No disallowance u/s 36(1)(iii) as borrowed fund had direct nexus with utilization towards interest-bearing advances

ACIT Vs Sh. Parminder Singh Kalra (ITAT Delhi)

Conclusion:  All the interest bearing funds had been utilized towards interest bearing advances and this was evident from the balance sheet whereby interest bearing loan was Rs. 3,03,50,275 against which, interest bearing advances were Rs. 3,41,00,000 i.e. more than the amount borrowed. No disallowance could be made under section 36(1)(iii) as the amount borrowed on interest had been used specifically and exclusively for advancing amounts of interest for the purposes of earning income.

Held: During the year, assessee had borrowed interest bearing funds to the tune of Rs. 3,03,50,275. He had utilized such funds towards advancing interest bearing loan to the tune of Rs. 3,41,00,000/-. Additionally, there were certain interest free advances made to three parties during earlier years by assessee from his own capital and to another party Omega Finhold Private Limited during the year from owned funds. AO required assessee to show cause as to why disallowance of interest @ 13.5% on interest free loan to the aforesaid three parties should not be made. Assessee explained that all the interest bearing funds were utilized for making interest bearing advances. AO without considering the reply of assessee from proper perspective made an addition of Rs. 11,77,070 under section 36(1)(iii) being proportionate disallowance of interest paid on borrowing vide the assessment order alleging that assessee had not been able to establish the nexus between the borrowed and interest earning advances. CIT(A) had rightly deleted the addition by giving a categorical funding that all interest bearing loans to the tune of Rs. 3,03,50,275 had been advanced on interest. It was held that all the interest bearing funds had been utilized towards interest bearing advances. This was evident from the balance sheet whereby interest bearing loan was Rs. 3,03,50,275 against which, interest bearing advances were Rs. 3,41,00,000 i.e. more than the amount borrowed. This fact clearly showed that the amount borrowed on interest had been used specifically and exclusively for advancing amounts of interest for the purposes of earning income. Further, from the bank statement, it was apparent that there was a direct nexus between the amount borrowed and the amount advanced. Assessee had sufficient capital of loan owned as evident from the capital account and any amounts out of the same advanced in the earlier years for whatever personal circumstances, could not be the basis to disallow the interest on amounts borrowed as the said amount has been duly used for the interest earning income. Assessee had submitted before the AO that interest free loan given to Shgurdeepsingh at rs 15 lacs had been advanced in FY 2006-07 out of which Rs 3.20 lacshad been received in Fy 2007-08 and balance was outstanding at the end of this financial year. Similarly the amount advanced to rar R.K. gupta was in FY 2005-06 out of which an amount of Rs 2 lacs had been received back in Fy 2006-07 and 35 lacs in FY 2008-09 and nothing was outstanding. Further the amounts advanced to Omega Finhold pvt. Ltd. had been from personal funds as evident from perusal of bank statement of SBOP account wherein the interest bearing loans are credited. In view of the detailed analysis of the facts of the case there was no logical basis in the AOs action making the disallowance of Rs.11,77,770 /- and the same was directed to be deleted.

FULL TEXT OF THE ORDER OF ITAT DELHI

The present appeals have been filed by the Revenue against the orders of ld. CIT (A)-XXVI, New Delhi for the A.Ys. 2007-08, 2009-10, 2010-11, 2011-12 & 2012-13 dated 18.07.2016 and by the assessed against the orders of ld. CIT (A)-XXVI, New Delhi for the A.Ys. 2006-07 & 2007­08 dated 18.07.2016 &22.09.2017 confirming the penalty. The assessee has also filed Cross Objections for AY 2009­10 to AY 2012-13.

ITA No. 4575/Del/2016: Assessement Year 2006-07  ITA No. 4576/Del/2016: Assessement Year 2007-08

Since, the issues involved in both the years are common and related, there being adjudicated together.

3. In ITA No. 4575/Del/2016 for the assessment year 2006-07, following grounds have been raised by the assessee:

“1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) {CIT(A)} is bad both in the eye of law and on facts.

2. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the proceedings initiated under Section 153A against the appellant and the assessment framed under Section 153A/143(3) are in violation of the statutory conditions of the Act and the procedure prescribed under the law and as such the same is bad in the eye of law and liable to be quashed.

3. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the learned AO has no jurisdiction to frame assessment and make the impugned addition under section 153A of the Act in the absence of incriminating material being found during the course of the search.

4. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the assessment order passed by the learned AO is barred by limitation having been passed beyond the statutory period prescribed in the Act.

5. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the assessment order passed without issue of statutory notice under Section 143(2) by the learned AO is bad in law and liable to quashed.

6. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the assessment order passed by the learned AO otherwise stands vitiated and is liable to be quashed as the same has been passed on direction of the higher authorities.

7. (i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the learned AO has made the additions on the basis of material collected at the back of the assesse without establishing the authenticity of the document relied upon and without providing a copy of the same and an opportunity to rebut the same and without taking the investigation and the enquiry to the logical end.

(ii) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in ignoring the contention of the assessee that the assessment order passed by the learned AO is bad in law and liable to be quashed as the same has been passed in gross violation of the principles of natural justice and without providing the opportunity to the appellant for cross examination.

8. On the facts and in the circumstances of the case, the Ld. CIT(Appeal) erred in law in rejecting the assessee’s contention that statement made by the appellant u/s 132(4) of the Act, had no evidentiary value as it was made under coercion and that it was refracted when the coercion was lifted by the ADI (Inv.).

9. On the facts and circumstances of the case, learned CIT(A) has erred both on facts and in law, in confirming the addition of an amount of Rs.8,51,10,905/- on account of alleged deposits in bank account with HSBC Bank, Switzerland, despite nothing adverse having come on record in the investigation or enquiry initiated by the Ld. AO.

10. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the addition was made in the hand of the assessee without bringing any cogent material or evidences that the alleged investment has been made by the assessee.

11. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that in the alternative and without prejudice to above, the learned AO has erred in taking the peak credit balance of US$ 19,03,332.38 as unexplained investment of the year under consideration despite there being an opening balance of US$ 17,31,710.93 stated by A.O. herself in the assessment order.

12. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in ignoring the settled position of the law that additions under Section 69 can only be made in respect of investment made during the financial year relevant to the assessment year.”

4. In ITA No. 4576/Del/2016 for the assessment year 2007-08, following grounds have been raised by the assessee:

“1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) {CIT(A)} is bad both in the eye of law and on facts.

2. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the proceedings initiated under Section 153A against the appellant and the assessment framed under Section 153A/143(3) are in violation of the statutory conditions of the Act and the procedure prescribed under the law and as such the same is bad in the eye of law and liable to be quashed.

3. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the learned AO has no jurisdiction to frame assessment and make the impugned addition under section 153A of the Act in the absence of incriminating material being found during the course of the search.

4. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the assessment order passed by the learned AO is barred by limitation having been passed beyond the statutory period prescribed in the Act.

5. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the assessment order passed without issue of statutory notice under Section 143(2) by the learned AO is bad in law and liable to quashed.

6. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the assessment order passed by the learned AO otherwise stands vitiated and is liable to be quashed as the same has been passed on direction of the higher authorities.

7.(i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the learned AO has made the additions on the basis of material collected at the back of the assesse without establishing the authenticity of the document relied upon and without providing a copy of the same and an opportunity to rebut the same and without taking the investigation and the enquiry to the logical end.

(ii) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in ignoring the contention of the assessee that the assessment order passed by the learned AO is bad in law and liable to be quashed as the same has been passed in gross violation of the principles of natural justice and without providing the opportunity to the appellant for cross examination.

8. On the facts and in the circumstances of the case, the Ld. CIT(Appeal) erred in law in rejecting the assessee’s contention that statement made by the appellant u/s 132(4) of the Act, had no evidentiary value as it was made under coercion and that it was retracted when the coercion was lifted by the ADI (Inv.).

9. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in confirming the addition of an amount of Rs.61,22,916/- on account of alleged deposits in bank account with HSBC Bank, Switzerland, despite nothing adverse having come on record in the investigation or enquiry initiated by the Ld. AO.

10. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the addition was made in the hand of the assessee without bringing any cogent material or evidences that the alleged investment has been made by the assessee.”

Facts of the case:

5. A search and seizure operation was carried out on 28.07.2011 at the premises of the assessee on the basis of information received under information of exchange mechanism to the effect that the assessee owns an account at HSBC containing substantial credits which are not disclosed to the department.

6. Thereafter, the AO issued notice u/s 153A directing the assessee to file the return of income. In response to the notice, the assessee filed the return on 17.01.2014. During the course of the assessment, the AO raised the issue of the assessee having account with HSBC Bank. The assessee was confronted with a 6 page document containing personal and financial details of the assessee’s account in HSBC.

7. In response thereto, the assessee filed detailed reply vide letter dated 27.02.2015 stating that he did not have any foreign bank account. It was also stated by the assessee that no incriminating documents relating to any foreign bank account was found and seized during the course of search.

Arguments taken up by the assessee before the revenue authorities:

8. As regards, the statement of the assessee recorded on the date of the search and referred to in the show-cause notice by the AO, the assessee stated that on several occasions during the course of the search, he had stated that he never had any foreign bank account. He further stated that on the date of the search, he was surrounded by search officials and insisted upon recording his statement of their choice. Thus, the statement recorded was as per the information available with the search team. It was contended that the statement given was factually incorrect and made under duress. It was contended that the statement so given was neither voluntary nor true.

9. The assessee also invited attention to the letter dated 30.08.2011 wherein he has explained in detail the manner in which the statement was recorded. It was also contended by the assessee that the allegation levied in the show-cause notice that the foreign bank account belongs to him was without any basis and credible evidence. The assessee also submitted to the Assessing Officer that he had not provided any evidence to the assessee to show that he ever had any foreign bank account. It was also stated by the assessee that as per the enclosure with the said notice, the same were not bank statement as is being alleged. On the contrary, it appears to be an extract/information that depicts month wise balances.

10. The assessee also challenged the authenticity and credibility of the document which is being relied upon and on the basis of which, the allegation was made. It was also pointed out that the alleged document does not carry any indication that it relates to any bank account held by the assessee in his name in HSBC, Zurich. It was also pointed out that the said document does not carry any signature or stamp of any authority. Moreover, the said document apparently is a photocopy not legible without any reference to the original of such document and the person who was in possession of such original document.

11. It was also pointed out that even on the basis of the alleged document and the figures appearing in the sheet, it cannot be said that such investment was made during the instant year.

Contentions of the Assessing Officer:

12. The AO rejected the above explanation and the issues raised by the assessee. The AO held that the statement recorded was not under coercion and the retraction is an afterthought. The AO thereafter referring to the various answers recorded in the statement held that the answers were given by the assessee himself. It was also further held that the assessee has not been able to produce any evidence of coercion or pressure while recording the statement. The AO held that the statement made by the assessee is binding on him and the plea of the assessee regarding retraction is not acceptable.

13. On the issue, that the assessee has not been provided any evidence to show that he held any foreign bank account, the AO was of the view that the assessee’s own admission in the statement is an evidence against him. The AO also held that information obtained under information exchange mechanism is credible information and the same can be used against the assessee.

