The Commissioner of Income TaxSalem1 v. M/s.S.Khader Khan Son90-Syed Madar Street,Shevapet, Salem

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED: 4.7.2007CORAMTHE HON'BLE MR.JUSTICE P.D.DINAKARANANDTHE HON'BLE MR.JUSTICE P.P.S.JANARTHANA RAJAT.C.(A).No.867 of 2007The Commissioner of Income TaxSalem1...AppellantVs.M/s.S.Khader Khan Son90-Syed Madar Street,Shevapet, Salem...RespondentAppeal under Section 260A of the Income Tax Act, 1961 against theorder of the Income Tax Appellate Tribunal, Madras 'D' Bench dated13.10.2006 in ITA No.479/Mds/2005 for the assessment year 2001-02 againstthe order of the Commissioner of Income Tax (Appeal) Salem for theassessment year 2001-2002 in ITA.No.35/2004-05 dated 30.11.2004 againstthe assissment order of the Assistant Commissioner of Income Tax CompanyCircle Salem dated 30.03.2004 in PAN/GIR.No.IDFs0005.For Appellant : Mr.T.RavikumarJ U D G M E N T(Delivered by P.D. DINAKARAN, J.)The Revenue has preferred the above tax case appeal against the orderof the Income-tax Appellate Tribunal in ITA No.479/Mds/2005 dated13.10.2006, raising the following substantial questions of law:-(i) Whether on the facts and in the circumstances of the case,the income Tax Tribunal is right in law in holding that thestatement made during a survey under Sec.133A of the Income TaxAct has no evidentiary value ?(ii) Whether on the facts and in the circumstances of the case,the Income Tax Tribunal is right in not considering the factthat the Branch Contractors Agents Account Book in which entrieswere made subsequent to the survey and not found during thesurvey nor produced the survey, could be relied upon ? https://hcservices.ecourts.gov.in/hcservices/ (iii) Whether on the facts and in the circumstances of the case,the Income Tax Appellate Tribunal is right in not consideringthe fact that the voluntary statement made without any coercionor duress given during the course of survey action underSec.133A could form the basis of the assessment ?"2.1. The brief facts are: The assessment year involved in thisappeal is 2001-02. The assessee filed its return of income on 29.10.2001disclosing an income of Rs.12,640/-. The return was processed underSection 143(1) of the Income-tax Act, 1961 (in short 'the Act') on27.8.2002 and notice under Section 143(2) of the Act was issued on27.8.2002 and served on the assessee on 24.9.2002. In the instant case,a survey action was conducted under Section 133A of the Act on 24.7.2001in the premises of the assessee at 90, Syed Mada Street, Shevapet, Salemand one of the partners of the firm, by name Asif Khan, in his swornstatement offered an additional income of Rs.20,00,000/- for theassessment year 2001-02 and Rs.30,00,000/- for the assessment year 2002-03. However, the said statement was retracted by the assessee through itsletter dated 3.8.2001 stating that the partner Asif Khan, from whom astatement was recorded during the survey operation under Section 133A, wasnew to the management and he could not answer to the enquiries made and assuch, he agreed to an adhoc addition, which could never be achieved by thebusiness owing to the severe competition and to the legislation by theGovernment prohibiting smoking in public places. The assessee, thus,contended that the statement of Asif Khan recorded under Section 133A hasno evidentiary value. It was specifically contended that the power toexamine a person on oath is specifically conferred on the authorities onlyduring the course of any search under Section 132(4) of the Act andtherefore, it was requested that the survey operations would not serve anyuseful purpose and the sworn statement recorded during the survey shouldnot be given any weightage.2.2. But, the assessing officer found that certain books were notproduced or impounded at any time nor were they produced during the courseof survey action and that certain entries in the books were madesubsequent to the survey action and only at the time of survey action, theassessee had come forward with the admissions. Therefore, the assessingofficer came to the conclusion that he had reason to believe that theassessee had evaded production of those books during the survey action andeven after the survey action, as it could be seen from the survey folders.Accordingly, the assessing officer not accepting the book, viz., 'BranchContractors' Agent Book' produced after the survey to support the claim ofmanufacturing process, came to the conclusion that it is impounded andaccordingly, based on the admissions made by the assessee, which aredirectly relatable to the defects