1. Cases on search authorisation/ Issue of authorisation held invalid

1.1 In H.L. Sibal v. CIT [1975] 101 ITR 112 (P&H), it was held that power under section 132(1) has to be exercised in an honest manner and search warrants cannot be indiscriminately issued purely as matter of policy. The Commissioner has to record his reasons before issuing search warrant and where there was no information with Commissioner on basis of which he could form requisite belief under section 132(1)(a), (b) or (c) to issue search warrant in respect of search of premises of assessee, warrant issued for conducting aforesaid search and proceedings pending against assessee under section 132(5) were to be quashed. The High Court also observed at page 138 of the ITR, as follows: “The applicability of Section 165, Criminal Procedure Code, to the searches made under Section 132(1) gives an indication that this Section is intended to apply in limited circumstances to persons of a particular bent of mind, who are either not expected to cooperate with the authorities for the production of the relevant books or who are In possession of undisclosed money, bullion and jewellery, etc. Take for instance, a particular assessed who has utilised his undisclosed income in constructing a spacious building His premises cannot be subjected to a search under this Section on this score alone. A search would be authorised only if information is given to the CIT that such a person Is keeping money, bullion, jewellery, etc., in this building or elsewhere. Further, if an assessee has been regularly producing his books of account before the assessing authorities who have been accepting these books as having been maintained in proper course of business, it would be somewhat unjustified use of power on the part of the CIT to issue a search warrant for the production of these books of account unless of course there is information to the effect that he has been keeping some secret account books also. He has to arrive at a decision in the background of the mental make up of an individual or individuals jointly interested in a transaction or a venture. A blanket condemnation of persons of diverse activities unconnected with each other on the odd chance that if their premises are searched some incriminating material might be found is wholly outside the scope of Section 165, Criminal Procedure Code. This power has to be exercised in an honest manner and search warrants cannot be indiscriminately issued purely as a matter of policy.”

1.2 In Dr. Nand Lal Tahiliani v. CIT [1988] 39 Taxman 127 (Allahabad)/[1988] 170 ITR 592 (Allahabad), the Allahabad High Court held that the condition precedent for an action under Section 132 was possession of the Information mentioned in the said Section. If either of the conditions was missing or not adhered to then the authority was precluded from invoking the provisions of Section 132. In order that averment “of information must be in a good faith and not a mere pretence, it was necessary that information in consequence of which it was formed must be valid and linked with the ingredients mentioned in this Section. There must be a rational connection between the information or material and the belief about undisclosed income. While quashing the authorisation which had been issued, the Court referred to the note of satisfaction which had been recorded and observed that the reputation of roaring practice or rumour of charging high rate of fee could not be regarded as tangible material on the basis of which an opinion could be formed as contemplated by Section 132 of the Act. The satisfaction of the authorities under Section 132 may be subjective but it must be arrived at objectively and on material which is available.

1.3 In Balwant Singh and others v. R.D. Shah, Director of Inspection, [1969] 71 ITR 550 (Del.), the Division Bench held that the High Court could not test the adequacy of the grounds leading to the satisfaction which was recorded under Section 132 of the Act. It was, however, observed that the Director of Inspection or the Commissioner ought not to lightly or arbitrarily invade the privacy of a subject. If the grounds on which the belief is founded are non-existent or are irrelevant or are such on which no reasonable person can come to that belief, the exercise of the power would be bad, but short of that, the Court cannot interfere with the belief bona fide arrived at by the Director of Inspection. It is, however, for the Court to examine whether the reasons for the belief have a rational connection or relevant bearing to the formation of the belief. It was further observed, that search authorisation could not be issued merely with a view to making a roving or fishing enquiry, but could be issued only when their existed a good ground for believing that further proceedings may have to be taken.

1.4 In Moti Lal v. Preventive Intelligence Office, 80 ITR 418 (All.), the Division Bench of the Allahabad High Court observed while interpreting the provisions of Section 132, in the language of Justice R.S. Pathak, as follows : “In my opinion the power conferred under Section 132(1) is contemplated in relation to those cases where the precise, location of the article or thing is not known to the Income Tax Department and, therefore, a search must be made for it, and where it will not be ordinarily yielded over by the person having possession of it and, therefore, it is necessary to seize it……I am unable to accept the contention on behalf of the Income Tax Department that Section 132(3) will Include a case where the location of the article or thing is known and where ordinarily the person holding the custody of it will readily deliver it up to Income Tax Department, such article or thing. I think, it requires neither search nor seizure.” The said decision was approved by the Supreme Court in the case of CIT v. Tarsem Kumar, 161 ITR 595 (SC).

1.5 In Jignesh Farshubhai Kakkad v. DIT (Inv) [2003] 132 Taxman 350 (Gujarat)/[2003] 264 ITR 87 (Gujarat), during the course of search in case of members of ‘A’ Group under section 132, the premises of one ‘P’ had been searched by the respondent- authorities and certain sum was found which according to ‘P’ belonged to his firm ‘J’ of which he was a partner after disassociating himself from the ‘A’ Group. The High Court held that from the perusal of the satisfaction note submitted by the respondent No. 2 and the satisfaction recorded by the respondent No. 1, it was clear that there was no justifiable reason for having search under the provisions of section 132 at the residence of the petitioners. The condition precedent referred to in section 132 had not been satisfied. No justifiable reason had been recorded for having search either by respondent No. 2 or by respondent No. 1 regarding his satisfaction. Simply because certain sum was found at the residence of ‘P’ and simply because ‘P’ was one of the partners of ‘J’, there was no justifiable reason to issue authorization by respondent No. 1 in favour of respondent No. 2 for having search at the residence of the petitioners. The condition precedent for having search under the provisions of section 132 did not exist. [Para 11] It was held that in the circumstances, the said satisfaction was arrived at in a mechanical manner and without any application of mind. The impugned orders of issuing athorization were quashed and set aside.

2. Recording of Statement under Section 132(4) and Presumption under sec. 292C

Section 132 (4) of Income Tax Act deals with recording of statements on oath. The same reads as under:

The authorised officer may, during the course of the search or seizure, examine on oath any person 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 during such examination may thereafter be used in evidence in any proceeding under the Income-tax Act.

Explanation : For the removal of doubts it is hereby declared that the examination of any person under this sub-section may be not merely in respect of any books of account, other documents or assets found as a result of the search, but also in respect of all matters relevant for the purposes of any investigation connected with any proceeding under the Income tax Act.

Recording of statements of the assessee and/ or other persons connected with the search, found in place of search and whom the authorized officer deems fit for recording a statement, is a common practice during such proceedings. It may be noted that the statement is recorded not for questioning simpliciter. and is taken on oath, its sanctity is quite high in the eyes of law and therefore, cannot be allowed to be retracted easily.

The words ‘may be used in evidence in any proceedings’ appearing in section 132(4) are of great significance. The judicial views with regard to use of a Statement recorded under section 132(4) and circumstances in which such person can retract the Statement as also necessity for revenue to corroborate the admission, are analysed hereinafter.

Presumption under Section 292C : Section 292C has been inserted by the Finance Act, 2007 with retrospective effect from 1-10-1975 allowing presumption as to assets, books of account, etc. found during search under section 132 and requisition under section 132A.

Later on by the Finance Act, 2008 the ambit of section 292C has been enlarged by including presumption in case of survey proceedings under section 133A with retrospective effect from 1-6-2002.

