DY. CIT, CENTRAL CIRCLE, VARANASI vs. SHRI ASHOK AGRAWAL, VARANASI

O R D E R Per B R Baskaran, Accountant Member:

These cross appeals are directed against the order dated 06-12-2022 passed by Ld CIT(A), Lucknow-3 and they relate to the AY 2016-17. The revenue is aggrieved by the decision of Ld CIT(A) in granting relief of Rs.3.91 crores and the assessee is aggrieved by the decision of Ld CIT(A) in confirming the addition of Rs.94.00 lakhs.

AY 2014-15 - 48,33,000 AY 2015-16 - 27,00,000 AY 2016-17 - 37,00,000 ----------------- 1,12,33,000 ============== Accordingly, the AO made net addition of Rs.4,87,67,000/- (Rs.6,00,00,000/- less Rs.1,12,33,000/-), which consisted of cash balance addition of Rs.1,05,00,000/- and other amount of Rs.3,82,67,000/-.

(a) In respect of M/s Grukripa Manufacturing P Ltd, the assessee has submitted copy of ITR and Balance Sheet as on 31.3.2015 and also copy of cashbook from 01-04-2015 to 15.03.2016. The cash balance available with this company as on the date of search was Rs.59,33,124/-. The Ld CIT(A) has rejected the claim only on the reasoning that the assessee, being one of the directors of the above said company, must be aware of the huge cash available with the company, but he did not mention about it in the preliminary statement taken from him at the time of search. We notice that the Ld CIT(A) has applied the principle of preponderance of probabilities in deciding this issue. On the contrary, the assessee has produced cash book pertaining to this company, which shows availability of cash balance as on the date of search. It is not shown to us that the said books of accounts pertaining to financial year 2015-16 were rejected. Further, we notice that this company is a ‘limited company’ and hence, its books of accounts are being audited under Companies Act. It is not the case of the tax authorities that the auditors have qualified their audit report on defects, if any, available in the books of accounts. When no defect has been pointed out by the auditors and by the tax authorities, in our considered view, it may not be correct on the part of the tax authorities to ignore them, that too without rejecting the said books of accounts of the year of search. Under these set of facts, we are of the view that the Ld CIT(A) was not correct in applying the theory of preponderance of probabilities. In the similar manner, the observation of the AO that the books of accounts are cooked up is also not correct. In our view, the observations so made by the tax authorities are based on only surmises and conjectures. Accordingly, we are of the view that the availability of cash of Rs.59.00 lakhs with M/s Grukripa Manufacturing P Ltd cannot be rejected. Accordingly, we set aside the order passed by Ld CIT(A) on this company and direct the AO to delete the addition of Rs.59.00 lakhs.

(b) In respect of M/s Gurukripa Wovensacks Pvt Ltd also, the assessee has submitted copy of ITR and Balance Sheet as on 31.3.2015 and also copy of cashbook from 01-04-2015 to 15.03.2016. The cash balance available with this company as on the date of search was Rs.6,00,000/-. In this case also, the Ld CIT(A) did not accept the availability of cash on the reasoning that the assessee, being one of the directors of the above said company must be aware of the huge cash available with the company, but he did not mention about it in the preliminary statement taken from him at the time of search. However, on the very same reasoning given by us in the case of M/s Gurukripa Manufacturing P Ltd (supra), we hold that the availability of cash with this company should have been accepted. Accordingly, we set aside the order passed by Ld CIT(A) on this company and direct the AO to delete the addition of Rs.6.00 lakhs.

(c) In respect of Shri Rammurti Agrawal and Smt Sunita Agrawal, the claim was about availability of cash balance of Rs.12,00,000/- and Rs.9,00,000/- respectively with them. The Ld CIT(A) noticed that both these persons did not show any cash balance as on 31.3.2015 in their return of income, but availability of cash was shown as on the date of search in the books of accounts. We notice that the tax authorities have rejected the books of accounts of both these persons without examining them. When the assessee has produced books of accounts, in our view, it is imperative for the tax authorities to examine them properly. The said books should have been rejected after bringing the defects therein on record. Accordingly, we are of the view that the addition pertaining to both these persons requires fresh examination at the end of AO. Accordingly, we set aside the order passed by Ld CIT(A) in respect of both these additions and restore the same to the file of AO for examining them afresh by duly considering the books of accounts and explanations of the assessee.

