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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI GEORGE GEORGE K. & Ms. PADMAVATHY S
Date of hearing : 19.10.2022 Date of Pronouncement : 21.10.2022 O R D E R
Per Padmavathy S., Accountant Member
1. This appeal is against the order of Principal Commissioner of Income Tax, Central, Bengaluru [PCIT] passed us. 263 of the Act dated 23.3.2022 for the assessment year 2017-18.
“ The order of the learned Principal Commissioner of Income tax (Central), Bengaluru, is opposed to law and on facts of the case.
The learned Principal Commissioner of Income tax (Central), Bengaluru, is not justified in law in setting aside the assessment order passed under Section 143(3), dated 11.12.2019 as it is found that the order is erroneous in law or is prejudicial to the interest of the revenue to the extent of excess stock found during the course of survey amounting to Rs.50,00,000/-, which should be treated as unexplained investment under section 69 and same is to be taxed under section 115BBE of the Income tax Act, 1961 and no set off of loss shall be allowed to the assessee against the said income.
3. The learned Principal Commissioner of Income tax (Central), Bengaluru grossly ignored that, the sum of Rs.50,00,000/- once taxed in the original assessment order as well as bringing the same to tax in the order under section 263, which amounts to double taxation, since the said sum of Rs.50,00,000 is a business income declared as stock in trade. 4. The learned Principal Commissioner of Income tax (Central), Bengaluru, has failed to appreciate the fact that, the said excess stock has already been added to the income as unexplained investment, in the original assessment order passed under section 143(3), dated 11.12.2019 and hence, question of erroneous so far as it is prejudicial to the interest of the revenue, does not arise. 5. For these and any other grounds that may be urged before the Hon'ble ITAT, it is prayed that the Hon'ble ITAT may allow the appeal with cost.” 2. The assessee is a partnership firm engaged in the business of manufacture and sale of cashew kernels. The asse filed its return of income for AY 2017-18 on 28.10.2017 declaring a loss of Rs.40,54,552. The case was selected for scrutiny and a notice u/s. 143(2) was duly served on the assessee. The AO called upon the assessee to furnish various details.
There was a search and seizure operation u/s. 132 on 1.2.2017 on Mr. M N Rajendra Kumar, one of the partners of the assessee and a survey u/s. 133A was conducted at the business premises of the assessee. During the course of survey, the officials noticed that as per the books of accounts maintained in the business premises, the stock of finished goods of cashew kernels was 5,389.80 kgs. and raw materials was 81,583 kgs. On physical verification, the officials found the finished goods of 5,021 kgs. And raw material of 69,864 kgs.
In the assessment proceedings u/s. 143(3), the AO made an addition of Rs.50 lakhs admitted by the partner of the assessee as additional income during the course of survey. The AO set off the said additional income against the returned loss and concluded the assessment u/s. 143(3).
The PCIT issued a show cause notice u/s. 263 for the reason that the addition made by the AO towards difference in stock is an unexplained investment for which the assessee failed to provide satisfactory explanation and therefore the undisclosed stock should have been considered as an unexplained investment u/s. 69 which is required to be tax at special rate u/s. 115BBE. The assessee submitted before the PCIT that the addition made by the AO while completing the assessment u/s. 143(3) is appealed against by the assessee and therefore prayed for acceptance of assessment order passed by the AO. The PCIT did not accept the submissions of the assessee and passed an order u/s. 263 setting aside the order of the AO u/s. 143(3) by stating that “6. I have considered the assessee's submissions and have gone through the assessment records. It is evident from the same that the Assessing Officer did not make any enquiries or verification with regard to taxation of excess stock of Rs.50,00,000/- found during survey proceedings under section 69 rws 115BBE of I T Act , which he ought to have done during the assessment proceedings. 7. The assessee has stated that the addition on account of difference in stock is disputed before the CIT(Appeals), Panaji. The assessee's submission has been perused and it is found that the contention does not have any merit, as the appeal before CIT(A) pertain to addition of excess stock of Rs.50,00,000/-. The issue of taxation of excess stock of. Rs.50,00,000/-under section 69 read with section 1.15BBE is left unexamined/undecided by the AO, the same is not a subject matter of appeal before CIT(A). In view of the above discussion, the contention of the assessee is not sustainable. 8. Hence, it is held that the Assessment Order passed by the Assessing Officer is erroneous so far as it is pre-judicial to the interest of the Revenue as per the provisions of Clause (a) of Explanation (2) to the Section 263 of the Income Tax Act, 1961. The details of excess stock found during survey proceedings needs to be verified and enquired into as to whether the same is in the nature of unexplained investment u/s 69 in the books of account and whether the same is required to be taxed u/s 115BBE (2) of the I T Act, no set off of loss shall be allowed to the assessee against any income considered as unexplained investment u/s 69 rws 115BBE of I T Act. Hence, the assessment order dated 11.12.2019 is hereby set-aside to the file of the Assessing Officer for passing a fresh assessment Order after making verification and enquiry with regard to issues mentioned above.”
