2016 (11) TMI 1032 - AT - Income Tax

Surrender made by the assessee in statement u/s 132(4) - Held that - The Authorized Officer has referred to the two statements of Sh. Abhay Gupta recorded on 18.4.2006 and 3.5.2006 as statements u/s 132 4 . The ld. AR has placed on record a copy of panchnama drawn in the case of the assessee which records the date of commencement of search as 22.3.2006 and the date of completion of search as 23.3.2006. It was submitted that this was the only panchnama drawn in the case of the assessee. The ld. DR has not placed before us a copy of any other panchnama of a later date drawn in the name of the assessee. This shows that both the statements of Sh. Abhay Gupta which have been claimed as made u/s 132 4 were in fact recorded after the conclusion of search. As such these statements cannot be even characterized as statements u/s 132(4) so as to be given any evidentiary value. In view of the foregoing discussion we are satisfied that the ld. CIT(A) was not justified in sustaining the addition of Rs. 10 lac by relying on his finding given in the case of M/s Assam Supari Traders and M/s Balaji Perfumes the facts of which are entirely different from that of the assessee under consideration. It is further noticed that the other two brothers of the assessee on whose behalf a similar surrender of Rs. 10.00 each was made also did not offer such income in their respective returns of income. The AO made additions of the income surrendered but not declared. However the concerned CIT(A) deleted such additions. The appeals filed by the Revenue against such deletions have been dismissed by the tribunal due to low tax effect.We want to clarify beyond doubt that the validity or otherwise of the retraction of statements made by Sh. Abhay Gupta has neither been considered nor decided by us in this order as the same is not relevant in so far as the instant addition of Rs. 10.00 lac made in the hands of the assessee is concerned. No finding given in this order in respect of the deletion of the addition has any significance or relevance with the additions made in the case of the above referred two concerns whose appeals are pending before the tribunal. Income arising from the estimation of household expenses - Held that - It is observed that the AO for earlier years made an estimation of household expenses @ Rs. 20, 000/- per month. The assessee appealed against such estimation of income before the CIT(A) and the tribunal but without any success. A copy of such tribunal order upholding the addition made on the basis of estimation of household expenses at this level is available on record. Considering the totality of the facts and circumstances of the instant case we are satisfied that it would be in the fitness of things if the estimation of household expenses for this year is restricted to Rs. 22, 000/- per month as against Rs. 25, 000/- made by the AO. The addition is sustained pro tanto. This ground is partly allowed. Penalty u/s 271(1)(c) - Held that - It is observed that the bedrock for the imposition of the extant penalties on the additions of Rs. 10 lac and Rs. 15 lac does not survive anymore as the additions have been deleted by us hereinabove. In that view of the matter there remains no basis for the confirmation of the instant penalties. As regards the confirmation of additions towards the estimate of household expenses we find that the AO simply made an estimate of household expenses without there being any evidence backing such an estimate which has been partly accepted. The Hon ble Delhi High Court in CIT vs. Aero Traders P. Ltd. (2010 (1) TMI 32 - DELHI HIGH COURT ) has held that no penalty u/s 271(1)(c) can be levied when income is determined on estimate basis.As the penalty on account of low household withdrawals is simply on the basis of an estimate made by the AO which has been partly reduced we are satisfied that no penalty can be levied on the basis of such an estimate of household expenses.

Summary

Issues Involved:
1. Addition of undisclosed income based on statements recorded during search.
2. Validity of retraction of statements.
3. Estimation of household expenses.
4. Imposition of penalty under Section 271(1)(c).

Detailed Analysis:

1. Addition of Undisclosed Income Based on Statements Recorded During Search:
The core issue pertains to the addition of undisclosed income based on statements made by Shri Abhay Gupta during a search operation. The assessee argued that the statements were made under coercion and later retracted. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] relied on these statements to make additions of Rs. 10 lakh for the assessment year (A.Y.) 2005-06 and Rs. 15 lakh for A.Y. 2006-07. However, the Tribunal found that these statements were not supported by any incriminating material found during the search, and thus, the additions could not be sustained. The Tribunal emphasized that for a statement to have evidentiary value, it must be corroborated by incriminating evidence found during the search, citing the Hon’ble Delhi High Court's judgment in CIT vs. Harjeev Aggarwal and other similar cases.

2. Validity of Retraction of Statements:
The Tribunal examined whether the statements made by Shri Abhay Gupta could be considered as valid statements under Section 132(4) of the Income Tax Act. It was found that the statements were recorded after the conclusion of the search operation, as evidenced by the panchnama, and thus could not be characterized as statements under Section 132(4). Consequently, these statements did not hold any evidentiary value for making additions.

3. Estimation of Household Expenses:
The AO estimated household expenses at Rs. 25,000 per month for both A.Y. 2005-06 and A.Y. 2006-07, which was sustained by the CIT(A). The Tribunal, considering the facts and circumstances, reduced the estimation to Rs. 22,000 per month for A.Y. 2005-06 and Rs. 24,000 per month for A.Y. 2006-07. The Tribunal noted that the estimation for earlier years was Rs. 20,000 per month and upheld the reduced estimates as reasonable.

4. Imposition of Penalty Under Section 271(1)(c):
The AO imposed penalties under Section 271(1)(c) for both A.Y. 2005-06 and A.Y. 2006-07 at 200% of the tax sought to be evaded, which the CIT(A) reduced to 100%. The Tribunal deleted the penalties, noting that the additions of Rs. 10 lakh and Rs. 15 lakh had been deleted and that the estimation of household expenses was not backed by evidence but was merely an estimate. The Tribunal cited the Hon’ble Delhi High Court's decision in CIT vs. Aero Traders P. Ltd., which held that no penalty can be levied when income is determined on an estimate basis.

Conclusion:
The appeals for both A.Y. 2005-06 and A.Y. 2006-07 were partly allowed, with the additions based on the statements made during the search being deleted, and the estimation of household expenses being reduced. The penalties imposed under Section 271(1)(c) were also deleted. The Tribunal emphasized the necessity of corroborating statements with incriminating evidence found during the search and the inadmissibility of statements recorded post-search as evidence under Section 132(4).