3. 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 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.”

4. Admissions

Admissions as in Evidence Act: Statements recorded during Search and under various provisions of the Income-tax Act, are 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 Income tax Act.

The word “Statement” is neither defined in the Income-tax Act and, hence, it assumes its dictionary meaning of ‘something that is stated’. 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.

Admissions are Statements by a party of the existence of a fact which is relevant to an issue in dispute. It may be noted that the Statement may be either admission or denial of a fact.

An Admission is a Statement, oral or documentary, which suggests an 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.

5. Admissions are not conclusive proof

Admission, 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.

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 therefor, 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 if these are not properly rebutted or retracted. Some important judgments of the Supreme Court explain the concepts and relevance of admission and rebuttal or retraction of admitted facts, are discussed hereinafter.

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.

6. Retraction of Statement

A statement given on oath under section 132(4) may be retracted depending on the facts and circumstances of the case. When a person intends to retract his or her statement, the same should be done without undue delay and by giving cogent reasons for doing so along with other evidences to corroborate the reasons given for retraction.

It is settled law that a statement which is recorded under coercion or threat may be retracted and even statements which were given under mistaken facts or mistaken position of law, may be retracted, as soon as possible, giving cogent reasons explaining the mistake. Even if an admission is made in a statement, the same cannot be held to be conclusive in every case especially when the assessee or any other person whose statement has been recorded under section 132(4) seeks to retract it and shows some genuine concrete reason.

However, retraction of statements made, is viewed adversely by the Income Tax Department, in most cases. Article 20(3) of the Constitution says that no person accused of any offence shall be compelled to be a witness against himself. This is based upon a legal maxim which means that no man is bound to accuse himself.

7. Decisions where Retraction of Statement was held VALID

7.1 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 (Delhi)].

7.2 In Commissioner of Income Tax, Central-III v. Lavanya Land Pvt. Ltd. and Others [2017] 397 ITR 246 (Bom.), the Hon’ble Bombay High Court dismissed an appeal filed by the revenue against the order of the ITAT, Mumbai and upheld the order of the ITAT in which it had set aside the additions made by the revenue based on the statement made by person who was searched but which was later retracted by him. In this case, a search was conducted at the premises of one of handlers of the assessee company and his statement was recorded which showed an admission that a large sum of money was received by him to purchase lands in the name of the assessee company. The said statement was retracted by him after a period of two and a half months. However, the department proceeded to issue a notice to the assessee under section 153C of the Act on the basis of the statement of the person searched and without taking into account the retraction, an addition was made under section 69. The CIT(A) upheld the addition made. On appeal, the ITAT Mumbai set aside the addition made. Adverting to the fact that the concerned person (Dilip Dherai) has retracted his statement, the Tribunal arrived at the conclusion that merely on the strength of the alleged admission in the statement, the additions could not be made as the essential ingredients of Section 69C of the IT Act enabling the additions were not satisfied. This was not a case of ‘no explanation’. Rather, the Tribunal concluded that the allegations made by the authorities are not supported by actual cash passing hands. Against the order of the ITAT, the revenue filed an appeal to the Hon’ble Bombay High Court, which held while dismissing the appeal of the revenue, in para 22 of its Order, as under:

“It is not possible for us to reappraise and re-appreciate the factual findings. The finding that Section 153C was not attracted and its invocation was bad in law is not based just on an interpretation of Section I53C but after holding that the ingredients of the same were not satisfied in the present case. That is an exercise carried out by the Tribunal as a last fact finding authority. Therefore, the finding is a mixed one. There is no substantial question of law arising from such an order and which alternatively considers the merits of the case as well.”

7.3 Retraction of statements recorded at odd hours: The admissibility of retraction of statements which were given in an exhausted state and at odd hours was allowed by the Hon’ble Gujarat High Court in Kailashben Manharlcil Choksi v CIT [2010] 320 ITR 411 (Guj,). It was held that a statement which has been recorded u/s 132(4) at odd hours is not a voluntary statement if it is subsequently retracted. The Hon’ble High Court observed that the main grievance of the A.O. was that the statement was not retracted immediately and it was done after two months. It was an afterthought and made under legal advise. However, if such retraction is to be viewed in light of the evidence furnished along with the affidavit, it would immediately be clear that the assessee has given proper explanation for all the items under which disclosure was sought to be obtained from the assessee. The High Court held that the explanation seems to be more convincing, has not been considered by the authorities below and additions were made and/or confirmed merely on the basis of statement recorded under Section 132(4) of the Act. Despite the fact that the said statement was later on retracted no evidence has been led by the Revenue authority. Merely on the basis of admission the assessee could not have been subjected to such additions unless and until, some corroborative evidence is found in support of such admission. The High Court also held that the statement recorded at such odd hours cannot be considered to be a voluntary statement, if it is subsequently retracted and necessary evidence is led contrary to such admission.

7.4 Principal CIT, Central III v. Krutika Land (P.) Ltd. [2019] 103 taxmann.com 9 (SC): During search certain incriminating documents were found in possession of one DD, managing and handling land acquisition on behalf of assessee-company and his statement was recorded. He stated that there were amounts disbursed for purchase of lands and a certain amount of cash had also been received by him to purchase lands. However, later he had retracted his statement. A.O. issued notice under section 153C and initiated proceedings against assessee and made additions under section 69C. High Court held that since seized documents did not belong to assessee but were seized from residential premises of one Mr. DD who had later retracted his statement, no action under section 153C could be undertaken in case of assessee. It further held that since entire decision was based on seized documents and there was no material to conclusively show that huge amounts revealed from seized documents were actually transferred from one side to another, additions under section 69C were not sustainable. SLP of Revenue was dismissed.

7.5 Satinder Kumar (HUF) v. CIT [1977] 106 ITR 64 (HP): 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.

7.6 Asstt. CIT v. Jorawar Singh M. Rathod [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 the 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.

7.7 S.R. Koshti v. CIT [2005] 193 CTR (Guj.) 518: 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. The decision in CIT v. Durga Prasad More [1973] CTR (SC) 500, was followed i.e., test of human probabilities. The High Court said “We do not find any material on record on which basis it can be said that the disclosure of the assessee of Rs. 16 lakhs is in accordance with law or in spirit of section 132(4)…”. (p. 872)

7.8 Surinder Pal Verma v. Asstt. CIT [2004] 89 ITD 129 (Chd.) (TM)- 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 utilization 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)

7.9 Asstt. CIT v. Rameshchandra 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. 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 confessional statement.

7.10 Asstt. CIT v. Anoop Kumar [2005] 147 Taxman 26 (Asr.) (Mag.): The A.O. worked out the income on the basis of seized material which was less than the income declared in statement under section 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 under section 132(4). It is not the case of the department that the difference in the income assessed and income disclosed under section 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 under section 132(4). In other words, the so-called disclosure under section 132(4) is bald and has no legs to stand and in such a case retraction is justified… (p. 292)

7.11 Avadh Kishore Das v. Ram Gopal AIR 1979 SC 861: The Supreme Court 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.

7.12 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 preponderance of probability, form the basis of fastening liability. The ITAT allowed part relief to assessee.

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 under section 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, than the facts on the basis of which admission was made were incorrect.

