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Income Tax Appellate Tribunal, DELHI BENCH: ‘G’ NEW DELHI
Before: SH. H.S. SIDHU & SH. O.P. KANT
ORDER PER O.P. KANT, A.M.: The present appeal by the Revenue is directed against the order of learned Commissioner of Income Tax (Appeals)(Central), Gurgaon, dated 06.11.2012, raising grounds, which were revised on 31.12.2014. The revised grounds of appeal
are as under: i. Whether on the facts & in the circumstances of the case, the learned CIT(A) was right in deleting the addition of Rs. 30,00,000/- when the assessee had actually admitted the undisclosed income in his statement recorded u/s 132(4) of the Income Tax Act, 1961 at the time of search and had also made surrender to that extent. ii. Whether on the facts and in the circumstances of the case the learned CIT(A) was right in deleting the addition of Rs. 23,30,000/- when the assessee had actually admitted the undisclosed income in his statement recorded under Section 132(4) of the Income Tax Act, 1961 at the time of search and also made surrender to that extent. iii. Whether on the facts and in the circumstances the learned CIT(A) had erred in law in adjudicating the appeal without removal of the defect of the nature of filing of the statement of fact as mandated by statutory form no. 35. iv. That the appellant craves to add, delete or modify any of the grounds of appeal before or at the time of hearing. Revised grounds of appeal.
2. Ground No. 1 and 2 of the appeal are related to additions of Rs. 30 lakhs and Rs. 23.20 lakhs made by the Assessing Officer relying on the statement of the assessee under section 132(4) of the Act, which have been deleted by the learned Commissioner of Income-tax(Appeals). 2.1 The learned CIT(DR), relying on the order of the Assessing Officer, submitted that statement made by the assessee under section 132(4) of the Act is one of the admissible evidence and, therefore, cannot be rejected for making addition in the case of the assessee. 2.2 On the other hand, learned Authorized Representative of the assessee, relying on the order of the learned Commissioner of Income-tax (Appeals), submitted that at the time of search proceedings, consolidated stock of various firms was found physically, which could not be reconciled with the stock appearing in books of account of those firms and, therefore, the assessee during the statement recorded under section 132(4) of the Act, offered Rs. 30 lakh as unexplained investment against discrepancy in the stock, if any. He further submitted that during the verification process in assessment proceeding, no discrepancy in the stock was found and, hence, no addition could have been made on the basis of the offer of Rs. 30 lakhs made against any possible discrepancy in stock, in statement under section 132(4) of the Act. He also relied on the decision of the Delhi Bench of Tribunal in the case of M/s. Best Infrastructure (India) Private Limited Vs. ACIT in pronounced on 31st of may 2016 wherein it is held that statement recorded during the course of search cannot on a standalone basis give power to the Assessing Officer to make the addition. 2.3 We have heard the rival submissions and perused the material on record including the decision of the Tribunal in the case of M/s. Best Infrastructure (India) Private Limited (supra) cited by the learned Authorized Representative of the assessee. The Tribunal in para 23 of the order has held as under: “23. We have discussed in detail the legal position as laid down by Hon'ble Jurisdictional High Court and Hon’ble Apex Court in various cases. We have also discussed the facts of the assessee’s case. Now, applying the law as laid down by Hon'ble Jurisdictional High Court and Hon’ble Apex Court to the facts of the assessee’s case, the following position emerges. (i) ……………………. (ii) Any statement recorded during the course of search cannot on a standalone basis without reference to any other material discovered during search and seizure operation would empower the Assessing Officer to make the addition. The words “evidence found as a result of search” would not take within its sweep statement recorded during search and seizure operations. Therefore, the Revenue’s stand that the addition u/s 153A can be made in respect of share capital on account of statement of Shri Tarun Goyal and Shri Anu Aggarwal cannot be accepted. (iii) ……………………….. (iv) …………………………”
2.4 The Tribunal, while concluding above, has relied on the judgment of the Hon’ble Jurisdictional High Court in the case of CIT Vs. Harjeet Aggarwal vide ITA No. 8/2004. The relevant paragraphs of the order of the Tribunal are as under: “11. In the case of Harjeev Aggarwal (supra), Hon'ble Jurisdictional High Court considered the evidentiary value of the statement recorded during the course of search. The relevant portion is paragraph 19, 20 & 24, which are reproduced below for ready reference:- “19. In view of the settled legal position, the first and foremost issue to be addressed is whether a statement recorded under Section 132(4) of the Act would by itself be sufficient to assess the income, as disclosed by the assessee in its statement, under the Provisions of Chapter XIV-B of the Act.
