DEPUTY COMMISSIONER OF INCOME TAX, CHENNAI vs. J VIVEK, THIRUVARUR

Having aggrieved by the order made under section 69A of the Act, the assessee preferred an appeal before the ld. CIT(A). The ld. CIT(A) held that there is no corroborative evidence to substantiate the addition made under section 69A of the Act and deleted the addition by holding that the action of the Assessing Officer in making the addition, lacks merits. That is how; the Revenue is in appeal before us challenging the order of the ld. CIT(A).

5. The ld. DR Shri S. Sundar Rajan, CIT submits that the ld. CIT(A) erred in holding the addition without appreciating that the said addition was made on the basis of an e-mail content seized during the course of search. He refer to the statement recorded under section 132(4) of the Act and the seized e-mail content and argued both are in consistence substantiating the addition made by the Assessing Officer under section 69A of the Act. The ld. DR further argued that the ld. CIT(A) failed to appreciate that section 132(4A) and 292C of the Act provides rebuttable presumption that the documents found in the possession and control of any person in the course of search under section 132A of the Act may be presumed to be belonged to such person. Further, the ld. CIT(A) completely ignored the decision of the Hon’ble High Court of Madras in the case of A.J. Rajesh Kumar v. DCIT (2022) 441 ITR 495 to say a statement made voluntarily by the assessee could form the basis of assessment. Further, he argued that the ld. CIT(A) erred in considering retracted statement of the assessee by holding that the Assessing Officer has no basis to make addition under section 69A of the Act. The ld. DR relied on the statement made under section 132(4) of the Act and prayed to allow the grounds of appeal

of the Revenue. The ld. DR filed written submissions and for ready reference the same is reproduced herein below: A search and seizure operations were carried out in the case of M/s. Jazz Cinemas Pvt. Ltd. on 09 11.2017 and the residential premise of the assessee was also searched u/s 132 of the IT Act. Hence, assessment proceedings u/s 153A of the IT Act was initiated by virtue of the search and seizure operation carried out. During the course of search proceedings, the email of the assessee were perused and the print-outs of the same were taken and seized. Those documents and evidences in the form of loose sheets are placed in ANN/AA/JV/LS/1 to 25. The assessee was asked to go through the mail correspondence between him and Mr. Gubendran. In the sworn statement recorded u/s 132(4) of the IT Act, the assessee admitted that a sum of Rs.4.25 crores was given to Mr. Gubendran for a business project and that was paid out of his unaccounted sources. While filing the return of income, in response to notice issued u/s 153A of the IT Act, the assessee admitted only a sum of Rs 1.5 crores and not Rs.4.25 crores. During the course of assessment proceedings, the assessee filed a reply on 20.11.2019, stating that he was under severe stress and mental agony on the date of search and hence, the statement was not recorded the way he wanted to. As per the retraction letter, the assessee stated before the AO that he had advanced the Seed Capital of only Rs.15 crores from his undisclosed sources. However, the AO did not accept the retraction statement by holding that statement recorded u/s 132(4) of the IT Act on the basis of the seized document cannot be retracted without any substance. Hence, he has added the balance sum of Rs.2.75 crores as unexplained money u/s 69A of the IT Act.

2. Aggrieved by the addition made by the AO, the assessee filed appeal before the CIT(Appeals) and he filed a detailed written submission also. In the written submission, the assessee made a similar plea. The assessee referred to a statement recorded from Shri Gubendran u/s 131(1) of the IT Act and stated that Shri Gubendran also admitted the receipt of Rs. 1.5 crores only from the assessee. The CIT(Appeals) accepted the contention of the assessee on account of the following facts recorded in the appeal order: 2.1 The CIT(Appeals) considered the retraction statement of the assessee recorded u/s 131(1A) of the IT Act during post search proceedings on 03.04.2018 and also a statement recorded u/s 131(1A) of the IT Act from Shri Gubendran on 19.02.2019 as valid statements. 2.2 CIT(Appeals) recorded at Para 6.3.13 that the only material available before the AO is that the details contained in the email communications and the statements recorded u/s 132(4) of the IT Act and no more evidences were brought on record by the AO. 2.3 The CIT(Appeals) referred some of the judicial pronouncements and held that the admission given in the statement alone is not sufficient.

