1. Introduction

As in judicial proceedings in Courts, the issues in the income-tax proceedings are also decided on the basis of evidences which include both oral and documentary. Oral evidences, include statements which are made before the income-tax authorities in relation to matters of inquiry, Search and Survey proceedings and may also include examination of the assessee or related parties. Documentary evidences include all documents produced before the income-tax authority for his verification/inspection. Oral and documentary evidences, inter alia, depending upon the circumstances include ‘Admissions’ which play a crucial role in any judicial proceeding. There is considerable importance of statements recorded during search and seizure operations, which is clear from the intent of Legislature as it thought fit to include a separate sub-section 132(4) for recording of statement during a search operation. Further section 292C has been inserted by the Finance Act, 2007 w.r.e.f. 1-10-1975 allowing presumption as to assets, books of account, etc., found during search u/s. 132 and requisition u/s. 132A. Later on by Finance Act, 2008 the ambit of section 292C has been enlarged by including presumption in case of Survey proceedings u/s. 133A w.r.e.f. 1-6-2002. The words ‘may be used in evidence in any proceedings’ appearing in section 132(4) are of great significance. The Legislature seems to be aware that some admissions may be made at the time of search which may be true, but for which sufficient corroborative evidence may not be found. Courts have taken note of the prevalence of tax evasion and black money in the economy and have urged, that while deciding matters under the Income-tax Act, they should not be oblivious to ‘notorious facts’ – Attar Singh Gurmukh Singh v. ITO [1991] 191 ITR 667/59 Taxman 11 (SC) and CWT v. Rohtas Industries Ltd. [1968] 67 ITR 283 (Pat.). The well-settled position in this respect, as pointed out by the Court, is that while the revenue can use a statement recorded u/s. 132(4) as a piece of evidence against the person who has given the statement, such person can, however, retract the statement successfully if he proves that the statement was not given in a proper frame of mind or was given under duress and threat or under a mistaken belief of law. The revenue authorities are also required to corroborate the admission contained in the statement, with independent evidence.

2. Admissions as in Evidence Act

2.1 Statements recorded under various provisions of the Income-tax Act, are a vital tool in the hands of the income-tax authorities in their quest to establish certain factual and legal positions. Written statements are used as evidence in various proceedings under the Act. The word ‘statement’ is defined neither in the Income-tax Act nor in the Evidence Act, and, hence, it assumes its dictionary meaning of ‘something that is stated’.

2.2 Admissions are statements by a party of the existence of a fact which is relevant to an issue in dispute. An admission is a statement, oral or documentary, which suggests any inference as to any fact in issue or relevant fact and which is made by a party or by a person concerned with him in any of the ways as described under sections 18 to 23 of the Indian Evidence Act, 1872. It may be noted that the statement may be either denial or admission of a fact and at the same time it may be addressed to any one. Section 17 of the Indian Evidence Act, 1872 defines admission as an oral or documentary statement which suggests any inference as to any fact in issue or relevant fact. As per section 31 of the Indian Evidence Act, admissions are not conclusive proof of the matters admitted, but they may operate as estoppel under the provisions of the law as contained. For an admission to be effective, corroboration with third party evidence is required.

2.3 Admissions, though sometimes strong evidence, are, however, not conclusive proof of the facts admitted. But what a party himself admits to be true, may reasonably be presumed to be so, unless it is satisfactorily explained or successfully withdrawn. So long as they do not operate as estoppel, persons making admissions are at liberty to contradict them or to show that they are untrue or mistaken or made under a misapprehension. Thus, the effect of an admission is to shift the burden of proof to the party making the admission.

2.4 The Hon’ble Supreme Court in Basant Singh v. Janki Singh AIR 1967 SC 341, held that:

“An admission by a party in a plaint signed and verified by him in a prior suit is an admission within the meaning of section 17 of the Indian Evidence Act, 1872 and may be proved against him in other litigations… Section 17 of the Act makes no distinction between an admission made by a party in a pleading and other admissions.”

Considering the evidentiary value of an admission and the fact that an admission shifts the onus in terms of section 31 of the Evidence Act, the Supreme Court in Kishori Lal v. Mt. Chaltibai AIR 1959 SC 504 held that:

“. . . the admissions shifted the onus on to the respondent on the principle that what a party himself admits to be true may reasonably be presumed to be so and until the presumption was rebutted, the fact admitted must be taken to be established….’’ (p. 511)

3. Admissions – An analysis of

3.1 As discussed, admission is an extremely important piece of evidence and it is admissible against its maker. In regard to income-tax proceedings the admissions can be in various forms which may, inter alia, include:

(i) admissions or statements made in the returns of income;

(ii) replies or averments made in income-tax proceedings;

(iii) oral explanation which may be recorded in the form of statements;

(iv) averments and pleadings in appellate proceedings.

In the income-tax proceedings, generally oral evidences or explanations are recorded in the form of statements. These statements are recorded in the assessment proceedings or on various other occasions so as to be ultimately used in assessment of correct income. These statements can be of the assessee or of the witnesses. Recording of the oral evidence in the form of statements is also known as oral examination, the purpose of which is to elicit truth. This oral examination is generally at the instance of the income-tax authority.

3.2 There are certain provisions under the Income-tax Act, 1961, which empower the Income-tax authorities to record statement of the assessee, witnesses, loan creditors, trade creditors etc., on oath or otherwise in the course of assessment proceedings or in the course of search and seizure and survey operations, which are:

(a) Power regarding discovery, production of evidence, etc., u/s. 131: U/s. 131(1)(b) an income-tax authority is empowered for enforcing attendance of any person to examine him on oath. Section 131 of the Act confers powers of civil court under the Code of Civil Procedure, 1908 on A.O., JCIT, CIT, CIT(Appeals), Dispute Resolution Panel (DRP) as well as the CCIT. The authorities mentioned above can exercise such powers only in the course of proceedings, i.e., ‘when trying a suit’. The statement on oath of the assessee or witnesses can only be in respect of matters connected with the proceedings.

