SATYA NARAYAN CHOUDHARY ,UDAIPUR vs. DCIT, CENTRAL CIRCLE-1, UDAIPUR

PER: R.C. SHARMA, AM

These are the appeals filed by the assessee against the

separate orders of the ld.CIT(A)-2, Udaipur dated 06/06/2019

and 30/09/2019 for the A.Y. 2012-13 & 2017-18 in the matter

of order passed u/s 143(3) r.w.s. 153A of the Income-tax Act,

1961 [hereinafter referred to as ‘the Act’, for short].

2 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT 2. Firstly we take ITA No. 392/Jodh/2019 for the A.Y. 2017-

18.

Rival contentions have been heard and record perused.

Facts in brief are that the assessee is engaged in the business

of real estate, earning income from business, rental income

and income from other sources. There was a search operation

against the assessee on 16/09/2016, wherein his statement

was recorded by the search party. The post search assessment was

conducted by the AO and whereby income was assessed at impugned

total income of Rs.134,47,871/ vide assessment order dated 28.12.2018.

The assessee challenged the impugned assessment order dated

28.12.2018 before the Ld. CIT(A). The ld. CIT(A) given partial relief with

regard to nature of income and upheld the addition of Rs. 4,75,000/- by

treating the same as income from undisclosed sources. Against the order

of the Ld. CIT(A), there is no appeal filed by the department, however,

against the impugned appellate order of Ld. CIT(A), the assessee is in

present appeal before us on the various grounds covering following

issues/additions:

a. Upholding the addition of Rs. 4,75,000/- in respect of income from property transaction duly declared and covered by the returned income of Rs. 118,11,569/ allegedly confirming the action of the AO treating the same as income from undisclosed source.

3 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT

b. Upholding the impugned addition of Rs. 1 Crore in respect of alleged unexplained investment in construction.

c. Rejecting the alternative contention of the assessee for levying tax u/s 115BBE while interpreting the same to be retrospective in nature for AY 2017-18 in the case of the assessee.

assessment proceedings, made the total addition of Rs. 1,18,11,569/- by

taxing the same u/s 115BBE of the Act, however, Ld. CIT(A) upheld the

addition of Rs. 4,75,000/- out of addition made Rs.1,18,11,569/ as per

assessment order. Further, an addition of Rs.1,00,00,000/ made by AO

was confirmed as unexplained investment.

income of Rs.1,18,11,569/- as income from other sources u/s 69A and

taxed it higher rate u/s 115BBE of the Act alleging the same to be

unexplained money/ undisclosed income. The Ld. CIT(A) deleted the

addition of Rs.1,13,36,569/- considering it as Business income out of

Rs.1,18,11,569/- and confirmed the addition at Rs.4,75,000/-(para

4.3.1(ii) at page 11 & 12 of the appellate order) as undisclosed income in

the nature of unexplained investment u/s 69 of the Act as against

addition made u/s 69A by the AO as per assessment order.

4 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT 5. It is clear from the record that the income of Rs.118,11,569/

duly declared in the ITR filed u/s 139 which includes Rs.475,000/ under

appeal before the Bench. However, the only dispute is with regard to

treating the same as unexplained money or unexplained investment u/s

69/69A by lower authorities and accordingly taxing the same under

special rates of income or regular business income as offered by

assessee. The provisions of Section 69 or 69A of the Act are not

applicable in the facts of the case as far as the question of income of Rs.

4,75,000/- from property transaction is concerned, which is in the nature

of nature of business income as assessee is duly engaged in the business

of real estate only. Even otherwise, the provisions of section 69 or 69A

are applicable in case of unrecorded transaction or investment, whose

nature and source is not explained. However, in the present case, the

assessee has duly explained the nature and source of the transaction as

well duly declared the same in its return of income.

assessee during assessment as well as appellate proceedings, which

establishes that there is no case of any unexplained investment, money

or income, as nature and source of the income is reflected and explained

in the ITR filed, Balance sheet and profit & loss account, itself, therefore,

question of any income from any undisclosed source does not arise.

