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Income Tax Appellate Tribunal, C BENCH: BANGALORE
Before: SHRI CHANDRA POOJARI & SHRI KESHAV DUBEY
PER CHANDRA POOJARI, ACCOUNTANT MEMBER:
These two appeals by same assessee for the assessment year 2014-15 and 2018-19 directed against the common orders of ld. CIT(A) dated 31.12.2019. 2. First, we will take for the assessment year 2014-15 for adjudication. The grounds raised by the assessee in this appeal are as follows:
1. The orders of the authorities below in so far as they are against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.
2. The learned CIT[A] is not justified in upholding the addition of Rs. 14,21 ,029/- as the alleged salary received by the appellant solely based on the statement recorded u/s. 132[4] of the Act under the facts and in the circumstances of the appellant's case? & 836/Bang/2024 Sri Maruthivandith Reddy Mannu, Bangalore Page 2 of 32 2.1 The learned CIT[A] ought to have appreciated that the actual salary received by the appellant was only Rs. 10,78,971/-, which has been duly offered to tax and that the statement given u/s 132[4] of the Act was erroneous and therefore, no reliance ought to have been placed on the same especially when there was no materials found in course of search based on which the said statement was recorded and thus, the addition sustained in the absence of any corroborative materials ought to have been deleted.
3. The learned CIT[A] is not justified in upholding the addition of Rs. 20,06,327/- out of the original addition of Rs. 40,06,327/- in respect of the credits in the Bank account of the appellant treated the same as unexplained money u/s. 69A of the Act under the facts and in the circumstances of the appellant's case.
4. The CIT [A] is not justified in upholding the tax imposed under the provisions of section 115BBE at the rate of 60% under the facts and in the circumstances of the appellant's case.
Without prejudice to the right to seek waiver with the Hon'ble CCIT/DG, the appellant denies himself liable to be charged to interest u/s. 234A and 234B of the Act, under the facts and in the circumstances of the appellant's case deserves to be cancelled.
For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.”
2.1 The first ground in this appeal is that the ld. CIT(A) erred in sustaining addition of Rs.14,21,029/- as the alleged salary received by the assessee solely based on the statement recorded u/s 132(4) of the Act. 3. Facts of the issue are that the statement of the assessee was recorded u/s 132(4) of the Act which reads as follows:
3.1. From the above ld. AO observed that assessee has received an amount of Rs.25 lakhs salary from Syntel Ltd. However, the assessee shown salary of Rs.10,78,971/-. Thus, balance amount of Rs.14,21,029/- was considered as salary of assessee as the assessee has not properly explained total credit of Rs.1,77,13,444/- in the bank account of the assessee. On appeal, ld. CIT(A) also confirmed the same. Against this assessee is in appeal before us. 3.2 The ld. A.R. relied on the judgement of Hon’ble Delhi High Court in the case of PCIT Vs. Pavitra Realcon Pvt. Ltd. in dated 29.5.2024 for the proposition that addition cannot be made in such assessment only solely on the basis of statement recorded u/s 132(4) of the Act.
On the contrary, ld. D.R. submitted that the assessee itself admitted in the course of search action while recording statement u/s 132(4) of the Act the salary received from M/s. Syntel Ltd. was Rs.25 lakhs. However, Form No.26 shows only Rs.10,78,971/-. Balance amount of Rs.14,21,029/- has been considered as salary income of the assessee since the credit in assessee’s bank account of Rs.1,77,13,444/- was not properly explained. 4.1 She relied on the following judgements: & 836/Bang/2024 Sri Maruthivandith Reddy Mannu, Bangalore Page 4 of 32 (i) Judgement of Hon’ble Supreme Court of India in the case of Video Master Vs. JCIT reported in (2015) 378 ITR 374 (SC), wherein held as under: “A search and seizure operation was carried on at premises of the assessee’ firm and others where in partner of the assessee disclosed certain undisclosed income. Accordingly, an addition was made to the income of the assessee. The Tribunal held that statement made by partner could be used as evidence and accordingly upheld the assessment order. The High Court dismissed appeal of the assessee.
Held that it is not possible to say that this is a case of no evidence at all inasmuch as evidence in the form of the statement made by the assessee himself and other corroborative material are there on record.”
(ii) Judgement of Hon’ble High Court of Kerala in the case of CIT, Kozhikode Vs. O. Abdul Razak reported in (2013) 350 ITR 71 (Kerala) where held as follows: “IT: As self-serving retraction, without anything more cannot dispel statement made under oath under section 132(4)”.
(iii) Judgement of Hon’ble High Court of Jharkhand in the case of Mahabir Prasad Rungta Vs. CIT, Ranchi reported in (2014) 266 CTR 175 (Kharkhan) (9.1.2014) wherein held as under: “IT: Where assessee has not adduced any rebuttal evidence to show that entries made in diary/loose sheets recovered during search are not income in hands of assessee, addition is to be upheld.”
(iv) Judgement of Hon’ble Supreme Court of India in the case of Roshanlal Sanchiti Vs. PCIT reported in (2023) 150 taxmann.com 228 (SC), wherein held that “SLP dismissed against order of High Court that retraction of statement recorded u/s 132(4) of the Act has to be made within reasonable time or immediately after statement of assessee is recorded and hence where retraction of statement recorded u/s 132(4) and later confirmed in statement recorded u/s 131 had been made by assessee after almost 8 months same was to be disregarded.”
ITA No.835 & 836/Bang/2024 Sri Maruthivandith Reddy Mannu, Bangalore Page 5 of 32 5. We have heard the rival submissions and perused the materials available on record. The assessment year involved herein is 2014-15. The assessee filed original return of income u/s 153A of the Act on 23.2.2019 for which acknowledgement No.425048061230219 income of Rs.10,78,970/-. There was a search in the case of assessee on 1.2.2018 and notice u/s 153A of the Act was issued on 21.2.2019. In response to this assessee has filed a return of income on 23.2.2019. While framing assessment ld. AO inter-alia made addition of Rs.14,21,029/-. For making this addition, the ld. AO relied on the statement recorded u/s 132(4) of the Act as discussed earlier. In other words, assessee was asked to explain the sources of credit of Rs.1,77,13,444/- deposited into assessee’s bank account in the financial year 2013-14. At the time of recording statement u/s 132(4) of the Act, the assessee was not incidentally able to explain each entry in bank account. The assessee has stated that assessee’s salary is Rs.25 lakhs. The ld. AO computed this statement with Form 26AS and observed that in Form 26AS it was mentioned that his salary as Rs.10,78,971/- and hence, he brought to tax balance amount of Rs.14,21,029/-. 5.1 In our opinion, Hon’ble Supreme Court in the case of PCIT Vs. Abhisara Buildwell Pvt. Ltd. in ITR 212 wherein it was held that no addition can be made in respect of assessment framed u/s 153A of the Act without any seized material. In this case, no incriminating material is unearthed during the search. The ld. AO cannot assess or re-assess taking into consideration the other material in respect completed assessment or unabated assessment. 5.2 Herein the assessment involved is 2014-15. Since no return of income is filed by the assessee u/s 139 of the Act, the time limit to file the return of income has expired. The entire income shall be regarded as the assessment has not reached finality since there was no return of income filed by the assessee u/s 139 of the Act for the undisclosed income. Consequently, ld. AO would have the ITA No.835 & 836/Bang/2024 Sri Maruthivandith Reddy Mannu, Bangalore Page 6 of 32 jurisdiction to assess the entire income similar to jurisdiction in regular assessment u/s 143(3) of the Act. No requirement to restrict to documents found during the course of search. In other words, there should be certain documents whether incriminating or seized material should be in the possession of the ld. AO to make the additions in the present case of assessee. 5.3 Further, the ld. AO cannot solely rely on the statement recorded u/s 132(4) of the Act as held by Hon’ble Delhi High Court in the case of PCIT Vs. Pavitra Realcon Pvt. Ltd. cited (supra), wherein held as under: “17. We have heard the learned counsels appearing on behalf of the parties and perused the record.