6. Aggrieved the assessee is in appeal before the Tribunal.
Before us, the ld. AR submitted that the impugned addition is main issue before the AO since the assessee in the return of income filed did not include the income offered during the course of survey. The ld AR also submitted that for the said reason, the AO based on review of the statement recorded specifically called all details pertaining to difference in stock. It is submitted that the AO after analysing the various contentions of the assessee has applied his mind while making the addition under the head ‘income from business’ since the addition is attributable to the difference in stock. The ld. AR drew our attention to the order of the AO where a detailed discussion on the impugned addition has been made by the AO.
The ld. DR, on the other hand, submitted that in the AO’s order there was no mention explaining the source for the difference in stock but discussed the aspect that the retraction of statement cannot be the basis for not offering the additional income admitted during survey to tax. The ld. DR also submitted that in response to show cause notice, the assessee has simply stated that the impugned addition is appealed before the CIT(A), but did not offer any explanation on the source of such addition. Therefore, the ld. DR submitted that the PCIT is correct in invoking the provisions of section 263 to state that the difference in stock is an unexplained investment for which the AO has not done any enquiry with respect to the source and thereby to this extent, the order of the AO is erroneous and prejudicial to the interests of the revenue.
We have heard the rival submissions and perused the material on record. Before proceeding further, it is apposite to take note of the relevant extract of section 263 and the Explanation (2) to section 263 of the Act, which read as under :-
Revision of orders prejudicial to revenue. 263. (1) The [Principal Chief Commissioner or Chief Commissioner or Principal Commissioner] or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer 89[or the Transfer Pricing Officer, as the case may be,] is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, 90[including,— **** Explanation 2.—For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer 94[or the Transfer Pricing Officer, as the case may be,] shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal 95[Chief Commissioner or Chief Commissioner or Principal] Commissioner or Commissioner,— (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.
Thus, from close scrutiny of the provisions of section 263, it is evident that twin conditions are required to be satisfied for exercise of revisional jurisdiction under section 263 of the Act i.e., firstly, the order of the Assessing Officer is erroneous; and secondly, it is prejudicial to the interests of the revenue on account of error in the order of assessment. The Bombay High Court in the case of Gabriel India Ltd. (1993) 203 ITR 108 has explained as to when an order can be termed as erroneous as follows:-
“From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an income tax officer acting in accordance with the law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order, unless the decision is held to be erroneous. Cases may be visualised where the Income tax officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income tax officer. That would not vest the Commissioner with power to examine the accounts and determine the income himself at a higher figure. It is because the Income tax officer has exercised the quasi judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion ………….. There must be some prima facie material on record to show that the tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed.”
