The Commissioner of Income Tax vs Shri P. Balasubramanian

R. Banumathi, J.—The Tax case Appeal is at the instance of the revenue against the Order dated 31.1.2008 in I.T.A. No. 1279/ Mds/2006

on the file of income tax Appellate Tribunal ''D'' Bench, Chennai, in and by which the Tribunal held that addition should be confined to materials

during the course of survey only and also deleting the other additions towards interest on money lending business, household expenses and

creditors and expunging the levy of penalty. The assessment year relates to 2003-2004. The Tax Case Appeal is admitted on the following

substantial questions of law:

(a) Whether the Tribunal was right in not considering the fact that the assessee himself had admitted the unexplained investment made in gold and

cash which was not disclosed in the book of accounts?

(b) Whether on the facts and in the circumstances of the case, the Tribunal was right in cancelling penalty u/s 271(1)(c) of the income tax Act?

And

(c) Whether the direction of the Tribunal is to be construed as a mandatory direction to reopen or a direction to exercise discretion whether to

reopen the Assessment order?

Brief facts:- The assessee is doing business of manufacture of gold jewels for others on job work basis. There was a survey at the premises of

the assessee on 29.10.2002. During survey, it was noticed that gold jewels weighing 900 grams were available at the premises of the assessee.

During survey, a sworn statement u/s 133A sub-section 3(iii) was recorded from the assessee on 29.10.2002. The assessee filed his return of

income on 21.07.2003 admitting an income of Rs. 2,97,410/- and the return was processed u/s 143(1). As this is survey case, a notice u/s 148

was issued on 27.10.2004. In response to the said notice, the assessee filed return of income on 16.11.2004 admitting income of Rs. 2,97,410/-

and the same was taken up for scrutiny and notice u/s 143(2) was issued. While recording his statement during survey, the assessee was requested

to state the investment in the gold business being in the form of jewellery to which he has stated that he has 3 kilos of gold jewellery and that 900

grams of jewellery was found in the premises during survey and inventorised and that the balance of stock was given for making jewellery, to the

following three goldsmiths (i) Murali Krishnan; (ii) Balan and (iii) Ravi.

During scrutiny, the assessee was asked to explain the source for investment in the above jewellery. stated to have been owned by the assessee,

at the time of survey. The assessee explained that he has to furnish source only for the jewellery as per the inventory of jewellery found on the date

of survey. The assessee was asked to explain the source of investment for 900 gms of gold found in the premises as well as the quantity of gold

stated by the assessee. During the course of hearing, the assessee in the letter filed on 13.3.2005 is said to have stated as under:

The total jewellery admitted by the assessee and his wife is at 1802 gms and 15 Cts of Diamond. The total jewellery stated to have been invested

by the assessee in his statement dt. 29.10.2002 is 3000 gms. The total jewellery physically found on the date of survey was 840 gms and 12 Cts

of diamond. The Investigating Officers have not verified with the so called persons with whom the assessee is stated to have handed over the

jewellery of 2200 gms. Assuming but not conceding that the assessee has to explain the quantity of jewellery stated by him before the investigating

officers (3000 gms) we submit that the quantity remaining to be explained is 1198 gms only (3000-1802) after taking into account the declared

quantity of jewellery by the assessee and his wife at 1802 gms as above and adopting the market value at 400 per gm (501 x 80%), the value of

the same comes to Rs. 4,79,200/.

The above explanation was considered and after giving allowance for the jewellery already admitted, the unexplained investment in gold

jewellery of 1802 gms is taken at Rs. 4,79,200/- and the Assessing Officer added the same to Rs. 2,97,410 - the income returned and calculated

total income as Rs. 7,76,610/- and completed the assessment.

The assessee preferred appeal to Commissioner of income tax (Appeals). After issuing notice for enhancement, Commissioner of income tax

(Appeals) dismissed the appeal preferred by the assessee and making additions as under:-

(i) discovery of 900 gms of gold jewellery by the survey team clearly shows that the assessee was doing unaccounted business of gold jewellery

and made an addition of Rs. 8,70,800/- over and above the addition of Rs. 4,79,200/-;

(ii) in respect of unaccounted cash found during the course of survey, enhancement was made to the tune of Rs. 2,49,770/-;

(iii) addition of Rs. 1,10,000/- towards interest earned on Rs. 5.00 lakhs as unaccounted investment in money lending business, and

(iv) initiation of penalty proceedings.

The Commissioner of income tax (Appeals) accordingly dismissed the appeal making an enhancement of Rs. 17,30,570/- made to the income

determined by the Assessing Officer.

