The Commissioner Of Income Taxtrichy v. Shri P.balasubramanian,Aa

DATED: 6.03.2013 CORAM:THE HON'BLE MRS.JUSTICE R.BANUMATHIANDTHE HON'BLE MR.JUSTICE K.RAVICHANDRA BAABU T.C.(A) NO.233 OF 2010 The commissioner of Income TaxTrichy .. Appellant Vs. Shri P.Balasubramanian,AA/25/3, Anna Nagar,Thennur, Trichy. .. Respondent Prayer: Tax case Appeal filed under Section 260-A of the Income-tax Act against the Order of theIncome-tax Appellate Tribunal 'D' Bench, Chennai dated 31.1.2008 passed in I.T.A.No.1279/Mds/2006. For Appellant : Mr.J.NarayanasamyStanding Counselfor Income-tax For Respondent : Mr.M.P.Senthilkumar JUDGMENT R.BANUMATHI,J. The Tax case Appeal is at the instance of the revenue against the Order dated 31.1.2008 inI.T.A.No.1279/ Mds/2006 on the file of Income-tax Appellate Tribunal 'D' Bench, Chennai, in and bywhich the Tribunal held that addition should be confined to materials during the course of surveyonly and also deleting the other additions towards interest on money lending business, householdexpenses and creditors and expunging the levy of penalty. The assessment year relates to2003-2004. 2. The Tax Case Appeal is admitted on the following substantial questions of law: "(a) Whether the Tribunal was right in not considering the fact that the assessee himself hadadmitted the unexplained investment made in gold and cash which was not disclosed in the book ofaccounts? (b) Whether on the facts and in the circumstances of the case, the Tribunal was right in cancellingpenalty under Section 271(1)(c) of the Income-tax Act?And (c) Whether the direction of the Tribunal is to be construed as a mandatory direction to reopen or adirection to exercise discretion whether to reopen the Assessment order?" 3. Brief facts:- The assessee is doing business of manufacture of gold jewels for others on job work basis. There was a survey at the premises of the assessee on 29.10.2002. During survey, it wasnoticed that gold jewels weighing 900 grams were available at the premises of the assessee. Duringsurvey, a sworn statement under Section 133A sub-section 3(iii) was recorded from the assessee on29.10.2002. The assessee filed his return of income on 21.07.2003 admitting an income ofRs.2,97,410/- and the return was processed under Section 143(1). As this is survey case, a noticeunder Section 148 was issued on 27.10.2004. In response to the said notice, the assessee filedreturn of income on 16.11.2004 admitting income of Rs.2,97,410/- and the same was taken up forscrutiny and notice under Section 143(2) was issued. While recording his statement during survey,the assessee was requested to state the investment in the gold business being in the form ofjewellery to which he has stated that he has 3 kilos of gold jewellery and that 900 grams of jewellerywas found in the premises during survey and inventorised and that the balance of stock was givenfor making jewellery, to the following three goldsmiths � (i) Murali Krishnan; (ii) Balan and (iii) Ravi. 4. During scrutiny, the assessee was asked to explain the source for investment in the abovejewellery. stated to have been owned by the assessee, at the time of survey. The assessee explainedthat he has to furnish source only for the jewellery as per the inventory of jewellery found on thedate of survey. The assessee was asked to explain the source of investment for 900 gms of goldfound in the premises as well as the quantity of gold stated by the assessee. During the course ofhearing, the assessee in the letter filed on 13.3.2005 is said to have stated as under:"The total jewellery admitted by the assessee and his wife is at 1802 gms and 15 Cts of Diamond.The total jewellery stated to have been invested by the assessee in his statement dt.29.10.2002 is3000 gms. The total jewellery physically found on the date of survey was 840 gms and 12 Cts ofdiamond. The Investigating Officers have not verified with the so called persons with whom theassessee is stated to have handed over the jewellery of 2200 gms. Assuming but not conceding thatthe assessee has to explain the quantity of jewellery stated by him before the investigating officers(3000 gms) we submit that the quantity remaining to be explained is 1198 gms only (3000-1802)after taking into account the declared quantity of jewellery by the assessee and his wife at 1802 gmsas above and adopting the market value at 400 per gm (501 x 80%), the value of the same comes toRs.4,79,200/." 5. The above explanation was considered and after giving allowance for the jewellery alreadyadmitted, the unexplained investment in gold jewellery of 1802 gms is taken at Rs.4,79,200/- and theAssessing Officer added the same to Rs.2,97,410 - the income returned and calculated total incomeas Rs.7,76,610/- and completed the assessment. 