Whether Survey proceedings are to be termed as arbitrary even if it is conducted after issuing authorisation u/s 133A(b) and presenting same before commencing survey - NO: ITAT

THE issue before the Bench is - Whether Survey proceedings are to be termed as arbitrary even if it is conducted after issuing authorisation u/s 133A(b) and presenting same before commencing survey. NO is the answer.

Facts of the case

The assessee is engaged in the business of woolen textiles. During assessment, the AO observed that the assessee had filed e-return declaring total income of Rs. 7,16,770/-. The case thereafter was processed u/s 143(1) and transferred from ITO, Ward-2, Beawar to ACIT, Circle-2, Ajmer. Subsequently, a survey u/s 133 was conducted at the business premises of assessee at plot No. G1/32 and 36 to 44 RIICO Industrial Area, Jaipur Road, Kekri. Being a survey case, it was selected for scrutiny u/s 143(2) and a notice was issued fixing the case for hearing on 28th Aug, 2009. However, on that date, no one attended the proceeding. Thereafter a detailed questionnaire u/s 142(1) was issued on 9th Aug, 2010 fixing the case for hearing on 17th Aug, 2010. In response, the assessee raised objection, which was replied by the AO disposing of the objection made by the assessee. Further notice u/s 142(1) was issued on 17th Aug, 2010 and the case was fixed for hearing on 28th Aug, 2010. The assessee thereafter had sought adjournment, and the case was adjourned for 5th Oct, 2010. In response to above, the directors of assessee company attended the proceeding and filed submission alongwith details. The AO thereafter asked them to file further information and case was again fixed for hearing on 26th Oct, 2010. The AO after verification of the register and files from books of account, observed that no discrepancy had been found except stock register pertaining to F.Y. 2007-08. The AO accordingly, asked the assessee to explain the difference of stock generated by computer from office and record of the assessee during the survey operation and from the stock register impounded from its business premises. In response, the assessee filed its reply, and after considering assessee's submission, the AO held that inventory was prepared by the personnel of IT Department and was assisted by the employee of assessee, which was later on duly signed by the assessee.

The AO further held that no details was produced before him to substantiate the differences found in the stock as per books and stock physically found and also no reasons to explain regarding three figures summary of stock generated from assessee book found on computer at the business premises and stock summary. The assessee had changed the stock position generated through computer book without any change in value of purchase and sale. The assessee had not explained the changed valuation of stock on the basis of evidence, and therefore, the AO rejected the book result u/s 145(3). The AO calculated the difference in stock on date of survey at Rs. 1,13,82,169/- on the basis of stock submitted by the assessee during assessment, and physical inventory prepared during the survey proceedings. Accordingly, the AO treated the stock difference of Rs. 1,13,82,169/- as unaccounted sale of different varieties of wool. The gross profit earned of Rs. 1,13,82,169/- being unaccounted sale of different varieties of wool was applied @ 16.22%, which was the G.P. rate declared by the assessee in A.Y. 2007-08. Thus, the value was calculated at Rs. 18,46,187/- and same was added in the total income of assessee and penalty proceeding u/s 271(1)(c) was initiated for furnishing inaccurate particulars of income. The AO further observed that the assessee was running business of purchase and sale of woolen Yarn raw wool, woolen yarn and manufacturing of carpet woolen yarn. As regards decline in G.P. rate, the assessee's explanation was not found tenable to the AO, and accordingly, he rejected the books u/s 145(3). The AO thereafter applied the G.P. rate of preceding year i.e. 16.22% on declared sale at Rs. 7,68,23,116/-, which gives G.P. at Rs. 1,24,60,709/- after reducing the gross profit declared by assessee in return at Rs. 1,08,06,840/-. The net difference of Rs. 16,53,869/- had been added to the total income declared by assessee for which Section 271(1)(c) penalty were also initiated for non disclosing of correct particulars of income. On appeal, the CIT(A) confirmed the addition made by AO.

