Brief of the Case
In the case of Pankaj Plastic Industries Vs. ITO the Hon’ble Kolkata ITAT held that The materials found in the course of survey would not be the basis for making any addition in the assessment. The word “may” used in section 133A (3)(iii) of the Act makes it clear that the materials collected and statement recorded during the survey u/s 133A of the Act are not conclusive piece of evidences by itself. Thus, the Hon’ble Kolkata ITAT deleted the additions made by the Ld. AO as it held that the additions towards discripencies in stocks and scrap materials were made in a cavilier manner and on an estimated basis.
Facts of the Case
The assessee is a partnership firm engaged in PVC suction pipes and polythene delivery pipe and was subjected to survey proceedings u/s 133A of the Act wherein the alleged discrepancy in stock of raw materials, finished goods and scrap were found. At the time of survey proceedings, a statement was recorded from one of the partners of the firm, who did not dispute the method adopted by the survey team and accepted to the discrepancy in stock and agreed to pay the tax of Rs.3 lakhs on the same together with the interest. Soon after the survey, the assessee firm had filed a stock reconciliation statement on 30.03.2009 pointed out various discrepancies in the stock valuation adopted by the survey team.
The Ld. AO in respect of Raw materials (raw materials and PVC suction pipes and Polythene Delivery Pipes) in stock found that there was shortage in stocks and treated the same as unexplained stock, however the additions were made by the AO taking the packed materials alone and ignoring the short length peices and cut peices. He also found scrap materials in the form of LLDP and also trated the same as unexplained stock.
Contention of the Assessee
The ld. AR placed high reliance on the certified copies of the paper books filed by him. He assailed the additions made and argued that the ld. AO and the ld. CIT(A) considered only the packed raw materials and ignored the short length pieces and cut pieces; that the ld. AO failed to appreciate the facts that the survey was conducted in a running factory and hence loose raw materials and raw materials in process are bound to be present on the date of survey; that the finished goods manufactured by the assessee firm are excisable commodities and daily stock account for compliance of the same is duly maintained by the assesee; that there were some exchange of sizes in the material which were ignored by the ld. AO while valuing the stocks; that the standard weights taken by the survey team instead of the actual weights of the materials and finished goods; that the rates adopted for valuation of each category was excessive and absolutely without any basis and was not in consonance with the stock inventorised by the survey team and that LLDP scrap has got absolutely no resale value that is why it is lying in open scrap which was also found by the survey team.
Accordingly, he prayed for deletion of these additions made.
Contention of the Revenue
The Ld. DR of Department relied on the orders of the lower authorities.
Held by CIT(A)
The ld. CIT(A) placed reliance on the statement recorded from one of the partners of the assessee firm at the time of survey and dismissed all the contentions of the assessee and confirmed the disallowance made by the ld. AO.
Held by ITAT
At the outset, it is seen that the AO had not considered the short length pieces and cut pieces ignoring the fact that the survey was conducted in a running factory wherein certain loose raw materials and raw materials in process are definitely bound to be present.It is also seen that items manufactured by the assessee firm are also excisable commodities and will be subjected to stricter scrutiny by the excise authorities. It is also seen that the learned AO had valued the stocks at excessive rates on a random basis ignoring the item wise rates submitted by the assessee and the same is also not in consonance with the materials and finished products inventorised by the survey team. In respect of the addition towards LLDP scrap, I agree that the same is only damaged raw materials having no resale value which are kept in open scrap yard exposed to sun and rain which were also found by the survey team.
The ld. AO and the ld. CIT(A) have only placed reliance on the statement recorded from one of the partners during the survey accepting for the addition and clearly ignored the stock reconciliation statement filed by the assessee on the quantity as well as on value and ignoring the standard business practice prevailing in this industry. It is a fact that the assessee firm had not admitted to any alleged discrepancy while filing its return of income for A.Y.2009-10 based on audited balance sheet and Tax Audit Report. It is also seen from the Tax Audit Report that the assessee had ultimately reported a shortage of only 0.41% which is considered normal in this industry. It is pertinent to note that the sworn statement recorded during the survey does not have any evidentiary value.
The materials found in the course of survey would not be the basis for making any addition in the assessment. The word “may” used in section 133A (3)(iii) of the Act makes it clear that the materials collected and statement recorded during the survey u/s 133A of the Act are not conclusive piece of evidences by itself.
Thus, the Hon’ble Kolkata ITAT held that the additions towards discrepancies in stocks and scrap materials were made by the learned AO in a cavalier manner and on an estimated basis and thus deleted the additions made.
Case laws relied upon by the ITAT
Hon’ble Madras High Court in the case of S.Khader Khan Son (2008) 300 ITR 157 (Madras) wherein it was held that “an admission is an extremely important piece of evidence, but it cannot be said that it is conclusive and it is open to the person who made it to show it has incorrectly been made and the person, making the statement should be given proper opportunity to show that it does not show the correct state of facts.”
The Hon’ble Supreme Court in the case of CIT Salem S. vs Khader Khan in Civil Appeal No.13224 of 2008 & 6747 of 2012 dated 20.09.2012 wherein the Lordship of Supreme Court has held as under :- “ Heard counsel on both the sides. Leave granted. The civil appeal filed by the department pertains to A.Y.2001-02. In view of the concurrent findings of fact, this civil appeal is dismissed.”