5 Section 133A – Returned income as against declared income during survey accepted.

5.  Amod Shivlal Shah vs. ACIT

Members:  G.S. Pannu (A. M.) and Pawan Singh (J. M.)

ITA No.: 795/MUM/2015  

A.Y.: 2006-07                                                                                               

Dated: 23^rd  February, 2018

Counsel for Assessee / Revenue:  Dr. K. Shivaram &  Rahul Hakani / Rajesh Kumar Yadav

Section 133A – Returned income as against declared income during survey accepted.

FACTS

The assessee was engaged in carrying out business activity as a builder and developer. On 12.03.2007, a survey action u/s. 133A was carried out at the business premises of the assessee. At the time of survey, it was noted that the return of income for the assessment year under consideration as well as for Assessment Years 2004-05 and 2005-06 were not filed. It was found that the development work of residential building situated at Bandra, Mumbai was complete in view of the Occupancy Certificate issued by the Municipal Corporation on 31.10.2005. In the statement recorded, the assessee declared the income of Rs. 1 crore based on the work-in-progress declared for Assessment Year 2003-04 and in the answer at the time of survey, the working thereof was also enumerated. 

Subsequently, the assessee filed a return of income for assessment year 2006-07 on 29.03.2007 declaring an income of Rs.25.36 lakh, which was accompanied by the audited Balance-sheet and the Profit & Loss Account.  The response of the assessee was that subsequent to the survey, it compiled its accounts, which were got audited and   it    showed    that    the    estimation     made       at  Rs.1 crore was incorrect. During the course of assessment, assessee also furnished the reconciliation between income declared during survey and the returned income.  In sum and substance, the stand of the assessee was that the income declared at the time of survey was a rough estimate, whereas the return of income was on the basis of audited accounts compiled with reference to the corresponding evidences, material, etc.

The AO did not accept the explanation furnished as according to him, the declaration made at the time of survey was binding on the assessee and the same could not be retracted. The CIT(A) also affirmed the addition made by the AO. 

Before the Tribunal, the revenue supported the orders of the lower authorities and relied upon the decision of the Mumbai Tribunal in the case of Hiralal Maganlal and Co. vs. DCIT, (2005) 97 TTJ Mum 377.  

HELD

The Tribunal noted that the income declared during the survey was entirely based on the estimation of the value of the WIP as appearing on 31.03.2003 and the expenses estimated for Assessment Years 2004-05 to 2006-07.  Thus, the income offered at the time of survey was on an estimate basis.  The Tribunal also noted that the assessee had explained the basis on which the income was drawn-up at the time of filing of return and the reasons for the difference between the income offered at the time of survey and that declared in the return of income. 

To a question, whether the AO was justified in making the addition merely for the reason that assessee had offered a higher amount of income at the time of survey – the Tribunal relied to the decision of the Supreme Court in the case of Pullangode Rubber Produce Co. Ltd. vs. State of Kerala & Anr. (91 ITR 18) where the court had observed that the admission made on an anterior date, which was not based on correct state of facts, was not conclusive to hold the issue against the assessee. 

According to the Tribunal, the stand of the assessee was much more convincing since the original declaration itself was not based on any books of account or supporting documents, but was merely an estimate, whereas the return of income had been filed on the basis of audited accounts and the principal areas of differences, namely, the amount of sale proceeds and the expenditure were duly supported by relevant documents.

As regards reliance placed by the revenue on the decision of the Tribunal in the case of Hiralal Maganlal and Co., the Tribunal noted that the said decision was dealing with a statement recorded u/s. 132(4) of the Act at the time of search, whereas the present case was dealing with a statement recorded u/s. 133A of the Act at the time of survey.  The Tribunal pointed out that the Supreme Court in the case of CIT vs. S. Khader Khan Sons, 352 ITR 480 had upheld the judgment of the Madras High Court in the case reported in 300 ITR 157, wherein the difference between sections 133A and 132(4) of the Act was noted and it was held that the statement u/s. 133A of the Act would not have any evidentiary value. The Tribunal also referred to the CBDT Circular no. 286/2/2003 (Inv.) II dated 10.03.2003, wherein it has been observed that the assessments ought not to be based merely on the confession obtained at the time of search and seizure and survey operations, but should be based on the evidences/material gathered during the course of search/survey operations or thereafter, while framing the relevant assessments. 

Accordingly, the Tribunal set-aside the order of the CIT(A) and directed the AO to delete the addition.