2003 (7) TMI 755 - HC - Income Tax

Court overturns Tribunal order on undisclosed income, remits for fresh assessment under Income-tax Act

The court set aside the Tribunal's order restoring the addition of Rs. 4,00,000 as undisclosed income for the assessment years 1992-93 and 1993-94. The ... Search and seizure - Undisclosed income of the appellant firm – additions - we are of the considered view that the mandatory requirement of affording opportunity to the appellant firm to adduce evidence in support of the return and explain the disclosures made in the statement of its partner recorded on September 23, 1993, has not been complied with. - The matter is remitted to the Assessing Officer for fresh assessment of the taxable income and the tax liability of the appellant firm for the assessment years 1992-93 and 1993-94 by strictly following the procedure prescribed for assessment under section 143(3) of the Act. The finding of the learned Tribunal that the statements of the appellant partner were made suo motu and there had been no inducement, threat or coercion at the time of making the disclosures under section 132(4) of the Act is, however, affirmed Issues Involved:1. Validity of statements made under section 132(4) of the Income-tax Act, 1961.2. Allegation of coercion, threat, or inducement in obtaining the statements.3. Admissibility of retracted statements.4. Compliance with procedural requirements under section 143(3) of the Income-tax Act, 1961.5. Opportunity to explain disclosures and produce evidence.Detailed Analysis:1. Validity of Statements Made Under Section 132(4):The appellant's partner made statements under section 132(4) of the Income-tax Act, 1961, during a search on September 22, 1993. These statements disclosed an undisclosed income of Rs. 4,00,000 for the assessment years 1992-93 and 1993-94. The Tribunal held that these statements were made suo motu and without any coercion, threat, or inducement.2. Allegation of Coercion, Threat, or Inducement:The appellant claimed that the statements were obtained under coercion and threat. However, the Tribunal found no evidence to support this claim. The court noted that there was a considerable delay between the search and the retraction of the statements, and no witnesses were produced to substantiate the allegations of coercion or threat. The court affirmed the Tribunal's finding that the statements were voluntary.3. Admissibility of Retracted Statements:The appellant retracted the statements through letters dated December 24, 1993, and February 20, 1995. The Tribunal did not consider these retractions, and the Assessing Officer also did not provide any opportunity for the appellant to explain the retracted statements. The court emphasized that the appellant should have been given an opportunity to explain the retracted statements, as per the procedural requirements under section 143(3).4. Compliance with Procedural Requirements Under Section 143(3):The court highlighted the mandatory requirements under section 143(3) of the Income-tax Act, 1961, which necessitate providing the assessee an opportunity to produce evidence in support of the return and explain any discrepancies. The Assessing Officer failed to comply with these requirements, as there was no indication that the appellant was given an opportunity to explain the disclosures made in the statements.5. Opportunity to Explain Disclosures and Produce Evidence:The court observed that the assessment orders did not disclose whether the appellant was provided an opportunity to explain the disclosures or produce evidence in support of the return. The court emphasized that the Assessing Officer should have considered the retraction and provided an opportunity for the appellant to explain the disclosures before making the final assessment.Conclusion:The court set aside the Tribunal's order restoring the addition of Rs. 4,00,000 as undisclosed income for the assessment years 1992-93 and 1993-94. The assessment orders were also set aside, and the matter was remitted to the Assessing Officer for fresh assessment, strictly following the procedure prescribed under section 143(3) of the Income-tax Act, 1961. The court affirmed the Tribunal's finding that the statements were made voluntarily and without coercion, threat, or inducement. The appeals were partly allowed, with no order as to costs.