Blog # 6. Evidentiary Value of Statement made before The Income Tax Authourities

In the year 2003-04,The Finance Minister mentioned in his budget speech about the confiscatory statement during the search and survey made by the Income Tax Authorities as under :

“That one of his priorities concerning search and survey operations is that no confessions shall be obtained during search proceedings. Judicial opinion also is that admissions recorded during survey operations are invalid. Yet, this is being freely done”.

The Board of direct taxes issued instruction to theAll Chief Commissioners of Income Tax, (Cadre Contra) & All Directors General of Income Tax Inv. vide letter   F. No. 286/2/2003-IT (Inv) dated 10.03.2003 in   regard of confiscatory statement in the course of search and seizer as under:

“Instances have come to the notice of the Board where assessees have claimed that they have been forced to confess the undisclosed income during the course of the search & seizure and survey operations. Such confessions, if not based upon credible evidence, are later retracted by the concerned assessees while filing returns of income. In these circumstances, on confessions during the 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 the Income Tax Departments. Similarly, while recording statement during the course of search it seizures and survey operations no attempt should be made to obtain confession as to the undisclosed income. Any action on the contrary shall be viewed adversely.
Further, in respect of pending assessment proceedings also, assessing officers should rely upon the evidences/materials gathered during the course of search/survey operations or thereafter while framing the relevant assessment orders”.

The Income Tax Authorities use   statement as a tool against assessee to tax him or in other words penalize the assessee during the assessment proceeding, survey and raid conducting at the assessee’s premises. It means my statement used against me, whether it is law full?   During assessment, assessing Officer called the debtor, creditor, loaner and other persons related to the business or any other person reflected in the books of account and asked him to get statement against the profit declare by assessee or to prove entries in the books of account of assessee, which gives effect to assessee’s income or loss as declared by him . Generally, authorities cross their jurisdiction to show extra enthusiasm due to any constrain at the back of assessee made inquiry or obtain statement to use against the assessee along with or without corroborative evidence. Whether it is lawful or permits natural justice or allowed Income Tax Act, 1961, the Indian Evidence Act, 1872, any other lawful agreement or the legal pronouncements. Answer is big NO because any information, material collected by assessing officer, he must completely discharges his duty towards assessee after providing opportunity of “confronting such statement/evidence and examining it as provided under evidence Act, 1872 otherwise their action will not give desired result and failed to sustain at appellate stage.

The Income Tax Authorities are vested with two type powers administrative and Qusi Judicial powers at a time. Therefore, they must make distinction  between two, which and where to use. We should discuss herewith qusi- judicial powers of an assessing Officer,where he effect  assessee’s interest adversely; assessing officer must perform qusi- judicial authority function. He must act within the frame work of law , natural justice and judicial pronouncement. AO is not only a tax collector but also a quasi judicial authority. In this capacity, he (AO) is duty bound to allow such claim which assessee is otherwise entitled to have and has not claimed the same. (In this connection, reliance was placed by ITAT on SC ruling.

 Mahalaxmi Sugar Mills 160 ITR 920, DHC
The Full Bench of the Delhi High Court was considering a case of reopening u/s 147 within 4 years from the end of the assessment year. The Court held that when a regular order of assessment is passed in terms of section 143 (3) of the Act, a presumption can be raised that such an order has been passed on application of mind. It was held that if it be held that an order which has been passed purportedly without application of mind would itself confer jurisdiction upon the Assessing Officer to reopen the proceeding without anything further, the same would amount to giving premium to an authority exercising quasijudicial function to take benefit of its own wrong.

