2014 (8) TMI 1110 - AT - Income Tax

Admission of additional income - statement offering additional income in the course of search/survey - Held that - In this case the revenue would like to sustain the addition of ₹ 15,00,000 offered during the course of survey without any iota of supporting evidence for escapement of income. The Madras High Court in the case of CIT vs. S. Kadhar Khan Son 2007 (7) TMI 182 - MADRAS HIGH COURT has held that Sec. 133A doesn t empower any Income Tax authority to examine any persons on oath. Hence, any sued statement made in the course of survey has no evidentiary value and any admission made during such statement cannot by itself be made the basis of addition. This view is supported by the instructions given by the CBDT issued on 10.3.2003 which had laid down that confession obtained during the course of search and seizure and survey operation do not serve any useful purpose. The Assessing officer should, therefore, collect evidence 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 to the contrary shall be viewed adversely. Thus we hold that the addition of ₹ 15,00,000 has been made based purely on the confession made by the assessee in the course of survey and hence cannot be sustained without any further supporting evidence. - Decided in favour of assessee Disallowance u/s. 40A(3)- Held that - We find that the assessee has filed paper book giving the particulars of payment in cash which was disallowed as well as other payments which has been disallowed for non-deduction of tax at source. The assessee contends that the expenditure in cash are such provision of 40A(3) will not apply and the payment of ₹ 2,44,163 does not attract provision of sec. 40(a)(ia). This evidence or argument do not appear to have been considered by the AO or CIT(A). In the interest of justice, we remit the issue of disallowance of ₹ 13,63,209 u/s. 40A(3) and ₹ 2,44,163 u/s. 40(a)(ia) to the file of the AO. The AO shall give reasonable opportunity to the assessee to submit his case and decide the issue in accordance with law.

Summary

Issues:
1. Addition of undisclosed income during survey proceedings.
2. Disallowance under sections 40A(3) and 40(a)(ia).
3. Appeal against the CIT(A) order.

Issue 1 - Addition of Undisclosed Income:
The assessee, a builder, admitted additional income of Rs. 15 lakhs during a survey but did not disclose it in the return of income for A.Y. 2008-09. The AO proposed additions based on discrepancies observed during the survey. The CIT(A) confirmed the additions under sections 40A(3) and 40(a)(ia) due to clear violations. However, the CIT(A) recognized the disclosure of Rs. 15 lakhs during the survey and adjusted it against the total additions, concluding that only the net addition of Rs. 16,07,372 should stand. The Department appealed, arguing for sustaining the full Rs. 15 lakhs addition. The Tribunal held that the addition solely based on the assessee's confession during the survey lacked supporting evidence and deleted the Rs. 15 lakhs addition, affirming the CIT(A)'s decision.

Issue 2 - Disallowance under Sections 40A(3) and 40(a)(ia):
The AO disallowed expenses under sections 40A(3) and 40(a)(ia) concerning labor and material payments. The AR argued that labor payments were based on attendance and did not breach section 40A(3) limits. Additionally, material payments were made on-site to various vendors, justifying the expenses. The AR contended that section 40(a)(ia) did not apply to individual payments. The CIT(A) upheld the disallowances, citing violations and lack of evidence to counter discrepancies. The Tribunal remitted the disallowances back to the AO for a fair assessment based on the evidence and arguments presented by the assessee.

Issue 3 - Appeal Against CIT(A) Order:
Both the assessee and the Department appealed against the CIT(A) order. The Department challenged the deletion of the Rs. 15 lakhs addition, emphasizing the confession made during the survey. The Tribunal, considering legal precedents and lack of supporting evidence, upheld the deletion. The assessee appealed regarding disallowances under sections 40A(3) and 40(a)(ia), presenting legal judgments supporting their position. The Tribunal remitted the disallowances back to the AO for a fresh assessment, emphasizing the need for a fair consideration of the evidence provided.

In conclusion, the Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal for statistical purposes, emphasizing the importance of evidence and legal compliance in tax assessments.