Having heard the parties, the Tribunal held that,

Survey proceedings

++ it is seen that the assessee has claimed that the authorized officer has pressurized and harassed the assessee, and therefore, entire survey proceedings was unlawful, arbitrary, hypothetical, fabricated, unfair and unreliable and therefore, liable to be quashed. As per assessment order this issue has been challenged before the AO, who has considered the assessee's objection and gave opinion that that stock inventory prepared by the survey team, has been assisted by the employee of the assessee and later on duly signed by the assessee. The CIT(A) also considered this issue and stated that the survey u/s 133A at the business premises of assessee was carried out after issuing authorization u/s 133A(b). Such authorization was presented before commencing the survey and it was duly signed by one of the Director of the assessee company. The survey party asked the assessee to provide help in stock taking for preparation of inventory of physical stock found at the premises. The Director of the assessee company himself sent one of his employees to bring labour but nobody came back till the evening. The authorized officer thereafter started recording statement of the Director, but he left the premises in night without completing the statement. On next day, he came and again left on the pretext that he will arrange labour for stock taking. He came back in the afternoon with four labour and thereafter stock taking was started. Again he left in the night without completing his statement. On the third day, he came back and stock taking was resumed which continued till the evening. During all this period, the Director kept misbehaving with survey team. Accordingly, stock as per books could not ascertained. However, physical inventory of stock was prepared and the same was signed by the Director. From these facts, it is clear that survey action was conducted in a normal manner by the survey team;

++ as per Section 133A, the concerned AO authorizes any I-T authority to conduct a survey. The said authority go to the business premises to verify the stock as well as cash position on the date of survey. The survey team showed the authorization to the Director of the company in the case of company and asked to sign on it. Thereafter the authorized officer starts to verify the cash on the date of survey and make inventories of stock and books of account found during the course of survey. As per stock register, they prepared stock position as on date of survey. The part of the survey team is deputed to verify the stock physically and prepared stock inventory with the help of staff or assessee himself. It is found that assessee was non cooperative with the survey team as he has not given statement u/s 133A and also not signed on it. From the record, it is fact that a survey took three days to complete the survey proceeding which shows that there was non-cooperation from the Director of the company. As per assessment order also, there was non-cooperation and the survey team had impounded 51 books of account, which were relevant to various assessment years, but no adverse inference has been drawn by the AO. Only discrepancy was found in the stock position on the date of survey which has been calculated by both the authorities judiciously. Therefore, there seems no reason to intervene in the order of the CIT(A);

Trading addition

++ the CIT(A) observed that the assessee expected from the department to accept his books result as gospel truth and any efforts made by any officer of the department to make inquiry in his case or make verification amounts to harassment according to assessee. The CIT(A) held that stock inventory was prepared by the personnel of the income tax department and was assisted by the employees of the assessee, which was later on duly signed by the assessee. It is mentioned by the CIT(A) that figures of stock as per computer books generated had been changed without no change in value of purchase and sale, which is not possible. No reason was explained regarding these differences. The CIT(A) has given his detailed finding on survey proceedings regarding the preparation of inventory of stock obtaining signature of director, therefore, this list was prepared by the IT official manually with the help of staff of assessee. The assessee submitted a list of closing stock during the assessment proceedings at Rs. 2,54,98,772.93 and physical stock during the course of survey was found at Rs. 1,41,16,603/-. There was a shortage in stock at Rs. 1,13,82,169/-. The assessee has shown G.P. rate in immediate preceding year @ 16.22%, and on the basis of this GP rate, the total GP addition was made by the AO and confirmed by the CIT(A) at Rs. 18,46,187/- is justified. There was a discrepancy during the course of survey on the basis of stock inventory prepared physically as well as stock position on the basis of books of account. Therefore, the AO rightly rejected the book result u/s 145(3). There seems no reason to interfere with the order of the CIT(A);

Serving of notice u/s 143

++ it is seen that the assessee has not brought on record any evidence against the notices issued by the AO, as even his objection has been considered by the AO. The alleged anonymous complaint had no relevance with reference to service of notice u/s 143(2) in absence of evidence. The assessee alongwith his authorized representative appeared before the AO and had cooperated in assessment proceedings, therefore, as per Section 292BB, where as assessee has appeared in any proceeding or cooperated in any enquiry relating to an assessment or reassessment, it shall be deemed that any notice under any provisions of this Act, which is required to be served upon him, has been duly served upon him in time in accordance with the provisions of this Act and assessee shall be precluded or taking any objection in any proceeding or inquiry under this Act that the notice was not served upon him in time and in improper manner. The assessee can raise objection before completion of the assessment. The Punjab & Haryana High Court in the case of VRA Cotton Mill Pvt. Ltd. Vs. Union of India, has held that the moment, the notice is signed and put in the course of transmission by the department, the notice is deemed to be served, unless the contrary is proved. The assessee had not proved contrary, therefore, notice u/s 143(2) has been served on the assessee properly by the AO. Thus, the assessment passed by the AO is valid