Tuesday 16 March 2021

Retraction of surrendered made during the Search & Survey proceedings - Decisions where Retraction of Statement was held VALID

The income tax authority may examine on oath any person, which may be useful for the purpose of any proceeding under the Act. A statement on oath may be used as evidence in any proceedings under the Act. However, it is only when the statement is recorded by the authorized officer on oath, which could be used as evidentiary value against the person making the statement.

 

Reasons of Retraction

Generally, the statements made earlier are retracted when the maker contends that earlier admissions:

(i) were untrue; or

(ii) were on a mistaken understanding, misconception; or

(iii) were not voluntary; or

(iv) were under mental stress, undue influence, pressure or coercion.

 

Mode and Manner of retraction or rebuttal of earlier statements/admitted facts

Retraction of a statement later on, which was made during the search or survey operation is not an easy way to escape the tax implications and requires corroborative evidence and documents to support the retraction and show the circumstances as to why the person is retracting his statement made earlier. The following aspects should be kept in mind:

(i)   In the form of a letter

The retraction should be made properly and at the earliest possible opportunity and establishing  the situation as to how the facts stated in statement mistaken on facts or in law.

(ii) Sworn Affidavit

In the form of a Sworn Affidavit filed and backed by corroborative evidences justifying the retraction. A retraction should be made on an affidavit along with supporting evidences, if any,

 

Retraction by a Sworn in Affidavit

Affidavitis a solemn and voluntary declaration or statement of fact in writing, relating to matters in question and sworn or affirmed and signed by the deponent before a person or officer duly authorized to administer such an oath or affirmation - should show the circumstances under which admission was made and the grounds for which the admission is incorrect. Necessary supporting evidences to support the correct facts need to be filed.

Ingredients of Affidavit

Every Affidavit should clearly express how much is the statement of the deponent’s knowledge and how much is a statement of his belief and the ground of belief must be stated with sufficient particularity to enable the Court/Administering Authority to judge whether it would be safe to act on the deponent’s belief. When the Affidavits filed by the party bear only the verification that they were sworn on oath and the contents of the Affidavits were admitted by them to be correct without giving source of knowledge or information, the verification makes the Affidavits meaningless and valueless as noted in the case of Babu Lal v. Motilal, AIT 1953 MB &2 (Gwalior benefit).

The onus to prove malafide lies heavily on the person alleging it. Facts constituting malafide have to be supported by Affidavits stating that they have ‘come to the knowledge’ of the deponent. The nature and source of knowledge is to be disclosed with sufficient particularity. Affidavit will not be one as required by law if the above ingredients are missing, stated the Supreme Court categorically in Suckwinder Pal Bipan Kumar v. State of Punjab, AIR 1982 SC 65.

(iii)) Affidavit of witnesses 

      Additional affidavit of the witnesses present during search or seizure may also be filed. The statement of the witnesses present holds good value and may aid the assessee in getting relief.

(iv) Furnish relevant details and evidences 

It must clearly lay down the facts of the case and detail the evidences showing inter alia use of force, coercion, intimidation or any mistake of fact/law, whatever may be the case.

 (v)  Highlight mistake of fact or law

       In case of a mistake of fact or law, it must clearly lay down as to what statement was recorded, what mistake took place in making such a statement, the reason for the same and the actual correct position. Evidences in support of the correct facts must also be attached.

(vi)  Inform Senior Officers 

        In addition to the Assessing Officer, Authorised Officer (who conducted the Search), a retraction which is made on affidavit or otherwise should also be communicated to higher authorities.

 (vii) Retraction should be done at the earliest

Any retraction should be done at the earliest without any delay. A retraction made immediately may strengthen the case of the assessee whereas a belated retraction will in most cases will have no value and would be seen as an afterthought.

There is no universal law on retraction admission etc. In the case CIT v. Sun Engineering Works (P) Ltd (1992) 198 ITR 297 (SC) the Court held that  the judgements to be read in the context in which it was delivered  It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this Court, divorced from the context of the question under consideration and treat it to be the complete ‘law’ declared by this Court.

 

No Confession can be extorted [CBDT F. No. 286/2/2003-IT (Inv.), dated 10.03.2003]

CBDT in F. No. 286/2/2003-IT (Inv.) dated 10.03.2003 has also advised that while recording statement during the course of search and seizure, no attempt should be made to obtain confession as to the undisclosed income. Further, in pending assessment proceedings, Assessing Officer should rely upon the evidence/material gathered during the course of search/survey operations or thereafter while framing the relevant assessment orders. Thus, power to record a statement has not been diluted. What is discouraged is forced confession of undisclosed income.

