Vildirect: IncomeTax-caselaws-2014-VIL-905-ITAT-CHD

2014-VIL-905-ITAT-CHD

Equivalent Citation: [2014] 31 ITR (Trib) 680 (ITAT [Chand])

Income Tax Appellate Tribunal CHANDIGARH

ITA No. 1342/Chd/2012

Date: 20.03.2014

SANJEEV KUMAR

ITO. IV, KHANNA

For the Appellant : Shri Sudhir Sehgal
For the Respondent : Shri Akhilesh Gupta

BENCH

SHRI T.R. SOOD, A.M AND MS. SUSHMA CHOWLA, JJ.

JUDGMENT

T. R. Sood (Accountant Member)-

This appeal is directed against the order passed by the learned Commissioner of Income-tax (Appeals)-II, Ludhiana, dated November 26, 2012.

2. In this appeal the assessee has raised following grounds of appeal:

"1. That the learned Commissioner of Income-tax (Appeals) has erred in dismissing the appeal and confirming the order of the Assessing Officer assessing income at Rs. 76,87,610 against income returned at Rs. 2,87,610.

2. That the learned Commissioner of Income-tax (Appeals) has erred in holding that addition of Rs. 5,00,000 and Rs. 69,00,000 made by the Assessing Officer in the returned income is correct.

3. That the learned Commissioner of Income-tax (Appeals) has erred in holding that surrender made by the assessee in the statement dated February 11, 2009, was not wrong is without considering the fact that circumstantial evidence and other material on records clearly establish that surrender made by the assessee was not voluntarily.

4. That the learned Commissioner of Income-tax (Appeals) has failed to consider that the representation and communication to the concerned Additional Commissioner of Income-tax, Range Khanna and the worthy Commissioner of Income-tax, Ludhiana, by the assessee immediately has not been considered properly.

5. That the learned Commissioner of Income-tax (Appeals) has erred to consider that the learned Assessing Officer has failed to establish by bringing on record any evidence that addition of Rs. 5,00,000 and Rs. 69,00,000 was warranted and called for.

6. That the learned Commissioner of Income-tax (Appeals) has erred in not admitting additional evidence under section 46A which was essential and must for the correct disposal of the order."

3. Brief facts of the case are that the assessee filed return of income declaring income of Rs. 2,87,610. A survey was conducted on February 11, 2009, in the premises of the assessee where certain discrepancies were noticed. On the basis of these alleged discrepancies a sum of Rs. 75 lakhs was surrendered. The assessee retracted from the surrender by writing a letter on February 18, 2009, to the Additional Commissioner of Income-tax, Khanna Range, Khanna. This surrendered sum was not included in the return of income. During the course of assessment proceedings a show-cause notice dated September 6, 2011, was issued requiring the assessee to show cause as to why the amount of Rs. 75 lakhs surrendered during the course of survey conducted on February 11, 2009, should not be included in the income. The assessee again reiterated the surrender was obtained under intimidation and coercion and was also based on forged documents. Since the assessee has already retracted from the surrender therefore this amount cannot be included in the assessment. The assessee also sought copies of surrender documents which were supplied. Another letter was written on December 7, 2011, by which the assessee was asked to file reply to the show-cause notice dated September 6, 2011. The assessee again filed detailed reply stating that surrender was illegal which the assessee has retracted therefore same cannot be included. Thereafter the Assessing Officer discussed various questions and answers in the statement recorded during survey and how meticulously statement was recorded and same being in the nature of an admission therefore same was valid. He also referred to few decisions and ultimately added the amount of Rs. 74 lakhs, i.e., Rs. 69 lakhs on account of receivables and Rs. 5 lakhs on account of surrender letter against cash. However, no addition was made for Rs. 1 lakh which was also surrendered on account of difference in stock.