(d) In respect of M/s Ashok Kumar Agrawal (HUF), the claim of availability of cash was Rs.11.00 lakhs. We notice that this assessee has shown opening cash balance as on 1.4.2015 at Rs.9,86,320 and the cash balance as on the date of search at Rs.18,66,320/-. However, the Ld CIT(A) noticed that the profits from business was shown at Rs.40,000/- every fifteen days. Accordingly, he has opined that the books of accounts are cooked up one and accordingly did not accept them. In this case, there is no dispute that the opening cash balance available with this assessee was Rs.9,86,320/-. However, the Ld CIT(A) is only suspecting the business income declared by this assessee for the reason that it is received every fortnightly and the amount of receipt is identical. We notice that the Ld CIT(A) did not discuss about the nature of receipt and how it cannot be relied upon. In any case, in our view, the reasoning so given by Ld CIT(A) is very filmsy and not justified. It is not the case of Ld CIT(A) that this business income was not assessed in the hands of M/s Ashok Kumar Agrawal (HUF). When the income so declared has been accepted in the hands of the above said person, in our view, the Ld CIT(A) was not justified in rejecting the books on filmsy grounds. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the addition of Rs.11,00,000/-.

“5.5.1 Regarding remaining addition of Rs 3,95,75,210/- observation in query no 30 that the assessee has made surrender of Rs 6 crore during the statement recorded u/s 132(4), however no such income has been offered in the return filed by the assessee, it has been submitted that no incriminating documents have been found during search operation from the possession of the assessee. The statement made by the assessee during search operation for surrender of Rs. 6 crore is not corroborated by any documentary evidence. Therefore the statement given by the assessee for surrender of the income cannot be the sole basis for making addition. It has been held in the following cases that a statement made on the date of the search under difficult circumstance does not held much evidentiary value and mere confessional statement without there been any documentary proof shall not be used as evidence against the person who made the statement. (a) ITAT Ahemadabad bench in the case of Smt. Susheela Devi S Agarwal (1994) 50 ITD 524 (Ahmedabad) (b) Hon'ble ITAT Jodhpur SMC bench, in Maheshwari Industries81 TTJ 914 (ITAT Jodhpur SMC Bench) (c )Hon'ble Andhra Pradesh High Court in the case of CIT vs Shri. Ram Das Motor transport (1999) 238 ITR 177 AP

(d)Mumbai bench in the case of Deep Chand & Co. vs ACIT (1995) 51TTJ 421 (e) Hon'ble Supreme Court in the case of Pullangode Rubber produce co. Itd. Vs State of Kerala 91 ITR 18 SC 5.5.2 In view of the settled judicial precedence no addition was called for in the hands of the assessee merely on the basis of statement given u/s 132(4) of the Act without having reference to any incriminating material found during the course of search. It has been also observed that the assessee made surrender of Rs. 6 crore during the course of search but offered by the assessee's brother in whose name incriminating material was found, Hon'ble settlement commission has duly accepted the surrender of Rs. 5 crore and the tax paid thereon statement on the basis of which addition of Rs. 5 crore has been made by the AO are vague, bald and without adhoc having any nexus to incriminating material found during the search. During the search proceeding statement of the assessee was recorded u/s 132(4) of the Act. In response to question no. 30 Shri Ashok agarwal made a lumsump disclosure of Income of Rs. 5 crore for himself and on behalf of his family members, proprietary concern, companies and partnership firm comprised in the group. It was also stated that he would provide assessee wise break-up of the amount surrender for himself and on behalf of the other family members. In the disclosure no reference to any seized material on the basis of which disclosure of additional income has been made. Disclosure made does not relate to any specific assessment year. The additions made on the basis of such tentative figure and rough analysis and which was subject to modification/correction/reason has no legal sanctity and factual basis. 5.5.3 During the search proceedings nothing was found to establish that assessee was having any source of income other than reported sources. The assessing officer made an allegation without bringing on record any cogent material that assessee has earned income than other than reported sources of income. Neither could the AO bring on record any specific instances of the assessee having earned any undisclosed income or unexplained investment. 5.5.4 While passing the order the AO did not make any reference to any incriminating material but the addition was made by referee to the disclosure made in the statement recorded during search operation. There is no nexus with the seized material and the declaration made in the statement recorded during the search operation, no reference have been made to any incriminating documents found during the search operation which could be co-related to the alleged surrender of income earned by the assessee from undisclosed sources.