14. On the above said basis, the AO held that the figures stated in the documents belong to the assessee and accordingly held that the assessee is the owner/beneficial owner of the bank account of HSBC, Switzerland and the same is not disclosed in the return of income. Accordingly, an addition of Rs.8,46,98,290.91 being the peak amount stated therein of USD 1,90,332.38 in the month of March, 2006 @ of 44.50 per dollar was made. The AO further made an addition of peak of USD 9,272.23 in the month of November, 2005 by applying a USD rate of 44.50 equivalent to Rs.4,12,614.23.

15. Thus, an addition totaling Rs.8,51,10,905/- was made u/s 69 as unexplained investment for the AY 2006-07.

16. Further, in the AY 2007-08 on the same reasoning and basis the AO made an addition of USD 1,29,576.30 by taking peak during this year of USD 20,32,908.68 minus the peak of USD 1,90,332.38 considered in the preceding year and applying USD rate of 45.50 which was to Rs.58,95,722/-. The AO further made an addition of USD 4993.28 by taking the peak during the year of USD 7784.47 minus the peak of USD 2,791.19 considered in the preceding year by applying a USD rate of 45.50 which comes to Rs.2,27,194/-. Thus, in total the addition of Rs.61,22,916/- was also made u/s 69 in AY 2007-08 as unexplained investment.

17. The AO also made an addition of Rs.1,12,880/- in AY 2007-08 on the assumption that the assessee would have earned interest at the rate of 4% in respect of the last credit balance in the account.

18. Aggrieved by the order of the AO, the assessee filed appeal before the ld. CIT (A) and raised various grounds both legal and factual.

Proceedings before the ld. CIT (A):

19. On the various contentions raised by the assessee, the ld. CIT (A) called for remand reports from the AO from time to time which dealt with the following issues:

i. That no incriminating document has been found during the course of search and hence, no addition could be made in the year under consideration in view of the judgment of the Hon’ble Delhi High Court in the case of CIT Vs Kabul Chawla (2016) 380 ITR 573.

ii. The assessment was time barred as no notice has been issued u/s 143(2) after filing of the return by the assessee.

iii. The time limit for completion of assessment has been taken as 31.03.2015 on the basis of the Explanation 8 below Section 153B

iv. Information received under information exchange mechanism through DTAA/DTAC. The specific basis of the conclusion reached in assessment order for making addition.

20. In response thereto, the AO submitted remand reports dated 13^th& 19^th October, 2015, wherein it was submitted as under:

i. It was stated that the information was received by the Indian competent authority from the respective competent authority as per which, the assessee was having an account with HSBC Bank, Zurich, Switzerland. It was stated that the information received has provided the details of the assessee, address, date of birth etc. This information also provided month wise balance in this HSBC Account at Zurich for a certain period. It was also stated in the remand report that the assessee has given a statement on oath wherein he himself has accepted to have a foreign bank account. Thus, the identity of the assessee and genuineness of the document stands established.

ii. As regards the non-issuance of notice u/s 143(2), the AO in the remand report stated that is not mandatory to issue notice u/s 143(2) for finalizing assessment u/s 153A in view of the judgment of the Hon’ble Delhi High Court in the case of Ashok Chadha Vs ITO 327 ITR 399.

iii. On the issue of time limit for completion of assessment, the AO stated that this contention has already been rejected during the course of assessment. The first reference for complete information by the competent authority was made on 21.02.2012 and till the date of passing the assessment order i.e. on 09.03.2015, information was not received.

21. In response to the above remand report, the assessee filed a detailed rejoinder on 05.11.2015 further raising the following issues:

i. The AO has not brought any incriminating material so as to give jurisdiction to the AO for making reassessment u/s 153A in respect of an assessment year where assessment has not abated.

ii. On the issue of non-issuance of notice u/s 143(2) post filing of return, the assessee relied upon the judgment of Hon’ble Supreme Court in the case of ACIT Vs Hotel Blue Moon 321 ITR 362 and few other judgments.

iii. On the issue of assessment having been framed after expiry of the time limit prescribed u/s 153B, the assessee in its rejoinder pointed out that this reference to FTD was made on 21.02.2012 i.e. even before the initiation of the assessment proceedings on 21.11.2012 and hence, no extension will be available for this reference. The assessee also raised the issue that the AO has not submitted any evidence of such reference being made on 21.02.2012. It was raised that the contention of the AO that no reply has been received for over 3 years till the passing of the assessment order on 09.03.2015 from a sovereign Government is unbelievable. The AO has not brought any correspondence or evidence so as to substantiate its contention off extended period. The assessee also raised the issue that extension in this case, if any, will be available for 6 months not 12 months as was the law at the time reference was made.

iv. The AO in the remand report has admitted that it was the information received not the bank statement.

v. The observation by the AO that information provided that the assessee has opened HSBC account in the name of various foundations is incorrect as there is no mention of HSBC in the 6 page document referred to by the AO.

vi. Such information nowhere states that the assessee has opened HSBC account at Zurich in the name of various foundations.

vii. The observation by the AO that the month wise balances in the alleged documents are balance in the bank account is factually incorrect as can be seen from documents which apparently are of investment and not the month wise balances in the bank account.

viii. On the issue of statement of the assessee, the AO in the remand report has ignored the preliminary statement recorded at the beginning of the search where the assessee has categorically denied of having bank account outside India.

ix. The AO has also not referred to the letter dated 30.08.2011 where the assessee has brought on record that the statement recorded on the date of search was under coercion, duress and tutored.

x. The AO has not rebutted the allegation that the statement was extracted from the assessee by showing a false document and hence, the same cannot be considered.

xi. The AO in the remand report has stated that the deposit in the account belongs to the assessee but he has neither provided the copy of bank statement showing deposit of such alleged amount nor clarified whether these are the deposits in the bank account or are something else.

xii. In the rejoinder, the assessee also pointed out that a cursory look at the documents shows that it is not a bank account or bank statement on the assumption of which the addition has been made.

22. In view of the above issues raised by the assessee, the ld. CIT (A) called for a second remand report on the following specific issues:

i. The AO to confirm whether the 6 pages document referred to in the remand report was with the search party and consequently with the AO before assessment was started.

ii. On the issue of assessment being barred by limitation, in view of Section 153(4), Explanation 1 Clause (viii), the AO was asked to clarify when the last reference was made and the result thereof.

iii. AO to clarify, if no reply has been received at all from the competent authority.

iv. Copy of letter received from the competent authority from whom information was received by CBDT and subsequently the AO.

v. AO to clarify with respect to observation in the assessment order and authorized representative’s objection whether the document is an extract of bank account.

vi. AO to clarify on the issue that information not in Swiss language, where allegedly the account is maintained.

vii. AO to clarify whether the information means-photocopy of original or extracted from another document.

viii. AO to clarify whether the amount shown is in US Dollar.

ix. AO to clarify whether the amount shown has to be taxed in this year, not in any earlier year.

x. AO to clarify how the entities Bunfield Invests/Nine on Ten Foundation are linked/operated by the assessee.

xi. AO to clarify how assessee could be treated as beneficial owner.

xii. AO to respond on the issue that assessment order has been passed on direction of higher authorities with reference to the order sheet of the AO dated 20^th February, 2015 and 24^th February, 2015.

23. The AO submitted its second remand report dated 28.12.2015. In this remand report, the AO stated as under:

i. That the 6 page document containing the extract of bank account maintained by the assessee in HSBC, Zurich was very well with the search party and the same was confronted to the assessee.

ii. On the issue of no reply having been received from the competent authority, the AO admitted that the assessment has been framed on the basis of the information received from the competent authority of France.

iii. The AO submitted the details of the chain of information received by CBDT and consequently by the AO.

iv. In response to the question whether the 6 page document is an extract of bank account, the AO submitted that 6 page document was having the conclusive details of bank account.

v. In response to the question that information was not in Swiss language, the AO stated that the language in which information was received is not material and the contents are important for disposal off the case.

vi. On the issue of assessment order having been passed on the directions of higher authorities, the AO stated that in view of the seriousness of the matter, the directions given by the CIT.

24. In response to the above remand report, the assessee filed second rejoinder on 07.01.2016. In this rejoinder, the assessee submitted as under:

i. The assessee stated that it is apparent from the 6 page document which is being relied upon by the AO as a bank statement is not a bank statement. These pages are carrying just some balances over a certain period and are definitely not a bank statement.

ii. On the issue of limitation, in the rejoinder, the assessee again raised the issue that no evidence has been submitted by the AO regarding the reference made in the reply received.

iii. As regards the chain of information, it was pointed out that this was all internal correspondence within the Department. Further, this correspondence establishes that the information used by the AO to frame the alleged assessment is not authentic as the same has been just passed on by the France Government.

iv. On the issue of language of the document, the assessee pointed out that this issue is with regard to the authenticity of the document and whether the document relied upon for making addition is a true copy of the bank account.

v. It was pointed out that the AO admitted in the remand report that this is not a bank account but the information received and if so, the issue which arises is who has provided the information, from where the information was picked up. The AO’s reply on the specific issue whether this is a copy of bank statement or the information jotted down from some document is silent.

vi. The assessee also raised the issue whether the information means photocopy of original or something written from another document.

vii. The assessee also pointed out that the AO has not clarified whether the amount stated in the alleged document is in US dollars and whether the amount shown has to be taxed in this year. The information apparently being incomplete, it cannot be said that the amount is to be taxed in the year under consideration and for this purpose, it becomes important to find out the author of the person who jotted down this information and the source from which he jotted down this information.

viii. It was also pointed out that the extension of one year completing assessment u/s 153B on the basis of reference being made will not be available in this case as per the facts emerging from remand report.

25. The assessee further filed its submissions on 09.02.2016 raising the issue of authenticity of 6 page document and cross examination of the person who provided such information. The assessee also submitted evidences in the form of press reports whereby the Switzerland Government has replied to the references made by the Competent Authority immediately after the reference was made to support its contention that extension in the present case will be available under clause (viii) of Explanation below Section 153B only from the date when reference was made when reply was received from the Swiss authorities and not one year as has been assumed by the AO. In this, the assessee also brought to the notice of ld. CIT (A) that the refusal to provide information to India is on the ground that the source is not authentic.

