Statement under section 132(4) can be retracted

IN THE ITAT PUNE BENCH ‘A’

Jyotichand Bhaichand Saraf & Sons (P.) Ltd.

versus

Deputy Commissioner of Income-tax, Circle 11(1)

IT APPEAL NO. 08 (PN) OF 2011

[BLOCK PERIOD 1996-97 TO 2002-03]

JULY 27, 2012

ORDER

Shailendra Kumar Yadav, Judicial Member

This appeal filed by the assessee is directed against the order of CIT(A) dated 30-03-2010 relating to Block Period 1996-97 to 2002-03 on following grounds :

“1.  On the facts and in the circumstances of the case and in law, the Hon’ble Commissioner of Income Tax (Appeal) erred in confirming addition of Rs. 50,00,000/- as undisclosed income on account of declaration of income during the course of search action on account of shortage of stock of gold without appreciating the facts of the case in the proper perspective. The Hon’ble CIT(A) failed to appreciate the fact that no evidence in respect of additional investment in the agricultural land was found during the course of search action. The appellant prays that the disallowance may please be deleted.

 2.  On the facts and in the circumstances of the case and in law, the Hon’ble Commissioner of Income Tax (Appeal) erred in not considering the valuation report in proper perspective.

 3.  The Hon’ble CIT(A) directed the assessing officer to add gross profit of Rs. 4,73,262/- after giving a opportunity to assessee of being heard. The direction by the CIT (Appeals) amounted to enhancement of assessment without giving an opportunity to the appellant in terms of section 251(2) of the I.T. Act and hence, exceeded his jurisdiction. The directions issued by the Hon’ble CIT (Appeals) to the assessing officer is bad in law. The appellant hereby requests that the direction may please be quashed”.

2. Facts of the case, in brief, are that the assessee is a private limited company and is engaged in business of dealing in gold ornaments and jewellery at Baramati, District Pune, under name and style Jyotichand B Saraf & Sons Pvt. Ltd., hereinafter called JBS in short. A search and seizure action under section 132 of the Income Tax Act, 1961 was conducted at the business premises of the assessee situated at Jayashree Complex, Station Road, Pune on 06-11-2001. In the course of search action, physical inventory of stock was taken by the Income Tax Department. Stock of gold ornaments and jewellery as per physical inventory was 95,056 grams as against stock of 1,10,870 grams as per books of accounts of the assessee indicating a deficit of stock by 13,514 grams (After accounting for stock of 2300 grams on account of theft). Explaining the reason for deficit in stock Mr. Shantikumar Shah, Director of the assessee company in his statement recorded on 06-11-2001 u/s. 132(4) of the Income Tax Act, 1961 stated that there have been unrecorded sales which were not reflected in books of account and further stated that proceeds out of such sales were invested in purchase of agricultural land at Malad, Tal : Daund, District Pune and towards development of the said land and declared unaccounted income of Rs. 50,00,000/-. However, in a letter failed on 21-06-2002, assessee retracted from the statement given by Mr. Shantikumar Shah u/s. 132(4) in the course of search stating that the said admission was made under mistaken belief of law and fact. In fact he intended to declare profit earned out of the unrecorded sales and not the total amount of unrecorded sales. Assessee also retracted from the statement made by Mr. Shantikumar Shah that the sale proceeds out of the unrecorded sales were invested in purchase of agricultural land and instead contended that said investment was in fact shown as an advance of respective members of the family by company. Accordingly in the return filed on 23-07-2002 in response to notice issued u/s. 158BC, assessee declared undisclosed income of Rs. 4,01,321/- which included gross profit of Rs. 3,80,518/- on account of unaccounted sales relatable to shortage of gold ornaments. Assessing Officer accepted the contention of the assessee and assessed undisclosed income of Rs. 4,01,321/- as disclosed by assessee in the return filed. Subsequently the CIT (Central), Pune set aside the assessment order passed by the Assessing Officer u/s. 158BC dated 25-07-2003 vide his order u/s. 263 dated 14-03-2006 on the ground that said order of the Assessing Officer was erroneous and prejudicial to the interest of revenue in so far as Assessing Officer accepted the retraction of statement made u/s. 132(4) by Mr. Shantikumar Shah without verifying investment made in purchase of agricultural land at Malad, Tal: Daund, Distt. Pune and development expenses incurred to the tune of Rs. 50,00,000/- which was admitted by Mr. Shantikumar Shah as out of proceeds of unrecorded sales in the above said statement. The CIT also observed that prevailing value of the gold at the time of search was Rs. 4,601.80 per 10 grams as on the date of search. In the return filed value adopted by assessee was only 3,700/- per 10 gram, thus declaring gross profit of Rs. 3,80,518/- as against Rs. 4,19,055/- ought to have been declared as per then prevailing value. Consequently, concern Assessing Officer initiated assessment proceedings wherein he refused to accept retraction made by assessee from declaration of undisclosed income of Rs. 50,00,000/- made at the time of search stating that statement recorded u/s. 132(4) at the time of search has evidentiary value at par with material found in the course of search. Accordingly, the Assessing Officer proceeded to assess investment made in agricultural land of Rs. 50,00,000/- as undisclosed income of the assessee for block period. Further Assessing Officer observed that value of deficit stock totalling to Rs. 11426.97 grams noticed at the time of search was done @ Rs. 4601.80 per 10 gram, the value of which comes to Rs. 52,58,463/- and the gross profit on the same @ 9% works out to Rs. 4,73,262/-. However, assessee in the block return filed offered gross profit to the extent of Rs. 3,80,518/- only resulting in under declaration of gross profit to the tune of Rs. 92,744/-. Accordingly the said amount was added to the undisclosed income of the assessee. In the meantime, assessee approached the Tribunal against the order of the CIT (Central) passed u/s. 263 of the Income Tax Act, 1961 and though ITAT upheld the assumption of jurisdiction by CIT u/s. 263 it was observed by the Tribunal that CIT was justified in giving direction in his order u/s. 263 that certain amounts needed to be assessed as undisclosed income of the assessee. Modifying the order of CIT passed u/s. 263 the Tribunal directed the Assessing Officer to examine and verify the issue raised by CIT in his order passed u/s. 263. Consequently fresh assessment proceedings were initiated by the Assessing Officer.

