Bombay H.C : The letter dated 15.01.1998 of the assessee addressed to the ADIT about the disclosure of Rs. 80 lakhs as income has no evidentiary value as stated under Section 132(4)

High Court Of Bombay

CIT vs. Shankarlal Bhagwatiprasad Jalan

Section 132(4), 260-A, 158BC(c)

Asst. Year 1988-89 to 1998-1999

M. S. Sanklecha & Manish Pitale, JJ. Income Tax Appeal No. 29/2004

18th July, 2017

Counsel appeared:

A. Parchure with Bhushan Mohta, Advocates for the Petitioner.: C.J. and S.C. Thakar, Advocates for the Respondent

PC.

1. This appeal under Section 260-A of the Income Tax Act, 1961 (Act) challenges order dated 28th November, 2003 passed by the Income Tax Appellate Tribunal (Tribunal). The impugned order relates to Block Assessment for the period 1988-89 to 1998-1999.

2. This appeal was admitted on the 29th March, 2007 on the following substantial questions of law:

(1) Whether, on the facts and in the circumstances of the case, the ITAT was justified in law in deciding that the letter dated 15.01.1998 of the assessee addressed to the ADIT about the disclosure of Rs. 80 lakhs as income has no evidentiary value as stated under Section 132(4)?

(2) Whether, on the facts and in the circumstances of the case, the ITAT was justified in law in accepting the assessee’s claim of sale of goods on various dates in absence of any evidence to that effect while deleting the addition of Rs. 65 lakhs?

(3) Whether, on the facts and in the circumstances of the case, the ITAT was correct in law in deciding that the source of entire purchases has been explained as out of the initial capital of Rs.31 lakhs by cash and sale proceeds of the purchased stock of timber?

3. Regarding Question No.1:

(a) Between 27th November, 1997 to 4th December, 1997, there was search and seizure operation under Section 132 of the Act, in the business and residential premises of the Assessee.

(b) Thereafter, i.e. after search has been been completed, the respondent-Assessee by letter dated 15.01.1998 addressed and communication to the Assistant Director of Income Tax (Investigation) and offered a sum of Rs. 80 lakhs as an undisclosed income for tax. However, thereafter the respondent – Assessee, filed his return of income for the Block Period disclosing undisclosed income of only Rs. 55 lakhs. (c). The Assessing Officer in his order dated 09.12.1999 passed under Section 158BC(c) of the Act for the Block Period relied upon the aforesaid communication dated 15th January, 1998 to conclude that the same is binding upon the respondent – Assessee in view of Section

(d) Being aggrieved, the respondent – Assessee carried the issue in appeal to the Commissioner of Income Tax (Appeal) (CIT(A)). By an order dated 29th February, 2000, CIT(A) held that letter dated 15th January, 1998 disclosing income of Rs. 80 lakhs cannot be considered to be a statement made under Section 132(4) of the Act as the same was not made during the course of search i.e. between 27th November, 1997 to 4th December, 1997. Thus, allowed the appeal of the respondent – Assessee.

(e) Being aggrieved with the order dated 29th February, 2000 of the CIT(A), the Revenue filed an appeal to the Tribunal. The Tribunal by the impugned order dated 28th November, 2003, on bare reading of Section 132(4) of the Act, dismissed the Revenue’s appeal by upholding that the statement/letter dated 15th January, 1998 was not made during the course of search but much after the search was completed on 4th December, 1997. Consequently, it held that the letter dated 15th January, 1998 would not have evidentiary value of a statement under Section 132(4) of the Act. Thus, dismissed the
Revenue’s appeal.

(f) The grievance of the Revenue is that the letter dated 15th January, 1998 is self incriminating statement made by the respondent-Assessee before the assessment was completed. Therefore, the same was binding upon the respondent-Assessee, as a statement under Section 132(4) of the Act.

