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Facts
A search and seizure operation led to the discovery of a diary allegedly detailing speculation income. The assessee had surrendered Rs. 27 crores based on this diary, which they later retracted, claiming coercion and lack of corroborating evidence. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) confirmed the addition based on the diary and the initial statement.
Held
The Tribunal found substance in the assessee's defense, noting the lack of corroborative evidence for the diary and the circumstances of its alleged recovery. The tribunal also considered the delay in retraction and the explanation provided for it.
Key Issues
Whether the addition based on a diary and an initial retracted statement is sustainable without corroborative evidence, especially when coercion is alleged.
Sections Cited
132, 132(3), 132(4), 271AAA, 292C, 133A, 115
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Income Tax Appellate Tribunal, DELHI BENCH, ‘F’: NEW DELHI
Before: SHRI S RIFAUR RAHMAN, ACCOUNTNAT MEMBER & SHRI ANUBHAV SHARMA
ORDER PER ANUBHAV SHARMA, JM,
This appeal by the assessee is directed against the order of the Ld. Commissioner of Income Tax(Appeals)-III, New Delhi (hereinafter referred to as ‘the Act’), dated 28.02.2024 arising out of order of the Assessing Officer dated 28.03.2013 pertaining to Assessment Year 2011-12.
The assessee has raised following grounds of appeal:-
“1. That on the fact and circumstances of the case the order passed by Ld. CIT(A)-Ill is bad in law and nature and therefore it is liable to be quashed.
2. Because the CIT (A)-Ill erred in confirming the addition on account of undisclosed a) The Ld. A.O. has made the addition on account of merely statement made by the assessee without corroborating with the evidences found in the search; and b) That the Ld. CIT(A)-III failed to appreciate the facl that the Ld. A.O. has not corroborated the statement made by the assessee vis- à-vis the income generated through the stock exchange allegedly stated by the assessee in his statement made u/s 132(4) of the Act; and c) The Ld. CIT(A)-Ill also failed to appreciate that neither the authorized officer corroborated the statement made by the assessee vis-a-vis the earning of the income at the appraisal of the search period nor the Assessing officer during assessment proceedings; and d) Because the Ld. CIT(A)-III failed to appreciate the fact that no stock exchange settles the transaction in cash and that contents of the diary was a forceful writing of the diary disclosing the income that never existed.”
3. The facts in brief are that a search and seizure operation under section 132 of the Act was carried out on 03.03.2011 in the Surya Vinayak group of cases and also in the case of the assesse and during the course of the assessment proceedings an additions of Rs.27 crores were made in the hands of the assessee on account of undisclosed income of Rs.27 crores as additional income. The case of revenue is that during the course of search operations alleged diary namely "EMBRACING ASIA'S PAST, SHAPING ASIA'S FUTURE 2011" was found and seized. It is alleged that in the diary "personal speculation account in the commodities for the period 01.04.2010 onwards" was given and assessee and his brother has alleged to have earned speculation income of Rs.44.62 crores, 60% of Rs.45 crores was added as income in the 40% of Rs.45 crores was added as income in the hands of the brother of the assessee. That later on assessee and his brother retracted form the statement and informed the assessing officer that the surrender was made in a perplex state of mind. Assessee also submitted that the surrender was not based on any sustentative material such as in the whole world, no commodity exchange can provide the profits to any person in cash and for such a huge amount. It was also submitted before Ld. AO that nothing has been materialize and nothing could be substantiate by the search team that can prove that the amount has been received by the assessee as earning from commodity transactions.
