Commissioner of Income Tax vs M.P. Scrap Traders

M.R. Shah, J.�Leave to amend the proposed question No. 2(C) by correcting the figure as Rs. 7,00,500 instead of Rs. 7,50,500. As common questions of law and facts arise in both the appeals and as such arise out of the common impugned judgment and order passed by the learned Income-tax Appellate Tribunal (hereinafter referred to as the "the Tribunal"), both these appeals are decided and disposed of by this common order.

Feeling aggrieved and dissatisfied with the impugned judgment and the order passed by the learned Tribunal dated December 31, 2013, passed in I.T.A. No. 1247/RJT/2010 for the assessment year 2007-08, by which the learned Tribunal has allowed the said appeal preferred by the respondent-assessee and deleted the addition of Rs. 25,50,320 made by the Assessing Officer as unexplained investment in stock in hands of the respondent-assessee and deleted the addition of Rs. 7,00,500 made by the Assessing Officer as cash in hand, the Revenue has preferred Tax Appeal No. 525 of 2014 with the following proposed substantial question of law:

"A. Whether the Income-tax Appellate Tribunal is justified in law as well on the facts in coming to the conclusion that retraction made by the assessee from the statement under section 133A of the Act is legal and proper?

B. Whether the Income-tax Appellate Tribunal is justified in law as well on the facts in coming to the conclusion that the admission under section 133A of the Act, i.e., the statement made in the survey cannot be the basis for addition?

C. Whether the Income-tax Appellate Tribunal is justified in law as well on the facts in deleting the addition made by the Assessing Officer of Rs. 7,00,500 by way of cash in hand and Rs. 25,50,320 as unexplained investment in stock?"

2.1. Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the learned Tribunal dated December 31, 2013, passed in I.T.A. No. 639/RJT/2010 for the assessment year 2007-08, by which the learned Tribunal has allowed the said appeal preferred by the respondent-assessee and deleted the addition of Rs. 6,00,000 in the hands of the respondent-assessee, Kishorebhai Mohanlal Karia. The Revenue has preferred Tax Appeal No. 553 of 2014 with the following proposed substantial question of law.

"A. Whether the Income-tax Appellate Tribunal is justified in law as well on the facts in coming to the conclusion that retraction made by the assessee from the statement under section 133A of the Act is legal and proper?

B. Whether the Income-tax Appellate Tribunal is justified in law as well on the facts in coming to the conclusion that the admission under section 133A of the Act, i.e., statement made in survey cannot be the basis for addition?

C. Whether the Income-tax Appellate Tribunal is justified in law as well on the facts in deleting the addition made by the Assessing Officer of Rs. 6,00,000 as per the declaration made in the statement under section 133A of the Act?"

The facts leading to the present tax appeal in a nut-shell are as under:

3.1. That an action under section 133A of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), was carried on January 4, 2007, at the business premises of the partnership firm, namely, M/s. M.P. Scrap Traders, Rajkot, in which Shri Kishorebhai Mohanlal Karia, was also a partner. During the course of the survey proceedings, a statement of the said Shri Kishorebhai Mohanlal Karia was taken in which, fixed deposits and bank transactions in the name of various family members and partners found stood surrendered as undisclosed income in various years, i.e., the assessment years 2000-01 to 2004-05. In the said statement, Shri Kishorebhai Mohanlal Karia also admitted unexplained investment in the construction of house property and furniture, etc., purchased by him. He also admitted to make a surrender of Rs. 6 lakhs on this account over and above the amount of the aforesaid investment of Rs. 96,38,410. Thus, the assessee, Shri Kishorebhai Mohanlal Karia, acted upon his statement and surrendered an income of Rs. 96,38,410. The same stood disclosed as his income in the return of income filed for the assessment years 2000-01 to 2004-05. He, however, did not act on the surrender so made during the course of survey with respect to the unexplained investment in house property and furniture for Rs. 6 lakhs. The Assessing Officer, while completing the assessment, treated the said investment of Rs. 6 lakhs as unexplained investment in the year under consideration being the year of survey. That apart, the assessee''s explanation that after maturity of fixed deposit receipts, the said amount of investment in fixed deposits was claimed to have been invested by the assessee in the following assets, i.e., (i) investment in the residential building/furniture Rs. 6,00,000, (ii) gift to Hiren Dattani Rs. 1,00,000, (iii) investment in gold bullion Rs. 27,34,500, (iv) investment in stock held by the partnership firm, M/s. M.P. Scrap Traders, Rs. 25,50,320, (v) excess cash found in the business premises Rs. 7,00,500, and (vi) the balance amount stood utilised towards the payment of taxes for the aforesaid years, in which, it was surrendered. The Assessing Officer merely accepted the application of money towards gift to Hiren Dattani for Rs. 1 lakh gold bullion Rs. 27,34,500 and the payment of taxes. He, however, did not accept the investment in excess stock for Rs. 25,50,32,0 and the excess cash found Rs. 7,00,500 and made the additions thereon as undisclosed investment in the case of the partnership firm, M/s. M.P. Scrap Traders, over and above the addition of Rs. 6 lakhs as stated hereinbefore. The reason taken in not accepting the said application by the assessing authority as well as by the learned Commissioner of Income-tax (Appeals) is that the appellant, Shri Kishorebhai Mohanlal Karia, had filed two affidavits dated January 23, 2007. In one of the affidavits, the assessee has retracted the statement made during the course of the survey proceedings, stating that the statement obtained during the course of survey proceedings was neither voluntary nor binding upon the assessee. In the second affidavit, the assessee had given an application of the maturity proceeds of the aforesaid unexplained investment in fixed deposits for Rs. 96,38,410. The Revenue authorities look it a retraction of the statement in one of the affidavits and disbelieved the assessee and, accordingly, made the additions as aforesaid. That on appeal, the learned Commissioner of Income-tax (Appeals) confirmed the aforesaid additions.

3.2. Being aggrieved and dissatisfied with the addition of Rs. 6 lakhs in the hands of Shri Kishorebhai Mohanlal Karia and the addition of Rs. 7,00,500 as cash in hand and Rs. 25,50,320 as unexplained investment in stock in hands of M/s. M.P. Scrap Traders, both the assessee, Shri Kishorebhai Mohanlal Karia, as well as M/s. M.P. Scrap Traders preferred two appeals before the learned Tribunal and by the impugned judgment and order the learned Tribunal has allowed the aforesaid appeals and has deleted the aforesaid additions.

3.3. Feeling aggrieved and dissatisfied with the impugned common judgment and order passed by the learned Tribunal, the Revenue has preferred present tax appeals with the aforesaid proposed questions of law.

We have heard Shri Desai, learned advocate for the Revenue. We have considered the orders passed by the learned Assessing Officer, the learned Commissioner of Income-tax (Appeals) and common judgment and order passed by the learned Tribunal. At the outset, it is required to be noted that while making the aforesaid additions in the hands of Shri Kishorebhai Mohanlal Karia as well as in the hands of the firm, the Assessing Officer solely relied upon the statement of Shri Kishorebhai Mohanlal Karia recorded at the time of search on January 4, 2007, which subsequently came to be retracted and/or explained within the period of 19 days, i.e., January 23, 2007. It is required to be noted that as such except the aforesaid statement recorded at the time of search which was subsequently retracted, there was no other material and/or corroborative material with the Assessing Officer, on which, the addition of Rs. 6 lakhs in the hands of Shri Kishorebhai Karia and Rs. 7,00,500 cash in hand and Rs. 25,50,320 as unexplained investment in stock in the hands of the assessee, M/s. M.P. Scrap Traders can be justified. In the backdrop of the above, the reasoning given by the learned Tribunal in paragraph 5 made, while deleting the aforesaid additions, are required to be considered. In paragraph 5, the learned Tribunal has observed'' and held as under:

"5. We have heard the parties with reference to the material on record. Shri Kishorebhai Mohanlal Karia, partner of M/s. M.P. Scrap Traders has admitted of unexplained investment in fixed deposits and deposits in bank accounts and surrendered the same as his income for returns of income filed for the assessment years 2000-01 to 2004-05. The total surrender made during these years amounted to Rs. 96,38,410. The said Shri Kishorebhai Mohanlal Karia in his reply to question No. 9 in his statement recorded during the course of survey proceedings, informed the survey party to submit application of the amount of realisation of the aforesaid investments on a later date. This was also duly acted upon by filing an affidavit on January 23, 2007, giving details of application of investments as under:

(i) Residential building of the partner Rs. 6,00,000

(ii) Gift to Hiren Dattani Rs. 1,00,000

(iii) Gold bullion Rs. 27,34,500

(iv) Purchase of stock as disclosed by "A" firm Rs. 25,50,320

(v) Excess cash found in "A" premises Rs. 7,00,500

(vi) Difference amount is paid as income-tax.

The second affidavit dated January 23, 2007, filed along with the aforesaid affidavit was with respect to the retraction of statement to the effect that the statement elucidated during the survey proceedings do not have any evidentiary value and the same should not be used against the assessee even though he had made a correct disclosure of investments of Rs. 96,38,410 in the returns of income filed for the aforesaid five years. The hon''ble apex court in the case of Commissioner of Income Tax Vs. S. Khader Khan Son, clearly admitted the principle that section 133A of the Income-tax Act does not empower any income-tax authority to examine any person on oath and, therefore, any admission made in the survey cannot by itself be made a basis for addition. As the appellant, Shri Kishorebhai Mohanlal Karia, in appeal before us has acted on the surrender of Rs. 96,38,410, the retraction made through such an affidavit dated January 23, 2007, was of no consequence. His retraction otherwise with respect to any other offer of surrender contained in the statement was not acted upon by him as the same were stated to have been explained out of application of the realisation of the aforesaid fixed deposits. For this purpose, his affidavit was filed before the authorities below. There was no material found as a result of the survey indicating unexplained investment in the construction of house property or purchase of furniture thereof for Rs. 6 lakhs except that there was admission by the assessee in his statement. Likewise, the item-wise stock inventory is not shown to have been taken physically by the survey party. Merely in his statement, the excess stock found in the hands of the partnership firm stated in the said statement was taken as surrender thereof separately over and above the excess cash found. The assessee in his reply to the show-cause notices placed heavy reliance on the affidavit dated January 23, 2007, in which the aforesaid investments were claimed to have been made out of realisation of the fixed deposits and other bank deposits for which surrender of income was made in the earlier years. The Revenue authorities did not find any other application of such amount of surrendered income. They have rested their decision only on the retraction of statement made subsequently which was for a limited purpose only. After the assessee had filed the affidavit, he was neither cross-examined on that point nor was he called upon to produce any documentary evidence. Consequently, the assessee was entitled to assume that the income-tax authorities were satisfied with the affidavit as sufficient proof on this point. In fact, the Assessing Officer has not even rejected such an affidavit of the assessee in the entire proceedings before him. Under the circumstances and having regard to the judgment by the hon''ble Allahabad High in the case of Sohan Lal Gupta Vs. Commissioner of Income Tax, , as also was considered at the time of hearing in the presence of the parties in appeal, we are satisfied that the assessee has made a bona fide claim of application of the income that stood surrendered in the aforesaid five years, i.e., 2000-01 to 2004-05 and there being no contrary material on record, the addition of Rs. 6 lakhs in the hands of Shri Kishorebhai Mohanlal Karia and Rs. 7,00,500 cash in hand and Rs. 25,50,320 as unexplained investment in stock in the hands of M/s. M.P. Scrap Traders are unwarranted on the peculiar facts of the case and the same are hereby directed to be deleted."

In view of the aforesaid factual aspect, more particularly, when the Assessing Officer had no other material and/or corroborative material to justify the aforesaid additions except the confessional statement of Shri Kishorebhai Karia recorded on January 4, 2007, which was subsequently retracted within a period 19 days and the same came to be explained with respect to aforesaid additions, we are in complete agreement with the view taken by the learned Tribunal. We see no reasons to interfere with the impugned judgment and order passed by the learned Tribunal deleting the aforesaid additions. Under the circumstances, the proposed question of law are answered against the Revenue. Consequently, both the appeals deserve to be dismissed and are accordingly dismissed.