There is no dispute that u/s. 263 of the Act, the PCIT does have the power to set aside the assessment order and send the matter for a fresh assessment if he is satisfied that further enquiry is necessary and the assessment order is prejudicial to the interests of the Revenue. However, in doing so, the PCIT must have some material which would enable to form a prima facie opinion that the order passed by the AO is erroneous, insofar as it is prejudicial to the interests of the Revenue. In the present case, the PCIT has not brought out any material on record to substantiate that the source for the excess stock declared as additional income during the search proceedings is anything other than the income from business of the assessee. The AO has given a clear finding with respect to additional income offered by the assessee as business income since the same is arising out of the difference in stock between the books of accounts and the physical stock. The AO has also taken cognizance of the submissions of the assessee with regard to the reconciliation of book stock and physical stock by stating that the authorities have not considered the element of wastage. Considering these facts the AO made the addition under the head business income arising out of the declaration by the assessee towards excess stock. The PCIT in his order has stated that further enquiry should have been done to verify the source of excess stock and that the assessee has not offered any explanation and therefore the additional income is from an undisclosed source to be taxed u/s.115BBE of the Act. This view of the ld. PCIT, in our opinion, is not the right reason for exercising revisionary powers u/s. 263 of Act, since the AO has brought out the facts clearly that the additional income is offered towards excess stock found during the course of survey. In our view the error envisaged by Section 263 of the Act is not one that depends on possibility as a guess work, but it should be actually an error either of fact or of law which is not clearly brought out by the PCIT in the given case.
With regard to the argument that the assessee’s case requires to be considered in the light of the explanation (2) to Section 263 of the Act, we notice that the Hon’ble Gujarat High Court in the case of Shreeji Prints (P) Ltd. (130 taxmann.com 293 – Guj) while considering the explanation of Section 263 of the Act, has held that : - “4 Being aggrieved by the order passed by the PCIT under section 263 of the Act, 1961, the assessee went before the Tribunal. The Tribunal, after considering the submissions made by the assessee and after considering the scope of power to be exercised by the PCIT under section 263 of the Act, 1961 came to be conclusion that the Assessing Officer has made inquiries in detail about two unsecured loans taken by the respondent assessee and observed as under:
"13 In the light of the aforesaid judicial precedents in the present case what has to be seen is whether the AO has made enquiries about two loans taken from GTPL and PAFPL. If the answer is affirmative, then second question arises whether the acceptance of the claim by the AO was a plausible view or on the facts of the finding on the facts that the said funding of the AO can be termed as sustainable in law. We find that vide notice issued u/s.142(1) dated 13-10-2015 placed at Page No. 1 of Paper Book shows the AO vide item no.(iii) has asked the information regarding details of unsecured loan outstanding as on 31- 3-2013 and the loans were squared up amounts in the format prescribed therein. In compliance to thereof, the assessee has furnished complete details of the unsecured loans outstanding/ squared up vide para 3 of his letter dated 2-11-2015 placed as Annexure-2 at page 4 of paper book. The assessee has also furnished details consisting of copy of ledger account, copy of acknowledgment of income filed for A.Y. 2012-13 and 2013-14 and copy of bank statement reflecting the payment received was paid during the financial year 2012-13 relevant to assessment year 2013-14 which are placed at paper book, page 9 to 49 in respect of GTPL as well as PAFPL. This indicate that the assessee has furnished account confirmation of the depositor, acknowledgment of income of the parties, audited balanced sheet and profit and loss account of the parties and bank pass book and bank statement of the parties. During the course of assessee proceedings, form these facts it is clear that the assessee has not only proved the from these facts it is clear that the assessee has not only proved the identity of the lenders but also the genuineness of the transactions and credit worthiness of the lenders. Accordingly, the Ld. AO after verifying the details of unsecured loans being satisfied, accepted the submissions of the assessee which leads to infer that the Assessing Officer had made full enquiries of unsecured loans by raising the queries and calling for the all information in respect of the loan taken along with details evidences in support thereof and the same were also duly replied by the assessee and on receipt of all the details of evidences, the unsecured loans received by the assessee were accepted by