2016 (10) TMI 1220 - AT - Income Tax

Undisclosed income - unexplained money u/s 69A - additions in the hands of partnership firm on the basis of statement of partner recorded u/s 131 on oath - Held that - the statement recorded by the partner of the firm is binding upon the assessee. The survey was conducted on 5.9.2008 and 9.9.2008 and it was specifically put to the partner of the firm that you have not maintained the books of accounts of the firm, therefore, he has made additions in the hands of the firm. Therefore, under these circumstances, we are of the view that the statement was binding upon all the partners of the firm. Reliance on various decision by the assessee - Held that - As in many cases admissions are retracted in subsequent proceedings, therefore, they should not force the assessee to admit the undisclosed income but in this case there was no retraction. The contention of the learned counsel for the assessee that the Assessing Officer should have independently come to the conclusion that there was additional income and there was no material to indicate that there was such income, is not correct. The burden lay on the assessee to establish that the admission made in the said statement was wrong as in fact there was no additional income. The burden is upon the assessee to prove that he has no additional income. In this case one of the partners has made confession of additional income, but he has not retracted from the statement admitting the additional income. Therefore, we are of the view that the assessee has not discharged the burden lay upon it. - Decided against the assessee.

Summary

Issues Involved:
1. Validity of addition based on a partner's statement during a survey.
2. Binding nature of a partner's statement on the firm.
3. Retraction of statements and its impact on the assessment.
4. Applicability of judicial precedents and circulars on survey statements.

Issue-wise Detailed Analysis:

1. Validity of Addition Based on a Partner's Statement During a Survey:
The case revolves around the addition of ?38 lacs to the assessee firm's income based on a statement made by one of its partners, Shri Parvez Hasan, during a survey conducted on 5.9.2008. The partner declared undisclosed investment of ?38 lacs in the firm, which was not reflected in the firm's capital. The Assessing Officer added this amount as unexplained money under Section 69A of the Income Tax Act. The assessee contended that the statement was made under a misunderstanding and without consulting other partners, and thus should not bind the firm. The Tribunal, however, upheld the addition, emphasizing that the statement was made voluntarily and was not retracted until the filing of the return.

2. Binding Nature of a Partner's Statement on the Firm:
The Tribunal found that the statement made by Shri Parvez Hasan was binding on the firm. Despite the assessee's argument that the partner only had a 12.5% share and was not fully aware of the business's financial details, the Tribunal noted that no retraction was made by any partner, including Parvez Hasan, until the return was filed. The Tribunal held that the statement recorded during the survey was binding on all partners, especially since the firm did not maintain proper books of accounts, as admitted during the survey.

3. Retraction of Statements and Its Impact on the Assessment:
The Tribunal discussed the possibility of retraction of statements, citing various judicial precedents. It was noted that while an admission made during a survey can be retracted, the burden lies on the assessee to prove that the statement was incorrect. In this case, no such retraction or evidence was provided to prove the initial statement wrong. The Tribunal referred to multiple cases where retraction was allowed only when supported by substantial evidence, which was not the situation here.

4. Applicability of Judicial Precedents and Circulars on Survey Statements:
The assessee relied on several judicial precedents and CBDT circulars to argue against the addition. However, the Tribunal distinguished these cases based on the facts that in those cases, retractions were made, or the statements were proven incorrect with evidence. The Tribunal referenced decisions from the Hon'ble Madras High Court, Kerala High Court, and others, emphasizing that mere admission without evidence is not binding, but in this case, the statement was not retracted and was made voluntarily. The Tribunal also noted the CBDT circulars advising against forcing admissions during surveys but found them inapplicable here due to the lack of retraction and supporting evidence.

Conclusion:
The Tribunal concluded that the addition of ?38 lacs was justified as the statement made by the partner was binding on the firm, and no retraction or evidence was provided to prove it incorrect. The appeal of the assessee was dismissed, and the order confirmed the addition based on the partner's statement during the survey.