2022 (2) TMI 518 - AT - Income Tax

Undisclosed investment u/s.69 - unaccounted payment on purchase of impugned land - Recording of the statement by survey team - survey action was carried out at the premises of the assessee-firm, during the survey, the statement of partner was recorded under section 131 who disclosed that he sold the land admeasuring 76,788 square yard in the year 2007 @ ₹ 550 per square yard to the assessee-firm and received consideration of ₹ 4.22 crore - HELD THAT - We find that the lower authorities while making addition made more reliance on the statement of the partners instead of considering the documentary evidence and the effect of legal fiction under section 45(3) of the Act. Documentary evidence placed on record by assessee, fully corroborate the submissions of assessee that there is no sale of land by Gobarbhai Gondalia to the assess-firm, rather the said land was introduced as capital contribution, and that no money is paid by the assessee firm to the partner. There is no evidence on record about the unexplained investment by the assessee-firm in the impugned land rather it is a part of capital contribution by partner. If there was any remote chance of unexplained investment in the land, it might have been made by partner who had purchased the land in his individual capacity in FY 2007-08. No such investigation is carried out either by the AO or by ld CIT(A). No addition is made in the hand of purchaser of land, though; it was informed to the AO at the initial stage that the said land was purchased by individual partner. It is settled law that statement recorded during the survey action has no evidentiary value unless it is corroborated with material evidence, when the statement made during the survey stand retracted. We find that in Pawan Kumar Goel 2019 (6) TMI 52 - PUNJAB AND HARYANA HIGH COURT held that provision of section 133A(4) prohibits the income tax authority to remove cash, stock or other valuable article and it is only upon non-cooperation or refusal by the person under search that power under section 131(1) can be resorted. Recording of the statement by survey team under section 131(1) is not valid. Thus, no cognizance of such statement could be taken. Hence, the addition which is solely based on the stamen is not legally sustainable. Thus, the assessee also succeeded on this submission as well. Considering the fact that we have allow the appeal of assessee on two primary submissions of ld AR for the assessee, therefore, the consideration and adjudication of other submissions has become academic. In the result, the ground of appeal raised by the assessee is allowed. Appeal of the assessee is allowed.

Issues Involved
1. Addition of ?4.22 crore as undisclosed investment under Section 69 of the Income Tax Act.
2. Validity of reopening the assessment under Section 147.
3. Legality of the statement recorded under Section 131 during the survey.
4. Reliability of the retracted statement made by the partner during the survey.

Detailed Analysis

1. Addition of ?4.22 crore as undisclosed investment under Section 69 of the Income Tax Act
The primary issue revolves around the addition of ?4.22 crore made by the Assessing Officer (AO) as undisclosed investment in the purchase of land. The AO based this addition on the statement of a partner, Gobarbhai Gondalia, recorded during a survey under Section 133A, where he admitted to selling land to the firm for ?4.22 crore. The assessee contended that the land was introduced as capital contribution, not purchased by the firm. The Tribunal noted that the land was indeed purchased by Gobarbhai Gondalia in his individual capacity and later introduced as capital contribution to the firm, as evidenced by partnership deeds and sale deeds. The Tribunal found no evidence of unexplained investment by the firm and directed the AO to delete the addition.

2. Validity of reopening the assessment under Section 147
The assessee challenged the validity of reopening the assessment under Section 147, arguing that the reopening was based on incorrect facts and lacked corroborative evidence. The Commissioner of Income Tax (Appeals) [CIT(A)] dismissed this ground, noting that the assessee did not provide substantial submissions to support the claim. However, the Tribunal focused on the merits of the addition rather than the procedural aspects of reopening, ultimately finding no justification for the addition.

3. Legality of the statement recorded under Section 131 during the survey
The Tribunal addressed the legality of the statement recorded under Section 131 during the survey, noting that the recording of such a statement is invalid unless there is a refusal or non-cooperation from the person being surveyed. The Tribunal found no endorsement from the survey party indicating non-cooperation by the partners. The Tribunal cited legal precedents, including the Gujarat High Court's decision in Pawan Kumar Goel vs. Union of India, to support its conclusion that the statement recorded under Section 131 was not valid and could not be relied upon for making the addition.

4. Reliability of the retracted statement made by the partner during the survey
The Tribunal examined the reliability of the retracted statement made by Gobarbhai Gondalia during the survey. The assessee argued that the statement was made under duress and retracted shortly after. The Tribunal emphasized that statements recorded during surveys have no evidentiary value unless corroborated by material evidence, especially when retracted. The Tribunal referenced several judicial decisions, including the Supreme Court's ruling in CIT vs. S. Khader Khan Son, to support the position that retracted statements without corroborative evidence cannot form the basis for additions. The Tribunal found that the addition was solely based on the retracted statement and lacked corroborative evidence, leading to the conclusion that the addition was not sustainable.

Conclusion
The Tribunal allowed the appeal, directing the AO to delete the addition of ?4.22 crore. The Tribunal held that the land was introduced as capital contribution by the partner, not purchased by the firm, and there was no evidence of unexplained investment. The Tribunal also found the statement recorded under Section 131 during the survey to be invalid and unreliable, particularly in the absence of corroborative evidence. The appeal was allowed on these grounds, making further consideration of other submissions academic.

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