M/S. RAIGANJ R.C.C. SPUN PIPE INDUSTRIES PVT. LTD.,UTTAR DINAJPUR vs. D.C.I.T., CIRCLE-2, JALPAIGURI, JALPAIGURI

Grounds of appeal raised by the assessee read as follows :-

The Assessee is a company. It is engaged in the business of manufacturing of RCC spun pipe and accessories. There was a survey u/s 133A of the Income Tax Act, 1961 (Act) conducted in the factory premises of the assessee at Durgapur on 17.03.2010. In the course of survey physical verification of the stock was taken and the stock was valued at Rs.31,88,815/-. The value of the stock as per the books of account of the assessee was Rs.11.88,723/-. There was a difference of Rs.20,00,092/- between the value of stock as physically found and as per the books of accounts. The statement u/s 131 of the Act of one Shri J.N.Dutta, Managing Director of the assessee was recorded ITA No.2163/Kol/2014- M/s. Raniganj R.C.C. Spun Pipe Industries Pvt. Ltd. A.Y.2010-11

The assessee filed return of income on 25.09.2010 declaring a total income of Rs.10,04,030/-. This declaration was not in accordance with the statement of the managing director of the assessee given on 19.03.2010 after the conclusion of the survey u/s 133A of the Act and the assessee had offered to declare a sum of Rs.15,00,000/- on account of unaccounted investment in stock. The AO therefore called upon the assessee to explain as to why the assessee had not declared the income as per the undertaking at the time of survey.

In reply the assessee pointed out that the method of determination of the value of stock physically found and as per the books of accounts of the Assessee at the time of survey u/s.133A of the Act was erroneous. The Assessee produced the sale bills at which the products were actually sold and from the said sale bills, the value was arrived at by the Assessee of the stock value found at the time of survey. The Assessee pointed out that it used to sell its products at a price which is far below of our price list value based on which the value of stock was valued at the time of survey. This practice has been followed by many manufacturing houses to attract customers. The sale value of the products found by the survey team, as per our sale bills, was only for Rs.30,34,317/- as against its price list value of Rs.31.88,723/- adopted by the Survey team. A detail sheet of price list value and actual sale value of the stock lying with us as on 17.03.2010 was filed by the Assessee before the AO. The Assessee also submitted that the survey team had also committed a mistake in considering our opening stock as on 01.04.2009 for Rs.11,88,723/- instead of opening stock as on 17.03.2.010 in determining the value of excess stock of Rs.20,00,092/-. The Assessee ITA No.2163/Kol/2014- M/s. Raniganj R.C.C. Spun Pipe Industries Pvt. Ltd. A.Y.2010-11

The assessee also pointed out that as per the CBDT Instruction No.286/2/2003(Inv) dated 10.03.2003 it has been specifically instructed that no addition can be made merely on the basis of statement recorded at the time of survey.

The AO however did not agree with the submissions made by the assessee. According to the AO at the time of survey CPU marked as RCC-CPU-1 was impounded on 17.03.2010 on the date of survey. After declaration of income on 19.03.2010, in the statement recorded u/s 131 of the Act, the order impounding CPU and the books of account was vacated. According to the AO despite request made for production of CPU which had been impounded, the assessee did not produce the same. According to the AO the CPU would have been wiped from its original form at the time of survey and it was not possible to retrieve the data from the CPU as it existed on the date of survey. The AO was therefore of the view that the assessee ought to have given a declaration of income as per the disclosure made at the time of survey. He therefore made an addition of Rs.6,00,845/- for the following reasons :- “5.5 The assessee failed to produce the inventorised CPU, the assessee could not confirm whether it is in original form till date or not? So, applicability of section 292C cannot be denied and for want of assessee's co-operation, the applicability of section 292C is not tested. As, the said CPU lies with the assessee, so the assessee cannot deny its responsibility when the director retracted from the disclosure. So, the explanation as filed by the assessee is not applicable here for assessee's own failure to produce all ITA No.2163/Kol/2014- M/s. Raniganj R.C.C. Spun Pipe Industries Pvt. Ltd. A.Y.2010-11

On appeal by the assessee the CIT(A) confirmed the order of AO by observing as follows :- “4. Submissions of Assessee- The assessee did not press the additions on account of applying section 44 AE for income from plying of trucks and the disallowance of Rs. 5,455 as being of capital nature. The assessee submitted that the disclosure made during the time of survey cannot be basis for addition if it is established that the disclosure was not correct. The assessee cited various judgements of courts in support of his arguments. 5. Conclusion- It is seen that, books of account were not impounded by the survey team because the assessee had voluntarily accepted the discrepancy in his stock and offered Rs. 15,00,000 as income on this account. During course of assessment proceedings the assessee did not produce the CPU of the computer and could not confirm whether the CPU is in the same form or not. Thus, it is seen that the assessee has failed to establish that the income declared during course of survey was not correct. In view of this, the judgements cited by the assessee are not applicable to the facts of the case of the assessee. The appeal of the assessee is dismissed.”

Aggrieved by the order of CIT(A) the assessee has filed the present appeal before the Tribunal.

I have heard the submissions of the ld. Counsel for the assessee. The ld. Counsel for the assessee reiterated the submissions as were made before the revenue authorities. He further placed reliance on the decision of the Hon’ble Madras High Court in the case of CIT vs Khader Khan Son 300 ITR 157 (Mad) wherein the Hon’ble Madras High Court has held that there can be evidentiary value attached to the statement recorded at the time of survey. The ld. Counsel for the assessee pointed ITA No.2163/Kol/2014- M/s. Raniganj R.C.C. Spun Pipe Industries Pvt. Ltd. A.Y.2010-11

I have given a very careful consideration to the rival submissions. From a perusal of the AO as well as CIT(A)m it is clear that the basis of making the impugned addition is only a statement recorded on 19.03.2010 u/s 131 of the Act which is after conclusion of the survey u/s 133A of the Act. A perusal of the record shows that the AO has not dealt with the basis of valuation at the time of survey and the basis of value as given by the assessee in the statement of accounts filed along with the return of income. It is clear from the stand taken by the assessee before the revenue authorities that he has disputed the manner of valuation of the physical stock at the time of survey and the value of stock as per the books of accounts maintained by the assessee. The basis on which the assessee claims that the value of the stock as per the books of accounts as determined on the date of survey as incorrect is further supported by the statement of manufacturing cost, value of finished goods and raw material as on 17.03.2010 which is placed in pages 11 and 12 of the assessee’s paper book. The fact that the ultimate sale of the finished product by the assesse during the previous year yielded a sum of Rs.30,34,317/- is also not disputed by the revenue. In such circumstances the action of AO in rejecting the claim of the assessee merely on the basis that the inventorised CPU was not produced cannot be sustained. It is clear from the record that the assessee had made declaration of income to the tune of Rs.8,99,155/- on account of discrepancy found at the time of survey and such disclosure has been shown to be on an acceptable basis by the assessee. The AO has not brought on record any material to show that this declaration was not correct. The impugned addition by the AO is purely based on the statement recorded at the time of survey. In the light of the judicial pronouncements brought to my notice by the ld. Counsel for the assessee and in the light of the CBDT’s Instruction that was brought to the notice of the CIT(A), I am of the view that the addition made by the AO and sustained by CIT(A) deserves to be deleted. The same is hereby directed to be deleted. ITA No.2163/Kol/2014- M/s. Raniganj R.C.C. Spun Pipe Industries Pvt. Ltd. A.Y.2010-11

In the result the appeal of the assessee is allowed.