ITO WD 21(1)(1), MUMBAI vs. AREN PHARMACEUTICALS, MUMBAI

During impugned AY, the assessee being resident firm was engaged as wholesale trader in bulk drugs, medicines, chemicals and supplies to municipal hospitals and dispensaries. During year under consideration, the assessee was subjected to survey action u/s 133A on 07/02/2008 wherein the assessee declared an amount of Rs.55,90,590/- to account for discrepancies found in stock, cash, investment made in renovation of office, furniture and fixture and liability which ceased to exist. The break-up of the same was as follows:-

No. Particulars Amount (Rs.) 1. Excess Cash found at the premises 8,99,749/- 2. Investment in furniture & fixture 10,58,751/- 3. Unaccounted Stock 33,20,000/- 4. Liability ceased to exist 3,12,059/- Total 55,90,559/- The statement on oath of the two partners was also recorded. However, one of the partner namely Sh. Amit P.Shah retracted the statement after a period of 20 days. The said retraction, in the opinion of Ld. AO, was not valid keeping in view the various judicial pronouncements which have been extracted in the quantum assessment order. It was further noted that the statement during survey was not given under any undue pressure or coercion and the post-dated cheques issued by assessee towards tax Aren Pharmaceuticals Assessment Year-2008-09 liability were cleared for payment subsequently. It was also noted that the other partner did not retract the statement in any manner. During assessment proceedings, the assessee, vide letter dated 29/11/2010 contested the amounts offered during survey proceedings against which comments of survey officer Shri S.M.More were called for who justified the revenue’s stand. After considering the factual matrix, not convinced with assessee’s submissions, Ld. AO added the above amount offered during survey proceedings to the income of the assessee ad determined total income at Rs.62.24 Lacs.

Aggrieved, the assessee contested the same with success before Ld. CIT(A) vide impugned order dated 08/06/2012 wherein Ld. CIT(A) deleted all the additions on the premise that additions without any corroborative evidence could not be sustained in law. The observation and the basis of conclusion as drawn by Ld. First appellate authority has been given in para 3.3 of the impugned order. Aggrieved, the revenue is in further appeal before us.

The Ld. Departmental Representative [DR] contested the stand of Ld. first appellate authority by submitting that the conduct of the assessee do not prove bona fide of retraction of statement and the assessee had no plausible explanation for statement made during survey proceedings and therefore, the additions were justified. It was further contended that the assessee was under no pressure to make a surrender of the impugned amounts and retraction of the statement after long gap of 20 days could not Aren Pharmaceuticals Assessment Year-2008-09 be relied upon particularly when no sufficient bona fide reason could be demonstrated by the assessee to make a retraction. The same was controverted by Ld. Authorized Representative for Assessee [AR], Sh. Reepal Tralshawala by submitting that the Ld. CIT(A) provided relief to the assessee with due consideration of factual matrix and further the statement made during survey proceedings could not have much evidentiary value without there being any corroborative material on record.

We have carefully considered the rival contentions and perused relevant material on record. It is settled principle that statement made during survey proceedings do not hold much evidentiary value unless the same is duly corroborated with other material on record. At the same time, the assessee must have some bona fide reasons / circumstances to retract the said statement and must demonstrate the adverse circumstances which led such statement to be made. In the matter before hand, we find that the revenue has made additions by heavily relying upon the statement made by the partners during survey proceedings without making much effort to corroborate the same with some further evidences, which could be found during survey proceedings. At the same time, the assessee has also failed to demonstrate any bona fide of the retraction made subsequently and the reasons given, in this regard, are not much plausible in nature. Therefore, we find the matter to be more of factual in nature and the decision has to be arrived at on the basis of factual matrix and observations made by lower authorities during assessment & appellate proceedings.

The third addition of Rs.33.20 Lacs representing excess stock found during survey proceedings could also not be sustained since we find that no working, whatsoever, has been given by the survey team so as to arrive at the impugned additions. The assessee has alleged that the stock was lying at three places, which were never visited by the survey team. Out of these three godowns / warehouses, it is undisputed fact that the survey team never visited two places and only dispute is with regard to godown situated at Bhiwandi. This very fact supports the stand of the assessee that no effort, whatsoever, has been made to arrive at actual discrepancy, if any, Aren Pharmaceuticals Assessment Year-2008-09 between physical stock vis-à-vis stocks as per books of accounts. This is further corroborated by the fact that working of discrepancies in the physical stock, valuation thereof, position as per books of accounts and the method of arriving at the impugned addition could not be adduced / demonstrated by the revenue. Therefore, we find no reason to interfere with the stand of Ld. CIT(A) in this regard.

So far as the last addition of excess cash found during survey proceedings is concerned, we find that stand of revenue plausible one. It is noted that the addition represent excess cash found at the time of survey proceedings, which the partners of the assessee firm also admitted by way of statement during survey. Now, merely by way of retraction, the aforesaid fact could not be negated. No effort has been made by the assessee to reconcile the actual cash found vis-à-vis cash as per books of accounts on the date of survey rather the Ld. AR is merely harping on the point that the statement was made by the partners under pressure. We are not convinced with the same since the complete onus to reconcile the cash balance on the date of survey rest upon assessee, which has remained un-discharged. Therefore, this addition to the extent of Rs.8,99,749/- stand confirmed. The stand of Ld. First appellate authority stand reversed to that extent.

Resultantly, the revenue’s appeal stand partly allowed in terms of our above order. Order pronounced in the open court on 29th June, 2018.