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17 Jun 2019

Section 133A- An Admission of Estimated Income made during Survey has no Evidentiary Value and is not Binding on the Assesse

Section 133A- An Admission of Estimated Income made during Survey has no Evidentiary Value and is not Binding on the Assesse

  1. It is also not in dispute that the project undertaken by the assesse, namely, “Nikita Enclave” was complete in view of the Occupancy Certificate dated 31.10.2005 issued by the Municipal Corporation. It is also not in dispute between the assesse and the revenue that the income thereof, on completion of the project, was liable to be declared during the previous year relevant to the assessment year under consideration, i.e. 2006-07.

 

  1. The manner in which assesse proceeded to offer the income at the time of survey, on an estimate basis has already been reproduced by us in the earlier part of this order. Quite clearly, the estimation is based on the value of the WIP as appearing on 31.03.2003, and the expenses have also been estimated for Assessment Years 2004-05 to 2006-07.

 

  1. Now, we may come to the stage when assesse filed his return of income on 29.03.2007, wherein an income of Rs. 25,36,440 was declared. Notably, the return of income was accompanied by the statement of total income, including the audited balance sheet and auditors’ report prescribed u/s 44AB of the Act.

 

  1. When assesse was show-caused during the assessment proceedings, assesse explained the basis on which the income was drawn up at the time of filing of return and assesse also explained the reasons for the difference between the income offered at the time of survey and that declared in the return of income.

 

  1. The said reconciliation has been reproduced by us in the earlier part of this order and it clearly reflects that the difference is on two counts, namely, (i) sale proceeds were adopted at Rs. 3,47,12,500/- at the time of survey as against Rs. 3,06,97,827/- taken in the audited accounts; and (ii) expenditure for Assessment Years 2004-05 to 2006-07 was estimated at the time of survey as Rs. 6,00,000/- as against Rs. 45,58,230/- adopted in the audited accounts.

 

  1. Broadly speaking, the explanation of the assesse was that the sale proceeds taken in the audited accounts are based on the registered sale agreements executed with the flat buyers and, therefore, the same could not be doubted. So far, as the difference in the expenditure was concerned, it was claimed that the amount taken in the audited account was evidenced by vouchers, documents, etc.

 

  1. In the above background, the first point to be seen is whether the Assessing Officer was justified in making the addition merely for the reason that assesse had offered a higher amount of income at the time of survey, which ostensibly was not based on any account books, but was merely an estimation.

 

  1. The Hon’ble Supreme Court in the case of Pullangode Rubber Produce Co. Ltd. vs State of Kerala & Anr. 91 ITR 18 (SC) recognized the trite law that it was open to the assesse who made the admission to show that it was incorrect. As per the Hon’ble Supreme Court, it was imperative that in such a situation assesse ought to be given a proper opportunity to show the correct state of facts.

 

  1. In our considered opinion, in the present case, the stand of the assesse is much more convincing since the original declaration itself is not based on any books of account or supporting documents, but was merely an estimate, whereas the return of income has been filed on the basis of audited accounts and the principal areas of difference, namely, the amount of sale proceeds and the expenditure are duly supported by relevant documents.

 

  1. In fact, communication dated 24.06.2013, a copy of which is placed at page 278 of the Paper Book, the Assessing Officer required the assesse to furnish the details of expenses claimed in the audited accounts and the amount of sale proceeds claimed in the audited accounts. In response, the assesse furnished the requisite details, copies of which are duly placed at pages 282 to 548 of the Paper Book.

 

  1. Particularly, we find that a major portion of the expenditure is on account of payment of property taxes, water charges and other payments which are duly effected by means of cheques. Be that as it may, we find that there is no adverse finding on the merits of the claim made by the assesse.

 

  1. On this aspect, we may also refer to the Circular of CBDT 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. In the present case, apart from the statement at the time of survey, there is no material referred to, which has been obtained during the survey, In fact, the assessment order does not bring out any material other than the statement of the assesse, which the Assessing Officer gathered during the assessment proceedings which could negate the income deduced by the assesse in its return of income.

 

  1. The CIT (A) has laid much emphasis on the fact that the retraction by the assesse, which was claimed by way of a letter dated 15.03.2007, was made only on 03.04.2007, and not before. In our considered opinion, the CIT (A) has not appreciated the facts in their proper perspective.