7.14 CIT (LTU) v. Reliance Industries Ltd. [2019] 102 taxmann.com 372 (Bombay)/[2019] 261 Taxman 358 (Bombay)/[2020] 421 ITR 686 (Bombay) [SLP granted in [2020] 114 taxmann.com 320 (SC)], the Appellate Authorities allowed payments made to ‘S’, a consultant holding that there was sufficient evidence justifying payments made to ‘S’ and Assessing Officer other than relying upon statement of ‘S’ recorded in search had no independent material to make disallowance. The CIT (Appeal) and Tribunal concurrently held that ‘S’ retracted his statement within a short time by filing an affidavit. Subsequently his further statement was recorded in which he also reiterated the stand taken in affidavit. The High Court slammed AO for making disallowance of payment merely relying on statement of payer recorded during search, which said that ‘S’ had not rendered any service to assessee so as to receive such payments. The allowance of payments made to ‘S’, a consultant, was allowed as business expenditure. The assessee had set up a captive power generating unit and provided electricity to its another unit. It claimed deduction u/s 80-IA in respect of the profits arising out of such activity. It contended before the Assessing Officer that the valuation of electricity provided to the another unit should be at the rate at which the electricity distribution companies were allowed to supply electricity to the consumers. The issue at hand had been examined by the Bombay High Court on earlier occasion in Income Tax Appeal No. 2180 of 2011 and the view taken by the Tribunal in similar circumstances was upheld. A similar issue came up for consideration before the Chhattisgarh High Court in the case of CIT v. Godawari Power & Ispat Ltd. [2014] 42 taxmann.com 551/223 Taxman 234 (Chhattisgarh), in which the Court had upheld the claim of the assessee. The Gujarat High Court in the case of Pr.CIT v. Gujarat Alkalies & Chemicals Ltd. [2017] 395 ITR 247/88 taxmann.com 722 (Gujarat) also had occasion to examine such an issue and allowed the expenditure.

7.15 In CIT v. Uttamchand Jain [2009] 182 Taxman 343 (Bom) / [2010] 320 ITR 554 (Bombay), the Assessee, a dealer in diamonds, had declared certain diamond jewellery under Voluntary Disclosure of Income Scheme, 1997 – Said declaration was accepted by department and a certificate was issued to assessee – In his return of income for relevant assessment year, assessee claimed to have sold said jewellery to one T on 20-1-1999. Return was processed u/s 143(1)(a), but later, on basis of statement of T recorded during course of survey conducted upon him wherein he had stated that he was not actually doing business of diamonds and transactions reflected in his books of account were merely accommodation entries. The A.O. reopened assessment and made addition of entire sale amount as undisclosed income of assessee. The Tribunal, relying upon retracted statement made by T, deleted impugned addition. Since existence of diamond jewellery with assessee prior to sale was evidenced by VDIS, 1997 certificate and on sale of said jewellery assessee had received consideration which was duly accounted for, mere fact that jewellery sold by assessee was not found with purchaser ‘T’ could not be a ground to hold that transaction was bogus and consideration received by assessee was his undisclosed income. The Court held that retraction statement of Mr. Trivedi is corroborated by the pay-in-slips/cash deposits in the bank account of Mr. Trivedi and the non-availability of the jewellery claimed to have been sold by the assessee to Mr. Trivedi, is a reasonable and possible view. Therefore, the High Court upheld the decision of the Tribunal in deleting impugned addition.

7.16 In CIT v. Rakesh Ramani [2018] 94 taxmann.com 461 (Bom.)/ [2018] 256 Taxman 299 (Bom.) / 168 DTR 356 (Bom.)(HC), in course of block assessment, assessee brought on record various documents to establish that jewellery seized from him actually belonged to his employer, impugned addition made in respect thereof merely on ground that assessee in course of statement made u/s 132, had admitted that said jewellery belonged to him, could not be sustained. It was also held that there is no requirement in law that evidence in support of its case must be produced by assessee only at time when seizure has been made and not during assessment proceedings. Besides, the entire basis of the revenue’s case is the statement made on the date of the seizure. The voluminous evidence filed by the respondent during the course of the assessment proceedings has been completely ignored on the ground that the same was not produced when the seizure was made. The High Court held that there is no requirement in law that evidence in support of its case must be produced by assessee only at the time when the seizure has been made and not during the assessment proceedings. The basis of the decision was the evidence led by the respondent during the assessment proceedings which established that the jewellery belonged to his employer ‘P’ Jewellers. Therefore, the Bombay High Court held that the view taken by the two Authorities namely the Commissioner (Appeals) as well as the Tribunal is a possible view on the facts as existing. Therefore, the Court held that the question of law does not arise to any substantial question of law and the appeal of the Revenue was dismissed.

8. Retraction partly accepted

In Pranav Construction Co v. ACIT (1998) 61 TTJ 145 (Mum) (Trib) (dt 12 -11-1997), the AO was of the view that whereas in the statement recorded under s. 132(4) the partner of the assessee-firm had disclosed an income of Rs. 70 lakhs, in the return there has been retraction of the said statement inasmuch as the assessee had declared only Rs. 10,53,680 on account of undisclosed income. The assessee had retracted from the statement in respect of two issues, the first being the undisclosed receipts, which were reduced from Rs. 70 lakhs to Rs. 52,68,400 and the second being the claim of expenses amounting to Rs. 42,14,720. The assessee explained that “The aforesaid statement was recorded by the ADIT at 2.30 A.M. in the early morning, though it was mentioned at 11.45 P.M. The assessee pleaded that he was totally tired and was under tremendous pressure and not in a proper state of mind to understand the implications as to what is stated in the said statement. He stated before the ADI during search that the aforesaid amount of Rs. 80 lakhs is the gross receipts, but as a builder, the assessee are required to incur lot of expenditure, which is unaccounted for. The A.O. felt that it cannot be postulated that the assessee had effected the payments out of the moneys received by it earlier in respect of the flats, offices and shops and recorded in the books. With regard to the admission, the learned D.R. had argued that there is no scope for allowing any expenditure because the statement of the assessees partner u/s 132(4) relates to disclosure of income, which means net income. The Tribunal observed “We are of the view that the admission cannot be read as an Act of Parliament and that it has to be read in the context fairly and reasonably. We have already adverted to this aspect. The burden can be discharged either by direct evidence or if such evidence is not available the assessee can always point out to circumstantial evidence supporting the claim. In the present case in respect of the payment of Rs. 9 lakhs there is direct evidence and in respect of the payment of protection money to the extent of Rs. 20 lakhs to Shellar and Padmakar Choudhary, there is circumstantial evidence, to which we have already referred. The further deduction of Rs. 1 lakh which we have allowed is also based only on the circumstantial evidence such as newspaper cuttings, reports, etc.” The Tribunal considered total on-money receipts @ Rs. 100 per sq. ft. for 73,371 sq. ft. 73,37,100 and allowed deduction for payments as protection money, for vacating hawkers, tapories, etc. Rs.30 Lacs and Pooja expenses of Rs.14,720 and thus the addition was reduced to Rs. 43,22,380.