The appeal preferred by the assessee was partly allowed by the Tribunal:-

(i) to confine the addition in respect of gold only to the extent of 900 gms of gold found at the time of survey;

(ii) so far as unaccounted cash, addition of Rs. 2,49,770/- was set aside with a direction to the Assessing Officer to verify whether cash balance as

per the book of accounts has emanated from the cash withdrawn from the Bank on 17.10.2002;

(iii) deleted the addition made towards interest on money lending business; and

(iv) penalty proceedings u/s 271(1C) was expunged.

Learned counsel for revenue submitted that the assessee himself had admitted in the statement that he was having 3000 gms of gold and

admitted to offer Rs. 13.50 lakhs as undisclosed income towards investment in gold. The learned counsel contended that having so admitted, the

assessee had not discharged the burden of explaining the source of 3000 gms of gold and while so Tribunal was not right in holding that addition

has to be confined only to the extent of 900 gms of gold found at the time of survey. Learned counsel further submitted that in his statement when

the assessee himself had admitted unexplained cash of Rs. 2,49,770/-, the Tribunal was not right in issuing direction to verify the unaccounted cash

to the tune of Rs. 2,49,770/-, the Tribunal was not right in issuing direction to verify the unaccounted cash to the tune of Rs. 2,49,770/-.

Learned counsel for assessee submitted that Section 133A does not empower income tax Officer to examine any person on oath and the

statement recorded u/s 133A of the Act does not have evidentiary value. The learned counsel further submitted that in the absence of other

materials or information, the Commissioner of income tax (Appeals) was not right in enhancing the interest income on the alleged money lending

business and the Tribunal rightly allowed the assessee''s appeal.

The assessee is doing business of manufacture of jewels for others on job work basis. The survey operation was conducted in the premises of

the assessee on 29.10.2002. Survey authority noticed gold jewels weighing 900 gms were available at the premises of the assessee. The assessee

on his own explained that remaining 2100 gms had been given to Asaris viz., (i) Muralikrishnan; (ii) Balan and (iii) Ravi. In the statement recorded

u/s 133A, the assessee is said to have agreed that the value of the investment in the gold was around Rs. 13.50 lakhs. It is the case of revenue that

the assessee having admitted the investment in 3000 gms of gold, burden lies upon the assessee to explain the source of his income and the

assessee had not discharged his burden of explaining source of his income for investment in the gold.

The substantial questions of law raised by the revenue revolve on the question whether material collected and the statement recorded during

the survey operation u/s 133A of the Act has any evidentiary value. There is a clear distinction between the statement recorded u/s 132(4) and

133A. It is apt to refer to Sections 132(4) and 133A of the Act, which read as under:-

Search and Seizure.

(1)...

(2)...

(3)...

(4) 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 Indian Income Tax Act, 1922 (11 of 1922), or under this 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

purpose of any investigation connected with any proceeding under the Indian Income Tax Act, 1922 (11 of 1922), or under this Act.

133A. Power of survey. - (1) Notwithstanding anything contained in any other provision of this Act, an Income Tax authority may enter-

(a) any place within the limits of the area assigned to him, or

(b) any place occupied by any person in respect of whom he exercises jurisdiction, or

(c) any place in respect of which he is authorised for the purposes of this section by such Income Tax authority, who is assigned the area within

which such place is situated or who exercises jurisdiction in respect of any person occupying such place, at which a business or profession is

carried on, whether such place be the principal place or not of such business or profession, and require any proprietor, employee or any other

person who may at that time and place be attending in any manner to, or helping in, the carrying on of such business or profession-

(i) to afford him the necessary facility to inspect such books of account or other documents as he may require and which may be available at such

place,

(ii) to afford him the necessary facility to check or verify the cash, stock or other valuable article or thing which may be found therein, and

(iii) to furnish such information as he may require as to any matter which may be useful for, or relevant to, any proceeding under this Act

Explanation. -...

(2)...

(3) An Income Tax authority acting under this section may,-

(i) if he so deems necessary, place marks of identification on the books of account or other documents inspected by him and make or cause to be

made extracts or copies therefrom,

(ii) make an inventory of any cash, stock or other valuable article or thing checked or verified by him,

(iii) record the statement of any person which may be useful for, or relevant to, any proceeding under this Act.

(4) An Income Tax authority acting under this section shall, on no account, remove or cause to be removed from the place wherein he has entered,

any books of account or other documents or any cash, stock or other valuable article or thing.

(5)...

(6)...

