VISION EXPORTS,MORADABAD V. ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, MORADABAD

ITA 2361/DEL/2023

AI Insights

The case involves Vision Exports, a partnership firm engaged in manufacturing and exporting Indian handicrafts, which faced scrutiny after a search and seizure operation under Section 132 of the Income Tax Act, 1961. During the search, incriminating materials were discovered, and the firm voluntarily surrendered unaccounted income. However, the firm later retracted this surrender, leading to a dispute over the inclusion of this income in the assessed income. The Tribunal examined the validity of the additions made by the Assessing Officer based on the surrendered income and the statements made during the search.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 633044 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-06-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2017-2018
• Other Referred Cases: Commissioner of Income-tax- II, Nagpur vs. Pavitra Realcon Pvt. Ltd., Kailashben Manharlal Chokshi vs. CIT, CIT vs. Harjeev Aggarwal
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMIT KATOCH
• Assessee Lawyers: CHETAN AGARWAL
• Keywords: Corroborative evidences; Unexplained investment; Income from undisclosed sources; Gift; Retraction; Search and seizure; Block assessment; Loose papers
• Section: 143(3); 142(1); 132; 68; 131; 69C

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: E : NEW DELHI BEFORE SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER AND SHRI ANUBHAV SHARMA, JUDICIAL MEMBER ITA No.2361/Del/2023 Assessment Year: 2017-18 Vision Exports, Faridpur, Sambhal Road, Moradabad – 244 001, Uttar Pradesh. PAN: AAJFV0634Q Vs ACIT, Central Circle, Moradabad. (Appellant) (Respondent) Assessee by : Shri Chetan Agarwal, CA; Shri Mohammad Ammar, CA & Shri Tariq Nafees, Advocate Revenue by : Shri Amit Katoch, Sr. DR Date of Hearing : 23.04.2025 Date of Pronouncement : 13.06.2025 ORDER PER ANUBHAV SHARMA, JM: This appeal is preferred by the Assessee against the order dated 23.06.2023 of the Commissioner of Income-tax (Appeals), Lucknow-3 (hereinafter referred to as the Ld. First Appellate Authority or ‘the Ld. FAA’, for short) in Appeal No.CIT(A), Lucknow-3/10314/2018-19 arising out of the appeal before it against the order dated 30.12.2018 passed u/s 143(3) of the ITA No.2361/Del/2023 2 Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) by the ACIT, Central Circle, Moradabad (hereinafter referred to as the Ld. AO). 2. Heard and perused the records. The appellant, a partnership firm consisting of Mr. Danish Ali and Mr. Tariq Ali, engages in the manufacturing and export of Indian handicrafts at Veerpur Industrial Area, Moradabad. The facts in brief the appellant, a partnership firm, filed its Return of Income on November 7, 2017, declaring a total income of Rs 3,03,06,350/-. The case was selected for scrutiny assessment, and consequently, a notice under section 143(2) was issued on September 17, 2018, followed by a notice under section 142(1). On December 15, 2016, a search and seizure operation was conducted under Section 132 of the Act, at the premises of the assessee firm. During the course of the search, incriminating materials were discovered, based on which the assessee firm voluntarily surrendered alleged unaccounted income amounting to Rs.9,85,00,000/-. The case of revenue is that total amount surrendered, Rs.9,85,00,000/-, was duly confirmed in writing through a letter signed by Shri Tarique Ali, a partner of the assessee firm. This surrendered income allegedly comprised the following: 1. Rs.7,00,00,000/- (Rupees Seven Crore only) attributed to purchases made outside the regular books of accounts, as evidenced by the incriminating materials uncovered during the search. ITA No.2361/Del/2023 3 2. Rs.2,50,00,000/- (Rupees Two Crore Fifty Lakh only) representing unrecorded construction expenses related to the building located at Veerpur Industrial Area, which had not been entered into the firm’s books of accounts. 3. Rs.35,00,000/ (Rupees Thirty-Five Lakh only) attributed to other income, expenditures, or investments by the firm and its partners, which were similarly not reflected in the books of accounts for the period between August 17, 2011, and December 14, 2016. 