Rajesh Jain v. Deputy Commissioner of Income-tax

Vimal Gandhi, President :

This appeal by the assessee for block period 1st April, 1990 to 20th July, 2000, is directed against the order of the CIT(A)-III, New Delhi, confirming assessment in the hands of the assessee on total undisclosed income of Rs. 25 lakhs.

2. Facts of the case are that assessee's premises were subjected to search by Revenue authorities under s. 132 of the IT Act on 20th July, 2000 and certain books of accounts and documents were seized. The assessee was further found possessing cash amounting to Rs. 1,38,000 out of which Rs. 88,000 was seized. It is the claim of the assessee that no bullion or other valuable assets were found from the premises of the assessee. It is further claim of the assessee that all the seized documents were explained to the AO during the course of assessment proceedings. However, pressure was put on the assessee and his statement under s. 131 was recorded by Dy. DIT (Investigation) on 12th Feb., 2001 wherein he is stated to have surrendered Rs. 20 to 25 lakhs as income from share trading and speculation business. On the basis of aforesaid statement, the AO took assessee's undisclosed income at Rs. 25 lakhs. The above amount was added in asst. yrs. 1999-2000 and 2000-2001 in the block assessment.

3. The objection of the assessee that the aforesaid statement was retracted and that above admission in the statement was of no value, was rejected by the AO. He maintained that statement recorded 7 months after the date of search and it is highly unreasonable on the part of the assessee to contend that surrender of Rs. 25 lakhs was without any basis. The AO further mentioned that the assessee did not complain to any IT authorities that he was forced to surrender amount of Rs. 25 lakhs. In the above background a sum of Rs. 25 lakhs was assessed as undisclosed income in the hands of the assessee.

4. The assessee impugned above assessment in appeal before the CIT(A)-III, New Delhi and contended that assessment order dt. 12th Feb., 2001 made on the basis of alleged confession, was illegal as the aforesaid confession was obtained through coercion and pressure and was retracted. The said confession has no evidentiary value. The AO was obliged to show undisclosed income with reference to material found in search or otherwise collected.

5. The appellant further explained the background and circumstances in which confessional statement was obtained as a result of coercion and pressure exerted on the assessee. He pointed out that on the date of search i.e. 20th July, 2000 all his personal and bank accounts were stayed. All the accounting software and hardware were seized. Due to above restraint, the appellant's business came to standstill. In spite of repeated requests the restraint on the business, bank account was not lifted nor accounting server or copy of data seized was made available to the appellant. Under the above circumstances it became impossible for the appellant to conduct his business. The appellant claimed that he was intensely pressurised to give a confessional statement— even though there was no evidence of any incriminating documents found from his premises. The appellant relied upon several decisions to contend that the confessional statement obtained from the appellant was not of any evidentiary value. All the decisions are referred to by the learned CIT(A) in para 6 p. 3 of the impugned order.

6. The learned CIT(A) while disposing of the claim of the assessee considered definition of "undisclosed income" as per s. 158B(b) of IT Act and also held that the authorised person carrying search was entitled to record statement under s. 132(4) and use it as evidence for the purpose of assessment. The learned CIT(A) did not accept that confessional statement of assessee was obtained through coercion and force. He held that above statement was voluntarily made six months after the search. No duress or coercion could be perceived as great length of time had elapsed. The appellant did not make any complaint to any higher IT authorities about use of force against him. The learned CIT(A) also considered decisions cited by the assessee and held them to be distinguishable. Considerable importance was attached to the fact that the assessee had filed return disclosing undisclosed income of Rs. 7 lakhs and thus admitted that he did carry on transaction outside regular books of accounts. It has been observed that the assessee admitted fact of undisclosed income in his block return and therefore, was not right in contending that confessional statement was wrong and was obtained through coercion. The veracity of the statement was admitted by the assessee. With the aforesaid observation, the learned CIT(A) held that AO was justified in making assessment on the basis of confessional statement.

7. The assessee is aggrieved and has brought the issue in appeal. The learned counsel for the assessee Shri S.P. Agarwal reiterated the submissions made before the Revenue authorities. He emphasised that confessional statement was obtained under duress and pressure and was not of any evidentiary value. The same was retracted. He further argued that decisions cited before the CIT(A) were applicable and case law relied upon by the learned CIT(A) did not support the claim of the Revenue. The learned Departmental Representative on the other hand, relied upon impugned order of the CIT(A) which was elaborate and based on cogent reasons.

