We find in course of survey or search Loose Papers are found and these are impounded in case survey or may be seized in case of a Search. The department tends to make additions on the basis of entries found on such loose papers and its treatment becomes a matter of contention.

In this article we are analyzing some judicial decisions regarding Evidentiary Value of such Loose Papers found during Survey/Search. In most of the cases, the ITAT and Courts have insisted on requirement of Independent Corraborative Evidence to make addition in income on the basis of such loose sheets. Let us see the relevant decisions:

1. CBI v. V.C. Shukla 1998 taxmann.com 2155 (SC): Loose sheets have been ruled out as of any evidentiary value. Loose sheets cannot be accounts books of a party. Even if it is taken as an informal accounting it is not the record of the assessee. Even assuming such entries as correct and authentic they cannot without independent evidence fix a liability upon a person. In that connection the court also referred to Section 9 of the Evidence Act and observed that even if such entries are admissible under the said provisions to support an inference about correctness of the entries still such entries would not suffice without supportive independent evidence. They have no probative value in the absence of some corroborative primary evidence of the reality of such transaction shown in the noting in such loose sheets of paper. Even entries in the books of account need corroboration before acting against the third party on the basis of any entry in the books of account of a person.

Any presumption of transaction on some vague, tenuous and dubious entries in a sheet of paper is not rational and hence legal unless there is corroboration by corresponding entry in regular accounts of both the parties to the transaction.

2. CIT v. P.V. Kalyanasundaram [2007] 164 Taxman 78/294 ITR 49 (SC) [decision of the Madras High Court in CIT v. P.V. Kalyanasundaram [2006] 155 Taxman 454/282 ITR 259 affirmed]: Assessee purchased certain land at a consideration as shown in sale deed executed. During a search operation, certain notes on loose sheets allegedly written by assessee were found and seized. When confronted, assessee contended that he could not remember as to why said nothings had been made but vendor admitted in his statements that he received substantial cash amount over and above sale deed amount. Though said statements were subsequently retracted by vendor, the A.O. adopted said enhanced figure admitted by vendor as actual sale consideration for purpose of assessment and made addition of difference as assessee’s undisclosed income. The CIT (Appeals) deleted addition on ground that vendor’s contradictory statements could not be relied upon. The Tribunal affirmed the decision of the CIT (Appeals) and the High Court dismissed revenue’s appeal in limine on premise that no substantial questions of law were raised by revenue.

On appeal by the Department before the Supreme Court, it was held, that the fact as to actual sale price of property, implication of contradictory statements made by the vendor or whether reliance could be placed on the loose sheets recovered in the course of the raid, were all questions of fact, and there was no infirmity in the order of High Court.

3. State Of Andhra Pradesh v. Cheemalapati Ganeswara Rao AIR 1963 SC 1850: Held that absence of corresponding entry in the account of the opposite party precludes the alleged transaction. [It is not the case of the AO that there is corresponding entry in the assessee’s account supplying corroboration].

4. Mahasay Ganesh Prasad Ray v. Narendra Nath Sen AIR 1953 SC 431: Loose papers seized could not be regarded as accounts within the meaning of section 90 of the Evidence Act. [Referred in Addl. ITO v. T. Mudduveerappa Sons [1993] 45 ITD 12 (Bang.)]

5. S.P. Gramophone Co. v. CIT [1986] 24 Taxman 507/158 ITR 313 (SC): Held that an unsigned paper containing allocation of profits amongst the partners has no evidentiary value. [Referred in T. Mudduveerappa Sons (supra)]

6. Asstt. CIT v. Ravi Agricultural Industries [2009] 117 ITD 338 (Agra) (TM): In a survey u/s. 133A the revenue authorities found certain loose papers on which some numerical entries were recorded. The assessee explained that noting on the piece of paper has nothing to do with the unexplained investment made by the assessee. The A.O. made addition to the assessee’s income on the basis of loose papers without any other supportive evidence. The Commissioner (Appeals) deleted the addition. . The Hon’ble Tribunal, both the Third Member agreeing with Judicial Member, held in para 11:

“……..Now looking at the paper, it has some numerical figures but does not, in any way, show that it has some relationship with some business transactions of the assessee. The paper that was taken as a material for making the addition does not conclusively establish that it pertains to the business transaction of the firm. Now, the department is making the addition as a part of unexplained investment. What sort of investment the department has found is also not clear from the assessment order. The addition, in sum and substance, made by the department is clearly not supported by any material, which can point out to unexplained investment outside the books of the assessee. …”

Similar view was taken in ITO v. Smt. Pratibha Goyal [2011] 14 taxmann.com 50/132 ITD 517 (Jp.): wherein reference was made to Mumbai Bench of the Tribunal in the case of Universal Impex v. ITO [IT Appeal No. 444 (Mum.) of 2007, dated 7-5-2009] held that addition made on the basis of statement of one of the partners and entries recorded in the diary cannot be upheld solely on the strength of the statement without any supporting material. The onus was on the AO to collect supporting material and since the AO has not discharged his onus, therefore, the addition was deleted.

7. S.P. Goyal v. Dy. CIT [2002] 82 ITD 85 (Mum.) (TM): The Tribunal has held that:

“. . . loose papers cannot be termed as books of an assessee maintained for any previous year. Loose sheet of paper torn out of a diary could not be construed as books for the purpose of section 68. Addition could not be made simply on the basis of certain nothings on loose sheets of a diary without any corroborative evidence in the form of extra cash, jewellery or investment outside the books. The loose papers appear to be part of a 1992 diary. However, these loose papers consist of pages torn out from March, April, November and December. There is no closing balances or opening balances and there is no reconciliation of these entries. Therefore, it cannot be termed as books maintained by the assessee during the previous year. . . . The loose paper in itself has got no intrinsic value. …When it is a mere entry on a loose sheet of paper and if the assessee claims that it was only a planning, not supported by actual cash, then there has to be circumstantial evidences to support that this entry really represent cash of Rs. 60 lakhs. There is no such evidence found by the Revenue in the form of extra cash, jewellery or investment outside the books.”

8. CIT v. Maulikkumar K. Shah [2008] 307 ITR 137 (Guj.): The decision of Commissioner of Income-tax (Appeals) and the Tribunal were upheld holding that no addition was justified on the basis of these loose papers. In this case, nothings in the seized diary found from the premises were the only material on the basis of which the A.O. had made the impugned additions. The A.O. had not brought any corroborative material on record to prove that such sales were made and ‘on-money’ was received by the assessee outside the books of account. The A.O. had not examined any purchaser to whom the sales of shops were effected. Onus heavily lay on the revenue to prove with corroborative evidence that the entries in the seized diary actually represented the sales made by the assessee. Such onus had not been discharged by the revenue. Mere entries in the seized material were not sufficient to prove that the assessee had indulged in such a transaction.

The inference of the A.O. that the assessee has received ‘on-money’, was merely based on suspicion and surmises and there was no material whatsoever to support the conclusion of the A.O. that the assessee had in fact received any ‘on-money’. The addition as made by the A.O. being based on mere presumptions and assumptions and without any corroborative evidence, could not be sustained.

9. Amarjit Singh Bakshi (HUF) v. Asstt. CIT [2003] 86 ITD 13 (Delhi) (TM): Held that any noting in the loose sheet is no evidence by itself. An entry in the books of account maintained in the regular course of business is relevant for purposes of considering the nature and impact of a transaction, but nothings on slips of paper or loose sheets of paper cannot fall in this category. Nothings on loose sheets of paper are required to be supported/corroborated by other evidence which may include the statement of a person, who admittedly is a party to the nothings. It was further observed in that case that the provisions of the Indian Evidence Act are not strictly applicable to the proceedings under the IT Act, but the broad principles of law of evidence do apply to such proceedings.

The entire addition in the hands of the assessee was based on the document found, but there was no iota of evidence to support the revenue’s case that a huge figure whatever be its quantum over and above the figure booked in the records and accounts changed hands between the parties.

