Assistant Commissioner Of Income-Tax v. Hukum Chand Jain

Dhirendra Mishra, J.:— The aforesaid appeals are being disposed of by this common order, as the same pertain to the assessee, Hukum Chand Jain, and his three sons, who has been subjected to search and seizure operations between February 21, 2002, and February 23, 2002.

2. The appellant/Revenue has preferred these appeals against the order dated December 7, 2005, passed by the Income-tax Appellate Tribunal, Nagpur. The above appeals have been admitted on the following substantial question of law:

“Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in upholding that order of the Commissioner of Income-tax (Appeals)?

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in deleting the addition of Rs. 2,75,854 made by the Assessing Officer on the basis of admission made by the respondent's father on oath during the search operations.

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the principle of law laid down by the Kerala High Court in Kunhambu v. Commissioner Of Income Tax, [1996] 219 ITR 235 did not apply to the present case?”

3. The assessments were made in pursuance of notice under section 158BC of the Income-tax Act, 1961 (for short “the Act”) on all these assessees and the Revenue has impugned the order of the Income-tax Appellate Tribunal (for short “the Tribunal”) confirming the order of the Commissioner of Income-tax (Appeals) on common ground and common substantial question of law. Briefly stated the facts of the case are that search and seizure operations in the business premises and residential premises of the above assessees were conducted between February 21, 2002, and February 23, 2002. In the course of search, statement of Hukum Chand Jain, head of the family and father of the other assessees, was recorded under section 132(4). He surrendered Rs. 30 lakhs as undisclosed income for the block period and offered that whatever taxes are worked out in the surrendered income, they are prepared to pay the same. However, in response to the notices issued under section 158BC of the Act, the assessee, Hukum Chand Jain, offered only Rs. 3,52,000 in his case and the aggregate amount of Rs. 2,05,500 in the case of his three sons as their undisclosed income. The Assessing Officer completed the assessment and assessed the undisclosed income by rateably allocating Rs. 7,50,000 as undisclosed income of each assessee at the request of the assessees. The Assessing Officer included the amount of undisclosed income offered by the assessees besides specific additions based on material, which could not be explained by them. The Commissioner of Income-tax (Appeals) allowed the appeal of the assessee by holding that the amount of undisclosed income offered in the block return was more than the specific addition made in the case of Shri Hukum Chand Jain and Shri Kamal Chand Jain. In the case of Shri Ashok Kumar Jain, it was held that the addition relates to payment of fees and it was covered by total withdrawal of the family. In the case of Shri Lalit Kumar Jain, the addition was deleted holding that it was made on the basis of difference between the cost of construction incurred by the assessee and estimated by the registered valuer and was without any material.

4. The appeal of the appellant/Revenue was further dismissed by the Tribunal. While dismissing the appeal against the order of the Commissioner of Income-tax (Appeals), the Tribunal observed that confessional statements made during search are often vulnerable, as the person making such statements remains under great stress and strain, they also do not have relevant details, documents and books of account and in the absence of the same, precise computation relating to the mode of utilization of such income and year of investment cannot be clearly furnished. Therefore, the assessees are entitled to modify/clarify their statements after verifying the necessary details from the relevant records at a later point of time. It was also held that the Assessing Officer assessed the income at Rs. 7,50,000 by equally allocating the amount declared under section 132(4) at Rs. 30 lakhs. This indicates that searched material did not point out any undisclosed income more than the amount originally offered by way of statement under section 132(4). The income computed under section 158BC at Rs. 6,06,954 is covered by the disclosure offered in individual cases, if taken cumulatively at Rs. 5,57,500. It observed that the admission though an extremely important piece of evidence but it cannot be said that it is conclusive and it was open to the assessee to show that it was incorrect. Since the statement under section 132(4) was rebuttable and the same was explained by the assessee at a later stage, there is no infirmity in the orders of the Commissioner of Income-tax (Appeals).

5. Shri Rajeshwara Rao, learned counsel for the appellant/Revenue, vehemently argued that the close examination of the statement recorded under section 132(4) would reveal that the same was clear, categorical and unconditional. The head of the family, Shri Hukum Chand Jain, voluntarily came forward with the offer of Rs. 30 lakhs against the cash amounting to Rs. 2,00,961, gold jewellery worth Rs. 20,58,420 and several loose papers found during search. The other three assessees, his sons, countersigned the statement of their father in evidence of their agreement to the statement. The assessee also assured to pay the entire tax against the offered undisclosed income and some tax was also paid against the offer. The assessee never retracted his offer till the commencement of assessment proceeding. The statement under section 132(4) is binding on the assessee and the same can be rebutted only on the ground that the same was made under mistaken belief of law or facts or it was obtained by coercion or duress. Where the assessee intends to retract his admission on the aforesaid ground, he should come forward at the earliest point of time with sufficient, credible and corroborative evidence to support his claim. The assessee at no point of time disputed the surrender of undisclosed income. If the assessee discovered that his statement was contrary to the facts, he should have immediately brought the same to the notice of the Department through duly sworn affidavit along with relevant material relied upon by him. The explanation regarding cash, valuables, loose papers, etc., found during search were offered for the first time before the Assessing Officer in the month of January and February, 2004, i.e, after two years of the search and seizure operations. The allegations of duress for extracting statement during the search proceeding were made for the first time during the assessment proceeding. However, no complaint in this regard was made to the higher authorities supported by the affidavit of independent witnesses present during proceedings. Since the assessee and his other family members were unable to explain the items discovered during search, they made unconditional surrender against the searched unexplained assets and loose papers.

6. It was further argued that even during the assessment proceeding the assessee came up with an alternative pleading that if the amount offered during the search is treated as undisclosed income, then set off against all other additions may be given in the amount of Rs. 7,50,000, as surrender was made to cover up all the leakages. The Assessing Officer considering the facts and circumstances assessed undisclosed income of each assessee at Rs. 7,50,000 for the block period under consideration. The Tribunal has confirmed the order of the Commissioner of Income-tax (Appeals) and held that the surrender was made under the bona fide mistake. The Tribunal's above observation is perverse and beyond the record, as the assessee has nowhere made such statement during the entire assessment proceeding. The reasoning assigned by the Commissioner of Income-tax (Appeals) and the Tribunal in allowing set off undisclosed income offered by the assessee against the assessment made by the Assessing Officer on the basis of specific material is also perverse. The undisclosed income in the block return was offered against the assessment year 2002-03 whereas specific additions were made in the assessment year prior to the year 2002-03, which is evident from the orders of assessments.

7. It was finally argued that the judgments relied upon by the respondents/assessees are distinguishable on facts, as in the cited judgments, the admission of the assessee was not so clear and categorical and retraction was made within reasonable time and based on corroborative material, which has not been done in the present case.

8. Reliance is placed in the matters of Kunhambu v. Commissioner Of Income Tax, [1996] 219 ITR 235 (Ker); Ramjas Nawal v. CIT, [2003] 131 Taxman 525 (Raj); Ravindra D. Trivedi v. CIT, [2008] 215 CTR (Raj) 313 and Hiralal Maganlal and Co. v. Deputy CIT, [2005] 96 ITD 113 (Mum).

9. On the other hand, Shri Kishore Bhaduri, learned counsel for the respondents/assessees submitted that though the respondents surrendered Rs. 30 lakhs as undisclosed income during the search operations, however, the assessee filed a lower return and the Assessing Officer added the difference of amount of allocated surrendered undisclosed income and the returned income without any material on record. At the first appellate stage, the assessee explained all the loose papers and material on the basis of which the first appellate authority deleted the addition made by the Assessing Officer and the second appeal of the Revenue was also dismissed by the Tribunal with an observation that the admission may be an important piece of evidence but it is not conclusive. It is open to the assessee who made admission to show that it was incorrect and the searched material did not disclose the correct state of facts. The admission was made in a bona fide mistake and the Revenue cannot seek to addition only on the basis of the admission in the first place. The statement was rebuttable since the assessee explained the same at a later stage. The Commissioner of Income-tax (Appeals) rightly deleted the addition to the extent of undisclosed income computed by the Assessing Officer over and above the undisclosed income returned by the individual assessees.

10. Reliance is placed in the matters of Commissioner Of Income-Tax, Delhi-Ii v. Ravi Kant Jain. fain, [2001] 250 ITR 141 (Delhi), Pullangode Rubber Produce Co. Ltd. v. State of Kerala, [1973] 91 ITR 18 (SC) and Chuharmal v. CIT, [1988] 172 ITR 250 (SC).

11. The judgment of the Kerala High Court in the matter of V. Kunhambu and Sons' case, [1996] 219 ITR 235 (Ker) is distinguishable, as in the cited judgment, the assessee could not justify his statement on the basis of return whereas in the instant case, the materials found during search were duly explained by the assessee in his return for the block period and the same were accepted by the appellate authority.

12. We have heard learned counsel for the parties.

13. The finding of the Assessing Officer in the assessment proceeding and the order passed by the Commissioner of Income-tax (Appeals) on appeal by the assessee would be reflected from the following table:

Name of the assessee Income offered in block return Specific addition by AO Addition on account of admission made in statement during search Assessed income () deletion by CIT (A) Income after appeal effect to order of CIT(A) Hukumchand Jain 3,52,000 2,75,854 1,22,146 7,50,000 3,98,000 3,52,000 Ashok Kumar Jain 15,000 1,09,432 6,40,568 7,50,000 7,50,000 15,000 Lalit Kumar Jain 45,500 1,97,068 5,07,462 7,50,000 74,500 45,500 Kamalchand Jain 1,45,000 24,600 5,80,400 7,50,000 6,05,000 1,45,000

Specific addition details

Name of assessee Gold Household goods Shares Building Expenses based on loose paper Total Hukumchand Jain 115075 24700 — — 1,36,079 2,75,854 Ashok Kumar Jain — 20700 500 — 88,232 1,09,432 Lalit Kumar Jain — 24600 — — — 24,600 Kamalchand Jain — — — 154,243 42,825 1,97,068

14. The Assessing Officer after making specific additions under the various heads as detailed above, over and above the undisclosed income declared by the assessee, further observed that during the search and seizure proceeding, the assessee was unable to explain various transactions and loose papers found and not entered in the books of account. Cash amounting to Rs. 2,00,961, gold valuing at Rs. 20,58,420 and silver utensils valuing at Rs. 2,50,649, etc., were also found. Over and above the loose papers, cash of Rs. 1,50,000, gold of Rs. 8,45,837 and silver amounting to Rs. 2,50,649 were also seized. The assessee was unable to explain the various loose papers, documents, availability of jewellery and silver items and cash and he volunteered to surrender an amount of Rs. 30 lakhs being his undisclosed income. His statement under section 132(4) was recorded on oath. He made an unconditional and voluntary statement and surrendered Rs. 30 lakhs as undisclosed income, as he could not explain the recovery of cash, gold and silver ornaments and loose papers/documents seized from his business premises. He also expressed his willingness to pay the taxes against undisclosed income for the block period in order to avoid the dispute with the Income-tax Department and for mental peace. The Assessing Officer further observed that during the assessment proceeding in reply dated February 19, 2004, to the specific query as to why he did not disclose the surrendered amount in his return and the return of his other three family members, the assessee stated that the surrender was made under duress without verifying each and every paper found during the course of search. After verification of papers and documents, etc., he discovered that his undisclosed income eligible for surrender was much less and the amount was surrendered just to avoid litigation with the Department and to purchase mental peace. Not accepting the above explanation, the assessment was made on the basis of undisclosed income declared during search proceeding by rateably dividing the undisclosed income amongst four assessees, as per their own admission. At this juncture, the assessee made alternative plea that if this amount is treated as income of the assessee, then all other additions which may be made should be set off against them of Rs. 7,50,000 in each case, as the surrender was made to cover up all the possible leakage of the revenue and to cover up all the unexplainable loose papers, etc., The above contention of the assessee was accepted.

15. The Commissioner of Income-tax (Appeals) allowed the appeal of the assessee with an observation that there is no case for making any addition. It is settled law that the income is to be worked out on the basis, of material found on the basis of search and not on the basis of disclosure made by the assessee at the time of search. If the disclosure is retracted and the income computed on the basis of material found in the course of search works out to less than the amount disclosed, then such lesser income should be assessed, as that income is to be taxed which the assessee has actually earned and, accordingly, directed the Assessing Officer to accept the returned income of each assessee and deleted the additions made by the Assessing Officer. The Tribunal also dismissed the appeal of the Revenue and confirmed the order of the Commissioner of Income-tax (Appeals).

16. Legal submissions on behalf of the appellant/Revenue

17. These appeals have been admitted on first three substantial questions of law proposed by the appellant in the memo of appeals.

18. We propose to first deal with the substantial question of law—Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the principle of law laid down by the Kerala High Court in V. Kunhambu and Sons' case, [1996] 219 ITR 235 (Ker) did not apply to the present case?

19. The core issue involved in these appeals is the circumstances in which the assessee may be allowed to retract his statement recorded on oath under section 132(4) of the Act during search and seizure proceedings.

20. In the matter of V. Kunhambu and Sons' case [1996] 219 ITR 235 (Ker), during search and seizure proceedings, the assessee admitted the discrepancy in the accounts maintained by him. He also conceded that some unaccounted investment in construction of a cinema theatre has been made and the stock found in the premises was much more than the stock admitted for income-tax purposes and such investment and the difference would amount to Rs. 3 lakhs each. The Assessing Officer in view of the statement and as a measure of compromise included total income of Rs. 3 lakhs each in the total turnover for the assessment years 1980-81 and 1981-82. In appeal, the Commissioner of Income-tax (Appeals) struck down the addition against the unexplained investment in construction of a cinema theatre and confirmed the order of the Income-tax Officer by including Rs. 1.5 lakhs towards unexplained excess stock in each year's turnover as income. The Tribunal set aside the order of the Commissioner of Income-tax (Appeals) and confirmed the order of the Assessing Officer with an observation that the Tribunal has clearly found that the statement was made voluntarily. The assessee has totally failed to discharge the burden of proving that the statement was obtained by coercion or intimidation. These are the concurrent findings of fact and the same cannot be interfered.

21. Referring to the observations of the Bombay High Court in the matter Rameshchandra and Co. v. CIT, [1987] 168 ITR 375, 380 wherein “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 grievance, he can file no appeal. Therefore, it is imperative, if the assessee's case is that his statement has been wrongly recorded or that he made it under a mistaken belief of fact or law, that he should make an application for rectification to the authority which passed the order based upon that statement. Until rectification is made, an appeal is not competent”, with approval it was held that since no case has been made under a mistaken belief of fact or law and the statement being a voluntary one, there is no scope for the assessee to challenge the correctness of the assessment as has been done in this case.

22. In the matter of Ramjas Nawal's case (supra) also, the Rajasthan High Court observed that the assessee admits that he is disclosing undisclosed income at his free will and without any threat and expresses his inability to submit any documentary evidence during search proceedings, the subsequent contention of the assessee that the income found during the search proceedings is genuine is an afterthought and cannot be accepted.

23. In the matter of Hiralal Maganlal and Co. 's case, [2005] 96 ITD 113 (Mum), during the search proceedings in relation to block assessment, certain sheets indicating the details of stock of the assessee-firm were seized. The chief accountant of the firm admitted that the said stock represented unaccounted stock and offered the same as additional income. The partner as well as the chief accountant certified that the statements under section 132(4) were made voluntarily. The assessee did not retract from his statement for a period of six months though fully aware of the statement made by him. The Bombay High Court did not accept the contention of the assessee that the aforesaid statements were forcibly recorded with an observation that the assessee has not produced any contemporaneous record or evidence, oral or documentary, to substantiate the allegation that he was forced to make the statement in question involuntarily. It has been further observed that the declaration clearly fell under section 115 of the Evidence Act and, hence, it was not open to the assessee to retract from the same after the Departmental authorities had accepted the same and altered their position by closing the search. It further observed that declarations falling under section 115 do not require any corroboration and upheld the order of the Assessing Officer in rejecting the retraction and treating the impugned sum as undisclosed income.

24. In the matter of Ravi Kant Jain's case, [2001] 250 ITR 141 (Delhi), the Delhi High Court, while considering the scope of block assessment and search and seizure under Chapter XTV-B of the Act has held that its scope and ambit is limited in that sense to materials unearthed during search. It is in addition to the regular assessment already done or to be done. The assessment for the block period can only be done on the basis of evidence found as a result of search or requisition of books of account or documents and such other materials or information as are available with the Assessing Officer. Evidence found as a result of search is clearly relatable to sections 132 and 132A. In this case, it appears that search was conducted under section 132 of the Act and seizures of books of account were made in the block assessment proceedings. The seized materials and books of account were referred to the special auditor for its report and on the basis of the report of the auditor and the seized materials, block assessments were made. In these circumstances, it was held that the undisclosed income was not determined on the basis of any search material and the Assessing Officer was proceeding within the scope of the assessment and not within the scope of exercising jurisdiction under Chapter XIV-B and section 158BA. Therefore, section 158BA of the Act had no application to the facts of the case. However, the instant case is distinguishable on facts, as assessment has been made on the basis of voluntary disclosure of undisclosed income by the assessee under section 132(4) and, therefore, the principle of law laid down in the aforesaid matter is not applicable in the present case.

25. In the matter of Pullangode Rubber Produce Co. Ltd.'s case, [1973] 91 ITR 18 (SC), the question before the Supreme Court was—whether the entries in the account books treating a portion of the general expenditure as expenses towards immature plants and capitalizing such portion amount to an admission that the amount in question was laid out or expended for the cultivation, upkeep or maintenance of immature plants from which no agricultural income was derived during the previous year for the purpose of the provisions of the Kerala Agricultural Income-tax Act, 1950, was used as conclusive evidence against the assessee and it was held that though it suggest admission and such admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It is open to the assessee who made the admission to show that it is incorrect and the assessee should be given a proper opportunity to show that the books of account do not disclose the correct state of facts.

26. In the matter of Chuharmal's case, [1988] 172 ITR 250 (SC), the Assessing Officer on search of the bedroom of the assessee found the watches and the same were seized. The Department held that the assessee was the owner. The High Court, relying upon section 110 of the Evidence Act, which stipulates that when the question is whether any person is the owner of anything of which he is shown to be in possession, the onus of proving that he is not the owner is on the person who affirms that he is not the owner, held that it is well-settled principles of law that normally, unless the contrary is established, title always follows possession. The Supreme Court held that the approach of the High Court in following the principle of section 110 of the Evidence Act was right in holding that the value of the watches represented the concealed income of the assessee.

27. From the principles of law laid down in the aforesaid judgments, it may be deduced that, admission is one important piece of evidence but it cannot be said that it is conclusive. It is rebuttable. It is open to the assessee who made the admission to establish that the confession was involuntary and the same was extracted under duress and coercion. The burden of proving that the statement was obtained by coercion or intimidation lies upon the assessee. Where the assessee claims that he made the statement under the mistaken belief of fact or law, he should have applied for rectification to the authority who passed the order based upon his statement. The retraction should be made at the earliest opportunity and the same should be established by producing any contemporaneous record or evidence, oral or documentary, to substantiate the allegation that he was forced to make the statement in question involuntarily.

28. If we examine the facts of the present case in the light of the settled principles of law in this regard, we find that search was conducted in the presence of the assessee, Hukum Chand Jain, and his sons, seizures were effected. The assessee was confronted with the documents seized during the search proceedings, however, the assessee could not explain the same. Apart from the seizure of the above documents and loose papers, cash of Rs. 2,00,961 and gold ornaments worth Rs. 20,58,420 was also found from which Rs. 1,50,000 and gold ornaments of Rs. 8,45,837 was seized, as they were not entered in the account books. The assessee could not explain the above recovery of cash and jewellery and in reply to question No. 10 of his statement under section 132(4), he surrendered Rs. 30 lakhs as his undisclosed income for the block period and further expressed his willingness to pay the taxes worked out against the surrendered undisclosed income. He further stated that he is surrendering the income to avoid the dispute with the Income-tax Department and for mental peace. The assessee, Hukum Chand Jain, has further stated that he is signing his statement after regarding and understanding the same without any coercion and the same has been further countersigned by his three soris/respondents-assessees. It is also not in dispute that the assessee did not retract their statements immediately after the search and seizure was over. In the return also, no explanation was offered for their surrender of undisclosed income of Rs. 30 lakhs at the time of search and seizure operations under section 132(4). The allegation of duress and coercion was made for the first time in the year 2004, i.e, after almost two years when the Assessing Officer confronted them with their statements under section 132(4) and they were asked to explain as to how the above undisclosed income does not find place in their return. The Department's contention that there were no mitigating circumstances to show the admission/surrender made by the assessee was retracted at the earliest part of time with corroborative evidence has substance. There is substance in the argument that the assessee surrendered undisclosed income only when he was not able to explain the unaccounted cash, gold jewellery, other documents and loose papers found during search and by volunteering surrender of undisclosed income, he induced the search party not to proceed with collection of other evidence and to accept the surrendered amount. Apart from this, the assessee made an alternative plea that in case any other additions are made as income of the assessee, then the same should be set off from the amount of Rs. 7.5 lakhs in each case, as the surrender was made to cover up all the possible leakages of the revenue, and to cover all the unexplained loose papers, etc., and the same was accepted by the Assessing Officer.

29. From a perusal of the order of the Commissioner of Income-tax (Appeals) as also the Tribunal, we find that none of the forums have recorded a finding that the statement under section 132(4) was obtained under duress. The assessee has totally failed to discharge the burden of proving that the statement was obtained under coercion or intimidation. He did not make any complaint to the higher authorities alleging intimidation or coercion for retracting the statement under section 132(4). The Tribunal has confirmed the order of the Commissioner of Income-tax (Appeals) by observing that the surrender was made under a bona fide mistake though it was never the case of the assessee before any of the forums that the surrender was on account of a bona fide mistake. The appellate forums while reversing the orders of the Assessing Officer are legally bound to dwell upon specific reasons assigned by the Assessing Officer for not accepting the explanation of the assessee.

30. In the present case, we find that the Assessing Officer has assigned cogent reasons for not accepting the retraction of the statement under section 132(4) by the assessee. From a perusal of the orders of the appellate forums, we find that without meeting the reasoning of the Assessing Officer for not accepting the explanation of the assessee the order has been reversed and the explanation has been accepted that too on a ground which was never agitated by the assessee before any of the forums. On the basis of aforesaid reasons, we hold thus:

• The Tribunal was not justified in holding that the principles of law laid down in the matter of V. Kunhambu and Sons' case, [1996] 219 ITR 235 (Ker) did not apply to the present case.

• The assessee had failed to discharge the onus of proving that confession made by him under section 132(4) was as a result of intimidation, duress and coercion or that the same was made as a result of mistaken belief of law or facts.

• The Assessing Officer was justified in assessing the income of the assessee on the basis of the surrender of undisclosed income made by the assessees under section 132(4) of the Act.

• The orders passed by the Commissioner of Income-tax (Appeals) and the Tribunal are set aside and the order passed by the Assessing Officer is restored.

31. Order accordingly.