Recording of Statements:
Recording of statement is an important and integral part of any proceedings or investigation. In taxation matters also the statements of the taxpayers or witnesses are recorded on oath by the officers. Such statement may be recorded either during the search & seizure proceedings or during the summon proceedings or during the Survey proceedings etc. The relevant legal provision of recording statement under various taxation laws can be summarized as follows:
| Sl. | Name of Act | Relevant Legal provision empowering recording of statements | Section Head Notes |
| 1. | Income Tax Act,1961 | 131(1) & 131(1A) | Power regarding discovery, production of evidence, etc. |
| 132(4) | Search and seizure | ||
| 133A(3) (iii) | Power of survey | ||
| 2. | The Customs Act,1962 | 108 | Power to summon persons to give evidence and produce documents |
| 3. | The Central Excise Act,1944 | 14 | Power to summon persons to give evidence and produce documents in inquiries under this Act. |
| 4. | The Central Goods & Services Tax Act,2007 | 70 | Power to summon persons to give evidence and produce documents |
| 136 | Relevancy of statements under certain circumstances |
The confession or admission made in the statements serves a material piece of evidence and has evidentiary value provided it is corroborated by some other independent evidences. It is settled law that admission by a person is a good piece of evidence though not conclusive and the same can be used against the person who makes it. Statement recorded during the investigation is only the starting point of the investigation and not the end. The Supreme Court in Kishori Lal v. Mt. Chaltibai AIR 1959 SC 504 considered the evidentiary value of an admission and the fact that an admission shifts the onus in terms of section 31 of the Evidence Act (now section 25 of the Bhartiya Sakshya Adhiniyam,2023), held that:
“. . . the admissions shifted the onus on to the respondent on the principle that what a party himself admits to be true may reasonably be presumed to be so and until the presumption was rebutted, the fact admitted must be taken to be established….’’
So the statements are often used against the maker to establish certain factual and legal positions unless proven otherwise or contradicted or retracted. Thus ‘retraction’ is a significant tool in the hands of the assessee for correction of any wrong statement given.
Meaning of the term Statement, Admission & Retraction:
These terms are not prescribed under any of the taxing statutes stated above nor under the General Clauses Act,1897. So to understand their meaning resort has to be made to the common parlance meaning or dictionary meaning only.
‘Statement’ means something to be stated. A statement is something that you say or write which gives information in a formal or definite way.
‘Admission’ means voluntarily acknowledgement of the existence or truth of a particular fact. Section 15-21 of The Bhartiya Sakshya Adhiniyam,2023 (47 of 2023) (Corresponding provisions of Section 17-23 of erstwhile Indian Evidence Act, 1872) deals with Admission. But under the Bhartiya Sakshya Adhiniyam,2023 ‘admission’ is defined in a narrower sense. According to section 15 of The Bhartiya Sakshya Adhiniyam,2023, an admission is a statement oral or documentary or contained in electronic form which suggests an inference to any fact in issue or relevant fact.
‘Retraction’ means a request, offer, or statement to be withdrawn. It means to take back something previously stated. Thus the act of taking back an offer or statement, or admitting that a statement was false can be called as ‘retraction’. In legal sense retraction is used to describe an action in which an earlier action or statement is reversed, with the intent of restoring the original situation.
Reasons and need for Retraction:
In general, the key reasons or the need for retraction of the statement is felt necessary under the following circumstances:
- In case of incorrect or untrue statement made.
- Statement under misunderstanding of facts or misconception.
- Statement made involuntarily under pressure, threat, or coercion.
- Statement based on incomplete records or documents available.
- Statement given at odd hours and under mental stress or duress.
- When a witness decides not to be involved in a case
Once a retraction is made the burden is squarely shifted on the person who alleges that the statement was not made voluntarily to prove that it was involuntarily made or made under coercion or undue influence or that it was made under mistaken belief or was obtained by fraud or misrepresentation. The mere allegation will not suffice. The person seeking to retract has to prove by leading cogent and reliable evidence, the incorrect nature of the facts stated or confessed at the earliest possible opportunity.
