2016 (6) TMI 684 - AT - Income Tax

Unaccounted investment in house property - Addition on the basis of statement recorded U/s 132(4) - rejection of books of account U/s 145(3) - Held that - Additional income of ₹ 1.00 crore, which includes disclosure of ₹ 75 lacs on account of unaccounted investment in house property constructed at 4-5, Shubham Enclave, C-Scheme, Jaipur. The addition made by the Assessing Officer on the basis of statement recorded U/s 132(4) are not on the basis of incriminating documents found during the course of search, as such no reference has been made by the Assessing Officer in assessment order. He simply gave general observation of the group that during the course of search, various assets/books of account were found and seized as per annexure prepared during the course of search. Thereafter, he analysed the expenses under the head consultancy charges, sales promotion, travelling expenses, purchases material for advertisement and also considered not maintaining stock register and commission payment not verifiable but no specific bills vouchers have been referred by the Assessing Officer that the expenses claimed and commission paid is bogus on the basis of seized material. Whatever addition made by the Assessing Officer on the basis of statement recorded during the course of search U/s 132(4) which have evidentiary value but it is rebuttable. The CBDT also issued instruction on forced disclosure during the survey and search, which has been referred by the ld CIT(A) wherein it has clearly directed by it to the authorized officer, no attempt should be made to obtain the confession, which is not based on incriminating document/assets found during the course of search. The ld DR has not controverted the findings given by the ld CIT(A) - Decided against revenue.

Issues Involved:
1. Rejection of books of account under Section 145(3) of the Income Tax Act.
2. Reduction of disallowance from ?2 Crores to ?10,57,940 by CIT(A).
3. Validity of disallowance under Section 37(1) of the Income Tax Act.
4. Non-confirmation of addition corresponding to undisclosed income admitted by the director under Section 132(4).

Detailed Analysis:

Issue 1: Rejection of Books of Account under Section 145(3)
The Assessing Officer (AO) rejected the books of account of the assessee under Section 145(3) due to various discrepancies. The AO observed that the assessee did not maintain a stock register item-wise and site-wise, making it difficult to ascertain the correlation between expenses claimed and revenue generated. Additionally, the AO noted that many expenses were recorded based on self-made vouchers, and the auditor's report indicated a lack of supporting evidence for certain expenditures.

Issue 2: Reduction of Disallowance from ?2 Crores to ?10,57,940 by CIT(A)
The CIT(A) reduced the disallowance made by the AO from ?2 Crores to ?10,57,940. The AO had initially disallowed ?2 Crores based on inflated expenses and unverifiable liabilities. The CIT(A) observed that the assessee had only surrendered ?1 Crore in the return of income, despite a total disclosure of ?2.97 Crores during the search. The CIT(A) held that statements recorded under Section 132(4) have evidentiary value but are not conclusive without corroborative evidence. The CIT(A) relied on several case laws and a CBDT instruction, which emphasized that additions should be based on evidence gathered during the search, not merely on statements.

Issue 3: Validity of Disallowance under Section 37(1)
The AO disallowed ?2 Crores under Section 37(1) on an estimated basis, citing unverifiable expenses and inflated liabilities. The CIT(A) partially upheld the AO's decision to reject the books of account but significantly reduced the disallowance. The CIT(A) noted that while the AO had identified certain concerns and dummy entities, there was insufficient corroborative evidence to justify the entire disallowance. The CIT(A) also referenced various judicial precedents to support the view that mere statements without supporting evidence cannot substantiate such a large disallowance.

Issue 4: Non-confirmation of Addition Corresponding to Undisclosed Income
The AO argued that the CIT(A) erred in not confirming the addition of ?1.97 Crores, which was part of the undisclosed income admitted by the director under Section 132(4) but not shown in the return of income. The CIT(A) held that the addition could not be justified solely based on the director's statement, especially when the statement was allegedly obtained under duress and later retracted. The CIT(A) emphasized that the AO did not provide specific evidence from the seized materials to support the addition.

Conclusion:
The Tribunal upheld the CIT(A)'s order, dismissing the revenue's appeal. The Tribunal agreed that statements recorded under Section 132(4) have evidentiary value but are not conclusive without corroborative evidence. The Tribunal also noted that the AO failed to provide specific evidence from the seized materials to justify the disallowance and additions made. The Tribunal emphasized the importance of relying on concrete evidence rather than mere statements, aligning with the principles set forth in various judicial precedents and CBDT instructions.

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