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TMI Blog2016 (1) TMI 802X X X X Extracts X X X X X X X X Extracts X X X X ..... case, the Ld CIT(A) has given a clear finding that the alleged excess stock pointed out by the search officials has since been reconciled by the assessee. It is also pertinent to note that the assessing officer did not make any addition on account of alleged excess stock, meaning thereby, he was also satisfied with the reconciliation statement furnished by the assessee. We have already taken the view that the admission of 6.00 crores is related to the alleged excess stock found during the course of search. We have also noticed that the assessee has reconciled the difference in stock, meaning thereby, the assessee has rebutted the admission made by it, which was under pressure and mistaken belief. In the instant case, we have already held that the conduct of the proceedings shows that the search team has put up pressure upon the assessee and further the assessee was under mistaken belief that there was actually excess stock. Hence the assessee has agreed to surrender 6.00 crores under the mistaken belief that there was alleged excess stock. The assessee has maintained books of account and further the alleged difference in stock has been duly reconciled. Thus we are of the view that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as arrived at excess stock of 685.650 grams. During the course of arguments, the Ld A.R submitted that the weight of physical gold was measured by the search team themselves and hence there is always possibility of weight difference. Accordingly it was submitted that the excess stock of 685.650 grams, which work out to 0.7% of the physical stock could be the result of weight difference or on account of other minor factors like beeds, alloys, tie slips etc. In our view, there is merit in the said explanations of the assessee that the above said minor difference should be ignored, in the facts and circumstances of the case. On legal grounds also, we find merit in the contentions of the assessee. The Ld CIT(A) while altering the head of income and also in enhancing the addition has violated the provisions of sec. 251(2) of the Act in not providing opportunity to the assessee. In view of the foregoing discussions, we do not find merit in the decision of Ld CIT(A) and accordingly direct the assessing officer to delete the addition directed to be made by the Ld CIT(A). - Decided in favour of assessee X X X X Extracts X X X X X X X X Extracts X X X X ..... ? Ans :- I hereby voluntary agree to declare sum of Rs. Six crores. In this F.Y. 2008-09. I declare Rs. Two crores and in the F.Y. 2009-10 Rs. Four crores. I undertake to pay the taxes as applicable." There is dispute between the parties with regard to the purpose of this disclosure. At the time of search, the stock of diamond was inventorized by the search officials at 7531 carats and the same was valued at ₹ 35,62,85,369/-, whereas the books of account revealed stock of 7370.29 carats of diamond valued at ₹ 30,17,08,349/-. Therefore, the difference of 161.29 carats of diamonds valued at ₹ 5,45,77,020/- was taken as excess stock. According to the assessee, the alleged excess stock pointed out by the search officials has forced the director to offer a sum of ₹ 6.00 crores as additional income in two years as stated above. It was further submitted that, during the course of post search enquiries also, the assessee made a plea before the investigating officials to assess the entire amount of ₹ 6.00 crores in AY 2010-11, since the excess stock aggregating to ₹ 5,45,77,020/- was found during the course of search. Accordingly, the assessee conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 6.00 crores against so-called alleged difference in stocks worked out by them without even allowing to verify from the financial and other records. After conclusion of the search, our Accounts Dept. has recalculated and rechecked the working of stock inventory prepared by the Dept. and found that there was no tangible difference in the stocks which, too, has also been explained elsewhere in this letter in response to your Query at Sl. No.3 and 4 and, as such, the basis of disclosure itself has no factual legs/foundation to stand/justify and, consequently, the declaration although made voluntarily, have no valid/ cogent ground, basis/ supportive plausible material and as such would be unfounded being indefensible in the eyes of law." Thus, the assessee claimed that he was forced to agree to surrender ₹ 6.00 crores by the search officials and he also agreed for the same under mental pressure or stress and was given under duress. The assessee also submitted that the alleged excess stock has since been reconciled and hence there was no excess stock at all, as alleged by the search officials. Accordingly, the assessee said that it did not offer additional income of ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es can be done away with. Accordingly, the assessing officer concluded that the availability of unaccounted stock was within the knowledge of the assessee and the additional income of ₹ 6.00 crores was offered only to prevent search officials to investigate further. Accordingly he held that the attempt of the assessee to correlate the voluntary disclosure with computational error in the valuation done by the search officials is totally baseless. The Assessing officer further held that the assessee did not retract from its offer on the earliest available occasion, but only after fourteen months. He