Pr. Commissioner of Income Tax vs Pawan Kumar Bansal

This appeal under Section 260A of the Income Tax Act, 1961 (''Act'') is directed against the order dated 30th September 2014 passed by the Income Tax Appellate Tribunal (''ITAT'') in ITA No. 5375/Del/2010 for the Assessment Year (''AY'') 2007-08.

The question sought to be urged is whether the ITAT erred in upholding the order of the Commissioner of Income Tax (Appeals) [CIT(A)] which in turn held that the income of the Respondent Assessee was to be determined on the basis of the undisclosed income as per the noting on the loose papers recovered during search and consequently deleted the addition of Rs. 3,07,00,000/- which was made on account of a statement recorded of the Respondent Assessee during the course of search.

The central plank of the Revenue''s case is a letter written on 1st September 2006 whereby the company of which Respondent Assessee was Chief Executive Officer voluntarily surrendered additional income of Rs. 7 crores "to avoid litigation and buy peace of mind subject to non-initiation of penalty or prosecution...". The ITAT has analysed the aforementioned letter and come to the conclusion, and in view of the Court rightly, that it was made explicit from the said letter that the surrender was being made by the company and not by the Respondent Assessee in his individual capacity.

It transpires that the above letter was followed by other letters and statements made on 8th and 12th September 2006. The ITAT has pointed out a contradiction in the answers given in the subsequent statements by the Respondent Assessee where he suggested that the said income of Rs. 7 crores was partly earned by him and partly by Mr. Mahesh Kumar Gupta. The ITAT in the impugned order has pointed out that the Department did not confront the Assessee in the contradictions in its replies and allowed the earlier letter and the subsequent replies to the questions to remain. In the circumstances, after considering the cumulative effect of the letter dated 1st September 2006 and the subsequent statements the proper course was to determine the undisclosed income on the basis of the loose sheets seized during the search. The ITAT, therefore, found no error in the approach adopted by the CIT (A). On examining the loose papers the ITAT held that the only addition which can be sustained is Rs. 7,90,000.

Mr. Rohit Madan, learned Senior Standing counsel for the Revenue placed reliance on the decision of the Allahabad High Court in S.C. Gupta Vs. Commissioner of Income Tax, and submitted that even a retracted statement made during the course of search could form the basis of an assessment.

The Court finds that the said decision is distinguishable in its application to the facts of the present case. There is no retraction as such by the company of its letter dated 1st September 2006 or of any of the other statements made subsequently. Further, the statement made by the Respondent Assessee on 12th September 2006 in response to Question No. 3 which required him to give the details of the additional income of Rs. 7 crores was to the effect the said additional income was generated during the block period from undisclosed/or unaccounted dealings in various property transactions and that "the said income of Rs. 7 crores has been earned by me and Shri Mahesh Kumar Gupta (Director-Capital Power Systems Ltd.)." The Respondent Assessee then proceeded to give the bifurcation of said income as under:

The above statement cannot be said to be a categorical admission by the Respondent Assessee that the above income had been earned by him in his individual capacity. The cumulative effect of the letter dated 1st September, 2006 and both the statements rendered them unreliable. There was no other corroborative material. In the circumstances, the course adopted by the CIT (A), and concurred with by the ITAT, to determine the undisclosed income on the basis of loose papers found during the search does not appear to be erroneous.

It requires to be also noted that in response to a query by the Court whether the above undisclosed income was added in the hands of the company, the learned counsel for the Revenue stated that he would have to seek instructions.

The Court is satisfied that, in the facts and circumstances of the case, no substantial question of law arises for determination.

The appeal is dismissed.