2015 (7) TMI 555 - AT - Income Tax

Search assessments under section 153A challenged for involuntary disclosures; additions deleted as not based on incriminating material

Validity of search assessment proceedings is examined on whether a large monetary disclosure was voluntary and whether additions were supported by ... Validity of 153A proceedings - Surrendered income of ₹ 20,00,00,000/- - Whether the disclosure was voluntary or given under coercive circumstances? - Held that:- In our considered opinion the contentions raised by ld. Counsel for the assessee lead to a clear inference that the disclosure of the assessee cannot be regarded as voluntary. The pressure of restrained DDs. of 31.48 crs. against a disclosure tax liability of about 7 crs is palpable. It has the propensity to derail the business and creating enough pressure for businessmen to somehow avoid the pressure. Besides the chronology of events and attendant circumstances do not convince us that this summary disclosure was voluntary and on the scale of merit it can override the other facts. Consequently we have no hesitation in holding that the solely relied disclosure was involuntary. In these circumstances the desirability of additions is to be judged on other facts and circumstances. Reliance is placed on Hon'ble Rajasthan High Court in the case of CIT v. Ashok Kumar Soni [2006 (7) TMI 162 - RAJASTHAN High Court ] for the proposition that admission in statement during search proceedings is not conclusive proof. Besides Hon'ble Supreme Court in the case of Pullangode Rubber Produce (1971 (9) TMI 64 - SUPREME Court ) has also held so that such statement can be explained in the light of correct facts. Whether in the light of CBDT instruction dtd 10-03-2003, search proceedings and assessment can be based incriminating material and not on such disclosures - Held that:- A perusal of the CBDT instruction reveals that even Board is aware of such laconic disclosures and expects its officers to rely on incriminating evidence. Thus CBDT also is not in favor of search assessments being based only on such disclosures; it wants them to be based on incriminating material. In view the facts, circumstances, CBDT instruction and various case laws relied on by the assessee we are unable to uphold the additions solely on the basis of disclosure which doesn't meet the eye and have been hold by us to involuntary. Whether the additions are based on any incriminating material discovered as a result of search in terms of sec. 153A - Held that:- There is no reference to impugned additions being based on any worthwhile incriminating material or evidence except raising some suspicions. The sole basis of additions in both cases is proposed to be the disclosure. Consequently the additions made are not as a result of any material found during the course of search, in view thereof impugned additions cannot be sustained as they do not conform to mandate of sec. 153A. Whether the assessees furnished proper explanation about the Corporation bank a/c, Gurgaon and transaction relating to Raghubir and Ranga Rao - Held that:- As the facts emerge the Corporation bank a/c belonged to Raghubir, the proceeds deposited therein came to him through banking channel on account of agreement to sale his share in ancestral land to G P Realtors not connected to assessees. The transaction came in dispute and was subject matter of litigation, settled by a compromise before court, asessees have been termed as brokers in court proceedings. Raghubir advanced the money by cheque to Ranga Rao for purchase of some property. Department has again relied on assesses 2nd disclosure letter which also mentions that these transactions are not connected to asseessee. As the final disclosure remained at 20 crs., assesses to avoid the harassment agreed for its inclusion as it did not take the tax liability any further. Apropos departments contention that why assesses did not tell this in first blush assessee has demonstrated that they requested for some time to verify from parties who cooperated. The affidavits, bank certificates, documents relating to G P Realtors including compromise deed all corroborate the assesses contentions. Therefore no adverse inference or addition can be drawn against assesses in this behalf. Additions made in a search assessment u/s 153A which is meant for assessment of undisclosed income consequent to search proceedings - Held that:- By detailed observations we have held that neither any worthwhile incriminating material, information, and evidence was discovered as a result of impugned multiple search operations nor the additions sustained are based on any such material. The sole basis of additions is the disclosure which we have held to be involuntary. Consequently the additions do not conform to the mandate of sec. 153A. Thus delete the impugned additions - Decided in favour of assessee. Issues Involved:1. Validity of the addition of Rs. 20 