Mr. Satender Singh Rana, IRS (IT: 1994)
CIT(A)-23, New Delhi
ssrana.irs@gmail.com
Mr. Satender Singh Rana is an Indian Revenue Service (IRS) officer of 1994 Batch and is currently posted as Commissioner of Income Tax (Appeals)-23, New Delhi. He has extensive experience in the field of Income Tax Litigation and judicial matters and is part of several committees formed by CBDT on Judicial/ Litigation Matters.
Executive Summary
Statements on oath are recorded by officers u/s 131(1) and 132(4) of Income Tax Act. The article analyses with the help of judicial pronouncements how to record proper statements backed by credible evidence without any threat or coercion. These statements serve as a crucial piece of evidence necessary for making sustainable additions in assessment.
In income tax proceedings, statements on oath are often recorded u/s 131(1) and 132(4) of Income Tax Act. Various judicial pronouncements have given analused the extent to which these statements on oath can be relied upon. During the course of search, statement on oath is recorded u/s 132(4) of Income Tax Act, which is reproduced below:
“(4) The authorised officer may, during the course of the search or seizure, examine on oath any person who is found to be in possession or control of any books of account, documents, money, bullion, jewellery or other valuable article or thing and any statement made by such person during such examination may thereafter be used in evidence in any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act.”
CBDT vide Instruction F. No. 286/2/2003-IT (Inv. II) dated 10-3-2003 issued instruction with regard to general confession of additional income during the course of search and seizure and survey operation which is reproduced below:
“Instances have come to the notice of the Board where assessees have claimed that they have been forced to confess the undisclosed income during the course of the search & seizure and survey operations. Such confessions, if not based upon credible evidence, are later retracted by the concerned assessees while filing returns of income. In these circumstances, such confessions during the course of search & seizure and survey operations do not serve any useful purpose. It is, therefore, advised that there should be focus and concentration on collection of evidence of income which leads to information on what has not been disclosed or is not likely to be disclosed before the Income-tax Department. Similarly, while recording statement during the course of search & seizure and survey operations no attempt should be made to obtain confession as to the undisclosed income. Any action on the contrary shall be viewed adversely.
Further, in respect of pending assessment proceedings also, Assessing Officers should rely upon the evidences/materials gathered during the course of search/survey operations or thereafter while framing the relevant assessment orders.”
Statement on oath recorded u/s 132(4) of Income Tax Act carries substantial evidentiary value due to the fact that it is always recorded in the presence of two panchas who are required to be present during the entire search proceedings at the premises. It carries evidentiary value to a great extent even upon subsequent retraction by the person whose statement is recorded.
Recording of a perfect statement on oath is an art which requires experience as well as clear understanding of facts and law. The following points need to be kept in mind while recording of a statement on oath:
1. The purpose of recording a statement on oath is to collect and confront evidence to the assessee. It should never be used as a tool to harass or compel him to make any statement against his or her wishes. The statement must be recorded without undue pressure or coercion and in the presence of witnesses.
2. Any incriminating evidence found during the course of search or survey in the form of undisclosed assets or documents not recorded in regular books of account must be confronted to the assessee in statement on oath. The reason is that if the incriminating evidence is not immediately confronted to the assessee, in subsequent proceedings the assessee may come up with concocted explanations on the guidance of counsels advising the assessee.
3. In search cases, penalty is leviable u/s 271AAB of Income Tax Act. The provision requires the assessee to admit undisclosed income, specify the manner in which such income has been derived as well as substantiate the manner in which the undisclosed income was derived for penalty to be leviable at lower rate of 10% of undisclosed income. In view of the penalty provision, it is essential that where the assessee admits undisclosed income, the assessee must be asked specific questions to specify the manner in which such income has been derived and to substantiate the manner in which the undisclosed income was derived.
4. In view of CBDT Instruction dated 10.03.2003, confessions of undisclosed income must be based upon credible evidence as far as possible.
5. Various courts have held that addition u/s 153A & 153C of Income Tax Act cannot be made in the absence of incriminating material. The incriminating material primarily consists of statement on oath as well as seized papers. In most search cases, the authorized officer is given a brief note containing the primary reason why the search is being conducted. The authorized officer must question the assessee in statement on oath with regard to details mentioned in the note which is largely based upon satisfaction for carrying out the search. It is possible that that the assessee has taken accommodation entries but no evidence is found with regard to the entries taken. In such circumstances, properly recorded statement could immensely help in sustaining that addition. Hon’ble Supreme Court in the case of Video Master vs. JCIT [2015] 378 ITR 374 (SC) 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.
