Addition cannot be allowed based on a disclosure under pressure if no incriminating material is discovered

It has been held by the ITAT Jaipur in the case of Shri Basant Bansal, C-13, Sushant Lok 1, Gurgaon – 122 002, having PAN No.: AHYPB 1937 A, vs. ACIT, Central Circle – Alwar, in connection with the Assessment Year 2008-09, being ITA No. 534/JP/2012 as well as in the case of Shri Roop Bansal C-13, Sushant Lok 1 Gurgaon – 122 002 having PAN No.: AFJPK 0250 N, vs. The ACIT Central Circle- Alwar being ITA No. 748/JP/2012 in connection with the Assessment Year 2008-09 , that Addition cannot be allowed based on a disclosure under pressure if no incriminating material is discovered .

Lawyers engaged in the cases:

The Assessees were represented by Shri Rakesh Gupta & Shri Milay Chaturvedi (Adcocate). The Revenue was represented by Smt. Rolee Agarwal, CIT – DR.

Date of Hearing:

The hearing of both the cases was concluded on 06.04.2015 and the judgment was pronounced on 29.05.2015.

Backgrounds of the cases:

There were two appeals filed by the assessee against two separate orders of the ld. CIT (A)-Central, Jaipur passed on 30-03-2012 and 11-07-2012 respectively.
As the assessees were related and the facts and grounds of cases were also similar; as such both the cases were being disposed of by a single order for convenience.

A search operation under section 132 of the Income Tax Act, 1961 was carried out at the residential and business premises of the assessees on 12.09.2007 which was followed by a survey as per section 133A on 11.10.2007 at the business premises of the related companies. They were followed with enquiries.

A second round of search operation was again carried out in the premises of assessee on 17.09.2008. During these proceedings no incriminating material was discovered relating to any undisclosed income.

According to assessee, Demand Drafts of many concerns amounting to nearly 31.48 crores drawn on 12.9.2007 were retained by an order of the department dated 20.9.07. This restraint of a large amount put the assessee into deep trouble which resulted in disclosure of additional income.

The Assessee prayed for the release of the DDs. However the department did not discover any incriminating material. For about a month, the department tried to discover some incriminating information from the seized material but nothing could be found.

A survey was again conducted on 11.10.07 by the department but nothing incriminating was discovered. The assessee was finally forced to concede to this demand. On 19.11.07 by a letter Shri Basant Bansal made a disclosure of Rs. 20 crores for himself and on behalf the company and its directors including Rs.4.99 crores which was agreed to be disclosed by Shri Roop Bansal.

The summary disclosure was made to buy peace as well as to avoid litigation with the condition that no penalty and prosecution proceedings would be initiated against them.
Notices for filing returns under section 153A of the Act were issued to both the assessees on 28.04.2010. Thereafter both the assessees filed their returns on 28.09.2010. Assessments under sections 153A read with 143(3) of the Act were done by the Assessing officer in both cases on 28.9.2010.

The assessees were enquired about an alleged property transaction by Shri Raghubir for which an amount of Rs.62.75 lacs was paid. The Assessee explained that the said person sold his share of ancestral property through the assessee and it had no relation with the company.

The assessee contended that the transaction may be included in the disclosure of Rs.20 Crores offered by the assessee.

The Department without any corroboration or verification accepted the said summary surrender by the assessee. Thereafter, the DDs were released on payment of advance tax for the disclosed income.

It was observed that neither assessee nor any company had any relation with the alleged transaction or bank account of Sri Raghubir. No undisclosed income accrued on behalf of the assessee. The assessee’s surrender was held as binding.

Cross examination of Sh. Raghubir was not allowed. The Assessing officer concluded the assessments by making additions of income based on the disclosure of Rs. 20 crores in the hands of Shri Basant Bansal and Rs. 4.99 crores in the case of Roop Bansal.

Aggrieved by the order, both the assessee filed appeals challenging the validity of 153A proceedings and against the illegal extraction of disclosure of Rs. 20 crores.
The Ld. CIT (A) after considering the submissions of both the parties and upon perusal of all material available on the record granted part relief to the assessee.
Being aggrieved, both the assessees filed an appeal before the ITAT though the department accepted the orders of ld. CIT (A).

