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TMI Blog2002 (11) TMI 290X X X X Extracts X X X X X X X X Extracts X X X X ..... ver, deleted the disallowance made by the AO on this count as according to him, all the payments being less than Rs. 10,000 at a time, the provisions of s. 40A(3) were not applicable to these payments. For this conclusion, he relied on the decision of Hon ble Orissa High Court in the case of CIT vs. Aloo Supply Co. (1980) 121 ITR 680 (Ori). The learned CIT(A) was also of the opinion that the disallowance under s. 40A(3) could not constitute undisclosed income of the assessee for the purposes of Chapter XIV-B and thus the said disallowance made by the AO in the block assessment was not maintainable on this count also. 4. The learned Departmental Representative submitted before us that the payments made in cash on a single day exceeded the limit specified in s. 40A(3) and, therefore, the disallowance made by the AO by invoking the said section was fully justified. As regards the decision of Hon ble Orissa High Court (1980) 121 ITR 680 (Ori) relied upon by the learned CIT(A) while giving relief to the assessee, she submitted that a contrary view has been taken by the Hon ble Supreme Court in the case of Suman Prakashan (P) Ltd. vs. CIT (1992) 195 ITR (St) 150. As regards the observa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turn of income. The Cochin Bench of Tribunal also had an occasion to consider a similar issue in the case of Eastern Retreads (P) Ltd. vs. Asstt. CIT (2000) 66 TTJ (Coch) 839 and in its decision the Tribunal held that disallowance under s. 40A(3) should be made in a regular assessment under s. 143(3) and the same cannot be made in a block assessment. In the present case, the relevant transactions of purchases were duly recorded by the assessee in his regular books of account and the same were not the subject-matter of determination of undisclosed income of the assessee as a result of search under Chapter XIV-B and this being the undisputed position, we hold, respectfully following the aforesaid decisions of the Tribunal, that the disallowance made by the AO under s. 40A(3) in the block assessment was outside the ambit of Chapter XIV-B. The learned CIT(A), therefore, was fully justified in deleting the same and his impugned order on this issue does not call for any interference. 7. Ground No. 2 raised by the Revenue reads as under: "On the facts and in the circumstances of the case the learned CIT(A) erred in directing to delete addition of Rs. 1,71,398 made by AO on account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the seized diary, the assessee explained before the AO that the same represent borrowings from the creditors as clearly indicated in the diary and the presumption arising under s. 132(4A) was that the contents of the seized diary are true. It was, therefore, contended by the assessee before the AO that the entries recorded in the seized diary showing the borrowings from the third party should be taken as the true state of affairs. It was also contended by the assessee that the concerned creditors/lenders having admitted the said transactions, it stands conclusively established that the admission made by the assessee in his statement recorded under s. 132(4) was not correct. It was further contended that the onus of proving the advances/credits has been duly discharged by him and, therefore, the amount of such credit cannot be treated as his undisclosed income merely on the basis of admission made in the statement recorded under s. 132(4). The AO, however, did not accept the contentions of the assessee raised before him. He was of the opinion that the clear cut admission made by the assessee in his statement recorded under s. 132(4) was sufficient to prove that the amount invol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts. Before doing so, he put forth the said evidence to the AO who was present before him during the course of appellate proceedings, but the AO refused to examine the same stating that it constitutes self-serving statements. As a result of the AO s refusal to examine the said additional evidence in the form of affidavits, the learned CIT(A) treated the contents of the said affidavits to be true and proceeded to delete the addition of Rs. 51,90,000 made by the AO for the following reasons given in para No. 5.5 of his impugned order: "In view of the above facts and on perusal of the diary which was found in the process of search, I am unable to agree with the AO that the appellant would deposit his own money in different names in his diary which was not meant to be produced anywhere. The provision contained under s. 132(4A) are in favour of the appellant and, therefore, it is to be held that the diary belongs to the appellant as also its contents are true, more so because the creditors have confirmed the transactions before the AO. In view of these facts, and legal position it is clear that the appellant has brought sufficient evidence on record to show that the amount in question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reas the return for the block period was filed by the assessee only in the month of August which makes it clear that the retraction of the statement was made by the assessee only after a period of 7 months. Her contention in this regard was that if there was any coercion or pressure at the time of recording the statement of the assessee under s. 132(4) as alleged by him, he should have retracted it immediately in one form or the other and the retraction made after a prolonged period of 7 months cannot be accepted. Referring to the additional evidence filed by the assessee before the learned CIT(A) in the form of his affidavit, she submitted that the said affidavit claimed to be made on 4th February, 1997, was never filed by the assessee before the AO during the course of assessment proceedings despite the same being very much available with him at the relevant time. As regards the other additional evidence filed by the assessee before the learned CIT(A) in the form of affidavit of Shri Tahir Ali, one of the witnesses to the assessee s statement recorded under s. 132(4), the learned Departmental Representative pointed out that the said affidavit was made by the said deponent only on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ja vs. Asstt. CIT (2000) 67 TTJ (Chd) 411. 