Vildirect: IncomeTax-caselaws-2010-VIL-411-ITAT-DEL

2010-VIL-411-ITAT-DEL

Equivalent Citation: [2010] 6 ITR 37

Income Tax Appellate Tribunal DELHI

Date: 25.06.2010

ASSISTANT COMMISSIONER OF INCOME-TAX

SMT. USHA RANI TALLA

The order of the Bench was delivered by R. C. Sharma (Accountant Member).-This is an appeal filed by the Revenue against the order of the Commissioner of Income-tax (Appeals) dated April 23, 2009 for the assessment year 2005-06, in the matter of an order passed under section 143(3) of the Income-tax Act.

BENCH

Order

JUDGMENT

Rival contentions have been heard and the record perused. The facts in brief are that there was a survey under section 133A of the Income-tax Act at the business premises of M/s. Vishal Jewellers, B-5, Moti Nagar, New Delhi on February 24, 2005. During the course of survey, discrepancy in the cash and physical stock and the cash and stock maintained as per books of account was found. It was explained that M/s. Vishal Gold and Precious Stones Pvt. Ltd. was carrying on business from the said premises on the date of survey, accordingly discrepancy in the stock and cash found was required to be explained by it. On the date of survey, the assessee Smt. Usha Rani Talla was called at the business premises from her home in the night and asked to sign the statement of surrender of Rs. 20 lakhs towards renovation of the showroom and Rs. 14 lakhs cash available in a bag at shop. Thereafter, in the night, statement of Smt. Usha Rani Talla was recorded wherein she surrendered a sum of Rs. 20 lakhs on renovation and Rs. 14 lakhs cash lying at shop. The contention of the assessee was that her husband who was a partner in M/s. Vishal Jewellers, was an acute diabetic patient and was made to sit in the shop by the visiting officials for long hours and was feeling very much disturbed and depressed, when the assessee had no other choice except to sign the statement recorded by the visiting officials. A letter dated March 3, 2005 was given to the Additional Commissioner of Income-tax, Ward-25(3), New Delhi, under whose guidance survey was conducted wherein it was stated that post-dated cheques of Rs. 30,14,400 had been obtained from the assessee Smt. Usha Rani Talla, which cheques are not issued from her and she had categorically denied to have spent any amount on renovation of the showroom during the year under consideration and that cash of Rs. 14 lakhs alleged as belonging to her did not in fact belong to Smt. Usha Rani Talla nor has been handed over back to her by the visiting officials. The said cash was handed over to the directors of M/s. Vishal Gold and Precious Stones Pvt. Ltd., which was carrying on business at premises B-5, Moti Nagar, New Delhi, which company had agreed to offer the correct amount of tax payable thereon. It was also stated in the letter that cheques collected may not be presented and the company, viz., M/s. Vishal Gold and Precious Stones Pvt. Ltd. may be intimated the correct amount of tax payable, which would be deposited by the company as admitted by them separately. In the return of income filed, the assessee did not offer the amount of surrender. However, the Assessing Officer added both the amounts in the returned income while making assessment under section 143(3).

In an appeal filed before the Commissioner of Income-tax (Appeals), the addition made on account of surrender of Rs. 20 lakhs on account of renovation of showroom and Rs. 14 lakhs cash was deleted by the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) observed that survey was conducted in the case of a non-existing firm on February 24, 2005 and inventory of cash was prepared from the office premises of the company M/s. Vishal Gold and Precious Stones Pvt. Ltd. The inventory of cash has been prepared in the name of M/s. Vishal Jewellers. Total cash of Rs. 44,87,400 was found and cash balance as per the books of account of company was Rs. 30,87,400. It was claimed by the assessee that the statement of Smt. Usha Rani Talla was recorded under duress and she was made to sign the paper which she did without even seeing the contents. This fact was brought to the notice of the Assessing Officer vide letter dated March 3, 2005. The Commissioner of Income-tax (Appeals) recorded the submission of the assessee at pages 7 and 8 of his appellate order which reads as under :

"A survey operation was conducted against M/s. Vishal Jewellers at B-5, Moti Nagar, Delhi on February 24, 2005, which firm was already dissolved on May 6, 2004. The visiting officials got prepared inventory of stock, got it valued from the Government valuer and counted cash available in the shop wherefrom Vishal Gold and Precious Stones Pvt. Ltd. was functioning. Thus the stock and cash found, was explainable by Vishal Gold and Precious Stones Pvt. Ltd. carrying on the business from the said premises on the date of survey.