26. The assessee submitted another rejoinder dated 19.02.2016 pointing out that:

i. Merely the information was received from French Government will not authenticate the information contained in the document unless the source and the person from whom the French Government has obtained this document is authenticated and such person is subjected to examination of the veracity of the information contained therein. In this regard, the assessee raised the following issues:

a. Whether this 6 page document is a bank statement or not?

b. If not, what this document is?

c. How this document came into the possession of the French authorities which has been stated in the assessment order/remand report?

d. Identity of the person who has authored this document and cross examination of the person who has authored such document?

e. If this is not bank statement how additions have been made assuming the figures stated therein as the balances in the bank account?

f. If this is not bank statement, then what is the basis for making additions have been made in the year under consideration?

ii. On the issue of assessment order having been passed beyond the period of limitation, the assessee raised the following specific issues:

a. The date on which the AO made reference to the Indian Competent Authority for each of the assessment year.

b. Copy of such letter written by the AO to the Indian Competent Authority for each of the assessment year.

c. The date when the Indian Competent Authority made a reference to the competent authority of the Switzerland, for each of the assessment year.

d. Copy of the letter written by the Indian competent authority to the competent authority of the Switzerland for each of the assessment year.

e. The date and reply received by the Indian competent authority from the Switzerland competent authority for each of the assessment year.

f. The date and reply received by the AO from the Indian competent authority.

g. The basis on which the AO in the remand report has stated that no reply has been received from the Swiss authorities.

h. Copy of any other evidence/letter received by the AO from the Indian competent authority.

iii. On the issue that the 6 page document is not a bank account, the assessee raised following specific issues:

a. Whether this 6 page document is a bank statement or not?

b. If not, what this document is?

c. How this document came into the possession off the French authorities which has been stated in the assessment order/remand report?

d. Identity of the person who has authored this document and cross examination of the person who has authored such document?

e. If this is not bank statement how additions have been made assuming the figures stated therein as the balances in the bank account?

f. If this is not bank statement, then what is the basis for making additions have been made in the year under consideration?

iv. On the issue of language of this 6 page document, it was again pointed out that the allegation is that this bank account is maintained with HSBC, Switzerland and how come the document is in French Language. The AO has not made any effort to find out whether HSBC is maintaining its accounts in French language.

v. On the issue of order having been passed on the direction of CIT, it was contended that AO has admitted because of the seriousness of the case, the order has been passed on the direction of CIT and hence, the order stands vitiated placing reliance in the judgment of Hon’ble Supreme Court in the case of Greenworld Corporation 314 ITR 008.

27. Subsequent to the above, the AO filed another report dated 26.02.2016 where he stated that the 6 page document is an extract of the bank statement containing personal details of the account holder. This document was handed over under Article 28 of the DTAC between India and France by the French Competent Authority to the Indian Competent Authority.

28. In response thereto, the assessee filed another rejoinder dated 12.04.2016 wherein the following was submitted:

i. It was pointed out that in this remand report, the AO has admitted that the 6 page document on the basis of which addition has been made presuming it to be a copy of the bank account is not a bank account. Further, the contention of the AO that this is an extract of the bank statement is also not correct as is apparent from the alleged 6 page document where certain figures mentioned are regarding investment. There is neither any credit nor debit of any money withdrawn which is in a bank statement. It was pointed out that the second question as to what this document is, the AO has simply has stated “not applicable” meaning thereby he doesn’t want to commit anything about the nature of this document. Having replied the first question that it is not a bank statement, the answer to the second question clearly shows a confirmation by the AO that this is not a bank statement.

ii. As regards the issue how this document has come to the possession of French Authority, the AO stated that the Indian Authority got it from the French Authority it so as to establish its authenticity. The AO has not answered it because he himself did not know from where the Government of France obtained this document.

iii. On the query no. 4 regarding the identity of the person who has authored this document, the AO stated that the information was provided by the Competent Authority of France. He has not answered the specific question who has authored this document. Identity of this person has not been found out. The AO is also silent on the cross examination of such person.

iv. On the issue that the 6 page document is not a bank statement, then how the addition has been made, by assuming the figures stated therein as balance in the bank account, the AO has simply stated “not applicable”. This is again admission that this being not a bank statement, then the addition made assuming the figures stated therein as balance in the bank account is incorrect.

v. In this remand report, the assessee also pointed out that other specific issues raised in its rejoinder dated 19.02.2016 have not been answered by the AO.

29. Thereafter, the AO submitted another report dated 04.05.2016 wherein he enclosed letter dated 13.01.2012 written by Director of investigation to JS, FT &TR-I, CBDT, requesting him to seek information from Switzerland Tax Authority and letter dated 21.02.2014 written by Under Secretary to CCIT, Central – Delhi, informing that the first reference was made as per the enclosure i.e. on 21.02.2012.

30. In response thereto, the assessee filed another rejoinder dated 19.05.2016 pointing out that these letters submitted by the AO are internal correspondence and are not evidences of the letter written by the Indian Competent Authority to Swiss Tax Authority. The AO has not been able to point out any material which was found during the course of the search for the year under consideration. As regards the statement of the assessee, it was also submitted that in absence of any incriminating material, that cannot be basis for making addition in assessment u/s 153A in view of the judgment of Hon’ble Delhi High Court in the case of CIT VsHarjeev Aggarwal in ITA No. 8/2004 dated 10.03.2016. It was also pointed out that there was no material of any undisclosed income being earned during the year under consideration and hence, addition u/s 69 is untenable.

Excerpts from the order of the Ld. CIT(A):

31. The ld. CIT (A) vide order dated 18.07.2016 confirmed the addition of Rs.8,51,10,905/- made by the AO u/s 69 as unexplained investment in AY 2006-07 and of Rs. 61,22,916/- in AY 2007-08.

32. On the legal issue of addition being unsustainable in absence of any incriminating material found during the course of search, the ld. CIT (A) held that a detailed statement of the assessee has been recorded during the course of search operation wherein he has admitted that he has maintained bank account with HSBC, Switzerland. This admission is on the part of the assessee given during the course of the search and accordingly, he rejected the contention of the assessee.

33. On the issue of assessment order having been passed beyond the time limit prescribed, the ld. CIT (A) held that as per the evidence submitted by the AO, the reference was made on 21.02.2012 and the AO in the remand report has clarified that no information with regard to the said reference has been received till the date of the assessment. He further held that the internal communication placed on record of having made the reference for exchange of information coupled with the fact that the AO has placed on record an unambiguous clarification that no information had been received in reference to the impugned reference till the date of assessment will suffice for extending the period by one year and hence, the assessment was completed within the extended period of limitation.

34. On the issue of no notice having been issued u/s 143(2), the ld. CIT (A) relying upon the judgment of Hon’ble Delhi High Court in the case of Ashok Chadha Vs ITO 20 com 387 held that issue of notice u/s 143(2) is not mandatory and accordingly, this contention off the assessee was also rejected. The judgment relied upon by the assessee of Hon’ble Delhi High court in the case of Nikki Drugs in ITA No. 442/2015, dated 03.12.2015 was distinguished by the ld. CIT (A).

35. The contention of the assessee that assessment order stands vitiated having been passed on the specific direction of the CIT was also rejected by the ld. CIT (A) on the ground that approval is required to be obtained by the AO from the Addl. CIT/JCIT as per provision of Section 153D. The ld. CIT (A) further held that administrative control of CIT has not been exceeded and the CIT in his administrative capacity was sell within his right.

36. On the merit off the addition, the ld. CIT (A) held that the information relied upon by the AO has been handed over by competent authority of French Government and hence, the contention of the assessee that information is not authentic or reliable was not acceptable.

37. On the issue of language of communication, the ld. CIT (A) was of the view that since this information was received from French Government and not from Switzerland, that is why it is in French.

38. The ld. CIT (A) was of the view that due process had been followed in the handing over of information.

39. The ld. CIT (A) further held that the contention that the said document do not contain complete information with regard to the deposit/withdrawal does not take away material significance revealed by these documents that assessee had substantial deposit indicated by monthly balances recorded in the said documents.

40. The ld. CIT (A) further held that there is detailed admission by the assessee and also the refusal to sign the consent form. Further, the contention of the assessee that impugned credit has not been made in the year is also not valid as AO has placed sufficient evidence on record to show that the peak amount had been in the assessee’s bank account during the year. The evidences highlighted by the AO have to be appreciated in the light of the period of limitation of domestic tax authorities to access the information of banking authorities abroad. Thus, the onus was on the assessee which he has failed to discharge and hence, the AO was justified in making the addition. On this basis, the ld. CIT (A) upheld the order of the AO.

41. On the issue of addition of interest of Rs.1,12,880/- in AY 2007-08, the ld. CIT (A) deleted the same. The ld. CIT (A) held that the AO has made such addition merely on the basis of presumption that assessee would have earned interest at the rate of 4% on the credit balance in its bank account on February, 2007. However, there is no evidence to support such addition. Further, the ld. CIT (A) held that it is a fact that no such information is evident from the documents received by the AO from French Government under information exchange mechanism of DTAC.

42. Aggrieved by the order of the ld. CIT (A), the assessee is in appeal in respect of the additions confirmed by the ld. CIT (A) and revenue is in appeal in respect of deletion of addition made on account of interest in AY 2007-08.

Arguments of the Ld. AR before the Tribunal:

A) On the issue of limitation-Section 153B:

43. Taking the legal grounds first, the ld. Counsel of the assessee submitted that the assessment order passed by the AO is time barred as the same has been passed beyond the statutory limit prescribed under the provision of the Act. The ld. AR submitted that the search has been carried out on the assessee on 28.07.2011. As per the provisions of Section 153B of the Act, the assessment u/s 153A ought to have been culminated by 31st March, 2014 in view of the provision of Section 153B(1)(a) of the Act. In the present case, assessment case to an end as per the assessment order on 09.03.2015. The Department is relying on clause (viii) of Explanation to Section 153B of the Act to claim extension of the period of limitation by one year without producing evidence of any reference having been made.

44. The ld. AR submitted that the AO’s contention is that the alleged reference was made on 21.01.2012. At that point in time, clause (viii) of Explanation to Section 153B, as it then stood, provided for extension of time period to complete the assessment by 6 months as against by one year. He submitted that is vide the Finance Act, 2012 that the period of extension of 6 months was increased to one year. This amendment was made effective from 01.07.2012.

The ld. AR submitted that in absence of any explicit declaration that such amendment is retrospective in operation, such amendment has to be considered as prospective in nature and it is only the references made on or after 01.07.2012 which can be eligible for the extended period of one year. The ld. AR submitted that wherever legislation prescribes a date of applicability of a provision to be date other than 1st April off the year, it is with reference to transaction that takes place after such date. He argued that this is normal in the case of amendment to provision of TDS, etc. In the case in hand as well, the amendment has been made applicable w.e.f. 01.07.2012 and the benefit of extended period of one year vide the amendment made vide Finance Act 2012 will only be available qua references made on or after 01.07.2012. He accordingly argued that at best, 6 months extension can be considered to be available in the case in hand in which case, the assessment order should have been passed by 30.09.2014. He argued that since the order was passed on 09.03.2015, the same is barred by limitation and liable to be quashed.

45. The ld. AR further argued in an alternate that even if it is assumed that the amended provision is applicable, then too, as per the clause (viii) of Explanation to Section 153B, the extended period is to be considered as the period of one year or the period between the date on which the first reference is made by the competent authority and the date on which information is last received, whichever is less. To compute such period, onus is on the Department to bring copies of the letter exchanged. In absence thereof, the benefit of extended period cannot be considered. He submitted that the ld. CIT(A) erred in holding that the internal communication placed on record should be sufficient to settle the issue of having made the reference for exchange of information and that the clarification from AO that no information has been received till date of assessment order is sufficient. He submitted that the AO must produce authentic document /correspondence on record to demonstrate that he is entitled to extended period of limitation.

