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Facts
A search and seizure operation was conducted on the Bhutani Group, leading to additions under sections 69A (Rs. 12.09 Cr) and 69C (Rs. 19.25 Lakh) for undisclosed income and jewellery against the assessee, Anil Bhutani, which were confirmed by the CIT(A). The assessee denied making any surrender of income and explicitly retracted a statement made by his brother, Prem Bhutani, arguing it was without his knowledge and not based on confronted evidence. While ground 2 (jewellery) was not pressed by the AR, ground 1 (undisclosed income) was argued based on a co-ordinate bench's order in the brother's case.
Held
The Tribunal, relying on the co-ordinate bench's decision in the assessee's brother's case, which questioned the relevancy and admissibility of retracted statements and incriminating documents during search, allowed the appeal. It concluded that the additions were unsustainable as the assessee had not made any surrender of income and had validly disowned his brother's statement regarding the alleged undisclosed income.
Key Issues
Whether additions made under sections 69A and 69C, primarily based on statements recorded during search and subsequently retracted/disowned, are sustainable in the absence of independent corroborative evidence.
Sections Cited
132(1), 132(4), 131, 143(3), 69A, 115BBE, 69C, 145, 144
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘A’: NEW DELHI
ORDER PER ANUBHAV SHARMA, JM: This appeal of the Assessee arises out of the order of the Learned Commissioner of Income Tax (Appeals)-IV, Kanpur
[hereinafter referred to as ‘Ld. CIT(A)’] in Appeal No.CIT(A)- IV/
KNP/11011/DCIT-CC-I/Noida/2018-19/515 dated 28/11/2019 against the order passed by Deputy Commissioner of Income Tax,
Central Circle-1, Noida (hereinafter referred to as the ‘Ld. AO’) u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the
Act’) on 31/12/2018.
The assessee has raised the following grounds of appeal:
“1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making an addition of Rs.12,09,00,000/- u/s 69A r.w.s 115BBE.
2. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making an addition of Rs.19,25,880/- on account of unexplained investment in jewellery under section 69C r.w.s 115BBE.
3. That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other.”
A search & seizure operation u/s 132(1) of the Income tax Act, 1961 was carried out in the case of Bhutani Group of companies on 9th November, 2016. Various residential and business premises of the directors and group companies were covered under the search and survey operations. Warrant in the name of Anil Bhutani at D- 124, Preet Vihar Delhi was executed. As per the assessment order, Bhutani Group is headed by Anil Bhutani and other persons controlling the affairs of the Group are Prem Bhutani, Amish Bhutani & Snchit Bhutani. The main allegations against the Group is (1) They have taken accommodation entries in the form of LTCG (2) The Group entities are involved in taking unaccounted on money in cash to suppress the actual price of sale inventory. Allegedly, Page no. 44 and 45 of annexure- LP-06 which is a bunch of loose papers, found & seized from corporate office of Bhutani group (Plot no. 3&4, 2nd floor, A block market, Savitri Bhawan, Preet Vihar, Delhi-92), on the basis of which Sh. Anil Bhutani, Director has admitted an undisclosed income during the course of initial search amounting to Rs. 9,50,00,000/- for F.Y. 2016-17 & Sh. Prem Bhutani, Director has admitted an undisclosed income during the course of initial search amounting to Rs. 10,50,00,000/- for F.Y.
2016-17.
Heard and have perused the record. Learned Authorized representative (AR) has made an endorsement of not pressing ground number 2.
In regard to ground no. 1, the Ld. AR has heavily relied the order of coordinate bench in the case of brother of present assessee, in case titled Prem Bhutani for AY 2017- 18 order dated 16/02/2023, to contend that the co-ordinate bench has concluded that apart from the retracted statement of brother recorded during the search there’s no evidence on record to establish the allegation that the surrender made time of such was corroborated by the loose papers seized at the time of search.
