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Income Tax Appellate Tribunal, IN THE INCOME TAX APPELLATE TRIBUNAL,
Before: MANISH BORAD & MANISH BORAD & MANISH BORAD
IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE S/ S/SHRI CHANDRA MOHAN GARG, JUDICIAL JUDICIAL MEMBER AND MANISH BORAD, ACCOUNTANT MEMBER AND MANISH BORAD, ACCOUNTANT MEMBER AND MANISH BORAD, ACCOUNTANT MEMBER ITA No.249/CTK/2017 Assessment Year : 2012-13 DCIT, Corporate Circle DCIT, Corporate Circle -1(1), Vs. M/s. Magnum Dream Homes Pvt M/s. Magnum Dream Homes Pvt Bhubaneswar Bhubaneswar Ltd., 132-A, Sector A, Sector-A, Zone-A, Mancheswar Industrial Estate, Mancheswar Industrial Estate, Bhubaneswar. Bhubaneswar. PAN/GIR No. No.AADCM 2929 A (Appellant (Appellant) .. ( Respondent Respondent) C.O.No.20/CTK/2021 (arising out of ITA No.249/CTK/2017) out of ITA No.249/CTK/2017) Assessment year: 2012-13 13 M/s. Magnum Dream Homes Pvt M/s. Magnum Dream Homes Pvt Vs. DCIT, Corporate Circle DCIT, Corporate Circle -1(1), Ltd., 132-A, Sector A, Sector-A, Zone-A, Bhubaneswar Bhubaneswar Mancheswar Industrial Estate, Mancheswar Industrial Estate, Bhubaneswar. Bhubaneswar. PAN/GIR No. PAN/GIR No.AADCM 2929 A (Appellant (Appellant) .. ( Respondent Respondent) Assessee/cross objector by : Shri J.M.Patnaik J.M.Patnaik , AR Revenue by : Shri M.K.Gautam, CIT (DR) Date of Hearing : 26 /10/ 20 / 2021 Date of Pronouncement : 23 /12 12/2021 O R D E R Per Bench This is an appeal filed by the This is an appeal filed by the revenue and cross objection of the revenue and cross objection of the assessee against the order of the CIT(A),1, Bhubaneswar assessee against the order of the CIT(A),1, Bhubaneswar assessee against the order of the CIT(A),1, Bhubaneswar dated 7.3.2017 for the assessment year for the assessment year 2012-13.
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The revenue is aggrieved by the decision of ld CIT(A) in deleting the addition of Rs.3,82,00,000/- on account of unsecured loan, expenses and bogus work in progress based on the statement of one of the Director at the time of survey.
Facts of the case are that the assessee derives income from real estate business. A survey action u/s.133A of the Income tax Act, 1961 was conducted in the case of the assessee on 21.3.2012. During the survey operation, certain discrepancies were found and Shri Biraja Prasad Acharya. Director accepted the discrepancies and offered the amount of Rs.3.82 crores for taxation and also on the above amount agreed to pay tax of Rs.1.3 crores. When this fact was confronted to the assessee, the assessee retracted from the statement given by Shri Biraja Prasad Acharya, Director. Even the director Shri Biraja Prasad Acharya who has signed the statement has stated that he could not make out what the survey party were meaning and asking for about some figures, as all the details are available in the books of account as well as vouchers and statement was given under pressure. However, the above explanation of the assessee and the Director was not acceptable to the AO, who based on the statement of the Director, Biraja Prasad Acharya, held that the assessee has suppressed its income by way of manipulating its books and added Rs.3,82,00,000/- (unsecured loan of Rs.30,00,000 + Bogus project expenses of Rs.1,00,00,000/-+ bogus work in progress of Rs.2,52,00,000/-) to the income of the assessee.
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In first appeal, the addition made by the AO was deleted. Hence, the revenue has filed appeal before the Tribunal.
