2010 (6) TMI 675 - AT - Income Tax

Addition made on account of surrender on account of renovation of showroom and cash - AO solely relied on the statement recorded on the date of survey in the night, which was retracted by the assessee - CIT(A) deleted addition - HELD THAT - As assessee has retracted and for which letter was duly filed with the competent authority, the amount of surrender was also not offered in the return of income. It was upon the AO to find out the actual cost of the building and renovation to substantiate the statement given by the assessee wherein surrender was made. The statement so recorded by the survey team was also alleged to be under influence, coercion and under a confused state of mind. In the letter of retraction the factual position was stated assessee to the effect that her husband, an acute diabetic patient, was made to sit in the shop by the visiting officials for long hours and was feeling very much disturbed/depressed, when she was called in the night and asked to sign the statement of surrender, she had no other choice except to sign the statement recorded by the visiting officials. In the facts and circumstances, there may not be any evidence of coercion or undue influence being exercised by the Departmental officers, but the existence of duress/disturbed state of mind at such a crucial moment cannot be ruled out. It is an undisputed fact that no documents or papers were found during the course of survey indicating any expenditure having been incurred by the assessee for renovation of the showroom or any cash of the assessee being left at the showroom of M/s. Vishal Jewellers, from where M/s. Vishal Gold and Precious Stones Pvt. Ltd. was carrying on its business. The High Court in the case of Krishan Lal Shiv Chand Rai v. CIT 1972 (12) TMI 6 - PUNJAB AND HARYANA HIGH COURT observed that it is an established principle of law that a party is entitled to show and prove that an admission made by him previously is in fact not correct and true. Such admission raises a presumption against the person making the admission but such presumption is rebuttable. We found that categorical finding was recorded by the CIT (A) to the effect that no material was brought on record by the AO to substantiate that any expenditure on renovation was incurred by the assessee during the AY 2005-06, nor the AO has made any reference to the Departmental Valuation Officer to find out the correct state of affairs, and it was merely on the basis of statement given by Smt. Usha Rani Talla in a disturbed state of mind, which cannot be made the basis for making the addition. Therefore, we do not find any infirmity in the order of the CIT(A) for deleting the additions made merely on the basis of statement, without bringing on record any material much less a cogent material. In the result, the appeal of the Revenue is dismissed.

Summary

Issues Involved:
1. Validity of the survey conducted under section 133A of the Income-tax Act.
2. Legitimacy of the statement recorded during the survey.
3. Addition of Rs. 20 lakhs on account of alleged renovation expenses.
4. Addition of Rs. 14 lakhs on account of cash found during the survey.

Issue-wise Detailed Analysis:

1. Validity of the survey conducted under section 133A of the Income-tax Act:
The survey was conducted at the business premises of M/s. Vishal Jewellers on February 24, 2005. However, the firm M/s. Vishal Jewellers had already been dissolved on May 6, 2004. The Commissioner of Income-tax (Appeals) observed that the survey was conducted in the case of a non-existing firm, and the inventory of cash was prepared from the office premises of M/s. Vishal Gold and Precious Stones Pvt. Ltd., which was carrying on business at the said premises on the date of the survey.

2. Legitimacy of the statement recorded during the survey:
The statement of Smt. Usha Rani Talla was recorded during the survey, wherein she surrendered a sum of Rs. 20 lakhs towards renovation of the showroom and Rs. 14 lakhs cash lying at the shop. The assessee contended that the statement was recorded under duress, as her husband, an acute diabetic patient, was made to sit in the shop for long hours, causing disturbance and depression. This fact was brought to the notice of the Assessing Officer via a letter dated March 3, 2005. The Commissioner of Income-tax (Appeals) noted that the statement was retracted by the assessee and that no corroborative material was found to substantiate the statement.

3. Addition of Rs. 20 lakhs on account of alleged renovation expenses:
The Assessing Officer added Rs. 20 lakhs to the income of the assessee under section 69B of the Act, treating it as undisclosed investment. The Commissioner of Income-tax (Appeals) observed that the provisions of section 69B require cumulative circumstances to be met, which were not proven by the Department. The Commissioner emphasized that the onus to prove the existence of such circumstances lies on the Department and cannot be presumed. The Commissioner also noted that no evidence was found during the survey indicating that the assessee had made unexplained expenditure on renovation, nor was the premises referred to a Valuation Officer to ascertain the value of the renovation. The decision of the hon'ble Madras High Court in CIT v. P. V. Kalyanasundaram was cited, which held that failure to refer the property for valuation is fatal for the Revenue. Consequently, the addition of Rs. 20 lakhs was deleted.

4. Addition of Rs. 14 lakhs on account of cash found during the survey:
The survey team found a discrepancy between the physical cash of Rs. 44,87,400 and the cash as per the books of account of M/s. Vishal Gold and Precious Stones Pvt. Ltd., which was Rs. 30,87,400. The difference of Rs. 14 lakhs was added to the income of the assessee. The Commissioner of Income-tax (Appeals) noted that the cash was found at the shop of M/s. Vishal Gold and Precious Stones Pvt. Ltd., and no material was brought on record to substantiate that the cash belonged to Smt. Usha Rani Talla. The Commissioner further observed that the statement of the assessee was given in a disturbed state of mind and was retracted immediately. The hon'ble Supreme Court's ruling in Pullangode Rubber Produce Co. Ltd. v. State of Kerala was cited, which held that an admission is not conclusive and can be rebutted. The addition of Rs. 14 lakhs was thus deleted.

Conclusion:
The Tribunal upheld the order of the Commissioner of Income-tax (Appeals), which deleted the additions of Rs. 20 lakhs and Rs. 14 lakhs made by the Assessing Officer. The Tribunal found no infirmity in the order of the Commissioner of Income-tax (Appeals), as the additions were made solely based on the statement recorded during the survey without any corroborative material. The appeal of the Revenue was dismissed.