 

CBDT in F. No. 286/2/2003-IT (Inv.) dated 10.03.2003

 

Subject : Confession of additional Income during the course of search & seizure and survey operation -regarding

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 eircumstances, on 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 Departments. Similarly, while recording statement during the course of search it seizures 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.

 Business expenditure (Section 37(1) – Consultancy charges – Statement – Retraction – Merely on the basis of statement recorded in the course of search, which was retracted – No disallowance can be made without bringing on record independent material

Dismissing the appeal of the revenue the Court held that, merely on the basis of statement recorded in the course of search, which was retracted, within a short time by filing an affidavit. Subsequently his further statement was recorded he reiterated the stand taken in affidavit. Court held that no disallowance of consultancy charges can be made without bringing on record independent material. - [CIT v. Reliance Industries Ltd. (2020) 421 ITR 686 : (2019) 261 Taxman 358 (Bom)]

During search certain incriminating documents were found in possession of one DD, managing and handling land acquisition on behalf of assessee-company and his statement was recorded. He stated that there were amounts disbursed for purchase of lands and a certain amount of cash had also been received by him to purchase lands. However, later he had retracted his statement. A.O. issued notice under section 153C and initiated proceedings against assessee and made additions under section 69C. High Court held that since seized documents did not belong to assessee but were seized from residential premises of one Mr. DD who had later retracted his statement, no action under section 153C could be undertaken in case of assessee. It further held that since entire decision was based on seized documents and there was no material to conclusively show that huge amounts revealed from seized documents were actually transferred from one side to another, additions under section 69C were not sustainable. SLP of Revenue was dismissed.- [Principal CIT, Central III v. Krutika Land (P) Ltd. (2019) 103 taxmann.com 9 (SC)]

In CIT v. Rakesh Ramani, in course of block assessment, assessee brought on record various documents to establish that jewellery seized from him actually belonged to his employer, impugned addition made in respect thereof merely on ground that assessee in course of statement made u/s 132, had admitted that said jewellery belonged to him, could not be sustained. It was also held that there is no requirement in law that evidence in support of its case must be produced by assessee only at time when seizure has been made and not during assessment proceedings. Besides, the entire basis of the revenue’s case is the statement made on the date of the seizure. The voluminous evidence filed by the respondent during the course of the assessment proceedings has been completely ignored on the ground that the same was not produced when the seizure was made. The High Court held that there is no requirement in law that evidence in support of its case must be produced by assessee only at the time when the seizure has been made and not during the assessment proceedings. The basis of the decision was the evidence led by the respondent during the assessment proceedings which established that the jewellery belonged to his employer ‘P’ Jewellers. Therefore, the Bombay High Court held that the view taken by the two Authorities namely the Commissioner (Appeals) as well as the Tribunal is a possible view on the facts as existing. Therefore, the Court held that the question of law does not arise to any substantial question of law and the appeal of the Revenue was dismissed. – [CIT v. Rakesh Ramani (2018) 256 Taxman 299 : 168 DTR 356  : 94 taxmann.com 461 (Bom.)]

Addition not maintainable on the basis of mere statement recorded during survey

Hon’ble High Court of Madras in the case of CIT v. S. Khader Khan and Son (2008) 300 ITR 157 (Mad) which held the statements recorded under section 133A of the Act does not give any evidentiary value as the officer is not authorized to administer oath and to take any sworn statement which alone has evidentiary value as contemplated under law. In the present case, as discussed above, the survey under section 133A of the Act was conducted on 08.01.2013 and a preliminary statement was recorded on 09.01.2013 stated to have been on oath of Shri Ajoy Kr. Das who is happened to be son of assessee. Again a final statement of Shri Rohitaswa Das was recorded to confirm the statement made by Shri Ajoy Kr. Das. We note that in the light of the observations made by the Hon’ble High Court of Madras in the case of S. Khader Khan & Sons (supra). It is to be held that no addition is maintainable on the basis of statement recorded during the course of survey unless there is evidence supporting the statement.

it is to be noted that there cannot be addition made on account of statements recorded under survey proceedings conducted under section 133A of the Act and therefore the addition made in the present case in the hands of assessee is not maintainable only for the reason that the addition was made by Assessing Officer and confirmed by the CIT(A) is solely based on the statement of Shri Ajoy Kr. Das which was alleged to have been confirmed by the assessee during the course of survey.