12. The learned counsel for the assessee submitted that the impugned addition of Rs. 51,90,000 on account of peak credit of transactions recorded in the seized diary was made by the AO mainly relying on the statement of the assessee recorded under s. 132(4). He submitted that right from the beginning, the assessee has alleged the use of pressure and coercion by the search party during the search which ultimately resulted in the admission made by the assessee in the statement recorded under s. 132(4). He submitted that the search operations at the business premises of the assessee commenced on 16th Jan., 1997, and continued up to 1st Feb., 1997, i.e., for more than 15 days. He submitted that the business premises of the assessee is a small shop admeasuring about 240 sq. ft. and considering that mainly the books of account and other record were found and seized from the said premises, there was no reason to continue the search operations which had commenced on 16th Jan., 1997 up to 1st Feb., 1997. He submitted that even the diary identified as B-1 was found and seized from the residential premises of the assessee on 16th Jan., 1997, i.e., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the substantial amount of tax paid under VDIS. He contended that all these vital and relevant aspects were not given due consideration by the AO and he proceeded to add the entire amount of Rs. 51,90,000 in the hands of the assessee as his undisclosed income merely on the basis of admission made in the statement recorded under s. 132(4). He contended that the learned CIT(A), however, properly appreciated the relevance of this evidence and also allowed the assessee to adduce the additional evidence as per r. 46A considering that the same was going to the root of the matter and was also necessary for adjudicating the issue on merits. Referring to para No. 5.4 of the learned CIT(A) s impugned order, he pointed out that an opportunity was given by the learned CIT(A) to the AO present before him during the course of appellate proceedings to examine the said additional evidence, but the AO did not opt to examine the same stating that it was merely a self-serving evidence. Reference to the assessee s affidavit filed before the learned CIT(A) as additional evidence, he submitted that the said affidavit was made by the assessee before the notary public on 4th Feb., 1997, itself stating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as drawn during the course of hearing. It is observed that the addition on account of peak credit of the transactions found recorded in the seized diary identified as B-1 amounting to Rs. 51,90,000 was made by the AO mainly on the basis of admission made by the assessee in the statement recorded under s. 132(4) of the effect that the said amount represented his undisclosed income. Before we proceed to consider the evidentiary value of the said statement in the light of subsequent retraction of the assessee as well as the evidence brought on record to show that the said admission was factually not correct, it would be appropriate to consider the nature of entries found recorded in the relevant seized diary as well as the presumption available under s. 132(4A). 15. A copy of the said diary found and seized during the course of search containing page Nos. 1 to 8 as well as page No. 11 is placed at page Nos. 22 to 30 of the assessee s paper book and a perusal of the same reveals that on page Nos. 1 to 8 of the said diary, ledger accounts of some parties were maintained by the assessee in a regular manner showing opening balances as well as debit and credit entries with corresponding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contents of the seized diary gave rise to a very strong presumption under s. 132(4A) about the nature of transactions found recorded in the seized diary being the amounts borrowed by the assessee from the concerned persons on interest and a mere statement of the assessee recorded under s. 132(4) giving an altogether different version of the said transactions stating that the apparent is not real was not sufficient to rebut such presumption available under s. 132(4A) especially when the said statement was retracted by the assessee subsequently. 17. Reverting back to the evidentiary value of the statement of the assessee recorded under s. 132(4), it is a settled position of law that although such statement is an important piece of evidence, it is not always conclusive. In the case of Pullangode Rubber Products Co. Ltd. vs. State of Kerala Anr. 1972 CTR (SC) 253 : (1973) 91 ITR 18 (SC), the Hon ble Supreme Court has held that an admission in a statement recorded on oath is an extremely important piece of evidence but it cannot be said that it is conclusive and it is always open to the person who made the admission to show that it is incorrect. In the case of Krishan Lal Shiv C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... do - 18-1-1997 10.30 A.M. to 10.00 P.M. Books of a/c other documents as per Annex. B-6 SB-1 -do- 19-1-1997 12.20 P.M. to 4.30 P.M. Books of a/c and other documents as per Annex. B-1.1 SB-1 P.C. 386 Computer as per Annex. A No specific remarks about the conclusion of operations in