5 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT Accordingly, we direct the A.O. to treat the income of Rs. 4.75 lacs as

income from business.

the Act It was argued by the ld. AR of the assessee that the

provisions of Section 69 are attracted when the investments made are

not recorded in the Books of Accounts and there is no explanation about

the nature and source of investments. Thus, this section presupposes the

fallacy or non- reliability of Books of Account. Therefore, the provisions of

S. 142A are applicable when the assessing officer concludes and satisfies

himself about fallacy or non-reliability of Books of Accounts. If he is

satisfied with the correctness of the Books of Accounts, there is no

reason to apply the provisions of S. 69 as AO as well as ld. CIT(A) has

not rejected the books of accounts and details of expenses incurred

towards construction produced before them, therefore section 69 is not

applicable. For this purpose, reliance was placed on the following judicial

pronouncements:

(i) Pirani vs. ACIT 250 ITR 467,

(ii) Vasanthi vs. ACIT 257 ITR 94,

(iii) Surendra Khandhar vs. ACIT 321 ITR 254 (Bom.)

(iv) Jagjit Pal Singh Anand vs. CIT 320 ITR 106 (Del.).

Recently, the ITAT, Delhi in the case of Rajendra Kumar vs. DCIT in ITA

No.1959/Del/2017 dated 27.02.2020 held that no addition is warranted

6 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT against unexplained investment under the provisions of section 69 of the

Act, IT 1961 where no evidence is available to prove that assessee made

payment beyond sale agreement.

(Inv) dated 10.03.2003, wherein the CBDT has directed that:

“Instances have come to the notice of the Board where assessee have claimed that they have been forced to confess the undisclosed income during the course of search & seizure and survey operations. Such confessions, if not based upon reliable evidence, are later retracted by the concerned assessee while filing return of income. In these circumstances, on 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 Income Tax Departments. Similarly, while 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 officer should be relied upon the evidences/ material gathered during the course of search/survey operations or thereafter while framing the relevant assessment orders.”

the Board that no addition should be made on the basis of confessions

but on the basis of evidences/ material gathered during the course of

search or thereafter. It is settled law that every officer and person

7 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT employed in the execution of the Act shall observe and follow the orders,

instructions and directions of the Board and as such benevolent circulars

are binding on the Income Tax Authorities even if it is deviating from the

provisions contained in the Act.

Hon'ble Madras High Court in the case of M. Narayanan & Bros, vs. ACIT,

Salem (2011) 13 taxmann.com 49 (Mad.) Held in this case, in the course

of assessment proceedings, assessee retracted the statement made on

day of search AO rejected the said plea and made assessment on the

basis of confessional statements given by the assessee. It was held that

though the statement rendered at the time of search may be used as

evidence in any proceedings, but that by itself cannot become the sole

material to rest the assessment, more so when the assessee sought to

withdraw the same by producing material evidence in support of such

retraction. It is always open to the person who has made the admission

to show that the statement to offer income is incorrect. That apart, the

case of the assessee also stands supported by Circular No. F. No.

286/2/2003-IT (Inv.), dated 10-3-2003 wherein CBDT has given

categorical directions to the Departmental Officers that undue emphasis

should not be placed on the recorded statements.

taxman 35 (Ahd.) it has been held by ITAT, Ahmadabad 'B' Bench that

8 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT "addition made by the Assessing Officer merely on the basis of retracted statement u/s 132(4) could not be sustained in the absence of any evidence, material or recovery of any movable or immovable assets at the time of search to corroborate the disclosure made by the assessee."

places reliance on the following judicial precedents:

1956 (SC) 9 Pangamban Kalanjoy Singh vs. State of Manipur. It is also settled law that that no assessing authority can proceed the assessment on the basis of surrender made at the time of search when corroboration through an independent source is a must which has not been done by Assessing Authority

KAILASHBEN MANHARLAL CHOKSHI V. CIT [2008] 174 TAXMAN 466 (GUJ.) “Despite the fact that the said statement was later on retracted, no evidence had been furnished by the revenue authority. Therefore, merely on the basis of admission of assessee, additions could not be made unless and until some corroborative evidence was found in support of such admission.”

[A.C.I.T. Vs. Mrs. Sushiladevi S. Agarwal 49 TTJ 663 (Ahd)] a search operation is a great infringement in the personal life of the assessee. It causes great stress, anxiety and tension and in such circumstances, it cannot be said that the statement received during search is free from all ambiguity and doubt and it is quite likely that certain vital facts may be omitted or ignored or incorrectly stated

[Palinode Rubber Produce Co. Pvt. Ltd. vs. State of Kerala (1971) 91 ITR 18 (SC)].

9 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT An admission of fact made by an assessee constitutes an important piece of evidence but it is not conclusive proof of the matter admitted. It is rebuttable and it is open to the assessee who made admission to show that it is incorrect.

