Retraction of Survey Statement Rejected as Afterthought: ITAT Delhi Confirms Stock Addition

Mohit Garg Vs ITO (ITAT Delhi)

In the case of Mohit Garg Vs ITO, the appeal concerned Assessment Year 2013-14 and arose from an assessment completed under Section 143(3) of the Income-tax Act, 1961. The assessee challenged various additions confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)], including additions relating to alleged undisclosed stock and estimated profit from trading transactions.

The assessee had filed a return declaring income of Rs. 21,32,220. A survey under Section 133A was conducted on 18.02.2013 at the assessee’s premises. During the survey, undisclosed stock of aluminium sheets and aluminium foil valued at Rs. 2,78,76,060 was found and inventorised. Statements of the assessee and his father were recorded on oath during the survey and later during post-survey proceedings. In those statements, the assessee admitted that the stock belonged to him and surrendered the amount for taxation in the hands of M/s Laddu Gopal Overseas.

The assessee stated during the survey that he was engaged in trading aluminium sheets purchased and sold in cash, earning a margin of approximately Rs. 1 per kilogram. The stock inventorised consisted of aluminium foil worth Rs. 67,45,680 allegedly stored at property No. 5526, Basti Harphool Singh, and aluminium sheets worth Rs. 2,11,30,380 allegedly stored at property No. 5536, Basti Harphool Singh, Delhi.

Subsequently, the assessee retracted the surrender. It was argued that the statement during the survey was obtained under coercion and mental pressure late at night and therefore had no evidentiary value. The assessee contended that the premises where the stock was found did not belong to him. According to the assessee, property No. 5526 belonged to R.K. Marketing Agency, which had occupied the premises for over 10 years, and the small size of the premises made storage of 28,000 kilograms of aluminium foil impossible. Regarding property No. 5536, the assessee claimed it was a residential property occupied by its owner and that he had no connection with it.

The Assessing Officer rejected the retraction and treated the affidavit filed by the assessee as an afterthought. The Assessing Officer observed that the assessee had voluntarily admitted the undisclosed stock during the survey as well as during post-survey proceedings. Accordingly, an addition of Rs. 2,78,76,060 was made as unexplained investment in stock. Additional additions were also made, including Rs. 30,05,652 towards commission income and Rs. 54,69,227 towards profit on sales connected with SK Trading Company, SN Enterprises, and SS Traders.

The CIT(A) upheld the addition relating to undisclosed stock. It was observed that the stock inventory had been prepared during the survey and duly signed by the assessee without objection. The CIT(A) further noted that the assessee had admitted the discrepancy in stock on two separate occasions, including during post-survey proceedings conducted approximately one and a half months later. According to the CIT(A), the subsequent affidavit denying ownership of the premises and stock appeared to be an afterthought. The CIT(A) held that the Assessing Officer was justified in treating the undisclosed investment in stock as undisclosed income under Section 69.

With respect to additions relating to alleged cash sales and commission income, the CIT(A) referred to findings from the assessee’s own case for Assessment Year 2012-13 arising from the same survey. The assessee had claimed that he merely earned commission on transactions routed through bank accounts and that no actual purchase or sale of goods took place. The authorities examined the bank accounts and considered the assessee’s declared commission margin of 0.10%.

The CIT(A) held that the Assessing Officer’s calculations were based on assumptions, including reliance on a single invoice and a fixed commodity price. The CIT(A) observed that aluminium prices fluctuate and that the Assessing Officer had erred in treating bank credits as separate sales in addition to turnover already considered. The CIT(A) adopted a composite approach by considering sales reflected in bank accounts together with cash transactions and estimated net income at 30 paise per kilogram, using a sale price of Rs. 180 per kilogram.

Based on this revised methodology, the CIT(A) sustained an addition of Rs. 14,21,536 out of the total addition of Rs. 84,74,879 relating to estimated profits and commission income, thereby granting partial relief to the assessee on that issue.

Before the Tribunal, none appeared on behalf of the assessee despite notice. The Tribunal heard the Departmental Representative and examined the material available on record. The Tribunal noted that the factual findings recorded by the CIT(A) had not been controverted by the assessee with cogent evidence. Accordingly, the Tribunal found no reason to interfere with the order of the CIT(A) and dismissed the appeal.

