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The Tax Publishers2014 TaxPub(DT) 0816 (Jp-Trib) : (2014) 029 ITR (Trib) 0547 Unique Art Age v. Asstt. CIT INCOME TAX ACT, 1961 --Survey--Statement under section 133AEvidentiary value of statement taken on oath--Statement recorded under section 133A and that too on oath did not have any evidentiary value, the same would not affect or would be made a basis for addition even if admission was made in those statements. Assessee made a surrender of the income. The position of law regarding the evidentiary value of admissions made in such statements is now settled. After considering the rival stands on this issue. No admission made in a statement recorded under section 133A on oath during survey can be relied as evidence against the maker or the assessee. Undeniably, the AO has made impugned addition on the basis of the statement of Shri M and specifically by relying on his reply to question No. 23 of his statement. As per the assessment order, the excess stock of Rs. 5,08,98,166 has been worked out after giving the benefit of discount and the gross profit rate but mainly relying on the statement of one of the partners of the assessee-firm. If the statement of Shri M and others are excluded in view of the above legal position, the value of the alleged excess stock can be ascertained in the light of the facts of this case. The legal issue is decided in favour of the assessee. [Para 18] Income Tax Act, 1961, Section 133A INCOME TAX ACT, 1961 --Income from undisclosed sources--Addition under section 69Unexplained investment in stock--Where for immediate two preceding assessment years assessee's trading account was accepted by the revenue, thus, by implication opening stock taken by assessee to be treated as accepted as no incriminating document or paper showing unrecorded purchases or unrecorded expenses or sales was disclosed, as such there was no corroborative evidence to substantiate undisclosed income. Further, assessee cannot be suffered for mistakes committed by survey team, therefore, on facts income from undisclosed sources was to be re-estimated and difference to be deleted. From the records, it has been revealed that the value of the stock on the date of survey was not taken correctly because after adjustment of sales, purchase and gross profit made after survey in the closing stock declared and accepted by the department on the date of financial statement, i.e., on 31-3-2008, the closing stock worked on the date of survey comes to Rs. 2,49,02,695 as against Rs. 66,74,221 taken by the department. The statement of trading account put forth by the appellant/assessee seems to be correct. The AO has made the addition of Rs. 4,90,84,070 on account of excess stock found during the course of survey on 28-1-2008. In the immediate two preceding assessment years, the assessee's trading records were accepted by the department. This fact has not been disputed by the revenue. Therefore, the closing stock as on 31-3-2007 as accepted by the Department was Rs. 80,01,286 and therefore, by implication the opening stock taken by the assessee of Rs. 80,01,286 is to be treated as accepted figure. It is also an undisputed fact that the AO has accepted the declared purchases, declared direct expenses and the declared sales, etc. During survey no other incriminating document/ loose paper, showing unrecorded purchases or unrecorded expenses or sales, was found. Therefore, there is no corroborative evidence in the possession of the Revenue to substantiate the impugned undisclosed income. The closing stock taken by the assessee at Rs. 2,61,77,707 as on 31-3-2008 gives gross profit rate of 76.02 per cent. If the closing stock considered by the AO is added in the trading account as on 31-3-2008, the gross profit rate would become 268 per cent, and this figure seems to be just impossible to be treated as a gross profit rate under any circumstance in such type of business and particular keeping in view the past history of the assessee. There is force in the submissions of the authorised representative that stock has been increased by tampering the inventory-sheet by changing the quantity of stock items as pointed out by the handwriting/forensic experts in their reports. The authorised representative has invited attention towards the reports of handwriting experts which have not been considered either by the AO or by the CIT(A), although, one such report was obtained by the AO himself. Thus, there seems to be some hide and seek and selective use of evidence collected by the AO. This conclusion is further strengthened by the fact that the entire survey proceeding was videographed but despite repeated requests neither a copy of the same was supplied to the assessee nor was it used by the department. Obviously, it gives a presumption that if these reports were to be used these would have gone against the interests of the Revenue. The AO being a quasi-judicial authority cannot be selective and partial. The assessee also got a report from another handwriting expert. As per the report of the expert appointed by the department, it has been observed that there are manipulation in the inventory-sheet but thereafter he has qualified those mistakes/manipulations as bona fide mistakes, by doing so, the expert has exceeded his jurisdiction. Moreover, in the report of expert got by the assessee also, such tampering with the stock inventory has been pointed out. Be that as it may, after going through the entire records including the AO's order and that of the CIT(A) order, one fact is certain that there has been mistakes in taking stock position by the Revenue and the impugned inventory cannot be treated as a sacrosanct document. Certain cuttings and overwritings have been noticed in the inventory sheets. The authorised representative has taken through the paper book pages 296 to 305 in this regard. After going through these, Tribunal is convinced that there are mistakes in the inventory which may be intentional or otherwise but in any case, the assessee should not be allowed to suffer for the mistakes committed by the survey team. From