TMI Blog2006 (4) TMI 239X X X X Extracts X X X X X X X X Extracts X X X X ..... e appeal preferred by the assessee before the CIT(A) was dismissed vide order dt. 28th Feb., 2001. 3. In the present appeal, the appellant has challenged the taxability of Rs. 3,02,46,840 as income of the appellant from undisclosed sources. The appellant's submissions in respect thereof are as under: 1. That the lower authorities have erred in including alleged income of Rs. 3,02,46,840 in the total income of the appellant. 2. That the sum of Rs. 3,02,46,840 is not income of the appellant at all 3. That the sum of Rs. 3,02,46,840 has neither accrued nor arisen nor received by the appellant and hence the inclusion of such sum in the total income is wrong. 4. That the lower authorities have erred in determining the alleged income of Rs. 3,02,46,840 without any evidence, materials and, therefore, such determination is perverse in law. 5. That no income could accrue, arise or considered to be received on mere admission by an assessee. 6. That the appellant alleged admission of certain income related to the floppies (seized from another person) cannot clothe the IT authorities with jurisdiction to determine any income in those circumstances; therefore, the inclusion of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were seized from the residence of Shri Anil Jain. On the same date, statement of the appellant was recorded by the Enforcement Directorate. In the year 1996, the appellant was facing prosecution in number of cases in connection with search carried out in the year 1991 at the residence of one Shri J.K. Jain, an employee of BEC Impex International (P) Ltd. In addition to the aforesaid, Shri S.K. Jain was also facing prosecution in various complaints filed under s. 56 of FERA, 1973, by the Enforcement Directorate. Four such complaints were filed during the period January, 1996 to August, 1996. One complaint each was filed on 25th April, 1996, 20th June, 1996, 11th July, 1996 and 17th Aug., 1996. It will not be out of context to mention that s. 56(I)(i) of FERA provides for punishment with imprisonment which shall not be less than 6 months but which may extend to 7 years and with fine. Above all, the appellant's income-tax proceedings for the asst. yrs. 1988-89 to 1992-93 were also finalized in the year 1996. The Dy. CIT, Spl. Range, Bhilai, completed the assessments under s. 143(3) r/w s. 147 of the Act as under: ----------------------------------------- Asst. yr. Date of order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant merely to buy peace and to avoid entering into litigation and without admitting that the seized floppies belonged to the appellant and/or the transactions recorded therein related to the appellant. The fact that the appellant merely offered, without admitting/surrendering any income in the return of income, is clearly evident from the caveats/conditions given in the note attached with the return of income. The learned counsel elaborately perused the said notes reproduced in extenso hereinbelow: "Notes: 1. The Enforcement Directorate seized three computer floppies from the residence of Sh. Anil Jain, 118, New Friends Colony, New Delhi, on 15th Jan., 1996. 2. The copies of the above said floppies have not been provided to the assessee by the Enforcement Directorate. 3. To the best of memory of the assessee, the abovesaid floppies may contain certain data indicating some money transactions. The assessee may not be able to adduce evidence regarding such transactions to the satisfaction of the IT Department. 4. A perusal of such data by anyone would show that those do not relate to any income of any nature. 5. The Revenue may require evidences in the nature of st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onse thereto the appellant, vide letter dt. 27th Feb., 1998, reiterated the offer made in the return of income. In the assessment proceedings, the AO, however, sought to assess substantial income, much beyond the offer made by the appellant in the return of income, as 'undisclosed income' of the appellant. At this stage, the appellant realized that the Department is again prejudiced and hell-bent to make an exaggerated, high-pitched assessment in respect of non-existent income, by taking advantage of the appellant's offer of Rs. 1 crore. It was clear at that stage that the AO had totally disregarded the conditions attached to the offer and was proceeding on presumptions that (a) the floppies belonged to the appellant, (b) the transactions in the floppies represent income of the appellant. The appellant thus vide letter dt. 8th Feb., 1999, withdrew its offer as made in the return of income and categorically submitted that on the basis of the seized floppies and the contents therein no income was taxable in the hands of the appellant. The appellant categorically submitted that the floppies do not pertain/relate to the appellant. The reply so made vide letter dt. 8th Feb., 1999 reads ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tural corollary of money should also be considered as such sum available with the Department for the recovery of the demand. This submission is being made to demonstrate the erroneous conclusion of the Department linking the recordings in the floppies to the assessee. When some recordings appear on the Department side of the recordings of the floppy and there are recordings on the credit side of the same record, then assuming, while denying, those recordings represent money transactions, pertaining to the assessee, the sums as per such recordings available at any one time on peak basis can alone be the sum available to the person. This position has been held in the case of S. Kuppuswamy Mudaliar vs. CIT (1964) : 51 ITR 757 (Mad). In view of the above, proposal to assess any income on the basis of floppies is wrong. The income of rupees one crore admitted erroneously in the return may be deleted, as it has neither accrued nor received by the assessee." 