Kermex Micro Systems [India] Ltd V. Deputy Commissioner of Income Tax

ITTA/77/2007

AI Insights

The case involves Kernex Micro Systems (India) Ltd., Hyderabad, as the appellant, contesting an income tax assessment for the year 1998-99. The dispute arose from a voluntary admission of undisclosed income of Rs. 20 lakhs made by the Managing Director of the appellant company during a survey conducted by the Deputy Commissioner of Income Tax, Circle-2(1), Hyderabad. The Income Tax Appellate Tribunal (ITAT) upheld the addition of this amount to the appellant's income, which was contested in this appeal. The main legal issues revolved around the validity of the admission made during the survey, the alleged retraction of this admission, and the application of principles of natural justice in the assessment process.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 796336 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 02-01-2014
• Assessment Year: misc
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: S R ASHOK
• Assessee Lawyers: P MURALIKRISHNA
• Keywords: Assessment Order; Income disclosure; Retraction of admission; Voluntary admission; Survey and search operations
• Section: 133A; 133(1); 133(4)

Judgement Text

"* THE HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTA AND THE HON’BLE SRI JUSTICE SANJAY KUMAR + ITTA No.77 OF 2007 % Dated 02-01-2014 # Kernex Micro Systems (India) Ltd., Hyderabad. Appellant VERSUS $ Deputy Commissioner of Income Tax, Circle-2(1), Hyderabad. Respondent ! Counsel for Petitioner : Sri P. Murali Krishna ^ Counsel for the respondent : Sri S.R. Ashok HEAD NOTE: ? Cases referred IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD THE HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTA AND THE HON’BLE SRI JUSTICE SANJAY KUMAR I.T.T.A. No. 77 OF 2007 DATE: 02.01.2014 Between: Kernex Micro Systems (India) Ltd., Hyderabad. … Petitioner And Deputy Commissioner of Income Tax, Circle-2(1), Hyderabad. … Respondent This Court made the following: THE HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTA AND THE HON’BLE SRI JUSTICE SANJAY KUMAR ITTA No. 77 of 2007 JUDGMENT: (Per the Hon’ble The Chief Justice Sri Kalyan Jyoti Sengupta) This appeal is directed against the judgment and order dated 22.02.2006 of the learned Tribunal in relation to assessment year 1998-99 and is sought to be admitted on as many as eight suggested questions of law, which are as follows: “5.1. Whether on the facts and circumstances of the case, the Hon’ble ITAT was justified in reversing the order of the learned CIT (Appeals) and restoring the addition of Rs.20 lakhs? 5.2. Whether on the facts and circumstances of the case, the Hon’ble ITAT was justified in holding that the appellant company could not retract from its admission before the learned CIT (Appeals), who is also a departmental authority and whose powers are co- eval with those of the assessing officer? 5.3. Whether the Hon’ble ITAT the ultimate fact finding body, was justified in refusing to look into the facts relating to the expenditures involved in the so called defective vouchers listed by the assessing officer? 5.4. Whether there is any basis for the conjecture and suspicion of the Hon’ble ITAT that the appellant company could manipulate its evidence in the face of the fact that most of the expenditures were covered by either cheque payments or TDS provisions of the Income Tax Act? 5.5. Whether the Hon’ble ITAT was justified in restoring the addition of Rs.20 lakhs solely basing itself on the statement recorded by the assessing officer under Section 133A of the Income Tax Act from the Managing Director of the appellant company, which statement cannot be put on par with a sworn statement under Section 133 (1) or 133 (4) of the Income Tax Act? 5.6. Whether the canons of natural justice are not violated as no show cause notice was issued by the assessing officer and the list of the defective vouchers was not furnished and not even a copy of the statement recorded from the Managing Director was furnished to the appellant company before the assessment has been completed? 5.7. Whether the Hon’ble ITAT was justified in sustaining the addition when the Central Board of Direct Taxes itself in its instructions F.No.286/2/2003-IT(Inv), dated 23.03.2003 had instructed the officers not to force confessions of undisclosed income during search and survey operations and stated that such confessions, as in the present case, which are not based on credible evidence, did not serve any purpose? 5.8. Whether the Hon’ble Tribunal was justified in calling upon the appellant company to prove the negative by way of showing proof that the statement of the Managing Director had not been furnished to it?” At the first instance, from a reading of the aforesaid suggested questions of law, we are of the view that those questions are not the questions of law rather argument in the form of question. Therefore, we do not want to look into those questions. However, when the matter has come up for hearing, it is the duty of the Court to formulate the substantial question of law, if the Court decided to admit the appeal for hearing. The relevant facts are as follows: The Assessing Officer has made an assessment order on the basis of the voluntary statement made by the Managing Director of the appellant disclosing of income of Rs.20 lakhs. The said statement, which was reproduced by the learned Tribunal in its judgment, is reproduced hereunder. “I admit that the above defects persist in maintenance of expense vouchers. The payments are not properly recorded. Taking into account the above deficiencies, which are not deliberate and to cover up any other omissions and