ITO, Ward-3(1)(1), Vadodara V. M/s. Om Shiv Builders, Vadodara

ITA 2410/AHD/2018

AI Insights

The case involves two separate appeals by the Revenue against M/s. Om Shiv Builders and M/s. Om Shiv Developers concerning the assessment year 2013-14. Both firms were subjected to survey actions under Section 133A of the Income Tax Act, 1961, where a partner from each firm made a voluntary disclosure regarding the income on work-in-progress (WIP). The AO, based on these disclosures, made additions to the income of both firms. However, the CIT(A) deleted these additions, leading to the Revenue's appeals. The Tribunal found that the additions were made solely on the basis of the statements recorded during the survey, which lacked any incriminating material or corroborative evidence, thus upholding the CIT(A)'s decision.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 135604 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 28-12-2022
• Assessment Year: 2013-2014
• Appeal Filed On: 11-12-2018
• Other Referred Cases: Pullangode Rubber Produce Co Ltd vs. State of Kerala, CIT, Salem Vs S. Khac'er Khan Son, Paul Mathews & Sons Vs. CIT, CIT v. Dhingra Metal Works
• Laws Referred To: Income Tax Act 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Rejection of books of accounts
• Section: 131; 143(3); 133A

Judgement Text

आयकर आयकरआयकर आयकर अपी अपीअपी अपीलीय लीयलीय लीय अिधकरण अिधकरणअिधकरण अिधकरण, अहमदाबाद अहमदाबादअहमदाबाद अहमदाबाद यायपीठ यायपीठ यायपीठ यायपीठ IN THE INCOME TAX APPELLATE TRIBUNAL, ‘’ D’’ BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER And SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER आयकर अपील सं./ITA No. 2410/AHD/2018 िनधा रण िनधा रणिनधा रण िनधा रण वष वष वष वष /Asstt. Year: 2013-2014 Income Tax Officer, Ward-3(1)(1), Vadodara. Vs. M/s. Om Shiv Builders, Opp. American School of Baroda, Nr. Pioneer Medical Campus, Ajwa Road, Vadodara. PAN: AACFO9734B And आयकर अपील सं./ITA No. 2411/AHD/2018 िनधा रण िनधा रणिनधा रण िनधा रण वष वष वष वष /Asstt. Year: 2013-2014 Income Tax Officer, Ward-3(1)(1), Vadodara. Vs. M/s. Om Shiv Developers, Opp. American School of Baroda, Nr. Pioneer Medical Campus, Ajwa Road, Vadodara. PAN: AACFO5795J (Applicant) (Respondent) Revenue by : Shri Aarsi Prasad, CIT. D.R with Shri Atul Pandey, Sr.D.R Assessee by : Shri K.P Singh, AR सुनवाई क तारीख/Date of Hearing : 29/12/2022 घोषणा क तारीख /Date of Pronouncement: 24/03/2023 ITA nos.2410-2411/AHD/2018 Asstt. Year 2013-14 2 आदेश आदेशआदेश आदेश/O R D E R PER WASEEM AHMED ACCOUNTANT MEMBER: The captioned two appeals have been filed at the instance of the Revenue and the assessee against the separate orders of the Learned Commissioner of Income Tax (Appeals)-3, Vadodara, of even dated 28/09/2018 (in short “Ld. CIT(A)”) arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2013-2014. First, we take up ITA No. 2410/Ahd/2018, an appeal by the Revenue in the case of OM Shiv Builders for the AY 2013-14 2. The Revenue has raised following grounds of appeal: 1. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 1,69,85,570/- ignoring the fact that the A.O. had made addition on the basis of voluntary disclosure made on oath by the partner in consultation with other partners of the firm during the course of survey proceedings, wherein the partner had made declaration to the effect that the statement so recorded is without any fear or coercion. 2. On the facts and circumstances of the case and in law, the Ld. C.I.T. (A) erred in deleting the addition of Rs. 1,69,85,570/- ignoring the fact that the assessee's contention during the course of appellate proceeding that the partners of the firm were not in normal frame of mind and the disclosure was made in haste, tension and without verifying the documents and records was an after thought, as is evident from the fact that prior to appellate proceedings, the assessee, though had ample time and opportunity to retract the statement made during the course of survey proceedings by giving justifiable reasons for doing so, did not retract the said statement at any time till the completion of assessment. 3. On the facts and circumstances of the case, the Ld. CIT(A) erred in ignoring the fact that the admission of undisclosed income was made by the partner during the survey proceedings after consulting with other partners. Onus is on the assessee to prove that the said declaration was wrongly made. 4 The appellant craves to add to, amend or alter the above ground as may be deemed necessary. ITA nos.2410-2411/AHD/2018 Asstt. Year 2013-14 3 3. The only effective issue raised by the Revenue is that the learned CIT(A) erred in deleting the addition made by the AO for Rs. 1,69,85,570/- on the basis of admission by the partner on oath. 4. The necessary facts are that the assessee in the present case is a partnership firm and engaged in the business of development of land, construction of residential house etc. The assessee was subject to survey action under section 133A of the Act dated 19 th February 2013 wherein the statement of one of the partner namely Shri Nimitbhai R Sanghani was recorded under section 131(1A) of the Act. Shri Nimitbhai R Sanghani in response to the question No. 21 stated that WIP on the date of survey i.e. 19 th February 2013 stands at Rs. 2,41,05,983/- however the same would be at Rs. 3.6 Crore (estimated) as on 31 st March 2013. He also agreed to offer an income on such WIP @ 25% of its value. 