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Income Tax Appellate Tribunal, DELHI BENCHES : A : NEW DELHI
Before: SHRI R.S. SYAL, AM & MS SUCHITRA KAMBLE, JM
ORDER
PER R.S. SYAL, AM:
This batch of four appeals by the assessee comprises of two quantum appeals for the A.Ys. 2005-06 & 2006-07 and equal number of penalty appeals u/s 271(1)(c) for the similar years. Since common and ITA Nos.4144 & 4145/Del/2010 & 1260/Del/2014 related issues are involved in these appeals, we are, therefore, disposing them off by this consolidated order for the sake of convenience.
Before taking up these appeals for disposal on merits, we want to record that the hearing of these appeals started on 28.7.2016. During the course of arguments, the ld. AR relied on certain decisions, some of which have been adverted to infra. Both the sides completed their submissions, except for the ld. DR wanting some time to rebut the decisions relied by the ld. AR. Though, there is no such practice of giving time to the other side for rebutting the case law relied by the other side, yet the Bench accepted the request of the ld. DR and adjourned the matter for 1.8.2016 as per the convenience of both the sides. It was made clear that the adjourned date of hearing was only for distinguishing the cases relied by the ld. AR or citing some new cases in the favour of the Revenue. Today on 1.8.2016, an adjournment application has been moved by the ld. DR stating that the records of the case, being very old, are not readily available with the AO and hence the appeals may be adjourned. This was strongly opposed by the ld. AR, who submitted that ITA Nos.4144 & 4145/Del/2010 & 1260/Del/2014 the effective hearing of the appeals got concluded on 28.7.2016 and hence the Revenue’s request for adjournment be turned down. Here, it is pertinent to mention that these appeals are on board since 2010. Since the effective hearing got concluded from both the sides on 28.7.2016 except for giving an opportunity to the ld. DR for distinguishing the cases relied by the ld. AR, inter alia, of the Hon’ble jurisdictional High Court as referred to in the later part of this order or citing some new case, we cannot accept the request of the ld. DR at this stage for adjournment of the case. The Bench conveyed its opinion to the ld. DR of not proposing to adjourn the matter any further and asked him to distinguish the cases or cite some new cases, if he wanted to. The ld. DR did not advance any further submission. Thus it is inferred that the cases relied by the ld. AR are to be evaluated by the Bench as to their relevance and applicability to the facts of the instant case and the Department has nothing to add. The request for further adjournment of the appeals is, therefore, rejected and the appeals are taken up for hearing.
ITA Nos.4144 & 4145/Del/2010 & 1260/Del/2014 Assessment Year 2005-06 – Quantum appeal
Briefly stated, the facts of the case are that a search and seizure action u/s 132 of the Act was taken on 22.3.2006 at the business premises of Balaji Perfumes group, which is engaged in the trade of manufacturing of `Gutka’ under the brand names of `Maruti’, `Ajeet’ and `Kaveri’. This group belongs to late Shri Bishan Sarup Gupta, who has three sons, namely, Shri Abhay Gupta, Shri Anoop Gupta and Shri Ajay Gupta (the assessee in question). The whole business of manufacturing of gutka and sale and purchase of Arcanut is looked after by three brothers through the concerns, namely, M/s Balaji Perfumes and M/s Assam Supari Traders. Pursuant to notice u/s 153A, the assessee filed his individual return for the instant year. Apart from other additions, the AO observed that in his statements u/s 132, Shri Abhay Gupta, the eldest brother and senior male member of the family, admitted concealment of income and surrendered a sum of Rs.3.50 crore for the financial years 2004-05 and 2005-06 in the hands of the business concerns and three brothers. It was found by the AO that he admitted,
ITA Nos.4144 & 4145/Del/2010 & 1260/Del/2014 inter alia, that all the three brothers were having unaccounted income from commission etc. @ Rs.10 lac each for the assessment year under consideration and Rs.20 lac for himself and Rs.15 lac each for the other brothers for the assessment year 2006-07. These statements were signed by all the family members and were accompanied by an authority letter. The AO found that the surrendered income of Rs.10 lac was not offered by the assessee in his return of income filed u/s 153A of the Act. On being called upon to explain the reasons for not offering such income, the assessee stated that the statements of Shri Abhay Gupta were obtained under coercion and undue influence, which were later retracted by him vide his letter dated 3.10.2006. The AO did not accept the assessee’s contention as, in his view, the statements recorded u/s 132(4) were relevant and had evidentiary value. He, therefore, made an addition for a sum of Rs.10 lac. The ld. CIT(A) confirmed the addition of Rs.10 lac by relying on the order passed by him in the case of group concern, namely, M/s Balaji Perfumes for the assessment year 2006-07. In doing so, the ld. first appellate authority held that surrender was made by the assessee and not by a third party, namely, Shri Abhay Gupta and, 5