[G. Morgues & Bros. Vs. C.I.T. (1973) 88 ITR 432 (SC)]. An admission made by the assessee before the Income-tax authorities is an important piece of evidence but he is entitled to show that such an admission was made out of ignorance of law or it was otherwise vitiated

[C.I.T. v. Bhanwarlal 225 ITR 870 (Raj)]. the statement made by an assessee u/s 132 (4) is not always a universal truth. The statement of the assessee should be corroborated with the facts on record and documents seized at the time of search to ascertain its reliability. The law of natural justice and fair play demands that the surrounding circumstances and other relevant factors have to be considered before making an addition solely on basis of admission.

If the assessee has stated something in his statement either out of ignorance of certain vital facts or negligence, which is contrary to the established facts of the case, he cannot be assessed to tax merely on the basis of such erroneous statement. Similarly, if the assessee produces evidences, which prove his admission to be incorrect or contrary to the facts, and such evidences remain uncontroverted, addition made in such case merely on the basis of admission of the assessee cannot be sustained. Therefore, an assessment cannot be made merely on the basis of statement u/s.132 (4), particularly by brushing aside certain uncontroverted facts.

10 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT The facts of the case of the appellant are squarely covered by the aforesaid decision of the jurisdictional High Court [C.I.T. v. Bhanwarlal 225 ITR 870 (Raj)], thus addition is legally not sustainable.

Arun Kumar Bhansali Vs DCIT (2006) 10 SOT 46 (Bang) (URO) “It is settled law that there cannot be any concession against the provision of law. Even though the assessee admitted an amount but was able to demonstrate that the income admitted was not his income or that such amount was not chargeable to tax, the same could not be brought to tax merely on admission.”

Shree Chand Soni Vs DCIT (2006) 101 TTJ (JD) 1028 “A statement recorded under section 132(4) does not tanta-mount to unearthing any incriminating evidence during course of search and, therefore, no addition can be made on that score alone.” 13. Further reliance is also placed to support the contention that no

addition can be made simply on the basis of surrender without any

cogent and valid reasons and which the assessee has subsequently

retracted. For this proposition, the reliance is placed on the following

case laws :-

Sarwan Singh Rattan Singh v/s State of Punjab (1975) AIR 1957 SC 637 Kishore Dass v/s RamGopal (1979) AIR 1979 SC 861 ACIT v/s Satya Narayan Aggarwala 255 ITR 69 KOL Ganga Saran & Sons (P) Ltd. Vs ITO (1981) 130 ITR 1 (SC), ITO Vs Nawab Mir Barkat AU Khan Bahadur (1974) 97 ITR 239 (SC)

11 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT Belief should not be arbitrary or irrational but based on relevant and material reasons.

construction activity was found during the course of search in case of the

assessee, therefore, in the absence of incriminating material found,

addition cannot be sustained merely on the basis of what has been

stated in statement recorded u/s 132(4) of the Act as the same is not

corroborated. In support of this argument the assessee places reliance

on the judgment of Hon’ble Andra Pradesh High Court in the case of

Commissioner of Income-tax-II, Hyderabad vs. Naresh Kumar Agarwal

reported at [2015] 53 taxmann.com 306 (Andhra Pradesh), wherein it

was held that:

In such a case, when the managing director or any other persons were found to be not in possession of any incriminating material, the question of examining them by the authorised officer during the course of search and recording any statement from them by invoking the powers under section132(4) does not arise. Therefore, the statement of the managing director of the assessee, recorded patently under section 132(4) of the Act, does not have any evidentiary value. This provision embedded in sub-section (4) is obviously based on the well established rule of evidence that mere confessional statement without there being any documentary proof shall not be used in evidence against the person who made such statement. The finding of the Tribunal was based on the above well settled principle.

12 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT The ld. AR further argued that it is evident from the facts/documents

available on the record, that there had been no piece of evidence found

during the course of search relating to any undisclosed activity or source

of income. The declaration made in the statement has not been proved

correct by the AO by putting forth any corroborative evidence. Thus, the

said declaration of alleged undisclosed income by the assessee without

any credible evidence found during the course of search cannot be relied

upon and making additions merely on the basis of the same is legally and

factually incorrect.

judgment of the Hon’ble ITAT Jaipur delivered on 12.04.2018 in case of

Satish Chandra Agarwal by Appeal ITA No. 311/JP/2015. Relevant Para 7

is reproduced as under:

