Income Tax Appellate Tribunal - Delhi
Smt. Sujata Grover vs Assistant Commissioner Of Income Tax on 31 March, 2005
Equivalent citations: (2006)99TTJ(DELHI)837
ORDER
M.V. Nayar, A.M.
1. The assessee is in appeal against the order of the CIT(A)-XXIV, New Delhi, in appeal No. 31/2002-03, dt. 24th March, 2003. A number of argumentative grounds of appeal have been raised involving following two grievances only :
1. Disallowance of relief under Section 80HHC on export profits of Rs. 52,66,869, and 2. Addition of Rs. 10 lakhs as unexplained investment on office renovation.
We may also mention that the assessee had also filed an application for admission of an additional ground challenging the validity of the assessment on the ground that notice under Section 143(2) was not served on the assessee within 12 months of 31st Oct., 1995 when the return was filed by her. We have already passed an order dt. 30th Sept., 2004 rejecting the application for admission of the additional ground.
2. The appeal had also come up earlier before the Tribunal. Initially, the assessment was made on 27th March, 1998 in which similar stand was taken by the AO which was confirmed by the CIT(A) by his order dt. 2nd Sept., 1998. In appeal, Bench 'D' of the Tribunal in ITA No. 5228/Del/1998 set aside the orders of the authorities below restoring the matter back on the file of the AO with the direction to decide the case afresh after giving due opportunity to the assessee.
3. The assessee was proprietor of a concern called Basera Exports, which was engaged in the business of exporting a variety of goods. A search was conducted on the office premises of the assessee on 24th/25th Aug., 1994 under Section 132 of the Act. In the course of search, the authorised officer recorded a statement of Late Shri Vinod Grover, husband of the assessee, who also held her general power of attorney. It is an admitted position that Late Sh. Grover carried on the entire business of the assessee and the assessee was, therefore, not examined by the authorised officer. Subsequent to the search, the assessee in response to the summon under Section 131 of the Act issued by the ADI (Inv.), also endorsed her husband's statement.
4. On 13th Sept., 1994, i.e., about 21 days after the income-tax search, another search was conducted by the officers of the Enforcement Directorate under Section 37 of the Foreign Exchange Regulation Act, 1973 (FERA). This search had no connection with the earlier search conducted under Section 132 of the Act. Enforcement Officers also did not examine the assessee though the FERA search was conducted on her residential premises. However, a detailed statement of Sh. Vinod Grover was recorded under Section 40 of FERA. Sh. Vinod Grover was put under arrest immediately thereafter and produced before the Magistrate on the very next day, i.e., 14th Sept., 1994. He was remanded to judicial custody and his bail application was posted for hearing. However, before the bail application could be heard, he was detained under COFEPOSA. He continued to remain in jail till 31st Aug., 1995, when he was released on the orders of Delhi High Court.
5. The disallowance of relief under Section 80HHC is based on the statement of Shri Grover recorded under Section 40 of the FERA (hereinafter, referred to as the 'FERA statement'); whereas, the addition of Rs. 10 lakhs on account of unexplained investment is based on surrender made by Shri Vinod Grover in the statement recorded under Section 132 of the Act. In other words, the two searches and the two statements are not only independent of each other, but they also have no commonality.
6. In this background, we first take up the dispute relating to the disallowance of the claim of relief under Section 80HHC. The AO has once again relied on the FERA statement of Shri Grover and further held that the books of the assessee cannot be relied on as these were not found during the search operation on 24th Aug., 1994 and were not produced before the Investigation authorities during the post-search inquiries. He observed that "the total export turnover shown by the assessee was of Rs. 7.6 crores out of which Rs. 7.5 was made to M/s Less & Less Trading Co., Dubai, genuinity of which is doubtful. Sh. Vinod Grover admitted in the FERA statement that the exports were over-invoiced by 15 times and the differential amount was sent to M/s Basera Exports bank account by Manu of Dubai." He, therefore, rejected the claim of relief under Section 80HHC on the ground that "it is an admitted fact that the export consignment had a much lower value than shown in the invoices and the differential amount was arranged by Mr. Manu and finally deposited in the bank account of M/s Basera Exports. Therefore, it is very clear that the amount shown by the assessee as export receipts were not the receipts for exports in real sense, therefore, the deduction under Section 80HHC cannot be allowed to the assessee."