ITA Nos.4144 & 4145/Del/2010 & 1260/Del/2014 secondly, the statement of Shri Abhay Gupta was not validly retracted. The assessee is aggrieved against the confirmation of addition.
We have heard the rival submissions and perused the relevant material on record. It is noticed that the only basis for the addition of Rs.10 lac is surrender made by Shri Abhay Kumar Gupta, the elder brother of the assessee, through two statements recorded on 18.4.2006 and 3.5.2006. Whereas the case of the assessee is that the surrender of Rs.10.00 lac on account of commission income was extracted by the search officers under coercion and, hence, the addition be deleted, the Revenue is harping on the fact that it was a valid surrender and an invalid retraction. In order to decide as to whether the surrender was validly made or not, it is relevant to see the background facts leading to the making of the surrender by Shri Abhay Gupta, which statements were duly signed by the assessee also. The ld. AR conceded that the statements of Sh. Abhay Gupta be accepted as genuinely made by the assessee as these were also duly counter signed by the assessee.
ITA Nos.4144 & 4145/Del/2010 & 1260/Del/2014 5. Now let us examine if the surrender of Rs.10 lac was valid and deserves the sustenance of addition. In so far as the first statement dated 18.4.2006 made by Sh. Abhay Gupta and counter signed by the assessee is concerned, we find that the entire discussion is about the activities concerning the group concerns, namely, M/s Assam Supari Traders and M/s Balaji Perfumes. Our attention has not been drawn towards any question or answer about any undisclosed income earned by the assessee in his individual status in this statement. In the second statement dated 3.5.2006, whose copy is available on page 67 onwards of the paper book, Shri Abhay Gupta stated the modus operandi of recording transactions outside the books of account in the two concerns, namely, M/s Assam Supari Traders and M/s Balaji Perfumes. That is how, Shri Abhay Gupta surrendered a sum of Rs.3.50 crore which also included surrender of income of Rs.10 lac each in the hands of the three brothers for the assessment year 2005-06. Shri Abhay Gupta, after admitting that the supari business was carried on outside the books of account of the two concerns, also admitted that, in addition, he along with his brothers Shri Ajay Gupta and Shri Anoop Gupta were also involved in arhat and 7
ITA Nos.4144 & 4145/Del/2010 & 1260/Del/2014 dalali. He made a surrender of Rs.10 lac each by stating that: “In addition, we the three brothers, have also earned Rs.10 lac each approximately in this year from commission/dalali or other activities as explained above.” Albeit it is mentioned about the commission activity etc. ` as explained above’, but there is no reference in the earlier parts of his statement to the commission business carried on by the three brothers outside the books of account. The assessment order also does not refer to any incriminating material qua the commission business carried on by the assessee, except to the surrender of Rs.10.00 lac. This divulges that the surrender of Rs.10 lac made by Shri Abhay Gupta on behalf of the assessee was in respect of commission income for which, admittedly, no incriminating material was found during the course of search. The entire discussion in the earlier parts of the statement recorded on 18.4.2006 and whole of the statement recorded on 3.5.2006 is about the extent and magnitude of the business carried on outside the books of account by the two concerns, namely, M/s Assam Supari Traders and M/s Balaji Perfumes etc. In so far as the surrender of commission income is concerned, there is no reference to any incriminating material either in 8
ITA Nos.4144 & 4145/Del/2010 & 1260/Del/2014 the statement of Shri Abhay Gupta or in the assessment order of the assessee. This shows that the surrender made by Shri Abhay Gupta on behalf of the assessee on account of commission income was not backed by any material/evidence indicating the involvement of the assessee in the agency business. On a specific query, it was submitted by the ld. AR that the assessee never indulged in commission business and never offered any commission income in the past or in the future. This statement of the ld. AR was not controverted by the ld. DR with any contrary evidence. This shows that in so far as the surrender of Rs.10 lac on account of the commission income is concerned, the same is not corroborated by any evidence found during the course of search indicating the involvement of the assessee in some undisclosed agency activities.