46. The ld. AR argued that since the AO has failed to bring on record any correspondence in this regard, the extended period of one year cannot be assumed merely on the basis of assertion made by the AO. As such, the ld. CIT(A) has gone wrong on relying upon a simple assertion made by the AO without there being any evidence to support such assertion. It was submitted that limitation is an important issue and it is AO who is seeking extended period and as such, onus is upon him to produce evidence. Having failed to do so, despite repeated remand reports being called upon by the ld. CIT(A), the assessment order needs to be quashed as being barred by limitation.

47. The ld. AR further submitted in an alternate that the reference having been made even before the initiation of assessment proceedings u/s 153A, the extension will not be available. In this regard, the ld. AR pointed out that the reference in the present case has been made as per the AO on 21.01.2012 whereas the assessment proceedings were initiated by the AO by issuance of notice u/s 153A on 21.11.2012. Accordingly, the reference having been made even before the initiation of assessment proceedings, the extended period of limitation cannot be available.

B) Non-issue of notice u/s 143(2):

48. The ld. AR on the next legal ground submitted that the assessment is bad in law as undisputedly, no notice u/s 143(2) has been issued and served on the assessee after filing of return of income in response to notice u/s 153A. The ld. AR submitted that the ld. CIT(A) erred in placing reliance on the judgment of the Hon’ble Delhi High Court in the case of Ashok Chadha Vs ITO 20 com 387 to hold that issuance off notice u/s 143(2) is not mandatory in respect of order passed u/s 153A. He submitted that though the issue is decided against the assessee in the said judgment, however, the said judgment is no longer a good law in view of the subsequent judgments of the Hon’ble Delhi High Court on the subject matter of issuance of notice u/s 143(2).

49. He submitted that in the judgment of Ashok Chadha (supra), the Hon’ble Delhi High Court has discussed at para 10 that in the case of CIT Vs Madhya Bharat Energy Corpn. in ITA No. 950/08 decided on 11.07.2011, the Hon’ble Court has held that there is no requirement to issue notice u/s 143(2) in absence of any specific requirement for the same u/s 147 of the Act. Thereafter, the Hon’ble Court has held that there is no such requirement in Section 153A as well vide para 11. Further, the Hon’ble Court has held vide para 13 and 14 that the words “so far as may be” used in Section 153(1)(a) cannot be stretched to the extent of mandatory issue of notice u/s 143(2).

50. The ld. AR submitted that the judgment of Hon’ble Delhi High Court in the case of CIT Vs Madhya Bharat Energy Corpn. ITA No. 950/08 decided on 11.07.2011on which reliance was placed in the case of Ashok Chadha (supra), for holding that no notice is required in absence of a specific requirement of issuance provided under the provisions of the Act is no longer a good law, as this decision has been reviewed by the Hon’ble Delhi High Court in revenue Petition No. 441/2011 vide order dated 17.08.2011. This fact has been noted by the Hon’ble High Court in the case of Pr. CIT Vs Shri Jai Shiv Shankar Traders Pvt. Ltd. (2016) 383 ITR 448 dated 14.10.2015 and it has been held that it is mandatory to issue notice u/s 143(2) in proceedings u/s 147 of the Act as well. Further, he submitted that a number of judgments have been pronounced by the Hon’ble Delhi High Court wherein the Court has taken a view that it is mandatory to issue notice u/s 143(2) in proceedings u/s 147 of the Act as well.

51. He submitted that the provision of Section 148 and Section 153A are in pari-materia as both require notice to be issued by the AO requiring assessee to furnish the return and once the same is so furnished, both the provision provide that “the provisions of the Act, shall, so far as may be, apply accordingly as if such return were a return required to be furnished u/s 139 off the Act”. He submitted that the interpretation of the expression “so far as may be” has to be same for both the provision of Section 147 and Section 153A. The ld. AR submitted that once it has been held in the subsequent judgments by the Hon’ble Delhi High Court that it is mandatory to issue notice u/s 143(2) in respect of proceedings u/s 147, the words “so far as may be” should be given same interpretation under both the provision of Section 148 and 153A and accordingly, the requirement to issue notice u/s 143(2) should be seen as mandatory for assessment u/s 153A as well.

52. The ld. AR further submitted that the words “so far as may be” appearing in Section 148 were interpreted by the ITAT Delhi Special bench in the case of Raj Kumar Chawla Vs ITO (2005) 94 ITD 1 wherein it was held that assessment u/s 147 is invalid if the notice u/s 143(2) is not issued within 12 months from the end of the month in which return u/s 147 was filed after issuance of notice u/s 148. To cure such time barred assessments, the law was amended retrospectively vide the Finance Act, 2006 and two provisos to Section 148 were inserted to cure the defect in relation to returns filed prior to Section 01.10.2005 in certain circumstances. However, an Explanation was inserted in the Act vide the Finance Act, 2006 w.e.f. 01.10.2005 in Section 148(1) so as to clarify that the provisions of the said provisos shall not apply in relation to any return which has been furnished on or after 01.10.2005 in response to a notice served u/s 148(1). The ld. AR submitted that this act of the legislation itself reflects that the legislation also considers that the issuance of notice u/s 143(2) is mandatory in view of the words “so far as may be” and the same interpretation should be given even to the provision of Section 153A.

53. The ld. AR further submitted that the ld. CIT(A) erred in distinguishing the judgment of the Hon’ble Delhi High Court in the case of Pr. CIT Vs Nikki Drugs & Chemicals Pvt. Ltd. (2016) 386 ITR 680. Further, the AO also placed reliance on the judgment of Hon’ble Supreme Court in the case of CIT Vs Laxman Das Khandelwal in Civil Appeal No. 6261-6262 of 2019 to put forth its contention that non-issuance of notice u/s 143(2) renders the proceedings void and the same is not curable u/s 292BB of the Act.

C) No incriminating material seized during search:

54. The next legal ground argued by the ld. AR was that the assessment years under consideration i.e. AY 2006-07 and AY 2007-08 were completed assessment and not abated assessment and hence, no addition can be made in absence of incriminating material found during the course of search in view of the judgment of the Hon’ble Delhi High Court in the case of CIT Vs Kabul Chawla (2016) 380 ITR 573 and other such judgments on the issue.

55. The ld. AR argued that the additions were based on two premises as can be seen from assessment order. One premise is the 6 page document received allegedly under exchange of information mechanism through DTAA/DTAC which was available with the department prior to the date of search. Second is the statement of assessee recorded during the search through coercion which was subsequently retracted. With regard to 6 page document, the ld. AR submitted that the said document was available prior to the date of search itself. This is an undisputed fact. The same is evident from the communication between the Director of Investigation Wing and the Pr. CIT placed in the paper book. The said document accordingly cannot constitute incriminating material found during the course of the search.

56. In support thereof, the ld. AR placed reliance on the judgment of ITAT Delhi in the case of AnuragDalmiaVs DCIT in ITA Nos. 5395 & 5396/Del/2017 and in the case of Krishan Kumar Modi Vs ACIT in ITA No. 2892/Del/2017 and ITAT Benches of Kolkata in the case of Shri BishwanathGarodiaVs DCIT in ITA Nos. 853, 854, 855 & 856/Kol/2016 and Yamini Agarwal Vs DCIT 83 Taxmann 209 (Kol. Trib.).

D) Statement u/s 132(4):

57. As regards, the statement recorded during the course of search, the ld. AR submitted that firstly, the same was obtained under coercion on 28.07.2011 which stands subsequently retracted by the assessee on 30.08.2011 and as such no cognizance of such statement can be taken. It is a settled law that a statement obtained under coercion and a statement which was tutored cannot be used against the assessee.

58. The ld. AR further submitted that without prejudice to the above, it is settled law that statement recorded during the course of search does not constitute incriminating material. In this regard, the ld. AR placed reliance on the following judgments:

> Pr. CIT Vs Best Infrastructure (India) Pvt. Ltd. (2017) 397 ITR 82 (Del.)

> CIT VsHarjeev Aggarwal (2016) 290 CTR 263 (Del.) > Vascroft Design Pvt. Ltd. Vs ACIT in IT(SS)A Nos. 129 & 130/Ahd./2015

> Shri Nirmal Kumar KediaVs DCIT in ITA Nos. 124 to 126/JP/2019

> Shri BrijBhushanSinghalVs ACIT in ITA No. 1412/Del/2018

> Krishan Kumar Modi Vs ACIT in ITA No. 2892/Del/201 7

> AnuragDalmiaVs DCIT in ITA Nos. 5395 & 5396/Del/201 7

> Shri BishwanathGarodiaVs DCIT in ITA Nos.853 to 856/Kol/201 6

59. Further, in support of the above, the ld. AR also placed reliance on the recent judgment of the Hon’ble Delhi High Court in the case of PCIT Vs Anand Kumar Jain (HUF) in ITA No. 23/2021 dated 12.02.2021 to contest that statement recorded u/s 132(4) does not constitute incriminating material and no addition can be made on the basis of statement alone without any reference to material gathered during the course of search operations.

60. Further, the ld. AR also relied on the CBDT’s Circular F.No. 286/2/2003/IT(Inv.) dated 10.03.2003 which was reiterated CBDT’s Circular No. 286/98/2013-IT(Inv.) dated 18.12.2014 and submitted that the Board has emphasized upon the need to focus on gathering evidences during search/survey and to strictly avoid obtaining admission of undisclosed income under coercion/undue influence.

61. The ld. AR submitted that in the case in hand, admittedly, no incriminating material whatsoever has been gathered during the course of search. On the contrary, on the basis of a note carried by the search party, the assessee was forced to give a statement on the dotted lines by the search party. It is an admitted fact that no material whatsoever was found regarding assessee having any bank account outside India during the search. Accordingly, the additions made by the AO are against the provision of the law and are unsustainable.

62. The ld. AR further submitted that without prejudice to the above, even if it assumed that the statement constitutes incriminating material, addition can be made only in the year to which the incriminating material pertains. In this regard, the ld. AR placed reliance on the judgment of Hon’ble Supreme Court in the case of CIT Vs Singhad Technical Education Society (2017) 397 ITR 344 and the judgment of Hon’ble Delhi High Court in the case of PCIT Vs M/s SMC Power Generation Ltd. in ITA No. 406/2019.

63. The ld. AR submitted that in the case in hand, in the statement recorded, it is nowhere stated that the amount has been deposited by the assessee in the bank during the year under consideration. On the contrary, in the statement, it has been stated that the account was opened in 2002 and the amount was invested on various dates in 2002. In this regard, the ld. AR placed reliance on question no. 7 and 18 of the statement recorded. The ld. AR submitted that it is a settled law that if the revenue has to rely on the statement, the statement must be read in entirety. In this regard, the ld. AR placed reliance on a number of judgments which is a part of its case law compilation.

64. The ld. AR submitted that on going through the statement, the entire amount was invested prior to FY 2006 and accordingly, even if, the statement could be considered as incriminating material, it does not constitute incriminating material qua the year under consideration. Consequently, addition cannot be made during the year under consideration in view of the aforesaid position of law laid down by the Hon’ble Apex Court in the case of Singhad Technical Education Society (supra) and as has been echoed by the Hon’ble Delhi High Court in the case of SMC Power Generation Ltd. (supra).