Legality & Validity of Retraction:
Retraction may be considered as a remedy available to the person who wants to withdraw or correct mistaken statements made in a proceeding. Even if an admission is made in a statement, the same cannot be held to be conclusive in every case especially when the taxpayer or any other person whose statement has been recorded seeks to retract it and shows some honest and cogent reason. In Satinder Kumar (HUF) v. CIT [1977] 106 ITR 64(SC) it was held that:
“ It is true that an admission made by an assessee constitutes a relevant piece of evidence but if the assessee contends that in making the admission he had proceeded on a mistaken understanding or on misconception of facts or on untrue facts such an admission cannot be relied upon without first considering the aforesaid contention”
Article 20(3) of the Constitution of India ensures that no person accused of an offense shall be compelled to be a witness against themselves. This means that an individual cannot be forced to provide evidence or testimony that may incriminate themselves. It is important to note, especially in the context of taxation laws, that statements recorded during a summons appearance, or a search proceeding are relevant only for the purpose of levy of duty or tax (which are civil proceedings by nature), and not to affix criminal liability.
Retraction is often viewed seriously by the tax department and there is always a tendency to negate such retractions. The retracted statement does not become null and void per se, but its validity is subject to further legal scrutiny. The tax department may seek cross-examination of the person who retracts his/her statement. So retraction is not so easy and there are challenges in the retractions.
Time Limit for Retraction:
There is no specific time frame prescribed under the law for the retraction. But to be fair and reasonable retraction should be planned as soon as possible and immediately after a statement is recorded. Inordinate delay in retracting the statements will create unnecessary doubts and presumption of afterthoughts is often taken by the tax department. It is a settled law that the retraction of a statement made after a lapse of ample time loses its significance and is viewed otherwise by the tax department.
In taxation matters, mostly the recorded statement is supplied by the tax department along with the final show cause notice or assessment order, etc. By this time a considerable time is elapsed. Further due to limited human memory, it is also sometimes not possible to remember each and every word of the recorded statement and apply for retraction. So in such cases, early retraction is generally not possible. So what is the way out to retract? The author feels that in such cases the assessee/concerned person should demand a copy of his statement from the tax department immediately after his/her statement is recorded. If it is supplied by the tax department, then retraction can be done based on it immediately. If it is not supplied and provided only at a later point, then retraction can be done as and when the copy of the statements is provided referring to the petition filed demanding copy of the statements recorded. This will be help in establishing the fact that the assessee was eager to correct his original statement recorded and also demanded a copy thereof but it is only due to non-supply/belated supply of the statements the assessee was precluded from retracting earlier.
Retraction by whom?
Retraction can be done only by the person who made the admission. No other person, including the legal representative of that person can retract the admission made by him. In case of Pullangode Rubber Produce Co., Limited V. State of Kerala- 1971 -TMI – 39985 – Supreme Court the Honorable Supreme Court held that an admission is extremely important piece of evidence but it cannot be said that it is conclusive. It is open to the person who made the admission to show that it is incorrect.
In case of Commissioner of Income Tax V. H.R. Basavaraj (late) by his legal representative-(2011)339 ITR63 (Karn) it was held that the admissions made cannot be retracted by the legal representatives of the person who made the admission. In this case the admissions made by the late Shri H.R. Basavaraj, cannot be retracted by the legal representatives on the various grounds that are sought to be urged. In view of the admissions made, the same become binding. It also binds legal representatives. Even though the admissions are sought to be retracted not by the person who made it but, by the legal representatives, it would still amount to an admission and would bind the legal representatives.
The Bombay High Court in the case of T. Lakhamshi Ladha & Co. v CIT [2016] 386 ITR 245 (Bom), held that in case there is a statement by a senior partner of an assessee firm, statement cannot be retracted by another partner of that firm in absence of any allegation of pressure and coercion by the department and there being no evidence to prove that original statement was incorrect.
Procedure for Retraction:
No specific mode and manner of retraction has been prescribed under the law. Based on the past judicial precedents the author has framed some points which are helpful in understanding the procedure of retraction.