6. The assessee preferred appeal to Commissioner of Income-tax (Appeals). After issuing notice forenhancement, Commissioner of Income-tax (Appeals) dismissed the appeal preferred by the assesseeand making additions as under:- (i) discovery of 900 gms of gold jewellery by the survey team clearly shows that the assessee wasdoing unaccounted business of gold jewellery and made an addition of Rs.8,70,800/- over and above the addition of Rs.4,79,200/-; (ii) in respect of unaccounted cash found during the course of survey, enhancement was made to thetune of Rs.2,49,770/-; (iii) addition of Rs.1,10,000/- towards interest earned on Rs.5.00 lakhs as unaccounted investment inmoney lending business, and (iv)initiation of penalty proceedings. The Commissioner of Income-tax (Appeals) accordingly dismissed the appeal making an enhancement of Rs.17,30,570/- made to the income determined by the Assessing Officer. 7. The appeal preferred by the assessee was partly allowed by the Tribunal:- (i) to confine the addition in respect of gold only to the extent of 900 gms of gold found at the time of survey; (ii) so far as unaccounted cash, addition of Rs.2,49,770/- was set aside with a direction to the Assessing Officer to verify whether cash balance as per the book of accounts has emanated from thecash withdrawn from the Bank on 17.10.2002; (iii) deleted the addition made towards interest on money lending business; and (iv) penalty proceedings under Section 271(1C) was expunged. (iv)initiation of penalty proceedings. The Commissioner of Income-tax (Appeals) accordingly dismissed the appeal making an enhancement of Rs.17,30,570/- made to the income determined by the Assessing Officer. 7. The appeal preferred by the assessee was partly allowed by the Tribunal:- (i) to confine the addition in respect of gold only to the extent of 900 gms of gold found at the time of survey; (ii) so far as unaccounted cash, addition of Rs.2,49,770/- was set aside with a direction to the Assessing Officer to verify whether cash balance as per the book of accounts has emanated from thecash withdrawn from the Bank on 17.10.2002; (iii) deleted the addition made towards interest on money lending business; and (iv) penalty proceedings under Section 271(1C) was expunged. 8. Learned counsel for revenue submitted that the assessee himself had admitted in the statementthat he was having 3000 gms of gold and admitted to offer Rs.13.50 lakhs as undisclosed incometowards investment in gold. The learned counsel contended that having so admitted, the assesseehad not discharged the burden of explaining the source of 3000 gms of gold and while so Tribunalwas not right in holding that addition has to be confined only to the extent of 900 gms of gold foundat the time of survey. Learned counsel further submitted that in his statement when the assesseehimself had admitted unexplained cash of Rs.2,49,770/-, the Tribunal was not right in issuingdirection to verify the unaccounted cash to the tune of Rs.2,49,770/-, the Tribunal was not right inissuing direction to verify the unaccounted cash to the tune of Rs.2,49,770/-. 9. Learned counsel for assessee submitted that Section 133A does not empower Income-tax Officerto examine any person on oath and the statement recorded under Section 133A of the Act does nothave evidentiary value. The learned counsel further submitted that in the absence of other materialsor information, the Commissioner of Income-tax (Appeals) was not right in enhancing the interestincome on the alleged money lending business and the Tribunal rightly allowed the assessee'sappeal. 10. The assessee is doing business of manufacture of jewels for others on job work basis. The surveyoperation was conducted in the premises of the assessee on 29.10.2002. Survey authority noticedgold jewels weighing 900 gms were available at the premises of the assessee. The assessee on hisown explained that remaining 2100 gms had been given to Asaris viz., (i) Muralikrishnan; (ii) Balanand (iii) Ravi. In the statement recorded under Section 133A, the assessee is said to have agreedthat the value of the investment in the gold was around Rs.13.50 lakhs. It is the case of revenue thatthe assessee having admitted the investment in 3000 gms of gold, burden lies upon the assessee toexplain the source of his income and the assessee had not discharged his burden of explainingsource of his income for investment in the gold. 11. The substantial questions of law raised by the revenue revolve on the question whether materialcollected and the statement recorded during the survey operation under Section 133A of the Act hasany evidentiary value. There is a clear distinction between the statement recorded under Section132(4) and 133A. It is apt to refer to Sections 132(4) and 133A of the Act, which read as under:- (2)... (3)... (4) The authorised officer may, during the course of the search or seizure, examine on oath anyperson 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 duringsuch examination may thereafter be used in evidence in any proceeding under the Indian IncomeTax Act, 1922 (11 of 1922), or under this Act. (2)... (3)... (4) The