2005 (3) TMI 399 - AT - Income Tax

Tribunal grants relief under Section 80HHC and rejects unexplained investment addition

Smt. Sujata Grover. Versus Assistant Commissioner

Smt. Sujata Grover. Versus Assistant Commissioner - TTJ 099, 837, Issues Involved:1. Disallowance of relief under Section 80HHC on export profits of Rs. 52,66,869.2. Addition of Rs. 10 lakhs as unexplained investment on office renovation.Detailed Analysis of the Judgment:1. Disallowance of Relief under Section 80HHC on Export Profits:The primary issue concerns the disallowance of relief under Section 80HHC based on the statement of Shri Vinod Grover recorded under Section 40 of the Foreign Exchange Regulation Act (FERA). The Assessing Officer (AO) relied on this statement, which indicated that the exports were over-invoiced by 15 times, and the differential amount was sent to the bank account of M/s Basera Exports by a person named Manu from Dubai. The AO concluded that the export receipts were not genuine and disallowed the claim for relief under Section 80HHC.The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, dismissing the retraction of Shri Grover's statement before the Magistrate as an afterthought. The CIT(A) cited Supreme Court decisions to support the validity of statements recorded under Section 40 of FERA, asserting that such statements are not presumed to be involuntary.The Tribunal examined the evidentiary value of Shri Grover's FERA statement and found that the statement was recorded late at night, without administering an oath, and under circumstances suggesting compulsion. The Tribunal noted that no corroborative evidence was provided by the Revenue to support the disallowance and that the assessee had submitted substantial documentary evidence, including bank statements, purchase bills, shipping bills, and bank realization certificates, which were ignored by the Revenue.The Tribunal also observed that the AO did not make any effort to examine Shri Grover after his release from detention or to verify the details provided in his statement, such as contacting the individuals named in the statement. The Tribunal emphasized that the assessee had been granted relief under Section 80HHC in previous assessment years after due verification, and no new material had come to light to justify the change in decision.In conclusion, the Tribunal held that the FERA statement had no evidentiary value and directed the AO to allow the claim for relief under Section 80HHC.2. Addition of Rs. 10 Lakhs as Unexplained Investment:The second issue pertains to the addition of Rs. 10 lakhs as unexplained investment in office renovation. The addition was based on the statement of Shri Vinod Grover during the search under Section 132 of the Act, where he surrendered the amount as unaccounted income invested in the renovation of the business premises.The CIT(A) upheld the addition, rejecting the assessee's contention that the investment was duly reflected in the books of account. The CIT(A) emphasized that the books of account were not produced during the search or post-search inquiries, rendering them unreliable.The Tribunal considered the circumstances under which the statement was made by Shri Grover, noting his medical condition and the timing of the statement (early hours of the morning). The Tribunal found that the statement was made under duress and lacked evidentiary value. The Tribunal also noted that the assessee had provided bills and bank statements showing that the renovation expenses were accounted for in the previous financial year and that the payment of Rs. 10 lakhs was made in the current financial year.The Tribunal concluded that the addition was not justified, as there was no evidence to suggest that the expenditure on renovation was higher than the amount reflected in the accounts. The Tribunal emphasized that the statement made by Shri Grover during the search did not arise from any incriminating material found during the search and, therefore, had no evidentiary value.Conclusion:The appeal filed by the assessee was allowed on both grounds. The Tribunal directed the AO to allow the claim for relief under Section 80HHC and deleted the addition of Rs. 10 lakhs as unexplained investment.