Direct Tax (Article) Evidentiary value of statement recorded in assessment, search and survey proceedings under the Income Tax Act, 1961

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1 Direct Tax (Article) Evidentiary value of statement recorded in assessment, search and survey proceedings under the Income Tax Act, 1961 The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

2 Introduction During assessment or in course of survey/search, the Income Tax Officials record the Statement of the assessee and other connected person to ascertain the facts. Such statements are thereafter used as an evidence to assess the income of the assessee. This article discusses the evidentiary value of such statement. LEGAL PROVISIONS Section 131(1) empowers the Income Tax Authorities with the powers which are vested in a court under the Court of Civil Procedure, 1908 in respect of matter of enforcing the attendance of any person including any officer of a banking company and examining him on oath. Section 132(4) empowers an Authorized Officer, during the course of search and seizure, to examine on oath any person who is found to be in possession or control of any books of account, documents, money, bullion, jewellery or other valuable article or thing. The statement made by such person during such examination may thereafter be used in evidence in any proceedings under the IT Act. Section 133A(3)(iii) empowers an IT authority to record the statement of any person which may be useful for or relevant to any proceedings under the Act. Section 133A(5) empowers the IT authority to record the statement of assessee or other person in respect of the expenditure incurred in connection with any function, ceremony or event which may thereafter be used as an evidence in any proceedings under the Act. Evidentiary value of the Statement recorded under various sections of the Act Section 131 empowers the tax authorities to examine a person on oath. Such examination may be made even if no proceedings with respect to such person are pending before it or any other income tax authorities. Since u/s 131 oath is administered, the statement recorded under this section has a legal sanctity and such statement can be used as an evidence subsequently. Section 132(4) empowers the authorized officer to record the statement of any person on oath in course of search and seizure proceedings. It is specifically provided that such statement may be used in evidence in any proceedings under this Act. Therefore, such statement has an evidentiary value in law. Section 133A(3)(iii) provides that in survey proceedings the IT Authorities may record the statement of any person. However, neither this section authorizes the tax authorities to record the statement on oath not specifies that such statement has an

3 evidentiary value. Therefore, the evidentiary value of such statement is challenged in the court. Kerala High Court in case of Pal Methews & Sons 129 Taxman 416 has held that section 133A enables the IT Authorities only to record the statement but does not authorize for taking any sworn in statement. However, in case of CIT Vs. Hotel Samrat (2010) 323 ITR 353 (Kerala), it was held that statement recorded u/s 133A(3)(iii) though cannot be treated as independent evidence like evidence recorded u/s 132(4), but it has corroboratory value in assessment and statement recorded under said provision can be even relied on by the assessee. The Madras High Court in case of CIT Vs. S. Khader Khan Son 79 DTR 184, MP High Court in case of CIT Vs. Digambar Kumar Jain (HUF) (2013) 84 DTR 365 and Delhi High Court in case of CIT Vs. Dhingra Metal Works (2010) 328 ITR 384 has held that in contradistinction to the power under s. 133A, s. 132(4) of the IT Act enables the authorized officer to examine a person on oath and any statement made by such person during such examination can also be used in evidence under the IT Act. On the other hand, whatever statement is recorded under s. 133A of the IT Act it is not given any evidentiary value obviously for the reason that the officer is not authorized to administer oath and to take any sworn statement which alone has evidentiary value as contemplated under law. Moreover, the word 'may' used in Section 133A(3)(iii) of the Act clarifies beyond doubt that the material collected and the statement recorded during the survey is not a conclusive piece of evidence by itself. The decision of the Madras High Court is approved by the Supreme Court in 210 Taxman 248 by holding that the section 133A(3) does not empower any IT authorities to examine any person on oath; so statement recorded under section 133A has no evidentiary value and any admission made during such statement cannot be made basis of addition. The Hon ble Supreme Court in case of Pullangode Rubber Produce Co. Ltd. 91 ITR 18 has held that an admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It is open to the person who made the admission to show that it is incorrect. The statement recorded under section 133A(5) has an evidentiary value as it is so provided in the section itself. Further, the statement under this clause can even be recorded by the Inspector of the Income Tax. Retraction of statement Statements recorded by tax authorities in course of search/survey are many a times retracted by the assessee on the ground that the same has been obtained by pressure or undue influence. However, once a statement has been recorded, the same should not be retracted in a light-hearted manner. If any retraction is required to be made from the statement already recorded, the following points needs to be considered: Retraction should be made at earliest point of time. If this is not done, a case may be made out that by not making the retraction at an early stage, the assessee has stopped the Investigation Wing to carry on the investigation and to collect the evidence against the retraction. Hon ble Ahmadabad Bench in case of Kantilal C. Shah Vs. ACIT 62 DTR 385 has held that retraction of statement made u/s 132(4) is not permissible after considerable time has elapsed. Retraction should be supported by convincing and effective evidence through which assessee could demonstrate that the statement initially recorded was factually incorrect.

4 Generally, it is presumed that whatever is stated at the time of recording of preliminary statement u/s 132(4) is true and correct. Thus, whenever assessee pleaded that the statement has been obtained forcefully/under coercion/undue influence/without material/contrary to the material then it should be supported by strong evidence. Statement recorded u/s 132(4) at odd hours cannot be considered as voluntary statement if it is subsequently retracted and necessary evidence is laid contrary to such admission as held by Gujarat High Court in case of Kailash Ben Manbhar Lal Choksi Vs. CIT 328 ITR 411. No Confession can be extorted Instances have come to the notice of Board where assessees have claimed that they have been forced to confess the undisclosed income during the course of search and seizure and survey operations. It has been advised to all Chief Commissioner s and Director General of Income-Tax that there should be focus and concentration on collection of evidence of income which leads to information on what has not been disclosed or is not likely to be disclosed before the Income Tax Departments. CBDT in F. No. 286/2/2003-IT (Inv.) dt has also advised that while recording statement during the course of search and seizure, no attempt should be made to obtain confession as to the undisclosed income. Further, in pending assessment proceedings, AO should rely upon the evidence/material gathered during the course of search/survey operations or thereafter while framing the relevant assessment orders. Thus, power to record a statement has not been diluted. What is discouraged is forced confession of undisclosed income. Conclusion The statements under the Income Tax Act are recorded to gather the evidences of unaccounted income or to seek explanation in respect of documents of unrecorded income/ investment found in search/ survey. Therefore, assessee should take utmost care while giving the statement under the Income Tax Act as such statement can be used as evidence against him in assessing the income. The burden lies on the assessee to establish that the admission made in the statement is incorrect/wrong.

5 Udyog has been successful in integrating itax with following ERP SAP E.C.C. 6.0 SAGE Accpac ERP 100 v 5.6 MFG-QAD eb 2.1 ABAS BPCS Adage BAAN FP 7 Oracle Updated and written by, CA P.C. Parwal pparwal@kalanico.com CA Sonal Parwal sonal22.parwal@gmail.com Consultant to Udyog Software (India) Ltd. Visit Call us on sales@udyogsoftware.com Udyog Software (India) Ltd Phone: sales@udyogsoftware.com The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.