3. Subsequently, the case was centralized with the Central Circle, Moradabad, as per an order under section 127 of the Act issued by the Principal Commissioner of Income Tax, Moradabad. The Return of Income was filed on November 7, 2017, disclosing a total income of Rs.3,03,06,350/-. Thereupon reviewing the return, it was observed by ld. AO that the assessee had not disclosed the surrendered income of Rs. 9,85,00,000/-. It was also noted that the assessee had not retracted the surrendered amount by filing any retraction letter, yet did not include the amount in the return of income. The case was then selected for scrutiny assessment, and after issuing mandatory notices the assessment was completed. The ld. Assessing Officer completed the assessment, including the disclosed Rs. 9.85 crores as undisclosed income, leading to a total assessed inpome of Rs. 12,38,06,350/- as per the impugned order dated December 30,2018. ITA No.2361/Del/2023 4 4. The case of assessee is that Mr. Danish Ali manages sales, finance, administration, and accounts, while Mr, Tariq Ali oversees manufacturing, shipment, HR, and construction. During the search, Mr. Tariq Ali, who lacked knowledge of the firm's accounts, was questioned about financial documents found on the premises. In the absence of Mr. Danish Ali and the firm's accountant, Mr. Tariq Ali, fearing potential errors, mistakenly disclosed an income of Rs. 11.00 crores for the firm, his brother, and his father's partnership, M/s Kohinoor Grafts, without supporting evidence. Post-search, separate disclosures of income were made by Mr. Tariq Ali's brother and father. Ld. AR submitted that upon Mr. Danish Ali's return, it was found that all the impounded materials were properly recorded in the firm's accounts. Consequently, Mr. Tariq Ali retracted his earlier statement, clarifying that the firm had no undisclosed income, and the impounded documents were duly accounted for. 5. Ld. AR has submitted that that search on 15.12.2016 was carried out, inter alia, at the business premises of the appellant firm which continued post- midnight of 15.12.2016 and concluded on 16.12.2016. At the time of search managing partner of the firm, Mr. Danish Ali was not present in India. However, statements of the other partner of the appellant firm, Mr. Tariq Ali, who was not in control of accounts, were recorded u/s 132(4) of the Act and he was asked and required to explain about various papers pertaining to finance and accounts found and impounded from the business premises of the appellant ITA No.2361/Del/2023 5 firm. The finance and accounts of the appellant firm were looked after by Mr. Danish Ali. The accountant of the firm was also on leave. In their absence, Mr. Tariq Ali having no knowledge of the accounts of the appellant firm had expressed his inability to give any detailed explanations in respect thereof. That Mr. Tariq Ali having expressed his lack of accounting knowledge and inability to give detailed explanations of the impounded material, his averments are null in the eyes of law and void ab initio. That left with no other option, helpless Mr. Tariq Ali in apprehension of any possible act of error and omission and under mistaken belief of law and fact, had offered income of Rs. 11.00 crores pertaining to the appellant firm, his brother Mr. Danish Ali and the partnership firm of his father M/s Kohinoor Crafts. That Mr. Tariq Ali was neither competent in law nor authorized to make any statement on behalf of Mr. Danish Ali and partnership firm of his father M/s Kohinoor Crafts. It was submitted that statements of the partner of M/s Kohinoor Crafts, Mr. Iftikhar Ali were also recorded u/s 132(4) of the Act, but he has not offered any additional income to tax. It was submitted that Mr, Tariq Ali having categorically stated on oath that he has no knowledge of accounts and finance his disclosures about income of the appellant firm are void ab initio. It was submitted that the said disclosure was not supported by any cogent evidence nor any assessment year wise breakup of income was given. It was also submitted that nowhere in his statements Mr. Tariq Ali has stated that the declaration of income pertains to income from undisclosed sources. Referring to answer to question no. 40 and 41 ITA No.2361/Del/2023 6 of the statements it was submitted that entire disclosure of income made by Mr. Tariq Ali was based on loose papers found and impounded vide Annexures A-l to A-83 and no additional source of income, whatsoever, is admitted. It was further argued that the appellant firm neither had any undisclosed source of earning nor any incriminating document in this regard was found during search nor any income from undisclosed source was declared by Mr. Tariq Ali in his statement. It is contended that the settled law is that subsequent to conclusion of the statement u/s 132(4) of the Act, any subsequent letter or statement cannot be regarded as statements recorded u/s 132(4) of the