The All India Federation of Tax Practitioners (AIFTP) (West Zone) organized a virtual National tax conference where one of the subjects for discussion was,“Admission and Retraction in Income-tax survey and search, and relevancy of electronic evidence” The session was chaired by Dr. K. Shivaram, Senior Advocate, and the paper was presented by Advocate Narayan Jain, Kolkata. For the benefit of the tax professionals a brief summary is prepared by Advocate Shashi Bekal
The Introduction & Concluding remarks were presented by the Chairman, Dr. K. Shivaram, Senior Advocate, for the benefit of the readers, the same are consolidated and presented as under:
The Chairman stated that in 2018, AIFTP had published a publication titled “311 Frequently Asked Questions on Survey – Direct Taxes”, written by Mr. M. V. Purushottam Rao a well-known CA from Hyderabad, the said publication was dedicated to Late Justice Dr. B. P. Saraf former Chief Justice of Jammu and Kashmir High Court. It contains a separate Chapter on “Admission and Retraction” and, a separate chapter on “Rule of evidence”, discussing the Indian Evidence Act, 1872. Few copies of the same are available, those who desire can contact the office of the AIFTP. (Circular of CBDT F.No. 286/2/2003-IT (Inv) (2003) AIFTPJ -April P. 25, Letter NO. 286/98 /2013 -IT (Inv.II) dated 18-2-2014 (AIFTP Survey Publication P. 195)
Chairman discussed the few issues supported with case laws; the issues are as under:
1. Criminal Procedure Code, 1973
Section 132(13) of the Income tax Act, 1961 (Act) specifically says that the Provisions of Criminal Procedure, 1973, relating to searches and seizure shall apply, so far as may be to searches and seizure under sub-section (1) or sub-section (IA).
2. Trial by Media
Whenever a survey or search is conducted, if the assessee is a well-known person or industrialist, it goes without saying that the media trail will start, with respect to the amount of undisclosed income found etc., the topic will be up for debate and counter debate.
Chairman shared a classic example, in one of the matters where we had the occasion to contest before the Appellate Tribunal. The assessee was a builder and the issue involved was with respect to the allowability of deduction of payment made to clearing the illegal occupants in the premises which was purchased by the firm on an “as and where basis”. (Pranav Construction Co v. ACIT (1998) 61 TTJ 145 (Mum) (Trib) (dt 12 -11-1997)
A search took place in the business premises, an additional amount was disclosed under section 132 (4) of the Act amounting to Rs. 70 lakhs on the basis of the diary seized. In the said diary an amount of Rs. 20 lakhs were shown as protection money paid to two persons. In the course of assessment, it was found that the names referred in the diary were in a gang war hence they could not be produced before the Ld. Assessing Officer. Circumstantial evidences were available. The Tribunal held that the admission under section 132(4) of the Act cannot be read as an act of parliament. Only net income can be assessed as undisclosed income. Accordingly, the Tribunal allowed the expenses.
All the leading News-papers reported the decision giving sensational headings that the Tribunal allowed the payment made to goondas as protection money. One of paper wrote an editorial on the subject. The issue was a subject matter of debate in the Parliament. The then Finance Minister amended the law retrospectively vide Finance Act, 1998 w.e.f. April 1, 1962, by inserting an explanation to Section 37(1) of the Act stating that any expenditure incurred for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction shall be made in respect of such expenditure.
The Chairman stated because of media coverage the partners had to dissolve the firm.
This is an example of media Trial.