The primary grievance which arises in the present appeals pertains to whether the ITAT was right in deleting additions made under Section 68 of the Act by holding that no assessment could have been made on mere presumption of existence of incriminating material.
Undisputedly, during the period of search, no incriminating material appears to have been found. However, the Revenue proceeded to issue notice under Section 143(2) of the Act on the pretext of the statements of the Directors of the respondent-assessee companies recorded under Section 132(4) of the Act and material seized from the search conducted on Jain group of companies. The assessment order was also passed under Section 143(3) read with Section 153C of the Act making additions under Section 68 of the Act.
However, it is an undisputed fact that the statement recorded under Section 132(4) of the Act has better evidentiary value but it is also a settled position of law that addition cannot be sustained merely on the basis of the statement. There has to be some material corroborating the content of the statements.
In the case of Kailashben Manharlal Chokshi v. CIT1, the Gujarat 21. High Court held that the additions could not be made only on the basis of admissions made by the assessee, in the absence of any corroborative material. The relevant paragraph no. 26 of the said decision has been reproduced hereinbelow: - 26. In view of what has been stated hereinabove we are of the view that this explanation seems to be more convincing, has not been considered by the authorities below and additions were made and/or confirmed merely on the basis of statement recorded under section 132(4) of the Act. Despite the fact that the said statement was later on retracted no evidence has been led by the Revenue & 836/Bang/2024 Sri Maruthivandith Reddy Mannu, Bangalore Page 7 of 32 authority. We are, therefore, of the view that merely on the basis of admission the assessee could not have been subjected to such additions unless and until, some corroborative evidence is found in support of such admission. We are also of the view that from the statement recorded at such odd hours cannot be considered to be a voluntary state ment, if it is subsequently retracted and necessary evidence is led contrary to such admission. Hence, there is no reason not to disbelieve the retrac tion made by the Assessing Officer and explanation duly supported by the evidence. We are, therefore, of the view that the Tribunal was not justified in making addition of Rs. 6 lakhs on the basis of statement recorded by the Assessing Officer under section 132(4) of the Act. The Tribunal has com mitted an error in ignoring the retraction made by the assessee.
[Emphasis supplied]
22. Further, the position with respect to whether a statement recorded under Section 132(4) of the Act could be a standalone basis for making assessment was clarified by this Court in the case of CIT v. Harjeev Aggarwal2, wherein, it was held that merely because an admission has been made by the assessee during the search operation, the same could not be used to make additions in the absence of any evidence to corroborate the same. The relevant paragraph of the said decision is extracted herein below: - “20. 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 stand alone basis without reference to any other material discovered during search and seizure operations would not empower the Assessing Officer to make a block assessment merely because any admission was made by the assessee during search operation. [Emphasis supplied]
23. In our opinion, the Act does not contemplate computing of undisclosed income solely on the basis of statements made during a search. However, these statements do constitute information, and if they relate to the evidence or material found during the search, they can be used in proceedings under the Act, as specified under Section 132(4) of the Act. Nonetheless, such statements alone, without any other material discovered during the search & 836/Bang/2024 Sri Maruthivandith Reddy Mannu, Bangalore Page 8 of 32 which would corroborate said statements, do not grant the AO the authority to make an assessment.
24. Coming to the findings of the ITAT with respect to incriminating material in the case of M/s Pavitra Realcon Pvt. Ltd and M/s Delicate Real Estate Pvt. Ltd, it is seen that the ITAT has explicitly held in paragraph no. 18 that no addition has been made on the basis of any incriminating material found during the course of search. Further, the ITAT relied on the decision of the Supreme Court in the case of CIT v. Sinhgad Technical Education Society1 and held as follows: - “18. Further, while writing the order it has come to our notice that the Hon’ble Apex Court in the case of Sinhgad Technical Education Society has held that section 153C can be invoked only when incriminating materials assessment year-wise are recorded in satisfaction note which is missing here. Therefore, the proceedings drawn u/s 143(3) as against 153C are invalid for want of any incriminating material found for the impugned assessment year. 19. In view of the above, the additional grounds raised by the assessee in the case of M/s Pavitra Realcon Pvt. Ltd. And M/s Delicate Real Estate Pvt. Ltd. are accepted. Since the assessee succeeds on this legal ground, we refrain ourselves from adjudicating the issue on merit as far as these two cases are concerned.”
25. Also, the Supreme Court in the case of CIT v. Abhisar Buildwell (P) Ltd.4, has clarified that in case no incriminating material is found during the search conducted under Section 132 of the Act, the AO will have no jurisdiction to make an assessment. The relevant paragraph is reproduced herein below: - “36.4. In case no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments. Meaning thereby, in respect of completed/unabated assessments, no addition can be made by the AO in absence of any incriminating material found during the course of search under Section 132 or requisition under Section 132-A of the 1961 Act. However, the completed/unabated assessments can be re-opened by the AO in exercise of powers under Sections 147/148 of the Act, subject to fulfilment of the conditions as envisaged/mentioned under Sections 147/148 of the Act and those powers are saved.” [Emphasis supplied] & 836/Bang/2024 Sri Maruthivandith Reddy Mannu, Bangalore Page 9 of 32 This Court in the case of CIT v. Kabul Chawla5, has explicitly noted 26. that the information/material which has been relied upon for assessment has to relate with the assessee. The relevant portion of the said decision is extracted herein below: - (iv) Although section 153A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the Assessing Officer which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously, an assessment has to be made under this section only on the basis of the seized material."
[Emphasis supplied]
Recently, this Court, in the case of Saksham Commodities Limited v. Income Tax Officer, Ward 22(1), Delhi & Anr6, while relying upon the decision of the Supreme Court in Abhisar Buildwell (supra) and this Court’s decision in the case of CIT v. RRJ Securities Ltd.7, upheld the position of law that the AO would not be justified to assess income in case no incriminating material is found during the search. The relevant paragraph is reproduced herein below: - “54. In any case, Abhisar Buildwell, in our considered opinion, is a decision which conclusively lays to rest any doubt that could have been possibly harboured. The Supreme Court in unequivocal terms held that absent incriminating material, the AO would not be justified in seeking to assess or reassess completed assessments. Though the aforesaid observations were rendered in the context of completed assessments, the same position would prevail when it comes to assessments which abate pursuant to the issuance of a notice under Section 153C. Here too, the AO would have to firstly identify the AYs' to which the material gathered in the course of the search may relate and consequently it would only be those assessments which would face the spectre of abatement. The additions here too would have to be based on material that may have been unearthed in the course of the search or on the basis of material requisitioned. The statute thus creates a persistent and enduring connect between the material discovered and the assessment that may be ultimately made. The provision while speaking of AYs' falling within the block of six AYs' or for that matter all years forming part of the block of ten AYs', appears to have been put in place to cover all possible contingencies. The aforesaid provisions clearly appear to have been incorporated and made applicable both with respect to Section 153A as well as Section 153C ex abundanti cautela. Which however takes us back to what & 836/Bang/2024 Sri Maruthivandith Reddy Mannu, Bangalore Page 10 of 32 had been observed earlier, namely, the existence of the power being merely enabling as opposed to a statutory compulsion or an inevitable consequence which was advocated ***** 56. We also bear in mind the pertinent observations made in RRJ Securities when the Court held that merely because an article or thing may have been recovered in the course of a search would not mean that concluded assessments have to “necessarily” be reopened under Section 153C and that those assessments are not liable to be revised unless the material obtained have a bearing on the determination of the total income. This aspect was again emphasised in para 38 of RRJ Securities with the Court laying stress on the existence of material that may be reflective of undisclosed income being of vital importance. All the aforenoted judgments thus reinforce the requirement of incriminating material having an ineradicable link to the estimation of income for a particular AY.”