noticed during the action under Section133A of the Act, he recomputed the assessment and sought for the balancetax payable by his assessment order dated 30.3.2004.2.3. Aggrieved by the said assessment order dated 30.3.2004, theassessee preferred an appeal before the Commissioner of Income-tax(Appeals), who, by order dated 30.11.2006, held the issue in favour of theassessee. On appeal, at the instance of the Revenue, the Appellate https://hcservices.ecourts.gov.in/hcservices/ Tribunal holding that there was no infirmity in the order of theCommissioner, dismissed the Revenue's appeal. Hence, the present appealby the Revenue, raising the substantial questions of law referred to above.3. All the three substantial questions of law raised by the Revenuerevolve on the vexed question whether the materials collected and thestatement elicited during the survey operation under Section 133A of theAct had any evidentiary value. For the purpose of clarity, it is apt torefer Sections 132(4) and 133A of the Act, which are extracted ashereunder:-" 132. Search and Seizure. (1) ...(2)...(3)...(4)The authorised officer may, during the course of the searchor seizure, examine on oath any person who is found to be inpossession or control of any books of account, documents, money,bullion, jewellery or other valuable article or thing and anystatement made by such person during such examination maythereafter be used in evidence in any proceeding under the IndianIncome-tax Act, 1922 (11 of 1922), or under this Act.Explanation.- For the removal of doubts, it is herebydeclared 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, butalso in respect of all matters relevant for the purpose of anyinvestigation connected with any proceeding under the IndianIncome-tax Act, 1922 (11 of 1922), or under this Act."133A. Power of survey.--(1) Notwithstanding anything contained inany other provision of this Act, an income-tax authority mayenter--(a) any place within the limits of the area assigned to him,or(b) any place occupied by any person in respect of whom heexercises jurisdiction, *or(c) any place in respect of which he is authorised for thepurposes of this section by such income-tax authority, who isassigned the area within which such place is situated or whoexercises jurisdiction in respect of any person occupying suchplace,at which a business or profession is carried on, whethersuch place be the principal place or not of such business orprofession, and require any proprietor, employee or any otherperson who may at that time and place be attending in any mannerto, or helping in, the carrying on of such business orprofession--(i) to afford him the necessary facility to inspect suchbooks of account or other documents as he may require and whichmay be available at such place,(ii) to afford him the necessary facility to check or verifythe cash, stock or other valuable article or thing which may befound therein, and https://hcservices.ecourts.gov.in/hcservices/ (iii) to furnish such information as he may require as toany matter which may be useful for, or relevant to, anyproceeding under this Act.Explanation.--For the purposes of this sub-section, a place wherea business or profession is carried on shall also include anyother place, whether any business or profession is carried ontherein or not, in which the person carrying on the business orprofession states that any of his books of account or otherdocuments or any part of his cash or stock or other valuablearticle or thing relating to his business or profession are or iskept.(2) An income-tax authority may enter any place of business orprofession referred to in sub-section (1) only during the hoursat which such place is open for the conduct of business orprofession and, in the case of any other place, only aftersunrise and before sunset.(3) An income-tax authority acting under this section may,--(i) if he so deems necessary, place marks of identificationon the books of account or other documents inspected by him andmake or cause to be made extracts or copies therefrom,(ii) make an inventory of any cash, stock or other valuablearticle or thing checked or verified by him,(iii) record the statement of any person which may be usefulfor, or relevant to, any proceeding under this Act.(4) An income-tax authority acting under this section shall, onno account, remove or cause to be removed from the place whereinhe has entered, any books of account or other documents or anycash, stock or other valuable article or thing.