further held that the admission made in the statement recorded u/s 132(4) of the Act falls squarely within the ambit of section 115 of the Indian Evidence Act, 1872 and hence the same is neither open for retraction nor required any further corroboration. Though the assessing officer accepted that the statement given under sec. 132(4) can be rebutted, yet he took the view that the assessee has failed to discharge the burden to show that it was involuntarily made or made under coercion or undue influence or was under mistaken belief or obtained by fraud or misrepresentation. According ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot retract from the statement given by him by filing any letter or affidavit. Hence the addition made by the assessing officer should be upheld as held by the Hon'ble Delhi High Court in the case of Bhagirath Aggarwal Vs. CIT (2013)(351 ITR 143). He further submitted that there is no allegation that the statement was obtained from the assessee under coercion or duress and further the assessee did not retract from the statement immediately after the search was over. Hence the assessing officer was justified in assessing the income surrendered in the statement given u/s 132(4) of the Act as held by the Hon'ble High Court of Chhattisgarh in the case of ACIT Vs. Hukum Chand Jain (2011)(337 ITR 238). Accordingly he submitted that the Ld CIT(A) was not justified in deleting the additions of ₹ 2.00 crores and ₹ 4.00 crores made respectively in AY 2009-10 and 2010-11. 12. The Ld A.R, on the contrary, submitted that the additions of ₹ 2.00 crores and ₹ 4.00 crores have been made by the AO in AY 2009-10 and 2010-11 respectively on the basis of the reply given to Question No.43 (referred supra). He further submitted that the tax authorities are not correct in observin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 13. He submitted that the kind of action of the search officials is against the dictates of the CBDT Circular dated 10th March, 2003, wherein the CBDT has clearly instructed that confessional statements should not be obtained. He submitted that the above said conduct would show that the search officials were pressuring the assessee to offer additional income. 14. The Ld A.R further submitted that the assessing officer was not correct in observing that the additional income of ₹ 6.00 crores surrendered by the assessee is independent of the alleged excess stock found at the time of search. He submitted that search officials simply stated to the director of the assessee that there was excess stock of diamonds without furnishing a copy of inventory taken by them and thus, they were putting pressure upon the assessee. He further submitted that the fact that the concerned director was not aware of accounting details is well established by the answers given by him to various questions, which has been extracted by the assessing officer in the assessment order as well as available in the sworn statement itself. The Ld A.R submitted that the director has pleaded his ignorance or st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave been retracted in view of return of income filed in pursuance to the notice u/s 153A of the Act. He submitted that though the admission is the best piece of evidence, yet the same is not conclusive and the assessee is well within his right to demonstrate that the same was incorrectly made and not voluntary. In support of his contentions, the Ld A.R placed his reliance upon various case laws, to which we will refer in the subsequent paragraphs. 17. In the rejoinder, the Ld D.R submitted that the assessee did not file any letter or affidavit to retract the statement given by him u/s 132(4) of the Act. However, with regard to the specific query as to whether there was any other material or evidence, other than the alleged excess stock/diary, the Ld D.R admitted that no other incriminating material supporting the additional income was found by the search team. 18. We have heard the rival contentions and carefully perused the materials available on record. Since the impugned addition of ₹ 6.00 crores made in the two years under consideration was made on the basis of statement given by the assessee u/s 132(4) of the Act, it is imperative to discuss about the search operations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tement would show that the search team did not put any question to the assessee about the alleged excess stock, which was claimed to the huge amount of ₹ 5.45 crores. It is quite strange, since normally the explanations of the assessee with regard to any incriminating material/difference would be sought in the sworn statement recorded u/s 132(4) of the Act. However, the assessee has contended before the tax authorities that the search team was pointing out the excess stock without furnishing copy of inventory statement. We have also noticed that the search took place for about four days continuously and only a diary containing certain trade transactions was found. Barring the pocket diary, referred earlier, the only incriminating material that was found during the course of search was the alleged stock difference only. Under these set of facts, it is inconceivable that the assessee would have agreed to offer additional income of ₹ 6.00 crores over and above the excess stock of ₹ 5.45 crores claimed to have been found during the course of search. The assessee has furnished the details of net profit declared by it from AY 2004-05 onwards at page 34 of the paper book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in our view, the assessee was justified in claiming that the additional income of ₹ 6.00 crores was offered only in connection with the alleged excess stock. 