The statement of assessee was recorded u/s 133A(3)(iii) during the survey operation. Since statement recorded u/s 133A was not recorded

on oath, such statement recorded u/s 133A was not at par with the statement recorded u/s 132(4) and did not have any evidentiary value.

According to the assessee, the statement recorded u/s 133A during survey can hardly be the basis for any assessment.

A power to examine a person on oath is specifically conferred on the authorities only u/s 132(4) of the Act in the course of any search or

seizure. Wherever it thought fit and necessary to confer such power to examine a person on oath, the income tax Act has expressly provided for it.

Whereas Section 133A does not empower any Income Tax Officer to examine any person on oath. Thus, in contradistinction to the power u/s

133A, Section 132(4) of the Income Tax Act enables the authorised officer to examine a person on oath and any statement made by such person

during such examination can also be used in evidence under the Income Tax Act. On the other hand, whatever statement recorded u/s 133A of the

Act is not given an evidentiary value.

The scope of Sections 132(4) and 133A came up for consideration before the Kerala High Court in Paul Mathews and Sons Vs.

Commissioner of Income Tax, ). In the said case, the assessee contended that the statement recorded during survey u/s 133A cannot be put

against the assessee as the same has no evidentiary value. Accepting the stand taken by the assessee, the Division Bench of the Kerala High Court

has held as under:

... we find that the power to examine a person on oath is specifically conferred on the authorised officer only u/s 132(4) of the Income Tax Act in

the course of any search or seizure. Thus, the Income Tax Act, whenever it thought fit and necessary to confer such power to examine a person on

oath, the same has been expressly provided whereas Section 133A does not empower any Income Tax Officer to examine any person on oath.

Thus, in contradistinction to the power u/s 133A, Section 132(4) of the Income Tax Act enables the authorised officer to examine a person on

oath and any statement made by such person during such examination can also be used in evidence under the Income Tax Act. On the other hand,

whatever statement is recorded u/s 133A of the Income Tax Act it is not given any evidentiary value obviously for the reason that the officer is not

authorised to administer oath and to take any sworn statement which alone has evidentiary value as contemplated under law...

Therefore, the statement elicited during the survey operation has no evidentiary value and the Income Tax Officer was well aware of this.

(emphasis supplied)

After elaborately referring to the decisions of Paul Mathews and Sons Vs. Commissioner of Income Tax, Commissioner of Income Tax Vs.

G.K. Senniappan, and Commissioner of Income Tax Vs. S. Ajit Kumar, and the Circular of the Central Board of Direct Taxes dated March 10,

2003 with regard to confession statement of additional income during the course of search and seizure and survey operations, the Division Bench

of this Court in The Commissioner of Income Tax Vs. S. Khader Khan Son, has summarised the principles as under:

(i) An admission is extremely an important piece of evidence but it cannot be said that it is conclusive and it is open to the person who made the

admission to show that it is incorrect and that the assessee should be given a proper opportunity to show that the books of accounts do not

correctly disclose the correct state of facts, vide decision of the Apex Court in Pullangode Rubber Produce Co. Ltd. Vs. State of Kerala and

Another,

(ii) In contradistinction to the power u/s 133A, Section 132(4) of the Income Tax Act enables the authorised officer to examine a person on oath

and any statement made by such person during such examination can also be used in evidence under the Income Tax Act. On the other hand,

whatever statement is recorded u/s 133A of the Income Tax Act it is not given any evidentiary value obviously for the reason that the officer is not

authorised to administer oath and to take any sworn statement which alone has evidentiary value as contemplated under law, vide Paul Mathews

and Sons Vs. Commissioner of Income Tax, ;

(iii) The expression ""such other materials or information as are available with the Assessing Officer"" contained in Section 158BB of the Income Tax

Act, 1961, would include the materials gathered during the survey operation u/s 133A, vide Commissioner of Income Tax Vs. G.K. Senniappan, ;

(iv) The material or information found in the course of survey proceeding could not be a basis for making any addition in the block assessment,

vide decision of this Court in T.C. (A) No. 2620 of 2006 between Commissioner of Income Tax Vs. S. Ajit Kumar,

(v) Finally, the word ""may"" used in Section 133A(3)(iii) of the Act, viz., ""record the statement of any person which may be useful for, or relevant

to, any proceeding under this Act, as already extracted above, makes it clear that the materials collected and the statement recorded during the

survey u/s 133A are not conclusive piece of evidence by itself.