65. On merits, ld. AR submitted that the entire basis of making the addition is revolving around the two allegation of the AO. One is the statement recorded during the search. The second is the 6 page document/ information. The ld. AR submitted that the addition cannot be made considering the same individually or collectively.

66. With regard to the 6 page document being the information received from French Competent Authority on the basis of which the AO has made the addition, he submitted that there is no authenticity to this information received by way of 6 page document which was received by way of pen drive. It is not that the case this information was obtained from Bank. The source of information with French Authority, its author, basis has not been revealed despite repeated request.

67. He submitted that merely because the information is received from France under the DTAC agreement does not make the information credible. He submitted that the French Competent Authority has just worked like a courier and that too without knowing from where and from whom it received such information. He submitted that if SBI receives an anonymous letter containing certain information about various people of ICICI bank account, that information is passed on to the Income Tax Department, the mere fact that such information has been received by the Income Tax Department from the SBI will not make itself make the information as a credible evidence unless ICICI bank confirms the same as true.

68. The source of such information and the fact thereof are still to be investigated and established. He argued that in this case, mere receipt of information from anonymous source will not give credibility and authenticity to such information. In the present case, there is no dispute that Indian Income Tax Department has received a pen drive from French Competent Authority. But what is contained in pen drive does not become authentic in the absence of the information and the identity from which the French Competent Authority obtained the said pen drive being established. There is no answer to this issue by the AO despite repeated remand report being called by the ld. CIT(A). The ld. AR invited attention to the correspondence shared by the AO during the hearing before the ld. CIT(A) to demonstrate that what is being tried to establish is the pen drive having been received from the French Authority. There is no link brought on record about this pen drive with any bank account with HSBC, Switzerland.

69. The ld. AR further argued that unless the author of the information is established and it is not brought on record as to how French Government got in possession of the information, the information cannot be considered to be authentic.

70. The ld. AR further also submitted that the case of the revenue is that this pen drive contains a bank statement of the assessee with HSBC Bank, Switzerland whereas a cursory look at the print out of this pen drive clearly shows that it is not a bank statement but merely a memoranda, the authenticity of which cannot be claimed merely on the basis that it has been received from French Competent Authority. It was further submitted that this is neither original nor Photostat.

71. He further submitted that the 6 page document is not a bank statement. He submitted that there is no basis for alleging that it is a HSBC bank account. Nowhere, HSBC has been stated in the 6 page document. There is no debit or credit as is normal in a bank statement. The ld. AR took us through the 6 pages document to demonstrate that the word “HSBC” is not appearing anywhere in this 6 page document. On this basis, he contended that it is not understood on what basis it is being assumed that this is HSBC bank account. He further pointed out that the revenue has been seeking information from Swiss authorities about HSBC Bank account, Geneva as is evident from page 5 to 7 of paper book filed by the ld. DR. he submitted that the fact that the revenue is seeking the bank statement confirms that the AO is not having bank statement and hence it is asking the bank statement from Swiss Authorities.

72. The ld. AR submitted that it is an admitted fact by the AO that he was not having the bank account. This fact has been admitted in the remand report dated 13.10.2015 where the AO has stated that information has not been received till the date of assessment order. The ld. AR pointed out that in this situation two issues arises.

73. First, in case the AO was having sufficient evidences, where was the need to obtain further information?

74. Second, in case evidences were not sufficient, whether the AO has been able to obtain any further evidence or not.

75. Obtaining information from HSBC, Switzerland by the revenue authorities itself confirms the fact that the AO was not having any credible evidence to make the addition. Accordingly, the information available with the AO was neither sufficient nor credible to make the addition. Further, it is admitted by the AO that no further information has been received. If that be so, addition made was premature and simply at the fag end of the assessment, the AO made the addition without having any credible and sufficient evidence. Thus, the AO has made addition prematurely. In case information with the AO was sufficient there would have been no need to seek information from Swiss Authorities. He argued that this supports that the contention that information with the AO was not authentic, it was not a bank statement, it was not any original document, it was not sent by HSBC and it was not even sent by Swiss Authorities.

76. He further pointed out that as per the document submitted by the AO in the remand proceedings before the ld. CIT(A) regarding the authenticity of the pen drive, there is a letter dated 26.06.2015 placed at PB page 250 from DIT(Inv.)-2, to Pr. CIT (Central-II) wherein it has been stated that print out from the content of the pen drive pertaining to Delhi Region were handed over to DGIT(Inv.) on 14.07.2011. The print out so received contained base sheets of account of the assessee of HSBC Bank, Geneva, Switzerland. The ld. AR invited attention to the paper book filed by the ld. DR where in the proforma regarding request for information, the information has been sought from HSBC Bank, Geneva at page 6 of the first paper book filed by the ld. DR. Thus, allegation as per the pen drive is of bank account of HSBC bank at Geneva, Switzerland falls flat. However, he pointed out that in the assessment order, addition has been made by the AO of HSBC Bank at Zurich. Geneva and Zurich are two different cities and hence, the very basis of making the addition by the AO itself is contradictory. The ld. AR contended that addition is being made on the basis of account with HSBC Bank, Geneva or HSBC Bank, Zurich itself is not clear. The ld. AR contended that in the case of ITO Vs PradipBurman, CC No. 5257922/16, the ACMM has expressed that such inconsistencies leads to grave doubt on the authenticity of the USB drive and its contents and the prosecution charges were dropped.

77. The ld. AR further submitted that since the 6 page document is unauthentic and unreliable, the said data cannot be relied upon. He submitted that it is a settled law that suspicion however strong, cannot take the place of evidence and that addition cannot be made on the basis of suspicion and in this regard, the ld. AR placed reliance on various judgments forming part of its case law compilation.

78. With regard to the statement, the ld. AR submitted that it is an undisputed fact that the said statement was subsequently retracted. Once that is the case, the said statement cannot be relied upon. He submitted that it is a typical case where the statement was obtained under coercion. The ld. AR submitted that it has been explained before the AO as well as the ld. CIT(A) that on the date of search, the assessee was surrounded by search officials and was coerced upon recording his statement of their choice. The statement recorded was as per the information tutored by the search team which is factually incorrect and made under duress. The statement so given was neither voluntary nor true.

79. The ld. AR further submitted that without prejudice to the above, even going by the statement, no addition can be made during the year under consideration. The ld. AR contended that the alleged statement of the assessee also does not support the case of the AO of making addition in the year under consideration. In this regard, the ld. AR invited attention to Section 69 of the Act under which the addition has been made by the AO. As per this section, in case of any unexplained investment, the addition has to be made in the year in which such investment has been made. This section does not give any discretion to the AO to make the addition in the year of his choice. The ld. AR on the basis of the above contention invited attention to the statement. He submitted that the response to question no. 7 and 18 are very clear. As per this statement, the investment has been made in 2002. He submitted that the AO himself has not considered statement as the basis though he is referring to in the assessment order. Thus, addition on the basis of statement in the year under consideration is unsustainable.

80. The ld. AR further submitted that for making any addition u/s 69 of the Act onus is on the department to prove that there is unexplained investment. The ld. AR pointed out that such onus has not been discharged. The ld. AR further submitted that it is an admitted fact by the AO himself that upon reference being made to Swiss Authorities under the DTAA, no reply has been received by the revenue till date. Further, no incriminating material whatsoever has been found during the course of the search. In view of such facts, no adverse inference can be drawn in the case in hand and the addition ought to be deleted.

Submissions of the Ld. DR:

81. In reply, the ld. DR supported the order passed by the AO as confirmed by the ld. CIT(A). She submitted that the addition made by the AO deserves to be upheld. In support of her contentions, the ld. DR filed her arguments in writing.

A) On the issue of limitation-Section 153B:

82. It was contended by the ld. DR that the order passed by the AO is legally valid and within the time prescribed under the law.

83. In respect of the ground raised by the assessee that the assessment order is barred by limitation as the same has been passed beyond the time prescribed, the ld. DR submitted that the order has been passed within the extended time as per clause (viii) of the Explanation below Section 153B. She submitted that as per this clause, the limitation to pass assessment order gets extended by a period of one year or the period starting from the date on which the reference is made and ending with the date on which the information requested is last received, whichever is less. She submitted that in the case in hand, it is an admitted position of the AO that no reply has been received by him till date of passing the assessment order. Accordingly, the limitation period shall be extended by a period of one year. The ld. DR referred to her paper book page 8 which is letter dated 26.05.2015 from Under Secretary (FT&TR Division) to Pr. CIT (Central-II) wherein a reference was made to a letter dated 22.04.2015 received from Swiss Government where it has been stated that the correspondence with the Swiss Government is going on and the Swiss Government has informed that the basis of which information was sought do not sufficiently demonstrate that the sources/evidences are independent from the HSBC list. Further, the Swiss Government sought an explanation to substantiate the link between certain companies/entities mentioned in request letter with the Taxpayer concerned. She submitted that such letter is proof that no reply was received prior to date of passing of assessment order on 09.03.2015 and accordingly, the extended period of one year shall be available. Therefore, she submitted that the assessment order has been passed within the extended period of limitation.

84. The ld. DR further submitted the following synopsis on this issue:

“2. The issue referred is with regard to the assessment order passed by the AO and the assessee alleging that the same is barred by the limitation in view of clause (viii) of Explanation 1 of Sub-Section 3 of Section 1 53B of the IT Act.

3. Further, the assessee has also taken the ground that the AO has wrongly recorded in the assessment order that the assessee had given concurrence for the extension of time upto 31.03.2015.

4. This issue of assessment order being barred by limitation has been taken up by the assessee both during the assessment stage as well as at the first appellate stage before the Ld. C1T(A). The AO has also dealt with this issue in the assessment order and the Ld. CIT(A) has given a very detailed and comprehensive finding that the order which is passed on 09,03.2015 was well within the time and the assessee’s contention have been dismissed by the Ld. CIT(A) by giving a very reasoned finding in the appeal order.

5. Even-though this issue has been dealt comprehensively in the appellate stage, the comments on this issue are once again being provided to further elaborate the finding of Ld. CIT(A).

5.1 A search and seizure operation was carried out in the case of Mr. Parminder Singh Kalra and Consortium Security Pvt. Ltd. and other associated concerns on 28.07.2011. In the normal circumstances as per the provisions of Sec. 153B(1) the assessment in the search and seizure operation cases was required to be completed within the period of 2 years from the end of the financial year in which the last of the authorization for search u/s 132 or requisition u/s 132(A) was executed. As in this case, search was conducted on 28.07.2011 and all the warrants have been executed within FY 2011-12 only, accordingly, in the normal circumstances the limitation date for competing assessment u/s 153A was 31.03.2014.

