2015 (8) TMI 373 - HC - Income Tax

Assessment of undisclosed income - addition on the basis of noting on the loose papers recovered during search or on account of a statement recorded of the Respondent Assessee during the course of search - ITAT deleted addition - Held that - There is no retraction as such by the company of its letter dated 1st September 2006 or of any of the other statements made subsequently. Further, the statement made by the Respondent Assessee on 12th September 2006 in response to Question No.3 which required him to give the details of the additional income of ₹ 7 crores was to the effect the said additional income was generated during the block period from undisclosed/or unaccounted dealings in various property transactions and that the said income of ₹ 7 crores has been earned by me and Shri Mahesh Kumar Gupta (Director-Capital Power Systems Ltd.). The Respondent Assessee then proceeded to give the bifurcation of said income cannot be said to be a categorical admission by the Respondent Assessee that the above income had been earned by him in his individual capacity. The cumulative effect of the letter dated 1st September, 2006 and both the statements rendered them unreliable. There was no other corroborative material. In the circumstances, the course adopted by the CIT (A), and concurred with by the ITAT, to determine the undisclosed income on the basis of loose papers found during the search does not appear to be erroneous. - Decided against revenue.

Summary

Issues:
1. Interpretation of undisclosed income based on loose papers and statements during search
2. Validity of additional income surrendered by the company
3. Reliability of statements made by the Respondent Assessee
4. Application of legal precedent on retracted statements during search

Analysis:
1. The primary issue in this case revolves around the determination of undisclosed income based on loose papers and statements found during a search conducted. The ITAT upheld the CIT (A)'s decision to determine the income of the Respondent Assessee based on the loose papers seized during the search, leading to the deletion of an addition of Rs. 3,07,00,000. The ITAT found that the only addition that could be sustained was Rs. 7,90,000 after examining the loose papers thoroughly.

2. The central point of contention was the additional income of Rs. 7 crores voluntarily surrendered by the company, as stated in a letter dated 1st September 2006. The ITAT analyzed this letter and subsequent statements, concluding that the surrender was made by the company and not by the Respondent Assessee in his individual capacity. The contradictory responses given by the Respondent Assessee in subsequent statements further complicated the matter, with the ITAT highlighting the lack of confrontation by the Department regarding these contradictions.

3. The reliability of the statements made by the Respondent Assessee was questioned, especially regarding the bifurcation of the additional income between him and another individual. The Court noted that the statements lacked categorical admissions and were deemed unreliable when considered in conjunction with the letter dated 1st September 2006. The absence of corroborative material further weakened the credibility of the statements.

4. The legal precedent cited by the Revenue, referencing a decision of the Allahabad High Court, regarding the use of retracted statements during a search for assessment purposes was deemed distinguishable by the Court. The Court emphasized that there was no retraction of the statements made by the company or the Respondent Assessee, further solidifying the decision to base the assessment on the loose papers and not on the statements made during the search.

In conclusion, the Court found no substantial question of law arising from the case and dismissed the appeal under Section 260A of the Income Tax Act, 1961.