Tax Tribunal's Decision Upheld: Benami Business Claims Rejected

Case Name**: Commissioner of Income Tax vs Chandrakumar Jethmal Kochar **Key Takeaways**: 1. Statements made under duress or unusual circumstances during tax raids may not be considered reliable evidence. 2. Retractions of statements, if supported by evidence, can be valid. 3. The court emphasized the importance of considering all statements and evidence holistically. 4. Group disclosures in tax cases need to be properly allocated to individual assessees. **Issue**: 1. Was the Appellate Tribunal correct in deleting the additions made by the Assessing Officer based on statements recorded during search proceedings? 2. Was the Tribunal's finding that other concerns were not benami of the assessee supported by the record? **Facts**: Let's chat about what happened in this case. On August 8, 1990, the Income Tax Authorities conducted a search and seizure operation on the assessee's business premises. During this raid, they recorded statements from the assessee, his employees, and his wife. Initially, the assessee admitted that some businesses (Kamal Traders, Naman Traders, Adarsh Textiles, and Sampat Traders) were his benami concerns. However, later during assessment proceedings, the employees and the assessee's wife claimed these businesses belonged to them, not the assessee. The Assessing Officer, relying on the earlier statements, added the profits from these businesses to the assessee's income for the assessment years 1989-90 to 1991-92. The assessee appealed this decision, and while the CIT(A) upheld the additions, the Income Tax Appellate Tribunal (ITAT) deleted them. The revenue department wasn't happy with this and took the matter to the High Court and then to the Supreme Court, which directed the Tribunal to refer specific questions to the High Court. **Arguments**: The revenue's main argument was that the Tribunal made an error in allowing the appeal and didn't provide solid reasons for its decision. They believed the initial statements made during the search should be considered valid. On the other hand, the assessee's counsel relied on previous court decisions, particularly the case of Kailashben Manharlal Chokshi vs. Commissioner of Income Tax. They argued that retractions of statements, if supported by evidence, should be considered valid. They also pointed out that the Tribunal had good reasons for its decision, including the unusual circumstances under which the later statements were recorded. **Key Legal Precedents**: The court heavily relied on the case of Kailashben Manharlal Chokshi vs. Commissioner of Income Tax, reported in [2010] 328 ITR 411 (Guj.). This case established that if a retraction of a statement is supported by evidence, it should be considered valid. The court also referred to CIT vs. D.L.F., reported in [2000] ITR 855, which was cited in the Kailashben case. **Judgement**: The High Court sided with the assessee and dismissed the appeal. They found that the Tribunal's decision was "just and proper." The court wasn't convinced by the revenue's argument that the Tribunal hadn't provided good reasons for its decision. They answered both questions in favor of the assessee: 1. The Tribunal was correct in deleting the additions made by the Assessing Officer. 2. The finding that other concerns were not benami of the assessee was supported by the record. **FAQs**: 1. Q: Why did the court favor the assessee's later statements over the initial ones? A: The court considered that the later statements were made under unusual circumstances (late at night, continuing until early morning) and might not have been given under normal conditions for the assessee. 2. Q: What's the significance of the Kailashben Manharlal Chokshi case in this judgment? A: This case established that retractions of statements, if supported by evidence, can be considered valid. The court applied this principle in the current case. 3. Q: Why was the group disclosure issue important? A: The court noted that neither the Assessing Officer nor the CIT(A) had properly addressed the issue of group disclosure, which is crucial in determining an individual assessee's tax liability. 4. Q: What does this judgment mean for future tax cases involving statements made during raids? A: This judgment suggests that courts should consider the circumstances under which statements are made during tax raids and not rely solely on initial statements if they're later retracted with supporting evidence. 5. Q: How does this case impact the understanding of benami transactions in tax law? A: The case emphasizes that claims of benami ownership need to be substantiated beyond mere statements, especially if those statements are later retracted or contradicted.

1. In compliance to the direction of the Hon’ble Apex Court, the Tribunal has referred the following questions of law to this Court:­

“1. Whether the Appellate Tribunal is right in law and on facts in deleting the addition made by the A.O. based on the statements recorded during search proceedings ?

2. Whether the Appellate Tribunal’s finding to the effect that the other concerns were not benami of the assessee is borne out from the record ?”

2. The facts in brief are that on 08.08.1990 a search and seizure operation was conducted by the Income Tax Authorities on the business premises of the assessee u/s 132 of the I.T. Act. Statement of the assessee was recorded by the authorized Officer u/s 132(4) and during that course the assessee admitted that one Kamal Traders, Naman Traders, Adarsh Textiles and Sampat Traders were benami concerns of the assesssee and these business concerns were being run by the assessee in the name of his employees.

