Hiralal Maganlal & Co. v. Deputy Commissioner of Income-tax, SR-52, Income Tax Appellate Tribunal, Judgment, Law, casemine.com

Citation Codes

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Case Number

IT (S&S) Appeal No. 117 (Mum.) of 1996

Attorney(S)

Ms. Usha DalalY.P. TrivediApurva Shah

Judges

M.K. CHATURVEDID.K. SRIVASTAVA

Acts

SECTION 115 EVIDENCE ACT
section 158BC read with section 143(3) of the Income-tax Act, 1961.
section 3 of the Evidence Act. Section 114 of the Evidence Act
rule 8 of the Income-tax (Appellate Tribunal) Rules
section 131 or 132(4) of the Income-tax Act, 1961.
provisions of sub-section (4) of section 132
section 132(4) of the Income-tax Act, 1961.
SECTION 132 A INCOME TAX ACT 1961
Section 132(4A) of the Income-tax Act
section 132(3) of the Income-tax Act
SECTION 131 INCOME TAX ACT
SECTION 3 EVIDENCE ACT
INCOME TAX ACT

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Smart Summary

Factual and Procedural Background

The appeal was filed by the assessee (a firm and leading dealer of dry fruits in Mumbai) against a block assessment order passed by the Assessing Officer under section 158BC read with section 143(3) of the Income-tax Act, 1961. A search and seizure operation under section 132 was conducted at the assessee’s business premises and related residential/business premises from 21-11-1995 to 16-1-1996. A block return was filed on 1-6-1996 declaring undisclosed income of Rs. 70,000. The AO, having regard to seized materials and statements recorded under section 132(4), completed block assessment on undisclosed income of Rs. 2,00,70,000, including an addition of Rs. 2,00,00,000 based on seized "daily stock" sheets (pages 13–16 of Annexure A/1) and admissions recorded at the time of search. The assessee challenged (inter alia) the Rs. 2 crore addition on grounds that the seized sheets represented mere estimates, that the confessional statement was made under coercion or by a partner in ill-health, and that retraction and later evidence showed the seized sheets did not reflect actual unaccounted stock. The Tribunal heard parties, examined documentary seized material and multiple statements, and considered the Assessing Officer’s reasoning and subsequent statements made under section 131.

Legal Issues Presented

Whether the statement/ declaration made by Shri Prataprai Sanghvi under section 132(4) at the time of search was voluntarily made and hence admissible and binding for assessment purposes.
Whether the seized sheets (pages 13–16 of Annexure A/1) represented actual unaccounted stock or were merely estimates of future purchases.
Whether the assessee’s later retraction (affidavit of Navinchandra Mehta and subsequent statements under section 131, etc.) effectively retracted the earlier on-oath declaration recorded under section 132(4).
Whether additions to income can be sustained solely on statements/confessions recorded during search (including retracted confessions), and what corroboration is required.
Whether the Assessing Officer erred in making the Rs. 2 crore addition without conducting further searches to locate matching stock or issuing prohibitory orders for the alleged unaccounted stock.

Arguments of the Parties

Appellant's (Assessee's) Arguments

The seized sheets were only estimates for new goods to be ordered for 1996–97 (prepared after Diwali seasonal sales), not records of actual stock on hand on 20-11-1995.
The confessional statement of Shri Prataprai Sanghvi (recorded at search) was obtained under coercion, while he was in a confused/weak state (depression, poor eyesight), kept awake, not permitted access to partners, and thus unreliable.
The seized-sheet narration on the back of page 16 (in Gujarati) shows they were estimates; that narration and an affidavit of Navinchandra Mehta support that position.
The statement of Shri Prataprai Sanghvi was later retracted (return showing Rs.70,000, affidavit of Mehta, statements recorded under section 131) and therefore the addition cannot rest solely on the original on-search statement.
The Department did not make adequate independent enquiries to locate the alleged unaccounted stock or issue prohibitory orders in respect of it; at most any addition should be limited to the difference between book stock (approx. Rs.1.39 crores per assessee) and seized-sheet stock (approx. Rs.1.99 crores).
If the addition is confined to the discrepancy between book stock and seized sheets, the assessee was willing to accept and offer that difference for taxation.

Respondent's (Revenue / DR) Arguments

The seized daily stock statements and confessions were consistent: Shri Prataprai Sanghvi and Shri Jhaverchand Momaya corroborated the seized sheets as actual unaccounted stock and not mere estimates.
The narration on the back of page 16 was of doubtful genuineness: it lacked page-numbering, was in Gujarati (main pages in English), was not pointed out at search, and was not mentioned by witnesses during examination — therefore it cannot be relied upon.
The confessional statements were voluntary, coherent, recorded in the presence of witnesses, and made after consultation with the firm’s accountants; allegations of coercion were not supported by contemporaneous evidence.
Once an admission was made on oath and accepted by investigators (who altered their investigatory course accordingly), the assessee could not later retract to the prejudice of the Department; principles of estoppel (including Section 115, Evidence Act) and case law bind the declarant.
The confessional statement was corroborated by documentary (seized sheets) and oral evidence (statements of the accountant and partner) and therefore the AO was justified in making the addition without further searches or remand.
Retraction months later (affidavit and section 131 statements) was an afterthought and could not dislodge the earlier voluntary on-oath admissions acted upon by the Department.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Nathmal Peshormal v. CIT [SLP No.12684 of 1989 : (1990) 182 ITR 147–48 (SC)]	Principle that statements/admissions by partners can bind the firm and be relied upon by revenue where appropriate.	The Tribunal held the assessee’s case to be covered by this principle and treated partner’s on-search declarations as binding on the firm.
Surjeet Singh Chhabra v. Union of India [1997] (reported as 1 SCC 508 / 1997 references)	Confession/admission recorded by officials binds the declarant; retraction does not necessarily negate the evidentiary value of the confession in certain proceedings.	Cited to support view that on-search admissions bind the declarant and that retraction shortly after does not automatically nullify their evidentiary effect; used to uphold reliance on the searched statements.
M.K. Mohammad Kunhi v. Commissioner of Income-Tax [1973] 92 ITR 341 (Ker.)	Distinction between representations of fact and law; where representation of fact accepted and revenue altered position, assessee may be estopped from later denying it.	Applied to hold that the assessee could not retract factual admissions made at search once the Department acted upon them.
Rameshchandra & Co. v. CIT [1987] 168 ITR 375 (Bom.)	If an assessee has made a statement of facts, taxing authority may tax in accordance with that statement; assessee cannot later complain absent proof of mistake or involuntariness.	The Tribunal relied on this to emphasize that voluntary on-search statements, when acted upon, preclude later successful retraction unless properly proved.
Video Master v. Joint. CIT [2002] 83 ITD 102 (Mum.)	Supportive authority on use of statements/ admissions in assessment (as cited).	Referenced among authorities upholding evidentiary weight of on-search statements.
Dr. S.C. Gupta v. CIT [2001] 248 ITR 782 (All.)	Admission in a statement is an important piece of evidence and can form the basis of assessment; burden on assessee to show that admission was wrong.	Applied to hold that the assessee failed to discharge burden to prove the admission incorrect; confession could support assessment.
Pullangode Rubber & Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18	Admissions are significant evidence though not conclusive; they may form basis of action/assessment.	Cited to show that a voluntary statement can form the basis of assessment even if later retracted, subject to facts and corroboration.
Shrishail Nageshi Pare v. State of Maharashtra (AIR 1985 SC 866)	Retracted confession may form basis of conviction if it receives corroboration from independent sources.	Used for the proposition that retracted confessions retain evidentiary value if corroborated; applied by analogy to tax statements.
T.S. Kumarasami v. Asstt. CIT [1998] 65 ITD 188	Income-tax Officers are not police; statements/admissions recorded during search bind declarant unless proved involuntary.	Supported the Revenue’s position that on-search statements are binding and cannot be retracted absent proof of coercion.
Hotel Kiran v. Asstt. CIT [2002] 82 ITD 453 (Pune)	Admissions in statements under section 132(4) have high evidentiary value; retraction allowed only in limited situations (involuntariness / mistake of fact or law).	Cited to explain exceptions where retraction is permissible and to confirm the general binding character of on-search admissions.
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	Criminal jurisprudence holding that retracted confession, if proved to be voluntarily made, may be acted upon along with other evidence; corroboration principle.	Referred to demonstrate that retracted confessions can be used with other evidence and there is no absolute rule requiring independent corroboration in all cases.
Kunhambu v. Commissioner of Income Tax [1996] 219 ITR 235 (Ker.)	Where assessment is based on statement of assessee, and statement was voluntary, the assessee cannot later challenge without showing it was made under mistake or involuntariness.	Applied to reinforce that voluntary on-search statements sustain assessment unless successfully challenged by evidence of involuntariness or mistake.
P.K. Palwankar v. CGT [1979] 117 ITR 768 (MP); Commissioner Of Income-Tax, Kerala v. Mrs. Doris S. Luiz [1974] 96 ITR 646 (Ker.)	Authorities cited in context of evidentiary value of admissions and burden on assessee after retraction.	Referenced as supporting authorities for the principle that the burden to disprove an admission lies on the declarant and that retraction alone does not automatically destroy evidentiary value.
Pickard v. Sears [1837] 6 Ad & EI 469	Common-law estoppel principle: a person who induces another to act on a representation cannot later allege the contrary (allegans contraria non est audiendus).	Adopted to support that the assessee, having induced the Department to act on the on-search disclosure, could not later deny its truth.

