey team drew up Page 76 of the inventory report. The Ld. AR pointed out that the 13 line items noted on this sheet exactly matched with the 13 line items noted on Page No. 76 of the inventory report (Pg 89 of the PB). He specifically 33 | P a g e C.O. No. 13/Kol/2020 M/s Shree Anjani Sarees Pvt. Ltd. A.Y. 2016-17 pointed out that the number of sarees on each line item, the selling value on each line item and the total value of each line item fully tallied. This according to him goes on to prove/corroborate the assessee’s contention that the Page 76 of the report prepared by the survey team was an after-thought to justify the disclosure of Rs.2.5 crs extracted from the Director at midnight of 12th October 2015. Thus the Ld AR pleaded that the action of Ld CIT(A) to discard the survey teams inventory report was correct and may be upheld.

16. So, when we examine the action of the Ld CIT(A) to discard the survey report prepared by the survey team on 12 Oct 2015, we have to keep in mind that there is a presumption as per the Indian Evidence Act 1872 ( herein after in short the Evidence Act) by virtue of section 114 of the Evidence Act that the court may presume the existence of any fact which it thinks likely to have happened regard being had to the common course of natural events, human conduct of public and private business in their relation to the facts of the particular case and illustration (e) states that the court may presume the official acts to have been regularly performed. However, before presuming that the official act has been regularly performed, the court shall also have regard to such fact as to whether the official act in question was performed in exceptional circumstances. And “May Presume” as per the Indian Evidence Act states that whenever it is provided by the Evidence Act that the Court may presume a fact, it might either report such fact as proved, unless and until it is disproved, or may call for proof of it. So, here in this case, the Ld. CIT(A) has declined to presume the official action of survey (report) as proved, but has gone through the assessment folder and thereafter has called for proof of it, which the assessee has submitted before the Ld. CIT(A). So while examining the action of Ld. CIT(A) to call for external evidence in the form of diagram, photos etc. and his final action of discarding the survey report (1-86) we need to see whether there is any exceptional circumstances which warrant interference as stated in illustration (e) to section 114 of Evidence Act. In this context, we have to examine the allegation/infirmities pointed out by the assessee in respect of page 76 of the survey report.

C.O. No. 13/Kol/2020 M/s Shree Anjani Sarees Pvt. Ltd. A.Y. 2016-17 We have considered the notings found on Page No. 76 of the inventory report along with the other pages of the inventory report and also the working sheet of the survey team enclosed at Pg 101 of the PB. Having regard to the discussions made in the preceding paragraphs, we find force in the findings of the Ld. CIT(A) that the veracity of Page No. 76 of the inventory report was indeed in serious doubt and it could not be said to contain the true details of stock found in the course of survey, and so he rightly discarded it. And for the following reasons, we also concur with the Ld CIT(A) to discard page 76 of survey report. We note that even though at the earliest of point of time the assessee has pointed out the infirmities the AO has brushed aside the same by merely saying firstly that the contents of page 76 (89 of PB) is correct because on the date of survey, the assessee’s (director) has put his initial on page 76 (89 of PB) of the survey report, and secondly, during survey the director of assessee admitted about the un-disclosed stock of Rs 2.5cr and his subsequent conduct on the same day of issuing post-dated cheques as advance tax goes on to show that he accepted the undisclosed stock; and thirdly it is evident from of perusal of page 76 that the cost of sarees has been recorded between Rs. 3,200- 6,500 which according to AO is more or less the same as in other pages; and fourthly at page 76 the number of sarees have been recorded; and fifthly since the survey operation was carried out by team of several officers, the handwriting on the inventory prepared cannot be the same and so it would be different and therefore at page 76 hand writing might be of some other official who was in the survey team. So according to AO, the contents of page 76 (89 of PB) is true and according to AO, even in the assessee’s reply, the assessee has pleaded that even if there is undisclosed stock, then also the entire stock should not be added, which plea itself according to AO is a sign of admission of undisclosed stock and the assessee was desperately trying to get some relief. So according to AO, the assessee after failing to reconcile the undisputed stock during survey followed by admission of the undisclosed stock in director’s statement and offer of advance tax has hatched a new story which is nothing but an afterthought of assessee to wriggle out of the undisclosed stock found during the survey and thus he repelled the allegation/infirmities raised by assessee.

