Addition cannot be made only on the basis of declaration made u/s 132(4) of IT Act, 1961

AGRIM INFRAPROJECT PRIVATE LIMITED VS. DEPUTY COMMISSIONER OF INCOME TAX
I.T .A. NOS . 219, 222 & 224/GAU/2019
ITAT-KOLKATA/GUWAHATI

THE ITAT held that additions cannot be made only on the basis of declaration made under section 132(4) of the Income Tax Act, 1961 without any corroborating evidence to prove the addition.

APPLICABLE PROVISIONS

SECTION 132(4) of the act empowers the Authorized Officer, to examine and record a statement under oath of any person who is found to be in possession or control of any books of account, documents, money, bullion, jewellery or other valuable article or thing and any statement made by such person during such examination may thereafter be used in evidence in any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under the Income Tax Act'1961.

Direct Tax Law (Amendment) Act'1987 w.e.f. 01-4-1989, inserted an explanation to Section 132(4), which reads as under:-

'Explanation.- For the removal of doubts, it is hereby declared that the examination of any person under this sub-section may be not merely in respect of any books of account, other documents or assets found as a result of the search, but also in respect of all matters relevant for the purposes of any investigation connected with any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act."

Therefore there is a considerable importance of statements recorded u/s 132(4) during search and seizure operations, which is clear from the intent of Legislature as it thought fit to include a separate sub-section 132(4) for recording of statement during a search operation. However, it is further most pertinent to mention here is that the words 'may be used in evidence in any proceedings' appearing in section 132(4) are of great significance. The Legislature seems to be aware that some admissions may be made at the time of search which may be true, but for which sufficient corroborative evidence may not be found.

CBDT Instruction F. No. 286/2/2003-IT (Inv.), dated 10-3-2003 regarding confession of additional income during the course of search & seizure and survey operation is as reproduced herein under 'In pursuance of the Finance Minister's budget speech dated 28-2-2003 this instruction was issued by the CBDT and is as under: "Instances have come to the notice of the Board where assessees have claimed that they have been forced to confess undisclosed income during the course of the search and seizure and survey operation. Such confession, if not based on credible evidence, are taken/retracted by the concerned assessees while filing return of income.

In these circumstances, confession during the search and seizure and survey operation 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 and seizure operation, no attempt should be made to obtain confession as to the undisclosed income. Any action on the contrary shall be viewed adversely". This instruction is in line with the recommendation of the Task Force on Direct Taxes Chaired by Dr. Vijay Kelker."

SECTION 153A- ASSESSMENT IN CASE OF SEARCH OR REQUISITION

Notwith-standing anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall—

(a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139;

(b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made :

Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years:

Provided further that assessment or reassessment, if any, relat¬ing to any assessment year falling within the period of six assessment years referred to in this section pending on the date of initiation of the search under section 132 or making of requi¬sition under section 132A, as the case may be, shall abate.

Explanation.—For the removal of doubts, it is hereby declared that,—

(i) save as otherwise provided in this section, section 153B and section 153C, all other provisions of this Act shall apply to the assessment made under this section;

(ii) in an assessment or reassessment made in respect of an assessment year under this section, the tax shall be chargeable at the rate or rates as applicable to such assessment year.

BRIEF FACTS

1. The assessee is engaged in the business of Real Estate. It has filed its original return electronically on 30.09.2012 declaring total income of Rs.53,69,210/-.

2. A notice under section 143(2) was issued vide which case of the assessee was selected for scrutiny assessment under CASS.

3. The ld. Assessing Officer has passed the assessment order on 30.03.2015. He determined the taxable income of the assessee at Rs.2,66,31,152/- as against Rs.53,69,210/- declared by the assessee.

4. After this assessment order, asearch was carried out at the premises of the assessee on 17.09.2015. The ld. Assessing Officer thereafter issued a notice under section 153A of the Income Tax Act.

5. The assessee has filed return of income in response to this notice on 28.11.2017 declaring total income at Rs.58,43,030/-. It is also pertinent to note that original return dated 30.09.2012 was revised on 07.02.2013 whereby income was declared to Rs.58,43,030/-.

6. The ld. Assessing Officer has passed the fresh assessment order under section 153A of the Income Tax Act and determined the income of the assessee at Rs.5,22,43,030/-.

7. Dissatisfied with the assessment order dated 30.03.2015 passed under section 143(3) of the Income Tax Act, the assessee carried the matter in appeal. This appeal was decided by the ld. 1st Appellate Authority on 18.02.2019, whereas the appeal against the order of assessment passed under section 153A on 31.12.2017 has been decided prior to this appeal on 15.02.2019.

8. On appeal, ld. 1st Appellate Authority has reproduced the assessment order and thereafter observed that the assessee was supposed to give fresh written submission because its first submission was not complete. Since the assessee failed to give any submission, therefore, ld. CIT(Appeals) instead of considering the details, dismissed the appeal.

9. Before ITAT, a detailed paper book containing 672 pages has been filed. Similarly ledger account running into 231 pages has also been filed in this assessment year.

10. The ld. Counsel for the assessee while impugning the order of ld. CIT(Appeals) dated 15.02.2019 passed on an assessment under section 153A submitted that ld. Assessing Officer has not referred discovery of any incriminating material in the assessment order.

11. As far as the share application money received by the assessee is concerned, it is already in the books of account and assessment under section 143(3) has been passed but it was not disbelieved, no addition was made. Thus, unless some fresh material was found during the course of search, how the revenue can disturb the issue, which has already attained finality. He made reference to the assessment order dated 30.03,.2015 passed under section 143(3) before the search was carried out upon the assessee.

