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Income Tax Appellate Tribunal, “B” BENCH : KOLKATA
Before: Hon’ble Shri S.S. Godara, JM & Dr. A.L. Saini, AM ]
This Revenue’s appeal for assessment year 2012-13 arises against the Commissioner of Income Tax (Appeals)-20, Kolkata’s order passed in case No.117/CIT(A)-20/CC- 2(3)/14-15 dated 26.03.2015 involving proceedings under section 143(3) of the Income Tax Act, 1961; in short ‘the Act’. Heard both the parties. Case file perused.
Both the learned representatives take up to the CIT(A) detailed discussion on the sole issue of additional income addition of Rs. 10crores made in the course of assessment and deleted in lower appellate proceedings as follows: “5. The Ld AR has argued that the addition of Rs.10 crores as made by the AO in the impugned order was arbitrary and without any basis as there is no material on record to support such addition. The Ld AR has placed on record material to show that Sri
2 M/s Yash Alloys Pvt. Ltd. A.Yr. 2012-13 Kailash Prasad Agarwalla was not a director of the assessee company and was therefore not lawfully competent to make statement on its behalf. He has argued that the AO erred in law in relying solely on the disclosure made by third party for drawing adverse inference in the case of the assessee and that too when such third party had already retracted his disclosure and also there was no corroborative or direct evidence on record to support the disclosure. The Ld AR has referred to the sworn affidavit of Sri Kailash Prasad Agarwalla wherein he had explained that the disclosure was made under coercion and that he did so without even having any idea about the working of the assessee company. The Ld AR has argued that the statement u/s 132(4) or subsequent disclosure petition given by Sri Kailash Prasad Agarwalla had no consent or authority of the assessee company and therefore it could not be lawfully relied upon for drawing adverse inference in the case of the assessee company. The Ld AR has further argued that no incriminating material representing undisclosed income of the assessee was found in the search and the disclosure made by Sri Kailash Prasad Agarwalla was unwarranted and irrelevant as there was no corroborative or direct evidence to support the disclosure. The Ld AR has reiterated that Sri Kailash Prasad Agarwalla was not legally competent to make any statement on behalf of the assessee company and therefore the disclosure made without any lawful authority was not binding on the assessee; secondly, the disclosure made by Sri Kailash Prasad Agarwalla was unsubstantiated as it was not based on any material on record; above all, no incriminating material representing undisclosed income of the assessee company was found in the search. The assessee was therefore justified in not including the disclosure of Rs.10 crores in its return of income. The Ld AR has further argued that the assessee also furnished his explanation at the assessment stage. The assessee had duly submitted before the AO that it never earned any undisclosed income which was also evident from the fact that no incriminating material representing its undisclosed income was found in the search. The assessee had also submitted at the assessment stage that Sri Kailash Prasad Agarwalla had already retracted his admission through sworn affidavit and there was no corroborative material to support the admission. The AO therefore could not lawfully rest his assessment solely on the disclosure made by Sri Kailash Prasad Agarwalla. The Ld AR concluded by submitting that the assessee had never earned any undisclosed income and therefore there was no question of declaring undisclosed income in its return.
The Ld AR contended that the case of the assessee was covered by judicial decisions wherein it was clearly held by various courts that admission made u/s 132(4) had no evidentiary value in as much as it cannot be made the sole basis for making addition when such admission was later retracted and there was no material on record to support the admission. The Hon'ble Supreme Court in the case of Pullangode Rubber Produce Co Ltd vs State of Kerala [1073] 91 ITR 18 noted that an admission is an 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. In the case of CIT vs Ravindra Kumar Jain [2011] 12 taxman.com 257, the Hon'ble High Court of Jharkhand held that no addition can be made on the basis of the statement recorded u/s 132(4) if the assessee retracted later and surrender was not corroborated by independent evidence. Similarly, in the case of Kailashben Manharlal Choksi vs CIT 2
3 M/s Yash Alloys Pvt. Ltd. A.Yr. 2012-13 [2008] 174 Taxman 466, the Hon'ble High Court of Gujarat held that merely on the basis of the statement made uj s 132(4), the assessee could not be subjected to addition unless and until some corroborative evidence was found by the revenue in support of such addition. The Hon'ble High Court of Madras has held in the case of M Narayanan & Bros vs ACIT [2011] 13 taxman.com 49 that while the statement recorded u/s 132(4) may be used as evidence, yet, that by itself, does not become the sole material to rest the assessment more so when the assessee seeks to withdraw the same. The jurisdictional !TAT in the case of DCIT vs Vivekanand Venna ITA No. 1784/Kol/2012 held that no addition could lawfully be made on the basis of disclosure when there was no corroborative or direct evidence to support the disclosure.
