Brief of the Case
ITAT Mumbai held In the case of M/s Tribhovandas Bhimji Zaveri (Delhi) Pvt. Ltd. vs. ACIT that a careful perusal of provisions of sec. 132(4) as well sec. 292C would show that the said provisions state that the statement taken u/s 132(4) “may be used in evidence in any proceeding under the Act”. Thus, this provision gives discretion to the assessing officer not to use the statement in evidence. In the given case the assessee has reconciled the difference in stock, meaning thereby, the assessee has rebutted the admission made by it, which was under pressure and mistaken belief. In fact, the assessing officer himself has observed that the admission made under sec. 132(4) can be rebutted.
The Hon’ble Supreme Court in the case of Pullangode Rubber Products Company Limited Vs. State of Kerala (91 ITR 18) held that “an admission is extremely an important piece of evidence but it cannot be said that it is conclusive and it is open to the person who made the admission to show that it is incorrect” .
Facts of the Case
The assessee company is engaged in the business of manufacturing, processing and trading of gold and diamond jewellery, silver articles, wrist watches and is carrying on its business from its showroom situated at New Delhi. The revenue carried out search and seizure operations u/s 132 in the hands of the assessee, its directors, group concerns and related persons on 18-09-2009. Consequent to the search operations, the assessments of the assessment years under consideration were completed u/s 143(3) r.w.s. 153A. During the course of search, a sworn statement u/s 132(4) was recorded from one of the directors of assessee company named Shri Nand Kishore Zaveri, wherein he agreed to offer a sum of Rs.2.00 crores in AY 2009-10 and Rs.4.00 crores in AY 2010-11. However, in the returns of income filed in response to notices issued u/s 153A, the assessee did not offer the above said sums.
The assessee claimed that he was forced to agree to surrender Rs.6.00 crores by the search officials and he also agreed for the same under mental pressure or stress and was given under duress. The assessee also submitted that the alleged excess stock has since been reconciled and hence there was no excess stock at all, as alleged by the search officials. The assessing officer accordingly took the view that there is no nexus between the additional income of Rs.6.00 crores offered by the assessee and the excess stock of diamonds found during the course of search. The AO also expressed the view that the assessee has tried to establish the nexus between the additional offer of Rs.6.00 crores with the value of excess stock only during the course of post search enquiries and not at the time of search.
Though the assessing officer accepted that the statement given under sec. 132(4) can be rebutted, yet he took the view that the assessee has failed to discharge the burden to show that it was involuntarily made or made under coercion or undue influence or was under mistaken belief or obtained by fraud or misrepresentation. Accordingly, the assessing officer assessed the additional income of Rs.2.00 crores and Rs.4.00 crores offered by the assessee in the sworn statement in AY 2009-10 and 2010-11 respectively
Contention of the Assessee
The ld counsel of the assessee submitted that the tax authorities are not correct in observing that the search officials were precluded from proceeding further by the voluntary offer made by the assessee. He submitted the conduct of the search officials and surrounding circumstances would amply prove this fact. He submitted that search operations commenced at 8.30 am on 18-09-2009 and concluded at 3.30 a.m. on 21.9.2009, i.e., for almost for four days and during the course of search no incriminating material was found except a diary, which was disowned by the assessee. Even the said diary contained transactions for about Rs.62.00 lakhs only. He submitted that it is not correct to state that the search officials did not put pressure or undue influence upon the assessee.
The very fact that the assessee was put a lot of pressure or undue influence could be inferred from the conduct of the search officials. Hence, the assessee was forced to offer additional income of Rs.6.00 crores in the answer given to Q.No.43 and immediately thereafter, the search officials concluded the search operation. He submitted that this conduct of the search official would amply make it clear that the confession was obtained by force. He submitted that the search officials did not find any incriminating material, even though the search operations were conducted for almost four days and hence they had no other option but to put pressure upon the assessee.
He submitted that the kind of action of the search officials is against the dictates of the CBDT Circular dated 10th March, 2003, wherein the CBDT has clearly instructed that confessional statements should not be obtained. He submitted that the above said conduct would show that the search officials were pressuring the assessee to offer additional income.