Court's Reasoning and Analysis

The Tribunal conducted a sequential analysis focusing on (a) voluntariness and credibility of the on-search statements, (b) the documentary nature of the seized sheets, (c) the alleged retraction and its timing, and (d) statutory and common-law principles (including Section 115, Evidence Act and presumptions under sections 132(4) and 132(4A) of the Income-tax Act).

Key steps in the Tribunal’s reasoning:

Voluntariness and reliability: The Tribunal noted that Shri Prataprai Sanghvi’s statement recorded at 9:00 a.m. on 22-11-1995 explicitly stated that it was given voluntarily and correctly recorded. It observed that the statement was coherent, made in the presence of witnesses and after consultation with the firm’s accountants, and was not made in the “early morning” under the circumstances alleged by the assessee. The Tribunal also called Shri Sanghvi in court, who denied any coercion. For these reasons, the Tribunal rejected the coercion/duress argument.
Documentary corroboration: The seized sheets (pp.13–16 of Annexure A/1) were detailed stock statements showing item description, quantity, unit, rate and totals as on 20-11-1995; these documentary entries were recovered from Shri Sanghvi’s residence and were reconciled with the oral admissions at search. The Tribunal found reciprocal corroboration between the documentary material and oral admissions of Shri Sanghvi and Shri Jhaverchand Momaya.
On retraction and timing: The Tribunal treated the affidavit by Navinchandra Mehta and subsequent retractions/statements as delayed: they were filed months after the search. The Tribunal characterized those later materials as afterthoughts and devices to frustrate the Department’s efforts, noting the delay was unexplained except by an unsubstantiated claim of CA advice.
Legal principle of estoppel and Section 115 Evidence Act: The Tribunal applied the maxim allegans contraria non est audiendus and Section 115, Evidence Act to hold that a person who makes a factual declaration and induces another to act on it cannot later deny it. It held that the assessee’s on-search declaration was within Section 115’s ambit and that once acted upon by the Department (which altered investigatory course), retraction was not permissible.
On the seized-sheet narration and genuineness: The Tribunal analyzed the asserted Gujarati narration on the back of page 16 and found its genuineness doubtful (lack of page number, different script/language, absence of contemporaneous reference by witnesses or search party, late pointing out). On balance, the Tribunal found the narration did not establish that the main pages were only estimates.
Corroboration and retracted confessions: The Tribunal reviewed authorities indicating retracted confessions may retain evidentiary value if corroborated. It concluded the on-search statement in this case was corroborated by documentary and other oral evidence and thus did not require independent corroboration in view of Section 115 (and the presumptions under section 132(4A) and 132(4)).
On the Department’s investigatory conduct: The Tribunal accepted the AO’s position that, having received a voluntary on-oath admission of undisclosed stock/income, the search party reasonably ceased further probing to locate the physical stock. The lack of issuance of a prohibitory order under section 132(3) was not fatal because the admission itself led the Department to act differently.
Remedies and remand: The Tribunal declined to remand the matter for further enquiry, observing that parties had ample opportunity and that the Tribunal could resolve the matter on the records available.

Holding and Implications

Holding: APPEAL DISMISSED. The Tribunal dismissed the assessee’s appeal and upheld the Assessing Officer’s addition of Rs. 2,00,00,000 (part of the total assessed undisclosed income of Rs. 2,00,70,000) based on the seized sheets and the statements recorded at the time of search.

Implications and direct consequences:

The Tribunal found the on-search statement of Shri Prataprai Sanghvi to be voluntary, corroborated by documentary evidence (seized daily stock sheets) and by the Chief Accountant’s statement; accordingly, the Assessing Officer was justified in making the addition.
The Tribunal held that retraction made months later (affidavit and section 131 statements) was an afterthought and could not displace the earlier on-oath declaration acted upon by the Department; Section 115 of the Evidence Act and cited authorities support this conclusion.
The Tribunal rejected the contention that the seized sheets were mere estimates (not actual stock) and also rejected the plea that the AO should have been required to locate physical matching stock before making the addition.
No fresh legal precedent was proclaimed beyond application of established principles (estoppel, evidentiary weight of on-search declarations, and relevant case law); the Tribunal applied and followed existing authorities to the facts before it.
Direct effect: the assessee’s appeal against the block assessment addition was dismissed and the addition of Rs. 2 crores to undisclosed income was upheld.

End of summary.

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Hiralal Maganlal & Co. v. Deputy Commissioner of Income-tax, SR-52

Per D.K. Srivastava, Accountant Member. - The appeal filed by the assessee is directed against the Block Assessment Order passed by the Assessing Officer (‘AO’ in short) under section 158BC read with section 143(3) of the Income-tax Act, 1961. The assessee has since filed revised grounds of appeal in conformity with rule 8 of the Income-tax (Appellate Tribunal) Rules as under:

"The learned Dy. Commissioner of Income-tax, Special Range 52 Mumbai erred in:—

1. Adding a sum of Rs. 2,00,00,000 under section 158BC(c) for the Block period as undisclosed income of the appellant which was not warranted or on the facts and circumstances of the case.

While making this addition he erred—

(a )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 stock as reflected in these papers and actual stock found during the search.

The appellant craves leave to add, alter or amend any of the above grounds of appeal as may be advised from time to time."

2. Parties represented by their respective counsels and representatives have been heard.

3. Briefly stated, the facts of the case giving rise to the present appeal are that the assessee, a firm, is a leading dealer of dry fruits in Mumbai and is a part of a prominent business group. The Department conducted a search and seizure operation under section 132 of the Income-tax Act, 1961 at the business premises of the assessee-firm from 21-11-1995 to 16-1-1996 and also at the residential and business premises of the related entities. In compliance with the notice issued by the Assessing Officer under section 158BC requiring the assessee to file the return of undisclosed income for the block period, a return of income for the block period (‘block return’ in short) was filed on 1-6-1996 returning the total undisclosed income of Rs. 70,000. After taking note of the seized materials, the statements recorded under section 132(4) at the time of search and other materials, the Assessing Officer completed the block assessment under section 158BC read with section 143(3) on total undisclosed income of Rs. 2,00,70,000. The present appeal has been filed against the addition of Rs. 2 crores made by the Assessing Officer to the undisclosed income returned by the assessee.