“7. The Bench have heard both the sides on these issues. We have also gone through the case laws relied upon. The Hon'ble Supreme Court in the case of CIT Vs. S. Khader Khan Son cited (supra) has held that an admission is an extremely 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 account do not correctly disclose the correct state of facts. In this case, the assessee made statement during the survey and surrendered Rs.60,09,418/- on account of excess cash, Rs. 8,04,155/- unaccounted debtors, Rs. 13,62,000/- excess stock, Rs. 28,43,409/- and on account of advance of Rs. 10.00 lacs to Shri Pawan Kumar. The assessee has

13 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT not disclosed these amounts in the return of income and retracted from statement. In such a situation, it is the duty of the Assessing Officer to investigate the issues further and establish on each and every issue on which the surrender was made to establish the correctness of undisclosed amount by making further enquiries. The A.O. has failed to do so. He has simply made the addition on the basis of statement made during the survey which assessee had not honoured. The Hon’ble Kerala High Court in the case of Paul Mathews & Sons (supra) has also held that Section 133A(3)(iii) enable the authority to record the statement of any person which may be useful for, or relevant to, any proceeding under the Act. Section 133A, however, enables the income tax authority only to record any statement of any person which may be useful, but does not authorize taking any sworn statement. Thus, it is trite law that Section 133A does not empower any Income tax authority to examine any person on oath and then use it as evidence to make addition. In such a situation, no addition can be made or sustained only on the basis of the statement recorded during the survey U/s 133A of the Act. Once the assessee has retracted from the statement then itwas on the A.O. to establish beyond any doubt the issues on which the addition has been made. Once the assessee has submitted up to date cash book and stock register then it was duty of the Assessing Officer to pin point the defects in such books of account particularly with regard to the issues, on which the statement was recorded during the survey. Further in the case of Shri Pawan Kumar, even the Assessing Officer recorded his statement but he has not asked any question with regard to amount of advance of Rs. 10.00 lacs for which the addition has been made only on the basis of a piece of paper, which was not signed by Shri Pawan Kumar. Similarly in the case of debtors, once the assessee has retracted then it was the duty of the Assessing Officer to examine these debtors to establish the truthfulness of the debt. The ld DR has relied on the decision of

14 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT Hon’ble Bombay High Court in the case of Dr. Dinesh Jain Vs. ITO (Supra) and decisions of Hon’ble RajasthanHigh Court in the case of Rameshwar Lal Mali Vs CIT (supra), we have considered the facts and law involved in these cases and we find that the facts are at variation from these cases, therefore, the ratio laid down in these cases are not applicable to the assessee’s case. Considering all these aspects, we find no merit in sustaining the addition only based on the statement recorded during the course of survey. Hence grounds No. 1 to 5 of the appeal are allowed.

bench in the following cases to support the contentions raised herein

above :

R.K. Synthetics vs. Income-tax Officer[2004] 3 SOT 268 (JODH.) The assessee had been maintaining complete financial and quantitative records at all stages of production and no specific defects had been pointed out by the authorities below. The Commissioner (Appeals) had categorically mentioned that the Assessing Officer had not pointed out any defects in the books of account nor brought any on record and that the Assessing Officer was not justified in rejecting the books of account against which the department had not come in second appeal. In the circumstances, the totality of the facts and circumstances did not justify additions under section 69 merely on the basis of the statement of the said partner without any further supporting evidence being on record.

Om Prakash Joshi vs. Income-tax Officer [2009] 34 SOT 33 (Jodhpur) (URO) since assessee had explained that stamp duty was paid by him out of advance amount as reflected in balance sheet and only accounting adjustment remained to be made, in such situation without bringing any adverse material on record, Assessing Officer was not justified in making addition

15 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT 17. With regard to A.O.’s observation at page No. 20, para

6.6. of the assessment order, it was contention of the ld AR

that the allegation of the A.O. was not correct in so far as he

alleged that the assessee failed to furnish Cash Book maintained for

construction purposes, which is contrary to fact that during assessment

proceedings, cash Book was submitted vide submission dated 20.09.2018

vide letter dated 05.09.2018 as stated in para 6.5 at page 19 of the

assessment order. Copy of the submission dated 20.09.2018 duly

acknowledged by the department is placed herewith in the Paper book

(PB Page no.98 -150). Relevant extracts from Para 6.5 at page 19 of the

assessment order at PB Page 128 & 148 in this regard is reproduced

below for ready reference:

“We also enclose herewith reconciliation statement alongwith copy of cash book after entering relevant unrecorded vouchers and cash book as on date of search 16.09.2016 separately.”

documents before the AO as stated on last page of the letter dated

05.09.2018 submitted on 20.09.2018 and the AO has not pointed out

any discrepancies therein. Thus, allegation of the AO is totally baseless.