Ld CIT DR supporting the assessment order submitted that during the survey proceedings, one of the partners has admitted in his statement of suppressed sales of 3,82,00,000/- and agreed to pay tax of Rs.1.3 crores. However, the statement given by the assessee during the course of assessment proceedings is an afterthought. He submitted that the partner of the firm is not man of means but is a director of the company having depth of knowledge in accounting as well as administrative matters. Even otherwise, no prudent man can admit a false and biased statement before the survey team causing financial loss to the company. Hence, the retraction given by the assessee during the course of assessment proceedings is an afterthought, which is not correctly appreciated by the ld CIT(A) in deleting the addition. He, therefore, urged to reverse the order of the ld CIT(A) and that of the assessment order be upheld.
Ld CIT DR relied on the decision of Hon’ble P&H High Court in the case of Bachittar Singh vs CIT, 328 ITR 400 (P&H), wherein, it is stated that assessee can retract his statement but that should be at earliest opportunity, where addition was made on basis of assessee’s statement recorded during the course of survey offering certain explained investment to tax but after a gap of two months, he retracted from said investment by taking a stand that he had agricultural income and investment was from P a g e 3 | 10
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that source but he did not product any other authentic contemporaneous evidence of agricultural income, addition made could not be set aside.
Ld CIT DR also relied on the decision of Hon’ble Delhi High Court in the case of Raj Hans Towers Pvt Ltd., (2015) 56 taxmann.com 67 (Delhi), wherein also, during survey, a director of assessee company made a statement about materials and undisclosed income but later on before the AO, the assessee alleged that surrendered amounts were not voluntary and bonafide and in absence of any evidence or material in relation to surrender, surrender made during survey was also retracted. The Hon’ble High Court has decided the issue in favour of the revenue.
Ld CIT DR also relied on the decision of Hon’ble Bombay High Court in the case of M/s. Pebble Investment and Finance vs ITO in ITA No.988 of 2014 dated 17.1.2017 which is covered against the assessee. He submitted that the SLP filed by the assessee against the decision of Hon’ble High Court has been dismissed by the Hon’ble Supreme Court vide order dated 5.7.2017.
Replying to above, ld A.R. supported the impugned order and further submitted that at the time of survey, the profit and loss account statement was not completed and the same was in the process of reconciliation and cross checking. The above fact was explained before the survey team but they were not ready to listen anything and recorded the statement of one of
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the partner forcibly. The disallowance of purchase expenses is not based on any documents and explanation. He submitted that the statement given by the partner is not based on valid documentary evidence. Ld AR submitted that a disclosure statement or addition which is not relied on corroborative evidences cannot be a basis to make an addition in the assessment. For this proposition, he relied on the CBDT Instruction No.F.No.286/2/2003-IT(Inv.II) dt 10.3.2003
We have heard the rival submissions and perused the record of the case. We find that the ld CIT(A) after a detailed discussion and proper appreciation of facts has deleted the addition, inter alia, by observing as under:
“ I have considered the matter carefully and gone through the written submissions of the assessee vis-a-vis the-facts on record. It is evident from the assessment order that the addition is entirely based on the statement recorded at the time of survey u/s.133A in the premises of the assessee on 21.3.2012. In the course of survey operation, statement was recorded from one of the directors of the asses company Sri Bibhuti Bhusan Mishra. Sri Mishra was asked a question by the authorized officer to explain the following: 1) Unsecured loans amounting to Rs.30,00,000/- found in accounts having no details. 2) Project expenses of Rs.1,00,00,000/- which cannot be substantiated by bills and vouchers. 3) Work in progress which includes an extra amount of Rs.2,52,00,000/- found in the note shown in the balance sheet. Sri Mishra in reply to the above question stated that he accepted the discrepancy and offered an amount of Rs.3,82,00,000/- for taxation as total income. However, in the return of income filed for the AY 2012-13, the total income was offered at Rs.1,46,50,820/-. In the course of assessment, the AO examined the books of account and bills/vouchers and perhaps did not find any discrepancy either in the receipts disclosed or the expense