Act. Reliance was placed on Hon'ble High Court of Bombay decision in the case of Commissioner of Income-tax- II, Nagpur [2017] 84 taxmann.com 275 (Bombay) where it is held that statement declaring undisclosed income by assessee being recorded after date of search, could be of no evidentiary value in terms of section 132(4). Then ld. AR has submitted that the amount of Rs.700.00 lacs finds its genesis from the bills, vouchers and loose papers contained in following LPs impounded from the factory premises of the appellant firm; LP No. Page nos. Amount LP-2 1-34 78,38,100.00 LP-44 1-77 4,48,20,072.00 LP-6 32-48 34,02,495.00 LP-7 1-47 14,00,000.00 LP-16 4-5 61,85,300.00 ITA No.2361/Del/2023 7 6. It was contended that partner of the appellant firm Mr. Tariq Ali, who was looking after the construction work of building had a rough estimate in his mind that approximately a sum of Rs.250.00 lacs must have been incurred for building under construction till 15.12.2016, in absence of accounting knowledge he could not present the accounts at the time of search. It was submitted that no incriminating documents in respect of building construction were found or impounded during the course of search. Then amount of Rs.35.00 lakhs stated above has no basis or rationale but an act of surmise and conjuncture under mistaken belief of law and fact it has no reference to any books of account, documents, money, bullion, jewellery or other valuable article or thing. That after return of the managing partner of the appellant firm Mr. Danish Ali from vacation, the accounts of the appellant firm were looked into and it was found that all the bills and vouchers, which Mr. Tariq Ali due to his lack of knowledge of accounts, could not corroborate with the accounts on 15/16.12.2016, were found duly entered and recorded in the books of account of the appellant firm. It was contended all the bills, vouchers and loose papers contained in the LPs mentioned above were not only found recorded in the books of account of the appellant firm but payment of the majority of the bills and vouchers was made by way of account payee cheques and other banking channels, which leaves no space for any slightest doubt or ambiguity. It was submitted on the basis of copy of account of the building under construction that it is evident that during the period ended on 14.12.2016 a sum of Rs.2,99,11,477.50 was incurred and ITA No.2361/Del/2023 8 recorded in the books of account of the appellant firm. It was submitted that maximum payment for building construction has been made through account payee cheque or other banking channels. This amount is in conformity with the estimation made by Mr. Tariq Ali. 7. Ld. DR has relied the impugned orders and it was submitted that statement was never retracted and in the impounded material there is sufficient corroboration of the surrendered income. 8. We have given thoughtful consideration to submission and material before us. Section 132(4) of the Act, reproduced below, merely state that such statement recorded u/s 132(4) of the Act, ‘may’ be used in evidence in any proceeding under the Act only if examined on oath during the course of search and the deponent is found to be in possession or control of incriminating material. \"The authorized officer may, during the course of the search or seizure, examine on oath any person who is found to be in possession or control of any books of account, documents, money, bullion, jewellery or other valuable article or thing and any statement made by such person during such examination may thereafter be used in evidence in any proceeding under the Indian Income- tax Act, 1922 (11 of 1922), or under this Act.\" 9. It is now settled law that in order to use statements recorded u/s 132(4) of the Act in evidence in assessment proceedings, the same must be corroborated with some cogent material. As we appreciate the material on record in the form of statement recorded at the time of search available at pages ITA No.2361/Del/2023 9 48-60 of the paper book, Volume-I, we find that it is shows that on 15.12.2016, the statement was initiated to be recorded and, after examining Tariq Ali, till 8.15 PM, the statement was closed and again at 12.16 PM the statement was again started to be recorded. After going through this statement, we find that Tariq Ali mentions in response to question No.28, that upto September, 2016, one Rinku Sharma was looking after the accounts and when he left, thereafter, the accounts were not properly maintained and in December, 2016 one Yasir was appointed as Accountant. It was admitted by him in question No.13 that the