8. We have given careful thought to the rival submissions of the parties. It is true that authorised officer carrying on search under s. 132 is entitled as per the statutory provision, to record statement of the person searched under s. 132(4) of IT Act and use that statement for purposes of assessment. He is not a police officer and confession made to him is admissible notwithstanding later retraction by the person making confession. All the same person carrying the search is a person possessing some authority and therefore, assessment wholly and exclusively based on confessional statement is a risky affair. If assessment could be solely based on confessional statement procured by the Revenue authorities, then there was no need to have elaborate provision in the statute. There was no need to use long arm of search to collect material for making assessments. Therefore, it is insisted that confessional statement should be corroborated with some material to show that assessment made is just and fair. It is not arbitrary and capricious. As to what would be sufficient corroborative material would depend upon facts and circumstances of the case. The aforesaid conclusion is supported by the following observations of various Courts:

(1) Pullangode Rubber Produce Co. Ltd. v. State of Kerala 1972 CTR (SC) 253 : [1973] 91 ITR 18 (SC) :

"An 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."

(2) Nagubai Ammal v. B. Sharma Rao AIR 1956 SC 593:

"An admission is not conclusive as to the truth of the matters stated therein. It is only a piece of evidence, the weight to be attached to which must depend on the circumstances under which it is made. It can be shown to be erroneous or untrue."

(3) Krishan Lal Shiv Chand Rai v. CIT [1973] 88 ITR 293 (P&H):

"It is an established principle of law that a party is entitled to show and prove that the admission made by him probably is in fact not correct and true…..."

Various Benches of the Tribunal made following observations on the relevancy of confessional statement offered to get assessed on undisclosed income:

1. Dy. CIT v. Sanmukhdas Wadhwani [2003] 80 TTJ (Nag) 648 : [2003] 85 ITD 734 (Nag):

At p. 743 para 11. "……The AO is required to determine the undisclosed income of the block period in a specific manner and the findings of the AO regarding the undisclosed income are to be based on the material found as a result of search. A combined reading of these provisions makes it clear that the amount which is taxable as "undisclosed income" in the block assessment should fall within the scope and ambit of the definition expressly given in Chapter XIV-B and the amount which is not covered by the said definition cannot be subjected to tax in the block assessment even though declared as such by the assessee in the return of income for block period…….."

2. Control Touch Electronics (Pune) (P) Ltd. v. Asstt. CIT [2001] 72 TTJ (Pune) 65 : [2001] 77 ITD 522 (Pune) :

At para 9 "…..At this stage, it is mentioned that it is a settled legal position that there cannot be any estoppel against the statute. If any income is not taxable by virtue of any provision of the Act, then it cannot be taxed merely because it was offered by the assessee in his return. Therefore, the contention of the learned Departmental Representative in this regard is hereby rejected. Accordingly, the order of the AO is set aside on this issue and is hereby deleted from the assessment of undisclosed income……"

3. Kasat Paper Pulp Ltd. v. Asstt CIT [2000] 69 TTJ (Pune) 924 : [2000] 74 ITD 455 (Pune) :

At p. 465 para 8 "…..There cannot be estoppel against the legal principles and therefore, if the income does not accrue to the assessee, the same cannot be taxed merely on the ground that it was offered for taxation. The assessee can always retract if the amount offered cannot be taxed under the law....."

9. Having in mind principles laid down in the above authorities, namely, that value of confession or an admission would depend upon circumstances under which it is made and other material available on record, we proceed to examine the relevant portion of the statement which according to the Revenue authorities constituted basis of assessment in this case. The same is available at p. 5 para 10 of the order of the learned CIT(A) and is as under:

"Q. 1 During the course of search at your residence, business premises etc. a number of bank account, share/securities and other documents were found. On scrutiny of these documents many of these do not appear to be accounted for in your books of account etc. What do you want to say about this?