U/s. 131(1A), special powers have been conferred on the Director General or Director or Joint Director or Assistant Director or Deputy Director for the purpose of making any enquiry or investigation where such authority has reason to suspect that any income has been concealed or is likely to be concealed by any person within his jurisdiction, even when no proceedings are pending against such persons. The authorities are empowered with all such powers as contained u/s. 131(1) which include ‘power to enforce attendance and examine on oath’. The power vested under this sub-section is only to make enquiries and investigation and not basically meant to obtain any disclosure or surrender of concealed income.

(b) Search and Seizure: U/s. 132(4) an authorized officer during search can examine on oath any person who is found to be in possession of any books of account, documents, money, bullion, jewellery, etc. Statement made by such person during such examination may thereafter be used in evidence in any proceedings.

(c) Power of Survey u/s. 133A(3)(iii): Under this section, an income-tax authority, if he considers it necessary, is empowered to ‘record the statement of any person which may be useful for or relevant to any proceedings under the Act’. The expression ‘income tax authority’ for the purposes of this section, has been defined in the Explanation to section 133A. The CCIT and DRP are not covered in the definition of ‘income tax authority’ for the purposes of section 133A. Besides the other authorities specifically mentioned in section 131, the definition also includes Tax Recovery Officer and an Inspector of Income-tax. The Inspector of Income-tax is only an authority for the purpose of exercising powers to inspect the books of account or other documents or to make extracts or copies of the same. However, there is no power with the Inspector to record statement in a general Survey (i.e. other than Marriage/ any ceremony related Survey) which must be done by the authorities other than Inspector. In this connection, reference may be made in the case of Harshad L. Thakkar v. Asstt. CIT [2005] 3 SOT 277 (Mum.). A further important point of distinction is that the words used in section 133A(3)(iii) is ‘statement’ and not ‘statement on oath’ as is u/s. 131(1). Further, in Paul Mathew & Sons v. CIT [2003] 263 ITR 101/ 129 Taxman 416, it has been held that the A.O. has no jurisdiction to record statement on oath u/s. 133A during the course of survey and that whatever may be the statement recorded by the A.O., it has no evidentiary value since the A.O. is not authorized to administer oath and record sworn statement u/s. 133A. This decision has been followed in Kurrunem Vehil Financiers (P.) Ltd. v. Dy. CIT [2005] 2 SOT 402 (Coch.). Hence, the authorities have no jurisdiction to extract confession or surrender u/s. 133A and even if they do so, it has no evidentiary value as the statement is not a sworn statement. However section 133A(5) specifically empowers the statement to be used in evidence as stated hereinafter.

(d) Power of Survey u/s. 133A(5): When after the function or the ceremony is over, the income-tax authority considers necessary to assess the scale of expenditure, he may record the statement which may thereafter be used in evidence in any proceedings under the Act.

It is seen that both sections 132(4) and 133A(5) provide that statements recorded under those provisions will have evidentiary value. However, it is well-settled law that though statements recorded will have evidentiary value, yet such statements are not always conclusive proof since the person 
making the statement can rebut and retract.

3.3 At this juncture, it would be relevant to point out that the statements which are recorded by administering oath are presumed to be carrying truth in view of the provisions of section 181 and section 193 of the Indian Penal Code which provide for imprisonment if the false statement is given. When it is so, no one would like to be punished knowingly and, hence, it is but logical to accept a sworn statement or the statement taken on oath as revealing the truth. Admissions play a very important role in the income-tax proceedings, as they generally bind the maker. In the absence of any denial or explanation therefore, an admission is almost conclusive regarding the facts contained therein. They generally dispense with the requirement of adducing further evidence or proof to support a fact. Though section 31 of the Indian Evidence Act, 1872 states that admissions are not conclusive proof of the matters admitted, yet admissions in the absence of rebuttal may conclude an issue. Under the Income-tax Act also admissions bind the maker when these are not rebutted or retracted. Some important judgments of the Supreme Court explain the concepts and relevance of Admissions and Rebuttal or retraction of admitted facts, as under:

(i) Pullangode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18 (SC): Their Lordships while observing that admission is an extremely important piece of evidence, held that, it cannot be said to be conclusive and the maker can show that it was incorrect. [Also refer S. Arjun Singh v. CWT [1989] 175 ITR 91/[1988] 41 Taxman 272 (Del.)].

(ii) Narayan Bhagwantrao Gosavi Balajiwale v. Gopal Vinayak Gosavi AIR 1960 SC 100: The Hon’ble Supreme Court held that an admission is the best evidence that an opposite party can rely upon and, though not conclusive, yet could be decisive of the matter unless successfully withdrawn or proved erroneous.

(iii) Satinder Kumar (HUF) v. CIT [1977] 106 ITR 64 (SC): It was held that it is true that an admission made by an assessee constitutes a relevant piece of evidence but if the assessee contends that in making the admission he had proceeded on a mistaken understanding or on misconception of facts or on untrue facts such an admission cannot be relied upon without first considering the aforesaid contention.

(iv) Avadh Kishore Das v. Ram Gopal AIR 1979 SC 861: It was held that evidentiary admissions are not conclusive proof of the facts admitted and may be explained or shown to be wrong, but they do raise an estoppel and shift the burden of proof on to the person making them. The Supreme Court further held that unless shown or explained to be wrong, they are an efficacious proof of the facts admitted.

4. Admission vis-a-vis Retraction

4.1 Burden to prove the ‘Admission’ as incorrect is on the maker and in case there is a failure of the maker to prove that earlier stated facts were wrong, his earlier statements are sufficient to conclude a matter. However, if retraction is proved sufficiently the earlier stated facts or admissions, lose their effect and relevance as a binding evidence and the income-tax authorities cannot conclude a matter on the basis of such earlier statement alone. At the same time, bald retractions of earlier admissions will not be enough and even after retraction such earlier statements / admissions cannot automatically become nullities. Merely because a statement is retracted, it cannot become as involuntary or unlawfully obtained. For any retraction to be successful in the eyes of law the maker has to show as to how earlier recorded statements do not state the true facts or that there was coercion, inducement or threat while recording his earlier statements.

