Survey statement recorded under section 133A could not be a strong piece of evidence, in case assessee was in a position to reconcile discrepancy with positive material. In the instant case, difference in stock noticed during survey was subsequently reconciled by assessee after drawing a fresh trading account and no specific defect in such reconciliation was pointed out by AO, under these facts, AO was not justified in making addition.

Survey under section 133A was carried out at business premises of assessee on 3-5-2005 and certain books of account and loose papers were found and impounded by survey party. During the course of survey, statement of assessee was recorded and assessee admitted unexplained investment in stock but did not declare the same in return of income. AO made addition on that count. Assessee’s case was that books of account of assessee at the time of survey on 3-3-2005 were returned till 15-1-2005 and no opportunity to recast trading account was given and on the basis of variation in physical stock as on 3-3-2005 and as per books as on 15-1-2005 assessee under ignorance declared additional income as unexplained investment in stock in fact sales of the udad has been taken into account but purchases were not considered which was recorded subsequently.

 It is held that Survey statement recorded under section 133A could not be a strong piece of evidence in case  assessee was in a position to reconcile discrepancy with positive material. In the instant case, difference in stock noticed during survey was subsequently reconciled by assessee after drawing a fresh trading account and no specific defect in such reconciliation was pointed out by AO. Under these facts, AO was not justified in making addition.

Decision: In assessee’s favour.

IN THE ITAT, INDORE BENCH

KUL BHARAT, J.M. & MANISH BORAD, A.M.

Babulal Vani v. Asstt. CIT

ITA Nos. 491 & 492/Ind/2018

27 September, 2019

Appellant by: Anil Kamal Garg and Arpit Gaur, A.Rs

Respondent by: K.G. Goyal, Sr. D.R.

Kul Bharat, J.M.

These two appeals by the two different assessees are directed against two different orders of the Commissioner (Appeals), Ujjain dated 1-2-2018 for the assessment year 2005-06. Since the issues are same and grounds are identical, the appeals were taken up together and are being disposed of by way of this consolidated order. First we take up ITA No. 491/Ind/2018. In this appeal, the assessee has raised following grounds of appeal :–

2. The facts giving rise to the present appeal are that the assessee is an individual engaged in the business of grain, cotton, pulse seed marketing and also money lending. A survey under section 133A of the Income Tax Act, 1961 (hereinafter called as ‘the Act’) was carried out at the business premises and assessee on 3-5-2005 by the Income Tax Officer Ward-2, Ratlam. During the course of survey, certain books of accounts and loose papers were found and same were impounded by the survey party. It was observed that entries in the books of accounts on the date of survey was recorded till 15-1-2005. During the course of survey statement of the assessee was recorded. In the statement, the assessee offered additional income of Rs. 32,28,920 for the year under appeal. However, while filing the return of income, the assessee declared total income of Rs. 10,63,748 and out of the income declared during the survey of Rs. 32,48,920. The assessee incorporated only an income an income of Rs. 9,56,331. Case of the assessee was picked up scrutiny assessment and assessment under section 143(3) of the Act was framed vide Order, dated 24-12-2017. While framing the assessment, the assessing officer made various additions on account of unaccounted cash of Rs. 2,730, unaccounted investment in stock of Rs. 2,68,998, unaccounted investments/advances of Rs. 12,35,990, advances to Shri Kamlesh Vani and others Rs. 2,15,310 and on account of unaccounted purchases of Rs. 1,25,870. Thus, the assessing officer made total addition of Rs. 18,48,888 against the returned income of Rs. 10,55,148. The assessing officer thus assessed income at Rs. 29,02,636.

3. Aggrieved against this, the assessee preferred an appeal before learned Commissioner (Appeals), who after considering the submissions partly allowed the appeal, thereby, the learned Commissioner (Appeals) sustained addition of Rs. 2,68,998, addition of Rs. 2,730, addition of Rs. 12,35,990 and addition of Rs. 2,15,300. However, the learned Commissioner (Appeals) deleted the addition of Rs. 1,25,870. Now the assessee is in further appeal before this Tribunal. Ground No. 1 is against confirming the addition of Rs. 2,68,998. Learned Counsel for the assessee submitted that the appellant has been carrying out business of grain, cotton, pulse, seed, etc. for many years. The assessee has been maintaining relevant books of accounts in respect of his proprietorship business. Learned Counsel submitted that during the course of survey an inventory of the total stock allowing with the appellant was prepared by the survey party. He drew our attention paper book page No. 24. As per the such inventory the valuation of total stock allowance with the assessee on the date of survey, i.e., on 3-3-2015 was worked out at Rs. 7,12,710.