crores based on the appellant's admission.2. Allegations of coercion, pressure, and undue harassment in obtaining the surrender.3. Lack of corroborative evidence for the addition sustained.4. The necessity of independent material to support the addition.5. Denial of the opportunity to cross-examine key witnesses.6. The legal implications of statements made under duress.7. The assessment of the amount declared in the Income Tax Return.8. Protective assessment in the hands of another individual.Detailed Analysis:1. Validity of the Addition of Rs. 20 Crores Based on Admission:The appellate tribunal examined the addition of Rs. 20 crores made solely on the basis of the appellant's admission. The tribunal noted that the addition was not supported by any incriminating material discovered during search and survey operations. The tribunal emphasized that the disclosure was made under coercive circumstances due to the restraint of demand drafts worth Rs. 31.48 crores, which created immense pressure on the assessee. The tribunal concluded that the addition based solely on the disclosure without corroborative evidence was unsustainable.2. Allegations of Coercion, Pressure, and Undue Harassment:The tribunal found that the disclosure of Rs. 20 crores was made under coercive circumstances. The department had restrained demand drafts worth Rs. 31.48 crores, creating a situation where the assessee felt compelled to make the disclosure to avoid further harassment and to ensure the release of the funds. The tribunal held that the disclosure was not voluntary and was made under pressure, thus invalidating the basis for the addition.3. Lack of Corroborative Evidence:The tribunal observed that the addition of Rs. 20 crores was not supported by any cogent material or evidence. The department failed to provide any independent material to corroborate the surrender. The tribunal emphasized that an admission, though a piece of evidence, is not conclusive and must be supported by other evidence. The tribunal cited various judicial precedents to support this view and concluded that the addition could not be sustained without corroborative evidence.4. Necessity of Independent Material:The tribunal reiterated that the addition of Rs. 20 crores could not be sustained solely on the basis of the appellant's statement. There must be independent material or evidence to corroborate the surrender. The tribunal noted that the department did not discover any incriminating material during the search and survey operations that could justify the addition. Therefore, the tribunal held that the addition was unsustainable in the absence of independent material.5. Denial of Opportunity to Cross-Examine Key Witnesses:The tribunal found that the department did not provide the appellant with an opportunity to cross-examine key witnesses, namely Mr. Raghubir Singh and Mr. Ranga Rao, whose statements were used as the basis for the addition. The tribunal held that the denial of the opportunity to cross-examine these witnesses violated the principles of natural justice. Consequently, the tribunal concluded that the addition could not be sustained.6. Legal Implications of Statements Made Under Duress:The tribunal emphasized that statements made under duress or coercion cannot be relied upon to make additions. The tribunal cited various judicial precedents to support the view that admissions made under pressure are not binding and can be retracted. The tribunal held that the appellant's disclosure was made under coercive circumstances and, therefore, could not be used as the sole basis for the addition.7. Assessment of the Amount Declared in the Income Tax Return:The tribunal noted that the appellant had declared an additional income of Rs. 39 lakhs in the Income Tax Return. The tribunal held that the department should have considered this amount while making the assessment. The tribunal criticized the department for not reducing the amount declared in the return from the alleged surrender of Rs. 20 crores.8. Protective Assessment in the Hands of Another Individual:The tribunal found that the department had made an assessment of Rs. 4.99 crores in the hands of another individual on a protective basis. The tribunal held that this protective assessment was unjustified, especially when the same amount was confirmed on a substantive basis in the hands of the appellant. The tribunal concluded that the protective assessment should be deleted.Conclusion:The tribunal allowed the appeals of both assessees, deleting the additions made by the department. The tribunal held that the additions were based solely on an involuntary disclosure made under coercive circumstances and were not supported by any corroborative evidence. The tribunal emphasized the need for independent material to justify such additions and criticized the department for violating the principles of natural justice by denying the opportunity to cross-examine key witnesses.