DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1, GUNTUR vs. RAVINDRA BHARATHI EDUCATIONAL SOCIETY, NELLORE

PER S. BALAKRISHNAN, Accountant Member :

2018-19.

Considering the above admission of the assessee, the case was reopened U/s. 147 of the Act and the notice U/s. 148 was issued on 4/12/2019 for the AY 2018-19 which was served on the assessee on 7/12/2019. Subsequently, a notice U/s. 142(1) of the Act was issued on 4/2/2021 calling for information. In the meantime, the assessee e-filed its return of income in response to notice U/s 148 of the Act admitting a total income of Rs. 4,02,25,350/- as admitted in the original return. Further, a notice U/s. 143(2) was issued on 19/4/2021. As there was no response from the assessee, a letter was addressed to the assessee on 16/4/2021 proposing an addition of Rs. 2.90 Crs as admitted by the assessee at the time of survey and called for its 4 objections. In response, the assessee e-filed a letter in ITBA on 20/04/2021 explaining that the cash payments were not made during the FY 2017-18 and all the payments for purchase of Text Books and Note Books etc., were made through cheques only.

The Ld. AO considering the assessee’s explanation not acceptable, made an addition of Rs. 2.90 Crs to the returned income of the Assessee while framing the assessment U/s. 147 of the Act and completed the assessment U/s. 144 of the Act.

Aggrieved by the order of the Ld. AO, the assessee is in appeal before the Ld. CIT(A).

3. Before the Ld. CIT(A), the assessee challenged the reopening of the assessment based on the admission made by the President of the Assessee-Society. The Ld. CIT(A) in his detailed order, relying on various judicial pronouncements, considered the submissions made by the assessee and allowed the appeal of the assessee. Aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before the Tribunal.

“1. The order of the Ld. CIT(A) is erroneous both on the facts and in law.

5 2. The Ld. CIT(A) is not justified in stating that reopening the assessment U/s. 147 of the Act is bad in law.

4. The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 2.90 Crs as the assessee admitted the additional income of Rs. 2.90 Crs as per the material found during the course of survey U/s. 133A.

5. The Ld.CIT(A) is wrong on facts when stating that the assessee has retracted the statement recorded during the course of survey as the assessee has never stated that it is retracting from the statement.

6. The Ld. CIT(A) erred on law and in facts in admitting the explanation of the assessee that the admission is due to miscomprehension as the retraction of admission was without any proof or evidence.

7. The Ld. CIT(A) erred on law and facts in ignoring the unaccounted transaction recorded in the incriminating impounded material.

The Ld. DR further submitted that the Ld. CIT(A) has relied on the decision of Pullangode Rubber Producer Co. Ltd vs. CIT

6 [1973] 91 ITR 18 wherein it was held that reopening based on admission is an extremely important piece of evidence. The Ld. DR further submitted that since the assessee has not declared the income admitted, the Ld. AO has rightly considered that there is a reason to belief escapement of income by the assessee. The Ld. DR also referred to the reasons for reopening. The Ld. DR therefore pleaded that the order of the Ld. AO be upheld.

Per contra, the Ld. AR argued that the Ld. AO has relied on the admission made by the President of the Assessee-Society and has not brought in any corroborative evidence to support the reopening U/s. 147 of the Act. The Ld. AR further submitted that the Ld. AO has also not rejected the books of account while estimating the income of the assessee based on the admission.

Further, the Ld. AR also referred to the reasons for reopening in paper book page No. 24 wherein the Ld. AO has purely relied on the admission of the assessee as a valid reason for reopening of the assessment for the AY 2018-19. The Ld. AR also referred to the Hon’ble Supreme Court decision in the case of Pullangode Rubber Producer Co. Ltd vs. CIT (supra) wherein it has been held that “even though an admission is an extremely important piece of evidence, it cannot be said to be a conclusive”. Further, the Ld.

7 AR also placed heavy reliance in the decision of the Hon’ble Madras High Court in the case of CIT vs. M/s. S. Khader Khan Son. The Ld. AR also referred to page 6 of the paper book wherein a table was given justifying the increase in interest and depreciation expenditure being the cost for the lower declaration of profits for the impugned assessment year. Further, the Ld. AR also submitted that Annexure – A/RBES/OFF/HYD/02 wherein there are cash payments of interest of Rs. 26 lakhs, which are already included in the sundry expenses in the P & L Account and hence there is no escapement of income as relied on by the Ld. AO. Further, the Ld. AR also submitted that during the course of survey proceedings, no material which is incriminating in nature to have a bearing on the assessment was found.

