Shri. Kudlur Ramaswamy Sathyanarayana , Mysuru V. The Assistant Commissioner of Income-Tax, Mysuru

ITA 28/BANG/2023

AI Insights

The case involves M/s. Kudlur Ramaswamy Sathyanarayana, who appealed against the order of the CIT(A) confirming the addition of Rs. 7,72,540 to his income for the assessment year 2015-16. This amount represented cash found during a search operation under section 132 of the Income Tax Act on 4th February 2015. The assessee argued that the cash was from legitimate business transactions and not unaccounted income. However, both the Assessing Officer and the CIT(A) rejected these claims, leading to the appeal before the Income Tax Appellate Tribunal. The Tribunal upheld the lower authorities' decisions, emphasizing the lack of credible evidence from the assessee to substantiate his claims and the voluntary nature of the statements made during the search.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 124470 (ITAT-BANGALORE)
• Duration Of Justice: 2 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 19-03-2023
• Assessment Year: 2015-2016
• Appeal Filed On: 16-01-2023
• Other Referred Cases: Kailashben Manharlal Choksi v. Commissioner of Income-tax, Commissioner of Income-tax v. Sunil Aggarwal, Chetnaben J. Shah v. Income-tax Officer, ward-10(3), Commissioner of Income-tax v. Jagdish Narain Ratan Kumar, Chuharnial v. CIT, CIT v. Hotel Meriya, Smt Dayawanti v CIT, Hotel Kiran v ACIT, Kernzex Micro Systems (India) Ltd v DCIT, Kishore Kumar B v DCIT, Greenview Restaurant v ALIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Unexplained expenditure; Retraction; Set aside
• Section: 132; 143(3); 250; 44AB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH : BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA No. 28/Bang/2023 Assessment Year : 2015-16 M/s. Kudlur Ramaswamy Sathyanarayana, No. 1036-20, 4 th Main, Vidyanarayanapuram, Mysuru. PAN: AJOPS2226B Vs. The Assistant Commissioner of Income Tax, Mysuru. APPELLANT RESPONDENT Assessee by : Shri V. Sridhar, CA Revenue by : Ms. Neera Malhotra, CIT-DR Date of Hearing : 20-03-2023 Date of Pronouncement : 27-03-2023 ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal is filed by assessee against the order dated 17.11.2022 passed by the Ld.CIT(A)-11, Bangalore for A.Y. 2015- 16 on following grounds of appeal: “1. The order of the learned Commissioner of Income-tax (Appeals)-11, Bengaluru in Appeal No.CIT(A)- 11/BNG/12385/2018-19 dated:17.11.2022 in DIN: ITBA/APL/M/250/2022-23/1047480793 dismissing the the appeal and confirming the order u/s. 143(3) of the Income Tax Act, dated. 30.11.2016 passed by the Assistant Commissioner of Income Tax, Central Circle, Mysuru (AO for short) is opposed to law, weight of evidences, probabilities and facts and circumstances of the case. Page 2 of 11 ITA No. 28/Bang/2023 2. The learned Commissioner of Income-tax (Appeals) erred in sustaining the addition of Rs. 7,72,540/- being the cash found at the time of search u/s 132 in the residential premises of the appellant on 4.2.2015, as unaccounted, without appreciating the valid explanation furnished by the appellant at the time of assessment proceedings. 3. The learned Commissioner of Income-tax (Appeals) erred in confirming the addition made by the Assessing Officer, solely based on the statement recorded u/s 132(4), although the appellant explained that he was physically and mentally perturbed at the time of recording of statement which was taken at odd hours. 4. The learned Commissioner of income-tax(Appeals) failed to appreciate that the appellant had explained that he being a stamp vendor, the cash found was given by his customers as advance for purchase of property or buying of stamp papers and for meeting incidental expenses for registration of documents, but admitted as undisclosed income in a confused state of mind while recording his statement u/s 132(4). 5. The learned Commissioner of Income-tax(Appeals) erred in merely relying on inculpatory statement as voluntary, without applying his mind about the routine procedure followed by the Authorised Officers to compel the assessees to sign on dotted lines when they are drained out and exhausted. 6. The learned Commissioner of Income-tax (Appeals) ought to have observed that no addition can be made merely on the basis of the statement recorded u/s 132(4), but should be based on not only corroborative evidence but also other correlating material on record which were all in favour of the appellant. 