(5) Where, having regard to the nature and scale of expenditureincurred by an assessee, in connection with any function,ceremony or event, the income-tax authority is of the opinionthat it is necessary or expedient so to do, he may, at any timeafter such function, ceremony or event, require the assessee bywhom such expenditure has been incurred or any person who, in theopinion of the income-tax authority, is likely to possessinformation as respects the expenditure incurred, to furnish suchinformation as he may require as to any matter which may beuseful for, or relevant to, any proceeding under this Act and mayhave the statements of the assessee or any other person recordedand any statement so recorded may thereafter be used in evidencein any proceeding under this Act.(6) If a person under this section is required to afford facilityto the income-tax authority to inspect books of account or otherdocuments or to check or verify any cash, stock or other valuablearticle or thing or to furnish any information or to have hisstatement recorded either refuses or evades to do so, the income-tax authority shall have all the powers under sub-section (1) ofsection 131 for enforcing compliance with the requirement made.Explanation.--In this section,--(a) "income-tax authority" means *a Commissioner, a @JointCommissioner, a Director, a @Joint Director, an AssistantDirector @or Deputy Director or an Assessing Officer, and for the https://hcservices.ecourts.gov.in/hcservices/ purposes of clause (i) of sub-section (1), clause (i) of sub-section (3) and sub-section (5), includes an Inspector of Income-tax, if so authorised by any such authority ;(b) "proceeding" means any proceeding under this Act inrespect of any year which may be pending on the date on which thepowers under this section are exercised or which may have beencompleted on or before such date and includes also allproceedings under this Act which may be commenced after such datein respect of any year.4. In the instant case, there was a survey operation conducted underSection 133A of the Act in the assessee's premises and a statement wasrecorded from one of the partner. Assuming there were discrepancies andirregularities in the books of accounts maintained by the assessee, anoffer of additional income for the respective assessment years was made bythe parnter of the firm. But, such statement, in view of the scope andambit of the materials collected during the course of survey action underSection 133A shall not have any evidentiary value, as rightly held by theCommissioner and the Tribunal, since such statement was not attached tothe provisions of Section 133A of the Act. It could not be said solely onthe basis of the statement given by one of the partner of the assessee-firm that the disclosed income was assessable as lawful income of theassessee. Since there was no material on record to prove the existence ofsuch disclosed income or earning of such income in the hands of theassessee, it could not be said that the Revenue had lost lawful taxpayable by the assessee.5.1. In the decision in Pullangode Rubber Produce Co. Ltd. v. Stateof Kerala [(1973) 91 I.T.R. 18], the Apex Court held that an admission isextremely an important piece of evidence but it cannot be said that it isconclusive and it is open to the person who made the admission to showthat it is incorrect.5.2. Where a survey was conducted in the premises of the assessee, amedical practioner, and a statement was recorded from him, in which theassessee surrendered additional income and pursuant to the same, theassessing officer reopened the assessment, but during the course of whichthe assessee retracted the additional income offered and contended thatthe statement was the result of duress, which was not accepted by theassessing officer and also by the Tribunal holding that the statement isvalid and that it was made without duress, a Division Bench of theAllahabad High Court The Allahabad High Court in Dr.S.C.Gupta v.Commissioner of Income-tax [(2001) 248 I.T.R. 782], of course, placingreliance on the decision of the Apex Court in Pullangode Rubber ProduceCo. Ltd. v. State of Kerala [(1973) 91 I.T.R. 18] held that the burdenthat was laid on the assessee to establish that the admission made in thestatement at the time of survey was wrong and that there was no additionalincome was not even attempted to be discharged and thus, the order of theTribunal was based on facts and no question of law arose from it. 5.3. A power to examine a person on oath is specifically conferred onthe authorities only under Section 132(4) of the Act in the course of anysearch or seizure. Thus, the