Ld. AR has submitted that when on 03.03.2011, search was undertaken on Surya Vinayak group of companies and assessee being director was also searched along with another director Shri Rajiv Jain, at their separate residences separate panchanamas were prepared and statements were recorded but no incriminating material cash or valuable was found in whole of the group companies as well as at residence while the search was undertaken for two days on 03.03.2011 at 12.15 P.M. and concluded on 4h at 4.15 P.M., but after search no valuables were seized including Jewellery. He pointed out that statement were recorded at 7.30 P.M. in the evening of the assessee and concluded on 4th March 2011, till evening (PB 9-20) and during statement recorded of assessee, his wife and brother Shri Rajiv Jain, have not surrendered any amount. Statement of assessee was also made in office
premises, but no surrender of income was made. Assessee was already facing assessments of companies in appeal wherein addition of more than 360 crores was made and demand of about 185 crores was raised. Ld. AR contended that it is very common when whole of the search fails, revenue authorities start coercion and to create huge demand again which would hamper assessee's business who was already paying huge taxes and facing litigation. Ld. AR states that after consultation it was decided by assesse to merely issue letter on 10.03.2011 to get rid of their pressure to surrender Rs. 45 crores with the stipulation that no penalty will be initiated/levied u/s 271AAA or any other section or no prosecution proceeding will be initiated. He was aware of the fact that u/s 271AAA manner of earning income is required to be explained which was never explained.
5. Ld. AR submitted that the revenue authorities issued Prohibitory Order (PO) on 03.03.2011 on locker, as may be seen from the Panchnama (PB Page 24) but no other PO was provided by the revenue authorities, however on 02.05.2011 another statement was recorded referring to revocation of PO but no such PO was provided to the assessee, despite several requests. It is pointed out that PO was stated to be revoked at proceedings in office premises of Surya Vinayak Industries whose search was already concluded and no incriminating material was found. Ld. AR submitted that as per section 132(3) of the Act order of prohibition is issued where it is not practical to seize but no such office or premises were ever sealed even no wardrobe was sealed. PO
used to be issued to prohibit the use of any room or place but there is no reference of any prohibition either of any locker, room, almirah or place. The office premises were running as usual without any prohibition. Infact in the statement recorded on 02.05.2011 it is clearly stated that diary was found in office premises not from a place which was prohibited. This also clearly conclude that the diary, surrender and statement recorded were all made up story by revenue authorities by putting pressure on assessee.
To support his contention that diary was prepared out of coercion and was not actually maintained, ld. AR submitted that no cash or document relating to income earned in huge amount from April 2010 to February 2011 was found at any of the premises belonging to the assessee and so diary was created on 02.05.2011 to declare income. It is highly improbable that such a profitable venture in the first year of business was not continued in future. The diary was of 2011 and entries were made of April 2010 to December 2010 when diary was not even published and January 2011 and February entries are related to only appointments recorded by staff. It is highly improbable that staff and MD (assessee) was using the same diary that relating to hidden income of more than 44.63 crores. The entries written from April to February amounted to Rs. 39.73 crores and in order to complete 45 crores, entries of January and February were again made on next page 11. Entry of March 2011 with the cutting on estimated clearly depicts that revenue authorities analysed the possibilities as search was on 03.03.2011 hence made cutting to avoid
March 2011 and finally reach to approximately 45 crores by adding January and February again on the next page. No business in agro commodities can be made without any registration and no registration certificate or any agent dealing with such commodities was found during search. After receiving notices u/s 153A on various group of companies on 08.02.2012, assessee filed ITR on 21.05.2012 (PB 49-60) without declaring any income and opted to file Writ Petition before Hon’ble High Court for making frivolous searches in 2007 and 2011 which hampered assessee's business. In the petition filed on 16.07.2012 the forceful surrender by revenue authorities was informed. (PB 96-99). All the assessments made due to search in 2007 were quashed and all the assessments of companies due to search in 2012 were also quashed.