Learned Departmental Representative has however relied the following case laws: (i) Hiralal Maganlal & Co. vs. DCIT [2005] 96 ITD 113 (Mumbai) (ii) ACIT vs. Hukum Chand Jain, [2010] 191 Taxman 319 (Chattisgarh) (iii) Roshal Lal Sanchiti vs. PCIT [2023] 150 taxmann.com 228 (SC) (iv) D.N. Singh vs. CIT, Central [2023] 150 taxmann.com 301 (SC), to contend that the retraction of statement recorded during the search was quite delayed and therefore retraction is inconsequential.
After considering the facts and circumstances of the case it comes up that the admitted case of the Revenue is that during the search, the statement of Bhutani brothers was recorded under section 132(4) on 9/10 November 2016 and there was retraction of same on 4/12/2018. Then statement was recorded u/s 131 on 6/12/2018. The copies of these statements are made available in the paper book and we have gone through them thoroughly.
What is established is that in the statement of the assessee there was no surrender of any income. There are no questions put up with regard to the alleged incriminating documents found during the search. Only on 6/12/18 when statement u/s 131 of the Act was recorded, of the assessee, he was confronted with the statement of his brother Prem Bhutani recorded on 10/11/16 alleging that Prem Bhutani, the brother of assessee, had surrendered the unaccounted income. The assessee had stated that he does not affirm the statement of the brother. The assessee was also questioned with regard to alleged incriminating evidences for which again he had replied that he was not confronted with that evidence of the time of search and he does not affirm the statement of his brother qua these loose papers. Assessee specially mentioned that “my brother had given such statement without my knowledge.
Hence, no adverse view may kindly be drawn against me”.
It appears to us that the tax authorities and relying the statements of the Prem Bhutani and considering them sacrosanct had made additions. Now in the case of Prem Bhtani (supra) the Coordinate Bench had made observations with regard to the relevancy and admissibility of the alleged incriminating documents and statements recorded during and after the search. We consider it appropriate to reproduce the relevant part of the order as follows;
“It is found that the in the bottom of the paragraph 14 of the order dated 16/02/2023 the relevant paragraph of the judgment of Hon’ble Gauhati High Court in jthe case of MKB (Asia) P. Ltd. CIT 294 ITR 655 which has been relied by the Bench has been omitted in the final order. Therefore, rectifying the same, the following portion is added at the bottom of Paragraph 14 of the order dated 16/02/2023. “6. The Revenue, thereafter, took the matter to the Income-tax Appellant Tribunal who set aside the order of the appellate authority and restored the order of the assessing officer, and, hence the present appeals. The substantial question of law formulated by this Court in all the above four appeals reads as follows: Whether on the facts and circumstances of the case the Tribunal was right in not accepting the valuation of closing work-in-progress in accordance with Accounting standard (As-7) as laid down by the Institute of Chartered Accountants of India and to wok out the profit on the basis of the accounts maintained ? 7. The learned Counsel for the appellant has produced before us the text of accounting standard AS-7 issued by the Institute of Chartered Accountants of India. It shows that this system was introduced in the year 1983 and it was made mandatory in the year 1990. There is no dispute at the bar that this accounting system is an approved system of maintenance of, account applicable to construction works contract. Sri Bhuyan learned Counsel for the respondents has submitted that the question raised is more or less academic as in the long run, the assessee is not affected as the liability of tax on the income of the total works contract remains the same and the question is at what stage the tax is to be paid. Mr. Joshi was fair enough to submit that it is not a question of additional liability of tax, but the question is whether the Income-tax department can force the assessee to adopt a particular system of accounting, or whether the assessee has the option. While going through AS 7, we find that the executor of the works contract is required to pay income tax even but on the part completion of the work also, but a formula has been provided for the purpose regarding valuation, etc., keeping in mind the ultimate payment to be received against the entire work.
