Admission and Retraction of Statement under Search

Statement under search is recorded under section 132(4A)

Section 132(4): The authorised officer may, during the course of the search or seizure, examine on oath any person who is found to be in possession or control of any books of account, documents, money, bullion, jewellery or other valuable article or thing and any statement made by such person during such examination may thereafter be used in evidence in any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act.
Explanation. —For the removal of doubts, it is hereby declared that the examination of any person under this sub-section may be not merely in respect of any books of account, other documents or assets found as a result of the search, but also in respect of all matters relevant for the purposes of any investigation connected with any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act.

Analysis of Section 132(4)

The provisions of section 132(4) provides that statement under section 132(4) may be used in evidence. That means the discretion is vested with Assessing Officer, to use it as evidence. It is not incumbent on him to make addition solely on the basis of such statement. Even otherwise, in our opinion, mere admission, without any corroboration, is not enough for making addition.

The Explanation to sub-section (4) was introduced by Finance Act, 1987 with effect from 1-4-1989 and is clarificatory in nature because it starts with “for removal of doubts”. It provides that examination of any persons may be not merely in respect of any books of account, other documents or assets found as a result of the search, but also on any related matters. Sub-section (4) is not confined to examination of any person in respect of money, bullion, jewellery or assets. Sub-section itself quotes that if a person is found to be in possession of any document, books of account, money, bullion or other valuable article or thing. Therefore, it is incorrect to suggest that examination of a person and recording of his statement under section 132(4) will be confined to merely to assets found in the search and not in respect of books of account or documents found therein. Thus, the assessee can always declare undisclosed income found as a result of documents found/seized by the officers during the course of search
The explanation to Section 132(4) of the Act conveys that the assessing officer can rely upon the statement obtained under section 132(4) as a piece of evidence, but not as the sole basis for imposing additional financial liability upon an assessee either in the form of denial of benefits which an assessee is otherwise entitled to, or subjecting him to prosecution. To be more precise, if there exists any other supportive material, the statement recorded under Section 132(4) can certainly be taken aid of. Conversely, in the absence of other supporting material, a statement of that nature cannot constitute the basis to burden an assessee.

In case of Gajjam Chinna Yellappa v Income Tax Officer [2015] (Andhra Pradesh and Telangana) wherein the Hon’ble high court held as under:
If the statement is not retracted, the same can constitute the sole basis for the authorities to pass an order of assessment. However, if it is retracted by the person from whom it was recorded, totally different considerations altogether, ensue. The situation resembles the one, which arises on retraction from the statement recorded under section 164 of the Code of Criminal Procedure. The evidentiary value of a retracted statement becomes diluted and it loses the strength, to stand on its own. Once the statement is retracted, the assessing authority has to garner some support, to the statement for passing an order of assessment.

3. CBDT vide Notification No. 286/2/2003 had also discouraged attempts to obtain forced confession of additional income during the course of search and seizure and survey operations which are not based on credible evidence.
CBDT in F. No. 286/2/2003-IT (Inv.) dated 10.03.2003

Subject: Confession of additional Income during the course of search & seizure and survey operation-regarding

Instances have come to the notice of the Board where assessees have claimed that they have been forced to confess the undisclosed income during the course of the search & seizure and survey operations. Such confessions, if not based upon credible evidence, are later retracted by the concerned assessees while filing returns of income. In these circumstances, on confessions during the course of search & seizure and survey operations do not serve any useful purpose. It is, therefore, advised that there should be focus and concentration 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 Departments. Similarly, while recording statement during the course of search it seizures and survey operations no attempt should be made to obtain confession as to the undisclosed income. Any action on the contrary shall be viewed adversely.

Further, in respect of pending assessment proceedings also, assessing officers should rely upon the evidences/materials gathered during the course of search/survey operations or thereafter while framing the relevant assessment orders.

4. Recommendation in final Report Para 3.27 of Task Force on Direct Taxes Chaired by Dr. Vijay Kelkar

• The CBDT must issue immediate instruction to the effect that no raiding party should obtain any surrender whatsoever.

• Where, a taxpayer desire to voluntarily make a disclosure, he should be advised to make so after the search.

• All cases where surrender is obtained during the course of the search in violation of the instruction of the CBDT, the leader of the raiding party be subjected to vigilance enquiry.

• All statements recorded during the search should be Video recorded.

5. Importance of Admission as Evidence under other Acts
In the celebrated book titled ‘Administrative Law’ by Sir William Wade (eighth edition by Wade and Forsyth-Oxford University Press), the legal position has been explained at p. 242 as under:

“The basic principle of estoppel is that a person who by some statement or representation of fact causes another to act to his detriment in reliance on the truth of it is not allowed to deny it later, even though it is wrong. Justice here prevails over truth. Estoppel is often described as a rule of evidence, but more correctly it is a principle of law. As a principle of common law it applies only to representations about past or present facts”.

In Evidence Act also, it is clearly laid down in section 115 thereof, that when one person has by his declaration or act or omission, intentionally caused or permitted another person to believe a thing to be true and to act upon such belief, neither he nor his representative shall be allowed, in any suit or proceeding between himself and such person or his representative to deny the truth of that thing. Section 115 of the Evidence Act also incorporates a statutory principle of common law that a person alleging contradictory facts should not be heard.

It is undisputed fact that the statement recorded u/s 132(4) of the Act has a better evidentiary value but it is also a settled position of law that the addition cannot be sustained merely on the basis of the statement. There has to be some material corroborating the contents of the statement

6. Retraction of Statement under Income Tax Act

A statement given under section 132(4) may be retracted depending on the facts and circumstances of the case. It is settled law that the statement recorded during the course of search including confession may be a best piece of evidence, but that by itself would not be conclusive evidence unless such statement is further supported by evidence in the form of incriminating material found during the course of search.

The statement recorded under Section 132(4) by the officer as well as the documents seized would come within the purview of evidence under the Income-tax Act read with Section 3 of the Evidence Act. The necessary corollary is that such an evidence should be admissible for the purpose of search assessments too.

However, it is pertinent to mention that statement recorded on oath u/s 132(4) of the act is significant both from the point of view department as well as the assessee who is subjected to search. From the departmental point of view, such a statement enables the department to bring on surface the tax evasion, to examine the nature of incriminating documents, assets etc. found during the course of search and record the assessee’s version with the regard to the contents of such incriminating documents and assets, its source, mode and manner of earning/application and its accountability in the books of accounts whether disclosed or not. Such a statement recorded on oath carries a significant evidentiary value which may be used by the Assessing Officer during the course of assessment proceedings as a corroborative evidence along with documentary evidences material unearthed during the course of search and seizure action.

The statements made u/s 132(4) can be retracted if the maker contends that earlier admissions:

(i) were untrue; or
(ii) were on a mistaken understanding, misconception; or
(iii) were not voluntary; or
(iv) were under mental stress, undue influence, pressure

7. Judicial Pronouncements on retraction of admission in Late Hours

The Hon’ble Gujarat High Court in the case of Kailashben Mangarlal Chokshi v CIT reported in 220 CTR 1381147 para 26 (Guj) held that merely on the basis of admission the assessee could not have been subjected to such additions unless and until, some corroborative evidence is found in support of such admission. We are also of the view that from the statement recorded at such odd hours cannot be considered to be a voluntary statement, if it is subsequently retracted and necessary evidence is led contrary to such admission. Hence, there is no reason not to disbelieve the retraction made by the A 0 and explanation duly supported by the evidence. We are, therefore, of the view that the Tribunal was not justified in making addition of ₹ 6 lakhs on the basis of statement recorded by the AO under section 132(4) of the Act.