7. The CIT(A) upheld the order of the AO on the basis of the FERA statements of Shri Grover. He also did not accept the contention that in view of Shri Grover's retraction before the Magistrate on 14th Sept., 1994, the FERA statement had no evidentiary value. The relevant observations of the CIT(A) are reproduced below :
regarding her contention that the statement of Sh. Grover recorded by the FERA authorities is not of any evidentiary value as the statement recorded was under duress when he was under heavy medication is not tenable as no such issue was raised earlier, therefore, it is an afterthought and it is not that uncommon, that a person who has made a confession against his interest during any interrogation before such an authority as FERA, he would try to retract from such admission by charging that such statement was recorded involuntarily/under duress. The Supreme Court, in one such case, has clarified that there need not be a presumption that such a statement recorded is always involuntarily.
In the context of provisions of Section 40 of the FERA, 1973, it has been held that a person to whom summons are issued under that Section 40 may be called upon to give his statement in writing and to sign it and such a course is not prohibited either by the statute or the Constitution. There is no presumption that such a statement is always 'involuntary' [C. Sampath Kumar v. Enforcement Directorate ]. In Ambalal v. Union of India AIR 1961 SC 264 : 1961 SCR 933, a Constitution Bench of the Supreme Court opined that such a course was desirable and observed that the giving of the statement in writing under the signature of the maker safeguards the interest of the maker as well as the Department and eliminates the possibility of making a complain subsequently that the statement was not correctly recorded by the authorities.
8. CIT(A) also quoted the following excerpts of Vinod Grover's statement:
Q. How these payments were arranged ?
A. I would have faxed these details of Manu and an agreed amount, he would have sent remittance in Delhi @ Rs. 35 per dollar. For this I would have paid equivalent amount in Indian rupees to any person nominated by him.
Q. Have you previously made or received any amount from Mr. Manu of Dubai?
A. Yes, previously during April, 1994 to September, 1994, certain payments have been arranged from Manu of Dubai and all these payments finally arrived at Union Bank of India, Chandni Chowk where Basera Exports having an account. In lieu of these payments, I have made payments of Indian rupees calculated @ Rs. 35 per dollar to the following persons on instructions of Manu from Dubai:
(a) Gurmeet Singh, Karol Bagh 5750861, 0934, 3625, 7736474, 7771
(b) Bhagwan, Patel Nagar, Rajendra Nagar Old.
Further, I have to state that I do not remember address or telephone number of two persons. I used to receive phone calls from these persons regarding payments to be made to them, before this, I used to receive instructions from Manu of Dubai on telephone at my office number 570-5462; 570-9863, for making these payments to the above persons. When these local persons used to call we would fix up some code and some man would come on behalf these contacts and take payment after disclosing code to me. The payments which have been made by Manu of Dubai were in lieu of exports made by M/s Basera Exports.
Q. What was the profit earned by you in these transactions ?
A. We would have made net profit of approximately Rs. 60,00,000 on an export of Rs. 5 crores.
Q. Kindly furnish the details of goods being exported by you against which the payments were made.
A. We were exporting tips for ball point pens.
Q. You have made the payment during April, 1994 to September, 1994, on instructions on behalf of Manu of Dubai to Gurmeet Singh and Bhagwan and other parties on India. Please mention the amount paid to these persons.
A. I have made payments of Rs. 3,50,00,000 to Gurmeet Singh on instructions of Manu of Dubai during the said period and also Rs. 1,50,00,000 to Bhagwan on the instruction of same person, Mr. Manu of Dubai. Regarding the payment to other persons I have paid amounts totalling of Rs. 4 lakhs on instruction of Manu. On inquiry I state that the persons of Gurmeet Singh used to come to me and speak at codes, i.e., Jai Jhulela, Jai Mata Di, etc. These codes I also used to get from Manu and in this manner all these payments were made in instalments on different occasions to these persons.
Q. What was the source of funds for making these huge payments in India ? It appears you have also received some payment on instruction of Manu of Dubai. Please clarify.
A. It is wrong that I have received any payment in India on instruction of Manu of Dubai. All the funds were withdrawn from bank account of Basera Exports which I used to receive in my account through banking channel to the account of exports which I effected. The consideration that I have already explained that the payment in India have been made of the invoices value of the exports which I effected to Dubai.
Q. In your above statement you have stated that these payments were arranged by you through Manu of Dubai @ Rs. 35 per dollar. Kindly state the reason behind this.
A. My exports to Dubai was consisted mainly of brass tips of ball pen had a real value of Rs. 2 lakhs per consignment. These consignments were over-invoice by an amount of Rs. 28 lakhs every time so that the invoice value used to be Rs. 30 lakhs an appreciation of around 100.5 per cent in the invoice. To meet this differential amount the payments were arranged through Manu of Dubai.
Q. Kindly explain the channel used for receiving such payments from Dubai to India. What other arrangements were made for making such payments through banking channel from Dubai to India ?
A. Whenever arrangements were made for making such payments through banking channel from Dubai to India, the amounts used to be credited in US dollars account in Union Bank of India maintaining the account with Bankers Trust Co., New York, USA. From there Union Bank used to get transfer by telex at their overseas branch in Connaught Place. From there it was credited to the account of Basera Exports.