3. Aggrieved by the order of the CIT(Appeals), the Revenue preferred appeal before the Hon'ble ITAT. In the grounds of appeal

, the AO relied upon the decision of the Hon'ble Madras High Court in the case of Thiru A. J. Rajesh Kumar Vs. DCIT (2022) 441 ITR 495. Further, it is also contended by the AO that the retraction statement was not based on any credible evidence and hence, the CIT(Appeals) ought not to have admitted the retraction statement. The CIT(Appeals) while granting relief relied on the decision of the Madras High Court in the case of N. Swamy 241 ITR 363 and recorded that the burden of showing that the assessee has undisclosed income is on the Revenue. However, in Ground No.2.5, the AO also contended that the decision referred by the CIT(Appeals) in Para 6.3.19 is not applicable to the facts of the present case. As per this Ground, the AO recorded that this decision was pertaining to stock statement given to the Bank Authorities and addition of undisclosed income on the basis of that statement. Hence, as per the grounds of appeal, the reason relied upon by the CIT(Appeals) is not at all applicable to the facts and circumstances of the case of the assessee.

4. Written submission in support of the Grounds of appeal:

In this connection, following written submissions are made in support of the grounds of appeal filed by Revenue and the same may please be considered and taken into record while deciding the appeal. 4.1 Search was carried out in the residence of the assessee on 09.11.2017. Incriminating evidences were found and seized from the assessee's own email correspondences and it is placed in Page No.14 of the ANN/AA/JV/LS/1 to 25. The relevant page of the seized document printout taken on 9.11.2017 is scanned and reproduced below: came to t. nagar office on march-03-2017, we planned to transfer this fund in -------ventures for timing later we will transfer to various accounts as per your instructions, and rest will start to pay once we start supply to tasmac (as monthly -----) so my outstanding will get cleared in 4 month, and you agreed the same. On April 2017 you called me and said, you need all in single payment, I pulled the document from bank, (for the bank loan process paid 2 percent as advance out of 5% towards the commission for processing my loan) then went to VD for out rate sale, It's under process, I know i am delayed badly, and it's like dead investment. Now if i want to arrange private finance, i need to get the documents from VD, brother please trust me, am not testing your patience brother, i know i paid Interest only till this march 2017 after that nothing I have done, (from 2016 may till 2017 march) I paid interest rupees 33 L, for 11 months (3*11=33) in this one month I didn't pay because the same was adjust in your honeymoon trip dollar purchase. Brother, I took altogether 4.40 from you in various date (FROM 2015 NOVEMBER 11 TO 2016 MARCH), (inclusive of business return i promised i make you 8 and give) IT falled in advance stage itself due to further fund I was not able to arrange, I don't want to say any excuse, am trying to honour by paying all my dues, out of 8. only one(1) paid at your wedding time, for balance 71 promised before 2016 December I would close, I had not done it, demonetization is a main reason. Out Of 4.40 I RECEIVED FROM YOU 2.00 is still in Singapore (THIS YOU APPROVED ORALLY AT 3M CARCARE IN NUNGAMBAKKAM) (AGAIN IN 20 DAYS YOU SAID YOU'RE NOT INTERESTED IN THE PROPOSAL) 1.50 is in china for electronic (MAC PRO BOOK & I MAC PROCESS), Total Investment, Was 3.75. The Property 148 Acres Farm Land Which We proposed to buy at karur district. after seeing the video and photos you said okay, then I paid token advance 50 lakhs and done the banking arbitration for the existing liabilities (the bank expenses was 25 lakhs with your approval I paid it for deputy GM daughter wedding), Altogether 75 lakhs gone. 4.2 Content recorded in the email/seized documents: 4.2.1 It is clearly admitted by Shri Gubendran that he took altogether 4.40 from the assessee in various dates from 2015 November, 11 to 2016 March. 