THE COMMISSIONER OF INCOME TAX, KANNUR vs. SHRI.K.V.DAMODHARAN, PAYYANNUR, KANNUR

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ITA/359/2010HC KeralaKLHC01027051201001 November 2010Bench: HONOURABLE MR.JUSTICE B.P.RAY,HONOURABLE MR.JUSTICE C.N.RAMACHANDRAN NAIR5 pages
AI SummaryDismissed

What did the High Court hold?

The High Court dismissed the appeal filed by the Revenue. The Court noted that while statements recorded under Section 132(4) of the Income Tax Act have evidentiary value, the Tribunal had found the statements recorded from the assessee and Sri. Muraleedharan to be inconsistent and hence unreliable. The Court held that an unreliable statement cannot be the sole basis for making additions in a block assessment. Although the revenue argued that investments in buildings were also found and statements were used for corroboration, the Court observed that this issue was not raised or decided by the Tribunal. Therefore, as no substantial question of law arose from the Tribunal's order, the appeal was dismissed. However, the Court clarified that if the search yielded materials pertaining to investments or expenditure that the assessee could not explain, the revenue could file an application for rectification before the Tribunal.

What were the facts?

This appeal concerns a block assessment following a search conducted on the assessee, Shri K.V. Damodaran, a cloth merchant. The Income Tax Appellate Tribunal (ITAT) upheld the order of the Commissioner of Income Tax (Appeals), which cancelled additions made to the assessee's income for several years prior to the search. The department's case heavily relied on statements recorded from the assessee and one Sri. Muraleedharan regarding suppressed turnover and income. However, the assessee had destroyed all records, and no incriminating documents were seized during the search. The ITAT found that the statements were inconsistent and therefore unreliable, leading to the cancellation of the additions.

What were the issues?

1. Whether the Tribunal was justified in upholding the order of the CIT (Appeals) cancelling the addition made in block assessment after search, specifically concerning income assessed for years prior to the search year, based on the reasoning that the additions were solely based on the assessee's statement recorded under Section 132(4) of the Income Tax Act, 1961. Assessee's Contention: Not recorded. Revenue's Contention: The revenue, through its standing counsel, argued that statements recorded from the assessee during a search under Section 132(4) of the Income Tax Act, 1961, can form the basis for assessment. The revenue also contended that besides the statement, the department had found investments in buildings during the search, and these statements were used for corroborative purposes. The revenue relied on a judgment of the High Court of Kerala in another case where such statements were held to be a basis for assessment.

Which sections of the Income-tax Act were involved?

Section 132(4),Section 260A

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE B.P.RAY MONDAY, THE 1ST NOVEMBER 2010 / 10TH KARTHIKA 1932 ITA.No. 359 of 2010() --------------------- IT(S & S) A.136/COCH/2005 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT ----------------------------- THE COMMISSIONER OF INCOME TAX, KANNUR. BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT(S): --------------- SHRI.K.V.DAMODARAN, CLOTH MERCHANT, MAIN ROAD, PAYYANNUR, KANNUR.

THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 01/11/2010, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

C .N. RAMACHANDRAN NAIR, & BHABANI PRASAD RAY, JJ. -------------------------------------------- I.T. A. No. 359 of 2010 -------------------------------------------- Dated this the 1st day of November, 2010 JUDGMENT Ramachandran Nair, J. The question raised is whether the Tribunal was justified in upholding the order of the CIT (Appeals) cancelling the addition made in block assessment after search. The deletions pertain to income assessed for several years prior to the year of search. The department has heavily relied on the statement recorded from the assessee and one Sri. Muraleedharan about the suppression practised in the turnover and in the income. However, admittedly assessee destroyed all the records and department has not seized any records. Therefore the Tribunal considered the issue and found the addition as one solely based on the statement of the assessee recorded under Section 132(4) of the I.T. Act which of course has evidentiary value. Standing counsel appearing for the revenue relied on the judgment of this Court, to which one of us (C.N.R. (J)) was a party, in another case and submitted that the statement recorded from the assessee during the course of search can be

I.T.A. 359/2010 2 the basis for assessment. However, we find from the Tribunal's order that they noticed that the statements recorded from the assessee and Sri. Muraleedharan during the course of search were not consistent and hence unreliable. So much so, we do not think there is any justification for us to interfere with the order of the Tribunal because unreliable statement cannot be the sole basis for making addition in block assessment. Standing counsel appearing for the revenue further submitted that besides the statement, department has found out in the course of search several investments in buildings and therefore statements are only used for corroborative purposes. In principle we agree with the contention of standing counsel because if materials are gathered on investments and if the department is able to establish that these are unexplained investment or expenditure justifying addition based on materials gathered on search, certainly they can do so and statements can be relied on for corroboration. However, we do not find such an issue raised or decided by the Tribunal, and so much so this issue does not arise for our consideration in an appeal filed under Section 260A of the Act. Since we do not find any ground to entertain

I.T.A. 359/2010 3 the appeal, as there is no substantial question of law arising from the order of the Tribunal, we dismiss the appeal. However, we make it clear that if the search had yielded materials pertaining to investments in buildings, or expenditure, and the assessee could not explain, then it is open to the revenue to file an application for rectification before the Tribunal.

(C.N.RAMACHANDRAN NAIR) Judge. (BHABANI PRASAD RAY) Judge.

I.T.A. 359/2010 4

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