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TMI Blog2019 (3) TMI 1347X X X X Extracts X X X X X X X X Extracts X X X X ..... ing partner of the assessee Shri Tomy C. Vadayil, we are of the opinion that there is no corroborative evidence to support the claim made by the Assessing Officer. Even otherwise, uncorroborative statements collected by the Assessing Officer cannot be an evidence for sustenance of addition made by the Assessing Officer. We are of the view that the statement recorded u/s. 131 cannot be independently used for making any addition in the hands of the assessee and the said statement cannot, in our view, be the sole basis for making any addition and must be independently corroborated by evidences. Thus, we are of the view that the legal position that emerges is that a sworn statement, though binds the assessee, it cannot be the sole basis for making the assessment. It is open to the assessee to show the circumstances in which confessional statements were recorded and once the assessee proves that confessional statements were recorded under threat and coercion and retracts from the same, the confessional statements cannot be the sole basis for making assessments or for making any addition in the hands of the assessee. AO has made the addition only on the basis of sworn statement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In reply, the assessee explained the shortfall in the gross profit as under: The Managing Partner of the assessee was more into operational aspects. He was not aware of the exact figures and financial rates of the company. The prices of the products are not fixed. They are variable depending on market conditions like demand and competition. When a statement was taken on 25th September 2014, he merely confirmed the facts as enquired by the Income Tax Officer without comparing/considering the exact facts and figures of the business. Therefore, the Gross Profit Rate mentioned by the Managing Partner at the time of taking statement was an exaggerated figure. This had no nexus with the reality. During the financial year 2013-14, the market was hit by recession and the demand for construction and related materials were comparatively lesser. The assessee was not able to achieve profits as they expected. This Authority may note the gross profit pattern of the Assessee in last 6 years. FY Gross Profit Margin 2010-11 12.45% 2011-12 13.49% 2012-13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted of making 15% Gross Profit. According to the Ld. AR, no documentary evidences were found from the assessee by the revenue to support the addition made merely on the basis of statement recorded/s 131(1). It was submitted that the Assessing Officer had no incriminating evidence to support the statement made by the managing partner and the Assessing Officer merely relied on a statement given by the managing partner and made addition without even making an enquiry. The Ld. AR submitted that the Assessing Officer had no proof, other than a statement, to come to a conclusion that the assessee had not disclosed its complete income. According to the Ld. AR, the audited books of accounts of the assessee, the audit report by the Auditor and the bank statements were in line with the income already disclosed by the assessee, while the Assessing Officer merely relied on a statement which stated about approximations and the plan and budgets of the assessee. According to the Ld. AR, it is a fact that no business runs as per the plans and predictions and the ground reality is that the profit earned by the business man would be much lower than the projections and estimations. It was submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of Kerala in ITA No.551/2009 dated 26/05/2010 in the case of CIT Vs. Hotel Meriya, the statement recorded on oath cannot be brushed aside stated that it is having limited application. In this case the managing partner cannot make statement about the financial position of the Firm without knowing the exact position of the Firm. 6. On going through the gross profit pattern it has been noticed that the assessee is showing the least G.P. achieved for the last six years. The assessee filed the Return of Income for the relevant assessment year on 21/02/2014 i.e. after the admission that the firm has been earning 5% gross profit in the statement of oath. So he was fully aware of the situation of the profitability of the Firm as he has paid self assessment tax of ₹ 10 Lakhs on 29/09/2014. Now he deliberately reduces the gross profit in order to claim the refund of the above. 7. According to the data of sales and discounts allowed by the Firm, there was a jump of 1.2% in the discount allowed by the Firm as follows: Particulars 2013-14 2012-13 2011-12 2010-11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was derived during the previous year. An admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It is open to the person who made the admission to show that it is incorrect. 6.1 In the light of the decision of Hon'ble Supreme Court, the CIT(A) observed that though the admission made is an important piece of evidence, the same is not conclusive and the Appellant can show that such admission was incorrect. Therefore, there is no bar on the Appellant to explain whether the admission reflects the truth or not, based on cogent evidence. 6.2 The CIT(A) referred to the question whether the contents of the statement of Managing Director be read as admission of gross profit earned during the AY 2014-15. The statement of the managing director is reproduced as follows: Question:- 8 - Explain the procedure of sale of goods in your firm. For e.g. I am showing a sale bill TPA 536 dated 03/01/2014 of Toms Pipes Pvt. Ltd. Please explain the sale of goods to Toms enterprises? Ans: - We buy goods from the company by fixing our price (up to 160% of the cost price). From the price we give different types of discounts (Trade discount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee cannot be deduced therefrom, 6.4 Further, the CIT(A) relied on the judgment of the Delhi High Court in the case of Poonam Rani (326 ITR 0223) wherein the Court had considered issue of rejection of low net profit rate and held as under: 10. .......Similarly, if the rate of GP declared by the assessee in a particular period is lower as compared to the GP declared by him in the preceding year, that may alert the assessing officer and serve as a warning to him, to look into the accounts more carefully and to look for some material which could lead to the conclusion that the accounts maintained by the assessee were not correct. But, a low rate of GP, in the absence of any material pointing towards