DHRUV BUILDCON AND DESIGNERS PRIVATE LIMITED,KOTA RAJASTHAN vs. ACIT,DCIT, CENTRAL CIRCLE, KOTA, KOTA RAJASTHAN

3.1 The notice u/s 143(2) issued on dated 18.09.2018 ld. AO, which was served upon the assessee and hearing was fixed on 27.09.2018. Further, notice u/s 142(1) issued on 24.01.2019 along Dhruv Buildcon & Designers Pvt. Ltd. with questionnaire / Annexure-A requiring certain details/information, which was served upon the assessee. Further, notice under sub section (1) of Section 142 of the Act was issued on 30.08.2019 due to change of incumbent as per section 129 of the Act and served to the assessee. In response to such notices the assessee submitted replies online. A survey was carried out on the assessee on 07.02.2017, in that proceeding certain papers were impounded as Exhibit 1 to 7 of Annexure A.

3.2 In that survey proceeding statement of Shri Anil Kumar Sharma, Director of the assessee company was recorded on 07.02.2017. In that statement he offered an income of Rs.2,90,00,146/- in FY 2013-14 to 2016-17. Out of income so offered Rs.2,40,15,097/- was offered on account of undisclosed business profit and Rs.49,85,049/- based on Exhibit 7. Ld. AO based on statement recorded in survey made addition of Rs. 34,13,587/-on account of undisclosed profit and Rs. 49,85,049/- on account of undisclosed investment. The addition of Rs.49,85,049/- was made by the AO on the grounds that Director of the company has himself admitted that the document relates to unrecorded Dhruv Buildcon & Designers Pvt. Ltd. expenditure of the construction project of the assessee. The ld. AO also added a sum of Rs. 34,13,587/- being the estimated profit to the income of the assessee.

Dhruv Buildcon & Designers Pvt. Ltd. Further we submitted the valuation report of said house at plot No. 531, Shastri Nagar, Kota and as per valuation report the house was constructed in different times. It was purchased in 1979 construction area 1800' (sqf) size of plot 30 x 60. Ground floor construction in 1981-82 & F.F. in 205-06 Construction amount is as under GF(1981-82) 1,80,978.00 F.F. (2005-06) 9,27,436.00 Total 11,08,414.00 As such the total cost of land & Building valued at Rs. 1108414 that too up to 2005-06. As such this is the old construction. How estimate be done in 2016-17. For that the valuation report has been submitted to the Ld. A.O. the copy is enclosed. As such the declaration is falls, even when the ownership is proved to be others then action can be taken in the case of owners the company has only one small room for regd. office how it was liable for any investment in said house. As such the addition made for undisclosed investment is totally wrong may kindly be deleted. The facts of the case are considered. During survey proceedings, the Director of the Company, Shri Anil Kumar Sharma in his statement dated 07.02.2017 and again during post survey proceedings in his statement dated 15.05.2017 himself admitted that the seized document (as per annexure A Exhibit No. 7) related to un-accounted investment of Rs. 49,85,049/- towards un-recorded expenditure of construction project of this company for the FY 2016-17 and offered the same undisclosed income of Rs. 49,85,049/- for the relevant year and promised to pay tax due thereupon and to submit the challan before department. However, the appellant has not honoured the promise. It is important here that the statement recorded on two occasions during the search and survey proceedings and after survey is not retracted. The appellant has not furnished any cogent material to say that the statement was under duress or pressure. Therefore, the assessee ought to have honoured the promise. The argument of the appellant are discussed as under- 6.6.1 Corroborative Evidence and whether the addition is solely based on statement The appellant argued that in course of assessment proceedings the Id. A.O. took the sole basis of addition to a statement of a director. He has Dhruv Buildcon & Designers Pvt. Ltd. ignored the facts behind statement, the papers on which basis the statement was taken, have been duly recorded in the books of accounts. Hence the basis on which papers the statement was taken, have no substance then there is no use to consider and mention those statements in the assessment order. As such the Ld. A.O. erred in mentioning of statement of a director in the order, when it is not relevant on the facts of the case. The arguments of the appellant are not found to be according to the facts of the case. The appellant is trying to mould the facts but on examinations of the facts of the appellant it is found that the facts are different from what is being projected. The appellant argued that there is no corroborative material. In this regard, first and foremost it is found during search and survey action that the there were some incriminating documents which were seized/impounded during the proceedings. Second corroborative evidence is in the form of statement recorded under oath during the search and survey action of Director of the Company. In the statement recorded under oath, it was admitted in clear terms that these papers are related to unaccounted expenditure in the project by the appellant company. Therefore, surrender was made in the statement recorded under oath. In view of these facts, the argument of the appellant with regard to corroborative evidence is not found to be acceptable. From the findings of search and survey it was evident that the expenditure as noted in the incriminating documents are pertaining to project of the company and therefore are related to company. During assessment proceedings the assessee failed to furnish evidences in support of explanation furnished. Therefore, it is evident that the addition was not solely based on statement. 6.6.2 The Explanation is not satisfactory It is argued that the undisclosed investment, relates to the House of father of Sh. Anil Sharma, director, thus why the company will construct house which does not belong to the company. The company was just having its registered office at there (531, Shastri Nagar).