FULL TEXT OF THE ORDER OF ITAT DELHI

1. The appeal in ITA No.1513/Del/2019 for AY 2013-14, arises out of the order of the ld ld. Commissioner of Income Tax (Appeals)-27, Delhi [hereinafter referred to as ‘ld. CIT(A)’, in short] dated 20.12.2018 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 29.03.2016 by the Assessing Officer, ITO, Ward-63(3), Delhi (hereinafter referred to as ‘ld. AO’).

2. None appeared on behalf of the assessee despite issuance of notice. Hence we proceed to dispose of this appeal on hearing the learned DR and based on materials available on record.

3. The assessee has raised the following grounds of appeal before us:-

“1. That the assessment order passed U/s 143(3) and the additions/ disallowances made therein are illegal, bad in law and without jurisdiction.

2. The Ld. CIT(A) has grossly erred in upholding the action of AO in assessing the total income of the Assessee at Rs. 3,84,83,160/- as against the returned income of Rs. 21,32,220/-.

3. That in view of the facts and circumstances of the case and in law, the Ld. CIT (A) has grossly erred in upholding the action of the AO and confirming the addition of Rs. 2,78,76,060/- by relying solely on the statement of the Assessee without any independent application of mind.

4. That the Ld. CIT(A) has failed to appreciate that the Assessee has already retracted the statements which were recorded by the Income- tax Department as the statements were recorded under coercion by putting the Assessee under great duress.

5. That the Ld. CIT(A) has failed to appreciate that the Assessing Officer has not completely accepted the statement of the Assessee or his father, and in fact, additions have been made contrary to the said statements and are therefore bad in law. The AO has accepted the retraction in part.

6. That the Ld. CIT(A) has erred in not appreciating the fact that the AO erred in selectively applying and disregarding parts of the statements of the Assessee, without any justifiable reason, or contrary evidence being available on record. It is trite law that piece-meal selection of a statement is not permitted in law.

7. That the Ld. CIT(A) has failed to appreciate that the property at 5526, Basti Harphool Singh, Sadar Thana Road, Delhi-06 was being used by M/s R.K. Marketing Agencies and not the Assessee herein and a confirmation in this regard was duly submitted which has not been considered.

8. That the Ld. CIT(A) erred by confirming Addition of Rs. 67,45,680/- basis purported inventory stored at 5526, Basti Harphool Singh, without considering that confirmation from the occupier of the said property together with PAN details, had already been placed on record.

9. That the Ld. CIT (A) erred by confirming addition of Rs. 2,11,30,380/- as inventory stored at 5536, Basti Harphool Singh, without appreciating that the said property was being occupied by its owner with whom the Assessee had no relation at all.

10. That without prejudice, the CIT(A) has grossly erred by not appreciating that the entire amounts of the value of the alleged unaccounted stock of aluminium sheet and aluminium foils cannot be treated to be the income of the Assessee.

11. That the Ld. CIT(A) has further erred in upholding the action of the AO by account of making an addition of Rs. 2,78,76,060/- on undisclosed excess stock whereas in fact the assessee never held stock being a commission agent. The additions made on this ground is illegal and liable to be deleted.

12. That the explanations given, evidence produced and material placed and made available on record have not been properly considered and judicially interpreted and the same do not justify the addition made.

13. The Appellant craves leave to add, amend, alter and/or delete any of the above grounds of appeal at or before the time of hearing.”

