2018 (9) TMI 1025 - AT - Income Tax

Additional income disclosed in the course of search - Held that - Revenue has based its case on Shri K.P. Agarwala s search statement. CIT(appeals) has held that Shri Agarwala was never the authorized person to depose or to offer any income at assessee s behest. We reiterate that this assessee is a company. It was very much imperative for the Revenue s to place on record the corresponding details to reverse this clinching finding. There is no such evidence on record. Equally significant is the latter fact; in our considered opinion, that there is no incriminating material found or seized during the course of search which could be taken as evidence for adding additional income sum of ₹ 10 crores. CBDT s circular dated 10.03.2003 makes it very clear that the an authorized officer during the course of search or survey has to collect evidence rather than obtaining search statements of undisclosed income. There is no even a single such evidence in foregoing facts which could be taken as the relevant material for making the impugned addition. CIT(Appeals) has discussed a catena of case law to this effect as well that such an addition is not sustainable in absence of any incriminating material found or seized during the course of search or survey carrying presumption u/s 292C. No reason to interfere with the CIT(Appeals) detailed conclusion in deleting the impugned addition of additional income amounting to ₹ 10 crores. - Decided against revenue.

Summary

Issues Involved:
1. Addition of ?10 crores as additional income.
2. Validity of the statement made by an unauthorized person.
3. Absence of corroborative evidence supporting the addition.
4. Compliance with CBDT circular dated 10-03-2003.
5. Charging of interest under sections 234A, 234B, and 234C.
6. Initiation of penalty proceedings under section 271AAA.

Issue-wise Detailed Analysis:

1. Addition of ?10 crores as additional income:
The primary issue revolves around the addition of ?10 crores made by the Assessing Officer (AO) during the assessment, which was subsequently deleted by the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) noted that the addition was arbitrary and unsupported by any material evidence. The statement used to justify the addition was made by Sri Kailash Prasad Agarwalla, who was not a director of the assessee company and thus not legally competent to make such a statement. The CIT(A) emphasized that the AO erred in law by relying solely on the third-party disclosure, which was later retracted and lacked corroborative evidence.

2. Validity of the statement made by an unauthorized person:
The CIT(A) and the Tribunal both agreed that Sri Kailash Prasad Agarwalla was not authorized to make a statement on behalf of the assessee company. The statement made under section 132(4) and the subsequent disclosure petition lacked the consent or authority of the assessee company. The CIT(A) highlighted that the assessee had disowned the disclosure through a sworn affidavit by its director, Sri Rajeev Kumar Agarwalla. Therefore, the disclosure was not legally binding on the assessee.

3. Absence of corroborative evidence supporting the addition:
The CIT(A) and the Tribunal found that no incriminating material representing undisclosed income of ?10 crores was found during the search. The AO did not present any material evidence to support the addition. The Tribunal reiterated that the absence of such evidence meant that the addition could not be sustained. Judicial precedents were cited, including cases from the Supreme Court and various High Courts, which held that an admission made during a search could not be the sole basis for an addition if it was later retracted and lacked corroborative evidence.

4. Compliance with CBDT circular dated 10-03-2003:
The CIT(A) and the Tribunal referred to the CBDT circular dated 10-03-2003, which advised officers to focus on collecting credible evidence rather than obtaining confessions of undisclosed income during search operations. The circular emphasized that such confessions, if not based on credible evidence, were often retracted and did not serve any useful purpose. The Tribunal noted that the AO's action was not in conformity with this circular, as the addition was based solely on a retracted statement without any supporting evidence.

5. Charging of interest under sections 234A, 234B, and 234C:
The CIT(A) noted that the issue of charging interest under sections 234A, 234B, and 234C was consequential and did not require separate adjudication.

6. Initiation of penalty proceedings under section 271AAA:
The CIT(A) found that the initiation of penalty proceedings under section 271AAA was premature for adjudication at this stage.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the addition of ?10 crores, agreeing that the addition was not sustainable in law or on the facts of the case. The Tribunal found no merit in the Revenue's appeal, emphasizing the lack of corroborative evidence and the unauthorized nature of the statement used to justify the addition. The appeal was dismissed, and the order was pronounced on 14.09.2018.