Surrender statements should be viewed with due care and caution particularly if they are against documentary evidences.

[DEV KUMAR KOTHARI]

Surrender statements should be viewed with due care and caution particularly if they are against documentary evidences.

Statements of parties should be carefully applied while dealing cases of other parties before using such statements against other assesses who can be adversely effected  without any fault.

Particularly so when a party makes a statement which is contrary to his own  documents and documents provided to clients/ customers

Recent judgment under study:

SHRI TRIVIKRAM SINGH TOOR VERSUS THE PR. CIT, CHANDIGARH - 2022 (11) TMI 523 - ITAT CHANDIGARH

Preliminary blind reliance of statements of other parties:

Income tax department has adopted practices of presumptions and making additions. For this purpose, some minor technical discrepancies in statement of assesse, parties related with transactions and report from other agencies can be used against assesse ignoring vital documents and evidences.

To discard even primary and statutory evidences, evidences recorded and proved and acted upon based on documents are also being discarded to apply presumption.

A patently wrong view is taken by  tax departments and also some Courts and TRibunal, that provisions of Indian Evidence Act, does not apply to tax proceedings.  This approach is basically to superimpose doubts, bias, presumptions of ax authorities and use as a tool to make huge additions.

Case of SHRI TRIVIKRAM SINGH TOOR VERSUS (supra.)

The above case relates to an appeal against order of revision under section 263   by which Ld. Pr.CIT who set aside order  of reassessment and scrutiny passed under section 143.3 /147 after detailed discussions by the AO.

Pr. CIT   directed to the Ld. AO to make a fresh assessment order.

In this article an interesting issue about approach of tax department to routinely apply any statement made by a party if it adverse to assesse, without considering all aspects related with the case.

 Ld. Pr. CIT has started and concluded proceedings based on investigation report of department which are based on  some statements recorded from other parties like share broker, and alleged entry operator.

On the issue of reliance placed on statement of such other parties by tax authorities has made strong observation for applying more care while taking into consideration statements of third parties when statements are contrary to their own records. These statements have apparently been made by such parties, under undue influence of tax authorities, and to reduce  risk of  department raising huge demands on them.

Observations in paragraph 21  of the order of Tribunal are reproduced below with highlights added  and line spaces provided to consider according to aspect involved :

       21. It may also be relevant to pause and give a serious consideration to the consequences where a broker states that all transactions entered into by him were dubious. Serious consideration need be given to such a broker's statement as all he stands to suffer from giving such a rash,    irresponsible statement is a presumptive estimated addition at best on his trading activity. However, the rash statements would put in jeopardy the transactions of all the people who have engaged the services of the said broker have trusted his intelligence/financial acumen of such a broker to make serious investments. To allow all transactions entered into by the parties with such a broker would be a case of punishing the wrong person who has trusted the wily broker in good faith. The tax authorities must seriously examine such rash statements of the brokers and highlight in the order the fact that they have taken the issue to its logical conclusion for the civil and criminal acts of fraud, mismanagement and violations of law qua the clients and infarctions of law qua the Regulatory Authorities. There may be many reasons ranging from unscrupulous transactions contrary to the client or vis-à-vis the Stock Exchange which the broker would be keen to evade and avoid. Hence, by accepting an estimated addition the broker cleverly evades penal consequences of Detection and discovery of client fund mis-management. These statements of surrender by Brokers it cannot be over emphasized should be treated with utmost caution in the interests of the economic activity in the country and as a safeguard to the trusting citizens who engage and pay for the services of these Brokers.

These surrenders consciously and unscrupulously made invite whimsical consequences for the bonafide investors.

How and why the tax department should accept the words of such a manipulative fast thinking person and why the words of such a manipulative person be permitted to be given a precedence over the documents and evidences relied upon by a person relying in good faith on the bonafide of his Broker needs to be seriously introspected upon and addressed by the tax authorities.

Permitting such criminal acts by carelessly accepting the statements/surrenders made by unscrupulous brokers needs to be addressed consciously especially when applied to the clients of such brokers who may have trusted the financial acumen of these brokers.

These innocent trusting lambs should not be carelessly allowed to be thrown at the wolves by the manipulative brokers. These surrender statements should be viewed with due care and caution.