5. However, the AO found that assessee has not offered any income on WIP as agreed during the survey proceedings. As such, the assessee in the return filed for the year declared income at NIL. The AO during the assessment proceeding further found that the assessee till 31 st March 2013 incurred total cost on the project for Rs. 6,79,42,281/- which was claimed as WIP. The AO from the working provided by the assessee also noticed that the total value of the project is of Rs. 8,91,84,000/- only. Therefore, the AO was of the view that the project of the assessee got completed up to 76.18 % and accordingly the assessee by following the accounting standard 7 issued by the ICAI was required to offer profit on WIP. Thus the AO vide show cause notice dated 17 th March 2016 proposed to estimate the profit on WIP at Rs. 1,69,85,570/- being equal to 25% as agreed by the partner in the statement. 6. However, the assessee failed to make any submission in response to show cause notice and also failed to comply with the summon issued under section 131 of the Act dated 7 th March 2016. Thus, the AO in absence of explanation or ITA nos.2410-2411/AHD/2018 Asstt. Year 2013-14 4 submission to be made by the assessee estimated the profit on WIP at Rs. 1,69,85,570/- and added the same to total income of the assessee. 7. The aggrieved assessee preferred an appeal before the learned CIT(A). 8. The AR of the assessee before the learned CIT(A) submitted that the assessee firm was incorporated on 20 th January 2012 and the year under consideration is the very first year of the operation. The assessee firm purchased plot of land as 17 th and 28 th September 2012 for building its project and during the year there were no income accrued to the assessee. Whatever expenses incurred on project was transferred to WIP as on 31 st March 2013 which stand Rs. 6,79,42,281/-. Accordingly no income was offered by the assessee firm. However, AO merely on the basis of assumption held the stage of completion of project at 76.18%. 8.1 The AR of assessee further submitted that during the course of survey proceeding no incriminating material was found. The statement of partner Shri Nimitbhai R Sanghani was recorded based in the regular books of account where he inadvertently in haste, tension and without verifying the records or document agreed to offer profit @ 25 % of the projected WIP of 3.6 crore. The AO based on such statement made addition to the total income without bring any cogent material on record. Further, no addition can be made to the total income merely on the basis of admission made during the survey proceeding. It is well settled position of law that the statement recorded during the course of survey operation does not carry any evidentiary value unless there is cogent corroborative material available. The AR in this regard referred several case laws including the judgment of Hon’ble SC in case of Pullangode Rubber Produce Co Ltd vs. State of Kerala reported in 91 ITR 18. 8.2 The AR of the assessee also submitted that the assessee has maintained regular books of account which were duly audited by the independent auditor. The ITA nos.2410-2411/AHD/2018 Asstt. Year 2013-14 5 AO has not pointed out any defect in the books of accounts. Therefore, the addition made by the AO on the basis of estimation without pointing out any specific defect in books of account is not legitimate. 9. The learned CIT(A) sough comment form the AO on the submission of the AR of the assessee which was furnished by the AO vide remand report dated 2 nd April 2018 wherein the AO contended that statement was recorded on oath and admission was made without any fear and thereat. The AR of the assessee in rejoinder reiterated the submissions made earlier. 9.1 The learned CIT(A) after considering the facts in totality deleted the addition made by the AO by observing as under: 3.4.3 There is no dispute that the order of assessment is made u/s 143(3) and the Assessing Officer has not pointed out any defect in the books of accounts of the assessee. The same are duly audited and were produced before the Assessing Officer during assessment proceedings If the Assessing Officer had any doubts on the calculation of the WiP, there was option of referring the matter to the DVO after rejecting the books of accounts of the appellant which has not been done. Ideally, such exercise is best done at the conclusion of the survey itself and now after the lapse of almost 6 years, that becomes meaningless and only meaningful documents are either (i) the books of accounts of the assessee or (ii) the incriminating material gathered during the course of survey proceedings. It has been admitted by the Assessing Officer during the remand proceedings that no incriminating material was found during the course of survey. Similarly, during the course of assessment proceedings also no reliance has been made by the Assessing Officer on the incriminating material. Now coming to the books of accounts maintained by the assessee, from the order of the Assessing Officer, it transpires that complete books of accounts were produced before him for verification. There is no dispute about the fact that these were duly audited. The Assessing Officer has not rejected the books of accounts and estimated the profit merely on the basis of the statements of one of the partners recorded during the course of survey proceedings. 