6. There is no specific provision for recording of statement during survey u/s 133A of Income Tax Act. However, various high courts have upheld validity of such statements where they are backed by credible evidence. Some of these judgments are discussed below
7. It is the right of assessee to get copy of his statement on oath recorded. A copy must be provided to him at the earliest whenever requested for by the assessee
8. It is mandatory for the Assessing Officer to allow cross examination where statement on oat of another person is being used against any assessee. Failure to allow cross examination substantially reduces the evidentiary value of the statement on oath and is a violation of basic rights of the assessee
9. It has been observed that assessees frequently retract from their statements on oath recorded during search and survey. A properly recorded statement coupled with credible evidence found & seized would definitely stand the test of appeal even if the assessee retracts from the statement on oath recorded.
To be able to better appreciate validity of statements on oath recorded, it is important to consider some important judicial pronouncements in this regard. Some judjments where additions have been upheld based upon statements on oath recorded u/s 132(4) of Income Tax Act are discussed below.
Hon’ble Madras High Court in the case of B. Kishore Kumar vs. DCIT [2014] 52 taxmann. com 449 (Madras) held that where assessee himself stated in sworn statement during search and seizure about his undisclosed income, same was to be levied tax on basis of admission without scrutinizing documents. Operative part of the judgment is reproduced below:
“6. With regard to the undisclosed income of Rs.52,73,920/- supported by printouts, in the sworn statement dated 29.8.2006, the assessee says that he had separate business income which was not included in his income tax returns. Therefore, admission of undisclosed income of Rs.52,73,920/- is categoric and undisputed. The assessee in the sworn statement made on 10.10.2006, stated that outstanding loans to the tune of Rs.25 Lakhs to 30 Lakhs are to be recovered with interest at the rate of 18%. This is a clear admission. This amount has also been calculated and added as undisclosed income. When there is a clear and categoric admission of the undisclosed income by the assessee himself, in our considered opinion, there is no necessity to scrutinize the documents. The document can be of some relevance, if the undisclosed income is determined higher than what is now determined by the department. Moreover, it is not the case of the assessee that the admission made by him was incorrect or there is mistake. In fact, when there is a clear admission, voluntarily made, by the assessee, that would constitute a good piece of evidence for the Revenue.
7. The learned counsel for the assessee relied upon a decision of the Delhi High Court in CIT v. Girish Chaudhary, [2008] 296 ITR 619 to plead that loose sheets of papers should not be taken as a basis for determining undisclosed income. However, in the case on hand, loose sheets found during the search are not the sole basis for determining the tax liability. It is a piece of evidence to prove undisclosed income. The printout statements of undisclosed income is not disputed by the assessee and in his sworn statements it is accepted. In fact, he admitted that outstanding loans to be recovered are in the range of Rs.25 Lakhs to 30 Lakhs. We find no error in the procedure followed by the Assessing Officer on admitted facts. The entire exercise by the department to bring to tax undisclosed income, we find has been generous and simple. There appears to be no confusion in the quantification of the tax liability and we uphold the order of the Tribunal.”
SLP filed in the case of B. Kishore Kumar vs. DCIT was dismissed by Hon’ble Supreme Court in Special Leave To Appeal (C) Nos. 9153 TO 9159 of 2015 reported in [2015] 62 taxmann. com 215 (SC) Hon’ble Delhi High Court in the case of Bhagirath Aggarwal vs. CIT (351 ITR 143)(Delhi) held that an addition in assessee’s income relying on statements recorded during search operations cannot be deleted without proving statements to be incorrect. Operative part of the judgment is reproduced below:
“11. Before us the learned counsel for the appellant contended that the statement made by an assess could always be subsequently retracted. He further submitted that it was open to the person who made an admission to show that the admission was incorrect. For this proposition he placed reliance on a Division Bench decision of this Court titled Ester Industries Ltd. v. CIT [2009] 316 ITR 260/185 Taxman 266 (Delhi). However, that case was not one of search and seizure u/s 132 of the said Act. Furthermore, in the present case no material has been produced by the appellant/assessee to show that the admission made by him was incorrect in any way. On the other hand, it is the assessee who is insisting that it is for the department to corroborate the statement of admission made by him and until and unless the department corroborates the same, the statement cannot be relied upon. We are afraid that is not the correct position of law. The admission once made can certainly be retracted, if the circumstances permit, and it can also be shown to have been made under some mistake or to be otherwise incorrect. But, the onus would be on the maker of that admission. In this case it is the appellant/ assessee who has admitted and surrendered a sum of Rs. 1.75 crore as his undisclosed income. It was incumbent upon him to show that he had made a mistake in making that admission and that the said admission was incorrect. He had access to all the documents which has been seized inasmuch as the copies had been supplied to him. However, he did not produce anything to establish that the admission was incorrect in any way. That being the position, the appellant/assessee cannot resile from his earlier statement made on 10-11.11.2005 and 21.11.2005.”
