IN HIGH COURT OF JUDICATURE AT MADRAS Orders reserved on 19.02.2019 Orders pronounced on 25.02.2019 CORAM: HON'BLE Dr. JUSTICE ANITA SUMANTH W.P.No.21919 to 21921 of 2018 and W.M.P.Nos.25719 , 25720, 25721 & 34931 of 2018 M/s.A.Thangavel Nadar Stores, 227, R.K.Mutt Road, Mylapore Chennai-600 004 Pan No:AAAFA7426Q rep. by its partner ....Petitioner --Vs-- Income Tax Officer Non-Corporate Ward 1(1) Chennai-600 034 ...Respondent PRAYER in WPs: Writ Petitions filed under Article 226 of Constitution of India praying for writ of Certiorari calling for records of respondent in PAN No.AAAFA7426Q and quash proceedings u/S 148 dated 31.03.2018 and consequential order disposing objection raised against issue of notice u/S 148 for Assessment years 2013-14 to 2015-16 dated 30.07.2018 issued by respondent. For Petitioner : Mr.R.L.Ramani for Mr.B.Raveendran For Respondent : Mr.Naveen Durai Babu Standing Counsel ORDER Heard Mr.R.L.Ramani, learned senior counsel for Mr.B.Raveendran, learned counsel for petitioner and Mr.Naveen Durai Babu, learned Standing counsel for respondent. 2. writ petitioner has approached this Court challenging proceedings under Section 148 of Income Tax Act, 1961 (in short 'Act') dated 31.03.2018 and order disposing objections raised against http://www.judis.nic.in 2 issuance of aforesaid notice, dated 30.07.2018, in respect of assessment years 2013-14 to 2015-16. 3. facts in relation to all writ petitions are common. petitioner is partnership firm with two partners. Returns of income have been filed in respect of three assessment years in question. Intimations under Section 143(1) of Act had been issued by respondent for all years. survey under Section 133A of Act was initiated in premises of petitioner on 12.01.2018. There had been no incriminating material found in course of survey as can be seen from Mahazarnama recorded on day of survey by surveying team. 4. statement under Section 133A was recorded from one of partners of firm, one, Mr.A.T.Janakiraman. Since re-opening of assessments by Income Tax Department is based entirely on contents of statement, I extract relevant portions hereunder for better appreciation of matter. In statement dated 12.01.2018 question nos. 6, 7 and 9 are as follows: Q.6. Have you maintained any books of accounts supporting turnover reported? Ans. No I have not maintained any proper books of accounts in respect of turnover reported. But I have maintained month-wise just sales summary ledger as. However individual bills were discarded after making turnover entry. Hence I am not in position to provide individual bills/vouchers day wise. Q.7. Since you have not maintained individual bills and you have provided sales turnover monthwise, your estimated turnover for Fin. Year 2017-18 is worked out to Rs.8 crores? http://www.judis.nic.in Ans. Yes my average monthly sales amounted to 3 around Rs.65 lakhs approximately. Going by same estimate my annual sales turnover will be around Rs.8 crores. Q.9. Your sales voucher for 12.01.2018 were mapped with corresponding purchase bills and it was estimated that your profit margin comes to around 25 percent and allowing expenses for overheads and other purposes, your net profit works out to 18.75%? Ans. As I have already mentioned that I have not maintained books for substaining net profit margin, I agree with Department that my net profit margin can be taken as 18.75% on my sales turnover. 5. After proceedings for survey, petitioner filed letter dated 24.01.2018 signed by other partner in firm, one, Mr.A.Singarajan, disavowing statement recorded from Mr.Janakiraman in full. According to Mr.Singarajan, he was informed by Mr.Janakiraman that statement had been prepared by surveying officials who had simply obtained his signatures on it. In any event, he would state that firm had two partners and hence statement taken from one would not bind firm itself. 6. In course of survey, three cheques, post-dated to 25.01.2018, 25.02.2018 and 25.03.2018, for amounts of Rs. 15,00,000/- had been taken under duress from petitioner by surveying officials towards advance tax liability. By letter dated 05.02.2018, petitioner sought return of cheques since, according to it, computation of taxes as effected by petitioner was perfectly in order and petitioner had been regular in defraying its tax liability. There was thus no necessity for Department to have taken cheques in advance and even without assessment or demand pending. http://www.judis.nic.in 4 7. This was followed by issuance of notices under Section 148 of Income Tax Act dated 31.03.2018 on ground that assessing officer had reasons to believe that income had escaped assessment for three assessment years in question and calling upon petitioner to file returns of income within thirty days from date of receipt of notice, offering correct income to tax. 8. petitioner, in response to notices under section 148, enclosed copy of returns already filed by it, being of view that there had been no escapement of income and original return reported its income truly and correctly. In line with judgment of Supreme Court in case of GKN Driveshafts (India) Ltd. Vs. ITO [(2003) 259 ITR 19], petitioner sought copy of reasons on basis of which assessments had been re-opened vide letter dated 30.04.2018. reasons were furnished by respondent on 28.05.2018 and read as follows: Ref: Your letter dated 25.04.2018. As requested by you reason for reopening and issue notice under Section 148 of IT Act 1961 for