The survey conducted at B-5, Moti Nagar on February 24, 2005, started in the morning hours of February 24, 2005 and continued till late night. The assessee was called from her home in the night and was asked to sign the statement for surrender of a sum of Rs.20,00,000 towards renovation of the showroom and another Rs.14,00,000 as cash available in a bag. Her husband, an acute diabetic patient was made to sit in the shop by the visiting officials for long hours and was feeling very much disturbed/depressed, when the assessee had no other choice except to sign the statement recorded by the visiting officials.

The assessee categorically denies to have spent any amount on the renovation of the showroom during the year under consideration, i.e., financial year 2004-05. The assessee spent about over Rs. 10,00,000 45 years earlier and the amount was spent out of the assessee's bank account.

The cash of Rs. 14,00,000 in a bag available in the shop did not belong to the assessee nor any such amount was handed over back to the assessee by the visiting officials. The visiting officials concluded the survey after getting three cheques from Rajinder Kumar, Vikram Talla and Usha Rani after recording the statements of the family members, determining certain arbitrary taxes payable which were disputed immediately, as not payable. Thus the surrenders were withdrawn immediately, to which the Department agreed and did not present the cheques for payment. No addition on account of income from undisclosed sources, on the basis of a statement recorded in an invalid and ab initio void survey under section 133A of the Income tax Act, 1961, would be justified, in the light of the above facts and circumstances."

The Commissioner of Income-tax (Appeals) called for the assessment records and after examining the same, he observed that the said letter indicated by the assessee was kept in the assessment folder, however the Assessing Officer has neither made reference to the submissions nor rebutted the submission of counsel. He further observed that the Assessing Officer has solely relied on the statement recorded on the date of survey in the night, which was retracted by the assessee. The Commissioner of Income-tax (Appeals) also referred to the decision of the Ahmedabad Bench of the Tribunal in the case of Deputy CIT v. Pramukh Builders [2008] 112 ITD 179 wherein it was held that there being no spectre of evidence regarding undisclosed income, addition made only on the basis of statement given in a state of confusion and later retracted, could not be sustained either in part or as a whole. It was also held that there may not be any evidence of coercion being exercised by the Departmental officials, there may not be any duress also, but existence of confusion cannot be ruled out and the revision of the earlier statement does not reflect application of mind but a state of compounded confusion only. On the basis of assessment records, the Commissioner of Income-tax (Appeals) recorded a finding that no addition can be made solely on the basis of statement, the Assessing Officer has not brought anything on record that Smt. Usha Rani Talla had undisclosed income especially keeping in view the fact that cash was found by survey team in the shop of M/s. Vishal Gold and Precious Stones P. Ltd., no addition was warranted in the hands of Smt. Usha Rani Talla who was neither the owner nor the director of the company. With regard to addition of Rs. 20 lakhs on account of renovation, the Commissioner of Income-tax (Appeals) observed that the Assessing Officer has treated Rs. 20 lakhs as undisclosed investment of Smt. Usha Rani Talla under section 69B of the Act. The provisions of section 69B can be invoked only if -It is found that the assessee has made investments or the assessee is found to be the owner of any bullion, jewellery or other valuable article, and -It is found that the amount expended on making such investments or in acquiring such bullion, jewellery or other valuable article exceeds the amount recorded in this behalf in the books of account maintained by the assessee, and

-Either the assessee offers no explanation about such excess amount or the explanation offered by him is not satisfactory.

As per the Commissioner of Income-tax (Appeals), the above circumstances are cumulative. If all these circumstances exist, the excess amount may be deemed to be the income of the assessee for the financial year in which such investment was made or the assessee became the owner of bullion, etc.

