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Monday, January 27, 2014

Section 133 (1) or 133 (4) of the Income Tax Act - Confession - Retraction - Voluntary admission - three different aspects - with out pleadings can not be considered in arguments -Voluntary admission at the time of survey , the director of company voluntarily admitted excess amount of Rs.20 lakhs and paid tax also - but filed appeal - in appeal grounds no plea was taken that the admission was obtained by force as such he is retracting the same - with out basis - CIT set aside the orders of A.O. - ITAT tribunal set aside the orders of CIT and restored the orders of A.O. as correct - High Court held that with out pleadings , no case be forward - a lawyer can not develop a case - dismissed the appeal upholding the order of ITAT and A.O as correct = Kernex Micro Systems (India) Ltd.,Hyderabad. Appellant Deputy Commissioner of Income Tax,Circle-2(1), Hyderabad. Respondent = 2014 ( January Vol-1 )judis.nic.in/judis_andhra/filename=10749

  Section 133 (1) or 133 (4) of the Income Tax Act - Confession - Retraction - Voluntary admission - three different aspects - with out pleadings can not be considered in arguments -Voluntary admission at the time of survey , the director of company voluntarily admitted excess amount of Rs.20 lakhs and paid tax also - but filed appeal - in appeal grounds no plea was taken that the admission was obtained by force as such he is retracting the same - with out basis - CIT set aside the orders of A.O. - ITAT tribunal set aside the orders of CIT and restored the orders of A.O. as correct - High Court held that with out pleadings , no case be forward - a lawyer can not develop a case - dismissed the appeal upholding the order of ITAT and A.O as correct =

The Assessing Officer has made an assessment order on the basis of the 
voluntary statement made by the Managing Director of the appellant disclosing of
income of Rs.20 lakhs.  
The said statement, which was reproduced by the learned
Tribunal in its judgment, is reproduced hereunder.
        "I admit that the above defects persist in maintenance of expense
vouchers.  The payments are not properly recorded.  Taking into account the
above deficiencies, which are not deliberate and to cover up any other omissions
and commissions, I voluntarily offer Rs.20.00 lakhs as additional income in
respect of training and development divisions of the company and EOU division of
the company.  The lapses being common to both the divisions, i.e., training and
development and EOU, I offer Rs.10.00 lakhs for each of the division.  This
offer has been made voluntarily to close the matter.  This does not cover any
disallowance on any legal issue.  I would request the department not to initiate
any penalty proceedings.  I undertake that the company pay the taxes after it
receives the assessment order." =

"5.1.   Whether on the facts and circumstances of the case, the Hon'ble ITAT was
        justified in reversing the order of the learned CIT (Appeals) and
restoring the   addition of Rs.20 lakhs

5.2.    Whether on the facts and circumstances of the case, the Hon'ble ITAT was
        justified in holding that the appellant company could   not retract
from its        admission before the learned CIT (Appeals), who is also a
departmental    authority and whose powers are co-      eval with those of the
assessing officer

5.3.    Whether the Hon'ble ITAT the ultimate fact finding body, was justified in
refusing to look into the facts relating to the expenditures involved in the so
called defective vouchers listed by the assessing officer

5.4.    Whether there is any basis for the conjecture and suspicion of the Hon'ble
ITAT    that the appellant company could manipulate its evidence in the face of
the fact        that most of the expenditures were      covered by either cheque
payments or TDS         provisions of the Income Tax Act

5.5.    Whether the Hon'ble ITAT was justified in restoring the addition of Rs.20
lakhs solely basing itself on the statement recorded by the assessing officer
under Section 133A of the Income Tax Act from the Managing Director of the
appellant company, which statement cannot be put on par with a sworn statement 
under Section 133 (1) or 133 (4) of the Income Tax Act

5.6.    Whether the canons of natural justice are not violated as no show cause
notice was issued by the assessing officer and the list of the defective
vouchers was not furnished and not even a copy of the statement recorded from
the Managing Director was furnished to the appellant company before the
assessment has been completed   

5.7.    Whether the Hon'ble ITAT was justified in sustaining the addition when the
Central Board of Direct Taxes itself in its instructions F.No.286/2/2003-
IT(Inv), dated 23.03.2003 had instructed the officers not to force confessions
of undisclosed income during search and survey operations and stated that such confessions, as in the present case, which are not based on credible evidence,
did not serve any purpose