4.2 In the course of search and seizure operations, an attempt is often made by the Officials to extract information and evidences about undisclosed income. The assessee, on the contrary, sometimes complain about being pressurized to give confessions and disclosure of extra income. It is also a matter of fact in most of the cases that the authorities try to obtain and record Statement of the nature they would like to record. The persons making the Statements are made to sign on the statements and other documents. The confessional statement may bind the assessee, as it is on record. However in such cases, retraction is possible. In any case, for the A.O. to add the income disclosed or confessed, the same must be corroborated with materials on record and if the assessee can demonstrate on the basis of facts that statement was not correct, there is no question as to why retraction should not be allowed. Looking at the nature of Departmental actions in search and survey proceedings, the Statements made at those times, are subsequently retracted in some cases. However, as explained by Courts and Tribunals, in case of Retraction assessee needs to prove by legally acceptable evidence that admission, or confession in statement given during search or survey was involuntary or was tendered under coercion or duress.

5. CBDT Instruction dated March 23, 2003

In the light of the statements recorded followed by retractions on the ground of coercion and threat in the course of Search and Survey operations, the Board issued the Instructions F. No. 286/2/2003 – IT (Inv.) dated March 23, 2003 stating as follows:

“Instances have come to the notice of the Board where assessees have claimed that they have been forced to confess undisclosed income during the course of the search and seizure and survey operation. Such confession, if not based on credible evidence, are taken/retracted by the concerned assessees while filing return of income. In these circumstances, confession during the search and seizure and survey operation do not serve any useful purpose. It is, therefore, advised that there should be focus and concentration on collection of evidence of income which leads to information on what has not been disclosed or is not likely to be disclosed before the Income-tax department. Similarly, while recording statement during the course of search and seizure operation, no attempt should be made to obtain confession as to the undisclosed income.”

6. Treatment of Loose Papers/ Loose Sheets

In this context we may refer the following decisions

a) The Punjab and Haryana High Court in CIT v. Atam Valves (P.) Ltd. [2009] 184 Taxman 6 (P&H) held that loose sheets by itself may not be enough to justify addition on estimated basis even though the explanation of the assessee is found unbelievable and circumstances may be pointing otherwise. The stand of the assessee in this case was that the loose slips recording wage payment did not represent payment of wages during the year in question, but were for the earlier year. The Assessing Officer did not accept the explanation and made an addition without bringing any other material on record and this precisely worked against the revenue. Retraction cannot be confronted by loose papers found in premises without any other supportive evidence.

b) In Asstt. CIT v. Ravi Agricultural Industries [2009] 117 ITD 338 (Agra) (TM) the premises of the assessee was subjected to a survey under section 133A during the course of which the revenue authorities found certain loose papers on which some numerical entries were recorded. At the time of survey, one of the partners of the firm agreed to surrender the amount mentioned in loose papers as an unexplained investment. Subsequently, the said partner retracted from the statement made. The Assessing Officer made addition to the assessee’s income on the basis of loose papers without any other supportive evidence. The Commissioner (Appeals) deleted the addition. The Tribunal held that when partner had retracted from his statement, the impugned addition made by the Assessing Officer should have been supported by enough material in the possession of the Department. Since loose papers did not conclusively establish that they pertained to business transactions of the assessee-firm, the Tribunal held that the Commissioner (Appeals) was justified in deleting the addition. Thus, the Tribunal upheld the order of the Commissioner (Appeals) and the decision was rendered in favour of the assessee.

c) In this connection reliance is placed on the decision of the Supreme Court in State v. Ganeswara AIR 1963 SC 1850 holding that absence of corresponding entry in the account of the opposite party precludes the alleged transaction. It is not the case of the AO that there is corresponding entry in the assessee’s account supplying corroboration.

d) According to the law declared by the Supreme Court any presumption of transaction on some vague, tenuous and dubious entries in a sheet of paper is not rational and hence not legal unless there is corroboration by corresponding entry in regular accounts of both the parties to the transaction. Furthermore, the Supreme Court has also held that the loose sheets cannot be account books of a party. Even if it is taken as an informal accounting it is not the record of the assessee. The settled position of law in short is that if the subject matter of controversy is founded on material like a loose sheet or loose sheets of stray entries it is invalid being based on inadmissible evidence. They have no probative value in the absence of some corroborative primary evidence of the reality of such transaction shown in the noting in such loose sheets of paper. Reference is made to Mahasay v. Narendra AIR 1953 SC 431.

e) In CBI v. V. C. Shukla (1998) AIR SC 410 loose sheets have been ruled out as of any evidentiary value. As a matter of fact as held by the Supreme Court in umpteen number of cases entries in the loose sheets is of no evidence value. Even assuming such entries as correct and authentic they cannot without independent evidence fix a liability upon a person. In that connection the court also referred to Section 9 of the Evidence Act and observed that even if such entries are admissible under the said provisions to support an inference about correctness of the entries still such entries would not suffice without supportive independent evidence. In the said case of CBI v. V. C. Shukla (1998) AIR SC 410 loose sheets have been ruled out as of any evidentiary value. Their Lordships went to the length of saying that even correct and authenticated entries in the books of account of one party cannot without independent evidence of their truth fix a liability upon another person. In that connection it is observed that even assuming the entries in loose sheets to be admissible under Section 9 of the Evidence Act as to the correctness of the entries, still those entries would not be sufficient without support of independent evidence. So according to their Lordships even entries in the books of account need corroboration before acting against the third party on the basis of any entry in the books of account of a person. The position in the case of scribbling in disparate loose sheets can hardly bargain for a better treatment.

f) In the Third Member case of Amar Jeet Singh Bhashi (HUF) v. ACIT (2003) 263 ITR (AT) 75 (Del.), it was held that any noting in the loose sheet is no evidence by itself. There has to be something more.

g) In following cases the Tribunal Benches have held that merely on the basis of entries in loose sheets there cannot be an addition – S. K. Gupta v. Dy. CIT [1999] 63 TTJ 532 (Del), Shri Ram Bhagwandas Raheja v. Asstt. CIT [ITA (S&S) No. 118/Mum/1996, Bench “B”, Order dated 23rd September, 1998], Ashwani Kumar v. ITO [1992] 42 TTJ (Del.) 644 : [1991] 39 ITD 183 (Del.), Kishenchand Shobhrajmal v. Asst. CIT [1992] 42 TTJ (Jp) 423 : [1992] 41 ITD 97 (Jp), D. A. Patel v. Dy. CIT [2001] 70 TTJ (Mumbai) 969 : [2000] 72 ITD 340 (Mumbai), Satnam Singh Chhabra v. DCIT [2002] 74 TTJ (Lucknow) 976. Therefore, merely loose sheets or diaries found in the course of search, may not be sufficient for the Revenue to prove that the entries represent undisclosed income of the assessee.

