Statement of the person not connected with business has no evidentiary value: ITAT

The assessee Late Sh. Rakesh Kumar Jain was an individual carrying on his business activity in the trading of utensils, flat steel putta and manufacturing of utensils. The assessee filed a return of income for AY 2014-15 on declaring an income of Rs. 4,07,660 and assessee also declared stock of Rs. 88,16,413 in his audited financials.

In the course of assessment proceedings, the assessee Rakesh Kumar Jain died and the assessment order was passed in the name of Sh. Madhur Jain the son of the assessee is the legal heir. The assessment was completed u/s. 143(3) of the Act determining the income of the assessee at Rs. 27,05,510. While completing the assessment the Assessing Officer added Rs. 22,72,050 as the difference in the valuation of stock and Rs. 25,800 was disallowed on account of labour charges paid by the assessee for making furniture for his godown.

The Tribunal while deciding the main dispute regarding the valuation of stocks found in the premises of the assessee in the course of the survey, observed that there was no proper statement recorded from assessee Late Sh. Rakesh Jain at the time of survey operations. In this case, the valuation was done based on the statement of the assessee’s son Sh. Rajat Jain, who is in no way connected with the assessee’s business and has no evidentiary value and cannot be relied on to value the stocks at Rs. 230. Also, no proper statement was recorded from the assessee late Shri Rakesh Jain during survey operations. Therefore, the AO was directed to delete the addition of Rs. 22,72,050 made on account of difference in valuation of stocks including the scrap at this rate, as there was no basis for such valuation at all.

With respect to the difference between Rs. 95,459 and Rs. 68,659 amounting to Rs. 25,800 which was disallowed by the AO. It was contended by the assessee that the difference represents the labour charges paid by the assessee to carpenters for making the furniture at godown. The tribunal held that the said amount cannot be disallowed for want of bills as the AO had allowed the cost of wood and wooden materials. So, there appears to be no justification for disallowing the entire labour charges. Therefore, the disallowance was restricted to Rs. 5,000 as against initial Rs. 25,800 and the appeal were partly allowed.