Income-tax Act, whenever it thought fit and https://hcservices.ecourts.gov.in/hcservices/ necessary to confer such power to examine a person on oath, has expresslyprovided for it, whereas section 133A does not empower any Income-taxOfficer to examine any person on oath. Thus, in contradistinction to thepower under section 133A, section 132(4) of the Income-tax Act enables theauthorised officer to examine a person on oath and any statement made bysuch person during such examination can also be used in evidence under theIncome-tax Act. On the other hand, whatever statement recorded undersection 133A of the Act is not given an evidentiary value, vide a decisionof the Kerala High Court in Paul Mathews and Sons v. Commissioner ofIncome-tax [(2003) 263 I.T.R. 101].5.4. The scope of Sections 132(4) and 133A also came up forconsideration before the Kerala High Court in Paul Mathews and Sons v.Commissioner of Income-tax [(2003) 263 I.T.R. 101]. In the said case,the assessee therein made an attempt to draw a distinction between the twoprovisions, viz., Sections 132(4) and 133A. According to the assessee,there is no provision to administer oath or to take any sworn statementand that a mere admission or an acquiescence cannot be a foundation for anassessment and that any statement given during a survey has no effect asan "admission" nor can it be a statement on oath. According to theassessee, his statement during the survey with reference to any books ofaccount can hardly be the basis for any assessment. It was also contendedon behalf of the assessee that any material collected or any statementrecorded during the survey under Section 133A cannot be put against theassessee, as the same has no evidentiary value. The Division Bench of theKerala High Court, appreciating the stand taken by the assessee and afterreferring to Section 133A of the Act, held as hereunder:-".. we find that the power to examine a person on oath isspecifically conferred on the authorised officer only undersection 132(4) of the Income-tax Act in the course of any searchor seizure. Thus, the Income-tax Act, whenever it thought fitand necessary to confer such power to examine a person on oath,the same has been expressly provided whereas section 133A doesnot empower any Income-tax Officer to examine any person onoath. Thus, in contradistinction to the power under section133A, section 132(4) of the Income-tax Act enables theauthorised officer to examine a person on oath and any statementmade by such person during such examination can also be used inevidence under the Income-tax Act. On the other hand, whateverstatement is recorded under section 133A of the Income-tax Actit is not given any evidentiary value obviously for the reasonthat the officer is not authorised to administer oath and totake any sworn statement which alone has evidentiary value ascontemplated under law. Therefore, the statement elicitedduring the survey operation has no evidentiary value and theIncome-tax Officer was well aware of this."(emphasis supplied)5.5. Similarly,when the issue, whether the expression "such othermaterials or information as are available with the Assessing Officer" inSection 158BB of the Income-tax Act, 1961, would include the materialsgathered during the survey operation under Section 133A, came up forconsideration before this Court in Commissioner of Income-tax v. https://hcservices.ecourts.gov.in/hcservices/ G.K.Senniappan [(2006) 284 I.T.R. 220], a Division Bench of this Court, inwhich one of us was a party (P.P.S.JANARTHANA RAJA, J.), answered thequestion in the affirmative, against the Revenue and in favour of theassessee, holding that the materials collected during the survey underSection 133A cannot be taken into consideration while determining theundisclosed income in respect of block assessment as per section 158BB, asthe same has no evidentiary value.5.6. Again, when an identical question whether the material found inthe course of survey in the premises of the builder could be used in theblock assessment of the assessee, came up for consideration before thisDivision Bench in an unreported case in T.C.(A) No.2620 of 2006, thisCourt, by order dated 22.11.2006, of course, following the earlierdecision of this Court in G.K.Senniappan's case reported in (2006) 284I.T.R. 220, while confirming the order of the Tribunal, answered thequestion in favour of the assessee, in limine.6. What is more relevant, in the instant case, is that the attentionof the Commissioner and the Tribunal was rightly invited to the circularof the Central Board of Direct Taxes dated 10.3.2003 with regard to theconfession of additional income during the course of search and seizureand survey operations. The said circular dated 10.3.2003 reads asfollows:-" Instances have come to the notice of the Board wher assesseeshave claimed that they have been forced to confess theundisclosed income during the course of the search & seizure andsurvey operations. Such confessions, if not based upon credibleevidence, are later retracted by the concerned assessees whilefiling returns of income. In these circumstances, on confessionsduring the course of search & seizure and survey operations donot serve any useful purpose. It is, therefore, advised thatthere should be focus and concentration on collection of evidenceof income which leads to information on what has not beendisclosed or is not likely to be disclosed before the Income-taxDepartment. Similarly, while recording statement during thecourse of search & seizure and survey operations no attemptshould be made to obtain confession as to the undisclosed income.Any action on the contrary shall be viewed adversely.Further, in respect of pending assessment proceedings also,assessing officers should rely upon the evidences/materialsgathered during the course of search/survey operations orthereafter while framing the relevant assessment orders."7. From the foregoing discussion, the following principles can beculled out:-(i)An admission is extremely an important piece of evidence butit cannot be said that it is conclusive and it is open tothe person who made the admission to show that it isincorrect and that the assessee should be given a properopportunity to show that the books of accounts do notcorrectly disclose the correct state of facts, vide decision https://hcservices.ecourts.gov.in/hcservices/ of the Apex Court in Pullangode Rubber Produce Co. Ltd. v.State of Kerala [(1973) 91 I.T.R. 18];(ii)In contradistinction to the power under section 133A,section 132(4) of the Income-tax Act enables the authorisedofficer to examine a person on oath and any statement madeby such person during such examination can also be used inevidence under the Income-tax Act. On the other hand,whatever statement is recorded under section 133A of theIncome-tax Act it is not given any evidentiary valueobviously for the reason that the officer is not authorisedto administer oath and to take any sworn statement whichalone has evidentiary value as contemplated under law, videPaul Mathews and Sons v. Commissioner of Income-tax[(2003) 263 I.T.R. 101];(iii)The expression "such other materials or information as areavailable with the Assessing Officer" contained in Section158BB of the Income-tax Act, 1961, would include thematerials gathered during the survey operation under Section133A, vide Commissioner of Income-tax v. G.K.Senniappan[(2006) 284 I.T.R. 220]; (iv)The material or infomration found in the course of surveyproceeding could not be a basis for making any addition inthe block assessment, vide decision of this Court in T.C.(A)No.2620 of 2006 (between Commissioner of Income-tax v.S.Ajit Kumar);(v)Finally, the word "may" used in Section 133A (3)(iii) of theAct, viz., "record the statement of any person which may beuseful for, or relevant to, any proceeding under this Act,as already extracted above, makes it clear that thematerials collected and the statement recorded during thesurvey under Section 133A are not conclusive piece ofevidence by itself.8. For all these reasons, particularly, when the Commissioner and theTribunal followed the circular of the Central Board of Direct Taxes dated10.3.2003, extracted above, for arriving at the conclusion that thematerials collected and the statement obtained under Section 133A wouldnot automatically bind upon the assessee, we do not see any reason tointerfere with the order of the Tribunal. Accordingly, finding no substantial question of law arises forconsideration, the tax case appeal stands dismissed.Sd/-Asst. Registrar./true copy/Sub Asst. Registrar.sra https://hcservices.ecourts.gov.in/hcservices/ To1.The Assistant Registrar,Income Tax Appellate Tribunal"D" Bench, Madras.2.The Secretary, Central Board of Direct Taxes, New Delhi.3.The Commissioner of Income-Tax (Appeals),No.3, Gandhi Road, Salem – 636007.4.The Assistant Commr. Of Income-tax,Company Circle, Salem.5. The Commissioner of Income Tax, Salem.6. The Assistant Registrar, ITAT, III Floor, Rajaji Bhavan, Besant Nagar, Chennai – 90.1 CC To Mr.N.Muralikumaran, Senior Standing Counsel for IT., SR NO.40389. T.C.(A).No.867 of 2007 RS(CO)RVL 22.08.2007