Ld. DR has defended the case of revenue by submitting that assesse has come up with cooked up story of coercion to get incriminating diary prepared. Written submission were also filed and same are reproduced below;
“As in judicial proceedings in Courts, the evidences both oral and documentary, are relevant in deciding the issues in the income-tax proceedings. Oral evidences, include statements which are made before the income-tax authorities in relation to matter of inquiry, search and survey proceedings and may also include examination of the assessee or related parties. Documentary evidences include all documents produced before the income-tax authority for his verification/inspection. Oral and documentary evidences, inter alia, depending upon the circumstances include 'Admissions' which play a crucial role in any judicial proceeding. There is considerable importance of statements recorded during search and seizure operations, which is clear from the intent of Legislature as it thought fit to include a separate section 132(4) for recording of statement during a search operation. Further section 292C has been inserted by the Finance Act, 2007 with retrospective effect from 1-10-1975 allowing presumption as to assets, books of account, etc. found during search under section 132 and requisition under section 132A. Later on by Finance Act, 2008 the ambit of section 292C has been enlarged by including presumption in case of survey proceedings under section 133A with retrospective effect from 1-6-2002. The words 'may be used in evidence in any proceedings' appearing in section 132(4) are of great significance. Under section 132(4) an authorized officer during search can examine on oath any person who is found to be in possession of any books of account, documents, money, bullion, jewellery. etc. Statement made by such person during such examination may thereafter be used in evidence in any proceedings. Under the Income-tax Act also admissions bind the maker when these are not rebutted or retracted. The statement recorded under section 132(4) has evidentiary value, as provided in the Act itself that it can be used in evidence. In this case incriminating documents have been found relating to the undisclosed income of shares in Annexure AA-1 and the statement on oath of the appellant was recorded on 04.03.2011 and 02.05.2011 in which he surrendered the amount of Rs. 44 crores as per the discussion made by the AO in the Assessment Order in para 4. It is humbly submitted that the following decisions also may kindly be considered with regard to validity of statement recorded u/s 132(4) of I.T. Act: 1. Kishore Kumar Vs CIT (62 taxmann.com 215, 234 Taxman 771) Where Hon'ble Supreme Court dismissed SLP against High Court's order where it was held that since assessee himself had stated in sworn statement during search and seizure about his undisclosed income, tax was to be levied on basis of admission without scrutinizing documents. B Kishore Kumar Vs CIT (52 taxmann.com 449) Madras High Court confirmed 2. In the case of Bhagirath Aggarwal vs. CIT 31 Taxmann.com 274 Hon'ble Delhi High Court has held that -
"In the present case no material has been produced by the appellant/assessee to show that the admission made by him was incorrect in any way. On the other hand, it is the assessee who is insisting that it is for the department to corroborate the statement of admission made by him and until and unless the department corroborates the same, the statement cannot be relied upon. Admission once made can certainly be retracted, if the circumstances permit, and it can also be shown to have been made under some mistake or to be otherwise incorrect. But, the onus would be on the maker of that admission. In this case it is the appellant/assessee who has admitted and surrendered a sum of Rs. 1.75 crores as his undisclosed income. It was incumbent upon him to show that he had made a mistake in making that admission and that the said admission was incorrect. He had access to all the documents which has been seized in as much as the copies had been supplied to him. However, he did not produce anything to establish that the admission was incorrect in any way. That being the position, the appellant/assessee cannot resile from his earlier statement (Para 11) The appellant/assessee has not produced any material to show that the admissions made by him were incorrect. The statements recorded under section 132(4) of the said Act are clearly relevant and admissible and they can be used as evidence. In fact, once there is a clear admission, voluntarily made, on the part of the assessee, that would constitute a good piece of evidence at the hands of the Revenue. (Para 12] As per the circular, dated 11-3-2003 there is an observation of the Board that the focus of the search party should be on collection of evidence of income which leads to information on what has not been disclosed or is not likely to be disclosed before the Income tax Department. There is a further observation that, while recording statements during the course of search, seizure and survey operations, no attempt should be made to obtain confessions as to undisclosed income and that any action to the contrary would be viewed adversely. [Para 13] The Income tax Officers should not try to force a confession from