ORDER
R.K. Gupta, J.M.
1. These are five appeals by assessees and Department. In ITA No. 663 & 664/Jp/1992 the assessee is Kamal & Co. and in ITA Nos. 658/Jp/1992 the assessee is Kewalram Narsingdas and the remaining two appeals are by the Department.
2. The CIT(A) reduced the value of stock found during the course of survey by partly allowing the appeal of the assessee. The assessee are in appeal against the sustenance of the additions and the Department is in appeal against the reduction of the amount of addition, therefore, they are disposed of by this single order for the sake of convenience.
3. These appeals were originally fixed sometime in 1996. After that the appeals were adjourned so many times at the request of the assessee as well as at the request of the Department. There were some more appeals also i.e. ITA Nos. 369 & 370/Jp/1991, 655 & 656/Jp/1992 and 1121 & 1122/Jp/1991. All these appeals were fixed together and were adjourned from time to time as stated above. In ITA No. 369/Jp/1991 the case was fixed for 9th April, 1997. On this date the case was adjourned for 14th July, 1997, and the Departmental Representative was directed to produce assessment records of Kewalram in which case was search was also conducted. On 14th July, 1997, the case was again adjourned to 5th November, 1997, with similar direction. On 5th November, 1997 again adjournment was sought by the Departmental Representative as he informed that the case records could not be summoned. With the similar direction, the case was again adjourned for 26th February, 1998. On 26th February, 1998, the case was taken up but at the request of the Departmental Representative the case was again adjourned for 20th May, 1998, and lastly it was adjourned for 25th May, 1998.
4. On 20th May, 1998, an application, dt. 19th May, 1998, was received by the Registry which was put up before the Bench on 20th May, 1998 at the time of hearing. The application was signed by learned Senior Departmental Representative, B. R. Meena. In the application it was stated that inspite of best efforts the records and seized material from Ahmedabad in these cases could not be received. Therefore, it is not possible to argue the cases. In subsequent para, however, it was stated that it will be better if these cases are decided on merits because nobody is bothering for the Departmental Representative as in spite of several requests for sending the records, the concerned AO has not sent the records. Therefore, these cases may be decided on merits. It was further stated that Kamal & Co. is also the group case of this assessee, therefore, the same may also be decided on merits. For the sake of completeness the contents of this application are reproduced here as under :
“No Sr. A.R./ITAT/JPR/98-99/79.
Office of the
Authorised Representative,
ITAT, Jaipur Bench, Jaipur
Dt. 19th May, 1998
The Assistant Registrar,
ITAT,
Jaipur Bench, Jaipur.
Adjournment request
Sir,
The following cases are fixed for hearing as mentioned against their
names. Records and appeal memos were called for from the AO :
———————————————————————-
ITA No. Name of the assessee Date of Hearing ---------------------------------------------------------------------- 369 & 370/Jp/91 Kewal Ram Narsinghdas 20-5-1998 655 & 656/Jp/92 -do- -do- 658 & 757/Jp/92 -do- -do- 1121 & 1122/Jp/91 Kamal & Co., Barmer -do- 663 & 664 & 756/92 -do- -do- ----------------------------------------------------------------------
Since the cases of Kewal Ram Narsinghdas have been transferred to Ahmedabad and in spite of best efforts I could not get the case records and seized material from Ahmedabad in these cases. Therefore, it is not possible to argue these cases and, therefore, the same may kindly be adjourned on any further date. If it is not possible to be adjourned, then, these cases may kindly be decided on merits as because it is not possible at all to get the case records and seized material in these cases from Ahmedabad. Nobody bothers for the Departmental Representative and, therefore, it is not certain whether these case records will be made available to the Departmental Representative by the AO at Ahmedabad. Therefore, it will be better if these cases are decided on merits. Kamal & Co. is also the group case of this assessee, hence, it may also be decided on merits.
Yours faithfully,
Sd/-
(B.R. Meena)
Sr./Jr. Authorised Representative,
ITAT, Jaipur Bench, Jaipur.”
5. After going through this application, we do not feel to give any further opportunity to the Department as the Department failed to produce seized records and books as per direction of the Tribunal which was given much earlier i.e., in the month of April, 1997. Almost more than one year is elapsed but the Department did not bother to comply with the directions of the Tribunal. Therefore, the appeals are decided on the basis of arguments put forth by the learned Departmental Representative, and the material placed on record. For the sake of completeness further, on the date of hearing i.e., on 25th May, 1998, the learned Departmental Representative stated that the Senior Departmental Representative has already given in writing that appeal may be decided on merits. Therefore, they may be decided on merits. The appeals are decided after hearing the learned authorised representative and considering the material on record.