4.2.2 Out 4.40 received from assessee, 2.00 is still in Singapore and that was approved orally by the assessee at 3M Car Care in Nungambakkam. 4.2.3 This mail also states that 1.50 is in China for electronic (MAC PRO BOOK and I MAC Process. Total investment was Rs.3.75 4.2.4 This mail also referred property purchase 148 acres of farm land in Karur District. For this land deal 50 lakh advance was also paid out of that money. For banking arbitration 25 lakh was spent by Gubendran and it was paid for deputy GM daughter wedding. Altogether 75 lakhs was spent. 4.3 Recording of sworn statement u/s 132(4) of the IT Act: This seized document only was placed before the assessee during search and his statement was recorded on oath on 11.11.2017 at 11.30 AM (after two days of search). In the sworn statement recorded u/s 132(4) of the IT Act on 11.11.2017 at 11.30 AM the assessee has explained the transactions very clearly without any confusion and admitted the entire transaction of Rs.4.25 crores. Such statement recorded at 11.30 AM after two days of search cannot be considered as statement given under stress and mental agony. Upon perusal of this statement, few questions were asked and the assessee was allowed to take rest. This is also clearly recorded by the DDIT (Inv.) and that was signed by the assessee. The statement resumed on next day i.e. 12.11.2017. Hence, there was sufficient time given to the assessee during the course of search proceedings. 4.4 Admission of part of the undisclosed income in the return filed: The case was centralised for the purpose of assessment u/s 153A of the IT Act vide Notification Order passed by PCIT, Trichy dated 07.03.2019. Accordingly, a notice u/s 153A of the IT Act was issued on 12.09.2019 (after two years). In the return of income, the assessee admitted Rs 1.5 crores as undisclosed income. 4.5 Filing of retraction statement: The retraction statement /reply was filed by the assessee before the AO only on 20.11.2019. Hence, it is evident that it was not an immediate retraction. 4.6 Incorrect view taken by CIT(A): 4.6.1 The CIT(Appeals) while granting relief to the assessee, relied on the decision of the Madras High Court in the case of CIT Vs. N. Swamy 241 ITR 363 and recorded that the burden of showing that the assessee has undisclosed income is on the Revenue. However, this decision is not at all relevant. The facts in that case are as under i. This decision was rendered on 03.09.1998 on one assessment order passed u/s 143(3) of the IT Act for AY 1977-78. In this case, the AO obtained the value of closing stock declaration given to the bank and verified the same with closing stock disclosed in the ITR. The AO added the difference as undisclosed income of the assessee A.Y 1977-78 ii. The AAC reduced the addition from Rs. 34,070/- to 26,000/-. iii. Before Hon'ble ITAT, the Accountant Member held that, there was suppression of closing stock, whereas the Judicial Member held that there was no suppression of stock and no undisclosed income. The matter was referred to third member, who is the Vice-President of the Tribunal. The third member concurred with the Judicial Member and relief was granted to the assessee. iv. This order was appealed by the Revenue before High Court of Madras and Hon'ble High Court upheld the order of Tribunal.