Further we submitted the valuation report of said house at plot No. 531, Shastri Nagar, Kota and as per valuation report the house was constructed in different times. It was purchased in 1979 construction area 1800' (sqf) size of plot 30 x 60 Ground floor construction in 1981-82 & F.F. in 205-06 Construction amount is as under GF(1981-82) 1,80,978.00 Dhruv Buildcon & Designers Pvt. Ltd. F.F. (2005-06) 9,27,436.00 Total 11,08,414.00 As such the total cost of land & Building valued at Rs. 11,08,414 that too up to 2005-06. As such this is the old construction. How estimate be done in 2016-17. For that the valuation report has been submitted to the Ld. A.O. the copy is enclosed. As such the declaration is falls, even when the ownership is proved to be others then action can be taken in the case of owners the company has only one small room for regd. office how it was liable for any investment in said house. As such the addition made for undisclosed investment is totally wrong may kindly be deleted. The reply of the appellant is considered. The appellant in the reply has not explained the entries made in the seized/impounded documents. The figures in the impounded documents are not explained as they appear in these documents. In place of explaining the Annexure A Exhibit No. 7 on the basis of which admission of unaccounted expenditure was made, the appellant has offered a new imaginary story that these are related to House Construction by Mr. Rajendra Sharma father of Sh. Anil Sharma. The appellant has not explained how these entries are related to that house construction with supporting evidences. How the figures on the impounded papers are related to this house construction is not explained. The appellant has not made any effort to reconcile the entries in the incriminating documents. How these entries are related to the construction of House by father of the appellant. Nothing is explained. No evidence about source and application of these entries are made available during the assessment or appellate proceedings. In the absence of reconciling with independent verifiable evidence, the assertion of the appellant is not found to be acceptable. In the absence of supporting evidences and proper explanation about the incriminating documents, the statement remains important evidence which can be relied upon by the AO for making addition. 6.6.3 The statement recorded u/s 131 is having Evidentiary Value The appellant has not explained why Mr. Anil Sharma who is Director of the Company admitted on two occasions in the statement recorded under oath that these incriminating papers are related to unaccounted expenditure of the company. The statement under oath is having evidentiary value.