the Assessing Officer and the assessment was finalised u/s.143(3) of the Act on 15-3-2016. We also note that there was audit objection in the case of the assessee. The language of audit objection and show-cause notice under section 263 is same meaning thereby that the show cause notice u/s.263 has been issued by the PCIT Without going through assessment records and without exercising his own application of his mind. The assessee has not only filed complete details of Income-tax Return, audited balance sheet, profit and loss account and bank statement. The assessee further explained that both the these unsecured loans stands fully repaid as on the date and there is no capital creation by the assessee on this count. In view of these facts and circumstances, we are of the considered opinion that the order of the Assessing Officer is not erroneous nor it is prejudicial to the interest of revenue. It was also brought to the notice of the PCIT that entire share capital of GTPL being already tax, all the investment made by the said company recorded in its balance sheet stands explained tax in its hands itself and hence, "there is no question of adding the same amount in the hands of the assessee. As regards loans from PAFPL, it was submitted that assessee company has made voluntary disclosure of income of Rs. 1.5 crore under IDS 2016 in September 2016 and the said loan was repaid before making declaration. In view of these facts and circumstances, we find that the AO has made due enquiries. Since we find that the AO had made enquiries regarding unsecured loans and accepted the claim of the assessee after detailed enquiries." 15 The Pr.CIT had observed that Explanation 2 of section 263 of the Act is clearly applicable and it is clear that the Assessing Officer has passed the assessment order after making enquiries for verification which ought to have been made in this case. However, we find that the Pr. CIT has not mentioned in the show-cause notice issued under section 263 that he is going to invoke the Explanation 2 to 263 hence, invocation of Explanation in the order without confronting the assessee is not appropriate and sustainable in law in support of this contention, the ld. Counsel has placed reliance on the following decision: CIT v. Amir Corporation 81 CCH 0069 (Guj.), CIT Mehrotra Brothem -270 ITR 0157 (MP,CIT v. Ganpet Ram Bishnoi - 296 ITR 0292 (Raj.), Cadila healthcare Ltd. v. Cl 7, Ahmedabadh-1 [ITA no. 1096/Ahd/2013 & 910/Ahd/2014], Sri Saí Contractors v. ITO [ITO no. 109Nizag/2002] and Pyare lal Jaiswal v. CIT, Vamnesi [(2014) 41 taxmann.com 27 & (AII Trib.)]. It was contended by the Learned Counsel that clause -(a) & (b) of Explanation 2 of Section 263 are not applicable as the Assessing Officer has made enquiry and verification which should have been made. Further, in the show cause notice, the Explanation-2 of section 263 was not invoked by the PCIT and it was referred in the order u/s.263 of the Act. Therefore, in the light of decision of the Co-ordinate Bench of Mumbai ga in the case of Narayan Tatu Rane - 70 taxmann.com 227 (Mum. Trt.) [PB 153-1561 wherein held that explanation cannot laid to have over ridden the law as interpreted/the various High Courts where the High Courts have held that before reaching the conclusion that the order of the Assessing Officer is erroneous prejudicial to the interest of Revenue. The CIT himself has to undertake some enquiry to establish that the assessment order is erroneous and prejudicial to the interest of Revenue. The ld. Counsel relied on the decision of M/s. Amira Pure Foods Pvt. Ltd., v. PCIT in and Ahmedabad Tribunal in the case of Torrent Pharmaceuticals Ltd. v. DCIT [2018] 97 taxmann.com 671 (Ahd. - Trib.). it is clear from the enquiries made by the Assessing Officer and submissions made by the assessee that the Assessing Officer has taken the plausible view which is valid in the eyes of law. The Assessing Officer was satisfied consequent to making enquiry and after examining the evidences produced by the assessee, he accepted the assessee's claim of loan similar view were also expressed by the Hon'ble Delhi High Court in the case of CIT v. Vodafone Essar South Ltd. [2013] 212 taxman 0184. We observe the Pr.CIT has drawn support from newly inserted Explanation 2 below section 263(1) of the Act introduced by Finance Act, 2015 w.e.f. 1-6- 2015 for his action. The Explanation 2 inter alia provides that the order passed without making inquiries or verification 'which should have been made' will be deemed to be erroneous insofar as it is prejudicial to the interest of the Revenue. It is on this basis, the assessment order passed by the AO under section 143(3) of the Act has been set aside with a direction to the AO to pass a fresh assessment order. It will be therefore imperative to dwell upon the impact of Explanation 2 for the purposes of section 263 of the Act. The aim and object of introduction of aforesaid Explanation by Finance Act, 2015 was explained in CBDT Circular No. 19/2015 [F.NO.142I14/2015T PL], Dated 27-11-2015 which is reproduced hereunder:
"53. Revision of order that is erroneous in so far as it is prejudicial to the interests of revenue.
