AAPNA MARBLE,G T ROAD BHUCHO KALAN vs. DY COMMISSIONER OF INCOME TAX, CIRCLE II BATHINDA
Facts
During a survey u/s 133A of the Income Tax Act, 1961, at M/s Aapna Marble, excess stock of Rs. 27.31 lakhs and cash of Rs. 8.97 lakhs were found, alongside impounded slip pads (A-1) showing cash movement with partners and loose sheets (A-2) listing sundry debtors totaling Rs. 79.95 lakhs. A partner made an initial surrender of Rs. 2.50 crores, which included amounts for partners' slips, sundry debtors, and building investment, but later retracted Rs. 2.10 crores of this surrender, claiming 'forced surrender.' The Assessing Officer subsequently completed the assessment by making additions totaling Rs. 2.49 crores, which included Rs. 1.80 crores from impounded documents, Rs. 17 lakhs for alleged building construction, and Rs. 5.79 lakhs for a low net profit rate.
Held
The Tribunal held that the assessee's voluntary surrender of excess cash and stock (Rs. 40 lakhs) was accepted. However, it deleted the additions of Rs. 17 lakhs for building construction, Rs. 1 crore based on slip pads, and Rs. 80 lakhs for sundry debtors, citing a lack of corroborative evidence, the retraction affidavit, and the fictitious nature of the debtors' list. The Tribunal also deleted the addition of Rs. 5.79 lakhs for low net profit, stating that non-production of a stock register alone is insufficient to reject books when other records are satisfactory and the disclosed net profit rate was reasonable.
Key Issues
1. Whether additions based on retracted statements and impounded loose documents (slip pads and sundry debtors list) during a survey were justified without corroborative evidence. 2. Whether an addition for alleged unaccounted building construction could be made in the absence of any supporting evidence or DVO valuation. 3. Whether the rejection of book results and estimation of net profit solely due to the non-production of a stock register was valid.
Sections Cited
Section 250 of the Income Tax Act, 1961, Section 143(3) of the Income Tax Act, 1961, Section 133A of the Income Tax Act, 1961, Section 139(1) of the Income Tax Act, 1961, Section 145(3) of the Income Tax Act, 1961, Section 34 of the Evidence Act, 1872, Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR
Before: SH. MANOJ KUMAR AGGARWAL & SH. UDAYAN DASGUPTA
Per Udayan Dasgupta, J.M.:
This appeal is filed by the assessee against the order of the ld. CIT (A) NFAC,
Delhi dated 16.10.2024 passed u/s 250 of the Income Tax Act, 1961 which has emanated from the order of the DCIT, Circle-II, Bathinda passed u/s 143(3) of the Act,
1961 dated 28.12.2018.
2 I.T.A. No. 639/Asr/2024 Assessment Year: 2016-17
Grounds of appeal taken by the assessee in Form No. 36 are as follows:
“1. That the Summary Order framed by the CIT(A) NFAC without giving any opportunity to the appellant is absolutely bad in law and hence needs to be quashed.
That the Id. CIT(A) NFAC has erred in law and on facts by summarily rejecting the appeal of the assessee without even considering the facts of the case as well as the submissions made before the AO which have been reproduced by him in the assessment order completely Ignoring the fact that the surrender made during the survey was retracted by the assessee.
That the Id. CIT(A) NFAC has erred in law and on facts in confirming the addition of Rs.1,00,00,000 in a summary manner without going into the merit of addition made by the AO simply on the basis of a slip pad alleged to be reflecting the distribution of profits amongst the partners without there being any corroborative evidence.
That the Id. CIT(A) NFAC has grossly erred in law and on facts in confirming the addition of Rs.80,00,000 simply on the basis of a loose sheet which was got prepared by survey team under pressure and alleging the same to be the amount receivable by the assesee firm without there being even an lota of evidence of the alleged for the same.
That the Id. CIT(A) NFAC has erred in law and on facts in confirming the addition of Rs.17,00,218 alleged to be the unaccounted amount spent on construction of building inspite of the fact that no building was constructed during the year under assessment.
That the Id. CIT(A) NFAC has erred in law and on facts in confirming the addition of Rs.5,79,010 worked out by the AO by applying the net profit rate of 3% as against 1.56% declared by the assessee without bringing an iota of evidence that the net profit earned by the assessee was 3%.