The Ld A.R further submitted that the assessing officer was not correct in observing that the additional income of Rs.6.00 crores surrendered by the assessee is independent of the alleged excess stock found at the time of search. He submitted that search officials simply stated to the director of the assessee that there was excess stock of diamonds without furnishing a copy of inventory taken by them and thus, they were putting pressure upon the assessee. He further submitted that the fact that the concerned director was not aware of accounting details is well established by the answers given by him to various questions, which has been extracted by the assessing officer in the assessment order as well as available in the sworn statement itself. The Ld A.R submitted that the director has pleaded his ignorance or stated that he has to consult his accountant/C.A, whenever questions pertaining to accounts were put to him. Hence, when it was repeatedly pointed out that there was excess stock to the tune of Rs.5.45 crores, that too without explaining as to how they have arrived at the excess stock and when the search team was not ready to conclude the search proceedings, the director had no other option, but to make offer under the mistaken belief that the statement of search officials may be correct. Even otherwise, the director did not have any other option, since the search officials were not concluding the search despite the fact that nothing incriminating was found during the course of search conducted for four days.
The Ld A.R further submitted that income under the Income tax Act is not computed on the basis of admission alone, but as per the provisions of the Act. He also submitted that the proceeding u/s 132 are quite different from the normal assessments framed u/s 143 (3). Though there is admission during the course of search in the statement recorded u/s 132(4), yet the Assessee can demonstrate that statement was incorrect by leading to cogent evidence and demonstrating that the admission was incorrect in law as well as on facts. He submitted that the admission was retracted by the assessee immediately before the ADI and is also deemed to have been retracted in view of return of income filed in pursuance to the notice u/s 153A.He submitted that though the admission is the best piece of evidence, yet the same is not conclusive and the assessee is well within his right to demonstrate that the same was incorrectly made and not voluntary.
The ld counsel of the assessee relied on the decision rendered by Hon’ble Gujarat High Court in the case of Kailashben Manharlal Choksi V/s. CIT (328 ITR 411), wherein it was held that the statement of the assessee was recorded at mid night. In normal circumstances, it is too much to give any credit to the statement recorded at such odd hours. The person may not be in position to make any correct or conscious disclosure in a statement if such statement is recorded at such odd hours.
He also placed reliance on the decision rendered by Hon’ble Supreme Court in the case of CIT vs. V. MR.P Firm (1965) 56 ITR 67, wherein it was held that the principle of estoppels will not against the Income tax Act.
Contention of the Revenue
The ld counsel of the revenue submitted that the assessee has offered the additional income voluntarily during the course of search and because of the said surrender, the search officials have concluded the search operations and thus, the assessee has cleverly prevented the search officials to proceed further. Hence, the assessee is not entitled to retract from the statement given by him as held by the Mumbai bench of Tribunal in the case of Hiralal Maganlal (2005)(96 ITD 113) . Even if the assessee wishes to retract from the statement given by him, the retraction should be corroborated with some credible material.
He further submitted that the Hon’ble Punjab and Haryana High Court has held in the case of Bachittar Singh Vs. CIT (2010)(328 ITR 500) that the statement given during the course of surveyoperations conducted u/s 133A, even though does not have evidentiary value, cannot be held to irrelevant. He submitted that the Hon’ble Supreme Court in the case of Padmausundara Rao (Dead) & Ors Vs. State of T.N & Ors (Appeal (Civil) 2226 of 1997 dated 13-03-2002) has held that the Courts should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed. It was further held that the Courts cannot read anything into a statutory provision which is plain and unambiguous. Accordingly he submitted that the provisions of sec. 132(4) are very clear that the statement given by the assessee has got evidentiary value and the same cannot be treated as irrelevant.
He further submitted that the assessee has confirm the declaration made during search, in post search enquiries by pleading that the entire amount of Rs.6.00 crores should be assessed in AY 2010-11. He further submitted that the assessee did not retract from the statement given by him by filing any letter or affidavit. Hence the addition made by the assessing officer should be upheld as held by the Hon’ble Delhi High Court in the case of Bhagirath Aggarwal Vs. CIT (2013)(351 ITR 143). He further submitted that there is no allegation that the statement was obtained from the assessee under coercion or duress and further the assessee did not retract from the statement immediately after the search was over. Hence the assessing officer was justified in assessing the income surrendered in the statement given u/s 132(4) as held by the Hon’ble High Court of Chhattisgarh in the case of ACIT Vs. Hukum Chand Jain (2011)(337 ITR 238).
Held by CIT (A)
CIT(A) was convinced with the explanations furnished by the assessee and accordingly deleted the addition of Rs.2.00 crores and Rs.4.00 crores related to AY 2009-10 and AY 2010-11 respectively.