53.1 The provisions contained in sub-section (1) of section 263 of the Income-tax Act, before amendment by the Act, provided that if the Principal Commissioner or Commissioner considers that any order passed by the Assessing Officer is erroneous in so far as it/s prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making an enquiry pass an order modifying the assessment made by the Assessing Officer or cancelling the assessment and directing fresh assessment.
53.2 The interpretation of expression "erroneous in so far as it/3 prejudicial to the interests of the revenue" has been a contentious one. In order to provide clarity on the issue, section 263 of the Income-tax Act has been amended to provide that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner. (a) the order is passed without making inquiries or verification which, should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision, prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. 53.3 Applicability: This amendment has taken effect from 1st day of June, 2015."
"17 We thus find merit in the plea of the assessee that the Revisional Commissioner is expected show that the view taken by the AO is wholly unsustainable in law before embarking upon exercise of revisionary powers. The revisional powers cannot be exercised for directing a fuller inquiry to merely find out if the earlier view taken is erroneous particularly when a view was already taken after inquiry. If such course of action as interpreted by the Revisional Commissioner in the light of the Explanation 2 is permitted, Revisional Commissioner can possibly find fault with each and every assessment order without himself making any inquiry or verification and without establishing that assessment order is not sustainable in law. This would inevitably mean that every order of the lower authority would thus become susceptible to section 263 of the Act and, in turn, will cause serious unintended hardship to the tax payer concerned for no fault on his part. Apparently, this is not intended by the Explanation. Howsoever wide the scope of Explanation 2(a) may be, its limits are implicit in it. It is only in a very gross case of inadequacy in inquiry or where inquiry is per se mandated on the basis of record available before the AO and such inquiry was not conducted, the revisional power so conferred can be exercised to invalidate the action of AO. The AO in the present case has not accepted the submissions of the assessee on various issues summarily but has shown appetite for inquiry and verifications. The AO has passed after making due enquiries issues involved impliedly after due application of mind. Therefore, the Explanation 2 to section 263 of the Act do not, in our view, thwart the assessment process in the facts and the context of the case. Consequently, we find that the foundation for exercise of revisional jurisdiction is sorely missing in the present case.
18 In the light of above facts and legal position, we are of the considered view that the AO had made detailed enquiries and after applying his mind and accepted the genuineness of loans received from GTPL and PAFPL, which is also plausible view. Therefore, we find that twin conditions were not satisfied for invoking the jurisdiction under section 263 of the Act. The case laws relied by the ld. CIT(D.R.) are distinguishable on facts and in law hence, by the ld. Counsel as well and we concur the same hence not applicable to present facts of the case. Therefore, in absence of the same, the ld. CIT ought to have not exercised his jurisdiction under section 263 of the Act. Therefore, we cancel the impugned order under section 263 of the Act, allowing all grounds of appeal of the Assessee."
5. The Tribunal has found that in the order passed by the PCIT, Explanation 2 of section 263 of the Act, 1961 is made applicable. The Tribunal observed that the PCIT has not mentioned in the show cause notice to invoke the Explanation 2 of section 263 of the Act 1961. Therefore, by invocation of Explanation in the order without confronting the assessee and giving an opportunity of being heard to the assessee is not appropriate and sustainable in law.
Thus, the Tribunal has considered in detail the aspect of revisional power to be exercised by the PCIT in the facts of the case and has given a finding of facts that the Assessing Officer has made inquiries in detail and after applying mind, accepted the genuineness of loans received by the respondent assessee from the aforesaid two companies and such view of the Assessing Officer is a plausible view, and therefore, the same cannot be said to be erroneous or prejudicial to the interest of the Revenue.” 13. The SLP against the above order of the Hon’ble High Court was dismissed by the Hon’ble Supreme Court, thereby the issue, that the explanation (2) to Section 263 of the Act could be invoked only in a very gross case of inadequacy in enquiring or where the mandatory enquiries are not conducted, has reached finality.