As discussed above, there was no evidence to show that the excess stock alleged to have been found at the warehouse premises bearing no. 54/14, this belongs to assessee and the addition made in the hands of assessee is not maintainable. (Related Assessment Year : 2013-14)[Rohitaswa Das v. ACIT - Date of Judgement : 28.08.2019 (ITAT Kolkata)]

No merit in sustaining the addition only based on the statement recorded during the course of survey

It is trite law that Section 133A does not empower any Income tax authority to examine any person on oath and then use it as evidence to make addition. In such a situation, no addition can be made or sustained only on the basis of the statement recorded during the survey under section 133A of the Act. Once the assessee has retracted from the statement then it was on the Assessing Officer. to establish beyond any doubt the issues on which the addition has been made. Once the assessee has submitted up to date cash book and stock register then it was duty of the Assessing Officer to pin point the defects in such books of account particularly with regard to the issues, on which the statement was recorded during the survey. Further in the case of Shri Pawan Kumar, even the Assessing Officer recorded his statement but he has not asked any question with regard to amount of advance of Rs. 10.00 lacs for which the addition has been made only on the basis of a piece of paper, which was not signed by Shri Pawan Kumar. Similarly in the case of debtors, once the assessee has retracted then it was the duty of the Assessing Officer to examine these debtors to establish the truthfulness of the debt. The ld DR has relied on the decision of Hon’ble Bombay High Court in the case of Dr. Dinesh Jain v. ITO (2014) 45 com442 (Bom.) and decisions of Hon’ble Rajasthan High Court in the case of Rameshwar Lal Mali v. CIT (2003) 132 Taxman 629 (Raj), we have considered the facts and law involved in these cases and we find that the facts are at variation from these cases, therefore, the ratio laid down in these cases are not applicable to the assessee’s case. Considering all these aspects, we find no merit in sustaining the addition only based on the statement recorded during the course of survey. (Related Assessment Year : 2009-10) – [Satish Chand Agarwal, Prop. Sumit Medical Hall v. ITO - Date of Judgement : 12.04.2018 (ITAT Jaipur)]

Evidentiary value of statement recorded during survey proceeding

A statement unless administered on oath has no evidentiary value. In the course of search proceeding under section 132 of the Income Tax Act, section 132(4) specifically empowers the Investigating Officer to obtain statement administered on oath. However, no such authority is given by law to obtain statement in survey proceedings under section 133 of the Income Tax Act. As a primary fact, admission/confession given under section 133 has no evidentiary value.

An admission of estimated income made during survey has no evidentiary value and is not binding on the assessee. The income has to be assessed as per the return of income and books of account. Hiralal Maganlal 97 TTJ Mum 377 distinguished. CBDT Circular No. 286/2/2003 (Inv.) II, dated 10.03.2003 referred. (Related Assessment year : 2016-17) - [Amod Shivlal Shah v. ACIT (Date of pronouncement : 23.02.2018) (ITAT Mumbai)]


In CIT, Central-III v. Lavanya Land (P) Ltd. and Others, the Hon’ble Bombay High Court dismissed an appeal filed by the revenue against the order of the ITAT, Mumbai and upheld the order of the ITAT in which it had set aside the additions made by the revenue based on the statement made by person who was searched but which was later retracted by him. In this case, a search was conducted at the premises of one of handlers of the assessee company and his statement was recorded which showed an admission that a large sum of money was received by him to purchase lands in the name of the assessee company. The said statement was retracted by him after a period of two and a half months. However, the department proceeded to issue a notice to the assessee under section 153C of the Act on the basis of the statement of the person searched and without taking into account the retraction, an addition was made under section 69. The CIT(A) upheld the addition made. On appeal, the ITAT Mumbai set aside the addition made. Adverting to the fact that the concerned person (Dilip Dherai) has retracted his statement, the Tribunal arrived at the conclusion that merely on the strength of the alleged admission in the statement, the additions could not be made as the essential ingredients of Section 69C of the Income Tax Act enabling the additions were not satisfied. This was not a case of ‘no explanation’. Rather, the Tribunal concluded that the allegations made by the authorities are not supported by actual cash passing hands. Against the order of the ITAT, the revenue filed an appeal to the Hon’ble Bombay High Court, which held while dismissing the appeal of the revenue, in para 22 of its Order, as under:

It is not possible for us to reappraise and re-appreciate the factual findings. The finding that Section 153C was not attracted and its invocation was bad in law is not based just on an interpretation of Section I53C but after holding that the ingredients of the same were not satisfied in the present case. That is an exercise carried out by the Tribunal as a last fact finding authority. Therefore, the finding is a mixed one. There is no substantial question of law arising from such an order and which alternatively considers the merits of the case as well.”  - [CIT, Central-III v. Lavanya Land (P) Ltd. and Others (2017) 397 ITR 246 (Bom.)]