That the Id. CIT(A) NFAC has erred in law and on facts in confirming the addition of Rs.27,31,919 being the amount of excess stock and Rs.8,40,000 being the amount of
3 I.T.A. No. 639/Asr/2024 Assessment Year: 2016-17 excess cash found during the course of survey ignoring the fact that the assesee had retracted the total surrender forced upon the assessee during the course of survey without there being any corroborative evidence.
That the order framed by CIT(A) NFAC in a summary manner is absolutely bad in law having been framed without giving any opportunity to the assessee.
That the appellant craves leave to add or amend the ground of appeal before the appeal is heard and disposed off.”
The facts of the case as culled out from records are that the assessee is a
partnership firm ( PFAS ) (consisting of four partners ) engaged in the business of
trading of marbles and tiles, under the trade name of M/s Aapna marbles. During survey u/s 133A of the Act 61, conducted at the business premises on 19th January,
2016, discrepancy was noted on physical verification of stock of marbles which were
found in excess amounting to Rs. 27.31 lakhs and CASH (on physical counting ) vis a
vis regular cash book produced at site, were also counted in excess of Rs. 8,97,000/-.
Apart from the above certain loose papers in the form of (1) slip pads (marked 4.
as A-1) consisting of four pages , reflecting date wise movement of cash in between
the firm and its partners were found to be recorded and (2) loose sheets ( marked as A-
2 ) consisting of two typed pages, containing list of names of outstanding Sundry
Debtors ( without any date ) totaling an amount of Rs. 79.95 lakhs as receivable by the
assessee from various parties, were found and impounded.
4 I.T.A. No. 639/Asr/2024 Assessment Year: 2016-17
The statement of the partner Mr Robin Kumar, present during survey, was
recorded on the date , and the partner made a surrender in course of survey to cover up
all discrepancies disclosing the following additional income relevant to the assessment
year 2016-17 ( under appeal ) , which was subsequently retracted vide a retraction
letter cum affidavit dated 1st March, 2016.
The summary of such disclosure during survey and its subsequent retraction are
as under:
Surrender Before Survey Disclosed in Serial Particulars: Team Return
1) Excess Cash 8,40,000.00 8,40,000.00 2) Excess stock 31,60,000.00 31,60,000.00 3) Sundry Debtors 80,00,000.00 Retracted 4) Building invest 30,00,000.00 Retracted 5) Partners Slips 1,00,00,000.00 Retracted 2,50,00,000.00 40,00,000.00
From the above chart it is seen that out of the total surrender of Rs. 2.50 crores,
made before the survey team , the surrender amounting to Rs. 2.10 crores, in respect
of sundry debtors receivables, funds related to partners slips and investments in
constructions, has been retracted, on the ground of “forced surrender”.
5 I.T.A. No. 639/Asr/2024 Assessment Year: 2016-17 8. Regular return has been filed by the assessee u/s 139(1) of the Act 61, disclosing
an income of Rs. 46,30,280/- (including the additional income of Rs. 40 lakhs ,
disclosed in survey covering excess stock and cash ) on a gross sales of Rs. 4.06 crores
along with audited financials supported by books of accounts which are produced and
examined in course of scrutiny.
Various queries were raised in scrutiny and response was filed and the
assessment was completed on a total income of Rs. 2.49 crores ( which included an
addition of Rs.1.80 crores flowing from impounded documents relating to sundry
debtors and partners slips and an addition of Rs. 17 lakhs on account of alleged
investment in building construction and an addition of Rs.5.79 lakhs for disclosing low
GP / NP rate from regular business activity ).
The matter carried in first appeal has been dismissed by the Ld. CIT ( A ) without
much discussion on the various issues raised by the assessee in the grounds of appeal
by observing as follows:
“2. Grounds of appeal object to addition of Rs.1,80,00,000/- on the basis of impounded documents found out during survey operation as shown below.
A-1(Slip pad) cash transactions - Rs.1,00,00,000/-
A-2(Debtors/Receivable) - Rs.80,00,000/-
Hence, in view of above, the assessee has not disclosed the transactions amounting to Rs.1,80,00,000/- (Rs.1,00,00,000/-Annexure A-2(slip paid) (unaccounted profits) and
6 I.T.A. No. 639/Asr/2024 Assessment Year: 2016-17
Rs.80,00,000/- in Annexure 2(Debtors/Receivables) in its books of accounts. Therefore, addition of Rs.1,80,00,000/- is made to the returned income of the assessee.
The addition of Rs. 1,80,00,000/- as undisclosed income is confirmed.