accounts were not properly maintained and properly documented. Further, when he was confronted with the document Annexures A1 to 83 he submitted that the accounts of the firm are looked after by brother Shri Danish Ali and he has no knowledge. Further, in response to question No.41 where list of sundry creditors and difference in cash was sought to be explained, it was replied by him specifically that Danish Ali only looked after all the accounts and in his absence, considering the complexity of the accounts, Tariq Ali is unable to give detailed replies and, accordingly, agreed to surrender a sum of Rs.11 crores as income on account of partnership firm, present assessee Vision Exports and the partnership firm of Danish Ali and his father, Kohinoor Crafts. It was mentioned by Tariq Ali in his reply to question No.41 that he will give details of this Rs.11 crores in the next 2-3 days. Thereafter in response to notice u/s 131 the aforesaid details and heads of income were reported. ITA No.2361/Del/2023 10 10. Now, this statement recorded post midnight, alone has been made basis of the assessment. At first, recording such statement of general and gross nature post midnight itself appears to be volatile of the CBDT issued Circular No. 286/2/2013, which prevents the search party from getting any confessions in the search. 11. Then, this statement as appreciated by us completely substantiates the claim of the assessee that Tariq Ali was not looking after the accounts and was not actually aware of any factual aspects of accounts, but, still post midnight he made a statement surrendering income of Rs.11 crores without giving any details whatsoever of the heads under which this alleged income was not disclosed earlier. Thus if during assessment it is retracted, same cannot be said to be after thought but is quite justified in the surrounding circumstances. 12. Next there was no mention in the statement as to which years this alleged undisclosed income related. Tariq Ali had made disclosure with regard to two firms without even mentioning as to in what ratio these surrenders related to the firms and individuals of a family. In spite of search team having alleged incriminating loose papers none of those was put across to Tariq Ali to have a specific reply with regard to the heads under which subsequently the income was attributed. ITA No.2361/Del/2023 11 13. In this context, we find from the material on record that when the assessee had not disclosed this allegedly surrendered income in the return of income, notice u/s 142(1) of the Act was issued, copy of which is available at page 454 of the paper book with an Annexure wherein amongst other queries, query No.3 was raised according to which the managing partner of the assessee was asked to give a reply as to following incomes which were allegedly admitted by them or groups:- Sl. No. Name of concern/ individual Additional income admitted Basis of additional income offered 1. M/s Vision Exports 7,00,00,000/- On account of outside books purchases, on account of records and incriminating material found during the course of search. 2. M/s Vision Exports 2,,50,00,000/- On account of amount incurred on construction of building at Veepur Industrial Area not found recorded in books of account. 3. M/s Vision Exports 35,00,000/- On account of any other income/expenditure or investment of the firm and its partners not found recorded in the books of accounts for the period 17.08.2011 to 14.12.2016 4. Sh. Danish Ali 35,00,000/- On account of expenses incurred on marriage of Sh. Danish Ali including payment made to famous fashion designer of bollywood Mr. Manish Malhotra in cash (LP.3 of Party A-1 pages 6 to 18). 5. Sh. Danish Ali 55,00,000/- Out of marriage gifts particulars of which are not traceable. 6. M/s Kohinoor Crafts 25,00,000/- On account of any other income/expenditure or investment of the firm and its partners not found recorded in the books of accounts for the period 01.04.2010 to 14.12.2016. Grand Total 11,00,00,000/- ITA No.2361/Del/2023 12 14. In this notice at page 465, there is also mention of certain loose papers which were sought to be explained. At pages 468 to 470, there is a reply of the assessee in which there is an explanation with regard to the currency notes of Rs.13,64,000/- found during the search operations and also with regard to the loose papers. Accordingly, as we examine the assessment order, we find that none of the alleged disclosures on account of alleged outside book purchases, construction of building at Veepur Industrial Area or unexplained investments not recorded in the books have been corroborated by the loose papers. The submission of assessee about the loose papers have not been rebutted and contradicted by any independent findings but merely by alledging retraction of statement is at belated stage statement alone has been considered for making additions. 