4.3 In the impugned assessment, the AO, however, assuming the assessee's conditional offer in the return of income as an unqualified/unconditional surrender/admission of the appellant, despite the aforesaid letter withdrawing su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... note, which is emphasized, clearly indicates that the appellant merely offered on being assessed at an undisclosed income of Rs. 1 crore to buy peace and to avoid litigation. This is particularly evident from para 6 of the note. In para 7, the appellant had categorically reiterated/emphasized that the appellant does not admit any income and the position/offer made by the appellant in the return is only to buy peace, etc. 5.3 Despite the aforesaid caveats in the note attached to the return of income, the conditional/qualified offer made by the appellant was presumed/treated as surrender/admission on the part of the appellant, which was not so. The appellant fails to appreciate as to how the appellant's offer in the return, which was merely to buy peace under the prevailing circumstances during that period, as elaborated hereinabove, could be regarded as a surrender/admissions of the appellant. 5.4 Even further, it is submitted that assuming without admitting, that the note attached with the return of income was in the nature of admission/surrender on the part of the appellant, it could not have been the sole basis of assessment of huge 'undisclosed income'. That too, particular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment should not place the assessee in a more disadvantageous position than in what he would have been if a fresh assessment was made. In a case where an assessee chooses to deposit byway of abundant caution advance tax or self-assessment tax which is in excess of his liability on the basis of the return furnished or there is any arithmetical error or inaccuracy, it is open to him to claim refund of the excess tax paid in the course of the assessment proceedings. He can certainly make such a claim also before the concerned authority calculating the refund. Similarly, if he has by mistake or inadvertence or on account of ignorance, included in his income any amount which is exempted from payment of income-tax, or is not income within the contemplation of law, he may likewise bring this to the notice of the assessing authority, which if satisfied, may grant him relief and refund the tax paid in excess, if any. Such matters can be brought to the notice of the concerned authority in a case when refund is due and payable, and the authority concerned, on being satisfied, shall grant appropriate relief." The underlying principle that emerges from the aforesaid decision of the Supre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tisfy that a particular income was not taxable in his hands and it was returned under an erroneous impression of law in the return of income. Federal Bank Ltd. vs. State of Kerala (1995) 124 CTR (Ker) 355 : AIR 1995 Ker 62: Held that an admission is no doubt a relevant piece of evidence, but it is never conclusive. It is all the moreso in the matter of an assessment to tax which has to conform to Art. 265 of the Constitution of India. So far as an assessment to tax is concerned, it is open to the assessee who made an admission to show that it is incorrect. If he puts forward such a plea, he should be given an opportunity to show that it is so. The assessee could even plead his mistake in the return in appeal, however, the validity of such a contention raised in appeal might lose its force if not raised at the earlier points despite opportunity. In this case the assessee resiled from the capital value of the building as stated in the return before assessing authority and claimed that the capital value was something else. Their Lordships also observed that the authority was wrong in adopting a short-cut without applying its mind. The Court followed the decision of the Supreme Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the position wrongly taken in the return of income and the Court upheld the assessee's right to do so. Reference in this regard was also made to the following decisions wherein the income offered for taxation in the return and assessed on that basis was subsequently challenged in appeals and the Courts upheld the assessee's right to do so. 5.8 In the case of National Thermal Power Ltd. vs. CIT (1999) 157 CTR (SC) 249 : (1998) 229 ITR 383 (SC), the assessee offered for tax interest income and the same was assessed by the AO. Before the Tribunal, the assessee, for the first time, raised an additional ground challenging the assessment of such income. Upholding the right of the assessee, on p. 386, their Lordships observed as under: "The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, we do not see any reason why the assessee should be prevented from raising that question before the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... based on material and such assessment cannot be done merely on the basis of admission, without there being corroborative evidence/material on record: "In Dy. CIT vs. Ratan Corporation (2005) 197 CTR (Guj) 536, the Tribunal deleted the addition made on the basis of statement in light of retraction. The Court upheld the order of the Tribunal and observed that it was the duty of the AO to make further enquiry. Smt. Ranjnaben Mansukhla1 Shah vs. Asstt. CIT (2004) 83 TTJ (Rjt) 369: Held that additions made only on the basis of disclosure statement normally should not be confirmed in the absence of corroboration. In the eyes of law, the general rule of practice is that it is unsafe to rely upon a confession only without any corroboration. Ashok Manilal Thakkar vs. Asstt. CIT (2006) 99 TTJ (Ahd) 1262 : (2005) 97 ITD 361 (Ahd): The Tribunal held that lawful assessment cannot be made solely based on statement particularly when assessee had made retraction." The decision of the Supreme Court in the case of Surjeet Singh Chhabra 1997 (89) ELT 646, relied upon by the CIT(A), is not applicable in the present case. In that case SLP was filed by the petitioner before the Supreme Court ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pectful submission of the appellant that there can be no dispute with the following propositions of law: (a) An assessment of