2017 (5) TMI 172 - HC - Income Tax

Did the ITAT fall into error in holding that the surrender made by the assessee in the course of the survey and confirmed two months later in writing, was deserved to be deleted in the circumstances of the case for lack of any corroborative material? - Held that - The Court is not satisfied that the retraction made by the Assessee two years after the declaration was bonafide. There was no satisfactory explanation for not including the said amount in the return of income filed by the Assessee on 26th September, 2009 - there was no justification whatsoever for the ITAT to have deleted the additions made by the AO which were upheld by the CIT(A) - appeal allowed - decided in favor of Revenue.

Summary

Issues:
Appeal by Revenue under Section 260A of the Income Tax Act, 1961 against ITAT order for AY 2009-10. Question of law: Validity of surrender made by assessee during survey and confirmed later. Assessment of undisclosed income of ?1.25 crores by AO. Appeal by Assessee against assessment order before CIT(A). CIT(A) rejection based on Assessee's changing stand. ITAT's conclusion against AO and CIT(A) findings. Assessee's reliance on precedents and circular. Dispute over retraction of declaration and addition of undisclosed income.

Analysis:

1. The appeal before the High Court stemmed from the Revenue's challenge against the ITAT's decision on the validity of the surrender made by the assessee during a survey. The core question revolved around the undisclosed income of ?1.25 crores declared by the assessee and subsequent retraction.

2. The facts revealed that the assessee voluntarily made a declaration two months after the survey, offering to pay tax on the additional income. However, upon filing the return for AY 2009-10, the said amount was not included. The AO added the undisclosed income to the assessee's total income, citing possible manipulation of accounts to negate the surrender.

3. The CIT(A) upheld the AO's decision, emphasizing the assessee's changing stance and failure to provide coherent details. The ITAT, however, disagreed with the lower authorities, citing legal precedents and the CBDT circular, leading to the deletion of the additions made by the AO.

4. The High Court analyzed various legal judgments cited by both parties. It distinguished cases where retractions were made promptly from the present scenario where the assessee waited two years to retract the declaration. The court found the retraction untimely and lacking a satisfactory explanation for not disclosing the amount earlier.

5. Ultimately, the High Court set aside the ITAT's decision, reinstating the additions made by the AO and upheld by the CIT(A). The court concluded that the ITAT erred in deleting the additions, emphasizing the lack of justification for such deletion.

6. The High Court's ruling highlighted the importance of timely and justified retractions in tax matters, underscoring the need for consistency and clarity in declarations to avoid manipulation and evade tax liabilities.