(a) Retraction should be done only by the person whose statement was recorded.
(b) Retraction should be planned soon after the statement was recorded. Where retraction of statement recorded under section 132(4) and later confirmed in the statement recorded under section 131 had been made by the assessee after almost eight months, same was to be discarded. Retraction of a statement after a sufficiently long gap or point of time loses its significance and is an afterthought. Hence SLP filed by the assessee against the impugned order of the High Court was to be dismissed as the views of High Court were agreeable, and no case was made out to interfere with the impugned order. [Roshan Lal Sanchiti v. Principal Commissioner of Income-tax [2023] 150 taxmann.com 228 (SC)]
(c) Reasons for retraction are very important and of paramount importance. So the same should be clear, unambiguous, and explicitly supported by strong evidence. It has been observed by the Supreme Court in T.M.S. Mohd v. UOI – AIR 1992 SC 1831 that it is only for the maker of the statement who alleges inducement coercion, threat, etc., to establish that force was adopted which burden has not been discharged by the appellant for want of evidence.
(d) Retraction should be made in writing preferably through an Affidavit along with supporting evidence, if any. The entire matter should be explained in a detailed manner evidencing the facts and circumstances warranted for retraction negating the earlier statements made. An affidavit carries strong evidentiary value in a proceeding. An affidavit has to be considered as a piece of evidence. The importance and relevance of the averments made in the affidavit cannot be brushed aside without really having any material to contradict the same. It is a matter of common knowledge that even in Courts the affidavits are furnished and relied upon. Where pursuant to the search conducted at assessee’s premises, his statement was recorded under section 132(4), however later assessee retracted the statement, but, had not adduced any evidence to substantiate his allegations to retract from his statements under section 132(4), the retraction was to be ignored and additions based on a statement originally recorded were justified. [ Kerala High Court in case of Nayyar Patel vs. Assistant Commissioner of Income-tax, (Inv) [2022] 137 taxmann.com 149 (Kerala)]
(e) Additional affidavit of the witnesses present during the recording of the statement may also be filed. This will strengthen the position of the assessee.
(f) An incorrect or false affidavit is a criminal offense. The Hon’ble Apex Court in the case of Baban Singh vs. Jagdish Singh AIR 1967 SC 68 held that where a false affidavit is sworn, the offense would fall u/s 191and 192 of the Indian Penal Code 1860 (now it would fall under sections 227 & 228 of The Bhartiya Nyaya Sanhita,2023).
(g) Retraction should be made first before the authority who recorded the original statements instead of directly before the Court of law. In the case of Sidhharth Shankar Roy v. Commissioner of Customs, Mumbai 2013 (291) ELT 244 (Tri.) (Mumbai) (Order dated 30-8-2011), it was held that retraction of a confessional statement should be addressed to the same officer to whom the confessional statement was given u/s 108 of the Customs Act. In this case, the retraction was made before the Judicial Magistrate and not before the concerned officer of Customs (AIU).
(h) The authority before whom the retraction is made is empowered to cross-examine the person or witnesses who made the retraction. If no cross-examination is done by the authority, then the retracted statement becomes unchallengeable. Hon’ble Supreme Court in the case of Mehta Parikh & Co. vs. CIT [1956] 30 ITR 181 (SC) held that it would not be open to the revenue to challenge the statements made by the deponent in their affidavits later on if no cross-examination regarding the statements made in affidavits is done.
(i) A copy of the retracted statement should also be submitted to the higher authorities to establish the fact that the statement was recorded involuntarily and retraction is being filed by the assessee before the investigating authority.
(j) Once a statement is retracted the burden is on the department to disprove the retraction. The Hon’ble High Court of Delhi while relying upon Vinod Solanki’s SC case in the matter of DRI Vs. Mahendera Kumar Singhal 2016 (333) ELT (250) (Del.) held that the burden is on the department to show that the retraction made by the maker is the statement is not valid. The same principle was reiterated in the matter of Rakesh Kumar Garg Vs. CCE, 2016(331) ELT 321 (Del.)