Assessment Year 2014-15 is as furnished below. survey was conducted in this case on 12.01.2018. During course of survey it was found that assessee has not maintained any books of account either physically or in system. During survey, assessee has agreed with department that net profit margin can be taken as 18.75% on sales turnover of firm. On perusal of Return of Income filed for Asst. year 2014-15 it is observed that net profit on sales turnover as admitted by assessee is only 0.55 on sales turnover of Rs.2,27,14,446/- whereas in sworn statement recorded during course of survey partner of firm has admitted for net profit margin @18.75%. http://www.judis.nic.in In circumstances, I have reason to believe that 5 income chargeable to tax has escaped assessment for Asst. Year 2014-15 within meaning of section 147 of Income Tax Act, 1961 and case is reopened for assessment for Asst year 2014-15 with prior approval of appropriate Authority. 9. reasons are identical for all three years. Supreme Court, in case of GKN Driveshafts (supra) has outlined procedure to be followed by assessee as well as department in matter of re- assessments and in line with same, preliminary objections to notices under Section 148 were filed by petitioner on 09.07.2018. broad basis on which notice was objected to was that (i) it was bereft of jurisdiction insofar as no approval had been obtained from Joint Commissioner of Income Tax as required in terms of Section 151(2) and (ii) that sworn statements recorded from partner could not form sole basis of re-assessments. petitioner also documented fact that post-dated cheques taken in course of survey proceedings on 12.01.2018 had been returned by Department to petitioner only on 07.02.2018. 10. In response to objections Assessing Authority passed impugned orders dated 30.07.2018 rejecting objections. orders are identical for all three years. reading of same makes it amply clear that re-assessment is based solely and wholly on statement recorded from Mr.Janakiraman. Paragraph no.4 of impugned order makes this more than clear, as extracted below: 'During course of survey it is found that assessee Firm has not maintained any proper books of accounts. In statement recorded from partner of http://www.judis.nic.in firm Shri T.Janakiraman he has stated that firm has 6 not maintained any proper books of accounts in respect of turnover reported. But I have maintained month-wise just sales summary ledger as. However individual bills were discarded after making turnover entry. Hence I am not in position to provide individual bills/voucher day wise. assessee has agreed with Department that net profit margin can be taken as 18.75% on sales turnover of Firm. On perusal of return of income filed for Asst. year 2013-14, it is observed that net profit on sales turnover as admitted by assessee is only 0.49% on sales turnover of Rs.2,47,88,729/- whereas in sworn statement recorded during course of survey, partner of Firm has admitted for net profit margin @18.75%.' 11. It is also relevant to note that Mr.Janakiraman had himself retracted his statement under cover of his communication dated 24.01.2018. letter states that Mr.Janakiraman was not fluent in English and he thus alleges that he was not aware of contents of statement that he was called upon to sign. 12. counter has been filed by Income Tax Department wherein, first point agitated is that writ petition is not maintainable. Mr.Naveen Duraibabu, learned counsel appearing for Department states that due sanction has been obtained from concerned authority and as such allegation that proceedings were without jurisdiction was incorrect. There is really no contest as far as this point is concerned and I thus, reject contention that proceedings are without jurisdiction on ground of lack of sanction. http://www.judis.nic.in 7 13. As far as statement of Mr.Janakiraman is concerned, Revenue contends that Mr.Janakiraman was well versed in English and in fact, income tax returns filed by firm are signed only by him. Thus, they would brush away argument that statements were recorded without knowledge of Mr.Janakiraman of contents. According to revenue, retraction of statement was afterthought and contents of statement make it very apparent that there was significant suppression of income by petitioner. When confronted, partner of petitioner firm had rightly computed gross profit on undisclosed income and undertaken to pay advance on same. This, according to revenue, is sufficient to establish necessity as well as validity of proceedings for re-opening of assessments. 14. issue that I am called upon to decide is whether notice/ proceedings for re-assessment can be sustained wholly on basis of sworn statement recorded in course of survey in absence of any other tangible evidence available with Assessing Officer. 15. petitioner relies on decision of Karnataka High Court in case of Commissioner of Income Tax and Another Vs. Dr.N.Thippa Setty (322 ITR 525) where order of re-assessment based entirely on statements recorded under Section 132(4) of Act and subsequently retracted, was set aside by court. 