2014 (12) TMI 391 - HC - Income Tax

Understatement of consideration for the plot of land Statement made during survey later retracted by assessee AO exceeds its power granted or not Whether a retracted statement cannot constitute the sole basis for fastening liability upon the assessee or not - Held that - The evidentiary value of a retracted statement becomes diluted and it looses the strength, to stand on its own - Once the statement is retracted, the Assessing Authority has to garner some support, to the statement for passing an order of assessment - a retracted statement cannot constitute the sole basis for fastening liability upon the assessee assessee specifically pleaded that the statements were recorded from them by applying pressure, till midnight, and that they have been denied access outside the society the AO does not have any power, right or jurisdiction to tell, much less to decide, upon the nature of withdrawal or retraction - His duty ends where the statement is recorded - If the statements are retracted, the fate thereof must be decided by law meaning thereby, a superior forum and not by the very authority, who is alleged to have exerted force - the appellate authority and the Tribunal did not apply the correct parameters, while adjudicating the appeals filed before them - there was absolutely no basis for the AO to fasten the liability upon the assessee thus, the order of the assessment is to be set aside Decided in favour of assessee.

Summary

Issues:
- Assessment based on retracted statements recorded during a survey
- Validity of orders of assessment passed against partners of a firm
- Applicability of retracted statements as the sole basis for assessment
- Jurisdiction of Assessing Officer in case of retracted statements
- Correct parameters for adjudicating appeals in such cases

Analysis:
The judgment involves six interrelated appeals arising from identical assessment orders against three partners of a firm regarding the purchase of a plot of land. The Assessing Officer considered an understatement in the purchase price, leading to the addition of undisclosed income to the partners and subsequent assessment orders in 1998. Appeals were filed before the Commissioner of Appeals and later before the Tribunal, seeking relief from the assessment orders.

The main contention revolved around the retracted statements made by the partners during the survey, alleging coercion and duress. The partners argued that the statements were extracted under pressure, and cheques for tax amounts were taken on the same day. The Assessing Officer, Commissioner, and Tribunal upheld the assessment orders based on the original statements.

The judgment delves into the legal framework empowering authorities to record statements during surveys under the Income Tax Act. It highlights that unretracted statements can be the basis for assessment, but retracted statements require additional supporting evidence for validity. The court cited a previous case where it was held that liability cannot be solely based on a retracted statement.

The court emphasized that the Assessing Officer lacks the authority to determine the genuineness of a retraction and must rely on legal procedures. It noted that the assessment must be supported by other material if the statement is retracted. The judgment criticized the authorities for not applying correct parameters in assessing the appeals and found no basis for the liability imposed on the partners.

Ultimately, the court allowed the appeals, setting aside the assessment orders from 1998. It referenced a Circular from the Central Board of Direct Taxes disapproving proceedings based on retracted statements. The subsequent appeals became irrelevant due to the primary orders being set aside, with no costs imposed. Any pending Miscellaneous Petitions were also disposed of accordingly.