5.5.5 In the case declaration was not made with reference to any specific incriminating documents and was neither with reference to any undisclosed asset or income found during the course of search, it was a vague declaration made under duress. It is well settled proposition that the strict rules of evidence are not attracted in relation to income tax proceedings. In order to tax any income under the income tax act it is required to be shown that such income has accrued to the assessee or is deemed to have accrued. The income presupposes receipt ornament of fund which are revenue in nature. 5.5.6 Though admission is the best piece of evidence yet the same is not conclusive. It is well within right of the assessee to demonstrate that the same was incorrectly made and not voluntary the revenue acceptance are also required to corroborate the admission cautioned in the statement with independent statement more particularly with the incriminating material found during the course of search relating to the admission made in the statement. 5.5.7 As per section 31 of the Indian evidence act admission are not conclusive proof of the matters admitted but they may operate or estoppel under the provision of law has contained. For an admission to the effective, corroboration with third party is required. It is well settled that though statement recorded will have evidentiary value, yet such statement are not always conclusive proof, since the person making the statement can rebut and retract. 5.5.8 In the present case addition has been made on the basis of statement, assessee retracted the statement by not including it in the return filed for the impugned year. 5.5.9 In the given case in absence of any unrecorded asset found and seized the only possibility for finding any undisclosed income relating to the assessee were by way of perusal of seized document, which in fact is nil. 5.5.10 U/s 132(4A) of the Act presumption is only on the basis of books of accounts or documents or assets found in the course of search. In the absence of any cogent evidence or corroboration in support of the entries no adverse conclusion can be drawn against the assessee on mere guess and pure suspicion. It is important and vital fact in the case that nothing incriminating was found during the conduct of search pertaining to the impugned addition made. There was nothing incriminating found and seize during the course of search in relation to the adverse view taken by the AO on addition made as per the disclosure in statement recorded during the search operation. The soul basis for making addition is the statement of the assessee. The AO being the quasi-judicial authority is not competent to draw inferences in vacuums without the base of any material as has been done in this case. The AO is required to yet in a judicial manner while framing assessment order u/s 153A/143(3). The AO being quasi-judicial authority must not based his finding on no evidence. There is fundamental rule of justice and established legal proposition that there may be something more than bare suspicion to support the findings in the assessment order. The AO quasi-judicial authority cannot make addition being expedient as a matter of policy or the basis of assumed on non- existent material. 5.5.11 The Hon'ble Apex Court in the case of Pullangode Rubber Produce Co Ltd Vs. State of Kerala 91 ITR 18 (SC) held that "an admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It is open to the assessee who made the admission to show that it is incorrect." 5.5.12 Further in case of Nagubai Ammal Vs. B. Sharma Rao AIR 1956 SC 593 it has been held "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 depend on the circumstances under which it is made. It can be shown to be erroneous or untrue". 5.5.13 In the case of Krishanlal Shivchand Rai Vs. CIT 88 ITR 293 (P & H) it has been held that, "it is an established principle of law that the party is entitle to show and prove that the admission made by him probably is in fact not correct and true". 5.5.14 In the case of Rajesh Jain Vs. DCIT, ITAT Delhi Bench, reported in 100 TTJ (Del) 929/935 held that "it is to be noted that it is not possible to lead direct evidence of the use of pressure tactics. It is to be gathered from the evidence mostly circumstances. The Appellate Tribunal in para 8 of page 933 further held that "it is true that authorized officer carrying on search u/s 132 is entitled as per the statutory provision, to record statement of the person searched u/s 132(4) of the IT Act and use that statement for the purpose of assessment. All the same person carrying the search is a person possessing some authority and, therefore, the assessment wholly and exclusively based on confessional statement procured by the revenue authority then, there was no need to have elaborate provision in the statute. There was no need to use long arm of search to collect material for making assessment. Therefore, it is insisted that confessional statement should be corroborated some material to show that assessment made is true and fair. 5.5.15 Further in the case of M/s Aishwarya K. Rai Vs, DCIT reported in 105 TTJ (Mum) (TM) 825/896 held that "it is well settled that a statement u/s. 132(4) is not the last word, and if the person concerned retracts/clarifies the same subsequently on ascertainment of correct state of affairs and explains the same it can be allowed." 5.5.16 Further in the case of Shrikrishna Vs. Kurukshetra University reported in AIR 1976 SC 376 held that "any admission made in ignorance of legal rights or under duress cannot bind the maker of the admission. Mere admission cannot be bedrock or foundation of an assessment." 5.5.17 Further in the case of Pushp Vihar Vs. ACIT reported in 48 TTJ (Bom) 389 held that it cannot be concluded that what the assessee said originally was sacrosanct and the assessee is not at liberty nor it does not lie in his mouth to correct the error, originally committed by giving a different version of truth. As said by the Apex Court in the case of Shri Krishnan (supra) that any admission made in ignorance of the legal rights cannot bind the maker of the admission. It is always opened to the assessee to demonstrate the correct facts. In the absence of any other material apart from the original admission, there is nothing to support the admission. 5.5.18 Further in the case of Awad Kishore Dass AIR 1979 SC 861 held that "it is true that the evidentiary admissions are not conclusive proof of the facts admitted and may, be explained or shown to be wrong." 5.5.19 Further the Allahabad High Court in the case of CIT Vs. Radhakishan Goel reported in 278 ITR 4541460- para 11 (All) held that "It is a matter of common knowledge, which cannot be ignored that the search is being conducted with the complete team of the officers consisting of several officers with the police force. Usually telephone and all other connections are disconnected and all ingress and egress are blocked. During the course of search person is so tortured harassed and put to a mental agony that he loses his normal mental state of mind and at that stage it cannot be expected from a person to pre-empt the statement required to be given in law as a part of his defense." 5.5.20 Further in the case of Kailash Ben Manharlal Chouksi Vs. CIT reported in 220 CTR 138 1147 para 26 (Guj) held that "We are, therefore, of the view that merely on the basis of admission the assessee could not have been subjected to such additions unless and until, some corroborative evidence is found in support of such admission. We are also of the view that from the statement recorded at such odd hours cannot be considered to be a voluntary statement. If it is subsequently retracted and necessary evidence is led contrary to such admission. Hence, there is no reason not to disbelieve the retraction made by the AO and explanation duly supported by the evidence. We are, therefore, of the view that the Tribunal was not justified in making addition of Rs. 6 lakhs on the basis of statement recorded by the AO under s 132(4) of the Act. The Tribunal has committed an error in ignoring the retraction made by the assessee". 5.5.21 In a decision of Hon'ble Madras High Court in the case of CIT Vs. Smt. Jaya Lakshmi Ammal reported in (2017) 390 ITR 189 (Mad), wherein the Hon'ble Court held that "we are of the considered view that, for deciding any issue, against the assessee, the authorities under the IT Act, 1961 have to consider, as to whether there is any corroborative material evidence. If there is no corroborating documentary evidence, then statement recorded under s. 132(4) of the IT Act, 1961, alone should not be the basis, for arriving at any adverse decision against the assessee. If the authorities under the IT Act, 1961, have to be conferred with the power, to be exercised, solely on the basis of a statement, then it may lead to an arbitrary exercise of such power. An order of assessment entails civil consequences. Therefore, under Judicial review, courts have to exercise due care and caution that no man is condemned, due to erroneous or arbitrary exercise of authority conferred." The court further held that "if the assessee makes a statement under s. 132(4) of the Act, and if there are any incriminating documents found in his possession, then the case is different. On the contra, if mere statement made under s. 132(4) of the Act, without any corroborative material, has to be given credence, than it would lead to disastrous results. Considering the nature of the order of assessment, in the instant case characterised as undisclosed and on the facts and circumstances of the case, we are of the view that mere statement without there being any corroborative evidence, should not be treated as conclusive evidence against the maker of the statement." 5.5.22 The Tribunal Indore in the case of ACIT V s. Shri Yogesh Kumar Hotwani reported in 30 ITJ 353/380 (Ind-Trib) has held that no addition can be made merely based on statement u/s. 132(4) without linking to the seized books of accounts, other documents, money, bullion, jewellery or other valuable articles or things. In para 18 of the order, at page 380, the Tribunal held as under:- "We also find that disclosure was not made by the assessee hence it is not binding on him. We also rely on the decision in the case of CIT v. Chandra