It is necessary for the tax authorities to examine whether the traded company has actually been barred from the Stock Exchange or was still continuing on the Stock Exchange. For the sake of removing doubts, it is being clarified that the observations are made to the transaction of buy/sale through the D-Mat account on the Stock Exchange in listed companies.

Unquote:

Author has information and have also come across some cases in which tax authorities, while acting with suspicion, and bias surveyed , searched and / or summoned  many parties being share brokers, and some alleged entry operators for interrogation and recording their statements.

It is a common practice to point out penal consequences , if any party gives a wrong statement. There is no doubt that  related provisions must be so pointed out, however, the style and manner of presenting and pressing such provisions adopted by tax authority are such that any common man will be afraid.

Ground reality and grapevine  information is that tax authorities  have given very short notice ( in some cases few hours or few days at all).  They have shown provisions under which great fiscal and other liability could fall on such brokers and alleged entry operators if the tax authorities applied probability against brokers and entry operators. In fact there have been assessments on such brokers and parties making huge additions in one or more manner. Thereafter there have been surrenders under which some nominal estimated income has been assessed. In appeals such estimated income has also been reduced.

In some cases statements have been obtained from such person who have no official position and authority to represent companies , but tax department have presumed and  considered them as  kingpin or master mind in entry operations.

It seems that tax authorities have applied carrot and stick approach in obtaining such statements from brokers and alleged entry operators.

Stick could be applied by raising demand on them for heavy tax and penalty and opening doors of prisons.

Carrot is provided by taking lenient view against them and to take action against their clients or other parties with whom transactions have taken place..

Therefore, if one closely examine situations, facts and circumstances under which statements have been given by such persons it will be found that such statements have in fact  been forced upon such persons by applying carrot and stick approach by tax authorites.

By having procured such statements tax authorities and now even Courts and Tribunals are taking view as if all records (statutory, primary, third party evidences like registrations, PAN ,  cheques, share transfer documents in DP or with companies , contract notes all are considered bogus being part of master plan or entry operators.

Ignoring that  such actions are contrary to law of land like Evidence Act, Negotiable Instrument Act, banking and other official practices and procedure.

Statement contrary to own records:

If a statement is given that is contrary to his own records, then how such statement can be relied upon?

If a statement is given that is contrary to his own records which are part of transactions with other parties like his client, his bankers,  Stock exchange of which he himself is ,member  then how such statement can be relied on in preference to his own documents and documents , documents provided to parties  and consequences which are part of transactions with many other parties , banks, and stock exchange etc.

Based on such statements:

a. tax authorities are applying presumptions ignoring all statutory documents, written and well securely communicated  documentary evidences.

b. indulging into litigation by initiating various proceedings.

c. imposing tax on clients of such parties by branding all such transactions as bogus.

And

relieving such brokers from many vital consequences including assessments of huge tax, penalty and prosecution.

Therefore, all such statements are induced due to fear of own tax burden and shifting the same on others.

How such statements can be reliable to the extent that all normal documents are rejected.

While doing so tax authorities are ignoring vital provisions and commercial practices related with documentation, issue of cheque, execution of transactions which involves several parties.

Tax authorities must take a rational and reasonable view which is fair and reasonable and should not go to any extent to initiate proceedings and make additions to raise huge demands.

Rules relating to evidence:

In this regard the following provisions of the Indian Evidence Act are important:

59. Proof of facts by oral evidence - All facts, except the contents of documents, may be proved by oral evidence.

60. Oral evidence must be direct - Oral evidence must, in all cases, whatever, be direct; that is to say;

          Xxxx Some examples and situations are given in section itself. And then a proviso is added as follows:

  Provided also that, if oral evidence refers to the existence or condition of any material thing other than a document, the Court may, if it thinks fit, require the production of such material thing for its inspection.

61. Proof of contents of documents - The contents of documents may be proved either by primary or by secondary evidence. 

In view of author  and on conjoint reading of above provisions of the Indian Evidence Act  the  contents of a document is evidence to prove a fact.

When there is no document, then only oral evidence can be used to prove a fact.

  If oral evidence refers to the existence or condition of any material thing other than a document, the Court may, if it thinks fit, require the production of such material thing for its inspection.

Thus, contents of documents cannot be disproved by any oral statement or evidence.

The rule of evidence apply to all tax provisions or other provisions where an authority has to take evidences and witnesses and act in a judicial proceeding. For this reason this article is being uploaded with category “Other topics”