2004 (2) TMI 286 - AT - Income Tax

Undisclosed income in block return - Assessment on the basis of confessional statement - duress and pressure​​​​​​​ - Search And Seizure of certain books of accounts and documents - No evidence of any incriminating documents found - HELD THAT - We are unable to hold that above acts of the Revenue authorities would not put any pressure on normal businessman. It is further admitted that the accounts were revoked and released only after Rs. 5 lakhs were deposited by the assessee on 30th March, 2001. In between, on 12th Feb., 2001, the said confessional statement was recorded. We are unable to reject assessee's contention that great psychological pressure was built upon him before he made a statement in February, 2001. It is to be noted that it is not possible to lead direct evidence of use of pressure tactics. It is to be gathered from the evidence, mostly circumstantial. It is matter of record that after the raid the assessee was called upon to explain entries in the seized material and the seized document. The assessee rendered detailed explanations for each of the document found and seized and no adverse comment has been made by the AO on the explanations rendered. This plea that all the entries in the seized documents were explained, was raised before the AO as also before the CIT(A). It has not been held to be wrong. If statement is not wrong, then it is difficult to accept that seized material reflected or established undisclosed income of Rs. 25 lakhs. While the assessee stated that Rs. 20 to 25 lakhs were earned in last 10 years, the AO assessed the total amount in two asst. yrs. 1999-2000 and 2000-2001. i.e., Rs. 12,50,000 each. The assessment is not based on the confession and therefore, the Revenue authorities have to show that assessment refers to material available on record; that the assessee had undisclosed income of Rs. 12,50,000 in each of the two years and thus justify the assessment of the said income. That confession relied upon is not clear as to form basis of assessment of undisclosed income. Provisions of Chapter XIV-B are made applicable in search cases and undisclosed income is defined in s. 158B(b) of IT Act. It is to be assessed on the basis of seized material. It cannot be totally de hors of such material. We are of the view that alleged confessional statement was not good material for computing the undisclosed income at Rs. 25 lakhs. The assessment is not based on legal and justifiable basis. In the above circumstances, we are inclined to hold that income disclosed in Form 2B at Rs. 7 lakhs for the entire block period be assessed in the hands of the assessee. No arguments were advanced by the learned counsel for the assessee that aforesaid amount was not assessable in the hands of the assessee. The Revenue authorities have failed to prove that seized material or other relevant and admissible material establishes higher income than shown in the return by the assessee. As already noted that entries have been explained in various letters written by the AO and therefore, assessment of higher amount than Rs. 7 lakhs would not be legal and permissible. It is therefore, deemed proper that on facts of the case, the AO be directed to take assessee's undisclosed income under Chapter XIV-B at Rs. 7 lakhs. The AO is directed to revise the assessment accordingly. In the result, the assessee's appeal is partly allowed.

Summary

Issues Involved:
1. Legality of the assessment based on a confessional statement.
2. Validity of the retraction of the confessional statement.
3. Requirement of corroborative material for assessment.

Summary:

1. Legality of the Assessment Based on a Confessional Statement:
The assessee's premises were searched u/s 132 of the IT Act on 20th July 2000, leading to the seizure of certain documents and cash. The assessee's statement recorded u/s 131 on 12th Feb 2001, wherein he surrendered Rs. 20 to 25 lakhs as income from share trading and speculation business, formed the basis for the AO to assess the undisclosed income at Rs. 25 lakhs for the block period. The CIT(A) upheld this assessment, emphasizing that the statement was made voluntarily and could be used as evidence for assessment purposes.

2. Validity of the Retraction of the Confessional Statement:
The assessee contended that the confessional statement was obtained under coercion and pressure, and thus retracted it. The CIT(A) rejected this claim, noting that the statement was made six months after the search, and no complaint of coercion was made to higher IT authorities. The Tribunal, however, found that the sequence of events, including the restraint on the assessee's business and bank accounts, indicated psychological pressure, making the confessional statement unreliable.

3. Requirement of Corroborative Material for Assessment:
The Tribunal emphasized that while a statement recorded u/s 132(4) can be used for assessment, it should be corroborated with material evidence. The Tribunal cited various judicial precedents, including Pullangode Rubber Produce Co. Ltd. vs. State of Kerala and Nagubai Ammal vs. B. Sharma Rao, to support the principle that an admission is not conclusive and can be shown to be incorrect. The Tribunal found that the AO did not corroborate the confessional statement with seized material, and the assessee had explained all entries in the seized documents without any adverse comments from the AO.

Conclusion:
The Tribunal concluded that the assessment of Rs. 25 lakhs as undisclosed income was not legal and justifiable. It directed the AO to revise the assessment and take the assessee's undisclosed income at Rs. 7 lakhs, as disclosed in Form 2B for the entire block period. The appeal was partly allowed.