page 115 which is SH page No. S.N. 2 Marble Duck with Watch, the quantity as per authorised representative was one (figure-1) which has been altered into figure of '15' by inserting numeral 5. In the same manner in the sheet S.N. 5, which is Marble Pot, numeral 1 was inserted later on. In the reports of the experts enclosed at pages 587 to 588 of the assessee's paper book, the expert has accepted that these are cuttings and overwritings. The assessee's handwriting expert gave his report and a copy of which is placed at APB 589 to 607. In this report, Shri Dinesh Sethi, a handwriting expert, has categorically reported overwritings/additions/alterations. The CIT(A) has also accepted this position by making observations in the last paragraph of page 33 of her order. Thus, both experts have confirmed overwritings in the inventory sheets. However, she has mentioned that these were done in consultation with the assessee but this fact was retorted and disputed by the authorised representative. Tribunal is in agreement with the authorised representative in that regard because any party which is fighting tooth and nail with the department and has gone to the extent of getting report of their expert and has pressurised the department to obtain another report from the expert of their choice would not allow such tampering. The assessee has been clamouring that entire survey proceedings was video-graphed but the revenue through its CIT-Departmental representative has completely refused this factual position. These pieces of evidence coupled with the factual matrix of this case compel to believe that there are cuttings etc. which have been done at the back of the assessee. In so far as putting of signatures on the inventory sheet by the partners is concerned, this is a routine matter and the assessee has been stating it all along that in the charged atmosphere at the time of survey whatever was recorded by the concerned officer after putting one of them to oath the signatures of another partner of the firm may be easily obtained as they want to escape the trauma of that situation. Tribunal cannot believe such statements which the revenue has no right to record on oath during survey proceedings and officer is supposed to know the legal position. The revenue cannot really depend on this statement for making such additions. This fact has been supported by and duly attested affidavit given from the assessee's side and the same has not been considered by the CIT(A). In the facts and the circumstances of the case, one can safely conclude that the assessee has verily retracted the statement. One has found that the copies of inventory-sheets were supplied to the assessee after 10-12-2010, i.e., after the completion of the assessment order. This is also a fact that the assessee's business was carried out from three different places and more than 3360 items (each item was having one, two or three pieces) are traded by it. It was really difficult to get the correct counting of the stock and prepare the correct inventory during this period of survey. [Para 19] The physical stock as taken by the Department during the course of survey of Rs. 5,00,000 was sold for Rs. 1,56,727 only and the difference of the value taken at the time of inventorisation comes to Rs. 3,43,773 which is more than 219 per cent, of the sale price. This shows that neither physical counting of stock nor valuation of stock was done properly, it was based on pure estimation. Tribunal agree to that extent with the submissions of the authorised representative. [Para 20] Further discount given at 20 per cent, seems to be on lower side whereas this discount in the assessee's case and in the case of other assessees carrying on similar business is between 40 per cent, to 50 per cent. Tribunal is in agreement with the authorised representative that if this ratio in taking inventory is applied on all items of inventory, there will be no excess stock. There are numerous reasons for the rise in the gross profit rate in any year. When the AO accepted lower gross profit rates in the past and in future then this inference is found to be not justified. Rather, the AO must be satisfied that in the year of survey, the assessee has been forced to declare much high rate of profit, more than for other assessment years. [Para 21] During the course of survey, the stock available with the assessee was valued at sale price to arrive at the cost price. The deduction on account of gross profit embedded therein was given by taking the gross profit rate at 28.12 per cent, being the gross profit declared in the immediately preceding year. As already discussed that without rejecting the books of account, no magic figure of gross profit rate can be invoked. During the year under appeal, the assessee has declared the gross profit rate at 76.02 per cent, which is much better than last year. Even in any other cases, if the AO was to reject the books of account, he could have applied the rate of the preceding assessment year and not any magic figure of his choice. [Para 22] As is evident that the gross value of the stock physically taken during survey was reduced on account of deduction of discount and gross profit rate but these deductions were not allowed on the entire value of stock. The AO has partly accepted the contention of the assessee by giving relief of Rs. 18,14,092 and as against that the CIT(A) has accepted that the assessee is entitled to deduction on account of discount at 20 per cent, and deduction for gross profit at 28.12 per cent, on the entire stock. The Revenue is also in appeal against these two points. [Para 27] Keeping in view the special and peculiar circumstances of this business, Tribunal allows 40 per cent, discount as against 20 per cent, already allowed and gives further benefit of 20 per cent, from the total inventory found on the date of survey at Rs. 7,38,21,822 and the total difference deserves to be deleted. Accordingly, this issue is partly allowed in favour of the assessee. [Para 28] SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2014 TaxPub(DT) 0816 (Jp-Trib) : (2014) 029 ITR (Trib) 0547

