2013 (1) TMI 397 - HC - Income Tax

Applicability of proviso to section 132(4) - whether Oath recorded on 24.9.87 will be governed by provision as it stood on 24.9.87 or as amended by insertion of the explanation therein w.e.f 1.4.89 - Held that - Statement recorded under section 132(4) is evidence but its reliability depends upon the facts of the case and particularly surrounding circumstances. Here in this case, all the authorities below have merely reached to the conclusion of one conclusion merely on the basis of assumption resulting into fastening of the liability upon the assessee. The statement on oath of the assessee is a piece of evidence as per section 132(4) and when there is incriminating admission against himself, then it is required to be examined with due care and caution. As decided in Kailashben Manharlal Chokshi case (2008 (9) TMI 525 - GUJARAT HIGH COURT), that retracted statement recorded under section 132(4) cannot be the basis for assessing undisclosed income of the assessee and found the explanation given by the assessee to be more convincing and that was not considered by the authorities below. Here in this case also, no specific reason has been given for rejection of the assessee s contention by which the assessee has retracted from his admission - None of the authorities gave any reason as to why AO did not proceed further to enquire into the undisclosed income - wrong inference had been drawn by the authorities below in holding that there was undisclosed income to the tune of Rs.20 lacs - no answering the question about retrospective operation of the proviso to section 134(4)required.

Summary

Issues:
1. Applicability of proviso to section 132(4) of the Income Tax Act, 1961.
2. Admissibility of statement on oath recorded under section 132(4) in assessment proceedings.
3. Justification of addition of Rs.20 lakhs based on the admission in the statement under section 132(4).

Analysis:
1. The primary issue in this case revolves around the applicability of the proviso to section 132(4) of the Income Tax Act, 1961. The court deliberated on whether a statement recorded under section 132(4) would be governed by the provision as it stood on the date of recording or as amended later. The argument centered on the necessity of corroborative evidence to support any admission made in such a statement. Reference was made to a Division Bench judgment emphasizing the requirement of corroborative evidence for assessing undisclosed income based solely on a retracted statement under section 132(4).

2. The second issue addressed the admissibility of a statement recorded under section 132(4) in assessment proceedings. The Revenue contended that allowing retractions without corroborative evidence would enable tax evaders to admit income under duress and later retract. However, the court emphasized the need for corroborative evidence even in cases of retraction. The argument highlighted the importance of evidence to substantiate any admissions made in such statements to avoid arbitrary assessments solely based on self-incriminating statements.

3. The final issue pertained to the justification of adding Rs.20 lakhs to the income based on the admission in the statement under section 132(4). The court examined the circumstances surrounding the recording of the statement and the subsequent retraction by the assessee. It was argued that the authorities failed to provide reasons for rejecting the retraction and did not conduct further inquiries to verify the undisclosed income. The court emphasized the need for a careful examination of statements under section 132(4) and criticized the authorities for drawing conclusions without proper consideration of surrounding circumstances and lack of corroborative evidence.

In conclusion, the court held that the authorities erred in drawing inferences solely based on the admission and subsequent retraction by the assessee without proper examination of the evidence and circumstances. The judgment emphasized the importance of corroborative evidence to support any admissions made in statements under section 132(4) to ensure fair and justified assessments.