9. Leakage to media will jeopardise investigation, such tendency should be curbed

In Rajendran Chingaravlelu (Mr) v. R. K. Mishra, Addl. CIT [2010] 186 Taxman 305 (SC)/[2010] 320 ITR 1 (SC), When a bona fide passenger is carrying an unusually large sum, and his claims regarding source and legitimacy have to be verified, some delay and inconvenience is inevitable and, in such a situation, rights of passenger will have to yield to public interest. Intelligence officers are entitled to satisfy themselves not only that money is from a legitimate source, but also that such a large amount is being carried for a legitimate purpose and, therefore, even if carrier is not guilty of any offence in carrying money, verification or seized amount may be warranted to ensure that money is not intended for commission of a crime or an offence. There is a growing tendency among investigating officers (either police or other departments) to inform the media, even before the completion of investigation, that they have caught a criminal or an offender. Such crude attempts to claim credit for imaginary investigational breakthroughs should be curbed. Premature disclosures or ‘leakage’ to the media in a pending investigation will not only jeopardise and impede further investigation, but many a time, allow the real culprit to escape from law.

10. Decisions where Retraction of Statement was NOT ACCEPTED

10.1 Ms. Priyanka Chopra v. Deputy CIT, Central Circle-1(3), Mumbai* [2018] 89 taxmann.com 287 (Mumbai – Trib.) : A search was carried out in case of assessee in course of which various incriminating documents were seized. In said proceedings, assessee as well as her mother admitted certain undisclosed investment towards purchase of assets. Subsequently, assessee’s mother retracted her statement. A.O. however, added amount admitted to assessee’s taxable income. It was noted that it was only with reference to search and seizure material that assessee’s mother had given a specific amount to various heads wherein undisclosed income had been utilized. Furthermore, so-called retraction was by mother of assessee and there was no retraction whatsoever by assessee. Impugned addition was based upon incriminating material found or searched and, thus, same was confirmed. [Para 8]

10.2 Bannalal Jat Constructions (P.) Ltd. v. Assistant Commissioner of Income-tax [2019] 106 taxmann.com 128 (SC): A search was carried out at business premises of assessee-company – In course of search proceedings, statement of director of assessee-company was recorded under section 132(4) admitting certain undisclosed income. In course of assessment, A.O. made addition to assessee’s income on basis of statement given by its director. Subsequently, director of assessee-company retracted said statement. Tribunal, however, finding that statement had been recorded in presence of independent witness, confirmed addition made by Assessing Officer. High Court also opined that mere fact that director of assessee-company retracted statement at later point of time, could not make said statement unacceptable. It was further opined that burden lay on assessee to show that admission made by director in his statement was wrong and such retraction had to be supported by a strong evidence showing that earlier statement was recorded under duress and coercion. High Court finding that assessee failed to discharge said burden, confirmed order passed by Tribunal. – Whether, on facts, SLP filed against decision of High Court was to be dismissed – [Para 2]

10.3 Thiru S. Shyam Kumar v. Assistant CIT, Central Circle-III(3), Chennai* [2018] 99 taxmann.com 39 (Madras): A search was conducted in business premises of assessee wherein certain loose slips were recovered, which showed several entries pertaining to cash and cheque transactions in respect of purchase of a property. Assessee accepted in his statement that slip represented on-money payment made for purchase of property in question. Later on, assessee retracted from his statement and claimed that loose slips were only dumb slips – Tribunal however, rejected claim of assessee and confirmed addition under sec. 69. Since notings in loose slips were clear, retraction made by assessee after period of two years was rightly rejected as an afterthought. [Paras 8 and 11]

10.4 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.

10.5 Fakir Mohmed Haji Hasan v. CIT [2002] 120 Taxman 11/[2001] 247 ITR 290 (Guj), Gujarat High Court upheld the department’s action of treating the amount as deemed income.

10.6 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 to make an admission is not enough.

10.7 Param Anand Builders (P.) Ltd. v. ITO [1996] 59 ITD 29 (ITAT- Mum), It was held by ITAT, Mumbai 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.

10.8 Video Master v. Joint CIT [2002] 83 ITD 102 (Mum) ITAT, Mumbai dealt with a case where aseessee retracted statement made claiming it to have been made under duress and coercion. During search, D, who was partner of assessee-firm, made voluntary disclosure of Rs. 3 crores comprising earnings from two films and income on account of discrepancy in books of account. The retraction made by ‘D’ later on, after a gap of one month of recording statement, was immaterial as it could not be said that D’s statement under section 132(4) was recorded under duress. It was held that since statement recorded in present case under section 132(4) was fully supported with documents seized during course of search, additions made by Assessing Officer of Rs. 1.83 crores treating same as undisclosed income of assessee from share of profits from two films was justified.

10.9 Hotel Kiran v ACIT [2002] 82 ITD 453 (Pune), Addition of Rs. 4.5 lakhs was made by Assessing Officer on account of ‘on-money’ alleged to have been paid by assessee-firm for purchase of flat and plot for partner. During search partner of assessee itself had admitted that amount was paid before agreement out of suppressed profits of firm. It could be said that there was a direct nexus between payment of ‘on-money’ and suppressed profits of assessee-firm. Since source of payment of Rs. 4 lakhs was suppressed profits of assessee-firm, assessee was entitled to set off this amount against suppressed business profits of firm relating to year concerned to the extent addition was ultimately sustained because a person cannot be taxed twice over same income. Where statement under section 132(4) was voluntarily made and there was no coercion or threat whatsoever and contents of statement were clear and unambiguous, same would be binding on assessee even if it was subsequently retracted.

10.10 The Bombay High Court in the case of T. Lakhamshi Ladha & Co. v CIT [2016] 386 ITR 245 (Bom), held that in case there is a statement by a senior partner of an assessee firm, statement cannot be retracted by another partner of that firm in absence of any allegation of pressure and coercion by the department and there being no evidence to prove that original statement was incorrect.

10.11 In Dhunjibhoy Stud & Agricultural Farm v DCIT, [2002] 82 ITD 18 (Pune), ITAT, Pune Bench held that where a retraction of a statement was made on an affidavit after a lapse of three years, the same should not be considered and the admissions made earlier were held to be admissible evidences.

10.12 In Manmohansingh Vig v Deputy Commissioner of Income Tax, Circle 1(1), [2006] 6 SOT 18 (Mum), the ITAT while coming to a conclusion as to the admissibility of a retraction made on an affidavit by the assessee, laid out certain reasoning for not admitting the same. The conclusions drawn by the Tribunal would be useful for us and gives us an insight to ascertain as to what the Courts have regard to, while dealing with retractions and how a retraction should be framed. The relevant extract is given hereunder:

a) What was retracted subsequently was only a denial. No material evidence was furnished so as to discharge onus cast on the assessee by virtue of statement recorded under sections 132(4) and 131(1A),

b) Presumption raised under section 132(4A) is not rebutted by the assessee by submitting cogent evidence. Hence, the statement given under sections 132(4) and 131 (1A) hold their evidentiary value.

c) No material has been submitted to show that any pressure or coercion was exercised while recording the statements under sections 132(4) and 131(1A). No complaint was filed immediately after search or recording of statement under section 131 (1A) to show that there was any pressure or coercion. Statement under section 132(4) was recorded before witnesses. Hence, there is a presumption that there was no pressure/coercion unless proved.

d) Disclosure was enhanced during statement under section 131(1A) as compared to the statement given under section 132(4). Hence, the theory of pressure or coercion applied during recording of statement under section 132(4) is not acceptable.

e) The assessee is silent for about 11 months. No letter/correspondence was sent immediately after recording of statement under section 132(4). Hence, theory of pressure or coercion is only an afterthought.

f) Disclosure of several items were based on documents found in the search. These documents were explained under sections 132(4) and 131(1A). Hence, there is a strong reason to believe that statement under sections 132(4)/l31(1A) reveal correct state of affairs and retraction has to be ignored.