Retraction of statement – No other evidence of suppression of income – Addition of income not justified

Dismissing the appeal of revenue, the Court held that; while making the additions in the hands of the partner as well as in the hands of the firm, the Assessing Officer solely relied upon the statement of the partner recorded at the time of search, which subsequently came to be retracted or explained within the period of 19 days. Except the statement recorded at the time of search which was subsequently retracted, there was no other material or corroborative material with the Assessing Officer, on which, the addition of Rs. 6 lakhs in the hands of the partner and Rs. 7,00,500 cash in hand and Rs. 25,50,320 as unexplained investment in stock in the hands of the firm could be justified. Under the circumstances, the deletion of the additions was justified. (Related Assessment year : 2007-08) – [CIT v. M.P. Scrap Traders (2015) 372 ITR 507 (Guj.)]

 

Survey statement were retracted- court ruled that no addition can be made based on the statement - Where assessment order was passed on sole basis of statements recorded during course of survey and after retraction of statements, Assessing Officer did not produce any other material to support understatement of sale consideration of land, assessment order was to be set aside

In the instant case, the appellants specifically pleaded that the statements were recorded from them by applying pressure, till midnight, and that they have been denied access outside the society. The Assessing Officer made an effort to depict that the withdrawal or retraction on the part of the appellants is not genuine. We do not hesitate to observe that an Assessing Officer does not have any power, right or jurisdiction to tell, much less to decide, upon the nature of withdrawal or retraction. His duty ends where the statement is recorded. If the statements are retracted, the fate thereof must be decided by law meaning thereby, a superior forum and not by the very authority, who is alleged to have exerted force.

 

It is not as if the retraction from a statement by an assessee would put an end to the procedure that ensued on account of survey or search. The Assessing Officer can very well support his findings on the basis of other material. If he did not have any other material, in a way, it reflects upon the very perfunctory nature of the survey. We find that the appellate authority and the Tribunal did not apply the correct parameters, while adjudicating the appeals filed before them. On the undisputed facts of the case, there was absolutely no basis for the Assessing Officer to fasten the liability upon the appellants. Our conclusion find support from the Circular dated March 10, 2003, issued by the Central Board of Direct Taxes, which took exception to the initiation of the proceedings on the basis of retracted statements. Therefore, the orders of assessment dated December 1, 1998, are set aside. – [Gajjam Chinna Yellappa v. ITO (2015) 370 ITR 671 (AP)]

 

Retraction in the return – Statement on oath is a piece of evidence and when there is incriminating admission against himself, then it is required to be examined with due care and caution – Addition made only the basis of statement was deleted

During course of search conducted under section 132 upon assesseefirm, a partner made a statement under section 132(4) and surrendered a sum of Rs. 20 lakhs for Assessment Year 1988-89 as income. In return filed after search assessee-firm did not declare income of Rs. 20 lakhs on plea that declaration made by partner was misconceived and divorced from real facts and that firm or individual had no undisclosed income. Lower authorities did not accept assessee’s said retraction on ground that statement given by partner appeared to be voluntarily given statement disclosing undisclosed income of Rs. 20 lakhs and added said amount to its income as undisclosed income. No specific reason had been given for rejection of assessee’s contention by which it had retracted for admission of partner. During course of search there was no recovery of assets or cash by department, having regard to facts and circumstances of case a wrong inference had been drawn by authorities below in holding that there was undisclosed income to the tune of Rs. 20 lakhs of assessee. Addition was deleted. (Related Assessment Year: 1998-99) - [Shree Ganesh Trading Co. v. CIT (2013) 257 CTR 159 : 214 Taxman 262 : 84 DTR 94 (Jharkhand)]

 

Section 69 – Unexplained investments – Survey – Statement – Survey does not empower any ITO to examine any person on oath, statement recorded under section 133A has no evidentiary value addition cannot be made merely on the basis of such statement

It was held that section 133A does not empower any ITO to examine any person on oath. So statement recorded under section 133A has no evidentiary value and addition cannot be made on basis of such statement. FACT:

The Tribunal deleted the addition made by the Assessing Officer on the basis of statement recorded during the survey proceedings. In an appeal before the High Court, the High Court by passing a detailed order and referring the Circular of Board dated 10.03.2003 has held that merely on the basis of statement recorded in the course of survey, which was retracted subsequently addition cannot be made. High Court explained the difference between section 132(4) and section 133A. High Court held that statement obtained under section 133A would not automatically bind upon the assessee  and confirmed the order of Tribunal. On appeal by the Department to the Apex court the Court held that in view of the concurrent findings of fact, the civil appeal of department was dismissed. (Related Assessment year : 2001-02) - [CIT v. S. Khader Khan Son (2013) 352 ITR 480 : (2012) 254 CTR 228 : 210 Taxman 248 : 79 DTR 184 (SC)]

