2015 (11) TMI 23 - HC - Income Tax

Disclosure at the time of search had no basis even though the retraction was an afterthought - Held that - Commissioner (Appeals) and the Tribunal have recorded concurrent findings of fact that the additions have no reference to the seized material and that there is no material or evidence to support the additions made by the Assessing Officer. The addition is sought to be made solely on the basis of the statement recorded under section 132(4) of the Act which has been subsequently retracted, without such statement being corroborated by any material on record. In the decisions on which reliance has been placed upon by the learned counsel for the appellant, the statement of the assessee, though subsequently retracted, was corroborated by the material seized during the search, whereas in the present case the Tribunal has recorded a categorical finding to the effect that in the assessment order, the Assessing Officer has not pointed out any defect or discrepancy in any of the documents seized from the business premises of the assessee and that the addition has been made only on account of client modification code. Under the circumstances, the conclusion arrived at by the Tribunal that the disclosure at the time of the search had no basis being based upon findings of fact recorded after appreciation of the material on record, does not give rise to any question of law. The ground of appeal raised vide question A is, therefore, rejected. Addition on account of suppression of profits - Whether the ITAT has erred in law in holding that the AO was not justified in invoking provisions of section 145(3) of the I. T. Act? - Held that - The court is of the view that the same requires consideration, hence, Admit. The following substantial question of law arises for consideration Whether the Income Tax Appellate Tribunal has erred in law and on facts in deleting the addition of ₹ 2,87,75,583/- made by the Assessing Officer on account of suppression of profits by the assessee company by way of client code modification by the broker (which is a group concern) in a large number of commodity transactions? - It is clarified that Question-C stands included in Question-B.

Summary

Issues:
1. Challenge to common order by the appellant-revenue dated 19.03.2015 by the Income Tax Appellate Tribunal.
2. Whether the disclosure at the time of search had no basis and retraction was an afterthought.
3. Deletion of addition made on account of suppression of profits by the assessee company.
4. Justification of invoking provisions of section 145(3) of the Income Tax Act.

Issue 1: Challenge to Common Order
The appellant-revenue challenged the common order made by the Income Tax Appellate Tribunal proposing three common questions. These questions pertained to errors in accepting the view of the assessee regarding the disclosure at the time of search, deletion of addition made on account of suppression of profits, and the justification of invoking section 145(3) of the Income Tax Act.

Issue 2: Disclosure and Retraction
The main person of the group voluntarily admitted unaccounted income during the search operation. However, the assessee company did not offer this disclosed income in their returns. The Assessing Officer made additions on account of suppressed profits, but the Commissioner (Appeals) found discrepancies in the search proceedings. The Tribunal and Commissioner (Appeals) concluded that there was no material to establish the unaccounted income as claimed during the search.

Issue 3: Suppression of Profits
The Assessing Officer made additions based on client code modifications, which were computed from information collected post the search. Both the Tribunal and Commissioner (Appeals) found that there was no concrete evidence to support the claimed suppressed profits by the assessee company.

Issue 4: Invocation of Section 145(3)
The Tribunal rejected the appellant's challenge regarding the disclosure at the time of search, stating that the admission was not voluntary and lacked corroborative material. The Tribunal emphasized that the additions were solely based on the retracted statement without any supporting seized documents. The Tribunal's decision was based on factual findings and did not raise any question of law.

In conclusion, the High Court upheld the Tribunal's decision regarding the lack of basis for the disclosure made during the search, as the admission was not voluntary and lacked supporting evidence. The Court admitted the challenge regarding the deletion of the addition made on account of suppressed profits for further consideration. The judgment highlighted the importance of corroborative material in such cases and emphasized the need for concrete evidence to support income disclosures and additions.