Thereafter, the statement of the concerned employees were also recorded, wherein it was admitted that the businesses run in the name of the assessee himself. The authorized Officer also recorded the statement of wife of the assessee. Subsequently, during the course of the assessment proceedings, the Assessing Officer recorded the statements of the aforesaid four employees as well as the wife of the assessee, wherein it has been claimed that the business carried out in their respective names belonged to them. However, the Assessing Officer, placed reliance on the earlier statements recorded during the course of search operations on 8.8.1990 and made additions for Assessment Years 1989­90 to 1991­92 treating the profits of the benami businesses as belong to the Assessee.

2.1. In Appeal, the CIT(A) upheld the additions made by the Assessing Officer. Being aggrieved by the same, the Assessee filed an appeal before the ITAT. The Tribunal vide its order dated 21.1.1997 deleted the additions holding that the revenue has failed to prove the benami nature of the businesses carried on in the name of four employees and the assessee’s wife. Against the said order, the revenue filed reference before this Court. This Court also rejected the reference of the revenue. The revenue therefore, filed SLP before the Apex Court. The Apex Court vide its order dated 17.09.1999 directed the Tribunal to refer the questions to this Court as mentioned hereinabove.

3. Learned advocate for the appellant has submitted that the Tribunal has committed an error in allowing the appeal. He further submitted that the Tribunal has not given any cogent reasons in its order.

4. As against this, Mr. Soparkar, learned Senior counsel heavily relied upon the decision of this Court in the case of Kailashben Manharlal Chokshi Vs. Commissioner of Income Tax, reported in [2010] 328 ITR 411 (Guj.), more particularly paragraph No.23. In the aforesaid case, the judgment rendered in CIT Vs. D.L.F., reported in [2000] ITR 855 has been referred. Paragraph No.23 of the decision of Kailashben Manharlal Choksh (supra) reads as under:­

“23. The main grievance of the Assessing Officer was that the statement was not retracted immediately and it was done after two months. It was an afterthought and made under legal advise. However, if such retraction is to be viewed in light of the evidence furnished alongwith the affidavit, it would immediately be clear that the assessee has given proper explanation for all the items under which disclosure was sought to be obtained from the assessee. So far as amount invested in house property is concerned, the assessee has specifically stated in his explanation dated 28.2.1989 that there was absolutely no basis for making the disclosure on account of bunglow at 68, Sarjan Society, Athwa Lines, Surat. It was in the year 1964 that the assessee took one Plot No.68 in Sarjan Co.Operative Housing Society which was also constructing the bunglow for which the assessee claimed to have been made contribution from time to time. The assessee took possession of the bunglow in 1974 when only ground floor was constructed. Since then he has been living there. The assessee has constructed first floor during 1986 to 1988 and he has incurred the expenses for first floor structure to the tune of Rs.2,03,185.65 ps. but this amount has been withdrawn from the account of the firm in which the assessee is a partner.

As per say of Mr.Shah even departmental valuation officer has also accepted that the cost of construction of first floor worked out to Rs.2,06,060/­. There was, therefore, no reason for making addition of Rs.4 lacs on the basis of alleged disclosure made by the assessee in his statement recorded under Section 132(4) of the Act. In support of this statement the Revenue has not brought any evidence whatsoever which would establish that the assessee had in fact incurred an amount of Rs.4 lacs on the construction of the first floor and that amount was invested out of the undisclosed income. Hence there is no justification for making account of Rs.4 lacs merely on the basis of statement recorded under Section 132 (4). None of the authorities have considered this explanation and the CIT(A) as well as Tribunal both have proceeded on the footing that the Assessing Officer has considered the explanation.

So far as the addition on account of gold ornament to the tune of Rs.1 lac is concerned, the assessee has given the explanation that was reproduced by the Assessing Officer in his assessment order which says that during the course of search and seizure proceeding, statement of assessee's wife, Smt. Kailashben Chokshi was recorded and according to which she had received about 25 tolas of gold each from her parents and from her parents in law side at the time of her marriage in the year 1960. She had given 15 tolas of gold ornaments to her daughter Ritaben at the time of her marriage in the month of March, 1988. If the total jewellery found during the course of search is taken into consideration, in light of the instructions issued by the Board, any middle class Indian family may be having jewellery and gold ornaments to that extent. Hence, no addition can be made on that count. Even if the board Circular may not have retrospective operation, looking to the quantum of holding and assessee's explanation, we are of the view that this is a normal holding which can be found in any middle class Indian family and hence no addition could have been justified on that count.