In our view, a plain reading of Section 158BB(1) of the Act does not contemplate computing of undisclosed income solely on the basis of a statement recorded during the search. The words “evidence found as a result of search” would not take within its sweep statements recorded during search and seizure operations. However, the statements recorded would certainly constitute information and if such information is relatable to the evidence or material found during search, the same could certainly be used in evidence in any proceedings under the Act as expressly mandated by virtue of the explanation to Section 132(4) of the Act. However, such statements on a standalone basis without AO to make a block assessment merely because any admission was made by the assessee during search operation.
If the Revenue’s contention that the block assessment can be framed only on the basis of a statement recorded under Section 132(4) is accepted, it would result in ignoring an important check on the power of the AO and would expose assessees to arbitrary assessments based only on the statements, which we are conscious are sometimes extracted by exerting undue influence or by coercion. Sometimes statements are recorded by officers in circumstances which can most charitably be described as oppressive and in most such cases, are subsequently retracted. Therefore, it is necessary to ensure that such statements, which are retracted subsequently, do not form the sole basis for computing undisclosed income of an assessee.”
Thus, Hon'ble Jurisdictional High Court has held “The words “evidence found as a result of search” would not take within its sweep statements recorded during search and seizure operations”. Their Lordships further observed “However, such statements on a standalone basis without reference to any other material discovered during search and seizure operations would not empower the AO to make a block assessment merely because any admission was made by the assessee during search operation”. In paragraph 24, their Lordships have mentioned about the prevailing practice of extracting statement by exerting undue influence or coercion by the search party. Though the above decision in the case of Harjeev Aggarwal is with reference to the meaning of undisclosed income u/s 158BB of the Income-tax Act, however, in our opinion, the above observation of Hon'ble Jurisdictional High Court would be squarely applicable while considering the evidentiary value of the statement while making the assessment u/s 153A.”
2.4 Thus, we find that the Hon’ble Jurisdictional High Court as well as the Tribunal has held that no addition can be made merely on the basis of statement recorded during the search and seizure operations on standalone basis without reference to any other material discovered during search and seizure operation. The Tribunal has particularly held that no such additions could have been made in proceedings under section 153A of the Act. 2.5 When we advert to the facts of the case in hand, we find that in the course of search proceedings inventory of the consolidated stock of the five firms was prepared. The list of the five firms has been mentioned by the Assessing Officer in the assessment order. In the questionnaire issued to the assessee in the course of assessment proceeding, the Assessing Officer has mentioned that in the statement recorded under section 132(4) of the Act, it was explained by the assessee that the stock inventory prepared at the time of search was a consolidated inventory for the different business concerns on the date and the same had to be bifurcated as per the items of the different concern, which was a quiet time taking exercise, and it was not possible to reconcile the difference, therefore, to cover discrepancy, if any, the assessee offered unexplained income of Rs. 30 Lacs. In the course of assessment proceeding, the assessee submitted bifurcated stock inventory of different firms alongwith trading accounts, according to which there was no difference in the inventory of stock found physically and the stock appearing in books of accounts of the different business concerns. This fact has been recorded by the Assessing Officer in para 5.3 of the assessment order, which is reproduced as under: “5.3 A copy of bifurcated stock inventory of different firms alongwith trading account upto 21.08.2007 was filed by the assessee, the summary of which is as under:- Stock inventory taken on the date of search at Kurukshetra Rs. 1,66,74,282/- The above stock relates to the following firms:- i) M/s. Subhash & Co. KKR. = Rs. 9,39,788/- ii) M/s. Sahil Fertilizers, KKR. = Rs. 1,57,35,594/- (Including stock of C&F Agency) iii) M/s. Sudha Traders, Ladwa Value of stock inventory taken on the date of search Rs. 5,39,932/- Value of inventory as per books = Rs. 5,39,932/- iv) M/s. Subhash & Co. Ladhva Value of stock inventory taken on the date of search Rs. 2,03,584/- Value of inventory as per books = Rs. 2,03,584/- “ 2.6 The Assessing Officer has placed reliance on the statement of the assessee under section 132(4) of the Act, irrespective of the fact that there was no discrepancy in the stock. The learned Commissioner of Income-tax (Appeals) after considering the submission of the assessee deleted the addition with observations as under: “6.2 I have carefully considered the rival submissions. It is an undisputed fact that the stock was reconciled during the assessment proceeding in reply to the questionnaire issued by the AO. No difference was found in the inventory valuation of stock on the search in between physical stock and stock as per stock registers of the business concerns. It is also undisputed that the surrender of additional income was made to cover difference in stock if any in respect of the different business concerns. No doubt the offer of surrender was made u/s 132(4). The legality and validity of a statement taken on oath has great evidentiary value but it is trite law that the same is not conclusive. The admission has to be necessarily corroborated with material evidence to stand the test of appeal. In this case as there was no stock difference found on reconciling, which has also been admitted by the AO in the impugned order, I am afraid the surrender of additional income on this account has no basis. The assessee deserves to succeed on this ground of appeal.”
