2025 (5) TMI 1587 - AT - Income Tax

Additions made towards the surrender made during a search and seizure operation u/s 132(4) - admission on oath during the statement recorded u/s 132(4) - AR also stated that that no seized material evidencing the fact that the appellant was in possession of the undisclosed income of Rs. 10 crores in the form of any cash or assets or any undisclosed investment was found as a result of search nor brought on record by the AO during assessment proceedings HELD THAT - As the assessee objected to the proposed addition on the ground that during the search no incriminating material indicating any undisclosed income for the year under consideration was found which is also apparently clear from the assessment order itself and from the order of the ld. CIT(A). Further before the AO assessee has filed explanation of each and every paper found and seized during the search operation which are available however a perusal of which it is evident that none of the paper has any transaction which pertained to assessee and was not a disclosed transaction. Since there is no incriminating material found during search and seizure action carried out at the residence and business premises of the assessee the ld. AO is not empowered to make any addition in the total income of the assessee solely based on the alleged surrender which was not supported by the material. As in the assessment order there is no mention reference or finding that the additions have been made by the AO based on any incriminating material found/seized during the course of search and seizure in the case of the assessee. Under the new legal framework of search assessments u/s 147 of the Act the assessments beyond 3 years can be reopened only when the Assessing Officer has in his possession books of accounts or other documents or evidence which reveal that the income chargeable to tax represented in the form of an asset which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more for that year. Hence the Legislature in their wisdom has introduced new provisions to mean that for assessing or re-assessing any year beyond 3 years consequent to search on or after 1st April 2021 the requirement of incriminating material is mandatory. It is a settled proposition of law that mere statement u/s 132(4) or u/s 131 is not sufficient to make an addition. A statement made must be relatable to incriminating material found during the search or the statement must be made relatable to some material by subsequent inquiry/investigations. In the present case assessee admitted certain income in the statements recorded u/s 132(4) of the Act which was later retracted and reasons for such retraction was explained by making detailed submission with the help of explanation of seized material which does not indicate any incriminating material. Thus the appellant retracted the statement recorded u/s 132(4) of the Act showing the admission made therein by him was incorrect by filing all the possible documentary evidences. Decided against revenue.

Summary

The core legal questions considered in this appeal pertain to the validity and evidentiary value of an admission of undisclosed income made by the assessee during a search and seizure operation under section 132(4) of the Income Tax Act, 1961. Specifically, the issues include:

1. Whether an addition of Rs. 10 crores to the assessee's income, based solely on his admission during the statement recorded under section 132(4) of the Act, is justified in the absence of any incriminating material found during the search.

2. Whether the admission made by the assessee can be considered voluntary and reliable, given the claim that it was made under duress and pressure during prolonged and exhaustive interrogation.

3. The evidentiary value of a statement recorded under section 132(4) and the extent to which it can be relied upon for making additions to income in assessment proceedings, particularly when subsequently retracted or explained by the assessee.

4. The applicability of CBDT instructions and judicial precedents regarding the use of confessional statements obtained during search and seizure operations and the requirement of corroborative incriminating material to sustain additions based on such statements.

5. The consistency of the assessing officer's approach, especially in relation to similar admissions made by associated entities and the treatment of such admissions in their assessments.

Issue-wise Detailed Analysis:

Issue 1: Validity of Addition Based Solely on Admission under Section 132(4) Without Incriminating Material

The legal framework mandates that statements recorded under section 132(4) are admissible in evidence but are not conclusive proof of undisclosed income. The Court examined the statutory provision which requires that such statements must be connected to books of account, documents, or assets found during the search. The Explanation to section 132(4) clarifies that the statement may relate to all matters relevant to the investigation but the nexus with incriminating material is essential.

CBDT Instruction No. F no. 286/2/2003-IT (Inv) dated 10.03.2003 and subsequent reiterations emphasize that confessions obtained under coercion or without credible evidence should not be the basis of assessment. The focus must be on tangible evidence rather than mere admissions.

The Court noted that in the present case, no incriminating documents or assets were found or seized from the assessee's premises that could substantiate the Rs. 10 crores admitted as additional income. The assessee provided detailed explanations for all seized papers, none of which indicated undisclosed transactions pertaining to him. The assessing officer himself accepted these explanations without adverse remarks.

Further, the admission of Rs. 10 crores was not included in the return of income filed by the assessee, indicating a retraction or clarification. The Court relied on judicial precedents holding that admission is relevant but not conclusive and can be explained or retracted if made under mistaken impression or pressure.

Accordingly, the addition made solely on the basis of the admission without corroborative incriminating material was held to be unjustified.

Issue 2: Voluntariness and Reliability of the Admission Made During Search

The assessee contended that the admission was made under duress and extreme pressure during a prolonged interrogation lasting over 12 hours with only a short break, continuing into the early hours of the next day. The statement was recorded at odd hours when the assessee was exhausted and mentally fatigued.

The Court examined the circumstances of recording the statement, noting that the assessee had requested rest during the interrogation and that the surrender of Rs. 10 crores was made in response to a general question at the conclusion of the statement, without reference to any specific incriminating material.

