Section 132 – Search and seizure – Block assessment – Declaration by assessee – Effect of section 132(4) – Declaration after search has no evidentiary value – Additions cannot be made on basis of such declaration

Section 132 – Search and seizure – Block
assessment – Declaration by assessee – Effect of section 132(4) – Declaration
after search has no evidentiary value – Additions cannot be made on basis of
such declaration

In the case of the
assessee, there was a search and seizure operation u/s. 132 of the Act, between
27/11/1997 and 04/12/1997. On 31/12/1997, the asessee filed a declaration under
the Voluntary Disclosure of Income Scheme, 1997 declaring undisclosed income of
Rs. 1.20 crore. However, the assessee did not deposit the tax required to be
deposited before 31/03/1998 resulting in the rejection of declaration under the
Scheme. Thereafter by a letter dated 15/01/1998, the assessee addressed a
communication to the Assistant Director (Investigation) and offered a sum of
Rs. 80 lakh as an undisclosed income to tax. But on 23/11/1998, the assessee
filed a return of income declaring undisclosed income for the block period at
Rs. 55 lakh. The Assessing Officer made an addition of Rs. 65 lakh on the basis
of the declaration under the Scheme and determined the undisclosed income for
the block period at Rs. 1.20 crore.

The Commissioner (Appeals)
deleted the addition. The Commissioner (Appeals) held that communication dated
15/01/1998 to the Assistant Director (Investigation) disclosing income of Rs.
80 lakh could not be considered to be a statement u/s. 132(4) of the Act. This
was confirmed by the Tribunal.

On appeal by the Revenue,
the Bombay High Court upheld the decision of the Tribunal and held as under:

“i)    A bare reading of section 132 (4) of the Income-tax Act, 1961,
indicates that an authorised officer is entitled to examine a person on oath
during the course of search and any statement made during such examination by
such person (the person being examined on oath) would have evidentiary value
u/s. 132(4).

ii)    The Tribunal was justified in law in deciding that the letter
dated 15/01/1998 of the assessee addressed to the Assistant Director about the
disclosure of Rs. 80 lakhs as income had no evidentiary value as stated u/s.
132(4). The Tribunal was justified in law in accepting the assessee’s claim of
sale of goods on various dates while deleting the addition of Rs. 65 lakhs.

iii)    The Tribunal was correct in law in deciding that the source of
the entire purchases had been explained as out of the initial capital of Rs. 31
lakhs by cash and sale proceeds of the purchased stock of timber.”