2014 (11) TMI 1243 - HC - Income Tax

Reopening of assessment u/s 147 - proceedings initiated against the appellants are the result of a survey - undisclosed transaction of purchase of an item of immovable property - appellants came forward with the plea that the statements were forcibly recorded and even cheques were taken from them under duress - HELD THAT - In the instant case the appellants specifically pleaded that the statements were recorded from them by applying pressure till midnight and that they have been denied access outside the society. AO made an effort to depict that the withdrawal or retraction on the part of the appellants is not genuine. 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. It is not as if the retraction from a statement by an assessee would put an end to the procedure that ensued on account of survey or search. AO can very well support his findings on the basis of other material. If he did not have any other material in a way it reflects upon the very perfunctory nature of the survey. We find that the appellate authority and the Tribunal did not apply the correct parameters while adjudicating the appeals filed before them. On the undisputed facts of the case there was absolutely no basis for the Assessing Officer to fasten the liability upon the appellants. Our conclusion find support from the Circular dated March 10 2003 issued by the Central Board of Direct Taxes which took exception to the initiation of the proceedings on the basis of retracted statements. Appeal allowed and the orders of assessment are set aside.

Summary

Issues:
Interpretation of statements recorded during a survey for assessment
Validity of retracted statements as the sole basis for assessment
Jurisdiction of Assessing Officer in deciding retraction of statements

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 conducted a survey and concluded that the consideration for the land was understated, resulting in undisclosed income for the firm and its partners. The partners contested the assessment through various appeal stages, including the Income-tax Appellate Tribunal. The partners claimed that the statements recorded during the survey were made under pressure and retracted their initial statements, alleging coercion. The Assessing Officer, Commissioner of Income-tax (Appeals), and the Tribunal upheld the assessment orders, leading to further appeals and miscellaneous petitions for rectification.

The main contention raised by the appellants was that the assessment orders were solely based on statements obtained under duress during the survey. They argued that once the statements were retracted, the Assessing Officer should have relied on other supporting evidence for the assessment. The respondents, on the other hand, maintained that the statements were voluntary and not made under coercion, emphasizing the delay in the retraction by the appellants as a factor.

The High Court delved into the legal provisions empowering authorities to record statements during surveys or searches under the Income-tax Act. It highlighted that unretracted statements could be a basis for assessment, but retracted statements required additional supporting evidence for validity. Citing precedents, the Court emphasized that a retracted statement alone cannot establish liability on the assessee, as seen in a previous case, where it was held that retracted statements cannot be the sole basis for assessment.

The Court scrutinized the circumstances of the case, noting the appellants' claims of being pressured during statement recording. It emphasized that the Assessing Officer lacked the authority to determine the genuineness of retractions, as that should be decided by a higher forum. The Court concluded that in the absence of other supporting material, the assessment based solely on retracted statements was unjustified. Referring to a Circular by the Central Board of Direct Taxes, the Court set aside the assessment orders, declaring them baseless. As a result, the appeals were allowed, and the assessment orders were annulled, rendering related petitions moot.