 

A survey was conducted in the premises of the assessee firm. One of the partners in his statement offered an additional income of Rs. 20 lakhs for the Income Tax Assessment year 2001-02 and Rs. 30 lakhs for the Assessment year 2002-03, but the statement was retracted by the assessee stating that the partner from whom the statement was recorded during the survey operation under section 133A of the Income Tax Act, 1961, was new to the management and had agreed to an adhoc addition. The Assessing Officer based on the admissions made by the assessee computed the income. The order was set aside by the CIT(A) and his order was upheld by the ITAT.

On appeal to the High Court, the High Court held that in view of the scope and ambit of the materials collected during the course of survey, the action under section 133A would not have any evidentiary value and that 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. On appeal to the Supreme Court :

The Supreme Court dismissed the appeal in view of the concurrent finding of fact, and affirmed the decision of the High Court. - [CIT v. S. Khader Khan Son (2013) 352 ITR 480 (SC)]

Addition made on the strength of a statement recorded during the survey cannot be sustained

During the course of survey, the assessee made declaration and surrendered a sum of Rs. 2 crore. The Assessing Officer found that the assessee had not filed a revised return of income and had failed to incorporate the surrendered amount to tax in the return. The assessee contended that he had not made any voluntary disclosure. The statement recorded during the course of survey was not given on oath and had no evidentiary value. Not being satisfied with the Explanation of the assessee the Assessing Officer made an addition of Rs. 2 crores which addition was confirmed by the CIT(A). On appeal by the assessee, the Tribunal deleting the addition held that:

“The department failed to collect any material during the course of survey and the Assessing Officer was harping upon the statement of the assessee.The statement recorded during survey had no evidentiary value and no addition could be sustained on the strength of this statement. (Related Assessment year 2005-06)”—[Mahesh Ohri v. ACIT (2013) 23 ITR 522 (ITAT Delhi)]

 

Interrogation till late night amounts to “torture” and violation of “human rights” – Officers are held liable for to pay compensation from their salary

The assessee’s premises were searched under section 132 and alleged undisclosed income of Rs. 4.18 crores was detected. The assessee filed a complaint before the Bihar Human Rights Commission stating that interrogation and recording of statement was conducted for more than 30 hours and till the odd hours of the night without any break or interval and this violated his human rights. The Commission upheld the plea and directed the concerned officials to show-cause why the assessee should not be compensated from their salary. The Department filed a Writ Petition to challenge the order, held by the Court: (i) The interrogation continued till 3.30 a.m. on the second night of search and seizure as per the department’s record. The search and seizure manual does not prescribe any time limit for search and survey operation and the same may continue for days if required, but it has to be in keeping with the basic human rights and dignity of an individual. The purpose of the Act is to give effect to the process of execution of actions of executive and bureaucratic machinery in line of accepted standard of basic human rights which are internationally recognized. The laws and approach to law for its execution must confirm to the charter of human values and dignity. Even a person accused of a serious offence has to be produced before the nearest Magistrate within 24 hours minus the time taken in reaching the Court. There is no possible justification to continue interrogation and keep the assessee awake till 3 a.m. on the second night of search and interrogations. No reason has been assigned as to why the interrogations could not have been deferred till the morning of the next day.  The officials could have continued with the interrogation on the next day in the morning after allowing the assessee to retire at an appropriate time in the night. Sleep deprivation method of interrogation amounts to inhuman treatment and violation of Article 3 of the European Convention on Human Rights. The Convention prohibits in absolute terms torture or inhuman or degrading treatment or punishment. No exception to Article 3 can be made even in the event of Public Emergency threatening the life of the Nation. Accordingly, the department is guilty of violating human rights even though the operations were conducted in best interest of revenue and good faith [Ireland v. UK (1978) ECHR 1, Kalashnikov v. Russia (2002) ECHR 596 & Salmouni v. France (2000) 29 EHRR 403 followed; Rajendran Chingaravelu 2010 (1) SCC 45 distinguished] (ii) However, as the Commission, without issuing any notice to the officials engaged in the search (as to the violation of Human Rights), issued notice on why monetary compensation be not awarded and be recoverable from their salary, it had pre-judged the officials as being guilty of violation of human rights, without affording them an opportunity of hearing. This was contrary to section 16 of the Protection of Human Rights Act, 1993 and had to be reversed. - [CCIT v. State of Bihar, Through Chief Secretary (Rajendra Singh) (2012) 250 CTR 304 : 205 Taxman 232 : 71 DTR 268 (Pat)]

