2017 (5) TMI 908 - AT - Income Tax

Disallowance on account of share and application money - statement used against the assessee without giving the opportunity as per the procedure of law - Held that - CBDT has emphasized to its officers to focus on gathering evidences during search/survey operations and strictly directed to avoid obtaining admission of undisclosed income under coercion/ undue influence. Keeping in view the guidelines issued by the CBDT from time to time regarding the statements obtained during search and survey operation, it is undisputedly clear that the lower authorities have not collected any other evidence to prove the impugned transaction as bogus other than the statement. Therefore under such facts & circumstances we are inclined to reverse the order of authorities below in this regard direct the AO to delete the addition. - Decided in favour of assessee.

Issues Involved:
1. Disallowance of ?18 lakh on account of share and application money.
2. Legitimacy of statements obtained during survey operations.
3. Opportunity for cross-examination.
4. Adherence to principles of natural justice.
5. Validity of retraction of statements.
6. Compliance with CBDT guidelines on obtaining admissions during surveys.

Issue-wise Detailed Analysis:

1. Disallowance of ?18 lakh on Account of Share and Application Money:
The primary issue in this case was the disallowance of ?18 lakh, which the Assessing Officer (AO) added to the assessee's income as undisclosed income under Section 68 of the Income Tax Act, 1961. The AO based this addition on the statement of Shri Rajendra Bubna, Managing Director of M/s Bubna Properties Private Limited (BPPL), who admitted to providing accommodation entries to the assessee. The assessee contested this addition, arguing that the statement was retracted and unsupported by any documentary evidence found during the survey.

2. Legitimacy of Statements Obtained During Survey Operations:
The assessee argued that the statement given by Shri Rajendra Bubna was obtained under coercion and subsequently retracted. The AO disregarded the retraction, citing its timing and the fact that it was made after the completion of BPPL's assessment. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, emphasizing the direct and specific nature of Bubna's original statement.

3. Opportunity for Cross-Examination:
The assessee highlighted that the statement used against them was not made available for confrontation and that the director of the assessee-company, Shri Alok Agarwal, was not given a proper opportunity to cross-examine Shri Rajendra Bubna. The tribunal noted that the AO did not follow the due procedure under Section 131 of the Act, which requires issuing a summons for confrontation. The tribunal emphasized that no adverse inference can be drawn against the assessee without providing a proper opportunity for cross-examination, citing several judicial precedents, including the Supreme Court's decision in Andaman Timber Industries vs. CCE.

4. Adherence to Principles of Natural Justice:
The tribunal found that the principles of natural justice were violated as the AO relied on a statement without giving the assessee a fair opportunity to rebut it. The tribunal referenced multiple judgments, including those of the Delhi High Court and the jurisdictional Calcutta High Court, which consistently held that statements cannot be used against an assessee without proper cross-examination.

5. Validity of Retraction of Statements:
The tribunal considered the retraction of Shri Rajendra Bubna's statement, which was made during the assessment proceedings. The tribunal noted that the retraction was disregarded by the AO and CIT(A) without adequate justification. The tribunal emphasized that retractions, especially when supported by affidavits, should be given due consideration unless there is evidence to prove coercion or undue influence.

6. Compliance with CBDT Guidelines on Obtaining Admissions During Surveys:
The tribunal referred to the Central Board of Direct Taxes (CBDT) guidelines, which discourage obtaining admissions of undisclosed income under coercion or undue influence during surveys. The tribunal noted that the AO did not gather any tangible evidence to support the addition apart from the statement, which was contrary to the CBDT's instructions. The tribunal highlighted that the CBDT has directed officers to focus on gathering evidence rather than relying solely on statements obtained during surveys.

Conclusion:
The tribunal allowed the assessee's appeal, directing the AO to delete the addition of ?18 lakh. The tribunal underscored the importance of adhering to principles of natural justice, providing proper opportunities for cross-examination, and complying with CBDT guidelines. The tribunal's decision emphasized that statements obtained under coercion and without proper procedural adherence cannot be the sole basis for additions to income. The same principles were applied to the subsequent assessment year, resulting in the allowance of both appeals by the assessee.

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