The ITAT held that the retraction or rather denial is not established by any material/evidence and hence the same cannot be substituted for admission made by the assessee under sections 132(4) and 131(1A) and supported by documentary evidence found in the search. Hence, the additions made were confirmed.

10.13 In Asst. CIT v Expresso Investments [2006] 8 SOT 287 (Mum) the retraction made was held to be incomplete and the contents thereof were inconclusive. In the said case neither did the content of the retraction show any coercion or duress exerted and neither did it have any conclusive and corroborative evidences by witness in the affidavit of retraction submitted by the assessee. The ITAT referred to the celebrated book titled ‘Administrative Law’ by Sir William Wade (eighth edition by Wade and Forsyth – Oxford University Press), in which the legal position has been explained at p. 242 as under :

“The basic principle of estoppel is that a person who by some statement or representation of fact causes another to act to his detriment in reliance on the truth of it is not allowed to deny it later, even though it is wrong. Justice here prevails over truth. Estoppel is often described as a rule of evidence, but more correctly it is a principle of law. As a principle of common law it applies only to representations about past or present facts”.

The ITAT also held that discretion is vested with assessing officer, to use statement under section 132(4) as evidence. However it is not incumbent on him to make addition solely on the basis of such statement. Even otherwise, in our opinion, mere admission, without any corroboration, is not enough for making addition. In the statement under section 132(4), the assessee merely stated that some of the cash creditors may not be genuine. It is on the basis of such doubt that addition was made. In these circumstances of cash creditors, the assessing officer should not come in the way of assessee. In the present case, assessing officer merely got restricted himself to the statement under section 132(4). He had chosen to make enquiries regarding genuineness of the cash creditors by asking the assessee to prove the genuineness of such cash credits. Having done so, he could not make addition on the basis of statement under section 132(4) alone. Rather, he should have dealt with each credit with reference to the materials on the record. Accordingly, the order of Commissioner (Appeals) was set aside and matter was restored to the file of assessing officer for fresh adjudication after giving reasonable opportunity of being heard.

10.14 Sidhharth Shankar Roy v. Commissioner of Customs, Mumbai 2013 (291) ELT 244 (Tri.) (Mumbai) (Order dated 30-8-2011), it was held that retraction of a confessional statement should be addressed to the same officer to whom the confessional statement was given u/s 108 of the Customs Act. In this case, the retraction was made before the Judicial Magistrate and not before the concerned officer of Customs (AIU). Moreover, though the officer of Customs who was alleged to have beaten/manhandled the appellants challenged their retractions before the ACMM, he was not cross-examined by any of the appellants. The Tribunal found that the appellants have not been able to establish that the said statements were extorted from them by the officers of AIU by threat, coercion, force or assault. The submissions made by them before the Judicial Magistrate and those made before this Tribunal in this regard are inconsistent and incoherent. The Medical Reports relied on by the appellants also do not support their allegation that they were assaulted by any officer of Customs. The medical reports, on the other hand, refer to assault by the police. The Tribunal held that the Commissioner rightly rejected the retractions.

10.15 In Hiralal Maganlal & Co. v DCIT [2005] 96 ITD 113 (Mum) the assessee took a complete turn around and alleged that the statements of the aforesaid persons were forcibly recorded and that the seized sheets were mere estimates of goods to be purchased. The ITAT held that the somersault taken by the assessee several months after search was, as held by the Assessing Officer, was an afterthought and the events following thereafter were simply a device to frustrate the efforts of the Department to sniff off the unaccounted income of the assessee which it had unambiguously and voluntarily declared and offered for taxation at the time of search. The ITAT also laid down some useful principles as under in para 35:

a) Statements in the nature of declarations covered by the provisions of section 115 of the Evidence Act, are binding on the declarant. They can neither he retracted nor do they require any corroboration. Such declarations can form the sole basis for assessment. The declaration made by partner in the assessee-firm through his statement recorded under section 132(4) falls squarely within the ambit of section 115 of the Evidence Act and hence the same was neither open to retraction nor required any further corroboration. The assessing officer could, therefore, base the impugned addition on the said declaration.

b) Statements which are not in the nature of declarations under section 115 of the Evidence Act are also binding and can form the sole basis for assessment if they are not effectively retracted. Effective retraction is possible in two situations. First situation is where it is not voluntarily made. A statement, however, cannot he said to be involuntarily made merely because it is subsequently sought to be retracted. It is also to be remembered that the law of evidence presumes regularity and correctness of the official actions unless proved otherwise and hence the said principle will also govern the statement recorded by a public official. The provisions of section 132(4) also create rebuttable presumption in favour of the statements recorded there under and authorize their use in evidence in any proceeding under the Income Tax Act. The burden is, therefore, squarely on the person who alleges that the statement was not made voluntarily to prove that it was involuntarily made or made under coercion or undue influence or that it was made under mistaken belief or was obtained by fraud or misrepresentation. Mere allegation will not suffice. Second situation is where the person seeking to retract proves, by leading cogent and reliable evidence, the erroneous or incorrect nature of the facts stated or confessed at the earliest possible opportunity. In the case before us, it has been held above that the assessee has squarely failed to satisfactorily discharge the burden that the confessional statement made by partner under section 132(4) was involuntarily made or made under coercion or undue influence or was made under mistaken belief or obtained by fraud or misrepresentation. Rather, the evidence available on record shows that it was voluntarily made by Shri Sanghvi with due care and caution and after necessary consultations with all concerned. Besides, there has been inordinate delay, which has not been substantiated, on the part of the assessee to retract from the confessional statement. Retraction is also not supported by any independent or reliable evidence to prove the incorrect nature of the facts confessed in the statement. The confessional statement of the partner is also corroborated by other evidence. For these reasons also, the assessing officer, was therefore, in our view, justified in basing the impugned addition on the basis of confessional statement made at the time of search.

c) A confessional statement, which is not in the nature of declaration under section 115 of the Evidence Act, continues to have evidentiary value even after its retraction. However, such retracted confession/statement needs corroboration if it has been successfully retracted.

11. Relevant Points in case a Statement is RETRACTED

8.1 The Retraction must be made without delay: Kantilal C. Shah v ACIT [2011] 133 ITD 57 (Ahd) held that retraction of statement made u/s 132(4) will not be permissible if the retraction has been made after a lapse of ample time and not done immediately. In this case, a search was conducted on 12/12/1995 and on that very day a statement u/s. 132(4) of the Act was recorded, however, after a lapse of around nine and a half months, i.e., 01/10/1996 a retraction was made through an Affidavit. The said retraction was not immediately submitted before the AO but it was submitted through a covering letter dated 19/11/1996. This was pointed out by Id. D.R. that the retraction in the form of an Affidavit dated 1/10/1996 was kept with the assessee for one and a half months and on 19/11/1996 it was submitted before the AO. According to his pleadings the said delay thus demonstrated that the assessee was not confident about filing of the retraction. There must be some convincing and effective evidence in the hands of the assessee through which he could demonstrate that the said statement was factually incorrect. An assessee is under strict obligation to demonstrate that the statement recorded earlier was incorrect, therefore, on the basis of those specific evidences later on retracted. Further there should also be some strong evidence to demonstrate that the earlier statement recorded was under coercion. In the present case, the retraction is general in nature and lacking any supportive evidence. Rather assessee took several months to retract the initial statement, which by itself created a serious doubt.