Additionally, our attention was invited to the following documentary

evidences submitted during the course of assessment proceedings,

which negates the allegation of the AO:

16 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT a. Letter dated 06.08.2018 from assessee to ld. AO duly receipted /submitted on 23.08.2018, copy enclosed PB at 75.

b. Further Annexure 8 PB page 80 forming part of Letter dated 06.08.2018 includes copy of statement of all bank accounts duly reconciled with books of accounts alongwith nature and source of each credit entries.

The assessee has also produced all relevant books of accounts/

documents before the AO and the AO has not pointed out any

discrepancies therein.

c. Letter dated 21.11.2018 from assessee to AO and relevant para therein as at S. No. 5 to 10 enclosed at PB ---. The appellant has sought mutual set off or telescoping of estimated addition of undisclosed income and value of unexplained assets out of income offered as per seized documents.

d. Letter dated 22.11.2018 from assessee also submitted before the AO in relation to Cash short found enclosed at PB 156-165. The appellant has also produced all relevant books of accounts/ documents alongwith the letter before the AO and the AO has not pointed out any discrepancies therein.

In this connection, it is further submitted that the certified copies of the

order sheet in relation to assessment proceedings obtained from the

department reflect that the assessee has furnished all information/

documents in compliance of the assessment proceedings. Copies of the

entire order sheet / assessment proceedings are enclosed in paper book

at PB Page 218-222.

17 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT 19. It was also submitted that the Cash withdrawal from Bank

accounts used for construction activities cannot be called as undisclosed

investment in construction activities. Further cash withdrawals from Bank

were out of balance lying credit in bank account of the assessee. It is not

under dispute as AO has examined all the transactions as appearing in

the Bank statement and cash books submitted before him vide letter

dated 05.09.2018 as submitted on 20.09.2018 as referred herein above.

It was further submitted that the summary of cash on date of search

withdrawal from banks are as below :

S. No. Particulars Amount Rs. 1 Opening Balance as on 01.04.2019 3,98,390 2. Add: Withdrawals from Banks till date of search (i) State Bank of India 42,90,000 (ii) Punjab National Bank 5,00,000 (iii) Canara Bank 3,00,000 (iv) Total withdrawals from Banks (I + ii + iii) 50,90,000 3. Total of opening Balance and withdrawals 54,88,390 from Banks

In view of above, cash balance in the hand of the assessee accumulated

out of above stated withdrawals as on date of search reported at

Rs.30,71,397/ due to incomplete records cannot be called as unexplained

investment used in construction activities.

incomplete vouchers with regard to cost of construction, it

18 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT was submitted by the ld AR that there is no requirement to

maintain bills etc, in relation to construction expenses as same is not

claimed as business expenses nor depreciation claimed thereon.

However, details of the construction expenses was provided to the AO

vide letter dated 20.12.2018 (PB Pages 194-202) in compliance of the

Order sheet dated 17.12.2018. It is relevant to submit that the AO has

not pointed out any discrepancies in the details of the construction

expenses submitted before him nor asked any further clarification which

required to be provided by the assessee.

order, it was contention of the ld AR that the Ld. CIT(A) has

alleged that since the assessee has not filed any valuation report,

therefore, building account submitted is not reliable. In this respect, it is

humbly submitted that the said allegation of the Ld. CIT(A) is merely on

the basis of doubts and suspicion only, no pin pointed defects or

otherwise had been pointed in the documentary evidences submitted by

the assessee neither by AO nor by Ld. CIT(A). Therefore, this allegation

for sustaining the addition deserves to be negated. Furthermore, as

stated above, the burden to prove undisclosed investment is on the

department, therefore, question of making reference to valuation is duty

of the department and assessee cannot be blamed for the same. Rather

this basis of the Ld. CIT(A) is contrary to facts available on record as no

19 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT attempt made by AO to prove any undisclosed investment by the

assessee.

pointed out in relation to the reconciliation, rather accepted all entries,

despite this, addition has been sustained by the ld. CIT(A) arbitrarily and

contrary to its own findings.