In assessee’s case, while filing the return of income, the assessee did not offer the additional income offered during the course of survey. The AO raised this issue during the course of assessment and called on the assessee as to why the additional income offered during the course of survey was not admitted as income at the time of filing the return of income. The assessee had submitted before the AO that the partner had retracted the statement vide letter dated 28.7.2018 and the stock taking was not done properly. The assessee also submitted that the production wastage was not taken into account and furnished the stock workings as on the date of survey as per books and as per physical stock to substantiate that the difference was minimal if wastage was considered. The AO in his order has made a detailed finding with regard to the retraction of the statement and has relied on several judicial pronouncements before concluding the assessment by stating as under:-
“9.7 in the instant case, it can be seen that the Managing Partner of the assessee company admitted additional income voluntarily on being specifically asked about the stock discrepancy. It is not the case of the assessee that the Managing partner was coerced or forced to admit the income. It can be seen from the reply to Q.No. 14 of statement dated 03.02.2017 and in Q.No. 5 of 16.02.2021, it was his admission that there was stock discrepancy and on this issue he was admitting Rs. 50,00,000 as additional income. 9.8 As a Managing partner of the company, he was in the know of the stock position as per books and physically available and he admitted the additional income which was true according to his knowledge and belief being at the helm of affairs. 9.9 Hence the contention of Rajendra Kumar made after one and half years that the statement was given under stress, pressure and humiliation and the statement was signed only to end the search proceedings is without any merit 9.10 When there is a clear and categoric admission of the undisclosed income by the assesses himself different statements and the undisclosed income being voluntarily declared in a statement dated 16.02.2017 there is no way the assessee can retract the same after 18 months contending that the under stress, pressure and humiliation.
9.11 The fact is when there is a clear admission, voluntarily made by the assessee, that would constitute a good piece of evidence for the purpose of assessing the income. 9.12 There is no evidence on record that statement was obtained under coercion or threat of any kind. The assessee was completely aware of the statement he was giving and at no point of time filed any letter immediately after the search/survey stating that the statement was given under threat or coercion. 9.13 Hence once it is shown that the statement was voluntary then, me assessee cannot to retract as held by the judgment of the Hon’ble Supreme Court in We case of Surjeet Singh Chhabra v. Union of India AIR 1997 SC 2560. Further there is no materiel on record to suggest the statement was given under a mistaken belief either of fads or law, The statement under section 132(4) has greater evidentiary value than statement given under other provisions of the statute. 9.14 It has been held by the Hon’ble Supreme Court in the case Awadh Kishore Dass vs. Ram Gape) AIR 1979 SC 861 that evidentiary admission are not conclusive proof but shift the burden of the proof to the person making them. Further unless proved to be wrong, they are efficacious proof of facts admitted. 9.15 The submissions of the assessee as well as material available on record have been considered carefully. The crucial question is whether the addition can be made on the basis of statement recorded under section 131 and 132(4) which is now retracted by the assessee in as much as the income declared by the assessee during the course of search/survey as additional income has not been declared in the return of income. 9.16 It is settled law that admission by a person is good piece of evidence and the same can be used against a person who makes it. The reason behind this is, a person making a statement stops the opposite party from making further investigation. 9.17 This principal is also embedded in the provisions of the Evidence Act. The statement recorded under section 132(4) is on a different footing. The Legislature in its wisdom has provided that such a statement may be used in evidence in any proceedings under the Income-Tax Act, 1961. Therefore great evidentiary value has been attached to such statement by the legislature for the purpose of determining the income of the assessee post search. 9,18 in view of this the admission made in statement under section 132(4) has great evidentiary value and is binding on a person who makes it. Therefore, the assessment can be made on the basis of such admission by using the same in evidence. If in the course of such search, the assessee makes some admission, he debars the authorised officer from making further investigation. The sanctity of such provision would be lost if the assessee is allowed to contend that no addition can be made on the basis of such admission. ……….. 9.26 It has been further observed that the declaration clearly fell under section 115 of the Evidence Act and hence it was not open to the assessee to retract from the same and after the departmental authorities had accepted the same and altered their position by closing the search. It further observed that declarations falling under section 115 of the Evidence Act do not require any corroboration and upheld the order of the Assessing Officer in rejecting the retraction and treating the impugned sum as undisclosed income. 9.27 From the principles of law laid down in the aforesaid judgments, it may be deduced that, admission is one important piece of evidence and is rebuttable. It is open to the assessee who made admission to establish that confession was involuntary and the same was extracted under duress and coercion. However the burden of proving that the statement was obtained by coercion or intimidation lies upon the assessee. Where the assessee claims that he made the statement under the mistaken belief of fact or law, he should prove the same with evidence. 9.28 The retraction should be made at the earliest opportunity and the same should be established by producing any contemporaneous record or evidence, oral or documentary, to substantiate the allegation that he was forced to make the statement in question involuntarily.
