2004 (8) TMI 631 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the search and seizure action.
2. Admissibility and evidentiary value of statements recorded under section 132(4).
3. Validity of retraction from statements made during the search.
4. Discrepancies in stock and cash found during the search.
5. Estimation of undisclosed income.

Detailed Analysis:

1. Validity of the Search and Seizure Action:
The search and seizure action under section 132 of the Income Tax Act was conducted on 5-3-2001 at the business premises of the assessee, a partnership firm engaged in trading consumer goods. During this action, cash and various documents were seized, which formed the basis for the subsequent assessment.

2. Admissibility and Evidentiary Value of Statements Recorded Under Section 132(4):
The Assessing Officer (AO) relied heavily on the statements recorded under section 132(4) during the search, wherein the main partner disclosed an amount of Rs. 1 crore to cover discrepancies found. The AO noted that the disclosure was reiterated in an affidavit dated 15-3-2001. However, the assessee later retracted these statements, claiming they were made under duress.

3. Validity of Retraction from Statements Made During the Search:
The assessee retracted the statements made during the search through a letter dated 16-3-2001, claiming the statements were not voluntary. The AO dismissed the retraction, noting the lack of evidence of receipt by the DDIT (Inv.) and the conflicting affidavit made on 15-3-2001. The CIT(A) upheld this view, citing various legal precedents to support the rejection of the retraction.

4. Discrepancies in Stock and Cash Found During the Search:
The search revealed discrepancies in stock and cash, including unaccounted cash sales and unexplained stock. The AO and CIT(A) noted that the assessee did not maintain proper books of account or stock registers, leading to the conclusion of suppressed sales and unaccounted income. The CIT(A) referenced a visit by the Sales Tax Department, which also found unaccounted cash sales and stock discrepancies.

5. Estimation of Undisclosed Income:
The AO estimated the undisclosed income at Rs. 1 crore, based on the statements recorded during the search and the discrepancies found. The CIT(A) upheld this estimation, noting the suppression of sales and discrepancies in stock. However, the Tribunal found that the AO should have independently verified the undisclosed income, considering the alleged retraction. The Tribunal concluded that an estimated net addition of Rs. 15 lakhs to the disclosed income of Rs. 35 lakhs would be reasonable, given the totality of the circumstances.

Conclusion:
The Tribunal partly allowed the assessee's appeal, directing the AO to sustain an estimated net addition of Rs. 15 lakhs to the disclosed income of Rs. 35 lakhs, resulting in a total undisclosed income of Rs. 50 lakhs for the block period.