Unique Art Age v. Asstt. CIT

INCOME TAX ACT, 1961

--Survey--Statement under section 133AEvidentiary value of statement taken on oath--Statement recorded under section 133A and that too on oath did not have any evidentiary value, the same would not affect or would be made a basis for addition even if admission was made in those statements. Assessee made a surrender of the income.

The position of law regarding the evidentiary value of admissions made in such statements is now settled. After considering the rival stands on this issue. No admission made in a statement recorded under section 133A on oath during survey can be relied as evidence against the maker or the assessee. Undeniably, the AO has made impugned addition on the basis of the statement of Shri M and specifically by relying on his reply to question No. 23 of his statement. As per the assessment order, the excess stock of Rs. 5,08,98,166 has been worked out after giving the benefit of discount and the gross profit rate but mainly relying on the statement of one of the partners of the assessee-firm. If the statement of Shri M and others are excluded in view of the above legal position, the value of the alleged excess stock can be ascertained in the light of the facts of this case. The legal issue is decided in favour of the assessee. [Para 18]

Income Tax Act, 1961, Section 133A

INCOME TAX ACT, 1961

--Income from undisclosed sources--Addition under section 69Unexplained investment in stock--Where for immediate two preceding assessment years assessee's trading account was accepted by the revenue, thus, by implication opening stock taken by assessee to be treated as accepted as no incriminating document or paper showing unrecorded purchases or unrecorded expenses or sales was disclosed, as such there was no corroborative evidence to substantiate undisclosed income. Further, assessee cannot be suffered for mistakes committed by survey team, therefore, on facts income from undisclosed sources was to be re-estimated and difference to be deleted.

