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Income Tax Appellate Tribunal, IN THE INCOME TAX APPELLATE TRIBUNAL
Before: SHRI G.D. AGRAWALG.D. AGRAWAL & AND BEFORE SHRI G.D. AGRAWALG.D. AGRAWAL & AND MS. SUCHITRA KAMBLE
PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP :- PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP This appeal by the Revenue for the assessment year 2010-11 is directed against the order of learned CIT(A)-V, New Delhi dated 5th April, 2013.
The only ground raised by the Revenue reads as under:-
“The ld.CIT(A) has erred on facts and in law in deleting the addition made on account of additional income of Rs.3,50,00,000/- declared in the course of survey u/s 133A on oath.”
The facts of the case are that the assessee company is engaged in the business of financing of automobiles and allied through loan cum hypothecation mode. The company raised funds through secured redeemable non-convertible debentures and fixed deposits from its 2 ITA-3918/Del/2013 investors. There was survey u/s 133A of the Income-tax Act, 1961 at the assessee’s business premises on 5th November, 2009. During the course of survey, Shri Kanwal Aggarwal, Director of the company was shown the list of secured redeemable non convertible debentures and he was asked to provide evidence of genuineness of these debentures and full details concerning these transactions. Shri Kanwal Aggarwal replied that he is unable to provide necessary evidence regarding genuineness of debentures subscribed by certain parties. Thereafter, he was asked to identify the parties in respect of whom he is unable to explain the genuineness, in response to which, Shri Kanwal Aggarwal surrendered the sum of `2,85,18,000/-. Another list was shown to Shri Kanwal Aggarwal and he also surrendered the sum of `24,66,715/- in respect of unsecured loan in the said list. He further surrendered the sum of `40,15,285/- as additional income. Thus, the total income of `3,50,00,000/- (`2,85,18,000 + 24,66,715 + 40,15,285) was surrendered by him. The assessee retracted the surrender made by him vide letter dated 7th September, 2010 which was submitted on 8th September, 2010. Soon thereafter, the assessee filed the return of income on 13th October, 2010 in which the income surrendered during the course of survey was not disclosed. During the course of assessment proceedings, the Assessing Officer asked the representative of the assessee company to provide names and details of account holders, in response to which, the assessee produced voluminous details and evidences running into more than 7,000 pages. The Assessing Officer asked the assessee to produce some of the debenture holders and depositors. However, the assessee could not produce any of them. In view of the above, the Assessing Officer made the addition of `3,50,00,000/- as unexplained credit u/s 68. On appeal, learned CIT(A) noticed that out of the credit in the assessee’s books of account, the credit to the extent of `1,28,39,715/- was not relevant to the assessment year under consideration. He also noticed that the assessee duly discharged the onus which lay upon it u/s 68 by 3 ITA-3918/Del/2013 producing the various documents which were in the nature of application form, KYC documents, proof of identity etc. He also recorded the finding “These documents contain full evidence of each and every depositor”. After considering these facts and evidences, learned CIT(A) found that the assessee has duly discharged the onus of proving the cash credit u/s 68. Accordingly, he deleted the addition of `3,50,00,000/-. The Revenue, aggrieved with the order of the CIT(A), is in appeal before us.
At the time of hearing before us, it is submitted by the learned DR that the date of survey was 5th November, 2009 while the retraction is made by the assessee on 7th September, 2010 which was almost more than 10 months from the date of survey. That such a long gap itself proves that the retraction was an after-thought and should not be given undue weightage. He stated that the assessee made a voluntary surrender of the income during the course of survey because the assessee was unable to prove the huge credit lying in its books of account. He, therefore, submitted that the order of learned CIT(A) should be reversed and that of the Assessing Officer may be restored.
Learned counsel for the assessee, on the other hand, stated that the surrender was made by the assessee under coercion and pressure of the Department. He submitted that the assessee was asked to prove the genuineness of more than 3,000 creditors at the time of recording of the statement. It is impossible to explain by anybody the genuineness of credit of 3,000 persons instantly during the course of recording of the statement. Therefore, the director of the assessee company stated that he is unable to explain the genuineness of credit of all the persons immediately and then he was forced to make the surrender. Therefore, the surrender was retracted by filing of letter as well as by not offering the income in the return of income. He further stated that Hon'ble Jurisdictional High Court in the case of CIT Vs.