At this juncture, it is pertinent to mention that the ld. DR strongly contested that the surrender made by the assessee in statement u/s 132(4) carries evidentiary value and the same is not required to be substantiated with any other evidence. The contention is no doubt true, but, it should
ITA Nos.4144 & 4145/Del/2010 & 1260/Del/2014 be understood in a proper context. One needs to draw a line of distinction between two situations, viz., first, where surrender is made pursuant to some incriminating material found during the course of search and, second, where surrender is made without discovery of any incriminating material. Whereas in the first situation, the surrender made in a statement under sub-section [4] of section 132 may be a good evidence of the assessee having earned undisclosed income from such activity, but the surrender made in the second situation, which remains totally unsubstantiated with any cogent and connecting material cannot have the same character as that of the former. The CBDT, vide its circular dt. 10th March, 2003, has made it clear that no attempt should be made to obtain confession as to the undisclosed income and the addition should be made only on the basis of material gathered during the course of search and survey. Thus, it becomes abundantly manifest that no addition can be made or sustained simply on the basis of statement recorded at the time of search, for which no corroborative material is found. In order to make a genuine and legally sustainable on the basis of surrender during search, it is sine qua non that some 10
ITA Nos.4144 & 4145/Del/2010 & 1260/Del/2014 incriminating material must have been found to correlate the undisclosed income with such statement.
The Hon’ble Delhi High Court in CIT vs. Harjeev Aggarwal (ITA No. 8/2004), vide its judgment dated 10.3.2016 {copy placed on record}, has held that : `The statement recorded under section 132(4) of the Act may also be used for making the assessment, but only to the extent it is relatable to the incriminating evidence/material unearthed or found during search. In other words, there must be a nexus between the statement recorded and the evidence/material found during search in order to for an assessment to be based on the statement recorded’. Similar view has been taken by the Hon’ble Delhi High Court in an earlier judgment in the case of CIT vs. Sunil Aggarwal (2015) 379 ITR367 (Del). To the similar effect is an earlier decision of the Hon’ble Andhra Pradesh High Court in CIT VS. Shri Ramdas Motor Transport (1999) 238 ITR 177(AP), in which the Hon’ble High Court refused to give any evidentiary value to the statement made by the assessee u/s 132(4) as the Department could not find any unaccounted money, article
ITA Nos.4144 & 4145/Del/2010 & 1260/Del/2014 or thing or incriminating document either at the premises of the company or at the residence of managing director or other directors. In such circumstances, the finding of the Tribunal that the statement of managing director recorded patently under s. 132(4) did not have any evidentiary value, was upheld. The above discussion makes it patent that the surrendered income must be correlated with some incriminating material found during the search so as to justify the addition. As admittedly no incriminating material was found during the course of search showing the involvement of the assessee in any sort of agency business, for which the surrender was made or obtained, we cannot sustain such an addition.
