2014 (11) TMI 57 - HC - Income Tax

Additions on the basis of statement - Whether the statement can be treated as the one, under sub-section (4) of Section 132 of the Act - Held that - The search was conducted in the premises of the assessee on 09.01.1996 - nothing incriminating was found or recovered during the search - It was only two and half months thereafter i.e., on 20.03.1996, that a statement was recorded - the statement was not recorded during the course of search or seizure - Such a statement cannot at all, be brought under the fold of Section 132 (4) of the Act - nothing was recovered during the search - hence, there was no occasion or basis to record the statement, even if it is done when the search was in progress - there is a basic infirmity in the very foundation of the case, upon which the revenue sought to rest their block assessment - the question of a statement of that nature being treated as the clinching evidence, by itself, leading to any penal action does not arise. As decided in Commissioner Of Income-Tax Versus Shri Ramdas Motor Transport 1998 (8) TMI 51 - ANDHRA PRADESH High Court - the question of examining any person by the authorised officer arises only when he found such person to be in possession of any undisclosed money or books of account - when the managing director or any other persons were found to be not in possession of any incriminating material, the question of examining them by the authorised officer during the course of search and recording any statement from them by invoking the powers u/s 132(4) does not arise - This provision embedded in sub-section (4) is obviously based on the well established rule of evidence that mere confessional statement without there being any documentary proof shall not be used in evidence against the person who made such statement thus, the order of the Tribunal is upheld Decided against revenue.

Issues Involved:
1. Validity of the statement recorded under Section 132(4) of the Income Tax Act.
2. Evidentiary value of the statement recorded post-search.
3. Burden of proof on the Department.
4. Impact of retraction of the statement by the assessee.
5. Applicability of Central Board of Direct Taxes (CBDT) instructions and legal precedents.

Issue-wise Detailed Analysis:

1. Validity of the statement recorded under Section 132(4) of the Income Tax Act:
The court examined whether the statement recorded on 20.03.1996 could be treated as one under Section 132(4) of the Act. The provision mandates that the statement must be recorded during the course of the search or seizure. Since the search was conducted on 09.01.1996 and the statement was recorded two and a half months later, it could not be considered under Section 132(4). The court emphasized that the provision requires the statement to be made while the search is in progress, and recording it after the search is concluded is not permissible.

2. Evidentiary value of the statement recorded post-search:
The court noted that even if a statement fits under Section 132(4), it can only be treated as a piece of evidence in proceedings under the Act. However, the statement's evidentiary value diminishes if the assessee retracts it, claiming it was made under threat or coercion. The court stressed that a statement recorded post-search, especially when no incriminating material was found during the search, lacks the necessary foundation to be considered valid evidence.

3. Burden of proof on the Department:
The court reiterated that the burden of proving undisclosed income lies with the Department. The Department must provide material evidence beyond the statement made by the assessee to substantiate its case. The court criticized the view that the Department's burden is discharged merely by recording a statement from the assessee, highlighting that such an approach contradicts basic principles of evidence.

4. Impact of retraction of the statement by the assessee:
The court observed that if the assessee retracts the statement, claiming it was made under duress, the statement's evidentiary value is significantly reduced. The court emphasized that the statement, especially when retracted, cannot be the sole basis for penal action or block assessment under Section 158BC of the Act. The court also referenced Article 20(3) of the Constitution, which protects individuals from being compelled to be witnesses against themselves, and Section 31 of the Evidence Act, which states that admissions are not conclusive proof but may operate as estoppels.

5. Applicability of Central Board of Direct Taxes (CBDT) instructions and legal precedents:
The court referred to the CBDT's instructions issued in 2003, advising against relying solely on confessions obtained during search and seizure operations without credible evidence. The court noted that these instructions reflect the inherent purport of the provisions and should be considered even though they were issued after the events in question. The court also cited the precedent set in Commissioner of Income Tax v. Shri Ramadas Motor Transport, where it was held that statements recorded under Section 132(4) without any incriminating material found during the search lack evidentiary value.

Conclusion:
The court dismissed the appeal, upholding the Tribunal's decision that the statement recorded from the respondent could not be treated as valid evidence under Section 132(4) of the Act. The court emphasized that the Department failed to provide additional material evidence to substantiate its case, and the retracted statement could not be the sole basis for the block assessment. The court reiterated the principles of evidence and the protection of individual rights under the Constitution, affirming that the Department's approach was fundamentally flawed.

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