4. We have heard the learned DR and perused the materials available on record. The return of income for the assessment year 2013-14 was filed by the assessee on 06-01-2014 declaring taxable income of Rs. 21,32,220. The case was selected for scrutiny. Notice under section 142(1) of the Act along with the detailed questionnaires stood issued to the assessee which was duly served on the assessee. In response to the statutory notices issued, the learned AR of the assessee appeared from time to time and filed the necessary details. The assessee is engaged in the business of trading of aluminum alloys and scrap. The assessee is proprietor of M/s Laddu Gopal Overseas and also control of operation of partnership firms M/s SK Trading Company, M/s SS Traders and M/s SN Enterprises. Survey operation was conducted under section 133A of the Act on 18-02-2013 in the premises of the assessee. Undisclosed stock of aluminum sheet and aluminum foil of Rs. 2,78,76,060 was found and the same was surrendered for taxation by the assessee in assessment year 2013-14. During the survey operation, the assessee stated that M/s Laddu Gopal Overseas worked from October 2011 to 10-12-2012. The assessee during the course of survey proceedings in a statement stated that he was engaged in the business of trading in aluminum sheets and the same was purchased from the local market in Sadar bazaar in cash and was sold to the local vendors in cash only thereby earning profit margin of Rs. 1 per kg. The statement of Shri Mohit Garg and his father Shri Lalit Kumar Garg were recorded on oath which was duly signed by them and stocks which were found were inventoried and was duly signed by Shri Mohit Garg and Shri Lalit Garg. The relevant portion of the statement of Shri Mohit Garg and Shri Lalit Garg are reproduced in pages 3 to 5 of the assessment order. Later the assessee retracted from the surrendered stock after admitting during the course of survey operation and post survey proceedings. A show cause notice was issued to the assessee as to why Rs. 2,78,76,060 be not added to his income as unaccounted stock surrendered during the course of survey operation as the same was admitted in the statement recorded on oath during survey and post survey proceedings.

5. The assessee submitted that surrender of income during survey operation was not voluntary; that the statement was recorded in the late night and the statement was recorded at the wisdom of the survey team. It was submitted that the survey statement has no evidentiary value. It was submitted that assessee was under mental pressure at the time of survey and was forced to sign the statement as recorded by the officer of the department without looking into the facts and figures recorded in the said statement. Further the assessee submitted that he had inventory of following aluminum sheets and foils as on the date of survey which he had voluntarily surrendered for taxation purposes and issued the cheque towards anticipated tax:-

6. The assessee sought to retract the earlier statement by stating that the premises bearing No. 5526, Basti Harphool Singh, Sadar Thana Road, Delhi-6 does not belong to the assessee. It was submitted that the premises belong to R.K. Marketing Agency who is stationed there for more than 10 years. It was submitted that assessee came to know that Income Tax Department had carried out survey operation on that premises sometime in the month of April or May 2013 and there is no relationship of the assessee with the said premises. Further, on without prejudice basis, it was submitted that the area of that shop is hardly 100 to 125 square feet with low height roof with the result, even otherwise, it is virtually impossible to store 28,000 kgs of aluminium foils in such a small area. Therefore, there cannot be any question of maintaining unaccounted inventory by the assessee at that premises. Similarly, the premises bearing No. 5536, Basti Harphool Singh, Sadar Thana Road, Delhi-6 does not belong to the assessee. In fact, on physical verification the assessee came to know that it is a residential house occupied by the owner and his family for several decades. The assessee do not have any relationship with the said owner of the property and he does not know even the name of the owner. Hence, there cannot be any question of maintaining unaccounted inventory by the assessee at that premises.

7. The Learned AO however disregarded these contentions and noted that assessee during the course of assessment proceedings had filed an affidavit stating that both the properties No. 5526 and 5536 does not belong to him and he has no unaccounted inventory as on the date of survey. The Learned AO noted that this affidavit is clearly an afterthought and that assessee had once accepted during the survey proceedings and also during post survey proceedings by surrendering the unaccounted stock in the sum of Rs 2,78,76,060 and considering the same, the Learned AO proceeded to make an addition of Rs 2,78,76,060 in the assessment. Apart from this, the Learned AO also added commission income in the sum of Rs 30,05,652 in the assessment together with addition made on account of profit earned on sales of Rs 54,69,027 with regard to transactions with SK Trading Company, SN Enterprises and SS Traders.

8. The assessee filed an appeal before the Learned CIT(A). The Learned CIT(A) observed in respect of each of the additions observed as under:-

“5.3. I have considered the facts of the case, written submissions of the appellant and the findings of the Assessing Officer in this assessment order. (i) As per the assessment order Sh. Mohit Garg in his statement during course of survey proceedings on 18.02.2013, in answer to question No. 20 accepted that stock of aluminium sheet and aluminium foils lying at 5526 & 5536 Basti Harphool Singh Sadar Bazar Delhi-06 are his undisclosed stock and he is unable to explain therefore, in order to buy peace of mind he is surrendering the amount of Rs. 2,78,76,060/- for taxation purposes in the hand of M/s. Laddu Gopal Overseas as his additional income for the A.Y. 2013-14 (from statement reproduced in assessment order). In fact, the facts of statement of Sh. Mohit garg were also reiterated in the statement of his father Sh. Lalit garg in response to Q.No.18 which has been reproduced in the assessment order.

