Case Law Details
RELEVANT EXTRACTS:
6.2 Chapter XIII C provides certain powers to the revenue authorities. Section 132 provides the power of search and seizure. Section 132A provides Powers to requisition books of account, etc. Section 133 of the Act provides Power to call for information. Section 133A provides Power of survey. Section 133A states that notwithstanding anything contained in any other provision of this Act, an Income-tax authority may enter any place within the limits of the area assigned to him, or any place occupied by any person in respect of whom he exercises jurisdiction, or any place in respect of which he is authorised for the purposes of this section by such income-tax authority, who is assigned the area within which such place is situated or who exercises jurisdiction in respect of any person occupying such place, at which a business or profession is carried on, whether such place be the principal place or not of such business or profession, and require any proprietor, employee or any other person who may at that time and place be attending in any manner to, or helping in, the carrying on of such business or profession to afford him the necessary facility to inspect such books of account or other documents as he may require and which may be available at such place, to afford him the necessary facility to check or verify the cash, stock or other valuable article or thing which may be found therein, and to furnish such information as he may require as to any matter which may be useful for, or relevant to, any proceeding under this Act. An Income-tax authority acting under this section may, if he so deems necessary, place marks of identification on the books of account or other documents inspected by him and make or cause to be made extracts or copies there from, impound and retain in his custody for such period as he thinks fit any books of account or other documents inspected by him: make an inventory of any cash, stock or other valuable article or thing checked or verified by him, record the statement of any person which may be useful for, or relevant to, any proceeding under this Act. If a person under this section is required to afford facility to the income-tax authority to inspect books of account or other documents or to check or verify any cash, stock or other valuable article or thing or to furnish any information or to have his statement recorded either refuses or evades to do so, the income-tax authority shall have all the powers under sub-section (1) of section 131 for enforcing compliance with the requirement made. The main reason for enacting provisions regarding survey in s. 133A of the Act is that survey represents a comparatively easy method for detection of evasion of tax. The objectives in conducting survey are to find out-
5) whether the persons carrying on business maintain regular books of account or whether they prepare account books at the end of the year for the purpose of filing the return,
6) whether they make correct entries in those books of account,
7) whether cash in hand and stock-in-trade tally with the entries in the account books,
8) whether there are documents indicating unaccounted purchases and sales etc., and (v) whether there exist other valuable article of things connected with business which are not disclosed in books of accounts.
6.3 Survey operations are of assistance in detecting new assessees and to verify, in a broad way, the correctness of returns of existing assessees. Survey operations are carried on in business premises only and that too during business hours and do not involve seizure of books of account, cash, stock or other valuable article or thing. It only involves preparation of factual report of what is seen by survey officers in business premises and such factual report is of assistance in making final assessment. In respect of surveys undertaken for check of accounts, cash and stock, it is not uncommon for the survey officers to note that no books are maintained or those books which are maintained are incomplete. There are cash and stock differences or that there is no timely record of the transactions. This would constitute valuable information for them to reject the accounts which may be produced at the time of hearing. Unless a taxpayer is able to show that there are primary records from which reliable accounts could be written, there is vulnerability on the part of the taxpayers. Survey is not intended to be a substitute for assessment in the sense that there is no power to make summary assessment as is possible in consequence of search by way of an order under section 132(5) earlier and under Chapter XIV-B. As the survey is done without any formal notice and usually involves an element of surprise, it is possible to know the true nature and extent of the business activities of the assessee vis-à-vis his records. It means that where it is found that there is no discrepancy; the fact found in survey should serve as an opportunity to the taxpayer to prove the correctness of his accounts as found in a contemporaneous check. On the basis of above discussion, it can be summarised that an appraisal report prepared at the time of survey party is valuable information to reject books of account. The appraisal report is not a final assessment but it is of assistance in making assessment.
6.4- Provisions related to assessment are provided in Chapter XIV of the Act. section 143 provides that where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142,if any tax or interest is found due on the basis of such return, after adjustment of any tax deducted at source, any advance tax paid, any tax paid on self-assessment and any amount paid otherwise by way of tax or interest, then, an intimation shall be sent to the assessee specifying the sum so payable Section 142 provides inquiry before assessment for the purpose of making an assessment under this Act. The AO assumes jurisdiction in rejecting the books of accounts of the assessee by virtue of section 145 of the Income-tax Act relating to “Method of accounting’ which reads as under:-
“145 (1) Income chargeable under the head “Profits and gains of business or profession” or “Income from other sources” shall be computed in accordance with the method of accounting regularly employed by the assessee.