income under the Act has to conform to the provisions of the Act. There can be no assessment of a non-existent income or an income which is not taxable under the provisions of the Act. (b) The assessment of income has to be made on the basis of material/evidence and not de hors the material/evidence available on record. (c) There can be no assessment of income merely on the basis of admission/ surrender of the assessee (d) An assessee having made an admission/surrender of income on an erroneous impression of the fact and/or the position in law is entitled to resile/retract from the said admission/surrender. Once the admission/surrender is retracted by the assessee, the surrender/admission looses its evidentiary value; (e) The evidentiary value of admission/surrender has to be seen in the light of the prevailing facts and circumstances when the surrender was made. the conditions/stipulations/caveats, if any, attached with the surrender/admission. 5.14 Considered in the light of the aforesaid, it is vehemently reiterated that the AO proceeded entir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment solely on the basis of such surrender/admission despite the fact that the appellant resiled/retracted from such qualified/conditional surrender/admission made in the return of income. 5.17 The AO completed the assessment in the hands of the appellant solely on the basis of the so-called surrender/admission on the part of the appellant de hors any material/evidence of record to establish any undisclosed income in the hands of the appellant. The facts being relied upon by the AO, in fact, support the case of the appellant that the seized floppies did not belong to the appellant. The following facts make it evidently clear that the additions were made in the hands of the appellant purely as a matter of convenience, which is not permissible in law: (a) In the trial balance prepared by the AO on the basis of floppy 'Z', there is an account titled 'SKJ (interest)' on the credit side. The AO failed to appreciate that if floppy 'Z' was to belong to the appellant, how could there be an entry of receipt of interest from the appellant himself. It is a basic principle that there cannot be entry in respect of receipt of interest in the books of a person from self. This fact in itself c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO, in the present case, has rightly treated the conditional otter of the assessee as surrender by the assessee. In the assessment order, the learned AO has correctly proceeded on an assumption that the assessee had admitted. the ownership of the seized floppies before the FERA authorities. The copies of the printouts of the floppies as received from the Enforcement Department were made available to the assessee and an opportunity was also provided to the assessee to revise his estimate of income from other sources on perusal of the transactions as noted in the printouts. On receipt of the reply from the assessee, copies of tentative trial balances prepared by the AO on the basis of the entries in the computer floppies were given to the assessee for his comment as to why the same should not be considered as the basis for making assessment. He submitted that this time, the assessee made a complete turn around and replied that the income of Rs. 1 crore admitted erroneously in the return be deleted as it had neither accrued to nor received by him. 6.1 He submitted that the income-tax and wealth-tax records of the assessee indicate that in some earlier years there had been searc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee. 6.2 He submitted that the contentions of the learned counsel for the assessee are devoid of substance. The assessee made voluntary disclosure to the extent of Rs. 1 crore exclusively with reference to the three floppies seized by the Enforcement Directorate on 15th Jan., 1996 knowing fully well that the transactions recorded in those floppies relate to the assessee himself. He submitted that the assessee did not come clear and rendered no co-operation at all to the AO to find out the true nature of the transactions, the source of the same, the name and addresses and other particulars of the persons and concerns whose names are appearing in initials and codes and thereby made the voluntary disclosure of Rs. 1 crore practically unrealistic and unreliable with reference to the transactions recorded in the computer floppies. 6.3 He submitted that the assessee has not stated anything as to how the disclosed sum of Rs. 1 crore was arrived at and thus kept the AO in complete dark. Regarding the contention of the assessee that the AO has taken the total of the credit balances as per the trial balances but ignored the debit balances altogether, he submitted that the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 40 as income of the appellant from 'undisclosed sources'. On a perusal of the income-tax assessment order passed by the AO, it is seen that the AO has proceeded to assess the above income in the hands of the assessee on the basis of certain floppies seized from the residence of Shri Anil Jain by FERA authorities. The offer made by the appellant to bring to tax a sum of Rs. 1 crore of income in the return has been treated as a voluntary surrender of income. Further, the AO further proceeded on the basis that the assessee had accepted the ownership of the seized floppies before the FERA authorities. 7.2 Before us, the learned counsel for the assessee vehemently challenged the aforesaid action of the AO. It was contended by the learned counsel that the AO proceeded on an entirely erroneous basis that the assessee had surrendered/admitted certain income in the return of income. It was also contended that the assessee has, at no point of time, admitted ownership of the floppies seized from Shri Anil Jain before the FERA authorities. In support of the contentions, our attention was drawn to the facts that the return of income was filed by the assessee on 2nd Sept., 1996. In the return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing has only been done as a matter of caution, on the basis of some scanty details made available to the assessee. This may have to be revised, modified, downgraded, upgraded upon the availability of the entire perfect data. The Revenue may assist the assessee in this regard. 