Further, the Ld. AR also referred to the retraction of President of the Assessee-Society and stated that the assessee has wrongly submitted that the admission of additional income at the time of survey was made due to miscomprehension of facts and low profits of margins were correctly justified and recorded. The Ld. AR therefore pleaded that the reopening of assessment was bad in law, invalid and unsustainable in law as it is based on the admission during the survey and not based on any corroborative

8 evidence hence pleaded that the order of the Ld. CIT(A) be upheld.

Subrahmanyam, President of the Assessee-Society at the time of survey. Subsequently, the President of the Assessee-Society retracted his statement and stated that the admission was due to low profit ratios at the time of survey was made due to miscomprehension of facts whereas the low profit margins were justified and correctly recorded. Further, we find that the Hon’ble Ltd vs. CIT [1973] 91 ITR 18 (supra) held that “an admission is an extremely importance piece of evidence but it cannot be said to be conclusive”. There is merit in the argument of the Ld. AR that the Ld. AO has erred in relying on the statement of admission by the assessee was the sole reason to reopen the assessment U/s. 147 of the Act without bringing any additional corroborative material on record. Various judicial pronouncements have held that a confessional statement made during the survey cannot be 9 considered as a reason for reopening of the assessment in the absence of any supportive incriminating material having direct nexus / correlation with the statement. For having a reason to believe there must be some tangible material which indicates the income escaped assessment. Merely based on the suspicion or surmises, the Ld. Assessing Officer is not permitted to reopen the assessment. It is also seen from the submissions made by the Ld. AR that the assessee has incurred huge expenditure in the form of interest and hence the low profit margin. The Ld. AO has also not brought on record any material or finding based on the suppression of receipts or unrecorded transactions for the year.

The reference was made by the Ld. AR to the Circular Dated 10/03/2003, deserves consideration, which reads as under:

“Instances have come to the notice of the Board where assessees have come to confess the undisclosed income during the course of the search & seizure and survey operations. Such confessions, if not based upon credible evidence, are later retracted by the concerned assessees while filing returns of income. In these circumstances, on confessions during the course of search & seizure and survey operations do not serve any useful purpose. It is, therefore, advised that there should be focus and concentration 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. Similarly, while recording statement during the course of search & seizure and survey operations no attempt should be made to obtain confession as to the undisclosed income. Any action on the contrary shall be viewed adversely.

Further, in respect of pending assessment proceedings also, Assessing Officers should rely upon the evidences / materials gathered during the course of search / survey operations or thereafter while framing the relevant assessment orders”.

“5.4. During the assessment proceedings the appellant society had established that what was said and admitted in the survey was not correct and hence the admission for offer of additional income on account of low profit margin had no justification. It was explained that the interest payments on loans taken by the appellant from the banks for its working capital requirements had increased over the years resulting in low profit margins. A comparative chart showing the net profit receipts to the gross receipts for various financial years from assessment year 2015-16 to 2018-19 was submitted during the assessment proceedings through which low profit margins was explained. On perusal of the comparative chart, it is noticed that the bank interest has been showing an increasing trend which was Rs. 23,19,56,781/- in Assessment year 2015-16 rose to Rs. 26,94,41,160/- in the Assessment Year 2018-19 having an impact on the profit margins. In comparison the net fee receipts from the students did not register significant increase as concessions have been allowed to the students. With respect to cash payments of interest of Rs. 26 lakhs for the year under consideration it was submitted that the same was included in the sundry expenses in the profit & loss account for the year under consideration and hence was not an unaccounted item. The low profit margin at the time of survey was only observation made by the AO and not a conclusive finding based on suppression of receipts of unrecorded transaction for the year. The appellant had clarified subsequently that what he had said during the survey was not correct due to misapprehension of facts. I observe that the AO has not taken into account the submissions made by the appellant during the assessment and has made the addition only on the basis of confessional statement at the time of survey without any supporting material. If the AO disagreed with the claims of the appellant with respect to the justification for low profit margins he ought to have brought on record with relevant material that the justification for the claims being made by the appellant are not correct. Instead the AO has only relied on the admission given at the time of survey and made the addition. Considering the above facts and circumstances of the case and the judicial pronouncements cited above grounds no.2, 3, 4 & 5 are allowed.”

8. From the above, we find that the Ld. CIT(A) has rightly held that the reopening is bad in law and allowed the appeal of the assessee. We therefore are of the considered view that no interference is required in the order of the Ld. CIT(A) and hence the grounds raised by the Revenue are dismissed.

13 13. Ex-consequenti, appeal of the Revenue and the Cross Objection of the Assessee are dismissed.

Pronounced in the open Court on the 23rd May, 2023.