Cases referred:

1. It is the liability of the department that any retracted statement should be substantially corroborated by other evidences. [Vinod Solanki vs. Union of India, 233 ELT 157 (SC)].
2. Admission made under duress cannot bind a statement or disclosure. [Shri Krishan vs. Kuruksheta University, AIR 1976 SC 376].

Grounds of appeal raised by the assessee:

In ITA No. 534/JP/2012 the following grounds of appeal were raised:-

1. That the impugned order was bad in law and was passed without application of mind in a hurried manner.
2. That on the facts of the case and in law, ld. CIT (A) was wrong in holding that no pressure or undue harassment acted upon the appellant to surrender of Rs. 20 Crores.
3. That on the backgrounds of the case and in law, the addition of Rs. 20 crores was made not on the basis of any material but merely on presumption.
4. That on the facts of the case, the ld. CIT(A) was wrong in not appreciating that addition cannot be sustained merely on the basis of a statement, there must be some cogent material to corroborate the surrender.
5. That on the facts of the case, the ld. CIT(A) was totally wrong in confirming the addition of Rs. 20 crores without giving the appellant any opportunity to cross examine the persons on whose statements the addition was made.
6. That on the facts of the case, ld. CIT (A) has erred in coming to a conclusion the implications of which were not understood by him.
7. That the ld. CIT (A) was wrong in not reducing the amount of Rs. 39 lacs stated in the Return filed by the appellant in the alleged surrender of Rs. 20 crores confirmed by him.
8. That on the facts of the case, the ld. CIT(A) erred in making addition of Rs. 4.99 crores in the hands of Shri Roop Bansal who was not a party to the appeal.

In ITA No. 748/JP/2012 the following grounds of appeal were raised:-

1. That the order dated 11-07-2012 passed by CIT (A) was bad in law and has been passed without application of mind in a hurried manner.
2. That on the facts of the case, ld. CIT (A) erred in holding that no coercion or undue harassment was exerted on the appellant to make surrender of Rs.4.99 Crores.
3. That the facts of the case show that the addition of Rs. 4.99 crores was sustained only on presumption.
4. That the ld. CIT (A) has erred in not appreciating that addition cannot be done merely on the basis of statement, independent evidence to corroborate the surrender is required.
5. That the ld. CIT (A) was wrong in coming to a conclusion on the basis of a statement, the effects of which were not fully understood by him.
6. On the facts of the case, the ld. CIT (A) was totally wrong in not decreasing the amount of Rs. 39 lacs stated in the Return filed by the appellant out of the surrender of Rs. 4.99 crores by him.
7. The ld. CIT (A) erred in upholding the addition of Rs. 4.99 crores in the hands of Shri Basant Bansal, who was not a party to appeal at the time of passing the order of appellant.

Arguments of the parties to the appeal:

The Ld. Counsel for the assessee Shri Rakesh Gupta repeated the facts and contended that the proceedings carried out by department did not result in discovery of any incriminating material. The additions were based only on disclosure which was extracted from the assessee by creating pressure. This makes it clear that search assessments were a result of mere presumption and not based on any material evidence.
The assessee was under pressure as the seized demand drafts lead to a check upon the business as an amount of Rs. 31.48 crores was lying unproductive. The Assessee made efforts for release of the DDs by applying before the authorities.

By taking the advantage of assessee’s situation, the department created pressure to make disclosure of undisclosed income of Rs. 20 crores and pay advances taxes accordingly. After extracting the disclosure and advance tax, the DDs were released in February, 2008.

It was contended that the pressure of the department continued even after the search proceedings. The pressure forced the assessee to surrender before the department and to abide by their directions.

The judgment:

It was held that the disclosure of the assessee was not voluntary. The pressure of restrained DDs resulted in the alleged disclosure. It was held that the disclosure was involuntary and additions should be judged on other evidences.

The decision of the Hon’ble Rajasthan High Court in CIT vs. Ashok Kumar Soni, 291 ITR 172 was referred wherein it was held that an admission during search proceedings is not a conclusive proof.

There was no reference of any incriminating material or evidence. The basis of the additions in both cases was only the alleged disclosure.

It was held that the impugned additions cannot be sustained. The impugned additions in both the cases were deleted. As a result, the appeals of both assessees were allowed.