4.6.2 This decision was rendered in the year 1998 on the assessment order for the A.Y 1977-78. The CIT(A) while granting relief to the assessee placed reliance on this case law. This decision is not at all applicable to the facts of a search assessment carried out u/s 153A of the IT Act as the assessee himself has owned up the seized document and the contents in the email and admitted categorically in the sworn statement recorded u/s 132(4) of the IT Act that a sum of Rs.4.25 Cr was the undisclosed income invested at various places through Mr. Gubendran. His admission is supported with his own email print outs found and seized during the course of search. Hence, reliance of the CIT(A) on this is not at all applicable to the facts and circumstances of this case. 4.6.3 The AO has raised a specific ground at 2.5 against this finding of the CIT(A) and that ground may be allowed. 4.7 It cannot be held that only part of the seized document was right: It is to be mentioned here that the assessee admitted a part of the sum of Rs.1.50Cr as undisclosed income while filing the ITR after receipt of the notice issued u/s 153A of the IT Act. It means the rest of the sum recorded in the seized document and the admission given in sworn statement recorded u/s 132(4) of the IT Act cannot be held as invalid. The CIT(A) failed to appreciate the evidentiary value of the seized document and the sworn statements recorded u/s 132(4) of the IT Act. The CIT(AO) ought not to have admitted the retraction statement given two years later 4.8 Retraction statement and the validity: Hon'ble Madras High Court, in the case of Commissioner of Income Tax Vs. MAC Public Charitable Trust [2022] in 144 taxmann.com 54 held that statement recorded u/s 132(4) of the IT Act cannot be discarded simply on account of retraction statement made by the assessee after eight months. The relevant portion of the decision of the Jurisdictional High Court is as under: 61. In view of the law discussed above, it must be held that statement recorded under section 132(4) of the Act and later, confirmed in statement recorded under section 131 of the Act, cannot be discarded simply by observing that the assessees have retracted the same, because such retraction ought to have been generally made within a reasonable time or by filing complaint to superior authorities or otherwise brought to notice of the higher officials by filing duly sworn affidavit or statement supported by convincing evidence. Such a statement when recorded at two stages cannot be discarded summarily in cryptic manner by observing that the assessees in the belatedly filed affidavit have retracted from their statements. Such retraction is required to be made as soon as possible or immediately after the statement of the assessees was recorded Duration of time when such retraction was made, assumes significance and in the present case, retraction has been made by the assessees after eight months to be precise, 237 days.

4.11.2 This decision was subsequently upheld by the Hon'ble Supreme Court in B. Kishore Kumar Vs. DCIT, Central Circle-IV(1), Chennai [2015] 62 taxmann.com 215 4.11.3 In the present case, the assessee admitted the undisclosed income earned in the relevant assessment year that was given to Mr. Gubendran in the sworn statement recorded u/s 132(4) of the IT Act. Hence, that statement and the seized document are the strong material evidences to treat the same as undisclosed income of the assessee as the assessee had already admitted a part of the sum in the ITR filed for A.Y 2016-17 after receipt of notice u/s 153A of the IT Act.

by the Revenue. The ld. AR filed written submission and the same is reproduced below:

1. The respondent is an individual. There was a search u/s.132 of the Income ax Act, 1961 in the residential premises of the respondent on 09.11 2017. Notice u/s. 153A of the Act was issued on 12.09.2019 to the respondent calling for a return of income and the respondent herein filed Return of Income in response to the same on 27.11.2019 admitting total income of Rs. 1,98,51,970/-. In the return so filed, the respondent admitted an additional income of Rs.1,50,00,000/-towards the transaction relating to an email communication found during the course of search.

2. The email communication was from one Mr.Gubendran to the respondent herein. At the time of search the said email communication was placed before the respondent and sworn statement was recorded u/s.132(4) of the Act on 10.11.2017. According to the appellant herein, the respondent had admitted to the entire transaction of Rs.4.25 crores and on the basis of the same the assessment was completed.

3. During the post-search proceedings, statement was recorded from Mr.Gubendiran u/s.131(1) of the Act on 19.02.2019 and he deposed that he had borrowed only a sum of Rs.1.50 crores from the respondent herein. The respondent retracted his statement dt.09.11.2017 at the time of recording his statement u/s.131(1) during post-search proceedings.

4. However, the Assessing Officer chose to ignore the statement of Mr.Gubendran recorded u/s.131(1) of the Act and the retraction of the respondent recorded on 03.04.2018 and passed order u/s.143(3) r.w.s.153A for the AY 2016-17 on 26.12.2019 making an addition of Rs.2.75crores to the Income of the respondent u/s.69A of the Act on the sole basis of the sworn statement dt.09.11.2017.

5. The respondent filed appeal and the CIT(A) allowed the appeal by holding that the AO had only relied upon the statement recorded during the course of search without brining any corroborative evidence to substantiate the transaction narrated in the seized materials has actually taken place. That the AO in the assessment order has not brought out the finding with regard to enquiries made with Mr. Gubendran during the course of assessment proceedings.