4 ITA-3918/Del/2013 Dhingra Metal Works – [2010] 328 ITR 324 (Delhi) stated that the statement recorded u/s 133A is not conclusive and the addition cannot be based upon the statement. Similar view was expressed by Hon’ble Madras High Court in the case of CIT Vs. S. Khader Khan Son [2008] 300 ITR 157 (Madras). The decision of Hon’ble Madras High Court is approved by Hon’ble Apex Court in [2012] 254 CTR 228 (SC). He further submitted that during the course of assessment proceedings, the assessee produced all the evidences in support of the genuineness of credit. The evidences produced by the assessee were more than 7,000 pages. The Assessing Officer, though acknowledged the production of evidences, but simply rejected by mentioning that “I do not find any force in them”. He stated that the Assessing Officer made the addition of `3,50,00,000/- for unexplained credit u/s 68. That obviously as per statement also, the sum of `40,15,285/- was not in respect of any credit. Moreover, out of the credit of `24,66,715/- plus `2,85,18,000/-, the credit of `1,28,39,715/- was not pertaining to the year under consideration. Thus, the Assessing Officer has made the addition without any application of mind simply on the basis of surrender made by the assessee during the course of survey. That the CBDT also in its Circular dated 10th March, 2003 has stated that during the course of assessment proceedings, the Assessing Officer should rely upon the evidences gathered during the course of search/survey operation and then only, the relevant assessment should be framed. He, therefore, submitted that the order of learned CIT(A) should be sustained.
We have carefully considered the submissions of both the sides and have perused the material placed before us. Though the Assessing Officer has made the addition of `3,50,00,000/- as unexplained credit u/s 68, apparently, he has made the addition because of the surrender made by the assessee during the course of survey u/s 133A. The Assessing Officer himself has summarized the 5 ITA-3918/Del/2013 surrender made by the assessee at page 3 of the assessment order which is reproduced below for ready reference :-
“To summarize the total surrender made in respect of M/s Bansal Credits Ltd. is given as below :-
S.No. Head Amount F.Y. 1. Unsecured Loans (unexplained) Rs.24,66,715/- 2009-10 2. Unexplained debentures Rs.2,85,18,000/- 2009-10 3. Buffer Rs.40,15,285/- 2009-10”
From the above, it is evident that obviously, the surrender of `40,15,285/- was not in respect of cash credit and, therefore, the same could not have been added u/s 68. Moreover, learned CIT(A) has recorded the finding that credit to the extent of `1,28,39,715/- was not pertaining to the year under consideration and, therefore, the same could not have been added u/s 68. The Assessing Officer has recorded that the assessee has furnished various letters explaining the genuineness of credit. However, without discussing any of the letters, he just mentioned that there is no force in it. If the assessee has furnished more than 7,000 pages of various documents proving the cash credit, there was hardly any justification to reject all of them without dealing with any of them. Totality of these facts clearly shows that the Assessing Officer made the addition because the surrender was made by the assessee during the course of survey. With this, we come to the legal position whether the addition can be based solely on the surrender made during the course of survey. We find that Hon'ble Jurisdictional High Court has considered this issue in the case of Dhingra Metal Works (supra) wherein Hon'ble Jurisdictional High Court, upholding the decision of ITAT, held as under:-
“Held, dismissing the appeal, that for a statement to have evidentiary value, the survey officer should have been authorised to administer an oath and to record a sworn statement. While section 132(4) of the Act specifically authorizes an officer to examine a person on oath, section 133A did not permit the same. Moreover, the word “may”
6 ITA-3918/Del/2013 used in section 133A(3)(iii) of the Act clarifies beyond doubt that the material collected and the statement recorded during the survey was not a conclusive piece of evidence by itself. It was settled law that though an admission was an extremely important piece of evidence, it could not be said to be conclusive and it was open to the person who had made the admission to show that it was incorrect. Since the assessee had been able to explain the discrepancy in the stock found during the course of survey by production of relevant record including the excise register of its associate company, the Assessing Officer could not have made the addition solely on the basis of the statement made on behalf of the assessee during the course of survey.”