[Emphasis supplied] 28. So far as the submission made by the learned counsel for the Revenue that the AO acted on a bona fide belief that the date of search has to be taken as the date of initiation of proceedings under Section 153C of the Act is concerned, it is apposite to refer to our decision in the case of CIT v. Ojjus Medicare (P) Ltd.8 This Court, in the said case, reiterated the already settled law that the date of initiation of assessment proceedings under Section 153C would be calculated from the date of handing over of the books of accounts, documents or assets seized to the jurisdictional AO of the non-searched person. The relevant paragraphs of the said decision are extracted herein below: - “K. SUMMARY OF CONCLUSIONS 119. We thus record our conclusions as follows:
A. Prior to the insertion of Sections 153A, 153B and 153C, an assessment in respect of search cases was regulated by Chapter XIVB of the Act, comprising of Sections 158B to 158BI and which embodied the concept of a block assessment. A block assessment in search cases undertaken in terms of the provisions placed in Chapter XIVB was ordained to be undertaken simultaneously and parallelly to a regular assessment. Contrary to the scheme underlying Chapter XIVB, Sections 153A, 153B and 153C contemplate a merger of regular assessments with those that may be triggered by a search. On a search being undertaken in terms of Section 153A, the jurisdictional AO is enabled to initiate an assessment or reassessment, as the case may be, in respect of the six AYs' immediately preceding the AY relevant to the year of search as also in respect of the “relevant assessment year”, an expression & 836/Bang/2024 Sri Maruthivandith Reddy Mannu, Bangalore Page 11 of 32 which stands defined by Explanation 1 to Section 153A. Of equal significance is the introduction of the concept of abatement of all pending assessments as a consequence of which curtains come down on regular assessments.
B. Both Sections 153A and 153C embody non-obstante clauses and are in express terms ordained to override Sections 139, 147 to 149, 151 and 153 of the Act. By virtue of the 2017 Amending Act, significant amendments came to be introduced in Section 153A. These included, inter alia, the search assessment block being enlarged to ten AYs' consequent to the addition of the stipulation of “relevant assessment year” and which was defined to mean those years which would fall beyond the six year block period but not later than ten AYs'. The block period for search assessment thus came to be enlarged to stretch up to ten AYs'. The 2017 Amending Act also put in place certain prerequisite conditions which would have to inevitably be shown to be satisfied before the search assessment could stretch to the “relevant assessment year”. The preconditions include the prescription of income having escaped assessment and represented in the form of an asset amounting to or “likely to amount to” INR 50 lakhs or more in the “relevant assessment year” or in aggregate in the “relevant assessment years”. C. Section 153C, on the other hand, pertains to the non-searched entity and in respect of whom any material, books of accounts or documents may have been seized and were found to belong to or pertain to a person other than the searched person. As in the case of Section 153A, Section 153C was also to apply to all searches that may have been undertaken between the period 01 June 2003 to 31 March 2021. In terms of that provision, the AO stands similarly empowered to undertake and initiate an assessment in respect of a non-searched entity for the six AYs' as well as for “the relevant assessment year”. The AYs', which would consequently be thrown open for assessment or reassessment under Section 153C follows lines pari materia with Section 153A. D. The First Proviso to Section 153C introduces a legal fiction on the basis of which the commencement date for computation of the six year or the ten year block is deemed to be the date of receipt of books of accounts by the jurisdictional AO. The identification of the starting block for the purposes of computation of the six and the ten year period is governed by the First Proviso to Section 153C, which significantly shifts the reference point spoken of in Section 153A(1), while defining the point from which the period of the “relevant assessment year” is to be calculated, to the date of receipt of the books of accounts, documents or assets seized by the jurisdictional AO & 836/Bang/2024 Sri Maruthivandith Reddy Mannu, Bangalore Page 12 of 32 of the non-searched person. The shift of the relevant date in the case of a non-searched person being regulated by the First Proviso of Section 153C(1) is an issue which is no longer res integra and stands authoritatively settled by virtue of the decisions of this Court in SSP Aviation and RRJ Securities as well as the decision of the Supreme Court in Jasjit Singh. The aforesaid legal position also stood reiterated by the Supreme Court in Vikram Sujitkumar Bhatia. The submission of the respondents, therefore, that the block periods would have to be reckoned with reference to the date of search can neither be countenanced nor accepted. E. The reckoning of the six AYs' would require one to firstly identify the FY in which the search was undertaken and which would lead to the ascertainment of the AY relevant to the previous year of search. The block of six AYs' would consequently be those which immediately precede the AY relevant to the year of search. In the case of a search assessment undertaken in terms of Section 153C, the solitary distinction would be that the previous year of search would stand substituted by the date or the year in which the books of accounts or documents and assets seized are handed over to the jurisdictional AO as opposed to the year of search which constitutes the basis for an assessment under Section 153A. F. While the identification and computation of the six AYs' hinges upon the phrase “immediately preceding the assessment year relevant to the previous year” of search, the ten year period would have to be reckoned from the 31st day of March of the AY relevant to the year of search. This, since undisputedly, Explanation 1 of Section 153A requires us to reckon it “from the end of the assessment year”. This distinction would have to necessarily be acknowledged in light of the statute having consciously adopted the phraseology “immediately preceding” when it be in relation to the six year period and employing the expression “from the end of the assessment year” while speaking of the ten year block.”
[Emphasis supplied] 29. It is thus seen that in order to determine block of six AYs, one must first identify the FY in which the search occurred, leading to the identification of the AY relevant to the previous year of the search. The block of six AYs will then be those immediately preceding the AY relevant to the search year. For a search assessment under Section 153C of the Act, the only difference is that the previous year of the search is replaced by the date or year in which the seized books of accounts, documents, and assets are handed over to the jurisdictional AO, rather than the year of the search, which is the basis for an assessment under Section 153A of the Act. Therefore, the relevant AY in the & 836/Bang/2024 Sri Maruthivandith Reddy Mannu, Bangalore Page 13 of 32 present case would come under the block of six AYs immediately preceding the AY in which the satisfaction note was recorded by the AO of the respondent- assessee companies.