16. Central Board of Direct Taxes has also issued circular in F.No.286/2/2003 dated 10.03.2003 to following effect: 'F.No.286/2/2003-IT(Inv) http://www.judis.nic.in Govt.of India, 8 Ministry of Finance & Company Affairs, Department of Revenue, Central Board of Direct Taxes, No.254/North Block, New Delhi 10th March 2003 To All Chief Commissioner of Income Tax (Cadre Contra) &All Directors General of Income Tax Inv. Sir, Subject: Confession of Additional income during course of search & seizure and survey operation- Regarding. Instances have come to notice of Board where assessee have claimed that they have been forced to confess undisclosed income during course of search & seizure and survey operations. Such confessions, if not based upon credible evidence, are later retracted by concerned assessee while filing returns of income. In these circumstances, on confessions during course of search & seizure and survey operations do not serve any useful purpose. It is, therefore, advised 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 Income Tax Departments. Similarly, while recording statement during course of search & Seizures and survey operations no attempt should be made to obtain confession as to undisclosed income. Any action on contrary shall be viewed seriously. Further, in respect of pending asesssment proceedings also, assessing officers should rely upon evidences/materials gathered during course of search/survey operations or thereafter while framing relevant assessment orders. Your faithfully Sd/-xxxx (S.R.Mahapatra)Under Secretary (Inv.II)' http://www.judis.nic.in 9 17. provisions of Sections 147 and 148 provide for re- opening of assessments and re-assessment of income in cases where Assessing Officer has reason to believe that income has escaped assessment. It is trite to state that reasons recorded by Assessing Officer should be based on tangible materials that have come to his notice/are in his possession. This aspect of matter has been long settled by series of judgment of Supreme court as well as High Courts commencing from ITO v. Lakhmani Mewal Das [(1976) 103 ITR 437] to judgment of Supreme Court in case of CIT, Delhi Vs. Kelvinator ltd. where Bench states as follows: '5. On going through changes, quoted above, made to Section 147 of Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, reopening could be done under above two conditions and fulfilment of said conditions alone conferred jurisdiction on assessing officer to make back assessment, but in Section 147 of Act (with effect from April 1, 1989), they are given go-by and only one condition has remained, viz., that where assessing officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen assessment. Therefore, post April 1, 1989, power to reopen is much wider. However, one needs to give schematic interpretation to words 'reason to believe' failing which, we are afraid, Section 147 would give arbitrary powers to assessing officer to reopen assessments on basis of 'mere change of opinion', which cannot be per se reason to reopen. 6. We must also keep in mind conceptual difference between power to review and power to reassess. assessing officer has no power to review; he has power to reassess. But reassessment has to be based on fulfilment of certain precondition and if concept of 'change of opinion' is removed, as contended on behalf of Department, then, in garb of reopening assessment, review would take place. 7. One must treat concept of 'change of opinion' as in-built test to check abuse of power by assessing officer. Hence, after April 1, 1989, assessing officer has power to reopen, provided there is 'tangible material' to come to conclusion that there is escapement of income from http://www.judis.nic.in assessment. Reasons must have live link with formation of belief. Our view gets support from changes made to 10 Section 147 of Act, as quoted hereinabove. Under Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted words 'reason to believe' but also inserted word 'opinion' in Section 147 of Act. However, on receipt of representations from companies against omission of words 'reason to believe', Parliament reintroduced said expression and deleted word 'opinion' on ground that it would vest arbitrary powers in assessing officer ...' 18. In present case, there is no dispute on position that survey initiated by Department on 12.01.2018 has yielded no tangible incriminating material. In fact, Mahazarnama of even date reveals as much. Notwithstanding this, Department has gone ahead with impugned proceedings based solely upon sworn statement recorded under Section 133A from one of partners. 19. statement recorded under Section 133A in course of survey is different and distinct from statement recorded under Section 132(4) recorded in course of search and seizure and evidentiary value ascribed to two is not same. provisions of Section 133A(3) sets out limits of power endowed upon Income Tax Authority carrying out survey action as follows: Power of Survey... 133A-....(3) income-tax authority acting under this section may,- (i) if he so deems necessary, place marks of identification on books of account or other documents inspected by him and make or cause to be made extracts or copies therefrom, (ii) impound and retain in his custody for such period as he thinks fit any books of account or other documents inspected by him: Provided that such income-tax authority shall http://www.judis.nic.in not 11 (a) impound any books of account or other documents except after recording his reasons for so doing; or 19[(b) retain in his custody any such books of account or other documents for period exceeding ten days (exclusive of holidays) without obtaining approval of Chief Commissioner or Director General therefor, as case may be,]] (ii) make inventory of any cash, stock or other valuable article or thing checked or verified by him, (iii) record statement of any person which may be useful for, or relevant to, any proceeding under this Act. 20. Contradistinguish this with statement recorded by Assessing Officer under Section 132(4) as follows: 132(4): authorised officer may, during course of search or seizure, 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 and any statement made by such person during such examination may thereafter be used in evidence in any proceeding under Indian Income-tax Act, 1922 (11 of 1922), or under this Act. [Explanation.