8. Retraction of statement against which no corroborative evidence is found

1. ACIT(1) v Sudeep Maheshwari in ITA No.524/IND/2013 vide order dated 13.02.2019

The Hon’ble Indore Tribunal held in para 6 of its judgement that during the course of the search and seizure no incriminating material or undisclosed income or investments were found. Under the mental pressure the assessee declared 3 crores but retracted from the admission. It is a settled position of law that the addition cannot be sustained merely on the basis of the statement. There has to be some material corroborating contents of the statements. The A.O. failed to correlate the disclosure made in the statement with the incriminating material gathered during the search. Therefore, no addition can be made on this account

In CIT v Uttamchand Jain [2009] reported in 320 ITR 554 (Bombay), wherein the facts of the said case are that the assessee therein claimed to have been sold the jewellery declared under the VDIS to a proprietary concern. The Income Tax authority conducted a survey at the business premises of said proprietary concern. A confession was made by the said proprietary concern stating it was not doing actual business of trading and manufacturing of diamonds and the transactions reflected in its books of accounts were merely accommodation entries given to various VDIS declarants. Basing on such statement the assessment of assessee was reopened. During the course of reassessment proceedings, the said proprietary concern made a statement on oath confirming the purchase of diamonds from the assessee retracting the earlier confession made, in spite of which the AO made addition, the Tribunal deleted the said addition. The Hon’ble High Court of Bombay taking support from the decision of Hon’ble Supreme Court in the case of Vinod Solanki reported in (2008) 16 scale 31 held the retraction confession can be relied upon only if there is independent and cogent evidence to corroborate the statement. Therefore, the High Court upheld the decision of the Tribunal in deleting impugned addition.

CIT v K. Bhuvanendra & Others reported at 303 ITR 235

The Court held that admittedly, no material was found during the course of search operation. Also, the statement recorded from the assessee was subsequently retracted and rebutted. The registered sale deed does not show any payment more than above what was disclosed. In the absence of any material, in our opinion, there cannot be any addition as undisclosed income. During the statement recorded during the search, the assessee admitted to payment of on-money for purchasing a property. However, the statement was subsequently retracted.

Addition was however, made by the AO on the basis of the statement.
The Court observed that no material was found during the course of search to indicate transaction of on-money, that the statement recorded from the assessee was subsequently retracted and rebutted and that the registered sale deed did not show any payment more than what was disclosed.

The Court further held that addition could not be made on the basis of the statement when it was not relatable to seized material and where the Revenue had not brought on record any material to show that on-money had been paid
Retraction of statement given under coercion and mistaken of belief

The Hon’ble Gujarat High Court in the case of S.R. Koshti v CIT 1276 ITR 165] relying upon various judgements have held that if an assessee under a mistake, misconception or on not being properly instructed is over assessed, the authorities under the Act, are required to assist him and ensured that only legitimate taxes due are collected.

ACIT v Jorawar Singh M. Rathod (2005) TTJ 094, 867, ITAT AHMEDABAD
In this case the Assessing Officer made an addition to assessee’s income on basis of statement of assessee recorded under section 132(4) at time of search. Assessee stated that during course of recording statement, he was under constant threat of penalty and prosecution and was confused about various questions asked by search party about documents, papers, etc, of other persons found from his premises and he had declared sum under pressure which was evident from fact that no such corroborative evidence, asset or valuables were found in form of immovable or movable properties from his residence. The Tribunal held that it is true that simple denial cannot be considered as a denial in the eyes of law but at the same time it is also to be seen that whether the material and valuables and other assets are found at the time of search. The evidence ought to have been collected by the revenue during the search in support of the disclosure statement.

In Jyotichand Bhaichand Saraf & Sons (P.) Ltd. v Deputy Commissioner of Income-tax, Circle 11(1) (ITAT Pune) [2012] 139 ITD 10 (Pune), the Hon’ble Tribunal observed that a search and seizure action was taken under section 132. During the course of search action, statement of the Director of the assessee was recorded under section 132(4) on 06.11.2001. The assessee was given copies of the statement recorded under section 132(4) of the I.T. Act, 1961 on 20th May 2002. On receipt of the copy of the statement the assessee realized that there was a mistake in the declaration of income. The assessee submitted a letter clarifying the mistake on 21st June 2002 to the Assessing Officer and retracted the statement made under mistake of fact. The assessment order was accordingly issued and was set aside by the CIT under section 263 stating that the same was prejudicial to the interest of the revenue and was made by the assessing officer without application of mind.
On appeal, the Learned ITAT held that the department has not brought on record any corroborative evidence so as to establish undisclosed income having been invested in agricultural land. Statement of the assessee cannot be sole basis of addition without any cogent and corroborative evidence. Also, the mistake in the statement is immediately clarified on the receipt of the statement by the director. Moreover, no material/evidence was found during the course of search action indicating on-money payment or any undisclosed investment in agricultural land at Malad. The assessee has clarified the mistake in the statement immediately on receipt of the statement. Thus, the statement has been retracted on realization of the mistake. The assessee has also submitted valuation report of agricultural land (along with sale instance) which certified the Fair Market Value at Rs. 34,46,667/- for the year 2001 when the agricultural lands under consideration were acquired (2000). The assessee has acquired the said land for the consideration of Rs.34,51,575/- as indicated above. The Assessing Officer as well as CIT(A) have brushed aside valuation report submitted by assessee as well as details of purchase of agricultural land at Malad by various family members as detailed above. Such factual retraction should not be brushed aside without verifying the facts and circumstances of same. Thus, the addition in question is not justified and the case is decided in favour of assessee

Satinder Kumar (HUF) v CIT [1977] 106 ITR 64 (SC): It was held that it is true that an admission made by an assessee constitutes a relevant piece of evidence but if the assessee contends that in making the admission he had proceeded on a mistaken understanding or on misconception of facts or on untrue facts such an admission cannot be relied upon without first considering the aforesaid contention.

CIT v Radhakishan Goel reported in 278 ITR 454/460- (All)

The Allahabad High Court held that “It is a matter of common knowledge, which cannot be ignored that the search is being conducted with the complete team of the officers consisting of several officers with the police force. Usually, telephone and all other connections are disconnected and all ingress and egress are blocked. During the course of search person is so tortured harassed and put to a mental agony that he loses his normal mental state of mind and at that stage it cannot be expected from a person to pre-empt the statement required to be given in law as a part of his defence.
Surinder Pal Verma v Asstt. CIT [2004] 89 ITD 129 TTJ 083, 024,(CHANDIGARH)
The Tribunal observed as follows: “It is well known fact that the confessional statements made during the search are often vulnerable on the ground that the person giving such statements remain under great mental strain and stress. They also do not have the availability of relevant details, documents and books of account at the time of giving such statements in the absence of which precise information relating to the mode of utilization of such income and the year of such investment cannot be correctly furnished. The assessees are, therefore, entitled to modify/clarify the statements after verifying the necessary details from the relevant records at later point of time.”