4. On appeal the submissions made before the Assessing Officer were reiterated. The learned Commissioner of Income-tax (Appeals) forwarded these submissions to the Assessing Officer for his comments who in a report dated June 4, 2012, observed that the onus was on the assessee to prove that surrender made in the statement was wrong. This report was given to the assessee who in turn sought to get certain additional evidence admitted in the form of a certificate from Sarpanch and affidavits of some individuals through which the assessee wanted to prove that names from which the alleged receivables were there which were not recorded in the books of account, in fact did not exist. This additional evidence was also forwarded to the Assessing Officer by the learned Commissioner of Income-tax (Appeals) who reported back that the assessee was given 19 hearings and therefore the assessee cannot say that he was prevented for producing such additional evidence on the basis of such evidence can be admitted.

5. The learned Commissioner of Income-tax (Appeals) in this background refused to admit the additional evidence. Thereafter he adjudicated the issue on merits and mainly observed that the admission was proper evidence and a proper statement has been recorded which could not be proved by the assessee to be wrong and therefore assessment was justified.

6. Before us, learned counsel for the assessee narrated the facts and submitted that nothing incriminating was found during the survey but the survey team was adamant and bent upon to extract surrender. The team planted certain slips (copy of which is available at pages 88 to 91). Original slips were never given to the assessee. He pointed out that within a week the assessee retracted from the surrender and in fact wrote a complaint how the surrender was obtained illegally vide letter dated February 18, 2009, addressed to the Additional Commissioner of Income-tax, Khanna (pages 24 and 25 of the paper book). Though the assessee received a reply from the office of the Additional Commissioner of Income-tax (copy of which is available at page 26 of paper book) but no enquiries were conducted by the Additional Commissioner of Income-tax. Thereafter the assessee also wrote a letter to the Commissioner of Income-tax (copy of which is available at pages 27 to 28 of paper book). Verbally the Commissioner of Income-tax assured the assessee that no cognizance of the surrender would be taken but the Assessing Officer has not followed the assurances.

7. Learned counsel for the assessee further submitted that the assessee has replied to all the notices issued under section 143(2) as well as questionnaire issued to him (copies available in the paper book). No defect was found in the same and addition has been made merely on the basis of surrender statement which has already been retracted and therefore such addition is not maintainable. He also pointed out that the persons against whose name some slips were planted showing receivables never existed and that is why the assessee wanted to furnish evidence that these persons did not exist but the learned Commissioner of Income-tax (Appeals) wrongly refused to admit such additional evidence. In fact such original slips which were planted by the Department and were taken away by the survey team and have never been shown to the assessee. Only copies have been provided. According to him in these circumstances addition is not maintainable. He also tried to distinguish the decision relied on by the Assessing Officer and the learned Commissioner of Income-tax (Appeals). Learned counsel for the assessee referred to the copies of the slips stated to have been found during the survey which are available at pages 88 to 91 as well as copy of inventory of cash. He also submitted that in this case the assessee has been filing the return regularly and no substantial addition has been made even when the assessment were taken up in the scrutiny which clearly show that the assessee is a law abiding citizen.

8. On the other hand, the learned Departmental representative for the Revenue supported the order of the Assessing Officer and the learned Commissioner of Income-tax (Appeals).

9. We have gone through the rival submissions carefully. Admittedly survey was conducted on February 11, 2009 and the statement record during survey on February 11, 2009, reads as under :

February 11, 2009

"To,

The Additional Commissioner of Income-tax

Range-Khanna,

Khanna

Subject : Survey under section 133A of the Income-tax Act . . . after for surrender of additional income : request regarding

Sir,

Survey operation under section 133A of the Income-tax Act, 1961, has been conducted by the survey party of the Income-tax Depart ment consisting of following officers and officials :

1. Sh. Gurmeet Singh Sohal, Income-tax Officer.

2. Sh. Jasbir S. Saini, Income-tax Officer.

3. Sh. R.S. Dhami, Inspector.

4. Smt. Harjit Kaur, Inspector.

at our business premises, i.e., M/s. Dr. Sheru Rice and General Mills, Machhiwaraâ€“Kohara Road, Vill. Iraq, District Ludhiana today, i.e., February 11, 2009. During the course of survey discrepancies in cash as per cash book and physical verification was found and excess cash of Rs. 5,00,000 was found. Further excess stock of Rs. 1 lakh was found on physical verification. Some documents in the shape of receivables were found from our premises, which were not accounted for in our books of account. In order to buy peace of mind and further litigation. I hereby after the following additional income for the finan cial year 2008-09 over and above the income as per books of account :