As against the same stock of various items of goods as per trading account drawn on the basis of incomplete books of accounts worked out at Rs. 29,400. Therefore, all accounts worked out at Rs. 29,400. Therefore, on the basis of the variation in physical stock as on 3-3-2005 and as per books stock as on 15-1-2005 the appellant under ignorance declared additional income of Rs. 6,83,710 as is unexplained investment in stock for the relevant previous year. He contended that while drawing the trading account of Udad although based upon the sales bills, sales made after 15-1-2005 were considered but purchases made after 15-1-2005 were not so taken into account. He contended that against the additional income of Rs. 6,83,310 surrendered by the assessee in his return had declared additional income to the extent of Rs. 4,14,312 only as per working given in a separate statement of various of closing stock duly prepared and submitted along with the return of income. He submitted that a difference of Rs. 2,68,998 in respect of variation in closing stock. It may be appreciated that out of 6 items of goods, which were physically found in the business premises of the assessee during the course of survey except one item, i.e., udad the assessee has taken the surplus quantity of the stock at the same figure, which were determined by the survey party. The only point of difference in the surplus stock as determined at the time of survey and determined by the appellant while furnishing the return of income is as regard to quantity of valuation of udad and that too is a solely attributable to working of books stock at two different points of time. He contended that books stock of udad as on 15-1-2005 was taken at Rs. 29,400. Correct books stock as on the date of survey, i.e., on 3-3-2005 was of Rs. 2,96,692. He contended that at the time of survey, the stock of udad as per books of accounts was taken at 21.00 qtls. only of a value of Rs. 29,400, whereas at the time of return, the books stock of udad as on 5-3-2005, i.e., the date of survey was worked out at Rs. 213.370 qtls. on a value of Rs. 2,96,692. The learned Counsel submitted that the stock of udad as per his books of accounts completed subsequently was of Rs. 213.370 qtls. on the date of survey and not 21.00 qtls. as erroneously considered at the time of survey, thereby resulting in reduction of quantity of surplus stock of udad by 192.370 qtls. Accordingly, the assessee correctly reworked out the surplus quantity of stock of udad at 202.63 qtls. (416.000 qtls. physical stock (minus) 192.370 books stock) and by making the value of said surplus @ 1400 per qtl., he declared a sum of Rs. 2,83,682 as additional income in the return of income. Learned Counsel further submitted that on the date of survey, it is undisputed fact that books were written till 15-1-2005 and on the basis of such incomplete books, surrender was made during the survey. No opportunity was granted to the assessee to recast its trading account. It is contended that from 25-1-2005 to 3-3-2005, the assessee made purchases of udad of 192.370 qtls. valuing at Rs. 2,67,292. Had these purchases been taken into consideration by the survey party, surplus stock of udad would not have been worked at 202.363 qtls. with value of Rs. 2,83,682 as against the sum of 416.000 qtls. with value of Rs. 5,82,400 worked out by survey party. Learned Counsel submitted that stock is duly reconciled.

Authorities below ought to have considered the reconciled stock and ought not to have made addition. He further contended that a statement was recorded under section 133A of the Act. Firstly, it cannot be recorded on oath. Secondly, it has no evidentiary value. Further, he contended that where the assessee could reconcile his stock, no addition would be called for. In support of the submissions, learned Counsel for the assessee has placed reliance on various case laws. More particularly, decision of the Hon’ble High Court of Madras rendered in the case of CIT v. M/s. S. Khader Khan Son (2008) 300 ITR 157 (Mad) : 2008 TaxPub(DT) 0790 (Mad-HC) and also the decision of the Hon’ble Supreme Court rendered in the case of Pillangode Rubber Produce Co. v. State of Kerala and another (1973) 91 ITR 18 (SC) : 1973 TaxPub(DT) 0089 (SC). Therefore, he submitted that the addition sustained by the learned Commissioner (Appeals) of Rs. 26,80,998 may please be deleted.