Dhruv Buildcon & Designers Pvt. Ltd. The argument advanced by the appellant are considered. The appellant raised the issue that no addition on the basis of statement recorded during the Survey u/s 133A. This argument of the appellant is not found to be acceptable because the statement relied upon by the AO is recorded u/s 131 of the Act. There is no bar in issuing summons u/s. 131 of the Act and record statement u/s 131 even during the survey proceedings. The statement recorded u/s 131 is also recorded under oath and have similar evidentiary value as of statement recorded u/s 132(4). The director of the company in its reply stated that for the said construction the Ld. ADIT have analyzed the papers in which no address of Place was mentioned but we presume for regd Office where the survey was done by the Ld. ADIT. The reply is considered. The director wants to say that as per the seized/ impounded papers no address of place is mentioned. The director assumed that it is related to registered office of the company. This claim of the appellant is not based on facts. In the statement recorded under oath the Director of the Company, Sh. Anil Sharma accepted in clear terms that the details are related to unexplained expenditure done by him in the office of the company done related to interior designing and construction which are not recorded in the regular books of accounts. Therefore, the place is specified by the Director in the statement itself. Therefore, the arguments of the appellant in this regard are found to be without any merit. On this issue Hon'ble High Court Of Rajasthan in case of Jagat Explosives v Assistant Commissioner of income-tax (2007) 212 CTR 244 (RAJ) observed as under- "Section 131 of the Income-tax Act, 1961-Discovery, production of evidence, power regarding Where during course of statement under section 131 partners of assessee-firm surrendered a sum and Tribunal held that statements of partners were not obtained under force or duress as contended by assessee, addition based on their statement was justified The assessee was a consignment agent for supply of explosive goods to ICI India. In view of the information received, a survey under section 133A was carried out in the case of a builder PR and some bill books were impounded under section 131. During the course of statement under section 13t the partners of the assessee firm sumendered a sum. On appeal the Commissioner (Appeals) deleted the addition holding that the partners were under pressure. The Tribunal after considering Dhruv Buildcon & Designers Pvt. Ltd. the evidence on record, came to the conclusion that the confession made by the partners of the assezsoe-firm was genuine one and the statements were not recorded under any duress Held that there was no substance in this appeal Whether confession in question was genuine or not, was a question of fact. Even otherwise, the Third Member of the Tribunal to whom the matter was referred, had considered this aspect in the proper manner. The assessee after having taken particular stand by making voluntary statement, had ultimately tried to back out from the same Considering the circumstances of the case, it had rightly been found by the Third Member of the Tribunal that the partners of the assessee-firm had voluntarily given statement and the same was not recorded under force or duress. Thus, there was no substance in the appeal.” In this case also statements of Director of the Company were not obtained under force or duress, addition based on their statement is justified. High Court Of Judicature For Rajasthan Bench At Jaipur D. B. held in Income Tax Appeal No. 47/2018 in the case of Pr. Commissioner of Income Tax (Central), Jaipur Versus Shri Roshan Lal Sancheti, Prateek-13, Milan Talkies Road, Ashok Nagar, Hari Sewa Marg, Bhilwara (Raj.) dated 30/10/2018 as under- "In view of the law discussed above, it must be held that statement recorded under Section 132(4) of the Act and later confirmed in statement recorded under Section 131 of the Act, cannot be discarded simply by observing that the assessee has retracted the same because such retraction ought to have been generally made within reasonable time or by filing complaint to superior authorities or otherwise brought to notice of the higher officials by filing duly sworn affidavit or statement supported by convincing evidence. Such a statement when recorded at two stages cannot be discarded summarily in cryptic manner by observing that the assessee in a belatedly filed affidavit has retracted from his statement. Such refraction is required to be made as soon as possible or immediately after the statement of the assessee was recorded. Duration of time when such retraction is made assumes significance and in the present case retraction has been made by the assessee after almost eight months to be precise, 237 days. In view of above discussion, we are persuaded to allow the appeal of the revenue which is accordingly allowed. The substantial question of law formulated by this Court vide order dated 10.04.2018 is answered in favour of the revenue and against the assessee in the aforesaid terms."

Dhruv Buildcon & Designers Pvt. Ltd. In this case, facts are similar or more against the appellant. Therefore, following the judgement of Hon'ble High Court, the statement recorded under during search and survey proceedings and later confirmed in statement recorded under Section 131 of the Act, cannot be discarded. The statement recorded during the search is an important piece of evidence. The SUPREME COURT OF INDIA in the case of Bannalal Jat Constructions (P.) Ltd. v. Assistant Commissioner of Income-tax [2019] 106 taxmann.com 128 (SC) held as under- "Section 132 of the Income-tax Act, 1961 Search and seizure General (Statement u/s 132(4)) A search was carried out at business premises of assessee company in course of search proceedings, statement of director of assessee-company was recorded under section 132(4) admitting certain undisclosed income- In course of assessment, Assessing Officer made addition to assessee's income on basis of statement given by its director Subsequently, director of assessee- company retracted said statement-Tribunal, however, finding that statement had been recorded in presence of independent witness, confirmed addition made by Assessing Officer - High Court also opined that mere fact that director of assessee-company retracted statement at later point of time, could not make said statement unacceptable It was further opined that burden lay on assessee to show that admission made by director in his statement was wrong and such retraction had to be supported by a strong evidence showing that earlier statement was recorded under duress and coercion - High Court finding that assessee failed to discharge said burden, confirmed order passed by Tribunal Whether, on facts, SLP filed against decision of High Court was to be dismissed-Held, yes [Para 2] [In favour of revenue]" In this case also admission made by director in his statement was not proved to be wrong and the appellant has not proved that that earlier statement was recorded under duress and coercion. Therefore, the statement recorded during the search and survey is to be treated as evidence unless some strong evidence is provided to prove that contents in the statement were given in wrong impression. In this case as noted by AO in the assessment order, the office premises of M/s Dhruv Buildcon & Designers Pvt. Ltd was searched on 06.02.2017 and during action some documents were seized which are inventorized as Annexure A, Exhibit 7. Shri Anil Kumar Sharma was asked to explain the contents to these documents. Vide reply to Q no. 9 of his statement dated 07.02.2017, Shri Anil Kumar Sharma admitted that above annexure contains un-accounted investment of Rs.