So far as addition of Rs.1 lac on account of unaccounted investment in furniture is concerned, it is stated by the assessee that on the ground floor furniture was made before 15 years and assessee had spent Rs.25,000/­ for renovation after making withdrawal from the firm's account. It is further submitted that the furniture on the first floor was partly received and paid out of withdrawals from the firm. At the time of the search additional furniture meant for the first floor was just received by way of parcel from Ahmedabad and was lying in bundles. A detailed source of investment of furniture purchased from Ahmedabad with a due confirmation from the party concerned have been filed by the assessee before the Assessing Officer. Since no payment of this additional furniture was made by the assessee till the date of search, no addition could have been made on this count.”

5. We have heard learned advocates appearing for both the parties and perused the material available on record. The Tribunal while deciding the appeal in paragraph No.8 has observed as under:­

“8. We have heard the assessee’s counsel and the D.R. We are of the opinion that the CIT(A) when he relied upon the statement of the assessee made on 8.8.90 ignored the fact that there were two statements recorded on that day. The first statement was recorded at the 8 am. and second statement was recorded at 8:45 pm. in the night. In the first statement recorded in the morning which are contained on pages 1 to 12 of the assessee’s paper book. There is no acceptance of the fact that the business belonged to him and not to the other persons who are said to have given the statements against him. It is notable that 33 questions were asked in the morning session and this morning session statement was the first statement. Therefore, if the line of reasoning recorded by the CIT (A) is accepted then the reliance has to be placed on the first statement in the morning. In this first statement in the morning there is no acceptance of any benamidari or any disclosure. It is notable that the second statement of the assessee started at 8:45 pm. which according to the assessee continued upto 6 am. next day.

This is contained from pages 13 to 26 of the paper book and contains 35 questions and answers. Till question No.21 of the second statement there is no allegation of any benamidari. From question No.22 the statement starts talking about proprietorship of different concerns in the name of his various employees. Even in answer to question No.22 he could not give the names of the proprietors of Kamal Traders, Naman Traders, Sampat Traders, Adarsh textiles. In the last sentence of the said answer he stated as translated in English “besides above there are no other firms in the name of our employees”. In answer to question No.23 he accepted that Sugam Textiles was being run by his employees as his benami. In answer to question No.24 he accepted that all the concerns mentioned in question No.22 are his benami concerns. In answer to question No.26 he accepted that certain bank accounts were his benami bank accounts. In answer to question No.27 he further agreed that all the deposits made in the name of his employees are his deposits. In answer to question No.33 he disclosed an income of Rs.15 lakhs. He could not give any further details on that date. On 31.8.90 another statement of this assessee was recorded. In that he accepted that he was a partner in Padam Enterprises as individual and in Mahavir Trading Co. as HUF. In answer to question No.14 he stated that through the two concerns of Sugam Textiles and Shanti Traders the profits of 14 concerns belonging to his group were reduced. The name of 14 concerns are given on assessee’s paper book page No.28. In answer to question No.12 he made a disclosure of Rs.24 lakhs in all including Rs.15 lakhs disclosed on 8.8.90. From the above statements one thing is clear that in the first statement made in the morning of 8.8.90 this assessee did not disclosure any benamidari and it was only in the second statement taken from 8:45 pm. onwards that he disclosed certain benamidaris and proceeded make certain disclosure. It is notable that the disclosure. Made in answer to question No.12 appearing on assessee’s paper book page No.32 in the statement given on 31.8.90 talks about disclosure of 24 lakhs in 14 concerns as group disclosure. The issue regarding group disclosure has neither been discussed by the A.O. nor by the CIT(A). Under I.T. Act an assessment has to be made on an assessee on an income determined in his case for a particular year. The quantum of disclosure made in each and every 14 concerns have not been identified by either of the lower authorities. The department has also not contested the fact that this assessee’s son suffered from diabetes. In view of the above circumstances we see reason to believe that the second statement given by the assessee after 8:45 pm. was not given under the the circumstances which could be said as normal for the assessee.”

6. In view of the above discussion and considering the principal laid down in the case of Kailashben Manharlal Choksh (supra), we are of the considered opinion that the view taken by the Tribunal is just and proper. We are not convinced with the submissions made by Mr. Mehta, learned advocate for the appellant that the Tribunal has not given cogent reasons. Therefore, the answer to the first question would be against the Revenue and in favour of the assessee. The second question will also enure for the benefit of the assessee as from the record it is clear that other concerns were not Benami concerns of the assessee.

7. For the forging reasons, the present appeal is dismissed. Accordingly, both the questions which were referred to this Court are answered in favour of the assessee and against the revenue.

(K.S.JHAVERI, J.)

(K.J.THAKER, J)