3.4.4 The assessee made statement which was recorded under section 131 during the course of survey under section 133A. Now the issue is whether a statement made during the survey proceedings can solely form the basis of assessment without any cogent and corroborative material being brought on record to strengthen the said statement. The assessee referred to various judicial rulings in support of its case by arguing that the statement made under section 131 has no evidentiary value and the consequent disallowance/addition is uncalled for. In a recent decision, the Apex Court in case of CIT, Salem Vs S. Khac'er Khan Son [2012] 254 CTR 228 (SC) has held that Section 133A of the Income Act, 1961 ITA nos.2410-2411/AHD/2018 Asstt. Year 2013-14 6 does not empower any ITO to examine any person on oath and, therefore, the statement recorded under section 133A has no evidentiary value and any admission made during such statement cannot be made basis of addition. It could not be said solely on the basis of the statement given by one of the assessee-firm that disclosed income was assessable as lawful income of the assessee. 3.4.5 In the case of Paul Mathews & Sons Vs. CIT [2003] 263 ITR 101 (Ker.), the Hon'ble Kerala High Court, has gone into i: e evidentiary value of the statement recorded under action 131 during survey proceedings under section 133A and the statement recorded under section 132(4) of the Income-tax Act. In the said decision it has been held that section 133A enables the income-tax authorities to record any statement of any person which may be useful but does not authorize taking any sworn statement. On the other hand, the Hon'ble High Court finds that such a power to examine a person on oath is specifically conferred on the authorized officer only under section 132(4) of the Income-tax Act in the course of any search and seizure. Further it was held in the case of Pullangode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18 (SC), that an admission is an extremely important piece of evidence but it cannot be said that it is a conclusive and it is open to person who made the admission to show that it is incorrect. Vide Central Board of Direct Taxes Circular F. No. 286/2/2003/IT-(lnv.} dated March 10, 2003, it has been made clear that no attempt should be made to obtain confession as to the undisclosed income and the addition should be made only on the basis of material gathered during the course of search and survey thereby issuing instruction to the Department that no addition can be made or sustained simply on the basis of statement- recorded during survey/search, in other words, in order i:o make any addition on the basis of surrender during search or survey, it is sine qua non that [here should be some other material to correlate undisclosed income with such statement. 3.4.6 tn C!T v. Dhingra Metal Works [2010] 328 ITR 384 (Delhi), the Delhi High Court held that while Section 132(4) of the Act specifically authorizes an Officer to examine a person on oath, Section 133A did not permit the same. The Delhi High Court further held that the word "may" used in Section 133A(3)(iii) of the Act clarifies beyond doubt that the material collected and the statement recorded during the survey was not a conclusive piece of evidence by itself and that Assessing Officer could not have made the addition solely on the basis of the statement made on behalf of the assessee during the course of survey. 3.4.7 In view of the above judgment of the Hon'ble Supreme Court and Hon'ble Courts and in view of the Central Board of Direct Taxes Instruction (supra), section 133A of the Act does not empower any authority to examine any person on oath, any such statement has no evidentiary value and any admission made during such statement cannot by itself, be made the basis for addition unless the Assessing Officer has corroborative material in hand to make such addition. Presumption cannot take the shape of evidence, however, strong it may be. From the assessment order as well as from the remand report of the Assessing Officer it is observed that the A.O. without bringing on record any incriminating documents/evidences and without disputing any claim of expenses, estimated income only on presumption basis considering the closing value of stock as declared by the partner of the firm, which in turn not disputed by him. Here it is ITA nos.2410-2411/AHD/2018 