Whether in case of a Survey u/s 133A, if a statement is recorded on oath it loses its evidentiary value - NO: Bombay HC

THE issues before the Bench are - Whether in case of a Survey u/s 133A, if a statement is recorded on oath it loses its evidentiary value; Whether if a statement is to be retracted it is necessary for the assessee to prove that the statement made was not correct; Whether if the allegation of the statement being recorded in the middle of the night is to stick against the Revenue, the assessee is required to substantiate the same by producing evidence; Whether the affidavit filed by the assessee indicating its intention to only estimate its income in loose papers so that some medical equipments could be taken on loan, can be construed as afterthought unless some evidence is furnished and Whether in case of a professional, receipts can be treated as income. And the verdict goes against the assessee.

Facts of the case

The assessee is a practicing Dentist. The Revenue conducted a survey u/s 133A at the assessee's clinic, during which some diaries and loose documents were found. One such diary was marked as “A1 Fantasy”. In this diary, professional receipts from 6 August 2007 to 30 August 2007 were recorded but the pages before 6 August 2007 were torn therefrom. The receptionist of the assessee made a statement during the Survey that the receipts from each patient was recorded in diary and note book which were handed over to the assessee along with fees received. From the perusal of the fees recorded in the diary and note book with that recorded in the regular Books of Account, it was found that the regular books of account recorded receipts which were much lower than the amounts received as evidenced in the diary and note book. The assessee in the course of his statement during the Survey proceedings admitted that the amounts collected by the receptionist from patients were being entered in the diary /note book. Besides a loose paper titled "Page No.17" was found, which had records related to monthly receipts from April 2003 to June 2006. On being confronted with "Page No.17", assessee agreed to offer additional receipts shown in the loose paper “Page No.17” to tax. However, thereafter it had sought to explain "Page No.17" by stating that this page had been prepared by his financial consultant, who was preparing a project report to obtain funds from Bank for purchase of equipments. Therefore, it was stated that monthly receipts were inflated so as to enable larger finance from the bankers. On assessment u/s 143(3), the AO enhanced the income from profession declared at Rs.8.68 lacs to Rs.45.15 lacs on the basis of cash receipts not recorded in the books of account aggregating to Rs.12 lacs and income shown in the loose paper “Page No.17” not shown in regular books of account aggregating to Rs.24.36 lacs. It was also recorded that the assessee had purchased a flat at Bandra for Rs.92.50 lacs whereas the market value as per the stamp duty valuation of the said flat at Bandra was Rs.1.18 crores. Similarly a shop had been purchased for Rs.21.50 lacs whereas the market value as per the stamp duty valuation was Rs.48.86 lacs. During the assessment, affidavit of the consultant was submitted in support of the assessee's contention that the figures contained in "Page No.17" were fictitious figures prepared only with a view to enable the assessee to obtain larger financial facilities from the bank. However, the AO concluded that the said affidavit was an after thought and not supported by any evidence.

On appeal, the CIT(A) dismissed the assessee's appeal holding that the figures given at “Page No.17” pertained to the assessee. The explanation of the assessee for the figures of receipts shown in "Page No.17" as made for impressing bankers was not accepted on the ground that it reflected a month wise receipt while a banker normally did not seek monthly receipts but yearly receipts. Besides, during the survey proceedings, assessee had admitted that the receipts shown in “Page No.17” were from his profession and it was only thereafter that he subsequently came up with the theory of fictitious/ inflated receipts attributable to a financial consultant. The CIT(A) on a consideration of all facts concluded that the affidavit of that consultant and the assessee's own affidavit were mere afterthought. The observation of the CIT(A) was on the basis that no such claim of purchase of equipment or appointment of financial consultant was ever made when statement of the assessee was recorded during the Survey proceedings. Further, no appointment letter or fees had been paid to Mr. Ramesh Shetty nor the name of the bank to whom these figures were to be tendered were pointed out nor was the equipment which the assessee proposes to purchase, even mentioned. Thus the affidavit was not credible. On further appeal, Tribunal dismissed the assessee's appeals for AYs 2004-05, 2005-06, 2006-07 and 2007-08.

On appeal, the HC held that,

++ it is undisputed that even u/s 133A dealing with survey proceedings, the revenue authorities are entitled to record the statement of any person which may be useful or relevant to proceedings under the Act. The power to record a statement during survey proceedings is found in Section 133A (3). The requirement of recording a statement on oath is found in Section 132 of the Act i.e. during search and seizure proceeding and such a requirement is not found in Section 133A of the Act. Nevertheless, a statement under Section 133A of the Act does not lose its evidentary value merely because it is made on oath. Besides, the statement in this case is one of the evidences being relied upon and not the sole evidence. The Tribunal in the impugned order has recorded that the addition of income is based not only on the statement of the appellant-assessee but also based on "Page No.17". The case law relied upon by the appellant in the matter of CIT vs. S. Khader Khan 352 ITR 480 arising from the decision of Madras High Court in S. Khader Khan 300 ITR 157 proceeded on the fact that the authorities did not accept the retraction made by a deponent of a statement made on oath during survey proceedings u/s 133A. This was on the ground that statement was made on oath. Besides the sole evidence against the assessee in that case was the statement made on oath during the survey proceedings which is not the case in the present facts. Further, in this case the assessee has not been able to show that the statement made is not correct and/or unbelievable. Therefore, the case law relied upon by the appellant-assessee is completely distinguishable and not applicable to the present facts. In view of the above, we do not find that question (A) raises any substantial question of law. Accordingly we do not entertain this question;