7. The learned Commissioner of Income-tax (Appeals) failed to appreciate that the date of search being 4.2.2015 falling within the end of the previous year relevant for the assessment year, there is no mandate of law that books should have been updated and closed on that date. 8. The learned Commissioner of Income-tax (Appeals) failed to appreciate that the appellant did not have the benefit of consulting his Auditor or Accountant to have a clear idea of maintenance of books of account up to date and could not give cogent answers to the questions posed. Page 3 of 11 ITA No. 28/Bang/2023 9. The learned Commissioner of Income-tax(Appeals) failed to take into account the fact that the AO had not rejected the book results, nor has he found any defect in the books of account which were audited u/s 44AB by a Chartered Accountant as required by law and appellant's financial statements and computation of income were based on it. 10. The appellant takes strong objection to the uncharitable observation of the CIT(Appeals) in para 4.11 of his order that "the cash book prepared by the appellant is nothing but a document concocted to deceive the revenue and evade payment of taxes", without any rhyme or reason and pleads for its expunction. 11. The case laws relied upon by the AO and the CIT(Appeals) are clearly distinguishable on facts and circumstances of the appellant's case. 12. The appellant craves leave to add, delete, amend or substitute any of the grounds of appeal raised herein. 13. The grounds of appeal raised herein may be read as without prejudice to each other. For these and other grounds that may be urged at the time of hearing before the Income tax Appellate Tribunal, the appellant prays that - (a) the order of Commissioner of Income-tax (Appeals) be set aside; (b) direct the Assessing Officer to delete the addition made in the order of assessment u/s 143(3) dated:30.11.2016 and accept the income returned by the appellant; and (c) the appeal be allowed in the interests of justice.” 2. Brief facts of the case are as under: 2.1 The assessee is engaged in the business of writing of documents and real estate. He is deriving income from house property, income from business, capital gains and income from other sources. A search u/s 132 took place in the residence of the assessee on 4.2.2015. The date of search is before the end of the financial year 2014-15 (i.e., 31.3.2015), relevant for the assessment year 2015-16. 2.2 Consequent to the search, the Ld.AO issued a notice u/s 142(1) on 11.12.2015 calling upon the assessee to file return of Page 4 of 11 ITA No. 28/Bang/2023 income. The assessee filed his return of income on 18.10.2016 declaring income of Rs. 3,14,42,300/-. 2.3 The Ld.AO completed the assessment determining the total income at Rs. 3,22,14,840/-, as against Rs.3,14,42,300/- returned by the assessee, thereby making an addition of Rs.7,72,540/-. The entire cash balance found during the course of search was added under the head "Income from Other Sources" while making the assessment. 2.4 Aggrieved by the assessment order, the assessee filed appeal before the Ld.CIT(A). The Ld.CIT(A) after considering various submissions of the assessee and the statement recorded u/s. 132(4) observed and held as under: “4.4 From a perusal of the above parts of the statements recorded during search, following facts emerge:  First statement was recorded at about 9:15am i.e. in morning. Although time of recording of second statement is not mentioned, it is noted that at the time of recording this statement the appellant had specifically confirmed that he was in sound health condition and free from all pressures and that he could answer the questions raised.  In his preliminary statement the appellant had submitted that he was maintaining his books of account and that the same would be available at his residence or in office and nowhere else. However in his subsequent statement he admitted that he was not maintaining any books of account (answer to query 4) and that he was maintaining only purchase and sale deeds of the properties and the bank accounts. He further submitted that the expenses of day to day nature were booked approximately based on experience and that whatever he told the accountant the same was booked by him. The appellant specifically confirmed that regular books of accounts were not maintained.  The fact of non-maintenance of the books was reconfirmed by the appellant in response to query no. 6.  