4. On the contrary, learned D.R. opposed these submissions and supported the orders of the authorities below. Learned D.R. vehemently argued that the assessee cannot go back from his statement. The assessee had sufficient opportunity during the course of survey to reconcile his stock. But he chose not to do so and remained silent for 7 months. It was only while filing the return of income, the assessee retracted from the statement. The case laws as relied by the learned Counsel for the assessee are not applicable under the facts of the present case.

5. We have heard the rival submissions, perused the materials available on record and gone through the orders of the authorities below. Undisputedly, the books of accounts of the assessee at the time of survey on 3-3-2005 were found to be returned till 15-1-2005. It is the contention of the assessee that no opportunity to recast its trading account was given. It is further contended that the difference was due to non-recording of the purchases. In fact sales of the udad has been taken into account but purchases are not considered which was recorded subsequently. It is further contended that the sales have been determined on the basis of the vouchers. We have given our thoughtful consideration to these submissions of the assessee. During the course of survey statement recorded under section 133A of the Act would not be a strong piece of evidence. In case the assessee is in a position to reconcile the discrepancy with positive material, in that event, the assessing officer should give relief to the assessee. In the present case, the learned Counsel for the assessee has taken us through the various pages of paper book to support his contention that the stock is duly reconciled. We find that the assessing officer has taken into account sales but the purchases of udad which was not recorded in the books and subsequently recorded after drawing a fresh trading account, no specific defect in such reconciliation is pointed out by the assessing officer Under these facts, we are of the view that the assessing officer is not justified in making the addition. Therefore, the assessing officer is directed to delete this addition.

6. Ground No. 2 is against confirming the addition of Rs. 2,730. Apropos to Ground No. 2, learned Counsel for the assessee submitted that during the course of survey, a cash of Rs. 2,730 was found on the business premises of the assessee. He contended that the authorities below failed to appreciate the facts in right perspective. He submitted that as per the cash book written up to 15-1-2005, the cash appearing in the cash book was at Rs. 11,965. Even if it is assumed that cash balance of Rs. 11,965 as appearing in the cash book of the assessee written up till 15-1-2005 is taken as cash balance of the assessee on the date of survey, then there would on the contrary result a shortage of cash of Rs. 9,235 for which no addition can be made under any deeming provisions of the Act. He further contended that after completing books cash balance as on 3-3-2005 was arrived at Rs. 34,012. The learned Counsel drew our attention to the paper book at page 66 to support his contention.

7. On the contrary, learned D.R. opposed these submissions and supported the orders of the authorities below. He contended that the averments so made are afterthought.

At the time of survey he did not clarify this position.

8. We have heard the rival submissions, perused the materials available on record and gone through the orders of the authorities below. The fact that the assessee has reflected cash balance as on 15-1-2005 at Rs. 11,965 is not controverted by the revenue by placing any contrary material, therefore, the addition made is not justified. We therefore, direct the assessing officer to delete this addition.

9. Ground No. 3 is against addition of Rs. 12,35,990. Learned Counsel for the assessee reiterated the submissions as made in the written synopsis. It is contended that during the survey two ugai books were found and impounded. In the said book, the ledger account of various farmers and villagers to whom loan on interest basis were given by the separate entity name and style of M/s. Ramlal Birdichand Vani HUF. It is contended that HUF did not furnish return of income prior to assessment year 2004-05. The HUF is separately assessed to income tax since assessment year 2004-05. Since the document relates to the other independent entity, the authorities below were not justified in making addition at the hands of the assessee.

10. Per contra, learned D.R. opposed these submissions and supported the order of the learned Commissioner (Appeals).

11. We have heard the rival submissions, perused the materials available on record and gone through the orders of the authorities below. The contention of the assessee is that the document relates to a separate entity who has filed its return of income since 2004-05. The fact that HUF namely M/s. Ramlal Birdichand Vani HUF was assessed to tax is to be verified at the end of the assessing officer. Therefore, this issue is set aside to the file of the assessing officer to decide it afresh. The ground of the assessee’s appeal is allowed for statistical purposes.