5.8.    Whether the Hon'ble Tribunal was justified in calling upon the
        appellant company to prove the negative by way of showing proof that the
        statement of the Managing Director had not been furnished to it"
those questions are not the questions of law
rather argument in the form of question.  Therefore, we do not want to look into
those questions. =
The fact shows that at the time of assessment the assessee did not retract
the aforesaid admission making voluntary disclosure.  Even the assessee on the
basis of the assessment has paid the tax and after that an appeal was preferred
before the Commissioner of Income Tax (Appeals).  In the said appeal we do not
find that the appellant has made out any case that the aforesaid admission was
not made voluntarily and it was made by mistake or anything else.
        It appears from the record that only the learned lawyer appearing before
the Commissioner of Income Tax (Appeals) took up the factual point, which was
not stated in the grounds of appeal, that the aforesaid admission was recorded
under mistaken belief of fact and law.  
"Before going into the legal intricacy whether income offered during the
course of survey can be agitated before the appeal proceedings or not, I want to
state that an addition made by the AO should stand on its own legs irrespective
of the fact whether it is accepted or not accepted by the assessee.  I agree
that in this case, the MD of the appellant-company had offered a sum of Rs.20
lakhs at the time of survey.  It is also a fact that he has not disputed the
same during the course of assessment proceedings.  It is also a crucial fact
that the appellant had even paid taxes on the income offered.  But can he
sustain an addition only on the basis of admissions and acquiscences,
particularly, when the appellant has gone back on the admission  The answer is
an emphatic "No" as, if an addition can be made on the basis of admission, the
same has to be deleted on the basis of retraction."

        We fail to understand from where the case of retraction has been
discovered by the Commissioner of Income Tax (Appeals) when the appellant has 
not stated in the grounds of appeal before it that it has retracted.
A lawyer cannot improve the case of the litigant on fact
unlike in case of law.  Such an act is without jurisdiction.
        The appeal is accordingly dismissed.

2014 ( January Vol-1 )judis.nic.in/judis_andhra/filename=10749



THE HON'BLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTA AND THE HON'BLE SRI JUSTICE SANJAY KUMAR              

ITTA No.77 OF 2007

02-01-2014

Kernex Micro Systems (India) Ltd.,Hyderabad. Appellant

Deputy Commissioner of Income Tax,Circle-2(1), Hyderabad. Respondent  

Counsel for Petitioner  : Sri P. Murali Krishna

Counsel for the respondent: Sri S.R. Ashok                                    
       

<GIST:

>HEAD NOTE:  

?Cases referred

IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD                

        THE HON'BLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTA                
AND
THE HON'BLE SRI JUSTICE SANJAY KUMAR        

I.T.T.A. No. 77 OF 2007

       
DATE: 02.01.2014


This Court made the following:

JUDGMENT: (Per the Hon'ble The Chief Justice Sri Kalyan Jyoti Sengupta)

        This appeal is directed against the judgment and order dated 22.02.2006 of
the learned Tribunal in relation to assessment year 1998-99 and is sought to be
admitted on as many as eight suggested questions of law, which are as follows:
"5.1.   Whether on the facts and circumstances of the case, the Hon'ble ITAT was
        justified in reversing the order of the learned CIT (Appeals) and
restoring the   addition of Rs.20 lakhs

5.2.    Whether on the facts and circumstances of the case, the Hon'ble ITAT was
        justified in holding that the appellant company could   not retract
from its        admission before the learned CIT (Appeals), who is also a
departmental    authority and whose powers are co-      eval with those of the
assessing officer

5.3.    Whether the Hon'ble ITAT the ultimate fact finding body, was justified in
refusing to look into the facts relating to the expenditures involved in the so
called defective vouchers listed by the assessing officer

5.4.    Whether there is any basis for the conjecture and suspicion of the Hon'ble
ITAT    that the appellant company could manipulate its evidence in the face of
the fact        that most of the expenditures were      covered by either cheque
payments or TDS         provisions of the Income Tax Act

5.5.    Whether the Hon'ble ITAT was justified in restoring the addition of Rs.20
lakhs solely basing itself on the statement recorded by the assessing officer
under Section 133A of the Income Tax Act from the Managing Director of the
appellant company, which statement cannot be put on par with a sworn statement 
under Section 133 (1) or 133 (4) of the Income Tax Act

5.6.    Whether the canons of natural justice are not violated as no show cause
notice was issued by the assessing officer and the list of the defective
vouchers was not furnished and not even a copy of the statement recorded from
the Managing Director was furnished to the appellant company before the
assessment has been completed  

5.7.    Whether the Hon'ble ITAT was justified in sustaining the addition when the
Central Board of Direct Taxes itself in its instructions F.No.286/2/2003-
IT(Inv), dated 23.03.2003 had instructed the officers not to force confessions
of undisclosed income during search and survey operations and stated that such confessions, as in the present case, which are not based on credible evidence,
did not serve any purpose

5.8.    Whether the Hon'ble Tribunal was justified in calling upon the
        appellant company to prove the negative by way of showing proof that the
        statement of the Managing Director had not been furnished to it"

        At the first instance, from a reading of the aforesaid suggested questions
of law, we are of the view that those questions are not the questions of law
rather argument in the form of question.  Therefore, we do not want to look into
those questions.  However, when the matter has come up for hearing, it is the
duty of the Court to formulate the substantial question of law, if the Court
decided to admit the appeal for hearing.  The relevant facts are as follows:
        The Assessing Officer has made an assessment order on the basis of the 
voluntary statement made by the Managing Director of the appellant disclosing of
income of Rs.20 lakhs.
The said statement, which was reproduced by the learned
Tribunal in its judgment, is reproduced hereunder.
        "I admit that the above defects persist in maintenance of expense
vouchers.  The payments are not properly recorded.  Taking into account the
above deficiencies, which are not deliberate and to cover up any other omissions
and commissions, I voluntarily offer Rs.20.00 lakhs as additional income in
respect of training and development divisions of the company and EOU division of
the company.  The lapses being common to both the divisions, i.e., training and
development and EOU, I offer Rs.10.00 lakhs for each of the division.  This
offer has been made voluntarily to close the matter.  This does not cover any
disallowance on any legal issue.  I would request the department not to initiate
any penalty proceedings.  I undertake that the company pay the taxes after it
receives the assessment order."

