2011 (7) TMI 245 - HC - Income Tax

Addition - Search and seizure - unaccounted income - when the assessee had explained the statement made on the second day of the search with materials, that the amounts offered were the loans taken from the relatives who were already assessed on the said amount; apart from this, even otherwise, the transactions relating to pawn broking, related to years prior to the date of assessment and had no relevance to the year under consideration, rightly the Commissioner of Income-tax (Appeals) accepted the case of assessee to cancel the assessment on Rs. 4 lakhs - the case of the assessee also stands supported by the Circular dated 10-3-2003 of the Central Board of Direct Taxes, which has given categorical directions to the officers, who are entrusted with the job of assessment that undue emphasis should not be placed on the statements recorded. In fact, it had given a mandate not to obtain confession as to the undisclosed income - Appeal is allowed

Summary

Issues Involved:
1. Justification of the addition made by the Assessing Officer based on the second statement.
2. Validity of the Tribunal's decision to set aside the order of the Commissioner of Income-tax (Appeals) and uphold the addition of Rs. 4 lakhs under "other sources."

Detailed Analysis:

Issue 1: Justification of the Addition Made by the Assessing Officer
The primary issue revolves around whether the Tribunal was correct in holding that the addition made by the Assessing Officer was justified when the additional income of Rs. 4 lakhs offered in the second statement on 11-5-1993 was claimed to be a mistake by the assessee.

- Background: The assessee admitted to having unaccounted income of Rs. 3 lakhs on the first day of the search (10-5-1993). On the second day (11-5-1993), the assessee offered an additional Rs. 4 lakhs, which was later retracted, claiming it was a mistake.
- Assessing Officer's Decision: The Assessing Officer rejected the retraction and based the assessment on the initial confession statements.
- Commissioner of Income-tax (Appeals): The Commissioner found that the additional Rs. 4 lakhs was not supported by material evidence and accepted the assessee's retraction, noting that the family members from whom loans were taken had already declared these amounts in their returns.
- Tribunal's Decision: The Tribunal upheld the Assessing Officer's addition, emphasizing that the statements were made voluntarily without coercion and formed the basis for estimating the income due to the lack of proper accounts maintained by the assessee.

Issue 2: Validity of the Tribunal's Decision
The second issue concerns whether the Tribunal was right in setting aside the order of the Commissioner of Income-tax (Appeals) and upholding the addition of Rs. 4 lakhs under "other sources."

- Arguments by the Assessee:
- The assessee cited the Supreme Court decision in Pullangode Rubber Produce Co. Ltd. v. State of Kerala, which states that an admission is an important piece of evidence but not conclusive. The assessee should be allowed to explain and correct any inaccuracies in the admission.
- The assessee also referred to the Central Board of Direct Taxes (CBDT) circular dated 10-3-2003, which advises against relying solely on confession statements obtained during search and seizure operations.
- Arguments by the Revenue:
- The revenue relied on decisions in Bachittar Singh v. CIT and P.R. Metrani v. CIT, arguing that the assessee's voluntary admission of Rs. 4 lakhs should be binding.
- The revenue contended that the retraction was made much later during the assessment proceedings and should not be given credence.

Court's Analysis:
- Circular and Legal Precedents:
- The court referred to the CBDT circular and the decision in S. Kahder Khan Son's case, emphasizing that assessments should not rest solely on confession statements and should be supported by material evidence.
- The court also noted the Supreme Court's stance in P.R. Metrani's case, which allows for the rebuttal of presumptions made during search operations and highlights that such statements should not be the sole basis for assessment.
- Tribunal's Error:
- The court found that the Tribunal erred in placing undue emphasis on the confession statements without considering the materials and explanations provided by the assessee.
- The court agreed with the Commissioner of Income-tax (Appeals) that the transactions related to previous years and the loans were already assessed in the hands of the family members, making the addition of Rs. 4 lakhs in the current assessment year unjustified.

Conclusion:
The court set aside the Tribunal's order, reinstating the findings of the Commissioner of Income-tax (Appeals) that the additional Rs. 4 lakhs offered on 11-5-1993 was not supported by material evidence and should not be included in the assessee's income for the year under consideration. The Tax Case (Appeals) was allowed, and the assessee's retraction was accepted based on the provided explanations and supporting materials.