2017 (11) TMI 460 - HC - Income Tax

Unaccounted income - addition on the basis of statement of the partner of the assessee firm during survey proceedings - statement was retracted later - Held that - From the documents on record, it emerges that in a statement of the partner of the assessee firm during survey proceedings disclosure of unaccounted income of ₹ 2.35 crores was made. This statement was, however, retracted to the extent of unaccounted income of ₹ 1.59 crores. Rest of the disclosure was maintained. The reasons were also cited for retraction. The assessee firm filed the return admitting an income of ₹ 89.13 lacs, which included unaccounted income of ₹ 76.10 lacs. The Assessing Officer, despite such developments proceeded to make addition of the entire sum of ₹ 2.35 crores admitted by the partner in a survey statement, which was later on retracted. In appeal, the CIT(A) deleted the addition primarily on the ground that no addition can be made solely on the basis of a retracted statement made during the survey operation, particularly, when proper justification for retraction was also offered. It is this view, which the Tribunal confirmed in the impugned judgement. We see no error. No question of law arises

Summary

Issues:
1. Whether the decision of ITAT in deleting the addition based on partner statements justifying unaccounted expenditure in land development is valid?
2. Whether the decision of ITAT in deleting the addition based on retraction by the assessee after 26 months is justified?

Analysis:

Issue 1:
The case involved an appeal by the Revenue against the ITAT judgment. The partner of the assessee firm had disclosed unaccounted income during survey proceedings, which was later partially retracted. The Assessing Officer added the entire sum of the disclosed amount, but the CIT(A) deleted the addition. The Tribunal upheld this decision, stating that additions cannot be solely based on retracted statements without proper justification for the retraction. The High Court concurred with this view, finding no error in the Tribunal's decision. The appeal was dismissed, indicating that no question of law arose.

Issue 2:
Regarding the retraction made by the assessee after 26 months, the Tribunal had decided to delete the addition based on this retraction. The Revenue contended that the retraction was an afterthought to evade tax liability. However, the Tribunal's decision was upheld by the High Court, emphasizing that the retraction, along with reasons provided, was a valid basis to delete the addition. The Court found no error in the Tribunal's reasoning and dismissed the tax appeal.

In conclusion, the High Court upheld the ITAT judgment in both issues, emphasizing the importance of proper justification for retracted statements and recognizing the validity of retractions made by the assessee after a significant period.