ITR/11119/1997 1/26 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE No. 111 of 1997 For Approval and Signature: HONOURABLE MR.JUSTICE K.A.PUJ HONOURABLE MR.JUSTICE BANKIM.N.MEHTA ========================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ========================================================= KAILASHBEN MANHARLAL CHOSHI - Applicant(s) Versus COMMISSIONER OF INCOME-TAX - Respondent(s) ========================================================= Appearance : MR MANISH J SHAH for Applicant(s) : 1, 1.2.1, 1.2.2,1.2.3 MR MANISH R BHATT for Respondent(s) : 1, ========================================================= CORAM : HONOURABLE MR.JUSTICE K.A.PUJ and HONOURABLE MR.JUSTICE BANKIM.N.MEHTA Date : 01/09/2008 ORAL JUDGMENT ITR/11119/1997 2/26 JUDGMENT (Per : HONOURABLE MR.JUSTICE K.A.PUJ) 1. The Income-tax Appellate Tribunal has referred the following question of law under Section 256(1) of the Income-tax Act, 1961 or opinion of this Court. “Whether on the facts and circumstances of the case, the Tribunal was right in law in confirming addition of Rs.7 lacs as disclosed in statement Under Section 132(4) of the Act but retracted thereafter?” 2. During the pendency of this reference before this Court the assessee expired and hence his legal heirs are brought on record vide order dated 9.7.2008 in Civil Application No.143 of 2008. The assessment year in question is assessment year 1989-90. The assessee is a partner of M/s. Chokshi Kasturchand Dalaji & Sons. A search under Section 132 was conducted on the premises of the said firm and the partners thereof including the assessee on 4.11.1988. A statement of the assessee under Section 132(4) was recorded and during the course of the statement, the ITR/11119/1997 3/26 JUDGMENT assessee made a disclosure of Rs.7 lacs as follows:- Unaccounted investment in house property Rs.4,00,000/- Unaccounted cash Rs.1,00,000/- Unaccounted investment in furniture Rs.1,00,000/- Unaccounted investment in gold ornaments Rs.1,00,000/- Total Rs.7,00,000/- 3. Later on in January, 1989 the assessee retracted from the disclosure and stated that the disclosure of Rs.50,000/- only was acceptable to him. It was submitted before the Assessing Officer that the disclosure of Rs.7 lacs was made under pressure and coercion and that no note should be taken of it while completing the assessment. Noting that the disclosure of Rs.7 lacs was made under Section 132(4) in November, 1988 and the assessee retracted from the same only in ITR/11119/1997 4/26 JUDGMENT January, 1989 i.e. after a lapse of two months, the Assessing Officer held that, the assessee did not have any reason for retracting from the disclosure made under Section 132. Further vide his detailed order the Assessing Officer gave supporting reasons for making an addition of Rs.7 lacs representing income disclosed by the assessee under Section 132(4). Thus, an addition of Rs.7 lacs was made by the Assessing Officer to the income declared by the assessee. 4. Being aggrieved by the order of the Assessing Officer the assessee preferred an appeal before CIT(A). The Commissioner of IT(A) confirmed the addition. 5. On further appeal by the assessee, the Tribunal concurred with the finding of the CIT(A). The Tribunal held that it is well settled in law that an admission by a party ITR/11119/1997 5/26 JUDGMENT is the best evidence of a point in issue and, though not conclusive, is decisive of the matter unless successfully withdrawn or proved erroneous. What is admitted by a party to be true must be presumed to be true unless the contrary is shown. The Tribunal further held that in the instance case, when during the course of search, cash of Rs.1 lac was recovered from the residence of the assessee; unexplained gold ornaments, and articles of furniture packed in bundles were found and it was discovered that the assessee had constructed first floor of the house properly and for the cost incurred thereon the assessee had no satisfactory explanation. He came forward with a voluntary disclosure of Rs.7 lacs under four different heads. Thus, it was not for the fun of it that the assessee came forward with a disclosure of Rs.7 lacs. Further there was nothing on record that the said disclosure was made by the assessee under duress, pressure and ITR/11119/1997 6/26 JUDGMENT coercion. The retraction after a lapse of over two months from the date of disclosure by the assessee was an afterthought and the affidavit filed by him on which much reliance had been placed was a self serving statement. The Tribunal has come to the conclusion that the assessee had failed to prove and establish that he was tortured by searching party but nonetheless it could not be ignored that the assessee retracted from the earlier statement made on search date and upon retraction he rendered himself untrustworthy and unreliable in the eyes of law and accordingly the addition of Rs.7 lacs to the income declared was fully justified. 6. Being aggrieved by the order of the Tribunal the assessee moved Misc. Application against the order of the Tribunal which has been rejected vide order dated 9.5.1997 in Misc. Application No.49/Ahd/1997. ITR/11119/1997 7/26 JUDGMENT 7. On the above premises the above referred question of law is referred to for the opinion of this Court. 