1.	Cash	Rs. 5,00,000
2.	Stock	Rs. 1,00,000
3.	Receivables	Rs. 69,00,000
	Total	Rs. 75,00,000

The above amount of Rs. 75 lakhs is surrendered as additional income for the financial year 2008-09 over and above any regular income as per books of account subject to no penal action under sec tion 271(1)(c) of Income-tax Act, 1961. The above surrender of income has been made voluntarily without any fear and pressure from the Department.

Three cheques of Rs. 23,17,500 (detail of which is given below have been given as in lieu of tax payable on additional surrendered income of Rs. 75,00,000).

Sl.No.	Cheque No.	Amount (Rs.)	Date of cheque
1.	0232968	5,00,000	20-02-2009
2.	0232969	9,00,000	15-03-2009
3.	0232970	9,17,500	25-03-2009

The above cheques have been given out of credit account No. 300079 of B.O.I, Machhiwara.

I request your honour to kindly accept the offer of surrender of additional Income of Rs. 75,00,000 (Rs. seventy-five lakhs).

Yours faithfully

Sd/-

for Dr. Sheru Rice and Gen. Mills.

Naresh Aggarwal, Advocate".

Above shows that nature of discrepancies has not been specified which creates doubt. Thereafter the assessee wrote following letter to the Additional Commissioner of Income-tax on February 18, 2009 :

February 18, 2009

"To,

The Additional Commissioner of Income-tax,

Khanna-Range Khanna- 141401

Sub: Request for reconsideration of survey case under section 133A of M/s. Dr. Sheru Rice and Gen Mills Vill. Iraq (Ludhiana)

Sir,

With reference to the above noted subject I draw your kind attention to the surrender application submitted in the above said case which is neither at will nor submitted voluntarily. The applicant was intimidated by the officers of the Department to prepare forged papers wherein imaginary and non-existent names were mentioned as debtors (receivable) for a total value of Rs. 69,00,000 (Rs. sixty-nine lakh only). Even the cash in hand figures were increased by Rs. five lakhs just to get surrender of Rs. 75,00,000 for the sake of name and fame of the Department and to put fear pychosis in the minds of the general public.

The survey at the business premises of the firm started at about 11.30 a.m. on February 11, 2009, when the survey party of your Department took full control of all the account books and the cash available. Some staff members of your Department started counting the stock. When the survey operation was going on the officers have been threatening and intimidating me to pay at least Rs. 70,00,000 Rs. seventy lakh of Income-tax or face the wrath of the Department. With each passing minute the officers have been threatening me of dire consequences if the surrender is not made. Survey which started at 11.30 a.m. on February 11, 2009, was supposed to stop at the sunset but no one it continued for the whole night. Nothing incriminating was found. No difference in cash was found but the officers were hell bent for the surrender. The officers were time and again threatening to lock the premises and black list the firm so that no businessman may have the dare to deal with our firm. They further threatened to put me behind bars if the surrender is not made and ultimately at about 7 a.m. the next day, i.e., on February 12, 2009, the family was so much frightened that the officers of the Department got prepared forged papers of imaginary and non-existent debtors (receivables). Not only this the officers intimidated me to sign papers wherein cash in hand was shown to be Rs. 5 lakh more than the actual figure to get surrender of Rs. 75,00,000 only (Rs. seventy-five lakh) only. Even though the papers were got signed on February 12, 2009, at about 7 a.m. but the date mentioned was February 11, 2009. In view of the facts stated above I hereby request you to look into the matter and not to take any cognizance of my surrender letter which was taken under intimidation and coercion and based on forged documents got prepared under threat by the survey party. I further request you to please reduce the surrender value by Rs. 74,00,000 (seventy-four lakh) being the value of receivable (Rs. 69,00,000) which is based on forged papers and Rs. 5,00,000 (Rs. five lakh) value of excess cash shown than the actual cash found from the firm.