5.2 Further, as during the course of search and seizure operation, it was found out that the assessee was having foreign accounts/ foreign assets, accordingly, a reference was made by the Director of lnvestigation-2, New Delhi vide letter no. DIT Inv.-11/FB/11-12/72 (copy enclosed) dated 13.01.2012 to FT&TR Division to request for the information about the assessee from the Switzerland Tax Authority. Further, the competent authority of India for exchange of information i.e. Joint Secretary(FT&TR-I) has made the first reference to Switzerland Tax Authority vide letter F.No. 504/0070/2012-FTD-I dated 21.02.2012 [copy of letter of FT&TR vide F.No. 504/70/2012-FTD-I dated 21.02.2014 to “this effect is enclosed). In response to the reference made by the JS (FT&TR), no information has been received till the passing of the order i.e. 09.03.2015.

6. Before proceeding further, it would be very pertinent to first refer to the Explanation-(ix) of Sub-Sec. 3 of Sec. 153B which governs the time limit for completion of assessment u/ s 1 53A of the IT Act. For ready reference, the explanation referred above is reproduced below:

Explanation (ix) of Sub-Sec. 3 of Sec. 153B

“(ix) the period commencing from the date on which a reference or first of the. references for exchange of information is made by an authority competent under an agreement referred to in section 90 or section 90A and ending with the date on which the information requested is last received by the Principal Commissioner or Commissioner or a period of one gear, whichever is less;”

6.1 From the plain reading of the explanation, it is crystal clear that the period starting from the date on which the competent authority of India, i.e. JS(FT&TR-I) in the instant case, makes a reference to the foreign authority i.e. 21.02.2012 in the instant case, under the agreement i.e. DTAA between India and Switzerland and the period would be completed only when the information of the last reference is received by the Pr. Commissioner i.e. Pr. Commissioner of Income lax (Central)-2 in the instant case and the completion date is extended to maximum 01 (One) year if no information is received i.e. 31,05.2015 in the instant case as mi information is received.

6.2 Thus, in the instant case, as the reference was made by the JS(FT&TR-2) on 21.02.2012 and no information has been received for a one year period, accordingly, period of maximum of one year is excluded from the lime barring date or in other words, the time barring date of 31.03.2014 in the instant case gets extended by 12 months i.e. 31.03.2015.

7. Now, coming to the assessee’s ground that as the notice u/s 153A was issued on 21.12.2012, accordingly, the extension of time can be allowed only when a reference has been made after the issuance of notice. This issue has already been dealt by CIT(A) but it is once again mentioned that it has no basis because the explanation (ix) of Sec. 153B sub section 3 clearly and categorically mentions that the extension of time is available from the date JS(FT&TR) makes a reference to the foreign authority. Now, time limits for assessment in the search and seizure case is governed by sec. 153A of the IT Act which provides that the assessment and the re-assessment of the assessee’s total income in respect of each assessment year falling within 6 assessment years and the year in which search and seizure takes place has to be completed mandatorily.

7.1 Further, the sec. 153A also provides that the proceeding gets abated from the date of search in all the years in the case of a person where search is initiated u/s 132 or 132A of the IT Act. Thus, in the instant case, as the search was initiated on 28.07.2011, accordingly, from that date onwards, the AO was duty bound to complete the assessment and the re-assessment proceedings in the last 6 years as per the provisions of Section 153A and accordingly, during the pendency of the assessment proceedings, a reference was made by the Director of lnvestigation-2 to JS(FT&TR-II) for providing information so that the same can be used in the case of assessee for the assessment or re­assessment proceedings.

8. Thus, the assessee’s ground that a reference was made before the date of issuance of notice u/s 153A is totally devoid of merits because as per the sec 153A the period of assessment or re-assessment has to be started from the date of initiation of search and from that date onwards the assessment and the re-assessment proceedings are pending and accordingly, clearly in line with the provision of sec, 153A r. w. s. 1 53B a reference was made by the DIT(lnv)-2, New Delhi to the JS(FT&TR-II).

9. Further, as per the section 153B it is not important who makes the reference whether it Investigation authorities or the Central charge authority, but the time limit gets extended only from the day the reference was made by the competent authority i.e. JS(FT&TR). In the instant case, it is established beyond doubt that the reference was made by JS(FT&,TR) on 21.02.2012 and as no information was received, accordingly, one year extension was available to the AO for completion of assessment i.e. till 31.03.2015 which is time barring/ limitation date of the assessment in the instant case.

9.1 Accordingly, the AO passed an order on 09.03.2015 which is well within the limitation date.

10. Further, it has been mentioned by the assessee that the AO has wrongly mentioned in the assessment order that during discussion, the assessee had agreed for extension of time till 31.03.2015. Without going into the merits of the discussion between the assessee and the Assessing Officer, the passing reference in the assessment order by the AO has no meaning because the limitation date is governed by the provision of the IT Act and discussion between the AO and the assessee has no meaning within the provisions of the IT Act. As it has been conclusively established in the above referred paras that limitation date in the case is 31.03.2015, accordingly, the assessee’s contentions are totally devoid of merits and are baseless. Accordingly, the same may be rejected.”

B) Non-issue of notice u/s 143(2):

85. In respect of the ground raised by the assessee that the assessment framed is without jurisdiction as no notice u/s 143(2) was issued post filing of the return of income by the assessee in response to notice u/s 153A. She submitted that the ld. CIT(A) rightly rejected such contention. It was contended that in an assessment framed u/s 153A, there is no requirement to issue notice u/s 143(2) after the assessee has filed the return in response to notice u/s 153A. She submitted that this issue is squarely covered against the assessee by the judgment of the Hon’ble Jurisdictional Delhi High Court in the case of Ashok Chadha (supra). In this judgment, it has been held that there is no requirement to issue notice u/s 143(2) in search cases. She also submitted that the judgments relied upon by the ld. AR are distinguishable since they are in the context of assessment proceedings under normal assessment proceedings or u/s 147. The procedure for Section 153A is different and in such cases, once return is filed, the AO is duty bound to complete the assessment. Thus, it is not an issue of jurisdiction which arises consequent to issue of notice u/s 143(2). She submitted that the AO assumes jurisdiction for reassessment consequent to the search and not consequent to the issue of notice u/s 143(2).

C) No incriminating material seized during search:

In respect of ground raised by the assessee that in the absence of any incriminating material found during the course of search, no addition can be made. The ld. DR submitted that both the statements as well as the bank statement constitute incriminating material for the purpose of making the addition and accordingly, the ratio laid down by the Hon’ble Delhi High Court in the case of Kabul Chawla (supra) shall not apply. She submitted that the assessee has admitted in the statement recorded during the course of search that he is the owner of the bank account held with HSBC Bank. She contended that statement coupled with the bank statement received from French Competent Authority constitute incriminating material for the purpose of making the addition. She argued that the incriminating material was well with the department and the same has been duly confronted to the assessee during the search which the assessee has also accepted. She further argued that the existence of incriminating material is not a prerequisite for assessment u/s 153A and relied on the various judgments of Hon’ble High Court of Allahabad, Hon’ble High Court of Kerala wherein it was held that the assessment need not be restricted to the seized material only. She argued that the word “incriminating material” has a wide connotation and cannot be interpreted narrowly. She argued that the bank statement was more than incriminating in nature. She relied on the ratio given by the Ld.CIT(A) which has been mentioned above in this order.

D) Statement u/s 132(4):

87. She further submitted that the fact that the statement is retracted is not relevant as retraction is merely an afterthought. In support of the contention, she filed a written synopsis which reads as under:

“It is humbly submitted that the following submission may kindly be considered in this case

1. Submission regarding the statement recorded of assessee on 28.07.2011, and his subsequent retraction on 30.08.2011 i.e. after 32 days,

2. it is respectfully submitted that the following case laws which are in favour of Revenue may kindly be considered:

a) Decision of Hon’ble Gujarat High Court in the case of Arti Gases vs. DIT (Inv.) 248 ITR 55 has held that notice u/s 131(1A) can be issued after completion of search u/s 132 of the IT Act.

It observed

With regard to the petitioner’s contention that the summon issued under section 131(1A) was bad in law and beyond jurisdiction of the issuing authority, notices under section 131(1A) can also be issued after completion of the search undertaken under the provisions of section 132; it would be absolutely logical to call for information so as to have better particulars or to have complete idea about the material seized during the search. If some material is seized at the time of the search and the authorised officer wants to have some details so as to understand the nature of the documents, he may issue notice under section 131(1A). In a given case such a notice may not only help the department but can also help the assessee. If the assessee is in a position to give more explanation so as to satisfy the authorised officer that the documents seized by him do not reveal any undisclosed income, but the income or transactions referred to in the documents had been duly shown by him in his books of account or if the assessee gives any information to the effect that the first impression of the authorised officer with regard to the nature of the documents was not correct, such a notice would help the assessee himself. If the assessee is called upon to give some information or to explain certain documents or writings seized during the process of search, no harm can be caused to the assessee and such particulars can be helpful not only to the department but to the assessee also. The Court, therefore, could not agree that such a notice could be issued only before the initiation of proceedings under section 132. Moreover, even under the provisions of section 133, the Assessing Officer or the officers referred to in the said section are having power to call for information. So issuance of such a notice during or after the search could not be said to be bad in law.

b) Decision of Hon’ble P&H High Court in the case of Bachitar Singh vs. CIT 328 ITR 400 (Punjab and Haryana) additions on the basis of statement recorded during the course of survey u/s 133(A) of IT Act was upheld even when the assessee retracted it after a couple of months.

c) Decision of Hon’ble Delhi High Court in the case of DayawantiVs CIT [2016] 390 ITR 496 (Delhi)where Hon’ble Delhi High Court held that where inferences drawn in respect of undeclared income of assessee were premised on materials found as well as statements recorded by assessee’s son in course of search operations and assessee had not been able to show as to how estimation made by Assessing Officer was arbitrary or unreasonable, additions so made by Assessing Officer by rejecting books of account was justified.

d) In the case of B. Kishore Kumar Vs CIT (62 com 215, 234 Taxman 771) has held that where Hon’ble Supreme Court dismissed SLP against High Court’s order where it was held that since assessee himself had stated in sworn statement during search and seizure about his undisclosed income, tax was to be levied on basis of admission without scrutinizing documents.

B Kishore Kumar Vs CIT (52 taxmann.com 449) Madras High Court confirmed.

e) Decision of Hon’ble Supreme Court of India in the case of M/s Pebble Investment and Finance Ltd Vs ITO (2017-TIOL-238-SC-IT)has held that where Hon’ble Supreme Court dismissed SLP challenging the judgment, whereby the High Court had held that statement made u/s 133A could be relied upon for purposes of assessment, in absence of any contrary evidence or explanation as to why such statement made was not credible.

M/s Pebble Investment and Finance Ltd Vs ITO (201 7-TIOL-188-HC-MUM-IT) Bombay High Court confirmed.

f) Decision of Hon’bleGauhati High Court in the case of Greenview Restaurant vs. ACIT [2003] 263 ITR 169 (Gauhati) thatupheld validity of statement on oath despite retraction since the assessee failed to prove that there was any threat, inducement or coercion.

“9. The primary facts pertaining to the search of the premises of the appellant-firm and its other groups on September 22, 1993, and the recording of statements of Baban Singh, its partner, are admitted. The appellant’s objection is that the statements were recorded by using force and coercion on its said partner.

