AN ADMISSION CANNOT BE RETRACTED BY THE LEGAL REPRESENTATIVE OF THE PERSON WHO MADE THE ADMISSION

[Mr. M. GOVINDARAJAN]

Search and seizure can be conducted by the Income Tax Officers under the provisions of Section 132 of the Income Tax Act, 1961 (‘Act’ for short).  During the search receipts, agreements, documents etc., which are found could be seized by the Officer and also recorded statements from the concerned persons.   These statements would be utilized in the assessing the income of the assessee. In the statement the concerned person may admit any fact. The said admission may be later retracted by the same person. But this retraction can be done only by the person who made the admission. No other person, including the legal representative of that person can retract the admission made by him. In ‘Pullangode Rubber Produce Co., Limited V. State of Kerala’ – 1971 -TMI - 39985 - SUPREME Court the Honorable Supreme Court held that an admission is extremely important piece of evidence but it cannot be said that it is conclusive.   It is open to the person who made the admission to show that it is incorrect. 

In ‘Commissioner of Income Tax V. H.R. Basavaraj (late) by his legal representative’ – (2011) 339 ITR 63 (Karn) the late H.R. Basavaraj was an assessee.  The Department conduct a search at his residential premises and his associates. In the course of search receipts, receipts, agreements and other documents were found. His statement was recorded as well as of other concerned person. By his letter dated 4.3.1998 he offered a total undisclosed income of Rs.1.26 crores. A notice was sent to the assessee under Section 158BC. The assessee on receipt of the notice filed a return disclosing an undisclosed income of a sum or Rs.34,51,960/- During the pendency of the proceedings the assessee died. The Assessing Officer proposed to treat his wife, sons and grandsons as legal representatives. The legal representatives informed that the entire estate of the deceased assessee passed on to the H.R.B. Family Trust. Therefore the assessing authority proceeded to complete the assessment represented by the legal representatives, namely the HRB Family Trust.

The assessing authority after affording adequate opportunities of hearing on various dates passed an assessment order determining the total income in a sum of Rs.2,66,67,510 which included the admitted undisclosed income of a sum of Rs.34,51,960/-. Aggrieved by the said order the assessees preferred an appeal before the Commissioner of Income Tax (Appeals) assailing the additions made in the course of block assessment including the admitted undisclosed income.  The Commissioner (Appeals) confirmed some of the additions made by the assessing authority and so far as the remaining additions are concerned rejected the same. Aggrieved by the same appeals were filed by the Revenue as well as the assessee before the Tribunal. The Tribunal partly allowed the appeals of the assessee whereby some of the additions made by the assessing authority are confirmed by the appellate authority were deleted. The Revenue filed the present appeal before the High Court.

Before the Honorable High Court the Department put forth the following arguments:

• The order passed by the Tribunal is erroneous and liable to be set aside;
• The Tribunal committed a grave error in holding that even though the assessee has admitted to the undisclosed income, the assessee is entitled to retract his admission;
• The Tribunal fell in error in accepting the contention of the representatives of the assessee by overriding the admissions made by the deceased assessee;
• The various incriminating documents have been unearthed during the search operations and as a result of which various undisclosed income have come to light;
• The Tribunal held that no incriminating material was unearthed at the time of search and consequently granted relief to the assessee;
• The Tribunal has failed to consider the materials obtained during the search;
• The appeal filed by the Revenue is to be allowed and the questions of law be answered in favor of the revenue.

The assessee submitted that even though the undisclosed income was admitted by Sri H.R. Basavaraj, the same can be allowed to be explained/redressed by the legal representatives. There can be no estoppel against the assessee. The assessee is entitled to contend that he is not liable to be taxed in law, even though admissions have been made. The liability of tax is to be determined by law and not by admissions.

The Honorable High Court considered the questions of law pertain to the deletion of admitted undisclosed income of the assessee together. The Court held that the right of the assessee to file an appeal challenging the order of the assessing authority has not been denied to him and on the contrary the same has been entertained. Therefore, the principle of estoppel has not been held against the assessee in order to prevent him from filing an appeal.

The Court did not accept the contention of the assessee that they are entitled to go behind the admissions made by late Shri H.R. Basavaraj and bring it to the notice of the authority that they are eligible to tax. The admissions made cannot be retracted by the legal representatives of the person who made the admission. In this case the admissions made by the late Shri H.R. Basavaraj, cannot be retracted by the legal representatives on the various grounds that are sought to be urged. In view of the admissions made, the same become binding. It also binds legal representatives. Even though the admissions are sought to be retracted not by the person who made it but, by the legal representatives, it would still amount to an admission and would bind the legal representatives.  The Court further held that Section159 of the Act provides that the legal representatives are liable to pay such sums as the deceased would be liable to pay.   That any proceeding taken against the deceased before his death shall be deemed to have been taken against the legal representatives and may be continued against the legal representatives. Therefore, in terms of Section 159 the legal representatives get into the shoes of the deceased. They are bound by the admissions made and cannot retract the admissions made.

The Court further held that Shri H.R. Basavaraj has participated in the proceedings for almost one and half years and has even given his statement. In the statement he has volunteered that if on further scrutiny and examination any representation is required by him he is willing to make those representations and pay the enhanced taxes accordingly. The tenor of the statement would clearly indicate that there was no specific stand by him with regard to the quantum of the undisclosed income. Therefore, he has stated that he was willing to accept any such additions or alterations that were likely to be made by the Assessing officer. The entire reading of the statement would also indicate that he would honor the assessments made by the Assessing Officer. Therefore, he continued to stand by the admissions made by him. 

The Court further held that the legal representatives of the deceased assessee is a trust and not an individual. The trust being a beneficiary can, therefore, dispute only so far as the unadmitted portions are concerned and cannot contest the admitted amounts. However, they can still contend that even though admissions have been made, they are contrary to law. That in law, there is no liability to pay tax. However, that is not the case. The retractions are sought to be made not on questions of law, but on facts. On facts, there have bee admissions by the late Shri H.R. Basavaraj. It was he alone who was best suited to state on facts. The legal representatives of the deceased is a trust. It was, therefore not possible for the trust to retract statements of fact made by the deceased assessee. A retraction can be made only on error or law and not on facts. The Honorable High Court held the question of law in favor of the Revenue.