In CIT vs. Kelvinator of India Ltd. 256 ITR 1(Delhi)
When Assessing Officer perform administrative duties, he is duty bund with the bosses’ directions and circulars. Assessing Officer does not require to apply his mind and he is duty bound to follow direction given by the high up. Applicability of such directions should be judicious and try to trace scope of unwarranted harassment. 
The Income tax Act, 1961 empower the assessing officer to take statement as provided under Section 132 Sub Section (4) of Income Tax Act,1961:
The authorised officer may, during the course of the 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 the Indian Income-tax Act, 1922 (11 of 1922), or under this Act.
 1[Explanation.—For the removal of doubts, it is hereby declared that the 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 a result of the search, but also in respect of all matters relevant for the purposes of any investigation connected with any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act.]
During raid, survey or assessment, Income Tax Officials obtain   “Statement” from the assessee his agent or other people available in the premises, is it required under the law? But it become procedure to strengthen the use of available material irrespective of Hon’able Finance Minister was willing to curb this procedure after considering legal pronouncements. The statement furnish during survey is more confessional statement then admission because it penalize the assessee by way of tax and penalty.
Section 131(1) empower the assessing officer with the powers vested in a court under the Code of Civil Procedure,95 of 1908 in connection discovery and inspection etc. The section 2(17)(d) the Code of Civil Procedure,1908 discussed about powers of officer of  court to administer oath along with other judicial power. The discussion about statement, admission and confession are used as a tool of evidence therefore, without discussing The Indian Evidence Act, 1872 it could not be completed. The relevant section’s headline about the admissibility of statement is as under:
17. Admission defined
18. Admission- by party to proceeding or his agent
19. Admissions by persons whose position must be proved as against party to suit
20. Admissions by persons expressly referred to by party to suit
21. Proof of admissions against persons making them, and by or on their behalf
22. When oral admissions as to contents of documents are relevant
23. Admission in civil cases relevant
24. Confession caused by inducement, threat or promise when irrelevant in criminal proceedings.
25. Confession to police officer not to be proved
26. Confession by accused while in custody of police not to be proved against him
27. How much of information received from accused may be proved
28. Confession made after removal of impression caused by inducement, threat or promise, relevant If such a confession as is referred to in section 24 is made after the impression caused by any such inducement, threat or promise has, in the opinion of the Court, been fully removed, it is relevant.
29. Confession otherwise relevant not to become irrelevant because of promise of secrecy, etc.
30. Consideration of proved confession affecting person making it and others jointly under trial for same offence
31. Admissions are not conclusive proof of the matters admitted but they may operate as estoppels under the provisions hereinafter contained.
32. Cases in which statement of relevant fact by person who is dead or cannot be found, etc, is relevant
33. Relevancy of certain evidence for proving, in subsequent proceeding, the truth of facts therein stated
34. Entries in books of account when relevant
35. Relevancy of entry in public record made in performance of duty
36. Relevancy of statements in maps, charts and plans
37. Relevancy of statement as to fact of public nature, contained in certain acts or notifications
38. Relevancy of statements as to any law contained in law-books
39. What evidence to be given when statement forms part of conversation, document, book or series of letters or papersWhen any statement of which evidence is given forms part of a longer statement, or of a conversation or part of an isolated document, or is contained in a document which forms part of a book, or of connected series of letters or papers, evidence shall be given of so much and no more of the statement, conversation, document, books, or series of letters or papers as the Court considers necessary in that particular case to the full understanding of the nature and effect of the statement, and of the circumstances under which it was made.
Statement means anything stated in writing or orally to communicate in any matter. The admission or confession is two words with the more or less gravity but used in different sense. Admission is admissible under section 21 of Evidence Act as proof against persons making by and on their behalf. Admission is generally made in civil matters. The admission can be accepted or rejected or the part of the admission can be accepted. All the admissions are not confession.
Confession is made by an accused before the authority during his custody. It is used in criminal matters made by an accused to acknowledge guilt. All confessions are admission for the evidence purpose. A confession and admission must be weighing on the whole, either to accept or reject completely during the course of evidence.
The admission made by a counsel is binding upon the client because he engage a counsel to conduct his case, it is presumed, he authorized him to make binding admission before the Court during the conduct of case. The admission by a council on a fact is not admissible as per evidence Act, 1872 but presentation of law is admissible. The admission of question of law , fact or mixed question of law and facts  are arguable in appeal and it is not binding upon the client.
Here is relevant case law for judicial analysis of Confession/admission:

Bansal High Carbons (P)Ltd. 2009) 223 CTR 179 (Del).
No addition can be made only on the basis of admission in statement u/s. 132(4), however, any expenses deduction or allowance claimed under the Act which is found to be false and admitted so by the assessee can be added as undisclosed income. As the AO has failed to bring any evidence in support of the addition, the additions were deleted

Contech Transport Services (P) Ltd.  2009) 19 DTR 191(Mum)(Trib).
There was reassessment on basis of statements made by certain individuals. Assessee was not given opportunity to cross examine those individuals.

Sanjeev Kumar Jain (2009) 310 ITR 178 (P&H)
Statement made in the course of search and seizure was retracted only after issue of summons, addition cannot be made merely on the basis of statement.