4. During the course of search at the business premises of the assessee at 395/97, Narshi Natha Street, Mumbai - 400009, certain loose papers serially numbered as 1 to 23 were found, bunched together, marked as Annexure ‘A/1’ and were seized. Papers placed at serial numbers 13, 14, 15 and 16 of the said annexure (‘seized sheets’ in short) were reported to be daily statements of stock of dry fruits lying at various places. All of them are dated 20-11-1995, a day prior to search. The Assessing Officer has enclosed copies of the seized sheets with the assessment order. The assessee has also placed photo-copies of the seized sheets at pp. 6 to 9 in its paper book filed before us. The seized sheets show the value of stock as recorded in the seized sheets placed at pp. 6 to 9 of the paper book at Rs. 70,22,145, Rs. 37,84,290, Rs. 47,00,000 and Rs. 43,83,775 respectively. The total value of stock shown 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 that the above oath has been administered to you. Also enlist your details and functions as employees of M/s. Hiralal Maganlal & Sons.

Ans. I confirm that the above oath has been administered to me. I have to state that I am the Chief Accountant of the above firm and look after the day to day accounting of cash and stocks of various firms run by the family."

"Q. 2 Since how long have you been serving with this firm.

Ans. Since last 38 years."

"Q. 3 I am showing you a file marked A/1 containing loose papers 1 to 23 seized from the above premises. Please explain each of them.

Ans. Pages 1 to 9: These are details of jewellery held by various family members as per valuation report of the jeweller. It must have certainly been a part of WT returns.

Pages 10 and 11: These are purchases and majoori bill of jewellery. The payment has been made by cheque.

Pages 13, 14, 15 & 16: This is a daily stock statement of stock lying in various godowns.

Page 17 : This is detail of cash sales as per cash sale register at Vashi.

Pages 18 and 19 : These are papers connected with goods received on consignment sales.

Page 20 : It is a purchase bill.

Pages 21 & 22: It is a sale bill and copy.

Page 23: It is a noting by Prataprai Sanghvi of details of etc."

"Q.4 Please elaborate upon the stock statement as per pages 13, 14, 15 and 16. Where is this stock lying ? Where do you file such sheets on day to day basis and whether this stock is accounted in your books.

Ans. As I have earlier said, these pages pertain to stocks lying in various godowns. I do not have further details. Movement of these stocks is handled by Shri Prataprai Sanghvi. The stock sheets are prepared on day to day basis and are not preserved. I do not know whether this stock has been accounted for."

"Q. 5 As per information from your Vashi Office, the total stock lying in Savla Cold Storage, APMC shops & Masjid Bunder shops put together comes to (1.20+.10+.14) i.e., 1.44 crores. However, there seems to be additional stock as per the daily stock statement of Rs. (70.22 + 37.84 + 47.00 + 43.80) i.e., Rs. 1.98 crores. Do you agree that both the stocks are different and not the same?

Ans. As per description of stocks in these sheets they seem to be stock other than that accounted 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 found which have been brought by you to this premises for explanation of the same with reference to the books of a/c kept here. The same is being seized as per Annexure A/1 to the panchnama dated 22-11-95 containing pages 1 to 23. You are now requested to explain each page of this loose papers file marked A/1.

Ans. The pages of Annexure A/1 referred above was found in my residence and I was queried on these papers. However after perusal of the papers I found that I can explain these only with reference to the books of a/c kept in my office and hence I brought these papers to my office for explanation. They are offered as below.

Pages 1 to 9 are details of jewellery held by various members of my family as per valuation report of the authorized jeweller. These jewelleries are duly reflected in the WT returns of the concerned persons.

Pages 10 & 11 : These are purchase and majoori bills of jewellery which has been paid by cheque.

Page 12 : Is purchase bill of polished diamond, the payment of which is made by cheque. Pages 13, 14, 15 & 16: These are stock statements of stocks lying in various godowns."

"Q. 3 Please elaborate whether these stocks appear in your regular books of a/c and where are they lying?

Ans. I have referred to my books of a/c with my office at Vashi over telephone. I am unable to find the same in the books."

"Q. 4 Please refer to the answer to Q. Nos. 4 and 5 of statement of Shri Javerchand K. Momaya, your Chief Accountant and who has been handling your account since last 38 years. As per his reply it is apparent that these are unaccounted stocks of your concern lying in various godowns. He has also stated that you are the only person who handles the details of the stock. Further he has stated that these stock sheets are prepared on day to day basis and are not preserved. Please give your comments.

Ans. Please give me sometime to think."

"Q. 5 We have received information from your Vashi office where your stock books are maintained. As per the information from your Vashi office, the total stock lying in Savla Cold Storage, APMC shop and Masjid Bunder shop put together comes to Rs. 1.44 crores (1.20 cr.+0.10 cr.+0.14 cr. respectively). However, there seems to be additional stock as per the daily stock statement found and seized at pages 13, 14, 15 and 16 of Annexure 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 Annexure A/1 found at the time of search were nothing but stock statements; (ii) Shri Prataprai Sanghvi admitted categorically that the stock of Rs. 1.99 crores as shown in the seized sheets was in addition to the stock of Rs. 1.44 found in other godowns; (iii) Shri Prataprai Sanghvi further admitted that the stock of Rs. 1.99 crores reflected in the seized sheets was not shown in the regular books of account; (iv) Shri Prataprai Sanghvi admitted that the stock shown in the seized sheets represented unaccounted income of Rs. 2 crores; and (v) Shri Prataprai Sanghvi had categorically admitted and offered the said unaccounted income to the Department so as to buy peace. The documentary evidence in the form of seized sheets being pp. 13 to 17 of Annexure A/1 is also confirmed by oral evidence in the form of admission and confirmation of unaccounted stock by Shri Prataprai Sanghvi and Shri Jhaverchand Momaya. The documentary evidence is thus corroborated by oral evidence and vice versa. It was nobody’s case at the time of search that the seized sheets contained estimates and not the actual stocks. Had they stated so, the Departmental authorities might have pursued the investigations further and discovered the stock and the places where they were kept. The assessee, particularly its such a seasoned partner who has been in the business for a few decades and is involved in several businesses of the family duly supported by a trusted accountant of several decades, would not have admitted the aforesaid facts if they had not been true.

8. After the block return was filed, the Assessing Officer recorded the statement of (i) Shri Prataprai M Sanghvi, partner under section 131 on 26-7-1996; (ii) Shri Ishwardas M Sanghvi, partner under section 131 on 26-7-1996; (iii) Shri Shantilal M Momaya, Accountant under section 131 on 13-8-1996; and (iv) Shri Jhaverchand Momaya, Chief Accountant under section 131 on 4-9-1996 in which all of them denied that the stocks shown in the seized sheets actually existed.

9. After the statements of the said persons had been recorded under section 131 at the assessment stage, the assessee filed and affidavit executed by Shri Navinchandra Sobhagchand Mehta on 6th September 1996, an employee of the Hiralal Maganlal group, nearly 9 months after the search, in which he stated as under:

(i)Seized sheets were written by him, i.e., Shri Navinchandra 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."

(iii)Shri Jhaverchand Momaya was not in Bombay for the last seven days prior to search and hence he could not communicate with him in this behalf.

10. After the receipt of the affidavit signed by Shri Navinchandra Mehta, the Assessing Officer examined the said Shri Mehta once again under section 131 on 8-10-1996. The said statement is in Hindi. Questions put to him and the answers given by him have been recorded in the assessment order. The Assessing Officer has pointed out the contradictions in the facts stated in the affidavit which led him to disbelieve the affidavit. Statement of Shri Prataprai Sanghvi was also recorded once again on 11-11-1996 under section 131. In response to a leading question put by Shri RJ Shah, Advocate during the course of cross-examination of Shri Prataprai Sanghvi, he denied the existence of any unaccounted goods at the time of search. The Assessing Officer confronted the assessee with all the relevant materials upon which the assessee sought to retract, vide its letters dated 11-10-1996 and 18-11-1996 addressed to the Assessing Officer, from the declarations and disclosures made at the time of search.