8. Mr.J.P. Shah, learned advocate appearing for the applicant – assessee has strongly urged that all the three authorities have not considered the retraction made by the assessee in its true perspective. The said statement was not voluntary statement and the assessee was tortured, coerced and under great tension and pressure the said statement was recorded. He has, therefore, submitted that the said statement was not voluntary statement. He has further submitted that the statement recorded by the searching party under Section 132(4) was subsequently retracted and detailed affidavit was filed by the assessee. An explanation was given for each and every item under which addition was made. Based on this explanation, which was not considered by both the appellate ITR/11119/1997 8/26 JUDGMENT authorities, no addition could have been made. He has, therefore, submitted that the orders of all the three authorities below are required to be quashed and set aside, except an addition of Rs.1,00,000/- made and/or confirmed on account of unaccounted cash found during the course of search and seizure. 9. In support of his submissions Mr.Shah relied on the decision of Hon'ble Supreme Court in the case of Pullangode Rubber Produce Co. Ltd., Vs. State of Kerala and Anr, reported in (1973) 91 ITR 18, for the proposition that it is open to the assessee who made the admission to show that it is incorrect and the assessee should be given a proper opportunity to show that the books of account do not disclose the correct state of facts. 10. He has further relied on the decision of ITR/11119/1997 9/26 JUDGMENT this Court in the case of Nirman Textile Mills (P) Ltd., Vs. Assistant Commissioner of Income-tax, (2006) 284 ITR 325 (Guj.), for the proposition that the Tribunal was expected to discuss the evidence with reasons why the retraction coupled with the evidence was not acceptable, especially when it had been accepted by the Commissioner (Appeals). The Tribunal stated that the explanation was not furnished before the Assessing Officer and was placed on record before the Commissioner (Appeals) for the first time overlooking the fact that the Commissioner (Appeals) in his order categorically recorded that the evidence in the form of paper books was forwarded to the Assessing Officer and the Assessing Officer had, after perusing the evidence offered his comments. Here in the present case the explanation was tendered by the assessee right from the assessment stage and yet the same was not considered in its true perspective either by the Assessing ITR/11119/1997 10/26 JUDGMENT Officer, CIT(A) or by the Tribunal. 11. He further relied on the decision of Karnataka High Court in the case of Smt. Pati Devi Vs. Income-Tax Officer and Anr. reported in (1999) 240 ITR page 727, for the proposition that the instructions issued could only be retrospective in the sense that even if a seizure is made today irrespective of the date of acquisition of gold jewellery, the benefit has to be given to that extent. Simply because in a particular case the seizure is made on a date earlier to the date of instruction the benefit of instruction dated May 11, 1994 cannot be denied. 12. He has further relied on the decision of Allahbad High Court in the case of Commissioner of Income-Tax Vs. Radha Kishan Goel, reported in (2005) 278 ITR 454, wherein it is observed that it is a matter of common knowledge, which cannot be ignored that the ITR/11119/1997 11/26 JUDGMENT search is being conducted with the complete team of the officers consisting of several officers with the police force. Usually telephone and all other connections are disconnected and all ingress and egress are blocked. During the course of search person is so tortured, harassed and put to a mental agony that he loses his normal mental state of mind and at that stage it cannot be expected from a person to pre-empt the statement required to be given in law as a part of his defence. 13. He has further relied on the instructions dated 10.3.2003 issued by the Central Board of Direct Taxes, which states that instances have come to the notice of the Board where assessees have claimed that they have forced to confess the undisclosed income during the course of the search and seizure and survey operations. Such confessions, if not based on credible evidence, are later retracted by the ITR/11119/1997 12/26 JUDGMENT concerned assessee while filing returns of income. In these circumstances, confessions during the course of search and seizure and and survey operations do not serve any useful purpose. This instruction further states that it is, therefore, advised that there should be focus and concentration on collection of evidence of income which leads to information on what has not been disclosed or is not likely to be disclosed before the Income Tax Department. Similarly, while recording statement during the course of search and seizures and survey operations no attempt should be made to obtain confession as to the undisclosed income. Any action on the contrary shall be viewed adversely. 14. Mr. Shah has further referred to the speech made by the Finance Minister. The Finance Minister has gone a step ahead of the budget announcement to Bar Revenue authorities from obtaining confession on the undisclosed ITR/11119/1997 13/26 JUDGMENT income of the assessee during search and seizure operations. The Bar would extend to survey operations as well. This statement also reiterates the earlier instructions issued by the board stating that no attempt should be made to obtain confession on undisclosed income while recording the statement of an assessee during the course of search, seizure as well as survey operation. 