ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2, MADURAI, MADURAI V. COLOMBO STORES, KARAIKUDI

ITA 1413/CHNY/2023

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The case involves the Income Tax Department's appeal against the decision of the Commissioner of Income Tax (Appeals) which had deleted certain additions made by the Assessing Officer. These additions were based on a survey conducted under section 133A of the Income Tax Act, where a partner of the assessee firm admitted to unaccounted investments and excess stock. The Tribunal found that the CIT(A) correctly relied on the Supreme Court's decision in S. Khader Khan & Sons, which held that such statements need corroboration and cannot be the sole basis for additions. The Tribunal also noted that the land and building were owned by the partners, not the firm, and that the firm had accounted for the stock in its financial statements.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 472381 (ITAT-CHENNAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2019-2020
• Other Referred Cases: S. Khader Khan & Sons (352 ITR 480)
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NILAY BARAN SOM LD
• Assessee Lawyers: R. MEENAKSHI SUNDARAM
• Keywords: Unexplained investment
• Section: 144; 142(1); 133A

Judgement Text

" आयकर अपीलीय अिधकरण “ए” \u000eा यपीठ चे\u0013ई म\u0016। IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, CHENNAI मा ननीय \u0019ी एबी टी. वक\u001e, \u000eा ियक सद\" एवं माननीय \u0019ी मनोज क ुमार अ'वाल ,लेखा सद\" क े सम)। BEFORE HON’BLE SHRI ABY T. VARKEY, JM AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM आयकरअपील सं./ ITA No.1413/Chny/2023 (िनधा*रण वष* / Assessment Year: 2019-20) ACIT Central Circle-2, Madurai. बनाम/ Vs. M/s Colombo Stores 79/1, Kallukatti East, Karaikudi, Sivagangai-630 001. \u0002थायीलेखासं./जीआइआरसं./PAN/TAN No. AAFFC-8405-L (अपीलाथ\u001a/Appellant) : (\u001d\u001eथ\u001a / Respondent) अपीलाथ\u001aकीओरसे/ Revenue by : Shri Nilay Baran Som (CIT) - Ld. DR \u001d\u001eथ\u001aकीओरसे/ Assessee by : Shri R. Meenakshi Sundaram (Advocate) – Ld.AR सुनवाईकीतारीख/Date of Hearing : 02-01-2025 घोषणाकीतारीख /Date of Pronouncement : 22-01-2025 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by revenue for Assessment Year (AY) 2019-20 arises out of the order of learned Commissioner of Income Tax (Appeals)-19, Chennai [CIT(A)] dated 04-10-2023 in the matter of an assessment framed by Ld. Assessing Officer [AO] on best judgment basis u/s. 144 of the Act on 29-09-2021. The grounds taken by the revenue are as under: - 1. The order of the learned Commissioner of Income Tax (Appeals), is erroneous on facts of the case and in law 2 2. The Ld CIT(A) erred in directing the assessing officer to delete the addition of Rs.3,25,00,000/- made towards unaccounted investment in land and building as admitted by the partner of the firm in the statement made during the survey. 2.1 The Ld. CIT(A) failed to appreciate that partner of the assessee firm, in his answer to question No. 18 in the statement, admitted that certain construction expenses bills (impounded) have not been accounted in the books Further, he admitted that the payments to interior decorator were made in cash. The assessee had not made any submission before the CIT(A) whether the above expenses are accounted in the books of assessee or firm 2.2 The Ld.CIT(A) erred in failing to appreciate that since the statement recorded is based on the basis impounded documents/invoices, the onus is on the assessee to prove that the source for construction of building is duly accounted either in the hands of firm or partners. 2.3 The Id. CIT(A) failed to appreciate that the assessee had explained source for 3.25 Crores out of total construction expenses of Rs.6.50 Crores during the course of survey. Though the building was in the name of the partners, it was mentioned in the assessee's submission that the amount spent by the firm was duly debited in the partner's capital accounts. Hence, the CIT(A) ought to have called for remand report under Rule 46A from the assessing officer whether the entire construction cost of Rs.6.50 Crores was accounted in the hands of firm or partners. 3. The Ld.CIT(A) erred in directing the assessing officer to delete the addition of Rs.1,67,84,050/- made towards excess stock found during the course of survey. 3.1 The Ld.CIT(A) erred in giving credit to \"Indirect Income\" of Rs.1,11,29,999/- offered in the return of income against the addition made towards unaccounted stock since the assessee had not substantiated that the above Income was offered towards unaccounted stock. 3.2 The Ld. CIT(A) relied on the financial statements of partners and firm in deleting the additions made in the assessment order. The assessment was completed u/s 144 of the Act. The Ld. CIT(A) ought to have called for remand report from the assessing officer under Rule 46A. As is evident, the subject matter of appeal is additions made by Ld. AO based on survey proceedings which have been deleted by Ld. CIT(A). 