Ground no. 8 objects to addition of Rs.17,00,218/- on account of unaccounted addition to building.
The assessee during the course of assessment proceedings has suo moto disclosed the amount of Rs.30 lakhs on account of building. Later the assessee was retracted his statement and facts in disclosure letter. The same are discussed above. Hence, the plea of the assessee is not accepted and hence addition of Rs.17,00,218/- (Difference of Rs.30,00,000/- Rs.12,99,782/- shown by the assessee) on account of construction in building from undisclosed sources have been made in the return income.
The addition of Rs.17,00,218/- on account of construction in building from undisclosed sources is confirmed.
Ground no. 9 objects to applying net profit rate of three percent by applying provisions of 145(3).
The assessee has shown a net profit of Rs.6,30,280/- (excluding disclosed income of Rs.40 lacs) on total sales of Rs.4,03,09,650/- which works out to 1.56%. In view of the fact that the books of accounts are not reliable, the Assessing Officer adopted a reasonable net profit rate of 3% in the case of the assessee on gross sales of Rs.4,03,09,650/-, which works out to Rs.12,09,290/- whereas the assessee has shown the same at Rs.6,30,280/-. The difference of Rs.5,79,010/- is added back to the returned income of the assessee.
The addition of net profit of Rs.5,79,010/- is confirmed.
The appeal filed by the assessee is dismissed.”
7 I.T.A. No. 639/Asr/2024 Assessment Year: 2016-17 11. Now the assessee is before the tribunal on the grounds contained in the
memorandum of appeal. In course of hearing the Ld. AR of the assessee filed a short
paper book containing copies of surrender letter dated 19/01/2016 and the subsequent
retraction letter dated 01/03/2016 ( filed within forty days ) , copies of impounded slip
pads relating to four partners of the assessee firm recording date wise movement of
cash to and from the partners, ( along with a copy of the summary of cash outflow and
inflow compiled post survey on the basis of such impounded document in excel sheet )
, copy of the impounded sundry debtors list ( undated typed two pages ) and copy of
order u/s 133A(3)(ia) dated 19/01/2016, and has also filed written submissions in
support of his case.
The Ld. AR submitted that during survey it was always admitted that there is
slight discrepancy in stock , which has been accepted by the assessee and said the
excess stock and the excess cash ( exceeding the recorded amount in regular cash
book) has been voluntarily surrendered before the survey team and duly accounted for
in regular books of accounts and has been disclosed in regular return as additional
business income without any hesitation and taxes paid accordingly.
The Ld. AR further submitted that the rest of the disclosure relating to slip pads
notes in respect of the four partners ( Annexure- A ) relating to movement of funds in
between the partners and the partnership firm amongst themselves and are not related
8 I.T.A. No. 639/Asr/2024 Assessment Year: 2016-17 to any outsiders and does not resemble any sales or purchases and the undated loose
sheet sundry debtors list ( Annexure – 2 ) , neatly typed containing names of various
customers in two pages totaling nearly Rs.80 Lakhs are absolutely bogus ( forced to be
prepared at site document, as evident from the contents of para 6 and 7 of the affidavit
) and has no relation to the existing business of the assessee and the names depicted in
such list of debtors , are all fictitious and the said persons named therein , do not simply
exist .
He further submitted that the assessee has never invested in any building
construction work during the year under appeal and there is no trace of any
documentary evidence regarding such investment in immovable property and the entire
surrender letter containing the disclosure of (i) partners transaction slips , (ii) the
outstanding debtors and (iii) the investment in construction , has been forced upon the
assessee, by the survey team and has formed a part of the surrender letter in a most
unwilling manner , which has been subsequently RETRACTED by the assessee ,
within forty days by way of an affidavit dated 01/03/2016 , filed before the JCIT ,
Range – 2, Bhatinda .
A copy of the said affidavit ( retraction letter ) dated 01/03/2016 is made apart
of this order:
9 I.T.A. No. 639/Asr/2024 Assessment Year: 2016-17
10 I.T.A. No. 639/Asr/2024 Assessment Year: 2016-17
11 I.T.A. No. 639/Asr/2024 Assessment Year: 2016-17
12 I.T.A. No. 639/Asr/2024 Assessment Year: 2016-17 16. He further relied on the CBDT notification dated 10/03/2003 , F No:
286/2/2003-IT(Inv) , to submit that the survey team has acted against the guidelines
laid down by the board and has recorded confession during survey which do not serve
any useful purpose and stated that in the instant case the assessee has been forced to
confess the undisclosed income ( which is an arbitrary figure ) , without the back up
of any credible evidence and as such the said surrender has been rightly retracted by
the assessee, within forty days and the genuine disclosure of additional income
pertaining to excess CASH and STOCK has been rightly accepted by the assessee and
the same has been duly disclosed and has already formed a part of the returned income.