6. The AO has at page 2 of the assessment order dt.26.12.2019 reproduced Question No.19 and the answer given by the respondent herein to the same in the sworn statement dt. 10.11.2017, which is as follows:

19. During the course of the search proceedings at your residence at N.7, Ramanthan Street, Mahalingapuram, Chennai-600 034, the contents your mail ID vivekjayaraman88@gmail.com were perused. The relevant mails were taken as printout and seized as loose sheets vide ANN/AA/JV/LS/1-25 in loose sheets number from 5 to 25. Please explain about transactions and sources? Ans: Yes, I have gone through the e-mails between me and Mr, Gubendiran, the said mails refer to financial transactions between me and Mr Gubendiran for the period of May 2016 to September 2016 (emphasis supplied) To explain in detail, I had originally given Rs. 1.50 crores to Mr. Gubendiran during May 2016 for a business project. He promised me that he will return my capital along with a profit. However, the same did not materialize as expected, hence during Aug 2016 he returned me Rs. 1.50 crores what I gave him. However as per his promise of returning a profit on my capital, he paid me Rs.1.75 crore during Sep 2016 as a profit on my investment of Rs. 1.5 crore. Hence as on October 2016 I had with me a sum of Rs. 3.25 crore which Mr. Gubendiran had returned me. This amount of Rs. 3.25 crores includes my capital, return on my investment (which includes interest of Rs. 33 Lakhs). Further during the month of Nov 2016, Mr. Gubendiran came out with a new business proposal. Since I liked the said Proposal, I gave him Rs.4.25 crores to him. The said amount of 4.25 crores was given out of Rs.3.25 crores that Mr. Gubendiran gave me plus one crore of my own cash that I had with me. Hence, as on date Mr.Gubendiran owes me Rs. 4.25 crores. I wish to state that the said amount of Rs.4.25 crores was given by me out of my unaccounted sources. I admit the same as my unaccounted investment and offer it in my hands for tax for the respective period.

The transaction mentioned in the sworn statement is for the period of May 2016 to September 2016, which pertains to Financial Year 2016-17 (AY 2017-18), whereas the Assessment in dispute is for AY 2016-17 (F.Y. 2015-16). Thus, the Assessment which made solely based on the transaction mentioned in the sworn statement does not relate to the AY in question. Based on the submissions made above, it is therefore most to respectfully prayed that this Hon'ble Tribunal may be pleased to dismiss the above appeal and thus render justice.

discussed the issue relating to seized material and statement recorded under section 132(4) of the Act and statement of Shri Gubendran under section 131(1A) of the Act in the impugned order and held the addition is not maintainable as there was no corroborative evidence brought on record in support of contents of statement recorded under section 132(4) of the Act. On perusal of the assessment order, we note that the assessee clearly stated that the contents of the statement recorded under section 132(4) of the Act are not true as it was recorded under stress and mental agony. Further, he stated that it was not recorded as he wanted to and therefore, the Assessing Officer examined the assessee under section 131(1A) of the Act, wherein, he tried to elicit the truth amongst the statement recorded under section 132(4) of the Act. The assessee stated the same, which was deposed in the retraction statement and the Assessing Officer found inconsistency in the statement recorded under section 131(1A) of the Act, but, however, ignored the retraction statement and proceeded to add an amount of ₹.2.75 crores under section 69A of the Act, in our opinion, is not justified. On perusal of the impugned order, we note that the ld. CIT(A) discussed the contents of the statement of Shri Gubendran recorded under section 131(1A) of the Act vide para 6.3.8 of the impugned order. Further, the statement of assessee under section 131(1A) of the Act vide para 6.3.9 of the impugned order, wherein, we find no inconsistency in the statement of the assessee as well as Shri Gubendran. Therefore, we agree with the ld. CIT(A) the reasons recorded by the ld. CIT(A) vide para 6.3.8 to 6.3.20 and it is justified. Thus, the grounds raised by the Revenue are dismissed.

Order pronounced on 26th February, 2025 at Chennai.