2024 (2) TMI 746 - AT - Income Tax

Addition based on voluntary disclosure made by the key person of the assesse group during the course of search which has subsequently been retracted - assessee surrendered additional business income - addition on basis of statement recorded u/s 132(4) - HELD THAT - It is, a settled law that no addition can be made solely on the basis of statement recorded u/s 132(4) of the Act in the absence of any corroborative material or evidence to support the disclosure or the addition. We, therefore, conclude AO was not justified in making addition only on the basis of statement recorded during the course of search u/s 132(4) of the Act which has subsequently been retracted and no other incriminating material was found during the course of search which could have a live link with the alleged addition made in the hands of the assessee. Treatment to income u/s 115BBE - We find that he assessee is private limited company. Though a disclosure has been made in the statement made to offer Rs. 75 Lakhs for tax but there is no reference to any incriminating material found during the course of search. The assessee has disclosed Rs. 75 Lakhs as extraordinary item in the profit and loss account and offered it as income. The said income cannot be treated as unexplained unless any seized material has been referred by the revenue authorities. In absence thereof and also considering the fact that the assessee is into the regular business, the alleged sum of Rs. 75 Lakhs can be considered only as a business income and, therefore, the ld. Assessing Officer erred in treating it as an income u/s 115BBE of the Act liable to be taxed. This action of the ld. Assessing Officer is not justified. We accordingly, allow the cross-objection raised by the assessee.

Issues Involved:

1. Use of statement under section 132(4) as evidence.
2. Retraction of statements and its implications.
3. Estimation of income and its correctness.
4. Treatment of additional business income as unexplained credit under section 68 and taxation under section 115BBE.

Summary:

1. Use of statement under section 132(4) as evidence:

The revenue argued that the CIT(A) erred in not using the statement under section 132(4) of the Act as evidence, citing judicial pronouncements. The Tribunal noted that the addition was based solely on the statement made during the search, which was later retracted. The CIT(A) found that no incriminating material or evidence supported the addition of Rs. 10 Crores, and the statement was made under pressure. The Tribunal upheld the CIT(A)'s decision, emphasizing that additions should be based on corroborative evidence, not solely on retracted statements.

2. Retraction of statements and its implications:

The revenue contended that the retraction of the statement was an afterthought. However, the Tribunal observed that the retraction was made after analyzing the seized documents, which revealed no incriminating evidence. The Tribunal cited multiple judicial decisions supporting the view that retracted statements, without corroborative evidence, should not be the sole basis for additions. The Tribunal upheld the CIT(A)'s decision to delete the addition based on the retracted statement.

3. Estimation of income and its correctness:

The revenue argued that the CIT(A) erred in allowing the assessee to estimate an income of Rs. 8,33,000/- instead of Rs. 10,08,33,000/-, based on the statement under section 132(4). The Tribunal noted that the CIT(A) found no incriminating material to support the higher estimate and that the statement was made under duress. The Tribunal upheld the CIT(A)'s decision, emphasizing that estimates should be based on evidence, not on retracted statements.

4. Treatment of additional business income as unexplained credit under section 68 and taxation under section 115BBE:

The assessee argued that the additional business income of Rs. 75,00,000/- should not be treated as unexplained credit under section 68 and taxed under section 115BBE. The Tribunal found that the income was disclosed in the profit and loss account and offered for tax, with no reference to any incriminating material. The Tribunal ruled that the income should be treated as business income, not unexplained credit, and allowed the cross-objection of the assessee.

Conclusion:

The Tribunal dismissed the revenue's appeals and allowed the assessee's cross-objection, emphasizing the need for corroborative evidence to support additions and rejecting the reliance on retracted statements without such evidence.

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