Dhruv Buildcon & Designers Pvt. Ltd. 49,85,049/- towards un-recorded expenditure of construction project of M/s Dhruv Buildcon & Designer Pvt. Ltd for the F. Y. 2016-17. During post survey proceedings, statement of Shri Anil Kumar Sharma was given recorded u/s 131(1A) of the Income Tax Act, 1961, in the capacity of Director of M/s Dhruv Buildcon & Designers Pvt. Ltd on date 15.05.2017, wherein vide reply to Q 6 he again admitted and confirmed in detail regarding investment of un-disclosed money in his company M/s Dhruv Buildcon & Designers Pvt Ltd during F.Y.2016-17 a sum of Rs. 49,85,049/- and offered the same for taxation in addition to regular income for AY 2017-18 & promised to pay tax due thereupon and to submit the challan before department. The assessee during the assessment proceedings and also in the appellate proceedings has not explained the source of expenditure as was recorded in the incriminating documents and as admitted in the statements recorded on two occasions. Therefore, the explanation is not found to be acceptable.

6.6.4 There is No Retraction of Statement. It is important to note that the statement recorded during the search and survey proceedings has not been retracted by the aseessee in the present case. The Supreme Court Of India in the case of Roshan Lal Sanchiti v. Principal Commissioner of Income-tax [2023] 150 taxmann.com 228 (SC) held that where retraction of statement recorded under section 132(4) and later confirmed in statement recorded under section 131 had been made by assessee after almost eight months, same was to be discarded. In the present case, there is no retraction furnished by the assessee. Therefore, the statement was correctly relied upon by the AO while making addition. In view of the above discussion, the AO was found to be justified in making addition on the basis of the statement made by the Director of the Company based on incriminating documents found during the search and survey proceedings. The addition is therefore confirmed u/s 69C of the Income Tax Act. The tax charged as per provisions of section 115BBE of the Income Tax act is found to be as per provisions of Income Tax Act and the same is upheld. The appellant has also raised the issue of initiation of Penalty. No prejudice is caused to the appellant only because penalty is initiated. The issue raised is Dhruv Buildcon & Designers Pvt. Ltd. premature at this stage. Therefore, no interference is made in the order of the AO on the issue of initiating penalty. These grounds of appeal are treated as dismissed.”

5. As the appeal of the assessee was considered in part by the ld. CIT(A), the assessee has preferred the present appeal challenging the finding recorded in that order for the sustained additions. To support the grounds so taken by the assessee, the ld. AR for the assessee has submitted his written submission and the same is reads as under:- “Facts:-

1.

3. The AO on the basis of statement recorded in survey made addition of Rs. 34,13.587/-on account of undisclosed profit and Rs.49,85,049/- on account of undisclosed investment. The addition of Rs.49,85,049/- was made by the AO on the ground that Director of the company has himself admitted that the document relate to unrecorded expenditure of the construction project of the assessee.

4. The Lid. CIT(A) deleted the addition of Rs.34,13,587/- on the basis that similar additions made in AY 2015-16 was deleted by Ld. CIT(A) and the order of Ld. CIT(A) is affirmed by Hon'ble ITAT. However, the addition of Rs.49,85,049/- was confirmed on the ground that statement recorded u/s 131 has evidentiary value, the statement is not retracted, explanation offered by the assessee is not satisfactory in as much as Dhruv Buildcon & Designers Pvt. Ltd. no documentary evidence is brought on record that the amount noted in Exhibit 7 relate to house construction whereas in Q. No.9 of the statement Sh. Anil Kumar Sharma admitted that the said Annexure contain unrecorded expenditure of the construction project of assessee. Submission 1. The copy of Exhibit 7 it at PB 18-20. The title of the paper is 'construction & alteration of office. All amounts noted on the paper under various items with quantity and rate is in round sum. Thor the paper prima facie is an estimate paper. There is no evidence of any payment made against the amount noted on this paper. Sh. Anil Kumar Sharma, Director of the assessor in reply to Q. No. of the statement (PB 24 & 26) with reference to this paper has stated that amount recorded on the paper is on the interior designing and construction of office. Thereafter in reply to Q. No.9 (PB 26-27) he stated that he is offering Rs. 49.85,049- on the basis of Exhibit 7 which records the expenditure on the office of the company not recorded in the books of account. He again in reply to Q. No. of statement d. 15.05.2017 confirmed the statement recorded on 07.02.2017.

