The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, has recently in an appeal filed before it, held that the addition against a company based on the statement of the director during the search, cannot be confirmed without supporting evidence.
The aforesaid observation was made by the Mumbai ITAT when an appeal was preferred before it by the Revenue, as against the order of Commissioner of Income Tax Appeals, Mumbai [CIT(A)], dated 30/05/2011, for the assessment year 2009-10.
The facts of the case as emanating from records were that the assessee was engaged in the business of dealing in Bullion. Subsequently, a search action u/s 132 of the Income Tax Act, was carried out on NIBR Bullion group including its Directors and Associates on 25/09/2008, during the course of which certain incriminating materials were found and seized by the department.
During search proceedings, the statement of Ajay C. Arora, the Director of the assessee company was also recorded u/s 132(4) of the Income Tax Act, and in his disclosure statement, he offered Rs.12 crores towards undisclosed income in the financial year 2008-09 to cover up discrepancies in the seized documents, digital data, stock, excess jewelry, etc. Thereafter, Ajay C. Arora retracted his statement and restricted his disclosure to Rs.3.75 crores in respect of the discrepancies aforesaid.
The assessee filed his return of income on 22/12/2009 declaring a total income of Rs.3,85,86,257/- including additional income of Rs.3.75 crores as a result of the search, and the Assessing Officer (AO) vide assessment order dated 31/12/2010 passed u/s 143(3) of the Income Tax Act, assessed the total income of assessee at Rs.12,10,70,727/-.
Also, rejecting the assessee’s retraction of the statement, and making addition on various accounts such as unaccounted stock, unaccounted investment, unaccounted commission, GP addition on unaccounted cash, GP addition of unaccounted purchases, etc., the A.O made addition to the balance disclosure of Rs.8,18,19,881/- (i.e., Rs.12,00,00,000/- – Rs.3,81,80,119/-) u/s 132(4) of the Income Tax Act, leaving the assessee agitated. And it is by being aggrieved by the said assessment order, that the assessee carried the issue in appeal before the CIT(A).
And with the CIT(A) deleting the aforesaid addition of Rs.8,18,19,881/- made on account of disclosure statement u/s 132(4) of the Income Tax Act, that the Revenue has preferred the instant appeal before the Mumbai ITAT.
The primary issue involved in the Revenue’s appeal being as to whether the CIT(A) has erred in deleting the undisclosed income of Rs.8,18,19,881/- (being the difference between the sum of Rs.12,00,00,000/- disclosed as income in the statement of the assessee recorded u/s 132(4) and the income disclosed), on the ground that the assessment was completed on the basis of statement without appreciating the evidentiary value of the statement of the assessee recorded u/s 132(4) and that there was no evidence of mistake of estimation or wrong interpretation of law justifying retraction according to the various court decision, by the assessee after a substantial period of time, Amarjit Singh, the Accountant Member, along with Vikas Awasthy, the Judicial Member, observed :
“We have heard the submissions made by the rival sides as presented by Shri C. T. Mathews & Ms. SamruddhiHande,on behalf of the applicant, and Shri Dharmesh Shah & Ms.MitaliGopani on behalf of the Respondent, and have examined the orders of authorities below. Undisputedly, during the course of search in a statement recorded u/s 132(4) of the Act, Ajay C. Arora, Director of the assessee company offered Rs.12 crores to cover up discrepancies in the seized documents.”
“During First Appellant Proceedings, the CIT(A) asked the AO to clarify whether the addition made of the disclosed amount correlated to any seized material, documents, papers, etc. The AO vide replied dated 16/05/2011 reiterated that the addition has been made on the basis of the declaration made by Ajay C. Arora u/s 132(4) of the Act and subsequently confirmed. However, the AO was not able to point to any seized document that could be correlated to the disclosure statement.”, the ITAT Bench added.
Thus, dismissing the Revenue’s appeal, the ITAT held:
“In the light of the facts of the case, various decisions and CBDT instructions, we see no infirmity in the impugned order granting partial relief to the assessee. Hence, the impugned order is upheld and appeal of the Revenue is dismissed.”
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