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January 21, 2023

It is unsustainable to add based solely on confessions made during a search

by CA Shivam Jaiswal in Income Tax

It is unsustainable to add based solely on confessions made during a search

Fact and issue of the case

The brief facts of the case as emanating from records are: The assessee is engaged in business of dealing in Bullion. A search action u/s 132 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) was carried out on NIBR Bullion group including its Directors and Associates on 25/09/2008. During the course of search, following incriminating materials were found and seized:

Loose paper files A-1 to A-5 seized from the residence of Shri Ajay C. Arora.

Documents inventorised in A-1 and back up of pen-drive taken on CD seized from the residence of Shri Shrawan Kumar Bajaj, a close associate of this group.”

During search proceedings, statement of Ajay C. Arora, Director of the assessee company was recorded u/s 132(4) of the Act. In his disclosure statement, he offered Rs.12 crores towards undisclosed income in financial year 2008-09 to cover up discrepancies in the seized documents, digital data, stock, excess jewellery, etc. Thereafter, Ajay C. Arora retracted from his statement and restricted his disclosure to Rs.3.75 crores in respect of discrepancies aforesaid. The assessee filed his return of income on 22/12/2009 declaring total income of Rs.3,85,86,257/- including additional income of Rs.3.75 crores as a result of search. The Assessing Officer (AO) vide assessment order dated 31/12/2010 passed u/s 143(3) of the Act assessed total income of assessee at Rs.12,10,70,727/-. The AO rejected assessee’s retraction of statement and after making addition on various accounts as unaccounted stock, unaccounted investment, unaccounted commission, GP addition on unaccounted cash, GP addition of unaccounted purchases etc. made addition of the balance disclosure Rs.8,18,19,881/- (Rs.12,00,00,000/- – Rs.3,81,80,119/-) made u/s 132(4) of the Act. Aggrieved by the assessment order, the assessee carried the issue in appeal before the CIT(A). The CIT(A) deleted the addition of Rs.8,18,19,881/- made on account of disclosure statement u/s 132(4) of the Act. Against the aforesaid findings of the CIT(A), the Revenue is in appeal.

Ms. Samruddhi Hande appearing on behalf of the Revenue submits that in the instant case assessment is made consequent to search. During the course of search, statement of Ajay C. Arora was recorded u/s 132(4) of the Act on 26/09/2008. In his statement, he offered an additional income of Rs.12 crores for the Financial Year 2008-09 corresponding to the assessment year 2009-10. In his statement, he confirmed that declaration has been made after consulting the other two Directors of the assessee company that is Harmesh C. Arora and Anil C. Arora. Again on the 19/11/2008 Ajay C. Arora confirmed that additional income of Rs.12 crores is offered on the basis of seized documents and other discrepancies which may be found in the books of account. The learned Departmental Representative (DR) referred to the extract of statement of Ajay C. Arora in para 14 of the assessment order. The learned DR submits that Ajay C. Arora retracted from the statement after more than 6 months vide letter dated 06/05/2009. The learned DR submits that the CIT(A) has erred in accepting the retraction statement and directing the AO to delete the addition made on the basis of disclosure u/s 132(4) of the Act. Once, the disclosure has been made after duly consulting the other Directors of the company and the disclosure was reiterated in the subsequent statement, there is no valid reason for the assessee to retract from the said statement. The learned DR prayed for reversing the findings of the CIT(A) on this issue and confirming the addition based on the disclosure.

Observation of the court

The Revenue on contrary has placed reliance on the decision in the case of Bhagirath Agarwal Vs. CIT (supra). In the said case, the Hon’ble High Court held that the appellant/assessee has not produced any material to show that the admissions made by him were incorrect. The statements recorded u/s 132(4) of the said Act are clearly relevant and admissible and they can be used as evidence. In fact, once there is a clear admissions, voluntarily made, on part of the assessee, that would constitute good piece of evidence at the hands of the Revenue.

We find that the Hon’ble High Court made aforesaid observations in the peculiar facts of that case, the aforesaid ratio would not apply in the instant case as the assessee has given a plausible reason for retraction. Undoubtedly, in the instant case there is no allegation by the assessee that the statement was recorded under threat, coercion or any pressure. However, the basis for making such huge disclosure is also unsubstantiated. It was only when the assessee received copies of the seized documents, the assessee could recalibrated the equation and made disclosure of Rs.3.75 crores. The said disclosure made by the assessee is quite close to the addition made by the AO on each of the items examined and addition made during assessment proceedings.

During First Appellant Proceedings, the CIT(A) asked the AO to clarify whether the addition made of the disclosed amount correlated to any seized material, documents, papers etc. The AO vide replied dated 16/05/2011 reiterated that the addition has been made on the basis of the declaration made by the Ajay C. Arora u/s 132(4) of the Act and subsequently confirmed. However, the AO was not able to point any seized document that could be correlated to the disclosure statement. Thus, in the light of the facts of the case, various decisions and CBDT instructions referred above, we see no infirmity in the impugned order granting partial relief to the assessee. Hence, the impugned order is upheld and appeal of the Revenue is dismissed.

Read the full order from here

dcit-1

Conclusion

The tribunal has ruled in favour of the assessee and dismiss the appeal.

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