11. The assessee, by its letter dated 11-10-1996 (copy placed at pp. 44-55 in the assessee’s paper book) addressed to the Assessing Officer and another letter dated 18-11-1996 (submitted before the Assessing Officer on 26-11-1996), made detailed submissions before him which have been elaborately dealt with in the assessment order. By the said letters, the assessee denied that it had any unaccounted stock at the time of search on 22-11-1995. The submissions of the assessee made before the Assessing Officer can be divided broadly, for the sake of their structured consideration, into six parts as under:

Part ‘A’: With regard to the nature of seized sheets being pp. 13 to 16 of Annexure A/1, the assessee submitted that the said sheets indicated "estimate of demands for the goods in the next year being discussed mutually by the partners for deciding how the business for the next year should be done." It was further contended that "necessary endorsement to that effect are there on those papers."

Part ‘B’: The assessee submitted that Shri Sanghvi made the statement under coercion and in a confused state of mind. The submissions of the assessee in this behalf were as under:

(i)According to the assessee, 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 confession in the early morning of 22-11-1995. It was alleged that Shri Sanghvi was ‘weak minded’ person and went into depression on early morning of 22-11-1995. Shri Sanghvi was not keeping mentally fit and therefore his statement obtained under coercion should not be taken seriously and as correct statement.

(iv)It was reiterated that the questions and answers were recorded by the officials present at the time of search in the name of Shri Sanghvi and that he was pressurized to put signature on the statement recorded of him in support of the claim that the firm was having huge unaccounted stock.

Part ‘C’: The assessee submitted that Shri Jhaverchand Momaya was forced to make the statement. Following submissions were made in this behalf:

(i)Statement of Shri Jhaverchand Momaya, Accountant of the firm was taken on the same day with the object of ensuring that Mr. Sanghvi’s statement was not treated as defective. It was submitted that he was ‘forced’ to state that stock position on the particular day might be accounted or unaccounted one.

(ii)Shri Jhaverchand Momaya was not allowed to consult anybody and was forced to make a statement like to one that has been recorded by the officials present at the time of search to suit their requirements. The Authorised Officers recorded answers which partly pleased them. It was further contended that, in the absence of adequate opportunity and due to mental tension, Shri Jhaverchand Momaya made "an incorrect statement which needs to be ignored and no emphasis should be given to the same while deciding the issue."

Part ‘D’: The assessee submitted that no effort was made by the Department to locate the unaccounted stock. Following submissions were made by the assessee in this behalf:

(i)It was contended before the Assessing Officer that though the question was asked about the whereabouts of the stock, no effort was made by the officials to find out the whereabouts of the same.

(ii)It was further contended that the officials present at the time of search had issued a prohibitory order for not parting with the explained stock but they did not issue any prohibitory order for unaccounted stock because no unaccounted stock existed which could enable them to issue a prohibitory order for the unaccounted stock.

Part ‘E’: The assessee submitted that there 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 the most, be considered and added to the income of the assessee which the assessee agreed and was willing to offer for taxation to buy peace at a reasonable cost.

12. In support of the appeal, the learned counsel for the assessee reiterated the same submissions which had been made before the Assessing Officer and stated above. He has also filed written statement of facts and submissions along the same lines which, for the sake of brevity and in order to avoid repetition, are not being repeated here. In addition to the aforesaid, the learned senior counsel has made the following submissions.

(i)The assessee is a dealer in dry fruits and therefore the peak season of the business is around festivals, like Diwali when maximum sales take place and hence the stock is required to be replenished soon thereafter. This requires estimation of stock to be procured immediately after the peak season is over. According to the learned counsel, search was conducted on 21/22-11-1995 nearly a month after Diwali on 23-10-1995. The assessee, according to the learned counsel, had prepared estimates of stock to be replenished and the said estimates were recorded in the seized sheets which were found and seized by the Department under section 132. The seized sheets, according to him, represented the new goods required to be ordered for 1996-97 season and that this fact was clearly mentioned on the back side of the last page, i.e., p. 16 of the seized sheets. He submits that no coded figures were used in the seized sheets to determine the quantity as also the value of the goods to be ordered to replenish the stock after the peak period was over. He therefore submits that the stock shown in the seized sheets are mere estimates of goods to be purchased and not the actual stock held by the assessee at the time of search and thus cannot form the basis for the impugned addition.

(ii)The learned counsel submits that the impugned addition is based solely on the statement of Shri Prataprai Sanghvi, partner recorded at the time of search under section 132(4) by which he is attributed to have declared that the stock shown in the seized sheets was unaccounted stock and also declared/offered additional income of Rs. 2 crores to buy peace with the Department. His contention, however, is that the said statement cannot form the basis for the impugned addition for several reasons: 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 was due to the advice of the Chartered Accountant who had advised the assessee to file retraction along with the return of income. He therefore submits that the statement of Shri Prataprai Sanghvi cannot form the sole basis for making the impugned addition. To support his case, he relies on the decisions in Sunder Agencies v. Dy. CIT [1997] 63 ITD 245 , 258-9 (Mum.); Asstt. CIT v. Mrs. Sushila Devi S. Agarwal [1994] 50 ITD 524 (Ahd.); Baldev Krishan Kapoor v. Asstt. CIT [1999] 68 ITD 37 (Chd.) (TM) and Circular dated 10-3-2003 issued by the CBDT vide their F. No. 286/2/2003-IT (Inv.).

(iii)The learned senior counsel invited our attention to the narration recorded, in Gujarati, on the back side of page 16 of the seized sheets (‘narration’ in short). The said narration, as verbally translated by the learned senior counsel reads: "For 1996-97. Estimate for the new goods to be ordered for 1996-97." He submitted that the said narration made it amply clear that the seized sheets recorded only the estimates of new goods to be purchased for 1996-97 in order to replenish the stock.

(iv)The learned counsel 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 was made by them. He submitted that the impugned assessment therefore deserved to be set aside and 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.

13. In reply, the learned DR supported the assessment order and submitted as under:

(i)Referring to the assessment order and the various papers placed by the assessee in its paper book, the learned CIT-DR submitted that the stock shown in the Daily Stock Statement, i.e., seized sheets as on 20-11-1995 was different from the accounted stock and that this fact was duly confessed not only by Shri Prataprai Sanghvi, partner but also by Shri Jhaverchand Momaya, Chief Accountant of the assessee-firm after necessary verification with the books of account and consultation with other accountants. According to him, Shri Prataprai Sanghvi, upon being so cornered, thought it appropriate to make clean breast of the things and therefore, answering to his conscience, confessed and offered the additional income of Rs. 2 crores which was equivalent 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 26-7-1996, Ishwardas Sanghvi on 26-7-1996 and 3-9-1996 and Shantilal Momaya on 3-8-1996 under section 132(4) or 131 stated or referred to the said narration in their depositions which goes on to prove the doubtful nature of the said narration; six, while all the main pages 13 to 16 of the seized sheets were written in English using Arabic numerals, the narration was in Gujarati using Gujarati numerals; and, seven, the said narration did not say that what was written on the main pages of the seized sheets was estimate of new purchases to be made. The said narration simply stated in Gujarati "For 1996-97: Estimate for the new goods to be ordered for 1996-97" without mentioning any date like the one mentioned at all the pages of the seized sheets and without referring to the stock position shown at the main pages of the seized sheets. He vehemently submitted that if the said narration had genuinely existed at the back page of page 16 of the seized sheets at the time of search, it would have certainly been noted and observed by the search party or at least pointed out or referred to by the partners or the employees of the assessee-firm at the time of search or thereafter when their statements as mentioned above, were recorded. He contended that even if the said narration was taken into account, it did not suggest that what was written on the main pages of the seized sheets was a mere estimate of goods to be purchased.