3. Stand of the assessee before the Assessing Officer at this stage was that the unrecorded sales of assessee cannot be assessed as undisclosed income merely because assessee could not correlate/identify corresponding purchases. It was further contended that the shortage of stock itself indicate that all the purchases were accounted for properly but only sales were not accounted for. Therefore in respect of such unaccounted sales only gross profit ought to have been added instead of adding the entire unrecorded sales because investment in agricultural land was found at the time of search. Moreover the development expenses in respect of said land were incurred through crossed cheque by various family members/shareholders which are duly reflected in their respective books. Without prejudice to the above, it was contended that in case the Assessing Officer proceeds to assess the entire undisclosed sale of Rs. 50,00,000/- as undisclosed income same should be reduced by Rs. 4,01,321/- being gross profit already disclosed by assessee on the said unrecorded sales. However, the Assessing Officer refused to accept the retraction of statement made by Director of the company u/s. 132(4) at the time of search offering to declared undisclosed investments of Rs. 50,00,000/- holding that such retraction is clearly an afterthought as assessee failed to prove by leading evidence that said statement during search was given under threat or coercion. Accordingly retraction made by assessee vide his letter dated 21-10-2002 was rejected and entire amount of Rs. 50 lakhs declared in the assessment recorded u/s. 132(4) was drawn as undisclosed income of the assessee for block period under consideration. Since the entire unrecorded sale were assessed as undisclosed income no separate addition on account of suppressed gross profit in respect of such unrecorded sales were considered by the Assessing Officer.

4. Matter was carried before the first appellate authority who after considering the various statements put forward on behalf of the assessee dismissed the appeal by observing that Assessing Officer was justified in treating the amount of Rs. 50 lakhs as undisclosed income for the block period. Accordingly addition made on this account was justified and Assessing Officer was also directed to assess the gross profit of Rs. 4,73,262/- separately after giving opportunity of being head to the assessee.

