2022 (10) TMI 816 - AT - Income Tax

Unexplained investment u/s 69B - Addition made after thorough investigation - Search u/s 132 - statement of the assessee was recorded u/s 132(4) wherein he stated that cash had been given to him by chairman of DLH Group for investment - HELD THAT - The assessee has corroborated with the evidences that his statement was given during the disturbed mental condition under coercible interrogation for several hours and there was supporting evidences to demonstrate that there was valid reason for retracting the said statement vide affidavit - It is noticed that without contrary disproving the material facts as discussed supra the A.O had merely made the addition on the basis of retracted statement. The assessee has also explained that Karan/Shweta Dodani were running Ponzi scheme to defraud the investors by offering high rate of return on the investment and against them the complaint were filed before the Bombay police/economic offence wing and cases were also filed before the Hon ble Bombay High Court. The assessee has also referred the order of Session Court holding that the accused/person were running a systematic plan to cheat investors by inducing them to invest the amount by giving assurance to pay handsome return. The aforesaid facts and relevant supporting evidences demonstrate that the assessee was trapped by the Ponzi Scheme launched by Karan/Shweta with modus operandi to cheat the investors. The assessee had further substantiated such material facts with detail of investment of Rs.2.15 crores made through banking channel which fetched cumulatively compounding interest equivalent to Rs.3.61 crores and till date even the principal investment made by the assessee were not returned. A.O has neither disproved these material fact and supporting detail nor made any further investigation to prove contrary to the claim and submission of the assessee. A person making admission is at liberty to contradict them or show that they are untrue or mistaken or made under misapprehension. Burden to prove that admission as incorrect is on the maker and in case there is failure on the part of maker to prove that earlier stated facts were wrong his earlier statement was sufficient if retraction is proved then A.O cannot conclude the case on the basis of such earlier statement. Here in the case of assessee he has filed the retraction immediately after recording of his statement by filing an affidavit along with other supporting evidences as discussed supra however without contrary disproving the material facts and relevant supporting material as discussed supra the A.O had merely made the addition on the basis of retracted statement. In the light of the above facts and circumstances we don t find any infirmity in the decision of ld. CIT(A) therefore this ground of appeal of the revenue stand dismissed.

Summary

Issues Involved:
1. Deletion of addition on account of unexplained investment under Section 69B of the Income Tax Act.
2. Application of the test of human probabilities by the CIT(A).

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Unexplained Investment under Section 69B of the Income Tax Act:
The case revolves around an addition of Rs. 3.61 crores made by the Assessing Officer (A.O.) as unexplained investment under Section 69B of the Income Tax Act. The assessee had filed a return declaring an income of Rs. 13,74,929/-. During a search action under Section 132 of the Act, WhatsApp messages on the assessee's mobile indicated a cash investment. The assessee initially admitted that the cash of Rs. 3.61 crores was given by the chairman of DLH Group for investment, but later retracted this statement, claiming that the amount represented accrued interest on a principal sum of Rs. 2.15 crores invested with Karan/Shweta at 15% compounded monthly interest.

The CIT(A) examined the WhatsApp messages and the assessee's statement, noting that the assessee was a victim of a Ponzi scheme. The CIT(A) found that the amount of Rs. 5.76 crores mentioned in the WhatsApp message included the principal investment of Rs. 2.15 crores and the accrued interest of Rs. 3.61 crores. The CIT(A) accepted the assessee's explanation and concluded that the amount did not represent unexplained investment. The CIT(A) relied on various documents, including court orders and complaints filed with the Economic Offences Wing, which supported the assessee's claim of being defrauded by Karan/Shweta.

The tribunal upheld the CIT(A)'s decision, noting that the A.O. had not disproved the material facts or conducted further investigation. The tribunal emphasized that the addition was made solely based on a retracted statement without corroborating evidence. The tribunal also cited legal precedents, including the Supreme Court's ruling in Vinod Solanki Vs. Union of India, which held that a retracted confession must be corroborated by independent evidence.

2. Application of the Test of Human Probabilities by the CIT(A):
The revenue contended that the CIT(A) erred in not applying the test of human probabilities. The CIT(A) critically examined the WhatsApp messages and the assessee's statement, considering the context of the Ponzi scheme. The CIT(A) noted that the assessee's claim of a 15% monthly return, though unusual, was consistent with the modus operandi of Ponzi schemes, which promise unrealistic returns to lure investors.

The CIT(A) also considered the assessee's immediate retraction of the statement and the affidavit filed, explaining the mental state during the prolonged search proceedings. The tribunal found that the CIT(A) had appropriately applied the test of human probabilities by considering the overall circumstances, including the supporting evidence of the Ponzi scheme and the assessee's consistent explanations.

Conclusion:
The tribunal dismissed the revenue's appeal, upholding the CIT(A)'s order. The tribunal found no infirmity in the CIT(A)'s decision to delete the addition of Rs. 3.61 crores as unexplained investment, as the assessee had substantiated the retraction of the statement with relevant supporting evidence. The tribunal also noted that the A.O. had not disproved the assessee's claims or conducted further investigation to establish contrary facts.