Chairman also referred the judgement of Hon’ble Supreme Court in the case of Rajendran Chingaravlelu (Mr) v. R. K. Mishra, Addl. CIT (2010) 320 ITR 1 (SC) (10) the observations are:
“There is a growing tendency among investigating officers (either police or other departments) to inform the media, even before the completion of investigation, that they have caught a criminal or an offender. Such crude attempts to claim credit for imaginary investigational breakthroughs should be curbed. Even where a suspect surrender or a person required for questioning voluntarily appears, it is not uncommon for the Investigating Officers to represent to the media that the person was arrested with much effort after considerable investigation or a chase. Similarly, when someone voluntarily declares the money he is carrying, media is informed that huge cash which was not declared was discovered by their vigilant investigations and thorough checking. Premature disclosures or ‘leakage’ to the media in a pending investigation will not only jeopardise and impede further investigation, but many a time, allow the real culprit to escape from law. Be that as it may.”
Chairman stated that in one of the Seminar organized by the AIFTP, speaking on the occasion Hon’ble Justice Mr. V. C. Daga then as a Judge of the Hon’ble Bombay High Court remarked that media Trail is very dangerous, it will spoil the reputation of a person, and their family has to undergo humility. It may so happen that ultimately the entire addition made on the basis of survey or Search may be deleted. The media will not report the final result as that is not “sensational news”.
3.Finance Act, 2020: Amendments
Chairman referred the one of the recent amendments made in section 133A of the Act by finance Act, 2020 is worth noting. Where appropriate approval requirement is placed in the statute for which prior approval from higher authority of Joint director or Director as the case may be, the same has to be obtained by survey conducting authority (with effect from 01.04.2020).
Further vide order under section 119 of the Act dated August 13, 2020, CBDT has prescribed that only officers posed in Directorate of investigation (investigation wing) and Commissionerate of TDS shall act as “income tax authority” for purposes of power of survey under section 133A of the Act and the competent authority for approval for such survey action shall be DGIT (Inv) for investigation wing and Pr. CCIT/CCIT(TDS) for TDS Charges, as the case may be. This is a welcoming reform. The CBDT has issued the circular NO F.NO 187 /3 2020 -ITA -1 dt 18-2 2020
4. Power of arrest
Chairman state that on several occassions the question is posed as to whether in the event the Assessee doesn’t give a declaration whether the Officials concerned can arrest the assessee. The answer is NO. He referred to the case of L.R. Gupta & Ors. v. UOI (1992) 194 ITR 32 (P&H)(HC)(55)
The Act Income-tax does not give any power to the Income-tax Department to arrest an individual. The department certainly has the power of recording the statement of a person in accordance with law. The petitioner could, therefore, be legitimately required to be present for the purpose of recording his statement. Once his statement was recorded there was no reason or justification for the officers of the department exercising jurisdiction which they did not possess, viz., preventing the petitioner from attending to his work. Ground Rules (1986) 159 ITR 1-4 (Journal)
Charter of Rights and duties of persons searched (1994) 208 ITR (st) 5-7.
Police men cannot be called by the tax officials in the course of survey, unless they feel there is disturbance or quarrel causing sever loss, protection can be taken to maintain peace and orderly situation.
Dr. Raja J. Chelliah tax reform committee (1992) 197 ITR 99 (134) (St)
Since the Income tax department does not have the power to arrest and the ground rules announced on the floor of Parliament in 1987, specially lay down that the income tax-authorities shall have no power to arrest, the general practice of the search party preventing an assessee whose premises are searched from leaving the building to attend to his work must be discontinued. After the person has made the statement he is required, he should be allowed to leave. There is no justification for amending section 132 of the Act as proposed in the Finance Bill,1992.
5.Accountability
Chairman stated that our Hon’ble Prime Minister also announced the tax payers charter which is a result of the newly introduced section 119A of the Act vide Finance Act, 2020.
The Chairman also referred The Hon’ble Bombay High Court in the case of CIT v. TCL Ltd. (2016) 241 Taxman 138 (Bom.)(HC) dated July 12, 2016 wherein the Honourable Court has passed a detailed order asking the Chief Commissioner of Income tax to host details of the matters admitted before the Bombay High Court, matters accepted by the Revenue, etc. online.