Admission cannot be the sole basis of addition

In the case of Awad Kishore Dass AIR 1979 SC 861, the Hon’ble Apex Court held that “it is true that the evidentiary admissions are not conclusive proof of the facts admitted and may be explained or shown to be wrong. ”
The Hon’ble Madras High Court in the case of CIT v Smt. Jaya Lakshmi Ammal reported in (2017) 390 ITR 189 (Mad), held that “For deciding any issue, against the assessee, the authorities under the IT Act, 1961 have to consider, as to whether there is any corroborative material evidence. If there is no corroborating documentary evidence, then statement recorded under s. 132(4) of the IT Act, 1961, alone should not be the basis, for arriving at any adverse decision against the assessee. If the authorities under the IT Act, 1961, have to be conferred with the power, to be exercised, solely on the basis of a statement, then it may lead to an arbitrary exercise of such power. An order of assessment entails civil consequences. Therefore, under Judicial review, courts have to exercise due care and caution that no man is condemned, due to erroneous or arbitrary exercise of authority conferred. ”

The court further held that “if the assessee makes a statement under section 132(4) of the Act, and if there are any incriminating documents found in his possession, then the case is different. On the contra, if mere statement made under s. 132(4) of the Act, without any corroborative material, has to be given credence, than it would lead to disastrous results. Thus, in the instant case mere statement without there being any corroborative evidence cannot not be treated as conclusive evidence against the maker of the statement.

CIT v Chandrakumar Jethmal Kochar (2015) (Gujarat), wherein it has been held that merely on the basis of admission that few benami concerns were being run by assessee, Admission could not be basis for making the assessee liable for tax and the assessee retracted from such admission and revenue could not furnish any corroborative evidence in support of such evidence. It was further urged by the assessee that admission should be based upon certain corroborative evidences. In the absence of corroborative evidences, the admission is merely a hollow statement.

CIT v Harjeev Aggarwal, the Delhi High Court has held as under:

“It is also necessary to mention that the aforesaid interpretation of Section 132(4) of the Act must be read with the explanation to Section 132(4) of the Act which expressly provides that the scope of examination under Section 132(4) of the Act is not limited only to the books of accounts or other assets or material found during the search.

However in the context of Section 158BB(1) of the Act which expressly restricts the computation of undisclosed income to the evidence found during search, the statement recorded under Section 132(4) of the Act can form a basis for a block assessment only if such statement relates to any incriminating evidence of undisclosed income unearthed during search and cannot be the sole basis for making a block assessment.”

Deepchand & Co v ACIT [1995] 51 TTJ (Bom.) 421,

The ITAT, Mumbai held that there is no supporting evidence to confirm the additions except the statements of two partners recorded at the time of search. It would not be out of context to mention here that the statements recorded by the search party during the search of more than two days and two nights cannot be considered to be free, fearless and voluntary. There is a considerable substance in the assessee’s contention that the statements were recorded under pressure and force. The Tribunal had held that retraction should be allowed if it is based on proper principles and evidence. In the ordinary course no assessee would say that he had much concealed unaccounted money as mentioned in the statements herein. At the most what was expected to say was that certain income from the business was not disclosed, but putting in the mouth of the assessee that so much amount was unaccounted and concealed would itself indicate that the admission was forcible and not voluntary.

ACIT v Expresso Investments (2006) 8 SOT 287 (Mum) as under:

“The principles of res judicata are also not applicable in income-tax proceedings particularly the cases relating to applicability of section 68. Each loan is independent in itself. In each case, the assessee has the onus to prove the identity of the creditor, his creditworthiness and the genuineness of the transaction. In some cases, the assessee might be able to prove and the authorities concerned may be satisfied with the evidence furnished by the assessee but that does not lead to the inference in all cases either in the same year or in subsequent years or in the case of other assessees that onus is deemed to have been discharged as required under section 68.”

The ITAT also held that discretion is vested with assessing officer, to use statement under section 132(4) as evidence. However, it is not incumbent on him to make addition solely on the basis of such statement. Even otherwise, in our opinion, mere admission, without any corroboration, is not enough for making addition. In the statement under section 132(4), the assessee merely stated that some of the cash creditors may not be genuine. It is on the basis of such doubt that addition was made. In these circumstances of cash creditors, the assessing officer should not come in the way of assessee. In the present case, assessing officer merely got restricted himself to the statement under section 132(4). He had chosen to make enquiries regarding genuineness of the cash creditors by asking the assessee to prove the genuineness of such cash credits. Having done so, he could not make addition on the basis of statement under section 132(4) alone. Rather, he should have dealt with each credit with reference to the materials on the record. Accordingly, the order of Commissioner (Appeals) was set aside and matter was restored to the file of assessing officer for fresh adjudication after giving reasonable opportunity of being heard.

Pullangode Rubber Produce Co. Ltd. v State of Kerala [1973] 91 ITR 18 (SC) Their Lordships while observing that admission is an extremely important piece of evidence, held that, it cannot be said to be conclusive and the maker can show that it was incorrect.

ACIT v Anoop Kumar [2004], TTJ 094, 288, ITAT Amritsar

In this case all the additions made by the AO was based on the documents and evidence found during the search stand confirmed. It is also a fact that total income so computed by the AO falls below the income disclosed under section 132(4). It is not the case of the Department that difference in the income assessed and income disclosed under section 132(4) represents some other concealed income. Therefore, it is clear that there is no material available with the department to justify the addition so far as the difference between the income computed by the Assessing Officer and income disclosed under section 132(4). In other words, the so-called disclosure under section 132(4) is bald and has no legs to stand and in such a case retraction is justified. There could be a case where income disclosed under section 132(4) was on the lower side than the income based on material and evidence found during the course of search or post-search enquiry. In such a case, the AO would be fully justified in completing the assessment on higher income, as such additions would be backed by evidence and material on record.

Avadh Kishore Das v Ram Gopal [AIR 1979 SC 861]:

It was held that evidentiary admissions are not conclusive proof of the facts admitted and may be explained or shown to be wrong, but they do raise an estoppel and shift the burden of proof on to the person making them. The Supreme Court further held that unless shown or explained to be wrong, they are an efficacious proof of the facts admitted.

Hotel Kiran v ACIT [2002] 82 ITD 453, 1998, ITAT Pune

It is settled law that admission by a person is a good piece of evidence though not conclusive and the same can be used against the person who makes it. The reason behind this is, a person making a statement stops the opposite party from making further investigation. This principle is also embedded in the provisions of the Evidence Act. But the statement recorded under section 132(4) is on a different footing. The Legislature in its wisdom has provided that such a statement may be used as evidence in any proceedings under the Act. However, there are exceptions to such admission where the assessee can retract from such statement/admission. The first exception exists where such statement is made involuntarily, i.e., obtained under coercion, threat, duress, undue influence, etc. But the burden lies on the person making such allegation to prove that the statement was obtained by the aforesaid means. The second exception is where the statement has been given under some mistaken belief either of fact or of law. If he can show that the statement has been made on mistaken belief of facts, than the facts on the basis of which admission was made were incorrect.