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claimed. This is evident from the assessment order in which there is no mentioned about any discrepancies observed in the accounts. However, he referred to the statement of Shri B.P,.Acharya, director and concluded that the assessee had suppressed income by way of manipulating its books and hence addition of Rs.3,82,00,000/- was to be made under the same 3 heads as per disclosure statement of Shri Acharya. It is clear from the assessment order that no corroborative evidences were there in possession of the AO to make the above addition. The AO has also not pointed out in the assessment order which loans are being treated as bogus or which project expenses are being treated as bogus not being supported by bills & vouchers. There is also no mentioned in the assessment order about the details of the work-in-progress which have been treated by the AO as bogus. Especially when the AO has not been able to find out any defects in the accounts and the discrepancies mentioned by him for which additions have been made are not co-related with the unsecured loans or expenses found in the books of account, the additions made clearly appear to have no basis. It is judicially settled that a disclosure statement is not sacrosanct and the assessee has the right to retract from the same. A disclosure statement or admission which is not based on corroborative evidences cannot be the basis to make an addition in the assessment. 4.1 Since in cases of search & seizure and survey operations, there is generally a tendency of the authorized officers to extract an admission or confession from the assessee about additional income, the Central Board Direct Taxes (Board) has issued an instruction in F. No.286/2/2003- IT(Inv.II) dt.10.3.2003 to all the senior supervisory officers of the Income Tax Department, the contents of which are reproduced below: "INSTRUCTION F. NO. 286/2/2003-IT (INV. II), dated 10-3-2003 Instances have come .to the notice of the Board where assessees have claimed that they have been forced to confess the undisclosed income during the course of the search & seizure and survey operations. Such confessions, if not based upon credible evidence, are later retracted by the concerned assessees while filing returns of income. In these circumstances, such confessions during the course of search & seizure and survey operations do not serve any useful purpose. It is, therefore, advised that there should be focus and concentration on collection of evidence of income which leads to information on what has not been disclosed or is not likely to be disclosed before the Income-tax Department. Similarly, while recording statement during the course of search & seizure and survey operations no attempt should be made to obtain confession as to the undisclosed income. Any action on the contrary shall be viewed adversely. Further, in respect of pending assessment proceedings also, Assessing Officers should rely upon the evidences/materials gathered during the course of search/survey operations or thereafter while framing the relevant assessment orders. "
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The Board has clearly advised in the above instruction that confessions not based on credible evidence should not be attempted at in the course of search & survey operation. The officers have also been advised by the Board not to obtain confession as to the undisclosed income while recording statement in the course of search & seizure and survey operations. The Board has further advised the AOs to rely upon the evidences/materials gathered during the survey operations while framing assessment orders.
4.2 It appears from the impugned assessment order that the AO has not followed the above instruction of the Board and has made a substantial addition in the assessment only on the basis of the confession of the director at the time of survey. 4.3 In the case of CIT v. M/s. S. Khadar Khan Son, 300 ITR 157 the Hon'ble Madras High Court had an occasion to examine the evidentiary value of a confession statement recorded u/s.l33A(3). In this case, the addition made by the AO based on a confession statement was deleted by the CIT(A) and the appeal of the Revenue against the order of the CIT(A) was dismissed by the Hon'ble ITAT. On a reference by the Revenue, the Hon'ble Madras High Court held as under: "7. From the foregoing discussion, the following principles can be culled out:- (i) An admission is extremely an important piece of evidence but it cannot be said that it is conclusive and it is open to the person who made the admission to show that it is incorrect and that the assessee should be given a proper opportunity to show that the books of accounts do not correctly disclose the correct state of facts, vide decision of the Apex Court in Pullangode Rubber Produce Co. Ltd. v. State of Kerala [(1973) 91 I.T.R. 18]; (ii) In contradistinction to the power under section 133A, section 132(4) of the Income-tax Act enables the authorised officer to examine a person on oath and any statement made by such person during such examination can also be used in evidence under the Income-tax Act. On the other hand, whatever statement is recorded under section 133A of the Income-tax Act it is not given any evidentiary value obviously for the reason that the officer is not authorised to administer oath and to take any sworn statement which alone has evidentiary value as contemplated under law, vide Paul Mathews and Sons v. Commissioner of Income-tax [(2003) 263 I.T.R. 101]; (iii) The expression "such other materials or information as are available with the Assessing Officer" contained in Section 158BB of the Income-tax Act, 1961, would include the materials gathered during the survey