I also request you to not to present the post dated cheques to recover the Income-tax till the disposal of this application. In the mean time I am requesting the bank to stop payment of the cheques issued to you at the time of survey.

Hoping early consideration.

With thanks,

Yours faithfully,

Dr. Sheru Rice and General Mills

February 18, 2009

Sd/-

(Sanjiv Kumar)

Proprietor

10. Against this letter the assessee got following response from the Additional Commissioner of Income-tax :

"No. 1076

Office of the Additional Commissioner of Income-tax,

Range Khanna,

Dated : February 20, 2009

To,

Sh. Sanjeev Kumar,

P/o M/s. Dr. Sheru Rice and Genl Mills,

Vill : Iraq, Ludhiana

Sub : Request for reconsideration of survey case under section 133A of M/s. Sheru Rice and Genl Mills, Vill: Iraq, Ludhiana-reg.

Please refer to your letter dated February 18, 2009, on the captioned subject. I have carefully gone through the contents of your aforementioned letter and called for a factual report from the concerned officer with reference to the various allegations listed by you therein. You are requested to be present in this office on February 24, 2009, at 11.30 a.m. for a discussion in this regard, so as to appre ciate your version more clearly. You may also bring your counsel with you for this purpose.

Yours faithfully,

Sd/-

(D. S. Brar)

Additional Commissioner of Income-tax, Range Khanna."

It seems no enquiry has been conducted and the Department has not been able to produce any records or evidences to show whether any enquiry was conducted. The assessee in the absence of any enquiry approached the office of the CIT-II, Ludhiana and wrote following letter on February 24, 2009 :

February 24, 2009

"To,

The Commissioner of Income-tax

Ludhiana-II

Ludhiana

Sub: Inquiry regarding survey operation at the premises of Dr.Sheru Rice and Gen Mills. Vill : Iraq (Machhiwara)

Sir,

Apropos the subject cited above it is humbly submitted that survey under section 133A was conducted at the premises of the firm on February 11, 2009, in which no incriminating document was found. The Additional Commissioner of Income-tax, Khanna-Range who supervised the operation personally visited the business premises and supervised the operation. When nothing incriminating was found he threshed us and the officers on duty. It was at the behest of Sh. Brar Sahib that the officers on duty got prepared forged papers in which non-existent and imaginary debtors (receivables) amounting to Rs. 69,00,000 (sixty-nine lakh) were shown and cash in hand was increased by Rs. 5,00,000 (Rs. five lakh) to get surrender of Rs. 75,00,000 (Rs. seventy-five lakh).

A request letter was written to the Additional Commissioner of Income-tax, Khanna (copy enclosed) to reconsider the surrender. Inever wanted to complaint the higher authorities and have been thinking that with the passage of time good sense will prevail on the Additional Commissioner of Income-tax, Sh. Brar. But on receipt of the application Mr. Brar, Additional Commissioner of Income-tax, called Sh. Naresh Aggarwal, advocate, who was present at the time of survey and Sh. J. S. Lotey to his office and told them to call the asses see and withdraw the application failing which Mr. Brar threatened of serious consequences.

In view of the abovesaid facts and the behaviour of Mr. Brar I have no hope that I will get my justice at the hands of Sh. Brar. I therefore humbly request you to look in to the matter and inquire why Sh. Brar, Additional Commissioner of Income-tax, Khanna got prepared forged documents of non-existent and imaginary receivables worth Rs. 69,00,000 (Rs. sixty-nine lakhs) from officers on duty and why the cash amount was shown excess by Rs. 5,00,000 (Rs. five lakh only) at the time of survey. Mr. Brar under the garb of honesty has little a dacoit. Please look into the matter and give justice to me and suitable action against Sh. D. S. Brar, Additional Commissioner of Income-tax Khanna Range, Khanna for instigating the officers who conducted survey to get prepared forged documents to have surrender of Rs. 75,00,000 (Rs. seventy-five lakh only) from me by illegal means.