He submitted that since the retraction by the assessee has been done within reasonable
time after examination and verification of own records, the same may please be
accepted, as correct factual particulars.
He further submitted that no incriminating materials or documents has been
found in survey and all relevant invoices, purchase and sale bills , bank records , books
of accounts, were available and no discrepancy has been found in respect of such books
of accounts , except the discrepancy of excess physical cash vis a vis the cash book
13 I.T.A. No. 639/Asr/2024 Assessment Year: 2016-17 record, which has been immediately surrendered. Similarly, the survey team has
worked out the valuation of stock on the survey date on physical inspection and the
value of excess stock worked out by the survey team was Rs.27.31 lakhs against which
the assessee has made a surrender of a higher figure of Rs. 31.60 lakhs.
Ground No: 3 Regarding the addition of Rs. One crore made by the AO based
on loose slip pad ( marked as A- 1 ) , which is a part of surrender, and which has been
subsequently retracted , the Ld. AR submitted that it contains four pages ( one page for
each partner ) reflecting outward flow of cash from the firm to the partner and inward
flow of cash from the same partner into the firm , consisting one single transaction ,
each month, each partner , all on identical dates, covering all four partners, bearing
identical amount ( written in the same handwriting of a single person ).
A sample sheet of outflow and inflow of funds relating to one partner ( Mr Robin
Kumar) is made a part of the order for easy reference : (all other three partners are
identical):
14 I.T.A. No. 639/Asr/2024 Assessment Year: 2016-17
15 I.T.A. No. 639/Asr/2024 Assessment Year: 2016-17
The Ld. AR further submitted a compilation prepared in excel – sheet on the basis of the above impounded documents to explain that the funds which has been alleged to have moved out of the partnership firm to the partners on a particular day has been received back by the firm from the partners the very next day (a copy of the compilation is made a part of this order ) :
16 I.T.A. No. 639/Asr/2024 Assessment Year: 2016-17
17 I.T.A. No. 639/Asr/2024 Assessment Year: 2016-17 20. The Ld. AR , with reference to the above compilation sheet, submitted that the same cash that has been handed over by the assesse firm to the partners for safe keeping, on a particular day after business hours , has been refunded by the partner to the firm the very next morning and all the four partners being equal partners has collected and refunded the sum of money in equal amounts. He further submitted , that from the above compilation chart it is evident that the excess fund that is rolling in the business of the partnership is the peak amount of Rs. 14.68 lakhs, which may be logically considered to be rolling in the business of the firm outside regular books.
He further submitted that this excess fund of Rs.14.68 lakhs ( say fifteen lakhs ) rolling in the business of the firm outside regular books, is duly reflected in the business of the firm in the form of excess assets, partly in excess cash ( already surrendered ) and partly by way of investment in excess stock in trade (already surrendered ) . As such he prayed that the addition of Rs one crore has been made by the AO, on the assumption of disbursement of cash, to each four partners at Rs 25 lakhs each, without considering that the funds has been returned back the very next day by the partners each time (as clarified in the affidavit in para 10 dated 01/03/2016). The Ld AR submitted that the said addition is very much arbitrary, without any basis and simply based on presumption and assumption , without considering the factual and practical aspect of the matter, that it is the same fund that is rolling in the business, the peak of which is only say Rs. 15 lakhs, and the same is already covered by the surrender made by the assessee and as such the addition of Rs One crore , wrongly made may please be deleted.
Ground No : 4 Regarding the addition made on account of Sundry Creditors ( receivables) amounting to Rs. 80 lakhs , on the basis of impounded document A – 2 , ( copy made a part of this order ) ,
18 I.T.A. No. 639/Asr/2024 Assessment Year: 2016-17
19 I.T.A. No. 639/Asr/2024 Assessment Year: 2016-17
It is submitted by the Ld. AR that this particular typed sheet has been prepared
at the site on the date of survey, and it was never existing at the site pre survey and the
assessee was forced to make it a part of the surrender letter and subsequently, the same
has been categorically denied in the sworn affidavit ( cum retraction letter ) in para 6
and 7 ( already reproduced in para – 15 of this order ) .