an assessee However, if an assessee voluntarily makes a surrender, the officials of the income tax department are bound to record that statement under section 132(4) and such a statement, voluntarily made, is relevant and admissible and is liable to be used as evidence. [Para 14] The plea of bifurcation had not been taken by the appellant/assessee before the authorities below. In any event, the letter dated 9-1-2006 was written one-and-a-half-months after the recording of the statement on 21-11-2005 and was clearly an afterthough. The letter dated 9-1-2006 cannot be treated as a statement u/s 132(4) of the said Act and only the statements recorded on 10-11/11/2005 and 21-11-2005 which are statements u/s 132(4) which have evidentiary value. [Para 15] The letter dated 9-1-2006 was an afterthought as there was no mention of any documents in the letter dated 9-1-2006. [Para 16] Therefore, the appeal is to be dismissed. [Para 17]"
Raj Hans Towers (P.) Ltd. Vs CIT (56 taxmann.com 67, 230 Taxman 567, 373 ITR 9) Where Hon'ble Delhi High Court held that where assessee had not offered any satisfactory explanation regarding surrendered amount being not bona fide and it was also not borne out in any contentions raised before lower authorities, additions so made after adjusting expenditure were justified (SURVEY CASE) 4. Further, in the case of Hiralal and Maganlal & Co. vs. DCIT 96 ITD 113(Mum.) Hon'ble ITAT Mumbai Bench has held that - "The CBDT's Circular F. No. 286/2/2003-IT (Inv.), dated 10-3- 2003 relied upon by the assessee is an advisory to the field officers that they should concentrate on collections of evidence relating to undisclosed income and not on making attempts to obtain confession. In the instant case, the department was not found to have made any attempt to obtain the confession of the assessee. They, in fact, simply examined 'P' and 'J' to collect evidence of undisclosed income but it was 'P' who, instead of denying or providing the information with regard to the locations where the unaccounted stock had been kept, preferred to make the confessions as aforesaid. Thus, the said circular issued in 2003 had no application to the facts of the case. [Para 15) the assessee had not produced any contem- poraneous record or evidence, oral or documentary, to substantiate the allegation. Fifthly, the answers given by him were quite coherent and did not indicate that he was in a confused state of mind when his statement was recorded. Sixthly, the seized sheets were recovered from the residence of 'P' who actually carried them to the firm's office so as to reconcile the same with the records in the firm's office in consultation with his trusted men. Such cautions and careful approach on the part of 'P' also excluded the possibility of his statement having been made in a confused statement of mind or under any pressure or force. the answers given by 'P' with regard to the nature or documents and other relevant matters were in his specific knowledge and, hence, they could not have been dictated by the search party. Eighthly, at the time of the hearing, 'P' denied that any force was used on him while recording his statement or at the time of search. Hence, it could not be accepted that 'P' was forced to make the statement in question or any kind of undue influence or coercion was exercised on him to extract the said declaration/statement or he was in a confused state of mind while giving the statement. All the submissions of the assessee in that behalf were, therefore, rejected. [Para 16] Mere filing of an affidavit of an employee of the group and written submissions at a later stage of the proceedings were self-serving pieces of evidence and, thus, they could neither negate the declaration and disclosure made on oath by 'P' under section 132(4) nor form the basis for effective retraction of the declaration made under section 132(4). For that reason, also, the Assessing Officer was justified in rejecting the retraction filed by the assessee on the ground that it was an afterthought. [Para 28] Statements in the nature of declarations covered by provisions of section 115, are binding on the declarant. They can neither be retracted nor do they require any corroboration. Such declarations can form the sole basis of assessment. The declaration made by 'P', the partner in the assessee-firm through his statement recorded under section 132(4), fell squarely within the ambit of section 115 and, hence, the same was neither open to retraction nor required any further corroboration. The Assessing Officer could, therefore, base the impugned addition on the said declaration. Statements, which are not in the nature of declarations under section 115, are also binding and can form the sole basis for assessment if they are not effectively retracted. Effective retraction is possible in two situations. First situation is where it is not voluntarily made. A statement, however, cannot be said to be involuntarily made merely because it is subsequently sought to be retracted. The law of evidence presumes regularity and correctness of the official actions unless proved otherwise and, hence, the said principle will also govern the statement recorded by a public official and that is more particularly so when it is recorded in pursuance of the statutory provisions of law."