15. As discussed above, the law is now settled that in the absence of substantive corroboration of the statement recorded u/s 134(2) of the Act, the statement cannot be relied for making the admissions. In fact, in ITA No.9556/Del/2019 by the decision dated 22.09.2021, by SMC Bench, the case of ‘Kohinoor Crafts’, the other partnership firm for which to Tariq Ali had made statement, was considered and the addition made on account of Rs.25 lakhs was deleted for the reason that it was the statement alone of Tariq Ali which was considered for making the addition. The relevant part of the order reads as under:- ITA No.2361/Del/2023 13 “11. I have heard the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the assessee. I have also considered the various decisions cited before me. I find, the AO, in the instant case, made addition of Rs.25 lakhs to the total income of the assessee u/s 69C of the IT Act on the ground that Shri Iftikhar Ali, partner of the assessee firm in his statement made u/s 131(1A) dated 22nd February, 2017, had surrendered an amount of Rs.25 lakhs “on account of any other income/expenditure or investment of the firm and its partners not found recorded in the books of account for the period 01.04.2010 to 14th December, 2016.” I find, the AO, while making the addition has also observed that the assessee had not disclosed the above amount in his return of income, the retraction letter filed vide affidavit dated 15th October, 2018 was at the fag end of the assessment proceedings and the assessee did not file any evidence to prove the bona fide on its part. I find, the ld.CIT(A) upheld the action of the AO on the ground that the assessee had voluntarily disclosed Rs.25 lakhs during post search investigation proceedings which was not disclosed in the return of income filed u/s 139(1) of the Act and this act of the assessee tantamount to retraction from disclosure of Rs.25 lakhs made by the assessee. According to the ld.CIT(A), the retraction from the disclosure of income of Rs.25 lakhs made by the assessee is clearly an afterthought and, therefore, is not acceptable. It is the submission of the ld. Counsel that no material pertaining to the assessee was found during the search on 15th December, 2016 showing the existence of any unexplained investment which is evident from ‘Panchnama.’ Further, no admission was made in the statement recorded u/s 132(4) and the admission made in the statement recorded u/s 131(1A) has no evidentiary value and the onus is upon the Revenue to bring corroborative material/evidence on record either during the search or post search proceeding to prove the existence of any undisclosed income. It is also his submission that the statement mentions that the income pertains to the period 01.04.2010 to 14th December, 2016 and, therefore, the entire addition should not have been made in this year without bringing any material on record to prove that this income pertains to the impugned assessment year. Further, nothing has been brought on record to prove the contents of the affidavit retracting the erstwhile statement. 11.1 I find some force in the above argument of the ld. Counsel. It is an admitted fact that apart from the statement recorded u/s 131(1A) of the IT Act surrendering an amount of Rs.25 lakhs for the period from 01.04.2010 to 14th December, 2016 on account of any other income/expenditure or investment in the firm and its partners not found recorded in the books of account no other investments, cash or any other material was found which is unexplained. A perusal of the assessment order as well as the order of the CIT(A) shows that no ITA No.2361/Del/2023 14 material pertaining to the assessee was found during the search on 15th December, 2016 showing the existence of any unexplained investment or income or expenditure pertaining to the period from 01.04.2010 to 14th December, 2016. 11.2 I find, the Hon’ble Supreme Court in the case of CIT vs. Mantri Share Brokers (P) Ltd. (supra) has held that no addition u/s 69B can be made in the hands of an assessee where except statement of the Director of the assessee company offering additional income, there was no other material either in the form of cash, bullion, jewellery or document or in any other form to justify such additional income. Accordingly, the SLP filed by the Revenue against the decision of Hon’ble Rajasthan High Court was dismissed.” 