9. Evidence can be produced during the course of assessment proceedings

In CIT v Rakesh Ramani [2018] 168 DTR 356 (Bombay)(HC), In this case the Addition is made on the basis of statement made on the date of the seizure. Also, voluminous evidence filed by the respondent during the course of the assessment proceedings has been completely ignored on the ground that the same was not produced when the seizure was made. The Hon’ble High Court held that there is no requirement in law that evidence in support must be produced only at the time when the seizure has been made and not during the assessment proceedings. As per the evidence led by the respondent during the assessment proceedings establish that the jewellery belonged to his employer. Therefore, the Bombay High Court held that the view taken by the two Authorities namely the Commissioner (Appeals) as well as the Tribunal is a possible view on the facts as existing. Therefore, the Court held that the question of law does not arise to any substantial question of law and the appeal of the Revenue was dismissed.

Judicial Pronouncements where retraction of statement is partly accepted

In Pranav Construction Co v ACIT (1998) 61 TTJ 145 ITAT Mumbai

The assessee had retracted from the statement in respect of two issues, the first being the undisclosed receipts, which were reduced from Rs. 70 lakhs to Rs. 52,68,400 and the second being the claim of expenses amounting to Rs. 42,14,720. The assessee contended that “The aforesaid statement was recorded by the ADIT at 2.30 A.M. in the early morning, though it was mentioned at 11.45 P.M. The assessee pleaded that he was totally tired and was under tremendous pressure and not in a proper state of mind to understand the implications as to what is stated in the said statement. He stated before the ADI during search that the aforesaid amount of Rs. 80 lakhs are the gross receipts, but as a builder, the assessee are required to incur lot of expenditure, which is unaccounted for. The A.O. felt that it cannot be postulated that the assessee had affected the payments out of the moneys received by it earlier in respect of the flats, offices and shops and recorded in the books. With regard to the admission, the learned D.R. had argued that there is no scope for allowing any expenditure because the statement of the assessees partner u/s 132(4) relates to disclosure of income, which means net income. The Tribunal observed that “We are of the view that the admission cannot be read as an Act of Parliament and that it has to be read in the context fairly and reasonably. We have already adverted to this aspect. The burden can be discharged either by direct evidence or if such evidence is not available the assessee can always point out to circumstantial evidence supporting the claim. In the present case in respect of the payment of Rs. 9 lakhs there is direct evidence and in respect of the payment of protection money to the extent of Rs. 20 lakhs to Shellar and Padmakar Choudhary, there is circumstantial evidence, to which we have already referred. The further deduction of Rs. 1 lakh which we have allowed is also based only on the circumstantial evidence such as newspaper cuttings, reports, etc.”

Bannalal Jat Constructions (P.) Ltd. v Assistant Commissioner of Income-tax [2019] (SC)

In this case admission is an extremely important piece of evidence but it can’t be said that it is conclusive. It is open to the person, who made admission to show that it is incorrect. The assessee should be given proper opportunity to show the correct state of affairs. There is no gainsay the fact that admission made during the search can be disputed by the assessee and at the same time however it is equally well settled that the statement made voluntarily by the assessee could form the basis of assessment.
Mere fact that the assessee retracted the statement at later point of time could not make the statement unacceptable. The burden lay on the assessee to show that the admission made by him in the statement earlier at the time of survey was wrong. Such retraction, however, should be supported by a strong evidence stating that the earlier statement was recorded under duress and coercion, and this has to have certain definite evidence to come to the conclusion that indicating that there was an element of compulsion for assessee to make such statement.

A bald assertion to this effect at much belated stage cannot be accepted. The assessee indulged in maintaining transaction on diaries and loose papers which was not permissible in any of the method of accounting. The assessee, while filing the return of income, has not disclosed any undisclosed income and hence, retracted from the admission made by him during the course of search. Subsequent retraction from the surrender without having evidence or proof of retraction is not permissible in the eyes of law. The statement recorded during the course of search action which was in presence of independent witnesses has overriding effect over the subsequent retraction.
Thus, the case is decided in favour of Revenue.

Thiru S. Shyam Kumar v Assistant CIT, Madras High court, [2018]

The Hon’ble Madras High Court held that the assessee for the first time took a stand before the Commissioner of Income Tax (Appeals), that the slips are only dumb sheets and there was no connection with the purchasing of residential property and further, the assessee sought to explain the notings to mean as monthly instalments and arranging of funds and not for payment. The Commissioner of Income Tax (Appeals), after considering the said statement, has given reasons as to why the statements of the assessee are not tenable. In fact, the assessee in no uncertain terms has accepted in his statement that the slip represents payment made for the purchase of property in question. Thus, the retraction is vague and a clear afterthought.
The case on hand is not a simple case of relying upon some scribbling and notings, but a case where the entries, which were clear and legible, were taken into consideration by the Assessing Officer. The correctness of which was examined by the Commissioner of Income Tax (Appeals) and further examined by the Tribunal. Thus, we find the assessee has not made out any good ground to interfere with the order of the Tribunal. Thus, the case is decided against assessee.

Narayan Bhagwantrao Gosavi, Balajiwale v Gopal Vinayak Gosavi AIR 1960 SC 100,

In this case he Hon’ble Supreme Court held that an admission is the best evidence that an opposite party can rely upon and, though not conclusive, yet could be decisive of the matter unless successfully withdrawn or proved erroneous.

Param Anand Builders (P.) Ltd. v ITO [1996] 59 ITD 29 (ITAT Mumbai),
The Hon’ble ITAT Mumbai held that allegations of the assessee to the effect that he was tortured and harassed by the revenue during the course of search and thereafter, are concerned, we are unable to agree with the learned counsel for the assessee. We find nothing on record to indicate that income-tax authorities have employed third degree methods to force some persons to make confessions or admissions. This is all the more unacceptable when independent witnesses were present at the time of search. Even if for the sake of argument it is accepted for a moment that the revenue authorities had given some threat to the assessee and its employees, there is nothing to stop the assessee and its employees to either meet personally or through their authorised representatives the higher authorities of bringing to the notice of higher authorities through written communications that any statement or admission made by them before the search party was on account threat, coercion or undue influence. Also, Panchas at the time of the search, who have certified that no untoward incident had taken place during the course of search and secondly even if the statements were recorded under threat or duress, this information of 30% to 40% of ‘on money’ could not have been repeated by them before the ADI in the Income-tax Office. Thus, the so-called retraction was not valid.

Video Master v Joint CIT [2002] 83 ITD 102 (Mum) ITAT, Mumbai dealt with a case where assessee retracted statement made claiming it to have been made under duress and coercion. During search, D, who was partner of assessee-firm, made voluntary disclosure of Rs. 3 crores comprising earnings from two films and income on account of discrepancy in books of account. The retraction made by ‘D’ later on, after a gap of one month of recording statement, was immaterial as it could not be said that D’s statement under section 132(4) was recorded under duress. It was held that since statement recorded in present case under section 132(4) was fully supported with documents seized during course of search, additions made by Assessing Officer of Rs. 1.83 crores treating same as undisclosed income of assessee from share of profits from two films was justified.

Hotel Kiran v ACIT [2002] 82 ITD 453 (Pune), It is held that the statement under section 132(4) was voluntarily made and there was no coercion or threat whatsoever. The contents of the statement are clear and unambiguous and the same are binding on the assessee. The assessee has been able to show that a part of statement regarding payment of Rs.50,000/- was given under mistaken belief of fact while there was no such belief with reference to other part of the statement regarding payment of Rs.4.00 lakhs. However, since the source of payment of Rs.4.00 lakhs is the suppressed profits of the assessee firm, the assessee is entitled to set off against the suppressed business profits of the firm relating to the years ending 31-3-1991 to the extent the addition is ultimately sustained. The Assessing Officer is therefore, directed to set off the aforesaid addition against the suppressed business profits of the firm relating to assessment years 1986-87 to 1991-92 to the extent it is finally sustained. Though this plea was not raised before us, we are allowing the set off because in law, the person cannot be taxed twice over the same income, one cannot be taxed merely because of his ignorance in the pleadings.