Provided that in any case where the accounts are correct and complete to the satisfaction of the assessing officer but the method employed is such that, in the opinion of the assessing officer, the income cannot properly be deduced there from, then the computation shall be made upon such basis and in such manner as the assessing officer may determine.
Provided further….
Provided also…..
(2) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) or accounting standards as notified under sub-section (2), have not been regularly followed by the assessee, the Assessing Officer may make an assessment in the manner provided in section 144.”
6.5. Sub-section (2) above has following ingredients:
(a) AO being not satisfied about the correctness or completeness of the accounts of the assessee;
(b) the very meaning of the correctness and completeness of the accounts; and
(c) making of an assessment in the manner provided in section 144.
6.6- Above two ingredients (a) and (b) are relevant for rejection of the accounts of the assessee. If the assessing officer comes to the conclusion that there is under estimation of profit, he must give facts and figures in that to demonstrate that impugned method of accounting adopted by the assessee results in under estimation of profit and is therefore rejected. Otherwise the presumption would be that the entire exercise is revenue neutral.
6.7- In the light of above discussions if we considered the facts of the case under consideration we find that the AO has not rejected books of account .On perusal of record, we find from tax audit report, form 3CD that the assessee was maintaining regular books of account including main cash book for factory, bank book, purchase register, sale register, expenses register, travel book, ledger, stock record, debit note register, credit note register and sale returned register. Similar books of account were maintained for branches also. In form No. 3CD as per clause 28, the auditor is to furnish quantity details of opening stock purchased during the year, sales during the year and closing stock. The auditor has given such quantity details in Annexure-XIV of his report. As per that schedule, closing stock was 3,634.672 MTS, which is tallied with the quantity details maintained in RG-1 Register i.e. the assessee furnished copies of form 3CD and copies of RG-1 Register and summary thereon, which have been placed on record. During the courses of survey no material found which show that the assessee has sold goods out of books of account. The AO made addition as some differences were found in stock at the time of survey. It cannot be the matter of arguments that such differences itself represents the income of the assessee unless it is correlated how this difference of raw material and finished stock became the income of the assessee. The assessee furnished the explanation and necessary reconciliation from time to time before the AO and the CIT(A). A detailed reconciliation submitted to AO vide assessee’s letter dated 26th November, 2008, which has been reproduced above in Para No. 4.8 of this order. A perusal of reconciliation furnished by the assessee, we notice that quantity of crude palm kernel oil tank No. 8 & 11 was wrongly mentioned as 1997.080 MT instead of 996.891 MT. The assessee had furnished copy of RG1 register, in support of that apparent mistake, which is appearing at pages 224 & 225 of assessee’s paper book. From the said reconciliation, we find that there was apparent mistake in noting down the figures. Similar is the position in respect of quantity of crude palm kernel oil. The difference (-) 0.050 explained by the assessee by supporting evidence from RG-1 register, of which copy placed at pages 26 & 27 of the assessee’s paper book. The assessee has also explained coconut oil raw item about quantity of difference (-) 6.78 by saying that certain items have been left out for considering in the chart. The assessee has explained each item of difference of 6.718. In respect of refined oil, the submission of the assessee is that certain items have been considered twice. The assessee has furnished the full details of those items in its reconciliation. In respect of Sunflower refined oil vide Sl. No. 9, the assessee while reconciling the difference pointed out that due to oversight the quantity as per physical verification was wrongly taken as 11.24 instead of 111.240.It appears from the record that the AO and CIT(A) both have not considered the explanations and reconciliations filed by the assessee because the AO was of the view that that the assessee should have explained these differences and the reconciliation in the course of surveys itself. The AO observed that the reconciliation furnished did not help to the assessee as the same cannot be verified by stock as on the date of survey. In other words it can be said that the AO and CIT (A) have not considered the recompilation given by the assessee and if they had considered, it there are no adverse noting noted by them regarding assessee’s explanation and reconciliation. If the revenue authorities failed to considered or considered and not pointed out any adverse remarks or finding otherwise, the addition cannot be sustained. As regards AO’s observation that difference of sock found at the time of survey was the final finding, in this regards we may state that facts noted at the time of survey, these may be valuable information for the AO to reject the accounts. The appraisal report of survey team is of assistance in making final assessment but that itself cannot become a final assessment. Such report and facts collected at the time of survey are always subject to explanation and reconciliation by the assessee which can be explained either at the time of survey or after the survey before the AO at the time of assessment. Survey is not intended to be a substitute for assessment. We therefore do not agree with view of revenue that the differences in stock pointed out in appraisal report of the survey party are final for assessment for the AO; this contention of the revenue is rejected.