Q. You were getting the orders from buyers directly ?
A. Orders came directly from buyers or through the representatives in India on telephone mostly.
Q. I am showing you the photocopies of two orders No. 225/94 dt. 5th April, 1994 from Less & Less Trading Co., Dubai, and order No. 145/94, dt. 6th April, 1994 received from USA. Please tell whether these orders received here directly or from the representatives of the foreign buyers.
A. I have put my signature in today's date in token of having seen the same and state that orders from both the parties were received on phone but were typed here as we always carry signed letterheads of buyers.
9. Relying on the above cited excerpts of the statement under Section 40 of FERA, the CIT(A) held :
In view of the abovementioned admissions in the statement of Sh. Grover, the general power of attorney (GPA) holder of the appellant show that he was carrying on the hawala transactions in the garb of export business of M/s Basera Exports. The claim of the appellant that all payments which were received from Dubai were on account of exports made by the appellant and the withdrawals were further used for the purpose of exports business of the appellant is not correct. The fact is, the payments were received from Dubai for the purpose of disbursing the hawala money to the Indian contacts of Manu of Dubai. The reply to the last question mentioned above clearly shows that Sh. Grover himself used to make export orders on the pre-signed letterheads of the buyers. Thus, the genuineness of these orders itself is in doubt. The said orders have been fabricated for the purpose of soliciting export licenses and in turn to make inflated invoices to receive the hawala money from Dubai. The purchase of ball pen tips in cash, which was the only item of export shows that ball- pen tips may be of a sub-standard quality and were purchased only for the purpose of making export invoices which too, as per Sh. Grover's admission, were over-invoiced by 100.5 per cent. Further, in view of the fact that the regular books of account were not available at the time of income-tax search, nor these were subsequently produced for the post-search enquiry before the Investigation Wing authorities, the genuineness of the books of account has been rightly doubted by the AO. Therefore, these books of account are not reliable, more so, in the background of the admission of Shri Grover before the FERA authority that he was carrying on hawala activities under the cover of export business. Since, the very question of exports made outside India is doubtful, therefore, the allowability of deduction under Section 80HHC is ruled out.
10. We have heard Shri Kapila, learned counsel for the assessee, at length and have also perused the five paper books containing voluminous evidence filed with the AO. A number of judgments were cited by him in support of his contentions which we shall consider in due course. The thrust of his arguments is two-fold :
(a) The FERA statement of Shri Grover, which forms the sole and only basis for the disallowance, has no evidentiary value and, therefore, cannot form the basis of the disallowance of the claim. This statement has neither been tested and nor has the AO adduced any corroboratory evidence. There is sufficient internal evidence in the statement itself that Shri Vinod Grover was subject to intensive interrogation till the early hours of 14th Sept., 1994 without the benefit of medicines and diet.
(b) There is not even a whisper of rebuttal by the AO or the CIT(A), of the evidence filed by the assessee in support of her claim.
11. In support of the contention that the FERA statement was not voluntary and the retraction of Shri Vinod Grover was not an afterthought, it is submitted that the assessee was searched by the Enforcement Directorate in the evening of 13th Sept., 1994 and sometime late in the evening he was taken to the Enforcement Directorate office by the officers of the Directorate and kept in illegal custody till the next date. Shri Grover was produced before the Magistrate on 14th Sept., 1994, before whom at first opportunity he retracted the FERA statement. Para 3 of the bail application clearly states that he "was forced to make involuntary statement by the Enforcement Officers." That Shri Grover was diabetic and had already suffered two heart-attacks in 1989 and 1993 and was always under heavy medication. It is contended that seen in this light the FERA statement has no evidentiary value. He also distinguished the decisions relied on by the CIT(A). According to him, the Supreme Court's decision in Ambalal v. Union of India 1961 SCR 933 : AIR 1961 SC 264 is distinguishable as the retraction was made long after the statement under Section 40 of FERA was recorded and there was no allegation that the statement was not voluntary. The grievance of the accused in that case was that his statement was recorded in English, which he did not understand. He also argues that the decision in C. Sampath Kumar v. Enforcement Directorate in fact supports the assessee.
