Itta/196/2003 Of Mr.y.ramachandra Reddy v. Addl.commissioner Of Income Tax

*THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY AND*THE HON’BLE SRI JUSTICE T.SUNIL CHOWDARY+I.T.T.A.No.196 of 2003 % Dated 28.10.2014 Y.Ramachandra Reddy. ….Appellant $ Addl. CIT (Assts) SR-V, Hyderabad ….Respondent ! Counsel for the appellant : Sri A.V.Krishna Kaundinya^ Counsel for respondent : Sri J.V.Prasad < GIST: > HEAD NOTE: ? Cases referred: THE HON’BLE SRI JUSTICE L.NARASIMHA REDDYANDTHE HON’BLE SRI JUSTICE T.SUNIL CHOWDARYI.T.T.A.No.196 of 2003 JUDGMENT: (Per LNR,J) The appellant is an assessee under the Income Tax Act, 1961 (forshort ‘the Act’). His office and other premises were searched by theconcerned officials of the Income Tax Department on 04.03.1997 inexercise of power under Section 132 of the Act. Based on that, anotice dated 25.11.1997 was issued under Section 158BC of the Act.The appellant submitted his returns on 27.12.1997 covering the blockperiod from 1987-88 to 1997-98 declaring Nil income. It was alsomentioned that regular assessment of the assessment year 1998-99has not been completed and that there was still time to file the returnsfor the assessment year 1997-98. The assessing officer passed an order dated 22.03.2001 holding thatthere are three items of undisclosed income of the appellant inrelation to the block period. The first is an amount of Rs.7,50,000/-said to have been paid to Yeturi General Finance, the second is a sum of Rs.6,73,000/- used for purchased of land at GuttalaBegumpet and the third is a sum of Rs.2,20,000/- representing thevalue of the land paid over and above the one shown in the saledeed. All the three items were attributed to the statement recordedfrom the appellant under Section 132(4) of the Act. Aggrieved by the order of the Assessing Officer, the appellant filed I.T.(SS)A.No.16/Hyd/2001 before the Hyderabad Bench of theIncome Tax Appellate Tribunal. The Appeal was dismissed by theTribunal through its order, datd 23.11.2001. Hence, this furtherappeal under Section 260-A of the Act. Sri A.V.Krishna Kaundinya, learned counsel for the appellant submits that the assessing officer rested his conclusions exclusively on thestatement recorded under Section 132(4) of the Act and that thesame is opposed to law. He contends that at the earliest point of timeitself, the appellant made it clear that he made a statement subject toverification of books of accounts and that the three items referred toabove are dealt with under the books of account. He places relianceupon the judgment of this Court, dated 09.09.2014 in I.T.T.A.No.112of 2003, as well as the Circular dated 10.03.2003 issued by theDepartment. Sri J.V.Prasad, learned Standing Counsel for the Department on theother hand submits that during the course of search, substantialmaterial was recovered and the appellant was questioned withreference to the material so recovered. He contends that thestatement is mostly in the form of questions and answers and at nopoint of time, the appellant has either retracted from the statement orstated that the same was recorded under any pressure or threat orcoercion. He also submits that the judgment of this Court inI.T.T.A.No.112 of 2003 is in relation to a case, where the assesseeretracted from the statement under Section 132(4) of the Act and thatthe same does not apply to the facts of the present case. Sri J.V.Prasad, learned Standing Counsel for the Department on theother hand submits that during the course of search, substantialmaterial was recovered and the appellant was questioned withreference to the material so recovered. He contends that thestatement is mostly in the form of questions and answers and at nopoint of time, the appellant has either retracted from the statement orstated that the same was recorded under any pressure or threat orcoercion. He also submits that the judgment of this Court inI.T.T.A.No.112 of 2003 is in relation to a case, where the assesseeretracted from the statement under Section 132(4) of the Act and thatthe same does not apply to the facts of the present case. The search that was conducted on 04.03.1997 led to the blockassessment against the appellant covering the period from 1987-88to 1997-98. Though the appellant submitted the returns showing nilincome, the assessing officer conducted a detailed enquiry withreference to various items that are said to have been noticed by himbefore the search. The three items referred to above were dealt within detail in the order of assessment. The defence offered by theappellant was that he clearly mentioned at the time of recording of thestatement that the same would be subject to verification of books ofaccount. The statement recorded under Section 132(4) of the Actwould certainly constitute an important basis for an Assessing Officerto take necessary steps under the provisions of the Act. However, ifthe statement is retracted and there does not exist any other reliablematerial, making of assessment on the basis of such retractedstatement cannot be treated as legal. In I.T.T.A.No.112 of 2003, this Court held