8. In the present case, the factual part is not under dispute and hence we would confine to the question raised.
9. A similar question had arisen in the case of Commissioner of Income-tax v. Doom Dooma India Ltd. ITR Vol. 200 p. 496 wherein the question of valuation of stock arose as a result of the accounting system. Referring to the provision of Section 145 of the Act this Court held: “It is for the assessee to adopt any recognized method of accounting for his business. The income shall, be computed in accordance with the method of accounting regularly employed by the assessee. In other words, it is open to the assessee to opt for such method of accounting as he deems reasonable and appropriate. He may opt to adopt the manufacturing cost price method or the market price method provided the method is followed in regard to both the opening stock and the closing stock. It is not open to him to adopt one method for valuing the opening stock and a different method for valuing the closing stock so as to intentionally suppress the income derived or derivable in the particular previous year. Even where as assessee has adopted a particular method for a period of years, there is no provision of law which prevents him from changing to any other method provided the change-over is not made in the same assessment year. The proviso to Sub-section (I) empowers the Assessing Officer to compute the income on such basis and in such manner as he determines if the accounts are correct and complete but the method adopted is such that, in his opinion, the income cannot properly be deduced therefrom. The jurisdiction can be invoked where he is of the opinion that the income cannot properly be deduced therefrom. He cannot exercise the jurisdiction merely on the ground that the method adopted, which is otherwise regular or fair is detrimental to the Revenue or advantageous to the assessee. If the Assessing Officer is not satisfied about the correctness or the completeness of the accounts of the assessee, or where no method of accounting has been regularly employed by the assessee, the Assessing Officer may make an assessment in the manner provided in Section 144.”
10. In support of the above findings this Court had placed reliance on the following decisions of the Apex Court. (1) Chainruy Sampatram v. CIT 24 ITR 481.
(2) Investment Ltd. v. CIT. 77 ITR 533 and (3) A.L.A. Firm v. CIT 189 ITR 285.
We may recapitulate the following observations of the hon'be Supreme Court in Investigation Ltd. (supra): “A taxpayer is free to employ for the purpose of his trade, his own method of keeping accounts, and for that purpose to value his stock-in-trade either at cost or at market price. A method of accounting adopted by the trader consistently and regularly cannot be discarded by the departmental authorities on the view that he should have adopted a different method of keeping account, or of valuation. The method of accounting regularly employed may be discarded only if, in the opinion of the taxing authorities income of the trade cannot be properly deduced there from. Valuation of stock at cost is one of the recognized methods. No inference may, therefore, arise from the employment by the company of the method of valuing stock at cost, that the stock valued was not stock-in-trade.”
As stated above, the accounting system AS 7 is an approved system of accounting by the Institute of Chartered Accountants and as such the authenticity of the said accounting system is not under challenge. The assessing firm/appellant being a Private Limited Company was maintaining the account following the said system and the account were duly audited by qualified Chartered Accountant, maintenance of the accounts as well as the valuation of works in progress will not prejudice either side. Admittedly, the particular work control were not completed and it comes under the category of work in progress. There is also no dispute that the ultimate liability of the Assessee as regards tax will be dependant upon in total (fixed) amount received by the Assessee against the particular work control.
We, therefore, hold that the Income tax authority has no option/ jurisdiction to muddle in the matter either by directing the assessee to maintain the account in a particular manner or adopt a different method for valuing the work in progress. We reiterate the decision in Doom Dooma India Ltd. (supra) and hold that an assessee has as the option/ liberty to adopt any recognized method of account for his business and the income shall be computed in accordance with such regularly maintained accounting system.
In the result, the substantial question of law is answered in favour of the appellant and against the revenue. The impugned order passed by the Tribunal are set aside and that of CIT (appeals) are restored.”
This corrigendum shall read with the final order dated 16th February, 2023 passed by the Bench. “
After taking into consideration the aforesaid findings against the Revenue, in the case of Prem Bhutani (supra), we do not consider it appropriate to reexamine the issue about the relevancy and admissibility of the incriminating documents or the statements on first principle basis, and based upon the findings of coordinate bench having a direct bearing on the case of present assessee, we are inclined to decide the ground no. 2 in favour of assessee.
In the result, the appeal filed by the assessee is allowed with consequential effects. Order pronounced in the Open Court on 06/05/2024.