Facts of the Case

A survey under Section 133A was conducted at the assessee’s jewellery shop on 06.01.2012. During the survey, the assessee allegedly admitted that the stock of silver was approximately 200 kilograms. However, due to disruption caused by local traders, the survey team could not complete the physical inventory of stock.

During assessment proceedings, the assessee produced books of account and stock records showing silver stock of only 113.928 kilograms on the date of survey. The Assessing Officer relied on the earlier survey statement and treated the difference of 86.072 kilograms as unexplained excess stock valued at ₹1,84,080, which was added to income. The CIT(A) confirmed the addition.

Issues Involved

  1. Whether addition for excess stock can be made solely on the basis of a statement recorded during survey.
  2. Whether absence of physical verification invalidates the allegation of undisclosed stock.
  3. Whether books of account accepted by the Assessing Officer can be disregarded without defects.

Petitioner’s Arguments (Assessee)

  • The admission during survey was made under mental pressure and on estimation.
  • The estimated stock included both pure and impure silver.
  • No physical inventory was completed due to disruption of survey proceedings.
  • Books of account and stock register showed actual stock of 113.928 kilograms and were accepted by the Assessing Officer.
  • Statement recorded during survey has limited evidentiary value and cannot alone justify addition.

Respondent’s Arguments (Revenue)

  • The assessee voluntarily admitted stock of 200 kilograms during survey.
  • As owner of the business, the assessee was best placed to know the quantity of stock.
  • Physical verification could not be completed due to external disturbance and should not prejudice the Department.
  • Judicial precedents support reliance on voluntary admissions during survey.

Court Order / Findings (ITAT Allahabad)

  • No physical inventory of stock was completed during the survey.
  • The Assessing Officer accepted the books of account and did not find any defects in the stock register.
  • The addition was based solely on the survey statement.
  • The assessee subsequently clarified under Section 131 that the earlier statement was an estimate made under pressure.
  • This explanation was not disproved by the Assessing Officer.

Relying on the Supreme Court decision in S. Khader Khan Son, the Tribunal held that a statement recorded during survey does not have the same evidentiary value as one recorded during search under Section 132(4) and cannot by itself justify addition.

Accordingly, the addition of ₹1,84,080 for alleged excess stock was deleted and the appeal of the assessee was allowed.

Important Clarification

  • Statements recorded during survey under Section 133A have limited evidentiary value.
  • Additions cannot be sustained solely on such statements without corroborative evidence.
  • Acceptance of books of account weakens the case for alleged undisclosed stock.
  • Physical verification of stock is crucial in stock discrepancy cases.
  • Retraction or clarification of a survey statement, if plausible and unrebutted, must be considered.

Link to download the order -  https://itat.gov.in/public/files/upload/1694578239-66%20of%202023%20Shambhu%20Prasad%20Rastogi(Assessee%20Appeal)%20uder%20section%20143(3)%20of%20the%20Act%20SMC%20(Corrected).pdf 

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