TaxTMI 
TaxTMI 
2004 (9) TMI 647
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....in making an addition merely based on a statement of Prataprai M. Sanghvi (who had a medical history of depression) stating Rs. 1.99 crores as stock based on paper Nos. 13, 14, 15 and 16 found during the search at his residential premises though no such stock was physically found by the Department inspite of the fact that search operations were carried out at the various places of business, premises, godowns owned and hired by the appellant. (b) in not carrying out any independent investigation regarding possession of the alleged stock. (c) in drawing adverse inference from extracts of statements made by accountants and other persons and in not accepting the affidavit of Navinchandra Sobhagchand Mehta in full and in misinterpreting statements made by Jhaverchand Momaya, Chief Accountant. (d) in not accepting that the notings on seized material were only estimates of requirements in the future period. (e) in relying on judicial pronouncements in BPT proceedings which were irrelevant to the matter. 2. Without prejudice in not accepting the alternative plea of the appellant to work additions based on discrepancy if any between quantity of s....
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....n in all the four seized sheets is Rs. 1,98,90,210, or about Rs. 1.99 crores in round figures. Perusal of the seized sheets further shows that complete details of stock, viz., description, quantity, rate, unit of measurement, total of each item of stock and the total at the end of each seized sheet have been given. The aforesaid position of stock as reflected in the seized sheets was confronted, at the time of search itself, first to Shri Javerchand K. Momaya who has reportedly been working as Chief Accountant of the assessee-firm for the last 38 years. His statement was recorded at 7.00 a.m. on 22-11-1995 under section 132(4) at the business premises of the assessee-firm, i.e., 395/97, Narshi Natha Street, Mumbai-400009 followed by the statement of Shri Prataprai M. Sanghvi recorded at 9 a.m. on the same date and at the same place. 5. As stated above, statement of Shri Javerchand Momaya was recorded at 7.00 a.m. on 22-11-1995 under section 132(4) at the business premises of the assessee-firm, i.e., 395/97, Narshi Natha Street, Mumbai-400009. Relevant questions put to him and the answers given by him, as recorded in the said statement, are as under: "Q.1 Please confirm ....
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....for in books at Vashi office. However, as I have stated earlier, details of this stock is handled by Pratapbhai and only he will be able to clarify further." "Q. 6 Do you have to add to, alter or amend your above statement? Ans. No." "Whatever stated above is true to the best of my knowledge and belief. I have given this statement voluntarily without any undue influence, threat or coercion. I have read the statement and certify that it has been correctly recorded." [Emphasis supplied] 6. Shri Prataprai Sanghvi, partner in the assessee-firm was also con- fronted with the above papers at the time of search itself at 9 a.m. on 22-11-1995 at the business premises of the assessee-firm, i.e., 395/97, Narshi Natha Street, Mumbai-400 009 immediately after recording the statement of Shri Javerchand Momaya, Chief Accountant at 7 a.m. on 22- 11-1995. Statement of Shri Prataprai Sanghvi, partner in the assessee- firm was recorded under section 132(4). The relevant questions put to him and the answers given by him, as recorded in the said statement, are as under: "Q.2 During the course of search proceedings at your residence, certain loose papers were foun....
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....re A/1. This additional stock comes to Rs. 1.99 crores (70.22 + 37.84 + 47.00 + 43.83 lakhs). Do you agree that both the stocks are different and not the same? Ans. I have consulted my Chief Accountant Mr. Javerchand Momaya and Shantilal Momaya (accountant of Vashi Office) and have to state that these stock statements referred to pages 13, 14, 15 and 16 of Annexure A/1 are unaccounted and is other than the stock found at premises referred to in Q.No. 5." "Q.6 Where are the above referred stocks lying? Ans. These stocks totalling Rs. 1.99 crore are unaccounted and to buy peace with the Department I offer a sum of Rs. 2 crores as unaccounted income of M/s. Hiralal Maganlal & Co. for the assessment year 1996-97." "Q. 8 Do you have to state anything else? Ans. No." "Whatever stated above is true to the best of my knowledge and belief. I have given the statement voluntarily without any undue influence, threat or coercion. I have read the statement and certify that it has been correctly recorded." [Emphasis supplied] 7. The search proceedings, as aforesaid, make it amply clear that (i) seized sheets, i.e., pages 13 to 16 of Annexur....
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....chandra Mehta in his original handwriting at the instance of Shri Ishwardas M Sanghvi "for discussing the trade matters with regard to estimated purchases including imports from various parties of various items to be traded in future depending upon the market conditions. . . ." They, according to the said affidavit, were prepared to discuss various issues with regard to import of goods, sources thereof, making finance available for the same and storage thereof. (ii) He averred in the said affidavit that he "was present in the office on the date of search at the premises of Hiralal Maganlal & Co. from 10 A.M. to 10 P.M. on 21-11-1995 when the officials of the Department were present for conducting search." He further avers that although he was associated with the other members of his office" in helping the officials present, none of them asked any question to me about the papers in question." He further states in the said affidavit that "no questions were asked as to the reasons about these papers and therefore there is no question of myself being made available of and any opportunity of explaining the contents thereof to the officials present at the time of search." ....
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....e, the officials present at the time of search "forced the said Mr. Sanghvi to make a declaration that there is a huge unaccounted stock to the tune of approximately Rs. 2 crores lying with the firm which he had proposed to offer for taxation to buy peace at a reasonable cost." It was further stated that the said declaration was not out of free will and was made by Mr. Sanghvi under compulsion. (ii) Shri Sanghvi was not allowed to contract any other partners of the firm and his declaration was obtained by making incorrect representation of facts including the four pages referred to above. It was further stated that it was in confused state of mind that Mr. Sanghvi was compelled to make the statement. Had be been made aware of correct state of affairs, he would not, according to the assessee, have made such a type of statement. (iii) The search proceedings had started in the early morning and continued throughout the day. Persons were not allowed to speak with each other and not even partners, Accountant and godown staff members. It was further stated that Shri Sanghvi was late in the evening brought to the office of the firm and was forced to make a statement of c....
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....was no excess stock even as per seized sheets. The assessee made the following submissions in this behalf: (i) According to the assessee, close scrutiny of seized sheets showed that it was not unlikely that the items mentioned therein reflected true market value of stock lying with the firm. It was submitted that the book value of stock in trade as on the date of search was about Rs. 1.39 crores. The assessee contended that if it was accepted that the value shown in those statements (seized sheets) represented market value of the stock and estimated margin of profit was removed from such stock valuation, the cost of the stock of the goods shown in the seized sheets would be more or less the same as the value of stock shown in the books of account. Part 'F': The assessee submitted that it is the difference in the book value of stock as recorded in the books and the value of stock as recorded in the seized sheets that could alone be added. It was pleaded by the assessee before the Assessing Officer that, without prejudice to other submissions, it was only the difference between the book value of stock and value of stock recorded in the seized sheets that could, at t....
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....ons: one, Shri Prataprai Sanghvi was a sick person suffering from poor eye-sight, depression and suicidal tendencies and was thus not in a sound state of physical and mental health to make the said statement; two, Shri Prataprai Sanghvi was kept awake throughout the night of 21/22 November, 1995 and thus he was completely tired and thereby agreed, under pressure, to certain additions on the basis of wrong information provided by the search party to him; three, statement of Shri Prataprai Sanghvi was recorded at the time when none of the remaining four partners, namely, S/Shri Ishwarbhai, Madhusudan, Chandrakant and Haresh Sanghvi was present; four, the actual stock found at the time of search was not commensurate with the unaccounted stock declared by Shri Prataprai Sanghvi in his statement and hence his statement was not reliable; five, the statement made by Shri Prataprai Sanghvi was subsequently retracted by filing a return of income in which lower undisclosed income was shown, affidavit of Shri Navinchandra Mehta, an employee of the Hiralal Maganlal group and written submissions of the assessee-firm as filed before the Assessing Officer; and, six delay in filing the retraction ....
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....ent to the unaccounted stock as shown in the seized sheets. (ii) Referring to the narration on the back side of page 16 of the seized sheets, the learned CIT-DR submitted that no credence could be given to the said narration as its genuineness was doubtful for several reasons: one, while all the written pages of the seized documents carried page numbers assigned by the search party, the back side of page 16 of the seized sheets did not carry any page number; two, the said narration was neither pointed out nor referred to by Shri Prataprai Sanghvi or Shri Jhaverchand Momaya or any one else at the time of search; three, Shri Navinchandra Mehta who subsequently filed the affidavit claiming the seized sheets to be in his handwriting was also present at the time of search but he too did not point out or refer to the said narration on seized sheets; four, Shri Navinchandra Mehta was thoroughly examined on 8-10-1996 but he did not say, even at that time, that there was any such narration on the back side of page 16 of the seized sheets; five, none of the other persons examined, i.e., S/Shri Jhaverchand Momaya on 22-11-1995 and 4-9-1996, Prataprai Sanghvi on 22-11-1995 and 26-7-19....
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....e benefit of consultation with his accountants and others as also the records and the books of account while at his office on 22-11-1995. (iv) Referring to the confession of Shri Prataprai Sanghvi, partner, he submitted that the assessee-firm was bound by the said confession in terms of the decision in Nathmal Peshormal v. CIT [SLP (Civil) No. 12684 of 1989] [1990] 182 ITR 147-48 (St.). He contended that the retraction from the said confession was not permissible in terms of the decision in Surjeet Singh Chhabra v. Union of India [1997] 135 Taxation 711 (SC). According to him, the assessee was bound by the statement of Shri Prataprai Sanghvi in view of the decisions in MK Mohammad Kunhi v. CIT [1973] 92 ITR 341 (Ker.); Rameshchandra & Co. v. CIT [1987] 168 ITR 3751 (Bom.); Video Master v. Joint. CIT [2002] 83 ITD 102 (Mum.); Dr. S.C. Gupta v. CIT [2001] 248 ITR 7822 (All.); Ramesh T Salve v. Asstt. CIT [2000] 75 ITD 75 (Mum.); Hotel Kiran v. Asstt. CIT [2002] 82 ITD 453 (Pune); Param Anand Builders (P.) Ltd. v. ITO [1996] 59 ITD 29 (Mum.). (v) Referring to the submission of the learned senior counsel that there was no independent evidence to corroborate the statem....
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....2003 has no application on the facts of the case. 16. The main issue for consideration is whether the statement/declara- tion made by Shri Prataprai Sanghvi, partner at the time of search on 22-11-1995 was voluntarily made by him without use of any undue influence, coercion or threat as contended by the Revenue or he was 'forced' to make the said declaration, as contended by the assessee. Perusal of the said statement of Shri Prataprai Sanghvi shows that he himself has stated in the said statement that he was giving the statement voluntarily without any undue influence, threat or coercion. He has further certified in the said statement to have read over the statement and found the same to have been correctly recorded. Secondly, the said statement of Shri Prataprai Sanghvi was not recorded in the 'early' morning of 22-11-1995, as alleged by the assessee but at 9.00 a.m. on 22-11-1995 and that too in the presence of the witnesses and Shri Jhaverchand Momaya who was present at the time of search. Thirdly, Shri Prataprai Sanghvi had made the declaration after necessary consultation with Shri Jhaverchand Momaya, Chief Accountant and Shri Shantilal Momaya, Accountant of the firm's Vas....
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....aid declaration/statement or he was in a confused state of mind while giving the statement. All the submissions of the assessee in this behalf are therefore rejected. 17. The next question for consideration is the nature and scope of the facts admitted or declared in the statements recorded at the time of search on 22-11-1995 under section 132(4) of the Income-tax Act, 1961. The assessee contends that the facts admitted or declared in the statements recorded under section 132(4) on 22-11-1995 were retracted by filing the affidavit of Shri Navinchandra Mehta followed by the statement of Shri Prataprai Sanghvi and the written submissions filed by the assessee before the Assessing Officer. As against this, the Department's contention is two-fold: one, that the facts admitted or declared have not been effectively retracted; and two, that the alleged retraction is only an afterthought and hence should be ignored. The chronological order in which the statements of Shri Jhaverchand Momaya and Shri Prataprai Sanghvi have been recorded under section 132(4) i.e., at 7 a.m. and 9 a.m. respectively on 22-11-1995 at the same place, i.e., the office of the firm is important. 18. Following ....
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....llowed by the statement of Shri Prataprai Sanghvi at 9 a.m. on the same day and at the same place. Shri Prataprai Sanghvi confirmed that he looked after the sales of the assessee. In answer to Q. No. 2 of the said statement, he categorically admitted that the seized sheets were statements of stock lying in various godowns. In answer to Q. No. 3, he categorically admitted to have referred to the books of account at Vashi over telephone but was unable to find the said stock reflected in those books. In reply to Q. No. 5, he admitted to have consulted his Chief Accountant (Shri Jhaverchand Momaya) and his Accountant of Vashi Office (Shri Shantilal Momaya) and thereafter further admitted that stock statements referred to as pages 13 to 17 of Annexure A/1 were unaccounted and also other than the stock found at Savla Cold Storage, APMC shop and Masjid Bunder. The above facts were admitted by a seasoned businessman with considerable business experience and after necessary consultations with those who had the requisite knowledge and experience in the affairs of the assessee-firm. In the said statement, there is not even a whisper that the seized sheets showed mere estimates of purchases to....
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.... (vi) As soon as Shri Prataprai Sanghvi, partner made the aforesaid admission and declaration at the time of search, the search party, acting upon the same, did not make further investigation with regard to unaccounted stock shown in the seized sheets and thus altered their position on the basis of the declaration made by Shri Prataprai Sanghvi. (vii) Statements of S/Shri Jhaverchand Momaya and Prataprai Sanghvi were recorded on 22-11-1995. It is not the case of the assessee that other partners were not aware of the said admission and declaration made by Shri Prataprai Sanghvi and Shri Jhaverchand Momaya. Despite that, none of them came forward within reasonable time-frame to have the statements of Shri Prataprai Sanghvi or Jhaverchand Momaya corrected or even to allege that they were incorrect or incorrectly recorded. 19. It is not in dispute that Shri Prataprai Sanghvi, partner in the assessee-firm was competent to make the statement in question under section 132(4) on behalf of the assessee-firm. Besides, in Nathmal Peshormal v. CIT [SLP (Civil) No. 12684 of 1989 : [1990] 182 ITR (St.) 146-47 (SC)], the Hon'ble Supreme Court has dismissed the assessee's SLP against....
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....nst the latter a different state of things as existing at the same time." In the celebrated book titled 'Administrative Law' by Sir William Wade (Eighth Edition by Wade and Forsyth-Oxford University Press), the legal position has been explained at p. 242 as under : "The basic principle of estoppel is that a person who by some statement or representation of fact causes another to act to his detriment in reliance on the truth of it is not allowed to deny it later, even though it is wrong. Justice here prevails over truth Estoppel is often described as a rule of evidence, but more correctly it is a principle of law. As a principle of common law it applies only to representations about past or present facts." 22. Provisions of section 115 of the Evidence Act are also quite apposite and the case of the assessee squarely falls thereunder. Section 115 of the Evidence Act provides as under : "115. When one person has, by his declaration, act or omission, intentionally caused or permitted another person to believe a thing to be true and to act upon such belief, neither he nor his representative shall be allowed, in any suit or proceeding between himself and such person ....
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....sure and closed further investigation on the said issue. In our view, it was not open to the assessee to deny later the truth or the correctness of the declaration made at the time of search. By seeking to retract from the declaration made at the time of search, the assessee wants that it should be restored to the position in which it was before making the statement at the time of search without restoring the Department to the same position in which it would have been if the said statements were not made or if it had not accepted the said declaration made on oath. This approach of the assessee, in essence, would tantamount to his telling the Department that you accepted my lie and now your hands are tied and you can do nothing. Having made a voluntary declaration on oath and induced the Departmental Authorities to act upon the same at the time of search, the assessee cannot be permitted to turn around later and deny the truth of the aforesaid declarations or the representations made therein. Section 115 of the Evidence Act prevents him from doing so. 25. In our view, the retraction sought to be made by the assessee several months after making the declaration under section 132(4)....
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....tion 115 of the Evidence Act. We have already held above that the statement of Shri Prataprai Sanghvi was in the nature of declara- tions under section 115 of the Evidence Act and hence was not capable of being retracted as the Departmental Authorities had already, acting upon the said declarations, altered their position. We have also held above that the declarations falling within the ambit of section 115 of the Evidence Act do not require any corroboration and therefore the declarations made at the time of search in the case of the assessee before us also did not require any corroboration. The submission of the assessee is therefore being considered assuming, for the sake of argument, that the statements made at the time of search were not covered by section 115 of the Evidence Act. First we shall deal with the legal aspects of the issue. The Hon'ble Bombay High Court has held in several criminal cases, viz., Queen-Empress v. Gharya [1894] 19 Bom. 728; Queen-Empress v. Gangia [1898] 23 Bom. 316; Queen-Empress v. Baswanta [1900] 2 Bom. LR 761; Emperor v. Bhagwandas Bisesar [1940] 42 Bom. LR 938; Emperor v. Bhimappa Saibanna [1945] 47 Bom. LR 648 that a retracted confession, if pr....
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....ee. It is quite usual for the persons whose premises are subjected to search to make unfounded allegations with a view to escape from the consequences flowing from the disclosures made during the course of search. Mere filing of affidavit of an employee of the group and written submissions at a later stage of the proceedings are self-serving pieces of evidence and thus they can neither negate the declaration and disclosure made on oath by Shri Prataprai Sanghvi under section 132(4) nor form the basis for effective retraction of declaration made under section 132(4). For this reason also, we hold that the Assessing Officer was justified in rejecting the retraction filed by the assessee on the ground that it was an afterthought. 29. The view that we have taken above is supported by several judicial authorities some of which are as follows. In Surjeet Singh Chhabra's case (supra), it has been held that the Customs Officials are not police officers and the confession, though retracted, is an admission and binds the confessor. The Hon'ble Court has held : "...Since the dispute concerns the confiscation of the jewellery, whether at conveyor belt or at the green channel, perha....
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....will not, at a subsequent stage of the same assessment, be allowed to go back on his earlier representation; he is estopped from doing that. We may however make it clear that this application of estoppel does not apply to cases of successive assessment; it applies only to the same assessment : in other words, the assessee will be bound by his earlier representation of fact and will not be allowed to go back on it at a subsequent stage of the same assessment. Similarly, even on a wrong decision on a point of law if the Tribunal passed an order of remand and that order has become final since no reference was obtained to question its correctness, then the decision is binding between the parties in the said assessment and neither of them will be allowed to question it or reopen it in another appeal before the Tribunal." [Emphasis supplied] 32. In V. Kunhambu v. CIT [1996] 219 ITR 2351 (Ker.), the Hon'ble High Court has held : "In Rameshchandra & Co. v. CIT [1987] 168 ITR 375, the Bombay High Court observed that where an assessee has made a statement of facts, he can have no grievance if the taxing authority taxes him in accordance with that statement. If he can have no grie....
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....sions, we are of the view that admission made in statement under section 132(4) has great evidentiary value and is binding on a person who makes it. Therefore, the admission can be made on the basis of such admission by using the same in evidence. The Legislature was well aware that under the general law mere admission may not be conclusive one. The Income-tax Act is a specific Act and assessment has to be made on the basis of material gathered by the Assessing Officer. For this purpose, vast powers have been conferred on the Income-tax Authorities for making investigation including the powers of search. If in the course of such search, the assessee makes some admission, he debars the authorised officer from making further investigation. In view of this, Legislature in its wisdom has provided that such statement can be used in evidence and the assessment can be made on the basis of such statement. The sanctity of such provision would be lost if the assessee is allowed to contend that no addition can be made on the basis of such admission. However, such admission can be retracted by the assessee only if the circumstances as mentioned in the earlier paragraphs are established by the ....
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....two situations. First situation is where it is not voluntarily made. A statement, however, cannot be said to be involuntarily made merely because it is subsequently sought to be retracted. It is also to be remembered that the law of evidence presumes regularity and correctness of the official actions unless proved otherwise and hence the said principle will also govern the statement recorded by a public official and this is more particularly so when it is recorded in pursuance of the statutory provisions of law. The provisions of sub-section (4) of section 132 also create rebuttable presumption in favour of the statements recorded thereunder and authorize their use in evidence in any proceeding under the Income-tax Act. The burden is therefore squarely on the person who alleges that the statement was not made voluntarily to prove that it was involuntarily made or made under coercion or undue influence or that it was made under mistaken belief or was obtained by fraud or misrepresentation. Mere allegation will not suffice. Second situation is where the person seeking to retract proves, by leading cogent and reliable evidence, the erroneous or incorrect nature of the facts stated or ....
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....half of the assessee. On careful consideration of all the facts of the case, we are inclined to agree with the reasoning given by the learned CIT-DR. While there is no direct evidence to show as to when the said narration was recorded, the circumstantial evidence as pointed out by the learned CIT-DR does make the said narration suspect. It is a well known fact of life as also a settled principle of evidence that while witnesses and documents can be made to lie, the circumstances cannot lie. In order to hold a fact as proved, it is therefore necessary to consider whether the evidence adduced must inspires confidence, is capable of being believed and treated as proved. A fact is said to be 'proved' when, after considering the matters before it, the Court either believes it to exist, or considers its existence so probable that a prudent man ought, under the circumstances of the particular case, to act upon the supposition that it exists; Definition of 'proved' as given in section3 of the Evidence Act. Similarly, a fact is said to be 'disproved' when, after considering the matters before it, the Court either believes that it does not exist, or considers its non-existence so probable th....
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....e said narration if it existed on the back side of page 16 at the time of search was not brought to the notice of the concerned income-tax authorities till the assessee filed its written submissions vide its letter dated 8-10-1996. Seventhly, the said narration was a dumb narration inasmuch as it did not specify that the stocks mentioned at the main pages 13 to 16 which were reported at the time of search to be the actual stock over and above those recorded in the books of account were mere estimates of stock to be purchased for 1996-97. Eighthly, the reason for saying that the said seized sheets contained mere estimates of stock to be purchased to replenish the stock which had been reportedly sold on the occasion of Diwali can also not be accepted as the seized sheets were dated 20-11-1995 and recovered at the time of search conducted on 21/22-11-1995 whereas Diwali was on 23-10-1995 and hence whatever stock was required to be replenished after Diwali must have been replenished immediately after Diwali and not that any prudent businessman would think of replenishing the stocks sold at the time of Diwali after a month of their having been sold out. Besides, there were no festivals ....
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....hri Prataprai Sanghvi. They simply maintained silence for the reasons best known to them. Shri Prataprai Sanghvi preferred to confess that the seized sheets contained the details of actual stock which has not been accounted for in the books and therefore he preferred to offer Rs. 2 crores represented by the said stock as undisclosed income of the assessee to buy peace with the Department instead of denying or indicating the existence of godowns holding the unaccounted stock. It is in this background that the Departmental authorities accepted the facts admitted by the assessee. They did not see any point in pursing a fact which the assessee had voluntarily admitted. It is well accepted that admitted facts are not required to be further proved. The other submission made on behalf of the assessee that no prohibitory order was issued under section 132(3) of the Income-tax Act in respect of the stock reflected in the seized sheets is also misplaced. Issuance of the order under section 132(3) does not convert an explained asset into unexplained asset or vice versa. When Shri Prataprai Sanghvi had voluntarily confessed that the stock shown in the seized sheets was unaccounted and also off....
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....sessing Officer that if the impugned addition is reduced and restricted to the difference between the value of stock shown in the books of account and the value of stock recorded in the seized sheets, the assessee would accept the same and offer the same for taxation to buy peace at a reasonable cost. We have given our thoughtful consideration to the said submission. We are however unable to accept the same in the face of our findings recorded above. Besides, the plea taken by the assessee negates its other submission that the seized sheets contained mere estimates of stock. 42. The learned counsel further submitted that full and complete enquiries were not made by the Departmental authorities to locate the unaccounted stock in relation to which the impugned addition has been made by them. He submitted that the assessment should therefore be set aside and the matter restored to the file of the Assessing Officer for making further enquiries and then to make any addition if warranted on the basis of such enquiries. On careful consideration of the aforesaid submission, we are not inclined to accept the same. The judicial limits of power to remand the assessment are well settled. In....