6. First we will deal with the additional ground which was requested vide application, dt. 6th June, 1997. The additional ground is reproduced here as under :
“That the impugned survey alleged to have been conducted on 25th February, 1987 was without jurisdiction, illegal and consequent proceedings deserve to be ignored and addition deleted.”
This additional ground was taken in cases of both the assessees i.e. Kamal & Co., Barmer and Kewal Ram Narsinghdas, Barmer. This is a legal ground and does not require any fresh material. Therefore, this ground is admitted.
7. The learned authorised representative submitted that the survey was made on 25th February, 1987, and the Inspector who made the survey was not authorised legally as Nigam, the Inspector was posted at that time with the AO at Jodhpur. Therefore, he was not legally authorised. Further he submitted that the Inspector was not empowered to record the statement and to prepare the inventory of stock. Only the Asstt. Director of Investigation or AO can record the statement or can prepare the inventory of stock. Therefore, the action of the Inspector was not legally correct and it cannot be approved in the eye of law. Therefore, the additions made on the basis of survey report should be deleted. In support of this contention the reliance was placed on ITO vs. Jewells Emporium (1975) 48 ITD 164 (Indore) and a Circular No. 179 dt. 30th September, 1975, of Board reported in (1975) 102 ITR (St.) 9 at pp. 14 and 15. It was further stated that survey can be made on the pending proceedings. There was no pending proceedings, therefore, also the survey conducted was illegal. In support of this contention the reliance was placed on Jamnadas Madhavji & Co. & Anr. vs. J. B. Panchal, ITO & Anr. (1986) 162 ITR 331 (Bom) and ITO & Ors. vs. James Joseph O’ Gorman (1993) 204 ITR 454 (Cal).
8. We have considered the learned authorised representative submissions and perused the material on record. After perusing the material on record we find that the survey was conducted by Inspector Nigam who was accompanied by another Inspector Rohit Asudani. As per assessment order, dt. 5th March, 1991, which was passed in case of Kewal Ram Narsinghdas, it is clear that survey was conducted by these two Inspectors and the Inventory was prepared by these inspectors. At p. 2 of this assessment order in para 2 it is mentioned as under :
“As the survey was conducted in 4 godowns where, in one godown fodder of Kamal & Co., was also lying, therefore above stated inventory is prepared combined as the assessee may not claim further that cost calculated is more as the fodder of Kamal & Co. was also lying near the godown of Kewal Ram Narsinghdas.”
In para 4 of this order it is further observed by the AO as under :
“Copy of the stock inventory and also extracts of the statement of Lakhanumal were supplied to the assessee on 31st January, 1991. The assessee was requested to file his replies on the points mentioned by the CIT(A) in his replies on the points mentioned by the CIT(A) in his order. On the basis of replies filed by the assessee from time to time and on the basis of field enquiries got conducted through the Income-tax Inspector Rohit Assudani posted in this circle and also after examination of the authorised Inspector N.P. Nigam, at the time of survey and also after examination of the persons whose affidavits the assessee had submitted, the following results have come in, which are discussed pointwise as directed by the CIT(A).”
On p. 5, in last but three lines (in English) it is mentioned as under :
“Copy of inventory was also given to him. Then in reply to this he filed his detailed report on 24th February, 1991, which is as under, in his language”.
On p. 8 in first typed para of this order says as under :
“Copy of report submitted by Nigam was given to the assessee and he was also presented for cross-examination by the assessee and his authorised representative. But vide order sheet dt. 25th February, 1991, the assessee refused to cross examine Shri Nigam, Inspector.”
On p. 8 in last para of this order it is mentioned as under :
“One of the witnesses of the assessee Bhojamal was cross-examined on 25th February, 1991, by N.P. Nigam who was the authorised Inspector at the time of survey and from it came to the notice that Bhojamal was not present at the time of survey …..”
In next page i.e. page No. 9 in sub-para (iv) it is mentioned as under :
“The fodder was estimated by N. P. Nigam, Inspector with the help of Lakhanumal and other persons present there and basis adopted is discussed in the report of N. P. Nigam, who was the authorised Inspector”.
