ORDER
J.K. Verma, Accountant Member
1. In this appeal the revenue has objected to the decision of the learned Commissioner of Income-tax (Appeals) to the effect that the department has not been in a position to prove that there was a shortage in reality as the weighment was made on estimate basis and even if there was a shortage the addition could not be made in full and further in deleting the addition of Rs. 1,15,737 on this account (although wrongly mentioned as Rs. 15,737 in the grounds of appeal).
2. The brief facts of the case are that the Department had conducted a survey under Section 133A at the business premises of the assessee on 14-10-1982. It was conducted by the Inspector under the supervision of the ITO. It is gathered from the material on record and the orders of the authorities below and the arguments advanced from both the sides before us that while conducting the survey and pointing out the discrepancies in stocks, the Survey party did not conduct actual weighment of the commodities, namely, Gram crushed, Gram Dal, Chilka, Churi etc. but estimated the shortages which were agreed to by Shri Rameshchand one of the partners of the firm who was present there. During the course of assessment proceedings the IAC called for record and conducted proceedings under Section 144A(1) of the Income-tax Act. He considered the arguments and submissions advanced before him by Shri Banshidhar, partner and Shri D.P. Goyal, Advocate and after detailed discussions he issued directions, which were further rectified under Section 154 of the Income-tax Act, the ITO worked out the unexplained shortage in the Churi account at 291 qtls. He took its value @ Rs. 127 per qtl. and thus the total value worked out to Rs. 36,957. Similarly the unexplained shortage of Chilka @ Rs. 65 per quintal for 1212 qtls. worked out to Rs. 78,780. These two amounts, namely, Rs. 36,957 + 78,780 = Rs. 1,15,737 were added to the income of the assessee.
3. In the appeal filed by the assessee the learned CIT (Appeals) deleted the entire addition on the ground that actual weighment of Chilka and Churi was not made by the Survey party and it had been worked out on estimate basis. He mentioned in his order that the appellant had admitted that no stock position was maintained for Chilka and Churi, that the stocks was found at 11 places and the Survey party did not make efforts to weigh stocks at every place, that no shortage had been detected by the Department at the end of the year. He has mentioned that it was an admitted fact that the appellant was not furnished with a copy of the report of the survey team as to how they worked out the shortage. On these basis the learned CIT (Appeals) inferred that ITO had failed to detect shortages in reality. The learned CIT (Appeals) also opined that no addition for this shortage could be made and at the most the profits earned on such sales could have been added to the total income or this would have been a reasonable ground for rejecting the books of account and for applying “proviso to Section 145(2)”. He further opined that if the shortage is added in the total income then the trading account cannot be recasted properly and hence, according to him even from accountancy point of view, this shortage could not be added.
4. In this background the learned Departmental Representative argued that the weight of these commodities was taken on estimate basis from the heaps which was agreed to by Shri Rameshchand, partner and there was no objection at the time of survey or thereafter regarding this estimate. He further submitted that the claim of stocks being at 11 places and the allegation that the survey team did not make efforts to weigh at every place is not justified because whatever was estimated was on the basis of the survey conducted in the presence of a partner of the firm and on the basis of the partner agreeing to the estimate of weight being made by the Survey party. The learned Departmental Representative submitted that there was no basis in the observation of the learned CIT (Appeals) that no discrepancy at the end of the year was found because the survey can be done at any time of the year and is a valid evidence. He pointed out that the IAC had taken care to issue directions in the totality of circumstances after hearing all the objections and arguments advanced on behalf of the assessee and after having provided fullest opportunity to the assessee. The learned Departmental Representative went on to argue that the suggestion of the learned CIT (Appeals) that only profits on sales of these items could have been added was not correct because the investment and profits on the investment in those stocks were outside the assessee’s books of account and hence this entire amount which was outside assessee”‘ s books of account could be added. At the same time, the learned Departmental Representative submitted that despite these observations, the learned CIT (Appeals) had deleted the entire addition and had not even sustained the profits on those sales which he himself had approved. He urged that entire addition made by the ITO should be restored.