The Commissioner of Income-tax (Appeals) further observed that the legal fiction enacted in section 69B comes into effect only where all the above circumstances do factually exist. The onus to prove the existence of all these circumstances lies on the Department. Thus, there is no room or scope for making any presumption about the existence of any of the requisite circumstances. The Commissioner of Income-tax (Appeals) stated that the Commentary on Income-tax law by Chaturvedi and Pithisaria observes as under :

Per Chaturvedi and Pithisaria Commentary on Income-tax law : section 69/69B, page 3211, Volume 2, Fifth Edition :

"It may be noted that the legal fiction enacted in section 69B comes into effect only where all the above circumstances do factually exist.

The onus to prove the existence of all these circumstances lies on the Department. Thus, there is no room or scope for making any presumption about the existence of any of the requisite circumstances."

In view of the above, the Commissioner of Income-tax (Appeals) observed that the Assessing Officer has solely relied on the statement during the course of survey conducted in the case of non-existing firm M/s. Vishal Jewellers. The assessee was neither partner in the erstwhile firm nor a director of the company doing the business at the said premises. The Commissioner of Income-tax (Appeals) observed that the statement recorded under duress was retracted vide letter dated March 3, 2005, neither any evidence, whatsoever, was found during the survey which should indicate that the assessee has made unexplained expenditure/investment in the showroom/premises which is partly recorded in the books of account nor the premises/showroom where the survey was conducted was referred to the Valuation Officer to ascertain the value of the renovation carried out by the assessee. Thereafter, by making reference to the decision of the hon'ble Madras High Court in the case of CIT v. P. V. Kalyanasundaram [2006] 282 ITR 259 wherein it was observed that reference of property to the Valuation Officer is a crucial fact to value the property, the failure of non referring the property for valuation is fatal for the Revenue. This decision of the hon'ble Madras High Court was affirmed by the hon'ble Supreme Court, in the case reported at CIT v. P. V. Kalyanasundaram [2007] 294 ITR 49. On the basis of this judgment, the Commissioner of Income-tax (Appeals) observed that merely a declaration in the form of a statement made by the assessee is not adequate to ascertain the actual value of property, or investment therein per se. The Commissioner of Income-tax (Appeals) also observed-that despite retraction made by the assessee from her statement of having invested Rs. 20 lakhs in the renovation of building, the Assessing Officer did not refer the matter to the Valuation Officer. As per the Commissioner of Income-tax (Appeals), the onus to prove the existence of all circumstances as mentioned in the statute lies on the Department, there is no room or scope for making any presumption about the existence of any of the circumstances. Keeping in view the phraseology of section 69B of the Act, it was held by the Commissioner of Income-tax (Appeals) that the so-called statement without any evidence cannot be made the basis for explaining the implication of the expression "expended". Thus, the addition of Rs. 20 lakhs made by the Assessing Officer on account of renovation was also deleted by the Commissioner of Income-tax (Appeals) against this order of the Commissioner of Incometax (Appeals), the Revenue is in further appeal before us.