22. The Ld A.R placed reliance on the decision rendered by Hon'ble Gujarat High Court in the case of Kailashben Manharlal Choksi V/s. CIT (328 ITR 411), wherein it was held as under: "It is true that in normal circumstances this Court would not interfere in the finding of fact arrived at by the authorities. It is, however, to be seen as to whether the explanation tendered by the assessee would be considered by the authorities below. It is also to be seen as to whether an addition made is merely based on the statement recorded by the Assessing Officer under section 132(4) of the Act and whether any cognizance may be taken of the retracted statement. So far as case on hand is concerned, the glaring fact required to be noted is that the statement of the assessee was recorded under section 132(4) of the Act at mid night. In normal circumstances, it is too much to give any credit to the statement recorded at such odd hours. The person may not be in a position to make any correct or conscious disclosure in a statement if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... most four days, would only take us to the conclusion that the assessee should have been pressurized to offer additional income, without which the search team was not ready to conclude the search proceedings. It is further stated that the search was concluded immediately after the surrender of ₹ 6.00 crores. A careful perusal of the assessment order would show that the assessing officer has not brought on record any corroborative material to support the surrender of ₹ 6.00 crores. Hence, in our view, there is merit in the claim of the assessee that the above said surrender of ₹ 6.00 crores was made only on account of alleged excess stock. 23. At this juncture, we may extract the instruction dated 10.3.2003 issued by the CBDT, wherein it has advised the search officials in following term": Confession of additional income during the course of search and seizure and survey operation Instances have come to the notice of the Board where assessees have claimed that they have been forced to confess the undisclosed income during the course of the search & seizure and survey operations. Such confessions, if not based upon credible evidence, are later retracted by the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer has no power to impose tax on the said income." (emphasis supplied.) Hence, mere admission of additional income would not automatically entitle the assessing officer to assess the same, if the assessee disputes the same subsequently with corroborative evidences. Hence, in our view, the assessing officer was not justified in placing sole reliance on the provision of section 115 of the Indian Evidence Act. 25. The Ld D.R as well as the assessing officer has reiterated that the admission was made in the sworn statement recorded u/s. 132(4) and the same is admissible in evidence. A careful perusal of provisions of sec. 132(4) as well sec. 292C would show that the said provisions state that the statement taken u/s 132(4) "may be used in evidence in any proceeding under the Act". Thus, this provision gives a discretion to the assessing officer not to use the statement in evidence. In fact, the assessing officer himself has observed that the admission made under sec. 132(4) can be rebutted. The Hon'ble Supreme Court in the case of Pullangode Rubber Products Company Limited Vs. State of Kerala (91 ITR 18) held that "an admission is extremely an important piece of evidence but it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... merely because the assessee has returned a figure which is higher than the annual value determined in accordance with the correct legal principles, such higher amount and not the correct amount should be lawfully assessed. An assessee is liable to pay tax only upon such income as can be in law included in his total income and which can be lawfully assessed under the Act. The law empowers the ITO to assess the income of an assessee according to law and determine the tax payable thereon. In doing so he cannot assess an assessee on an amount, which is not taxable in law, even if the same is shown by an assessee. There is no estoppel by conduct against law nor is there any waiver of the legal right as much as the legal liability to be assessed otherwise than according to the mandate of the law (sic). It is always open to an assessee to take the plea that the figure, though shown in his return of total income, is not taxable in law. The Tribunal, therefore, in our view did not commit any error in directing to fix the correct annual letting value of the premises in question, in accordance with the provisions of section 23 of the said Act with reference to the municipal valuation, althou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en meted out by the revenue authorities. This factual aspect distinguishes the facts prevailing in the instant case. The decision rendered by the Hon'ble Supreme Court in the case of Padmausundara Rao was relied upon by Ld D.R only to reiterate certain legal principles. 29. Hence, in our view, the various case laws relied upon by Ld D.R is either distinguishable on facts or not applicable to the facts prevailing in the instant case. 30. In view of the foregoing discussions, we are of the view that the Ld CIT(A) was justified in deleting the addition of ₹ 2.00 crores and ₹ 4.00 crores made by the assessing officer in AY 2009-10 and 2010-11 respectively. 