(g). For the proper appreciation of the Revenue’s grievance, Section 132(4) of the Act is reproduced as under:

“(4) The authorized officer may, during the course of the search or seizure, examine on oath any person who is found to be in possession or control of any books of account, documents, money, bullion, jewellery or other valuable article or thing and any statement made by such person during such examination may thereafter be used in evidence in any proceeding under the Indian income-tax Act, 1922 (11 of 1922), or under this Act. ”

(emphasis supplied)

(h). A bare reading of Section 132(4) of the Act indicates that an authorized officer is entitled to examine a person on oath during the course of search and any statement made during such examination by the such person (the person being examined on oath) would have evidentiary value under Section 132(4) of the Act. The Karnataka High Court in Chief Commissioner of income Tax and a nr. vs. Pampapathi (2009) 310 ITR 0064 in the context of facts before it viz. the search on the Assessee therein was completed on 13th December, 1994. On 25th January, 1995, a letter was written by the Assessee therein making certain self incriminating statement which the Revenue sought to rely upon as being a statement made under Section 132(4) of the Act. The Revenue’s contention was negatived. This by inter-alia holding that the letter dated 25th January, 1995 is not recorded on oath by the authorized officer during the course of search. Therefore, it cannot be of an evidentiary value in terms of Section 132(4) of the Act. The facts in the present case are identical.

(i) In view of the self evident position as indicated on bare reading of Section 132(4) of the Act, Question No. (1) is answered in affirmative i.e. in favour of the respondent -Assessee and against the appellant -Revenue.

4. Regarding Question No.(2):

(a) The respondent -Assessee was searched during the period of 25th November, 1997 to 4th December, 1997 under the provisions of Section 132 of the Act. On 31st December, 1997, the respondent -Assessee filed a declaration under the Voluntary Disclosure of Income Scheme, 1997 (VDIS-1997) declaring an undisclosed income of Rs. 1.20 crores. However, the respondent – Assessee did not deposit tax required to be deposited before the 31st March, 1998, resulting in the rejection of declaration under the VDIS-1997.

(b) On 23rd November, 1998, the respondent – Assessee filed return of income under Chapter XIV-B of the Act declaring undisclosed income for the Block Period at Rs. 55 lakhs. The Assessing Officer rejected the respondent – Assessee’s books of accounts and on the basis of the declaration made under the VDIS 1997 sought to tax the respondent – Assessee. Thus, making an addition of Rs. 65 lakhs to determine the income for the Block Period at Rs. 1.20 crores.

(c) Being aggrieved, respondent carried the issue in appeal to the Commissioner of Income Tax (Appeal) (CIT(A)). By an order dated 29th February, 2000, the Commissioner of Income Tax (Appeal) inter- alia held that the VIDS declaration could not have been made the basis for addition by the Assessing Officer. This for the reason that the VDIS declaration was made on 31st December, 1997 i.e. much after the search was completed on 4th December, 1997. Further, the declaration made was without any evidence linking it to any material/information found by the Assessing Officer during the course of search. Thus, it could not be relied upon for the assessment under Chapter XIV-B of the Act which brings to tax undisclosed income found during the course of search. Thus, CIT(A) by order dated 29th February, 2000, allowed the appeal of the respondent – Assessee.

(d) Being aggrieved, the Revenue carried the issue in appeal to the Tribunal. By the impugned order dated 28th November, 2003 the Tribunal, dismissed the Revenue’s appeal inter-alia holding that under the provisions of Chapter XIV(B) of the Act, the undisclosed income for the Block Period has to be completed on the basis of material found in the course of the search. This declaration made by the respondent –

Assessee under the VDIS scheme is not material discovered during the course of search as it was made after the search. Therefore, the same can not form the basis of assessment under Chapter XIV(B) of the Act.

In support the impugned order relied upon the decision of this Court in Commissioner of Income Tax Vs. Vinod Danchand Ghodwat (2001) 247 ITR 448(Bom).

(e) We find that issue raised herein stands concluded against the Revenue by the decision of this Court in Vinod Danchand Ghodwat (supra) wherein, it has been observed as under:

“Question No.3: Whether in law, on the facts and in the circumstances of the case, the Tribunal was justified in deleting the addition of Rs. 2,49,350/- made on account of unexplained expenses in construction of the residential bungalow at Jaysingpur, when the same as properly made by the AO.

