2018 (2) TMI 1804 - AT - Income Tax

Addition on statement u/s 133A - estimating the income of the assessee on basis of the statement recorded during survey - assessee had offered a higher amount of income at the time of survey - whether ostensibly was not based on any account books but was merely an estimation - return of income as fabricated - Held that - CIT(A) has not appreciated the facts in their proper perspective. Even if one is to discount the date on which the assessee filed the letter of retraction it goes without dispute that the return of income itself was filed by the assessee on 29.03.2007 based on the audited account books and we find no reason to affirm the observation of the CIT(A) that the audit report dated 23.03.2007 was fabricated. Much has been written by the lower authorities on this aspect but we find that when the entire account books alongwith the supporting documents were available for verification by the Assessing Officer in the remand proceedings nothing adverse has been brought out. Even the CIT(A) has not found anything amiss with the quality of audited account books or the supporting documents which were available on record and therefore in our view there was no justification for having rejected the income deduced by the assessee from the project in its return of income. Accordingly we hereby set-aside the order of CIT(A) and direct the Assessing Officer to delete the addition - decided in favour of assessee.

Issues Involved:
1. Addition of ?74,63,557/- based on a statement recorded during a survey.
2. Validity of the statement recorded during the survey as a basis for income estimation.
3. Discrepancies between the income declared during the survey and the income declared in the return of income.
4. Acceptance of audited accounts versus estimation made during the survey.
5. Retraction of statement made during the survey.

Issue-wise Detailed Analysis:

1. Addition of ?74,63,557/- Based on Survey Statement:
The primary issue revolves around the addition of ?74,63,557/- made by the Assessing Officer (AO) to the returned income based on a statement recorded during a survey under Section 133A of the Income Tax Act, 1961. The assessee, engaged in the business of builders and developers, had declared an income of ?1 crore during the survey but later filed a return declaring ?25,36,440/-. The AO added the difference of ?74,63,557/- to the returned income, which was upheld by the CIT(A).

2. Validity of the Statement Recorded During the Survey:
The assessee argued that the addition was made solely based on the statement recorded during the survey, which is impermissible in law. The statement made during the survey was retracted by the assessee, and it was contended that the income declared at the time of the survey was a rough estimate, not based on actual accounts. The Tribunal noted that the Hon'ble Supreme Court in CIT vs S. Khader Khan Sons (352 ITR 480) held that statements recorded during surveys have no evidentiary value and cannot be the sole basis for assessing income.

3. Discrepancies Between Survey Declaration and Return of Income:
The discrepancy between the income declared during the survey and the return of income was primarily due to differences in the sale consideration and expenditure claimed. The assessee provided a reconciliation showing that the sale proceeds and expenditures were based on audited accounts, supported by vouchers and agreements of sale. The Tribunal observed that the return of income was filed based on audited accounts, which were available for verification by the AO during remand proceedings.

4. Acceptance of Audited Accounts Versus Survey Estimation:
The Tribunal emphasized that the income offered during the survey was an estimate, not based on account books or supporting documents, whereas the return of income was based on audited accounts. The Tribunal found no merit in the AO's observation that the books of account and supporting vouchers were not produced, as these were available during remand proceedings. The Tribunal upheld the assessee's stand that the audited accounts, supported by relevant documents, should be accepted over the estimation made during the survey.

5. Retraction of Statement Made During the Survey:
The Tribunal noted that the assessee retracted the statement made during the survey within a month, by a communication dated 15.03.2007. The Tribunal found that the retraction was valid and that the return of income filed on 29.03.2007 was based on audited accounts. The Tribunal rejected the CIT(A)'s observation that the audit report was fabricated and held that the income deduced from the project in the return of income should be accepted.

Conclusion:
The Tribunal set aside the order of the CIT(A) and directed the AO to delete the addition of ?74,63,557/-. The appeal of the assessee was allowed, emphasizing that assessments should be based on evidences and audited accounts rather than mere statements recorded during surveys. The Tribunal upheld the principle that retracted statements, unsupported by corroborative evidence, cannot be the sole basis for income addition.

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