Held by ITAT
The ld counsel of the assessee has explained the sequence in which the sworn statement u/s 132(4) was recorded, i.e., it was recorded piece meal by duly noting as to when the recording of statement was commenced and when it was discontinued. As pointed out by him, the question No.42 was posed to the assessee on 20-09-2009 and without discontinuing the recording of statement, the question no.43 was posed on 21.09.2009 in the early morning by about 3.00 a.m. This peculiar fact gives ample scope to infer that the assessee was put pressure to surrender additional income. This inference is further fortified by the fact that the search was concluded immediately after the surrender of Rs.6.00 crores. It is also pertinent to note that the recording of sworn statement commenced on 18-09-2009 and continued upto 21.09.2009, i.e., the search officials were posing questions to the assessee for almost four days. Hence, in our view, it is not correct to say that the assessee was not put any pressure. Continuous grilling of any person, that too for four days, would put lot of mental pressure on any person. Under these set of facts, it is difficult to accept that the disclosure was voluntary.
A careful perusal of the sworn statement would show that the search team did not put any question to the assessee about the alleged excess stock, which was claimed to the huge amount of Rs.5.45 crores. It is quite strange, since normally the explanations of the assessee with regard to any incriminating material/difference would be sought in the sworn statement recorded u/s 132(4) of the Act. However, the assessee has contended before the tax authorities that the search team was pointing out the excess stock without furnishing copy of inventory statement. We have also noticed that the search took place for about four days continuously and only a diary containing certain trade transactions was found. Barring the pocket diary, referred earlier, the only incriminating material that was found during the course of search was the alleged stock difference only. Under these set of facts, it is inconceivable that the assessee would have agreed to offer additional income of Rs.6.00 crores over and above the excess stock of Rs.5.45 crores claimed to have been found during the course of search.
The assessee has furnished the details of net profit declared by it from AY 2004-05 onwards at page 34 of the paper book. The average net profit declared by the assessee was seen at around Rs.2.50 crores. It is not inconceivable that an assessee declaring such a huge profit would agree to offer such a huge sum for no reason.
It is well settled proposition that the strict rules of Evidence are not attracted in relation to income tax proceedings and further there is nothing like res judicata or estoppel. In order to tax any income under the Income Tax Act, it is required to be shown that such income has accrued to the assessee or is deemed to have accrued. Income is not earned in air or vacuum. The income presupposes receipt or movement of funds, which are revenue in nature. It is settled law that normally, the onus is upon the revenue to show that any income has accrued to the assessee, particularly when the assessee is disputing the claim of the revenue. In this regard, a gainful reference may be made to the decision rendered in the case of Janki Ram Bahadur Ram v. CIT (57 ITR 21 SC).
He as well as the assessing officer has reiterated that the admission was made in the sworn statement recorded u/s. 132(4) and the same is admissible in evidence. A careful perusal of provisions of sec. 132(4) as well sec. 292C would show that the said provisions state that the statement taken u/s 132(4) “may be used in evidence in any proceeding under the Act”. Thus, this provision gives discretion to the assessing officer not to use the statement in evidence. In fact, the assessing officer himself has observed that the admission made under sec. 132(4) can be rebutted. The Hon’ble Supreme Court in the case of Pullangode Rubber Products Company Limited Vs. State of Kerala (91 ITR 18) held that “an admission is extremely an important piece of evidence but it cannot be said that it is conclusive and it is open to the person who made the admission to show that it is incorrect” .
In the instant case, the Ld CIT(A) has given a clear finding that the alleged excess stock pointed out by the search officials has since been reconciled by the assessee. It is also pertinent to note that the assessing officer did not make any addition on account of alleged excess stock, meaning thereby, he was also satisfied with the reconciliation statement furnished by the assessee. We have already taken the view that the admission of Rs.6.00 crores is related to the alleged excess stock found during the course of search. We have also noticed that the assessee has reconciled the difference in stock, meaning thereby, the assessee has rebutted the admission made by it, which was under pressure and mistaken belief.
The various case laws relied upon by Ld D.R is either distinguishable on facts or not applicable to the facts prevailing in the instant case. In view of the foregoing discussions, we are of the view that the Ld CIT (A) was justified in deleting the addition of Rs.2.00 crores and Rs.4.00 crores made by the assessing officer in AY 2009-10 and 2010-11 respectively.
Addition u/s 69
There is no dispute with regard to the fact that the pocket diary was found in the premises of the assessee. There cannot be any dispute that the entries noted down in the diary was in accordance with the normal trade transactions carried on by the assessee. In view of the presumption enshrined in sec. 132(4A) of the Act, the burden to disprove the documents found during the course of search lies upon the assessee. We notice that the assessee has simply disowned the document, but did not offer any other explanation. Hence, we agree with the contentions of the Ld D.R that the assessee did not discharge the burden placed upon it u/s 132(4A).
