No addition on the basis of surrender made at the time of survey. It is to be based on evidences material as unlike section 132(4), survey team not authorised to administer an oath u/s 133A- ITAT

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No addition on the basis of surrender made at the time of survey. It is to be based on evidences material as unlike section 132(4), survey team not authorised to administer an oath u/s 133A- ITAT

addition on the basis of surrender made

ABCAUS Case Law Citation:
1020 (2016) (09) ITAT

Brief Facts of the Case:
The assessee company was engaged in the business of financing of automobiles and allied through loan cum hypothecation mode.

The company raised funds through secured redeemable non-convertible debentures and fixed deposits from its investors. A survey u/s 133A of the Income-tax Act, 1961 was conducted at the assessee’s business premises in Nov, 2009. During the course of survey, Director of the company was shown the list of secured redeemable non convertible debentures and he was asked to provide evidence of genuineness of these debentures and full details concerning these transactions.

The director expressed his inability to provide necessary evidence regarding genuineness of debentures subscribed by certain parties. Thereafter, he was asked to identify the parties in respect of whom he was unable to explain the genuineness, in response to which, the Director surrendered the sum of Rs. 2,85,18,000/-. Another list was shown to him and he again surrendered the sum of Rs. 24,66,715/- in respect of unsecured loan in the said list. He further surrendered the sum of Rs. 40,15,285/- as additional income. Thus, the total income of Rs. 3,50,00,000/- was surrendered.

However, the assessee in Sep, 2010, retracted the surrender made. Soon thereafter, the assessee filed the return of income in which the income surrendered during the course of survey was not disclosed. During the course of assessment proceedings, the Assessing Officer asked the assessee company to provide names and details of account holders, in response to which, the assessee produced voluminous details and evidences running into more than 7,000 pages. The Assessing Officer asked the assessee to produce some of the debenture holders and depositors. However, the assessee could not produce any of them. In view of the above, the Assessing Officer made the addition of Rs. 3,50,00,000/- as unexplained credit u/s 68.

On appeal, the CIT(A) noticed that out of the credit in the assessee’s books of account, the credit to the extent of Rs. 1,28,39,715/- was not relevant to the assessment year under consideration. He also noticed that the assessee duly discharged the onus which lay upon it u/s 68 by producing the various documents which were in the nature of application form, KYC documents, proof of identity etc. He also recorded the finding that those documents contained full evidence of each and every depositor. The CIT(A) found that the assessee had duly discharged the onus of proving the cash credit u/s 68. Accordingly, he deleted the addition.

The Revenue, aggrieved with the order of the CIT(A), was in the present appeal before the Tribunal.

Contentions of the Revenue:
It was contended by the Revenue that the survey was conducted in November, 2009 while the retraction was made by the assessee in September, 2010 which was almost more than 10 months from the date of survey. Such a long gap itself proved that the retraction was an after-thought and should not be given undue weightage. That the assessee made a voluntary surrender of the income during the course of survey because the assessee was unable to prove the huge credit lying in its books of account. 

Contentions of the Assessee:
The assessee, on the other hand, stated that the surrender was made by the assessee under coercion and pressure of the Department. It was submitted that the assessee was asked to prove the genuineness of more than 3,000 creditors at the time of recording of the statement. It was impossible to explain by anybody the genuineness of credit of 3,000 persons instantly during the course of recording of the statement. Therefore, the director of the assessee company stated that he was unable to explain the genuineness of credit of all the persons immediately and then he was forced to make the surrender. Therefore, the surrender was retracted by filing of letter as well as by not offering the income in the return of income.

The asssessee contended that the statement recorded u/s 133A was not conclusive and the addition cannot be based upon the statement as held by the Delhi High Court in CIT Vs. Dhingra Metal Works – [2010] 328 ITR 324 and Madras High Court in CIT Vs. S. Khader Khan Son [2008] 300 ITR 157 and the judgment of the Madars High Court was upheld by the Hon’ble Supreme Court.

It was submitted that CBDT also in its Circular dated 10th March, 2003 had stated that during the course of assessment proceedings, the Assessing Officer should rely upon the evidences gathered during the course of search/survey operation and then only, the relevant assessment should be framed.

Apart from the legal grounds the assessee also narrated the merits of the case and contended that the Assessing Officer had made the addition without any application of mind simply on the basis of surrender made by the assessee during the course of survey.

Observations made by the Tribunal:
The ITAT observed that the Assessing Officer had recorded that the assessee had furnished various letters explaining the genuineness of credit. However, without discussing any of the letters, he just mentioned that there was no force in it. If the assessee has furnished more than 7,000 pages of various documents proving the cash credit, there was hardly any justification to reject all of them without dealing with any of them.

ITAT observed that on the totality of the facts it was evident that the Assessing Officer made the addition because the surrender was made by the assessee during the course of survey.

The Tribunal noted that the Delhi High Court in Dhingra Metal Works held that survey officer are not authorised to administer an oath and to record a sworn statement u/s 133A which is in sharp contrast with section 132(4) which specifically authorizes an officer to examine a person on oath. Moreover, the word “may”  used in section 133A(3)(iii) of the Act clarifies beyond doubt that the material collected and the statement recorded during the survey was not a conclusive piece of evidence by itself.

The Tribunal also noted that in  S. Khader Khan, the Madras High Court had held that the scope and ambit of the materials collected during the course of survey action under section 133A shall not have any evidentiary value. It could not be said solely on the basis of the statement given by one of the partners of the assessee-firm that the disclosed income was assessable as lawful income of the assessee.

The Tribunal again noted that even CBDT also in its letter F.No.286/2/2003-IT (Inv.II) dated 10th March, 2003 provided that the addition should be based upon the evidences/material gathered during the course of search/survey rather on the basis of statement recorded during the course of survey.

Held:
In view of the above legal and factual position, the ITAT dismissed the appeal of the Revenue.

addition on the basis of surrender made

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