++ the Tribunal in the impugned order has rendered a finding of fact to the effect that there is no evidence to show that the statement under Section 133A of the Act was recorded during the middle of the night. This is a finding of fact and the appellants have not been able to demonstrate that the aforesaid finding of fact as recorded by the Tribunal is perverse and/or arbitrary. It is pertinent to note that in the grounds of appeal before the Tribunal raised by the appellant no ground has been raised regarding the statement being recorded in the middle of the night and therefore, cannot be relied upon. Be that as it may, the finding of the Tribunal is a finding of fact and in the absence of the same being shown to be arbitrary and/or perverse, no substantial question of law arises. Therefore, no occasion to entertain this question arises;

++ the Tribunal has recorded a finding of fact that document titled as "Page No.17" contained monthly receipts from April 2003 to June 2006. During the survey proceedings, the appellant did not dispute the loose paper "Page No.17" but merely stated that it may be estimated figure of receipts during the period covered in "Page No.17". However, later during the course of the assessment proceedings assessee came up with a explanation that the document "Page No.17" is as estimated income prepared by his consultant Mr. Ramesh Shetty for the purpose of obtaining loan from the bank for the purchase of equipments. However, the Tribunal did not examine the deponent of the affidavit as no evidence was furnished regarding appointment of Mr. Ramesh Shetty as consultant nor any fees are shown to have been paid to the consultant. The Tribunal also records the fact that during the survey proceedings there was no mention regarding the consultant having been appointed by assessee for the purpose of obtaining loan from the bank. In view of the above facts, the Tribunal holds that the explanation offered later is clearly an afterthought as also been held by the lower authorities. In fact, during the survey proceedings, the assessee in his statement recorded on 6 September 2007 has categorically stated that the discrepancy in the figures of receipts shown in the books of accounts and actual collection of figures are required to meet corruption at various levels. Further, with regard to loose "Page No.17" the assessee had during the course of survey stated that he will offer the same as additional income. The fact that there was certain additional undisclosed income was further substantiated by the Assessing Officer pointing out certain undisclosed income being invested in property at lower value then that of its value for the purpose of stamp on the property. The Tribunal by the impugned order has confirmed the finding of fact arrived by the CIT (Appeals). In view of the concurrent finding of facts, we see no substantial question arising so as to entertain this question;

++ according to the department, the "Page No.17" records income received by the appellant during the period 2003 to 2006 much more than that recorded in his books of account. The CIT (A) in his order records the fact that there was no claim made during survey proceedings of any project or of any consultant much less about any Mr. Ramesh Shetty being involved for preparing a report to enable the appellant for taking loan from bank. Therefore, affidavit of Mr. Ramesh Shetty and his own affidavit filed subsequently are self serving affidavit. The CIT(A) as well as the Tribunal in the impugned order have reached a finding of fact that the affidavit of Mr. Ramesh Shetty is not credit worthy to be examined. This was on the basis that there was no evidence to show Mr.Ramesh Shetty's appointment as consultant or any evidence of fees being paid to him. Moreover, no details were ever furnished by the appellant of the equipments which they are seeking to purchase for which loan is required or even the name of the banker to whom the appellant was approaching for loan. On the aforesaid finding of fact, the Tribunal by the impugned order concluded that no credence can be given to the affidavit filed by Mr. Ramesh Shetty. The aforesaid finding is one on appreciation of fact and does not give rise to any substantial question of law. The decision of the SC relied upon by the appellant in the case of CIT vs. Mehta Parikh 30 ITR 181 would only apply where identity of a person is established before the affidavit is looked into. In this case the identity of Shri. Ramesh Shetty as a consultant to the appellant-assessess was not established. Accordingly, this question also does not raise any substantial question of law;

++ the Tribunal held that whatever extra expenses had been incurred by the assessee out of its undisclosed receipts have already been booked as expenses in his Income and Expenditure Account. The Tribunal held that in any case the appellant has not shown any evidence in support of his claim for the cash expenses incurred which were not recorded in the regular books of account of the appellant. Moreover, the explanation of the assessee that the cash receipts had been suppressed for the purposes of taking care of corruption at various levels also disentitles them for claiming expenditure. In fact the impugned order holds that expenditure incurred to make payments of bribe etc. cannot be allowed as an expenditure incurred for the purpose of business or profession in view of the Explanation to Section 37. In spite of the aforesaid finding the impugned order modified the order of the CIT(A) and reduced net profit to 90% of undisclosed receipts. This finding of fact was also supported by the fact that the appellant had not led any evidence before the authorities and/or even before the Tribunal to show that any expenditure was incurred out of undisclosed income which was not recorded in his books of account. The aforesaid finding of the Tribunal upholding the order of the CIT(A) is a finding of fact and based on appreciation of evidence. Accordingly, no substantial question of law arises. Hence, we see no reason to entertain Question E. In view of the above, Question Nos. A to E as proposed by assessee do not raise any substantial question of law. Accordingly the appeal is dismissed. No order as to costs.