Given the absence of any incriminating documents or assets linking the admission to tangible evidence, and the timing and conditions under which the admission was made, the Court found merit in the assessee's claim that the surrender was ad hoc and under pressure. The Court also noted that the assessee repeatedly requested the assessing officer to verify the correctness of the income based on actual records and seized material, indicating a bona fide attempt to clarify the position.

The Court emphasized that confessions made under coercion or undue influence lack evidentiary value and that the burden lies on the revenue to prove voluntariness and correctness of such admissions.

Issue 3: Evidentiary Value of Statements Recorded Under Section 132(4) and Effect of Retraction

Judicial precedents cited by both parties establish that statements under section 132(4) have high evidentiary value but are rebuttable. The Supreme Court and various High Courts have held that admissions are important but not conclusive evidence and can be explained or retracted if made under mistake or coercion.

The Court noted that in this case, the assessee did not file any affidavit retracting the statement but did not include the admitted amount in his return and submitted detailed explanations supported by seized documents. The assessing officer failed to produce any incriminating material to support the addition.

Further, the Court referred to decisions where additions based solely on retracted confessions or statements without corroborative evidence were disallowed. The Court also highlighted that the CBDT instructions caution against reliance on confessions obtained during search and emphasize collection of evidence.

Therefore, the Court concluded that the retraction or clarification by the assessee diminished the evidentiary value of the statement, and the addition could not be sustained on that basis alone.

Issue 4: Applicability of CBDT Instructions and Judicial Precedents

The Court extensively reviewed CBDT instructions which prohibit obtaining confessions under coercion and require that assessments be based on tangible evidence rather than admissions alone. These instructions were deemed binding and relevant to the facts.

The Court analyzed various judicial decisions relied upon by the parties. It distinguished cases where admissions were corroborated by incriminating material or where retraction was absent or unjustified. Conversely, it found the present case akin to decisions where no incriminating material was found and admissions were made under pressure, leading to deletion of additions.

The Court also noted the inconsistency in the assessing officer's approach, as in the case of an associated entity where a similar admission of Rs. 90 crores was not added to income due to lack of incriminating material, reinforcing the principle that admissions unsupported by evidence cannot form the basis of additions.

Issue 5: Consistency in Treatment of Admissions in Associated Entities

The Court observed that the assessee's admission of Rs. 90 crores on behalf of an associated company was not accepted for addition by the same assessing officer, as no incriminating material was found. This inconsistency undermined the revenue's case for addition in the assessee's hands on similar grounds.

The Court found that the assessee honored admissions supported by incriminating material (Rs. 30 crores in the case of another associated person), but retracted from ad hoc admissions without any supporting evidence.

This differential treatment supported the conclusion that additions based solely on uncorroborated admissions were unsustainable.

Conclusions:

The Court upheld the deletion of the addition of Rs. 10 crores made by the assessing officer on the basis of the admission recorded under section 132(4) of the Act. It held that in absence of any incriminating material found during the search or seized documents linking the admitted amount to undisclosed income, and considering the circumstances under which the confession was made, the addition was not justified.

The Court emphasized that assessment must be based on correct taxable income determined from evidence and documents, not on ad hoc or coerced admissions. It reaffirmed the principle that statements under section 132(4) are relevant but not conclusive and can be rebutted by the assessee with evidence.

The Court also stressed adherence to CBDT instructions discouraging reliance on confessions obtained under pressure and requiring assessments to be founded on credible evidence.

Accordingly, the appeal filed by the revenue was dismissed, confirming the appellate order deleting the addition.

Significant Holdings:

"A statement recorded under section 132(4) of the Income Tax Act is a statement on oath and it has high evidentiary value. It gives rise to presumption about correctness of the facts stated/asserted in such a statement. As such presumption is rebuttable, the persons making such statement is required to bring some evidence on record to rebut the presumption about correctness of the assertion made in such statement."

"The purpose of assessment is to tax correct taxable income. Admission is relevant, but not conclusive. Addition cannot be made solely on the basis of a statement that, too, a statement that stands retracted, and/or is explained subsequently. Statement once retracted, loses its evidentiary value, and cannot, therefore, be the sole basis of any addition."

"A statement under section 132(4) can be recorded only if the person is found in possession of books of account, documents, assets, etc. The intention of the legislature is to permit such examination only where the books of account, documents and assets possessed by a person are relevant for the purposes of the investigation being undertaken."

"CBDT Instruction No. 286/2/2003-IT (Inv) dated 10.03.2003 and subsequent instructions emphasize that confessions obtained during search and seizure operations, if not based upon credible evidence, are often retracted and do not serve any useful purpose. The focus should be on collection of evidence of income which leads to information on what has not been disclosed or is not likely to be disclosed before the Income-tax Department."

"In the absence of any incriminating material found/seized with respect to the admission made in the statements recorded during search from the possession of assessee, the Assessing Officer is not empowered to make any addition in the total income of the assessee solely based on the alleged surrender which was not supported by the material."

"The statement of the assessee was recorded under duress and undue pressure, which is demonstrated by the fact that the search operation continued uninterrupted for over 12 hours with minimal rest, and the surrender was made on an ad hoc basis without reference to any incriminating document found during the search."

"The assessment must be based on the correct taxable real income of the assessee and consequently, such assessment ought to be as per documents, records and evidence and not merely on the basis of any ad hoc, involuntary statement/surrender made during the course of search, which too stands subsequently retracted/clarified."