5. Before us, stand of the assessee is that CIT(A) erred in confirming the addition of Rs. 50,00,000/- as undisclosed income on account of declaration of income during the course of search action on account of shortage of stock of gold without appreciating the facts of the case in the proper perspective. The CIT(A) failed to appreciate the fact that no evidence in respect of additional investment in the agricultural land was found during the course of search action and CIT(A) also erred in considering the valuation report in proper perspective. The direction to assessing officer to add gross profit of Rs. 4,73,262/- amounted to enhancement of assessment without giving an opportunity to the appellant in terms of section 251(2) of the I.T. Act and hence exceeded the jurisdiction. The directions issued by CIT(A) to Assessing Officer are bad in law. Accordingly the learned Authorised Representative requested to delete the addition in question and quash the direction given to Assessing Officer.

6. On the other hand, learned Departmental Representative submitted that CIT(A) was justified in confirming the addition of Rs. 50 lakhs on account of declaration of income during the course of search actions on account of shortage of the stock of gold. Assessing Officer was justified in rejecting the retraction of the statement made by Director of the company u/s. 132(4) at the time of search offering to declare undisclosed investment of Rs. 50 lakhs by holding that such retraction is clearly an afterthought as assessee has failed to prove by cogent reasoning that said statement was given under threat or coercion. The retraction made by assessee vide his letter dated 21-06-2002 was rightly rejected by the Assessing Officer and entire amount of Rs. 50 lakhs declared in statement recorded u/s. 132(4) was rightly held as undisclosed income of the assessee for block period under consideration. It was also submitted that CIT(A) was justified to direct the Assessing Officer to assess the gross profit of Rs. 4,73,263 separately after giving opportunity of being heard to the assessee. Accordingly the appeal filed by the assessee should be dismissed.

7. After going through rival submissions and material on record, we find that the assessee is a private limited company and is engaged in business of dealing in gold ornaments and jewellery at Baramati, District Pune. A search and seizure action under section 132 of the Income Tax Act, 1961 was conducted at the business premises of the assessee situated at Jayashree Complex, Station Road, Pune on 06-11-2001. During the course of search action physical inventory of gold ornaments was taken by the search party. The stock of gold ornaments as per physical inventory was 95,056 grams as compared to stock of 1,10,870 grams as per books of account. Therefore, the actual stock found was short by 15,814 grams as compared to stock as per books of account. Mr. Shantikumar Shah, the Director of the assessee brought to the notice of search party that there was theft in shop premises about 6 months back and gold weighing 2,300 grams was stolen for which an FIR has been lodged with Baramati Police Station. Same was brought to the notice of search party. Therefore, the actual shortage of stock was 13,514 grams (15816-2300 grams) the value of which was arrived at Rs. 50,00,000/- considering the market rate of gold Rs. 370 per gram.

8. During the course of search action, statement of Mr. Shantikumar Shah, the Director of the assessee was recorded under section 132(4) of the Income Tax Act, 1961 on 6th November 2001. In response to question No. 27 of the statement, Mr. Shantikumar Shah agreed to declare the unaccounted income of Rs. 50,00,000/- equivalent to sale value of shortage of stock and he further stated that the cash generated from unaccounted sales was invested in purchase of agricultural land at Malad, Tal: Daund, Distt. Pune.

9. The assessee was given copies of the statement recorded under section 132(4) of the I.T. Act, 1961 on 20th May 2002. On receipt of the copy of the statement the assessee realized that there was a mistake in the declaration of income. The assessee instead of declaring gross profit on unaccounted sale represented by shortage of gold had wrongly declared the entire sale proceeds as unaccounted/undisclosed income. The assessee submitted a letter clarifying the mistake on 21st June 2002 to the Assessing Officer, placed at page 16 & 17 of paper book certified to be filed before authorities below, relevant portion of same reads as under:

“Subject: Mistake in the Statement Recorded Under Section 132(4) of the Act

Honourable Sir,

A search and seizure action u/s. 132 of the Income Tax Act, 1961 was carried out on the registered office of the company as stated above on 6th November 2001. During the course of search action statement of one of the Director of the company Mr. Shantikumar Shah was recorded on 6th November 2001 u/s. 132(4) of the Income Tax Act, 1961. The company in receipt of the notice under section 158BC(c) of the Act to file the return for the Block Period. We have received the copy of the statement of Mr. Shantikumar Shah on or about 20th May 2002.