12. It is submitted that the assessee had produced before the AO all original documents in support of her claim and also filed their copies, which, inter alia, included purchase vouchers, bank statement indicating payments to vendors by pay orders, bank attested invoices, export promotion copies and port trust copies of the shipping bills, bills of lading, bank realisation certificates and DEEC pass book containing endorsement of Customs authorities. The Revenue was not justified in brushing aside the entire body of evidence without any comment or evidence to the contrary. Further, the accounts of the assessee were audited under Section 44AB of the Act and the auditor's certificate in Form 10CCAC for the purpose of Section 80HHC was filed along with the return. The only reason given by the CIT(A) for holding the accounts as unreliable is that the books of account were not produced before the ADI (Inv.). It is contended that in response to question Nos. 25 and 26 Shri Grover had explained to the authorised officer that the books of account for the earlier year and the current year were lying with the chartered accountant for tallying the balances. The ADI made no attempt to obtain the accounts from the assessee's chartered accountant.
13. The learned counsel highlighted the fact that subsequent to his arrest, Shri Vinod Grover remained in detention in jail from 14th Sept., 1994 to 31st Aug., 1995. Yet, on account of invoices raised earlier, the assessee continued to receive payments from Less & Less Trading, Dubai. Remittance amounting to as much as Rs. 192 lakhs were received through bank transfers on 25th Sept., 1994, 27th Sept., 1994, 15th April, 1995, 24th April, 1995 and 6th April, 1995, which were directly credited to the assessee's bank accounts. As Sri Vinod Grover was in jail, there could be no question of his disbursing monies to the Hawala parties in the manner described in the FERA statement.
14. The learned counsel contends that the proprietor of M/s Less & Less Trading, Dubai was examined by the Enforcement officials and he confirmed importing brass tips from the assessee. He drew our attention to Shri Grover's affidavit and the Governments' counter affidavit filed before Delhi High Court, wherein though the Enforcement Directorate has specifically denied the allegation regarding the message recovered from Laxmichand Dhamija, there is no specific denial of the allegation relating to the verification made from M/s Less & Less Trading Co. It is urged that the CIT(A) erred in ignoring the affidavit of Smt. Sujata Grover wherein she categorically states that no case was ever lodged by the Enforcement Directorate against her or against her husband till his death. Referring to Shri Grover's admission in the FERA statement that he disbursed sums aggregating more than Rs. 3 crores to one Bhagwan and Gurmeet Singh, no enquiry was made by the AO even though the statement gives their telephone numbers and addresses. Further, no attempt was made by the AO to examine Shri Grover on his statement though he was alive till October, 1997. The AO seriously also erred in tarring all the export transactions by the same brush. He drew our attention to the export statements which clearly show that there were exports of about Rs. 10 lakhs to USA and Hong Kong. He alleges that this lapse is indicative of non-application of mind by the AO. It is submitted at the end that no corroboratory evidence has been adduced by the Revenue and their action in not granting relief under Section 80HHC is based on surmises and suspicion only.
15. The learned Departmental Representative vehemently supported the orders of the authorities below. He further states that a comparison of the liquid assets in the balance sheets of the assessee as on 31st March, 1994 and 31st March, 1995 clearly shows that at best the assessee could have mobilised funds of. about Rs. 2 crores only, whereas she has shown purchases of as much as Rs. 6.5 crores worth of brass tips. He states that Shri Vinod Grover had admitted before the FERA authorities that he had made purchases in cash and, therefore, it cannot be said that adequate funds were available for making the purchases of such a magnitude. He also argues that the expenditure oh carriage inward of the goods purchased is not adequate. The learned Departmental Representative goes on to submit that the alleged exports of the consignments of ball pen brass tips is highly suspicious, considering the fact that in his view brass tips are not half as expensive as steel tips. The learned Departmental Representative also highlighted the fact as many as 20 consignments of identical value US $ 120000 were shipped to Dubai on the same day to the same importer in Dubai. This shows that the alleged exports were in fact bogus and the receipts of money through inward bank remittances were in the nature of Hawala transactions.
16. In rejoinder, it is submitted that purchases of brass tips were made from Bombay parties in packed condition, which were directly shipped from Mumbai port to Dubai in a single container. The expenditure of about Rs. 6 lakhs booked under the head freight and carriage is adequate. That all purchase vouchers and shipping bills were duly cleared by the Customs authorities and these were filed with the AO who has given no adverse finding thereon.
17. We have considered the rival submissions. We are of the view that the CIT(A) was not correct in upholding the disallowance of the assessee's claim under Section 80HHC. The entire body of evidence comprising bank statements, purchase bills, shipping bills, bills of lading, bank realization certificates and DEEC book containing Customs endorsement which was submitted by the assessee has been peremptorily ignored by the Revenue without any comment. In fact, there is no finding either by the AO or by the CIT(A) that the assessee did not export brass tips. Apparently, the inference drawn by them from Vinod Grover's statement is that the assessee has over-invoiced the export sales. But then, no enquiry at all has been made to show that the purchase bills are not what they purport to be. Vinod Grover was arrested by the FERA authorities on 14th Sept., 1994 and continued to remain under detention in Tihar Jail till August, 1995. Yet, remittances of as much as Rs. 192 lakhs were received during this period in the bank accounts of the assessee with Union Bank of India and Oriental Bank of Commerce. In absence of any objective evidence to the contrary, the view taken by the Revenue that what was received was not export sales but Hawala remittances, therefore, becomes untenable. There could be no question of his receiving Hawala monies and disbursing them according to instructions of 'Mr. Manu' during the period of his detention.