The Ld AR has argued that the impugned assessment order of the AO violated the spirits as laid down by the CBDT in its circular dated 10-03-2003. For it has been the consistent policy of the CBDT that search operations should focus and concentrate on collection of credible evidence which could lead to determination of undisclosed income. The CBDT has clearly advised its officers on search duty that no attempt should be made to obtain confession regarding undisclosed income while recording statements during the course of search and seizure operations. While referring to the said CBDT Circular, the Hon'ble High Court of Madras has in the case of M Narayanan & Bros vs ACIT (supra) observed as under: 'The case of the assessee also stands supported by the Circular dated 10-03- 2003 of the Central Board of Direct Taxes, which has given categorical directions to the officers, who are entrusted with the job of assessment that undue emphasis should not be placed on the statement recorded. In fact, it had given a mandate not to obtain confession as to the undisclosed income."
The Ld AR has further argued that 'similar view was expressed by the Hon'ble High Court of Madras in case of CIT vs Khader Khan Son [2008] 300 ITR 157 wherein it has referred to the said Circular dated 10-03-2003 issued by the CBDT. In its order dated the 4th July, 2007, the Hon'ble High Court quoted from the said circular which is extracted hereunder :
"What is more relevant, in the. instant case, is that the attention of Commission and Tribunal was rightly invited to the circular of the Central Board of Direct Taxes dated March 10,2003, with regard to the confession of additional income during the course of search and seizure and survey operations. The said circular dated march 10, 2003, reads as follows:-
"Instances have come to the notice of the Board where assessees have claimed that they have been forced to confess the undisclosed income during the course of the search and seizure and survey operations. Such confessions, if not based upon credible evidence, are later retracted by the concerned assessees while filing returns of income. In these circumstances, confessions during the course of search and seizure and survey operation do not serve any useful purpose. It is, therefore, advised that there should be focus and concentration on collection 3
4 M/s Yash Alloys Pvt. Ltd. A.Yr. 2012-13 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, the Assessing Officers should rely upon the evidence materials gathered during the course of search/survey operations or thereafter while framing the relevant assessment orders."
I have perused the impugned assessment order of the AO and considered the submissions of the Ld AR and the material placed by him on record. I have also perused the various judicial decisions relied upon by the Ld AR. I find that the facts in the present case are not in dispute. It is admitted that Sri Kailash Prasad.Agarwalla in his statement u/s 132(4) made disclosure of Rs.10 crores on behalf of the assessee. But then, he later clarified before the AO that the disclosure was made by him without having any idea about the working of the assessee company, that the disclosure was made not voluntarily but under' coercion of the officers authorised to conduct the search and that the disclosure was not supported or corroborated by any incriminating material found in the search. The AO on his part has brought no material on record to show that Sri Kailash Prasad Agarwalla had got any legal sanction or authority to make disclosure on behalf of the assessee. There is nothing on record to even suggest that Sri Kailash Prasad Agarwalla had the consent of the assessee company when he made the disclosure of Rs.10 crores. The assessee company on the other hand had sworn an affidavit through its director Sri Rajeev Kumar Agarwalla thereby disowning the disclosure made by Sri Kailash Prasad Agarwalla. In such factual background, I therefore find merit in the contention of the Ld AR that the assessee was not bound by the disclosure made by an unauthorized person who had no lawful sanction to do so on behalf of the assessee company. I agree that the disclosure made by Sri Kailash Prasad Agarwalla was not legally enforceable on the assessee. I also find substance in the contention that no incriminating material representing undisclosed income of the assessee to the tune of Rs.10 crores was found in the search as none has been discussed by the AO in his assessment order. In this factual background, it is to be held that Sri Kailash Prasad Agarwalla had no legal sanction or authority to make a disclosure on behalf of the assessee and consequently the disclosure made by him was no legal binding on the assessee; I secondly, no incriminating material supporting the disclosure of undisclosed income in the case of the assessee was found in the search. The case of the assessee is duly supported by various judicial pronouncements wherein it has been held by various courts that admission made at the time of the search cannot be made the sole basis for making addition when such admission was later retracted and there was no corroborative material to support the admission. The Hon'ble Supreme Court m the case of Pullangode Rubber Produce Co Ltd vs State of Kerala [1073J 91 ITR 18 noted that an admission is an 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. In the case of CIT vs Ravindra Kumar Jain [2011] 12 taxman.com 257, the Hon'ble High Court of Jharkhand held that no addition can be made on the basis of the statement recorded u/s 132(4) if the assessee retracted later and surrender was not corroborated by independent evidence. Similarly, in the case of 4