(ii) the statement of Sh. mohit garg was again recorded on 4.4.2014 during post survey at the office of the Assessing officer at Civic center (reproduced in assessment order) wherein Sh. Mohit Garg has reiterated the volunteer surrender of Rs 2,78,76,060/- on account of undisclosed excess stock.

(ii) During assessment proceedings the appellant has retracted the surrender made on account of stock during survey & post survey statements on oath.

The appellant has taken the plea that the premises from where stock was inventorised did not belong to the appellant. Survey operations are carried out by the department to ascertain the factual position on ground about the business affairs. The due procedure is followed in ascertaining the stock position, entries in the books etc. to do on the spot inspection of business affairs of the appellant. The stock statement has been prepared by the survey team at the business premises of the appellant, which was duly signed by the appellant without any objections by the appellant. He has in the statement on oath on two occasions at a gap of about 1&1/2 months has voluntarily accepted the discrepancy in stock and. surrendered the unaccounted income earned & invested in this stock. Thereafter, after an inordinate gap, during the assessment proceedings, the affidavit of Mr Mohit Garg that the premises from which stock was taken do not belong to him and he had no inventory on the date of survey appears to be an afterthought. The factual things existing at the time of survey cannot be reconstructed to verify the contentions of the appellant. In these facts and circumstances, the action of AO in treating the undisclosed investment in stock as undisclosed income of the appellant u/s 69 of the I.T. Act 1961 is upheld and this ground of appeal is dismissed.”

9. With regard to the addition of Rs 84,74,879 made by the Learned AO on account of alleged cash sales, the Learned CIT(A) observed as under:-

“6.3. I have considered the facts of the case, written submissions of the appellant and the findings of the Assessing Officer in this assessment order.

(a) The appellant while filing its ITR has considered a margin of 0.10% on such transaction after deducting various expenses. The appellant has claimed that no actual purchase/sale or transfer of goods has taken place and the appellant was receiving nominal commission against so called transactions of purchases & sales in various bank accounts being maintained by him.

(b) The issue in this year is exactly same as in A.Y.2012-13, as it emanates from the same survey and same statement of the appellant. In A.Y.2012-13, while deciding the appeal of the appellant my predecessor on this issue has held as under:

“The submissions made by the assessee was thoroughly examined and reconciled with the Bank accounts. The analyzed results were confronted to the assessee and assessee vide letter dated 14.03.2016 admitted that gross receipts in the bank account is Rs. 1,82,30,75,579/-.

To earn profit, the assessee needs to incur expenditure and in the interest of natural justice, he is entitled to claim such expenditure. The assessee was further given opportunity to file submission mentioning the rate of the net profit alongwith evidence. The assessee filed letter dated 02.03.2016 & 14.03.2016 mentioning the rate of net profit earned at 0.10% is quite reasonable and justified as assessee has incurred various incidental business expenses. But no details in respect of these expenses were filed. It is inferred that in the interest of the natural justice, it would suffice to have the net profit rate of 0.30% on the total sales in the form of credit entries of Rs. 1,82,30,75,579/- admitted by the assessee. The total net profit works out to be Rs. 54,69,227/-. Hence an addition of Rs. 54,69,227/- is made to the income of the assessee. As the AO has taken the value invoking only one invoices, it is reasonable to take a broader view as commodity price moves up and down over a period. The A.O. has taken net income at 30 paisa /kg for calculating net profit on sales reflecting in bank accounts and 40 paisa per kg on other sales estimation basis. I find it reasonable to take 30 paisa per kg as the net profit margin. In absence of any evidence, it is not justified on the part of the A.O. to consider trade credits in the bank accounts as separate sales from the calculation made by him on the basis of declared income and commission margin. Therefore, sale as per bank credit entries shall form a composite sale/purchase and no separate addition on the basis of bank accounts can be made. Therefore, it is my considered view that the income on account of total sales as calculated in Para (5.3.2} comes to Rs. 17,85,273/- As the appellant has already declared an income of Rs. 10,71,160/- the addition is confirmed to the extent of Rs.7,73,615/-. Accordingly, the ground of appeal is partly allowed.”