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operation under Section 133A, vide Commissioner of Income-tax v. G.K.Senniappan [(2006) 284 I.T.R. 220]; (iv) The material or information found in the course of survey proceeding could not be a basis for making any addition in the block assessment, vide decision of this Court in T.C.(A) No.2620 of 2006 (between Commissioner of Income-tax v. S.Ajit Kumar); (v) Finally; the word "may" used in Section 133A (3)(iii) of the Act, viz., "record the statement of any person which may be useful for, or relevant to, any proceeding under this Act, as already extracted above, makes it clear that the materials collected and the statement recorded during the survey under Section 133A are not conclusive piece of evidence by itself. 8, For all these reasons, particularly, when the Commissioner and the Tribunal followed the circular of the Central Board of Direct Taxes dated 10.3.2003, extracted above, for arriving at the conclusion that the materials collected and the statement obtained u/s Section 133A would not automatically bind upon the assessee, we do not see any reason to interfere with the order of the Tribunal. Accordingly, finding no substantial Question of law arises for consideration, the tax case appeal stands dismissed." The above decision of the Hon'ble Madras High Court has been approved by the Hon'ble Supreme Court by way of dismissal of the SLP filed by the Revenue aagainst the same. This decision has also been followed by the Hon'ble Gujarat High Court in the case of CIT v. Shardaben K. Modi (2013) 4 TMI 777 where an addition made on the basis of confessional statement recorded at the time of survey was struck off by the ITAT. 4.4 In the case of Pullangode Rubber Produce Co. Ltd. v. State of Kerala (1973) 91 ITR 18, the Hon'ble Apex Court held that an admission is extremely an important piece of evidence but it cannot be said that it is conclusive and it is open to the person 4.5 In the light of the above discussion and since the addition of Rs.5.33 crores have been made by the AO squarely on basis of the confession statement of Sri Mishra, director and the AO has not been able to bring on record any corroborative evidences, the addition is not sustainable in the eye of law. Hence, the addition of Rs.3.82 crores is deleted.”
Ld. CIT DR could not controvert the factual findingS of the Ld.CIT(A) that the addition of Rs.3.82 crores have been made by the AO squarely on the basis of the confession statement of Shri Mishra, Director and no P a g e 8 | 10
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corroborative adverse evidence was brought on record by the AO in this regard. Therefore, the ld CIT(A) was right in granting relief to the assessee by placing reliance on the order of Hon’ble Madras High Court in the case of M/s. S.Kadar Khan Son (supra), judgment of Hon’ble Gujarat High Court in the case of Shardaben K Modi (supra) and the judgment of Hon’ble Supreme Court in the case of Pullangode Rubber Produce Co. Ltd (supra). In these judgments, it has been categorically held by Hon’ble High Courts and Hon’ble Supreme Court that the admission is extremely an important piece of evidence but it cannot be said that it is conclusive and it is open to the person who made the admission to show that it is incorrect. Therefore, the admission made on the basis of confessional recorded at the time of survey cannot be relied upon solely in absence of other corroborative materials or positive adverse evidence against the assessee.
In the result, appeal of the revenue and cross objection of the assessee are dismissed.
Order pronounced u/s. 34(4) of I.T.A.T.Rules, 1963 on 23 /12/2021.
Sd/- sd/- (Manish Borad) (Chandra Mohan Garg) ACCOUNTANT MEMBER JUDICIAL MEMBER Cuttack; Dated 23/12/2021 B.K.Parida, SPS (OS)
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Copy of the Order forwarded to : 1. The Appellant : DCIT, Corporate Circle -1(1), Bhubaneswar 2. The Assessee/cross objector: M/s. Magnum Dream Homes Pvt Ltd., 132-A, Sector-A, Zone-A, Mancheswar Industrial Estate, Bhubaneswar 3. The CIT(A)-1, Bhubaneswar 4. Pr.CIT-1, Bhubaneswar 5. DR, ITAT, Cuttack 6. Guard file. //True Copy// By order
Sr.Pvt.secretary ITAT, Cuttack
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