Hon’ble Delhi High Court in the case of CIT vs. M.S. Aggarwal [2018] 93 taxmann.com 247 (Delhi) 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. Operative part of the judgment is reproduced below:
“32. Confessions are important for when voluntarily made there is a presumption that no person would make a statement against his interest unless it is true. Therefore, courts have to be cautious and careful that the confession recorded was voluntarily and not obtained under coercion and by force and wrongful inducement. Force and coercion are not synonymous and cannot be mixed and equated with mere anxiety and stress due to search and seizure operations, or inducement propelled by remorse and atonement to make an admission and confess a wrong. Motive of the person making the admission to gain indulgence, advantage or avoid evil of a temporal nature, cannot be treated as equivalent to inducement, coercion or fraud. Whether a confession is voluntary or induced by force, threat, coercion and wrongful inducement would primarily be one of fact, albeit any judicial verdict and decision on the issue must take all relevant facts and circumstances of the case into consideration and should not be guided by mere pre-ordained impressions. Factors like time of retraction, nature and manner of retraction etc. are relevant. Mere retraction does not make or proves that the admission was obtained by inducement, threat etc. Further, prudence requires that the court would examine the truthfulness and correctness of the admission when admissions are accepted and relied. Corroboration by attending circumstances may be justified. [See K.T.M.S. Mohd. v. Union of India [1992] 65 Taxman 130/197 ITR 196 Telstar Travels (P.) Ltd. v. Enforcement Directorate [2013] 9 SCC 549, Adambhai Sulemanbhai Ajmeri v. State of Gujarat [2014] 7 SCC 716 and Seeni Nainar Mohammed v. State [2017] 13 SCC 685)].
“34. A gift is given out of natural love and affection to a person who is close to the donor or for the purposes of charity. Plea of charity has not been raised in this case. There is no evidence or even an indication as to how the respondent-assessee knew the donor, a well known businessman, who gave the gift to the respondent-assessee. In view of the aforesaid discussion, we have no hesitation in holding that the gift in question of Rs.50,00,000/-purportedly received by the respondent/ assessee from Mr. Rama Pati Singhania was a procured one and the admissions/confession made as recorded in the statements dated 25th November, 1999 and 6th January, 2000 are trustworthy, true and correct. Finding of the Tribunal on accepting the gift as genuine is contrary to law being perverse and contrary to facts and material on record.”
Hon’ble Delhi High Court in the case of Smt Dayawanti vs. CIT [2017] 390 ITR 496 (Delhi) 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. Operative part of the judgment is reproduced below:
“18. The nature of the books included katchaparchas, papers containing calculations and amounts routed to bank accounts of various members of the family, sums receivable towards business, etc. They also included documents relating to purchase of property. The statements were made under oath on 18-04-2006 and 03-05-2006. No doubt, they were not during the course of search. Yet, they were made voluntarily. There was no allegation ever that the assessee or any of her family members, including Abhay and Varun Gupta, who made the main statements under oath, were pressurized to do so; there was in fact no contemporaneous retraction. Indeed, the assessee appears to have resiled from the statement, only through the returns, filed after receipt of notice under Section 153A. The probative value of these statements is to be seen not from only whether it was allowed to stand, or whether it was resiled from. The stage when such statement is resiled, whether the assessee was able to give any explanation for the statement, its connection with the material seized, all are relevant, in the opinion of the court, to judge if it is to be considered in an assessment. In other words, there cannot be a rule carved in stone, as it were, that statements that are resiled cannot be considered at all.