(iii)Referring to the allegation of harassment, duress, coercion, undue influence and misrepresentation while recording the statement at the time of search, the learned CIT-DR submitted that the assessee has neither brought forward any evidence to prove the aforesaid allegation nor made any such complaint at the time of search or immediately thereafter to the higher authorities. According to him, the statements were recorded at the time of search in accordance with law without any use of force, threat, undue influence or misrepresentation of facts which is amply brought out by the record. He denied that any confession was obtained at the time of search using force or other unfair practices. Denying the allegation of the learned senior counsel that Shri Prataprai Sanghvi was kept awake throughout night of 21/22-11-1995, he submitted that Shri Prataprai Sanghvi was all along at his residence with his family members throughout night and had also the 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 M.K Mohammad Kunhi v. Commissioner Of Income-Tax. [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 statement of Shri Prataprai Sanghvi about the unaccounted nature of the stock shown in the seized sheets as also about the declaration of additional income of Rs. 2 crores, the learned CIT-DR submitted that the statement of Shri Prataprai Sanghvi was adequately corroborated by the entries made in the seized sheets as also by the statement of Shri Jhaverchand Momaya. According to him, Shri Sanghvi confessed and offered the additional income of Rs. 2 crores for taxation after being fully aware of all the facts of the case.

(vi)Opposing the submission of the learned senior counsel for setting aside the assessment for being made afresh after making the necessary enquiries, the learned CIT-DR submitted that the Assessing Officer had extended adequate opportunities of hearing which is evident from the number of hearings granted to the assessee and hence there was no occasion to set aside the assessment order and restore the matter to the Assessing Officer for making further enquiries and pass a fresh order of assessment.

14. We have considered the rival submissions, perused the assessment order and the papers placed by the assessee in its paper book as also the written submissions filed by the assessee.

15. The learned senior counsel has relied on Circular F. No. 286/2/2003-IT (Inv.), dated 10-3-2003 issued by the Central Board of Direct Taxes and submitted that the Departmental Authorities have been debarred from obtaining confessions as to the undisclosed income. We have perused the said Circular but find nothing therein which could be said to prevent an assessee from making declarations, admissions and confessions or prevent the Departmental Officers from examining the assessee in accordance with law. It is an advisory to the field officers that they should concentrate on collection of evidence relating to undisclosed income and not on making attempts to obtain confession. In the case before us, we do not find that the Departmental Officers had made any attempt to obtain the confession of the assessee. They, fact, simply examined Shri Prataprai Sanghvi and Shri Jhaverchand Momaya to collect evidence of undisclosed income but it is Shri Prataprai Sanghvi who, instead of denying or providing the information with regard to the locations where the unaccounted stock had been kept, preferred to make the confessions as aforesaid. The said Circular issued in 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 Vashi Office. It is quite unlikely that senior officers of the Department who were entrusted with the search operation would have applied ‘force’ to extract the said declaration and both the aforesaid persons would also have made the said declaration without any protest and would also not have immediately retracted from the said declaration alleged to be forcibly obtained soon after the alleged undue influence, force or coercion ceased to exist after the search party had left the place of search. The whole story is unbelievable and rings untrue. Fourthly, the assessee has not produced any contemporaneous record or evidence, oral or documentary, to substantiate the allegation. Fifthly, the answers given by him are quite coherent and do not indicate that he was in a confused state of mind when his statement was recorded. Sixthly, the seized sheets, namely, pp. 13 to 17 of Annexure A/1 were recovered from the residence of Shri Prataprai Sanghvi who wanted to carry them and actually carried them to the firm’s office so as to reconcile the same with the records in the firm’s office in consultation with his trusted men. That facility was also afforded by the search party to him. Such cautious and careful approach on the part of Shri Prataprai Sanghvi also excludes the possibility of his statement having been made in a confused state of mind or under any pressure or force. Seventhly, the answers given by Shri Prataprai Sanghvi with regard to the nature of documents and other relevant matters were in his specific knowledge and hence they could not have been dictated by the search party. Eighthly, we also thought it appropriate, in order to prevent any possible miscarriage of justice, to verify from Shri Sanghvi, who was personally present in the court room at the time of hearing, as to whether any force or threat or coercion or undue influence was actually exercised on him by the Departmental Officers to extract the said statement or at the time of recording the statement or at the time of search. He replied in negative and denied that any force was used on him while recording his statement or at the time of search. Considering the totality of all the facts and circumstances of the case, we are not inclined to accept that Shri Prataprai Sanghvi was forced to make the statement, in question or any kind of undue influence or coercion was exercised on him to extract the said 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 facts emerge from the statements of both the aforesaid persons recorded at the time of search under section 132(4) and the documentary evidence found during the course of search on 22-11-1995:

(i)The documentary evidence, i.e., seized sheets clearly record complete details of stock giving the description of each commodity, unit of measurement, weight/quantity of stock, rate, total value of each item of stock and total value of all the items of stock at the end of each page as on 20-11-1995.

(ii)It is undisputed that Shri Jhaverchand Momaya has been working as Accountant with the business concerns of the family for almost 38 years and this is what has equipped him with thorough and first hand knowledge of the affairs of the assessee-firm. Apart from having extensive knowledge of the business of the assessee, he has enjoyed the trust and confidence of the partners of the assessee-firm for a long time. He cannot therefore be presumed to have made the statement at the time of search in ignorance. It is very unlikely that he would have stated something about which he was not sure at the time of search. In his statement recorded under section 132(4) on 22-11-1995, he categorically and un-equivocally stated that (a) pages 13 to 17 of Annexure A/1, i.e., seized sheets were the daily stock statement of stock lying in various godowns; (b) the seized sheets pertained to stocks lying in various godowns in regard to which he did not have further details; (c) movement of the stocks is handled by Shri Prataprai Sanghvi; (d) the stock of Rs. 1.98 crores reflected in the seized sheets seemed to be additional stock over and above the stock of Rs. 1.44 crores lying in Savla Cold Storage, APMC shops & Masjid Bunder shops; and (e) as per description of stocks in the seized sheets they seemed to be the stock other than that accounted for in books at Vashi office. Shri Jhaverchand Momaya has not even whispered in his statement recorded on 22-11-1995 that the seized sheets reflected mere estimates of purchases to be made.

(iii)Shri Prataprai Sanghvi is a member of a family which runs not one business but several businesses. The assessee-firm is not a new firm. It was set up in 1917. Shri Jhaverchand Momaya states in his statement that Shri Prataprai Sanghvi deals with the movement of stock. Statement of Shri Jhaverchand Momaya was recorded at 7 a.m. followed 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 be made.

(iv)Shri Prataprai Sanghvi admitted and declared that the stock recorded in the seized sheets were unaccounted and, in that view of the matter, declared unaccounted income of Rs. 2 crores to buy peace with the Department. Thus, the nature of the contents of the seized sheets as admitted/declared is duly corroborated by oral evidence of two persons, namely, Shri Jhaverchand Momaya, Chief Accountant and Shri Prataprai Sanghvi, partner. Likewise, the oral evidence of the aforesaid two persons is duly corroborated by the said documentary evidence, i.e., seized sheets. The facts admitted and declared in the aforesaid statement of Shri Prataprai Sanghvi were two-fold, namely, the stock of about Rs. 1.99 crores shown in the seized sheets were actual stocks over and above the one recorded in the books of account and was unaccounted; and, two, unqualified declaration and disclosure of Rs. 2 crores as unaccounted income to buy peace.

