SMT KRISHNA SAHA,KOLKATA vs. INCOME TAX OFFICER, WARD - 52(2), KOLKATA, KOLKATA

O R D E R

PER Dr. A.L. Saini, Accountant Member:

- The captioned appeal filed by the Assessee, pertaining to assessment year 2007-08, is directed against the order passed by the Ld. Commissioner of Income Tax (Appeals)-XXXIII, Kolkata, in Appeal No. 230/CIT(A)- XXXXIII/ITO Ward 52(2), Kol/09-10, dated 25.07.2013, which in turn arises out of an order passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’), vide his order dated 18.09.2009. 2.The assessee has raised following grounds of appeal:- “1.For that under the facts and circumstances of the case, the LD. Appellate Authority failed and neglected to appreciate the facts and merit of the case and has arbitrarily confirmed the addition of Rs.28,28,423/- as unexplained stock and also an amount of Rs.53,167/- as observed in the order of the Ld. Assessing Authority. A.Y. 2007-08 Smt. Krishna Saha Vs. ITO Wd,52(2), Kol. Page 2 2.For that the Ld. Appellate Authority failed and neglected to consider the grounds of appeal and written submission so made during the course of hearing of the appeal and has erred in relying on the observations of the Ld. JCIT who had no authority to express his opinion in the remandreport.The confirmation of addition relying on the said observations of the Ld. JCIT has been bad in law and liable to be deleted. 3.For that the Ld. Appellate Authority was absolutely wrong in relying on the views expressed by the Ld. JCIT and without allowing any reasonable scope to the petitioner, the said observations have been relied upon which is very much unjust and arbitrary and against the law of natural justice. 4.For that your petitioner craves, leave to add, alter, modify or delete any of the grounds at the time of hearing of the appeal or before.”

3. Although in this appeal, the assessee has raised three grounds of appeal but at the time of hearing the solitary grievance of the assessee has been confined to the addition of ₹28,28,423/- made by the Assessing Officer treating as unexplained stock. The assessee had not pressed the ground relating to addition of ₹53,167/-.

4. The brief facts qua the issue are that assessee filed her return of income on 24.10.2007, showing a total income of ₹3, 37,170/-.In the assessee’s case under consideration, a survey was conducted u/s133A of the Income Tax Act,1961, on 25.08.2006.During the course of survey, sale-bills, sales & purchase register and some loose sheets were inventorised which were examined and test checked with reference to the bills & vouchers produced. The survey team made an inventory of stock at the business premises of the assessee during the course of survey and valued the stock at ₹34,72,003/-, whereas as per accounts of the assessee, the valuation of the closing stock as on the date of the survey, worked out to ₹6,43,580/- and thereby a difference of closing stock of ₹28,28,423/- was arrived at (that is, Rs.34,72,003 – Rs.6,43,580/-) . The assessee had shown closing stock at the end of the financial year at ₹2,83,785/- only. When the assessee was asked to A.Y. 2007-08 Smt. Krishna Saha Vs. ITO Wd,52(2), Kol. Page 3 explain the reason as to why the difference in stock found during the course of survey amounting to ₹28,28,423/- should not be treated as unexplained purchase lying in the business, resulting such difference in closing stock.It was explained on behalf of the assessee that the assessee is a small business person and sometimes when there is down trend in the market, the outside businessmen keep their materials in the business premises of the assessee for the purpose of cutting & stitching by the tailors for which they paid directly. It is for human logic that when there is paucity of fund and dull market, the daily paid workmen are allowed to work for the others to earn their daily bread. As per assessee, the excess stock of materials at the assessee’s premises, belonged to others. 4.1. The assessing officer observed that the plea taken by the assessee at this stage cannot be accepted on the ground that had there been materials of others it could have been brought to the notice of the survey team during the course of survey u/s 133A of the Act.The Assessing Officer noted that assessee has raised different contentions which were not tenable and therefore, the assessing officer rejected the assessee`s contention and made addition of ₹28,28,423/- (difference in stock, that is, Rs.34,72,003 – Rs.6,43,580/-) and treated as the assessee’s unexplained stock/investment out of undisclosed source of income.

