2010 (1) TMI 917 - AT - Income Tax

Additions bases on amount recovered during search at IGAI airport against assessee - additions made on the basis of statement before customs authority - retracted statements - held that - In the present case, obviously, the basis of the assessment order has diminished. The statements initially made have been successfully retracted. The proceedings under the Customs Act as well as under the FERA have been dropped. The department has not been able to discharge its burden of proof that the statements were not recorded under force, threat and coercion. In this regard, affidavits filed by the assessee before the AO have not been rebutted. - no addition can be based on a retracted statement, grievance raised by the assessee by way of grounds justified, the same is hereby accepted. The order under appeal is quashed qua these grounds Penalty- department s appeal contending that the learned CIT(A) has erred in deleting the penalty on the assessee u/s 271(1)(c) of the Income Tax Act, penalty is consequential to the addition dealt with hereinabove, CIT(A) has cancelled the levy of penalty for the reason that in the assessment order, the AO had nowhere arrived at a satisfaction regarding concealment of income or furnishing of inaccurate particulars of income, since order of CIT(A) s quashed qua in the assessee s quantum appeal and thereby the addition forming the basis of levy of penalty no longer exists, cancellation of the penalty by the ld. CIT(A) is confirmed for this reason on merits

Summary

Issues Involved:
1. Validity and jurisdiction of proceedings under Section 147.
2. Addition of Rs. 40,32,507 to the assessee's income.
3. Levy of interest under Sections 234B and 234C.
4. Deletion of penalty under Section 271(1)(c).

Detailed Analysis:

1. Validity and Jurisdiction of Proceedings under Section 147:
- Grounds: The assessee initially challenged the proceedings under Section 147 on the basis that they were invalid and without jurisdiction, citing lack of relevant material and the irrelevance of the confessional statement after retraction.
- Outcome: These grounds (Nos. 1 to 3) were not pressed by the assessee and were rejected as not pressed.

2. Addition of Rs. 40,32,507 to the Assessee's Income:
- Facts: The assessee's return for the assessment year 2000-01 was processed under Section 143(1)(a). Subsequently, based on information from Customs Authorities about the recovery of US $ 84,000 from Shri Subhash Chand Tuli, who claimed it was given by the assessee, a notice under Section 148 was issued. The assessee admitted to arranging the dollars but later retracted the statement.
- Arguments by Assessee: The assessee contended that the addition was based on a retracted statement, which was made under duress and coercion, and lacked corroborative evidence. The assessee also argued that the statement of Shri Tuli was not furnished for cross-examination, violating principles of natural justice.
- Arguments by Revenue: The Revenue argued that the addition was based on the surrounding circumstances and not solely on the statement of Shri Tuli. They contended that the statements were voluntary and not made under coercion.
- Tribunal's Findings:
- The Tribunal noted that the statements were retracted the day after they were made, and affidavits filed by the assessee asserting coercion were not rebutted.
- The Tribunal referred to the Supreme Court's ruling in "Vinod Solanki v. Union of India," which held that retracted confessions must be corroborated by independent evidence.
- The Tribunal found that the Revenue did not provide independent corroborative evidence and that the statements were not voluntary.
- The Tribunal also observed that the assessee was not given an opportunity to cross-examine Shri Tuli, violating the principle of audi alterem partem.
- The Tribunal quashed the addition of Rs. 40,32,507, finding the grievance raised by the assessee justified.

3. Levy of Interest under Sections 234B and 234C:
- Grounds: The assessee challenged the levy of interest under Sections 234B and 234C, arguing they were not applicable.
- Outcome: These grounds (Nos. 11 to 13) were noted as consequential and were not separately addressed in detail due to the quashing of the addition.

4. Deletion of Penalty under Section 271(1)(c):
- Facts: The department appealed against the deletion of penalty of Rs. 10,54,260 under Section 271(1)(c) by the CIT(A).
- Arguments by Department: The department contended that the penalty was justified as the addition was based on concealment of income or furnishing of inaccurate particulars.
- Tribunal's Findings:
- The Tribunal confirmed the CIT(A)'s order deleting the penalty, noting that the addition forming the basis of the penalty no longer existed due to the quashing of the addition in the quantum appeal.
- The Tribunal emphasized that the AO had not arrived at a satisfaction regarding concealment of income or furnishing of inaccurate particulars.

Conclusion:
- The quantum appeal of the assessee (ITA No. 2607(Del)2004) was partly allowed, resulting in the quashing of the addition of Rs. 40,32,507.
- The department's appeal regarding the penalty (ITA No. 454(Del)2008) was dismissed, confirming the deletion of the penalty.

Order:
- The judgment was pronounced in the open court on 29.1.2010.