FLINT POWER TOOLS(P) LTD,GURUGRAM vs. ACIT,CENTRAL, CIRCLE-1, FARIDABAD

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 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]

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 Aggarwal, 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]

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 which would corroborate said statements, do not grant the AO the authority to make an assessment.”

It is thus found on facts that the additions which were made by the Assessing Officer were not based on any incriminating material unearthed in the course of the search and rested solely on the statement that had been recorded under Section 132(4) of the Act.

We note that the significance of a solitary statement and whether that would be sufficient to sustain an addition being made absent any incriminating material was one which had directly fallen for our consideration in Principal Commissioner of Income Tax (Central)-3 vs. PavitraRealcon Pvt. Ltd.

We had in PavitraRealcon while answering the aforesaid questions observed as follows:- ….

We find that the Tribunal has on facts found that but for the statement, no other material had been borne in consideration to sustain the additions which were made. This becomes further apparent from a reading of the following observations which appear in para 37 of the order impugned herein:

On an overall conspectus of the above, the Tribunal has ultimately found that the addition which rested solely on a statement recorded under Section 132(4) would not sustain.”

Then, we find that once Smt. PritiSingla has included the director’s remuneration in her return of income for year under consideration and it is evident from comparative chart placed at page 152 of Paper Book that in situation when remuneration is paid to her, tax burden is higher in comparison to tax saving in the hands of appellant company by making deduction of director’s remuneration, then the allegation of department of making fictitious payments to reduce liability looses ground. Infact there is no loss to revenue, on the contrary there is higher tax collection. Making it a revenue neutral situation. Thus relevant ground to this issue in both the AY stand sustained.”