M. Narayanan & Bros. v. Income Tax Special Investigation Circle

APPEAL under Section 260A of the Income Tax Act against the order dated 10.8.2004 made in I.T.A No. 1523.Mds/1997 on the file of the Income-Tax Appellate Tribunal, Madras Bench.

JUDGMENT

(Judgment of the Court was delivered by CHITRA VENKATARAMAN, J.)

The assessee is on appeal as against the order of the Tribunal, raising the following substantial questions of law:

“1. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the addition made by the assessing officer is justified when the additional income of Rs. 4 lakhs offered in the second statement on 11.5.1993 was a clear mistake?

2. Whether on the facts and in the circumstances of the case, the Tribunal was right in setting aside the order of the Commissioner of Income-tax (Appeals) and upholding the order of the assessing officer in respect of addition of Rs. 4 lakhs under “other sources”?”

2. The assessee herein had his income from pawn broking business as well as from commission earned on dealing with coconut seedling. The Department conducted search in the assessee's premises on 10.5.1993 and 11.5.1993, where cash of Rs. 60,000/- and gold jewellery of 1,746 grams taken on pledge in pawn broking business were seized. Apart from that, Kisan Vikas Patra for Rs. 45,000/-, Fixed Deposits of Rs. 1,30,252/-, pro-notes for Rs. 1,22,000/- and finance deposits of Rs. 5,000/- were also found and seized. Two statements were recorded from the assessee on 10.5.1993 and 11.5.1993 On the first of the statements made, the assessee admitted that apart from earning income from pawn broking business for the past 10 years, the assessee was in the business of purchasing and selling coconuts for the past 25 years. The assessee admitted that he was not maintaining proper books of accounts except some jottings in a small note book. The assessee further admitted that he had taken loan from outsiders to the tune of Rs. 2,75,000/-. He also showed the details of loan taken from the family to the tune of Rs. 4,75,000/-. The assessee offered a sum of Rs. 3,00,000/- as unaccounted income on the first day of search. As regards the jewellery found, it was stated that he had made advances to the tune of Rs. 4,55,900/- on the security of the jewellery pawned with him. On 11.5.1993, the second day of the search, the assessee admitted that the cash of Rs. 1,14,000/- found at the time of raid represented money in rotation in his coconut and pawn broking business. He also offered a sum of Rs. 4,00,000/-, over and above what was offered in the previous day.

3. In the course of the assessment proceedings, the assessee, however, pointed out that the original admission on 10.5.1993 the income of Rs. 3.00 lakhs as unaccounted income alone was correct and the subsequent statement made on the next day, i.e, on 11.5.1993, offering a further sum of Rs. 4.00 lakhs was not correct. Thus the assessee retracted the statement made on 11.5.1993 offering an additional income of Rs. 4.00 lakhs. The Assessing Officer, however, rejected the plea and made assessment on the basis of the confession statements given by the assessee.

4. On appeal before the Commissioner of Income Tax (Appeals), the assessee contended that the additional income of Rs. 4.00 lakhs offered on 11.5.1993 on the second statement was a clear mistake and that there were no materials which would warrant any interference that the assessee had such undisclosed income. For this, the assessee placed reliance on the income of the family members, from whom he had obtained loan. The assessee, further pointed out that the sum of Rs. 4.00 lakhs was to be taken as income from money lending business and that the transactions related to various years starting from 1989-90 to 1992-93. Hence, the same could not be considered as income in the year 1994-95.

5. The Commissioner of Income Tax (Appeals) considered the said fact and pointed out that the family members, from whom the assessee had taken loan, had filed their returns from 1989-90 onwards offering the loan taken by the assessee as income in their returns. Their statements were accepted and based on the statements, the assessments were completed under Section 143(3) of the Income Tax Act. They were also subject matter of appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) further pointed out that in respect of loans obtained from Sabitha Devi, there were documentary evidence in the form of Fixed Deposits in her name in Syndicate Bank. Quite apart, it was also pointed out that the credits in the names of Lakshmi Ammal and Usha Rani alone were not supported by satisfactory explanation. However, since the assessments were completed at their respective hands, the question of again adding it in the hands of the assessee did not arise. On the alternative plea taken that the said amount offered by the assessee would relate to the pawn broking business, the Commissioner of Income Tax (Appeals) pointed out from the details of list of jewellery and the amount of loan advanced on the pledge of such jewellery, that the transactions related to various years starting from 1988-89 to 1992-93. Thus the Commissioner of Income Tax (Appeals) agreed with the assessee's case that the confession made on 11.5.1993 offering a sum of Rs. 4.00 lakhs was not supported by any material; that the assessee was justified in withdrawing the said offer. Aggrieved by the same, the Revenue went on appeal before the Income Tax Appellate Tribunal.

