2016 (11) TMI 1308 - AT - Income Tax

Refund of amount offered for taxation conditionally - Held that - Since there is no co-relation between the alleged disclosures of the appellants qua the seized material, we do not find any reason why addition should be made and why the tax paid on such disclosure should not be refunded. The amount disputed by the present assessee has also been mentioned at Sr.No.3 on page no.3 of the order, while taking note of the details in tabular form. There is no disparity of any fact. Therefore, respectfully following the above, I allow appeal of the assessee, and direct the AO to grant refund as claimed by the assessee on the amount of ₹ 15 lakhs, which was offered conditionally. This amount cannot be taxed in the hands of the assessee, and tax paid on this amount is to be refunded. - Decided in favour of assessee

Issues Involved:
1. Non-granting of refund for conditionally offered income.
2. Validity of conditional disclosures made during search operations.
3. Application of CBDT Circular No. 286/2/2003-IT (INV) regarding confessions during search operations.
4. Correlation between disclosed income and seized material.
5. Retraction of preliminary disclosures and its implications.

Detailed Analysis:

1. Non-granting of Refund for Conditionally Offered Income:
The primary issue in the appeal was whether the Assessing Officer (AO) should have granted a refund of ?5,28,801/- related to an amount of ?15 lakhs, which was conditionally offered for taxation by the assessee. The assessee argued that the AO failed to grant the refund, despite the conditional nature of the disclosure.

2. Validity of Conditional Disclosures Made During Search Operations:
The case involved a search action under Section 132 of the Income Tax Act on 24.09.2008 in the Manish Group, where a voluntary disclosure of ?1.10 crores was made, later increased to ?2.25 crores. The disclosure was intended to cover discrepancies, errors, omissions, mistakes, etc., in the seized documents and assets vis-à-vis the regular books.

3. Application of CBDT Circular No. 286/2/2003-IT (INV):
The Central Board of Direct Taxes (CBDT) Circular No. 286/2/2003-IT (INV) dated 10-3-2003 was discussed, which advises against obtaining confessions of undisclosed income during search operations if not based on credible evidence. The circular emphasizes focusing on collecting evidence of income not disclosed or likely to be disclosed to the income-tax department.

4. Correlation Between Disclosed Income and Seized Material:
The Tribunal found no correlation between the disclosed income and the seized material. The disclosure was on an estimate basis, and there was no corroborative unexplained investment/expenditure found during the search. The Tribunal noted that the disclosure lacked supportive evidence and was a conditional one.

5. Retraction of Preliminary Disclosures and Its Implications:
The Tribunal considered the retraction of the preliminary disclosure made by the assessee. The assessees had filed explanatory notes before the AO, stating that the preliminary disclosure should be retracted to the extent it remained unidentified during the assessment. The Tribunal observed that the assessees did not include the disclosed income in their respective returns, indicating no intention to include the voluntary disclosure in the return of income.

Conclusion:
The Tribunal followed the decision of the Division Bench in ITA Nos. 81 & 82/Ahd/2012 dated 6.9.2016, which dealt with a similar issue. It was concluded that since there was no co-relation between the alleged disclosures and the seized material, the addition should not be made, and the tax paid on such disclosure should be refunded. The Tribunal directed the AO to issue refunds on such additions of income disclosed but not shown in the return of income. The appeal of the assessee was allowed, and the AO was directed to grant the refund as claimed by the assessee for the amount of ?15 lakhs, which was conditionally offered. The Tribunal's decision was fortified by the decision of the Co-ordinate Bench in ITA Nos. 78 & 973/Ahd/2012, which held that the Revenue failed to produce any material evidence supporting the impugned addition based on a vague and conditional disclosure statement.

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