He further stated that books of accounts are regularly maintained in the TALLY
system , and the above document is not a tally data printout , and the same is not a part
of the computer system of the assessee firm and it is very much evident that the same
20 I.T.A. No. 639/Asr/2024 Assessment Year: 2016-17 has been separately TYPED ( undated and unsigned ) in excel format , for the specific
purpose of making it a part of the surrender , and no such debtors actually exists in the
books of the assessee ( other than what is disclosed and reflected in audited balance
sheet ) . He further stated that all books of accounts has been examined in course of
scrutiny proceedings and existing debtors as per books has been verified vis a vis gross
sales recorded in regular books and there is no adverse findings in respect of debtors
as per books and no verification of debtors contained in impounded debtors list was
practically possible because none whatsoever physically exists. He further submitted
that this addition is made just on the basis of a prepared typed sheet in round figures
and no kaccha bills, or kaccha books or any vouchers reflecting material sold ( outside
computerized books ) has been unearthed during survey or found and the said two page
typed sheet are not supported by any corroborative evidence and not even a single
party has been traced out by the AO, which actually does not exist at all and as such he
prayed for deletion of the addition of Rs. Eighty lakhs.
Ground No 5 : Regarding the addition made by the AO on account of alleged
investment in building construction amounting to Rs. 17 lakhs ( being the difference of
Rs.30 lakhs minus Rs. 12.99 lakhs already disclosed earlier ) , he submitted that no
further investment in any construction work has been made by the assessee during the
year under appeal and not even a single piece of paper or any other documentary
evidence has been found in the business premises during survey , which may point
21 I.T.A. No. 639/Asr/2024 Assessment Year: 2016-17 towards such investment in construction of any property , and as such without any iota
of evidence no addition can be made on account of the same. Moreover, he further
pointed out that in case of any investment in immovable property, it was incumbent on
the part of the AO to refer the matter for valuation before DVO , which also has not
been done in this case , and as such in absence of any evidence regarding such alleged
investment in any property during the year concerned, he prayed that the addition
wrongly made may be deleted.
Ground No : 6 : Regarding the addition made by the AO after rejection of book
results u/s 145(3) of the Act 61, and estimating the net profits @ 3% against the
disclosed NP rate of 1.56%, in absence of stock register being produced for
examination in course of scrutiny, the Ld AR submitted that the AO was legally wrong
in taking recourse to section 145(3) of the Act for non production of stock register ,
when all other books of accounts, including cash book, ledger, invoices , banks, bills
vouchers, VAT records , details of inter state and intra state purchases , transport, etc,
are all produced and examined and no defects in such books has been found . Secondly,
he submitted that the net profits as per audited accounts are disclosed at 46.30 lakhs on
gross turnover of Rs. 4.03 crores ( after considering partners interest and
remuneration ) works out to approximately 11% ( eleven percentage ) of gross which
is more than satisfactory , and the AO was not at all justified in refusing to consider
the surrendered amount for the purpose of calculation , more so considering the fact
22 I.T.A. No. 639/Asr/2024 Assessment Year: 2016-17
that the surrendered amount are arising out of business profits and are duly
incorporated in the regular books and he prayed for deleting the addition of Rs.
5,79,000/- on this count.
Before concluding his arguments the Ld. AR relied on the following judicial
precedents in support of his various contentions that without any supporting evidence
or corroborative materials no addition could be made simply on the basis of surrender
obtained ( allegedly forcibly in this case) during survey.