Further, in the case of M/s Design Infracon Pvt. Ltd., the ITAT held that there is violation of principles of natural justice as neither the statement of owner of Jain group of companies was provided to the said company, nor the opportunity of cross-examination was given. The ITAT in paragraph no. 23 has held as under: - “23.Now, coming to Design Infracon (P) Ltd., we find from the material available on record that there is brazen violation of principles of natural justice inasmuch as neither the statement of Mr. Jain recorded at the time of search nor his cross- examination was provided to the assessee by both the lower authorities despite specific and repeated requests made by the assessee in this regard. The Hon'ble Supreme Court in the case of M/s Andaman Timber Indusgies vs. CCE reported in 281 CTR 241 has held that not giving opportunity of cross-examination makes the entire proceedings invalid and nullity. The Co- ordinate Bench of the Tribunal in the case of Best City Infrastructure Ltd. (supra) has also held that not providing opportunity of cross-examination makes the addition invalid. It has come to our notice that the Hon'ble Delhi High Court recently has upheld the said decision as reported in 397 ITR 82.”
On this aspect, it is beneficial to refer to the decision of the Supreme Court in the case of Andaman Timber Industries v. CCE9, wherein, it was held that not providing the opportunity of cross- examination to the assessee amounts to gross violation of the principles of natural justice and the same will render the order passed null and void. The relevant paragraph of the said decision is extracted herein below: - “6. According to us, not allowing the assessee to cross-examine the witnesses by the adjudicating authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the adjudicating authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the adjudicating authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt & 836/Bang/2024 Sri Maruthivandith Reddy Mannu, Bangalore Page 14 of 32 with by the adjudicating authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross- examination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their exfactory prices remain static. It was not for the Tribunal to have guesswork as to for what purposes the appellant wanted to crossexamine those dealers and what extraction the appellant wanted from them.” [Emphasis supplied] 32. Additionally, the Supreme Court in the case of State of Kerala v. K.T. Shaduli Grocery Dealer2, held that tax authorities being quasi- judicial authorities are bound by the principles of natural justice. The relevant paragraph is extracted herein below: - “2. Now, the law is well settled that tax authorities entrusted with the power to make assessment of tax discharge quasi- judicial functions and they are bound to observe principles of natural justice in reaching their conclusions. It is true, as pointed out by this Court in Dhakeswari Cotton Mills Ltd. v. CIT [AIR 1955 SC 154 : (1955) 1 SCR 941 : (1955) 27 ITR 126] that a taxing officer “is not fettered by technical rules of evidence and pleadings, and that he is entitled to act on material which may not be accepted as evidence in a court of law”, but that does not absolve him from the obligation to comply with the fundamental rules of justice which have come to be known in the jurisprudence of administrative law as principles of natural justice. It is, however, necessary to remember that the rules of natural justice are not a constant: they are not absolute and rigid rules having universal application. It was pointed out by this Court in Suresh Koshy George v. University of Kerala [AIR 1969 SC 198 : (1969) 1 SCR 317 : (1969) 1 SCJ 543] that “the rules of natural justice are not embodied rules” and in the same case this Court approved the following observations from the judgment of Tucker, L.J. in Russel v. Duke of Norfolk [(1949) 1 All ER 109] :“There are, in my view, no words which are of universal application to every kind of inquiry and every kind of domestic tribunal. The requirements of natural justice must depend on the circumstances of the case, the nature of the inquiry, the rules under which the tribunal is acting, the subject-matter that is being dealt with, and so forth. Accordingly, I do not derive much assistance from the definitions of natural justice which have been from time to time used, but, whatever standard is adopted, one essential is that the person concerned should have a reasonable opportunity of presenting his case.”
[Emphasis supplied] 33. Further, the argument of learned counsel for the Revenue that this mistake is curable under Section 292B of the Act lacks merit as the plain language of the said Section makes it abundantly clear that this provision condones the invalidity which may arise merely by mistake, defect or omission in notice. The said Section reads as under: - 292-B. Return of income, etc., not to be invalid on certain grounds.—No return of income, assessment, notice, summons or other proceeding, furnished or made or issued or taken or purported to have been furnished or made or issued or taken in pursuance of any of the provisions of this Act shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such return of income, assessment, notice, summons or other proceeding if such return of income, assessment, notice, summons or other proceeding is in substance and effect in conformity with or according to the intent and purpose of this Act.
Reliance can also be placed upon the decision in the case of CIT v. Micron Steels P. Ltd.11, whereby, it was held that the jurisdictional defects cannot be cured under Section 292B of the Act and they render the entire proceedings null and void.
In the present case, it is seen that the Revenue has failed to allude to any steps which were taken to determine that the seized material belonged to the respondent-assessee group. Notably, the satisfaction note has also been prepared in a mechanical format and it does not provide any details about the incriminating material. Therefore, a failure on the part of the Revenue to manifest as to how the material gathered from the search of Jain group of companies belonged to the respondent-assessee group and the same is incriminating, vitiates the entire assessment proceedings.
Accordingly, we find no reason to intermeddle with the order of the ITAT which has rightly set aside the assessment order and deleted the additions made therein.
In view of the aforesaid and on the basis of the findings of fact arrived at before the authority, these appeals do not raise any substantial question of law and consequently, they stand dismissed. Pending applications, if any, are also disposed of.”
5.4 This view was also fortified by the following judgements: & 836/Bang/2024 Sri Maruthivandith Reddy Mannu, Bangalore Page 16 of 32 5.5 Further, we find that Hon’ble Delhi High Court in the case of PCIT Vs Best Infrastructure Private Limited, 397 ITR 82 has held that statement recorded under section 132(4) in the itself does not constitute incriminating material. The relevant finding of the Hon’ble High Court is reproduced as under: “38. Fifthly, statements recorded under Section 132 (4) of the Act of the Act do not by themselves constitute incriminating material as has been explained by this Court in Commissioner of Income Tax v. Harjeev Aggarwal (supra). Lastly, as already pointed out hereinbefore, the facts in the present case are different from the facts in Smt. Dayawanti Gupta v. CIT (supra) where the admission by the Assessees themselves on critical aspects, of failure to maintain accounts and admission that the seized documents reflected transactions of unaccounted sales and purchases, is non-existent in the present case. In the said case, there was a factual finding to the effect that the Assessees were habitual offenders, indulging in clandestine operations whereas there is nothing in the present case, whatsoever, to suggest that any statement made by Mr. Anu Aggarwal or Mr. Harjeet Singh contained any such admission.”
5.6 Further, Hon’ble Delhi High Court in the case of Harjeev Agrawal 241 Taxman 199(Delhi) held as under: “20. 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 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.
A plain reading of Section 132 (4) of the Act indicates that the authorized officer is empowered to examine on oath any person who is found in possession or control of any books of accounts, documents, money, bullion, jewellery or any other valuable article or thing. The explanation to Section 132 (4), which was inserted by the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1st April, 1989, further clarifies that a person may be examined not only in respect of the books of accounts or other documents found as a result of search but also in respect of all matters relevant for the purposes of any investigation connected with & 836/Bang/2024 Sri Maruthivandith Reddy Mannu, Bangalore Page 17 of 32 any proceeding under the Act. However, as stated earlier, a statement on oath can only be recorded of a person who is found in possession of books of accounts, documents, assets, etc. Plainly, the intention of the Parliament is to permit such examination only where the books of accounts, documents and assets possessed by a person are relevant for the purposes of the investigation being undertaken. Now, if the provisions of Section 132(4) of the Act are read in the context of Section 158BB(1) read with Section 158B(b) of the Act, it is at once clear that a statement recorded under Section 132(4) of the Act can be used in evidence for making a block assessment only if the said statement is made in the context of other evidence or material discovered during the search. A statement of a person, which is not relatable to any incriminating document or material found during search and seizure operation cannot, by itself, trigger a block assessment. The undisclosed income of an Assessee has to be computed on the basis of evidence and material found during search. 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.