the lower authorities and contended that the assessee in his

statement U/s 132(4), recorded during search, the assessee admitted

undisclosed income aggregating Rs. 2,18,11,563/- based on seized

material and discrepancy found as under:-

i. Disclosure of Rs. 11,0,000/- on account of loan of unaccounted commission income from property transaction. ii. Disclosure of Rs. 5,66,563/- on account of loan given from unaccounted sources of Rs. 4,75,00/- and interest income thereon Rs. 91,563/- which is also unaccounted. iii. Disclosure of Rs. 48,95,000/- on account of unaccounted income/receipt in cash of Rs. 48,95,000/-. iv. Disclosure of income of Rs. 52,50,00/- based on entries in pocket diary found and seized during search, marked as Annexure-As, Exhibit 1 to 6. v. Disclosure of Rs. 1,00,00,000/- on account of unexplained investment in construction of Mount View School and house of assessee's son Sh. Om Prakash. 24. As per the ld DR in the return of income the assessee offered to

tax only the income as noted in (i) to (iv) above, aggregating Rs.

20 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT 1,18,11,563/-. Further, the entire income of Rs. 1,18,11,563/- was

declared in the return of income under the head "Business and

Profession" and against this undisclosed income, the assessee claimed

set off of business loss of Rs. 1,05,11,789/-. He further contended that

having made a statement on oath, the burden was on the assessee to

show with evidence that his statement U/s 132(4) was erroneous.

Further, no bills/vouchers for construction activity was available with the

assessee. No valuation report was filed by the assessee despite the A.O.

specifically giving the assessee an opportunity to do so vide query letter

dated 16.07.2018 (para 6.2 of the assessment order refers) accounts of

construction activity were maintained. Thus the building account of

school, showing investment of Rs. 3,48,32,781/- till the date of search in

construction of school, and building account showing investment of Rs.

29,64,831/-in son's house till 31.03.2016, filed in assessment and in

appeal, have no credibility.

through the orders of the authorities below. We had also

deliberated on the judicial pronouncements referred by lower

authorities in their respective orders as well as cited by the ld.

AR as well as the ld DR during the course of hearing before us

in context of factual matrix of the case. From the record, we

found that during the search proceedings on 17.09.2016, cash of

21 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT Rs.23,30,150/- was found from the premises of the assessee. The cash

balances Rs.1,25,93,421/- was derived from incomplete cash books of

various assessee’s of the Group. Details of cash balances derived from

incomplete cash books of various assessee’s of the Group are reproduced

(CIT(A) Order Page 25) as below:

S. Assessee Cash in Hand as per data No. taken by search team Amount Rs. Choudhary Property Dealers P 326490 1 Ltd 2 Bhagwanti Devi 112160 3 Bhawana Choudhary 604156 Choudhary Avasavam Vitta P 1563441 4 Ltd 5 Ganga Devi 416810 6 Lokesh Choudhary 1486626 7 Om Prakash 2813482 8 Sanjay Choudhary 813083 9 Santosh Choudhary 572693 10 Satya Narayan Choudhary 3071397 11 Suresh Choudhary 813083 Total 1,25,93,421/

Thus, on the basis of cash balance in incomplete books as compared to

actual cash found, there was physical short cash of Rs. 1,02,63,271/-

was found during the course of search. The assessee was confronted

during search proceedings by the search team to offer his explanation

regarding cash found of Rs. 23,30,150/-. The assessee in his statement

recorded dated 18.09.2016 explained in answer to question 13 during

22 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT the course of search proceedings that the cash relates to his family

members and business concerns and from personal savings. Relevant

question and answers recorded in statement of the assessee produced as

below:

It was also explained during the course of the search proceedings that

transactions in computer are incomplete and maintained only to keep

control and discipline on family members as family consists of four

married sons. During the course of the search proceedings, Question no

14 asked by the departmental officials establishes that “it is found that

cash book is not complete and not updated”.

It is also relevant to observe that the question no. 14 asked by

department during the course of search/survey establishes the finding of

the department that cash books or other accounts books were

incomplete. Thus, it is undisputed fact that the cash balances

Rs.1,25,93,421/- was derived from incomplete cash books of various

23 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT assessee’s of the Group. The assessee on account of mistaken facts and

incomplete records, stated in answer to question number 14 during the

course of the search proceedings that aforesaid cash short was noticed

on account of incomplete records and explained that it has been used

for construction activities. However, the AO merely on the basis of his

statement made the impugned addition without establishing any

investment in construction activities with any corroborating evidences.

the AO and sustained the impugned addition of Rs. 1 Crore in the hands

of the assessee.

unexplained investment, it is first to be established by the AO that (i) any

investment was made by the assessee and (ii) which is not recorded and

(iii) for which there is no explanation for source of making such

investment. However, in the present case, both the AO as well as Ld.