On p. 9 in sub-para (v) it is mentioned as under :
“As per report of Shri Nigam, rate per quintal was told by the person present for assessee and the persons dealing in this line of business. But this rate was not given by them on the basis of bills while rate adopted by my predecessor in his order is on the basis of rate in the bills on the date of survey. Therefore, the rate adopted by my predecessor is correct rate for calculating value of difference of stock.”
By reading all these paras of the assessment order, we are convinced that the report was submitted by the Inspector Nigam who prepared the stock inventory and recorded the statement of the persons present at the time of survey. This fact is also clear from the order of the assessment, dt. 25th October, 1989. This order was passed in case of Kamal & Co. for asst. yr. 1987-88. On p. 2 in para 3 it is stated that “survey under s. 133 was conducted at the assessee’s premises on 25th February, 1987 as a consequences of the search being conducted at the residential premises of Kewal Ram and Shri Jeewatmal. During the course of survey, the stock position in the godown of the assessee was taken in the presence of Lakhanumal alleged to be partner of this firm and his statements were recorded.”
9. It is established that statements were recorded by the Inspector and none else and the inventory of stock was also prepared by the Inspector. No Departmental record is available whether the statements were recorded by any authorised person as per law or the inventory of stock was prepared by any other officer authorised as per law. Therefore, also we are of the view that the statement and inventory of stock was taken by the Inspector Shri Nigam.
10. Now we will examine whether an Inspector is empowered to record statement or prepare the inventory of stock.
11. Sub-s. (3) of s. 133A reads as under :
“An IT authority acting under this section may, –
(i) if he so deems necessary, place marks of identification on the books of account or other documents inspected by him and make or cause to be made extracts or copies therefrom,
(ii) make an inventory of any cash, stock or other valuable article or thing checked or verified by him,
(iii) record the statement of any person which may be useful for, or relevant to, any proceeding under this Act”.
Explanation below sub-s. (5) of s. 133A reads as under :
Explanation (a). – In this section, “IT authority” means a CIT, a Dy. CIT, a Director or an AO, and for the purpose of cl. (i) of sub-s. (1), cl. (i) of sub-s. (3) and sub-s. (5), includes an Inspector of Income-tax if so authorised by any such authority.
By going through these provisions of law, we find that Inspector is only empowered to mark identification but nowhere he is empowered or authorised to record the statement or to prepare the stock inventory. Stock inventory and statement can be recorded by the IT authorities only and they are CIT, Dy. CIT, Director, Dy. Director, Asstt. Director or an AO. But Inspector is not an authorised person for this purpose.
12. In case of ITO vs. Jewells Emporium (supra) the Indore Bench of the Tribunal has held that the expression ‘IT authority’ appearing in s. 133A, inter alia, for the purposes of cl. (i) of sub-s. (1), cl. (i) of sub-s. (3) and sub-s. (5), includes an Inspector of income-tax, if so authorised by any such authority. Under cl. (i) of sub-s. (1), the Inspector can claim facility to inspect such books of accounts or other documents as he may require and which may be available at the place of business. Under cl. (i) of sub-s. (3), he may place marks of identification on books of accounts or other documents inspected by him and make or cause to be made extracts or copies therefrom. Thus, apparently, the Inspector acted beyond the purview of his powers in all illegal manner in the instant case.”
13. In Circular No. 179, dt. 30th September, 1975 (supra) it has also been clarified the position regarding the powers for recording statement and preparing stock inventory. Nowhere an Inspector is empowered to make such formalities.
After going through the provisions of law and other materials on record, we are of the considered view that Inspector has done an illegal exercise, because we find that the entire survey operation was conducted by Inspector of Income-tax inasmuch as he recorded the statement of one person alleged to be the partner of one of the firms. Since neither the Inspector is empowered to record the statement nor he is empowered to prepare the stock inventory at the time of survey, therefore, the additions made on the basis of survey has no leg to stand. In view of these findings of ours, we delete the additions on account of stock valuation which was made on the basis of inventory of stock prepared by Inspector at the time of survey on 25th February, 1987. The additions are deleted in all the appeals of the assessee as they were made on the basis of this survey report only.
14. We have decided the additional legal ground in favour of assessee. Therefore, we feel that there is no need to adjudicate the other grounds as we have held that on the basis of survey by Inspector the additions are illegal. Therefore, other grounds are not adjudicated upon here by us.
15. We have allowed the appeals of the assessee. The Department’s appeals are cross-appeals, therefore, they are accordingly dismissed.
16. In the result, all the appeals of the assessee are allowed and appeals of the Department are dismissed.