CIT vs. K. Bhuvanendra and others (2008) 303 ITR 235 (Mad.)
Adition of undisclosed income could not be made in the hands of assessee solely on the basis of statement of its tax consultant, more so when the statement was not voluntary statement and has been retracted. Statement made by a third person at the time of survey or search of another concern could not be relied upon as he is not the controlling person of that concern and no corroborative evidence was found in that search.
First Global Stock Broking (P) Ltd. vs. ACIT (2008) 4 DTR 172 (Mum.)
Where oral evidence of any party is sought to be used against an assessee ,it is necessary that information relating to such statement or the copy of deposition should be furnished to the assess with opportunity to cross examination the deponent ,if required by the assessee .if it is not done ,it is violation of principle of natural justice. Hence order will be bad in law

CIT v Ashwani Gupta ( 2010 ) 322 ITR 396 ( Delhi
Abid Malik  Vs UOI, (2009TIOL272HC Del-FEMA)
Retracted confession can be a piece of corroborative evidence and not as the sole evidence on the basis which conviction can be ordered – Once confessional statement is retracted, burden is on the prosecution to prove that the statement was voluntary

Abdul Qaymme Vs CIT (1990) 184 ITR 404
An admission or acquiescence cannot be foundation of assessment when income is returned under an erroneous or misconception of law. it is always open to assessee to demonstrate and satisfy the authority concerned that a particular income is not taxable in his hands and it was returned under an erroneous impression of law.

CIT Vs  M/s Dhingra Metal Works (2010TIOL693HC Del-IT)
From a reading of Section 133A, it is apparent that it does not mandate that any statement recorded u/s 133A of the Act would have evidentiary value. In the High Court’s view, for a statement to have evidentiary value, the survey officer should have been authorised to administer oath and to record sworn statement. This would also be apparent from Section 132(4) of the Act. From the perusal of section 132(4), it is apparent that while Section 132(4) of the Act specifically authorizes an officer to examine a person on oath, Section 133A does not permit the same;
2. 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;
3. In any event, it is settled law that though an admission is extremely important piece of evidence, it cannot be said to be conclusive and it is open to the person who has made the admission to show that it is incorrect;
 CIT vs. Uttamchand Jain 320 ITR 554 (Bom),
 it was held the retracted confession can be relied only there is independent and cogent evidence to corroborate the statement.

Paul Mathews 263 ITR 101 (Ker)
Kader Khan 300 ITR 157 (Mad)
For a statement to have evidentiary value, the survey officer should have been authorised to administer oath and to record sworn statement as under s.132 (4). While s. 132(4) specifically authorizes an officer to examine a person on oath, s. 133A does not permit the same.

Vinod Solanki vs. UOI Civil Appeal No. 7407 of 2008
arising out of SLP (C) No. 3537of 2008 dated 18th December, 2008  UOI (233) ELT 157 (S.C.))

(i)   The retracted statement must be substantially corroborated by other independent and cogent evidences, which would lend adequate assurance to the court that it may seek to rely thereupon;
(ii)    The initial burden to prove that the confession was voluntary in nature would be on the Department.
(iii)    The burden is on the prosecution to show that the confession is voluntary in nature and not obtained as an outcome of threat, etc. if the same is to be relied upon solely for the purpose of securing a conviction.
(iv)   With a view to arrive at a finding as regards the voluntary nature of statement or otherwise of a confession which has since been retracted, the Court must bear in mind the attending circumstances which would include the time of retraction, the nature thereof, the manner in which such retraction has been made and other relevant factors. Law does not say that the accused has to prove that retraction of confession made by him was because of threat, coercion, etc. but the requirement is that it may appear to the court as such.         
Hamish Engineering Industries (P ) Ltd v Dy. CIT
( 2010 ) 34 DTR ( Mumbai ) ( Trib ) 490.
Statements recorded   from third parties which have been relied upon by the AO for the purpose of assessment not having been provided to the assessee ,order of AO is bad in law to that extent , impugned order is set a side and the AO is directed to re do the assessment according to law by providing the said statement to the assessee as well as recorded satisfaction u/s 158BD.

Srinivas Naik (2009)117 ITD 201 (Bang)
In the absence of recovery of any incriminating material during the search conducted in the premises of the assessee group, the statement of third party could not be used against the assessee in proceedings under Chapter XIVB, especially when the statements were recorded behind the back of the   assessee. Hon’able Supreme Court of India, Different High Courts and Tribunal are having considerate view that in absence of corroborated evidence a confession/ admission by way of statement could not attain evidentry value in the eyes of law. It is settled that if the department willing to use statement, department has to prove it with other evidences and assessee is free to prove it contrary/against the department. In my opinion statement gives only clue to prepare or made up case against the assesee for example a cup of tea required raw tea, milk and sugar but without fire all these things cannot cocked good tea. Raw tea can leave its flavor, and colour but not aroma with fresh water and will take long time and will not provide tea satisfaction. In the same way statement is a helping verb, which required verb (corroborative evidence) to complete sentence. Statement can utilize by the clever assessee in his favour because statement is interpretable.

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