12. Ground No. 4 is against addition of Rs. 2,15,560 in respect of the advances made to Shri Kamlesh Vani and others as made in the written submissions. He submitted that the assessing officer has observed that assessee made advances to Shri Kamlesh Vani and others. The total amount was at Rs. 10,85,000. In addition to that, interest of Rs. 96,019 was also calculated on these advances. Learned Counsel submitted that during the course of survey two books inventorized as A/7 was found from the business premises of the appellant. Likewise, during the course of simultaneous survey proceedings, carried on in the premises of the another assessee namely Shri Ashok S/o Shri Ramlal Vani, real brother of the appellant, certain loose papers inventorized as LPS-A/3, belonging to the appellant were found. Based upon entries made at pages No. 2, 10 & 12 of LPS-A/7 and Page No. 14 of LPS-3, the appellant came forward to surrender an additional income of Rs. 11,81,019 for the relevant previous year, i.e., the previous year relevant to assessment year 2005-06. Surrender of 11,81,019 consisted of loan of Rs. 10,85,000 given by appellant and interest income of Rs. 96,019 earned by the appellant. He submitted that certain transactions were pertaining to the assessment year 2004-05. The assessee revised his return for assessment year 2004-05 and shown additional income of Rs. 4,39,379. He drew our attention to page Nos. 99 to 102. Subsequent to date of survey based upon the material on record, the assessee realized that certain transactions of the loans, as contained in the above stated loose papers, had taken place during the previous year relevant to the preceding assessment year, i.e., assessment year 2004-05. After realizing such factual situation, the appellant filed his revised return of income for assessment year 2004-05. In the revised return of income the appellant had shown taxable income at an increased amount of Rs. 4,84,419 as against the income declared in original return at Rs. 45,040. Hence, the assessee had shown additional income of Rs. 4,39,379. In the return, the assessee shown interest income of Rs. 33,576. He further contended that the assessee realized that peak investment made by him in giving loan to the said persons worked out to be at Rs. 8,45,000 only. Considering such factual error and further considering the fact that peak amount of investment made by the assessee during the previous year relevant to the assessment year 2004-05 was to the extent of Rs. 4,15,000 for which he has already revised his return by declaring additional income of Rs. 4,39,379. He further submitted that interest income of Rs. 1,22,019 is also shown in the return for the assessment year 2005-06. Total additional income declared at Rs. 9,82,398 as against total surrender of Rs. 11,81,019.

13. Learned D.R. opposed these submissions. He submitted that these submissions were not made before the assessing officer and the facts were not explained to the assessing officer. Therefore, authorities below were justified in making the addition.

14. We have heard the rival submissions, perused the materials available on record and gone through the orders of the authorities below. The contention of the assessee is that there was a peak investment which is lower. Therefore, no addition is called for. This fact requires verification and reconsideration by the assessing officer We therefore, considering the fact that before the assessing officer, the assessee had not made such argument, we set aside this ground to the file of the assessing officer to decide it afresh after considering the submissions of the assessee. The assessee’s appeal is allowed for statistical purposes.

15. Now we take up ITA No. 492/Ind/2018. Legal heir of the assessee have raised following grounds of appeal :–

16. Ground No. 1 is against confirming the addition of Rs. 6,82,044. The facts related to this addition are that while framing the assessment under section 143(3) of the Act, the assessing officer made addition of Rs. 6,82,244 in respect of the different in stock.