2. The Ld. CIT-DR advanced argument and submitted that additional evidences were not confronted to Ld. AO. The Ld. AR also advanced arguments and filed written synopsis. Having heard rival submissions and upon perusal of case records, our adjudication would be as under. The assessee being resident firm is stated to be running a textile shop. It filed return of income on 24-05-2020 declaring income of Rs.60.99 Lacs which was subjected to scrutiny assessment. Assessment Proceedings 3.1 The assessee was subjected to survey u/s 133A on 27-02-2019 wherein a statement was recorded from Shri Jagir Ali (Partner of the firm). The assessee agreed to offer excess stock of Rs.167.84 Lacs and unaccounted investment in land and building for Rs.325 Lacs. During 3 assessment proceedings, the assessee failed to respond to hearing notices and accordingly, both these amounts were added by Ld. AO to the returned income. 3.2 During appellate proceedings, the assessee furnished elaborate written submissions and documents to assail the impugned additions. On the issue of unaccounted investment, it was stated that Shri Jagir Ali, in answer to question No. 6, admitted that the land belonged to the partners and it also furnished details of the relevant percentage of holding title over the property by each of the partners. In support, the assessee furnished copies of relevant title deeds evidencing the fact that the land belonged to the partners. In addition, the shop building was duly accounted for in the hands of the assessee-firm which was evident from the audited financial statements. The assessee also furnished Income Tax Returns and financial statements of the partners. The partners, in their return of income, duly admitted the rental Income from the firm and the land & building details were duly reflected in the balance sheet of the partners. The Ld. CIT(A) relied on the decision of Hon’ble Supreme Court in the case of S. Khader Khan & Sons (352 ITR 480) to conclude that addition based on statement recorded during survey u/s 133A was not legally tenable. It was further observed by Ld. CIT(A) that AO did not make any independent enquiry or findings but proceeded to complete the assessment based upon the admissions made by the managing partner of the assessee-firm during the course of survey. No attempt was made to verify the ownership details of the land & building of the assessee-firm before making addition of unexplained investment in the hands of the firm. This addition could have been made only in the hands 4 of the partners but not in the hands of the firm. Therefore, the addition of unexplained investment of Rs.325 Lacs was deleted. 3.3 On the issue of stock, it was observed that value of physical stock was Rs.690.82 Lacs as against book stock of Rs.598.76 Lacs. Thus, there was difference if Rs.92.05 Lacs only. As against this, the assessee already admitted additional income of Rs.111.29 Lacs as indirect income. Considering this fact, the addition of Rs.167.84 Lacs was also deleted. Aggrieved, the revenue is in further appeal before us. Our findings and Adjudication 4. From the facts, it emerges that both the additions are primarily based upon statement recorded from the partner during survey action on assessee-firm. It is trite law that the statement recorded during survey do not hold much evidentiary value as per the binding judicial precedent of Hon’ble Supreme Court in the case of S. Khader Khan & Sons (352 ITR 480). The statement has to be corroborated with concrete evidences on record. The Ld. AR stated that notice u/s 142(1) was issued on 25-09- 2021 fixing the date of hearing as 28-09-2021. The assessee did not receive hearing notices before the date of hearing and could not attend assessment proceedings. However, the assessment was framed on very next day i.e., on 29-09-2021 leaving no time with the assessee to furnish the requisite details. During appellate proceedings, the assessee filed the requisite documents to substantiate its case. The Ld. AR also stated that the statement was not valid in the eyes of law. Further, the land and shop building were not owned by the firm but by the partners which was evident from their respective financial statements. The partners had made the investment in their personal capacity and therefore, no addition of unaccounted investment could be made in the hands of the assessee- 5 firm. On the issue of stock, it is stated that valuation of stock was based on rough valuation and difference was only for Rs.92.05 Lacs. The assessee already offered additional income of Rs.111.29 Lacs in the return of income and therefore, no further addition is warranted on this account also. 5. After going through the aforesaid submissions of Ld. AR, we are of the opinion that the assessee was prevented by sufficient cause to make representation during assessment proceedings. Nevertheless, Ld. CIT(A) afforded adequate opportunity of hearing to the assessee and adjudicated the issue on merits. The fact that the land and shop building belonged to the partners of the firm remain uncontroverted before us. In such a case, no addition of unaccounted investment could have been made in the hands of the assessee-firm. So far as the addition of stock is concerned, the assessee has already offered additional income to make up for the shortfall in book-stock and therefore no further addition is warranted on this account. In other words, the adjudication of Ld. CIT(A) could not be faulted with. We order so. 6. The appeal stands dismissed. Order pronounced on 22nd January, 2025 Sd/- Sd/- (ABY T. VARKEY) (MANOJ KUMAR AGGARWAL) \u000eा ियक सद\" /JUDICIAL MEMBER लेखा सद\" / ACCOUNTANT MEMBER चे0ई Chennai; िदनांक Dated :22-01-2025 DS 6 आदेशकीKितिलिपअ'ेिषत/Copy of the Order forwarded to : 1. अपीलाथ\u001a/Appellant 2. \u001d\u001eथ\u001a/Respondent 3. आयकरआयु9/CIT Madurai 4. िवभागीय\u001dितिनिध/DR 5. गाड>फाईल/GF "