Further, in the case of Dewan Bahadur Seth Gopal Das Mohta vs. UOl 26 ITR 722 Hon'ble Supreme Court has held that - "Whatever tax the petitioner had already paid, or whatever was still recoverable from him, was recovered on the basis of the settlement proposed by him and accepted by the Central Government. Because of his request for a settlement no assessment was made against him by following the whole of the procedure of the Income-tax Act. In this situation unless and until the petitioner could establish that his consent was improperly procured."
6. M/s Pebble Investment and Finance Ltd Vs ITO (2017- TIOL-238-SC-IT) “Where Hon'ble Supreme Court dismissed SLP challenging the judgment, whereby the High Court had held that statement made u/s 133A could be relied upon for purposes of assessment, in absence of any contrary evidence or explanation as to why such statement made was not credible. M/s Pebble Investment and Finance Ltd Vs ITO (2017-TIOL- 188-HC-MUM-IT) Bombay High Court confirmed. 7. PCIT Vs Avinash Kumar Setia [2017] 81 taxmann.com 476 (Delhi) “Where Hon'ble Delhi High Court held that Where assessee surrendered certain income by way of declaration and withdraw same after two years without any satisfacion explanation, it could not be treated as bona fide and, hence, addition would sustain (SURVEY CASE) C. No retraction was filed by the assessee till filing of return of income, which prevented the Department from making further inquiries. For retraction to be valid, threat or coercion has to be proved which has not been done in the present case: Manohar lal Kasturchand Chokshi vs ACIT (ITAT, Ahd.) 61 ITD 55 Paramanand Builders vs ITO (ITAT, Mum.) 59 ITD 29 Works of Art (P) Ltd. vs ACIT (ITAT, Jp.) 65 ITD 40 Amrital Bhagwandas Soni vs DCIT (ITAT, Ahd.) 59 TTJ 418 Hiralal Maganlal & Co. vs DCIT (ITAT, Mum.) 96 ITD 113 Airport Authority of India vs CBEC (Del) 207 CTR 196 Ravindra D. Trivedi vs CIT (Raj.) 215 CTR 313 D. When statement was made voluntary and was not alleged to have been obtained under threat or coercion, onus was on assessee to prove that said declaration was made under any misconception of facts - Since assessee had not taken any steps to rectify its declaration before authorities before whom such declaration was made, there was no valid reason that the statement of the director cannot be relied upon as held by CIT(A) Carpenters Classics (Exim) (P) Ltd. vs DCIT (ITAT, Bang.) 108 ITD 142.”
On appreciating material and contention we find that while hearing this appeal the bench on numerous occasion dealt with contention of ld.AR about non availability of any panchnama about seizure of diary and we see that on 06.10.2022 Bench directed Ld. DR to file panchanama and documents for complete appreciation of the controversy. Again on 04.05.2023 the Bench again asked the Ld. DR directed to produce corroborative evidence in connection with diary and also the panchnama. Then on 04.01.2024 matter was heard in absence of any evidence or panchnama as DR was unable to file anything. On 15.04.2024, matter was fixed for clarification and later on after not finding any response, matter was released. Then on 07.08.2024 bench again directed ld. DR to bring relevant panchnama on record. On 09.09.2024, ld. DR furnished panchnama and diary and was directed to file panchnama mentioning such diary as plea was raised that diary was not seized during search and there is no mention of diary in panchnama. Ld. DR was directed to file report. Finally on 05.12.2024 this bench heard the matter in absence of any Panchnama, AO was called who admitted that there is no panchnama
recording diary as seized material. However, on 27.02.2025 we sought certain clarification from both the parties, and ld. AR highlighted that it is incorrect that any PO was revoked in connection with a diary as it was admitted to be not a seized material by the AO who was present before the Bench and confirmed that there is no panchnama recording such diary.