This was supposed to be made under the heading legal Corner. www.incometaxmumbai.gov.in The Court had directed the Registry to send a copy of the Judgement to the Chairman of CBDT and the Chief Commissioner of Mumbai. This would benefit the revenue more than the taxpayers. Though the assurance was given by filing an affidavit, however, no action seems to have been taken by the tax administrative authorities in this regard till date. Chairman is very positive that under the new regime of transparency, all these issues will be addressed.
6.Can survey be converted in to search?
A persistent failure on the part of the assessee to extend co-operation to the income tax authorities in the matter of survey may result in search and seizure.
In the case of Vinod Goel Advocate and Others v UOI (2001) 252 ITR 29 (P&H), where a survey ordered on the premises of the petitioner under section 133A of the Act, it was held that conversion of the said operation into search operation on the basis of authorisation given by additional Director cannot be declared illegal.
However, if the Assessee refuse to declare additional income, survey cannot be converted in to search.
In the case of Jignesh FarshubhaiKakkad vs. DIT (Inv) (2003) 264 ITR 87 (Gau) (HC), where the survey action was taken at the business premises and consequently search under section 132 of the Act was authorised at the residential premises, without recording independent reasons for the satisfaction, the search was declared illegal despite Rs. 4.5 lakhs in cash was having found during the search.
Chairman referred that in the case ofShyamJewellers and another v. CCIT (1992) 196 ITR 243 (All)(HC)the Court held that sealing of business premises cannot be done.
7. Recording of Search & Seizure or Survey proceedings
Chairman stated that whether recording of entire search or survey be permitted to be recorded by using modern technology is a question for debate. Chairman is of the view that if entire proceedings are allowed to be recorded it may help the assesses as well as the revenue. He has referred the following case laws where in the recorded conversation was considered as evidence.
Few Case laws have been referred; they are as under:
S. Pratap Singh v. The State of Punjab AIR 1964 SC 72Telephone conversation.
Yusufalli Esmail Nagree v. The State Of Maharashtra 1968 AIR 147(SC)
Tape recorded conversation
Ram Singh v. Col Ram Singh AIR 1986 SC 3 Tape recorded statement
Rama Reddy v. V.V. Giri AIR 1971 SC 1162Tape recorded statement
R.M. Malkani v. State of Maharashtra AIR 1973 SC 157 Tape recorded conversation
Z.B. Bukhari v. B.R. Mehra AIR 1975 SC 1788 Tape recorded speeches are documents as defined in section 3 of the Evidence Act
Naroda Patiya cases dt. 29-08-2012 (Special Court)Electronic magnetic tape devices can be termed as valid documentary evidence
Chairman was of the view that to bring transparency, an assesee should be permitted to request the department to record the search or survey proceedings, or at least when questions are put forth and answers are provided. Initially it may be optional and, in the years, to come it could be made a part of the proceedings. While deciding the case the Appellate Authorities can witness the video recording and can decide the matter.
8.Retraction of Statements can be divided in to two parts
On facts: e.g. suppression of sales, on money payment, on money receipts etc. genuineness of expenses excess cash found, or excess stock found, incriminating documents etc.
– One has to prove such statement was given under duress or inducement etc
– It has to be within reasonable time
– Retraction has to be authority which has conducted the survey or search
– Complaint to the higher authority with details
– Partial retraction can be made
– Then only retraction will be considered by the Courts or Appellate Tribunal.
In Sidhharth Shankar Roy v. Commissioner of Customs, Mumbai 2013 (291) ELT 244 (Tri.) (Mumai) (dt. 30 -8 2011)
-Retraction must be addressed to same officer to whom confessional statement was given.
Before making a retraction, one must get the copies of the statements recorded in the course of search or survey.
In the course of search there will be at least two statements and Panchanama
-Preliminary statement generally taken before the search begins. Eg. Number of bank lockers, bank accounts etc
– Final statement at the time of conclusion
– Panchanama which will contain the time of commencement of search, when search ended, any prohibitory order passed, the inventory of documents seized etc.