The Assessee, a dealer in diamonds, had declared certain diamond jewellery under Voluntary Disclosure of Income Scheme, 1997 – Said declaration was accepted by department and a certificate was issued to assessee – In his return of income for relevant assessment year, assessee claimed to have sold said jewellery to one T on 20.01.1999. Return was processed under section 143(1)(a), but later, on basis of statement of T recorded during course of survey conducted upon him wherein he had stated that he was not actually doing business of diamonds and transactions reflected in his books of account were merely accommodation entries. The Assessing Officer reopened assessment and made addition of entire sale amount as undisclosed income of assessee. The Tribunal, relying upon retracted statement made by T, deleted impugned addition. Since existence of diamond jewellery with assessee prior to sale was evidenced by VDIS, 1997 certificate and on sale of said jewellery assessee had received consideration which was duly accounted for, mere fact that jewellery sold by assessee was not found with purchaser ‘T’ could not be a ground to hold that transaction was bogus and consideration received by assessee was his undisclosed income. The Court held that retraction statement of Mr. Trivedi is corroborated by the pay-in-slips/cash deposits in the bank account of Mr. Trivedi and the non-availability of the jewellery claimed to have been sold by the assessee to Mr. Trivedi, is a reasonable and possible view. Therefore, the High Court upheld the decision of the Tribunal in deleting impugned addition. – [CIT v. Uttamchand Jain (2010) 320 ITR 554 : (2009) 182 Taxman 343 (Bom)] 

Evidence brought by confession, if successfully retracted, must be corroborated by independent and cogent evidences

The Hon’ble apex Court in Vinod Solanki v. Union of India cautioned in using the retracted statement. The relevant para is as follows:—

It is a trite law that evidences brought on record by way of confession which stood retracted must be substantially corroborated by other independent and cogent evidences, which would lend adequate assurance to the court that it may seek to rely thereupon. We are not oblivious of some decisions of this Court wherein reliance has been placed for supporting such contention but we must also notice that in some of the cases retracted confession has been used as a piece of corroborative evidence and not as the evidence on the basis whereof alone a judgment of conviction and sentence has been recorded. (See Pon Adithan v. Deputy Director, Narcotics Control Bureau, Madras (1999) 6 SCC 1) - [Vinod Solanki v. Union of India (2009) 233 ELT 157 (SC)]

 

Statement recorded under section 132(4) at odd hours cannot be considered as voluntary statement if it is subsequently retracted and necessary evidence is laid contrary to such admission

It was held that statement recorded at odd hours cannot be considered to be a voluntary statement and if it is subsequently retracted and necessary evidence contrary to such admission is led, the admission will not be binding. - [Kailashben Manharlal Choksi v. CIT (2008) 328 ITR 411 : 14 DTR 257 (Guj)]

 

It was held that the evidence given by Chief Financial Officer of assessee in a statement given under section 132(4) may be a good factor for probing issue further and can be a corroborative piece of evidence but surely on basis of this statement, addition in hands of assessee cannot be made, more so, where such statement is not a voluntary statement and has been retracted. – [First Global Stockbroking (P) Ltd. v. ACIT (2008) 115 TTJ 173 (ITAT Mumbai)]

It was held that there was no evidence to show that the assessee had any undisclosed income barring the statement given by the managing partner while in an utter state of confusion. Further the managing partner had retracted the admission. There may be hundreds of reasons and thoughts crossing the mind of the deponent during the search and it is not expected that whatever is reeled out during the search is only after proper application of mind. Therefore the additions were not justified merely based upon the statement without any evidence to corroborate the addition made as undisclosed income. – [DCIT v. Pramukh Builders (2008) 112 ITD 179 (ITAT Ahmedabad)(TM)]

If an assessee under a mistake, misconception or on not being properly instructed, is over assessed, the authorities under the Act are required to assist him and ensure that only legitimate taxes due are collected. The decision in CIT v. Durga Prasad More (1973) CTR (SC) 500, was followed i.e., test of human probabilities. The High Court said “We do not find any material on record on which basis it can be said that the disclosure of the assessee of Rs. 16 lakhs is in accordance with law or in spirit of section 132(4)…”. (p. 872) – [S.R. Koshti v. CIT (2005) 193 CTR 518 (Guj.)]

 

No addition can be made merely on confession

No addition can be made merely on confession. CBDT’s Instruction is relevant in this regard. There should be corroborative material to make addition. Further, confession can be retracted subsequently.