falsehood of the accounts books, cannot by itself be a ground to reject the account books under section 145(3) of the Act. 6.5 According to the CIT(A), the observations of the Delhi high Court in the above cases clearly indicate that if the Assessing officer takes note of low GP rate shown by the assessee the he has to probe further and examine the correctness of the accounts maintained by the Appellant. Further, the Assessing Officer has to lake note of the explanatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ans: - Other major expenses are distribution expenses, advertisement, Sales promotion, Salary incentive. Question:- 10 After deducting the above expenses will you give the approximation of gross profit and net profit? Ans: - We plan and prepare price list in order to get approximately 15% gross profit and 4% net profit. However, if we are not able to achieve the required turn over, then we will lose our control on net profit because of fixed cost that will increase the over head expenditure. 8.1 As seen from the above, the managing partner stated that the assessee is getting GP at 15% and net profit at 4%. Contrary to this, the assessee has shown gross profit at 10.55%. It was also explained by the Ld. AR the reason for declaring GP at lower rate in the assessment year instead of 15% as stated in the sworn statement and this was due to offering higher discount to the customers to sustain in the market. This was the case of offering lower rate of profit on sale. The Assessing Officer rejected the contention of the assessee and he estimated the income of the assessee on the basis of GP at 15% by placing reliance on the sworn statement recorded u/s. 131 of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. However, bald retraction of earlier admissions will not be enough even after retraction. Such statements cannot automatically become nullified. If the assessee proves that the statement recorded u/s. 131 was involuntary and it was made under coercion or during their admission, the statement recorded u/s. 131 has no legal validity. 8.3 There was a circular issued by CBDT issued circular in F. No. 286/98/2013- IT(Inv.II) dated 18th December 2014 stating as follows: Instances/complaints of undue influence/coercion have come to notice of the CBDT that some assessees were coerced to admit undisclosed income during Searches/Surveys conducted by the Department. It is also seen that many such admissions are retracted in the subsequent proceedings since the same are not backed by credible evidence. Such actions defeat the very purpose of Search/Survey operations as they fail to bring the undisclosed income to tax in a sustainable manner leave alone levy of penalty or launching of prosecution. Further, such actions show the Department as a whole and officers concerned in poor light. 2. I am further directed to invite your attention to the Instructions/Guidelines issued by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 6 SCC 1] ............... 8.6 Yet again in Romesh Chandra Mehta vs. State of West Bengal (1969) 2 SCR 461 although this Court held that any statement made under ss. 107 and 108 of the Customs Act by a person against whom an enquiry is made by a customs officer is not a statement made by a person accused of an offence, but as indicated hereinbefore, he being an officer concerned or the person in authority, s. 24 of the Indian Evidence Act would be attracted. 8.7 It has been similarly held by the Hon ble Supreme Court in the case of K.T.M.S. Mohd. Anr. vs. Union of India (1992) (197 ITR 196) as under: We think it is not necessary to recapitulate and recite all the decisions on this legal aspect. But suffice it to say that the core of all the decisions of this Court is to the effect that the voluntary nature of any statement made either before the customs authorities or the officers of Enforcement Directorate under the relevant provisions of the respective Acts is a sine qua non to act on it for any purpose and, if the statement appears to have been obtained by any inducement, threat, coercion or by any improper means, that statement must be rejected brevi manu. At t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before us, we are of the view that the legal position that emerges is that a sworn statement, though binds the assessee, it cannot be the sole basis for making the assessment. It is open to the assessee to show the circumstances in which confessional statements were recorded and once the assessee proves that confessional statements were recorded under threat and coercion and retracts from the same, the confessional statements cannot be the sole basis for making assessments or for making any addition in the hands of the assessee. 9. Further, in the case of CIT vs. S. Khader Khan Son (300 ITR 157), the Madras High Court held as follows: The principles relating to section 133A of the Income Tax Act, 1961, are as follows: (i) an admission is extremely an important piece of evidence but it cannot be said that it is conclusive and it is open to the person who made the admission to show that it is incorrect and that the assessee should be given a proper opportunity to show that the books of accounts do not correctly disclose the correct state of facts; (ii) in contradistinction to the power under section 133A, section 132(4) enables the authorized officer to examine a person on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d income was assessable as lawful income of the assessee. 10. On further appeal by the Department in Civil Appeal No. 13224 of 2008 and 6747 of 2012 dated 20/09/2012, the Supreme Court held as follows: Heard Counsels on both sides. Leave granted. Civil Appeal filed by the Department pertains to 2001-02. In view of the concurrent findings of the fact, this Civil Appeal is dismissed. Hence, the ratio laid down by the Madras High Court was confirmed by the Supreme Court. 11. From the foregoing discussion, the following principles can be culled out: (i) An admission is extremely an important piece of evidence but it cannot be said that it is conclusive and it is open to the person who made the admission to show that it is incorrect and that the assessee should be given a proper opportunity to show that the books of accounts do not correctly disclose the correct state of facts, vide decision of the Apex Court in Pullangode Rubber Produce Co. Ltd. v. State of Kerala [(1973) 91 I.T.R. 18]; (ii) In contradistinction to the power under section 133A, section 132(4) of the Income-tax Act enables the authorised officer to examine a person on oath and any statement mad ..... X X X X Extracts X X X X X X X X Extracts X X X X
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