17. Aggrieved against this, the assessee preferred an appeal before the learned Commissioner (Appeals), who confirmed this addition. Learned Counsel for the assessee reiterated the submissions as made in the written synopsis. Learned Counsel for the assessee submitted that a survey action was carried out at the business premises of the assessee on 3-3-2005. During the course of survey, the assessee had surrendered total income of Rs. 17,71,680. While filing the return, the assessee incurred the additional income to the extent of Rs. 9,63,438. The assessing officer determined total income at Rs. 18,20,385. Learned Counsel for the assessee submitted that the books were returned up till 7-12-2004 and the difference in stock was due to non-recording of purchases during the period 8-12-2004 to 3-3-2005. He contended that on perusal of the statement showing working of surplus stock of Rs. 8,88,836 as submitted by the assessee with the return of income, it can be observed that assessee had claimed that on the basis of trading account prepared till 7-12-2004, i.e., till which the books of account of the appellant were written, the appellant was having stock of 150 qtls. of Urad of value of Rs. 1,44,802. Further, the appellant had made total purchases of Urad, Arandi, Ground nut, Chana, Makka, Tuar, Soyabean and Cotton during the period from 8-12-2004 to 3-3-2005, i.e., the date of survey, of a sum of Rs. 68,272. However, during the above stated period of 8-12-2004 to 3-3-2005, the appellant had also made sales of various kind of goods to the extent of Rs. 2,69,960. Accordingly, the value of stock as per books as on the date of survey was worked out at Rs. 47,524. Besides holding the stock of his commercial concern, i.e., M/s. Gordhanlal Ramlal Vani, the appellant was also having stock of goods of business carried on in his individual name of a sum of Rs. 6,34,720 on the date of survey. Accordingly, as per the appellant, he was having explained stock of goods of a sum of Rs. 6,82,244 on the date of survey which was duly taken into account by him while working out additional income. He submitted that it was duly explained to the assessing officer that as on 31-3-2004, the appellant was having investment of Rs. 1,46,528 and Rs. 6,98,340 respectively in the business carried out under the name and style of Gordhanlal Ramlal Vani and in individual name. It was further shown that out of total investment to the extent of Rs. 6,98340 which the appellant was having in his business carried on in the individual name, as on 31-3-2004, investment to the tent of Rs. 6,48,650 was made in form of stock. It was further explained that out of such stock of Rs. 6,48,650, the appellant was having stock of worth of Rs. 6,34,720 on the date of survey, i.e., on 3-3-2005. He further submitted before the assessing officer that under the provisions of the Income Tax Act, 1961, only those investments can be regarded as unexplained which have not been fully recorded in the books of account and for which an assessee fails to give any explanation and since in the instant case, out of total stock of Rs. 15,71,080 found physically at the time of survey, the appellant had explained the investment to the extent of Rs. 6,82,244 and, therefore, only remaining sum of Rs. 8,88,836 can be regarded as unexplained stock of the appellant. It was further submitted that since the appellant himself had shown the above said sum of Rs. 8,88,836 while filing his return of income and, therefore, no further addition on this account was warranted.

18. Learned D.R. opposed these submissions and submitted that the assessee has hooked up a story when in survey proceedings certain evidences were recovered. The assessee has not explained as to why he is carrying out two separate businesses of the same nature, one in the proprietorship concern and another in the individual name. This entire explanation goes to prove that the assessee failed to support his claim.

19. We have heard the rival submissions, perused the materials available on record and gone through the orders of the authorities below. The only explanation regarding difference in stock is that the assessee was carrying out business in the individual as well as proprietorship capacity. It is contended that revenue cannot direct the assessee how his business to be conducted. It is true that revenue cannot direct the assessee how he should carry out his business but where the assessee tries to create a colourable device such act is not permissible under the law. In the present case, the assessee has claimed that he was running business in proprietary and individual capacity. Therefore, the stock related to proprietary and individual capacity was available at the premises. We are unable to accept this contention of the assessee as the assessee has not disclosed in his accounts related to earlier years that he was carrying out business under the proprietary and individual capacity. The ignorance of law cannot be an excuse to avoid tax liability. Therefore, we do not see any reason to interfere in the finding of the learned Commissioner (Appeals). This ground of the assessee’s appeal is dismissed.

20. Ground No. 2 of the assessee’s appeal is against confirming the addition of Rs. 1,26,001. Learned Counsel for the assessee reiterated the submissions as made in the written synopsis. He contended that as per the cash book, the assessee was having balance of Rs. 1,26,001 as on the date of survey and 2 days before the survey, i.e., on 1.3.2005, the assessee had withdrawn cash of Rs. 1,62,000 from his current account maintained with the State Bank of Indore, Jorbat branch, Jorbat. It is further contended that no opportunity was given to reconcile the difference in the cash.

21. On the contrary, learned D.R. opposed these submissions and supported the order of the authorities below.

22. We have heard the rival submissions, perused the materials available on record and gone through the orders of the authorities below. We find that the assessee has reconciled difference by placing bank statement and cash book. There is no contrary material brought by the revenue to rebut this. Therefore, we direct the assessing officer to delete this addition. This ground of the assessee’s appeal is allowed.

23. Ground No. 3 is general in nature needs no separate adjudication.

24. In the result, the appeal filed by the assessee in ITA No. 491/Ind/2018 for the assessment year 2005-06 is allowed for statistical purposes and the appeal filed by the assessee in ITA No. 492/Ind/2018 for the assessment year 2005-06 is partly allowed.