2. The assessee in course of assessment proceedings vide reply dt. 26.07.2019 (PB 32-33) explained that registered office of the company is at the residence of Sh. Rajendra Sharma, father of Sh. Anil Sharma and the size of office is just to put a board. The house was constructed partly during 1980-1983 and partly in AY 2004-05. Thereafter in reply dt. 06.11.2019 (PB 35-37) it is explained that the paper record construction of 3 rooms, pantry, store having total area of 425 sq. ft., plaster 2800 sq. ft., tile work 926 sq. ft., 5 AC Rs.2 lacs, etc. which is not possible to be accommodated in one room which is the registered office of the company. The area of this room is around 200 sq. ft. as per the map enclosed (Page 3). The valuation report of the house was also furnished according to which the fair value of cost of construction of the entire house was worked out at Rs.32.89 lacs (PB 39-47). The lower authorities have however not controverted these facts brought on record but wrongly stated that Sh. Anil Sharma in Q. No.9 of his statement admitted that it record unrecorded expenditure of construction project of assessee. Therefore, when no such expenditure is incurred by the assessee, the addition confirmed by Ld. CIT(A) u/s 69 of the Act is unjustified.

3. It is further submitted that apart from the registered office, assessee has also taken on rent a hall at the second floor of Roop Bhawan, Keshav Pura Main Road, Kota from January 2010. Copy of the rent deed is enclosed (Page 4-8). As per Clause 5 of the rent deed, the Dhruv Buildcon & Designers Pvt. Ltd. assessee cannot make any demolition / alteration in the premises without the consent of the owner and as per Clause 12 the assessee can install tile & furniture at its own cost. For this purpose assessee incurred expenditure of Rs.1,50,000/- as per the copy of bill enclosed (Page 9). All these facts proved that assessee has not incurred any expenditure as noted in Exhibit 7 impounded during survey.

4. The Ld. CIT(A) has observed that statement recorded u/s 131 has an evidentiary value and that statement has not been retracted. It is submitted that statement has been recorded by the AO during course of survey u/s 133A of the Act. The statement recorded during survey has no evidentiary value as held by Hon'ble Supreme Court in case of CIT Vs. S. Khader Son 352 ITR 480 where it was held that section 133A does not empower any income tax authority to examine any person on oath and thus any such statement has no evidentiary value. Further when assessee has not included the amount surrendered by its Director in the return of income, it in itself means that statement is retracted. Hence the addition confirmed by Ld. CIT(A) on this ground is unjustified. In view of above, addition confirmed by Ld. CIT(A) be directed to be deleted. Ground No.2 That the Ld. CIT(A) grossly erred in charging tax u/s 115BBE on the above addition of Rs.49,85,049/- and also issued penalty notice u/s 271AAC of IT Act. The Ld. CIT(A) also grossly erred in sustaining & confirming the action of AO without going through the papers and submission filed by the assessee. The ground relating to charging of tax u/s 115BBE is not pressed and the ground relating to issue of penalty notice u/s 271AAC of IT Act is premature.”

Dhruv Buildcon & Designers Pvt. Ltd. which is not possible to be accommodated in one room which is the registered office of the company. The area of that room occupied by the company is around 200 sq. ft. as per the map enclosed (Page 3). The valuation report of the house was also furnished according to which the fair value of cost of construction of the entire house was worked out at Rs.32.89 lacs (PB 39-47). This submission made by the assessee were not controverted. Therefore, when no such expenditure is incurred by the assessee, the addition confirmed by Ld. CIT(A) u/s 69 of the Act is unjustified. It is further submitted that apart from the registered office, assessee has also taken on rent a hall at the second floor of Roop Bhawan, Keshav Pura Main Road, Kota from January 2010. Copy of the rent deed is enclosed (Page 4-8). As per Clause 5 of the rent deed, the assessee cannot make any demolition / alteration in the premises without the consent of the owner and as per Clause 12 the assessee can install tile & furniture at its own cost. For this purpose, assessee incurred expenditure of Rs.1,50,000/- as per the copy of bill enclosed (Page 9). All these facts proved that assessee has not incurred any expenditure as noted in Exhibit 7 impounded during survey and Dhruv Buildcon & Designers Pvt. Ltd. that is merely an estimate cannot partake the nature of actual expenditure. Ld. CIT(A) has observed that statement recorded u/s 131 has an evidentiary value and that statement has not been retracted. The bench noted that the statement recorded during survey has no evidentiary value as held by Hon'ble Supreme Court in case of CIT Vs. S. Khader Son 352 ITR 480 where it was held that section 133A does not empower any income tax authority to examine any person on oath. Thus, any such statement has no evidentiary value. Thus, when that statement itself has not evidentiary value whether the same is retracted or not retracted will not make the difference further the subsequent action of the company not considering the disclosure suggests the retractions. Considering the facts and details as is evident from the records we are of the considered view that the ld. CIT(A) was not justified while sustaining the addition the same is directed to be deleted. Based on these observations ground no. 1 raised by the assessee is allowed.