5. The learned counsel for the assessee argued that assessee’s stocks were at 11 places within same premises but all of them were not considered by the Survey party. He pleaded that the value of Chilka and Churi was very low as compared to Dal. He submitted that there was prohibition on export of these products outside Rajasthan on account of acute drought condition and lack of fodder for the cattle in Rajasthan at that time. He submitted that in fact the weight of these commodities was taken at the time of sale. He argued that the books of account of the assessee had not been rejected. Moreover, at the end of the year there was no shortage which would mean that even if there was any shortage at the time of survey, it had been ploughed back by the end of the year and hence no additions should have been sustained.
6. We have carefully considered the arguments from both the sides and have taken into account the orders of the authorities below and the material on record. We arc unable to agree with the reasoning and the decisions of the learned CIT (Appeals). We need not mention that survey under Section 133A is only one of the two major instruments with the revenue to detect and find out the reality of the activities carried on by the asscssees. If the revenue did not have the powers of survey and the powers of search, the assessces should have been free to prepare any books of account and show any profits and the revenue should have remained helpless in verifying their correctness. It need not be mentioned that survey and search cannot be conducted every day and everywhere and at every assessee’s premises. They are conducted only occasionally and as test checks. If at the time of survey an assessee himself concedes that the stocks are short and even conies to an agreement regarding the extent of shortage, in our opinion, unless it can be established that such consent or agreement was given or arrived at under threat, coercion, undue influence, mis-representation or wrong understanding of facts or law, it would bring all efforts put in survey operations to nought if the assessees are allowed to retract from whatever they had stated or agreed to at the time of survey. In the instant case the record shows that the IAC has given sufficient time and opportunities to the assessee to explain the discrepancies and the assessee’s only argument had been, as it had been before the CIT (Appeals) so also before us that actual weighment of the stock was not done. In our opinion, if according to the assessee there was no discrepancy in the stocks and the Survey party was working out discrepancy only on the basis of estimate, it was incumbent on the assessee to have insisted for actual weighment of the stocks and for pointing out that the stocks are lying at 11 places at the same premises and not to have readily agreed to the fact that the stocks were short. Moreover, even if such an agreement was extorted under threat or coercion, the minimum that the assessee could have done was to file a petition to the higher authorities immediately swearing affidavits to that effect and offering for immediate weighment of the stocks. Nothing was done. On the other hand, as gathered from the learned counsel for the assessee during the course of hearing before us, there was acute shortage of fodder for the cattle during this period as a result of which the Rajasthan Government had imposed restrictions on movement of these commodities out of Rajasthan and within Rajasthan these commodities were selling at exorbitant rates. In these circumstances there is no wonder that the assessee should have sold Churi and Chilka outside the books of account and should have manipulated its account by the end of the year to advance the argument, which were being advanced, that there was no discrepancy at the end of the year. We do not agree with the observations of the learned CIT (Appeals) as to how the book results should be accepted if there is no discrepancy at the end of the year when in middle of the year at the time of on the spot survey substantial discrepancies were noticed and conceded by the assessee. Further we are unable to agree with his inferences when on the one hand he concedes that the “proviso to Section 145(2)” could have been applied and on the other hand says that he did not know why the ITO and IAC had not re-casted the trading account. We need not mention that according to provisions of Section 145(2) if the ITO comes to the conclusion that the books of account maintained by the assessee are not correct and complete, he has to assess the income in the manner prescribed under Section 144, which in turn provides that the ITO may assess the income to the best of his judgment, In the instant case, the leaned CIT (Appeals) has conceded that there was reasonable ground for rejecting the books of account and applying provisions of Section 145(2). Hence the logical corollary is that the Assessing Officer under the directions of the IAC under Section 144A(1) has worked out the shortages and has estimated their value on a reasonable basis and has made the impugned additions on that basis. Further in the circumstances of the case, we do not agree with the CIT (Appeals) that it could not be called a shortage in reality because the shortage was detected and confirmed at the time of on the spot survey and naturally it is more real than a shortage worked out merely on the basis of accounts book. We do not find any logic in his observation that if shortages are added then the trading account cannot be re-casted properly. In our view if shortages are added on the credit side of the trading account that would automatically increase the gross profit and there would be no difficulty in re-casting the trading account. Vice versa, by showing shortages in the stocks in the trading account the assessee has taken out the sale proceeds and the profits thereon which should have been reflected in its gross profits.
7. Taking all these facts into account, the order of the CIT (Appeals) is reversed and the additions of Rs. 1,15,737 is restored.
8. In the result, the appeal filed by the revenue is allowed.