Be that as it may, let us examine if the surrender made by the assessee was, in fact, in the statements made under section 132(4) of the Act. This provision provides that the authorised officer may, during the course of the search or seizure, examine on oath any person who is found to be in possession or control of any books of account, documents, money, bullion, jewellery or other valuable article or thing and any ITA Nos.4144 & 4145/Del/2010 & 1260/Del/2014 statement made by such person during such examination may thereafter be used in evidence in any proceeding under this Act. It is discernible from a plain reading of this provision that statement u/s 132(4) is recorded by the authorized officer only during the course of the search or seizure. If search operation has come to an end, then any statement of the assessee, even though designated as a statement u/s 132(4), does not become so. There is hardly any need to accentuate that there can be no estoppel against the provisions of the Act. Adverting to the facts of the instant case, we find that the Authorized Officer has referred to the two statements of Sh. Abhay Gupta recorded on 18.4.2006 and 3.5.2006, as statements u/s 132[4]. The ld. AR has placed on record a copy of panchnama drawn in the case of the assessee, which records the date of commencement of search as 22.3.2006 and the date of completion of search as 23.3.2006. It was submitted that this was the only panchnama drawn in the case of the assessee. The ld. DR has not placed before us a copy of any other panchnama of a later date drawn in the name of the assessee. This shows that both the statements of Sh. Abhay Gupta, which have been claimed as made u/s 132[4] were, in fact, recorded 13
ITA Nos.4144 & 4145/Del/2010 & 1260/Del/2014 after the conclusion of search. As such, these statements cannot be even characterized as statements u/s 132(4) so as to be given any evidentiary value.
In view of the foregoing discussion, we are satisfied that the ld. CIT(A) was not justified in sustaining the addition of Rs.10 lac by relying on his finding given in the case of M/s Assam Supari Traders and M/s Balaji Perfumes, the facts of which are entirely different from that of the assessee under consideration. It is further noticed that the other two brothers of the assessee, on whose behalf a similar surrender of Rs.10.00 each was made, also did not offer such income in their respective returns of income. The AO made additions of the income surrendered but not declared. However, the concerned CIT(A) deleted such additions. The appeals filed by the Revenue against such deletions have been dismissed by the tribunal due to low tax effect.
Before parting with this issue, we want to make it clear that the addition made on account of surrender of commission income made by the assessee is entirely different from the additions made in the case of ITA Nos.4144 & 4145/Del/2010 & 1260/Del/2014 two group concerns, namely, M/s Assam Supari Traders and M/s Balaji Perfumes, which are, inter alia, also based on the statements of Sh. Abhay Gupta. We want to clarify beyond doubt that the validity or otherwise of the retraction of statements made by Sh. Abhay Gupta has neither been considered nor decided by us in this order, as the same is not relevant in so far as the instant addition of Rs.10.00 lac, made in the hands of the assessee, is concerned. No finding given in this order in respect of the deletion of the addition has any significance or relevance with the additions made in the case of the above referred two concerns, whose appeals are pending before the tribunal.
The only other ground which survives in the instant appeal is against the income arising from the estimation of household expenses. The AO made an estimate of household expenses @ Rs.25,000/- per month and, accordingly, made the addition. The ld. CIT(A) sustained the same. The assessee is aggrieved against the sustenance of the addition.
ITA Nos.4144 & 4145/Del/2010 & 1260/Del/2014 12. We have heard the rival submissions and perused the relevant material on record. It is observed that the AO for earlier years made an estimation of household expenses @ Rs.20,000/- per month. The assessee appealed against such estimation of income before the CIT(A) and the tribunal, but without any success. A copy of such tribunal order upholding the addition made on the basis of estimation of household expenses at this level is available on record. Considering the totality of the facts and circumstances of the instant case, we are satisfied that it would be in the fitness of things, if the estimation of household expenses for this year is restricted to Rs.22,000/- per month as against Rs.25,000/- made by the AO. The addition is sustained pro tanto. This ground is partly allowed.