In CIT v. Sri Ramdas Motor Transport Ltd.: (1999) 238 ITR 177 (AP), a Division Bench of Andhra Pradesh High Court, reading the provision of Section 132(4) of the Act in the context of discovering undisclosed income, explained that in cases where no unaccounted documents or incriminating material is found, the powers under Section 132(4) of the Act cannot be invoked. The relevant passage from the aforesaid judgment is quoted below:
A plain reading of sub-section (4) shows that the authorised officer during the course of raid is empowered to examine any person if he is found to be in possession or control of any undisclosed books of account, documents, money or other valuable articles or things, elicit information from such person with regard to such account books or money which are in his possession and can record a statement to that effect. Under this provision, such statements can be used in evidence in any subsequent proceeding initiated against such per son under the Act. Thus, the question of examining any person by the authorised officer arises only when he found such person to be in possession of any undisclosed money or books of account. But, in this case, it is admitted by the Revenue that on the dates of search, the Department was not able to find any unaccounted money, unaccounted bullion nor any other valuable articles or things, nor any unaccounted documents nor any such incriminating material either from the premises of the company or from the residential houses of the managing & 836/Bang/2024 Sri Maruthivandith Reddy Mannu, Bangalore Page 18 of 32 director and other directors. In such a case, when the managing director or any other persons were found to be not in possession of any incriminating material, the question of examining them by the authorised officer during the course of search and recording any statement from them by invoking the powers under section 132(4) of the Act, does not arise. Therefore, the statement of the managing director of the assessee, recorded patently under section 132(4) of the Act, does not have any evidentiary value. This provision embedded in sub- section (4) is obviously based on the well established rule of evidence that mere confessional statement without there being any documentary proof shall not be used in evidence against the person who made such statement. The finding of the Tribunal was based on the above well settled principle.
It is also necessary to mention that the aforesaid interpretation of Section 132(4) of the Act must be read with the explanation to Section 132(4) of the Act which expressly provides that the scope of examination under Section 132(4) of the Act is not limited only to the books of accounts or other assets or material found during the search. However, in the context of Section 158BB(1) of the Act which expressly restricts the computation of undisclosed income to the evidence found during search, the statement recorded under Section 132(4) of the Act can form a basis for a block assessment only if such statement relates to any incriminating evidence of undisclosed income unearthed during search and cannot be the sole basis for making a block assessment.
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.
In Commissioner of Income Tax v. Naresh Kumar Aggarwal: (2014) 3699 ITR 171 (T & AP), a Division Bench of Telangana and Andhra Pradesh High Court held that a statement recorded under Section 132(4) of the Act which is retracted cannot constitute a basis for an order under Section 158BC of the Act. The relevant extract from the said judgement is quoted below: & 836/Bang/2024 Sri Maruthivandith Reddy Mannu, Bangalore Page 19 of 32 “17. The circumstances under which a statement is recorded from an assessee, in the course of search and seizure, are not difficult to imagine. He is virtually put under pressure and is denied of access to external advice or opportunity to think independently. A battalion of officers, who hardly feel any limits on their power, pounce upon the assessee, as though he is a hardcore criminal. The nature of steps, taken during the course of search are sometimes frightening. Locks are broken, seats of sofas are mercilessly cut and opened. Every possible item is forcibly dissected. Even the pillows are not spared and their acts are backed by the powers of an investigating officer under section 94 of the Code of Criminal Procedure by operation of sub-section (13) of section 132 of the Act. The objective may be genuine, and the exercise may be legal. However, the freedom of a citizen that transcends, even the Constitution cannot be treated as non- existent.” “18. It is not without reason that Parliament insisted that the recording of statement must be in relation to the seized and recovered material, which is in the form of documents, cash, gold, etc. It is, obviously to know the source thereof, on the spot. Beyond that, it is not a limited licence, to an authority, to script the financial obituary of an assessee.” “19. At the cost of repetition, we observe that if the statement made during the course of search remains the same, it can constitute the basis for proceeding further under the Act even if there is no other material. If, on the other hand, the statement is retracted, the Assessing Officer has to establish his own case. The statement that too, which is retracted from the assessee cannot constitute the basis for an order under section 158BC of the Act.”
5.7 In view of the above finding of the Hon’ble Delhi High Court, statement of assessee under section 132(4) of the Act alone cannot be considered as incriminating material unless any corroborating incriminating/seized material is found during the course of the search from the premises of the assessee. 5.8 As per section 31 of Indian Evidence Act, 1878, admissions are not conclusively proved as against admitted proof. In the absence of rebuttable conclusion, admission bind the maker when these are not rebutted or retracted. An admission is an extremely important piece of evidence but it cannot be said that it is a conclusive and the maker can show that it was incorrect. In our & 836/Bang/2024 Sri Maruthivandith Reddy Mannu, Bangalore Page 20 of 32 opinion admission made by the assessee will constitute a relevant piece of evidence but if the assessee contends that in making the admission, he had proceeded on a mistaken understanding or on misconception of facts or untrue facts, such admission cannot be relied upon without considering the aforesaid contention. In our opinion, the voluntary admission are not conclusive proof of the facts admitted and may be explained or shown to be wrong but they do raise an estoppel and shift the burden of proof to the person making the admission. It is to be noted that, unless shown or explained to be wrong, they are an efficacious proof of the facts admitted. Thus, the burden to prove “admission” as incorrect is on the maker and in case of failure of the maker to prove that the earlier stated facts were wrong, these earlier statements are suffice to conclude the matter. If retraction or proved sufficiently, the earlier stated facts lose their effect and relevance as binding evidence and the authorities cannot conclude the matter on the basis of the earlier statements alone. However, bald retraction of earlier admission will not be enough after retraction. Such statements cannot automatically become nullified. If the assessee proves that the statement recorded was involuntary and it was made under coercion, the statement has no legal validity. 5.9 Further, there was a CBDT circular file no.286/98/2013-IT (Inv.II) dated 18.12.2014 which states as under:
“Instances/complaints of undue influence/coercion have come to notice of the CBDT that some assessees were coerced to admit undisclosed income during Searches/Surveys conducted by the Department. It is also seen that many such admissions are retracted in the subsequent proceedings since the same are not backed by credible evidence. Such actions defeat the very purpose of Search/Survey operations as they fail to bring the undisclosed income to tax in a sustainable manner leave alone levy of penalty or launching of prosecution. Further, such actions show the Department as a whole and officers concerned in poor light.
I am further directed to invite your attention to the Instructions/Guidelines issued by CBDT from time to time, as referred above, through which the Board has emphasized upon the need to focus on gathering & 836/Bang/2024 Sri Maruthivandith Reddy Mannu, Bangalore Page 21 of 32 evidences during Search/Survey and to strictly avoid obtaining admission of undisclosed income under coercion/undue influence.
