2019 (4) TMI 1120 - HC - Income Tax

Court affirms Assessing Officer's additions based on recorded statements. Section 292C presumption inapplicable. Appeal dismissed.

The court upheld the additions made by the Assessing Officer based on statements recorded under Section 132(4) of the Income Tax Act, 1961. The ... Addition based on the basis of statements recorded u/s 132(4) - presumption laid down u/s 292C ignored - unexplained cash - assessee retracted from the admission made by him during the course of search - survey was converted into search and the statement of the assessee under Section 132(4) was recorded on 10.10.2014 at 10:15 PM and thereafter search was concluded on 11.10.2014 in the morning and the assessee stated that such cash belonged to the appellant-company as undisclosed income - Subsequent retraction from the surrender without having evidence or proof of retraction - HELD THAT:- Supreme Court in Pullangode Rubber Produce Company Ltd., [1971 (9) TMI 64 - SUPREME COURT] as held that admission is an extremely important piece of evidence but it can't be said that it is conclusive. It is open to the person, who made admission to show that it is incorrect. The assessee should be given proper opportunity to show the correct state of affairs. The law with regard to this has developed much thereafter. There is no gainsay the fact that admission made during the search can be disputed by the assessee and at the same time however it is equally well settled that the statement made voluntarily by the assessee could form the basis of assessment. Mere fact that the assessee retracted the statement at later point of time could not make the statement unacceptable. The burden lay on the assessee to show that the admission made by him in the statement earlier at the time of survey was wrong. Such retraction, however, should be supported by a strong evidence stating that the earlier statement was recorded under duress and coercion, and this has to have certain definite evidence to come to the conclusion that indicating that there was an element of compulsion for assessee to make such statement. A bald assertion to this effect at much belated stage cannot be accepted. The assessee indulged in maintaining transaction on diaries and loose papers which was not permissible in any of the method of accounting. The assessee, while filing the return of income, has not disclosed any undisclosed income and hence, retracted from the admission made by him during the course of search. Subsequent retraction from the surrender without having evidence or proof of retraction is not permissible in the eyes of law. The statement recorded during the course of search action which was in presence of independent witnesses has overriding effect over the subsequent retraction. - Decided in favour of revenue Issues Involved:1. Justification of additions based on statements recorded under Section 132(4) of the Income Tax Act, 1961.2. Applicability of presumption under Section 292C of the Income Tax Act, 1961.3. Validity of retraction of statements made during search proceedings.4. Evidentiary value of statements recorded under Section 132(4) of the Income Tax Act, 1961.5. Relevance and impact of CBDT Instruction No. 286/2/2003-IT (INV-II) dated 10.03.2003.Detailed Analysis:1. Justification of Additions Based on Statements Recorded Under Section 132(4):The court examined whether the Income Tax Appellate Tribunal (ITAT) was justified in upholding the additions made by the Assessing Officer based solely on the statements recorded under Section 132(4) of the Income Tax Act, 1961. During a search at the residential premises of the Director of the appellant company, a substantial amount of cash was found, which the Director admitted as undisclosed income of the appellant company in his statements recorded under Section 132(4). However, the appellant company did not offer this amount in their return of income, leading to the issuance of a show cause notice by the Assessing Officer. The court noted that the appellant's subsequent retraction of the statement was not backed by sufficient evidence, and thus, the Assessing Officer's decision to make the addition was upheld.2. Applicability of Presumption Under Section 292C:The appellant argued that the presumption under Section 292C, which states that any document or asset found in possession during a search is presumed to belong to the person in whose possession it was found, should apply. However, the ITAT rejected this argument, noting that the business activities of the appellant company were conducted from both the residence and official premises of the Director, and therefore, the cash found could reasonably be attributed to the appellant company. The court agreed with this interpretation, finding no reason to overturn the ITAT's decision.3. Validity of Retraction of Statements:The appellant company contended that the initial statement admitting the cash as undisclosed income was made under pressure and subsequently retracted. The court, however, emphasized that retractions must be made promptly and supported by convincing evidence. The appellant's retraction, made long after the initial statement and without substantial proof, was deemed insufficient. The court cited several precedents, including the case of CIT, Bikaner Vs. Ravi Mathur, to support the view that retractions made after a significant delay and without strong evidence lose their credibility.4. Evidentiary Value of Statements Recorded Under Section 132(4):The court underscored the significant evidentiary value of statements recorded under Section 132(4). Such statements are considered strong evidence unless convincingly rebutted by the assessee. The court reiterated that admissions made during search operations are presumed to be true unless the assessee can provide compelling evidence to the contrary. In this case, the appellant failed to provide such evidence, and thus, the statements recorded under Section 132(4) were upheld as valid.5. Relevance and Impact of CBDT Instruction No. 286/2/2003-IT (INV-II):The appellant referenced the CBDT Instruction, which advises against obtaining confessions of undisclosed income during search operations. However, the court found that this instruction does not preclude the use of statements made voluntarily during such operations. The court noted that the statements made by the Director were voluntary and not coerced, and therefore, the CBDT Instruction did not invalidate the statements or the subsequent additions made by the Assessing Officer.Conclusion:The court concluded that the ITAT was justified in upholding the additions made by the Assessing Officer based on the statements recorded under Section 132(4). The presumption under Section 292C was not applicable in this case, and the appellant's retraction of the statements was not supported by sufficient evidence. The statements recorded under Section 132(4) were given significant evidentiary value, and the CBDT Instruction did not affect their validity. Consequently, the appeal was dismissed, and the question formulated was answered in favor of the revenue and against the assessee.