(v)Despite the persistent questioning by the search party, the assessee did not disclose the locations where the stock reflected in the seized sheets were kept. These facts were within the exclusive knowledge of the assessee and hence the burden was on it to come forward with the true state of affairs or at least deny the existence of any such godown. Upon being pressed, Shri Prataprai Sanghvi preferred to admit and declare the unaccounted income to buy peace with the Department to disclosing the locations where the stocks had been kept or any other thing connected therewith. There was no compulsion on Shri Prataprai Sanghvi to make any admission or declaration of unaccounted income at the time of search. It is he who voluntarily chose to do so after weighing the pros and cons of sustained investigations which might have followed if the said declaration and admission had not been made and which could also have resulted in detection of a still larger stock of unaccounted goods or unaccounted income. These aspects were known exclusively to the assessee and hence they deserve to be left to the wisdom of the person who, instead of coming out with the full facts, chose to make voluntary admission and disclosure of unaccounted income and that too to buy peace with the Department. Be whatever it may, it was a conscious and well thought declaration and admission of unaccounted income by Shri Prataprai Sanghvi.

(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 the order dated 11-1-1989 of the Allahabad High Court in ITR No. 232 of 1988 whereby the High Court rejected the assessee’s reference application on the question whether the addition of the value of some gold to the income of the assessee-firm was justified when, pursuant to a search and seizure, a quantity of gold was seized from the residence of the partners of the assessee-firm, which carried on the business in the manufacture and sale of gold and silver jewellery, and the ladies of the house claimed that the gold belonged to them but one partner said that some of the gold belonged to the business and the value of the part of the gold was added back to the income of the firm. The case of the assessee before us is covered by the said principle.

20. We shall now turn to the submissions of the learned senior counsel with regard to the alleged retraction of the admissions and declaration made by Shri Prataprai Sanghvi in his statement recorded under section 132(4). There are two aspects of the said submission: one, whether it was open to the assessee or its partners to retract from the declaration and admission made in the statement recorded at the time of search under section 132(4); and two, whether the declaration and admission as made in the said statement stood effectively and successfully retracted.

21. As regards the first issue whether it was open to the assessee or its partners to retract from the declarations made at the time of search, we have already held above that it was the assessee-firm, acting through its partner, namely Shri Prataprai Sanghvi which, by its declaration and acts, intentionally caused or permitted the Departmental Authorities to believe the declaration made by the assessee-firm through its partner Shri Prataprai Sanghvi to be true and induced them to act upon such belief. Hence, it was not open to the assessee-firm or its partners to deny the truth of the facts stated in the said declaration. This is based on the maxim, allegans contraria non est audiendus (a person alleging contradictory facts should not be heard). In Pickard v. Sears [1837] 6 Ad & EI 469, 474, it has been held that where a person "by his words or conduct wilfully causes another to believe the existence of a certain state of thing, and induces him to act on that belief, so as to alter his own previous position, the former is concluded from averring against 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 or his representative, to deny the truth of that thing."

23. We are aware of the principle laid down in several cases that the Evidence Act does not apply to the proceedings under the Income-tax Act and further that the artificial or technical rules of evidence are not applicable to income-tax proceedings. This aspect of the matter has received careful consideration by the Hon’ble Supreme Court in Chuharmal v. CIT [1988] 172 ITR 250 ¹, 255. The Hon’ble Court has held that what is meant by saying that the Evidence Act does not apply to income-tax proceedings under the Income-tax Act is that the rigour of the rules of evidence contained in the Evidence Act is not applicable but that does not mean that when the taxing authorities are desirous of invoking the principles of the Evidence Act in proceedings before them, they are prevented from doing so. Besides, Section 115 of the Evidence Act incorporates a salutary principle of common law based on the maxim allegans contraria non est audiendus (a person alleging contradictory facts should not be heard) and hence the said principle is fully applicable to the proceedings under the Income-tax Act. The provisions of Section 115 of the Evidence Act provide statutory recognition to the said principle which is otherwise also applicable to all the judicial and quasi-judicial proceedings. The underlying philosophy behind the said principle being to ensure, in the words of Sir Wade in his Administrative Law ( supra), that justice prevails over truth.

24. In the case before us, there is no dispute that the assessee-firm through its partner, namely, Shri Prataprai Sanghvi made the declaration of unaccounted stock and unaccounted income at the time of search and that too on oath which the Departmental Authorities accepted and upon which they did not proceed with further investigations in order to locate the whereabouts of the unaccounted stock. If Shri Prataprai Sanghvi had not made the said declaration or statement, the Departmental Authorities could have continued the search and could have investigated the entire matter on the basis of the various documents seized during the course of search. By making the disclosure of additional income of Rs. 2 crores which he offered for taxation on oath , Shri Prataprai Sanghvi stopped the entire process of further investigation through search as the Department accepted the disclosure 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) was nothing but a well planned device to frustrate the efforts of the Department to unearth unaccounted income. The attempt of the assessee to retract from the said declaration is not only against the well-settled principles of common law and against the letter and spirit of Section 115 of the Evidence Act but also against the principles of equity, justice and good conscience. The declaration made by Shri Prataprai Sanghvi under section 132(4) clearly fell under Section 115 of the Evidence Act and hence it was not open to the assessee to retract from the said declaration after the Departmental Authorities had accepted the same and altered their position by closing the search. Further, declarations falling under Section 115 of the Evidence Act do not require any corroboration. Retraction from declaration or acts falling under Section 115 of the Evidence Act is also not possible at all. The retraction filed by the assessee in the case before us is hit by section 115 and hence the Assessing Officer was justified in rejecting the same. We see no infirmity in his action.

26. It was next argued by the learned senior counsel for the assessee that a mere statement admitting unaccounted stock and additional income cannot by itself form the basis for the impugned addition as it is not corroborated either by actual matching stock found at the time of search or by any books of account or any bill or voucher evidencing the purchase or acquisition of the said stock. We have already held above that the statement made by Shri Prataprai Sanghvi under section 132(4) is not only consistent with the statement of Shri Jhaverchand Momaya recorded at the time of search but also with the documentary evidence found in the form of seized sheets at the time of search. Since the said oral, documentary and circumstantial evidence found at the time of search is not only consistent with each other but also corroborates each other, we are unable to agree with the learned senior counsel that the facts stated by Shri Prataprai Sanghvi in his statement are not corroborated.

27. Let us now consider the submission of the learned senior counsel that no addition can be made solely on the basis of the statements made at the time of search. At the outset, it deserves to be clarified that this question is being considered with reference to the statements and declarations not falling under Section 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 proved to be voluntarily made, can be acted upon along with the other evidence in the case, and there is no rule of law that a retracted confession must be supported by independent reliable evidence corroborating it in material particulars and that the use to be made of such a confession is more a matter of prudence than of law. In Shrishail Nageshi Pare v. State Of Maharashtra AIR 1985 SC 866, the Hon’ble Supreme Court has held that, the retracted confession by an accused may form the basis of conviction of that accused if it receives some general corroboration from other independent sources. No inflexible rule can therefore be laid down that addition can never be made on the basis of the facts admitted in the statement recorded under section 131 or 132(4) of the Income-tax Act, 1961. A retracted confession/statement may still form the sole basis for addition if the assessee fails to prove the incorrect or erroneous nature of the facts admitted or stated in the statement at the earliest possible opportunity from the statement/confession. However, further corroboration of retracted statement is necessary where the assessee establishes at the earliest possible opportunity by leading reliable evidence and proving thereby the erroneous or incorrect nature of the facts admitted or confessed and also where the evidence available on record is inconsistent with the confession/statement. We are therefore, unable to endorse the submission made by the learned senior counsel that addition cannot at all be made on the basis of the statement alone unless the statement is corroborated by further evidence.