CIT(A) had not discharged their burden of proof u/s 69 of the Act for

making impugned addition as it has not been established with

corroborating evidences that there was any investment of Rs. 1 Crore by

the assessee in construction activities as per the case attempted to be

made by them on the basis of wrong inference from the statement of the

assessee recorded during search. The first point of inquiry for making

impugned addition by the AO is only wrong inference from the statement

24 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT recorded during search, which stands retracted while filing return of

income on account of the fact that there was no such investment and

neither there was no such evidences found during search.

incriminating material was found by the respective income tax authorities

for impugned addition. The search operations did not result in discovery

of any incriminating material which is evident from the fact that the AO

in the entire assessment order has not relied on any material but only on

the statement recorded by the assessee. The edifice of addition is only

disclosure which was extracted out from the assessee. Reliance has been

totally placed on the statements recorded under section 132(4) of the Act

of the assessee, which is misconceived, misinterpreted and ill founded.

making the impugned additions of Rs. 1 Crore merely relied upon the

statements recorded under section 132(4) of the Act without any

corroborative documentary evidence on record. Though, statements are

an important piece of evidence but they are not conclusive. The

statements should be corroborated with the facts and documents on

record to ascertain their reliability. It is because of the fact that a search

causes great stress, anxiety and tension and therefore it cannot be said

that the statement recorded during search is free from all ambiguity and

doubts and it is quite likely that certain vital facts may be omitted or

25 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT ignored or incorrectly stated. If the assessee has stated something in his

statement either out of ignorance of certain vital facts or negligence or

non-availability of relevant material, which is contrary to the established

facts of the case, he cannot be assessed to tax merely on the basis of

such erroneous statement. It is also relevant to observe that alleged

physical cash shortage is consequential to incomplete cash books. Cash

books are not maintained on regular basis being individual status of the

various assessee’s of the Group and turnover of the assessee was below

tax audit requirement. Accordingly, assessee in its question to answer

no. 13 stated that amount of cash short noticed were withdrawn from

banks and savings out of income offered for tax and has been used for

construction. This explanation even if considered to be true also explains

the availability of source of funds. Thus, the source of construction was

out of the declared income/sources and there was no additional or

unexplained investment as no evidences relating to additional

construction investment were found during search.

taken based on incomplete data entries from Computer to arrive cash

shortage relating to various assessee’s of the Group during the course of

the search proceedings, thus, conclusion of alleged expenditure/

investment cannot be drawn based on incomplete books without

considering reconciliation and explanation or some other corroborative

26 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT evidences filed by the assessee. However, AO took adverse inference

from mere statement recorded of the assessee under mistaken facts and

believes and made the impugned addition of Rs. 1 Crore alleging them to

be investment in construction activities by the assessee. There is no

basis for amount determined Rs.1,00,00,000/ alleged to be used for

construction activities by the assessee. It is pertinent to note that there

is no addition in the impugned assessment order on account of short

cash found rather during assessment proceedings, the AO took entirely

different stand of making impugned addition of Rs. 1 Crore for alleged

investment of Rs. 1 crore by taking incorrect inference from the

statement of the assessee recorded during search.

the department in relation to alleged amount of Rs. 1 Crore used in

construction activities which is unexplained. Furthermore the assessee

has never admitted that he has incurred construction expenses out of

books as alleged in the assessment order. It is also clear from the order

of the A.O. and the ld. CIT(A) that they have never asked for any

valuation report. Even otherwise, once there are no adverse findings in

relation to the details of cost incurred in relation to construction

provided, there is no necessity of valuation. Thus, very basis of

impugned addition confirmed by Ld. CIT(A) is not justified.

27 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT 32. There is no reason to confirm addition merely on the assumption/

presumption that the cost in construction in relation to the building

account of the school showing investment Rs.348,32,781/ till date of

search in construction of school and building account showing investment

of Rs.29,64,831/ in son’s House as filed in assessment and in appeal,

have no credibility without any basis in absence of no single adverse

document/ information available with the department and even not found

during course of search, therefore, addition confirmed by the ld. CIT(A)

is not legally sustainable as per settled position of law.

assessment proceedings, assessee vide letter dated 20.12.2018,

submitted details of the total investment in Mount View School

Bedwasat Rs.4,00,18,782/ as on 31.03.2017. There is no adverse

finding pointed out by the AO which establishes that there was no

source of such investment, further no defects/mistakes were pointed

out regarding the supporting evidences submitted by the assessee.

