2018 (10) TMI 925 - AT - Income Tax

Addition on account of machinery surrendered during the course of survey - whether the assessee made any payment out of undisclosed sources for acquiring the 6 moulding machines which were found at the factory premise of the assessee during the course of survey proceeding - cording statement at midnight though the assessee has alleged that the statement was recorded under pressure and intimidation - Held that - On perusal of the statement, we find that there is no evidence that the statement of Sh. Sachdeva, particularly, the surrender was recorded at midnight. At the beginning of the statement, the date is recorded as 01/10/2010, whereas at end of the statement the date recorded is 02/10/2010. Thus, possibility of recording the statement in daylight of 02/10/2010 could not be rejected. Merely mentioning the date at the end of the statement as 2/10/2010, it cannot be presumed that it was recorded at midnight of 01/10/2010. No such fact has been asserted by Sh. Sachdeva before the lower authorities. The assessee firm, is interpreting the statements of Sh. Sachdeva according to its choices. Thus, the ratio in the case of Kailash Ben Manharlal Chokshi 2008 (9) TMI 525 - GUJARAT HIGH COURT cannot be imported to the facts of the instant case. As during the course of survey the assessee surrendered income of ₹ 1,30,19,418/- which included surrender on account of unexplained cash of ₹ 9,25,018/- unexplained creditors of ₹ 29,56,944/- and unexplained investment in machines and moulds of ₹ 91,37,456/-. The assessee has duly honoured the surrender of unexplained cash and unexplained creditors. It cannot be understood as how, there is no allegation of pressure or intimidation in respect of surrender of unexplained cash and unexplained creditors and there is only pressure or intimidation in respect of unexplained investment in machines and moulds. As during the course of survey proceeding, the assessee tendered cheques amounting to ₹ 40,23,000/- corresponding to the tax liability on the income surrendered ₹ 1,30,19,418/-. The cheques were deposited in bank by the tax authorities subsequent to the survey proceedings. If the statement was recorded under pressure or intimidation, the assessee should have objected immediately and requested the bank to dishonour those cheques. As far as records of the case before us, no such request was made by the assessee either to the Income-tax Authorities for not to deposit the said cheques or to the bank authorities to stop the payment of those cheques. Allegation of pressure and intimidation on Sh. Sachdeva by the survey team is without any basis or supporting evidence and accordingly same are rejected. Whether the statement recorded on oath under survey proceedings could be accepted as a statement recorded as per law and it could be made basis for making addition? - Held that - We find that in the instant case, the Ld. CIT(A) has upheld the addition not merely in view of the statement of Sh. Sachdeva or surrender of the income corresponding to investment in machinery, but the Ld. CIT(A) has examined the addition in view of the provisions of section 69A, where if the assessee is found to be owner of a valuable article and same is not found to be recorded in the books of accounts, the assessee is required to explain satisfactorily the source of acquisition of said article and in case of failure it is deemed to be the income of the assessee. It is extremely necessary to examine genuineness of the correspondence between the assessee and M/s Amman Hydraulics (India) and other records of the assessee as well as records of M/s Amaan Hydraulics (India). Without examining and verifying the records in this respect, rejecting the contention of the assessee in holding that investment in machines was made out of undisclosed sources would not be justified and against the conscience of Justice. We feel it appropriate to restore this issue in dispute to the file of the Ld. CIT(A) for carrying out enquiries as mentioned above. He may remand the matter to the AO, if circumstances so requires. The assessee is directed to produce proprietor of M/s Amaan Hydrolic (India) before the authorities alongwith all necessary documentary evidences for cross-examination by him. The assessee may be provided results of the enquiries and cross-examination by the Income-tax Authorities and also afforded adequate opportunity of being heard. CIT(A) is then directed to decide the issue in dispute in accordance with law without prejudice by our observations above. The grounds of the appeal are accordingly allowed for statistical purposes.

Summary

Issues Involved:
1. Addition of ?91,37,456/- on account of machinery surrendered during the survey.
2. Validity of the statement recorded during the survey under pressure and its evidentiary value.
3. Examination of the source of acquisition of machinery under Section 69A of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Addition of ?91,37,456/- on account of machinery surrendered during the survey:
The assessee, a partnership firm engaged in manufacturing footwear soles, was subjected to a survey operation under Section 133A of the Income-tax Act on 01/10/2010. During the survey, six new injection moulding machines and 20 moulds were found without corresponding bills or vouchers. The partner of the firm, under pressure, surrendered the value of these machines and moulds totaling ?91,37,456/-. The assessee later retracted this surrender during the assessment proceedings, claiming the surrender was under duress and that the machines were returned to the vendor due to defects. However, the Assessing Officer (AO) did not accept this explanation and made the addition of ?91,37,456/- to the assessee's income. The CIT(A) upheld this addition, finding inconsistencies in the assessee's explanation and supporting documents.

2. Validity of the statement recorded during the survey under pressure and its evidentiary value:
The assessee argued that the statement recorded during the survey was under pressure and should not be considered valid evidence. The Tribunal examined whether the statement was recorded under duress, noting that the statement was recorded on 01/10/2010 and concluded on 02/10/2010, which could imply it was recorded during the day. The Tribunal found no substantial evidence to support the claim of pressure or intimidation. Furthermore, the assessee honored the cheques corresponding to the tax liability on the surrendered amount, indicating voluntary compliance. The Tribunal also considered the legal precedent that statements recorded during surveys are not conclusive evidence unless corroborated by other evidence.

3. Examination of the source of acquisition of machinery under Section 69A of the Income-tax Act, 1961:
The Tribunal noted that under Section 69A, the onus was on the assessee to explain the source of acquisition of the machinery. The assessee claimed the machines were purchased from M/s Aman Hydraulics (India) and returned due to defects, without making any payment. However, the CIT(A) found various discrepancies in this explanation. The internal documents indicated that bills were passed, implying payments were made. The assessee failed to provide production records to substantiate the claim of low yield from the machines. Additionally, the receipt of the machines and their return were not recorded in the tax audit report. The Tribunal highlighted the necessity of further inquiries to verify the genuineness of the transactions and the documents provided by the assessee.

Conclusion:
The Tribunal restored the issue to the file of the CIT(A) for further inquiries, including verification of the supplier's records and cross-examination of the supplier. The Tribunal directed that the assessee be given an opportunity to present additional evidence and be heard. The appeal was allowed for statistical purposes, pending the outcome of these further inquiries.

Order:
The appeal is allowed for statistical purposes, and the issue is remanded to the CIT(A) for further examination and verification in accordance with the law.