In view of the above, while reiterating the aforesaid guidelines of the Board, I am directed to convey that any instance of undue influence/coercion in the recording of the statement during Search/Survey/Other proceeding under the IT Act, 1961 and/or recording a disclosure of undisclosed income under undue pressure/coercion shall be viewed by the Board adversely.” From the above Circular, it is amply clear that the CBDT has emphasized on its officers to focus on gathering evidences during search/survey operations and strictly directed to avoid obtaining admission of undisclosed income under coercion/under influence. Keeping in view the guidelines issued by the CBDT from time to time regarding statements obtained during search and survey operations, it is undisputedly clear that the lower authorities have not collected any other evidence to prove that the impugned income was earned by the assessee. …………………………………………………………………………………… …………………………………………………………………………………… 5.10 At this stage, it is pertinent to refer to the judgment of the Supreme Court in the case of Vinod Solanki (2009) (233) ELT 157 observed as under :
"22. It is a trite law that evidences brought on record by way of confession which stood retracted must be substantially corroborated by other independent and cogent evidences, which would lend adequate assurance to the Court that it may seek to rely thereupon. We are not oblivious of some decisions of this Court wherein reliance has been placed for supporting such contention but we must also notice that in some of the cases retracted confession has been used as a piece of corroborative evidence and not as the evidence on the basis whereof alone a judgment of conviction and sentence has been recorded. [see Pon Adithan vs. Dy. Director, Narcotics Control Bureau (1999) 6 SCC 1] ...................
5.11 In case of Romesh Chandra Mehta vs. State of West Bengal (1969) 2 SCR 461 although Hon’ble Court held that any statement made under ss. 107 and 108 of the Customs Act by a person against whom an enquiry is made by a customs officer is not a statement made by a person accused of an offence, but as indicated hereinbefore, he being an officer concerned or the person in authority, s. 24 of the Indian Evidence Act would be attracted. & 836/Bang/2024 Sri Maruthivandith Reddy Mannu, Bangalore Page 22 of 32 5.12 It has been similarly held by the Hon’ble Supreme Court in the case of K.T.M.S. Mohd. & Anr. vs. Union of India (1992) (197 ITR 196) as under:
We think it is not necessary to recapitulate and recite all the decisions on this legal aspect. But suffice it to say that the core of all the decisions of this Court is to the effect that the voluntary nature of any statement made either before the customs authorities or the officers of Enforcement Directorate under the relevant provisions of the respective Acts is a sine qua non to act on it for any purpose and, if the statement appears to have been obtained by any inducement, threat, coercion or by any improper means, that statement must be rejected brevi manu. At the same time, it is to be noted that, merely because a statement is retracted, it cannot be recorded as involuntary or unlawfully obtained. It is only for the maker of the statement who alleges inducement, threat, promise, etc. to establish that such improper means have been adopted. However, even if the maker of the statement fails to establish his allegations of inducement, threat, etc., against the officer who recorded the statement, the authority, while acting on the inculpatory statement of the maker, is not completely relieved of his obligation at least subjectively to apply its mind to the subsequent retraction to hold that the inculpatory statement was not extorted. It thus boils down to this that the authority or any Court intending to act upon the inculpatory statement as a voluntary one should apply its mind to the retraction and reject the same in writing. It is only on this principle of law that this Court, in several decisions, has ruled that, even in passing a detention order on the basis of an inculpatory statement of a detenu who has violated the provisions of the Foreign Exchange Regulation Act or the Customs Act, etc., the detaining authority should consider the subsequent retraction and record its opinion before accepting the inculpatory statement lest the order be vitiated. Reference may be made to a decision of the Full Bench of the Madras High Court in Roshan Beevi vs. Jt. Secretary to the Government of Tamil Nadu, Public Deptt. etc. (1983) Mad LW (Crl.) 289 : (1984) 15 ELT 289 : AIR 1984 NOC 103, to which one of us (S. Ratnavel Pandian, J.) was a party.
5.13 In our opinion, the above additions cannot be made solely based on the statements recorded u/s 132(4) of the Act.
5.14 We further rely in the case CIT Vs. S. Khader Khan Son reported in 352 ITR 480 (SC) where the Hon'ble Supreme Court has held that:
-"Section 133A does not empower any IT authority to examine any person on oath, hence, any such statement has no evidentiary value and any admission made during such statement cannot, by itself, be made the basis for addition." & 836/Bang/2024 Sri Maruthivandith Reddy Mannu, Bangalore Page 23 of 32 5.15 We also rely on the decision of the Hon'ble Tribunal in the case of Kamla Devi S. Doshi v. Income-tax Officer [2017] 88 taxmann.com 773 (Mumbai - Trib.) / [2017] 57 ITR(T) 1 (Mumbai - Trib.) held as under: - "We however are unable to persuade ourselves to subscribe to the view that such information arrived at on the basis of the stand-alone statement of the aforesaid person, viz. Sh. Mukesh Chokshi (supra), falling short of any corroborative evidence would however justify drawing of adverse inferences as regards the genuineness of the share transactions in the hands of the assessee. We though are also not oblivious of the settled position of law, as per which a very heavy onus is cast upon the assessee to substantiate the LTCG on sale of shares, as projected by her in the return of income for the year under consideration. Thus, to be brief and explicit, though the reopening of the case of the assessee in the backdrop of the aforesaid factual matrix cannot be faulted with, however such stand-alone information, i.e., the statement of Sh, Mukesh Chokshi (supra), cannot be allowed to form the sole basis for dislodging the claim of the assessee in respect of the LTCG reflected by her in the return of income for the year under consideration. We would not hesitate to observe that the lower authorities which have rushed through the facts to arrive at a conclusion on the basis of principle of preponderance of human probability, had however absolutely failed to appreciate that the said principle could have been validly applied only on the basis of a considerate view as regards the facts of the case in totality, and not merely on the basis of the standalone statement of the aforesaid third party, viz. Sh. Mukesh Choksi."
5.16 We rely on the judgement of the Hon'ble Gujarat High Court in the case of Kailashben Manharlal Chokshi v. Commissioner of Income-tax [2008] 174 Taxman 466 (Gujarat) held as under:"- "26. In view of what has been stated hereinabove we are of the view that this explanation seems to be more convincing, has not been considered by the authorities below and additions were made and/or confirmed merely on the basis of statement recorded under section 132(4) of the Act Despite the fact that the said statement was later on retracted no evidence has been led by the Revenue authority. We are, therefore, of the view that merely on the basis of admission the assessee could not have been subjected to such additions unless and until, some corroborative evidence is found in support of such admission. We are also of the view that from the statement recorded at such odd hours cannot be considered to be a voluntary statement, if it is subsequently retracted and necessary evidence is led contrary to such admission. Hence there is no reason not to disbelieve the retraction made by the Assessing Officer and explanation duly supported by the evidence. We are, therefore, of the view that the Tribunal was not justified in making & 836/Bang/2024 Sri Maruthivandith Reddy Mannu, Bangalore Page 24 of 32 addition of Rs. 6 lakhs on the basis of statement recorded by the Assessing Officer under section 132(4) of the Act. The Tribunal has committed an error in ignoring the retraction made by the assessee." "16.4 We have duly considered the contention of the assessee and also perused the documentary evidences produced by the assessee. On perusing the facts, it is apparent that the addition is made based on the general practice of cash payments made outside the books of accounts in the case of immovable property transactions. The AO was of the opinion that there are ample instances that cash payments are made outside the books of accounts in effecting money lending transactions and therefore, the statement made by Mr, R. Ravish can be relied and the addition sustainable. However, we do not subscribe to this view of the AO. In order to establish that the assessee had paid amount outside the books of accounts for effecting money lending transactions substantial evidence has to be placed on record which is absent in this case. It would be unjust if an addition is made on the assessee based on a statement made by third party without further making inquiries and collecting evidence. Therefore, we hereby request to delete the additions made by the Ld. AO in the concerned AY's. This entire question is based on facts and therefore, no interference is necessary."