– Many a time the investigation wing calls the person searched and once again takes his statement or letter reaffirming the statement made in the courses of search proceedings.
Many a time when the matter comes before the Appellate Tribunal, when we ask the assessee show us the copies of the statements and Panchanama the same is not available with the assessee, though he retracted the statement by filing the affidavit.
Therefore, as soon as the statement is taken the assessee must make an application for furnishing the copies of statements, after getting the copies one must read carefully if there are any factual mistakes point out immediately to the concerned officials this will help for better representation before the appellate Authorities.
Many a time it is found that the Affidavit is prepared retracting the statement, but it is not filed before the authorities who have taken the statement, it was filed in the course of assessment proceedings after two years.
As per section 3 of the Indian Evidence Act,Affidavit is not included in the definition of “Evidence”. It is self-sworn statement. Therefore, court will not take cognisance, it may be considered as an afterthought.
Affidavit has to be statement on oath and as per the Oath Act, it has to be Administering the oath as per the language known to him.
9.Wrong affidavit
Chairman sated that in the case of Muthu Karuppan v. Parithi Ilamvazhuthi AIR 2011 SC 1645the court held that giving false evidence by filing false affidavit is an evil which must be effectively curbed with strong hands. Prosecution should be ordered when it is considered expedient in the interest of justice to punish the delinquent but there must be a prima facie case of deliberate falsehood.
10.Can a counsel or Chartered Accountant be present when the statement is taken?
In the case of Vijay Sajnani v. UOI 2017 (345) ELT 323 (SC)/MANU/SC/1312/2012, and Sangit Agarwal v. The Director General, Directorate of Revenue Intelligence and Ors. 2017 (356) E.L.T. 518 (Delhi.)(HC) the Court held that the authorities may permit the presence of Advocate during interrogation of Petitioner however he has to be within visible range but beyond hearing range and Advocate must be prepared to be present for every summons made.
11. Few cases
Retraction is held to be valid
CIT (LTU) v. Reliance Industries Ltd.(2020) 421 ITR 686 (Bom) (HC)Payment to consultant, statement made in the course of search was retracted. Disallowance is held to be not justified.
CIT v. Uttamchand Jain (2009) 182 Taxman 343 (Bom) (HC), following the supreme Court judgement in the case of Vinod Soloanki v UOI (2009) 92 SCL 157 held that the retracted confession can be relied upon only if there is an independent and cogent evidence to corroborate the confession
Without retraction
In CIT v. Rakesh Ramani (2018) 256 Taxman 299 / 168 DTR 356 (Bom.)(HC) held that merely on the basis that assessee in course of statement made under S. 132(4) had admitted that said jewelry belonged to him, could not be sustained, when in the course of assessment proceedings established that jewelry seized from him actually belonged to his employer . Affirming the order of the Tribunal the Court held that “There is no requirement in law that evidence in support of its case must be produced by assessee only at time when seizure has been made and not during assessment proceedings”.
12. Retraction law
For example, where the assessee entitle to certain deduction 80(IB) (10) of the Act. The asseee gives the statement that this is the undisclosed income under this project however we not claim the deduction. Such a statement is not binding. there is no estoppel against the law. One of the most important provisions of the Constitution of India is Article. 265, which provides that “No tax shall be levied or collected except by authority of law”. The collection of tax has to be also within the frame work of law. The Circular No. 14 (XL-35), dt. 11/04/1955. (Scope of circular is explained in the case ofDattatraya Gopal Sathe v. CIT (1984) 150 ITR 460 (Bom.)(HC) (463-464)
In CIT v. Mahalaxmi Sugar Mills Co. Ltd. (1986) 160 ITR 920 (928)
“There is a duty cast on the Income -tax Officer to apply the relevant provisions of the Indian Income-tax Act for the purpose of determining the true figure of the assessee’s taxable income and the consequential tax liability. That the assessee fails to claim the benefit of a set-off cannot relieve the Income -tax Officer of his duty to apply section 24 in an appropriate case”
Undisclosed income surrendered the assessee is entitle to deduction under section 80IA (4) of the Act
ACIT v. Mahalaxmi Infraprojects Ltd (2018) 63 ITR 671 (Pune) (Trib) followed Sheth Developers 25 taxmann .com 173 (Bom) (HC) 2012] 254 CTR 127 (Bom) (HC)
Disclosures – exemption – deductions
CIT v. S.K Singh & Bros (2008) 298 ITR 13 4 (Karn) (HC)