On the basis of confessional statement obtained due to pressure which the assessee retracted from, the addition made for on-money was deleted. The Tribunal observed that in view of retraction, the Assessing Officer should have made enquiries from the shop owners who were supposed to have paid on-money to the assessee which he did not. As such undue significance cannot be given to the statement made before the authorities during search operation. - [DCIT v. Ratan Corporation (2005) 145 Taxman 503 (Guj)]

 

The Assessing Officer worked out the income on the basis of seized material which was less than the income declared in statement under section 132(4). The assessment was, however, made on the income confessed in the statement. The Tribunal observed:

“..........It is also a fact that total income so computed by the Assessing Officer falls below the income disclosed under section 132(4). It is not the case of the department that the difference in the income assessed and income disclosed under section 132(4) represents some other concealed income. Therefore, it is clear that there is no material available with the department to justify the addition so far as the difference between the income computed by the Assessing Officer and income disclosed under section 132(4).

In other words, the so-called disclosure under section 132(4) is bald and has no legs to stand and in such a case retraction is justified............. Thus, the view that emerges is that the ultimate addition to be made in a case would depend on the facts and circumstances of the case and not purely on the disclosure made under section 132(4), which also stood retracted subsequently.............”. (p. 292) - [ACIT v. Anoop Kumar (2005) 94 TTJ 288 (ITAT Amritsar)]

 

Not sustainable – No evidence, material, assets, immovable or movable, were found at the time of search which supports the disclosure – Retraction of statement under section 132(4) – CIT(A) rightly deleted the addition

Assessee disclosed Rs. 16 lakhs in his statement recorded under section 132(4) but later retracted from the same – Assessing Officer made the addition merely on the basis of statement recorded under section 132(4) at the time of search – Not sustainable – No evidence, material, assets, immovable or movable, were found at the time of search which supports the disclosure – ITO is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all – There must be something more than bare suspicion to support the assessment or addition – There being no material on record on the basis of which it can be said that the disclosure made by the assessee was in accordance with law and spirit of section 132(4) - CIT(A) rightly deleted the addition. - [ACIT v. Jorawar Singh M. Rathod (2005) 148 Taxman 35 : 94 TTJ 867 (ITAT Ahmedabad)]

 

Statement given under section 132(4) is on oath and under section 133A is not on oath and therefore it is difficult to retract the disclosure made in the statement under section 132(4) as compared to the disclosure made in the statement made under section 133A

In the case of DCIT v. Bhogilal Mool Chand, the Tribunal stated: “It is settled law that admission by a person is a good piece of evidence though not conclusive and the same can be used against the person who makes it. The reason behind this is, a person making a statement stops the opposite party from making further investigation.” - [DCIT v. Bhogilal Mool Chand (2005) 3 SOT 211 (ITAT Ahmedabad)]

 

Retraction should be supported by convincing and effective evidence through which assessee could demonstrate that the statement initially recorded was factually incorrect

It was accepted that the assessee had a right to retract but that has to be based on evidence brought on record to the contrary and there must be justifiable reason and material accepting retraction i.e., cogent and sufficient material have to be placed on record for acceptance or retraction. All that has to be done by the assessee if he is to retract the statement which was recorded in the presence of witnesses unless there is evidence of pressure or coercion. The facts of each case have to be considered to reach the conclusion whether retraction was possible or not as there can be no universal rule. - [ACIT v. Ramesh Chandra R. Patel (2004) 89 ITD 203 (ITAT Ahmedabad) (TM)]

 

The Chandigarh Bench of the Tribunal took a realistic view of the facts and circumstances in which disclosure is generally made in search and seizure proceedings. It was observed: 

“It is well known fact that the confessional statements made during the search are often vulnerable on the ground that the person giving such statements remain under great mental strain and stress. They also do not have the availability of relevant details, documents and books of account at the time of giving such statements in the absence of which precise information relating to the mode of utilization of such income and the year of such investment cannot be correctly furnished. The assessees are, therefore, entitled to modify/clarify the statements after verifying the necessary details from the relevant records at later point of time.” (p. 24) [Surinder Pal Verma v. Asstt. CIT (2004) 89 ITD 129 (ITAT Chandigarh) (TM)] 

 

Retraction of statement under section 132(4) – Additions made only on the basis of disclosure statement normally should not be confirmed in the absence of corroboration

