The Income Tax Appellate Tribunal ( ITAT ), Ahmedabad, has recently while deciding the appeals filed before it, held that addition cannot be made solely based on the statement of the director of a company, during survey, without independent findings by the AO.
The aforesaid observation was made by the Ahmedabad ITAT, when a bunch of appeals were filed by the assessee, against the orders passed by the CIT(A), Ahmedabad, on 30.03.2016, for Assessment Year 2011-12.
The grounds of the assesssee’s appeal being as to whether, on facts and in law, the CIT(A) has erred, in confirming the addition of Rs. 1,48,29,750/- on account of alleged difference in stock notice on the date of survey, in confirming the addition of Rs. 12,03,545/- out of total addition of Rs. 21,30,687/- for alleged sales made out of books, in confirming addition of Rs. 17,895/- by making disallowance of delayed payment of Provident Fund payments, and in confirming addition of Rs. 24,658/- on account of debit of cash discount pertaining to prior period without appreciating that such claim crystallized during the year only, the brief facts pertaining to these grounds raised were that the assessee was engaged in the business of manufacturing cotton ginning and pressing mill under the name and style of Ganhesh Ginning Factory.
The assessee firm had filed its return of income declaring loss of Rs. 48,69,036/- on 20.09.2011 under the head profit & gains of business or professions, subsequent to which, the case of the assessee was selected for scrutiny, with a first statutory notice under Section 143(2) being issued, on 07.08.2012.
Further, during the year under assessment, survey under Section 133A of the Income Tax Act was carried out at the business premises of the assessee at 27.01.2022, wherein, the investigation team / survey team found that there was a difference of stock of Rs. 1,48,29,750/- between stock as per books of accounts as on the date of survey and stock physically found on the date of survey was found. Also, the statement of Shri Savjibhai Becharbhai Gangani , the working partner of the assessee firm, was recorded on 27.01.2011., in this regard, wherein the Assessing Officer observed that the assessee firm had agreed to the difference in stock of Rs. 1,48,29,750/- found between the stock, as pet books of accounts and stock as per physical inventory taken by the surveyor, however, that the assessee firm did not give the effect of such stock difference in its books of accounts.
Consequently, the assessee was show-caused in respect of the same, treating the same amount as unexplained investment, wherein the assessee filed its submissions, which was taken into account by the Assessing Officer. And thereafter, an addition of Rs. 1,48,29,750/- was made under Section 69 of the Income Tax Act.
Thereafter, the Assessing Officer further made the addition of Rs. 21,30,687/- towards the difference in sales comprising Gross Profit of Rs. 19,815/- and unaccounted purchases of Rs. 21,10,872/- as undisclosed income, along with a further disallowance of Rs. 17,895/-, in respect of employees’ contribution under Section 36(1) (va) of the Income Tax Act.
In addition to these, with the Assessing Officer having made a further disallowance on account of prior period expenses to the extent of Rs. 24,658/, the assessee filed an appeal before the CIT(A), who partly allowed the appeal of the assessee. And it is being unsatisfied by the same, that the assessee has preferred the instant appeal before the Ahmedabad ITAT.
As regards the ground of the assessee’s appeal relating to the addition of Rs. 77,86,000/- on account of the alleged discrepancy in stock found on the date of the survey, on the basis of the statement of the director, it was submitted by Shri Sakar Sharma, the A.R. for the assessee that this addition was contrary on the basis of statement and no proper adjudication was made by the assessee.
With the AR further stating that with the difference in stock having been explained, there was no discrepancy in the stock, Shri Dileep Kumar, Sr. D.R., relied upon the assessment order and the order of the CIT(A).
Hearing the opposing contentions of either side and perusing the materials available on record, the ITAT Panel consisting of Suchitra Kamble, the Judicial Member, along with, Waseem Ahmed, the Accountant member, thus held:
“We have heard both parties and perused all the relevant material available on record. It is pertinent to note that the alleged discrepancy in the stock found on the date of survey on the basis of the statement of the director was never established by the Assessing Officer with the proper reasoning that the statement of the director was verifiable from the said stocks available at survey premises. There was no independent finding given by the Assessing Officer related to the said addition and therefore, this addition does not sustain.”
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