the Panchanama, Prohibitory order issued under s. 132(3) 30-1-1997 10.40 A.M. to 9.30 P.M. Books of a/c other document as per Annex. A2-1 to 6 Operations temporarily concluded 31-1-1997 10.00 A.M. to 10.30 P.M. Books of a/c other documents as per annex. CP-1 to 3 -do- 01-02-1997 10.00 A.M. to 1.00 P.M. Books of a/c other documents as per Annex. A-2 and CP Operations finally concluded 19. From the perusal of above details, it is apparent that a search was commenced on 16th Jan., 1997 at 9.45 A.M. and temporarily concluded on the same day at 9 P.M. during the course of which nothing apparently was found by the search team comprising of 9 officials headed by the officer of the rank of Asstt. CIT. On the next day, the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been available even on the first day of search itself. In these circumstances, we find it very difficult to understand the real purpose of continuing the search operations for such a long period and that too with noticeable interruptions and gaps. In the case of T.C. Chandrashekhar vs. Asstt. CIT (2000) 66 TTJ (Bang) 360, similar facts were involved inasmuch as search was conducted on 12th and 13th Jan., 1995, in which some of the documents found and inventorised were not seized and a prohibitory order under s. 132(3) was passed. Search resumed on subsequent occasions and was finally concluded on 12th Feb., 1996, and in these facts and circumstances of that case, the Bangalore Bench of the Tribunal came to the conclusion that the search was shown to be continuing for some collateral purposes like getting disclosure from the assessee under s. 132(4) observing that the search was continued under the whims of the searching party without any real purpose or for collateral purpose. A similar issue also arose for consideration before the Hon ble Kerala High Court in the case of Dr. C. Balkrishnan Nair Anr. vs. CIT (1999) 154 CTR (Ker) 523 : (1999) 237 ITR 70 (Ker) wherein no satis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee s knowledge about the relevant provisions of IT Act also indicates the anxiety on the part of the Revenue to put the things beyond doubt and recording of the statement in such an unnatural manner further supports the case of the assessee. Thus, sufficient circumstantial evidence arising from the material on record was available to indicate/suggest that the statement of the assessee was recorded under pressure and duress and to that extent the assessee was successful in retracting the said statement. As a matter of fact, the process of retraction was started immediately after the date of recording the said statement when an affidavit to that effect was made by the assessee on 4th Feb., 1997, itself on oath before the public notary. Further, by not declaring the income surrendered in the said statement in his return filed for block period, the assessee had clearly communicated his retraction to the AO and during the assessment proceedings he had also furnished the relevant evidence in the form of confirmation letters and VDIS declarations of the concerned creditors to show that the money involved in the transactions recorded in the seized diary belonged to them. The AO, howeve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ready observed, the confirmation letters from the concerned creditors as well as their VDIS declarations were filed by the assessee before the AO during the course of assessment proceedings to establish that the transactions reflected in the seized diary represented the amounts borrowed from the said creditors. The AO, however, relied heavily on the statement of the assessee recorded under s. 132(4) wherein he had admitted that the said transactions represented his money and had also offered the same for taxation. Further, the AO was also of the opinion that the said creditors were not entitled to make any declarations under VDIS after the search in order to show that they had advanced money to the assessee which was really belonging to them. In our opinion, the action of the AO on this count was contrary to the scheme of VDIS itself in as much as the CBDT itself had clarified in the press release that the restriction in s. 64(2)(ii) is applicable in the case of a person in whose case search proceedings are initiated under s. 132 by issue of warrant and in a case which is interconnected with some search proceedings but no direct search is initiated, disclosure can be made under VDI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sure and there was nothing to support the plea of the assessee that he had given the statement under coercion or threat. In the present case, as discussed hereinabove, the element of coercion and duress was apparently present during the search and there were sufficient circumstances to indicate/suggest that the surrender of income made by the assessee in his statement recorded under s. 132(4) was not voluntary. Thus, the aforesaid cases cited by the learned Departmental Representative are clearly distinguishable on facts and cannot be of any help to the Revenue s case. As such, considering all the facts and circumstances of the case, we are of the considered opinion that the addition of Rs. 51,90,000 made by the AO was merely based on the statement of the assessee recorded under s. 132(4) and the assessee having retracted the same successfully by adducing sufficient corroborating evidence to show that the said statement was not voluntary and that the admission made therein was incorrect, the addition made by the AO on this count was not sustainable. In that view of the matter, we hold that the learned CIT(A) was fully justified in deleting the said addition made by the AO and his i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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