This was on September 23, 1993, in the presence of two witnesses. The retraction of the statement came only on December 24, 1993, followed by a reiteration on the part of the appellant on February 20, 1995, in the course of the assessment proceeding. There is evidently a delay on the part of the appellant and its partners in retracting the statements re-corded. The attention of this Court has not been drawn to any material on record to establish that any attempt was made on behalf of the appellant to prove the allegation of inducement threat or coercion through the witnesses. We have examined the impugned orders rendered by the learned Tribunal with the reasonings in support of its finding against the complain of threat, inducement or coercion and we find no good and sufficient reason to differ from it. In our view, in the facts and circum-stances of the case, having regard to the materials on record, the appellant has failed to establish that the statements of its partner, Baban Singh, had been recorded in the course of the search by using coercion, threat or inducement. We, therefore, dismiss the contentions advanced by the learned senior Counsel for the appellant in this regard and affirm the conclusion on the learned Tribunal on this count.”

Landmark decision on the issue of retraction of confessional statements, Hon’ble Supreme Court in the case of Surjeet Singh ChhabraVs. Union of India 1 SCC 508, wherein the Hon’ble Supreme Court has held that “confessional statements” made before Customs Officer though retracted within six days is an admission and binding since Custom Officers are not Police Officers.

g) CIT VsMukundray K. Shah [2007] 160 Taxman 276 (SC)/[2007] 290 ITR 433 (SC)/[2007] 209 CTR 97 (SC)

A search conducted at assessee’s premises led to seizure of a diary, which contained purchasing of nine per cent RBI relief bonds by assessee from funds received from two firms ‘B’ and ‘C’ in which he was a partner. Tribunal after examination of cash flow statement held that two firms were used as conduits by assessee; that ‘A’ had made payments to ‘B’ and ‘C’ for benefit of assessee, which enabled him to buy nine per cent RBI Relief Bonds and upheld finding of Assessing Officer. Upheld addition u/s 2(22(e) of I.T. Act.

h) Video Master Vs JCIT 66 com 361 (SC)/[2015] 378 ITR 374 (SC)/[2016] 282 CTR 221

where Hon’ble Supreme Court held that where addition on account of undisclosed income was based on statement of partner of assessee-firm, it could not be said that addition was based on no evidence

i) Bhagirath Aggarwal Vs CIT (31 com 274, 215 Taxman 229, 351 ITR 143)

where Hon’ble Delhi High Court held that an addition in assessee’s income relying on statements recorded during search operations cannot be deleted without proving statements to be incorrect.

j) CIT Vs M. S. Aggarwal [2018] 93 com 247 (Delhi)

where Hon’ble Delhi High Court held that where in course of block assessment proceedings, AO made addition to assessee’s undisclosed income in respect of gift, in view of fact that assessee did not even know donor personally and, moreover, he himself in presence of his Chartered Accountant had made a statement under sec. 132(4) admitting that said gift was bogus, impugned addition was to be confirmed.

k) Dayawanti Vs CIT [2016] 75 taxmann.com 308 (Delhi)/[2017] 245 Taxman 293 (Delhi)/[2017] 390 ITR 496 (Delhi)/[2016] 290 CTR 361 (Delhi)

where Hon’ble Delhi High Court held that where inferences drawn in respect of undeclared income of assessee were premised on materials found as well as statements recorded by assessee’s son in course of search operations and assessee had not been able to show as to how estimation made by Assessing Officer was arbitrary or unreasonable, additions so made by Assessing Officer by rejecting books of account was justified.

l) Raj Hans Towers (P.) Ltd. Vs CIT (56 com 67, 230 Taxman 567, 373 ITR 9)

where Hon’ble Delhi High Court held that where assessee had not offered any satisfactory explanation regarding surrendered amount being not bona fide and it was also not borne out in any contentions raised before lower authorities, additions so made after adjusting expenditure were justified (SURVEY CASE)

m) PCIT Vs Avinash Kumar Setia [2017] 81 com 476 (Delhi)

where Hon’ble Delhi High Court held that Where assessee surrendered certain income by way of declaration and withdraw same after two years without any satisfactory explanation, it could not be treated as bona fide and, hence, addition would sustain (SURVEY CASE)

n) Decision of Hon’ble High Court of Chhattisgarh in the case of ACIT vs. Hukum Chand Jain – [2010] 191 Taxman 319 (Chhattisgarh)

The search and seizure operations were conducted at the business and residential premises of the assessee. In course of search, statement of the assessee was recorded under section 132(4) wherein he surrendered Rs. 30 lakhs as undisclosed income for the block period and offered that whatever taxes would be worked out on the surrendered income, he was prepared to pay the same. However, in response to the notice issued under section 158BC, he offered only Rs. 3,52,000 in his case and the aggregate amount of Rs. 2,05,500 in the case of his 3 sons as their undisclosed income. The Assessing Officer, however, completed assessment by including the amount of undisclosed income offered by the assessee besides specific additions based on material, which could not be explained by him. On appeal, the Commissioner (Appeals) deleted the addition. The Tribunal dismissed the revenue’s appeal holding that confessional statements made during search are often vulnerable, as the person making such statements remains under great stress and strain and he does not have relevant details, documents and books of account and in the absence of the same, precise computation relating to mode of utilization of such income and year of investment cannot be clearly furnished.

On the revenue’s appeal to the High Court:

HELD

From the principles of law laid down in various judgments, it may be deduced that admission is one important piece of evidence, but it cannot be said that it is conclusive. It is rebuttable. It is open to the assessee, who made admission, to establish that confession was involuntary and the same was extracted under duress and coercion. The burden of proving that the statement was obtained by coercion or intimidation lies upon the assessee. Where the assessee claims that he made the statement under the mistaken belief of fact or law, he should apply for rectification to the authority who passed the order based upon his statement. The retraction should be made at the earliest opportunity and the same should be established by producing any contemporaneous record or evidence, oral or documentary, to substantiate the allegation that he was forced to make the statement in question involuntarily. [Para 27]

In the instant case, search was conducted in the presence of the assessee and his sons and seizures were effected. The assessee was confronted with the documents seized during search proceedings, but he could not explain the same. He could not explain the recovery of cash and jewellery and in his statement under section 132(4), he surrendered Rs. 30 lakhs as his undisclosed income for the block period and further expressed his willingness to pay the taxes worked out against the surrendered undisclosed income. He further stated that he was surrendering the income to avoid the dispute with the Income-tax department and for mental peace. The assessee had further stated that he was signing his statement after reading and understanding the same without any coercion and the same had been further countersigned by his 3 sons. The assessee did not retract his statement immediately after the search and seizure was over and in the return also, no explanation was offered for the surrender of the undisclosed income of Rs. 30 lakhs at the time of search and seizure operations under section 132(4). The allegation of duress and coercion was made for the first time in the year 2004, i.e., after almost 2 years when the Assessing Officer confronted them with their statements under section 132(4) and they were asked to explain as to how the said undisclosed income did not find place in their returns. The department’s contention that there were no mitigating circumstances to show that the admission/surrender made by the assessee was retracted at the earliest part of time with corroborative evidence had substance. There was substance in the argument that the assessee surrendered undisclosed income only when he was not able to explain the unaccounted cash, gold jewellery, other documents and loose papers found during search and by volunteering surrender of undisclosed income, he induced the search party not to proceed with collection of other evidence and to accept the surrendered amount. Apart from that, the assessee made alternative plea that in case any other additions were made to his income, then the same should be set off from the amount of Rs. 7.5 lakhs in each case, as surrender was made to cover up all the possible leakages of the revenue and to cover all the unexplained loose papers, etc., and the same was accepted by the Assessing Officer. From perusal of the order of the Commissioner (Appeals) as also of the Tribunal, it was found that none of the forums had recorded a finding that the statement under section 132(4) was obtained under duress. The assessee had totally failed to discharge the burden of proving that the statement was obtained under coercion or intimidation. He did not make any complaint to the higher authorities alleging intimidation or coercion for retracting the statement under section 132(4). The Tribunal had confirmed the order of the Commissioner (Appeals) by observing that surrender was made under bona fide mistake, though it was never the case of the assessee before any of the forums that the surrender was on account ofbona fide mistake. The appellate forums, while reversing the orders of the Assessing Officer, are legally bound to dwell upon specific reasons assigned by the Assessing Officer for not accepting the explanation of the assessee. In the instant case, the Assessing Officer had assigned cogent reasons for not accepting the retraction of the statement under section 132(4) by the assessee. From perusal of the orders of the appellate forums, it was found that without meeting the reasoning of the Assessing Officer for not accepting the explanation of the assessee, the order had been reversed and explanation has been accepted, that too on a ground which was never agitated by the assessee before any of the forums. [Para 30]

Thus, the assessee had failed to discharge the onus of proving that confession made by him under section 132(4) was as a result of intimidation, duress and coercion or that the same was made as a result of mistaken belief of law or facts. The Assessing Officer was justified in assessing the income of the assessee on the basis of surrender of undisclosed income made by the assessee under section 132(4). The orders passed by the Commissioner (Appeals) and the Tribunal were to be set aside and the order passed by the Assessing Officer was to be restored. [Para 31]

o) Decision of Hon’ble High Court of Bombay in the case of Paras Shantilal Shah vs. DCIT, Mumbai [2017] 81 com 104 (Bombay) dated 21.08.2015

In this case the addition made on the basis of statement recorded during search, was upheld by Honb’le Bombay High.

In this case during search, certain jewellery was found in possession of assessees. The assessees in a statement made on oath under section 132(4), admitted that jewellery recovered from them and in their locker was part of their undisclosed income and offered same to tax. Subsequently, the assessees filed a letter before the revenue explaining that the part of the allegedly undisclosed jewellery belonged to their father, the late mother and their minor children as shown in the valuation reports of jewellery in their possession. The Assessing Officer did not accept assessee’s explanation and added value of said jewellery as assessees’ undisclosed income.

Held that subsequent letter written to the department did not indicate that assessees were retracting the earlier statements made on oath. Further, it did not state that the earlier statements were incorrect or even make an attempt to explain away the categorical statement on oath. There was also no allegation of any ill treatment which led to assessees to make a statement. Therefore, said communication could not supersede/replace the statement made on oath under section 132(4). Therefore, the seized jewellery was rightly treated as unaccounted income of assessee.

p) Decision of Hon’ble Supreme Court of India in the case of Bannalal Jat Constructions (P) Ltd. [2019] 106 com 128 (SC) dated 08.04.2019

In this case where the Tribunal as well as Rajasthan High Court had upheld the additions made on the basis of statement recorded under Section 132(4) during search but subsequently retracted, Apex Court dismissed the SLP filed by the assessee . In the case, a search was carried out at business premises of assessee-company. In course of search proceedings, statement of director of assessee-company was recorded under section 132(4) admitting certain undisclosed income. In course of assessment, Assessing Officer made addition to assessee’s income on basis of statement given by its director although subsequently, director of assessee-company retracted said statement .Tribunal, however, finding that statement had been recorded in presence of independent witness, confirmed addition made by Assessing Officer .High Court also opined that mere fact that director of assessee-company retracted statement at later point of time, could not make said statement unacceptable . It was further opined that burden lay on assessee to show that admission made by director in his statement was wrong and such retraction had to be supported by a strong evidence showing that earlier statement was recorded under duress and coercion – High Court finding that assessee failed to discharge said burden, confirmed order passed by Tribunal.”