6. The Tribunal, in a very cryptic order, allowed the appeal filed by the Revenue, taking the view that the statements were made by the assessee freely and voluntarily and there was no compulsion, nor was a complaint by the assessee alleging coercion from the Department. In the circumstances, when the assessee was not maintaining proper accounts, the statements given form the basis for estimating the income. Aggrieved by the same, the assessee has preferred the present appeal.

7. Learned counsel appearing for the assessee placed reliance on the decision reported in (1973) 91 ITR 18 (Pullangode Rubber Produce Co. Ltd. v. State of Kerala) in support of his contention that where the assessee comes forward with a proper explanation as regards the statement made originally, an assessment passed just on the statement made by the assessee would not be sustained, since the statement could not be treated as a conclusive one. Thus learned counsel submitted that even though the admission may be taken in as an important piece of evidence, yet, when the assessee had offered a valid explanation and the same was accepted by the Commissioner of Income Tax (Appeals), the Tribunal had committed a serious error in ignoring these principles but sustained the assessment just on the basis of the statement of the assessee. Learned counsel further pointed out to the circular issued by the Central Board of Direct Taxes dated 10th March, 2003, as regards the relevancy of the confession statement recorded in the course of search, which was considered by this Court in the decision of this Court reported in (2008) 300 ITR 157 (Commissioner Of Income-Tax v. S. Khader Khan Son). This Court rejected the appeal preferred by the Revenue holding that the materials collected in the course of search and survey under Section 133A of the Income Tax Act did not have any evidentiary value, that the assessment could not rest solely on the basis of the statement given by one of the partners of the assessee firm. In the light of the above-said decisions, particularly the circular of the Central Board of Direct Taxes in the circular No. F. No. 286/2/2003-IT (Inv.) dated 10th March, 2003, learned counsel appearing for the assessee pleaded that the order of the Tribunal merits to be set aside and the detailed findings by the Commissioner of Income Tax (Appeals) merits to be accepted.

8. Per contra, learned standing counsel appearing for the Revenue placed reliance on the decisions reported in (2010) 328 ITR 400 (Bachittar Singh v. Commissioner of Income Tax) and (2006) 287 ITR 209 (P.R Metrani v. Commissioner Of Income Tax, Bangalore.) only to contend that when the assessee had volunteered to come before the Officer to make a statement admitting an income of Rs. 4.00 lakhs, it stands to reason that the same would be binding on the assessee. The retraction came long after the date of statement given by the assessee and only in the course of the assessment proceedings, the assessee chose to contend otherwise. In the circumstances, no credence could be given to the explanation given by the assessee.

9. Heard the learned counsel appearing for the assessee and the learned standing counsel appearing for the Revenue.

10. It is seen from the Circular dated 10th March, 2003, which has been extracted in the decision reported in (2008) 300 ITR 157 (Commissioner Of Income-Tax v. S. Khader Khan Son) that the Board emphasized the need to have a focus on the collection of evidence, search and seizure and survey operations, which leads to an information as regards the undisclosed income. The Board viewed that confessions recorded during the course of search and seizure and survey operations did not serve any useful purpose. The Board also insisted that while recording statements during search and seizure and survey operations, no attempt should be made to obtain confession statement as to the undisclosed income. It was also stated that any action on the contrary, shall be viewed seriously and the said circular has to be applied to all pending assessments. Thus the Board insisted the Assessing Officer to rely upon the evidences/materials gathered during search operation and that the assessment could not rest simply on the confession statements made.

11. Thus pointing out to the above Circular, this Court, in the decision reported in (2008) 300 ITR 157 (Commissioner Of Income-Tax v. S. Khader Khan Son) laid the following principles, which may usefully be extracted herein too:

“(i) An admission is extremely an important piece of evidence but it cannot be said that it is conclusive and it is open to the person who made the admission to show that it is incorrect and that the assessee should be given a proper opportunity to show that the books of accounts do not correctly disclose the correct state of facts, vide decision of the Apex Court in Pullangode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18 (SC) ;