5. Aggrieved by the order of Assessing Officer, the assessee filed an appeal before the Ld. CIT(A) who has confirmed the order passed by the AO. The ld CIT(A) observed that the assessee had not claimed, in any manner during the survey that the excess stock belonged to other persons, but has come up with details during the appellate proceedings regarding the names of the persons who had left stock belonging to others with the assessee. This has to be viewed in the context of the quantum of the excess stock in comparison with the book stock. The closing stock as per books as on the date of survey was valued at Rs. 6,43,580/- and the closing stock as at the end of the relevant A.Y. 2007-08 Smt. Krishna Saha Vs. ITO Wd,52(2), Kol. Page 4 financial year amounted to Rs. 2,83,785/· As against this, the excess stock was substantially higher and was valued at Rs. 28,28,423/-. The JCIT's comment that the assessee seems to be doing more business for others than herself needs to be appreciated in this context. It was also notable that during the survey no documents were found and/or impounded which would even remotely indicate that the excess stock belonged to other persons and was lying with the assessee for carrying out stitching and tailoring. Now at a later stage the assessee has come up with certain documents to prove her claim that the stock belong to someone else, which raises a serious question about the credibility of the documents. The stitching charges bills produced by the assessee have been made on loose papers and not on any printed stationery and apparently have been prepared in a stereotyped fashion. They have been signed by the same person whose identity is not clear as the name of the person signing the bills is not mentioned thereon. The possibility of the said bills having been prepared on the same date, that too on an actual date much after the date of the survey and the dates mentioned on the bill cannot be ruled out. The cash memos/challans given by the middlemen are not credible for similar reasons. The statements of the job work in respect of the five middlemen are not free from defects as the date-wise closing stock has not been worked out correctly. Therefore, based on the factual position explained above, the ld CIT(A) confirmed the addition made by the Assessing Officer.