20. The lynchpin of the assessee›s submissions on this aspect is also that the statements were not recorded during the search but later and that they cannot be considered of any value. This court is un-persuaded with the submission. The search was conducted on 22-03-2006. Various materials: documents, agreements, invoices and statements in the form of accounts and calculations were seized. On 18 April 2006 and 3 May 2006, the assessee’s sons (including one of the appellants, Abhay Gupta) recorded statements under oath; the assessee too made her statement under oath, admitting that though returns were filed ostensibly on her behalf, she was not in control of the business. She and all other family members made short statements and endorsed the statements under oath, of those who elaborated the trading and business operations relating to clandestine income. These statements under oath were part of the record and continued to be so. They were never explained in any reasonable manner. Their probative value is undeniable; the occasion for making them arose because of the search and seizure that occurred and the seizure of various documents, etc. that pointed to undeclared income. In these circumstances, the assessee’s argument that they could not be acted upon or given any weight is insubstantial and meritless.”
However, Hon’ble Supreme Court stayed the operation of above Hon’ble Delhi High Court order in the case of Smt Dayawanti vs. CIT in Special Leave to Appeal (C) No. 20559/2017 vide order dated 03.10.2017.
Statement on oath is often recorded in compliance of summons issued u/s 131(1) of Income Tax Act. The relevant provision is reproduced below:
“Power Regarding Discovery, Production of Evidence, etc.
131. (1) The [Assessing] Officer,[Deputy Commissioner (Appeals)], [Joint Commissioner] [, Commissioner (Appeals)] [, [Principal Chief Commissioner or] Chief Commissioner or [Principal Commissioner or] Commissioner and the Dispute Resolution Panel referred to in clause (a) of Sub-section (15) of Section 144C] shall, for the purposes of this Act, have the same powers as are vested in a court under the Code of Civil Procedure, 1908 (5 of 1908), when trying a suit in respect of the following matters, namely:—
a. discovery and inspection;
b. enforcing the attendance of any person, including any officer of a banking company and examining him on oath;
c. compelling the production of books of account and other documents; and
d. issuing commissions.”
There are no specific provisions for recording statement on oath during survey. However, summons are issued and statement on oath is recorded in compliance of the summons. Sometimes a simple statement is recorded during survey which has limited evidentiary value. Some judicial pronouncements in this regard are discussed below.
Hon’ble Bombay High Court in the case of Pebble Investment and Finance Ltd vs. ITO in Income Tax Appeal No.988 of 2014 held that statement made u/s 133A can be relied upon for purposes of assessment, in absence of any contrary evidence or explanation as to why such statement made is not credible. Operative part of the judgment is reproduced below:
“9. We note that a statement made under Section 133A of the Act is not bereft of any evidentary value. The same may not be conclusive but in the absence of any contrary evidenceorexplanationastowhythestatement made under Section 133A of the Act is not credible, it can be acted upon. The decision of Madras High Court in CIT v/s. S. Khader Khan Son reported in 300 ITR 157 as upheld by the Apex Court, is not of any assistance to the Appellant. In the facts before the Court in S. Khader Khan (supra), the person who made the statement under Section 133A of the Act had retracted it before the Assessment Order was passed. Moreover, in the absence of the the Appellant-Assessee offering any explanation as to why the statement cannot be relied upon, no fault can be found on the reliance upon the statement of the Director of M/s. Omega. Further, so far as request for cross examination is concerned, we find that Appellant-Assessee, during the first round of proceedings before the Assessing Officer did not raise any such issue. At that point of time, the person who make the statement, could have been produced by the Assessing Officer. It was only in the second round of proceedings when the Appellant-Assessee was not able to contact the Director of M/s. Omega, that they came up with a request for his cross examination. Therefore, the submission on part of the Appellant that the delay has led to it being unable to produce evidence is of no avail as the delay was in seeking cross examination by it. Further, the documents which were produced were considered along with and/or the facts viz: nonproduction of vital documents. This coupled with the fact that the owner of the Furnace i.e. Appellant did not have any knowledge about its whereabouts at the time of adjudication.”
SLP filed in the above case of Pebble Investment and Finance Ltd vs. ITO was dismissed by Hon’ble Supreme Court in Petition(s) for Special Leave to Appeal (C) No(s).11784/2017 vide order dated 05.07.2017.
Hon’ble Delhi High Court in the case of Raj Hans Towers (P.) Ltd. vs. CIT (373 ITR 9)(Delhi) 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.
