Facts of the Case
The assessee is a builder. A search was carried at the premises of the assessee. During the course of search statement was recorded, in which unaccounted income of Rs.22.88 crores was disclosed in respect of a company which inter-alia include undisclosed income of Rs.70.00 lacs in respect of assessee’s project for assessment year 2009-10. However, during the assessment proceedings the AO noticed that assessee had disclosed only a sum of Rs.19,74,387/- as against Rs.70.00 lacs declared during the course of search. The assessee was required to explain as to why entire amount of Rs.70.00 lacs was not declared and why the same should not be assessed. In response, it was submitted that due to recession in real estate market in financial year 2008-09, the assessee could not realize the profit of Rs.70.00 lacs, which was realized at a sum of Rs.19,74,387/- in respect of assessment year 2009-10 and Rs.69,770/- in assessment year 2010-11.
Question of Law
Whether the statements recorded u/s 132(4) have evidentiary value or not where only general statement was given?
Contention of the Assessee
It was submitted that no incriminating or any material was found and seized. It was submitted that at the time of offering the profit from the said project one of the shop was sold/booked by the purchaser. Based on the sale of one shop the assessee had estimated that the project will fetch the higher rate from the sale and thus, assessee had estimated the profit and offered the income for tax. It was submitted that assessee could not fetch the expected project sale price due to fall in the property market and also over all recession in economy during the financial year 2008-09. Based on the sale of above two shops the assessee estimated the profit from the project on adhoc basis at Rs.70.00 lacs and declared for tax in the statement of Shri Ketan Mehta (Authorized person of the Assessee) recorded under section 132(4) of the Act. It was submitted that due to global recession and slow down in the market the profit disclosed by the assessee could not be recognized. It was further submitted that statement recorded during the survey proceedings does not have evidentiary value and statement recorded under section 132(4) but later retracted cannot be relied in absence of any co-related evidence, material; immovable or moveable assets etc. A Circular issued by CBDT No.286/2/2003-IT(INV) dated 10/3/2003 was referred in which it was mandated that while recording the statement during the course of search, seizures and survey operations, no attempt should be made to obtain confession as to the undisclosed income. AO should rely upon evidences/materials gathered during the course of search/survey operation or thereafter while framing relevant assessment order.
Contention of the Revenue
Revenue contended that addition is simply based on statement recorded during the course of search. Full particulars were submitted to the AO. The AO could not point out any discrepancy in the particulars submitted by the assessee. Since the details were available, addition was justified. Further, it was contended that assessee had admitted the income during the course of search and such admission of the assessee has evidentiary value, therefore, relying upon the same, addition was rightly made by the AO and the same has rightly been sustained by Ld. CIT(A).
Held by the Tribunal
The sole basis of the Department to assess profit of Rs.70.00 lacs is based upon the statement recorded under section 132(4) of the Act. It is a matter of fact that by the time statement was recorded, the entire project was not sold by the assessee. Only two shops were sold. The details of expenditure was also submitted to the AO. The relevant portion of the assessment order has already been reproduced. The AO did not doubt the receipts of the assessee as well as expenditure incurred on project but he has made the addition simply on the basis of statement which was recorded under section 132(4) of the Act. The assessee retracted the statement by filing the return of income and this fact has also been admitted by Ld. CIT(A). The Hon’ble Tribunal relied on the Authority of Hon’ble Telangana & Andhra Pradesh High Court in the case of Gajjam Chinna Yellapa vs. ITO(supra), where it was observed that in case statement is retracted then situation would resemble to section 164 of the Code of Criminal Procedure. The evidentiary value of retracted statement become diluted and it loses its strength to stand on its own. In that case Assessing authority has to garner some support to the statement for passing an order of assessment. It was also held that retracted statement would not put an end to the procedure, then the AO is under an obligation to support his findings on the basis of other materials and if he does not have such material then it would reflect upon the very perfunctory nature of the survey. Also, the reference of circular dated 10/3/2003 was mentioned. By relying on this Authority, the Hon’ble Tribunal held that the addition made in the present case is contrary to the aforementioned decision of Hon’ble Telangana & Andhra Pradesh High Court as well as aforementioned circular of CBDT as the assessment is entirely based upon the statement recorded during the course of search and no independent material has been brought on record by the AO to show that the income returned was incorrect. Therefore, in absence of supporting material, the addition simply on the basis of statement cannot be upheld.
In the result, the appeal filed by the assessee was allowed.