5.3.2 I have considered the above mentioned facts. It is my considered view that the entire calculation made by the A.O. is at best a mathematical calculation but only on half baked evidences. The entire calculation is based on the 2 assumptions.

(i) The appellant’s claim of earning Rs.1/kg on goods traded.

(ii) A single invoice of goods sold to M/s S. R. Foils & Tissues Ltd. At Rs.166/kg.

However, I have further considered the fact that although A.O. had used the appellant’s claim of earning commission of Rs.1/kg on goods traded for calculating the turn over but he has not accepted the commission as the income of the appellant. I also find it unreasonable on the part of the A.O. to calculate the total quantity of goods traded by using only one invoice for the entire year. The A.O. should have looked into the appellant’s claim of trading in various varieties of the aluminium sheets with price ranging from Rs.145/kg to Rs.245. Kgs. It is also fact that the commodity price is never constant for the entire year.

I have further considered the facts that the A.O. has erred in taking the credit entries in the bank statement as sales separate from the sale that he has calculated on the basis of income declared in the return of income and margin of commission declared.

In my considered view, the amount credited in the bank accounts maintained by the appellant cannot be taken as separate sales as the A.O. has not find any evidences at there are any sales other than reflected in accounts. Even during survey operation no such evidences of sales have been found for the year under consideration. In absence of any anything contrary, sales reflected in the credit entries in bank statement has to be taken in composite manner. I have further noted the fact that A.O. himself has stated in the assessment order that it was noticed that payments have been made/received from various parties routed through banking channel.

Therefore, taking into account factual matrix of the case, a composite quantity of sale has to be taken into account as reflected in the bank accounts and sale of goods that has taken place in cash outside the banking channel. In order to arrive at a reasonable figure of trading goods, it is re-casted as under

Total sale/purchase of the quantity of aluminium sheets;

# As the A.O. has taken the value invoking only one invoice, it is reasonable to take a broader view as commodity price moves up and down over a period.

$ net profit The A.O. has taken net income at 30 paisa/kg for calculating net on sales reflecting in bank accounts and 40 paisa per kg on other sales estimation basis. I find it reasonable to take 30 paisa per kg as the net profit margin.

(5.3.3)As discussed earlier in the para, in absence of any evidence, it is not justified on the part of the A.O. to consider trade credits in the bank accounts as separate sales from the calculation made by him on the basis of declared income and commission margin. Therefore, sale as per bank credit entries shall form a composite sale / purchases and no separate addition on the basis of bank accounts can be made.

{5.3.4.) Therefore, it is my considered view that the income on account of total sales as calculated in Para (5.3.2) comes to Rs. 17,85,273/- As the Appellant has already declared an income of Rs. 10,71,160/-, the addition is confirmed to the extent of Rs.7.73.615/- Accordingly, the appellant’s grounds of appeal is partly allowed.”

Since the facts of both the years are similar, there is no reason to differ from the findings of my predecessor. Therefore, respectfully following the reasoning and decision of my predecessor

(i) It is held that sales will be considered as per bank entries and no separate sales will be considered on the basis of declared income & commission margins.

(ii) Sale as per bank credit entries shall form a composite/sale/purchase and no separate addition on the basis of bank accounts can be made.

(iii) Net income will be taken@30 paise per KG after considering all expenses as against 0.10 paise per KG declared by the appellant.

(iv) Sale price will be considered @Rs180 per Kg

On the basis of above decision the revised working of net profit is as under:

– Turnover on the basis of return of income Rs 213,22,51,000/- (which has been held to include bank receipts of Rs 182,30,70,579/-)

Thus addition of Rs 14,21,536 is sustained out of total addition of Rs 84,74,879/-(Rs3005652 +Rs5469227) on this issue as discussed in para 4 & 5 of the assessment order. This ground of appeal is partly allowed.”

10. None of the aforesaid factual observations made by the Learned CIT(A) could be controverted by the assessee with cogent evidences. Hence we do not deem it fit to interfere in the said order of the Learned CIT(A).

11. In the result, the appeal of the assessee is dismissed.

Order pronounced in the open court on 12/03/2026.