The said portion is reproduced as under:
“CIT V Khader Khan Son SC(2012) 254 CTR 0228, 79 DTR 0184, (2013) 352 ITR 0480(SC)
"Section 133A dos not empower any IT authority to examine any person on oath, hence, any such statement has no evidentiary value ad any admission made during such statement cannot, by itself, be made the bass of addition"
CIT V Ashok Kumar Jain High Court of Rajastha 369 ITR 0145(Raj)
"During the course of survey some incriminating documents were found, inventoried and impounded, inventory of cash & stock also prepared AO was satisfied and accepted Rs.1.5 crore and passed assessment order for AY 2007-18 In revised return, for he Y 2008-09, assessee surrendered sum of Rs.3 crore only instead of Rs.5 crore which he admitted during course of survey"
Merely because assesee had surrendered amount of Rs.5 crore during course of survey addition of Rs.2 crore was made by AO-CIT(A) sustained order passed by AO to the tune of Rs.50 lacs
23 I.T.A. No. 639/Asr/2024 Assessment Year: 2016-17
ITAT deleted addition made by the AO
Held AO had not found or bothered to find or trace anything additional as result of survey from asessee except relying on recorded statements at time of survey-This view found favour with two appellate authorities that funds were arising from same business and had a direct nexus and Income was inveted/utilized during the year under consideration-ITAT, after appreciation of evidence Included that amount of Rs.1.5 corre, which was surrendered/offered I AY 2007-08 was available as fund which came to be used partly in investment of share capital, creditors or other Investments as well as other defects, unverifiable creditors etc – in case assesee had not adhered to surrender made during course of survey, then it was the AO to bring on record cogent material and other evidences to support addition rather than rely on statements Revenue's appeal dismissed
ACIT V Ravi Agricultural Industries (2009) 117 ITD 338 (Agra)
"The premises of the assesee was subjected to a survey u/s 133A during the course of which the revenue authorities found certain loose papers on which some numerical entries were recorded. At the time of survey, one of the partner of the firm agreed to surrender th amount mentioned n loose papers as on unexplained Investment. Subsequently, the said partner retracted from the statement made.
The AO made addition to the assesee's income on the basis of loose papers without any other supportive evidence. The CIT(A) deleted the addition. The Tribunal held that when partner had retracted for his statement, the Impugned addition made by the AO should have been supported by enough material in the possessions of the Department
Sine loose papers did not conclusively establish that they pertained to business transactions of the assessee firm, the Tribunal held that the CIT(A) was justified in deleting the addition. Thus the Tribunal upheld the order of CIT(A) and the decision was rendered in favor of the assesee"
CBI V V.C. Shikla (1998) AIR SC 410
"Loose sheets have been ruled out as of any evidentiary value. As a matter of fact as held by Hon'ble Supreme Court in umpteen number of cases entries in the loose sheets is of n evidence
24 I.T.A. No. 639/Asr/2024 Assessment Year: 2016-17
value. Even assuming such entries as correct and authentic they cannot without independent evidence fix a liability upon a person"
AMARJEET SINGH BHASHI (HUF) V ACIT (2003) 263 ITR (AT) 75 (DE)
"It was held that any noting in the loose sheet is no evidence by Itself. There has to be something more"
D.A. PATEL V DYCIT (2001) 70 TT) (Mum)1969
"Held that in case of discovery of sheets of papers disclosing loan given by an assessee and interest due thereon, during search, the assessee could not be saddled with tax liability"
ACIT V JORAWR SINGH M RATHOD (2005) 94 TTJ (Ahd) 86Z
"In this case, the assessee stated in retraction that during recording of statement, he was under constant threat of penalty and prosecution and was confused about various questions asked by the search party about documents, papers, etc of other persons found form his premises. He declared sum under pressure which was evident form the fact that n such corroborative evidence, asset or valuables were found in form of immovable or movable properties. from his residence in support of the amount of disclosure which was later on retracted but not accepted by the department The Tribunal observed:
It is true that simple denial cannot be considered as a denial in the eyes of law but the same time it is also to be seen(that) the material and valuable and other assets are found at the time of search. The evidence ought to have been collected by the revenue during the search in support of the disclosure statement"
ASSTT CIT V SMT. USHA RANI TALLA (2010) 6 ITR (TRB) 37 (DEL)
"No addition merely on the basis of the statement during survey. No addition can be made under section 698 merely on the basis of statement during survey in respect of renovation of office show room if the statement has been retraced and there was no evidence of any expenditure found in the survey"
Paul Mathew & Sons V CIT (2003) 263 ITR 101/129 Taxman 416
25 I.T.A. No. 639/Asr/2024 Assessment Year: 2016-17 "ITO having not accepted the income declared by the assessee after the survey in a mechanical way, but after applying his mind to various aspect of the mater including the disclosure made before completing the assessment, order passed by the AO cannot be said to be erroneous or prejudicial to the Revenue and the CIT was not Justified in invoking powers u/s 263."
Ground No 7: The Ld. AR, has not pressed on the ground No. 7, relating to
excess stock of Rs. 27.31 lakhs and excess cash of Rs. 8.40 lakhs, because the same
has already been surrendered and has formed a part of returned income and taxes paid
accordingly, and there is no addition on this ground as such the same is treated as
infructuous and withdrawn.