h) Further Mumbai Bench of the ITAT in the case of D. A. Patel v. Dy. CIT [2001] 70 TTJ (Mum.) 969 : [2000] 72 ITD 340 (Mum.) held that in case of discovery of sheets of papers disclosing loan given by an assessee and interest due thereon, during search, the assessee could not be saddled with tax liability.

i) In Smt. Bommana Swarna Rekha v. Asstt. CIT [2005] 147 Taxman 59 (Vishakhapatnam) (Mag.), on search in the premises of the husband of the assessee, a piece of paper was seized which was without any name, date or signature. The Assessing Officer treated part of transaction mentioned in the loose paper as relating to the assessee and made certain addition in her hands as unexplained expenditure. It was held that the onus was on the Assessing Officer to prove that transaction as stated in the said loose paper. Since the Assessing Officer did not bring any cogent evidence or material on record which might prove that the part of transaction stated in paper, representing transactions was entered by the assessee during the period of block assessment, the addition was deleted.

j) In CIT v. Kailash Chand Sharma [2005] 146 Taxman 376 (Raj.), the Assessing Officer made addition on the basis of some loose papers found during search. The assessee contended that the same belonged to his maternal aunt in connection with sale of agricultural land. Although the lady did not appear before the A.O. for cross-examination, yet the person who authored the document appeared and confirmed the contents of the transaction. It was held that the A.O. failed to discharge the onus of making further enquiry and the Tribunal deleted the addition as the facts showed that the transaction did not relate to the assessee.

k) In CIT v. C.L. Khatri [2006] 282 ITR 97/[2005] 147 Taxman 652 (MP), on the basis of loose slip not bearing any date and also not stating as to which period they related, no estimate of household expenses on such loose slip could be made for a particular year. In the absence of any other evidence, the estimate of household expenses in a particular year with reference to income of later year or future year was arbitrary and illogical. The Tribunal was held to be justified in deleting the additions.

l) In CIT v. P. V. Kalyansundaram [2006] 282 ITR 259 (Mad.)/155 Taxman 454 (Mad.), the assessee had shown purchase of land for ₹ 4.10 lakh, which amount was depicted in cash flow statement. A statement was recorded of the seller on the date of search, which revealed that he received ₹ 34.85 lakh for the sale. Later, the seller filed an affidavit that the amount received was only ₹ 4.10 lakh. In a further sworn statement, the seller again stated that he received the amount of ₹ 34.85 lakh. Accordingly, an addition of ₹ 30,75,005 was made as undisclosed income representing the difference of purchase consideration disclosed by the assessee and amount stated to have been received by the seller. The Commissioner (Appeals) deleted the addition made on conflicting statements. The Tribunal dismissed the appeal of the revenue and affirming the decision of the Tribunal, the High Court observed that the burden of proving the actual consideration in such a transaction was that of the revenue which it did not discharge.

m) U/s. 132(4A), presumption is only on the basis of ‘books of account’ or ‘documents’ or ‘assets’ found in the course of search. Loose sheets are not books of account or documents. Therefore, presumption cannot be raised on the basis of noting on loose sheets.

n) In S. P. Goyal v. Dy. CIT [2002] 82 ITD 85 (Mum.) (TM), the Tribunal has held that “. . . loose papers cannot be termed as books of an assessee maintained for any previous year. Loose sheet of paper torn out of a diary could not be construed as books for the purpose of section 68. Addition could not be made simply on the basis of certain notings on loose sheets of a diary without any corroborative evidence in the form of extra cash, jewellery or investment outside the books. The loose papers appear to be part of a 1992 diary. However, these loose papers consist of pages torn out from March, April, November and December. There is no closing balances or opening balances and there is no reconciliation of these entries. Therefore, it cannot be termed as books maintained by the assessee during the previous year. . . . The loose paper in itself has got no intrinsic value. It does not represent negotiable instrument that can be exchanged for a sum of ₹ 60 lakh. When it is a mere entry on a loose sheet of paper and if the assessee claims that it was only a planning, not supported by actual cash, then there has to be circumstantial evidences to support that this entry really represent cash of ₹ 60 lakh. There is no such evidence found by the Revenue in the form of extra cash, jewellery or investment outside the books.”

o) The presumption is discretionery and not mandatory or conclusive: The presumption u/s. 132(4A) can be rebutted. Before raising the presumption u/s. 132(4A), the A.O. is bound to consider whether after considering the surrounding facts and circumstances of the case the above presumption validly arises. This presumption is similar to the nature of presumption in section 114 of the Indian Evidence Act, 1872, in which the Court may presume existence of certain facts, having regard to the circumstances of particular case. “The Court may presume the existence of any fact which it thinks likely to have happened, regard being had to the common course of natural events, human conduct and public and private business, in their relation to the facts of the particular case.”

p) Presumption u/s. 132(4A) requires independent corroborative evidence: In Atul Kumar Jain v. Dy. CIT [1999] 64 TTJ (Delhi) 786, the Tribunal held that the seized paper being not corroborated by any independent evidence cannot be considered as a document in proof of investment in house property, and, accordingly, this paper is liable to be ignored.

q) In Devilal Gherilal Shah v. Dy. CIT [1995] 52 TTJ (Ahd.) 618, the Tribunal held that no date or name is mentioned on the seized paper. In such a case, it is very difficult to say that the assessee purchased gold ornaments and, therefore, he should be assessed in respect of the amount mentioned therein as unexplained investment made by him. In the absence of cogent evidence on record, the addition could not be sustained.

r) In the case of J. R. C. Bhandari v. Asstt. CIT [2003] 133 Taxman 44 (Jd.), it was observed that in the absence of any iota of evidence on record to fasten the liability on the assessee in respect of receipt of the amounts mentioned in the entry noted on a loose sheet which was found in the possession of a third person whose statement was also not on record, addition in the hands of the assessee on the basis of said loose sheets was not legally sustainable. This view was also supported by the decision in the case of Niranjan Kumar Agarwal [IT Appeal No. 658/C/98/Kol.].