10. Retraction has to be made by the person who had made the statement

The Bombay High Court in the case of T. Lakhamshi Ladha & Co. v CIT [2016] 386 ITR 245 (Bom), held that in case there is a statement by a senior partner of an assessee firm, statement cannot be retracted by another partner of that firm in absence of any allegation of pressure and coercion by the department and there being no evidence to prove that original statement was incorrect.

11. Judicial Pronouncement in Department Favour

In the case Manmohan Singh Vig v Deputy Commissioner of Income Tax, Circle 1(1), [2006] 6 SOT 18 (Mumbai), The Hon’ble tribunal laid down following important points:

(1) What was retracted subsequently was only a denial. No material evidence was furnished so as to discharge onus cast on the assessee by virtue of statement recorded under sections 132(4) and 131(1A).

(2) Presumption raised under section 132(4A) is not rebutted by the assessee by submitting cogent evidence. Hence, the statement given under sections 132(4) and 131(1A) hold their evidentiary value.

(3) No material has been submitted to show that there was any pressure or coercion was exercised while recording the statements under sections 132(4) and 131(1A). No complaint was filed immediately after search or recording of statement under section 131(1A) to show that there was any pressure or coercion. Statement under section 132(4) was recorded before witnesses. Hence, there is a presumption that there was no pressure/coercion unless proved.

(4) Disclosure was enhanced during statement under section 131(1A) as compared to be given under section 132(4). Hence, the theory of pressure or coercion applied during recording of statement under section 132(4) is not acceptable.

(5) The assessee is silent for about 11 months. No letter/correspondence was sent immediately after recording of statement under section 132(4). Hence, theory of pressure or coercion is only an after- thought.

(6) Disclosure of several items were based on documents found in the search. These documents were explained under sections 132(4) and 131(1A). Hence, there is a strong reason to believe that statement under section 132(4)/131(1A) reveal correct state of affairs and retraction has to be ignored.

The Hon’ble bench of ITAT further held that the retraction or rather denial is not established by any material/evidence and hence the same cannot be substituted for admission made by the assessee under sections 132(4) and 131(1A) and supported by documentary evidence found in the search. This is the position in respect of all the impugned additions made by the Assessing Officer. Hence, the additions made are confirmed.

Sidharth Shankar Roy v Commissioner of Customs, Mumbai 2013 (291) ELT 244 (Tri.) (Mumbai) (Order dated 30-8-2011), it was held that retraction of a confessional statement should be addressed to the same officer to whom the confessional statement was given u/s 108 of the Customs Act. In this case, the retraction was made before the Judicial Magistrate and not before the concerned officer of Customs (AIU). Moreover, though the officer of Customs who was alleged to have beaten/manhandled the appellants challenged their retractions before the ACMM, he was not cross-examined by any of the appellants. The Tribunal found that the appellants have not been able to establish that the said statements were extorted from them by the officers of AIU by threat, coercion, force or assault. The submissions made by them before the Judicial Magistrate and those made before this Tribunal in this regard are inconsistent and incoherent. The Medical Reports relied on by the appellants also do not support their allegation that they were assaulted by any officer of Customs. The medical reports, on the other hand, refer to assault by the police. The Tribunal held that the Commissioner rightly rejected the retractions.

Retraction by Informing to Higher Authorities

Ajit Chintaman Karve v I.T.O. (2009) 311 ITR (AT) 66 (Puna) Assistant Commissioner of Income Tax Branch

That merely because an offer was made having no cogent basis or approval of law that should not stop a taxpayer from correcting his mistake. It was the duly of the A.O. to tax only the legitimate amount from a taxpayer.
The following facts further established that the exercise of surrender by the Revenue Authority was under duress. No effort was made at the time search and seizure to verify the genuineness of these rough papers. The revenue authorities just got hold of these papers and pressed the assessee for surrender. The assessee at that stage of search had no option but to agree with the authorities so as to escape further harassment. In the normal course if the surrender was genuine the revenue authorities should have and would have crossed checked the details and facts of amount mentioned in these pages. They should have verified at least a few entries of the accounted amount mentioned in these pages. No such exercise was done neither during the search nor during the course of assessment proceedings the post search enquiries do not reveal anything against the assessee. Merely harping on the rough pages and on the statement of the assessee u/s 132(4) won’t help in making additions. Further during the course of assessment proceedings parties have been called u/s 131 who have purchased the flats and they have stated that no on money was paid by them. The Learned Assessing Officer also called for information u/s 133(6). Despite a written request the Learned Assessing Officer has not furnished copies of statement recorded u/s 131 and information collected u/s 133(6) as these go in favour of the assessee. The assessee humbly requests that the records of the Learned Assessing Officer may be called for the purpose and verified. Further a number of affidavits were furnished by the assessee from persons who had purchased the flats and, in these affidavits, it has been stated that no on money was paid. These affidavits have remained uncontroverted. Considering all these facts the addition made deserves to be deleted.
In view of the aforesaid facts, it is submitted that the retraction of the assessee of surrender made of income of Rs. 27,50,31,216/- is in order and is well substantiated with facts and documentary evidence. The same deserves to be accepted. No addition is warranted on the basis of the statement u/s 132(4) of the Income Tax Act, 1961. The case of the assessee is further strengthened by the following circulars of the board wherein the revenue authorities have been advised not to obtain surrender of income during search proceedings.

13. Retraction after obtaining copy of Statement on ground of mistaken belief either of fact or law

(a) In Jyotichand Bhaichand Saraf & Sons (P.) Ltd. v Deputy Commissioner of Income-tax, Circle 11(1) (ITAT Pune) [2012] 139 ITD 10 (Pune), a search and seizure action were taken under section 132. During the course of search action, statement of the Director of the assessee was recorded under section 132(4) on 6th November 2001. The assessee was given copies of the statement recorded under section 132(4) of the I.T. Act, 1961 on 20th May 2002. On receipt of the copy of the statement the assessee realized that there was a mistake in the declaration of income. The assessee submitted a letter clarifying the mistake on 21st June 2002 to the Assessing Officer and retracted the statement made under mistake of fact. The assessment order was accordingly issued and was set aside by the CIT under sec. 263 stating that the same was prejudicial to the interest of the revenue and was made by the assessing officer without application of mind. On appeal, the Ld. ITAT held that the department has not brought on record any corroborative evidence so as to establish undisclosed income having been invested in agricultural land. Statement of the assessee cannot he sole basis without any cogent and corroborative evidence. This is the reason that the mistake in the statement is immediately clarified on the receipt of the statement by the appellant as stated above. Moreover, no material/evidence was found during the course of search action indicating on-money payment or any undisclosed investment in agricultural land at Malad. The assessee has clarified the mistake in the statement immediately on receipt of the statement. Thus, the statement has been retracted on realization of the mistake. The statement was given under mistaken belief of law that the suppressed sale is unaccounted/undisclosed income instead of correct legal position that the gross profit arising from unaccounted sale is the undisclosed income. It is a settled position that admission made by the assessee u/s 132(4) is an important piece of evidence but the same is not conclusive. It is open to the assessee who made the admission to show that it is incorrect and the same is given under mistaken belief of fact or law. Statement of Director indicate that he was not mentally composed at relevant point of time. There is nothing on record to suggest that said undisclosed income declared on behalf of assessee has nexus with undisclosed investment in the said agricultural land.
(b) Amritsar ITAT Bench in Asstt. CIT v Janak Raj Chciuhan [2006] 102 TTJ 316 (Asr.), observed that admission made at the time of search action is an important piece of evidence, but the same is not conclusive. It is open to the assessee who made the admission to show that it is incorrect and same was made under mistaken belief of law and fact.

