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Income Tax Appellate Tribunal, “B” BENCH: KOLKATA
Before: Shri A. T. Varkey, JM & Dr. A. L. Saini, AM]
Date of Hearing 07.09.2017 Date of Pronouncement 18.10.2017 For the Appellant S/Shri A. K. Chakraborti & S. K. Sen, Advocates For the Respondent Shri Saurabh Kumar, Addl. CIT, DR ORDER
Per Shri A.T.Varkey, JM
This is an appeal filed by the assessee against the order of Ld. CIT(A)-10, Kolkata dated 30.03.2015 for AY 2009-10.
The main grievance of the assessee is that the entire addition has been made based on the difference in stock of pig iron and scrap and some cash found during survey dated 29.09.2008. According to the assessee, the assessee firm has been taken over by a Private Limited Company called MMU Metaliks Udyog (P) Ltd. (hereinafter referred to as the ‘Company’). Brief facts of the case are that the assessee is a firm carries out business of wholesale trading of iron and steel. The assessee firm was taken over by a company in the name and style of M/s. MMU Metaliks Udyog (P) Ltd. on and from 01.09.2008 by an agreement of take over drawn out on 28.08.2008. (The AO notes that this fact was not intimated to the department). On 29.09.2008, a survey was conducted u/s. 133A of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) in the business premises where the assessee firm used to conduct business before 01.09.2008. The firms entire’ business has been taken over as a going concern with effect from 01.09.2008 with all assets and properties thereof including stock in trade. During survey, the survey party found out certain discrepancies in the stock of pig iron and stock of scrap. The discrepancies found in stock of pig iron was 87.670 tons and discrepancies found in scrap was 4.06 tons and cash.
2 Manoj Metal Udyog., AY, 2009-10 According to the AO, during the survey when the partner of the assessee Shri Ramesh Kumar Maheswari was confronted with the discrepancy in the stock, the said partner stated under oath that he could not explain the difference in cash right then, and would explain the difference later on. Regarding the difference found in the stock, he stated that “there is hardly any difference in the stock of scrap found physically. But Pig iron is around in excess of 88 tons approx. This stock belongs to M/s. Manoj Metal Udyog which was the undisclosed purchase from 01.04.2008 to 31.08.2008.” Based on the aforesaid statement which was recorded during survey on oath as stated by the AO at page 2 last para, the assessee was asked to explain for which according to AO, the assessee did not give any reply so, taking the valuation of the undisclosed purchase an amount of Rs.23,74,476/- was added back to the total income of the assessee as its undisclosed purchase. Another addition of Rs.20,257/- was added to the total income of the assessee as undisclosed profit on undisclosed sales from the undisclosed purchase. Another addition of Rs.45,921/- was added back to the total income of the assessee as unexplained cash. Aggrieved by the aforesaid additions made by the AO, the assessee preferred an appeal before the Ld. CIT(A), who was pleased to confirm the same. Aggrieved by the order of ld. CIT(A), the assessee is before us.
We have heard rival submissions and gone through the facts and circumstances of the case including the Hon’ble High Court’s order in assessee’s various writ petitions filed at various stages of the assessment proceedings. The only question that needs to be addressed is whether the discrepancy found in stock of pig iron, scrap and cash can be assessed in the hands of the assessee firm or not. The Hon’ble Supreme Court in ITO Vs. CH. Atchaiah (1996) 218 ITR 239 (SC) has held that the income should be assessed on the right person, right year and it should be on the right income. From the aforesaid decision of the Hon’ble Supreme Court only the right person and the right person alone is liable to be taxed and not the wrong person. Here, we note that assessee firm has filed its return of income in the assessment year under consideration disclosing the income from 01.04.2008 to 31.08.2008, whereas M/s. MMU Metaliks Udyog (P) Ltd. has filed its return of income disclosing income from 01.09.2008 to 31.03.2009. By an agreement of taking over the business of the firm was drawn on 28.08.2008 which we note has been duly notarized; and the assessee firm has been taken over from 01.09.2008 as a going concern with all assets and liabilities including stock in trade which is evident from page 2 of the agreement of taking over of 3 Manoj Metal Udyog., AY, 2009-10 firm. The challenge of the assessee firm that the survey was illegal cannot be accepted for the simple reason that the assessee has not intimated to the department that it has discontinued its business. According to the assessee firm, section 176 is not applicable to the assessee since it has not discontinued its business because it was a take-over of the business by another company and so business did not discontinue. This contention of the assessee cannot be accepted for the simple reason that the assessee has filed the return of income disclosing income from 01.04.2008 to 31.08.2008 which goes on to show that the assessee firm discontinued the business from 01.09.2008, so it was duty bound to intimate within fifteen days as per sec. 176 of the Act to the department the fact of business being taken over by the private limited company. So, the department’s survey u/s. 133A of the Act cannot be faulted with when the facts remain as per the explanation to section 133A(1) of the Act, undisputedly, the books of account of the assessee firm identified as MMU-1 to MMU-4 were found from the business premises. Even if the survey for argument sake is held to be illegal, still the evidence collected therein are admissible in evidence because in India, like England admissibility of the evidence is based on relevancy as held by the Hon’ble Supreme Court in Pooramal Vs. DIT 97 ITR 505 (SC).
Notwithstanding anything with the aforesaid legal position, the question that is to be adjudicated is whether the discrepancy in the stock of pig iron, scrap and cash can be assessed in the hands of the assessee firm, when undisputedly it has been taken-over from 01.09.2008 by a Private Limited Company. Admittedly, when the survey was conducted on 29.09.2008, the assessee firm’s business including the stock in trade has been taken-over by the company and if any discrepancy is found when physical verification is done on 29.09.2008 it should have been answered by the company which is an artificial juristic person and is assessed as a separate assessee. When the department was aware of the take- over when the survey has happened, we do not understand why the company was not proceeded against. We note that the entire addition has been based on the statement given by the one of the partner of the firm which has been taken on oath. There are two deficiencies/flaw for this. Firstly, the partner is not there in the eyes of law, when the firm is not existing . Secondly, the survey team does not have power to record statement on oath. The Hon’ble Supreme Court in CIT Vs. S. Kader Khan & Son (2013) 352 ITR 480 (SC) has held that during survey the statement cannot be taken on oath and, therefore, there is no evidentiary value given on the recorded statement on oath during survey and additions 4 Manoj Metal Udyog., AY, 2009-10 cannot be made solely on the basis of statement recorded under oath. We find that the sole basis of addition is the statement recorded under oath of one of the partners of the assessee firm which did not exist on the date of survey on 29.09.2008 cannot be the basis for making the addition. Therefore, we find force in the grounds raised
by the assessee and we allow the appeal of the assessee. Besides, we also observe that as per Hon’ble Supreme Court’s decision in ITO Vs. CH. Atchaiah (supra) income should be taxed in the hands of the right assessee, right year and it should be the right income and not on the wrong person.
4. In the result, the appeal of the assessee is allowed. Order is pronounced in the open court on 18th October, 2017 Sd/- Sd/- (Dr. A. L. Saini) (Aby. T. Varkey) Accountant Member Judicial Member Dated : 18th October, 2017 Jd.(Sr.P.S.) Copy of the order forwarded to: Appellant – M/s. Manoj Metal Udyog, 138, B. R. B. Basu Road, 1st floor,