10. CIT v. Atam Valves (P.) Ltd. [2009] 184 Taxman 6 (Punj. & Har.): The High Court dismissed the Revenue’s Appeal and held that no substantial question of law arose out of the Order of the Tribunal. In this case, a survey was conducted u/s. 133A and certain incriminating documents were found including a ‘Slip Pad’ containing payment of wages to various persons. The slips were written by Manoj Jain, an employee of the assessee, who was confronted with the slips, apart from questioning of the Director. It was held by the Tribunal that even though explanation of the assessee that the loose papers did not relate to payment of wages during the year in question may not be accepted, in absence of any other material, the loose sheets by itself were not enough to make addition as per estimate of the A.O. It was observed by the Tribunal (as quoted):-

“Now the question is regarding estimating the income on the basis of these loose slips. In our opinion, the Assessing Officer is not justified in estimating the sales on the basis of loose slips without substantiating that the assessee has actually made the sales to that extent of estimation made by the Assessing Officer and having no iota of evidence in the form of sale bills or bank account or movable and immovable property which represent earning of unaccounted income by the assessee. As such, the ld. CIT (A) to that extent is justified in holding that estimation of sales on the basis of loose slips represented payment of wages is not possible.”

11. Nagarjuna Construction Co. Ltd. v. Dy. CIT [2012] 23 taxmann.com 239/52 SOT 178 (URO) (Hyd.): Held that:

“… The basis for addition is only note book/loose slips. These note books/loose slips are unsigned documents. The Assessing Officer has not established nexus between the note book loose slips with accrual actual/receipt of interest. The note book/loose slips seized found during the course of search is a dumb document having no evidentiary value, no addition can be made in the absence of corroborative material. If there is circumstantial evidence in the form of promissory notes, loan agreement and bank entries, the addition is to be made on that basis to the extent of material available. The assessee is not expected to explain the loose papers found as there is no evidence other than note book/loose slips regarding accrual of interest. It is held no addition can be made on the basis of dumb documents/note book/loose slips in the absence of any other material to show that the assessee has carried on money lending business. Nothing on the note book/diary/loose sheets are required to be supported/corroborated by other evidence and are also include the statement of a person who admittedly is a party to the noting and statement from all the persons whose names there on the note book/loose slips and their statements to be recorded and then such statement undoubtedly should be confronted to the assessee and he has to be allowed to cross examine the parties. In the instant case, undoubtedly no statement from the parties whose names found in the note book/loose slips has been brought to the notice and as such entire addition in the hands of the assessee on the basis of uncorroborated writings in the loose papers found during the course of search is not possible.”

12. CIT v. Ravi Kumar [2008] 168 Taxman 150/[2007] 294 ITR 78 (Punj. & Har.): The assessee was found to be in possession of loose slips and not of any valuable articles or things. Neither the possession nor the ownership of any jewellery mentioned in the slips was proved. Held that, the assessee had discharged the onus by explaining that slips contained the rough calculations and it was for the revenue to prove that the same represented the transaction of sale of stock-in-hand. Further, even if the assessee had failed to explain the contents of the slips, it was for the Revenue to prove on the basis of material on record that the same represented transactions of sales or stock-in-hand before making any addition on this score. The assessee had duly explained that these were rough calculations and the assessee’s explanation has not been rebutted by any material evidence.

13. T.S. Venkatesan v. Asstt. CIT [2000] 74 ITD 298 (Cal.): Held that in the absence of corroborative evidence, addition of undisclosed income could not be made simply on the basis of entries on loose papers recovered from the residence of a third party and certain general statements of said party.

14. T. Mudduveerappa Sons (supra): In absence of any external evidence, addition cannot be resorted to only on the basis of loose papers. The department had not brought on record any evidence to prove conclusively that the seized documents contained details of secreted profits which were chargeable to tax. No doubt, the seized papers contained statement in figures of what appeared to be the financial results of certain unnamed transactions but there was nothing either in law or in logic to warrant the conclusion that the figures denoted secreted profits which were chargeable to tax. The details of distribution contained in the seized papers did not by themselves present a preponderance of probabilities so as to support department’s case that what was distributed was taxable income.