5.17 We find that the conclusions reached by the Assessing Officer are merely based on presumptions and assumptions without bringing corroborative material on record. It is settled position of law that no addition in the assessment can be made merely based on assumptions, suspicion, guess work and conjuncture or on irrelevant inadmissible material. Reliance can be placed in this regard on the following decisions:
(i) Dhirajlal Girdharilal vs. CIT (1954) 26 ITR 736 (SC) (ii) Dhakeswari Cotton Mills Ltd. vs. CIT (1954) 26 ITR 775 (SC) (iii) CIT vs. Maharajadhiraja Kameshwar Singh of Darbhanga (1933) 1 ITR 94 (PC) (iv) Lalchand Bhagat Ambica Ram vs. CIT (1959) 37 ITR 288 (SC) (v) Umacharan Shaw & Bros vs. CIT (1959) 37 ITR 271 (SC)
(vi) Omar Salay Mohamed Sait vs. CIT (1959) 37 ITR 151 (SC) & 836/Bang/2024 Sri Maruthivandith Reddy Mannu, Bangalore Page 25 of 32 5.18. Further, the Hon’ble Delhi High Court in the case of CIT vs. Dinesh Jain (HUF), 352 ITR 629 after referring to the decision of the Hon’ble Supreme Court in the case of Lalchand Bhagat Ambica Ram vs. CIT (1959) 37 ITR 288 (SC) held that no addition can be made taking into account notorious practice prevalent in the similar trade. The relevant findings vide para 14 and 15 are as under:
“……….
14. In Lalchand Bhagat Ambica Ram Vs. Commissioner of Income Tax, Bihar and Orissa (1959) 37 ITR 288, the Supreme Court disapproved the practice of making additions in the assessments on mere suspicion and surmise or by taking note of the notorious practices prevailing in trade circles. At page 299 of the report, it was observed as follows:
Adverting to the various probabilities which weighed with the Income-tax Officer we may observe that the notoriety for smuggling food grains and other commodities to Bengal by country boats acquired by Sahibgunj and the notoriety achieved by Dhulian as a great receiving centre for such commodities were merely a background of suspicion and the appellant could not be tarred with the same brush as every arhatdar and grain merchant who might have been indulging in smuggling operations, without an iota of evidence in that behalf.
This takes care of the argument of Mr. Sabharwal that judicial notice can be taken of the practice prevailing in the property market of not disclosing the full consideration for transfer of properties”.
5.19. The Hon’ble Supreme Court in the case of K.P. Varghese vs. ITO (1981) 131 ITR 597 (SC) held that the capital gains is intended to tax the gains of assessee not what an assessee might have gained and what is not gained cannot be computed as gain and the assessee cannot fastened with the liability on a fictional income.
5.20 Similarly, the Hon’ble Supreme Court in the case of CIT Vs. Shivakami Co. (P.) Ltd. (1986) 159 ITR 71 (SC) held that unless there is evidence that more than what was stated was received, no higher price can be taken to be the basis for making addition 5.21 The ratio that emerges from the aforesaid decisions is that a sworn statement solely cannot be relied upon for making any addition and must be corroborated by independent evidence for the purposes of making assessments. 5.22 Thus, the ld. AO cannot go by statement recorded u/s 132(4) of the Act. He ought to have verified the bank entries independently instead of considering the statement recorded u/s 132(4) of the Act. Thus, we are not agreeing with the findings of the lower authorities. The addition made at Rs.14,21,029/- on the basis of statement recorded u/s 132(4) of the Act is deleted. Accordingly, we delete both the additions made by ld. AO 5.23 In view of the above discussion, we are of the opinion that addition cannot be made on the basis of statement recorded u/s 132(4) of the Act Accordingly, the addition is deleted.
6. Next ground in this appeal is with regard to sustaining addition of Rs.20,06,327/- out of original addition of Rs.40,66,327/- made u/s 69A r.w.s. 115BBE of the Act. 6.1 It was found by the search party that the assessee has an Indian Bank account where following deposits are found:
Date Narration Chq/Ref No. Value dt. Deposit Closing amount balance 29.07.2013 Chq dep. MICR 8 0000000000145533 30.07.2013 3,50,000.00 15,86,920.52 Clearing – Richmond Road 28.08.2013 Chq dep. Transfer 2- 0000000000000755 28.08.2013 2,00,000.00 16,01,466.81 Richmond Road 08.11.2013 Chq dep. MICR 8 – 0000000000814262 09.11.2013 20,00,000.00 41,94,096.72 Richmond Road 14.11.2013 NEFT CR- 00000SD196853632 14.11.2013 1,87,797.00 42,49,257.92 PUNB045553000Xoom Corporation Maruthi Vandith Reddy Mannur – SD 196653632 16.11.2013 NEFT CR – 00000sd197015665 16.11.2013 68,530.00 40,97,787.92 PUNB0455300-Xoom Corporation Maruthi Vandith Reddy Mannur – SD 197015665 18.12.2013 Chq dep MICR 8- 0000000000043599 19.12.2013 12,00,000.00 13,36,499.45 Richmond Circle Total 40,06,327.00 6.2 For the above deposit of Rs.40,06,327/-, the assessee has not given proper explanation. Hence, the addition was made by ld. AO & 836/Bang/2024 Sri Maruthivandith Reddy Mannu, Bangalore Page 27 of 32 at Rs.40,06,327/-. Before ld. CIT(A), assessee explained the third entry of Rs.20 lakhs deposited on 8.11.2013 and he has given a deduction towards that extent and balance amount of Rs.20,06,327/- was considered as unexplained income of the assessee. Against this assessee is in appeal before us. 6.3 It was submitted that assessee has been in USA since 2003 and worked there for about 10 years and during this stay assessee has made substantial savings and deposited into assessee’s bank account in America and that amount has been moved to Indian Bank in India and assessee have sufficient evidence to substantiate the same.
Ld. D.R. submitted that it is the duty of the assessee to place necessary evidence before lower authorities explaining the deposits. Once the assessee has failed to explain the same, the balance considered as unexplained money u/s 69 of the Act.
We have heard the rival submissions and perused the materials available on record. In our opinion, it is appropriate to remit the issue of addition of Rs.20,06,327/- made u/s 69A r.w.s. 115BBE of the Act to the file of ld. AO for fresh consideration with a direction to the assessee to explain sources for each entry to deposit into bank account. If the assessee explains the sources of deposit as his past savings from his employment in USA or known sources, the addition to be deleted. With this observation, we remit the issue to the file of ld. AO for fresh consideration.
In the result, appeal of the assessee in ITA No.835/Bang/2024 is partly allowed for statistical purposes.
ITA No.835 & 836/Bang/2024 Sri Maruthivandith Reddy Mannu, Bangalore Page 28 of 32 (AY 2018-19): 10. In this appeal assessee challenged the sustaining addition of 65% out of Rs.3,97,54,911/- made by ld. AO towards alleged bogus expenditure.
Facts of the issue are that the ld. AO disallowed various expenditure pertaining to labour expenses and employee compensation to the tune of Rs.3,97,54,911/- which is as follows: Labour charges - Rs.2,74,69,201/- Professional charges - Rs.85,00,000/- Salary and wages - Rs.1,22,85,710/- Total - Rs.3,97,54,911/- 11.1 According to the ld. AO, it is only bogus expenditure. Hence, he disallowed the same. Before ld. CIT(A), the assessee explained that the above expenditure is genuine expenditure. However, details of supporting expenditure were not available. The ld. CIT(A) after considering the arguments of assessee as well as remand report of the ld. AO, he estimated the disallowance at 65% out of Rs.3,97,54,911/- and sustained balance 65%. Against this assessee is in appeal before us.