18. We also find that despite being aware that Vinod Grover had made an inculpatory statement before FERA authorities, the AO made no attempt to examine him though he was alive till 17th Oct., 1997 when he died of heart attack. We also note that though Vinod Grover in FERA statement mentions the names of certain persons and their addresses and telephone numbers to whom he admitted having paid sums on behalf of Manu of Dubai. However, no enquiry was made by the AO to contact those people and examine them with a view to testing this story. The assessee had also filed an affidavit, dt. 10th March, 2003, with the CIT(A) stating that no prosecution has been initiated or is pending against Basera Exports. The CIT(A) has dismissed this affidavit saying that no documentary evidence has been filed. We are of the view that CIT(A) was not correct in dismissing the affidavit without ascertaining the factual position from the Enforcement Directorate.
19. There is another reason why the action of the authorities below cannot be sustained. It is not for the first time that the assessee has claimed relief under Section 80HHC on the export profits. It is evident from the assessment order for the asst. yr. 1993-94 that the assessee was granted relief of Rs. 1,59,42,053 under Section 80HHC of the Act. A perusal of the said order and office note appended to it makes it quite clear that the relief was granted after due verification of the appraisal report in respect of searches carried out on the assessee. The assessment order for the asst. yr. 1994-95 dt. 30th March, 1999, i.e., about 5 years after the search, relief under Section 80HHC was again allowed on export turnover of Rs. 16,09,24,611. The said turnover included export sales of Rs. 17,73,962 in respect of exports to M/s Less & Less Trading, Dubai. Relief under Section 80HHC in respect of this item of export was not originally allowed by the AO on the ground that evidence of realisation of the sale proceeds in convertible foreign exchange was not furnished. The assessee took up matter in appeal and the GIT(A) by his order dt. 11th Aug., 2000 held in para 3.1 of his order that the assessee had received the sale proceeds in convertible foreign exchange in June, 1994 and, therefore, entitled to the relief under Section 80HHC. The learned counsel for the assessee brought to our notice the fact that the CIT had filed an appeal against the said order of the CIT(A) (appeal No. 4669/Del/2000). We find from the copy of Form 36 containing grounds of appeal filed by the Revenue in that appeal that it did not challenge this direction of the CIT(A). The only ground which was agitated in that appeal was in regard to the eligibility of exchange rate fluctuations gains for relief under Section 80HHC. In other words, the CIT accepted the finding of the CIT(A) that the assessee was entitled to relief under Section 80HHG on export sales to M/s Less & Less Trading, Dubai. Considering the fact that the AO had not only passed the orders for the asst. yr. 1993-94 and for asst. yr. 1994-95 years after the search, but had also specifically referred to it, the Revenue cannot now be allowed to raise this issue. There must be some reason for the change in the decision in a subsequent year. We find none. No new material has come to light. Our view is supported by the decision of Delhi High Court in the case of Director of IT v. Degussa A.G. Germany .
20. We also do not agree with learned Departmental Representative that the opening and closing balances in the balance sheets as on 31st March, 1994 and 31st March, 1995 should be compared to find out the source of funds for purchases during the relevant financial year 1994-95. Such a method is contrary to the principles of accounting because it does not take into account financial transactions, both on the debit and the credit side, undertaken during the intervening year. The purchases were admittedly made on credit and the payments were made from the bank accounts of the assessee as and when she received the remittances on exports.
21. Coming to the question of evidentiary value of Sri Grover's FERA statement, it is now settled law that though a statement under Section 40 of FERA can be used against the assessee, the Courts must also take into account circumstances in which such a statement was made and the subsequent retraction. We have gone through the Panchnama drawn up by the Enforcement Officer on conclusion of the FERA search and the statements of Shri Grover under Section 40 of that Act. The search took place at the residential premises of the assessee at Naraina and it was concluded at 5.30 in the evening of 13th Sept., 1994. The office of the Enforcement Directorate was housed in Lok Nayak Bhawan, Khan Market, New Delhi. Obviously it must have taken more than an hour for the assessee to reach the office. We agree with the learned counsel that the statement was recorded only after the office hours. On a perusal of the statement, we find that no oath was administered to Shri Grover and nor was the statement made under solemn affirmation. We also notice that every page of the statement, apparently written in hand of Vinod Grover, bears at the bottom his signature along with the date. First nine pages of the statement bear the date 13th Sept., 1994. However, from the tenth page onwards, the statement bears the date of 14th Sept., 1994 alongside the signature of Vinod Grover. This continues till p. 13 of the statement where in the middle of the page Vinod Grover records that "further statement, I shall tender after having rest and meal". But the word 'meal' is struck off. There was apparently a break before resuming the statement and he writes "after having rest I am making statement as under...." The statement then goes on for another two pages bearing the date 14th Sept., 1994. It is, therefore, clear that : (1) statement was recorded much after the business hours well beyond the midnight of 13/14th Sept., 1994, and (2) the statement was recorded without administering oath and nor was it made under solemn affirmation.