We have considered the rival contentions, carefully gone through the orders of authorities below and also perused the statement recorded during the course of survey as well as material placed on record to which our attention was invited during the course of hearing. We have also considered the ratio of case law cited by the lower authorities in their respective orders as well as referred to by the learned authorised representative and the learned Departmental representative during the course of hearing before us. From the records, we found that there was survey under section 133A of the Act on February 24, 2005 of M/s. Vishal Jewellers, B-5, Moti Nagar, New Delhi. During the course of survey, it was found by the survey officials that M/s. Vishal Gold and Precious Stones Pvt. Ltd. was carrying on business from the said premises. During the course of survey, discrepancy was found in the cash as physically held vis-a-vis cash as per the books of account of M/s. Vishal Gold and Precious Stones Pvt. Ltd. As per the books of account, available cash was Rs. 30,87,400, whereas physical cash of Rs. 44,87,400 was found at the shop. Thus, difference of Rs. 14 lakhs was proposed for making addition. The survey team also observed that renovation was carried out in the premises wherein M/s. Vishal Gold and Precious Stones P. Ltd. was carrying on business, accordingly addition of Rs. 20 lakhs was also proposed therein. The assessee Smt. Usha Rani Talla was wife of one of the partners of M/s. Vishal Jewellers, she was called from her home in the night whose statement was recorded and the surrender of Rs. 20 lakhs was made on account of renovation of the showroom and Rs. 14 lakhs on account of cash found in the shop. The contention of Smt. Usha Rani Talla was that her husband, an acute diabetic patient, was made to sit in the shop by the visiting officials for long hours and was feeling very much disturbed and depressed when she had no other choice except to sign the statement recorded by the visiting officials. Smt. Usha Rani Talla in a letter dated March 3, 2005 given after survey categorically denies to have spent any amounts on the renovation of the showroom during the year under consideration. It was also submitted that an amount of Rs. 10 lakhs was spent 4-5 years earlier and the same was duly shown in the assessee's bank account. It was also submitted that cash of Rs. 14 lakhs found at the showroom did not belong to her. A letter of retraction was submitted to the Department after the survey on March 3, 2005 which was found by the Commissioner of Income-tax (Appeals) in the assessment folder and which has been dealt with in detail by the Commissioner of Income-tax (Appeals) in his appellate order. As per the letter submitted after the survey, the surrender was withdrawn immediately, which the Department agreed to and did not present the cheques for payment. With regard to surrender of Rs. 20 lakhs made in the showroom where M/s. Vishal Gold and Precious Stones Pvt. Ltd. was found to be carrying on business, no corroborative material was either found by the survey team or brought on record by the Assessing Officer to substantiate the surrender made by Smt. Usha Rani Talla. The Commissioner of Income-tax (Appeals) also observed that even after the retraction of having made any investment in the renovation, the Assessing Officer was having sufficient time to refer the matter for determining the actual value of the showroom, its cost of construction, cost of renovation, etc., but nothing was done by the Assessing Officer to find out the correct state of affairs. The Departmental valuation cell is meant to find out the correct cost of construction and which is fully supported by technical staff employed therein. In the instant case, immediately after survey, the assessee Smt. Usha Rani Talla has retracted and for which letter was duly filed with the competent authority, the amount of surrender was also not offered in the return of income. It was upon the Assessing Officer to find out the actual cost of the building and renovation to substantiate the statement given by the assessee wherein surrender was made. The statement so recorded by the survey team was also alleged to be under influence, coercion and under a confused state of mind. In the letter of retraction the factual position was stated by Smt. Usha Rani Talla to the effect that her husband, an acute diabetic patient, was made to sit in the shop by the visiting officials for long hours and was feeling very much disturbed/depressed, when she was called in the night and asked to sign the statement of surrender, she had no other choice except to sign the statement recorded by the visiting officials. In the facts and circumstances of the instant case, there may not be any evidence of coercion or undue influence being exercised by the Departmental officers, but the existence of duress/disturbed state of mind at such a crucial moment cannot be ruled out. A reference was also made to the Kelkar Committee Report ([2002] 258 ITR (St.) 40) wherein the Committee has made a categorical reference to the practice adopted by the Departmental officers of obtaining forced confessions from the assessee during the course of search/survey operations. The Finance Minister in his Budget Speech for the financial year 2003-04 observed that in view of the recommendations of the Kelkar Committee, it has been decided that no confession shall be obtained during search and seizure operations. The Central Board of Direct Taxes vide their letter No. F. No. 286/2/2003-IT(Inv.) dated March 10, 2003 pointed out that instances have come to the notice of the Board where the assessees have been forced to confess the undisclosed income during the course of search and seizure and such confessions, if not based on credible evidence, are later on retracted by the concerned asses sees. The Board therefore advised the field officers that no attempt should be made to obtain confession as to the undisclosed income. The Board further advised that in respect of pending assessment proceedings, the Assessing Officer should rely on the evidence gathered during the course of search or thereafter while framing the relevant assessment orders. Heavily relying upon the aforesaid recommendations of the Kelkar Committee as well as directions issued by the Central Board of Direct Taxes to the field officers, it was strongly urged by learned authorised representative that admission regarding renovation expenditure and cash having been obtained by the survey party under coercion and disturbed mental state of affairs, cannot be made the basis of addition, when nothing was found or seized by the Department during survey to support the statement of lady. Furthermore, reliance was placed on the proposition laid down by the hon'ble Supreme Court in the case of Pullangode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18, wherein it was held that an admission is not conclusive and the assessee is fully entitled to rebut and controvert the admission. Furthermore, the hon'ble Supreme Court in the case of R. S. Sarwan Singh, AIR 1957 SC 637 held that the confession of an accused would need corroboration to convict the accused. The hon'ble Delhi High Court in the case of S. Arjun Singh v. CWT [1989] 175 ITR 91 held that an admission is an important piece of evidence but it is not conclusive and it is open to the assessee to show that it is incorrect. It is an undisputed fact that no documents or papers were found during the course of survey indicating any expenditure having been incurred by the assessee for renovation of the showroom or any cash of the assessee being left at the showroom of M/s. Vishal Jewellers, from where M/s. Vishal Gold and Precious Stones Pvt. Ltd. was carrying on its business. The hon'ble Punjab and Haryana High Court in the case of Krishan Lal Shiv Chand Rai v. CIT [1973] 88 ITR 293 observed that "it is an established principle of law that a party is entitled to show and prove that an admission made by him previously is in fact not correct and true. Such admission raises a presumption against the person making the admission but such presumption is rebuttable."

