Facts of the Case

The assessee, a partnership firm engaged in the business of trading in silver ornaments and articles, was subjected to a survey under Section 133A at its business premises. During physical verification, excess stock of silver items was found compared to the stock recorded in the books of account.

A departmental valuer assessed the value of the excess stock by estimating the purity of silver ornaments on an assumed basis, resulting in a significantly higher valuation. During the survey proceedings, a surrender relating to the discrepancy was made by the assessee’s partner.

However, while filing the return of income, the assessee did not fully disclose the surrendered amount and contested the valuation adopted by the department, asserting that the purity assumed by the valuer was arbitrary and not supported by scientific testing.

The Assessing Officer completed assessment under Section 143(3), rejected the books under Section 145(3), and made substantial additions based on the valuation report.

 Issues Involved

  1. Whether addition for excess stock found during survey was justified based on estimated purity of silver ornaments.
  2. Whether surrender made during survey is conclusive when subsequently retracted.
  3. Whether rejection of books of account under Section 145(3) was valid.
  4. Whether valuation based on assumptions without scientific verification can form the basis of addition.

 Petitioner’s (Assessee’s) Arguments

  • The valuation report relied upon assumed purity levels and was arbitrary.
  • Silver ornaments contain varying degrees of impurities; therefore uniform purity estimation was unrealistic.
  • The surrender made during survey was not voluntary or was made under pressure and was later retracted.
  • Proper books of account were maintained and supported by records; hence rejection under Section 145(3) was unjustified.
  • Additions cannot be sustained solely on the basis of a valuation report lacking scientific foundation.

 Respondent’s (Revenue’s) Arguments

  • Excess stock physically found during survey constituted reliable evidence of undisclosed investment.
  • The assessee had admitted discrepancies and surrendered income during survey proceedings.
  • Retraction after survey is not credible unless substantiated by strong evidence.
  • In absence of an alternative reliable valuation from the assessee, the departmental valuer’s report should be accepted.
  • Non-disclosure of surrendered income in the return indicated concealment.

 Court / Tribunal Findings

The Tribunal analyzed the evidentiary value of the survey statement, the methodology of valuation, and the validity of rejection of books. It observed that:

  • Valuation based solely on estimated purity without scientific testing cannot be treated as conclusive.
  • Statements recorded during survey have evidentiary value but must be supported by corroborative material.
  • Retraction of surrender requires examination of surrounding circumstances and evidence.
  • Additions based purely on assumptions or arbitrary estimates are unsustainable.

Accordingly, the Tribunal adjudicated the appeals of both the assessee and the Revenue and granted relief to the extent justified by evidence.

Important Clarification

  • Admission made during survey is not automatically binding if later shown to be incorrect or unsupported by evidence.
  • Proper valuation of jewellery or silver articles must rely on credible and scientific methods.
  • Rejection of books and additions for excess stock must be supported by reliable material, not mere presumptions.

 

 

Link to download the order -https://itat.gov.in/public/files/upload/1688465152-ITA%20Nos.%20199%20216%20CO%20No.%2034%20Alld%202016%20Ms%20Mahesh%20Chandra%20Vishnu%20Chandra%20Sarraf.pdf

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