22. It has been held by the Supreme Court in the case of C. Sampath Kumar v. Enforcement Directorate (supra) that though there is no presumption that the submission before the FERA authorities which is subsequently retracted is always 'involuntary', the Court must satisfy itself whether there was any element of 'compulsion' visible from the statement. (Emphasis, italicised in print, supplied). In that case, the statement was not furnished before the Court and, therefore, it was held that it was not possible for them to assess whether any compulsion was exercised by the Enforcement officials. In the case of Leelaram O Akatrai v. Asstt. Director of Enforcement (2000) 111 Taxman 252 (FERAB), the FERA Board held that the statement recorded by FERA authorities after 8 O'clock in the evening could not be said to be a statement as contemplated under Section 40 of the Act and cannot be in the nature of any evidence. In the case of R.R. Gavit v. Smi. Sherbanoo Hasan Daya , the Bombay High Court has held that where "the caption of the statement was 'on oath/solemnly affirmed'. Neither of the two had been struck to prove beyond doubt that the statement was given on oath". It has also been held by the Supreme Court in the case of K.T.M.S. Mohammad and Anr. v. Union of India that FERA and IT Act are two separate and independent special Acts operating in two different fields and, therefore, the significance of statement recorded under the provisions of FERA must be examined only qua the provisions of FERA and not with reference to the provisions of IT Act. Further, in absence of any examination by the AO it cannot be said that any inculpatory statement was made before the tax authorities. The Supreme Court also laid down that the Court must take both the statement under Section 40 as well as the retraction and give a finding about the nature of the repudiation and it was not legally permissible for the Revenue to bisect the two statements and make use of the inculpatory one alone by passing the other. In A. Abdullah v. FERA Board (1997) 90 Comp. Cas 193 (Mad), the Madras High Court applied the following observation of the Supreme Court in the case of Muthuswamy v. State of Madias AIR 1984 SC 4 The only reason the High Court gives for accepting the confession is because the learned Judges considered there was intrinsic material to indicate its genuineness. But the only feature the learned Judges specify is that it contains a wealth of detail which could not have been invented. But the point overlooked is that none of this detail has been tested. The confession is a long and rambling one which could have been invented by an agile mind or pieced together after tutoring.... But unless the main features of the story are shown to be true, it is, in our opinion, unsafe to regard mere wealth of uncorroborated detail as a safeguard of truth.
(Emphasis, italicised in print, supplied).
23. Keeping in view the law as emerging from the judgments quoted above and in backdrop of the facts of the case, we hold that the purported statement of Shri Vinod Grover recorded by the Enforcement Officers has no evidentiary value. The learned Departmental Representative also did not challenge the applicability of these judgments to the facts of the present case. The entire case of the Revenue rests on the FERA statement of Shri Grover. No enquiry has been conducted by the AO for adducing corroboratory evidence. On the other hand, from the voluminous documentary evidence filed by the assessee it is clear that there was export of goods for which money in convertible foreign exchange was received in bank accounts of the assessee. Thus, the assessee satisfies the conditions laid down in Section 80HHC and we, therefore, direct the AO to allow the claim.
24. The second ground of appeal is in regard to the addition of Rs. 10 lakhs as unexplained investment. The facts leading to the said addition have been narrated in the appellate order in ground No. 5, which reads as under:
This ground pertains to the addition of Rs. 10 lakhs made by the AO on account of renovations/investment made in the business premises B-62/40, Naraina Industrial Area.
At the time of search, it was found that considerable investment had been made in furnishing of the first floor of the business premises. Sh. Vinod Grover was asked to explain the source of investment made in the renovation. He explained that this money was earned from the business. While availing of the opportunity given under the provisions of Expln. 5 to Section 271(1)(c) r/w Section 132(4), Shri Grover made a surrender of Rs. 10 lakhs and the same was confirmed by the appellant vide her statement dt. 7th Sept., 1994.