8.7 Principles of Natural Justice

ITAT, Jodhpur Bench in Maheshwari Industries v Asstt. CIT [2005] 148 Taxman 74 (Jodh) (Mag.) has held that additions should be considered on merits rather than on the basis of the fact that the amount was surrendered by the assessee. It is settled legal position that unless the. provision of statute warrant or there is a necessary implication on reading of section that the principles of natural justice are excluded, the provision of section should be construed in manner incorporating principles of natural justice and quasi-judicial bodies should generally read in the provision relevant section a requirement of giving a reasonable opportunity of being heard before an order is made which will have adverse civil consequences for parties effected.

14. Manner of Retraction

The following aspects should be kept in mind:

a) A retraction should be made on an affidavit along with supporting evidences, if any,

b) The statement of the witnesses present holds good value and may aid the assessee in getting relief.

c) force, coercion, intimidation or any mistake of fact/law, whatever may be the case.

d) In case of a mistake of fact or law, it must clearly lay down as to what statement was recorded, what mistake took place in making such a statement

e) In addition to Authorised Officer {who conducted the Search), a retraction should be made through affidavit or otherwise should also be communicated to higher authorities.

f) The retraction should be done at the earliest without any delay
In the case of CIT Vs O. Abdul Razak [2013] 350 ITR 71 (Kerela High Court) it has been held by the Hon’ble High Court of Kerala that:

“In the instant case on the clear admission of the assessee corroborated by the documents the burden on the department ceases to exist. On the retraction being filed by the assessee, there is a burden cast on the assessee to prove the retraction or rather disprove the admissions made. It is not a shifting of the onus but a new burden cast on the assessee to disprove the earlier admissions having evidentiary value. As noticed earlier, retraction made by the assessee can only be considered as a self-serving afterthought and no reliance can be placed on the same to disbelieve the clear admissions made in the statement recorded under Section 132(4). Deletion of the additions vis-a-vis the property transactions on the reasoning that the department cannot do so on the basis of the admission made under Section 132(4) and on the premise that the Department ought to have proved retraction to be untrue cannot be countenanced in view of the specific words employed in Section 132(4).”

The Allahabad High Court in Dr. S.C. Gupta Vs. Commissioner of Income-Tax, supra, in para 7 of the report, held as under: –

“7. As regards the assessee’s contention that the statement having been retracted the Assessing Officer should have independently come to a conclusion that there was additional income as sought to be assessed and that there was no material to support that there was such income, this contention in our view is not correct. As held by the Supreme Court in Pullangode Rubber Produce Co. Ltd. v. State of Kerala, (1973) 91 ITR 18 an admission is an extremely important piece of evidence though it is not conclusive. Therefore, a statement made voluntarily by the assessee could form the basis of assessment. The mere fact that the assessee retracted the statement could not make the statement unacceptable. The burden lay on the assessee to establish that the admission made in the statement at the time of survey was wrong and in fact there was no additional income. This burden does not even seem to have been attempted to be discharged.

Dev Raj Hi-Tech Machines Ltd. v. Dy. CIT [2017] (ITAT- Amritsar)

The ITAT, Amritsar held that where additional income surrendered by assessee-company in search proceedings was declared as business income and same was accepted by Assessing Officer after considering reply of assessee, revision proceedings initiated under section 263 by Commissioner on basis that such income should be taxed as deemed income under section 69A was not sustainable. The ITAT also held that the wordings of surrender letter are very important as it can save the assessee from the clutches of section 115BBE. It must be clearly stated whether the income is business income or any unexplained income or investment.

Abdul Qayume v. CIT [1990] 184 ITR 404

The Allahabad High Court held that an admission or an acquiescence cannot be the foundation for an assessment where the income was returned under an erroneous impression or misconception of law. It is always open to an assessee to demonstrate and satisfy the authority concerned that a particular income was not taxable in his hands and that it was returned under an erroneous impression of law. The principle can be applied in a case where the disclosure made under section 132(4) did not match with the material collected in search and seizure operation. In this case, during the course of survey under section 133A the assessee surrendered an additional income over and above the normal income for the year under consideration. In return of income, the assessee declared such surrendered income as business income. And it was held that from the surrender letter it was apparent that the assessee had made surrender as additional income over and above the normal profits of the concern and since the income has been declared as business income, the same has to be assessed under the head business income and not as deemed income under the provisions of section 69A.

Kim Pharma (P.) Ltd. v. CIT [2013] the court came to the conclusion that the amount surrendered during survey was not reflected in books of account and no source from where it was derived was declared by assessee, it was assessable as deemed income of assessee under section 69A and not business income. The court further observed that the opening words of section 14 ‘save as otherwise provided by this Act’ clearly leave scope for ‘deemed income’ of the nature covered under the scheme of ss. 69, 69A, 69B and 69C being treated separately, because such deemed income is not income from salary, house property, profits and gains of business or profession, or capital gains, nor is it income from ‘other sources’ because the provisions of ss. 69, 69A, 69B and 69C treat unexplained investments, unexplained money, bullion etc. and unexplained expenditure as deemed income where the nature and source of investment, acquisition or expenditure, as the case may be, have not been explained or not satisfactorily explained. Therefore, in these cases, the source not being known, such deemed income will not fall even under the head Income from other sources.

In Fakir Mohammad Haji Hasan’s case CIT [2002] 247 ITR 290 (Gujarat) it was held that value of gold in question was liable to be included in assessee’s income as deemed income under sec. 69A as source of investment as its acquisition was not explained.