28. Applying the aforesaid principles to the facts of the case before us, it is relevant to note that the assessee sought to retract from the declaration made by Shri Prataprai Sanghvi under section 132(4) several months after it was made and acted upon by the Departmental Authorities. The explanation given by the assessee that the delay in retraction was caused by the advice of the Chartered Accountant is a bald statement unsup- ported by any evidence and hence the same cannot be accepted. We are therefore inclined to believe that the affidavit filed, several months after search, by Shri Navinchandra Mehta, an employee of the group was an afterthought and it was simply a device to frustrate the efforts of the Department to sniff off the unaccounted income of the assessee. 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, perhaps the witnesses were required to be called. But in view of confession made by him, it binds him and, therefore, in the facts and circumstances of this case the failure to give him the opportunity to cross-examine the witness is not violative of principle of natural justice. It is contended that the petitioner had retracted within six days from the confession. Therefore, he is entitled to cross-examine the panch witnesses before the authority takes a decision on proof of the offence. We find no force in this contention. The Customs Officials are not police offices. The confession, though retracted, is an admission and binds the petitioner. So there is no need to call panch witnesses for examination and cross-examination by the petitioner." [Emphasis supplied]

30. Following the judgment in Surjeet Singh Chhabra’s case (supra), the Madras Bench of the Tribunal held in T.S. Kumarasami v. Asstt. CIT [1998] 65 ITD 188, as under :

"It is well-known that the Income-tax Officers are not Police Officers and they do not use or resort to unfair means or third degree methods in recording oath statements and therefore whatever is confessed and admitted before them during the course of search operations or during the course of any proceedings before them then we think such statements, admissions and confessions are binding and cannot be retracted, unless and until, we repeat, unless and until it is proved by legally acceptable evidence that such admission, confession or oath statement was involuntary or tendered under coercion or duress. No such circumstances existed or proved to have existed. In saying so we are supported by the observation of their Lordships of the Supreme Court in the case of Surjeet Singh Chhabra v. Union of India [1997] 1 SCC 508."

31. In M.K Mohammad Kunhi v. Commissioner Of Income-Tax. [1973] 92 ITR 341 , the Hon’ble Kerala High Court has explained the position thus :

"...Similarly, if the assessee made a representation or a concession on a point of law, the revenue accepted the same and the Tribunal also approved of it, even then if that position was wrong in law, nothing precludes the Tribunal from applying the correct law in another appeal against the order passed after the remand. On the other hand, if the representation was one of fact, the truth of which was accepted by the revenue and on that basis suffered some prejudice too, the assessee 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 Kunhambu v. Commissioner Of Income Tax [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 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. We are in agreement with this observation. In this case, the assessment has been made based on the statement of the assessee. Since no case has been made out that the statement was made under a mistaken belief of fact or law, and as has been held above, 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." [Emphasis supplied]

33. In Hotel Kiran v. Asstt. CIT [2002] 82 ITD 453 , the Pune Bench of the Tribunal has held as under :

"8. However, there are exceptions to such admission where the assessee can retract from such admission. The first exception exists where such statement is made involuntarily, i.e., obtained under coercion, threat, duress, undue influence etc. But the burden lies on the person making such allegations to prove that statement was obtained by the aforesaid means. The second exception is where the statement has been given under some mistaken belief either of fact or law. It is well settled that there cannot be estoppel against the law. If a person is not liable to tax in respect of any receipt, he cannot be made liable to pay tax merely because he has agreed to pay the tax in the statement under section 132. He can always retract in such situation. For example the assessee might have sold his agricultural land and not declared its sale proceeds in his income-tax return. If such agricultural land does not fall within the ambit of the words ‘capital asset’ then no tax is payable. If the assessee had offered to pay tax on the profits on such sale under section 132(4), in our opinion, he can always retract from such statement. Similarly, if the assessee can show that the statement has been made on mistaken belief of facts, he can retract from the statement if he can show that facts on the basis of admission so made were incorrect. This is what has been held by the Hon’ble Supreme Court in the case of Pullangode Rubber & Produce Co. Ltd."

"9. In view of the above discussions, 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 assessee to exist." [Emphasis supplied]

34. In Dr. S.C. Gupta v. CIT [2001] 248 ITR 782¹ (All.), the Hon’ble High Court has held as under :

"As regards the assessee’s contention that the statement having been retracted the Assessing Officer should have independently come to a conclusion that there was additional income as sought to be assessed and that there was no material to support that there was such income, this contention in our view is not correct. As held by the Supreme Court in Pullangode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18 an admission is an extremely important piece of evidence though it is not conclusive. Therefore, a statement made voluntarily by the assessee could form the basis of assessment. The mere fact that the assessee retracted the statement could not make the s tatement unacceptable. The burden lay on the assessee to establish that the admission made in the statement at the time of survey was wrong and in fact there was no additional income. This burden does not even seem to have been attempted to be discharged. Similarly, P.K. Palwankar v. CGT [1979] 117 ITR 768 (MP) and Commissioner Of Income-Tax, Kerala v. Mrs. Doris S. Luiz [1974] 96 ITR 646 (Ker.) on which also learned counsel for the assessee placed reliance are of no help to the assessee. The Tribunal’s order is concluded by findings of fact and in our view no question of law arises."

35. Respectfully following the judicial authorities on the subject, we hold as under :

(i)Statements in the nature of declarations covered by the provisions of Section 115 of the Evidence Act, are binding on the declarant. They can neither be retracted nor do they require any corroboration. Such declarations can form the sole basis for assessment. The declaration made by Shri Prataprai Sanghvi, partner in the assessee-firm through his statement recorded under section 132(4) of the Income-tax Act, 1961 falls squarely within the ambit of Section 115 of the Evidence Act and hence the same was neither open to retraction nor required any further corroboration. The Assessing Officer could therefore base the impugned addition on the said declaration.

(ii)Statements which are not in the nature of declarations under Section 115 of the Evidence Act are also binding and can form the sole basis for assessment if they are not effectively retracted. Effective retraction is possible in 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 confessed at the earliest possible opportunity. In the case before us, it has been held above that the assessee has squarely failed to satisfactorily discharge the burden that the confessional statement made by Shri Prataprai Sanghvi under section 132(4) was involuntarily made or made under coercion or undue influence or was made under mistaken belief or obtained by fraud or misrepresentation. Rather, the evidence available on record shows that it was voluntarily made by Shri Sanghvi with due care and caution and after necessary consultations, with all concerned. Besides, there has been inordinate delay, which has not been substantiated, on the part of the assessee to retract from the confessional statement. Retraction is also not supported by any independent or reliable evidence to prove the incorrect nature of the facts confessed in the statement. The confessional statement of Shri Prataprai Sanghvi is also corroborated by other evidence. For these reasons also, the Assessing Officer was therefore, in our view, justified in basing the impugned addition on the basis of confessional statement made at the time of search.

(iii)A confessional statement, which is not in the nature of declaration under Section 115 of the Evidence Act, continuous to have evidentiary value even after its retraction. However, such retracted confession/statement needs corroboration if it has been successfully retracted. As held above, the case of the assessee before us does not fall under this category.

36. We shall now take up the submission of the learned senior counsel that the seized sheets, were in the nature of mere estimates of goods purchased. The learned senior counsel has sought to prove his submission with the help of two pieces of evidence; one, the narration recorded on the back side of page 16 of the seized sheets which, according to him, clearly shows that the seized sheets contained mere estimates; and, two, the affidavit filed by Shri Navinchandra Mehta and the assertion of the assessee-firm as also its partners that the seized sheets contained mere estimates of new goods to be purchased for 1996-97.