In the appellate proceedings, it has been contended that at the time of surrender, Shri Grover had nowhere mentioned that this investment of Rs. 10 lakhs was made out of the unexplained resources. The investment of the said amount was duly reflected in the books of account. Hence, no addition should have been made on this account.
The above contention of the appellant is not accepted, since Shri Grover, GPA holder of the appellant himself had surrendered this amount in response to the question No. 33 wherein, the authorised officer had asked him to avail of the opportunity under the provisions of Expln. 5 to Section 271(1)(c), and accordingly, was asked to make a disclosure of unaccounted income.
In response to this opportunity only, Shri Grover had surrendered the said amount of Rs. 10 lakhs which was further confirmed/approved by the appellant vide her statement dt. 7th Sept., 1994. The appellant cannot be allowed to retract from such admission. The argument that the said amount was duly reflected in the books of account is not acceptable. As mentioned in earlier paras that, since, the books of account were not recovered at the time of search, nor, these were produced in the post-search enquiries, therefore, the same are not reliable books of account.
Hence, the submissions made by the appellant in this regard, i.e., about the addition of Rs. 10 lakhs made to the income of the appellant is rejected and the addition made by the AO is, accordingly, confirmed.
25. The learned counsel submits that the authorities below have not taken into account the circumstances in which the statement was made by Shri Grover. The search under Section 132 of the Act was carried out on the business premises of the assessee on 24th Aug., 1994. The search continued for the whole day but no incriminating documents or valuables were found or seized by the authorised officers. No documents relating to renovation of the office were found at the business premises on the basis of which any question could be put to Shri Vinod Grover under Section 132(4) of the Act. Indeed, no such question was put to him. The learned counsel drew our attention to the statement of Vinod Grover (pp. 3-11 of paper book-B) where in response to question 22, it is stated "statement continued on 25th Aug., 1994 at 1:30 a.m.". He also drew our attention to the medical records of Shri Grover, which clearly show that he was a chronic patient of diabetes and had already suffered two heart-attacks. It is vehemently argued that Vinod Grover was in a confused state of mind in the early hours of the morning due to his diabetic condition when he made the surrender. It is submitted that this admission was made by Vinod Grover at the very end of the statement, i.e., in response to the last question No. 33 which reads as under :
Q. 33.1 am explaining you the provisions of Expln. 5 to Section 271(1)(c) r/w Section 132(4) of the IT Act, 1961 under which your are given an opportunity to make a disclosure of the unaccounted income. Would you like to avail of this opportunity on behalf of the firm M/s Basera Exports for which you are general power of attorney holder ?
Ans. Yes, I would like to avail of the opportunity as understood. I hereby make a surrender of Rs. 10,00,000 (rupees ten lakhs only) for the current financial year. The income disclosed above has been earned from business and the same has been invested in the renovation/alteration of the business premises No. B-62/14, Naraina Industrial Area, New Delhi. The disclosure has been made on behalf of M/s Basera Exports in the capacity of holder of general power of attorney from Smt. Sujata Grover, who is the proprietor of the firm.
26. It is urged that earlier in response to questions No. 27 and 28, Shri Grover had clearly stated that whatever investment made on the building has been duly accounted in the books of account. However, in response to question No. 33 his answer was contradictory and incoherent. That he states that he made the said investment out of business income of the assessee and yet he makes the surrender. It is argued that apparently, he remembered that he had made a payment of Rs. 10 lakhs in the current financial year which was accounted for in the earlier year. Our attention was drawn to the bills of interior decorators called Nirman, Noida, filed with the AO. It is seen from the bills that there was extensive renovation of the office premises during the financial year 1993-94. On 5th Jan., 1994, the assessee received a bill of Rs. 21,93,340 which was passed by the assessee for Rs. 21,34,104 and paid within the financial year 1993-94. The assessee received another bill for the balance amount of Rs. 10,47,500 which was passed for Rs. 10 lakhs. This bill was however received on 3rd April, 1994. The learned counsel took us through the balance sheet for the financial year 1993-94 to show that in the schedule of fixed assets, the assessee had booked and capitalized the entire expenditure of Rs. 31,34,104 (21,34,104 + 10 lakhs) and claimed depreciation which was allowed in the assessment for the preceding asst. yr. 1994-95. However, the payment of the sum of Rs. 10 lakhs was made on 24th Aug., 1994 for which he drew our attention to the relevant entry in its bank account with Union Bank of India. The counsel further relied on the judgment of Andhra Pradesh High Court in the case of CIT v. Shri Ramdas Motor Transport for the proposition that the surrender made by Shri Grover was not a surrender as contemplated under Section 132(4) and, therefore, it cannot form the basis for the addition.