S. 40(b): Partnership- Remuneration- Additional income- Survey.
Where additional income declared during the course of survey action was found to be business income of the firm, the remuneration to the partners has to be allowed out of additional income.
Project completion method
CIT v. Happy Home Corporation. (2019) 414 ITR 524 (Guj.)(HC)
Editorial: SLP of revenue is dismissed CIT v. Happy Home Corporation (2019) 411 ITR 38 (ST) (SC).
Undisclosed income disclosed during the course of survey under section 133A of the Act, taxable in the year of completion of project
Issue for consideration
As per section 115BBE of the Act tax on income referred to in section 68, 69 or 69A, or section 69B or section 69C or 69D of the Act tax will be charged at 60 percent. No set off of any loss or any expenditure to be allowed.
Can revenue take the stand that the amount being undisclosed it will be taxed at 60 percent and no deduction which other-wise allowable as per the law is not allowable. if the assessee has only source of income being business income, it can be argued that based on the case laws referred above the exemption may be allowed. One may refer the latest judgement of Jaipur Tribunal on www.itatonline.org
13. Electronic Evidence
These days electronic evidence plays a very important for the assessment especially in the course of survey and Search
Section 81 of the Information Technology Act, Act to have overriding effect – The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force.
That means the Assessing Officer in the course of survey or search cannot take the information from laptop or computer without the consent of the parties concerned.
Indian Evidence Act,1872
S.65A. Special Provisions as to evidence relating to electronic record – The contents of electronic records may be proved in accordance with the provisions of section 6B
Section 65B: Admissibility of electronic records:
Arjun Panditrao Khotkar v. Kailash Kusahanrao Goryantal (MANU/SC/0521/2020 (SC), www.itatonline.org the Court held that, The certificate required under Section 65B(4) of the Indian Evidence Act, 1872 is a condition precedent to the admissibility of evidence by way of electronic record.
The Chairman referred the judgement of Mumbai Tribunal in ACIT v. Katrina Rosemary Turcotte (Katrina Kaif) (2017) 190 TTJ 681 (Mum) (Trib) wherein the Tribunal held that merely on the basis of seized documents in third party premises, additions cannot be made on estimation /extrapolation. Addition on the basis of seized document print out from Blackberry mobile was held to be not justified without following the due process of law i.e.the opportunity for cross examination of the person who has made entries in ethe electronic records etc.
14. Settlement Commission
Chairman stated that when there is survey or search, one can consider approaching the Settlement Commission. The advantages are waiver of penalties, immunities from prosecution, capitalisation of the amount disclosed and finality of entire assessment within a reasonable time.
Conclusion
Chairman also referred the judgement of Bombay High Court in Mohana Raj Nair (Smt.) v. CBI &Ors. Bombay High Court, Criminal WP No. 727 of 2012 dt 24-09 2013 (2013) 6 AIR Bom R 136/ 2013) SCC online Bom 1279 (Bom) (HC) wherein the CBI has started prosecution proceedings against an Advocate because she gave legal opinions on titles to immovable property. It is in the context of one such set of transactions, involving a group of constituents or borrowers from Indian Bank, that Mrs. Nair was accused of various criminal offences by the 1st Respondent, the Central Bureau of Investigation (CBI). Fortunately, the Honourable High Court quashed the proceedings against the Advocate. Chairman stated while giving certificate or opinion the advocate or Chartered Accountant may have to be take extra care so that tomorrow any notices comes from the Government agencies they must be in apposition to show the due care taken by them before giving an opinion or certificate.