9.29 There are no mitigating circumstances to show the admission/surrender made by the assessee was retracted at the earliest part of time with corroborative evidence has substance. The fact is that the assessee surrendered undisclosed income only when he was not able to explain the unaccounted cash, gold jewellery, other documents and loose papers found during search and by volunteering surrender of undisclosed income, he induced the search party not to proceed with collection of other evidence and to accept the surrendered amount. 9.30 The assessee has totally failed to discharge the burden of proving that the statement was obtained under coercion or intimidation. He did not make any complaint to the Higher Authorities alleging intimidation or coercion for retracting the statement under section 132(4), 9.31 Hence there are ample cogent reasons for not accepting the retraction of the statement under section 132(4) by the assessee. 9.32 The assessee had failed to discharge the onus of proving that confession made by him under section 132(4) was as a result of intimidation, duress and coercion or that the same was made as a result of mistaken belief of law or facts.”
From the above, it is clear that the AO has conducted a detailed enquiry with regard to the deviations in stock and has made the addition under the head business income. Further, in the statement recorded during the course of search the Shri Anand Kumar, one of the partners in the assessee firm, he has admitted that there is difference in the stock recorded in the books and the physical stock and agreed to offer the same as additional income. The relevant extract of which is given below Q5. During the course of Survey proceedings u/s.133A of the Income Tax Act 1961 on 01.02.2017 the physical stock of Cashews were taken at the premises of M/s.Kusuma Cashews. It was found that the stock found in the premises of M/s.Kusuma Cashews does not tally with the stock register. Please explain this discrepancy. Ans: I understand that there was a difference of stock as per the physical stocks taken at the time of survey and the value mentioned in the registers maintained. The value of stock difference is approximately around Rs.43,00,000. Further some sundry stocks would have been there. In view of this excess stock, I voluntarily offer Rs.50,00,000 as additional income over and above the regular income as my undisclosed stock in the current year.
From the above, it is clear that the additional income is offered towards the difference in stock by the assessee. The PCIT has not brought anything contrary to record to state that the amount admitted towards excess stock is from a difference source. When the additional income is offered towards excess stock, the stock being part of the business of the assessee is offered to tax as business income. The PCIT has merely substituted his views to the extent that the AO should have done further enquiry when PCIT himself admits that the additional income is from the excess stock. We are of the considered opinion that the revisionary jurisdiction could not be allowed to be exercised by the PCIT either for substituting his own opinion for that of the AO or for making a fishing and roving enquiry.
In view of the above discussion, we are of the opinion that the PCIT in the present case has wrongly invoked the jurisdiction under section 263 and the controversy in the present case is fully covered by the judgment of the Hon'ble Bombay High Court in the case of Gabriel India Ltd. (supra). Accordingly the impugned order of the PCIT is quashed.
In the result, the appeal is allowed in favour of the assessee.
Pronounced in the open court on this 21st day of October, 2022.