Commissioner of Income-Tax Versus S. Khadar Khan Sons, [2008] 300 ITR 157, Madras High Court

(i) An admission is extremely an important piece of evidence but it cannot be said that it is conclusive and it is open to the person who made the admission to show that it is incorrect and that the assessee should be given a proper opportunity to show that the books of accounts do not correctly disclose the correct state of facts, vide decision of the Apex Court in Pullangode Rubber Produce Co. Ltd. v. State of Kerala [(1973) 91 I.T.R. 18];

(ii) In contradistinction to the power under section 133A, section 132(4) of the Income-tax Act enables the authorised officer to examine a person on oath and any statement made by such person during such examination can also be used in evidence under the Income-tax Act. On the other hand, whatever statement is recorded under section 133A of the Income-tax Act it is not given any evidentiary value obviously for the reason that the officer is not authorised to administer oath and to take any sworn statement which alone has evidentiary value as contemplated under law, vide Paul Mathews and Sons v. Commissioner of Income-tax [(2003) 263 I.T.R. 101](Ker)

(iii) The expression “such other materials or information as are available with the Assessing Officer” contained in Section 158BB of the Income-tax Act, 1961, would include the materials gathered during the survey operation under Section 133A, vide Commissioner of Income-tax v. G. K. Senniappan [(2006) 284 ITR 220] (Mad);

(iv) The material or information found in the course of survey proceeding could not be a basis for making any addition in the block assessment, vide decision of this Court in T.C.(A) No.2620 of 2006 (between Commissioner of Income-tax v. S. Ajit Kumar [2008] 300 ITR 152(Mad)

(v) Finally, the word “may” used in Section 133A (3)(iii) of the Act, viz., “record the statement of any person which may be useful for, or relevant to, any proceeding under this Act, as already extracted above, makes it clear that the materials collected and the statement recorded during the survey under Section 133A are not conclusive piece of evidence by itself.
15. Burden of proof is on the assessee
The mere fact that the assessee retracted t
he statement could not make the statement unacceptable. The burden lay on the assessee to establish that the admission made in the statement at the time of survey was wrong. Though it is a clear and settled law that admission by a person is good piece of evidence though not conclusive and the same can be used against the person who makes it. The reason behind this is a person making a statement stops the opposite party from making further investigation. However, the statement is not conclusive and the person giving the statement can retract the same under certain circumstances.

(i) The first circumstance, if where the statement is not given voluntarily but it was obtained under coercion, threat or undue influence. But the burden is upon the person making the statement to prove that the statement given by him was not voluntary. The assessee can discharge this burden by giving a direct evidence of coercion or threat by the Authorised officer or by circumstantial evidence in this regard.

(ii) The time gap between the statement and the retraction of statement should also one of the important points to be taken into account while deciding whether the statement was voluntary or not.

(iii) The other circumstances is where the statement was given under the mistaken belief of either fact or law. Here again the burden is upon the person giving the statement to prove that the statement given by him was factually incorrect or was untenable in law.

Cogent and sufficient material have to be placed on record for retraction.
ACIT v. Rameshchandra R. Patel [2004] 89 ITD 203 (Ahmedabad) (TM) – It was accepted that the assessee had a right to retract but that has to be based on evidence brought on record to the contrary and there must be justifiable reason and material accepting retraction i.e., cogent and sufficient material have to be placed on record for acceptance or retraction. All that has to be done by the assessee if he is to retract the statement which was recorded in the presence of witnesses unless there is evidence of pressure or coercion. The facts of each case have to be considered to reach the conclusion whether retraction was possible or not as there can be no universal rule. Further corroboration of retracted statement is necessary where the assessee established at the earliest possible opportunity by leading reliable evidence and proving thereby the erroneous or incorrect nature of the facts admitted or confessed and also where the evidence available on record is inconsistent with the confessional statement.
The Hon’ble Delhi High Court in case of CIT V. Sunil Aggarwal 379 ITR 367(Delhi) held that wherein the assessee was assessed to tax on the basis of the statement made by him during the course of search under Section 132(4) of the Act. This without having considered the subsequent retraction with an explanation for retraction. This particularly when the explanation offered in the retraction was supported by evidence in the form of books of account maintained by the assessee. Further, reliance was placed upon the statement by a third party without having given an opportunity of cross examination to the assessee therein. It was in the aforesaid context that the Court held that the additions made in the hands of the assessee could not be justified.

In CIT v. Naresh Kumar Aggarwala, some documents with respect to purchase of property for a consideration was found in a search conducted and a presumption was framed by the Assessing Officer under Section 132(4A) of the IT Act. In this case, the Delhi High Court ruled in favour of the department distinguishing the Allahabad High Court judgement in the case of Raj Pal Singh Ram on the ground that unlike in the latter’s case, the assessee in the present case did not make any effort to rebut the presumption by giving plausible explanation. The Court further held that a letter submitted by the assessee without any proper explanation to disprove the presumption cannot be considered as reasonable and therefore, upheld the addition made by the Assessing Officer, thus reversing the order of the Tribunal.

Sudharshan P. Amin v. Asstistant CIT [2013] (Gujarat)

In search, assessee had disclosed a sum as undeclared income. The Assessee had also admitted the same in his confessional statement. However, during assessment proceedings, assessee retracted from his statement. Assessee’s CA who was present at time of confessional statements did not suggest any undue pressure or allurement by department. He did not offer any explanation why quite apart from the statement made at the time of search operation, he had two months later repeated his offer. The authorities have further recorded that both the statements were made in presence of the Chartered Accountant of the assessee. In addition to such circumstances, the Commissioner (Appeals) noted that the appellant was not maintaining personal books of accounts. The assessee’s contention was that source of investment in furniture and fixtures was withdrawal from the firm, but the books of accounts of the firm were rejected under section 145 of the Act due to specific defects found by the Assessing Officer.

In short, the Revenue authorities and the Tribunal on the basis of evidence on record came to the conclusion that the addition of Rs.50 lacs was justified. We do not find any question of law arising. The entire issue rests solely on appreciation of evidence on record. Particularly when the assessee having made such a statement and repeated the same two months later and in the letter retracting the statement never offered any explanation as to the reason why he made a confessional statement two months after the search, we do not find any reason to interfere with the concurrent findings of facts of two Revenue authorities and the Tribunal.

17.Judicial Pronouncements on Retraction should be done at earliest point of time

CIT, Bikaner V. Ravi Mathur

It is held that the statements recorded under Section 132(4) of the IT Act have great evidentiary value and it cannot be discarded in a summary and cryptic manner, by simply observing that the assessee retracted from his statement. One has to come to a definite finding as to the manner in which the retraction takes place. Such retraction should be made as soon as possible and immediately after such statement has been recorded by filing a complaint to the higher officials or otherwise brought to the notice of the higher officials by way of duly sworn affidavit or statement supported by convincing evidence, stating that the earlier statement was recorded under pressure, coercion or compulsion. Retraction after a sufficient long gap or point of time, as in the instant case, loses its significance and is an afterthought. Once statements have been recorded on oath, duly signed, it has a great evidentiary value and it is normally presumed that whatever stated at the time of recording of statements under section 132(4), are true and correct and brings out the correct picture, as by that time the assessee is uninfluenced by external agencies. Thus, whenever an assessee pleads that the statements have been obtained forcefully/by coercion/undue influence without material/contrary to the material, then it should be supported by strong evidence. Once a statement is recorded under section 132(4), such a statement can be used as a strong evidence against the assessee in assessing the income, the burden lies on the assessee to establish that the admission made in the statements are incorrect/wrong and that burden has to be discharged by an assessee at the earliest point of time.

The Hon’ble Chhattisgarh High Court in the case of ACIT vs. Hukum Chand Jain [2010] held that when assessee did not retract his statement immediately after search and seizure was over and in return also no explanation was offered for surrender of undisclosed income at time of search and seizure operations under Section 132(4), it could be said that assessee had failed to discharge onus of proving that confession made by him under Section 132(4) was as a result of intimidation, duress and coercion or that same was made as a result of mistaken belief of law or facts.