In the result, the appeal is partly allowed.
Assessment Year 2006-07 – Quantum appeal
The facts of the instant appeal are mutatis mutandis similar to those of the assessment year 2005-06 except for the fact that surrender was made by the assessee for this year at Rs.15 lac on account of ITA Nos.4144 & 4145/Del/2010 & 1260/Del/2014 commission income. Both the sides have also accepted that the facts and circumstances for both the years are identical except for the amount of addition. Following the view taken hereinabove for the immediately preceding year, we order for the deletion of the addition.
The other ground which survives in the instant appeal is against estimation of household expenses. The AO made estimate of household expenses @ Rs.25,000/- per month and, accordingly, made the addition. The ld. CIT(A) sustained the same. The assessee is aggrieved against this addition.
We have heard the rival submissions and perused the relevant material on record. It is observed that the AO made addition by estimating household expenses @ Rs.25,000/- per month for the instant year and the immediately preceding year and at the rate of Rs.20,000 p.m. for the prior years. The assessee appealed against such additions on the basis of estimation of household expenses before the CIT(A) and the tribunal for earlier years, but without any success, except that for the immediately preceding year, the estimate of household expenses has ITA Nos.4144 & 4145/Del/2010 & 1260/Del/2014 been sustained at Rs.22,000 p.m. Considering the totality of the facts and circumstances of the instant case, we are satisfied that it would be in the fitness of things, if the estimation of household expenses for the instant year is restricted to Rs.24,000/- per month as against Rs.25,000/- made by the AO. The consequential addition is sustained pro tanto. This ground is partly allowed.
In the result, the appeal is partly allowed.
Penalty appeals - A.Ys. 2005-6 and 6-07
The AO imposed penalty u/s 271(1)(c) in respect of the assessment years 2005-06 and 2006-07 at the rate of 200% of the amount of tax sought to be evaded qua the income of Rs.10 lac and Rs.15 lac, respectively surrendered by the assessee, but, not offered in the returns of income and the additions made on the basis of estimate of household expenses. The ld. CIT(A) confirmed the penalty but directed that the same be restricted to 100% of the amount of tax sought to be evaded. The assessee is aggrieved against the sustenance of penalty for both the years.
ITA Nos.4144 & 4145/Del/2010 & 1260/Del/2014 19. We have heard the rival submission and perused the relevant material on record. It is observed that the bedrock for the imposition of the extant penalties on the additions of Rs.10 lac and Rs.15 lac, does not survive anymore as the additions have been deleted by us hereinabove. In that view of the matter, there remains no basis for the confirmation of the instant penalties. As regards the confirmation of additions towards the estimate of household expenses, we find that the AO simply made an estimate of household expenses without there being any evidence backing such an estimate, which has been partly accepted. The Hon’ble Delhi High Court in CIT vs. Aero Traders P. Ltd. (2010) 322 ITR 316 (Del) has held that no penalty u/s 271(1)(c) can be levied when income is determined on estimate basis. Similar view has been taken by several other High Courts including the Hon’ble Punjab & Haryana HIgh Court in Harigopal Singh vs. CIT (2002) 258 ITR 85 (P&H) and CIT vs. Dhillon Rice Mills (2002) 256 ITR 447 (P&H). As the penalty on account of low household withdrawals is simply on the basis of an estimate made by the AO, which has been partly reduced, we are satisfied that no penalty can be levied on the basis of such an estimate of 19
ITA Nos.4144 & 4145/Del/2010 & 1260/Del/2014 household expenses. Ergo, we delete the penalties for both the years. As we have deleted the penalties on merits, there is no need to examine the legal ground urged by the assessee for both the years.
In the result, the appeals are allowed.
The order pronounced in the open court on 01.08.2016.