16. In regard to relevancy and admissibility of the statement recorded u/s 132(4) of the Act, the Hon’ble High Court of Delhi in PCIT vs. Pavitra Realcon Pvt. Ltd., ITA No.579/2018, judgement dated 29th May, 2024, held as under:- “18. The primary grievance which arises in the present appeals pertains to whether the ITAT was right in deleting additions made under Section 68 of the Act by holding that no assessment could have been made on mere presumption of existence of incriminating material. 19. Undisputedly, during the period of search, no incriminating material appears to have been found. However, the Revenue proceeded to issue notice under Section 143(2) of the Act on the pretext of the statements of the Directors of the respondent-assessee companies recorded under Section 132(4) of the Act and material seized from the search conducted on Jain group of companies. The assessment order was also passed under Section 143(3) read with Section 153C of the Act making additions under Section 68 of the Act. 20. However, it is an undisputed fact that the statement recorded under Section 132(4) of the Act has better evidentiary value but it is also a settled position of law that addition cannot be sustained merely on the basis of the statement. There has to be some material corroborating the content of the statements. 21. In the case of Kailashben Manharlal Chokshi v. CIT1, the Gujarat High Court held that the additions could not be made only on the basis ITA No.2361/Del/2023 15 of admissions made by the assessee, in the absence of any corroborative material. The relevant paragraph no. 26 of the said decision has been reproduced hereinbelow: - 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 admission. Hence, there is no reason not 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 lakhs on the basis of statement recorded by the Assessing Officer under section 132(4) of the Act. The Tribunal has com mitted an error in ignoring the retraction made by the assessee. [Emphasis supplied] 22. Further, the position with respect to whether a statement recorded under Section 132(4) of the Act could be a standalone basis for making assessment was clarified by this Court in the case of CIT v. Harjeev Aggarwal, wherein, it was held that merely because an admission has been made by the assessee during the search operation, the same could not be used to make additions in the absence of any evidence to corroborate the same. The relevant paragraph of the said decision is extracted herein below:- “20. In our view, a plain reading of section 158BB(1) of the Act does not contemplate computing of undisclosed income solely on the basis of a statement recorded during the search. The words \"evidence found as a result of search\" would not take within its sweep statements recorded during search and seizure operations. However, the statements recorded would certainly constitute information and if such information is relatable to the evidence or material found during search, the same could certainly be used in evidence ITA No.2361/Del/2023 16 in any proceedings under the Act as expressly mandated by virtue of the Explanation to section 132(4) of the Act. However, such statements on a stand alone basis without reference to any other material discovered during search and seizure operations would not empower the Assessing Officer to make a block assessment merely because any admission was made by the assessee during search operation. [emphasis supplied]” 17. Thus here in the case of assessee the statement of Tariq Ali is not corroborated by any material found during search and if loose papers were considered to be incriminating and the said statement was recorded qua same, then where assessee firm had not shown the income surrendered by a partner in the return then ld. AO should have relied the said loose papers, for material substantive corroboration of the statement, which has also not been done. In any case the alleged details were provided after the search by a separate letter, for which even if same is considered recorded as admission made in the statement recorded u/s 131(1A) same has no has no evidentiary value under the Act. 18. As a sequel to aforesaid we are inclined to sustain the grounds. The appeal of the assessee is allowed. Impugned additions are deleted. Order pronounced in the open court on 13.06.2025. Sd/- Sd/- (S. RIFAUR RAHMAN) (ANUBHAV SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 13th June, 2025. dk ITA No.2361/Del/2023 17 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asstt. Registrar, ITAT, New Delhi "