In absence of any cogent evidence or corroboration in support of the entries in loose sheets, no adverse conclusion can be drawn against the assessee on mere guess and pure suspicion.

7. Some important decisions

7.1 Abdul Qayume v. CIT [1990] 184 ITR 404/ 48 Taxman 157 (All.): The Allahabad High Court opined that an admission or an acquiescence cannot be the foundation for an assessment where the income was returned under an erroneous impression or misconception of law. It is always open to an assessee to demonstrate and satisfy the authority concerned that a particular income was not taxable in his hands and that it was returned under an erroneous impression of law. The principle can be applied in a case where the disclosure made u/s. 132(4) did not match with the material collected in search.

7.2 Asstt. CIT v. Jorawar Singh M. Rathod [2005] 94 TTJ (Ahd.) 867: [2005] 148 Taxman 35 (Ahd. – Trib.) (Mag.): In this case, the assessee stated in retraction that during recording of statement, he was under constant threat of penalty and prosecution and was confused about various questions asked by the search party about documents, papers, etc., of other persons found from his premises. He declared sum under pressure which was evident from the fact that no such corroborative evidence, asset or valuables were found in form of immovable or movable properties from his residence in support of the amount of disclosure which was later on retracted but not accepted by the department. The Tribunal observed:

“…It is true that simple denial cannot be considered as a denial in the eyes of law but at the same time it is also to be seen (that) the material and valuables and other assets are found at the time of search. The evidence ought to have been collected by the revenue during the search in support of the disclosure statement. It is settled position of the law that authorities under the Act are under an obligation to act in accordance with law. Tax can be collected only as provided under the Act. If an assessee under a mistake, misconception or on not being properly instructed, is over assessed, the authorities under the Act are required to assist him and ensure that only legitimate taxes due are collected [S. R. Koshti v. CIT [2005] 193 CTR (Guj.) 518]. . . . In the light of above discussion, we apply the ratio of Apex Court in the case of Durga, supra, [CIT v. Durga Prasad More [1973] CTR (SC) 500], i.e., test of human probabilities. We do not find any material on record on which basis it can be said that the disclosure of the assessee of ₹ 16 lakhs is in accordance with law or in spirit of section 132(4)…”. (P. 872)

7.3 Surinder Pal Verma v. Asstt. CIT [2004] 89 ITD 129 (Chd. ITAT): The Chandigarh Bench of the Tribunal took a realistic view of the facts and circumstances in which disclosure is generally made in search and seizure proceedings. It was observed:

“It is well known fact that the confessional statements made during the search are often vulnerable on the ground that the person giving such statements remain under great mental strain and stress. They also do not have the availability of relevant details, documents and books of account at the time of giving such statements in the absence of which precise information relating to the mode of utilisation of such income and the year of such investment cannot be correctly furnished. The assessees are, therefore, entitled to modify/clarify the statements after verifying the necessary details from the relevant records at later point of time.” (p.24)

7.4 Asstt. CIT v. Ramesh Chandra R. Patel [2004] 89 ITD 203 (Ahd.) (TM): It was accepted that the assessee had a right to retract but that has to be based on evidence brought on record to the contrary and there must be justifiable reason and material accepting retraction i.e., cogent and sufficient material have to be placed on record for acceptance or retraction. All that has to be done by the assessee if he is to retract the statement which was recorded in the presence of witnesses unless there is evidence of pressure or coercion. The facts of each case have to be considered to reach the conclusion whether retraction was possible or not as there can be no universal rule.

7.5 Hiralal Maganlal & Co. v. Dy. CIT [2005] 96 ITD 113 (Mum.): The Tribunal did not agree that there were facts to justify retraction for the following reasons:

(i) The assessee had stated in the statement that he was giving the statement voluntarily without any undue influence, threat or coercion.

(ii) The statement had been recorded in the presence of witnesses and that, too, after consultation with the Chief Accountant.

(iii) The assessee had not produced any contemporaneous record or evidence, oral or documentary, to substantiate the allegation.

(iv) The answers given by him were quite coherent and did not indicate that he was in a confused state of mind when his statement was recorded.

(v) Before making the statement, the papers recovered from his residence were taken by him to firm’s office for consultation with his trusted men.

(vi) The answers given by the assessee with regard to the nature of documents and other relevant matters were in his specific knowledge.

(vii) At the time of hearing, the assessee denied any force or coercion.

In the words of the Tribunal in Hiralal Maganlal & Co.’s case (supra) retraction is not possible if:

“the assessee fails to prove the incorrect or erroneous nature of the facts admitted or stated in the statement at the earliest possible opportunity from the statement/confession. However, further corroboration of retracted statement is necessary where the assessee established at the earliest possible opportunity by leading reliable evidence and proving thereby the erroneous or incorrect nature of the facts admitted or confessed and also where the evidence available on record is inconsistent with the confession/statement.”

Also refer Pangamban Kalanjoy Singh v. State of Manipur AIR 1956 SC 9.

7.6 ITO v. Bipin Faraskhana [2000] 73 ITD 334 (Ahd.): Held that, mere retraction of statement by filing an affidavit would not absolve the assessee from the consequences of sworn testimony recorded u/s. 132(4) which was fully corroborated by documents and records found at the business premises.

7.7 Dy. CIT v. Bhogilal Mool Chand [2005] 3 SOT 211 (Ahd.): In this case the Tribunal stated :

“It is settled law that admission by a person is a good piece of evidence though not conclusive and the same can be used against the person who makes it. The reason behind this is, a person making a statement stops the opposite party from making further investigation.”