Now what we finally conclude is that assessee retracted the letter of surrender of undisclosed income by not declaring surrendered income in ITR and subsequently also by filing letter during assessment and at same time filed Writ Petition raising the issue of forceful surrender. Though there is some time lag between making the statements and retractions. Taking into circumstances we find that certainly the issue is if disputed diary being not seized material has no evidentiary value specifically when no corroborative evidence was found in support of such income nor any question was raised on manner of earning such income as required for surrendered income. It can be observed that the case of the assessee is not of the diary being a dumb document and but the assertion is that it was got written by coercion and for that reason, statements were retracted.
To examine this defence as we appreciate the material there appears to be some substance in the defence from the circumstances which the ld. AR has pointed out and we have discussed in para-6 above. The disputed diary seems to not have been part of regular books of accounts or being kept in regular course of business or even possibly maintaining day to day affairs. Its content shows as if only the profit part is recorded and that too year wise, of previous years. It is quite unreasonable to accept that any individual would be recording in a diary as to how over the years some income was earned and merely stating to authorities that the figures are income earned over the years and relate to a particular economic activity. The tenor and substance of content, does not inspire confidence that it was a voluntarily written document.
The search has taken place on 03.03.2011 and alleged later of surrendering of Rs.45 Crores is dated 10.03.2011 and admittedly during the period of search or when prohibitory order kept open, not a single document could be recovered indicating assessee’s commodity trade transactions. The diary could not be found during the course of search and thus manner in which the diary is shown to be recovered subsequently during period of prohibitory orders also indicates substance in the claim of assessee.
There is substance in the contention that if assessee was actually into out of books trading in commodity exchange transaction then some sort of evidences should have been uncovered during the search to show that assessee was into some undisclosed transactions of commodity trading as it is not legally and otherwise humanly possible to just keep on record of what is earned without there being an iota of material to refer as to how, when and through what mode or channel, the commodity trade transactions may have taken place.
Thus this diary seems to scribed under some unsusual circumstances, and there is no reason to discredit and snub the defence of assessee that as in the search no other incriminating material was found from various premises covered in search, this diary was procured, only a to bring some income to revenue. The tax authorities exercising the quasi judicial functions, of investigation and collection of evidences are expected to establish their conduct above board when they intend to rely self-incriminating evidences or statements. Though, the law permits use of statements recorded u/s 132(4) of the Act. However, the admissions in such statements need material corroborations and not a general corroboration. It would be against the principle of natural justice to let one set of self-incriminating evidences, like the diary involved in the case of assessee, corroborated by another set of self- incriminating evidence, like oral statements recorded on oath, and give a conclusive finding. It is for this reason that CBDT recognises the issue and has issued circulars no. 286/2/2003-IT(inv) and 286/98/2013-IT(InvII), to discourage depending on mere confessions alone.
It comes up that Assessing Officer has merely relied the statements which the assessee had retracted. The ld. CIT(A) observes in para 5.5 that there is a surrendering of income on 10.03.2011 in statement us/s 132(4) of the Act and re-confirming again after almost two months on 02.05.2011 has lead to immunity from further deeper investigation which might have been launched if such surrender was not made. The ld. CIT(A) observes that had it
been a case of genuine threat, coercion or pressure then in that event the appellant group would have filed affidavit soon the very next day and brought out the state of affairs before any of the higher authorities and waited for more than a year till 31.05.2012, till the date of filing of return of income and stated that he has retracted because a surrender was made in the perplex state of mind.
We are of the considered view that this assertion of Ld. CIT(A), would have found subsistence if an iota of corroborative evidences were in the hands of the Department any time during the search or thereafter, so to allege that to avoid any further investigations assessee made this statement voluntarily and thwarted the revenue’s case.
The decisions which the ld. DR has relied to reject the retraction do not help the Department in the facts and circumstances as discussed above. In the decisions cited, it is nowhere ratio that mere self-incriminating statements would be sufficient to draw inferences. The retraction may be delayed but is consistent and well explained. The assessee at first instance, when he is confronted gave plausible explanation of extraction.
As a wholesome effect of aforesaid discussion, we are inclined to sustain the grounds and allow the appeal of assessee.
Order pronounced in the open court on 29th September, 2025.