Asstt. Year 2013-14 7 pertinent to note that the value of closing stock is of Rs.6,79,42,281/- which includes the land cost of Rs.5,64,97,350/- Considering all these facts and argument of the Authorized Representative, I am of opinion that the addition made on the basis of stock is unwarranted and to be deleted. Accordingly, the AO is directed to delete the addition of Rs.1,69,85,570/- 10. Being aggrieved by the order of the learned CIT(A), the Revenue is in appeal before us. 11. The learned DR before us contended that the addition was made by the AO based on the statement furnished by the partner of the assessee. However, the partner admitted to make a disclosure of income only upon raising the questions that there was huge amount of capital work in progress despite that the income was at Rs. Nil in the books of accounts. The learned DR further submitted that the Hon’ble Delhi High Court in the case of Raj Hans Towers Pvt. Ltd. reported in 373 ITR 9 has confirmed the addition based on the statement recorded during survey operation. 12. On the contrary, the learned AR before us filed a paper book running from pages 1 to 155 and contended that the survey was conducted at the fag end of the financial year for collecting the advance tax which is also evident from the question No. 21 raised by the survey team. There was no document of incriminating nature found during the survey operation suggesting any undisclosed income of the assessee. The books of accounts of the assessee were accepted without pointing out any defect even during the remand proceedings. Accordingly, the learned AR contended that no addition of whatsoever is required to be made in the given facts and circumstances. 13. Both the learned DR and the AR before us vehemently supported the order of the authorities below. 14. We have heard the rival contentions of both the parties and perused the materials available on record. Admittedly, the assessee was subject to survey ITA nos.2410-2411/AHD/2018 Asstt. Year 2013-14 8 proceeding under section 133A of the Act wherein one of the partner of the respondent assessee firm made disclosure to offer profit on closing WIP @ 25%. But in the return filed for the year, the assessee firm did not offer income on the closing WIP as admitted. Therefore, the AO estimated the profit on closing WIP of Rs. 1,69,85,570/- being 25% of Rs. 6,79,42,281.00 only. On appeal by the assessee, the learned CIT(A) was pleased the delete the addition made by the AO. From the preceding discussion we note that during the survey proceedings no incriminating material of whatsoever was found from the premises of the assessee. The AO in the assessment order has also not referred to any material for making the addition except being admission made by one of the partner of the assessee. The learned CIT(A) in this regard has given a clear finding which is extracted as under: 3.4.2 During the remand proceedings, the Assessing Officer was requested to send the copy of the statements of the partners recorded during the course of survey and the copies of the incriminating material found during the course of the survey. However, no incriminating material has been referred to in his remand report not any copy of the same was forwarded. Thus, I am of the opinion that there was in fact no such material found during the course of survey and in fact the contentions of the Ld.Authorized Representative that the whole exercise of the Assessing Officer in estimating the profit of the appellant is solely based on the “Statement of the Partner” recorded during the course of survey is correct. 14.1 Before us no contrary material was brought on record by the learned DR against the above finding of the learned CIT(A). Thus, it is clear that the addition to the total income of the assessee was made only on the basis of admission made by the partner in the statement recorded during the survey proceeding. In this regard we note that the CBDT vide instruction bearing F.NO. 286/2/2003- IT(Inv.II) dated 10 th March 2003 has directed its officers not to make any addition in the assessment based on the statement recorded during survey but only on the basis of material found during the survey or search proceeding. The relevant direction of CDBT reads as under: Instances have come to the notice of the Board where assessees have claimed that they have been forced to confess the undisclosed income during the course of the search & seizure and survey operations. Such confessions, if not based upon credible evidence, are later retracted by the concerned assessees while filing returns of income. In these circumstances, such confessions during the ITA nos.2410-2411/AHD/2018 Asstt. Year 2013-14 9 course of search & seizure and survey operations do not serve any useful purpose. 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 & seizure 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. Further,in respect of pendingassessmentproceedingsalso, AssessingOfficersshouldr elyupon the evidences/materials gathered during the course of search/survey operations or thereafter while framing the relevant assessment orders. 