commissions, I voluntarily offer Rs.20.00 lakhs as additional income in respect of training and development divisions of the company and EOU division of the company. The lapses being common to both the divisions, i.e., training and development and EOU, I offer Rs.10.00 lakhs for each of the division. This offer has been made voluntarily to close the matter. This does not cover any disallowance on any legal issue. I would request the department not to initiate any penalty proceedings. I undertake that the company pay the taxes after it receives the assessment order.” The fact shows that at the time of assessment the assessee did not retract the aforesaid admission making voluntary disclosure. Even the assessee on the basis of the assessment has paid the tax and after that an appeal was preferred before the Commissioner of Income Tax (Appeals). In the said appeal we do not find that the appellant has made out any case that the aforesaid admission was not made voluntarily and it was made by mistake or anything else. It appears from the record that only the learned lawyer appearing before the Commissioner of Income Tax (Appeals) took up the factual point, which was not stated in the grounds of appeal, that the aforesaid admission was recorded under mistaken belief of fact and law. Taking note of this argument, perhaps and without verifying whether such ground has been made out or not, the Commissioner of Income Tax (Appeals) observed as follows: “Before going into the legal intricacy whether income offered during the course of survey can be agitated before the appeal proceedings or not, I want to state that an addition made by the AO should stand on its own legs irrespective of the fact whether it is accepted or not accepted by the assessee. I agree that in this case, the MD of the appellant-company had offered a sum of Rs.20 lakhs at the time of survey. It is also a fact that he has not disputed the same during the course of assessment proceedings. It is also a crucial fact that the appellant had even paid taxes on the income offered. But can he sustain an addition only on the basis of admissions and acquiscences, particularly, when the appellant has gone back on the admission? The answer is an emphatic “No” as, if an addition can be made on the basis of admission, the same has to be deleted on the basis of retraction.” We fail to understand from where the case of retraction has been discovered by the Commissioner of Income Tax (Appeals) when the appellant has not stated in the grounds of appeal before it that it has retracted. Notwithstanding above, the learned counsel before us very strenuously argues that there has been retraction of admission before the Commissioner of Income Tax (Appeals) and the Commissioner has taken into consideration of the same. Therefore, the learned Tribunal should not have set aside the order of the Commissioner, but at the most it should have remanded the matter. According to him, the Commissioner of Income Tax (Appeals) has extensive power and he has rightly exercised the same. We are of the view that the argument of the learned counsel is absolutely misplaced on fact as before the Commissioner of Income Tax (Appeals) there was no case of retraction. Factually, he perhaps noted oral arguments of the lawyer. According to us, it is not permissible under law as retraction of admission is purely a matter of fact, which must be made available before the Court of law or Tribunal, which then can consider the same. It is settled position of law that admission is a very important piece of evidence, unless it is explained or retracted. Here the assessee has not made any attempt to explain before the Commissioner of Income Tax (Appeals) suggesting not to accept the same. Here instead of retracting the assessee called upon to act upon the same to pass assessment order and accordingly it was done and the tax was duly paid. We fail to understand why challenge should be made at a later stage. The learned counsel thereafter argues that the admission cannot be looked into under the law, as it is a material collected during the period of survey and this is not a valid piece of evidence. We think there must be distinction between the admission and the evidence collected during the course of survey. This is a voluntary act of the assessee and if the assessee accepts the liability, there is no point or scope to collect further evidence or making any enquiry. Here exercising of power by the Commissioner was not called for. Exercise of power evaluating legal implication of admission was not called for because no case was made out factually. Therefore, the decisions cited by the learned counsel for the appellant before us are absolutely inappropriate. Hence, we ignore all these decisions. The learned Tribunal has taken a correct decision and we are constrained to comment on the decision taken by the Commissioner of Income Tax (Appeals), even basing on his own recording that the same is without any factual basis and further unsupported by law. When a case is not made out before the Commissioner, he should not have made out so to say his own case basing on a lawyer’s argument. A lawyer cannot improve the case of the litigant on fact unlike in case of law. Such an act is without jurisdiction. The appeal is accordingly dismissed. We are of the view that for filing such a frivolous appeal an exemplary cost has to be imposed. Accordingly, we impose costs estimated at Rs.10,000/- (Rupees Ten thousand only), to be paid by the appellant to the A.P. Legal Services Authority within a period of two weeks from date. ___________________ K.J. SENGUPTA, CJ ___________________ SANJAY KUMAR, J Date: 02.01.2014 ES LR copies to be marked. "