15. Smt. Bommana Swarna Rekha v. Asstt. CIT [2005] 147 Taxman 59 (Mag.) (Vishakhapatnam): During search, a piece of paper was seized which was without any name, date or signature. The A.O. treated part of transaction mentioned in the loose paper as relating to the assessee and made certain addition in her hands as unexplained expenditure. It was held that the onus was on the Assessing Officer to prove that transaction as stated in the said loose paper. The loose paper found and seized had to be read in toto. It could not be read as partly belonging to the husband of the assessee and partly belonging to the assessee. Since the A.O. did not bring any cogent evidence or material on record which might prove that the part of transaction stated in paper, representing transactions was entered by the assessee during the period of block assessment, the addition was deleted.

16. CIT v. C.L. Khatri [2005] 147 Taxman 652/[2006] 282 ITR 97 (MP): On the basis of loose slip not bearing any date and also not stating as to which period they related, no estimate of household expenses could be made for a particular year. In the absence of any other evidence, the estimate of household expenses in a particular year with reference to income of later year or future year was arbitrary and illogical. The Tribunal was held to be justified in deleting the additions.

17. Prashant S. Shah 188 ITR (Statutes) 83: The Gujarat High Court had rejected a reference application filed by the Department seeking a reference on the question whether an unsigned valuation report seized by the Department could form the basis for making additions to the capital gains returned by the assessee, and the Supreme Court dismissed the Department’s Special Leave Petition. [Referred in T. Mudduveerappa Sons (supra)]

18. D.A. Patel v. Dy. CIT [2000] 72 ITD 340 (Mum.): There was no evidence connecting the appellant to this seized paper. Simply because a sheet of paper was found during the search at the premises of an assessee, he could not be saddled with a tax liability unless it could conceivably be related to the assessee in some reasonable manner.

Similar view taken in Prarthana Construction (P.) Ltd. v. Dy. CIT [2001] 118 Taxman 112 (Mag.) (Ahd.).

19. Atul Kumar Jain v. Dy. CIT [1999] 64 TTJ (Delhi) 786: Presumption u/s. 132(4A) requires independent corroborative evidence. The Tribunal held that the seized paper being not corroborated by any independent evidence cannot be considered as a document in proof of investment in house property, and, accordingly, this paper is liable to be ignored. Held that:

“6.6 If we consider the said piece of paper seized during search, in light of the definition of the word “document” as given in the Indian Evidence Act and General Clauses Act and truthfulness of the contents thereof in light of the aforecited decisions of the Hon’ble Supreme Court, we find that the said paper contains jottings of certain figures by the same does not describe or express the substance of any transaction and even if the said paper has been seized from the possession of the assessee the contents thereof are not capable of describing the transactions the way the Assessing Officer has deciphered them without support of corroborative evidence of the parties attributed to the alleged transaction. The said paper, therefore, does not come within the compass of the definition of the word “document” to be used as an evidence. The paper seized, therefore, has no evidentiary value and accordingly the same cannot form the basis for assessing the undisclosed income.”

20. Devilal Gherilal Shah v. Dy. CIT [1995] 52 TTJ (Ahd.) 618: The Tribunal held that no date or name is mentioned on the seized paper. In such a case, it is very difficult to say that the assessee purchased gold ornaments and, therefore, he should be assessed in respect of the amount mentioned therein as unexplained investment made by him. In the absence of cogent evidence on record, the addition could not be sustained.

21. J.R.C. Bhandari v. Asstt. CIT [2003] 133 Taxman 44 (Mag.) (Jd.): It was observed that in the absence of any iota of evidence on record to fasten the liability on the assessee in respect of receipt of the amounts mentioned in the entry noted on a loose sheet which was found in the possession of a third person whose statement was also not on record, addition in the hands of the assessee on the basis of said loose sheets was not legally sustainable. This view was also supported by the decision in the case of Niranjan Kumar Agarwal [IT Appeal No. 658/C/98/Kol.].

22. Satnam Singh Chhabra v. Dy. CIT [2002] 74 TTJ (Lucknow) 976: It was held that, “Loose paper found during the search of the assessee’s premises on the letter-pad of a third party with some nothings in unidentified hand writing had no evidentiary value and no addition could be made on the basis of said paper as the contents of the documents could not be linked or correlated with the assessee.”