In response to query no. 7, the fact of non-maintenance of the books was confirmed once again wherein he offered undisclosed income of Rs 1.5 crore by citing the absence of books of accounts and non-maintenance of proper records as the reason. Page 5 of 11 ITA No. 28/Bang/2023  In response to query no. 8, the appellant offered the cash found of Rs 7,72,540/- as his undisclosed income by admitting that he had not been maintaining any regular cash book. The appellant also expressed his inability to reveal the true source of this cash.  The appellant admitted that the statements had been given by him voluntarily and without any force, threat, coercion or undue influence. The statements were read by him and he certified that the same had been recorded correctly. 4.5 The submissions of the appellant, as made during appellate proceedings, need to be looked into with the background of these statements in mind. Now as regards argument of the appellant that he was nervous, shocked and not in normal state at the time of recording statement, the same is found to be incorrect. A perusal of the details as discussed supra and a comprehensive reading of the statement clearly shows that the appellant was clearly aware of what he was replying during recording of statements. He has answered various queries with full awareness. His replies to various queries clearly reflect this aspect. Lastly he read the statement and found it to be recorded correctly. That there wasn't any threat or coercion or undue pressure becomes further evident from the fact that the statement was recorded in presence of two independent witnesses, who have also signed below the statement thus confirming that the statement was recorded in their presence. Verification at the end of the statement proves that the statement was given voluntarily in a sound state of mind without any threat, coercion or undue influence. This is also important to note that the statement was never retracted immediately by the appellant. The appellant retracted the statement for the first time vide letter submitted before AO on 15.11.2016, when the show cause notice was issued by the AO during assessment proceedings i.e after a gap of 1 year and 9 months. 4.6 The reliance of the appellant on various decisions is also found to be misplaced. The decisions were rendered on the peculiar facts of those cases and as such the ratio of the same does not help the appellant. In the case of Kailashben Manharlal Choksi v. Commissioner of Income- tax (Supra), as relied upon by the appellant, the statement was retracted by the assessee within 2 months of making statement and he had also alleged pressure and coercion. The FIC had also observed that the assessee had given proper evidence in support of his retraction. Since the facts of the present case are different, so this decision Page 6 of 11 ITA No. 28/Bang/2023 does not help the appellant. In the case of Commissioner of Income-tax v. Sunil Aggarwal (supra), as relied upon by the appellant, the assessee was maintaining books of accounts and the HC had observed that the discrepancy was clearly explained from the books of account. However, in the case under consideration, no such books of accounts were being maintained and the cash book prepared subsequent to search itself is not reliable, being a document prepared by the appellant to serve his own purpose. In the case of Chetnaben J. Shah v. Income-tax Officer, ward-10(3)(supra), as relied upon by the appellant, the HC had observed that there wasn't any basis in the form of document or the like for the statement recorded at the time of search. However in the case under consideration cash was found from the possession of the appellant during search and books of accounts were admitted to be not being maintained by the appellant. The appellant admitted the cash to be from undisclosed sources which he did not want to reveal. So as such the facts of the case under consideration are entirely different. Similarly in the case of Commissioner of Income-tax v. Jagdish Narain Ratan Kumar, as relied upon by the appellant, the HC had observed that the statement was made subject to some conditions and that the surrender was not unconditional. The HC also noted that requisite clarifications were given by the assessee within a period of 2 months after seizure. However in the case under consideration the facts are entirely different as the surrender was not conditional to further verification. Further, no such immediate clarification was given by the appellant. So the ratio of the above decision does not help the appellant. Other decisions relied upon by the appellant are also on same footing, being rendered on different facts and thus not applicable. 