7.8 Asstt. CIT v. Anoop Kumar [2005] 94 TTJ (Asm.) 288: The AO worked out the income on the basis of seized material which was less than the income declared in statement u/s. 132(4). The assessment was, however, made on the income confessed in the statement. The Tribunal observed:

“…It is also a fact that total income so computed by the Assessing Officer falls below the income disclosed u/s. 132(4). It is not the case of the department that the difference in the income assessed and income disclosed u/s. 132(4) represents some other concealed income. Therefore, it is clear that there is no material available with the department to justify the addition so far as the difference between the income computed by the Assessing Officer and income disclosed u/s. 132(4). In other words, the so-called disclosure u/s. 132(4) is bald and has no legs to stand and in such a case retraction is justified… Thus, the view that emerges is that the ultimate addition to be made in a case would depend on the facts and circumstances of the case and not purely on the disclosure made under section 132(4), which also stood retracted subsequently…”. (p. 292)

7.9 Karam Chand v. Asstt. CIT [2000] 73 ITD 434 (Chd.): Held that, statement made by the assessee u/s. 132(4) read with Explanation 5 to section 271(1)(c) can be retracted by the assessee but such going back should be on sufficient ground.

7.10 Gyan Chand Jain v. ITO [2001] 73 TTJ (Jodh.) 859: Held that it is not the position of law that no addition can be made on the basis of an admission at all, but the position of law is that the person making an admission is not always bound by it and sometimes can get out of its binding purview if that person can explain concisely with supportive evidence/material or otherwise that the admission made by him earlier is not correct or contains a wrong statement or that the true state of affairs is different from that represented therein and so, the same should not be acted upon for fastening tax liability which should rather be fixed on the basis of correct/true facts, as ascertained from material on record. Unless it is explained as stated above, the admission does retain its binding nature for the person who makes the admission and the same may, if considered reasonable in view of other facts on record and following the principles of pre-ponderance of probability, form the basis of fastening liability.

7.11 Asstt. CIT v. Jauste Tandoll & Co. [2002] 77 TTJ (Pune) 117: The Pune Bench of the Tribunal took a very pragmatic view of the situation in which statement/ confession was made. The following observations are relevant:

“…There is every likelihood of a statement tendered to or recorded by the search officer on the search day being incoherent or at variance with subsequent statements tendered to or recorded in any further or collateral proceedings, but to make the addition in the returned income or to put such person to sufferance or to adverse consequences on such statement is not justified in law. All that is stated by any deponent on the search day should not be taken as the truth, the whole truth and nothing but the truth. Such statements indubitably have evidentiary value and credibility in law, but the same should be viewed with great caution, particularly when the same are denied, varied or retracted or established by the defendant to have been obtained or given under mental stress, coercion, undue influence or due to any other abnormal condition and circumstances etc,. . . .” (p. 124)

7.12 T. S. Kumarasamy v. Asstt. CIT [1998] 65 ITD 188 (Mad.): It was held by the Tribunal that though there was a retraction of admission on the part of the assessee, one year later, enough good reasons were not given by him for retracting from his voluntary admissions. Consequently, in the absence of any cogent reason with credible evidence, the Court rejected the plea of the assessee that those admissions were made under coercion or duress and were not voluntary. Drawing support from the decision of the Supreme Court in the case of Surjeet Singh Chhabra v. Union of India [1997] 1 SCC 508 the Tribunal disallowed plea of retraction of the assessee on the ground that neither the ground of coercion or duress nor the ground of involuntary statement was proved to have existed at the time of recording of the statement. This decision of the Tribunal goes to indicate that admissions or confessions made in the statements recorded during search or survey, without there being any other evidence to support such admissions, can successfully be made use of to assess the income, unless they are proved to be involuntary or are proved to have been taken under duress, coercion, misconception, etc.

7.13 Hotel Kiran v. Asstt. CIT [2002] 82 ITD 453 (Pune): It is settled law that admission by a person is a good piece of evidence though not conclusive and the same can be used against the person who makes it. The reason behind this is a person making a statement stops the opposite party from making further investigation. This principle is also embedded in the provisions of the Evidence Act. But the statement recorded u/s. 132(4) is on a different footing. The Legislature in its wisdom has provided that such a statement may be used as evidence in any proceedings under the Act. However, there are exceptions to such admission where the assessee can retract from such statement/admission. The first exception exists where such statement is made involuntarily, i.e., obtained under coercion, threat, duress, undue influence, etc. But the burden lies on the person making such allegation to prove that the statement was obtained by the aforesaid means. The second exception is where the statement has been given under some mistaken belief either of fact or of law. If he can show that the statement has been made on mistaken belief of facts, that the facts on the basis of which admission was made were incorrect.

7.14 Shri Krishan v. Kurukshetra University AIR 1976 SC 376: It was held that while recording a statement, the maker of the statement has to be made aware of his legal rights. Admission made in ignorance of legal rights or under duress is not held to be binding.

7.15 ITO v. Smt. Ratan Devi Dugar [1987] 20 ITD 483 (Jp.): Statements and admissions made therein also lose their relevance if it is held that the search proceedings were carelessly and negligently conducted.

7.16 Deepchand & Co. v. Asstt. CIT [1995] 51 TTJ (Bom.) 421: Statements recorded during search proceedings which continued for an unduly long period also cannot be considered to be free, fearless and voluntary. In such circumstances, statements can be successfully retracted, contending that they were recorded under pressure and force.

7.17 Manharlal Kasturchand Chokshi v. Asstt. CIT [1997] 61 ITD 55 (Ahd.): Proof of threat or coercion is necessary for valid retraction. The allegation that the assessee was tortured and harassed by the search team and was forced into making an admission is not enough. The Mumbai Tribunal, in the case of Param Anand Builders (P. ) Ltd. v. ITO [1996] 59 ITD 29, has held that allegations of torture and harassment were unacceptable when independent witnesses were present at the time of search. Mere filing of a letter retracting the statement was not held to be rebuttal of the presumption that what is admitted is true. The Tribunal’s observations were also based on the fact that the ‘Panchas’ had not brought any harassment to the notice of the higher authorities.

7.18 CIT v. Chrestian Mica Industries Ltd. [1977] 109 ITR 324 (Cal.): The admission of fact by the counsel which constitutes substantive evidence against his client, cannot be considered as conclusive and it is still open to the assessee to prove that such admission is wrong.