During the course of search action jewelry/gold ornaments found as per physical inventory was 95,069.96 Grams (Net) whereas jewellery/gold ornaments as per books of account were 110870.75 Grams (Net). Thus there was short fall of 15,214.28 grams. Mr. Shantikumar Shah was asked the explanation for shortage of jewelry/gold ornaments. Mr. Shantikumar Shah brought to the notice of search party that there was theft in the shop and jewellery weighing 2,300 grams was stolen and FIR was lodged with the concerned Police Station. Therefore, there was actual shortage of jewellery to the tune of 13,514.28 grams. Mr. Shantikumar Shah in reply to question No. 27 of his statement stated that the shortage was due to unrecorded sales that is sale without bills. The total amount of unrecorded sale was arrived at Rs. 50,00,000 by applying gold rate of Rs. 3,700 per 10 grams to the shortage of 13514.28 grams. Mr. Shantikumar Shah further stated that the amount of unrecorded sale was invested in purchase and development of land at Malad, Tal Daund, Distt. Pune. He further agreed to declare the amount of unrecorded sale Rs. 50,00,000 as undisclosed income in the hands of company i.e. J.B. Saraf & Sons Pvt. Ltd. In this connection it humbly submitted as follows

 (1)  We have gone through the Statement of the director Mr. Shantikumar Shah and Panchanama of the jewellery found. In the Panchanama there are several mistake in physical verification of the jewellery. Similarly the valuer has, without application of the mind, determined gross weight and respective net weight of the jewellery. For example jewellery item “Thusi” is a pure gold item and it does not contain any alloys. However, the valuer has considered the net weight at 50% of the gross weight. (Please refer item no.29 page no.2 of the Panchanama). There are several other instances also. Similarly, the gold items in lying in silver section of the shop was not considered in valuing gold jewelelry summery. Such differences in jewellery weight are to the tune of 2,087 grams. The details of difference in gross weight and net weight and jewellery lying in silver section are given on separate sheets enclosed herewith. Therefore, actual shortage is 11426.97 grams as follows:

 (2)  Mr. Shantikumar Shah in statement agreed to declare the total sale proceeds of the unrecorded sale as undisclosed income. However, he intended to declare profit earned from unrecorded sale and the not the amount of total sale as undisclosed income. Your honour may kindly appreciate that the shortage in stock cannot be undisclosed income. What can be taxed is reasonable profit earned from such unrecorded sales. Therefore, the gross profit of about 9% percent on the unrecorded sale of Rs. 42,27,978 (11,426.97 Grams × Rs. 3,700/- per 10 Grams) i.e. Rs. 3,80,000/- may be the undisclosed income of the company.

 (3)  Your honour may kindly appreciate that during the course of search action no evidence was found indicating the undisclosed investment in agricultural lands at Malad Tal Daund Distt. Pune. Similarly, the development expenses are properly recorded in the books of account. There is no undisclosed investment in the land or the development of the land at Malad. The statement was given only with the intention of declaring unrecorded sale proceeds and profit arising from such sale. There was no intention to declare Rs. 50,00,000 as undisclosed income which may kindly be noted.

Your honour is requested to consider the mistake in the statement of Mr. Shantikumar Shah. Therefore, considering the above factual position the company declines to abide by the declaration made the director Mr. Shantikumar Shah and refuses to declare the undisclosed income of Rs. 50,00,000 (Rs. Fifty Lacs only) as agreed by Mr. Shantikumar Shah.

Kindly take note of the above and oblige.

Thanking you,

Yours faithfully,

For J.B.S & Sons Pvt. Ltd.

Sd/-

Director”

Subsequently the assessee submitted return of income declaring undisclosed income at Rs. 4,01,321/-. The undisclosed income was unaccounted profit on gold found short at the time of search action treating it as suppressed sale. The Assessing Officer completed assessment at Rs. 4,01,321/- on 25th September 2003 u/s. 158BC(c) r.w.s. 143(3) of the I.T. Act, in its first round.

10. The CIT set aside the assessment order vide his Order under section 263 of the I.T. Act dated 14th March 2006 on the ground that the said order was erroneous in so far as it was prejudicial to the interest of revenue. According to CIT the Assessing Officer accepted the retraction of the admission in routine manner without applying his mind. The CIT directed the Assessing Officer to make enquiry in respect of investment in purchase of agricultural land and expenses incurred on development of agricultural land at Malad Tal : Daund, Dist. Pune, because the assessee during search action had admitted that the cash generated out of unaccounted sale was invested in the said agricultural lands.