as under: “Secondly, the recording of statement even during the search is nota matter of course. It is only when the material such as, books ofaccount, documents, money, bullion, jewellery and the like arefound or discovered during search, that the statement can berecorded. If the search did not lead to the discovery of any matters,referred to above, there would not be any occasion to record thestatement at all. In this case, admittedly, nothing was recoveredfrom the respondent during the search. Hence, there was nooccasion or basis to record the statement, even if it is done whenthe search was in progress. Hence, there is a basic infirmity in thevery foundation of the case, upon which the appellant sought torest their block assessment vis-à-vis the respondent.” Two other important aspects in that case are that (a) the statementwas recorded long after the search was conducted; and (b) theassessee retracted from the statement. That is not the case here.The search and recording of statement have taken placesimultaneously and the appellant did not complain of any coercionmuch less did he retract from the statement. The Assessing Officerextracted in detail, the statement recorded from the appellant duringthe course of search. For example, question Nos.13 and 17 and theanswers thereto, which are part of the statement, read as under: Q.13) During the course of search, a promissory note was found for Rs.20,000/- given to Askari Venkataswamy by you. Please confirmwhether you have given the above amount?A ns) Y es. I have given an amount of RS.20,000 to AksariVenkataswamy. Q.17) Please go through page No.7 of Annexure YRR/A/1 of theseized material found in your room in the office and comment onthe contents of the same? Ans) Yes. I have gone through the page No. of Annexure of theseized material found in my table draw. This paper relates to theletter head of Yeturi General Finances Ltd. on which a payment ofRs.7.50 lakhs in written in my own hand writing. This is the amountpaid on account which I am not able to explain. I cannot explainthe sources also for the same. The amount of Rs.7.50 lakhs paid incash is form my own sources which is not shown in the books ofaccounts, in other words, it is my unaccounted income. Hence, Ioffer the same for tax u/s. 132(4) of the I.T.Act. Q.17) Please go through page No.7 of Annexure YRR/A/1 of theseized material found in your room in the office and comment onthe contents of the same? Ans) Yes. I have gone through the page No. of Annexure of theseized material found in my table draw. This paper relates to theletter head of Yeturi General Finances Ltd. on which a payment ofRs.7.50 lakhs in written in my own hand writing. This is the amountpaid on account which I am not able to explain. I cannot explainthe sources also for the same. The amount of Rs.7.50 lakhs paid incash is form my own sources which is not shown in the books ofaccounts, in other words, it is my unaccounted income. Hence, Ioffer the same for tax u/s. 132(4) of the I.T.Act. Therefore, it is difficult to hold that the statement was bereft of anymaterial. As a matter of fact, the relevant documents were shown tothe appellant and he not only admitted the genuinity of thosedocuments, but also made it clear that the amount mentioned thereinis an unaccounted income. Assuming that the appellant hyphenated his statement with a pleathat the contents thereof are subject to verification of books ofaccount, there is nothing on record to disclose that the amounts mentioned in the statement were explained in any other manner. Heavy reliance is placed by the learned counsel for the appellant oncertain observations made by the Tribunal, which are to the effectthat no material was recovered during the course of search. Astatement of that nature cannot be taken as reflecting any undisputedset of facts. The circumstances under which such an observationwas made are not immediately before this Court. Once the questionswere put to the appellant, on the basis of the seized documents,which in turn were assigned separate numbers, there is no way theappellant can disown the same. Further, this is not a case, where theblock assessment is based exclusively upon the statement. It wassupported by the other documents seized during the course ofsearch. The Circular relied upon by the learned counsel for the appellantdeals with the cases, where the orders of assessment are passedexclusively on the basis of the statement. It has already beenmentioned that the considerable material was seized during thecourse of search. Therefore, the circular has no application. We donot find any basis to interfere with the order passed by the Tribunal.The appeal is accordingly dismissed. The miscellaneous petition filed in this appeal shall also standdisposed of. There shall be no order as to costs. ____________________ L.NARASIMHA REDDY, J ________________________ T.SUNIL CHOWDARY, J Date: 28.10.2014Note: L.R.Copy to be marked.JSU THE HON’BLE SRI JUSTICE L.NARASIMHA REDDYANDTHE HON’BLE SRI JUSTICE T.SUNIL CHOWDARY JSU I.T.T.A.No.196 of 2003 Date: 28.10.2014