5 M/s Yash Alloys Pvt. Ltd. A.Yr. 2012-13 Kailashben Manharlal Choksi vs CIT [2008] 174 Taxman 466, the Hon'ble High Court of Gujarat held that merely on the basis of the statement made u/s 132(4), the assessee could not be subjected to addition unless and until some corroborative evidence was found by the revenue in support of such addition. The Hon'ble High Court of Madras has held in the case of M Narayanan & Bros vs ACIT [2011] 13 taxman.com 49 that while the statement recorded u/s 132(4) may be used as evidence, yet, that by itself, does not become the sole material to rest the assessment more so when the assessee seeks to withdraw the same. I find that the present case is directly covered by the decision of the jurisdictional ITAT in the case of DCIT vs Vivekanand Verma in ITA No. 1784/Kol/2012 wherein it was held that no addition could lawfully be made on the basis of disclosure when there was no corroborative or direct evidence to support the disclosure. I also find that the action of the AO is not in conformity with the direction issued by the CBDT as contained in its circular dated the 10th March, 2003 which was relied upon by the Hon’ble High Court of Madras in the cases of M Narayanan & Bros vs. ACIT and CIT vs. Khader Khan Son. The CBDT had clearly instructed that the AO should rely on credible evidence and that the material gathered in search should form the basis for framing the assessment order. I am of the considered view that the AO erred in law as well as on facts in resting his assessment solely on the disclosure made at the time of the search and that too by an unauthorized person when the same was later retracted and there was no incriminating material whatsoever to support or corroborate the disclosure. In view of the above, the addition of Rs. 10crores made by the AO is neither sustainable in law nor on the facts of the case. The addition of Rs. 10crores is deleted. Ground no. 1 is allowed. Ground no. 2 was not pressed by the ld. AR at the time of hearing. Hence, ground no. 2 is dismissed. Ground no. 3 relates to the charging of interest u/s 234A, 234B & 234C which is consequential. Ground no. 4 is directed against the initiation of penalty proceedings u/s 271AAA which is premature for adjudication at this stage. Ground no. 5 is general in nature.”
We have given our thoughtful consideration to rival contentions . Case file including a detailed compilation of judicial precedents as well as documentary evidence has been perused. The Revenue’s sole argument during the course of hearing is that the Assessing Officer had rightly made the impugned additional income addition of Rs. 10 crores as per Shri K.P. Agarwala’s statement recorded during the search. It is strongly emphasized that the CIT(Appeals) has erred in law as well as on facts in deleting the impugned additional income in lower appellate proceedings. We find no merit in the Revenue’s sole grievance. Two basic facts emerge from the rival pleadings. First one is that the Revenue has based its case on Shri K.P. Agarwala’s search statement. The CIT(appeals) has held that Shri Agarwala was never the authorized person to depose or to offer any income at assessee’s behest. We reiterate that this assessee is a company. 5
6 M/s Yash Alloys Pvt. Ltd. A.Yr. 2012-13 It was very much imperative for the Revenue’s to place on record the corresponding details to reverse this clinching finding. There is no such evidence on record. Equally significant is the latter fact; in our considered opinion, that there is no incriminating material found or seized during the course of search which could be taken as evidence for adding additional income sum of Rs. 10 crores. The CBDT’s circular dated 10.03.2003 makes it very clear that the an authorized officer during the course of search or survey has to collect evidence rather than obtaining search statements of undisclosed income. We find that there is no even a single such evidence in foregoing facts which could be taken as the relevant material for making the impugned addition. The CIT(Appeals) has discussed a catena of case law to this effect as well that such an addition is not sustainable in absence of any incriminating material found or seized during the course of search or survey carrying presumption u/s 292C of the Act. We accordingly see no reason to interfere with the CIT(Appeals) detailed conclusion in deleting the impugned addition of additional income amounting to Rs. 10 crores. The Revenue fails in its sole substantive ground.
This Revenue’s appeal is dismissed.
Order pronounced in the Court on 14.09.2018