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Income Tax Appellate Tribunal, DELHI BENCH “SMC-1” NEW DELHI
Before: SHRI I.C. SUDHIR: HON’BLE
ORDER The Revenue has questioned First Appellate Order on the following grounds: i) That the Learned CIT(Appeals) erred in law and on facts of the case in deleting the addition of Rs.13,76,676 made by the A.O. on account of excess stock found during the course of survey without examining and adjudicating upon the merits of the case. ii) That the Learned CIT(Appeals) erred in law and on facts of the case in deleting the addition of Rs.3,60,132 made by the A.O. on account of short stock found during the course of survey without examining and adjudicating upon the merits of the case. iii) Whether CIT(A) has erred in law and facts as well in not invoking the provisions of sec. 250(4) of the Income-tax Act, 1961 which empowers the Learned CIT(Appeals) to conduct further enquiry on the issues involved in this case. iv) (a) The order of the CIT(A) is erroneous and not tenable in law and on facts. (b) The appellant craves leave to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal.
Heard and considered the arguments advanced by the parties in view of orders of the authorities below, material available on record and the decisions relied upon.
The assessee company is engaged in the manufacturing of “Gudka”. The assessee was subjected to survey operation under sec. 133A of the Income-tax Act, 1961 at its business premises. During the course of survey, the survey team verified the stock of the assessee and found discrepancy. On the basis of the same, the Assessing Officer worked out the excess stock at Rs.13,76,673 and shortage of stock of Rs.3,60,132. The survey team had also recorded the statement of Shri Pramod Jain, Director of the assessee company and on the query raised regarding discrepancy found in the stock.
He had surrendered an amount of Rs.13,76,676 as his undisclosed income for the financial year 2008-09 on account of excess stock found during the course of survey on 29.4.2008. He also undertook to pay taxes on the surrendered amount within 2 – 3 days. The assessee, however, did not disclose the surrendered amount in its return of income filed in response to the notice issued by the Assessing Officer to him. The Assessing Officer also noted that no explanation was filed in respect of short stock of Rs.3,60,132 and thus the Assessing Officer treated both the amount of Rs.13,76,676 and Rs.3,60,132 as undisclosed income of the assessee and added the same in the total income. Being satisfied with the explanation of the assessee, the Learned CIT(Appeals) has deleted the additions in question which has been impugned by the Revenue in the present appeal.
In support of the ground, the Learned Senior DR has basically placed reliance on the assessment order. She submitted that surrender was made by the assessee during the course of survey voluntarily and without appreciating this material aspect, the Learned CIT(Appeals) has deleted the additions.
The Learned AR on the other hand placed reliance on the First Appellate Order. He reiterated his submissions made before the authorities below. He also referred the decision relied upon by the assessee before the Learned CIT(Appeals).
Having gone through the orders of the authorities below, I find that after making surrender of Rs.13,76,676 in his statement recorded during the course of survey proceedings on 29.4.2008, the assessee vide letter dated 30.4.2008 had withdrawn the surrendered amount with copy of the said letter to Director General of Investigation stating therein that due to mental pressure and duress, Mr. Pramod Jain, the Director of the Co. had signed to pay taxes on surrendered amount. Again, vide letter dated 18.7.2008 in response to the notice issued by the DIT(Inv.), the assessee reiterated the earlier stand taken by it vide letter dated 30.6.2008, the assessee had made a request to the DDIT to provide it the copies of seized document as well as impounded document with this further submission that no discrepancy in the books of account maintained by the assessee were found and that elaborate explanation in respect of difference of 4,805 kgs. of supari was submitted. It was contended that the assessee had made a request to the Assessing Officer for providing the statement recorded on oath at the time of survey and the noting of the details of the stock found at the factory premises, work in progress inside and outside the plant but inspite of depositing of requisite amount with PRO, CR Building, New Delhi, the same was not provided to the assessee. It was submitted that the director of the assessee company was under tension on the date of survey and his statement was recorded in duress and when he was told that there is a difference in stock then to buy peace with the department, he surrendered the above stated amount. Regarding the verification of stock, assessee submitted that the stock noted by the officer was incorrect and quantities were inflated/deflated of the certain items. The Learned CIT(Appeals) called for the remand report from the Assessing Officer on the submissions and details of stock filed by the assessee before him. He also asked the Assessing Officer for his examination and comments on the submission filed by the assessee along with the paper book. The Assessing Officer submitted his remand report thereafter the assessee was asked to furnish rejoinder thereto, which was complied with. Discussing all these aspects in details, the Learned CIT(Appeals) has come to the following finding:
“9.8. Even on merit the addition is not sustainable for the reasons. Firstly, it is not made known by the Assessing Officer as to how stock as per books has been worked out, whether appellant had closed the accounts and worked out the stock or simply G.P. rate was applied to find out the stock on a particular day. In absence of expiration of procedure adopted for working out the stock as per books, the stock so mentioned by the A.O. being as per books for comparing with physical stock cannot be treated as correct, therefore, difference worked out on that basis cannot be accepted as correct. Secondly, negative difference in stock cannot be treated as undisclosed income like positive difference in stock as held in ITO vs. Jewels Emporium - 48 ITD 164 (Indore) relied by the appellant. Section 69 and section 69B only support the proposition that if actual expenditure or investment incurred by the appellant is ore than the expenditure or investment recorded in the books then the surplus expenditure or investment will be treated as appellant’s income in absence of any satisfactory explanation. They do not lay down the proposition that if actual investment or expenditure is less then what is recorded in the books then still the appellant has to explain the difference within the meaning of those sections. As a matter of fact these two sections do not apply to this situation. Therefore, Assessing Officer was incorrect in invoking these sections for making an addition on negative difference in stock. Hon’ble ITAT – Delhi in ACIT vs. Smt. Usha Rani Talla (2010) 6 ITR (Trib.) 37 (Delhi) has also held that if statement is recorded in survey is retracted on the ground that such statement was made under coercion and there is no material evidence to sustain the addition then addition made was not justified. In the present case once material collected during survey is not confronted to the assessee, it can be deemed as not existing and therefore, no addition can be made on the basis of statement alone which is retracted. Thirdly, the Assessing Officer has not pointed out either in the assessment order or in the remand report what was the procedure adopted for physical verifying the stock. In view of this no addition so made by the Assessing Officer can be sustained. This view is also supported by Hon'ble Delhi High Court in CIT vs. Balaji Wire Pvt. Ltd. (2007) 164 Taxmann 559 (Delhi). In view of the above, addition of Rs.13,76,676 and of Rs.3,60,132 made by the Assessing Officer is deleted.”
I agree with the view of the Learned CIT(Appeals) that once the surrender during survey was retracted immediately, then it was incumbent upon the Assessing Officer to provide to the assessee the inventory showing the alleged difference in stock and if no such inventory is provided to the assessee then it is not only a violation or principles of natural justice but also casts doubt on the veracity of stock taking itself. There cannot be an automatic addition either on t he basis of statement recorded during survey or on the basis of stock inventory whose copy was never provided to the assessee. In the remand report, the Assessing Officer has not countered the allegations of the assessee that copy of the inventory was not provided to him. I thus concur with the finding of the Learned CIT(Appeals) that additions have been made without following the due process of law and principles of natural justice. The Assessing Officer either in the assessment order or in the remand report, has not revealed the procedure adopted for physically verifying the stock. Keeping these material aspects of the case, I am of the view that the Learned CIT(Appeals) has rightly deleted the addition in question. The First Appellate Order in this regard is thus upheld. The ground Nos. 1 to 3 are thus rejected.
In result, the appeal is dismissed.
C.O. No. 224/Del/2015: During the course of hearing, the assessee who has preferred this cross objection on the issue that Learned CIT(Appeals) should have annulled the assessment order because the procedure laid down under sec. 153C of the Income-tax Act, 1961 relating to the recording of the satisfaction in the case of searched assessee as well as in the case of present assessee was not followed by the Assessing Officer, has not been pressed. The cross objection is accordingly rejected as not pressed.
In summary, both the appeal and cross objection are dismissed. Order pronounced in the open court on 02.11.2015