Submitted by,
Sd/-
(Sushma Singh)
Commissioner of Income Tax (DR)
F-Bench, ITAT, New Delhi

88. On merits of the case, the ld. DR argued that the categorical admission of the assessee in the statement recorded and the bank statement received from the French Government clearly reveal that the assessee is the owner of an undisclosed bank account. She placed reliance on the findings of the ld. CIT(A) in this regard. The ld. DR submitted that the ld. CIT(A) has called a number of remand reports and the AO has replied to each and every issue raised by the assessee before the ld. CIT(A). The ld. CIT(A) after thoroughly examining all the facts and the evidences on record has confirmed the addition. She submitted that the AO was justified in making the addition in the year under consideration as the 6 page document clearly demonstrated that the assessee was still holding such investment in the year under consideration. As regards the contention of the ld. AR. that the addition in the year under consideration on the basis of the statement of the assessee is unsustainable, she submitted that the AO has to make assessment on human probabilities. In support of her contention, she relied upon the judgment of the Supreme Court in the case of SumatiDayalVs CIT, (1995) 80 Taxman 89 (SC).

89. As regards the authenticity of the 6 page document, she reiterated what has been contended by the AO in the remand report submitted to the CIT(A) that the 6 page document is a print out of the pen drive received from the French Competent Authority and as such, its authenticity cannot be doubted. She submitted that once information has been received from a competent authority, then that information cannot be doubted and as such and the contention of the Id. AR that this information is not authentic is not correct. In such cases, the AO is not supposed to establish the source from where the French Competent Authority has obtained such information. On the issue that the 6 page document is not a bank statement, she submitted that it is not important whether this 6 page document is a bank statement or not but what is important, prime and relevant is the “information” contained therein. She submitted that though apparently there is no debit or credit as is usual in a bank statement, but the fact remains that this information pertains to the assessee. On the issue of language in which this 6 page document has been written, she submitted that this document is in French language since the documents are received from French Competent Authority. She submitted that it is a common knowledge many Indians have parked their funds outside India and assessee is one of them. She submitted that it is a clear case where the assessee himself has admitted in the statement recorded during search that it has opened a bank account outside India. The statement recorded during the course of search clearly establishes the fact that the assessee was having a bank account outside India. She submitted that the retraction made by the assessee later on was an afterthought. She reiterated that the AO has made the addition by taking into consideration both the statement and the 6 page document. She submitted that the assessee has also refused to sign the consent waiver form and thus failed to discharge the onus casted upon him and argued that accordingly, the order of the ld. CIT(A) need to be upheld.

Rebuttal of Ld. AR:

90. In rejoinder, the AR submitted that the assessee having retracted the statement, the same cannot be used against the assessee. The fact that the search party was carrying the 6 page document on the basis of which the assessee was forced and his statement was extracted. This clearly demonstrates that the search party has gone to carry out the search with a preconceived notion and has obtained a statement on the information already in possession of the revenue department. Further, the assessee has filed the retraction on 30.08.2011.

91. It was also pointed out by the Id. AR that the search party has recorded preliminary statement on the date of the search where the assessee has categorically stated that he does not have any bank account outside India.

92. It was only after the assessee was coerced the statement was given as is evident from the facts and the same was retracted giving the entire details and sequence and a letter was filed before the DDIT, Unit-II.

93. It was argued that the contention of the ld. DR and the case laws cited in support thereof are not applicable. It was also submitted by the Id. AR that when there are two statements and the earlier one categorically stating that there is no bank account outside India, the later on statement cannot be given a priority over the earlier statement. Further, the earlier statement supports the case of the assessee that the second statement was obtained under coercion late in the night.

94. Without prejudice to the above, the ld. AR submitted that even if the retraction is ignored, still the addition on the basis of the statement cannot be sustained in the year under consideration. He referred to the statement whereby it is discernible that investment, if any, being alleged has not been made in the year under consideration. He again referred to the provision of section 69 with that of the statement of the assessee to reiterate that on the basis of such statement, the addition in the year under consideration cannot be made. He submitted that it is an allegation of AO that assessee has made investment during the year under consideration and as such, onus was upon him to bring material to substantiate such allegation.

95. He submitted that letter dated 26.05.2015, page no. 8 of the paper book filed by ld. DR, supports the case of the assessee. It proves that the basis of which information was sought do not sufficiently demonstrate that the sources/evidences are independent from the HSBC List. This letter instead of supporting the case of the AO in fact supports the case of the assessee that the so called 6 page document on the basis of which addition has been made has been found not credible by the Swiss Government itself.

96. The ld. AR further submitted that it is an admitted fact by the AO that in the remand report dated 13.10.2015 filed before ld. CIT(A) at paper book page 226 relevant page 231, that information was not received by the time assessment order was passed. Thus, the very basis of making the addition does not stand. On the reliance by the Id. DR on the judgment of SumatiDayal (supra), the Id. AR submitted that the said judgment is not applicable. In that judgment, the issue was of human probabilities. In case, the argument of the Id. DR is taken to the logical conclusion, this would mean that human probability is that every taxpayer has a bank account outside India. As such, on the contrary, this judgment would support the case of the assessee. It was reiterated that the doubt however strong cannot take place of the legal proof. In support thereof, the Id. AR placed reliance on the judgment of Hon’ble Supreme Court in Umacharan Shah 85 Bros. Vs CIT (37 ITR 271 SC). He further submitted that though income tax proceedings are not bound by the strict rule of evidence but that does not mean that addition can be made without evidence. In support thereof, the Id. AR placed reliance on the judgment of Supreme Court in the case of Dhakeshwari Cotton Mills vs CIT [1954] 26 ITR 775 (SC).

97. He submitted that the Id. DR could not justify how on the basis of statement, the addition can be made in the year under consideration. The Id. AR also referred to the judgment of PradipBurman reported in CC No.525792/16 whereby a similar issue has come up about the authenticity of the document and the court has held that there is grave doubt on the data received from French Competent Authority.

98. The ld. AR also filed written submission which reads as under:

“Undisputed Facts:-

1. CBDT receives a pen drive from French Authority on 28.06.2011.

2. Print out taken of the pen drive.

3. A 6 page document is stated to be that pertaining to the assessee and on the basis of this document, it is stated that this is bank account of the assessee with HSBC, Geneva.

4. A search is carried out on the assessee on 28.07.2011

5. No incriminating document found during the course of search.

6. A statement of the assessee is recorded where he has stated that he has opened a bank account in 2002 (answer to Q 7 at PB Volume I pg 31) and amount were deposited in Zurich on various dates in 2002-04 ranging from 2 crore to 5 crore (answer to Q18 PB Volume I pg 33).

7. The above statement was retracted by the assessee by letter dated 30.08.2011.

8. A reference is made to Swiss authorities on 21.02.2012 for obtaining information about a bank account of the assessee with HSBC, Zurich.

9. Notices are issued for reassessment under Section 153A on 21.11.2012.

11. No notice under section 143(2) issued by the AO post filing return by the assessee.

12. AO issues notice under section 142(1), whereby assessee denies having any hank account outside India.

13. The AO made addition of Rs.8,51,10,905/- as unexplained investment under section 69 taking peak of the amount stated in 6 pg document in AY 2006-07 and Rs.61,22,916 in AY 2007-08. AO has further assumed that assessee would have earned interest on such investment and made addition of interest in AY 2007-08 onwards assuming 4% as interest rate.

14. The additions as can be seen from assessment order are based on two premises. One premise is the statement of assessee recorded during the search. The second is the 6 page document.

15. In para 5.1 on page 17, AO has stated that the 6 page document is a credible information. The AO further in para 5.3 has stated that statement recorded is credible. In para 5.5 on page 25 of the assessment order, AO in response to assessee contention of proving evidence that assessee has a foreign bank account, has stated that the assessee’s own statement of having bank account is evidence.

Issues:-

In view of above facts, the following issues arise:-

1. Addition is under section 69 as unexplained investment.

2. Basis for this addition is information received from French Authority and assessee’s own statement.

3. Section 69 reads as under:-

69. Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the value of the investments may be deemed to be the income of the assesseeo f such financial year.

4. As per above section, addition under section 69 section is to be made in the financial year in which assessee has made investment.

5. Now, the issue which needs consideration is that whether as per the statement, can it even be alleged that assessee has made investment in the financial year 2005-06 which is relevant to asstt. year 2006-07 under consideration. The complete statement is at PB Volume I page 29-42 and also extensively quoted in assessment order at page 17- 22 of the assessment order. In this statement, the answer to Question 7 and 18 are very clear. The investment has been made in 2002-04. Thus, the AO herself has not considered statement as the basis though she is referring to in the assessment order. Thus, addition on the basis of statement in the year under consideration is unsustainable.

6. Now coming to information received from French Authority. Firstly, there is no authenticity to this information which was received by way of pen drive. It is not that this information was obtained from Bank. The source of information with French Authority, its author, basis till today has not been revealed despite repeated request. The contemporaneous media reports, on the other hand, clearly reveals that the data is erroneous, unauthentic and unreliable.

7. The 6 pg document is not a bank statement. What is the nature of this document? How it is being alleged it is HSBC bank account. Nowhere, HSBC has been stated. There is no debit or credit as is normal in a bank statement. Whether addition is being made on the basis of account with HSBC Geneva or HSBC Zurich. This 6pg document as per French Authority stated in letter dated 26.06.2015 PB Volume I page 250 is HSBC Bank Geneva. The reference in statement is HSBC Zurich.

8. The Revenue has been seeking information from Swiss authorities about HSBC Bank Account, Geneva as is evident from page 5 to 7 of paper book filed by the learned DR. The tax period is stated froml.4.2000 to 31.12.2011. Item nos. 2 and 3 on pg 6 of this paper book confirm that AO is not having bank statement. That is why it is asking information from Swiss Authorities. Further, it has been confirmed by the AO in the remand report dated 13.10.2015 at pg 226 relevant pg 231 that information was not received till the date of assessment order. Thus, AO has made addition pre­maturely. In case information with AO was sufficient and authentic as is being alleged, what for this information was sought for? This, supports the contention that information with AO was not authentic. It was not a bank statement. It was not any original document. It was not sent by HSBC; it was not sent by Swiss Authorities.

9. In view of the above facts, there are glaring inconsistencies in the allegations levied by the AO.

10. Statement doesn’t support the addition during the year under consideration.

11. The 6 pg document is not a bank statement.

12. That there is no explanation about contradiction HSBC Geneva vs HSBC Zurich.

No addition in absence of incriminating material

13. Return of income was filed by the assessee on 25.06.2006. The said return of income was assessed under section 143(3) of the Act vide order dated 10.12.2008 placed at PB Volume I page no 113. The search has been conducted on 28.07.2011. The assessment being a completed assessment, an addition can be made only on the basis of incriminating material found during the course of search. In this regard, reliance is placed on the following judgments: