The ITO, Wd-4,, Thiruvalla v. M/s.Toms Enterprises, Changanacherry

ITA 442/COCH/2018 | 2014-2015
Pronouncement Date: 07-02-2019 | Result: Dismissed
Expert Summary: Where during the course of survey u/s 131,the assessee being a company,Assessing Officer only on the basis of sworn statement of its managing director and without support of any corroborative evidence, can not make additions to income of assessee

Appeal Details

RSA Number 44221914 RSA 2018
Assessee PAN AAEFT3381R
Bench Cochin
Appeal Number ITA 442/COCH/2018
Duration Of Justice 3 month(s) 16 day(s)
Appellant The ITO, Wd-4,, Thiruvalla
Respondent M/s.Toms Enterprises, Changanacherry
Appeal Type Income Tax Appeal
Pronouncement Date 07-02-2019
Appeal Filed By Department
Tags No record found
Order Result Dismissed
Bench Allotted DB
Tribunal Order Date 07-02-2019
Date Of Final Hearing 04-02-2019
Next Hearing Date 04-02-2019
Last Hearing Date 08-01-2019
First Hearing Date 07-11-2018
Assessment Year 2014-2015
Appeal Filed On 22-10-2018
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH COCHIN BEFOR E S/ SHRI CHANDRA POOJARI AM & GEORGE GEORGE K. J M I .T . A. NO . 442 / COCH/ 20 1 8 ASSESSMENT YEAR : 2 0 14 - 20 15 THE INCOME TAX OFFICER WARD - 4 THIRUVALLA. VS. M/S. TOMS ENTERPRISES 505/XII INDUSTRIAL ESTATE INDUSTRIAL NAGAR VEROOR P.O. CHANGANACHERRY KOTTAYAM - 689 106. [PAN:AAEFT 3381R] ( REVENUE - APPE LLANT) ( ASSESSEE - RESPONDENT) REVENUE BY SMT. A. S . BINDHU SR. DR ASSESSEE BY S HRI VENKITACHALAM M.S. CA D ATE OF HEARING 04 / 0 2/ 201 9 DATE OF PRONOUNCEMENT 07 / 0 2 /201 9 O R D E R PER CHANDRA POOJARI AM: TH IS APPE AL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT (A) KOTTAYAM AND PERTAIN S TO THE A SSESSMENT YEAR 2014 - 15 . 2 . THE FACTS OF THE CASE ARE THAT THE A SURVEY ACTION U/S. 133A OF TH E ACT WAS CONDUCTED IN THE BUSINESS PREMISES ON 23/09/2014. DURING THE COURSE OF SURVEY SUMMONS U/S. 131(1) OF THE ACT WAS ISSUED BY THE ASSESSING OFFICER TO SHRI TOMY C VADAYIL MANAGING PARTNER OF THE FIRM AND STATEMENT U/S. 131 OF THE I.T.A. NO. 442 /COCH/2018 2 ACT WAS RECORDED BY THE ASSESSING OFFICER FROM THE MANAGING PARTNER ON 25/09/2019 AND THE RELEVANT PART IS AS UNDER: 'QUESTION: - 8 - EXPLAIN THE PROCEDURE OF SALE OF GOODS IN YOUR FIRM. FOR E.G. I AM SHOWING A SALE BILL TPA 536 DATED 03/01/2014 OF TOMS PIPES PVT. LTD. PLE ASE EXPLAIN THE SALE OF GOODS TO TOMS ENTERPRISES? ANS: - WE BUY GOODS FROM THE COMPANY BY F IXING OUR PRICE (UP TO 160% OF THE COST PRICE). FROM THE PRICE WE GIVE DIFFERENT TYPES OF DISCOUNTS (TRADE DISCOUNT MONTHLY QUANTITY DISCOUNT ANNUAL QUANTITY DIS COUNT QUARTERLY QUANTITY DISCOUNT). IN ADDITION TO THAT WE ALSO GIVE CASH DISCOUNTS. QUESTI ON: - 9 - IN ADDITION TO THE ABOVE WHAT ARE YOUR MAJOR EXPENSES? ANS: - OTHER MAJOR EXPENSES ARE DISTRIBUTION EXPENSES ADVERTISEMENT SALES PROMOTION SALARY INCENTIVE. QUESTION: - 10 AFTER DEDUCTING THE ABOVE EXPENSES WI LL YOU GIVE THE APPROXIMATION OF GROSS PRO F IT AND NET PROFIT? ANS: - WE PLAN AND PREPARE PRICE LIST IN ORDER TO GET APPROXIMATELY 15% GR OSS PROFIT AND 4% NET PROFIT. HOWEVER IF WE ARE NOT ABLE TO ACHIEVE T HE REQUIRED TURN OVER TH EN WE WILL LOSE OUR CONTROL ON NET PROFIT BECAUSE OF FIXED COST THAT WILL INCREASE THE OVER HEAD EXPENDITURE.' 2.1 ON VERIFICATION OF THE P &L ACCOUNT FOR THE AY 2014 - 15 THE ASSESSING OF FICER FOUND THAT THE ASSESSEE HAD SHOWN GROSS PROFIT AT 10.55 % INSTEAD OF 15% INDICATED BY THE MANAGING PARTNER. THE ASSESSING OFFICE I SSUED A SHOW CAUSE NOTICE TO THE ASSESSEE ASKING WHY 15% GROSS PROFIT SHOULD NOT BE ADOPTED IN VIEW OF THE STATEMENT GIV EN BY THE MANAGING PARTNER. IN REPLY THE ASSESSEE EXPLAINED THE SHORTFALL IN THE GROSS PROFIT AS UNDER: I.T.A. NO. 442 /COCH/2018 3 THE M ANAGING PARTNER OF THE A SSESSEE WAS MORE INTO OPERATIONAL ASPECTS. HE WAS NOT AWARE OF THE EXACT FIGURES AND FINANCIAL RATES OF THE COMPANY. THE PRICES OF THE PRODUCTS ARE NOT FIXED. THEY ARE VARIABLE DEPENDING ON MARKET CONDITIONS L IKE DEMAND AND COMPETITION. WHEN A STATEMENT WAS TAKEN ON 25 TH SEPTEMBER 2014 HE MERELY CONFIRMED THE FACTS AS ENQUIRED BY THE INCOME TAX OFFICER WITHOUT COMPARING /CONSIDERING THE EXACT FACTS AND FIGURES OF THE BUSINESS. THEREFORE THE GROSS PROFIT RATE MENTIONED BY THE MANAGING PARTNER AT THE TIME OF TAKING STATEMENT WAS AN EXAGGERATED FIGURE. THIS HAD NO NEXUS WITH THE REALITY. DURING THE FINANCIAL YEAR 2013 - 1 4 THE MARKET WAS HIT BY RECESSION AND THE DEMAND FOR CONSTRUCTION AND RELATED MATERIALS WERE COMPARATIVELY LESSER. THE ASSESSEE WAS NOT ABLE TO ACHIEVE PROFITS AS THEY EXPECTED. THIS AUTHORITY MAY NOTE THE GROSS PROFIT PATTERN OF THE ASSESSEE IN LAST 6 YE ARS. FY GROSS PROFIT MARGIN 2010 - 11 12.45% 2011 - 12 13.49% 2012 - 13 12.00% 2013 - 14 10.55% 2014 - 15 10.65% 2015 - 16 13.76% T HE PATTERN CLEARLY STATES THAT THE ASSESSEE HAS BEEN SLOWLY RECOVERING FROM THE HIT THEY HAD AT THE TIME OF RECESSION. TH IS AUTHORITY MAY KINDLY NOTE THAT THE STATEMENT GIVEN BY THE MANAGING PARTNER DOES NOT HAVE ANY NEXUS WITH THE ACTUAL PERFORMANCE OF THE COMPANY.' 2.2 . THE ASSESSING OFFICER REJECTED THE EXPLANATION OF THE ASSESSEE AND ASSESSED THE GROSS PROFIT AT 15% AND MADE AN ADDITION OF RS. 92 47 500 / - TO THE INCOME RETURNED. THE RELEVANT PARA OF THE ASSESSMENT ORDER IS AS UNDER: 'THE REASON ADDUCED BY THE ASSESSEE IS NOT TENABLE AS THE MANAGING PARTNER OF THE FIRM CATEGORICALLY ADMITS IN THE STATEMENT RECORDED U/S 13 1(1) OF THE I.T. ACT 1961 THAT THE FIRM IS EARNING A GROSS PROFIT OF 15% OF THE SALES TURNOVER AFTER GIVING VARIOUS KINDS OF DISCOUNTS TO THE DEALERS. THE HON'BLE HIGH COURT DECISION OF KERALA IN ITA. NO.551/2009/DT. 26/05/2010 IN THE I.T.A. NO. 442 /COCH/2018 4 CASE OF CIT VS M/S. H OTEL MERI Y A CONCLUDE D THAT STATEMENT RECORDED AND DOCUMENTS COLLECTED BY THE ASSESSING OFF JCER CANNOT BE BRUSHED ASIDE STATING THAT IT IS HAVING ONLY LIMITED APPLICATION. THE STATEMENT RECORDED AS PER SUMMONS U/S 131(1) OF THE I.T. ACT 1961 THE ASSESSEE C ATEGORICALLY ADMITS THAT THE FIRM IS EARNING A GROSS PROFIT OF 15% ON SALES TURNOVER. AS THE STATEMENT WAS GIVEN AS PER THE EVIDENCE ACT THE ASSESSEE CANNOT RETRACT FROM THE ADMISSION MADE IN THE STATEMENT RECORDED AS PER SUMMONS U/S 131(1) OF THE I.T. AC T. MOREOVER THE CONTENTION MADE BY THE ASSESSEE THAT THE MANAGING PARTNER WAS NOT AWARE OF THE FINANCIAL ASPECTS OF THE FIRM IS NOT TRUE AS PER THE FACTS AND CIRCUMSTANCES OF THE CASE. THE APPLICATION MADE BY THE ASSESSEE IS REJECTED ON THE ABOVE GROUNDS A ND I AM FIXING THE GROSS PROFIT @ 15% OF THE TURNOVER ACHIEVED DURING THE YEAR.' 3. ON APPEAL THE LD. AR DISPUTED THE ESTIMATION OF GROSS PROFIT AT 15% BY THE ASSESSING OFFICER . IT WAS SUBMITTED THAT THE ASSESSEE HAD MERELY MENTIONED THAT THEY PLAN A ND PREPARE PRICE LIST IN ORDER TO GET APPROXIMATELY 15% GROSS PROFIT AND 4% NET PROFIT AND THIS CANNOT BE CONSIDERED AS ADMISSION. IT WAS ERRONEOUS TO INTERPRET THE STATEMENT AS ADMISSION BY THE MANAGING PARTNER AND THE MANAGING PARTNER HA D NOWHERE CATEGOR ICALLY ADMITTED OF MAKING 15% GROSS PROFIT. ACCORDING TO THE LD. AR N O DOCUMENTARY EVIDENCES WERE FOUND FROM THE ASSESSEE BY THE REVENUE TO SUPPORT THE ADDITION MADE MERELY ON THE BASIS OF STATEMENT RECORDED/S 131(1). IT WAS SUBMITTED THAT THE ASSESSING OFFICER HAD NO INCRIMINATING EVIDENCE TO SUPPORT THE STATEMENT MADE BY THE MANAGING PARTNER AND THE ASSESSING OFFICER MERELY RELIED ON A STATEMENT GIVEN BY THE MANAGING PARTNER AND MADE ADDITION WITHOUT EVEN MAKING AN ENQUIRY. THE LD. AR SUBMITTED THAT T H E ASSESSING OFFICER HA D NO PROOF OTHER THAN A STATEMENT TO COME TO A CONCLUSION THAT THE ASSESSEE HAD NOT DISCLOSED ITS COMPLETE INCOME. ACCORDING TO THE LD. AR T HE AUDITED BOOKS OF ACCOUNTS OF THE ASSESSEE THE AUDIT I.T.A. NO. 442 /COCH/2018 5 REPORT BY THE AUDITOR AND THE BANK STATEMENTS W E RE IN LINE WITH THE INCOME ALREADY DISCLOSED BY THE ASSESSEE WHILE THE ASSESSING OFFICER MERELY RELIED ON A STATEMENT WHICH STATE D ABOUT APPROXIMATIONS AND THE PLAN AND BUDGETS OF THE ASSESSEE . ACCORDING TO THE LD. AR I T IS A FACT THAT NO B USINESS RUNS AS PER THE PLANS AND PREDICTIONS AND TH E GROUND REALITY I S THAT THE PROFIT EARNED BY THE BUSINESS MAN WOULD BE MUCH LOWER THAN THE PROJECTIONS AND ESTIMATIONS. IT WAS SUBMITTED THAT E VEN IN THE STATEMENTS THE MANAGING PARTNER HAD MENTIONED TH AT THE ASSESSEE WILL HAVE TO GIVE DIFFERENT TYPES OF DISCOUNTS ON THE SALE PRICE. THUS IT WAS SUBMITTED THAT THE NET PROFIT ALREADY DISCLOSED BY THE ASSESSEE SHOWED A TRUE AND CORRECT VALUATION OF NET PROFIT OF THE ASSESSEE. 3.1 FURTHER IT WAS SU BMITTED THAT AN UNAPPROXIMATED GROSS PROFIT RATE GIVEN WITHOUT LOOKING INTO THE BOOKS OF ACCOUNT OR FINANCIAL STATEMENTS CANNOT BE USED AS A BASIS FOR MAKING ADDITIONS. ACCORDING TO THE LD. AR THE ASSESSING OFFICER HAD NO MATERIAL EVIDENCES TO COME TO THE CONCLUSION THAT THE ASSESSEE HAD EARNED 15% G ROSS PROFIT. THE ASSESSING OFFICER MADE THE ASSESSMENT MERELY ON APPROXIMATION. IT WAS VERY EVIDENT THAT DESPITE OF THE LOW SALES THE ASSESSEE HAD TO INCREASE THE DISCOUNTS OFFERED TO CUSTOMERS TO SUSTAIN IN THE MARKET WHICH RESULTED IN A LOWER GROSS PROFIT THAN THE EARLIER YEARS. FROM THE NORMAL TREND OF 3% DISCOUNT IT WAS SUBMITTED THAT THE ASSESSEE HAD TO OFFER A DISCOUNT AT THE RATE OF 4% ON TOTAL TURNOVER TO SUSTAIN IN THE MARKET. I T WAS EXPLAINED THAT THE MARKET FOR PVC PIPES WAS CONSIDERABLY DOWN AND THE FIRM HAD LOWERED I.T.A. NO. 442 /COCH/2018 6 ITS GROSS PROFIT RATE TO ATTAIN THE SALES TARGETS WHICH WAS EVIDENT FROM THE ABOVE TABLE THAT THE SALES HAD DROPPED CONSIDERABLY IN THE FINANCIAL YEAR 2013 - 14. THE DROP IN SALES AND I NCREASE IN DISCOUNTS OFFERED RESULTED IN LOW GP COMPARED TO EARLIER YEARS. IT WAS SUBMITTED THAT THE ASSESSEE HAD NOT ATTAINED A GP OF 15% IN ANY OF THE PREVIOUS YEARS. THUS IT WAS REAFFIRMED THAT THE GP RATIO AS MENTIONED BY THE MANAGING PARTNER IN HIS STATEMENT HA D NO BASIS AND HA D NO NEXUS WITH THE ACTUAL FINANCIAL CONDITION OF THE ASSESSEE. THUS IT WAS SUBMITTED THAT THE ASSESSING OFFICER HA D ERRONEOUSLY PLACED HIS RELIANCE ON A STATEMENT GIVEN BY THE MANAGING PARTNER WITHOUT HAVING ANY EVIDENCES TO SUBSTANTIATE THE ADDITION. 4. CONSIDERING THE SUBMISSIONS OF THE LD. AR THE CIT(A) CALLED FOR REMAND REPORT ON SUSTAINABILITY OF THE ADDITIONS. THE ASSESSING OFFICER SUBMITTED THE REMAND REPORT VIDE LETTER DATED 23.05.2018 AND THE RELEVANT PART OF THE REPORT IS AS UNDER: '4. STATEMENT RECORDED U/S.131(1) OF THE I.T. ACT SHOULD HAVE THE SAME BEARING AS EVIDENCE DEFINED IN SECTION 3 OF THE EVIDENCE ACT. ASSESSING OFFICER IS VESTED WITH THE SAME POWERS IN A COURT AS UNDER CIVIL PROCEDURE CODE 1908. ACCORD ING TO THE HON'BLE HIGH COURT DECISION OF KERALA IN ITA NO.551/2009 DATED 26/05/2010 IN THE CASE OF CIT VS. HOTEL MERI Y A THE STATEMENT RECORDED ON OATH CANNOT BE BRUSHED ASIDE STATED THAT IT IS HAVING LIMITED APPLICATION. IN THIS CASE THE MANAGING PARTNER CANNOT MAKE STATEMENT ABOUT THE FINANCIAL POSITION OF THE FIRM WITHOUT KNOWING THE EXACT POSITION OF THE FIRM. 6. ON GOING THROUGH THE GROSS PROFIT PATTERN IT HAS BEEN NOTICED THAT THE ASSESSEE IS SHOWING THE LEAST G.P. ACHIEVED FOR THE LAST SIX YEARS. T HE AS SESSEE FILED THE RETURN OF INCOME FOR THE RELEVANT ASSESSMENT YEAR ON I.T.A. NO. 442 /COCH/2018 7 21/02/2014 I . E. AFTER THE ADMISSION THAT THE FIRM HAS BEEN EARNING 5% GROSS PROFIT IN THE STATEMENT OF OATH. SO HE WAS FULLY AWARE OF THE SITUATION OF THE PROFITABILITY OF THE FI RM AS HE HAS PAID SELF ASS ESSMENT TAX OF RS . 10 LAKHS ON 29/09/2014. NOW HE DELIBERATELY RE DUCES THE GROSS PROFIT IN ORDER TO CLAIM THE REFUND OF THE ABOVE. 7. ACCORDING TO THE DATA OF SALES AND DISCOUNTS ALLOWED BY THE FIRM THERE WAS A JUMP OF 1.2% IN THE DISCOUNT ALLOWED BY THE FIRM AS FOLLOWS: PARTICULARS 2013 - 14 2012 - 13 2011 - 12 2010 - 11 SALES 20 76 03 970.10 21 40 88 730.19 18 98 01 060 . 94 16 12 26 038.53 GROSS PROFIT 2 16 26 855.65 2 56 90 750.75 2 56 13 147.36 2 00 80 233.0 7 GP RATIO 10% 12% 13% 12% TOTAL DISCOUNT 88 46 724.80 65 94 694.50 57 62 946.00 72 91 701.00 % DISCOUNT ON SALES 4.26% 3.08% 3.03% 4.52% 8. ON GOING THROUGH THE ABOVE STATEMENT WE CAN COME TO THE CONCLUSION THAT THE ASSESSEE DELIBERATELY INCREASES DISCOUNTS TO SUPPRESS THE GROSS PROFIT FOR THE F.Y. 2013 - 14. IT IS EVIDENT FROM THE ABOVE PARTICULARS THAT DISCOUNTS ARE INCREASING INVERSELY PROPORTIONAL TO THE TURNOVER ACHIEVED. THEREFORE THERE IS NO MERIT IN ASSESSE'S CLAIM THAT THE GROSS PROFIT DECLARED BY THE ASSESSEE IS ONLY APPROXIMATION AND THE ASSESSMENT INCORRECT.' 5. FROM THE REMAND REPORT THE CIT(A) OBSERVED THAT THE ASSESSING OFFICER HA D SUPPORTED THE ADDITIONS MADE ON THE FOLLOWI NG GROUNDS: A) THE MANAGING DIRECTOR HAS ADMITTED UNDER OATH THAT THE GROSS PROFIT OF THE APPELLANT IS 15% AND STATEMENT GIVEN ON OATH CANNOT BE BRUSHED ASIDE IN VIEW OF THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF HOTEL MERI Y A SUPRA . B) THE GROSS PROFIT SHOWN FOR THE AY 2014 - 15 IS THE LEAST IN LAST SIX YEARS AND THE ASSESSEE HAS INFLATED THE EXPENDITURE ON ACCOUNT OF DISCOUNTS TO DECREASE THE PROFIT. I.T.A. NO. 442 /COCH/2018 8 6. THE CIT(A) OBSERVED THAT THE ASSESSING OFFICER IS VESTED WITH POWERS OF COURT UNDER CPC 1908 UNDER SECTION 131 OF THE ACT TO RECORD STATEMENTS ON OATH AND THE SAME CAN BE TAKEN AS ADMISSION OF THE ASSESSEE . HOWEVER THE QUESTION IS WHETHER IT IS CONCLUSIVE AND THE ASSESSEE IS BARRED FROM RETRACTING SUCH STATEMENT. THIS QUESTION WAS ANSWERED BY HON'BLE SUPREME COURT IN THE CASE OF PRODUCE CO. LTD. VS STATE OF KERALA ( 91 ITR 18 ) AND HELD AS UNDER: 'IT IS NO DOUBT TRUE THAT ENTRIES IN THE ACCOUNT BOOKS OF THE ASSESSEE AMOUNT TO AN ADMISSION THAT THE AMOUNT IN QUESTION WAS LAID OUT OR EXPENDED F OR THE CULTIVATION UPKEEP OR MAINTENANCE OF IMMATURE PLANTS FROM WHICH NO AGRICULTURAL INCOME WAS DERIVED DURING THE PREVIOUS YEAR. AN ADMISSION IS AN EXTREMELY IMPORTANT PIECE OF EVIDENCE BUT IT CANNOT BE SAID THAT IT IS CONCLUSIVE . IT IS OPEN TO THE PER SON WHO MADE THE ADMISSION TO SHOW THAT IT IS INCORRECT.' 6. 1 IN THE LIGHT OF THE DECISION OF HON'BLE SUPREME COURT THE CIT(A) OBSERVED THAT THOUGH THE ADMISSION MADE IS AN IMPORTANT PIECE OF EVIDENCE THE SAME IS NOT CONCLUSIVE AND THE APPELLANT CAN SHOW THAT SUCH ADMISSION WAS INCORRECT. THEREFORE THERE IS NO BAR ON THE APPELLANT TO EXPLAIN WHETHER THE ADMISSION REFLECTS THE TRUTH OR NOT BASED ON COGENT EVIDENCE. 6 .2 THE CIT(A) REFERRED TO THE Q UESTION WHETHER THE CONTENTS OF THE STATEMENT OF MA NAGING DIRECTOR BE READ AS ADMISSION OF GROSS PROFIT EARNED DURING THE AY 2014 - 15. THE STATEMENT OF THE MANAGING DIRECTOR IS REPRODUCED AS FOLLOWS: 'QUESTION: - 8 - EXPLAIN THE PROCEDURE OF SALE OF GOODS IN YOUR FIRM. FOR E.G. I AM SHOWING A SALE BILL TPA 536 DATED 03/01/2014 OF TOMS PIPES PVT. LTD. PLEASE EXPLAIN THE SALE OF GOODS TO TOMS ENTERPRISES? I.T.A. NO. 442 /COCH/2018 9 ANS: - WE BUY GOODS FROM THE COMPANY BY F IXING OUR PRICE (UP TO 160% OF THE COST PRICE). FROM THE PRICE WE GIVE DIFFERENT TYPES OF DISCOUNTS (TRADE DISCOUNT MONTHLY QUANTITY DISCOUNT ANNUAL QUANTITY DISCOUNT QUARTERLY QUANTITY DISCOUNT). IN ADDITION TO THAT WE ALSO GIVE CASH DISCOUNTS. QUESTI ON: - 9 - IN ADDITION TO THE ABOVE WHAT ARE YOUR MAJOR EXPENSES? ANS: - OTHER MAJOR EXPENSES ARE DISTRIBUTION EXPENSES ADVERTISEMENT SALES PROMOTION SALARY INCENTIVE. QUESTION: - 10 AFTER DEDUCTING THE ABOVE EXPENSES WI LL YOU GIVE THE APPROXIMATION OF GROSS PRO F IT AND NET PROFIT? ANS: - WE PLAN AND PREPARE PRICE LIST IN ORDER TO GET AP PROXIMATELY 15% GR OSS PROFIT AND 4% NET PROFIT. HOWEVER IF WE ARE NOT ABLE TO ACHIEVE T HE REQUIRED TURN OVER TH EN WE WILL LOSE OUR CONTROL ON NET PROFIT BECAUSE OF FIXED COST THAT WILL INCREASE THE OVER HEAD EXPENDITURE.' ACCORDING TO THE CIT(A) ON PE RUSAL OF ANSWER TO QUESTION NO. 10 IT WAS EVIDENT THAT IT WAS NOT AN ADMISSION OF GROSS PROFIT AT 15% BUT IT WAS ONLY ABOUT GENERAL APPROACH TOWARDS PRICING OF THE PRODUCTS. FURTHER IT WAS OBSERVED THAT THE STATEMENT WAS NOT BASED ON ANY BOOKS MAINTAINE D BY THE ASSESSEE AND THEREFORE NO ADDITION CAN BE MADE BASED ON SUCH GENERAL STATEMENTS. 6. 3 THE CIT(A) REFERRED TO THE QUESTION WH ETHER AN ESTIMATED ADDITION CAN BE MADE ON THE BASIS OF LOW GROSS PROFIT OR INCREASE IN EXPENDITURE UNDER A PARTICULAR HEAD? IN THIS REGARD THE CIT(A) RELIED ON THE JUDGMENT OF THE DELHI HIGH COURT IN THE CASE OF PARADISE HOLIDAYS ( 325 ITR 013 ) WHEREIN THE COURT CONSIDERED ISSUE OF REJECTION OF LOW NET PROFIT RATE AND HELD AS UNDER: '6. THE ASSESSING OFFICER HAS NOT PO INTED OUT ANY SPECIFIC DEFECT OR DISCREPANCY IN THE ACCOUNT BOOKS MAINTAINED BY THE ASSESSEE. ADMITTEDLY I.T.A. NO. 442 /COCH/2018 10 THE ASSESSEE HAD BEEN MAINTAINING REGULAR BOOKS OF ACCOUNT WHICH WERE DULY AUDITED BY AN INDEPENDENT CHARTERED ACCOUNTANT. AS NOTED BY THE COMMISSION ER (APPEALS) THE FINANCIAL RESULTS WERE FULLY SUPPORTED BY THE ASSESSEE WITH VOUCHERS AND THE BOOKS OF ACCOUNT WERE COMPLETE AND CORRECT IN ALL RESPECTS. THE ACCOUNTS WHICH ARE REGULARLY MAINTAINED IN THE COURSE OF BUSINESS AND ARE DULY AUDITED FREE FROM ANY QUALIFICATION BY THE AUDITORS SHOULD NORMALLY BE TAKEN AS CORRECT UNLESS THERE ARE ADEQUATE REASONS TO INDICATE THAT THEY ARE INCORRECT OR UNRELIABLE. THE ONUS IS UPON THE REVENUE TO SHOW THAT EITHER THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE WE RE INCORRECT OR INCOMPLETE OR METHOD OF ACCOUNTING ADOPTED BY HIM WAS SUCH THAT TRUE PROFITS OF THE ASSESSEE CANNOT BE DEDUCED THEREFROM ' 6. 4 FURTHER THE CIT(A) RELIED ON THE JUDGMENT OF THE DELHI HIGH COURT IN THE CASE OF POONAM RANI ( 326 ITR 0223 ) WHEREIN THE COURT HAD CONSIDERED ISSUE OF REJECTION OF LOW NET PROFIT RATE AND HELD AS UNDER: '10. .......SIMILARLY IF THE RATE OF GP DECLARED BY THE ASSESSEE IN A PARTICULAR PERIOD IS LOWER AS COMPARED TO THE GP DECLARED BY HIM IN THE PRECEDING YEAR THA T MAY ALERT THE ASSESSING OFFICER AND SERVE AS A WARNING TO HIM TO LOOK INTO THE ACCOUNTS MORE CAREFULLY AND TO LOOK FOR SOME MATERIAL WHICH COULD LEAD TO THE CONCLUSION THAT THE ACCOUNTS MAINTAINED BY THE ASSESSEE WERE NOT CORRECT. BUT A LOW RATE OF GP IN THE ABSENCE OF ANY MATERIAL POINTING TOWARDS FALSEHOOD OF THE ACCOUNTS BOOKS CANNOT BY ITSELF BE A GROUND TO REJECT THE ACCOUNT BOOKS UNDER SECTION 145(3) OF THE ACT.' 6. 5 ACCORDING TO THE CIT(A) THE OBSERVATIONS OF THE DELHI HIGH COURT IN THE ABO VE CASES CLEARLY INDICATE THAT IF THE ASSESSING OFFICER TAKES NOTE OF LOW GP RATE SHOWN BY THE ASSESSEE THE HE HAS TO PROBE FURTHER AND EXAMINE THE CORRECTNESS OF THE ACCOUNTS MAINTAINED BY THE APPELLANT. FURTHER THE ASSESSING OFFICER HAS TO LAKE NOTE OF THE EXPLANATION OFFERED BY THE ASSESSEE WITH REGARD TO LOW GP RATE AND I N THE END ONLY IF THE ASSESSING OFFICER CAN POINT OUT EITHER DEFECTS IN THE BOOKS OF ACCOUNT OR ESTABLISHES THE FALSITY OF THE EXPLANATION I.T.A. NO. 442 /COCH/2018 11 OFFERED BY THE ASSESSEE THE ASSESSING OFFIC ER IS EMPOWERED TO ESTIMATE THE GP RATE BASED ON THE COMPARATIVE CASES. 6. 6 IN VIEW OF THE DETAILED DISCUSSION IN THE PARAGRAPHS ABOVE THE CIT(A) HELD THAT THE CONCLUSION DRAWN BY THE ASSESSING OFFICER THAT THE MANAGING PARTNER HAS ADMITTED GROSS PROF IT OF 15% ON OATH WAS INCORRECT AND NOT BASED ON FACTS. FURTHER IT WAS HELD THAT THE EXPLANATION OF THE ASSESSEE REGARDING STATEMENT GIVEN BY THE MANAGING DIRECTOR CANNOT BE BRUSHED ASIDE ON THE GROUND THAT THE STATEMENT WAS GIVEN UNDER OATH AS THE ASSESS EE HA D A RIGHT TO PROVE THAT SUCH ADMISSION WAS INCORRECT. FURTHER IT WAS HELD THAT THE ASSESSING OFFICER CANNOT MAKE ADDITIONS BASED ON GROSS PROFIT DIFFERENCE WITHOUT ESTABLISHING THAT THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE DO NOT REFLECT CORRE CT PROFIT EARNED BY THE ASSESSEE. HENCE CONSIDERING THE ABOVE FACTS THE CIT(A) DELETED THE ADDITION OF RS. 92 47 500 / - MADE BY THE ASSESSING OFFICER BASED ON LOW GROSS PROFI T. 7. AGAINST THIS THE REVENUE IS IN APPEAL BEFORE US. THE LD. DR RELIED ON THE ORDER OF THE ASSESSING OFFICER. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. IN THIS CASE THE BOOKS OF ACCOUNT OF THE ASSESSEE WERE REQUIRED TO GET AUDITED U/S. 44AB OF THE ACT. IT IS AN ADMITTED FACT THAT BOOKS OF ACCOUNT OF THE ASSESSEE HAD NOT I.T.A. NO. 442 /COCH/2018 12 BEEN REJECTED BY THE ASSESSING OFFICER. HOWEVER THE ASSESSING OFFICER RELIED ON THE STATEMENT OF SHRI TOMY C. VADAYIL MANAGING PARTNER OF THE ASSESSEE R ECORDED U/S. 131(1) OF THE ACT ON 25/09/2014 FOR THE PURPOSE OF FRAMING THE ASSESSM ENT WHEREIN HE HAS STATED AS FOLLOWS: 'QUESTION: - 8 - EXPLAIN THE PROCEDURE OF SALE OF GOODS IN YOUR FIRM. FOR E.G. I AM SHOWING A SALE BILL TPA 536 DATED 03/01/2014 OF TOMS PIPES PVT. LTD. PLEASE EXPLAIN THE SALE OF GOODS TO TOMS ENTERPRISES? ANS: - WE B UY GOODS FROM THE COMPANY BY F IXING OUR PRICE (UP TO 160% OF THE COST PRICE). FROM THE PRICE WE GIVE DIFFERENT TYPES OF DISCOUNTS (TRADE DISCOUNT MONTHLY QUANTITY DISCOUNT ANNUAL QUANTITY DISCOUNT QUARTERLY QUANTITY DISCOUNT). IN ADDITION TO THAT WE ALS O GIVE CASH DISCOUNTS. QUESTI ON: - 9 - IN ADDITION TO THE ABOVE WHAT ARE YOUR MAJOR EXPENSES? ANS: - OTHER MAJOR EXPENSES ARE DISTRIBUTION EXPENSES ADVERTISEMENT SALES PROMOTION SALARY INCENTIVE. QUESTION: - 10 AFTER DEDUC TING THE ABOVE EXPENSES WI LL YOU GIVE THE APPROXIMATION OF GROSS PRO F IT AND NET PROFIT? ANS: - WE PLAN AND PREPARE PRICE LIST IN ORDER TO GET APPROXIMATELY 15% GR OSS PROFIT AND 4% NET PROFIT. HOWEVER IF WE ARE NOT ABLE TO ACHIEVE T HE REQUIRED TURN OVER TH EN WE WILL LOSE OUR CONTROL ON NET PROFIT BECAUSE OF FIXED COST THAT WILL INCREASE THE OVER HEAD EXPENDITURE.' 8.1 AS SEEN FROM THE ABOVE THE MANAGING PARTNER STATED THAT THE ASSESSEE IS GETTING GP AT 15% AND NET PROFIT AT 4%. CONTRARY TO THIS T HE ASSESSEE HAS SHOWN GROSS PROFIT AT 10.55% . IT WAS ALSO EXPLAINED BY THE LD. AR THE REASON FOR DECLARING GP AT LOWER RATE I N THE ASSESSMENT YEAR INSTEAD OF 15% AS STATED IN THE SWORN STATEMENT AND THIS WAS DUE TO OFFERING HIGHER DISCOUNT TO THE CUSTOMER S TO SUSTAIN IN THE MARKET. THIS WAS THE CASE OF OFFERING LOWER RATE OF I.T.A. NO. 442 /COCH/2018 13 PROFIT ON SALE. THE ASSESSING OFFICER REJECTED THE CONTENTION OF THE ASSESSEE AND HE ESTIMATED THE INCOME OF THE ASSESSEE ON THE BASIS OF GP AT 15% BY PLACING RELIANCE ON THE SWORN STA TEMENT RECORDED U/S. 131 OF THE ACT. AFTER CAREFUL CONSIDERATION OF THE CIRCUMSTANCES AND FACTS OF THE THIS CASE WE ARE OF THE OPINION THAT THE STATEMENT RECORDED U/S. 131 OF THE ACT WAS VALID STATEMENT AND IT COULD BE USED FOR THE PURPOSE OF ASSESSMENT PROVIDED THEY ARE SUPPORTED BY CORROBORATIVE DOCUMENTS. 8. 2 UNDER SECTION 131 OF THE ACT THE INCOME TAX AUTHORITY IS EMPOWERED TO EXAMINE ON OATH. SECTION 131 OF THE ACT CONFERS POWER TO THE INCOME TAX AUTHORITY TO RECORD THE STATEMENT IN THE COURSE O F PROCEEDINGS BEFORE THEM. THE POWER INVESTED U/S. 131(1) IS ONLY TO MAKE ENQUIRIES AND INVESTIGATION AND NOT BASICALLY MEANT TO VOLUNTARY DISCLOSURE OR SURRENDER OF CONCEALED INCOME. AS PER SECTION 31 OF THE INDIAN EVIDENCE ACT 1878 ADMISSIONS ARE NOT CONCLUSIVELY PROVED AS AGAINST ADMITTED PROOF. IN THE ABSENCE OF REBUTTABLE CONCLUSION ADMISSION BIND THE MAKER WHEN THESE ARE NOT REBUTTABLE OR RETRACTED. IT WAS HELD BY THE SUPREME COURT IN THE CASE OF PULLENGODE RUBBER PRODUCE VS. STATE OF KERALA (9 1 ITR 18) THAT A N ADMISSION IS AN EXTREMELY IMPORTANT PIECE OF EVIDENCE BUT IT CANNOT BE SAID THAT IT IS CONCLUSIVE AND T HE MAKER CAN SHOW THAT IT WAS INCORRECT. IN THE CASE OF SATINDER KUMAR (HUF) VS. CIT (106 ITR 64) THE HIGH COURT OF HIMACHAL PRADESH HELD THAT T HE ADMISSION MADE BY AN ASSESSEE CONSTITUTE A RELEVANT PIECE OF EVIDENCE BUT IF THE ASSESSEE CONTENDS THAT IN I.T.A. NO. 442 /COCH/2018 14 MAKING THE ADMISSION HE HAD PROCEEDED ON A MISTAKE N UNDERSTANDING OR ON V MISCONCEPTION OF FACTS OR UNTRUE FACTS SUCH ADMISSION CANNO T BE RELIED UPON WITHOUT CONSIDERING THE AFORESAID CO NTENTION. IN THE CASE OF AVADH KISHORE DAS VS. RAM GOPAL AIR 1979 (SC) 861 IT WAS HELD THAT EVIDENTIARY ADMISSIONS ARE NOT CONCLUSIVE PROOF OF THE FACTS ADMITTED AND MAY BE EXPLAINED OR SHOWN TO BE WRO NG BUT THEY DO RAISE AN ESTOPPEL AND SHIFT THE BURDEN OF PROOF TO THE PERSON MAKING THE ADMISSION. THE SUPREME COURT FURTHER HELD THAT UNLESS SHOWN OR EXPLAINED TO BE WRONG THEY ARE AN EFFICACIOUS PROOF OF THE FACTS ADMITTED. THUS THE BURDEN TO PROVE ADMISSION AS INCORRECT IS ON THE MAKER AND IN CASE OF FAILURE OF THE MAKER TO PROVE THAT THE EARLIER STATED FACTS WERE WRONG TH ESE EARLIER STATEMENTS ARE SUFFICE TO CONCLUDE THE MATTER. IF RETRACTION IS PROVED SUFFICIENTLY THE EARLIER STATED FACTS LOOS E THEIR EFFECT AND RELEVANCE AS A BINDING EVIDENCE AND THE AUTHORITIES CANNOT CONCLUDE THE MATTER ON THE BASIS OF THE EARLIER STATEMENTS ALONE. HOWEVER BALD RETRACTION OF EARLIER ADMISSIONS WILL NOT BE ENOUGH EVEN AFTER RETRACTION. SUCH STATEMENTS CANNOT A UTOMATICALLY BECOME NULLIFIED. IF THE ASSESSEE PROVES THAT THE STATEMENT RECORDED U/S. 131 WAS INVOLUNTARY AND IT WAS MADE UNDER COERCION OR DURING THEIR ADMISSION THE STATEMENT RECORDED U/S. 131 HAS NO LEGAL VALIDITY. 8. 3 THERE WAS A CIRCULAR ISS UED BY C BDT ISSUED CIRCULAR IN F. NO. 286/ 98/2013 - IT(INV.II) DATED 1 8 TH DECEMBER 2014 STATING AS FOLLOWS: I.T.A. NO. 442 /COCH/2018 15 INSTANCES /COMPLAINTS OF UNDUE INFLUENCE/COERCION HAVE COME TO NOTICE OF THE CBDT THAT SOME ASSESSEES WERE COERCED TO ADMIT UNDISCLOSED INCOME DURING SEARCHES/SURVEYS CONDUCTED BY THE DEPARTMENT. IT IS ALSO SEEN THAT MANY SUCH ADMISSIONS ARE RETRACTED IN THE SUBSEQUENT PROCEEDINGS SINCE THE SAME ARE NOT BACKED BY CREDIBLE EVIDENCE. SUCH ACTIONS DEFEAT THE VERY PURPOSE OF SEARCH/SURVEY OPERATIONS AS TH EY FAIL TO BRING THE UNDISCLOSED INCOME TO TAX IN A SUSTAINABLE MANNER LEAVE ALONE LEVY OF PENALTY OR LAUNCHING OF PROSECUTION. FURTHER SUCH ACTIONS SHOW THE DEPARTMENT AS A WHOLE AND OFFICERS CONCERNED IN POOR LIGHT. 2. I AM FURTHER DIRECTED TO INVITE YOUR ATTENTION TO THE INSTRUCTIONS/GUIDELINES ISSUED BY CBDT FROM TIME TO TIME AS REFERRED ABOVE THROUGH WHICH THE BOARD HAS EMPHASIZED UPON THE NEED TO FOCUS ON GATHERING EVIDENCES DURING SEARCH/SURVEY AND TO STRICTLY AVOID OBTAINING ADMISSION OF UNDIS CLOSED INCOME UNDER COERCION/UNDUE INFLUENCE. 3. IN VIEW OF THE ABOVE WHILE REITERATING THE AFORESAID GUIDELINES OF THE BOARD I AM DIRECTED TO CONVEY THAT ANY INSTANCE OF UNDUE INFLUENCE/COERCION IN THE RECORDING OF THE STATEMENT DURING SEARCH/SURVEY/ OTHER PROCEEDING UNDER THE IT ACT 1961 AND/OR RECORDING A DISCLOSURE OF UNDISCLOSED INCOME UNDER UNDUE PRESSURE/COERCION SHALL BE VIEWED BY THE BOARD ADVERSELY. FROM THE ABOVE CIRCULAR IT IS AMPLY CLEAR THAT THE CBDT HAS EMPHASIZED ON ITS OFFICERS TO F OCUS ON GATHERING EVIDENCES DURING SEARCH/SURVEY OPERATIONS AND STRICTLY DIRECTED TO AVOID OBTAINING ADMISSION OF UNDISCLOSED INCOME UNDER COERCION/UNDER INFLUENCE. KEEPING IN VIEW THE GUIDELINES ISSUED BY THE CBDT FROM TIME TO TIME REGARDING STATEMENTS OB TAINED DURING SEARCH AND SURVEY OPERATIONS IT IS UNDISPUTEDLY CLEAR THAT THE LOWER AUTHORITIES HAVE NOT COLLECTED ANY OTHER EVIDENCE TO PROVE THAT THE IMPUGNED INCOME WAS EARNED BY THE ASSESSEE. I.T.A. NO. 442 /COCH/2018 16 8. 4 WITHOUT COMMENTING ON THE AUTHENTICITY OF THE ST ATEMENT BY THE MANAGING PARTNER OF THE ASSESSEE SHRI TOMY C. VADAYIL WE ARE OF THE OPINION THAT THERE IS NO CORROBORATIVE EVIDENCE TO SUPPORT THE CLAIM MADE BY THE ASSESSING OFFICER. EVEN OTHERWISE UNCORROBORATIVE STATEMENTS COLLECTED BY THE ASSESSI NG OFFICER CANNOT BE AN EVIDENCE FOR SUSTENANCE OF ADDITION MADE BY THE ASSESSING OFFICER. 8. 5 AT THIS STAGE IT IS PERTINENT TO REFER TO THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF VINOD SOLANKI ( 2009) (233) ELT 157 OBSERVED AS UNDER : '22. IT IS A TRITE LAW THAT EVIDENCES BROUGHT ON RECORD BY WAY OF CONFESSION WHICH STOOD RETRACTED MUST BE SUBSTANTIALLY CORROBORATED BY OTHER INDEPENDENT AND COGENT EVIDENCES WHICH WOULD LEND ADEQUATE ASSURANCE TO THE COURT THAT IT MAY SEEK TO RELY THEREUPON. W E ARE NOT OBLIVIOUS OF SOME DECISIONS OF THIS COURT WHEREIN RELIANCE HAS BEEN PLACED FOR SUPPORTING SUCH CONTENTION BUT WE MUST ALSO NOTICE THAT IN SOME OF THE CASES RETRACTED CONFESSION HAS BEEN USED AS A PIECE OF CORROBORATIVE EVIDENCE AND NOT AS THE EVI DENCE ON THE BASIS WHEREOF ALONE A JUDGMENT OF CONVICTION AND SENTENCE HAS BEEN RECORDED. [SEE PON ADITHAN VS. DY. DIRECTOR NARCOTICS CONTROL BUREAU (1999) 6 SCC 1] ............... 8. 6 YET AGAIN IN ROMESH CHANDRA MEHTA VS. STATE OF WEST BENGAL (1969) 2 SCR 461 ALTHOUGH THIS COURT HELD THAT ANY STATEMENT MADE UNDER SS. 107 AND 108 OF THE CUSTOMS ACT BY A PERSON AGAINST WHOM AN ENQUIRY IS MADE BY A CUSTOMS OFFICER IS NOT A STATEMENT MADE BY A PERSON ACCUSED OF AN OFFENCE BUT AS INDICATED HEREINBEFORE H E BEING AN OFFICER CONCERNED OR THE PERSON IN AUTHORITY S. 24 OF THE INDIAN EVIDENCE ACT WOULD BE ATTRACTED. I.T.A. NO. 442 /COCH/2018 17 8. 7 IT HAS BEEN SIMILARLY HELD BY THE HONBLE SUPREME COURT IN THE CASE OF K.T.M.S. MOHD. & ANR. VS. UNION OF INDIA ( 1992 ) (197 ITR 196) AS UNDE R : 'WE THINK IT IS NOT NECESSARY TO RECAPITULATE AND RECITE ALL THE DECISIONS ON THIS LEGAL ASPECT. BUT SUFFICE IT TO SAY THAT THE CORE OF ALL THE DECISIONS OF THIS COURT IS TO THE EFFECT THAT THE VOLUNTARY NATURE OF ANY STATEMENT MADE EITHER BEFORE THE C USTOMS AUTHORITIES OR THE OFFICERS OF ENFORCEMENT DIRECTORATE UNDER THE RELEVANT PROVISIONS OF THE RESPECTIVE ACTS IS A SINE QUA NON TO ACT ON IT FOR ANY PURPOSE AND IF THE STATEMENT APPEARS TO HAVE BEEN OBTAINED BY ANY INDUCEMENT THREAT COERCION OR BY ANY IMPROPER MEANS THAT STATEMENT MUST BE REJECTED BREVI MANU. AT THE SAME TIME IT IS TO BE NOTED THAT MERELY BECAUSE A STATEMENT IS RETRACTED IT CANNOT BE RECORDED AS INVOLUNTARY OR UNLAWFULLY OBTAINED. IT IS ONLY FOR THE MAKER OF THE STATEMENT WHO AL LEGES INDUCEMENT THREAT PROMISE ETC. TO ESTABLISH THAT SUCH IMPROPER MEANS HAVE BEEN ADOPTED. HOWEVER EVEN IF THE MAKER OF THE STATEMENT FAILS TO ESTABLISH HIS ALLEGATIONS OF INDUCEMENT THREAT ETC. AGAINST THE OFFICER WHO RECORDED THE STATEMENT THE AUTHORITY WHILE ACTING ON THE INCULPATORY STATEMENT OF THE MAKER IS NOT COMPLETELY RELIEVED OF HIS OBLIGATION AT LEAST SUBJECTIVELY TO APPLY ITS MIND TO THE SUBSEQUENT RETRACTION TO HOLD THAT THE INCULPATORY STATEMENT WAS NOT EXTORTED. IT THUS BOILS DOW N TO THIS THAT THE AUTHORITY OR ANY COURT INTENDING TO ACT UPON THE INCULPATORY STATEMENT AS A VOLUNTARY ONE SHOULD APPLY ITS MIND TO THE RETRACTION AND REJECT THE SAME IN WRITING. IT IS ONLY ON THIS PRINCIPLE OF LAW THAT THIS COURT IN SEVERAL DECISIONS HAS RULED THAT EVEN IN PASSING A DETENTION ORDER ON THE BASIS OF AN INCULPATORY STATEMENT OF A DETENU WHO HAS VIOLATED THE PROVISIONS OF THE FOREIGN EXCHANGE REGULATION ACT OR THE CUSTOMS ACT ETC. THE DETAINING AUTHORITY SHOULD CONSIDER THE SUBSEQUENT R ETRACTION AND RECORD ITS OPINION BEFORE ACCEPTING THE INCULPATORY STATEMENT LEST THE ORDER BE VITIATED. REFERENCE MAY BE MADE TO A DECISION OF THE FULL BENCH OF THE MADRAS HIGH COURT IN ROSHAN BEEVI VS. JT. SECRETARY TO THE GOVERNMENT OF TAMIL NADU PUBLIC DEPTT. ETC. (1983) MAD LW (CRL.) 289 : (1984) 15 ELT 289 : AIR 1984 NOC 103 TO WHICH ONE OF US (S. RATNAVEL PANDIAN J.) WAS A PARTY.' 8. 8 THE RATIO THAT EMERGES FROM THE AFORESAID DECISIONS IS THAT ONCE A STATEMENT IS RETRACTED THE CONTENTS STATED I N THE RETRACTED STATEMENT MUST BE SUBSTANTIALLY CORROBORATED BY OTHER INDEPENDENT AND COGENT EVIDENCE. IT HAS BEEN CONSISTENTLY HELD BY VARIOUS COURTS THAT A SWORN STATEMENT CANNOT BE RELIED I.T.A. NO. 442 /COCH/2018 18 UPON FOR MAKING ANY ADDITION AND MUST BE CORROBORATED BY INDEPEN DENT EVIDENCE FOR THE PURPOSES OF MAKING ASSESSMENTS. 8. 9 WE ARE OF THE VIEW THAT THE STATEMENT RECORDED U/S. 131 CAN NOT BE INDEPENDENTLY USED FOR MAKING ANY ADDITION IN THE HANDS OF THE ASSESSE AND THE SAID STATEMENT CANNOT IN OUR VIEW BE THE SOLE B ASIS FOR MAKING ANY ADDITION AND MUST BE INDEPENDENTLY CORROBORATED BY EVIDENCES. THUS ON A CAREFUL READING OF THE D ECISIONS OF THE HONBLE SUPREME COURT REFERRED BEFORE US WE ARE OF THE V IEW THAT THE LEGAL POSITION THAT EMERGES IS THAT A SWORN STATEMENT THOUGH BI NDS THE ASSESSEE IT CANNOT BE THE SOLE BASIS FOR MAKING THE ASSESSMENT. IT IS OPEN TO THE ASSESSEE TO SHOW THE CIRCUMSTANCES IN WHICH CONFESSIONAL STATEMENTS WERE RECORDED AND ONCE THE ASSESSEE PROVES THAT CONFESSIONAL STATEMENTS WERE RECORDED UNDER THREAT AND COERCION AND RETRACTS FROM THE SAME THE CONFESSIONAL STATEMENTS CANNOT BE THE SOLE BASIS FOR MAKING ASSESSMENTS OR FOR MAKING ANY ADDITION IN THE HANDS OF THE ASSESSEE. 9. FURTHER IN THE CASE OF CIT VS. S. KHADER KHAN SON (300 ITR 157) THE MADRAS HIGH COURT HELD AS FOLLOWS: THE PRINCIPLES RELATING TO SECTION 133A OF THE INCOME TAX ACT 1961 ARE AS FOLLOWS: (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 I.T.A. NO. 442 /COCH/2018 19 DO NOT CORRECTLY DISCLOSE THE CORRECT STATE OF FACTS ; (II) IN CONTRADISTINCTION TO THE POWER UNDER SECTION 133A SECTION 132(4) ENABLES THE AUTHORIZED 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 UNDER SECTION 133A OF THE INCOME - TAX ACT IT IS NOT GIVEN ANY EVIDENTIARY VALUE OBVIOUSLY FOR THE REASON THAT THE OFFICER IS NOT AUTHORISED TO ADMINIST ER OATH AND TO TAKE ANY SWORN STATEMENT WHICH ALONE HAS EVIDENTIARY VALUE AS CONTEMPLATED UNDER LAW ; (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 UNDER SECTION 133A ; (IV) THE MATERIAL OR INFORMATION FOUND IN THE COURSE OF SURV EY PROCEEDING COULD NOT BE A BASIS FOR MAKING ANY ADDITION IN THE BLOCK ASSESSMENT ; (V) FINALLY THE WORD 'MAY' USED IN SECTION 133A (3)(III) OF THE ACT VIZ. 'RECORD THE STATEMENT OF ANY PERSON WHICH M AY 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 UNDER SECTION 133A AR E NOT CONCLUSIVE PIECE OF EVIDENCE BY ITSELF. A SURVEY WAS CONDUCTED IN THE PREMISES OF THE ASSESSEE - FIRM. ONE OF THE PARTNERS IN HIS SWORN STATEMENT OFFERED AN ADDITIONAL INCOME OF RS.20 LAKHS FOR THE ASSESSMENT YEAR 2001 - 02 AND RS.30 LAKHS FOR THE ASSES SMENT YEAR 2002 - 03. HOWEVER THE SAID STATEMENT WAS RETRACTED BY THE ASSESSEE - FIRM IN ITS LETTER DATED AUGUST 3 2001 STATING THAT THE PARTNER FROM WHOM A STATEMENT WAS RECORDED DURING THE SURVEY OPERATION UNDER SECTION 133A WAS NEW TO THE MANAGEMENT AN D HE COULD NOT ANSWER THE ENQUIRIES MADE AND AS SUCH HE AGREED TO AN AD HOC ADDITION. THE ASSESSING OFFICER BASED ON THE ADMISSIONS MADE BY THE ASSESSEE WHICH WERE DIRECTLY RELATABLE TO THE DEFECTS NOTICED DURING THE ACTION UNDER SECTION 133A OF THE ACT RECOMPUTED THE ASSESSMENT. THE ORDER WAS SET ASIDE BY THE COMMISSIONER OF INCOME - TAX (APPEALS) AND THIS ORDER WAS UPHELD BY THE TRIBUNAL. ON APPEAL TO THE HIGH COURT: HELD DISMISSING THE APPEAL THAT IN VIEW OF THE SCOPE AND AMBIT OF THE MATERIALS COLL ECTED DURING THE COURSE OF SURVEY ACTION UNDER SECTION 133A SHALL NOT HAVE ANY EVIDENTIARY VALUE. IT COULD NOT BE SAID SOLELY ON THE BASIS OF THE STATEMENT GIVEN BY ONE OF THE PARTNERS OF THE ASSESSEE - FIRM THAT THE DISCLOSED INCOME WAS ASSESSABLE AS LAWFU L INCOME OF THE ASSESSEE. I.T.A. NO. 442 /COCH/2018 20 10. ON FURTHER APPEAL BY THE DEPARTMENT IN CIVIL APPEAL NO. 13224 OF 2008 AND 6747 OF 2012 DATED 20/09/2012 THE SUPREME COURT HELD AS FOLLOWS: HEARD COUNSELS ON BOTH SIDES. LEAVE GRANTED. CIVIL APPEAL FILED BY THE DEPAR TMENT PERTAINS TO 2001 - 02. IN VIEW OF THE CONCURRENT FINDINGS OF THE FACT THIS CIVIL APPEAL IS DISMISSED. HENCE THE RATIO LAID DOWN BY THE MADRAS HIGH COURT WAS CONFIRMED BY THE S UPREME COURT. 11. FROM THE FOREGOING DISCUSSION THE FOLLOWING P RINCIPLES CAN BE CULLED OUT: (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. V. STATE OF KERALA [(197 3) 91 I.T.R. 18]; (II) IN CONTRADISTINCTION TO THE POWER UNDER SECTION 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 UNDER SECTION 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 EVIDENT IARY VALUE AS CONTEMPLATED UNDER LAW VIDE PAUL MATHEWS AND SONS V. COMMISSIONER OF INCOME - TAX [(2003) 263 I.T.R. 101]; (III) T HE 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 MAKES IT CLEAR THAT THE MATERIALS COLLECTED AND THE STATEMENT RECORDED DURING THE SURVEY UNDER SECTION 133A ARE NOT CONCLUSIVE PIECE OF EVIDENCE BY ITSELF. I.T.A. NO. 442 /COCH/2018 21 (IV) FINALLY THE S TATEMENT RECORDED BY THE ASSESSING OFFICER ON 25/09/2014 U/S. 131 CANNOT BE THE BASIS TO SUSTAIN THE ADDITION SINCE IT IS NOT SUPPO RTED BY CORROBORATIVE MATERIAL. 12. IN OUR OPINION THE ASSESSING OFFICER HAS MADE THE ADDITION ONLY ON THE BASIS OF SWORN STATEMENT OF THE MANAGING PARTNER. ACCORDINGLY WE DISMISS THE GROUND TAKEN BY THE REVENUE. THE APPEAL OF THE REVENUE IS DISMISSE D. 13. IN THE RESULT THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 7 TH FEBRUARY 2019 SD/ - SD/ - (GEORGE GEORGE K.) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 7 TH FEBRUARY 2019 GJ COPY TO: 1 . M/S. TOMS ENTERPRISES 505/XII INDUSTRIAL ESTATE INDUSTRIAL NAGAR VEROOR P.O. CHANGANACHERRY KOTTAYAM - 689 106. 2. THE INCOME TAX OFFICER WARD - 4 THIRUVALLA . 3. THE COMMISSIONER OF INCOME - TAX(APPEALS) KOTTAYAM. 4. THE PR. COMMISSIONER OF INCOME - TAX KOTTAYAM. 5 . D. R. I.T.A.T. COCHIN BENCH COCHIN. 6 . GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T. COCHIN I.T.A. NO. 442 /COCH/2018 22