2018 (6) TMI 150 - AT - Income Tax

Addition relying on the confessional statement in pursuance to survey u/s 133A - Held that - Merely on the basis of admission/confession, the assessee could not have been subjected to such additions unless and until, some corroborative evidence found in support of such admission, therefore we are unable to find any justification on the part of the lower authorities to make the addition of ₹ 15 lac on the basis of confessional statement, loose sheet of ledger and General Power of Authority (found from the premises of third party). Even there is no reason not to disbelieve the retraction made by the Assessing Officer and explanation duly supported by the evidence. Hence, the addition made by the AO and uphold by the Ld. CIT(A) is not sustainable and is liable to be deleted, ordered accordingly. The material on record only shows the assessee to have been engaged in the property dealing along with others during the year 2002. No asset from the said earnings can be said to have been found by the Revenue for it to invoke ss. 69/69A for the current year. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the addition of ?15 lakhs to the returned income.
2. Evidentiary value of the retracted statement and loose paper entries.
3. Legal obligation to maintain books of accounts under section 44AD.
4. Procedural lapses in recording the confession statement.
5. Misinterpretation of legal precedents by CIT(A).
6. Incorrect conclusion of business association with Sh. Mohan Lal Bajaj and Sh. Des Raj.
7. Misinterpretation of incriminating documents.
8. Incorrect application of the judgment in Navdeep Dhingra v/s Department of Income Tax.
9. Reliability of documentary evidence used by the department.
10. Failure of CIT(A) to pass a speaking order on legal ground number 3.

Issue-wise Detailed Analysis:

1. Validity of the Addition of ?15 Lakhs:
The addition of ?15 lakhs was based on the assessee's confession during a survey and certain loose paper entries found at the premises of a third party. The ITAT found that the addition was not substantiated by corroborative evidence. The Tribunal emphasized that an admission, though important, is not conclusive and can be retracted if shown to be incorrect.

2. Evidentiary Value of the Retracted Statement and Loose Paper Entries:
The Tribunal referred to several judgments, including the Apex Court's ruling in CIT vs. S. Khader Khan Son, which held that statements recorded during surveys under section 133A have no evidentiary value. The Tribunal also noted that loose sheets of paper, not regularly kept in the course of business, cannot be relied upon as conclusive evidence.

3. Legal Obligation to Maintain Books of Accounts under Section 44AD:
The assessee was not under any legal obligation to maintain books of accounts as he had opted to file the return under section 44AD. Therefore, the addition under section 68 could not be sustained.

4. Procedural Lapses in Recording the Confession Statement:
The Tribunal highlighted that the Income Tax Officer (ITO) did not caution the assessee that his admission could be used against him and did not inform him of his right to engage a lawyer. This procedural lapse made the confession statement unreliable.

5. Misinterpretation of Legal Precedents by CIT(A):
The CIT(A) misinterpreted the judgments referred by the assessee, including Banarsi di Hatti v/s ITO and CIT v/s M/s Dhingra Metal Works. The Tribunal noted that the CIT(A) relied on cases involving search and seizure, which were not applicable to the facts of the present case.

6. Incorrect Conclusion of Business Association with Sh. Mohan Lal Bajaj and Sh. Des Raj:
The Tribunal found that the CIT(A) erred in concluding that the appellant was a business associate in real estate business with Sh. Mohan Lal Bajaj and Sh. Des Raj. There was no material on record to support this conclusion.

7. Misinterpretation of Incriminating Documents:
The documents seized during the survey did not indicate any unexplained property transactions involving the appellant. The Tribunal noted that the documents did not implicate the appellant in any way.

8. Incorrect Application of the Judgment in Navdeep Dhingra v/s Department of Income Tax:
The Tribunal found that the facts of the Navdeep Dhingra case were dissimilar to the present case. In Navdeep Dhingra, there was corroborative material, whereas, in the present case, there was none.

9. Reliability of Documentary Evidence Used by the Department:
The Tribunal held that the loose sheet of ledger and the General Power of Attorney found from the premises of a third party could not be relied upon without corroborative evidence. The Tribunal referred to the Apex Court's judgment in V.C. Shukla's case, which held that loose sheets are not admissible as evidence under section 34 of the Evidence Act.

10. Failure of CIT(A) to Pass a Speaking Order on Legal Ground Number 3:
The Tribunal noted that the CIT(A) failed to pass a speaking order on the legal ground number 3, which was a significant lapse.

Conclusion:
The Tribunal concluded that the addition of ?15 lakhs was not justified as it was based solely on a retracted confession and uncorroborated loose paper entries. The appeal filed by the assessee was allowed, and the addition was ordered to be deleted. The Tribunal emphasized the importance of corroborative evidence in sustaining such additions and highlighted the procedural lapses in recording the confession statement.