8.2 In Council of Institute of Chartered Accountants of India v Mukesh R. Shah,[2004] 134 Taxman 265 (Guj) the Hon’ble Gujarat High Court, held that it goes without saying that a retraction made after a considerable length of time, would not have the same efficacy in law as a retraction made at the earliest point of time from the day of admission. A belated retraction would fall in the category of afterthought instead of being retraction…. “

8.3 Evidences to corroborate reasons for retraction

Sudharshan P. Amin v. Asst. CIT [2013] 35 taxmann.com 370 (Gujarat)/[2013] 217 Taxaman 37 (Guj.): In search, assessee had disclosed a sum as undeclared income – Assessee again admitted same in his confessional statement. However, during assessment proceedings, assessee retracted from his statement. Assessee’s CA who was present at time of confessional statements did not suggest any undue pressure or allurement by department. Further, assessee had not offered any explanation as to why he repeated confessional statement even after search. It was held that retraction made by assessee could not be accepted and addition should be made to his income as undeclared investment. When retracting a statement made on oath under section 132(4), it should always be supported by effective evidence which shows that the statement which was earlier recorded was incorrect on facts or was taken under inter alia coercion and intimidation. Merely mentioning that the statement was recorded using undue influence, threat or coercion, or that there was a mistake of facts or law. may not be enough. What has to be seen is how clearly the same is spelt out and what evidence, has been attached to demonstrate the same.

8.4 Intimation of retraction to higher authorities

In Principal CIT v Roshan Lai Sancheti [2019] 306 CTR (Raj) 140, the Rajasthan High Court held in para 19 that “Statement recorded under sec. 132(4) and later confirmed in statement recorded under sec. 131, cannot be discarded simply by observing that the assessee has retracted the same because such retraction ought to have been generally made within reasonable time or by filing complaint to superior authorities or otherwise brought to notice of the higher officials by filing duly sworn affidavit or statement supported by convincing evidence. Such a statement when recorded at two stages cannot be discarded summarily in cryptic manner by observing that the assessee in a belatedly filed affidavit has retracted from his statement. Such retraction is required to be made as soon as possible or immediately after the statement of the assessee was recorded. Duration of time when such retraction is made assumes significance and in the present case retraction has been made by the assessee after almost eight months to be precise, 237 days.

8.5 Statements made involuntarily i.e. obtained under coercion, threat, duress, undue influence etc.

In Deepchand & Co v ACIT [1995] 51 TTJ (Bom.) 421, the ITAT, Mumbai held that there is no supporting evidence to confirm the additions except the statements of two partners recorded at the time of search. It would not be out of context to mention here that the statements recorded by the search party during the search of more than two days and two nights cannot be considered to be free, fearless and voluntary. There is a considerable substance in the assessee’s contention that the statements were recorded under pressure and force. The Tribunal had held that retraction should be allowed if it is based on proper principles and evidence. In the ordinary course no assessee would say that he had much concealed unaccounted money as mentioned in the statements herein. At the most what was expected to say was that certain income from the business was not disclosed, but putting in the mouth of the assessee that so much amount was unaccounted and concealed would itself indicate that the admission was forcible and not voluntary.

8.6 Retraction after obtaining copy of Statement on ground of mistaken belief either of fact or law

a) In Jyotichand Bhaichand Saraf & Sons (P.) Ltd. v Deputy Commissioner of Income-tax, Circle 11(1) (ITAT Pune) [2012] 139 ITD 10 (Pune), a search and seizure action was taken under section 132. During the course of search action, statement of the Director of the assessee was recorded under section 132(4) on 6th November 2001. The assessee was given copies of the statement recorded under section 132(4) of the I.T. Act, 1961 on 20,h May 2002. On receipt of the copy of the statement the assessee realized that there was a mistake in the declaration of income. The assessee submitted a letter clarifying the mistake on 21st June 2002 to the Assessing Officer and retracted the statement made under mistake of fact. The assessment order was accordingly issued and was set aside by the CIT under sec. 263 stating that the same was prejudicial to the interest of the revenue and was made by the assessing officer without application of mind. On appeal, the Ld. ITAT held that the department has not brought on record any corroborative evidence so as to establish undisclosed income having been invested in agricultural land. Statement of the assessee cannot he sole basis without any cogent and corroborative evidence. This is the reason that the mistake in the statement is immediately clarified on the receipt of the statement by the appellant as stated above. Moreover, no material/evidence was found during the course of search action indicating on-money payment or any undisclosed investment in agricultural land at Malad. The assessee has clarified the mistake in the statement immediately on receipt of the statement. Thus the statement has been retracted on realization of the mistake. The statement was given under mistaken belief of law that the suppressed sale is unaccounted/undisclosed income instead of correct legal position that the gross profit arising from unaccounted sale is the undisclosed income. It is a settled position that admission made by the assessee u/s 132(4) is an important piece of evidence but the same is not conclusive. It is open to the assessee who made the admission to show that it is incorrect and the same is given under mistaken belief of fact or law. Statement of Director indicate that he was not mentally composed at relevant point of time. There is nothing on record to suggest that said undisclosed income declared on behalf of assessee has nexus with undisclosed investment in the said agricultural land.

b) Amritsar ITAT Bench in Asstt. CIT v Janak Raj Chciuhan [2006] 102 TTJ 316 (Asr.), observed that admission made at the time of search action is an important piece of evidence, but the same is not conclusive. It is open to the assessee who made the admission to show that it is incorrect and same was made under mistaken belief of law and fact.

8.7 Principles of Natural Justice

ITAT, Jodhpur Bench in Maheshwari Industries v Asstt. CIT [2005] 148 Taxman 74 (Jodh) (Mag.) has held that additions should be considered on merits rather than on the basis of the fact that the amount was surrendered by the assessee. It is settled legal position that unless the. provision of statute warrant or there is a necessary implication on reading of section that the principles of natural justice are excluded, the provision of section should be construed in manner incorporating principles of natural justice and quasi-judicial bodies should generally read in the provision relevant section a requirement of giving a reasonable opportunity of being heard before an order is made which will have adverse civil consequences for parties effected.

12. Mode and Manner of Retraction

Retraction of a statement later on, which was made during the search operation is not an easy way to escape the tax implications and requires corroborative evidence and documents to support the retraction and show the circumstances as to why the person is retracting his statement made earlier. The person has to go through minute scrutiny by the tax authorities and the courts later on at different stages if the need be. The following aspects should be kept in mind:

a) Affidavit – A retraction should be made on an affidavit along with supporting evidences, if any,

b) Affidavit of witnesses – Additional affidavit of the witnesses present during search or seizure may also be filed. The statement of the witnesses present holds good value and may aid the assessee in getting relief.

c) Elaborate – It must clearly lay down the facts of the case and detail the evidences showing inter alia use of force, coercion, intimidation or any mistake of fact/law, whatever may be the case.

d) Highlight Error – In case of a mistake of fact or law, it must clearly lay down as to what statement was recorded, what mistake took place in making such a statement, the reason for the same and the actual correct position. Evidences in support of the correct facts must also be attached.

e) Inform Senior Officers – In addition to the A.O., Authorised Officer {who conducted the Search), a retraction which is made on affidavit or otherwise should also be communicated to higher authorities.

f) Earlier the better – Any retraction should be done at the earliest without any delay. A retraction made immediately may strengthen the case of the assessee whereas a belated retraction will in most cases will have no value and would be seen as an afterthought.