7.19 Dy. CIT v. Ratan Corpn. [2005] 145 Taxman 503 (Guj.): On the basis of confessional statement obtained due to pressure which the assessee retracted from, the addition made for on-money was deleted. The Tribunal observed that in view of retraction, the Assessing Officer should have made enquiries from the shop owners who were supposed to have paid on-money to the assessee which he did not. As such undue significance cannot be given to the statement made before the authorities during search operation. It is not uncommon that the authorities put pressure for getting admission.

7.20 Ms. Aishwarya K. Rai v. Dy. CIT [2007] 104 ITD 166 (Mum.) (TM): A search was conducted at the place of the assessee. In statement of the father of the assessee recorded u/s. 132(4), he admitted of having paid ₹ 50 lakhs of on-money for the purchase of flat. During post-search operations, he denied having paid any such on-money and stated that the earlier statement was made under duress. The A.O., however, on the basis of earlier statement and on considering a comparable case of purchase of flat in the same building made the addition in block assessment. The subsequent statement given by the father had been accepted and the addition made was deleted. The comparable case cited by the AO was not of a direct purchase from the builder but it was a purchase after construction from a third party and as such it was not considered as a comparable case to the purchase made from the builder by the assessee at the booking stage.

7.21 Retraction of earlier admitted facts puts the AO on the guard : Retraction of earlier admitted facts puts the AO on the guard and he may not suppose to accept them (retractions) without probe or cross-examination. Generally, as compared to a subsequent statement whereby earlier admitted facts or positions are retracted, the first statement may be presumed to be more reliable for the reason that such was the statement which was recorded first in point of time and was made on the spot. Possibility of an afterthought or to concoct an explanation and fabricate the evidence in subsequent statement cannot be ruled out. A retraction to have any evidentiary value must preferably be in a statement not only denying the earlier stated facts but explaining the reasons for making a statement earlier and giving substituted facts in support of retraction. Total and bald denial of what has been stated in the previous statement cannot be said to be effective and it shall at best be deemed merely as a plea of denial which may not be of much help. Further, retraction to be effective and credible, should be intimated to the income-tax authority at the earliest when the matters are still alive. Retractions made after the lapse of a considerable time are liable to be rejected because of possibility of concoctions and fabrication of evidences.

7.22 Power to examine on oath : Section 133A does not empower any ITO to examine any person on oath; so statement recorded under section 133A has no evidentiary value and any admission made during such statement cannot be made basis of addition – Commissioner of Income-tax, Salem v. S. Khader Khan Son [2012] 25 taxmann.com 413 (SC) affirming the decision of Madras High Court in CIT v. S. Khadar Khan Son [2008] 300 ITR 157 (Mad.).

7.23 No addition merely on the basis of the statement during survey No addition can be made under section 69B merely on the basis of the statement during survey in respect of renovation of office show room if the statement had been retracted and there was no evidence of any expenditure found in the survey – Asstt. CIT v. Smt. Usha Rani Talla [2010] 6 ITR (Trib.) 37 (Delhi).

7.24 Alleged Accommodation entries : Where no material was found in search proceedings to establish that all companies documents relating to which were found during search were dummy and assessee had managed and controlled their affairs and moreover revenue had failed to prove that assessee earned commission income on alleged accommodation entries, alleged commission provided by said companies could not be assessed in hands of assesse.

In the above case, following a search proceedings, the assessee disclosed an additional income in return filed under section 153A. The Assessing Officer, however, levied penalty under section 271AAA on the ground that such additional income was not offered in return filed under section 139(1). Where offer of additional income was made voluntarily by assessee in disclosure petition under section 132(4) followed by filing of return under section 153A, assessee was entitled for immunity from levy of penalty under section 271AAA – DCIT v. Sagar Mal Nahta [2017] 82 taxmann.com 344 (Kolkata – Trib.)/[2016] 179 TTJ 493 (Kolkata – Trib.).

7.25 Unexplained investments (Advance) : Where director of assessee-company in course of search admitted unaccounted payment to certain persons on account of advance against land purchased but said transaction could not be materialised and advance was returned back, no addition on account of undisclosed income should be made – Shree Ram Balaji Developers & Infrastructure (P.) Ltd. v. Assistant Commissioner of Income-tax, Central Circle-3, Jaipur* [2017] 88 taxmann.com 364 (Jaipur – Trib.).

8. Reasons and Manner of Retraction

8.1 Generally, as explained earlier, the statements made earlier are retracted when the maker contends that earlier admissions:

(i) were untrue; or

(ii) were on a mistaken understanding, misconception; or

(iii) were not voluntary; or

(iv) were under mental stress, undue influence, pressure or coercion.

8.2 Retraction or rebuttal of earlier statements/admitted facts can be:

(a) in the form of statement which is recorded later on; or

(b) in the form of a letter; or

(c) in the form of a sworn in affidavit filed.

8.3 While there may be reasons for retraction, such retraction should be made at the earliest opportunity. As soon as the assessee becomes aware that his initial stand or admission is incorrect or false, it is open for him to change that stand. But it is absolutely essential that such change, in order to be effective, should be intimated to the AO at the earliest possible time when the matters are still alive, before they attain finality and before limitation sets in.

8.4 Submission of revised return u/s. 139(4) is also a form of retraction, but which is statutorily provided for. However, belated return cannot be revised. Section 139(4) of the Income-tax Act, 1961 provides:

“(4) Any person who has not furnished a return within time allowed to him under sub-section (1), or within the time allowed under a notice issued under sub-section (1) of section 142, may furnish the return for any previous year at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier”.

9. Retraction by a sworn in affidavit

9.1 Averments in the form of affidavit : When the assessee submits averments in the form of affidavit before the authorities, it casts a serious responsibility on him to state the facts in true and correct manner. The opposite party is entitled to cross-examine the deponent of the affidavit. The scope of affidavit is confined to such facts, which the deponent has direct knowledge of. The affidavit shall not unnecessarily set forth matters of hearsay or argumentative nature. Providing a point by way of filing an affidavit is not violative of the principles of natural justice so long as the witness is made available to the opposite party. Though retractions would be effective in all the manners discussed above, yet, comparatively speaking, like a subsequent statement recorded on oath by the concerned income-tax authority, retractions by way of affidavit filed on oath or affirmation attested by the Notary/Oath Commissioner are considered to be more effective for the simple reason that in the eyes of law they carry more value in view of the specific provisions of the Indian Penal Code as contained in sections 181, 191 & 193 which provide for prosecution in case of false statements given on oath.

