2025 (4) TMI 410 - HC - Income Tax

Addition of undisclosed income - reliance on statement given by a assessee during search - Whether a statement given by a assessee during search is admissible in the absence of any material or evidence found during the search? - HELD THAT - Based on the statement the assessing authority brings to tax a sum of Rs. 9 lakhs. At the outset it is unclear as to why when statement refers to a sum of Rs. 25 lakhs as loan the assessing authority has brought to tax only a sum of Rs. 9 lakhs. In any event the order of assessment does not reveal the existence of any incriminating material barring the statement recorded to confirm on the basis on which the addition could have been made. Section 158BC requires that any addition made as undisclosed income must flow from the incriminating materials found in the course of search. While undisputedly a statement recorded under Section 132(4) would constitute evidence and a valuable one at that it cannot be the sole basis upon which an addition may be made in the context of block assessment. For the aforesaid reasons the appeal succeeds and substantial question of law qua no.1 is answered in favour of the assessee. Surcharge u/s 113 - Whether the provision to Sec. 113 of IT Act providing for surcharge is prospective or retrospective? - HELD THAT - Issues covered in the case of Vatika Township (P) Ltd 2014 (9) TMI 576 - SUPREME COURT (LB) to the effect that surcharge under Section 113 of the Income-Tax Act 1961 will stand attracted only in respect of searches that have taken place post 01.06.2002. Decided in favour of the assessee.

Summary

The judgment from the Madras High Court, delivered by Honourable Dr. Justice Anita Sumanth and Honourable Mr. Justice G. Arul Murugan, addresses three substantial questions of law concerning the admissibility of statements during search, the applicability of surcharge provisions, and the binding nature of a Supreme Court decision.1. **Admissibility of Statements in Absence of Material Evidence**: The court examined whether a statement given by an assessee during a search can be used as evidence in the absence of corroborating material. The court noted that while a statement recorded under Section 132(4) of the Income-Tax Act is considered evidence, it cannot solely justify the addition of undisclosed income in a block assessment without supporting incriminating materials. The court ruled in favor of the assessee, highlighting the necessity for corroborative evidence to substantiate the addition of Rs. 9 lakhs as undisclosed income.2. **Surcharge Provisions**: The court referred to the Supreme Court's decision in Commissioner of Income Tax, (Central) I, New Delhi v. Vatika Township (P) Ltd [367 ITR 466], which clarified that the surcharge under Section 113 of the Income-Tax Act applies only to searches conducted after 01.06.2002. Consequently, the court answered the second and third substantial questions of law in favor of the assessee, affirming the prospective application of the surcharge provision.3. **Binding Nature of Supreme Court Decision**: The court reiterated the binding nature of the Supreme Court's decision in 221 ITR (SC) 409 on the tribunal, aligning its judgment with established precedents.Ultimately, the appeal was allowed, with the court ruling in favor of the assessee on all substantial questions of law, and no costs were awarded.