        The fact shows that at the time of assessment the assessee did not retract
the aforesaid admission making voluntary disclosure.  Even the assessee on the
basis of the assessment has paid the tax and after that an appeal was preferred
before the Commissioner of Income Tax (Appeals).  In the said appeal we do not
find that the appellant has made out any case that the aforesaid admission was
not made voluntarily and it was made by mistake or anything else.
        It appears from the record that only the learned lawyer appearing before
the Commissioner of Income Tax (Appeals) took up the factual point, which was
not stated in the grounds of appeal, that the aforesaid admission was recorded
under mistaken belief of fact and law.  
Taking note of this argument, perhaps
and without verifying whether such ground has been made out or not, the
Commissioner of Income Tax (Appeals) observed as follows: 
        "Before going into the legal intricacy whether income offered during the
course of survey can be agitated before the appeal proceedings or not, I want to
state that an addition made by the AO should stand on its own legs irrespective
of the fact whether it is accepted or not accepted by the assessee.  I agree
that in this case, the MD of the appellant-company had offered a sum of Rs.20
lakhs at the time of survey.  It is also a fact that he has not disputed the
same during the course of assessment proceedings.  It is also a crucial fact
that the appellant had even paid taxes on the income offered.  But can he
sustain an addition only on the basis of admissions and acquiscences,
particularly, when the appellant has gone back on the admission  The answer is
an emphatic "No" as, if an addition can be made on the basis of admission, the
same has to be deleted on the basis of retraction."

        We fail to understand from where the case of retraction has been
discovered by the Commissioner of Income Tax (Appeals) when the appellant has 
not stated in the grounds of appeal before it that it has retracted.
Notwithstanding above, the learned counsel before us very strenuously argues
that there has been retraction of admission before the Commissioner of Income
Tax (Appeals) and the Commissioner has taken into consideration of the same.
Therefore, the learned Tribunal should not have set aside the order of the
Commissioner, but at the most it should have remanded the matter.  According to
him, the Commissioner of Income Tax (Appeals) has extensive power and he has  
rightly exercised the same.
        We are of the view that the argument of the learned counsel is absolutely
misplaced on fact as before the Commissioner of Income Tax (Appeals) there was 
no case of retraction.
Factually, he perhaps noted oral arguments of the
lawyer.  According to us, it is not permissible under law as retraction of
admission is purely a matter of fact, which must be made available before the
Court of law or Tribunal, which then can consider the same.  It is settled
position of law that admission is a very important piece of evidence, unless it
is explained or retracted.  Here the assessee has not made any attempt to
explain before the Commissioner of Income Tax (Appeals) suggesting not to accept
the same.  Here instead of retracting the assessee called upon to act upon the
same to pass assessment order and accordingly it was done and the tax was duly 
paid.  We fail to understand why challenge should be made at a later stage.
        The learned counsel thereafter argues that the admission cannot be looked
into under the law, as it is a material collected during the period of survey
and this is not a valid piece of evidence.
We think there must be distinction
between the admission and the evidence collected during the course of survey.
This is a voluntary act of the assessee and if the assessee accepts the
liability, there is no point or scope to collect further evidence or making any
enquiry.  Here exercising of power by the Commissioner was not called for.
Exercise of power evaluating legal implication of admission was not called for
because no case was made out factually.  Therefore, the decisions cited by the
learned counsel for the appellant before us are absolutely inappropriate.
Hence, we ignore all these decisions.
        The learned Tribunal has taken a correct decision and we are constrained
to comment on the decision taken by the Commissioner of Income Tax (Appeals),
even basing on his own recording that the same is without any factual basis and
further unsupported by law.  When a case is not made out before the
Commissioner, he should not have made out so to say his own case basing on a
lawyer's argument.  A lawyer cannot improve the case of the litigant on fact
unlike in case of law.  Such an act is without jurisdiction.
        The appeal is accordingly dismissed.
        We are of the view that for filing such a frivolous appeal an exemplary
cost has to be imposed.  Accordingly, we impose costs estimated at Rs.10,000/-
(Rupees Ten thousand only), to be paid by the appellant to the A.P. Legal
Services Authority within a period of two weeks from date.
__________________  
K.J. SENGUPTA, CJ  
___________________  
SANJAY KUMAR, J

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