23. Monga Metals (P.) Ltd. v. Asstt. CIT [2000] 111 Taxman 175 (Mag.) (All.): It was held that it was Revenue’s onus first to prove that the arithmetical figure appearing on loose papers were receipts, were in the nature of sale of ingots and amounted to undisclosed income in the assessee’s hands. [As referred in Satnam Singh Chhabra v. Dy. CIT [2002] 74 TTJ (Luck.) 976]

24. Dy. CIT v. Karodilal Agrawal [1994] 50 TTJ (Jab.) 393: Held that the jottings in diary neither represented books of account nor any document and, therefore, presumption u/s. 132(4A) was not available and addition made on the basis of jottings was deleted.

25. Ashwini Kumar v. ITO 39 ITD 183 (Delhi): Held, In the case of dumb document, revenue should collect necessary evidence to prove that the figures represent incomes earned by the assessee.

26. JCIT v. West Bengal Trading Agency, IT (SS) No. 49(Cal.) of 2001: Held, there has to be direct or circumstantial material to establish that the intention expressed in the seized document/books has actually been implemented (vide para 8).

27. Kantilal & Bros. v. Asstt. CIT [1995] 52 ITD 412 (Pun): Held, a piece of paper impounded at the time of search cannot be construed to be a book. So, addition cannot be made u/s. 68 based on such documents.

28. P.R. Patel v. Dy. CIT [2001] 78 ITD 51 (Bom.): It was held that No addition can be made on the basis of seized documents which do not bear the name of assessee.

29. CIT v. Dhingra Metal Works [2011] 9 taxmann.com 83/196 Taxman 488/[2010] 328 ITR 384 (Delhi): It was held that though an admission is extremely important piece of evidence, it cannot be said to be conclusive and it is open to the person, who has made the admission, to show that it is incorrect. It was held that, since in the instant case, the assessee had been able to explain the discrepancy in the stock found during the course of survey by production of relevant record including the excise register of its associate company, the A.O. could not have made the aforesaid addition solely on the basis of the statement made on behalf of the assessee during the course of survey.

From a reading of section 133A, it is apparent that it does not mandate that any statement recorded u/s. 133A would have an evidentiary value. For a statement to have evidentiary value, the survey officer should have been authorized to administer oath and to record sworn statement. This would also be apparent from section 132(4). It is apparent that while sec. 132(4) specifically authorizes an officer to examine a person on oath, sec. 133A does not permit the same. Moreover, the word ‘may’ used in sec. 133A(iii) clarifies beyond doubt that the material collected and the statement recorded during the survey are not conclusive piece of evidence by themselves.

32. Ravi Agricultural Industries (supra): During Survey u/s. 133A, the revenue authorities found certain loose papers on which some numerical entries were recorded. At the time of survey, one of the partners of the firm agreed to surrender the amount mentioned in loose papers as an unexplained investment. Subsequently, the said partner retracted from the statement made. The Assessing Officer made addition to the assessee’s income on the basis of loose papers without any other supportive evidence. The Commissioner (Appeals) deleted the addition. The Tribunal held that when partner had retracted from his statement, the impugned addition made by the A.O. should have been supported by enough material in the possession of the Department. The Tribunal upheld the order of the Commissioner (Appeals) and the decision was rendered in favour of the assessee.

33. Pradeep Kr. Agarwal’s case; IT(SS) No. 130/Kol/05, Order dated 28.09.2006: Facts: A search & seizure operation was carried out on the assessee who was a practicing CA. He admitted in his deposition u/s. 132(4) that he was engaged in Jama Kharchi transactions and has earned income of Rs. 5,40,917/- at the rate 0.5%. According to A.O., the rate is not below 5%. Accordingly, addition of Rs. 54,09,174/- was made CIT (A) reduced it to 0.5%.

