2016 (5) TMI 879 - HC - Income Tax

Addition of undisclosed income on the basis of loose sheets found at the time of search - Held that - In the light of the definition of the expression document and in the light of admissibility of the said document based upon the statements made by the assessee, the additions made by the assessing officer cannot be found fault with. Though there was a retraction of those statements by the assessee, those retractions were rightly rejected on the appreciation of the return filed on 27.9.2002 where admittedly, a particular amount was shown as undisclosed income. Therefore, the retraction is of no avail in the light of section 132(4) and its Explanation. In view of the above, the question of laws are answered in favour of the appellant/Department

Summary

Issues Involved:
1. Whether the Tribunal was right in holding that addition of undisclosed income cannot be made on the basis of loose sheets found during search due to lack of dates and evidentiary value.
2. Whether the Tribunal was right in deleting the additions made on the basis of loose sheets when the assessee had accepted in his sworn statement that the information in the loose sheets pertained to his undisclosed income and did not retract the statement until about a year later.
3. Preliminary issue of the maintainability of the appeal due to non-issuance of notice under section 143(2).

Detailed Analysis:

Preliminary Issue: Maintainability of the Appeal
The respondent/assessee argued that the appeal by the Revenue is not maintainable as no notice under section 143(2) was issued or served, making the assessment order under section 143(3) invalid. The court noted that the search under section 132 commenced on 7.6.2000 and concluded on 8.9.2000. A notice under section 158BC was issued, and the assessee filed a return of income on 27.9.2002, leaving only three days for the Department to complete the assessment. The court observed that the assessee created a situation where it was impossible for the Department to comply with section 143(2). The court rejected the preliminary objection by interpreting the decision in Hotel Blue Moon to apply only to cases where the return was filed within the stipulated time, and the Department failed to act. Therefore, the appeal was deemed maintainable.

Issue 1: Evidentiary Value of Loose Sheets
The Tribunal had held that the loose sheets found during the search lacked evidentiary value as they did not contain dates of transactions. The court, however, emphasized that these loose sheets are considered documents under section 2 of the Indian Evidence Act and section 3(18) of the General Clauses Act. Section 132(4) of the Income Tax Act, along with its Explanation, states that such documents are admissible as evidence. The court concluded that the loose sheets, supported by the statements made by the assessee during the search, constituted valid evidence, and the additions made by the assessing officer were justified.

Issue 2: Retraction of Sworn Statement
The Tribunal had deleted the additions based on the loose sheets, despite the assessee's sworn statement admitting the information pertained to his undisclosed income. The assessee retracted this statement almost a year later. The court noted that the retraction was not credible, especially since the assessee had declared an undisclosed income amount in the return filed on 27.9.2002. The court held that the retraction was ineffective in light of section 132(4) and its Explanation, which allow statements made during the search to be used as evidence. Consequently, the court upheld the additions made by the assessing officer.

Conclusion:
The court answered both questions of law in favor of the appellant/Department, validating the additions based on the loose sheets and the sworn statements. The appeal was allowed, and the Tribunal's decision was overturned. No costs were awarded.