ITAT confirms Addition to Income of Priyanka Chopra

Ms. Priyanka Chopra Vs. Dy. CIT (ITAT Mumbai)

IT search and seizure case of Priyanka Chopra: with reference to the materials found specific amount  to various heads  given wherein  the undisclosed income had been utilized, later on retraction by her mother: additions to income held to be justified

In law even retracted confession may form the legal basis of the addition, if the AO is satisfied that it was true and was voluntarily made.

Sub-section (4) of section 132 of the Income Tax Act, 1961 (herein referred to as ‘the Act’), subject to its Explanation, incorporates that the authorised officer may, during the course of the search or seizure, examine on oath any person who is found to be in possession or control of any books of account, documents, money, bullion, jewellery or other valuable article or thing and any statement made by such person during such examination may thereafter be used in evidence in any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under the Act.

Recently, in Priyanka Chopra vs. DCIT & Vice-versa [I.T.A. No. 2769/Mum/2015 and 2524/Mum/2015, decided on 16.01.2018], there were cross appeals by the assessee and the Revenue arising out of the order of the CIT (A) dated 12.02.2015 which pertained to the A.Y. 2008-09. In Revenue’s appeal (ITA No. 2524/Mum/2015), the ground of appeal raised was:

“Whether on the facts and in the circumstances of the case and in law, the learned CIT(A) is justified  in deleting the addition of Rs. 50 lacs being cash payment made for acquisition of Studio Aesthetique without appreciating the fact that the addition has been made on the basis of documents seized and voluntarily admitted by the assessee and her mother Smt. Madhu Chopra during the search to be cash component of the payment made to the said party over and above payment of Rs. 3.50 crores made by cheque and subsequently retracted without giving any supporting evidence to the contrary?”

Briefly, in this case, search and seizure action under section 132 of the Act was conducted on 24.01.2011. The assessee is a well known actress of Indian Film Industries. Various incriminating documents were found during search. On this issue during the course of search an amount of Rs. 50 lacs was declared as undisclosed income for cash payment for purchase of Studio Aesthetique. When the same was confronted to Smt. Madhu Chopra, the mother of the assessee who was managing the affairs of the assessee, she admitted the following with respect to Q. No. 19 as under:

“Q. 19 Do you want to state anything else?

Ans.  Yes, I admit that based on the above seized papers and the answers to the Q Nos. 11 to 17, I offer following undisclosed incomes, which had accrued to me and Priyanka Chopra through various Events, Shows and Sale of flats in the Years as mentioned above. The application of this cash by the above mentioned activities are as under-

Further, in order to make peace with the department and considering the other entries in the various seized documents and any other issues that may sprung up during the course of investigation, I further offered Rs. 30 Lacs for the F.Y. 2010-11 to cover up any such discrepancies. I also promise to pay the taxes on the same in due course.”

Subsequently, statement on oath under section 132(4) of the Act of the assessee was also recorded on 25-01-2011 and in reply to the declaration made by her mother Mrs.Madhu Chopra she has submitted as under:

“Q. 27.   In continuation of your statement u/s.132(4) of Income Tax Act, 1961, you are handed over the statement u/s.132(4} of the I.T. Act, 1961 given by your mother,  Mrs. Madhu  Chopra at your Office  premise  at  403,  Navkaran Building,  Lokhandwala,  Mumbai. You are requested to go through the same.

Ans: I have gone through the statement. As per the statement my mother has admitted that she has been receiving Cash Payments on my behalf for me making the appearance at Marriage Functions and also at minor appearances such as cutting of ribbon etc. My mother has also admitted that this cash along with some other cash has been used for making cash payments for purchase at various properties and also for making various expenditures. The details of such payments and expenses are as follows:-

 Thus, my mother has admitted that total Cash Payment at Rs.6.05 crores has been made for purchase at various properties and various renovation works. I have already stated that all my financial transactions are looked after by my mother, Mrs. Madhu Chopra and since she has admitted that the abovementioned payments are unaccounted, I state that the same is correct and I agree and abide by the same as my mother is fully aware and competent to know everything related to my Finance.”

Subsequently, Smt. Madhu Chopra, the mother of the assessee vide letter dated 13.4.2011 filed in the office of Income Tax Office on 06.06.2011, retracted the above said statement. In this background, the AO was of the opinion that as per the seized material Rs.50 lacs in this regard was to be added as undisclosed income of the assessee. Regarding the retraction statement of Smt. Madhu Chopra, the said retraction stated that no cash payment was made for purchase of Studio Aesthetique, except the payment made by a cheque of Rs.3.50 crores. However, the AO was not convinced. He observed that the assessee has not contradicted the seized material on the basis of which she had disclosed an amount of Rs.50 lakhs being made for purchase of Studio Aesthetique. Instead, the assessee has simply stated that there is no cash component as agreed in the statement recorded during the course of search. Therefore, the contention of the assessee is not accepted and the disclosure made during the course of search to the tune of Rs.50 lakh is treated as undisclosed income for the year under consideration and is accordingly taxed.

Against the order of AO the assessee appealed before the CIT(A) who accepted that the AO has not accepted the submission made by the assessee during the assessment stage and has made the addition arbitrarily. He held that no documentary evidence in this regard has found. He held that no addition can be made solely on the basis of the loose papers. Hence, he held that the assessee’s explanation is acceptable in light of the Hon’ble Apex Court decision in the case of CIT vs. Kalyanasundaram {[2007] 294 ITR 49 (SC)}. Accordingly, he deleted the addition.

Thereafter, the Revenue filed appeal before ITAT, Mumbai.

The learned Members of the ITAT, Mumbai heard the counsel and perused the records. The learned Members found that as evident in the material obtained by the Revenue during search and seizure, it was only with reference to the search and seizure material that Smt. Madhu Chopra gave a specific amount to various heads wherein the undisclosed income had been utilized. The assessee had also separately accepted the same. Hence, it cannot be said that this addition is not based upon any incriminating material found or searched. Furthermore, the so called retraction is by the mother of the assessee and the AO is correct in finding that there is no retraction whatsoever by the assessee. Hence, the CIT (A) has totally erred when he has held that the AO has made this addition without any evidence or arbitrary. Furthermore, the CIT (A) has himself erred and contradicted himself when he observes that no addition can be made on the basis of the loose papers. Thus, on one hand she is stating that there is no material and on the other hand she is stating that there are materials in the form of loose papers. Hence, the reasoning by the CIT(A) is contradictory and is unsustainable. The decision of the Hon’ble Apex Court in the case of Kalyanasundaram (supra) relied upon by the CIT (A) is on totally different facts and circumstances. In the said case, the issue related to on money payment in respect of immovable property based on conflicting statement of the seller and certain figures noted in loose sheets. Hence, this decision was rendered in a different context and does not help the case of the assessee. The Learned Members of the ITAT, Mumbai set aside the order of the CIT(A) and restored the order of the AO.