2.7 Similarly, in respect of another addition of Rs. 23.20 Lacs, the Assessing Officer has mentioned that certain loose documents containing expenses on education of children, purchase of personal items, investment in construction of residential Bungalow and details of movable and immovable properties were seized. The assessee explained that total financial figure mentioned in these documents was of the tune of Rs. 2.5 lakhs and which was incurred out of disclosed sources of the assessee. However, the Assessing Officer rejected the explanation and proceeded to make the addition on the basis of surrender of Rs. 23.20 made in the statement under section 132(4) of the Act to cover discrepancy, if any, found in the seized documents. The learned Commissioner of Income-tax (Appeals) has specifically mentioned that even in remand report there was no specific finding by the Assessing Officer as to which of the seized document was found to be unexplained so as to treat as either undisclosed income or expenditure. The learned Commissioner of Income-tax (Appeals) deleted the addition with observations as under: “7.2 I have considered the rival submissions. It is quite evident from the impugned order and the remand report that there is no specific findings as to which of the seized documents was found unexplained so as to be treated as either undisclosed income or expenditure. It is apparent 132 (4). What is germane to the issue is that the surrender was to cover discrepancy if any found in the seized documents marked A-l and A-2. Consequently, as no discrepancy has been pointed out by the AO, the surrender of additional income has no basis. There is no dispute that statement recorded on oath is to be regarded with sanctity and having great evidentiary value but as the same is not conclusive as held by the courts, the addition based totally on such statement without any corroboration does not hold strength. Therefore, I am constraint to delete the addition and allow the appeal of the assessee. As for the letter referred by the assessee, the same being an internal confidential correspondence between AO and Investigation Wing, which has also not been commented in the remand report, I have no reason to take it into cognizance. Assessee succeeds on this ground.”
2.8 These factual findings have not been denied by the Revenue. In the grounds also, the Revenue has agitated the only issue that the additions have been deleted by the learned Commissioner of Income-tax (Appeals) despite the assessee had admitted the undisclosed income in the statement recorded under section 132(4) of the Act. It is clear that there is no material or corroborative evidence to support the statement made under section 132(4) of the Act in respect of the addition of Rs. 30 lakh against unexplained investment in stock and Rs. 23.20 Lacs against the unexplained expenditure. The assessee did not admit the addition, which means, he retracted the said surrender in the return of income filed. We find that the Tribunal in the case of best infrastructure (India) Private Limited (supra) and the Hon’ble Jurisdictional High Court in the Harjeev Aggarwal (supra) have in the similar facts and circumstances, held that no addition can be made merely on the statement recorded under search and seizure proceedings on a standalone basis without any supporting or corroborative material. Thus, respectfully following the findings of the Tribunal in the case of Best Infrastructure (India) Private Limited (supra) and Hon’ble Jurisdictional High Court in the case of Harjeev Aggarwal (supra), we hold that order passed by the learned Commissioner of Income-tax (Appeals) on the issue in dispute is well reasoned and no interference on our part is required, accordingly, we uphold the finding of the learned Commissioner of Income-tax (Appeals) on the issue in dispute. Thus, ground No. 1 and 2 of the appeal are dismissed.