During the proceedings under section 132(5), the assessees retracted from their statements – No material/evidence collected by the Revenue during the search in support of the disclosure statements – No addition can, therefore, be made on the basis of such confession. Addition under section 69 - Unexplained investment in household items – Assessing Officer did not hold that these articles were acquired by the assessee during the accounting but were received by the assessee from his father – Same could not be considered as acquired from undisclosed sources of income – Hence, no addition could be made. - [Amishkumar Mansukhlal Shah v. ACIT & Ranjnaben Mansukhlal Shah v. ACIT (2004) 83 TTJ 369: 136 Taxman 168 (ITAT Rajkot)]

It was held that section 133A enables the income-tax authority only to record any statement of any person which may be useful, but does not authorize for taking any sworn-in statement. On the other hand, such a power to examine a person on oath is specifically conferred on the authorized officer only under section 132(4) in the course of any search or seizure. Thus, the Income-tax Act, whatever it thought fit and necessary to confer such power to examine a person on oath, the same has been expressly provided, whereas section 133A does not empower any ITO to examine any person on oath. Statement recorded under section 133A is not given any evidentiary value obviously for the reason that the officer is not authorized to administer oath and to take any sworn-in statement which alone has the evidentiary value as contemplated under law. Therefore the statement elicited during the survey operation has no evidentiary value. – [Paul Mathews & Sons v. CIT (2003) 263 ITR 101 (Ker.)]

It is settled law that admission by a person is a good piece of evidence though not conclusive and the same can be used against the person who makes it. The reason behind this is, a person making a statement stops the opposite party from making further investigation. This principle is also embedded in the provisions of the Evidence Act. But the statement recorded under section 132(4) is on a different footing. The Legislature in its wisdom has provided that such a statement may be used as evidence in any proceedings under the Act. However, there are exceptions to such admission where the assessee can retract from such statement/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 allegation to prove that the 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 of law. If he can show that the statement has been made on mistaken belief of facts, than the facts on the basis of which admission was made were incorrect.[Hotel Kiran v. Asstt. CIT (2002) 82 ITD 453 (ITAT Pune)]

 

It was held that, it is not the position of law that no addition can be made on the basis of an admission at all, but the position of law is that the person making an admission is not always bound by it and sometimes can get out of its binding purview if that person can explain concisely with supportive evidence/material or otherwise that the admission made by him earlier is not correct or contains a wrong statement or that the true state of affairs is different from that represented therein and so, the same should not be acted upon for fastening tax liability which should rather be fixed on the basis of correct/true facts, as ascertained from material on record. Unless it is explained as stated above, the admission does retain its binding nature for the person who makes the admission and the same may, if considered reasonable in view of other facts on record and following the principles of preponderance of probability, form the basis of fastening liability. The ITAT allowed part relief to assessee. – [Gyan Chand Jain v. ITO (2001) 73 TTJ 859 (ITAT Jodhpur)]

It was held that, mere retraction of statement by filing an affidavit would not absolve the assessee from the consequences of sworn testimony recorded under section 132(4) which was fully corroborated by documents and records found at the business premises. - [ITO v. Bipin Faraskhana (2000) 73 ITD 334 (ITAT Ahmedabad)]

 

The 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 on to the person making them. The Supreme Court further held that unless shown or explained to be wrong, they are an efficacious proof of the facts admitted. [Avadh Kishore Das v. Ram Gopal AIR 1979 SC 861 (SC)] 

 

It was held that it is true that an admission made by an assessee constitutes 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 on untrue facts such an admission cannot be relied upon without first considering the aforesaid contention. – [Satinder Kumar (HUF) v. CIT (1977) 106 ITR 64 (HP)] 

 

Their Lordships while observing that admission is an extremely important piece of evidence, held that, it cannot be said to be conclusive and the maker can show that it was incorrect. [Also refer S. Arjun Singh v. CWT (1989) 175 ITR 91 : (1988) 41 Taxman 272 (Delhi)]. – [Pullangode Rubber Produce Co. Ltd. v. State of Kerala (1973) 91 ITR 18 (SC)]: 

 

It was 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.—[Pullangode Rubber Produce Co. Ltd. State of Kerala (1973) 91 ITR 18 (SC)]

It was held that an admission is the best evidence that an opposite party can rely upon and, though not conclusive, yet could be decisive of the matter unless successfully withdrawn or proved erroneous.—[Narayan Bhagwantrao Gosavi Balajiwale v. Gopal Vinayak Gosavi AIR 1960 SC 100]

 

It was held that it will not be open to the revenue to challenge the statements made by the deponent in their affidavits later on, if no crossexamination with reference to the statements made in the affidavits is done.— [Mehta Parikh & Co. v. CIT (1956) 30 ITR 181 (SC)]

 

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