37. The learned CIT-DR has, however, doubted the very genuineness of the said narration. His reasoning for doubting the genuineness of the said narration has been given above which we have very carefully considered together with the submissions made on behalf 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 that a prudent man ought, under the circumstances of the particular case, to act upon the supposition that it does not exist: Definition of ‘Disproved’ under section 3 of the Evidence Act. A fact is said not to be proved when it is neither proved nor disproved : Definition of ‘not proved’ in section 3 of the Evidence Act. Section 114 of the Evidence Act requires that regard should be had to the common course of natural events, human conduct and public and private business in their relation to the facts of the particular case. Section 132(4A) of the Income-tax Act also raises a rebuttable presumption that the seized sheets belong to the assessee and that their contents are true and hence their nature as also the correctness of their contents have to be read and interpreted in the light of the presumptions created by section 132(4A) and 132(4) of the said Act.

38. Keeping the aforesaid principles in view, we shall now proceed to consider as to whether the assessee has successfully proved that the seized sheets contained mere estimates of new goods to be purchased as subsequently alleged by it or the actual statement of stock as originally stated at the time of search both by Shri Jhaverchand Momaya. Chief Accountant and Shri Prataprai Sanghvi, partner in the assessee-firm, after extensive consultations with others and with reference to the books of account. It is unlikely and also unbelievable that both of them would not have noticed the said narration if it had actually existed at the time of search on the back side of page 16. Secondly, it is equally unbelievable that none of the members of the search party would have also not noticed and questioned the assessee on the said narration if it had actually existed at that time. Thirdly, there is no explanation for writing all the main pages in English with date but writing the narration on the back side of page 16 in Gujarati and that too without date. Fourthly, the back side of page 16 is not numbered like all the written pages which are all page numbered by the search party. Fifthly, it is equally unbelievable that none of the persons present at the residence of Shri Prataprai Sanghvi where the seized sheets were recovered or at the business premises of the assessee where the seized sheets were subsequently carried would not have noticed such a narration. Sixthly, there is no reliable explanation as to why the 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 around the search time which could have required or prompted the assessee to procure goods worth Rs. 2 crores to meet any seasonal demand. Dry fruits are perishable commodities and hence it is quite natural that they would be procured for meeting the short term requirements. Ninthly, the alternative submission of the assessee that even if the seized sheets are taken to show the actual stock held by the assessee, the difference between the value of stock shown in the said sheets and the value of stock recorded in the books alone should be considered for addition which the assessee would also accept to buy the peace, also contradicts the assessee’s own statement that the seized sheets are mere estimates of stock to be procured by the assessee for 1996-97. Considering all the facts and circumstances of the case, we hold that the assessee has not satisfactorily proved that the seized sheets reflected the estimates of goods to be purchased for 1996-97 as subsequently alleged and not the actual position of stock as stated on oath at the time of search.

39. Next submission of the learned senior counsel was that no effort was made by the Department to locate the unaccounted stock. He contended that though the question was asked about the whereabouts of the stock, no effort was made by the Departmental authorities to locate the said stock. He further contended that the officials present at the time of search had issued a prohibitory order for not parting with the explained stock but they did not issue any prohibitory order for unaccounted stock because no unaccounted stock existed which could enable them to issue a prohibitory order for the unaccounted stock. It is on the strength of the aforesaid submissions that he submitted that the Departmental authorities were not justified in making the impugned addition without locating the matching stock. We have considered the aforesaid submissions. From the statements recorded at the time of search, it is clear that the Departmental authorities persistently questioned both Shri Jhaverchand Momaya and Shri Prataprai Sanghvi on this aspect. They were quite evasive to let the Department know the whereabout of the stock recorded in the seized sheets for the reasons best known to them. It is really noteworthy that neither denied nor indicated the existence of godown holding the unaccounted stock as confessed and declared by Shri 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 offered the same to tax, there was no occasion for the Departmental authorities to pursue the matter further and thereby cause inconvenience to the assessee and put dry fruits, a fast perishable commodity, to prohibition contemplated by section 132(3).

40. It was next submitted by the learned counsel that there was no excess stock even as per the seized sheets as it was not unlikely that the items mentioned in the seized sheets reflected true market value of stock lying with the firm. It was submitted that the book value of the stock in trade, as found and as per books, 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 if 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 stock shown in the books of account. The submission of the assessee deserves outright rejection as it was the case of Shri Prataprai Sanghvi and Jhaverchand Momaya at the time of search that the stock shown in the seized sheets was actual stock which was different from as also over and above the stock recorded in the books of account. Therefore the stock of about Rs. 1.99 crores shown in the seized sheets cannot be taken to be the same stock the book value of which, according to the assessee, has been shown in the books of account at Rs. 1.39 crores. The submission of the assessee to reconcile the stock shown in the seized sheets with the stock shown in the books of account is therefore, not acceptable. Had it been so, there would have been no occasion for Shri Prataprai Sanghvi and Shri Jhaverchand Momaya to make the statements that they made at the time of search. Besides, the aforesaid submission of the assessee negates its other submission that the stock shown in the seized sheets is mere estimate of goods to be purchased.

41. The next submission of the assessee, which is without prejudice to its other submissions, is that if any addition has to be made at all, it should be only the difference in the book value of stock as recorded in the books (Rs. 1.39 crores) and the value of stock as recorded in the seized sheets (Rs. 1.99 crores). The learned counsel for the assessee reiterated before us the submission made before the Assessing 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 the case before us, both the parties had ample opportunities to prepare their cases. We have no difficulty to decide the matter. We are therefore, unable to remand the matter in the hope that parties would be able to bring more materials on record which may help them later.

43. If all the relevant facts of the case are put in the chronological order and examined sequentially it becomes quite clear that the case of Shri Prataprai Sanghvi supported by Shri Jhaverchand Momaya at the time of search was that the seized sheets recorded the details of actual stock which he, i.e., Shri Prataprai Sanghvi himself declared to be unaccounted and hence offered the same, i.e., a sum of Rs. crores (sic) as additional income for taxation to buy peace with the Department. Both of them also certified have made their statements under section 132(4) voluntarily. The same position continued to hold goods for almost six months after their statements were recorded under section 132(4). There was neither any change in the aforesaid stand of the assessee though all the partners were fully aware of it nor was there an allegation that their statements were not voluntarily made. Thus the stand taken at the time of search continued to hold good even after the search had been concluded. The second round of events started with the filing of the block return showing undisclosed income of Rs. 70,000 on 1-6-1996 followed by the affidavit dated 6-9-1996 of Shri Navinchandra Mehta, an employee of the group and written submissions of the assessee as also the statements of various persons recorded by the Assessing Officer under section 131 of the Income-tax Act, which the Assessing Officer has duly considered in the assessment order. In the second round of events which started nearly six months after the statements of Shri Prataprai Sanghvi and Jhaverchand Momaya had been recorded under section 132(4), the assessee took a complete turn around and alleged that the statements of the aforesaid persons were forcibly recorded and that the seized sheets were mere estimates of goods to be purchased for 1996-97. In the second round, the assessee also came forward with a new plea that there was a narration on the back side of page 16 which indicated that the stock shown in the seized sheets was mere estimates of goods to be purchased for 1996-97. After giving careful consideration to all the relevant aspects of the case, we are of the view that the somersault taken by the assessee several months after search was, as held by the Assessing Officer, an afterthought and the events following thereafter were simply a device to frustrate the efforts of the Department to sniff off the unaccounted income of the assessee which it had unambiguously and voluntarily declared, and offered for taxation at the time of search.

44. We have given our careful consideration to all the judicial authorities cited and submissions made by the parties before us. However, we have not discussed some of them individually in the order to avoid adding bulk to the order.

45. Resultantly, the appeal filed by the assessee is dismissed.

152/219

Hiralal Maganlal & Co. v. Deputy Commissioner of Income-tax, SR-52

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant's (Assessee's) Arguments

Respondent's (Revenue / DR) Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Hiralal Maganlal & Co. v. Deputy Commissioner of Income-tax, SR-52

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