authorised officer may, during the course of the search or seizure, examine on oath anyperson 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 duringsuch examination may thereafter be used in evidence in any proceeding under the Indian IncomeTax Act, 1922 (11 of 1922), or under this Act. Explanation. - For the removal of doubts, it is hereby declared that the examination of any personunder this sub-section may be not merely in respect of any books of account, other documents orassets found as a result of the search, but also in respect of all matters relevant for the purpose ofany investigation connected with any proceeding under the Indian Income Tax Act, 1922 (11 of1922), or under this Act." "133A. Power of survey. - (1) Notwithstanding anything contained in any other provision of this Act,an Income Tax authority may enter- (a) any place within the limits of the area assigned to him, or (b) any place occupied by any person in respect of whom he exercises jurisdiction, or (c) any place in respect of which he is authorised for the purposes of this section by such Income Taxauthority, who is assigned the area within which such place is situated or who exercises jurisdictionin respect of any person occupying such place, at which a business or profession is carried on,whether such place be the principal place or not of such business or profession, and require anyproprietor, employee or any other person who may at that time and place be attending in anymanner to, or helping in, the carrying on of such business or profession- (i) to afford him the necessary facility to inspect such books of account or other documents as hemay require and which may be available at such place, (ii) to afford him the necessary facility to check or verify the cash, stock or other valuable article orthing which may be found therein, and (iii) to furnish such information as he may require as to any matter which may be useful for, orrelevant to, any proceeding under this Act Explanation. - ...... (2) ..... (3) An Income Tax authority acting under this section may,- (i) if he so deems necessary, place marks of identification on the books of account or otherdocuments inspected by him and make or cause to be made extracts or copies therefrom, (ii) make an inventory of any cash, stock or other valuable article or thing checked or verified byhim, (iii) record the statement of any person which may be useful for, or relevant to, any proceedingunder this Act. (4) An Income Tax authority acting under this section shall, on no account, remove or cause to beremoved from the place wherein he has entered, any books of account or other documents or anycash, stock or other valuable article or thing.(5) ..... (6) ..... " 12. The statement of assessee was recorded under Section 133A(3)(iii) during the survey operation.Since statement recorded under Section 133A was not recorded on oath, such statement recordedunder Section 133A was not at par with the statement recorded under Section 132(4) and did nothave any evidentiary value. According to the assessee, the statement recorded under Section 133Aduring survey can hardly be the basis for any assessment. 13. A power to examine a person on oath is specifically conferred on the authorities only under (4) An Income Tax authority acting under this section shall, on no account, remove or cause to beremoved from the place wherein he has entered, any books of account or other documents or anycash, stock or other valuable article or thing.(5) ..... (6) ..... " 12. The statement of assessee was recorded under Section 133A(3)(iii) during the survey operation.Since statement recorded under Section 133A was not recorded on oath, such statement recordedunder Section 133A was not at par with the statement recorded under Section 132(4) and did nothave any evidentiary value. According to the assessee, the statement recorded under Section 133Aduring survey can hardly be the basis for any assessment. 13. A power to examine a person on oath is specifically conferred on the authorities only under Section 132(4) of the Act in the course of any search or seizure. Wherever it thought fit andnecessary to confer such power to examine a person on oath, the Income-tax Act has expresslyprovided for it. Whereas Section 133A does not empower any Income Tax Officer to examine anyperson on oath. Thus, in contradistinction to the power under Section 133A, Section 132(4) of theIncome Tax Act enables the authorised officer to examine a person on oath and any statement madeby such person during such examination can also be used in evidence under the Income Tax Act. Onthe other hand, whatever statement recorded under Section 133A of the Act is not given anevidentiary value. 