Held that the contention of the revenue authorities that the assessee is engaged in jama kharch transactions and earned commission therein is merely based on the statement made by the assessee before the revenue authorities. The revenue failed to produce even before the ITAT any material in support of their allegation that the assessee was engaged in any such transactions. Courts have held that some corroboration is required before holding a person guilty on the basis of his confessional statement. In Pullangode Rubber Producer Co. Ltd.’s case (supra), Hon’ble Supreme Court held that an admission is an important piece of evidence but it is not conclusive. In the case of Sarwan Singh Rattan Singh (supra), Hon’ble Supreme Court held that it must be established that a confession is voluntary and also that it is true. For the purpose of establishing its truth, it is necessary to examine the confession and compare it with the rest of the prosecution evidence and the probabilities of the case.

34. ITO v. Ravi Daga [IT(SS) No. 43/K/04, order dated 28.03.2005] Facts: Search and Seizure operation was carried out u/s. 132 of the I.T. Act on 4.2.1999 in the residential premises of the assessee at Raipur. On the basis of a statement u/s. 132(4) taken by the Assessing Officer on 04.02.1999, the assessee was asked to explain as to why a sum of Rs. 15 lakhs could not be treated as his undisclosed income in respect of undisclosed investment at farmhouse at Raipur and gift taken in earlier years on the basis of the statement. The assessee submitted that it had retracted his earlier statement by swearing an affidavit on 11.02.1999 and furnishing the same on 12.02.1999 before the ADIT, Raipur.

ITAT Kolkata Held- On our careful perusal of the facts and the law, we are inclined to hold that the A.O. did not have any material to suggest investment in the farmhouse in accordance with the valuation got conducted by the ADIT, Raipur. There was no basis in the hands of the A.O. to compute the undisclosed income in the hands of the assessee and his son merely on the basis of a statement recorded u/s. 132(4). The statement recorded u/s. 132(4) did not have any evidentiary value and no incriminating documents were found. The A.O. was precluded from estimating the undisclosed income represented by unexplained investment in the farmhouse.

35. Atam Valves (P.) Ltd. (supra): It was held that loose sheets by themself may not be enough to justify addition on estimated basis even though the explanation of the assessee is found unbelievable and circumstances may be pointing otherwise. The stand of the assessee in this case was that the loose slips recording wage payment did not represent payment of wages during the year in question, but were for the earlier year. The A.O. did not accept the explanation and made an addition without bringing any other material on record and this precisely worked against the revenue. Retraction cannot be confronted by loose papers found in premises without any other supportive evidence.

36. CBDT Instruction dated 10.03.2003 referred in Kantilal Prabhudas Patel v. Dy. CIT [2005] 93 ITD 117 (Ind.): Merely surrender/confession on the part of assessee cannot absolve the department from its duty to collect evidences. There should be independent evidence of income.

37. Pullangode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18 (SC): The Supreme Court held that an admission is an extremely important piece of evidence though it is not conclusive and that it was open to the person to make an attempt to show that it was incorrect.

38. Nagubai Armal v. Shama Rao AIR 1956 SC 100: It was held that ‘An admission is not conclusive as to the truth of the matters stated therein. It is only a piece of evidence, the weight to be attached to which must be depend on the circumstances under which it is made. It can be shown to be erroneous or untrue’.

39. Sarwan Singh Rattan Singh v. State of Punjab AIR 1957 SC 637: It was held that “Courts require some corroboration to the confessional statement before convicting an accused person on such a statement. What amount of corroboration would be necessary in such a case would always be a question of fact to be determined in the light of circumstances of the case.”

40. CIT v. Mrs. Devi S. Luis [1974] 96 ITR 646 (Ker.): It was held that inspite of admission it is incumbent on the department to establish by relevant proof that amount in question was income in hand of the assessee. It was for the department to prove positively on the basis of other material that there was concealment of income.

41. View that merely on the basis of entries in loose sheets there cannot be an addition, has also been taken by various Benches of the Hon’ble Tribunal in the following cases:

i. S.K. Gupta v. Dy. CIT [1999] 63 TTJ 532 (Delhi)
ii. Shri Ram Bhagwandas Raheja v. Asstt. CIT [ITA (S&S) No. 118/Mum/1996, Bench “B”, Order dated 23rd September, 1998]
iii. Ashwini Kumar v. ITO [1991] 39 ITD 183 (Delhi)
iv. Kishenchand Shobhrajmal v. Asst. CIT [1992] 41 ITD 97 (JP.)