9. The income of Rs. 1,00,00,000 (Rs. one crore only) shown under the head income from other sources is offered to cover such transactions. The income has been estimated on the basis of memory at a figure which would be maximum amount discernible at any particular point of time. 10. Advance tax on this amount has already been deposited by the assessee. 11. Any figure of income as may be arrived at by the IT Department out of 'such' transactions may be considered as the income offered by the assessee in this return of income, in the circumstances the assessee is presently placed. 12. The above income is offered subject to 'no penalty' or 'prosecution' proceedings being initiated against the assessee." On a careful perusal of the aforesaid note, we find substance and merit in the contentions of the learned counsel for the assessee. The aforesaid note clearly reveals that the offer made by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cally invited, in this regard, to the letter dt. 8th Feb., 1999 filed by the assessee during the assessment proceedings. The contents of the letter read as under: "The assessee has received the above referred notice for the asst. yr. 1996-97. On the basis of the floppies seized from the residence of one Shri Anil Jain of Friends Colony, New Delhi, by the Enforcement Directorate on 15th Jan., 1996, certain inferences are being attempted. The assessee, in order to buy peace, was offering to pay tax on an income of rupees one crore. Though the aforesaid admission has been made, there is no iota of evidence to link the writings in the floppies pertaining to or relating to the assessee. The offer of income has also been done to buy peace in such difficult circumstances. The recordings in the floppies do not represent any income at all. The assessee's sources are limited, namely, income from salary, notional income under s. 22 and income from other sources. The other income is from agriculture. The recordings in the floppies cannot be attributed to the assessee by way of income transactions as there are no evidences or materials on that record. The income can be assumed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntention of the assessee that the original conditional/qualified offer made by the assessee in the return was no longer valid once the assessee filed the aforesaid letter during the course of the assessment proceedings. The fact that the assessee withdrew its original offer is also borne out from the assessment order wherein the AO has noted that the assessee, during the assessment proceedings, made a complete turn around by filing the above letter dt. 8th Feb., 1999. 7.8 The AO, it appears, did not consider the above to be relevant in view of the fact that the assessee, according to the officer, had admitted the ownership of the seized floppies and had made a voluntary surrender in the return of income. Therefore, the basis of the AO's finding that the above letter was irrelevant, is incorrect. 7.9 On the basis of the aforesaid, even assuming that there was a surrender/admission by the assessee in the return, there was, in our view, a valid retraction therefrom during the assessment proceedings. It is trite law that an admission, once retracted, loses its evidentiary value. The following judicial precedents, relied upon by the assessee, clearly support the contention that an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat he would have been if a fresh assessment was made. In a case where an assessee chooses to deposit by way of abundant caution advance tax or self-assessment tax which is in excess of his liability on the basis of the return furnished or there is any arithmetical error or inaccuracy, it is open to him to claim refund of the excess tax paid in the course of the assessment proceeding. He can certainly make such a claim also before the concerned authority calculating the refund. Similarly, if he has by mistake or inadvertence or on account of ignorance, included in his income any amount which is exempted from payment of income-tax, or is not income within the contemplation of law, he may likewise bring this to the notice of the assessing authority, which, if satisfied, may grant him relief and refund the tax paid in excess, if any. Such matters can be brought to the notice of the concerned authority in a case when refund is due and payable, and the authority concerned, on being satisfied, shall grant appropriate relief." The view taken by us is also supported by the decision of this Tribunal in the case of Dy. CIT vs. Sanmukhdas Wadhwani (2003) 80 TTJ (Nag) 648 : (2003) 85 ITD 734 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de by the AO. From the facts and documents placed before us we find no material to hold that the floppies belong to the assessee. 7.16 We may also mention that before us, the learned counsel for the assessee also highlighted certain instances which clearly reveal that the data contained in the seized floppies could not be attributed to the assessee. One such important fact which was highlighted before us was the account titled "SKJ (interest)" appearing on the credit side of the trial balance prepared by the AO based on the contents of the floppies. The code "SKJ" was decoded as the name of the assessee by the AO in the assessment order. The learned counsel for the assessee rightly pointed out if the floppies were that of the assessee there could not have been an entry of receipt of interest (credit in the trial balance) in the assessee's name. It is basic principle of accountancy that there cannot be an entry in respect of receipt of interest in the books of a person from self. Other instances were also highlighted before us to point out that the seized floppies could not be held to be that of the assessee. 7.17 The aforesaid facts considered in the light of the legal position ..... X X X X Extracts X X X X X X X X Extracts X X X X
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