The Ld DR relied on the order of the Ld CIT ( A ) , and submitted that the
assessee has voluntarily surrendered the amount of additional income in course of
survey , and the surrender of the same are supported by six pages of the impounded
documents, consisting of two pages Debtors list and four pages of slip pads and prayed
for upholding the order of the Ld. first appellate authority.
We have heard the rival submissions and considered all materials on record and
we are of the opinion that regarding the surrender of excess cash and excess stock ( of
marbles ) both are made voluntarily and in good faith before the survey team , and has
been duly incorporated in regular accounts and disclosed in regular returns , which
26 I.T.A. No. 639/Asr/2024 Assessment Year: 2016-17 fully covers the discrepancy of physical stock as valued by the survey team ( in fact
the surrender of stock is more by 4.29 lakhs [ Rs.31.60 minus Rs.27.31 lakhs ].
Regarding the addition of Rs. 17 lakhs on account of alleged building
construction , sustained by the Ld. CIT(A) , we find that there is no iota of any evidence
, not even a piece of paper or any writing on record , relating to any investment made
during the year under appeal in construction of any immovable property , has been
found or unearthed in course of survey and there is neither any reference to any DVO
valuation . As such we are of the opinion that additions cannot be made simply on the
basis of statement recorded in survey without any supporting material pointing to
actual investment in property, and we have no hesitation in deleting this addition , as
such ground no 5 is treated as allowed.
Regarding the addition of Rs. One crore , based on impounded slip pad , four
pages , in the name of four partners , which reflects alleged movement of funds from
the firm to the partners on a particular day once a month , identical dates for all partners
, and redeposit of the said amount back to the firm the very next day , by all partners ,
cannot be considered as distribution of unaccounted profits in between partners by any
means , because the funds are refunded back to the firm the very next day by all of
them, and at best the said physical movement of funds in between the assessee firm
and partners, only indicate towards circulation of excess liquid funds in the business.
27 I.T.A. No. 639/Asr/2024 Assessment Year: 2016-17 Also considering the fact that the assessee firm is engaged in trading of marbles and
tiles, and during survey, valuation of full stock available at business premises has been
done by the survey team (recorded and unrecorded both together totaling Rs. 2.40
crores), and by no stretch of imagination can it be assumed that the assessee firm has
generated excess business profits of Rs One crore (within one year) by rolling a total
available business stock of Rs. 2.40 crores, and also considering the fact that the
assessee has already disclosed a gross profit of Rs. 93.36 lakhs as per audited trading
account,( before accounting for the surrendered amount ). As such, considering all
practical aspects, we arrive at a logical conclusion that a certain amount of excess cash
( liquid funds ) are circulating in the said business, the peak of which is determined
from impounded documents at Rs. 15 ( fifteen ) lakhs ( approx. ), and the said excess
funds has remained outside regular books and is represented by some current assets
either stock in trade and / or cash, and that is what has been unearthed during survey
and we have no hesitation in holding that the excess fund circulating is fully covered
by the total surrender of Rs. Forty lakhs on account of stock and cash, made by the
assessee and no further addition is called for on this count. The addition of Rs. One
crore on this count is deleted, as such the ground no 3 is treated as allowed.
Regarding the addition on account of sundry debtors receivable amounting to
Rs. 80 lakhs ( approx. ) , based on two impounded typed sheet of paper containing
names of certain persons (undated and without address ) which has been subsequently
28 I.T.A. No. 639/Asr/2024 Assessment Year: 2016-17 retracted by the assessee we find that the partner (in his affidavit) has categorically
stated that the said impounded sheet has been prepared at the survey site by the survey
team and was not a document which was actually existing at the premises pre survey ,
and has no connection with the regular books of accounts. It is also noted that the books
of the assessee are maintained in the computer system as per TALLY package which
was the normal accounting package available during the relevant period, and this typed
sheet document ( sundry debtors ) as evident is not a tally data generated from the said
accounting package. It is also noted that in normal accounting practice, outstanding
trade debtors recoverable are invariably connected and linked to sales made on credit
to parties, and in course of survey , no kaccha receipts or sales bills has been
recovered, no kaccha cash receipt books , hand books , kaccha diary, estimate slips ,
etc. nothing has been recovered or found which can be linked to this impounded debtors
list and in course of assessment proceedings , we find that no attempt has been made
by the AO to identify or search out at least some of the trade debtors existing in the
said list (except the names of two employees Amandeep and Baljinder ).