(k) The legal position regarding admissibility of the retracted statement is well settled. Firstly, it loses its weight if it is retracted and secondly, it cannot be the sole basis of confirmation of duty demand or the prosecution of the accused. The statement recorded during the investigation if retracted then has to be corroborated by other independent sources and if not the same cannot be relied upon in judicial proceedings. [A. Tajudeen Vs. Union of India 2015 (317) ELT 177 (S.C.)]
(l) The Hon’ble Madras High Court in case of Commissioner of Income-tax v. MAC Public Charitable Trust [2022] 144 taxmann.com 54 (Madras) has discussed the aspect of retraction as under:
61. 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 assessees have retracted the same, because such retraction ought to have been generally made within a 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 assessees in the belatedly filed affidavit have retracted from their statements. Such retraction is required to be made as soon as possible or immediately after the statement of the assessees was recorded. Duration of time when such retraction was made, assumes significance and in the present case, retraction has been made by the assessees after eight months to be precise, 237 days.
62. It is settled position of law that the admission though important is not conclusive. It is open to the assessee who made the admission to show that it is incorrect as held by the Hon’ble Supreme Court in Pullangode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18. The onus falls on the person who had earlier admitted to prove it wrong. Therefore, the statements could form the basis of assessment.
63. The statements given to the Assessing officer under section 132 (4) have legal force. Unless the retractions are made within a short span of time, supported by affidavit swearing that the contents are incorrect and it was obtained under force, coercion and by lodging a complaint with higher officials, the same cannot be treated as retracted. This position laid down in catena of decisions by the various High Courts in Lekh Raj Dhunna (supra), Bachittar Singh (supra), Rameshchandra & Co. v. CIT [1987] 35 Taxman 153/168 ITR 375 (Bom.), Dr. S.C. Gupta (supra), CIT v. Hotel Meriya [2010] 195 Taxman 459/[2011] 332 ITR 537 (Ker.), O. Abdul Razak (supra).
(m) The Hon’ble Kolkata CESTAT in case of Super Forgings & Steel Ltd. v. Commissioner of Central Excise [2024] 161 taxmann.com 284 (Kolkata – CESTAT) held that in respect of clandestine removal, statement of Commercial Manager of Factory which was heavily relied on by Revenue was retracted subsequently and Revenue authorities failed to discharge burden of proving serious charge of clandestine clearance; demand was not sustainable.
Similar view was taken by Mumbai CESTAT in case of Narshinha Alloys (P.) Ltd. v. Commissioner of Central Excise and Service Tax [2024] 161 taxmann.com 59 (Mumbai – CESTAT)- Confessional statement subsequently retracted without any recovery of unaccounted goods cannot be used to substantiate allegation of clandestine removal of goods.
(n) Once alleged statement made by assessee was retracted on next day itself with allegations of force and duress, onus to prove that said statement was voluntary shifted upon department and in absence of any such proof from department, confessional statement is not evidence to levy penalty. [Vinod Kumar Sahadev v. Union of India [2014] 49 taxmann.com 380 (Delhi)]
Conclusion:
Retraction is an important aspect of any proceedings. In genuine and honest cases retraction acts as a savior. So the right of retraction should be exercised with proper care and due diligence. There should not be any casual approach while retracting a statement. It should be well grounded, reasoned, and supported by clinching evidence to prove that what was recorded earlier was incorrect and under misbelief. Retraction without proper reason and supporting evidence will prove fatal to the proceedings. Hence it is advisable to exercise the retraction option in exceptional circumstances and under the proper guidance of a legal expert.
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Disclaimer: The above views are compiled by the author based on the study of various Court cases, judicial pronouncements etc. There may some other views also on this subject matter. So, the readers are requested to refer to relevant provisions of the statute, latest judicial pronouncements, circulars, clarifications, etc. of the respective law and obtain legal opinion before acting on the above write up.
The author is a practicing Chartered Accountant at Guwahati and can be reached at: [email protected].
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