At the same time, we notice that the tax authorities themselves have stated that the transactions noted down in the diary tallies with the jewellery items dealt with by the assessee. In fact the noting of “50 chains” and “28 H set”, in our view, could only lead to the inference that they could only be trade transactions. Hence the inference drawn by the assessing officer that it may represent “unexplained investment”, in our view, does not fit with the noting made in the pocket diary. It is possible that the assessee, being a dealer in jewelleries, could have either purchased or sold 50 chains and 28 H sets, as nobody will purchase such a huge quantity of chains and other sets as investment. Hence, in our view, the transactions noted down in the pocket diary could possibly be in the nature of trade transactions only.
Since the assessee has not discharged the presumption and further since the assessing officer has failed to substantiate the addition as unexplained investment, in our view, this issue could be resolved only via media. Under these set of facts, in our view, the possible view could be that the assessee might have also sold the gold jewellery noted down in the pocket diary without recording the same in the books of account. Though there is no supporting evidence in support of the above said inference, in the absence of proper explanations from the assessee and also in the absence of proper case being made out by the AO, we have no other option but to proceed on the inference cited above. In this back ground, in our view, this issue could be resolved by estimating the gross profit that would have been earned on sale of the above said jewelleries.
The assessee has furnished details of sales and gross profit ratio in page 34 of the paper book. We notice that the assessee has declared gross profit rate of 8.69% in AY 2009-10. Accordingly, we are of the view that the gross profit on Rs.62,21,950/- computed @ 9% should be assessed in respect of the transactions noted down in the diary and the same works out to Rs.5,59,975/- or say Rs.5,60,000/- (rounded off). Accordingly, we modify the order of Ld CIT (A) on this issue and direct the AO to restrict the addition to the above said sum of Rs.5,60,000/- on this issue.
We notice that the Ld CIT (A) did not accept the submission of the assessee that it was holding jewelleries belonging to the suppliers weighing 2261.150 grams, which were sent by them on sale or return basis. From the paper book, we notice that the assessee has furnished the delivery challans sent by the two suppliers cited above and also the purchase bills subsequently raised by them. We notice that the tax authorities has discarded these evidences as self serving documents on the reasoning that (a) the delivery challans were not found at the time of search and (b) the director of the assessee did not state these facts in the sworn statement.
We notice that the tax authorities did not opt to examine the suppliers before rejecting the evidences furnished by the assessee. We notice that the director had also stated that the gold stock belonging to the assessee were not kept with others. However, the Ld CIT (A) has accepted that the gold stock belonging to the assessee was available with the karigars, which is in contradiction to the stand taken by him when the assessee submitted that it has received jewelleries on sale or return basis from the suppliers. Thus, we notice that the Ld CIT (A) has chosen to accept the explanations on pick and choose basis, which is not permissible. Since the documentary evidences furnished by the assessee in support of claim of receipt of goods on sale or return basis have not been controverted by the tax authorities, in our view, the explanation of the assessee should be accepted.
In the reconciliation statement prepared by the assessee, the assessee has arrived at excess stock of 685.650 grams. During the course of arguments, the Ld A.R submitted that the weight of physical gold was measured by the search team themselves and hence there is always possibility of weight difference. Accordingly it was submitted that the excess stock of 685.650 grams, which work out to 0.7% of the physical stock could be the result of weight difference or on account of other minor factors like beeds, alloys, tie slips etc. In our view, there is merit in the said explanations of the assessee that the above said minor difference should be ignored, in the facts and circumstances of the case.
On legal grounds also, we find merit in the contentions of the assessee. The CIT (A) while altering the head of income and also in enhancing the addition has violated the provisions of sec. 251(2) of the Actin not providing opportunity to the assessee. Further, in the following cases, it has been held that the Ld CIT(A) was not entitled to bring in any new sources of income:- a). CIT v. Shapoorji Pallonji Mistry (44 ITR 891 SC) b). CIT v Rai Bahadur Harduttroy Motilal Chamaria (66 ITR 443) c), CIT v. Union Tyres (240 ITR 556 Del HC) d.) CIT v. Sardarilal & Co. (251 ITR 864 Del HC FB).
In view of the foregoing discussions, we do not find merit in the decision of CIT (A) and accordingly direct the assessing officer to delete the addition.
Accordingly all appeal disposed of.