2016 (9) TMI 1607 - HC - Income Tax

Addition on mere statement of Assessee given during search and seizure operation - estimating sales and taking out average gross profit of Assessee firm - HELD THAT - Statement recorded on oath during the course of search and seizure by Authorized Officer may be used in evidence in any proceeding under Act, 1961. When something can be used as an evidence, meaning thereby, it is a relevant material to support a finding to be recorded in a particular manner. The exposition of law is well established that an admission is the best evidence. It is however, always open to the person making admission to explain the same but whether explanation is credible or not would depend upon the material placed by such person who endeavour to explain his admission. Mere fact that an admission was explained, does not mean that admission will loose its nature of important piece of evidence. Competent authority who has to assess evidence, for valid reasons, can prefer to rely on admission and reject explanation. As account books having not being found maintained in ordinary course of business and supporting material was also not maintained by Assessee, the alleged explanation of Assessee has rightly been rejected by Assessing Officer and Tribunal has also rightly affirmed the same. In the present case, Assessing Officer has not made additions merely on such statement. It was looked into the explanation, account books and other material placed before it and then made addition of certain amount which is admittedly less than the amount of disclosure under Section 132(4) of Act, 1961. Tribunal has rightly affirmed the same. - Decided against assessee.

Summary

Issues Involved:
1. Applicability of proviso to Section 145(1) of the Income Tax Act, 1961.
2. Justification of assessment based on the amount surrendered by the Assessee during the search.

Issue-wise Detailed Analysis:

1. Applicability of Proviso to Section 145(1) of the Income Tax Act, 1961:

The Tribunal justified the application of the proviso to Section 145(1) despite the Assessee's cash book being duly and completely posted without discrepancies. The Assessing Officer (AO) considered the materials collected during the search and seizure operation at the Assessee's premises, including cash, jewellery, and incriminating documents. The AO examined the seized books and loose papers, leading to the computation of income. The Tribunal found substance in the AO's findings regarding various additions based on the statement of a partner of the Assessee firm during the search. The Tribunal upheld the AO's estimation of sales and the application of a gross profit rate based on historical data, leading to additions of ?55,838 and ?63,030. The Tribunal noted that the Assessee's books were not maintained in the ordinary course of business, and the Assessee failed to maintain a stock register and verify purchase and sales bills. Thus, the Tribunal upheld the AO's decision to estimate sales and apply the gross profit rate.

2. Justification of Assessment Based on the Amount Surrendered by the Assessee During the Search:

The Tribunal upheld the AO's decision to make additions based on the amount surrendered by the Assessee during the search. The Assessee contended that the additions were unjustified as they were based solely on the statement made during the search, which was later retracted. The Tribunal, however, found that the statement recorded under Section 132(4) of the Income Tax Act, 1961, is admissible in evidence and can be relied upon unless retracted under credible circumstances. The Tribunal noted that the Assessee's retraction was not supported by any material evidence, and the statement was not obtained under duress. The Tribunal emphasized that the AO had not mechanically made the addition of ?9 lakhs disclosed during the search but had applied due diligence, resulting in an actual addition of ?8,12,360. The Tribunal also highlighted that the Assessee's voluntary disclosure during the search and seizure operation was a significant piece of evidence. The Tribunal affirmed the AO's decision to make additions based on the surrendered amount and the unexplained stock and profit.

Conclusion:

The High Court dismissed the appeal, confirming the Tribunal's order. The Court held that the statement recorded under Section 132(4) of the Income Tax Act, 1961, is a significant piece of evidence and can be relied upon for making assessments unless retracted under credible circumstances. The Court found that the Assessee's retraction was not supported by any material evidence and that the AO had applied due diligence in making the additions. The Court also noted that the Assessee's books were not maintained in the ordinary course of business, justifying the AO's estimation of sales and application of the gross profit rate. The appeal was dismissed with costs, and both substantial questions of law were answered against the Assessee and in favor of the Revenue.