At this stage it would not be improper to refer to a judgment of the Hon’ble
jurisdictional High court in the case of M/S Khushal Chand Jagdish Rai Of Jalabad vs
Hakam Singh on 14 January, 2014 Author: Rameshwar Singh Malik Bench:
Rameshwar Singh Malik RSA No. 439 of 1986(O&M) 1 IN THE HIGH COURT OF
PUNJAB AND HARYANA AT CHANDIGARH RSA No. 439 of 1986(O&M) Date
29 I.T.A. No. 639/Asr/2024 Assessment Year: 2016-17
of Decision: 14.01.2014, Where the Hon’ble court has observed on section 34 of the
Evidence Act 1872 as follows :
“4. There is another aspect of the matter. It has been observed above that the entries in the books of account by themselves are not sufficient enough to fasten the liability on the head of a person against whom they are produced. They are not a substantive piece of evidence. The said entries in the books of account can be used only by way of corroboration to other pieces of evidence which is led by a party. Admittedly there is no evidence with the prosecution besides the alleged entries in the diaries and in the loose sheets as conceded by the learned counsel for the C.B.I. Thus, the alleged entries in the books of account by themselves are of no avail to the prosecution.
I am fortified in my above view by the observations as reported in Mukandram v. Dayaram, AIR 1914 Nagpur 44 .. "An entry to be admissible in evidence under Section 34, Evidence Act, must be shown to be in a book, that book must be a book of account, and that account must be one regularly kept in the course of business... I think the term "book" in Section aforesaid may properly be taken to signify, ordinarily, a collection of sheets of paper bound together with the intention that such binding shall be permanent and the papers used collectively in one volume."
The above view was again expressed in Zenna Sorabji v. Mirabelle Hotel Co. (Pvt.) Ltd., AIR 1981 Bombay 446, . ."In order that a document could be relied upon as a book of account, it must have the characteristic of being fool-proof. A bundle of sheets detachable and replaceable at a moment's pleasure can hardly be characterized as a book of account. Moreover what Section 34 demands is a book of account regularly maintained in the course of business. A ledger by itself could not be a book of account of the character contemplated by Section 34."
As such being enlightened by the above judicial precedent, we arrive at a
conclusion in the instant case that loose sheets alone without any independent evidence
30 I.T.A. No. 639/Asr/2024 Assessment Year: 2016-17 cannot fix a liability upon a person. In the instant case no such corroborative evidences
has been brought on record and even in course of assessment there has not been any
effort to trace out a single trade debtor and bring on record the corresponding sales
actually made to them , payments actually received against such sales, and the
outstanding amounts and the dates of recovery of such outstanding debtors.
As such, on the facts before us, we have no hesitation in deleting the addition of
Rs. Eighty lakhs made on this count. The ground no 4 is allowed.
The last issue relates to the rejection of book results for not producing stock
register and estimating the Net profits @ 3% of gross sales against 1.56% disclosed by
assessee , thereby resulting in an addition of Rs.5,79,010/- on this count.
We are of the opinion that non production of stock register alone cannot be a
ground for rejection of book results, when no other adverse findings has been pointed
out after examination of regular books. Moreover, in the instant case survey u/s 133A
has been conducted and physical inspection of stock in trade has been taken and the
excess stock found is already surrendered and subject to taxation and has been
incorporated in regular books and at the end of the year , the NP rates are to be
computed on the basis of completed book results on the gross sales for the entire year
, as reflected in audited accounts, which in this case is approximately 11% ( eleven
31 I.T.A. No. 639/Asr/2024 Assessment Year: 2016-17 percentage ) after all expenses, and the same may be considered as satisfactory.
(Moreover, we also note that the assessee has made an excess disclosure of stock
amounting to Rs. 4,29 lakhs during survey). As such we are of the opinion that no
further addition of Rs.5.79 lakhs is justified in this case and the same is deleted. The
ground no 6 is allowed.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in accordance with Rule 34(4) of the Income Tax (Appellate
Tribunal) Rules, 1963 as on 27.10.2025.
Sd/- Sd/- (Manoj Kumar Aggarwal) (Udayan Dasgupta) Accountant Member Judicial Member *GP/Sr.PS* Copy of the order forwarded to: (1) The Appellant: (2) The Respondent: (3) The CIT concerned (4) The Sr. DR, I.T.A.T True Copy By Order