-For removal of doubts, it is hereby declared that examination of any person under this sub-section may be not merely in respect of any books of account, other documents or assets found as result of search, but also in respect of all matters relevant for purpose of any investigation connected with any proceeding under Indian Income-tax Act, 1922 (11 of 1922), or under this Act.] http://www.judis.nic.in 12 21. Thus, where, under Section 132(4), statement recorded by searching officer is specifically permitted to be used as evidence in any proceeding under either 1922 or present Act, there is no such sanctity conferred on statement recorded under Section 133A(iii). utility of statement recorded in course of survey is limited to extent to which it is useful or relevant to any proceeding under Act. Thus, statement recorded in course of survey can, at best, support proceeding for reassessment; that is, where Assessing Officer has material in his possession, based on which he comes to conclusion that there has been escapement of income, such material being concrete and having live link with reasons recorded for re-assessment, aforesaid material may find support from statement recorded in course of survey. Not so, in case of statement recorded in course of search which, by itself, would from primary evidence. 22. This issue has also been considered by Division Bench of Court in case of CIT, Salem v. M/s.S.Khader Khan Son (2012) 254 CTR (SC) 228 : (2013) 352 ITR 480 (SC) : (2012) 210 TAXMAN 248 (SC) wherein Bench states thus: '7. From foregoing discussion, following principles can be culled out: (i) admission is extremely important piece of evidence but it cannot be said that it is conclusive and it is open to person who made admission to show that it is incorrect and that assessee should be given proper opportunity to show that books of accounts do not correctly disclose correct state of facts, vide decision of Apex Court in Pullangode Rubber Produce Co. Ltd. v. State of Kerala [1973]91ITR18(SC) ; http://www.judis.nic.in (ii) In contradistinction to power under Section 133A, 13 Section 132(4) of Income Tax Act enables authorised officer to examine person on oath and any statement made by such person during such examination can also be used in evidence under Income Tax Act. On other hand, whatever statement is recorded under Section 133A of Income Tax Act it is not given any evidentiary value obviously for reason that officer is not authorised to administer oath and to take any sworn statement which alone has evidentiary value as contemplated under law, vide Paul Mathews and Sons v. Commissioner of Income Tax [2003]263ITR101(Ker) ; (iii) expression "such other materials or information as are available with Assessing Officer" contained in Section 158BB of Income Tax Act, 1961, would include materials gathered during survey operation under Section 133A, vide Commissioner of Income Tax v. G.K. Senniappan [2006]284ITR220(Mad) ]; (iv) material or information found in course of survey proceeding could not be basis for making any addition in block assessment, vide decision of this Court in T.C. (A) No. 2620 of 2006 between Commissioner of Income Tax v. S. Ajit Kumar; (v) Finally, word "may" used in Section 133A(3)(iii) of Act, viz., "record statement of any person which may be useful for, or relevant to, any proceeding under this Act, as already extracted above, makes it clear that materials collected and statement recorded during survey under Section 133A are not conclusive piece of evidence by itself. 8. For all these reasons, particularly, when Commissioner and Tribunal followed circular of Central Board of Direct Taxes dated 10.3.2003, extracted above, for arriving at conclusion that materials collected and statement obtained under Section 133A would not automatically bind upon assessee, we do not see any reason to interfere with order of Tribunal.' 23. In light of detailed discussion above, and in light of Circular F.No.286/2/2003 dated 10.03.2003 as well as admitted position that there is not shread of material apart from statement recorded under Section 133A that forms basis of proceedings for http://www.judis.nic.in 14 reassessment, I am of view that reasons dated 28.05.2018 have no legs to stand. impugned notices dated 31.03.2018, which trace their existence to reasons dated 28.05.2018 must thus fail and I quash same as well as impugned orders dated 30.07.2018 rejecting preliminary objections. 24. These writ petitions are allowed. connected miscellaneous petitions are closed. No costs. 25.02.2019 Speaking order Index: Yes Internet: Yes ska To Income Tax Officer Non-Corporate Ward 1(1) Chennai-600 034 http://www.judis.nic.in 15 DR.ANITA SUMANTH. J, srk / ska Pre-Delivery Order in W.P.No.21919 to 21921 of 2018 and W.M.P.Nos.25719 , 25720, 25721 & 34931 of 2018 25.02.2019 A. Thangavel Nadar Stores v. Income-tax Officer, Non-Corporate Ward-1(1), Chennai