6. Not been satisfied with the order of Ld. CIT(A),assessee is in further appeal before us. The ld Counsel for the assessee submitted that the assessee in compliance to the notices U/S 143(2) and 142(1) of the Act, had produced all supporting details and documents in respect to the expenses as were asked for and also filed documents and details in support of the stock as valued by the survey authority on the day of survey. Before the ld CIT(A), the assessee produced all relevant details and documents in support of the said stock which relates to stock of goods of different hawkers who used to get their garments tailored & stitched by the assesseeat its own manufacturing unit against A.Y. 2007-08 Smt. Krishna Saha Vs. ITO Wd,52(2), Kol. Page 5 labour charges so paid and had also filed the confirmation of different such hawkers/ traders as supporting evidence in respect to the additional stock of goods as were found and valued by the survey authority, ( vide Page No: 5 to 85 of the Paper Book ). The Ld. Commissioner of Income Tax (Appeals) treated the said documents and details as additional evidence and accordingly forwarded the same to the Ld. Assessing Authority for his verification and comments. The Ld. Assessing Officer in terms of the direction of the Ld. CIT(A) made a detail report after considering the additional documents as forwarded by the Ld. CIT(A) for his verification and comments. The Ld. Assessing authority although after necessary verification of all the relevant documents, had forwarded a report (vide page 89-90 of the Paper Book) in compliance to the direction of the Ld. CIT(A) through the Ld JCIT, Range 52, who has also forwarded the same with his own observations ( vide Page No: 86 to 88 of the Paper Book) and the same has been relied upon by the Ld. CIT(A) during the course of disposal of the appeal without considering the findings of the Ld. Assessing Authority who is the appropriate authority to whom the matter was remanded for his comments. The Ld. JCIT had never gave any opportunity to the petitioner to substantiate or to rebut any presumptions regarding alleged difference of stock and without doing so, had made an adverse report which is contrary to the report of the Ld. Assessing Authority. Moreover, the said report of the Ld. JCIT is also full of error and misconception about the status of the assessee and nature of her business. In the para no.1, the Ld. JCIT has stated that the husband of the assessee is Radheysham having his manufacturing unit at 42 Lotus Park, Kolkata- 700047 is absolutely wrong and erroneous since the name of her husband is "Radha Raman Saha" who is having his manufacturing unit of engineering goods under the trade name of M/s Gemcon Engineering Co. of 18/3, Lotus Park, Kolkata- 700047. Thus the name of the husband as observed by the Ld. JCIT is very much contrary to the findings of the survey authority. Further the observations for rest of the order are simply based on his own presumptions without having any substance. The Ld. CIT(A) thus fell into serious error of law A.Y. 2007-08 Smt. Krishna Saha Vs. ITO Wd,52(2), Kol. Page 6 by not considering the report of the Ld. Assessing Authority who is competent to make out the remand report after verification of documents in terms of direction of the Ld. CIT(A). The ld Counsel pointed out that the Ld. CIT(A) while passing the order has simply relied on the observations of the Ld. JCIT without referring the report of the Ld. Assessing Authority who has verified the details and documents as has been referred by the Ld. CIT (A) wherein the Ld. Assessing Authority has reported that the receipts towards labour charges could not be explained properly and simply relying on the observation of the Ld. JCIT, the impugned addition for an amount of Rs. 28,28,423/- has been confirmed in a mechanical manner without applying his own mind judiciously. Further the observations of the Ld. CIT(A) is also contrary to the facts and documents relating to the instant case. The Ld. CIT(A) has observed at page 8 of the appeal order that the "JCIT has disagreed with the findings of the Assessing Officer for the reasons listed above in para 3.5 of the appeal order". Astonishingly, the said paragraph relates to the submission made before the Ld. CIT(A) by the petitioner and it is not any observation of the Ld. JCIT. Further Ld CIT(A) has also observed (in sub para (d) of page no.10 of the appeal order) that the assessee has not been able to prove the labour charges claimed to have been received properly from the middleman. The word "properly" is very much significant in the instant matter since the dictionary meaning of the word is "correctly or satisfactorily" thus it does not mean that the same has not been accounted for at all. In fact the same has been duly accounted for in the books of accounts as verified by the Ld. Assessing Authority during the course of assessment and since the same has been consolidated under single head of account as "Labour Charges" which includes labour charges paid and received and the balance being reflected in the Profit & Loss Account in debit side as is evidenced form the said accounts itself. It is an admitted fact that the labour charges received should have been reflected under separate head in receipts side of the said account and not by clubbing under a single head of account as has been done by the assessee. A.Y. 2007-08 Smt. Krishna Saha Vs. ITO Wd,52(2), Kol. Page 7 But this does not implied that the receipts are not recorded in the books. ( Copy of ledger is enclosed in paper Book vide Page no. 93-97) Further the Ld. CIT(A) has also expressed ( in sub para (f) of page no. 10 of the appeal order) that the books of accounts implicitly rejected as defective by the Ld. Assessing Authority. In the order of assessment nothing about rejection of books of accounts has been discussed and it is not an automatic process that in each and every cases if the expenses cannot be explained correctly, the books are liable to be treated as rejected. The observation of the Ld. CIT(A) in this respect is also contrary to the facts and circumstances and the same cannot be relied upon. Lastly, in respect to observation of the Ld. CIT(A) vide page 9 of the order wherein it has been worked out about difference in stock. In this respect the assessee submitted that the Ld. CIT(A) has not considered the details in its true perspective and the entire findings are based on absolute misinterpretation of the statement. That particular details relates to one M/s Abdur Rakib Laskar who had issued Fabric in 4000 mtrs. and out of which the petitioner had manufactured 500 pes of ladies garments thereby had to consume 1500 mtrs of fabric and the balance of fabric is appearing in last column as 2500 mtrs.( Page 69 -70 of Paper Book) Thus, the entire observation in this respect in based on misinterpretation of the statement and the said observation which is based on wrong assumption cannot be relied upon. 7.The Counsel also submitted that the statement recorded by the survey authority at the time of survey, within the meaning of section 133A, has no authority to record any statement on oath of the assessee, since no power has been vested under the said provision of law to the said authority and any addition on the basis of such statement cannot be subject matter of addition and for that, the counsel for the assessee relied on the judgment of Hon`ble Supreme Court in the case of Khader khan Son (2012) 25 Taxman.com 413 (SC).The counsel for the assessee also relied on the judgment of Dhingra metal Works (2010) 328 ITR 384 wherein it was held that Section 133A does A.Y. 2007-08 Smt. Krishna Saha Vs. ITO Wd,52(2), Kol. Page 8 not mandate that any statement recorded under section 133A would have evidentiary value. For a statement to have evidentiary value, the survey officer should have been authorised to administer, oath and to record sworn statement. This would also be apparent from section 132(4). Moreover, the word "may" used in section 133A(3)(iii) clarifies beyond doubt that the material collected and the statement recorded during the survey is not a conclusive piece of evidence by itself. It is settled law that though an admission is an extremely important piece of evidence, it cannot be said to be conclusive and it is open to the person who has made the admission to show that it is incorrect.

