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April 2009

S. 133A of the Income-tax Act, 1961 — Whether an addition can be sustained merely on the basis of statement made at the time of Survey — Held, No.

By Jagdish D. Shah, Jagdish T. Punjabi, Chartered Accountants
Reading Time 5 mins
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5 Dy. CIT v. Premsons

ITAT ‘B’ Bench, Mumbai
Before R. S. Syal (AM) and Asha Vijayaraghavan (JM) ITA No. 4698/Mum./2006

A.Y. : 2003-04. Decided on : 15-1-2009 Counsel for revenue/assessee : Pitambar Das/ Reepal Tralshawala

S. 133A of the Income-tax Act, 1961 — Whether an addition can be sustained merely on the basis of statement made at the time of Survey — Held, No.

Per R. S. Syal :

Facts :

A survey action u/s.133A of the Act was conducted on the office premises of the assessee along with its two sister concerns on 15-1-2003. During the course of survey, physical stock in the case of the assessee was found to be excessive by Rs.21,14,146. Statement of Mr. Bharat Gala, partner of the assessee firm, was recorded. The assessee admitted to surrender a sum of Rs.50 lakhs as additional income over and above the income recorded in the books of accounts with the following bifurcation :

Towards excess stock Rs.21 lakhs

Towards any other discrepancy Rs.29 lakhs

After the close of survey but before the close of the year the assessee retracted from the surrender made during survey, vide its letter dated 24-3-2003. The assessee mentioned in its letter that the surrender was obtained forcefully by the survey team.

The assessee filed its return of income declaring total income of Rs.25,20,483 which included the surrender of Rs.21.14 lakhs towards difference in closing stock. The remaining portion of Rs.28.85 lakhs agreed by the assessee at the time of survey was not offered for taxation.

While assessing the total income of the assessee, the AO held that retraction was an after thought and further since the assessee had not maintained quantitative stock register, it was not possible to check the sales and purchases of different items dealt in by it. He also held that accounting of sales was such that it was open to manipulation. He, therefore, made an addition of Rs.28.85 lakhs.

The CIT(A) held that the books of accounts ought not to have been rejected and also the addition of Rs.28.85 lakhs was deleted by him. Aggrieved, the Revenue preferred an appeal to the Tribunal on these two grounds.

Held :

As regards rejection of the books of accounts by the AO, the Tribunal held that the books of accounts can be said to be properly maintained when correct income can be deduced therefrom. It is not only the arithmetical inaccuracy in the books of accounts which would call for the resorting to the provisions of S. 145(3). Since during the course of survey physical stock was found to be excessive as compared to the books of accounts, the Tribunal held that the books of accounts were rightly rejected by the AO.

As regards the addition of Rs.28.85 lakhs, the Tribunal noted that the real question before it was whether addition can be sustained simply on the basis of statement recorded at the time of survey. The Tribunal noted that the Kerala High Court has in the case of Paul Mathew & Sons held that addition cannot be sustained simply on the basis of statement recorded at the time of survey. The Madras High Court has in the case of S. Khader Khan Son, held that S. 133A does not empower any Income-tax authority to examine any person on oath and hence such a statement has no evidentiary value. The Tribunal also observed that the Circular dated 10-3-2003 issued by the CBDT which makes it clear that no attempt should be made to obtain undue confession from the assessee during search or survey proceedings is indicative of the fact that the Department is also not oblivious of the practice by which the Revenue Authorities obtain undue confession from the assessee during search or survey. The Tribunal held that in view of the verdict of the two High Courts and the position reaffirmed by the CBDT through its Circular, it is abundantly clear that no addition can be made or sustained simply on the basis of statement recorded at the time of survey/search. It further held that in order to make an addition on the basis of surrender during search or survey, it is sine qua non that there should be some other material to correlate the undisclosed income with such statement. The Tribunal noted that the surrender to the extent of Rs.28.85 lakhs was specifically ‘towards other discrepancy’. The assessment order had no mention of any such discrepancy found as a result of survey throwing light on undisclosed income. There was nothing on record which could correlate such income offered by the assessee during the course of survey with any other discrepancy. The Tribunal was of the view that there is no basis for sustaining the addition in question.

Cases referred to :

  •     Paul Mathew & Sons v. CIT, (2003) 263 ITR 101 (Ker.)
  •     CIT v. S. Khader Khan Son, (2008) 300 ITR 157 (Mad.)
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