In Commissioner of Income Tax Vs. Dhingra Metal Works, , the Delhi High Court held that while Section 132(4) of the Act specifically authorises

an Officer to examine a person on oath, Section 133A did not permit the same. The Delhi High Court further held that the word ""may"" used in

Section 133A(3)(iii) of the Act clarifies beyond doubt that the material collected and the statement recorded during the survey was not a

conclusive piece of evidence by itself and that Assessing Officer could not have made the addition solely on the basis of the statement made on

behalf of the assessee during the course of survey.

Mr. Narayanaswami, learned counsel appearing for the revenue submitted that even though statement u/s 133A was not at par with the

statement u/s 132(4), such statement recorded u/s 133A cannot be held to be irrelevant material and in the absence of any explanation by the

assessee, the Commissioner of income tax (Appeals) rightly made enhancement. In support of his contention, the learned counsel placed reliance

upon a decision of Punjab and Haryana High Court in Bachittar Singh Vs. Commissioner of Income Tax and Another, .

The Punjab and Haryana High Court held that even if the statement u/s 133A was not at par with the statement u/s 132(4) and did not have

that evidentiary value, such statement cannot be held to be irrelevant material so as to be ruled out of consideration in totality of facts, particularly in

the absence of regular books of account. In the facts and circumstances of the case that the assessee failed to produce books of accounts, which

may have been maintained during the regular course of business or any other authentic contemporaneous evidence of agricultural income, the

Punjab & Haryana High Court held that the statement u/s 133A cannot be held to be irrelevant material. In our considered view, in the factual

matrix of present case, the above decision of Punjab & Haryana High Court is not applicable.

The Hon''ble Supreme Court in Pullangode Rubber Produce Co. Ltd. Vs. State of Kerala and Another, held that an admission is extremely an

important piece of evidence but it cannot be said that it is conclusive and it is open to the person who made the admission to show that it is

incorrect. Any statement recorded u/s 133A would have evidentiary value only if supported with materials and form the basis for assessment. In his

explanation, the assessee stated that he has been doing job work and the remaining 2100 gms had been given to 3 Asaris. The Officers had not

verified whether the gold was available with the said Asaris nor chosen to examine the said Asaris. The statement recorded during survey operation

u/s 133A may be a relevant material. But in the absence of further materials to substantiate the same, such statement recorded u/s 133A can hardly

be the basis for assessment. During the survey, 900 gms of gold was found in the premises of the assessee and the statement of the assessee was

supported only to the extent of actual seizure of 900 gms. Since the statement of assessee in respect of the remaining gold was not substantiated,

the Tribunal rightly set aside the addition in respect of the gold.

In so far as unaccounted cash of Rs. 2,49,770/-, the assessee tried to explain the cash by stating that he has sold the land at Kodaikanal for

Rs. 2,80,000/- and the same was deposited in Bank on 5.10.2002 and the amount was withdrawn from the Bank on 17.10.2002 and during the

course of survey, the Department came across the said cash. The survey was on 29.10.2002 and the drawal of money from the Bank was a few

days before search. Even though the said amount of Rs. 2,49,770/- was not disclosed in his books, the assessee tried to explain the same. The

Tribunal rightly set aside the addition and remitted to the Assessing Officer to verify whether the cash balance as per the books of accounts has

emanated from the cash withdrawn from the Bank on 17.10.2002. We do not find any error or infirmity in the order of the Tribunal directing the

Assessing Officer to afford an opportunity to the assessee and verify the correctness of assessee''s statement.

Insofar as addition of interest earned Rs. 1,10,000/- on the unaccounted investment of Rs. 5.00 lakhs in money lending business, here again,

the enhancement is based only on the statement recorded from the assessee. No other material or information was available that the assessee

invested Rs. 5.00 lakhs in money lending business and earned interest. We are of the view that the addition of Rs. 5.00 lakhs as unaccounted

investment in money lending business and addition of interest earned is based on only rough estimate and the Tribunal rightly deleted the addition

on the interest of money lending business, household expenses and creditors.

So far as levy of penalty u/s 271(1C), since the Tribunal deleted the addition and ordered expunging the initiation of penalty proceedings u/s

271(1C), we do not find any reason to interfere with the finding of the Tribunal. Since the order of Commissioner of income tax (Appeals) making

enhancement to the income determined by the Assessing Officer is based on the unsworn statement obtained u/s 133A, in the absence of other

materials, the Tribunal rightly set aside the order of Commissioner of income tax (Appeals) and we do not find any reason to interfere with the

order of the Tribunal. No substantial question of law arise for consideration and the Tax Case Appeal stands dismissed.