Kumar Jethmal Kochar, (2015) 230 Taxman 78 (Guj). Asstt. CIT v. Kunwarjeet Finance Pvt. Limited, (2015) 61 Taxmann.com 52 (Ahm. Trib.), CIT v. Jagdish Narayan Ratan Kumar, (2015) 61 taxmann.com 173 (Raj), wherein it was held that when addition of disclosure made by the assessee in statement recorded u/s 132(4), it cannot be sustained despite retraction, when Revenue could not furnish any positive evidence in support of such addition. Therefore, we are unable to uphold the findings of the AO and inclined to agree with Ld. CIT(A) Further, the Hon'ble Rajasthan High Court in the case of Jagdish Narayan Ratan Kumar (supra) has held that statement made during search must be correlated with records, which are found and if there is no ambiguity, explanation given by the assessee should be taken into consideration before making assessment. Thus, based on these decisions, we are of the opinion that the addition made by merely based on statement u/s 132(4) without linking to the seized books of accounts, other documents, money, bullion, jeweller)" other valuable articles or things is not in sustainable in. 5.6 In this case the addition amounting to Rs 3,95,75,210/- was made on the basis of statement recorded u/s 132(4), for the sake of clarity question no 33 and 34 are reproduced here under for ready reference:

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Order pronounced in the open court on 21.11.2023