In ground No. 3, the Revenue has agitated the issue that the learned Commissioner of Income-tax (Appeals) adjudicated the appeal without filing of the statement of fact as mandated by the statutory form No. 35. 3.1 The learned Commissioner of Income-tax (Departmental Representative) submitted that learned Commissioner of Income-tax (Appeals) has adjudicated the appeal despite being the defect in the appeal filed by the assessee. According to her, the appeal was not maintainable and, hence, ought not to have adjudicated due to non-compliance of the requirement and the adjudication by the learned Commissioner of Income-tax (Appeals) is bad in law. 3.2 On the other hand, the learned Authorized Representative submitted that mere non-filing of separate statement of facts Commissioner of Income-tax (Appeals) in deciding the issue before him. In support of the contention, he relied on the decision of the coordinate bench in the case of Computer Engineering Services India Private Limited Vs. ACIT in to 5878/Del/2013. 3.3 We have heard the rival submissions and perused the material on record. We find that filing of appeal is a substantive right, which cannot be taken away by a procedural irregularity. We also find that the coordinate bench of the Tribunal in the case of Computer Engineering Services India Private Limited (supra) has adjudicated this issue and held as under:
“8. The revenue has however also raised another Additional Ground of Appeal as under: "The ld. CIT(A) has erred in law in adjudicating the appeal filed by the assessee in as much as statutory requirement of filing statement of facts with Form No. 35 was not complied with."
9. The ld CIT DR submitted passionately that the assessee as per the statutory Form No. 35 was under a statutory obligation to file statement of fact and this was not complied with. In the absence of this compliance of statutory requirement the appeal was defective in as much as not maintainable and hence ought not to have been adjudicated upon. For non compliance of this statutory requirement the adjudication gets vitiated and argued at length and submitted written arguments in support of his contention. According to him, this statutory requirement cannot be ignored and goes to the root of the matter. On the other hand, it was submitted by the assessee that alongwith Form No. 35 the assessee had filed the detailed written submissions containing all fact and as per the Act. According to him, the appeal before the CIT(A) is continuation of the assessment proceeding. The ld. CIT(A) has got co-existensive and co-terminus powers to decide the appeal. It was contended that grounds has been raised in the appeal memo which is self-explanatory. It was submitted that separate filing of facts cannot come in the way in any manner or disabled the CIT(A) while deciding the issue before him. The ld. AR of the assessee pointed that the ld. CIT(A) has called for the remand report and non filing of the statement of facts in no way will affect the lis at hand before the ld. CIT(A). At best it can be called an irregularity which cannot be fatal and he referred to the leading Commentary on Income Tax Law Chaturvedi and Pithisaria Page 12734 Sixth Edition 2014. Thereafter, the ld. AR quoted the Hon'ble Supreme Court observations in Jai Jai Ram Manohar Lal vs. Natiional Building Material Supply AIR 1969 SC 1267 and ITAT Coordinate 'G' Bench decision in the case of Shri Ram Hari Ram ITA 3531/D/2012 wherein similar objection was rejected by Speaking order para 8 and 9.
10. We have carefully considered the arguments of both sides, perused the material placed before us. We are not reproducing the lengthy argument note of the ldDR, because we take note that a Coordinate Bench of this Tribunal in the case of SVP Builders (India) Ltd. vs. DCIT dated 19.2.2015 has adjudicated this issue and held as under: "15 Rival contention heard. On a careful consideration of the facts and circumstances of the case, a perusal of the papers on record and the order of the authorities below, as well as case laws cited, we hold as follows: "The first objection of the ld. DR is that the statement of facts have not been filed by the assessee, in Form No. 35, filed before the CIT(A). The CIT(A) has not treated the forms filed before him as defective. He admitted the appeal and adjudicated the matter on merits. The order of the ld. CIT(A) is the impugned order appealed against before us. The ld. DR wants us to hold that the order of the ld. CIT(A) is illegal and against the law as there is a defect in Form No. 35 In our view the arguments raised by the ld. DR are devoid on merit. Defects in the return of income filed, defects on Form No. 35 which is the form of appeal etc. are to be considered by the respective authorities before whom these are filed and the maintainability of the appeal before us cannot be challenged. The right of appeal is a substantive right. Procedural issues can not take away substantial rights of a person. This cannot be a ground for the revenue to challenge the order of the ld. CIT(A) which is in this case in favour of the Revenue. The arguments to say the least are farfetched. Hence we dismiss the same. 11 In view of the Coordinate Bench decision, we concur with the view expressed by the Coordinate Bench of the Tribunal and we dismiss the additional ground raised
by the revenue in this regard.” 3.4 Thus, respectfully following the decision of the coordinate bench in above case, we dismiss the ground raised by the Revenue.
4. In the result, the appeal filed by the Revenue is dismissed. The decision is pronounced in the open court on 16thAugust, 2016.