Income Tax Appellate Tribunal (ITAT) Mumbai in a recent judgment has upheld CIT(Appeals) order setting addition made for amount surrendered merely on the basis of statement recorded u/s 132(4) under distress and mental pressure during the course of search and seizure when no incriminating material was found.

Case Details:
ITA No.2250 and 2251/Mum/2013 ; AY 2009-10 and 2010-11
M/s Tribhovandas Bhimji Zaveri (Delhi) Pvt. Ltd. (Appellants) vs Astt. Commissioner of Income Tax (Respondent)
Date of Order: 04-11-2015

Case Law Referred:
ACIT Vs. Hukum Chand Jain (2011)(337 ITR 238) (High Court of Chhattisgarh)
Bachittar Singh Vs. CIT (2010)(328 ITR 500) (Punjab and Haryana High Court)
CIT vs. V. MR.P Firm (1965) 56 ITR 67 (SC)
Pullangode Rubber Products Company Limited Vs. State of Kerala (91 ITR 18) (SC)
Balmukund Acharya (310 ITR 310) (Bombay High Court)

Brief Facts of the Case:
The assessee company was engaged in the business of manufacturing, processing and trading of gold and diamond jewellery, silver articles, wrist watches at New Delhi. The Department conducted search and seizure operations u/s 132 of the Act in on the assessee, its directors, group concerns and related persons on 18-09-2009. During search, a sworn statement u/s 132(4) was recorded from one of the directors named Shri Nand Kishore Zaveri, wherein he had agreed to surrender a sum of Rs.2.00 crores in AY 2009-10 and Rs. 4.00 crores in AY 2010-11. However, in the returns of income filed in response to notices issued u/s 153A, the assessee did not offer to tax the surrendered sums. When enquired, the assessee explained that the raid continued for more than 72 hours at a stretch and he was under tremendous undue psychological pressure and distress to declare some amount to buy peace and more particularly to avoid harsh and uncalled for/untoward consequences under various provisions. Since this type of peculiar situation had never been faced by the assessee company or its Director(s) he had no other alternative but to surrender to the illegal dictates of Search Party in duress.

The assessee further explained that since as per the search party excess stock aggregating to Rs.5,45,77,020/- was found during the course of search, the surrender of Rs.6.00 crores was made in connection with the alleged excess stock in diamonds, After conclusion of the search, the assessee recalculated and rechecked the working of stock inventory prepared by the search party and found that there was no tangible difference in the stocks and consequently such surrender, though made had not been offered to tax.

The Assessing Officer took the view that the initial mental pressure built up at the time of commencement of search would have come down on the third day of search when surrender of additional income was made The AO also contended that search officials did not proceed further, only because the assessee agreed to surrender its undisclosed income. The assessing officer accordingly took the view that there is no nexus between the additional income of Rs.6.00 crores offered by the assessee and the excess stock of diamonds found during the course of search.

The CIT(A), being convinced with the explanations of the assessee deleted the addition of Rs.2.00 crores and Rs.4.00 crores referred above in AY 2009-10 and AY 2010-11 respectively.

Excerpts from ITAT Judgment:
the question no.43 was posed on 21.09.2009 in the early morning by about 3.00 a.m. This peculiar fact gives ample scope to infer that the assessee was put pressure to surrender additional income. This inference is further fortified by the fact that the search was concluded immediately after the surrender of Rs.6.00 crores. It is also pertinent to note that the recording of sworn statement commenced on 18-09-2009 and continued upto 21.09.2009, i.e., the search officials were posing questions to the assessee for almost four days. Hence, in our view, it is not correct to say that the assessee was not put any pressure. Continuous grilling of any person, that too for four days, would put lot of mental pressure on any person. Under these set of facts, it is difficult to accept that the disclosure was voluntary.

Under these set of facts, it is inconceivable that the assessee would have agreed to offer additional income of Rs.6.00 crores over and above the excess stock of Rs.5.45 crores claimed to have been found during the course of search. ……………… It is not inconceivable that an assessee declaring such a huge profit would agree to offer such a huge sum for no reason. Hence, in our view, the surrounding circumstances would show that the surrender of Rs.6.00 crores should have been made only on the basis of alleged excess stock found during the course of search. This view is further reinforced by the fact that the search officials did not unearth any other incriminating material except a pocket diary referred above.

A careful perusal of the sworn statement would show that the search team did not put any question to the assessee about the alleged excess stock, which was claimed to the huge amount of Rs.5.45 crores. It is quite strange, since normally the explanations of the assessee with regard to any incriminating material/difference would be sought in the sworn statement recorded u/s 132(4) of the Act.

It is well settled proposition that the strict rules of Evidence are not attracted in relation to income tax proceedings and further there is nothing like res judicata or estoppel. In order to tax any income under the Income Tax Act, it is required to be shown that such income has accrued to the assessee or is deemed to have accrued.

At this juncture, we may extract the instruction dated 10.3.2003 issued by the CBDT, wherein it has advised the search officials in following term”:

Confession of additional income during the course of search and seizure and survey operation
Instances have come to the notice of the Board where assessees have claimed that they have been forced to confess the undisclosed income during the course of the search & seizure and survey operations. Such confessions, if not based upon credible evidence, are later retracted by the concerned assessees while filing returns of income. In these circumstances, such confessions during the course of search & seizure and survey operations do not serve any useful purpose. It is, therefore, advised that there should be focus and concentration on collection of evidence of income which leads to information on what has not been disclosed or is not likely to be disclosed before the Income-tax Department. Similarly, while recording statement during the course of search & seizure and survey operations no attempt should be made to obtain confession as to the undisclosed income. Any action on the contrary shall be viewed adversely. Further, in respect of pending assessment proceedings also, Assessing Officers should rely upon the evidences/materials gathered during the course of search/survey operations or thereafter while framing the relevant assessment orders.
Instruction : F. No. 286/2/2003-IT (Inv. II), dated 10-3-2003.

The Ld D.R as well as the assessing officer has reiterated that the admission was made in the sworn statement recorded u/s. 132(4) and the same is admissible in evidence. A careful perusal of provisions of sec. 132(4) as well sec. 292C would show that the said provisions state that the statement taken u/s 132(4) “may be used in evidence in any proceeding under the Act”. Thus, this provision gives a discretion to the assessing officer not to use the statement in evidence. In fact, the assessing officer himself has observed that the admission made under sec. 132(4) can be rebutted. The Hon’ble Supreme Court in the case of Pullangode Rubber Products Company Limited Vs. State of Kerala (91 ITR 18) held that “an admission is extremely an important piece of evidence but it cannot be said that it is conclusive and it is open to the person who made the admission to show that it is incorrect”.

In the case of Bachittar Singh (supra), the revenue carried out a survey operation u/s 133A of the Act and the addition was made on the basis of statement recorded during the course of survey proceedings. The assessee contended that the statement taken during the course of survey does not have evidentiary value. However, a careful perusal of the facts available in the above said case would show that the assessee therein did not produce any record, books of account or income tax record to rebut the presumption. Hence the decision was taken against the assessee. However, in the instant case, the assessee has maintained books of account and further the alleged difference in stock has been duly reconciled.

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