4.7 As regards decision in relation to FERA provisions, as relied upon by the appellant, it is important to note that in the case of Chuharnial v. CIT (1988) 172 ITR 250 (SC), the Apex court held that the Evidence Act does not apply to proceedings under the Income-tax Act. The Supreme Court pointed out that the rigours of rule of evidence contained in the Evidence Act were not applicable to the Income-tax Act, but on first principles and on general law, the principles of Evidence Act can be applied to proceedings under the Income-tax Act. The Division Bench of the Kerala High Court in CIT v. Hotel Meriya [2011] 332 ITR 537 (Ker.) considered the scope of a statement recorded under Section 132(4) and found that such statement recorded by the officer as well as the documents seized would come within the purview of evidence under the Income-tax Act Page 7 of 11 ITA No. 28/Bang/2023 read with Section 3 of the Evidence Act. The necessary corollary is that such an evidence would be admissible for the purpose of search assessments too. The Explanation to Section 132(4) of the Income Tax Act was also noticed by the Division Bench to further emphasize that the evidence so collected would be relevant in all purposes connected with any proceedings of the Income Tax Act. 4.8 As regards reliance of the appellant on CBDT circular, the same is also misplaced. There isn't any violation of the said circular as there is nothing in the* statement to show that any confessions were obtained. The documents and cash found at the time of search were confronted to the appellant and he has given his statement to explain the nature of the same along with the basis for making any disclosure that the same were part of his undisclosed income. 4.9 In the case of Smt Dayawanti v CIT [2017] 390 ITR 496 (Delhi) the High Court held that the statements recorded during search operations could be relied upon to make addition to assessee's income. In the case of Hotel Kiran v ACIT [2002] 82 ITD 453 (Pune) the ITAT held that when statement under section 132(4) was voluntarily made and there was no coercion or threat whatsoever and contents of statement were clear and unambiguous, same would be binding on assessee even if it was subsequently retracted. In the case of Kernzex Micro Systems (India) Ltd v DCIT [2014] 47 taxmann.corn 375 (Andhra Pradesh) the High Court held that when addition to assessee's income was on the basis of voluntary statement made by managing director of company that certain amount represented unexplained expenditure and assessee had not made any attempt to explain before Commissioner (Appeals) suggesting not to accept admission of its managing director, addition could not have been deleted merely on basis of lawyer's argument that aforesaid admission was recorded under mistaken belief of fact and law. In the case of Kishor•e Kumar B v DCIT [2014152 taxmann.com 449 (Madras) the High Court held that where assessee himself stated about his undisclosed income in sworn statement recorded during search, addition could be made on basis of admission without scrutinizing documents. SLP against the decision was dismissed by Supreme Court as reported in [20151 62 taxmann.com 215 (SC). In the case of Greenview Restaurant v ALIT [20031 263 ITR 169 (Gauhatt) the High Court held on the issue of delay in retraction and allegation of coercion: "From facts, it was clear that there was a delay on the part. of the appellant and its partner in retracting the Page 8 of 11 ITA No. 28/Bang/2023 statements recorded. The attention of the Court had also not been drawn to any material on record to establish that any attempt was made on behalf of the appellant to prove the allegation of inducement, threat or coercion through the witnesses. Having examined the impugned orders rendered by the Tribunal with the reasonings in support of its finding against the complaint of threat, inducement or coercion, no good and sufficient reason was found to differ from it. In the facts and circumstances of the case, having regard to the materials on record, the appellant had failed to establish that the statements of its partner had been recorded in the course of the search by using coercion, threat or inducement. Hence, the contentions advanced by the appellant in that regard were dismissed and the conclusion of the Tribunal on that count was affirmed." 4.10 In view of above, the reliance of the AO in the case under consideration on the statement of the appellant is validly made and does not call for any interference. 