Statement recorded u/s 131 though binds the assessee cannot be independently used for making addition unless corroborated by evidences – ITAT
ABCAUS Case Law Citation:
ABCAUS 2784 (2019) (02) ITAT
Important Case Laws Cited/relied upon by the parties
CIT Vs M/s. Hotel Meriya ; Produce Co. Ltd. vs State of Kerala ( 91 ITR 18) ; Paradise Holidays (325 ITR 013) ; Poonam Rani (326 ITR 0223) ; Pullengode Rubber Produce vs. State of Kerala (91 ITR 18)Satinder Kumar (HUF) vs. CIT (106 ITR 64) ; Avadh Kishore Das vs. Ram Gopal AIR 1979 (SC) 861 ; CIT vs. S. Khader Khan Son (300 ITR 157), K.T.M.S. Mohd. & Anr. vs. Union of India (1992) (197 ITR 196)
A survey action u/s. 133A of the Income Tax Act, 1961 (the Act) was conducted and during its course, summons u/s. 131(1) of the Act was issued by the Assessing Officer (AO) to the Managing partner of the firm and statement u/s. 131 of the Act was recorded.
On verification of the P&L account, the Assessing Officer found that the assessee had shown gross profit at lesser rate instead of as indicated by the Managing Partner. The Assessing Office issued a show cause notice to the assessee asking why gross profit rate should not be increased in view of the statement given by the Managing Partner.
In reply, it was stated that the Managing Partner of the assessee was more into operational aspects and was not aware of the exact figures and financial rates of the company. With the help of a chart the assessee explained the fall in gp rate as being due to recession and due to offering higher discount to the customers to sustain in the market.
The Assessing Officer rejected the explanation of the assessee and assessed the gross profit at the increased rate and made an addition to the income returned.
The CIT(A) held that the conclusion drawn by the Assessing Officer that the Managing Partner had admitted higher gross profit rate on oath was incorrect and not based on facts. Further, it was held that the explanation of the assessee regarding statement given by the Managing Director cannot be brushed aside on the ground that the statement was given under oath as the assessee had a right to prove that such admission was incorrect.
Further, it was held that the Assessing Officer cannot make additions based on gross profit difference without establishing that the books of account maintained by the assessee did not reflect correct profit earned by the assessee.
Hence, the CIT(A) relying on the judgments of various High Courts and Hon’ble Supreme Court deleted the addition made by the Assessing Officer based on low gross profit.
The Tribunal observed that the books of account of the assessee were required to get audited u/s. 44AB of the Act and books of account of the assessee had not been rejected by the Assessing Officer. However, the Assessing Officer relied on the statement of the managing partner of the assessee recorded u/s. 131(1) of the Act.
The Tribunal opined that the statement recorded u/s 131 of the Act was valid statement and it could be used for the purpose of assessment provided they are supported by corroborative documents.
The Tribunal observed that under section 131 of the Act, the income tax authority is empowered to examine on oath. Section 131 of the Act confers power to the income tax authority to record the statement in the course of proceedings before them. The power invested u/s. 131(1) is only to make enquiries and investigation and not basically meant to voluntary disclosure or surrender of concealed income. As per section 31 of the Indian Evidence Act, 1878, admissions are not conclusively proved as against admitted proof. In the absence of rebuttable conclusion, admission bind the maker when these are not rebuttable or retracted.
The Tribunal observed that the Supreme Court had held that an admission is an extremely important piece of evidence but it cannot be said that it is conclusive and the maker can show that it was incorrect. Further, the High Court had held that the admission made by an assessee constitute a relevant piece of evidence but if the assessee contends that in making the admission, he had proceeded on a mistaken understanding or on misconception of facts or untrue facts, such admission cannot be relied upon without considering the aforesaid contention.
The Tribunal noted that the Hon’ble Supreme Court held that evidentiary admissions are not conclusive proof of the facts admitted and may be explained or shown to be wrong but they do raise an estoppel and shift the burden of proof to the person making the admission. The Supreme Court further held that unless shown or explained to be wrong, they are an efficacious proof of the facts admitted. Thus, the burden to prove “admission” as incorrect is on the maker and in case of failure of the maker to prove that the earlier stated facts were wrong, these earlier statements are suffice to conclude the matter. If retraction is proved sufficiently, the earlier stated facts loose their effect and relevance as a binding evidence and the authorities cannot conclude the matter on the basis of the earlier statements alone. However, bald retraction of earlier admissions will not be enough even after retraction. Such statements cannot automatically become nullified. If the assessee proves that the statement recorded u/s. 131 was involuntary and it was made under coercion or during their admission, the statement recorded u/s. 131 has no legal validity.
The Tribunal also noted that the CBDT vide its Circular has emphasized on its officers to focus on gathering evidences during search/survey operations and strictly directed to avoid obtaining admission of undisclosed income under coercion/under influence.
The Tribunal opined that it was undisputedly clear that the lower authorities had not collected any other evidence to prove that the impugned income was earned by the assessee.
Thus, the Tribunal opined that there was no corroborative evidence to support the claim made by the Assessing Officer. Even otherwise, uncorroborative statements collected by the Assessing Officer cannot be an evidence for sustenance of addition made by the Assessing Officer.
The Tribunal went through a number of decisions of Hon’ble Supreme Court and opined that once a statement is retracted, the contents stated in the retracted statement must be substantially corroborated by other independent and cogent evidence. It has been consistently held by various courts that a sworn statement cannot be relied upon for making any addition and must be corroborated by independent evidence for the purposes of making assessments.
The Tribunal opined that the statement recorded u/s. 131 cannot be independently used for making any addition in the hands of the assesse and the said statement cannot, be the sole basis for making any addition and must be independently corroborated by evidences.
The Tribunal observed that the legal position that emerges from the careful reading of the decisions of the Hon’ble Supreme Court is that a sworn statement, though binds the assessee, it cannot be the sole basis for making the assessment. It is open to the assessee to show the circumstances in which confessional statements were recorded and once the assessee proves that confessional statements were recorded under threat and coercion and retracts from the same, the confessional statements cannot be the sole basis for making assessments or for making any addition in the hands of the assessee.
The Tribunal opined that the Assessing Officer had made the addition only on the basis of sworn statement of the managing partner. Accordingly, it dismissed the appeal of the Revenue.