11. Concern Assessing Officer in set aside proceedings instead of verifying investment in agricultural land and development thereof, made various presumptions and made additions of Rs. 50,00,000/-as undisclosed income in addition to the gross profit of Rs. 4,01,321/- declared by the assessee in the return. Similarly, the Assessing Officer made addition of Rs. 92,744/- being difference in the gross profit worked out by the assessee on the cost instead of selling price. The Assessing Officer completed the assessment u/s. 158BC (c) r.w.s. 263 on 12th December 2006.

12. The assessee preferred the appeal before concern CIT(A) against assessment order. Meanwhile the assessee challenged jurisdiction of CIT to pass the revisionary order under section 263 before the ITAT Pune Bench, Pune, wherein ITAT, Pune Bench upheld the order of the CIT vide its order No. ITA 614/PN/2006 dated 31st July 2007 but with the modification as under:

“11. However, the CIT’s that part of the order whereby he has given a finding or direction or has made an observation to assess certain amount as undisclosed income of the assessee is found to be not justified without making further enquiry or either by the A.O. or by the CIT himself. We, therefore, modify the order of the CIT by holding that the assessment order is to be set aside to the file of the A.O. to verify the issues dealt with by the CIT in his order, with a further direction to the A.O. to examine and verify these issues dealt with by the CIT in his order and take his own decision as per the law after examining and verifying all the materials and particulars available on record and after affording reasonable opportunity of being heard to the assessee.

12. In light of discussion made above, the order of the CIT under section 263 is upheld with the modification and observations made by us hereinabove.”

Thus the assessment order was set aside to the file of the Assessing Officer to examine and verify the issue dealt with by the CIT in his order and pass order afresh.

13. The Assessing Officer initiated the assessment proceedings afresh in pursuance of the directions of the ITAT, Pune, as discussed above. The concern Assessing Officer asked the assessee vide letter dated 5th December 2008 to explain as to why Rs. 50,00,000/- should not be added as undisclosed income. Same was replied vide letter dated 18th December 2008. The assessee also submitted the valuation report of the approved valuer dated 20th December 2008 along with sale instance inter alia, the Government approved valuer Mr. Chintamani T. Ganpule certified the value of the agricultural land for the year 2001 at Rs. 34,46,667/-. Same is placed at page 71 of paper book which reads as under:

“This is to certified that, the undersigned has visited the village Madlad-Patas, Tal Daund, Distt. Pune for valuation of Agricultural land situated in Gat No.678/1 to 678/15, 662, 664, 311 admeasuring 37 Hector and 82 R i.e., 94 Acres and 22 guntha of Shri Shantikumar Jambukumar Shah and others 11, As per Index II 2001 which is enclosed here with the total valuation of Agricultural land for the year 2001 is of Rs. 34,46,667/- (i.e. Thirty Four Lacs Fourty Six Thousand Six Hundred and Sixty Seven only). To the best of my knowledge the valuation of above agricultural land is correct.

Sd/-

Shri C.T.Ganpule

Govt. Approved

Agrl. Land Valuer

Regd. No.CAT/II/427

of 1997″

In this background it was stated on behalf of assessee that the valuation report in respect of agricultural lands revealed that the assessee did not make any undisclosed investment in the agricultural land. In fact the assessee had acquired the agricultural land for the consideration of Rs. 34,51,575/- in the calendar year 2000 as detailed on page 72 of paper book same is reproduced below:

14. The Assessing Officer did not agree with the contention of the appellant and assessed the undisclosed income at Rs. 50,00,000/-being the sale value of gold jewellery found short. The Assessing Officer held that the gross profit of Rs. 4,73,262/- (Declared by the assessee in the block) is included in the undisclosed income of Rs. 50,00,000/- and hence, a separate addition on this account would amount to double taxation of the undisclosed income. Therefore, he restricted the total addition of Rs. 50,00,000/-.

