MESERS RAM AVTAR AGRAWAL ROAD CONSTRUCTION PRIVATE LIMITED,BILASPUR vs. ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-II, RAIPUR

The present appeal filed by the assessee is directed against the order passed by the CIT(Appeals)-3, Bhopal dated 15.10.2019, which in turn arises from the order passed by the A.O under Sec.153A r.w.s 143(3) of the Income-Tax Act, 1961 (for short ‘the Act’) dated 28.12.2018 for assessment year 2017-18. Before us the assessee has assailed the impugned order on the following grounds of appeal: “1. On the facts and circumstances of the case, the CIT(A) has erred in sustaining the order of the A.O wherein the Ld. A.O has erred in making addition of Rs.1,04,15,670/- on account of cash found during search as undisclosed income. Thus, the addition made by the A.O and sustained by the CIT-A is unjustified, unwarranted and uncalled for.

Considering the fact that the assessee company had in its return of income not offered the aforesaid amount of Rs. 1,05,15,670/- (supra) for tax, the AO called upon it to explain as to why an addition of the same may not be made in its hands by treating it as its undisclosed income for the year under consideration i.e. A.Y.2017-18. The assessee company in its reply pointed out serious infirmities and lapses in the statement of Shri Pawan Kumar Agrawal (supra) that was recorded on 08.02.2017 u/s. 132(4) of the Act. It was submitted before the AO that though Shri Pawan Kumar Agrawal (supra) on being queried by the search officials about the nature and source of the aforesaid amount of Rs. 1,05,15,670/- (supra) in context of the assessee company had specifically stated that as the accounts and income-tax matters of the assessee company were being looked after by Shri Rupesh Garg, director of the company, therefore, the requisite details may be gathered from him, but they despite being well conversant of the fact that the latter person was the key person who was looking after the financial affairs of the assessee group, viz. Satya Group had chosen to by-pass the said request and adopted an evasive approach. It was further the claim of the assessee that Shri. Pawan Kumar Agrawal (supra) was 5 Ram Avtar Agrawal Road Constructions Pvt. Ltd. Vs. ACIT, CC-II, Raipur pressurized and coerced to give the statement as per the dictates of the search officials. It was stated by the assessee that the fact that Mr. Pawan Kumar Agrawal (supra) had though in his statement recorded u/s.132(4) of Act, dated 08.02.2017 in reply to Question No. 12 initially admitted that the amount of Rs.1,04,15,670/- (supra) was his undisclosed income, but had thereafter in reply to Question No.17 allegedly stated that the said amount was the undisclosed income of the assessee company, therein clearly revealed that he at the relevant point of time was not in a proper state of mind. Be that as it may, it was submitted by the assessee that as Mr. Pawan Kumar Agrawal (supra) had retracted from the disclosure that was made by him in the hands of the assessee company by filing an “affidavit” dated 10.02.2017, therefore, the same could not be acted upon on a standalone basis for drawing of adverse inferences in its hands.

Rebutting the aforesaid allegation of the assessee that the department had taken recourse to undue pressure, coercion and threats to extract the disclosure from Mr. Pawan Kumar Agrawal (supra), it was observed by the A.O that the same was totally incorrect as the assessee had himself stated in the course of the 6 Ram Avtar Agrawal Road Constructions Pvt. Ltd. Vs. ACIT, CC-II, Raipur search proceedings that his statement u/s. 132(4), dated 08.02.2017 was recorded without any pressure, coercion and threat. It was further observed by the AO that the retraction by the assessee of his statement recorded u/s.132(4) (supra) vide an ‘affidavit’ dated 10.02.2017 was merely based on an afterthought to nullify the disclosure that was voluntarily made by him in his aforesaid statement. It was observed by the A.O that as the statement recorded u/s. 132(4) was an important piece of evidence as regards the confession of the assessee about the discrepancies and irregularities of his financial affairs, therefore, a heavy onus was cast upon him to substantiate the circumstances justifying a subsequent retraction of the same. It was further observed by the A.O that though during the course of search proceedings the ‘closing balance’ of cash-in-hand was reflected in the books of account of the assessee company at Rs.16,79,49,131/-, however, the said cash was neither found in its office premises nor at the residential premises of its directors. The AO being of the view that the assessee company had failed to substantiate the source of the unaccounted cash of Rs.1,04,15,670/- (supra) that was found at the residential premises of Mr. Pawan Kumar Agrawal (supra), therefore, held the same as the undisclosed

Aggrieved, the assessee carried the matter in appeal before the CIT(Appeals) but without any success. Refuting the contentions of the assessee the CIT(Appeals) upheld the view taken by the A.O for the following reasons [(as culled out from the order of the CIT(Appeals)]: “i. The retraction was made after a period of fifteen months; ii. It was never communicated to the Departmental authorities, merely not disclosed with the return of income; iii. From record it is impossible to hold that any threat or coercion has been exerted during the confession statement of the assessee. iv. Irrespective of the form or validity of the voluntary disclosure statement or of the deposition taken from the assessee on 08.02.2017 the evidence of testimony cannot be wiped out and does not become non-existent and this evidence can well be utilized to frame the assessment on that basis. v.Shri Pawan Kumar Agrawal in his sworn statement recorded on oath on 08.02.2017 has admitted his undisclosed income of Rs. 1,04,15,670/- in AY 2017-18. However, lateron, after analysing the facts and incriminating document he admitted undisclosed income in the hands of appellant company. Thus, the disclosure made was in true spirit and after analysing various incriminating documents found during the course of search.”

The assessee being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us.

We have heard the ld. authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions.

Admittedly, it is a matter of fact borne from record that an amount of Rs.1,04,15,670/- in cash was during the course of the search proceedings found from the residential premises of Mr. Pawan Kumar Agrawal, director of the assessee company. On being queried as regards the nature and source of the aforesaid amount Mr. Pawan Kumar Agrawal (supra) in reply to Question No. 12 of his statement recorded u/s.132(4) of the Act had initially admitted the aforesaid amount as his undisclosed income and had agreed to offer the same for tax. For the sake of clarity Question No.12 a/w. reply of the assessee extracted from the statement of Shri Pawan Kumar Agrawal (supra) recorded on 08.02.2017 u/s.132(4) is culled out as under:

Ostensibly, as can be gathered from the orders of the lower authorities, the treating of the amount of Rs.1,04,15,670/- (supra) as the undisclosed income of the assessee company is based on the standalone statement recorded u/s.132(4), dated 08.02.2017 of Shri. Pawan Kumar Agrawal (supra). At this stage, we may herein observe that the statement of Shri Pawan Kumar Agrawal (supra) that was recorded u/s.132(4) on 08.02.2017 does not inspire much of confidence. We, say so, for the reason that on the one hand the aforesaid person i.e. Shri Pawan Kumar Agrawal (supra) in reply to Question No.12 had categorically admitted the amount of Rs.1,04,15,670/-(supra) that was found lying in cash during the course of the search proceedings from his premises as his undisclosed income, but thereafter in reply to Question No.17 had without any rhyme and reason in contradiction of his earlier reply claimed that the amount in question was the undisclosed income of 12 Ram Avtar Agrawal Road Constructions Pvt. Ltd. Vs. ACIT, CC-II, Raipur the assessee company for the year under consideration i.e. A.Y.2017- 18. Admittedly, the aforesaid self-contradictory statement of Shri Pawan Kumar Agrawal (supra) that was recorded u/s. 132(4) on 08.02.2017 had thereafter been retracted by him by filing an ‘affidavit’ dated 10.02.2017, wherein, he had specifically stated that the department had recorded his statement by subjecting him to undue pressure, coercion and threat, and thus, under the said set of circumstances had obtained the substantial amount of disclosure in order to justify their search action. It was stated by the assessee that he had in the course of the search proceedings due to the undue pressure of the search officials lost his mental balance and only as their per dictates had came forth with a disclosure of an undisclosed income of Rs. 1,04,15,670/-. It was further stated by Shri Pawan Kumar Agrawal (supra) that it was due to the undue pressure of the search team that he had earlier stated that the amount of cash found with him was his undisclosed income, but later on had stated that the same was the undisclosed income of the assesee company. The relevant contents of the ‘affidavit’ of Shri Pawan Kumar Agrawal (supra) which will have a strong bearing on the maintainability of the 13 Ram Avtar Agrawal Road Constructions Pvt. Ltd. Vs. ACIT, CC-II, Raipur retraction of his statement recorded u/s 132(4), dated 08.02.2017 are culled out as under: “1. That I am a director in the company Ramavatar Agrawal Road Constructions (P) Ltd. engaged in the business of road construction in the state of Chhattisgarh.

That search action u/s 132 was initiated by the Income Tax Department on 8.02.2017 in the morning time by 6.00 a.m. The search party covered my residential premises along with the office premises of the companies, firms namely Agrawal Infrabuild (P) Ltd, Ramavatar Agrawal Road Constructions (P) Ltd, M/S B.L. Industries and the residential premises of the directors of the company and family members of the directors.

That during the course of search an amount of Rs.1,04,15,670/- was found from my residential premises. In the statement recorded during the course of search, in question no. 7 to 9 1 was asked to explain its source. In respect to this I stated that this amount of Rs.1,04,15,670/- is the BOT collection (Toll collection) of Ramavtar Agrawal Road Constructions (P) Ltd for the period 2.12.2016 to 7.02.2017. I further stated that the documents pertaining to the Ramavtar Agrawal Road Constructions (P) Ltd will be available in the office of the said company. Further, in question 10 & 11 of the statement I was asked to explainthat whether the cash found of Rs.1,04,15,670/- is recorded in the books of Ramavtar Agrawal Road Constructions (P) Ltd or not. In response to this I specifically stated that all the details related to the accounts and income tax matters of Ramavatar Agrawal Road Constructions (P) Ltd is look after by Mr. Rupesh Garg (one of the key person) and Mr. Rupesh Garg can only give the proper answer of this question.

Considering the self-contradictory statement of Shri Pawan Kumar Agrawal (supra), wherein he had though initially admitted that the amount of Rs.1,04,15,670/- (supra) found lying with him in cash as his undisclosed income, but thereafter had for no rhyme or reason stated that the same was the undisclosed income of the assessee company, we find substance in the claim of the assessee that the statement of Shri Pawan Kumar Agrawal (supra) recorded u/s.132(4) on 08.02.2017 was not given under a free state of mind.

Be that as it may, we are reminded of the Circular F. No.286/98/2013/IT (Inv.-II), dated 18.12.2014 of the CBDT, wherein, the officials of the department had been advised by the board to refrain from exercising any undue pressure or coercion in the course of recording the statements during the course of search, survey or other proceedings. The relevant extract of the CBDT Circular F. No.286/98/2013/IT (Inv.-II) dated 18.12.2014 is culled out as under:

Considering the aforesaid facts involved in the present case before us read with the aforesaid orders of the various judicial forums, we are of the considered view that the support drawn by the 17 Ram Avtar Agrawal Road Constructions Pvt. Ltd. Vs. ACIT, CC-II, Raipur department on the statement of Shri Pawan Kumar Agrawal (supra), which as observed by us hereinabove had thereafter been retracted, in the absence of placing on record of any material or evidence which would otherwise justify the said disclosure and substantiate that the same rightly represented the undisclosed income of the assessee company, cannot be accepted on such standalone basis for drawing adverse inferences and inferring the undisclosed income of the assessee company as had been done by the lower authorities and canvassed by the Ld. D.R before us.

Apropos the support drawn by the A.O on section 110 of the Evidence Act, 1872, we are of the considered view that the same in fact advances the case of the assessee before us. Section 110 of the Evidence Act, 1872 contemplates that when the question is whether any person is owner of anything of which he is shown to be in possession, then, the onus of proving that he is not the owner is on the person who affirms that he is not the owner. In the case before us it is a matter of fact borne from record that the amount of Rs. 1,04,15,670/- in cash was not found from the business premises of the assessee company but was found in the course of search proceeding from the residential premises of Shri Pawan Kumar

On the basis of our aforesaid deliberations we are unable to comprehend that as to on what basis the lower authorities have held that the cash amounting to Rs.1,04,15,670/- found in the course of search proceedings from the residential premises of Shri Pawan Kumar Agrawal (supra) was to be held as the undisclosed income of the assessee. Only basis for drawing of the aforesaid inference by the AO is the standalone statement of Shri. Pawan Kumar Agrawal (supra) recorded u/s 132(4) on 08.02.2017, which not only smacks of his confused state of mind, but as a matter of fact inspires no confidence. We, say so, for the reason that though Shri. Pawan Kumar Agrawal (supra) had retracted his aforesaid statement that was recorded u/s 132(4), dated 08.02.2017 on the basis of a serious allegation that it was recorded in the course of the search proceedings by subjecting him to undue pressure, coercion and threat, however, the said retraction had not been dislodged or disproved by the department on the basis of any independent material/evidence which would have irrefutably proved to the 20 Ram Avtar Agrawal Road Constructions Pvt. Ltd. Vs. ACIT, CC-II, Raipur contrary. In absence of any material which would substantiate that the statement of Shri Pawan Kumar Agrawal (supra) recorded u/s. 132(4) of the Act revealed the correct state of financial affairs of the assessee company and, that the retraction of his aforesaid statement by him was merely an afterthought to avoid the ramifications emanating therefrom, we are afraid that the same for the aforesaid reasons could not have been summarily accepted.

Alternatively, on the basis of our aforesaid deliberations we are unable to comprehend that on the one hand the A.O had stated that the books of account of the assessee company revealed closing balance of cash-in-hand of Rs.16,79,49,131/-, while for on the other hand he had drawn adverse inferences as regards the amount of Rs.1,04,15,670/- (supra) and treated the same as the unaccounted cash of the assessee company.

Be that as it may, as we have concluded that the statement of Shri Pawan Kumar Agrawal (supra) recorded u/s.132(4), dated 08.02.2017 does not inspire any confidence, specifically when the same had been retracted by him vide an ‘affidavit’, dated 10.02.2017, therefore, in the absence of any irrefutable

Before parting, we may herein observe that the CBDT vide its Circular F. No.286/98/2013/IT (Inv.-II), dated 18.12.2014 from time to time had expressed its concern and have emphasized that the Income-Tax Officials should refrain from taking recourse to any undue pressure or coercion while recording of the statements during the course of search, survey and other proceedings and rather focus on gathering incriminating material during the course of search/survey proceedings. However, we have in a number of instances came across cases where the standalone basis for making the post-search additions continues to be the disclosure made by the assessee in his statement recorded u/s 132(4) of the Act, which, not only thereafter on being retracted does no more survive, but also the addition so made by the AO on the said solitary basis, in the absence of any credible evidence gathered by the search officials in the course

Considering the aforesaid facts of the case in the backdrop of the settled position of law as had been deliberated upon by us

Resultantly, the appeal filed by the assessee is allowed in terms of our aforesaid observation. Order pronounced under rule 34(4) of the Appellate Tribunal Rules, 1963, by placing the details on the notice board.