From the records, it has been revealed that the value of the stock on the date of survey was not taken correctly because after adjustment of sales, purchase and gross profit made after survey in the closing stock declared and accepted by the department on the date of financial statement, i.e., on 31-3-2008, the closing stock worked on the date of survey comes to Rs. 2,49,02,695 as against Rs. 66,74,221 taken by the department. The statement of trading account put forth by the appellant/assessee seems to be correct. The AO has made the addition of Rs. 4,90,84,070 on account of excess stock found during the course of survey on 28-1-2008. In the immediate two preceding assessment years, the assessee's trading records were accepted by the department. This fact has not been disputed by the revenue. Therefore, the closing stock as on 31-3-2007 as accepted by the Department was Rs. 80,01,286 and therefore, by implication the opening stock taken by the assessee of Rs. 80,01,286 is to be treated as accepted figure. It is also an undisputed fact that the AO has accepted the declared purchases, declared direct expenses and the declared sales, etc. During survey no other incriminating document/ loose paper, showing unrecorded purchases or unrecorded expenses or sales, was found. Therefore, there is no corroborative evidence in the possession of the Revenue to substantiate the impugned undisclosed income. The closing stock taken by the assessee at Rs. 2,61,77,707 as on 31-3-2008 gives gross profit rate of 76.02 per cent. If the closing stock considered by the AO is added in the trading account as on 31-3-2008, the gross profit rate would become 268 per cent, and this figure seems to be just impossible to be treated as a gross profit rate under any circumstance in such type of business and particular keeping in view the past history of the assessee. There is force in the submissions of the authorised representative that stock has been increased by tampering the inventory-sheet by changing the quantity of stock items as pointed out by the handwriting/forensic experts in their reports. The authorised representative has invited attention towards the reports of handwriting experts which have not been considered either by the AO or by the CIT(A), although, one such report was obtained by the AO himself. Thus, there seems to be some hide and seek and selective use of evidence collected by the AO. This conclusion is further strengthened by the fact that the entire survey proceeding was videographed but despite repeated requests neither a copy of the same was supplied to the assessee nor was it used by the department. Obviously, it gives a presumption that if these reports were to be used these would have gone against the interests of the Revenue. The AO being a quasi-judicial authority cannot be selective and partial. The assessee also got a report from another handwriting expert. As per the report of the expert appointed by the department, it has been observed that there are manipulation in the inventory-sheet but thereafter he has qualified those mistakes/manipulations as bona fide mistakes, by doing so, the expert has exceeded his jurisdiction. Moreover, in the report of expert got by the assessee also, such tampering with the stock inventory has been pointed out. Be that as it may, after going through the entire records including the AO's order and that of the CIT(A) order, one fact is certain that there has been mistakes in taking stock position by the Revenue and the impugned inventory cannot be treated as a sacrosanct document. Certain cuttings and overwritings have been noticed in the inventory sheets. The authorised representative has taken through the paper book pages 296 to 305 in this regard. After going through these, Tribunal is convinced that there are mistakes in the inventory which may be intentional or otherwise but in any case, the assessee should not be allowed to suffer for the mistakes committed by the survey team. From page 115 which is SH page No. S.N. 2 Marble Duck with Watch, the quantity as per authorised representative was one (figure-1) which has been altered into figure of '15' by inserting numeral 5. In the same manner in the sheet S.N. 5, which is Marble Pot, numeral 1 was inserted later on. In the reports of the experts enclosed at pages 587 to 588 of the assessee's paper book, the expert has accepted that these are cuttings and overwritings. The assessee's handwriting expert gave his report and a copy of which is placed at APB 589 to 607. In this report, Shri Dinesh Sethi, a handwriting expert, has categorically reported overwritings/additions/alterations. The CIT(A) has also accepted this position by making observations in the last paragraph of page 33 of her order. Thus, both experts have confirmed overwritings in the inventory sheets. However, she has mentioned that these were done in consultation with the assessee but this fact was retorted and disputed by the authorised representative. Tribunal is in agreement with the authorised representative in that regard because any party which is fighting tooth and nail with the department and has gone to the extent of getting report of their expert and has pressurised the department to obtain another report from the expert of their choice would not allow such tampering. The assessee has been clamouring that entire survey proceedings was video-graphed but the revenue through its CIT-Departmental representative has completely refused this factual position. These pieces of evidence coupled with the factual matrix of this case compel to believe that there are cuttings etc. which have been done at the back of the assessee. In so far as putting of signatures on the inventory sheet by the partners is concerned, this is a routine matter and the assessee has been stating it all along that in the charged atmosphere at the time of survey whatever was recorded by the concerned officer after putting one of them to oath the signatures of another partner of the firm may be easily obtained as they want to escape the trauma of that situation. Tribunal cannot believe such statements which the revenue has no right to record on oath during survey proceedings and officer is supposed to know the legal position. The revenue cannot really depend on this statement for making such additions. This fact has been supported by and duly attested affidavit given from the assessee's side and the same has not been considered by the CIT(A). In the facts and the circumstances of the case, one can safely conclude that the assessee has verily retracted the statement. One has found that the copies of inventory-sheets were supplied to the assessee after 10-12-2010, i.e., after the completion of the assessment order. This is also a fact that the assessee's business was carried out from three different places and more than 3360 items (each item was having one, two or three pieces) are traded by it. It was really difficult to get the correct counting of the stock and prepare the correct inventory during this period of survey. [Para 19] The physical stock as taken by the Department during the course of survey of Rs. 5,00,000 was sold for Rs. 1,56,727 only and the difference of the value taken at the time of inventorisation comes to Rs. 3,43,773 which is more than 219 per cent, of the sale price. This shows that neither physical counting of stock nor valuation of stock was done properly, it was based on pure estimation. Tribunal agree to that extent with the submissions of the authorised representative. [Para 20] Further discount given at 20 per cent, seems to be on lower side whereas this discount in the assessee's case and in the case of other assessees carrying on similar business is between 40 per cent, to 50 per cent. Tribunal is in agreement with the authorised representative that if this ratio in taking inventory is applied on all items of inventory, there will be no excess stock. There are numerous reasons for the rise in the gross profit rate in any year. When the AO accepted lower gross profit rates in the past and in future then this inference is found to be not justified. Rather, the AO must be satisfied that in the year of survey, the assessee has been forced to declare much high rate of profit, more than for other assessment years. [Para 21] During the course of survey, the stock available with the assessee was valued at sale price to arrive at the cost price. The deduction on account of gross profit embedded therein was given by taking the gross profit rate at 28.12 per cent, being the gross profit declared in the immediately preceding year. As already discussed that without rejecting the books of account, no magic figure of gross profit rate can be invoked. During the year under appeal, the assessee has declared the gross profit rate at 76.02 per cent, which is much better than last year. Even in any other cases, if the AO was to reject the books of account, he could have applied the rate of the preceding assessment year and not any magic figure of his choice. [Para 22] As is evident that the gross value of the stock physically taken during survey was reduced on account of deduction of discount and gross profit rate but these deductions were not allowed on the entire value of stock. The AO has partly accepted the contention of the assessee by giving relief of Rs. 18,14,092 and as against that the CIT(A) has accepted that the assessee is entitled to deduction on account of discount at 20 per cent, and deduction for gross profit at 28.12 per cent, on the entire stock. The Revenue is also in appeal against these two points. [Para 27] Keeping in view the special and peculiar circumstances of this business, Tribunal allows 40 per cent, discount as against 20 per cent, already allowed and gives further benefit of 20 per cent, from the total inventory found on the date of survey at Rs. 7,38,21,822 and the total difference deserves to be deleted. Accordingly, this issue is partly allowed in favour of the assessee. [Para 28]