Ans.: At the outset …..However, I admit that there may be some expenses inflated, and transactions recorded in the books of account of M/s Trans Asia, M/s Pelican, M/s Aditi, which I may not be able to explain. I also admit that I earned about Rs. 20 to 25 lakhs from share trading and speculation business in last ten years which has not been accounted for by me in my books of account from speculation in shares." (underlined, italicised in print, to emphasise)

10. After considering above extracted portion of the confessional statement along with other part of the statement and other facts of the case, we are of the view that assessment of the assessee of "undisclosed" income at Rs. 25 lakhs, is not legal and is liable to be set aside for the reasons recorded hereinbelow.

(a) Sequence of events in this case is very important. The search was carried on at the residence and business premises of the assessee on 20th July, 2000. Cash of Rs. 1,38,000 was found and out of which Rs. 88,000 was seized. Some documents were also found. Computer server, notes and other documents, shares and securities and records found were seized. All bank accounts, clients' accounts, depositors' accounts were restrained.

(b) The restraint continued from 20th July, 2000 to 12th Feb., 2001. The assessee made several requests to release business bank accounts and depositors' accounts, thus permit the assessee to carry on the business. Requests were not accepted and assessee could not resume his business. The above allegation and claim are not denied by the Revenue authorities and acts are specifically stated to be justified by the learned CIT(A).

(c) We are unable to hold that above acts of the Revenue authorities would not put any pressure on normal businessman. It is further admitted that the accounts were revoked and released only after Rs. 5 lakhs were deposited by the assessee on 30th March, 2001. In between, on 12th Feb., 2001, the said confessional statement was recorded. We are unable to reject assessee's contention that great psychological pressure was built upon him before he made a statement in February, 2001. It is to be noted that it is not possible to lead direct evidence of use of pressure tactics. It is to be gathered from the evidence, mostly circumstantial.

(d) That confession relied upon is not clear as to form basis of assessment of undisclosed income. Provisions of Chapter XIV-B are made applicable in search cases and undisclosed income is defined in s. 158B(b) of IT Act. It is to be assessed on the basis of seized material. It cannot be totally de hors of such material.

(e) In the answer given to the question, the assessee stated, "I also admit that I earned about Rs. 20 to 25 lakhs from share trading and speculation business in last ten years which has not been accounted for by me in my books of account from speculation in shares." While the assessee stated that Rs. 20 to 25 lakhs were earned in last 10 years, the AO assessed the total amount in two asst. yrs. 1999-2000 and 2000-2001, i.e., Rs. 12,50,000 each. The assessment is not based on the confession and therefore, the Revenue authorities have to show that assessment refers to material available on record; that the assessee had undisclosed income of Rs: 12,50,000 in each of the two years and thus justify the assessment of the said income.

(f) It is matter of record that after the raid the assessee was called upon to explain entries in the seized material and the seized document. The assessee rendered detailed explanations for each of the document found and seized and no adverse comment has been made by the AO on the explanations rendered. This plea that all the entries in the seized documents were explained, was raised before the AO as also before the CIT(A). It has not been held to be wrong. If statement is not wrong, then it is difficult to accept that seized material reflected or established undisclosed income of Rs. 25 lakhs. If confession or admission is to be proved to be wrong or unreliable, then assessee can only refer to and prove that no such undisclosed income has been found in the seized material. What is the other method to disprove a statement? The assessee did whatever was possible and it is nobody's plea that there was non-co-operation on the part of the assessee or that entries in the seized documents/material were not explained. It is to be stated that no attempt was made by the Revenue authorities to find or quantify undisclosed income, if any, in the seized record.

11. For all the above reasons, we are of the view that alleged confessional statement was not good material for computing the undisclosed income at Rs. 25 lakhs. The assessment is not based on legal and justifiable basis. In the above circumstances, we are inclined to hold that income disclosed in Form 2B at Rs. 7 lakhs for the entire block period be assessed in the hands of the assessee. No arguments were advanced by the learned counsel for the assessee that aforesaid amount was not assessable in the hands of the assessee. The Revenue authorities have failed to prove that seized material or other relevant and admissible material establishes higher income than shown in the return by the assessee. As already noted that entries have been explained in various letters written by the AO and therefore, assessment of higher amount than Rs. 7 lakhs would not be legal and permissible. It is therefore, deemed proper that on facts of the case, the AO be directed to take assessee's undisclosed income under Chapter XIV-B at Rs. 7 lakhs. The AO is directed to revise the assessment accordingly.

12. In the result, the assessee's appeal is partly allowed.