Hoping early inquiry

Yours faithfully

for Dr. Sheru Rice and Gen Mills

Sd/-

(Proprietor)

The contents of the above correspondence clearly show that the assessee has bravely pointed out how the survey team has extracted surrender from him, which is illegal. Instead of conducting an enquiry the Revenue has simply hushed up the matter. In such circumstances the assessee could do nothing but we must appreciate the assessee who was brave enough to write these letters.

11. Now the question is what is the evidentiary value of statement recorded in the survey. Identical issue came up for consideration of the hon'ble Madras High Court in case of CIT v. S. Khader Khan Son [2008] 300 ITR 157 (Mad). In that case the assessee had filed return declaring income of Rs. 12,640 for the assessment year 2001-02. On July 4, 2001 a survey was conducted in the premises of the assessee and through his sworn statement one of the partner of the firm namely Shri Asif Khan offered additional income of Rs. 20 lakhs for the assessment year 2001-02 and Rs. 30 lakhs for the assessment year 2002-03. On August 3, 2001 the statement was retracted stating that Asif Khan was new to the management and he could not answer the enquiries made and as such agreed to addition which could not be possible because of low profit in the business because of severe competition. In that case the books of account were not produced and therefore addition of Rs. 20 lakhs was made on the basis of a statement recorded during the survey. The hon'ble High Court referred to the provisions of sections 132 and 133A and observed that the statement recorded during the survey under section 133A does not have evidentiary value. There was difference between the statement recorded under sections 132(4) and 133A. In this case also the reference was made to the decision of the hon'ble Supreme Court in the case of Pullangode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18 (SC). Incidentally this decision has also been relied on by the learned Commissioner of Income-tax (Appeals). The court pointed out that in this case the hon'ble apex court clearly held that admission is extremely important piece of evidence but it cannot be said that it is conclusive and is still open to the person who made admission to show that it is incorrect. For ready reference headnote of this discussion reads as under :

"Entries made by the assessee in the account books treating a portion of the general expenditure as expenses towards immature plants and capitalising such portion amount to an admission that the amount in question was laid out or expended for the cultivation, upkeep or maintenance of immature plants from which no agricultural income was derived during the previous year for the purpose of Explanation (2) to section 5 of the Kerala Agricultural Income-tax Act, 1950. Such admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It is open to the assessee who made the admission to show that it is incorrect and the assessee should be given a proper opportunity to show that the books of account do not disclose the correct state of facts."

Thereafter the hon'ble Madras High Court made detailed discussion and ultimately concluded that statement recorded during survey will not carry any evidentiary value. In fact the hon'ble High Court referred to the Circular of Central Board of Direct Taxes, dated March 10, 2003, which reads as under (page 165 of 300 ITR):

"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 and 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, on confessions during the course of search and 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 and 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, the Assessing Officers should rely upon the evidences/materials gathered during the course of search/survey operations or thereafter while framing the relevant assessment orders."

The court also concluded that total analysis under paragraph 14 which is as under :

"From the foregoing discussion, the following principles can be culled out :

(i) 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 do not correctly disclose the correct state of facts, vide decision of the apex court in Pullangode Rubber Produce Co. Ltd. [1973] 91 ITR 18 (SC) ;

(ii) In contradistinction to the power under section 133A, section 132(4) of the Income-tax 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 Income-tax Act is not given any evidentiary value obvi ously for the reason that the officer is not authorised to administer oath and to take any sworn statement which alone has evidentiary value as contemplated under law, vide Paul Mathews and Sons v. CIT [2003] 263 ITR 101 (Ker) ;

(iii) The expression 'such other materials or information as are available with the Assessing Officer' contained in section 158BB of the Income tax Act, 1961, would include the materials gathered during the survey operation under section 133A, vide CIT v. G. K. Senniappan [2006] 284 ITR 220 (Mad) ;