13. Burden of Proof lies on the assessee

10.1 In case the assessee wishes to retract the statement earlier made whether voluntarily or involuntarily, the burden to prove that the said statement was derived by exerting force or intimidation or was given due to mistake of fact or law, lies upon the assessee. Merely an onus to disprove the already existing and supposedly incorrect statement does not lie, but an entirely new burden arises on filing of an affidavit and that burden has to be shifted by the assessee at the earliest.

This position was enunciated in CIT v. O. Abdul Razak [2013] 350 ITR 71 (Ker), wherein the Hon’ble Kerala High Court made the following observations in para 9, on the statement recorded under section 132(4) of the Act and its retraction by the assessee:

Section 132 of the Income-tax Act deals with search and seizure and sub-section (4) of section 132 empowers the authorised officer during the course of the search and seizure to examine on oath any person who is found to be in possession or control of any books of account, documents, money or valuable articles or things, etc., and record a statement made by such person which can be used in evidence in any proceedings under the Income-tax Act. The Explanation appended to clause (4) also makes it clear that such examination can be in respect of any matters relevant for the purpose of any investigation and need not be confined to matters pertaining to the material found as a result of the search. A plain reading of section 132(4) would clearly show that what was intended by empowering an officer conducting the search to take a statement on oath was to record evidence as contemplated in any adjudication especially since section 131 confers on all officers empowered therein with the same powers as vested in a court under the Code of Criminal Procedure, 1973, for the purpose of the Income-tax Act.

It was further observed in para 11, that

“Admission as has been often held is the best evidence on a point in issue and though not conclusive is decisive of the matter unless successfully withdrawn or proved erroneous. Any retraction of a clear admission made has to be on the ground of it being either erroneous or factually incorrect or one made under threat or coercion…”

And finally adverting to the issue of burden of proof in case of retraction, the Hon’ble court held in para 13, as under:

In the instant case, on the clear admission of the assessee corroborated by the documents, the burden on the Department ceases to exist. On the retraction being filed by the assessee, there is a burden cast on the assessee to prove the detraction or rather disprove the admissions made. It is not a shifting of the onus but a new burden cast on the assessee to disprove the earlier admissions having evidentiary value. As noticed earlier, retraction made by the assessee can only be considered as a self-serving after thought and no reliance can he placed on the same to disbelieve the clear admissions made in the statement recorded under section 132(4). Deletion of the additions vis-a- vis the property transactions on the reasoning that the Department cannot do so on the basis of the admission made under section 132(4) and on the premise that the Department ought to have proved retraction to be untrue cannot be countenanced in view of the specific words employed in section 132(4).

10.2 In CIT, Bikaner v Ravi Mathur [2017] (1) WLC (Raj.) 387, the Hon’ble Rajasthan High Court held that the burden to prove the retracted statement lies on the assessee. The High Court held that the statements recorded under Section 132(4) have great evidentiary value and it cannot be discarded as in the instant case by the Tribunal in a summary or in a cryptic manner. Statements recorded under Section 132(4) cannot be discarded by simply observing that the assessee retracted the statements. One has to come to a definite finding as to the manner in which retraction takes place. On perusal of the facts noticed hereinbefore, we have noticed that while the statements were recorded at the time of search on 9.11.1995 and onwards but retraction, is almost after an year and that too when the assessment proceedings were being taken up in November 1996.

We may observe that retraction should be made as soon as possible and immediately after such a statement has been recorded, either by filing a complaint to the higher officials or otherwise brought to the notice of the higher officials, either by way of a duly sworn affidavit or statements supported by convincing evidence through which an assessee could demonstrate that the statements initially recorded were under pressure/coercion and factually incorrect. In our view, retraction after a sufficient long gap or point of time, as in the instant case, looses its significance and is an afterthought. Once statements have been recorded on oath, duly signed, it has a great evidentiary value and it is normally presumed that whatever stated at the time of recording of statements under Section 132(4), are true and correct and brings out the correct picture, as by that time the assessee is uninfluenced by external agencies. Thus, whenever an assessee pleads that the statements have been obtained forcefully or by coercion or undue influence without material/contrary to the material, then it should be supported by strong evidence which we have observed hereinbefore. Once a statement is recorded under Section 132(4), such a statement can be used as a strong evidence against the assessee in assessing the income, the burden lies on the assessee to establish that the admission made in the statements are incorrect/wrong and that burden has to be discharged by an assessee at the earliest point of time

10.3 In S.C. Gupta v CIT [2001] 248 ITR 782 (All), the Allahabad High Court held that a statement made voluntarily by the assessee could form the basis of assessment. The mere fact that the assessee retracted the statement could not make the statement unacceptable. The burden lay on the assessee to establish that the admission made in the statement at the time of survey was wrong and in fact there was no additional income. This burden does not even seem to have been attempted to be discharged.

14. Case laws about head of income under which disclosed income to be considered

14.1 Dev Raj Hi-Tech Machines Ltd. v. Dy. CIT [2017] 83 taxmann.com 15 (ITAT- Amritsar): The ITAT, Amritsar held that where additional income surrendered by assessee-company in search proceedings was declared as business income and same was accepted by Assessing Officer after considering reply of assessee, revision proceedings initiated under section 263 by Commissioner on basis that such income should be taxed as deemed income under section 69A was not sustainable. The ITAT also held that the wordings of surrender letter are very important as it can save the assessee from the clutches of section 115BBE. It must be clearly stated whether the income is business income or any unexplained income or investment.

14.2 Abdul Qayume v. CIT [1990] 184 ITR 404/ 50 Taxman 171 (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 under section 132(4) did not match with the material collected in search and seizure operation. In this case, during the course of survey under section 133A the assessee surrendered an additional income over and above the normal income for the year under consideration. In return of income, the assessee declared such surrendered income as business income. And it was held that from the surrender letter it was apparent that the assessee had made surrender as additional income over and above the normal profits of the concern and since the income has been declared as business income, the same has to be assessed under the head business income and not as deemed income under the provisions of section 69A.

14.3 Kim Pharma (P.) Ltd. v. CIT [2013] 35 taxmann.com 456/216 Taxman 153 (Punj. & Har.) where the court came to the conclusion that the amount surrendered during survey was not reflected in books of account and no source from where it was derived was declared by assessee, it was assessable as deemed income of assessee under section 69A and not business income. The court further observed that the opening words of s. 14 ‘save as otherwise provided by this Act’ clearly leave scope for ‘deemed income’ of the nature covered under the scheme of ss. 69, 69A, 69B and 69C being treated separately, because such deemed income is not income from salary, house property, profits and gains of business or profession, or capital gains, nor is it income from ‘other sources’ because the provisions of ss. 69, 69A, 69B and 69C treat unexplained investments, unexplained money, bullion etc. and unexplained expenditure as deemed income where the nature and source of investment, acquisition or expenditure, as the case may be, have not been explained or not satisfactorily explained. Therefore, in these cases, the source not being known, such deemed income will not fall even under the head ‘Income from other sources’.

14.4 In Fakir Mohme Haji Hasan’s case CIT [2002] 120 Taxman 11/[2001] 247 ITR 290 (Guj) it was held that value of gold in question was liable to be included in assessee’s income as deemed income under sec. 69A as source of investment or its acquisition was not explained.