9.2 Affidavit – which is a solemn and voluntary declaration or statement of fact in writing, relating to matters in question and sworn or affirmed and signed by the deponent before a person or officer duly authorized to administer such an oath or affirmation – should show the circumstances under which admission was made and the grounds for which the admission is incorrect. Necessary supporting evidences to support the correct facts need to be filed. When by a sworn statement or affidavit facts admitted, in an earlier statement which was recorded on oath, are retracted the Assessing Officer may like to examine the maker carefully.

9.3 Ingredients of affidavit: Every affidavit should clearly express how much is the statement of the deponent’s knowledge and how much is a statement of his belief and the ground of belief must be stated with sufficient particularity to enable the Court/Administering Authority to judge whether it would be safe to act on the deponent’s belief. When the affidavits filed by the party bear only the verification that they were sworn on oath and the contents of the affidavits were admitted by them to be correct without giving source of knowledge or information, the verification makes the affidavits meaningless and valueless as noted in the case of Babu Lal v. Motilal, AIT 1953 MB & 2 (Gwalior benefit). The onus to prove mala fide lies heavily on the person alleging it. Facts constituting mala fide have to be supported by affidavits stating that they have ‘come to the knowledge’ of the deponent. The nature and source of knowledge is to be disclosed with sufficient particularity. Affidavit will not be one as required by law if the above ingredients are missing, stated the Supreme Court categorically in Suckwinder Pal Bipan Kumar v. State of Punjab. AIR 1982 SC 65.

9.4 Deponent is liable to be cross-examined: Regarding the retraction made by way of an affidavit it is important to note that mere filing of an affidavit even before the Court will not conclusively make the earlier admissions ineffective because an affidavit is only a statement in respect of the matter in the personal knowledge and in respect of affidavit the deponent is liable to be cross-examined. On furnishing of an affidavit, the Assessing Officer is entitled to cross-examine the deponent and the assessee can be required to produce the deponent in person for cross-examination. If the assessee fails to comply with such cross-examination, affidavit can be ignored. However, if the Assessing Officer fails to cross-examine the deponent the statement made in the affidavit becomes unchallengeable. Reference can be made to the important decision of the Supreme Court in the case of Mehta Parikh & Co. v. CIT [1956] 30 ITR 181 (SC) where it was held that it will not be open to the revenue to challenge the statements made by the deponent in their affidavits later on, if no cross examination with reference to the statements made in the affidavits is done. The decisions in L. Sohanlal Gupta v. CIT 33 ITR 786 (All.) and Malva Knitting Works v. CIT 107 ITR 379, 381 (MP) were also relied upon.

9.5 False affidavit is criminal offence: It will be appreciated that making an incorrect or false affidavit is criminal offence. It has been held in the case of Baban Singh vs. Jagdish Singh AIR 1967 SC 68 that where a false affidavit is sworn, the offence would fall u/s. 191 and 192 of the Indian Penal Code 1860. Hence an affidavit has to be considered as a piece of evidence. The importance and relevance of the averments made in the affidavit cannot be brushed aside without really having any material to contradict the same. It is matter of common knowledge that even in Courts the affidavits are furnished and relied upon.

9.6 Wherever supporting evidence is not possible or not available, an affidavit should be furnished before the authorities. The same is usually accepted unless the authority has any material to controvert the statements contained in such affidavit. Rule 10 of Appellate Tribunal Rules, 1963 also provide that where a fact is alleged, which cannot be borne out by, or is contrary to the record, it shall be stated clearly and concisely and supported by a duly sworn affidavit. In this context following cases are also relevant:

L. Sohanlal Gupta v. CIT [1958] 33 ITR 786 (All.) – The Tribunal was not entitled to reject the affidavit filed by the assessee on the mere ground that he had produced no documentary evidence; if it was not accepted as sufficient proof, the assessee should have been called upon to produce documentary evidence or he should have been cross-examined to find out how far his assertions in the affidavit were correct. [also refer – Malwa Knitting Works v. CIT [1977] 107 ITR 379 at page 381 (MP)]

CIT v. Lunar Diamonds Ltd. [2006] 281 ITR 1 (Del.) – The assessee had filed an affidavit stating that it had not received the notice and the High Court sustained the order of the Tribunal, which had held that under these circumstances, the burden was upon the Department to prove that notice was served upon the assessee within the prescribed time. The Department had failed to prove its case in this regard. The Tribunal 
was right in setting aside the order of assessment. No substantial question of law arose from its order.

10. Conclusion

While making initial admissions by way of statement or otherwise one has to take ample precautions and before making admissions one should understand the facts and issues properly. One should not make initial admissions in a huff or in a casual or light hearted manner because, subsequently, it may not be easy for him to retract or disown them. Further, instead of retracting initial statements or admissions in a bald manner, one has to bring on record cogent reasons or evidences, because in the absence of this even after retraction matters may be decided against him on the basis of initial statement itself. There is unanimity on the legal issue that the statement recorded u/s. 132(4) has evidentiary value, as provided in the Act itself that it can be used in evidence but no such condition exists in respect of a statement recorded u/s. 133A except in a matter falls u/s. 133A (5). At the same time, statements recorded u/s. 132(4) cannot be presumed to contain truth and nothing else but truth. The Board has instructed that ‘AO should rely upon the evidences/materials gathered during the course of search/survey operation or thereafter, while framing the relevant assessment orders’. Just as there is no law that statement/confession given on wrong facts is always binding, similarly, there is no provision that the statement/confession can, in no circumstance, be retracted. The income disclosed or confessed must have co-relation with material on record. If an assessee can demonstrate on the basis of facts that the statement was not correct, there is no reason as to why such retraction should not be allowed.

[Source : Article printed in Paper Book of National Tax Conference, Thane, held on 6th & 7th October, 2018]

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