2007 (7) TMI 638 - AT - Income Tax

Undisclosed income - Search and seizure u/s 132 - seizure of incriminating documents - Addition on the basis of statement made by assessee s partner - Difference of opinion between the two learned Members - Third Member Order - Whether the Tribunal delete whole of the undisclosed income of Rs. 10 lakhs or should restrict the addition on account of on-money to Rs. 1, 50, 000? - statement retracted from the original statement. Order ld JM - HELD THAT - learned Judicial Member took note of the specific findings/observations of the CIT(A) to the effect that (a) the statement of Shri Kamal Shah was taken on record based on mere suspicion (b) the same cannot be treated as an admission and cannot be treated as material for framing the assessment and (c) the Assessing Officer has not brought on record any cogent material or evidence in respect of on-money receipts The learned JM observed that the revenue has not disputed the correctness of this finding and hence the conclusion reached by the CIT(A) has to be accepted. The alternative contention of the revenue on the basis of the order of the Tribunal in the case of Adinath Construction that at least 15 per cent of the receipts should be treated as undisclosed income was also rejected on the ground that in the case of Adinath Construction a diary was found in which the details relating to the receipt of on-money were found to be recorded. Moreover in that case the assessee itself has accepted a receipt of Rs. 14, 22, 000 but in the present case there was no such diary nor was there such admission. Order Ld AM - The learned AM took note of the conduct of the assessee in so far as that the disclosure was made by the managing partner of the assessee-firm he had explained the modus operandi of charging on-money explained the investment of such money and absence of duress while recording the statement. The learned AM held that these facts confirmed the factum and practice of charging on-money. Finally though he did not much agree with the alternate contention to treat only 15 per cent of the gross on-money as the assessee s income yet he sustained the addition to that extent only i.e. at Rs. 1, 50, 000. Third Member Order - The main reasons given by the learned AM for his conclusion. The first reason which he considers to be a crucial pointer is that Shri Kamal Shah is the managing partner of the assessee-firm and in fact is one of the main persons who is in the know of the affairs of the business. This fact is undisputable. However having retracted from the original statement the latter does not lead us to anywhere. The search was on the group as a whole consisting of several entities. The statements that he may have given during the search are for the group as a whole and though in the statement he has given the break-up of disclosure it is not corroborated by anything that might have been unearthed during the search. There may have been hundreds of reasons and thoughts crossing in 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. He may have explained the modus operandi of charging on-money or the avenues and the destination of such money. Again this may be true for the group as a whole but the retracted statement does not lead to the conclusion that the particular assessee before us had an undisclosed income of Rs. 10 lakhs. The second reason given by the learned AM is that enhancing the figure of disclosure two months later shows proper application of mind and also absence of any duress while giving the statement. Well there may not be any evidence of coercion being exercised by the search party there may not be any duress also but existence of confusion cannot be ruled out. Duress has to be distinguished from confusion. Duress is a constraint illegally exercised to force a person to perform some act. It is highly philosophical to say that restricting the addition only in the entity where material is found betrays the thinking and the machination employed by the assessee using it as a ploy to make travesty of the entire judicial process of the search and seizure proceedings. All said and done where is the evidence to show that assessee had any undisclosed income barring the statement given by Shri Kamal Shah while under utter state of confusion. As a matter of fact what has been stated about the so called machination of the assessee is an ill-founded and unwarranted allegation against the assessee. Further it is interesting to note that though the learned AM has observed that the alternate argument of treating 15 per cent of the gross on-money as income defects the assessee s case in this regard. Despite this observation ultimately he sustains the addition to that extent only. Therefore I am convinced that there being no spectre of evidence regarding undisclosed income no addition can be sustained. I am in agreement with the view taken by the learned JM. In view of majority decision the addition of Rs. 10 lakhs on account of undisclosed income having been sustained by the CIT(A) stands deleted and assessee s appeal allowed on this point.

Summary

Issues Involved:
1. Addition of Rs. 10 lakhs by the Assessing Officer based on the statement recorded under section 132(4) of the Income-tax Act and its subsequent deletion by the CIT (Appeals).

Issue-wise Detailed Analysis:

1. Addition of Rs. 10 lakhs by the Assessing Officer:
The revenue objected to the CIT (Appeals) order deleting the addition of Rs. 10 lakhs made by the Assessing Officer. The Assessing Officer had relied on the statement of Mr. Kamal V. Shah, partner of the assessee, recorded under section 132(4) during a search conducted on 4-5-1994. The statement indicated undisclosed income earned as 'on-money' from various schemes. Despite the assessee retracting the statement, the Assessing Officer made the addition, citing the statement's validity and corroboration by other statements and the absence of any challenge to the bona fides of the statement.

2. Deletion of Addition by CIT (Appeals):
The CIT (Appeals) deleted the addition, observing that the statement was based on mere suspicion and that the appellant firm retracted the same. The CIT (Appeals) noted the lack of cogent material or evidence to support the addition and the absence of any incriminating records or materials from the seized documents. The CIT (Appeals) concluded that the addition based solely on the statement recorded under section 132(4) was not justified.

3. Tribunal's Consideration of the Appeal:
The Tribunal considered the arguments of both parties. The revenue supported the Assessing Officer's order, emphasizing the repeated admission of Rs. 10 lakhs in the statements recorded on 4-5-1994 and 29-6-1994. The assessee's counsel argued that no material evidence was found during the search to justify the addition and that the retraction of the statement was valid.

4. Tribunal's Findings:
The Tribunal agreed with the CIT (Appeals) that the addition could not be sustained based solely on the retracted statement without any supporting evidence. The Tribunal noted that the revenue had not found any material or asset during the search to correlate with the alleged undisclosed income.

5. Reference to Third Member:
Due to a difference of opinion between the Judicial Member and the Accountant Member, the matter was referred to a Third Member. The Judicial Member supported the CIT (Appeals) order, while the Accountant Member partially agreed with the revenue, suggesting that 15% of the Rs. 10 lakhs be sustained as income.

6. Third Member's Decision:
The Third Member agreed with the Judicial Member, emphasizing the lack of evidence to support the addition and the confusion during the search leading to the retraction of the statement. The Third Member concluded that the entire addition of Rs. 10 lakhs should be deleted.

7. Final Order:
In accordance with the majority opinion, the Tribunal deleted the addition of Rs. 10 lakhs, thereby allowing the assessee's appeal on this point.