14.5 Tax under sec. 115BBE: Earlier the assessee was not concerned whether the department is treating it as deemed income or business income as the income was taxable maximum at the rate of thirty percent. But after amendment in section 115BBE from assessment year 2017-18 this matter has become very important and if the department treats surrendered income as deemed income it will be subject to tax at the rate of 60 percent plus 25 per cent surcharge and education cess.

15. Deductions permitted from undisclosed income declared by assessee

15.1 Sheth Developers [2012] 25 taxmann.com 173 (Bombay)/[2012] 210 Taxman 208 (Bombay)(Mag.), the Bombay High Court held that Builders receiving undisclosed income in course of its business, is entitled to benefit of deduction under section 80-IB(10). The plea of revenue that in view of section 69A benefit of deduction u/s 80-IB(10) would not be available to assessee was not well founded.

15.2 ACIT v. Mahalaxmi Infraprojects Ltd (2018) 63 ITR 671 (Pune) (Trib), In case of Survey in an Industrial undertaking, additional income was offered as non genuine purchases. Tribunal held that additional income had been assessed in hands of assessee from same nature of business. Hence assessee was eligible to claim deduction u/s 80IA(4) of the Act. Followed Sheth Developers 25 taxmann.com 173 (Bom)(HC).

16. No Power of confinement or arrest

In L.R. Gupta And Ors. v. Union Of India And Ors. [1992]194 ITR 32 (Delhi), the Counsel for assessee submitted that the ingredients of Section 132(1) were not satisfied in the present case and the authorisation which was issued was liable to be quashed. It was further contended by the learned Counsel that the respondents were also in error in passing orders under Section 132(3) in respect of the jewellery. The Court agreed that the respondents had no jurisdiction to prevent the assessee from attending to his work in Court. However his statement could be recorded. The Court held that, in the present case, no reasonable person could have come to the conclusion that the ingredients contained in Clause (a), (b) or (e) of Section 132 were attracted, therefore, the Court issued writ of mandamus quashing the impugned authorisation and also the further action which had been taken by the Income Tax Department pursuant to the said authorisation including the seizure of all documents, cash and jewellery. The department was directed to return the said documents, cash and jewellery, seized by them, to the petitioners within two weeks from the date of Order.

17. Officers posted in Directorates of Investigation (Investigation Wing) and Commissionerates of TDS, only and exclusively shall act as Income-tax Authority for the purposes of power of survey under section 133A and the survey action has to be resorted to only as a last resort

The CBDT has issued an Order in F No. 187/3/2020-ITA-I, Dated 13th August, 2020, which states that with the launch of the Faceless Assessment Scheme, 2019, the Income-tax Department is moving towards minimal interface with the taxpayers, aiming at significant improvement in delivery of services and greater transparency in the working of the department. The survey action u/s 133A of the Act being an intrusive action, it is expected that the same should be carried out with utmost responsibility and accountability. In furtherance of the above, the Central Board of Direct Taxes, in exercise of powers under section 119 of the Income-tax Act, 1961 hereby directs that the officers posted in Directorates of Investigation (Investigation Wing) and Commissionerates of TDS, only and exclusively shall act as “Income-tax Authority” for the purposes of power of survey under section 133A of the Income-tax Act. Further the competent authority for approval of such survey action u/s 133A of the Act shall henceforth be DGIT (Inv) for investigation wing and Pr.CCIT/CCIT (TDS) for TDS charges, as the case may be. This order shall come into force with effect from the 13th August, 2020.

The CBDT has issued another Order on 18th September, 2020 for partial modification to the order F. No. 187/3/2020-ITA-I, dated 13th August, 2020 prescribing the “Income-tax Authority” for the purpose of exercise of power of survey u/s 133A of the Act, the CBDT has directed that:-

i) the verification surveys by the International Taxation charges will henceforth be conducted by them with the approval of the CCsIT (International Taxation) concerned and where there is no CCIT (International Taxation), with the approval of CCIT (International Taxation).

ii) the verification surveys by the TDS charges will henceforth be conducted by them with the approval of CCsIT (TDS) and where there is no CCIT(TDS), with the approval of Pr. CCsIT.

iii) any survey action u/s 133A of the Act by the Central charges will be conducted after the approval of CCIT(Central)/DGIT(Investigation) and in collaboration with the investigation wing.

The Order on 18th September, 2020 also states that before approving any survey action, Pr. CCsIT/ Pr. DGsIT/CCsIT/DGsIT must ensure that all the other possibilities are exhausted and the survey action has to be resorted to only as a last resort.

18. Whether survey be converted into search

In Vinod Goel (Advocate) v. UOI [2001] 118 Taxman 690 (P&H)/[2001] 252 ITR 29 (P&H), it was held that on basis of documents collected during search and seizure of premises of RKAK and RKC, authorities felt satisfied that petitioner had nexus with some property dealing and resultantly a survey was conducted at petitioner’s premises. Again, on basis of incriminating documents collected during survey, survey was converted into search and seizure for which Addl. Director gave authorisation. In view of fact that documents recovered during previous search established nexus between business of RKAK and RKC with petitioners, search and seizure carried out at premises of petitioner should be held to be in continuation of previous search. When sufficient number of incriminating documents were recovered during survey of petitioner’s premises and concerned officer recorded in warrant his satisfaction that required documents would not be produced in case of summons issued under section 131, on ground of mere presence of some defects in warrant, it could not be said that conversion of survey into search and seizure was illegal.

19. Sealing of business premises

In Shyam Jewellers v. CCIT [1992] 196 ITR 243 (Allahabad), it was held that business premises of assessee cannot be sealed off either under section 133A or section 132. When there was no information before Chief Commissioner at time of passing authorization order that assessee was in possession of undisclosed money, bullion, jewellery or other valuable article, such a vague and general order could not be treated as an authorization order in law and no proceedings on basis of such an order could have taken place. It was held that initiation of search proceedings and passing of assessment order under section 132(5) were invalid and liable to be quashed.

20. Recording of Telephone conversation/ Statements

20.1 In S. Pratap Singh v. The State of Punjab AIR 1964 AIR 72 (SC), 1964 SCR (4) 733, it was held that rendering of the tape recorded conversation can be legal evidence by way of corroborating the statements of a person who deposes that the other speaker and he carried on that conversation or even of the statement of a person who may depose that he overheard the conversation between the two persons and what they actually stated had been tape recorded. How much weight to be given to such evidence will depend on the other factors which may be established in a particular case.

20.2 Other cases on Tape recorded conversation/ statement

a) Yusufali Esmail Nagree v. The State of Maharashtra 1968 AIR 147 (SC)

b) Ram Singh v. Col Ram Singh AIR 1986 SC 3

c) Rama Reddy v. V.V. Giri AIR 1971 SC 1162

d) R.M. Malkani v. State of Maharashtra AIR 1973 SC 157

e) Z.B. Bukhari v. B.R. Mehra AIR 1975 SC 1788 -Tape recorded speeches are documents as defined in section 3 of the Evidence Act.

21. Conclusion

An admission in statement under section 132(4) is vital and the department may make addition in income based on such statement unless successfully retracted. However, in order it to be effective, the retraction should be made properly and at the earliest possible opportunity and establishing the situation as to how the facts stated in statement mistaken on facts or in law and if necessary to prove that the statement was recorded with coercion and pressure.

(Narayan Jain is author of the famous books “How to Handle Income Tax Problems” and “Income Tax Pleading & Practice”. He has served AIFTP as General Secretary and as Vice President. Email : [email protected])