Check list
In the publication of AIFTP, written by Mr. M. V. Purushottama Rao, Chartered Accountant at Page No 179, which is referred above there is a separate chapter on precautions on Pre-Survey, During Survey and Post survey. which can be followed, few of them are as under:
1. When a statement on oath is taken in the course of assessment or survey or search proceedings, it is not advisable for a chartered accountant or a Tax consultant to sign as witness.
2. As soon as the statement is recorded, in the course of search or survey the assessee must make an application to the authority concerned to furnish the copy of the statement recorded.
3. If third party’s statement is relied on by the Assessing Officer, an application may be made to furnish the copy of the statement and also an opportunity of cross examination.
4. Application may be made at the earliest to provide for copies of documents, impounded, seized, papers, books of account as well as electronic data.
5. If the assessee is not well conversant with the English language the assessee may request the authority concerned to take the statement in the language which he understands or ask the authority concerned to explain in the language which the deponent understands, before signing the statement on oath.
6. Retraction of statement must be done within reasonable time.
The Learned Speaker Mr. Narayan Jain, Advocate’s lecture can be divided into two parts:
I. Admission and Retraction of Statement in Survey & Search Cases
II. Relevance of Digital Evidence
Part I: Admission and Retraction of Statement in Survey & Search Cases
The speaker addressed the following issues:
1. Cases on Issue of search authorization
2. Recording Statement under Section 132(4) and Presumption under sec. 292C
3. CBDT Instruction dated March 23, 2003
4. Admissions
5. Admissions are not conclusive proof
6. Retraction of Statement
7. Decisions where Retraction of Statement was held VALID
8. Retraction partly accepted
9. Leakage to media will jeopardize investigation, such tendency should be curbed
10. Decisions where Retraction of Statement was NOT ACCEPTED
11. Relevant Points in case a Statement is RETRACTED
12. Mode and Manner of Retraction
13. Burden of Proof lies on the assessee
14. Case laws about head of income under which disclosed income to be considered
15. No Power of confinement/ arrest
16. Deductions permitted from undisclosed income declared by assessee
17. Officers posted in Directorates of Investigation (Investigation Wing) and Commissionerate’s of TDS, only and exclusively shall act as Income-tax Authority for the purposes of power of survey under section 133A and the survey action has to be resorted to only as a last resort.
18. Whether survey be converted into search
19. Sealing of business premises
20. Recording of Telephone conversation/ Statements
Part II: Relevance of Digital Evidence
The speaker addressed the following issues:
1. What is Digital Evidence? And the Relevance of Digital Evidence for the purpose of Income Tax
2. What are Digital Devices
3. Digital Forensics and its significance
4. Branch of Digital Forensics and its Key Elements
5. What Cyber Forensics can reveal to Income Tax Department
6. Digital evidence vis-à-vis the Information Technology Act, 2020
7. The sanctity and relevance of Digital Evidence
8. Importance of standard procedures to deal with Digital Evidences
9. Search and seizure of Physical Evidence vis a vis Digital Evidence
10. Recoding of Statement regarding digital evidence
11. Case laws on admissibility of digital evidence
A plethora of judgements were discussed by the learned speaker on every point of discussion. The Chairman stated that Mr. Narayan Jain, the speaker has referred various case laws on retraction, each case has to be considered on facts, there is no universal law on retraction admission etc. In the case CIT v. Sun Engineering Works (P) Ltd (1992) 198 ITR 297 (SC) the Court held that the judgements to be read in the context in which it was delivered It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this Court, divorced from the context of the question under consideration and treat it to be the complete ‘law’ declared by this Court.
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