The hon'ble Kerala High Court in the case of Paul Mathews and Sons v. CIT [2003] 263 ITR 101 held that the statement of the assessee recorded during the course of survey under the provisions of section 133A(3)(iii) can be said to be useful and relevant to the assessment proceedings only in the circumstances when there is a material on record to prove the existence of any of the activities on the basis of which disclosure is stated to be made. It was categorically mentioned by the hon'ble High Court that the statement recorded under section 133A cannot be given evidentiary value as such evidentiary value is not attached with the provisions of section 133A of the Act. The only basis for addition as per the Assessing Officer in the instant case was the statement of the assessee without any corroborative material or evidence on record. The hon'ble Madras High Court in the case of CIT v. S. Khader Khan Son [2007] 300 ITR 157 ; 214 CTR 589, observed that where the assessee had admitted suppressed income but there was no documentary evidence in the possession of the Department, no addition can be made on the basis of such statement. In this case, the hon'ble High Court reviewed all the available judgments on the point along with the Central Board of Direct Taxes instructions dated March 10, 2003 and went to the extent of holding that section 133A does not empower any incometax authorities to examine any person on oath and hence, such statement has no evidentiary value and any admission made during such statement cannot by itself be made the basis for addition. After considering the proposition of law laid down in the case of Pullangode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18 (SC), Dr. S. C. Gupta v. CIT [2001] 248 ITR 782 (All), Paul Mathews and Sons v. CIT [2003] 263 ITR 101 (Ker) and CIT v. G. K. Senniappan [2006] 284 ITR 200 (Mad), the hon'ble High Court held that an admission is an extremely important piece of evidence but it cannot be said that it is conclusive and it is open to the person who made the admission to show that it is incorrect and that the assessee should be given a proper opportunity to show that the books of account did not correctly disclose the correct state of affairs. It was also observed that in contradistinction to the power under section 133A, section 132(4) of the Act enables the authorised officer to examine a person on oath and any statement made by such person during such examination can also be used in evidence under the Income-tax Act. On the other hand, whatever statement is recorded under section 133A of the Act, it is not given any evidentiary value obviously for the reason that the officer is not authorised to administer oath and to take any sworn statement which alone lends evidentiary value as contemplated under the law.

Applying the above proposition of law to the facts of the case, we found that categorical finding was recorded by the Commissioner of Income-tax (Appeals) to the effect that no material was brought on record by the Assessing Officer to substantiate that any expenditure on renovation was incurred by the assessee during the assessment year 2005-06, nor the Assessing Officer has made any reference to the Departmental Valuation Officer to find out the correct state of affairs, and it was merely on the basis of statement given by Smt. Usha Rani Talla in a disturbed state of mind, which cannot be made the basis for making the addition. Similarly, no material was brought on record to substantiate that the cash found at M/s. Vishal Gold and Precious Stones Pvt. Ltd. carrying on business at B-5. Moti Nagar, New Delhi was belonging to Smt. Usha Rani Talla, accordingly no addition was warranted in her hands merely because she signed the statement accepting the same.

In view of the above discussion, we do not find any infirmity in the order of the Commissioner of Income-tax (Appeals) for deleting the aforesaid additions made merely on the basis of statement, without bringing on record any material much less a cogent material.

In the result, the appeal of the Revenue is dismissed.

The decision pronounced in the open court on June 25, 2010.

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