2024 (5) TMI 850 - AT - Income Tax

Addition on the basis of declaration made by assessee during a search action u/s 132 - Addition on account of difference in amount declared u/s 132(4) and amount shown in returns of income - declaration basically related to unaccounted sales, which has already declared by the assessee and some part separately added in income - HELD THAT - We find no merit in the arguments of revenue because of the simple reason that there appears no evidence for the impugned addition made by AO except the assessee s statement during search forming basis of the impugned addition. Perusal of statements recorded u/s 132(4) duly extracted by AO in assessment-order itself that the assessee surrendered a figure of Rs. 5,00,00,000/- and that too in his own hands as well as family member s hands while agreeing to give year-wise/assessee-wise chart subsequently. Thus, the figure of Rs. 5,00,00,000/- cannot be said to be a final figure, it is in the nature of lump sum, an ad hoc figure. The assessee is very much entitled and justified to do homework after search and arrive at a correct figure for offer in return. Had the correct figure been higher than surrender, the AO would have been entitled to assess more and if it is lower, the AO must assess only lesser amount. This is for the reason that under the scheme of Income-tax, only correct income has to be taxed. We find that the CBDT instruction dated 10.03.2003 is clearly placing restrictions in stricter terms at both levels, namely (i) while recording statements during the course of search/survey, no attempt should be made by search/survey authorities to obtain confession as to the undisclosed income, and (ii) while framing assessment, the AO should rely only upon the evidence/material gathered during the course of search/survey. Further, various judicial rulings of different courts, as filed by Ld. AR in Case Law Paper-Book, also carry a view that no addition can be made on the basis of mere surrender made during survey/search unless the same is corroborated by some tangible evidence. We thus find no merit in the addition made by revenue authorities after appreciation of the factual matrix of present case in the light of CBDT Instruction as well as judicial rulings quoted at the behest of assessee. Resultantly, we are inclined to delete the addition made/ upheld by lower-authorities - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of Rs. 1,76,68,829/- based on the difference between the amount declared u/s 132(4) and the amount shown in the returns of income.

Summary:

Issue 1: Addition of Rs. 1,76,68,829/- based on the difference between the amount declared u/s 132(4) and the amount shown in the returns of income

The assessee, an individual with income from the business of grains, filed a return for AY 2016-17 declaring a total income of Rs. 93,26,060/-. During a search action u/s 132 on 07.01.2016, the assessee admitted to an undisclosed income of Rs. 5,00,00,000/- for himself and his family members. The AO made an addition of Rs. 1,76,68,829/- based on this declaration, which was upheld by the CIT(A). The AO noted that the statements recorded u/s 132(4) are pieces of evidence and not mere confessions, and the retraction by the assessee after a long time-gap was not acceptable. The AO concluded that the addition was justified to prevent revenue leakage.

During the first appeal, the CIT(A) upheld the AO's order, noting that the retraction was made after twenty-three months and was not communicated to the Departmental authorities. The CIT(A) emphasized that the evidence from the testimony could be utilized to frame the assessment.

The assessee argued that the addition was made merely on the basis of the surrender/confession obtained during the search proceeding without any corroborative evidence. The assessee contended that the surrender of Rs. 5,00,00,000/- was a lump sum figure made under the context of not being able to instantly explain the seized documents. The assessee subsequently declared an income of Rs. 2,36,68,100/- after analyzing the documents, and the AO made a separate addition of Rs. 86,63,071/- based on the seized documents, leaving a balance of Rs. 1,76,68,829/- unsupported by any evidence.

The ITAT found no merit in the revenue's arguments, noting that the addition was based solely on the assessee's statement during the search. The ITAT emphasized that under the scheme of Income-tax, only the correct income should be taxed, and the CBDT instruction dated 10.03.2003 restricts making additions based on mere confessions during search/survey without corroborative evidence. The ITAT concluded that the addition made by the revenue authorities was not justified and ordered its deletion.

Conclusion:
The appeal of the assessee was allowed, and the addition of Rs. 1,76,68,829/- was deleted.