15. Based on the aforesaid legal position as well as the factual background Mr. Shah has submitted that the assessee has given explanation with regard to each and every item that has not been considered by the authority, hence no addition could have been made on the basis of mere statement made by the assessee during the course of search and seizure. 16. Mrs.Mauna M. Bhatt, learned Standing Counsel appearing for the Revenue on the ITR/11119/1997 14/26 JUDGMENT other hand has strongly supported the orders passed by the authorities and strongly urged that all the three authorities have given concurrent finding of fact and hence this Court while exercising its advisory jurisdiction should not disturb the said concurrent finding of fact. She has further submitted that there is nothing on record to suggest that the statement made by the assessee during the course of search and seizure was not voluntary statement. She has further submitted that the statement of retraction is after two months and hence it has got no evidentiary value. She has also submitted that in support of retraction no evidence was adduced by the assessee. She has, therefore, submitted that there is no reason to disturb the findings arrived at by the authorities below and hence the question referred to this Court by the Income-Tax Appellate Tribunal is required to be answered in favour of the Revenue and against the ITR/11119/1997 15/26 JUDGMENT assessee. 17. In support of her submissions she relied on the decision of Hon'ble Supreme Court in the case of K.I.Pavunny Vs. Assistant Collector (HQ) Central Excise Collectorate, Cochin, reported in (1997) 3 SCC 721, wherein it is held that there is no prohibition under the Evidence Act to rely upon a retracted confession to prove the prosecution case or to make the same basis for conviction of the accused. Practice and prudence require that the Court could examine the evidence adduced by the prosecution to find out whether there were any other facts and circumstances to corroborate the retracted confession. 18. She has further relied on the decision of Kerala High Court in the case of V. Kunhambu and Sons Vs. Commissioner of Income-Tax., reported in (1996) 219 ITR 235, wherein it is held that the assessment was based on the ITR/11119/1997 16/26 JUDGMENT statement of assessee. Since no case had been made that the statement was made under a mistaken belief of fact or law and the statement being voluntary one there was no scope for the assessee to challenge the correctness of the assessment. 19. She has further relied on the decision of Hon'ble Supreme Court in the case of Commissioner of Income-Tax Vs. D.L.F.United, reported in (2000) 243 ITR 855, wherein it is held that the Income-tax Appellate Tribunal is the final fact finding authority and it had decided against the assessee. The High Court ought not to have entered into a discussion of the evidence to come to a conclusion on facts contrary to that reached by the Tribunal. The Tribunal was justified in its conclusion that the amounts in question formed part of the income of the assessee. ITR/11119/1997 17/26 JUDGMENT 20. Lastly she relied on the decision of this Court in the case of Greenview Restaurant Vs. Assistant Commissioner of Income-Tax, reported in (2003) 263 ITR 169, wherein it is held that there was a delay on the part of the assessee and its partner in retracting the statement recorded. There was no material on record to establish that any attempt was made on behalf of the assessee to prove the allegation of inducement, threat or coercion through the witnesses. Thus, the contention advanced by the assessee on this count was liable to be dismissed. 21. Based on the aforesaid factual and legal position Mrs.Bhatt has strongly urged that the addition made by the Assessing Officer and confirmed by the CIT(A) as well as Tribunal should not be disturbed by this Court and the question referred to may be answered in favour of the Revenue and against the assessee. ITR/11119/1997 18/26 JUDGMENT 22. We have heard learned counsels appearing for the respective parties at great length and considered the submissions. We have also gone through the orders passed by the authorities below. 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 ITR/11119/1997 19/26 JUDGMENT recorded at such odd hours. The person may not be in a position to make any correct or conscious disclosure in a statement if such statement is recorded at such odd hours. Moreover, this statement was retracted after two months. 23. The main grievance of the Assessing Officer was that the statement was not retracted immediately and it was done after two months. It was an afterthought and made under legal advise. However, if such retraction is to be viewed in light of the evidence furnished alongwith the affidavit, it would immediately be clear that the assessee has given proper explanation for all the items under which disclosure was sought to be obtained from the assessee. So far as amount invested in house property is concerned, the assessee has specifically stated in his explanation dated 28.2.1989 that there was absolutely no basis for making the disclosure on account of ITR/11119/1997 20/26 JUDGMENT bunglow at 68, Sarjan Society, Athwa Lines, Surat. It was in the year 1964 that the assessee took one Plot No.68 in Sarjan Co.Operative Housing Society which was also constructing