OBSERVATIONS & DECISIONS

12. We have duly considered the rival contentions. There is no doubt that the assessee has filed the original return of income under section 139 of the Income Tax Act and assessment was framed under section 143(3) and no addition was made qua bogus share application.

13. After the search, such an assessment can be disturbed or could be construed as abated only if incriminating material was found and seized during the course of search. The scope of section 153A has been explained in a large number of decisions and for the sake of completeness of the finding, we note our finding fromIT(SS)A Nos. 26 & 27/KOL/2021 in the case of GPT Sons (P) Limited, wherein we have made reference to the judgment of the Hon’ble Delhi High Court in the case of Kabul Chawla reported in 380 ITR 573 (Del.), judgment of Hon’ble Gujarat High Court in the case of Saumya Construction and judgment of the Hon’ble Calcutta High Court in the caes of Salasar Stock Broking Pvt. Limited.

14. Our finding read as under:- "8. We have duly considered rival contentions and gone through the record carefully. Before adverting to the facts and alleged seized material considered by the ld.AO for making the addition in the hands of the present assessees, we deem it appropriate to bear in mind the position of law propounded in various authoritative judgments expounding scope of section 153A of the Act. We are of the view that in this regard, there were large numbers of decisions.

i) First we refer to the decision of Hon'ble Delhi High Court in the case of CIT Vs. Kabul Chawla, 380 ITR 573 (Del). Hon'ble Delhi High Court after detailed analysis has summarized the following legal position:

"37. On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under:

i). Once a search takes place under Section 132 of the Act, notice under Section 153 A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place.

ii). Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise.
iii). The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of theaforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax".

iv). Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material."

v). In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings.

vi). Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO.

vii). Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment."

15. ITAT, Delhi Bench in the case of DIT Vs. Smt. Shivali Mahajan and others, rendered in ITA No.5585/Del/2015 has considered this aspect in its decision. Thereafter, the Tribunal has specifically held that serial no.(iv) of the above proposition, the Hon'ble Delhi High Court has specifically held that assessment under section 153A of the Act has to bespecifically made on the basis of seized material. ITAT Delhi Bench was considering an aspect whether the evidence in the shape of books of accounts, money, bullion, jewellery found during the course of search relates to other person than the searched person, can that be considered while making assessment under section 153A of the Act. ITAT Delhi Bench has specifically held that material recovered from the premises of other person cannot be used in the hands of the searched person. For that purpose an assessment under section 153C or 147 is to be made. At this stage, in order to fortify ourselves, we would like to make reference to the following paragraphs of the ITAT Delhi Bench's order. It reads as under:

"15. Thus, when during the course of search of an assessee any books, document or money, bullion, jewellery etc. is found which relates to a person other than the person searched, then the Assessing Officer of the person searched shall hand over such books of account, documents, or valuables to the Assessing Officer of such other person and thereafter, the Assessing Officer of such other person can proceed against such other person. However, in the case under appeal before us, admittedly, Section 153C is not invoked in the case of the assessee and the assessment is framed under Section 153A.

We, respectfully following the above decisions of Hon'ble Jurisdictional High Court, hold that during the course of assessment under Section 153A, the incriminating material, if any, found during the course of search of the assessee only can be utilized and not the material found in the search of any other person.

16. The ITAT Bench held that - No doubt, the disclosure or admission made under section 132(4) of the Act during the search proceeding is an admissible evidence but not conclusive one. This presumption of admissibility of evidence is a rebuttal one and if the assessee is able to demonstrate with the help of some material that such admission was either mistaken, untrue or under some misconception of fact, then solely on the basis of such admission, no addition is required to be made. It is true that admissions being declaration against interest are good evidence but they are not conclusive and parties always at liberty to withdraw the admission by proving that they are either mistaken or untrue.

17. In law retracted confession even may form the legal basis of addition, if ld. Assessing Officer is satisfied that it was true and was voluntarily made but basing the addition or retracted declaration solely would not be safe. It is not a strict Rule of Law but only a Rule of Prudence. As a general rule of practice, it is unsafe to rely upon an retracted confession without corroborative evidence. Due to this situation, the Board has issued a Circular No. 286/2/2013, which prohibits the department i.e. search party to take any confession in the search. The CBDT is of the view that oftenly officials used to obtain confession from the assessee and stop further recovery of material. Such confessions have been retracted and then the addition could not withstand the scrutiny of higher authorities because no material was found supporting such addition. Keeping in view the above principle, the Board has restrained the authorities from taking confession under section 132(4) of the Income Tax Act.

18. There are a large number of decisions which suggest that without corroborating evidence, addition ought not to be made on the basis of a declaration made under section 132(4) of the Income Tax Act.

19. A perusal of the above questionnaire reveals that name of the assessee i.e. M/s. AgrimInfraproject Pvt. Limited is not discernable in the table of investor from Serial No. 1 to 6, neither it is reflected in the answer. In the answer, a declaration of the Director is confined to Rs.9,45,99,215/-, which is relatable to six individuals alongwith HUF, so even there is no disclosure on behalf of the Company i.e. M/s. AgrimInfraproject Pvt. Limited. Therefore, this addition is not sustainable in the eyes of law.

20. The addition of Rs.1,75,00,000/- is accordingly deleted.

21. All other grounds are peripheral to the addition qua the central point, hence do not require any adjudication.

22. In the result, this appeal of the assessee i.e. ITA No. 222/GAU/2019 is partly allowed.