8. On the other hand, Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer which we have already noted in earlier par and is not repeated for the sake of brevity.

9. Having heard the rival contentions, perused the material available on record, we note that assessee had declared the closing stock at the end of financial year in her books of account at ₹2,83,785/-. The survey team made an inventory of stock at the business premises of the assessee during the course of survey and valued the stock at ₹34,72,003/-, whereas as per accounts of the assessee, the valuation of the closing stock as on the date of the survey, worked out to ₹6,43,580/- and thereby a difference of closing stock of ₹28,28,423/- was arrived at (that is, Rs.34,72,003 – Rs.6,43,580/-). The assessee explained before the AO that assessee being a small businessman and as per the trend in the market, the outside businessman keep their materials in the business premises of the assessee for the purpose of cutting and stitching by the tailors for which they paid directly. The assessee during the remand proceedings affirmed that the excess stock of materials at the assessee’s premises belonged to others. The assessee also filed the confirmation of the persons to whom the stock belonged (pb 5 to 85). That is, A.Y. 2007-08 Smt. Krishna Saha Vs. ITO Wd,52(2), Kol. Page 9 the other persons to whom the stock belonged, stated in their confirmations that goods laying in the premises of assessee, belonged to them. 9.1 During the survey, the survey team took the statement of the assessee (Question 10), wherein the assessee replied that she would explain the discrepancy in stock later on. Therefore, we note that statement of the assessing officer, during assessment proceedings, that assessee could not explain the discrepancy in stock during the course of survey, is not based on any evidence whatsoever. During the survey, the assessee explained that she would explain the discrepancy in stock later on, therefore, the belief of the ld CIT(A) and AO that assessee had failed to explain the discrepancy in the stock, is not backed by any evidence. During the remand stage, the assessee had explained the discrepancy in stock and produced confirmations of the parties to whom the stock belonged and ld assessing officer failed to bring any cogent evidence to prove that discrepancy explained by the assessee, is wrong. We note that assessee has explained the discrepancy in stock and assessing officer has failed to adduce any evidence that discrepancy explained by the assessee, is wrong. 9.2 The assessee also submitted before the Ld. CIT(A) that the details of the excess stocks were reconciled and explained and the said stock belonged to others and it was laying with the assessee for the carrying out of stitching and tailoring works. The assessee also submitted confirmations to prove that the stock belonged to someone else. 9.2 We note that the Survey Team took a statement of assessee on oath, on 25.08.2006.Section 133A of the Act does not authorise the Survey Team to take such statement on oath. Therefore, the addition made by the assessing officer and confirmed by Ld. CIT(A),based on the statement on oath, is not sustainable unless the said statement is corroborated by any tangible A.Y. 2007-08 Smt. Krishna Saha Vs. ITO Wd,52(2), Kol. Page 10 evidence. The statement on oath u/s. 133A of the Act has no evidentiary value and any addition made based on such statement is not sustainable. 9.3.We note that the statements and admissions made during the survey is extremely piece of evidence but it cannot be said to be conclusive. The assessee under consideration has explained the discrepancy in stock therefore addition cannot be made solely based on the statement. For that we rely of the judgment of Hon'ble Delhi High Court in the case of Commissioner of Income-tax vs. Dhingra Metal Works (2011) 196 taxman 488 (Del) wherein it was held that Section 133A does not mandate that any statement recorded under section 133A would have evidentiary value. For a statement to have evidentiary value, the survey officer should have been authorised to administer, oath and to record sworn statement. This would also be apparent from section 132(4). Moreover, the word "may" used in section 133A(3)(iii) clarifies beyond doubt that the material collected and the statement recorded during the survey is not a conclusive piece of evidence by itself. It is settled law that though an admission is an extremely important piece of evidence, it cannot be said to be conclusive and it is open to the person who has made the admission to show that it is incorrect. Since in the present case, the assessee has been able to explain the discrepancy in the stock found during the course of survey by production of relevant record including the excise register of its associate company, the AO could not have made the addition solely on the basis of the statement made on behalf of the assessee during the course of survey. Therefore, we note that where the assessee has been able to explain the discrepancy in stock found during the survey, addition could not have been made by the assessing officer solely on the basis of the statement made by the assessee during the course of survey. We also note that assessee has never admitted in the statement taken during survey that there is discrepancy in the stock, she simply stated that she would explain the discrepancy in stock