In order to make an addition on the basis of surrender during search or survey, it is sine qua non that there should be some other material to co-relate the undisclosed income with such statement.
DCIT v. Premsons, Appeal No.: ITA No. 4698/Mum/2006, Decided on: January 15, 2009
4. We have heard the rival submissions and perused the relevant material on record. Both the sides have made submissions, qua the acceptability or otherwise of the books of account maintained by the assessee as well as on the addition of Rs.28.85 lakhs.
5. Insofar as the first point is concerned the learned A.R. has relied on certain decisions in support of the fact that if the quantitative record is not maintained in particular line of business, the same in itself would not warrant the rejection of books of account. He further submitted that the nature of the assessec’s business is such that there are numerous items and the maintenance of stock register is not practicable. On the contrary the learned D.R. has emphatically relied on the assessment order by stating that the discrepancies pointed out by the AG. were sufficient enough to rejectthe books of account u/s. 145(3) of the Act.
6. In our considered opinion the books of account of the assessee cannot be held to be properly maintained in view of the fact that the survey transpired the discrepancy in the stock as per the books of account and that found on physical verification. The books of account are said to be properly maintained when correct income can be deduced there from. It is not only the arithmetical inaccuracy inthe books of account which would call for the resorting to the provisions to section 145(3). Obviously in the face of the fact that the stock physically found was not tallying with the books of account, in our considered opinion it cannot be said that the books were properly maintained. We therefore, overturn the finding given by the Id. CIT(A) on this issue.
7. The real question before us is about the deletion of addition of Rs 28.85 lakhs which was made by the Assessing Officer on the ground that the assessee had not offered such amount in the return of income even though it was admitted at the time of survey. From the facts recorded above it is clear that the partner of the assessee-firm accepted additional income of Rs.50 lakhs with Rs.21 lakhs towards excessstock and Rs.29 lakhs towards “any other discrepancy “To the extent of the excess stock found at the time of survey, the amount was promptly offered for taxation but the assessee retracted from his statement vide its letter dated 24.3.2003, a copy of which is placed at page 89 of the paper book. It has been mentioned therein that thesurrender was obtained forcefully by the survey team. Be that as it may, the crucial question before us is to decide as to whether the addition can be sustained simply on the basis of statement recorded at the time of survey. The Hon’ble Kerala High Court in Paul Mathew & Sons VS. CIT (2003) 263 ITR 101 has held that the statement recorded u/s.133A has no evidentiary value. The same view has been reiterated recently by the Hon’ble Madras High Court in the case of CIT Vs. S. Khader Khan Son (2008) 300 ITR 157 (Mad) holding that section 133A does not empower any Income Tax authority to examine any person on oath and hence suchstatement has no evidentiary value and any admission made in such statement cannot, by itself, be made the basis for addition . The Department is also not oblivious of the practice by which the Revenue Authorities obtain undue confession from the assessee during search orsurvey proceedings. Vide CBDT Circular dated 10.3.2003 it has been made clear by the Board that no attempt should be made to obtain confession as to theundisclosed income and the addition should be made only on the basis of material gathered I during the course*of search and survey . Going by the verdict of the two Hon’ble High Courts and the position reaffirmed by the Central Board of Direct Taxes through its Circular, it becomes abundantly clear that noaddition can be made or sustained simply on the basis of statement recorded at the time of survey / search. In order to make an addition on the basis of surrender during search or survey, it is sine qua non that there should be some other material to co-relate the undisclosed income with such statement/Adverting to the facts of the instant case, we find that ‘only to the extent of Rs.21.14 lakhs there is a material to co-relate with the admission, representing the excess stock found at the time of survey. Evidently -the surrender made by the assessee at the time of survey to that extent and offered for taxation in the return of income is in order. But insofar as the amount in dispute to the tune of Rs.28.85 lakhs is concerned, we observe that suchsurrender was specifically made “Towards any other discrepancy” . There is no mention in the assessment order of any such discrepancy found as a result of survey throwing light on the undisclosed income. Even the learned D.R. could point out any material showing the existence of undisclosed income earned by the assessee which was unearthed during the course of survey. There is nothing on record which could co-relate such additional income offered by the assessee during the course of survey with any other discrepancy. Under these circumstances we are of the considered opinion that there is no basis for sustaining the addition in question. In the light of the foregoing discussion, we hold that the view taken by the learned CIT(A) is unimpeachable, which is hereby upheld.