the bunglow for which the assessee claimed to have been made contribution from time to time. The assessee took possession of the bunglow in 1974 when only ground floor was constructed. Since then he has been living there. The assessee has constructed first floor during 1986 to 1988 and he has incurred the expenses for first floor structure to the tune of Rs.2,03,185.65 ps. but this amount has been withdrawn from the account of the firm in which the assessee is a partner. As per say of Mr.Shah even departmental valuation officer has also accepted that the cost of construction of first floor worked out to Rs.2,06,060/-. There was, therefore, no reason for making addition of Rs.4 lacs on the basis of alleged disclosure made by the assessee in his ITR/11119/1997 21/26 JUDGMENT statement recorded under Section 132(4) of the Act. In support of this statement the Revenue has not brought any evidence whatsoever which would establish that the assessee had in fact incurred an amount of Rs.4 lacs on the construction of the first floor and that amount was invested out of the undisclosed income. Hence there is no justification for making account of Rs.4 lacs merely on the basis of statement recorded under Section 132 (4). None of the authorities have considered this explanation and the CIT(A) as well as Tribunal both have proceeded on the footing that the Assessing Officer has considered the explanation. 24. So far as the addition on account of gold ornament to the tune of Rs.1 lac is concerned, the assessee has given the explanation that was reproduced by the Assessing Officer in his assessment order which says that during the course of search ITR/11119/1997 22/26 JUDGMENT and seizure proceeding, statement of assessee's wife, Smt. Kailashben Chokshi was recorded and according to which she had received about 25 tolas of gold each from her parents and from her parents in law side at the time of her marriage in the year 1960. She had given 15 tolas of gold ornaments to her daughter Ritaben at the time of her marriage in the month of March, 1988. If the total jewellery found during the course of search is taken into consideration, in light of the instructions issued by the Board, any middle class Indian family may be having jewellery and gold ornaments to that extent. Hence, no addition can be made on that count. Even if the board Circular may not have retrospective operation, looking to the quantum of holding and assessee's explanation, we are of the view that this is a normal holding which can be found in any middle class Indian family and hence no addition could have been justified on that ITR/11119/1997 23/26 JUDGMENT count. 25. So far as addition of Rs.1 lac on account of unaccounted investment in furniture is concerned, it is stated by the assessee that on the ground floor furniture was made before 15 years and assessee had spent Rs.25,000/- for renovation after making withdrawal from the firm's account. It is further submitted that the furniture on the first floor was partly received and paid out of withdrawals from the firm. At the time of the search additional furniture meant for the first floor was just received by way of parcel from Ahmedabad and was lying in bundles. A detailed source of investment of furniture purchased from Ahmedabad with a due confirmation from the party concerned have been filed by the assessee before the Assessing Officer. Since no payment of this additional furniture was made by the assessee till the date of search, no addition could ITR/11119/1997 24/26 JUDGMENT have been made on this count. 26. In view of what has been stated hereinabove we are of the view that this explanation seems to be more convincing, has not been considered by the authorities below and additions were made and/or confirmed merely on the basis of statement recorded under Section 132(4) of the Act. Despite the fact that the said statement was later on retracted no evidence has been led by the Revenue authority. We are, therefore, of the view that merely on the basis of admission the assessee could not have been subjected to such additions unless and until, some corroborative evidence is found in support of such admission. We are also of the view that from the statement recorded at such odd hours cannot be considered to be a voluntary statement, if it is subsequently retracted and necessary evidence is led contrary to such admision. Hence there is no reason not ITR/11119/1997 25/26 JUDGMENT to disbelieve the retraction made by the Assessing Officer and explanation duly supported by the evidence. We are, therefore, of the view that the Tribunal was not justified in making addition of Rs.6 lacs on the basis of statement recorded by the Assessing Officer under Section 132(4) of the Act. The Tribunal has committed an error in ignoring the retraction made by the assessee. 27. In the above view of the matter, addition of Rs.1 lac made on account of unaccounted cash is confirmed and the addition of Rs.6 lacs is hereby deleted. 28. In the above view of the matter, we are of the view that the question referred to us is partly answered in favour of the assessee and against the Revenue. We, therefore, hold that the Tribunal was not right in confirming addition to the extent of Rs.6 lacs as disclosed in statement under Section 132(4) ITR/11119/1997 26/26 JUDGMENT of the Act. 29. This references is accordingly disposed of without any order as to costs. (K. A. PUJ, J.) (B. N. MEHTA, J.) kks