4.11 As regards the cash book, the appellant has not brought on record to show that any such cash book was ever produced by him for the perusal of the AO. Anyhow, the cash book prepared for the first time after the search cannot be treated as an authentic document and no cognizance of the same was required to be taken by the AO. This is important to note that in his initial statement the appellant submitted that he was maintaining books of account and the same would be lying either at his residence or office. However, in subsequent statement he admitted that no such books of accounts were maintained by him. This was evidently for the reason that no such books of account were found during search at the office premises or the residence of the appellant and so the appellant had to admit the correct fact that books were not being maintained by him. In addition, in the statement itself he has admitted that the expenses were recorded by his accountant not on actual basis but on the basis of whatever he was told to record. As such, since neither cash boOk was maintained nor any day to day details of actual cash expenses or receipts were found during search, the cash book could not have been prepared by the appellant and that too to have exact cash balance as on the date of search. So the cash book prepared by the appellant is nothing but a document concocted to deceive the revenue and evade payment of taxes. 4.12 As regards the arguments of the appellant that he was not having the assistance of his tax practitioner at the time of search and so he made statements without Page 9 of 11 ITA No. 28/Bang/2023 realising its implication, the same also deserves to be rejected. The queries raised in the statement recorded at the time of search were on factual issues, to which the appellant was privy and not his tax practitioner. The appellant was required to state the correct facts and he has correctly admitted that he had not maintained any cash book or regular books of account. The fact that the appellant did not want to reveal the source of cash also confirms the fact that the same was unaccounted and by not revealing the source he was trying to shield some other persons from the investigation to be carried out by the tax authorities about such unaccounted cash. So by admitting the same to be his own income he has achieved the purpose of shielding such sources of cash and prevented the tax authorities from carrying out further investigation. So now he cannot be allowed to back out and evade his own tax liability. 4.13 Considering above the action of the AO in treating the cash of Rs.7,72,540/- as unaccounted income is upheld and the ground of appeal 2 is dismissed.” Aggrieved by the order of the Ld.CIT(A), assessee is in appeal before this Tribunal. 3. The Ld.AR submitted that, admittedly cash was found at the residence of the assessee and assessee had not maintained the books of accounts at his residence. It is also an admitted fact that assessee had not updated his books prior to the date of search and that assessee updated the books of accounts after the search. 4. On perusal of the books of accounts, cash book/ledger placed at page 69 of the paper book, we note that the assessee had closing balance as on 04.02.2015 to be Rs.7,72,540/-, which is the exact amount of cash found during the course of search on 04.02.2015. 5. After hearing both sides, we are of the view that, had the assessee maintained the cash book prior to the date of search, Page 10 of 11 ITA No. 28/Bang/2023 the cash availability in the books of accounts would have been verifiable. 6. In the circumstances peculiar to the present facts of the case, it is very difficult to appreciate the ledger accounts prepared by assessee in the cash book showing the same amount of cash seized on the date of search, to be verifiable. Before us the Ld.AR once again reiterated that the disclosure made in the statement was under pressure. There is no retraction of the statement filed by the assessee apart from making oral submissions. Apart from the cash book that was admittedly prepared post search, the assessee do not have any other evidence to support the argument. 7. We are therefore in no position to appreciate this argument of the Ld.AR. We therefore do not find any infirmity with the observations of Ld.CIT(A) and the same stands upheld. Accordingly, the grounds raised by the assessee stands dismissed. In the result, the appeal filed by the assessee stands dismissed. Order pronounced in the open court on 27 th March, 2023. Sd/- Sd/- (CHANDRA POOJARI) (BEENA PILLAI) Accountant Member Judicial Member Bangalore, Dated, the 27 th March, 2023. /MS / Page 11 of 11 ITA No. 28/Bang/2023 Copy to: 1. Appellant 2. Respondent 3. CIT 4. DR, ITAT, Bangalore 5. Guard file By order Assistant Registrar, ITAT, Bangalore