Differences in stock:

42. Chawla Brothers (P.) Ltd. v. Asst. CIT [2010] 6 taxmann.com 22/[2011] 43 SOT 651 (Mum.): Held that:

“… we find that the Assessing Officer has not rejected books of account. On perusal of record, we find from tax audit report, Form 3CD that the assessee was maintaining regular books of account including main cash book for factory, bank book, purchase register, sale register, expenses register, travel book, ledger, stock record, debit note register, credit note register and sale returned register. …. During the courses of survey no material found which show that the assessee has sold goods out of books of account. The Assessing Officer made addition as some differences were found in stock at the time of survey. It cannot be the matter of arguments that such differences itself represents the income of the assessee unless it is correlated how this difference of raw material and finished stock became the income of the assessee. The assessee furnished the explanation and necessary reconciliation from time to time before the Assessing Officer and the CIT (A). A detailed reconciliation submitted to Assessing Officer vide assessee’s letter dated 26-11-2008, which has been reproduced above in Para No. 4.8 of this order. A perusal of reconciliation furnished by the assessee, we notice that quantity of crude palm kernel oil tank Nos. 8 and 11 was wrongly mentioned as 1997.080 MT instead of 996.891 MT. … In other words it can be said that the Assessing Officer and CIT (A) have not considered the recompilation given by the assessee and if they had considered, it there are no adverse nothings noted by them regarding assessee’s explanation and reconciliation. If the revenue authorities failed to consider or considered and not pointed out any adverse remarks or finding otherwise, the addition cannot be sustained. As regards Assessing Officer’s observation that difference of stock found at the time of survey was the final finding, in this regards we may state that facts noted at the time of survey, these may be valuable information for the Assessing Officer to reject the accounts. The appraisal report of survey team is of assistance in making final assessment but that itself cannot become a final assessment. Such report and facts collected at the time of survey are always subject to explanation and reconciliation by the assessee which can be explained either at the time of survey or after the survey before the Assessing Officer at the time of assessment. Survey is not intended to be a substitute for assessment. We, therefore, do not agree with view of revenue that the differences in stock pointed out in appraisal report of the survey party are final for assessment for the Assessing Officer; this contention of the revenue is rejected.”

Survey permitted only during business hours in view of sec. 133A(2):

43. N.K. Mohnot v. Dy. CIT [1995] 83 Taxman 238/215 ITR 275 (Mad.): The object of conducting a survey was to secure information. The section does not require prior notice of the survey being given to the affected person, in order to prevent the possibility of relevant materials whether it be accounts, documents, negotiable instruments or cash or other valuables, being removed from the place at which the business or profession is carried on. The section, therefore, advisedly provides that the authority may ‘enter’ only during business hours. After such entry, no further limitation is imposed by the section regarding the period for which he may remain in that premises.

Statements recorded on Oath during Survey do not have any evidentiary value:

44. CIT v. S. Khader Khan Son [2012] 25 taxmann.com 413 (SC): Section 133A does not empower any ITO to examine any person on oath; so statement recorded under section 133A has no evidentiary value and any admission made during such statement cannot be made basis of addition. [Decision of Madras High Court in CIT v. S. Khadar Khan Son [2008] 300 ITR 157 (Mad.) affirmed]

45. Unitex Products Ltd. v. ITO [2008] 22 SOT 429 (Mum.): For negating the assessee’s claim of depreciation, the lower authorities were harping solely on the statement given by R in the survey carried out u/s. 133A on 24-8-2000. Apart from this statement, they had not brought anything on record for negating the claim of the assessee with regard to depreciation. During the course of survey, the officer could record the statement of a person u/s. 133A(3)(iii). This sub-section authorises the authority to record the statement of any person which may be useful for or relevant to any proceedings under the Act. However, the officer is not authorized to record the statement on oath and, hence, statement taken during the course of survey has no evidentiary value. It is simply an information which can be used for corroboration purpose for deciding any issue in favour or against the assessee. [Paul Mathews & Sons v. CIT [2003] 129 Taxman 416/263 ITR 101 (Ker.) relied upon]