The said question refers to addition of Rs. 2, 49,350/-made on account of unexplained expenses in construction of residential bungalow by the assessee. Here also, Chapter XIV-B has no application. The Tribunal, rightly, found that the addition is made on the basis of the report of the Department Valuer, According to the AO, during the search, it was found that the assessee had constructed a bungalow. It was found that the assessee had incurred an expenses of Rs. 4.16 lakhs. The AO, thereafter, referred the matter to the Department Valuer, who valued the property at Rs. 6.66 lakhs and, accordingly, the difference has been added to the income of the assessee as undisclosed income. The above basis clearly shows that the Department has not understood the scope of Chapter XIV-B of the IT Act. By no stretch of imagination, the impugned addition fell within Chapter XIV-B. There would be no finality if the Department is permitted to add back to the income of the assessee on the basis of the Department Valuer’s report obtained subsequent to the order of the regular assessment. Hence, the Tribunal was right in deleting the said addition. Accordingly, question No.3 is answered in the affirmative i.e. in favour of the assessee and against the Department.”

Mr. Thakar learned counsel for the respondent -Assessee also invites our attention to the decision of Madras High Court in case of Commissioner of Income Tax Vs. P. K. Ganeshwar (2009) 308 ITR 124 (Madras) and the Delhi High Court in Commissioner of income Tax Vs. Ravi Kant Jain (2001) 250 ITR 141 (Delhi) to the same effect.

(f) As the impugned order of the Tribunal has only applied to the decision of this Court in Vinod Danchand Ghodwat (supra), no fault can be found with the same.

(g) Accordingly question No. 2 is answered in affirmative i.e. in favour of the respondent -Assessee and against the Revenue.

5. Regarding Question No. (3):

(a) The impugned order of the Tribunal records a finding of fact that the declaration made by the respondent-Assessee in its Return of Income for the Block Period of Rs. 55 lakhs is fully substantiated. The Revenue disputes that the purchases of timber from M/s Associated Lumbers Ltd., and M/s OMP International Ltd. were not explained. Admittedly, these transactions are unrecorded transactions. The addition that was sought to be made in respect of these unrecorded transactions is the capital required for making purchases of unrecorded purchase of timber and its sale.

(b). The case of the respondent -Assessee is that he introduced an amount of Rs.31 lakhs as his capital on 18th September, 1997 to start his business of trading in timber. Further, he claims that between the time he effected purchases from the aforesaid two parties and made payments, there was a time gap and in this interim period, he had effected sale of the timber purchased in cash and therefore, the initial capital as well as cash and profit generated out of sale of timber was available for making payment for purchases of timber from the two parties.

(c) We find that the Assessing Officer did not dispute the payment which were made to the two parties for purchase. The only dispute was with regard to the receipts which the Assessee has claimed were from unrecorded sales. The claim of the Assessee in this regard is that even in the statement recorded in the course of search was that he did not know name of the party to whom the goods were sold in cash. Apart from this, the entire transaction being unrecorded, the claim of the Assessee of availability of cash from sale proceeds cannot be doubted only on the basis of non-availability of names of the purchasers from the Assessee. Moreover, the Tribunal also held that during the course of search, no stock of timber logs was found in the business premises of the Assessee. Thus, evidencing the fact that it had been traded. A sum of Rs. 25 lakhs was paid by the Assessee from his regular books of accounts for purchases effected from M/s OMP International (P) Ltd. The Assessing Officer did not carry any independent investigation after having rejected the books of accounts. The finding of the Tribunal that the initial amount of Rs. 31 lakhs introduced in cash formed the basis of its business and further unrecorded purchases were made out of the profits it earned out of trading. This finding of fact is not shown to be perverse, warranting any interference by us.

(d) Thus, this question is answered in affirmative i.e. in favour of the respondent -Assessee and against the appellant-Revenue.

Therefore, all the three questioned answered in favour of the respondent -Assessee and against the appellant -Assessee. Accordingly, the appeal is dismissed. No order as to costs.

[Citation : 407 ITR 152]