Kantilal C. Shah v ACIT [2011] 133 ITD 57 (Ahmedabad)

In this case it is held that retraction of statement made u/s 132(4) will not be permissible if the retraction has been made after a lapse of ample time and not done immediately. In this case, a search was conducted on 12.12.1995 and on that very day a statement u/s. 132(4) of the Act was recorded, however, after a lapse of around nine and a half months, i.e., 01/10/1996 a retraction was made through an Affidavit. The said retraction was not immediately submitted before the AO but it was submitted through a covering letter dated 19/11/1996. This was pointed out by Learned Departmental Representative that the retraction in the form of an Affidavit dated 1/10/1996 was kept with the assessee for one and a half months and on 19/11/1996 it was submitted before the AO. According to his pleadings the said delay thus demonstrated that the assessee was not confident about filing of the retraction. There must be some convincing and effective evidence in the hands of the assessee through which he could demonstrate that the said statement was factually incorrect. An assessee is under strict obligation to demonstrate that the statement recorded earlier was incorrect, therefore, on the basis of those specific evidences later on retracted. Further there should also be some strong evidence to demonstrate that the earlier statement recorded was under coercion. In the present case, the retraction is general in nature and lacking any supportive evidence. Rather assessee took several months to retract the initial statement, which by itself created a serious doubt.

PCIT V Shri Roshan Lal Sancheti, in D. B. ITA No. 47/2018 vide its judgement dated 30.10.2018, the Hon’ble Rajasthan High Court has affirmed its above referred earlier judgement in the case of Banna Lal Jat and held as under:
“In view of the law discussed above, it must be held that statement recorded under Section 132(4) of the Act and later confirmed in statement recorded under Section 131 of the Act, cannot be discarded simply by observing that the assessee has retracted the same because such retraction ought to have been generally made within reasonable time or by filing complaint to superior authorities or otherwise brought to notice of the higher officials by filing duly sworn affidavit or statement supported by convincing evidence. Such a statement when recorded at two stages cannot be discarded summarily in cryptic manner by observing that the assessee in a belatedly filed affidavit has retracted from his statement. Such retraction is required to be made as soon as possible or immediately after the statement of the assessee was recorded. Duration of time when such retraction is made assumes significance and in the present case retraction has been made by the assessee after almost eight months to be precise, 237 days. Thus, the case is decided in favour of revenue.

The Hon’ble Delhi High Court in the case of PCIT vs. Avinash Kumar Setia [2017] (Delhi) held that where assessee surrendered certain income by way of declaration and withdraw the same after two years without any satisfactory explanation, it could not be treated as bona fide and, hence, addition would sustain.

In the case of Council of Institute of Chartered Accountants of India v. Mukesh R. Shah (2004) 186 CTR (Gujarat) 579, the High Court of Gujarat has held that “a retraction so as to dislodge the admission made should come about at the earliest point of time. It goes without saying that a retraction made after a considerable length of time, would not have the same efficacy in law as a retraction made that earlier point of time from the day of admission. A belated retraction would fall in the category of afterthought instead of being retraction that apart, for a retraction to be effective so as to dislodge the admission made earlier in point of time, the retraction has to be supported by contemporaneous evidence and the onus is on the person making such admission and retraction.” Thus, the legal position about the assessee’s belated retraction is clear that it is an afterthought.

In the case of CIT V Lekh Raj Dhunna, [2012] 344 ITR 352,held as follows:
In view of sub-sections (4) and (4A) of Section 132 of the Act, the Assessing Officer was justified in drawing presumption against the assessee and had made addition of Rs. 9 lakhs in his income under Section 68 of the Act. The onus is upon the assessee to have produced cogent material to rebut the aforesaid presumption which he had failed to displace.

The assessee retracted from the said statement, vide letters dated November 24, 1998, and March 11, 1999, during the course of assessment proceedings. However, no value could be attached thereto in the present case.

If the statement which was made by the assessee at the time of search and seizure was under pressure or due to coercion, the assessee could have retracted from the same at the earliest. No plausible explanation has been furnished as to why the said statement could not be withdrawn earlier. In such a situation, the authenticity of the statement by virtue of which surrender had been made at the time of search cannot be held to be bad.
The Hon’ble Delhi High Court in the case of CIT vs. M.S. Aggarwal [2018] (Delhi) held that where in course of block assessment proceedings, AO made addition to assessee’s undisclosed income in respect of gift, in view of fact that assessee did not even know donor personally and, moreover, he himself in presence of his Chartered Accountant had made a statement under section 132(4) admitting that said gift was bogus, impugned addition was to be confirmed. The relevant part of the judgment is reproduced as below:

“32. Confessions are important for when voluntarily made there is a presumption that no person would make a statement against his interest unless it is true. Therefore, courts have to be cautious and careful that the confession recorded are voluntarily and not obtained under coercion and by force and wrongful inducement. Force and coercion are not synonymous and cannot be mixed and equated with mere anxiety and stress due to search and seizure operations, or inducement propelled by remorse and atonement to make an admission and confess a wrong. Motive of the person making the admission to gain indulgence, advantage or avoid evil of a temporal nature, cannot be treated as equivalent to inducement, coercion or fraud. Whether a confession is voluntary or induced by force, threat, coercion and wrongful inducement would primarily be one of fact, albeit any judicial verdict and decision on the issue must take all relevant facts and circumstances of the case into consideration and should not be guided by mere pre-ordained impressions. Factors like time of retraction, nature and manner of retraction etc. are relevant. Mere retraction does not make or proves that the admission was obtained by inducement, threat etc. Further, prudence requires that the court would examine the truthfulness and correctness of the admission when admissions are accepted and relied. Corroboration by attending circumstances may be justified.”

Difference between statement recorded under Section 132 and 133A

Statement on oath recorded u/s 132(4) of Income Tax Act carries substantial evidentiary value due to the fact that it is always recorded in the presence of two Panchas who are required to be present during the entire search proceedings at the premises. It carries evidentiary value to a great extent even upon subsequent retraction by the person whose statement is recorded.
Recording of a perfect statement on oath is an art which requires experience as well as clear understanding of facts and law. The following points need to be kept in mind while recording of a statement on oath:

There is a difference between a statement made during a survey under Section 133A of the Act and that made during the course of search under Section 132 (4) of the Act. Section 132(4) of the Act states that the authorized officer may, during the course of search and seizure, “examine on oath any person who is found to be in possession or control of any books of account, documents, monies, bullion, jewellery…”and that any statement made during such examination may be used thereafter in evidence in any proceeding under the Act. On the other hand, Section 133A does not talk of the recording of any statement on oath. Under Section 133A (3) (iii), the Income Tax Authority acting under the said provision could “record the statement of any person which may be useful for, or relevant to, any proceeding under this Act.” Therefore, there is a considerable difference in the nature of the statement recorded under Section 132(4) and that recorded under Section 133A(3)(iii) of the Act

Conclusion

Thus, while making initial admissions by way of statement or otherwise, the assessee should speak only true facts as per his knowledge, it is most important that the assessee should understand the questions and the facts properly so that he can present the true facts regarding the issue under consideration. The assessee should not make any wrong admissions in order to stop the search party from further search or in a casual manner because, subsequent to search it can be the case the authorities might not accept his retraction and the assessee has to bring on record cogent reasons or evidences failing which he will not be able to retract from his earlier statement. Also, after making admissions, he should review that whether the facts had been recorded correctly by the authorised officers. Also, the authorised officers conducting search should make enquiries or further investigation regarding the submissions by Assessee u/s 132(4).

Posted on: September 29th, 2021