27. The learned Departmental Representative, submits that the schedule of fixed assets to the balance sheets as on 31st March, 1994 clearly shows that the assessee had incurred expenditure of Rs. 31,34,104 on account of furniture and fixtures, in the preceding financial year and there is no change on this account in the balance sheet for the period ended 31st March, 1995. That the surrender of Rs. 10 lakhs was over and above the expenditure already booked in the accounts for the preceding financial year.
28. We have carefully considered the rival submissions. The AO has not brought on record any evidence to suggest that the expenditure on account of renovation of office was higher than the sum of Rs. 31 lakhs reflected in the accounts of the assessee. No valuation of the cost of renovation was made. The only basis for making this addition is the statement of Sri Grover at the time of the search. Considering his medical state and the fact that the surrender was made much after 1:30 a.m. on the prompting of the AO, and also considering the fact he had earlier stated that the expenditure on the office building was fully accounted for, the evidentiary value of such a statement needs to be assessed. The CIT(A) has laid stress on the fact that Smt. Sujata Grover, the assessee, had also endorsed the statement of Vinod Grover when she was examined under Section 131 of the Act by the ADI (Inv.) on 7th Sept., 1994. We do not think that much importance can be attached to the statement of Mrs. Sujata Grover for the reason that she was not examined at the time of the search and the Revenue itself has taken the stand that she was not involved in the business affairs, which were entirely managed by her husband who also hold her general power of attorney. The CIT(A) has not accepted that the expenditure was duly reflected in the books of account on the ground that the books of account for the earlier year as well as current year were not found at the time of search. These were also not produced in the post-search inquiries and these were, therefore, not reliable. The learned counsel has drawn our attention to question Nos. 25-26 of Shri Grover's statement. Sh. Grover had explained to the authorised officers that the books of account for earlier year and current year were lying with the chartered accountant. It is contended that no attempt was made by the authorised officer or by the AO to either contact or issue summons to the chartered accountant for production of the books of account. In response to the summons the assessee produced the balance sheet for financial year 1993-94, before ADI (Inv.) on 7th Sept., 1994. This is evident from question Nos. 13 and 14 of her statement (pp. 16 to 17 of paper book-B) which reads as under :
Q. 13. On 24/25, summons under Section 131 of IT Act were issued to you for producing books of account in this office on 26th Aug., 1994. But no compliance was made by you. Thereafter summons dt. 1st Sept., 1994 was issued to you for producing books of account in this office on 7th Sept., 1994. But today also, no books of account have been produced. If the books are incomplete, these should have been produced as these are. But nothing has been produced. All this shows and proves that books of account are not maintained by you. Please explain.
Ans. Today we have submitted balance sheet and P&L a/c for the period ended on 31st March, 1994. This has been obtained from the books of account only which have been finalized only on 5th Sept., 1994. Here, finalizing I mean preparing of balance sheet and P&L a/c.
Q. 14. If the books of account of period ended on 31st March, 1994, have been finalised only on 5th Sept., 1994, in that case books of this period could have been produced today. But still, the same have not been produced.
Ans. The opening balances in the books for period 1st April, 1994 onward have not been taken by the accountant otherwise the books are complete. For this reason the books have not been produced. The same will be produced day after tomorrow, i.e., on 9th Sept., 1994.
The AO also states that the books of account are not reliable because these were also not produced at the time of original assessment. The learned counsel has drawn our attention to para 5 of the first assessment order dt. 27th March, 1998 wherein the AO has given a finding that the assessee 'submitted a reply on 24th March, 1998 and produced the computerised ledger and cash book for verification of seized documents and transactions recorded in'.
29. We find that the books of account for the earlier two assessment years were accepted by the AO after detailed scrutiny. The accounts were also audited. The assessments for the asst. yrs. 1993-94 and 1994-95 were made long after the search and after taking into account the statements recorded at the time of the search. This year also the audited accounts have not been rejected and the declared profits have been fully accepted, excepting rejection of the claim of relief under Section 80HHC. The impugned addition of Rs. 10 lakhs has been made not on the basis of any defect in the accounts, but only on the basis of the statement of Shri Grover at the time of the search. It is in this context that we need to examine the relevance and admissibility of the surrender, made by Shri Grover. The Revenue could not indicate any document which was found at the time of search and from which it could be inferred that expenditure on renovations including furniture and fixtures was incurred during the current year outside the books of account. In absence of any such material, the 'surrender' by Shri Grover does not arise form the search carried out under Section 132 of the Act. As has been held by the Andhra Pradesh High Court, in the case of Ramdas Motor Transport (supra), the statement recorded by the authorised officer in such circumstances cannot be said to be a statement contemplated under Section 132(4) of the Act. It has, therefore, no evidentiary value. The assessee, therefore, succeeds on this ground also.
30. In the result, the appeal filed by the assessee is allowed.