C.O. No. 13/Kol/2020 M/s Shree Anjani Sarees Pvt. Ltd. A.Y. 2016-17 So we will deal with each of the reason given by AO to justify page 76 of the inventory report of survey team.

by the Revenue. So this finding of fact crystallizes. It was pointed out by the Ld. A.R that these blank sheets in the survey Report i.e. pages 27-40, 44-45 & 49-60 in the survey Report from pages 1-86 were also found to have been initialed by the director of assessee, which fact he discovered during inspection and that is the reason why copies of blank sheet though paged between 1-86 was not provided to assessee. The Ld. AR explained that after the survey was over after the midnight, the assessee’s director who was an elderly person was exhausted & tired and when pages were shown to him, he mechanically without looking into the contents of pages kept on initialing it so that he will be left free from the survey operation going on from morning; and according to Ld AR, merely because the director has initialed on all pages, (including the blank sheets i.e. pages 27-40, 44-45 & 49-60 in the survey Report) cannot be the basis to believe that the contents of all pages of the survey report (1-86) are true. Therefore, according to Ld. AR merely because initial of assessee’s director is seen under page

76. (89 of PB) cannot be the main reason for concluding that the contents of page 76 is true. We find force in the contention of Ld. A.R., and note that Ld. CIT(A) has noted that some of the pages in survey Report 36 | P a g e C.O. No. 13/Kol/2020 M/s Shree Anjani Sarees Pvt. Ltd. A.Y. 2016-17 (i.e. 27-40, 44-45 & 49-60) stated to be in page 1-86 were blank sheets i.e, 26 pages out of 86 pages were blank sheets, and therefore AO did not give copies of it to assessee along with the other pages of Survey Report wherein the inventory of goods are recorded. So when there were blank sheets of 26 pages inside the survey Report which was paged in serial from 1 to 86, then the assessee’s contention/allegation in respect of page 76 (89 of PB) could not have been lightly brushed aside by the AO mainly on the reason that director of assessee has initialed on it. So this reason of AO is not acceptable to us in the light of serious infirmities brought by the assessee in respect of page 76.

19. Secondly, the AO clings on the admission of undisclosed stock during survey to justify page 76. In this context, we should keep in mind that a voluntary admission about a fact is a good/best piece of evidence and that has statutory recognition given by section 58 of the Evidence Act. However, if the admission is made on threat, coercion or inducement then, there is no probative value attached to the said admission and it loses its evidentiary value. Also it has to be noted that if a statement is recorded on oath u/s. 132 of the Act (search) it stands on a higher pedestal than the statement recorded during survey u/s. 133A of the Act and the Hon’ble Supreme Court has held in the case of Kader Khan & Sons (supra) that the statement recorded on oath by a survey team u/s. 133A of the Act does not have evidentiary value. In this case, we note that during survey u/s. 133A of the Act after mid night, the assessee’s director’s an elderly person’s statement was recorded u/s 133A of the Act. We note on a perusal of the same that the Director had not given an absolute offer of Rs.2,50,00,000/-instead it was a conditional offer. The director has stated in his reply to question no. 8 that he was not in a position to explain the discrepancy (stock difference) which was alleged without going through the books of accounts. So it can be seen that assessee’s director though expressed his inability to explain the discrepancy has given the offer of undisclosed stock at Rs. 2.5 crores subject to discrepancy, if any, found in the regular books vis-a-vis physical stock taking report prepared by the Department. Thus, from the aforesaid statement recorded of the director of the assessee we are of the opinion it was a conditional 37 | P a g e C.O. No. 13/Kol/2020 M/s Shree Anjani Sarees Pvt. Ltd. A.Y. 2016-17 admission which was based on verification after looking in to the books. So the reply given by the director cannot be termed as an admission of the undisclosed stock and the AO erred in assuming so. And we note that at the earliest point of time the director has even retracted the conditional admission after going through its books and infirmities inter alia about page 76 of survey report . And it should be borne in mind that if an admission is based on mistake of fact (not mistake of law) then the maker of the admission can validly retract it. So, from any angle we look, we are of the opinion that there was no admission by the director of undisclosed stock during survey as wrongly assumed by AO.

Order is pronounced in the open court on 21st April, 2021.