Operative part of the judgment is reproduced below:
“10. In the present case, the admitted facts are that during the survey, a Director of the assessee – who was duly authorized to make a statement about the materials and the undisclosed income, did so on 20.11.2007. The Company did not retract it immediately or any time before the show cause was issued to it. For the first time, in reply to the show cause notice it faintly urged that the statement was not voluntary and sought to retract it. The reply, a copy of which has been placed on record, undoubtedly makes reference to some previous letter retracting the statement. Learned counsel urged that that letter was written on 21.12.2007. However, the actual reply to the show cause notice is silent as to the date. This itself casts doubt as to whether the retraction was in fact made or was claimed as an afterthought.
11. Furthermore, this Court is of the opinion that in the circumstances of the case both the CIT (A) and ITAT were correct in adding back the amount of Rs. 63,33,260/- after adjusting the expenditure indicated. The explanation given by the assessee, in the course of the appellate proceedings, that the surrender was in respect of a certain portion of the receipt which had remained undisclosed or that some parts of it were supported by the books, is nowhere borne out as a matter of fact, in any of the contentions raised by it before the lower authorities. For these reasons, this Court is of the opinion that no substantial question of law arises. The appeal is accordingly dismissed.”
Hon’ble Delhi High Court in the case of PCIT vs. Avinash Kumar Setia [2017] 81 taxmann.com 476 (Delhi) 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. Operative part of the judgment is reproduced below:
11. There was no statement of the assessee recorded during the survey under Section 133A. The assessee voluntarily made a declaration two months after the survey. There was absolutely no compulsion on the assessee to make such a declaration. The assessee waited for two years to resile from the said declaration. The submission of the assessee that since he had filed a return on 26-9-2009 without disclosing the sum of Rs. 1.25 crores, he should be deemed to have resiled from the said declaration cannot be accepted. The retraction in writing happened only on 16-12-2010. It was much too delayed to be taken to be bona fide. The circumstances under which the retraction was made has also not been explained. It was found that the above retraction, without any explanation whatsoever, and without mentioning the offer of surrender of Rs.1.25 crores made earlier on 18-12-2008 is not a retraction at all in the eyes of law.
16. The Court is not satisfied that the retraction made by the assessee two years after the declaration was bonafide. There was no satisfactory explanation for not including the said amount in the return of income filed by the Assessee on 26-9-2009.
17. In the circumstances, there was no justification whatsoever for the Tribunal to have deleted the additions made by the Assessing Officer which were upheld by the Commissioner (Appeals). The question framed is answered in affirmative.
Assessing officers are frequently faced with cases where there is retraction of statements recorded u/s 132(4) or 131(1) of Income Tax Act. In these situations, the most important factors which need to be considered are as follows:
i. The documentary evidence seized or impounded in support of statement on oath recorded. Hence, there should be focus and concentration on collection of evidence of income during search and survey.
ii. The delay in retraction i.e. the time period elapsed between recording of statement and retraction there from.
iii. Whether there was any undue pressure applied during recording of statement and presence of evidence in this regard.
iv. Some important judicial pronouncements with regard to retraction of statements on oath are discussed below.
Hon’ble Gauhati High Court in the case of Greenview Restaurant vs. ACIT [2003] 263 ITR 169 (Gauhati) upheld validity of statement on oath despite retraction since the assessee failed to prove that there was any threat, inducement or coercion.Operative part of the judgment is reproduced below:
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.”
Hon’ble Chhattisgarh High Court in the case of ACIT vs. Hukum Chand Jain [2010] 191 Taxman 319 held that when assessee did not retract his statement immediately after search and seizure was over and in return also no explanation was offered for surrender of undisclosed income at time of search and seizure operations under Section 132(4), it could be said that assessee had failed to discharge onus of proving that confession made by him under Section 132(4) was as a result of intimidation, duress and coercion or that same was made as a result of mistaken belief of law or facts.
Hon’ble Delhi High Court in the case of PCIT vs. Avinash Kumar Setia [2017] 81 taxmann.com 476 (Delhi) 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.
Hon’ble Delhi High Court in the case of Raj Hans Towers (P.) Ltd. vs. CIT (373 ITR 9)(Delhi) 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.
In view of the above discussion, it can be concluded that recording a statement on oath is an important fart of search and survey operations. Due care must be taken to ensure that there is no threat or coercion to the assessee and seized material is duly confronted to the assessee. Proper recording of statements backed by credible evidence would go a long way in making sustainable additions that are able to stand the test of appeal !!!
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Source- Taxalogue 3- April to June 2020