The ratio of the above decision would be squarely applicable to the facts under appeal because in the case under appeal before us also, the statement was recorded u/s 133A and not u/s 132(4) and moreover, the assessee has furnished voluminous evidences to discharge the onus of proving the cash credit u/s 68. The Assessing Officer has not specified a single credit which is to be treated as unexplained. In the case of S. Khader Khan Son (supra), Hon’ble Madras High Court held :-
“Dismissing the appeal, that in view of the scope and ambit of the materials collected during the course of survey action under section 133A shall not have any evidentiary value. It could not be said solely on the basis of the statement given by one of the partners of the assessee-firm that the disclosed income was assessable as lawful income of the assessee.”
That the above decision of Hon’ble Madras High Court has been approved by Hon’ble Apex Court in [2012] 254 CTR 228 (SC). That CBDT also in its letter F.No.286/2/2003-IT(Inv.II) dated 10th March, 2003 provided as under :-
“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 7 ITA-3918/Del/2013 search & 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 & seizure and survey operations do not serve any useful purpose. It is, therefore, advised that there should be focus and concentration on collection of evidence of income which leads to information on what has not been disclosed or is not likely to be disclosed before the Income Tax Departments. Similarly, while recording statement during the course of search, seizures and survey 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, Assessing Officers should rely upon the evidences/materials gathered during the course of search/survey operations or thereafter while framing the relevant assessment orders.”
Thus, even as per CBDT, the addition should be based upon the evidences/material gathered during the course of search/survey rather on the basis of statement recorded during the course of survey. Admittedly, in this case, no material was collected during the course of survey which could establish that the credit was non-genuine. Learned CIT(A) has recorded the finding that the assessee has taken the small credits of below `20,000/- from various persons. However, as per KYC documents prescribed by the RBI, PAN card or ration card or voter ID etc. were obtained in respect of each and every depositor and the same were furnished before the Assessing Officer. The assessee has also produced the copy of debenture application form as well as debenture allotment letter. Debenture trust deed was executed by the company with the debenture trustee to secure and protect the interest of the debenture holders who are small investors. He has also produced the deed of hypothecation for hypothecating movable assets and receivable thereon of the company in favour of the trustee as per debenture trust deed. Learned CIT(A) has discussed all these documents in detail from pages 5 to 17 of his order and thereafter
8 ITA-3918/Del/2013 arrived at the conclusion “From all these documents requisite ingredients of section 68 are duly fulfilled, genuineness of the debenture amounts and fixed deposit amounts is duly established and it can be said that the assessee has discharged its primary burden under the law”. After considering the facts and arguments of both the sides, we do not find any infirmity in the above finding of learned CIT(A). There was a credit in the assessee’s books of account of small amounts of below `20,000/- each from more than 3,000 persons. The assessee has furnished necessary evidences in respect of those creditors, which was more than 7,000 pages. The Assessing Officer acknowledged the furnishing of those evidences but rejected them summarily with the following finding :-
“In response the assessee company has filed various letters explaining the genuineness of the credits. I have gone through the replies but do not find any force in them.”
Thus, the Assessing Officer, without discussing the case of a single creditor, rejected all of them. Learned CIT(A) has discussed all those documents from page 5 to 17 of his order. The Assessing Officer made the addition of `3,50,00,000/- as unexplained credit u/s 68 when admittedly, the sum of `3,50,00,000/- was the surrender made by the assessee during the course of survey and was not the amount of credit in the assessee’s books of account. Credit in the assessee’s books of account was only `3,09,84,715/-. Learned CIT(A) has also recorded the finding that the credit to the extent of `1,28,39,715/- was not pertaining to the year under consideration. Thus, it is evident that the Assessing Officer made the addition without considering all the facts and evidences on record merely because the assessee has surrendered the same at the time of search. We have already discussed that in view of the decision of Hon'ble Jurisdictional High Court in the case of Dhingra Metal Works (supra) and of Hon’ble Apex Court in the case of S. Khader Khan Son (supra) as well the Circular of 9 ITA-3918/Del/2013 CBDT vide letter F.No.286/2/2003-IT(Inv.II) dated 10th March, 2003, the addition cannot be made only on the basis of surrender made at the time of survey. In view of the above legal and factual position, we do not find any infirmity in the order of learned CIT(A). Accordingly, the same is upheld and Revenue’s appeal is dismissed.
In the result, the appeal of the Revenue is dismissed. Decision pronounced in the open Court on 19.09.2016.