31. We shall now take up the appeal filed by the assessee for assessment year 2009-10. The solitary issue urged in this appeal relates to assessing a sum of ₹ 62,21,950/- u/s 69 of the Act. 32. The facts relating to the same are discussed in brief. During the course of search a pocket diary consisting of five pages was found. It contained the name of "Naresh Gupta" and below that following three items were found noted:- Cash Total amount 30,00,000 37,88,318 13.10.08 Voucher clear YKZ Pending 50 chains 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further submitted that the assessee could not rebut the presumption placed upon it u/s 132(4A) of the Act. He submitted that the assessee has merely disowned the pocket diary and the same cannot be considered as rebuttal of presumption placed u/s 132(4A) of the Act. 35. We have heard rival contentions on this issue and perused the record. There is no dispute with regard to the fact that the pocket diary was found in the premises of the assessee. There cannot be any dispute that the entries noted down in the diary was in accordance with the normal trade transactions carried on by the assessee. In view of the presumption enshrined in sec. 132(4A) of the Act, the burden to disprove the documents found during the course of search lies upon the assessee. We notice that the assessee has simply disowned the document, but did not offer any other explanation. Hence, we agree with the contentions of the Ld D.R that the assessee did not discharge the burden placed upon it u/s 132(4A) of the Act. 36. At the same time, we notice that the tax authorities themselves have stated that the transactions noted down in the diary tallies with the jewellery items dealt with by the assessee. In fact th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment year 2010-11. The issue arising therein is whether the Ld CIT (A) was justified in facts and in law in converting the addition made by the AO from "unaccounted sales" into "unexplained stock" and in that process enhancing the addition in violation of sec.251(2) of the Act. 38. The facts relating to the above said issue are discussed in brief. During the course of search, the physical stock of gold jewellery was found to be 93051.300 grams as against the book stock of 95365.600 grams. The assessing officer treated the difference between the two as unaccounted sales and accordingly assessed a sum of ₹ 31,77,094/-. Post search, the assessee furnished a reconciliation statement, wherein it was pointed out that the physical stock should be increased by following items, since they have not been considered by the search officials:- (a) Old gold 3686.350 (b) Broken pieces 233.050 (c) Standard gold bars 709.400 (d) Receivable from karigars 622.300 5251.100 The assessee further submitted that it had received following items on sale or return basis from its suppliers and hence they should be excluded from the book stock:- (a) M/s Rajeev Jewels, Rajkot 2,028.000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5(a)to 5(d), overall there will be no enhancement of income and hence there will be no requirement of giving an opportunity to the appellant as the modification of excess stock leads to no enhancement of income. In any case, the appellant is fully aware of the claim being made by it, which is not backed by any seized documents and hence, there will be no denial of principles of natural justice in this case which is the sole criteria for affording an opportunity to the appellant in case the income is enhanced. Hence, ground nos 4(a)to 4(c) are dismissed subject to above observation." However, it is pertinent to note that the addition of ₹ 31,77,094/- made by the assessing officer as "unaccounted sales" was deleted by the Ld CIT(A) and instead, he directed the AO to make addition towards excess stock as unexplained investment and the same has resulted in an addition of ₹ 40,31,668/- . 41. It is pertinent to note that the department has not preferred any appeal against the decision of the Ld CIT(A), meaning thereby, the addition of ₹ 31,77,094/- made by the AO as "unaccounted sale" has since been reversed by Ld CIT(A) and the same has been accepted by the revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the weight of physical gold was measured by the search team themselves and hence there is always possibility of weight difference. Accordingly it was submitted that the excess stock of 685.650 grams, which work out to 0.7% of the physical stock could be the result of weight difference or on account of other minor factors like beeds, alloys, tie slips etc. In our view, there is merit in the said explanations of the assessee that the above said minor difference should be ignored, in the facts and circumstances of the case. 44. On legal grounds also, we find merit in the contentions of the assessee. The Ld CIT(A) while altering the head of income and also in enhancing the addition has violated the provisions of sec. 251(2) of the Act in not providing opportunity to the assessee. Further, in the following cases, it has been held that the Ld CIT(A) was not entitled to bring in any new sources of income:- a). CIT v. Shapoorji Pallonji Mistry (44 ITR 891 SC) b). CIT v Rai Bahadur Harduttroy Motilal Chamaria (66 ITR 443) c). CIT v. Union Tyres (240 ITR 556 Del HC) d.) CIT v. Sardarilal & Co. (251 ITR 864 Del HC FB). 45. In view of the foregoing discussions, we do not find merit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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