Claim of refund of tax paid on surrendered income during survey to buy peace

[CA Surender Gupta]

Surrender of income making statement u/s 133A during survey is not a conclusive proof that there was undisclosed income.

In this case, assesse has surrendered the income and filed the declaration. AO disbelieved the declaration and proceeded further to assess the undisclosed income.  Assessee challenged the assessment and claimed the refund of tax paid during survey.

Tribunal accepted the contention of the assessee and allowed refund of tax so paid.

See:- Shri Pandoo P. Naig Versus ACIT, CC-32, Mumbai Vice-Versa And ACIT, CC-32, Mumbai Versus Prakash B. Bandarkar, Pravin B. Bandarkar, Room – [2016 (9) TMI 1062 - ITAT MUMBAI]

In this case, it was observed by the tribunal that:

“……Even if , for the sake of arguments, we assume it so, it is to be noticed that the assessee had paid taxes on the income disclosed and if the AO would have accepted his returned income as per the disclosure, the assessee would have got no chance or opportunity to claim that the disclosure made by him was under force, coercion or duress. He would have been left with no alternative than to console himself with the taxes paid in consequence of such declaration made. Under such circumstances, it will be wrong to assume that the assessee would have taken such a risk only to get an opportunity to contend that the statement made by him was wrong or false or the same was under pressure, threat or coercion. Had the AO not made huge additions on the basis of the loose paper sheet trading of the figures mentioned therein as undisclosed income/profit of the assessee there might have no chance to claim the deletion of the additional income assessed by the AO on the basis of declaration made during the survey action. Once the assessee was forced into the litigation, then only he gathered courage to fight for his rights and to show that neither the alleged loose paper belongs to him nor he had any undisclosed income or profits and further that even the declaration taken from him during his statement was under threat and pressure.

We may deem it fit to mention here that the effect of force, threat undue influence or coercion depends upon the mental state of a person and it may vary from person to person. The assessee Shri Pandoo P. Naig in this case appeared to be carrying on such pressure and fear of possible consequences of retracting from his declaration till he was burdened with additional additions based on the figures of the one loose paper and till he gathered courage to contest the same by way of filing appeal before the Ld. CIT(A).”

Finally, ITAT has decided that:

“….. the additional income was returned by the assessee perhaps under force, pressure, threat or coercion and under the mistaken belief. The assessee, in our view, was not liable to pay tax on the said additional income returned. We accordingly direct the Department to refund the taxes, if any, paid by the assessee in respect of additional income offered during the survey action.”

Now, therefore, it is for the CBDT to understand and interpreted the decision of ITAT as above. Whether to accept or not to accept the declaration / return pursuance to surrender of income during survey action is a crucial decision, as it may be a double edged sword for the officer who takes the decision and for the revenue as a whole.

Moreover in the final decision part of the Judgement of the tribunal, the use of the word "perhaps" may also the subject to the scrutiny by the Courts in the time to come.