14.2 Besides the CBDT direction for not making the addition on the basis of admission made during search/survey proceeding, the judicial authority also held time again that the no addition can be made in the hands of the assessee in absence of any cogent material corroborating the admission made by the AO. In this regard, we draw support and guidance from the judgment of Hon’ble SC in CIT v. S. Khader Khan Son [2008] 300 ITR 157 (Mad.) where it has been held that the statement, obtained under section 133A of the Act would not automatically bind upon the assessee. 14.3 Likewise, we draw support and guidance from the judgment of Hon’ble Kerala High Court in CK Abdul Azeez vs. CIT reported in 111 taxman.com 74 where it has been held that the statement, obtained under section 133A of the Act would not be conclusive evidence for the addition as extracted below: As explained in Travancore Diagnostics (supra), the statement on oath made by an assessee to the income tax authority during the survey proceedings under Section 133A of the Act is not conclusive. The assessee can explain or withdraw the admission, if any, made by him in such statement. Assessment of tax cannot be made solely on the basis of such sworn statement made by the assessee under Section 133A(3)(iii) of the Act. At the same time, such statement can be used to corroborate other materials before the assessing authority, including the contents of any document. 14.4 Moving forward, we also note that the year under consideration is the first year of the assessee’s business operation and project was just started. There was no income accrued to the assessee. The assessee has maintained regular books of account and same was also audited by the qualified accountant. The AO has not ITA nos.2410-2411/AHD/2018 Asstt. Year 2013-14 10 pointed any defect in the books of account neither the AO has rejected the books of account. The AO merely acted on presumption. Therefore, in our considered opinion no addition can be made in the given facts and circumstances. Hence the ground of appeal of the revenue is hereby dismissed. 14.5 In the result, the appeal filed by the revenue is dismissed Coming to ITA No. 2411/Ahd/2018 an appeal by the Revenue in the case of OM Shiv Developers for the A.Y. 2013-14 15. The Revenue has raised the following grounds of appeal: 1 On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 3,29,93,980/- ignoring the fact that the A.O. had made addition on the basis of voluntary disclosure made on oath by the partner in consultation with other partners of the firm during the course of survey proceedings, wherein the partner had made declaration to the effect that the statement so recorded is without any fear or coercion. 2 On the facts and circumstances of the case and in law, the Ld. C.I.T. (A) erred in deleting the addition of Rs. 3,29,93,980/- ignoring the fact that the assessee's contention during the course of appellate proceeding that the partners of the firm were not in normal frame of mind and the disclosure was made in haste, tension and without verifying the documents and records was an after thought, as is evident from the fact that prior to appellate proceedings, the assessee, though had ample time and opportunity to retract the statement made during the course of survey proceedings by giving justifiable reasons for doing so, did not retract the said statement at any time till the completion of assessment. 3 On the facts and circumstances of the case, the Ld. CIT(A) erred in ignoring the fact that the admission of undisclosed income was made by the partner during the survey proceedings after consulting with other partners. Onus is on the assessee to prove that the said declaration was wrongly made. 4 The appellant craves to add to, amend or alter the above ground as may be deemed necessary. 16. At the outset, we note that the issues raised by the Revenue in its grounds of appeal in the case of OM Shiv Developers Builders for the AY 2013-14 are identical to the issues raised by the Revenue in ITA No. 2410/AHD/2018 in the case of OM Shiv Builders for the assessment year 2013-14. Therefore, the findings ITA nos.2410-2411/AHD/2018 Asstt. Year 2013-14 11 given in ITA No. 2410/AHD/2018 shall also be applicable to the ITA No. 2411/Ahd/2018 for A.Y 2013-14. The appeal of the Revenue bearing ITA No. 2410/Ahd/2018 for A.Y. 2013-14 has been decided by us vide paragraph No. 14 of this order against the Revenue. The learned DR and the AR also agreed that whatever will be the findings for the assessment in ITA No. 2410/Ahd/2018 for assessment year 2013-14 shall also be applied to the ITA No. 2411/Ahd/2018 for A.Y 2013-14. Hence, the grounds of appeal filed by the Revenue is dismissed. 16.1 In the result, the appeal filed by the revenue is dismissed 17. In the combined result, both the appeals filed by the revenue are dismissed. Order pronounced in the Court on 24/03/2023 at Ahmedabad. Sd/- Sd/- (T.R SENTHIL KUMAR) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 24/03/2023 Manish