15. The assessee preferred appeal before the CIT(A) against the order of the Assessing Officer who confirmed the addition of Rs. 50,00,000/- as the undisclosed income. The shortage of gold stock found at the time of search/survey action as compared to the stock as per books of account, the presumption is about unaccounted sale of difference between the actual stock found on physical verification and the stock as per book of accounts. The entire unaccounted sale price should not be treated as an undisclosed income. It is the gross profit embedded in the suppressed or unaccounted sale which should be added. The Assessing Officer has made addition of entire unaccounted/suppressed sales without appreciating the fact that the entire sales could not be added as the income of the assessee but the addition could be made only to the extent of gross profit earned on the unaccounted/suppressed sales. Hon’ble Gujarat High Court in CIT v. President Industries [2002] 258 ITR 654 held that Tribunal was justified in holding that entire undisclosed sale could not be added as income of assessee. Addition could be made only to the extent of estimated profit embedded in sale for which net profit was to be adopted. Similar view was taken by ITAT Pune Bench in Janta Tiles v. Asstt. CIT [2000] 66 TTJ 695 (Pune). The Jodhpur ITAT Bench in Asstt. CIT v. Rasana Industries [2008] 114 TTJ 283 (JD) has held that when the stock is found short the addition could be made to the extent of GP involved therein. Only profit element can be subjected to tax and not the entire sales.

16. Addition of Rs. 50,00,000/- has been made solely on the basis of statement of the director of the assessee company Mr. Shantikumar J Shah without corroborating the same with the material unearthed by search. We find force in the submission of the Ld. Counsel for the assessee that the statement was given under the mistaken belief of law that suppressed sale is undisclosed income instead of the gross profit earned from the suppressed sales. The department has not brought on record any corroborative evidence so as to establish undisclosed income having been invested in agricultural land. Statement of the assessee cannot be sole basis without any cogent and corroborative evidence. This is the reason that the mistake in the statement is immediately clarified on the receipt of the statement by the appellant as stated above. Moreover, no material/evidence was found during the course of search action indicating on money payment or any undisclosed investment in agricultural land at Malad. The assessee has clarified the mistake in the statement immediately on receipt of the statement. Thus the statement has been retracted on realization of the mistake. The assessee has also submitted valuation report of agricultural land (along with sale instance) which certified the Fair Market Value at Rs. 34,46,667/- for the year 2001 when the agricultural lands under consideration were acquired (2000). The assessee has acquired the said land for the consideration of Rs. 34,51,575/- as indicated above. The Assessing Officer as well as CIT(A) have brushed aside the above mentioned valuation report as well as details of purchase of agricultural land at Malad by various family members as detailed above.

17. The Revenue authorities have heavily relied on the evidentiary value of the statement recorded u/s. 132(4) during the course of search action without appreciating the fact that the statement was given under mistaken belief of law that the suppressed sale is unaccounted/undisclosed income instead of correct legal position that the gross profit arising from unaccounted sale is the undisclosed income. It is a settled position that admission made by the assessee u/s. 132(4) is an important piece of evidence but the same is not conclusive. It is open to the assessee who made the admission to show that it is incorrect and the same is given under mistaken belief of fact or law. Statement of Mr. Shantikumar Shah indicate that he was not mentally composed at relevant point of time. There is nothing on record to suggest that said undisclosed income declared on behalf of assessee has nexus with undisclosed investment in the said agricultural land. Amritsar ITAT Bench in Asstt. CIT v. Janak Raj Chauhan [2006] 102 TTJ 316, observed that admission made at the time of search action is an important piece of evidence, but the same is not conclusive. It is open to the assessee who made the admission to show that it is incorrect and same was made under mistaken belief of law and fact. Jodhpur ITAT Bench in Maheshwari Industries v. Asstt. CIT [2005] 148 Taxman 74 (Jodh) (Mag.) has held that additions should be considered on merits rather than on the basis of the fact that the amount was surrendered by the assessee. It is settled legal position that unless the provision of statute warrant or there is a necessary implication on reading of section that the principles of natural justice are excluded, the provision of section should be construed in manner incorporating principles of natural justice and quasi judicial bodies should generally read in the provision relevant section a requirement of giving a reasonable opportunity of being heard before an order is made which will have adverse civil consequences for parties effected.