(ii) In contradistinction to the power under Section 133A, Section 132(4) of the Income Tax Act enables the authorised officer to examine a person on oath and any statement made by such person during such examination can also be used in evidence under the Income Tax Act. On the other hand, whatever statement is recorded under Section 133A of the Income Tax Act it is not given any evidentiary value obviously for the reason that the officer is not authorised to administer oath and to take any sworn statement which alone has evidentiary value as contemplated under law, vide Paul Mathews and Sons v. Commissioner of Income Tax [2003] 263 ITR 101 (Ker) ;

(iii) The expression “such other materials or information as are available with the Assessing Officer” contained in Section 158BB of the Income Tax Act, 1961, would include the materials gathered during the survey operation under Section 133A, vide Commissioner Of Income-Tax v. G.K Senniappan [2006] 284 ITR 220 (Mad)];

(iv) The material or infomration found in the course of survey proceeding could not be a basis for making any addition in the block assessment, vide decision of this Court in T.C (A) No. 2620 of 2006 between Commissioner of Income Tax v. S. Ajit Kumar;

(v) Finally, the word “may” used in Section 133A(3)(iii) of the Act, viz., “record the statement of any person which may be useful for, or relevant to, any proceeding under this Act, as already extracted above, makes it clear that the materials collected and the statement recorded during the survey under Section 133A are not conclusive piece of evidence by itself.”

12. In the decision reported in (2006) 287 ITR 209 (P.R Metrani v. Commissioner Of Income Tax, Bangalore.), dealing with the scope of Section 132(4A), the Supreme Court considered the conclusive character of the statement made in a search operation. The Apex Court held that Section 132 is a complete code by itself. Under Section 132(4), in the case of search, the authorised officer can examine any person who is found to be in possession or control of any books of accounts, documents, money, jewellery or other valuable article and any statement made by such person during the examination may thereafter be used in evidence in any proceedings. Sub section (4A) enables an Assessing Officer to raise a rebuttable presumption that such books of accounts, money, jewellery, etc., belonged to such person that the contents of books of accounts and the documents are true and the signature found therein are in the handwriting of the particular person. The Supreme Court held that the presumption is rebuttable and is available only in regard to the proceedings for search and seizure and for the purpose of Section 132(5) and 132B. However, the presumption under sub-section (4A) to Section 132 of the Income Tax Act would not be available for the purpose of framing a regular assessment. However, retention of books etc., can be used as a piece of evidence for the purposes of framing of the regular assessment. Thus going by the above-said decision, while the statement rendered at the time of search under Section 132(4) may be used in evidence in any proceeding, yet, that by itself, does not become the sole material to rest the assessment more so when the assessee seeks to withdraw the same by producing material evidence in support of such retraction.

13. Thus going by the said decision of the Supreme Court, as well as the law declared in the decision reported in (1973) 91 ITR 18 (Pullangode Rubber Produce Co. Ltd. v. State of Kerala) that it is always open to a person, who made the admission, to show that the statement to offer income is incorrect and had material to substantiate so, we hold that the Tribunal is not justified in placing undue emphasis on the confession statements made by the assessee.

14. As rightly pointed out by the learned counsel appearing for the assessee, when the assessee had explained the statement made on the second day of the search with materials, that the amounts offered were the loans taken from the relatives who were already assessed on the said amount; apart from this, even otherwise, the transactions relating to pawn broking, related to years prior to the date of assessment and had no relevance to the year under consideration, rightly the Commissioner of Income Tax (Appeals) accepted the case of assessee to cancel the assessment on Rs. 4.00 lakhs. Thus when the assessee had explained his statement as not correct in the context of the materials produced, as held by the Apex Court in the decision reported in (1973) 91 ITR 18 (Pullangode Rubber Produce Co. Ltd. v. State of Kerala), we do not think that the Tribunal would be justified in its conclusion that the statement made would clothe the assessment with legality. Quite apart from that, the case of the assessee also stands supported by the Circular dated 10th March, 2003 of the Central Board of Direct Taxes, which has given categorical directions to the officers, who are entrusted with the job of assessment that undue emphasis should not be placed on the statements recorded. In fact, it had given a mandate not to obtain confession as to the undisclosed income. Thus applying the Circular dated 10th March, 2003 to the facts of the case, which is binding on the Revenue, we have no hesitation in setting aside the order of the Tribunal. As already pointed out that except for the statements referred to by the Tribunal, it had not adverted its attention to the materials produced by the assessee before the Commissioner of Income Tax (Appeals) explaining the claim that the said amount could not be included in the hands of the assessee.

15. In the circumstances, the order of the Tribunal stands set aside and the Tax Case (Appeals) stands allowed. No costs.