We also found that Mr. Om Prakash Choudhary, son of assessee had

also incurred Rs.29,64,831/ towards construction of his house which was

also explained with relevant details and documentary evidences filed

before the AO. The assessment in the case of Mr. Om Prakash

Choudhary, son of assessee was concluded without any adverse findings

in this regard. The source of investment in his house has been accepted

28 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT as such by the AO vide assessment in his case dated 26.12.2018. Thus,

the question of any additional or unexplained investment does not arises

even from the department own stand taken in assessment of son of the

assessee. It establishes that the AO has accepted the variation of cash

balances in case of all other assessee’s of the Group based on

reconciliation and verification of relevant records in the respective/

relevant assessments, therefore, had not drawn any adverse inference.

Accordingly, the short cash due to incomplete data entries related to

other family members stands accepted by the A.O. while making their

assessments without any adverse findings in this regard cannot be taxed

again in the hand of the assessee. Further, there cannot be different

approach i.e. Pick and choose theory on the same issue in the case of

the assessee in comparison to other Group assessee’s for cash shortage

noticed due to incomplete data entries.

Son cited (supra) has held that an admission is an extremely 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. The

assessee clearly stated while recording statement during the course of

search that that the books of account do not correctly disclose the

correct state of facts due to incomplete entry of transactions etc. In this

case, the assessee made statement during the search and surrendered

29 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT Rs. 100,00,000/ which is without any basis due to incomplete records,

mistaken facts and believes. The department has not found any single

evidence in relation to amount spent more than amount declared in

construction activities before the A.O. and produced books of accounts

before the AO, therefore, no adverse inference can be drawn in this

regard. In view of the above discussion, we direct the A.O. to delete the

addition of Rs. 1,00,00,000/- so made.

In this appeal, the assessee has raised following grounds

of appeal:

“1. Under the facts and circumstances of the case and in law, the order dated 06.06.2019 passed by Ld. CIT (Appeals)-2, Udaipur is perverse, arbitrary and bad in law. 2. The Ld. Assessing Officer and Id. CIT(A) erred in rejecting the interest Rs. 1,14,746/- and bank charges Rs. 57/- as against additional income/interest offered for tax Rs. 1,16,052/-, as both errors were clerical and compensatory which had been rectified voluntarily without any seized document and net effect of such income/interest comes to Rs. 1249/- offered for tax while filing ITR U/s 153A, thus, interest expenses Rs. 114746/- and Rs. 57/- deserves to be allowed/netted off towards additional income/interest offered for tax. 5. The appellant craves leave to add, amend and modify all or any ground of appeal on or before the date of hearing.” 37. We have considered the rival contentions and carefully

gone through the orders of the authorities below and found

from the record that the lower authorities have not allowed

30 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT the assessee to claim deduction of interest expenditure but

has included the interest income so offered by the assessee in

the proceedings U/s 153A. We found that the assessee has

just rectified the apparent mistake on the record by offering

the interest income and interest expenditure. Accordingly, we

direct the A.O. to make addition only to the extent of mistake

so pointed out in the reconciliation.

proceedings, the assessee produced detailed reconciliation of the return

filed u/s 139 & u/s 153A with relevant documentary evidences before the

A.O. vide letter submitted on 20.08.2018. Reconciliation of both the

return filed u/s 139 and 153A filed before the assessing officer is

enclosed at PB page 14. From the reconciliation, we observe that the

A.O. has accepted the additional interest income offered without any

seized documents during the course of search in the return filed u/s 153

A in para 5 of the assessment order but not allowed the legitimate

deduction towards interest expenses wrongly short claimed while filing

ITR u/s 139. The A.O. has rejected the claim of interest on unsecured

loan with contention in Para no 5.3 at page no 3 of the order.

the orders of the lower authorities and direct the A.O. to

restrict addition only to the extent of difference between the

31 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT interest income offered and the interest expenses claimed. We

direct accordingly.

Order pronounced in the open Court on 19th March, 2020.

Sd/- Sd/- (SANDEEP GOSAIN) (R.C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated : 19/03/2020

*Ranjan Copy to: 1. The Appellant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR 6. Guard File (ITA No. 266 & 392/Jodh/2019)

Assistant Registrar Jodhpur Bench