18. The Revenue authorities have relied heavily on the proposition that once the assessee makes admission he cannot go back from his own stand unless any evidence is furnished to show that the admission was obtained under coercion or threat or pressure. Hon’ble Allahabad High Court in case of Dr. SC Gupta v. CIT [2001] 248 ITR 782/118 Taxman 252 wherein assessee surrendered additional income in the statement recorded during the course of survey action but retracted later from the same. It was the contention of the assessee that Assessing Officer should have independently come to the conclusion that there was additional income and there was no material to indicate that there was no such income. The Hon’ble Allahabad High Court held that the burden lay on the assessee to establish that the admission made in the said statement was wrong and in fact there was no additional income. In the said case assessee did not make any attempt to discharge this burden. The Tribunal’s finding was that no pressure or duress was exercised on the assessee when he made the statement and it was a finding of fact. So the ratio of Dr. S.C. Gupta (supra) is not applicable to facts of present case. Decision of Hon’ble Kerala High Court in the case of Mahesh B Shah v. Asstt. CIT [1999] 238 ITR 130/103 Taxman 91 has also been relied by Revenue authorities. In this case assessee agreed to treat certain expenditure as a capital expenditure both before ITO and CIT. No evidence was furnished to show that the assessee was coerced to make concession. The allegation of compulsion or coercion cannot be accepted on a mere statement of the assessee. The assessee cannot be allowed to go back on his own stand before the authorities below. The case of the assessee before us is that the statement has been made under mistaken belief of law and fact and there has been wrong interpretation of his admission to mean that the assessee has made declaration of income at Rs. 50,00,000/-being suppressed sales and not the gross profit arising thereof. The assessee before us has tried to discharge the burden that the statement was incorrect since it was given under mistaken belief of the fact and law. The assessee tried to clarify the mistake in the statement immediately on receipt of the same so it can be inferred that assessee has retracted from his statement on realizing the mistake in the statement soon after receiving the same as stated above.

19. We also find that the assessee in assessment proceedings has produced all evidences in respect of investment in agricultural land. The assessee has also produced the valuation report issued by Government approved valuer in respect of the fair market value of the agricultural land at Boribei, Malad, Tal : Daund, Distt. Pune on or about the year 2000 in which the said agricultural land was purchased by the shareholders/members of JBS. According to said valuation cost of agricultural land has been stated to be Rs. 34,46,667/- which is close to total value of agricultural land purchased by members of family. The case of the assessee is that the statement has been given under the mistaken belief of law appeals to common sense.

20. The concern CIT initiated the revision proceedings u/s. 263 of the Income Tax Act on the ground that the Assessing Officer has accepted the retraction of the statement without verification of investment made in the agricultural land at Boribel, Malad, Tal. Daund, Distt. Pune. In the order u/s. 263 the CIT directed the Assessing Officer to make enquiry on the issue of undisclosed investment made in acquisition and development of agricultural land on account of which the director of the assessee has made declaration of undisclosed income. There is nothing on record to suggest that any evidence was found in the course of search action or post search enquiries to the effect that the assessee has made any investment over and above sale price detailed above with regards to agricultural land transaction in question. There is also nothing on record to suggest that any enquiry has been made by Revenue authorities to establish the nexus of disclosure with purchase of agricultural land in question. Revenue authorities have made no effort whether respective persons have disclosed purchase of agricultural land in their books of accounts in respective years which is not justified. Further, Revenue authorities have not bothered to look into the issue when assessee has submitted valuation report according to which value of land was stated to be Rs. 34,46,667/- at relevant point of time which is close to total value of land i.e., Rs. 34,51,575/-. Such clinching evidence should not be brushed aside by Revenue authorities. It amounts to violation of principles of natural justice because assessee was not provided due opportunity of hearing on issue. Moreover, Revenue authorities have not been able to establish nexus between unrecorded sale with investment in agricultural land. There is no cogent reasoning for reaching conclusion of undisclosed income in question. The case of the assessee is that the statement/admission was made under the mistaken belief of law that Rs. 50 lakhs represents the sale value of stock found short was undisclosed income of the assessee instead of the correct legal position that the gross profit on suppressed sale is the income of the assessee. The assessee has tried to explain his mistake in the statement recorded on behalf of it. The assessee has accounted for the suppressed sales by way of declaration of gross profit on account of the suppressed sales. Assessee tried to clarify his stand immediately after the receipt of the statement recorded u/s. 132(4) on 20-05-02 and after realizing that there has been mistake in the statement. Such factual retraction should not be brushed aside without verifying the facts and circumstances of same. The addition in question is not justified while assessee has already declared gross proceeds on unaccounted sales as discussed above. The Assessing Officer is directed accordingly.

21. In the result, the appeal is allowed.