(iv) The material or information found in the course of survey proceeding could not be a basis for making any addition in the block assessment, vide decision of this court in T. C. (A.) No. 2620 of 2006 (between CIT v. S. Ajit Kumar [2008] 300 ITR 152 (Mad) ;

(v) Finally, the word 'may' used in section 133A(3)(iii) of the Act, viz., 'record the statement of any person which may be useful for, or relevant to, any proceeding under this Act', as already extracted above, makes it clear that the materials collected and the statement recorded during the survey under section 133A are not conclusive piece of evidence by itself."

From the above it becomes absolutely clear that the addition cannot be made merely on the basis of statement which has no evidentiary value. This is further clarified by the Board itself that no efforts should be made to extract the surrender without corroborating evidence.

12. The above decision came up for consideration of the hon'ble Supreme Court in the case reported at CIT v. S. Khader Khan Son [2013] 352 ITR 480 (SC) wherein it was recorded as under :

"This civil appeal filed by the Department pertains to the assessment year 200102. In view of the concurrence finding of fact this civil appeal is dismissed. Therefore, the order of the hon'ble High Court gets emerged with the order of the hon'ble Supreme Court and in turn becomes law of the land under article 141 of the Constitution of India."

13. We fail to understand that once the assessee has retracted from surrender within seven days and has in fact complained against high headedness of the survey team led by the Additional Commissioner of Income-tax, what prevented the Department from making any enquiries in respect of the persons from whom so called receivables were there which had not been recorded in the books of account. As held by the hon'ble Supreme Court in case of Pullangode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18 (SC) that admission is important piece of evidence but the person making admission can show that such admission is not correct. Once this was done by the assessee, the onus was on the Revenue to make enquiries and only then some addition could have been made on the basis of such enquiries.

14. We have also perused the slips of receivables which are stated to have been found during survey (copy of which is available at pages 88 to 91). These slips read as under :

15. Above clearly show that no address is mentioned. It does not indicate that the amount is receivable. If the assessee admitted during the survey that these amounts represent receivables, the Revenue should have at least extracted address of such persons and when the assessee retracted from the surrender then the statements of these persons should have been recorded which has not been done. Further, page 92 gives the inventory of cash in hand which is as under.

16. There is a clear cut overwriting in the inventory of notes of Rs. 500. Further there is no mention about any note found in the denomination of Rs. 50. These features also create doubt regarding the genuineness of the survey. We have also perused the details of the return filed in the earlier years and chart is as under:

Chart showing the income as assessed by the Department in the last few years

Assessment year	Returned income by the assessee (Rs.)	Assessed income under section 143(3) of Income-tax Act, 1961 (Rs.)	Assessed income under section 143(1) of Income tax Act, 1961 (Rs.)
2005-06	2,00,430	3,20,430	-
2006-07	1,86,253	-	1,86,253
2007-08	2,38,610	3,39,224	-
2008-09	1,80,310	-	1,80,310

Above clearly show that in the last four years two assessments have been taken up in scrutiny but hardly any substantial addition have been made. In fact perusal of the assessment orders would show that additions have been made mainly on account of disallowance of certain expenses which is a routine feature.

17. In view of the above discussion, we are of the opinion that addition has been made without any evidence and is merely on the basis of statement recorded during the survey which cannot be sustained. Accordingly we set aside the order of the learned Commissioner of Income-tax (Appeals) and delete the addition.

18. Before parting we would like to reiterate that this seems to be a case of high headedness by the Revenue authorities and they should take caution not to repeat such acts. At least senior officers are expected to conduct proper enquiries in such type of cases. We were informed that in this case some money has been withdrawn from the bank account of the assessee just few days before hearing of the appeal. Therefore we would direct that the Assessing Officer should give appeal effect to our order and refund the taxes already collected immediately.

19. In the result, appeal of the assessee is allowed.

The order pronounced in the open court on March 20, 2014.

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