14. The scope of Sections 132(4) and 133A came up for consideration before the Kerala High Courtin Paul Mathews and Sons v. CIT (2003) 263 ITR 101(Ker). In the said case, the assessee contendedthat the statement recorded during survey under Section 133A cannot be put against the assessee asthe same has no evidentiary value. Accepting the stand taken by the assessee, the Division Bench ofthe Kerala High Court has held as under:- "... we find that the power to examine a person on oath is specifically conferred on the authorisedofficer only under Section 132(4) of the Income Tax Act in the course of any search or seizure. Thus,the Income Tax Act, whenever it thought fit and necessary to confer such power to examine a personon oath, the same has been expressly provided whereas Section 133A does not empower any IncomeTax Officer to examine any person on oath. Thus, in contradistinction to the power under Section133A, Section 132(4) of the Income Tax Act enables the authorised officer to examine a person onoath and any statement made by such person during such examination can also be used in evidenceunder the Income Tax Act. On the other hand, whatever statement is recorded under Section 133Aof the Income Tax Act it is not given any evidentiary value obviously for the reason that the officer isnot authorised to administer oath and to take any sworn statement which alone has evidentiaryvalue as contemplated under law...Therefore, the statement elicited during the survey operation has no evidentiary value and theIncome Tax Officer was well aware of this.(emphasis supplied)" 15. After elaborately referring to the decisions of Paul Mathews and Sons v. CIT (2003) 263 ITR 101(Ker); CIT VS. Senniappan (G.K.) (2006) 284 ITR 220 (MAD) and CIT VS. Ajit Kumar (s.) (2008)300 ITR 152 (MAD) and the Circular of the Central Board of Direct Taxes dated March 10, 2003 withregard to confession statement of additional income during the course of search and seizure andsurvey operations, the Division Bench of this Court in CIT VS. S.KHADER KHAN SON, (2008) 300ITR 157 (MAD) has summarised the principles as under: (i) An admission is extremely an important piece of evidence but it cannot be said that it is conclusive and it is open to the person who made the admission to show that it is incorrect and thatthe assessee should be given a proper opportunity to show that the books of accounts do notcorrectly disclose the correct state of facts, vide decision of the Apex Court in Pullangode RubberProduce Co. Ltd. v. State of Kerala, [1973] 91 ITR 18; (i) An admission is extremely an important piece of evidence but it cannot be said that it is conclusive and it is open to the person who made the admission to show that it is incorrect and thatthe assessee should be given a proper opportunity to show that the books of accounts do notcorrectly disclose the correct state of facts, vide decision of the Apex Court in Pullangode RubberProduce Co. Ltd. v. State of Kerala, [1973] 91 ITR 18; (ii) In contradistinction to the power under Section 133A, Section 132(4) of the Income Tax Act enables the authorised officer to examine a person on oath and any statement made by such personduring such examination can also be used in evidence under the Income Tax Act. On the other hand,whatever statement is recorded under Section 133A of the Income Tax Act it is not given anyevidentiary value obviously for the reason that the officer is not authorised to administer oath and totake any sworn statement which alone has evidentiary value as contemplated under law, vide PaulMathews and Sons v. CIT (2003) 263 ITR 101 (Ker); (iii) The expression "such other materials or information as are available with the Assessing Officer"contained in Section 158BB of the Income Tax Act, 1961, would include the materials gatheredduring the survey operation under Section 133A, vide CIT Vs. G.K.Senniappan, [2006] 284ITR220(Mad)]; (iv) The material or information found in the course of survey proceeding could not be a basis formaking any addition in the block assessment, vide decision of this Court in T.C. (A) No. 2620 of 2006between Commissioner of Income Tax v. S. Ajit Kumar (2008) 300 ITR 152 (Mad); (v) Finally, the word "may" used in Section 133A(3)(iii) of the Act, viz., "record the statement of anyperson which may be useful for, or relevant to, any proceeding under this Act, as already extractedabove, makes it clear that the materials collected and the statement recorded during the surveyunder Section 133A are not conclusive piece of evidence by itself." In CIT VS. DHINGRA METAL WORKS, (2010) 328 ITR 384 (Delhi), the Delhi High Court held thatwhile Section 132(4) of the Act specifically authorises 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" usedin Section 133A(3)(iii) of the Act clarifies beyond doubt that the material collected and the statementrecorded during the survey was not a conclusive piece of evidence by itself and that AssessingOfficer could not have made the addition solely on the basis of the statement made on behalf of theassessee during the course of survey. 