We have heard the rival submissions and perused the materials available on record. In this case, the assessee explained that the addition was solely based on statement recorded u/s 132(4) of the Act. Further, it was submitted that assessee’s accounts are duly audited u/s 44AB of the Act. Further, payment of professional charges to the tune of Rs.85 lakhs was made through the bank account as follows:
Date Name Bank account Amount (Rs.) 08.06.2017 K. Kranthi Kiran Reddy HDFC Bank A/c 30,00,000/- 07457 14.07.2017 Nausheer Ahmed YES Bank A/c 12,00,000/- 05473 14.07.2017 Nausheer Ahmed YES Bank A/c – 13,00,000/- 05473 07.08.2017 M. Sudarshan Raju HDFC Bank A/c 10,00,000/- 07457 & 836/Bang/2024 Sri Maruthivandith Reddy Mannu, Bangalore Page 29 of 32 08.08.2017 M. Sudarshan Raju HDFC Bank A/c 10,00,000/- 07457 30.11.2017 Megha Bharadwaj YES Bank A/c 10,00,000/- 05473 Total Professional charged paid 85,00,000/- 12.1 Thus, balance amount, which the assessed is required to explain is as follows: Labour charges - Rs.2,74,69,201/- Salary and wages - Rs. 37,85,710/- Total - Rs.3,12,54,911/- 12.2 The contention of the ld. A.R. is that the above addition was only on the statement recorded u/s 132(4) of the Act though assessee has returned very high income from the assessee’s contract business out of turnover of Rs.2,19,50,810/-. Originally returned income was Rs.2,61,45,490/- as against this the ld. AO assessed income at Rs.6,22,19,880/-. Thereafter assessment order was rectified at income of Rs.6,60,46,870/- out of sales turnover of Rs.7.31 crores which is very high and exorbitant which is not possible in this kind of business as assessee carrying on business of design process, execution and supervisory work in the scientific land visit of Billahalli, Mitiganahalli Baglur quarries. The ld. AO treated the above expenditure as bogus without bringing any material on record to suggest the same. It is well settled legal position that ld. AO is precluded in making any addition without any corroborative material evidence on record. The same statement was recorded u/s 132(4) of the Act cannot be reason to make an addition during search assessment. The statement itself cannot bring assessee into tax not by merely to service the provisions of section 132(4A) r.w.s. 292C of the Act, which creates deeming fiction on the assessee subject to search wherein it may be presumed that any such document found during the course of search from the possession and control of such documents are true. What has to be noted here is that deemed presumption cannot bring such statement recorded u/s 132(4) of the & 836/Bang/2024 Sri Maruthivandith Reddy Mannu, Bangalore Page 30 of 32 Act into the tax net and presumption is rebuttal one and the deemed provision have no hold to the department, therefore, in these cases, addition made by ld. AO on arbitrarily relying on the statement recorded u/s 132(4) of the Act in the absence of any corroborative material and the statement recorded u/s 132(4) of the Act itself per se cannot be considered as there was bogus expenditure incurred by the assessee. Thus, placing reliance on the statement recorded u/s 132(4) of the Act is not proper as discussed in earlier part of this ordewr. More so, the net profit rate declared by the assessee is very high as compared to this line of business carried on by the assessee. 12.3 The ld. AO in his remand reported dated 8.2.2024 has not disputed that the assessee has not incurred this expenditure. The ld. AO’s contention is that the details submitted by the assessee with respect to labour charges are not exhaustive as they do not contain any details of PAN, nature of work done for which labour payments are done, details of work completion documents. Further, he observed that details submitted by assessee with respect to salaries and wages do not contain the details of PAN, designation of employees, nature of employment, statutory obligation required like PF & Gratuity details. According to hi, the claim of the assessee incurring of expenditure is not verifiable. Admittedly, in this case, the assessment was completed u/s 143(3) r.w.s. 153A of the Act consequent to search carried out in the assessee’s premises on 1.2.2018. It is not disputed that assessee has declared a turnover of Rs.7.31 crores and thereafter declared profit of Rs.2,61,45,490/- as against this ld. AO determined income of Rs.6,60,46,870/-. At the cost of repetition, we observe that this kind of profit is not possible in this nature of business. As such, on this count also, addition cannot be made and the reasons advanced by the ld. AO for sustaining addition in his remand report that it is not verifiable is not correct. The assessee’s accounts are audited u/s 44AB of the Act and it was duly verified and certified by the qualified CA. The ld. AO & 836/Bang/2024 Sri Maruthivandith Reddy Mannu, Bangalore Page 31 of 32 nowhere in his assessment order rejected the books of accounts of the assessee and not verifiable. Without rejecting the bools if accounts, he outrightly disbelieved the expenditure that assessee has not incurred the impugned expenditure, which is not proper. More so, the assessee demonstrated before us that the assessee has incurred Rs.85 lakhs expenditure towards professional charges in cheque and only furnished these details to the lower authorities, which is clearly recorded by ld. CIT(A) in first para of page 26. 12.4 Without prejudice to this, we are of the opinion that this addition cannot be made on the basis of statement recorded u/s 132 of the Act. As discussed in earlier para of this order, we are deleting the addition made on account of salary received by the assessee in assessment year 2014-15. 12.5 Further, Hon’ble Supreme Court in the case of Pullngode Rubber Products Company Ltd. Vs. State of Kerala (91 ITR 18), wherein held as under: “An admission is extremely important piece of evidence but it cannot be said that it is conclusive. It is open to the person who made the admission to show that it is incorrect.
12.6 Further, Hon’ble Madras High Court in the case of CIT Vs. Smt. Jayalaxmi Ammal (390 ITR 189), wherein held as under: “If there is no corroborative documentary evidence, then statement recorded u/s 132(4) of the Act alone should not be the basis for arriving at any adverse decision against the assessee. If the authorities under the Income Tax Act 1961, have to be conferred with the power, to be exercised solely on the basis of statement, then it may lead to an arbitrary exercise of such power. An order of assessment entails civil consequences. Therefore, under judicial review courts have to exercise due care and caution that no amount man is condemned, due to erroneous or arbitrary exercise of authority conferred.”
12.7 From the above, it is clear that any statement made u/s 132(4) of the Act, cannot be taken as conclusive and if it is retracted it cannot be considered at all for making any assessment. They have to be independently proved for making assessment that the assessee & 836/Bang/2024 Sri Maruthivandith Reddy Mannu, Bangalore Page 32 of 32 has earned the undisclosed income accepted in such a statement u/s 132(4) of the Act. The statement recorded u/s 132(4) of the Act, if not retracted may be used for assessment to only to the extent of incriminate evidence/materials unearthed during the search, if that incriminating material is fully corroborated by material evidence. 12.8 Accordingly, we are of the opinion that no addition is warranted on this count to hold that it is a bogus expenditure incurred by the assessee as there was no positive material brought on record by ld. AO and hence the addition is deleted.
In the result, appeal of the assessee in is allowed.
In the result, appeals of the assessee in ITA No.835/Bang/2024 for the AY 2014-15 is partly allowed for statistical purposes and appeal of the assessee in ITA No.836/Bang/2024 is allowed. Order pronounced in the open court on 12th June, 2024.