16. Mr.Narayanaswami, learned counsel appearing for the revenue submitted that even thoughstatement under Section 133A was not at par with the statement under Section 132(4), suchstatement recorded under Section 133A cannot be held to be irrelevant material and in the absenceof any explanation by the assessee, the Commissioner of Income-tax (Appeals) rightly madeenhancement. In support of his contention, the learned counsel placed reliance upon a decision ofPunjab and Haryana High Court in Bachittar Singh Vs. CIT and another, (2010) 328 ITR 400 (P&H). 17. The Punjab and Haryana High Court held that even if the statement under section 133A was notat par with the statement under section 132(4) and did not have that evidentiary value, suchstatement cannot be held to be irrelevant material so as to be ruled out of consideration in totality offacts, particularly in the absence of regular books of account. In the facts and circumstances of thecase that the assessee failed to produce books of accounts, which may have been maintained duringthe regular course of business or any other authentic contemporaneous evidence of agriculturalincome, the Punjab & Haryana High Court held that the statement under Section 133A cannot beheld to be irrelevant material. In our considered view, in the factual matrix of present case, theabove decision of Punjab & Haryana High Court is not applicable. 18. The Hon'ble Supreme Court in Pullangode Rubber Produce Co.Ltd. vs. State of Kerala, (1973) 91ITR 18 held that an admission is extremely an important piece of evidence but it cannot be said thatit is conclusive and it is open to the person who made the admission to show that it is incorrect. Anystatement recorded under Section 133A would have evidentiary value only if supported withmaterials and form the basis for assessment. In his explanation, the assessee stated that he has beendoing job work and the remaining 2100 gms had been given to 3 Asaris. The Officers had not verifiedwhether the gold was available with the said Asaris nor chosen to examine the said Asaris. Thestatement recorded during survey operation under Section 133A may be a relevant material. But inthe absence of further materials to substantiate the same, such statement recorded under Section133A can hardly be the basis for assessment. During the survey, 900 gms of gold was found in thepremises of the assessee and the statement of the assessee was supported only to the extent ofactual seizure of 900 gms. Since the statement of assessee in respect of the remaining gold was notsubstantiated, the Tribunal rightly set aside the addition in respect of the gold. that he has sold the land at Kodaikanal for Rs.2,80,000/- and the same was deposited in Bank on5.10.2002 and the amount was withdrawn from the Bank on 17.10.2002 and during the course ofsurvey, the Department came across the said cash. The survey was on 29.10.2002 and the drawal ofmoney from the Bank was a few days before search. Even though the said amount of Rs.2,49,770/-was not disclosed in his books, the assessee tried to explain the same. The Tribunal rightly set asidethe addition and remitted to the Assessing Officer to verify whether the cash balance as per thebooks of accounts has emanated from the cash withdrawn from the Bank on 17.10.2002. We do notfind any error or infirmity in the order of the Tribunal directing the Assessing Officer to afford anopportunity to the assessee and verify the correctness of assessee's statement. 20. Insofar as addition of interest earned � Rs.1,10,000/- on the unaccounted investment of Rs.5.00lakhs in money lending business, here again, the enhancement is based only on the statementrecorded from the assessee. No other material or information was available that the assesseeinvested Rs.5.00 lakhs in money lending business and earned interest. We are of the view that theaddition of Rs.5.00 lakhs as unaccounted investment in money lending business and addition ofinterest earned is based on only rough estimate and the Tribunal rightly deleted the addition on theinterest of money lending business, household expenses and creditors. 21. So far as levy of penalty under Section 271(1C), since the Tribunal deleted the addition andordered expunging the initiation of penalty proceedings under Section 271(1C), we do not find anyreason to interfere with the finding of the Tribunal. 22. Since the order of Commissioner of Income-tax (Appeals) making enhancement to the incomedetermined by the Assessing Officer is based on the unsworn statement obtained under Section133A, in the absence of other materials, the Tribunal rightly set aside the order of Commissioner ofIncome-tax (Appeals) and we do not find any reason to interfere with the order of the Tribunal. Nosubstantial question of law arise for consideration and the Tax Case Appeal stands dismissed. usk Copy to: 1. The Income-tax appellate Tribunal,'D" Bench, Chennai, 2. The Commissioner of Income-tax (Appeals),Tiruchirapalli 3. The Assistant Commissioner of Income-tax (OSD),Circle-III,Trichy