Undisclosed income found in search: Law on whether statement obtained u/s 132(4) admitting earning of undisclosed income, which is allegedly retracted, can be used for making assessment explained in the light of P.V. Kalyanasundaram 294 ITR 49 (SC), S. Kadar Khan 352 ITR 480 (SC) and CBDT’s Circular

(i) First we deal with the cross objection of the assessee that the addition is not based upon incriminating material found during search and, hence, the same is bad in law. We note that during the course of search a statement on oath u/s. 132(4) of the Act was obtained from Smt. Madhu Chopra, who is a director in the company. Here Smt. Madhu Chopra has clearly admitted the modus operandi and the fact of cash receipt in Q. No. 3 to the search. Dr. Ashok Chopra on the same day has been confronted with the register found which detailed the unaccounted surgeries performed. Thereafter, Dr. Ashok Chopra gave a statement wherein he detailed the modus operandi and admitted the earning of undisclosed income.

(ii) From the above, it is clear that there was clear admission and statement of oath u/s. 132(4) of the Act by the director of the company that the assessee was receiving income which was not disclosed in the books of account. Furthermore, the Assessing Officer has duly recorded in his order that the assessee’s representative was duly called upon to verify the seized documents and the ld. Counsel of the assessee appeared on 02.03.2012 and he has been provided with the documents seized. Upon this, the assessee has not made any comment before the Assessing Officer whatsoever.

(iii) Before the ld. Commissioner of Income Tax (Appeals), the assessee never contended that the addition is not based upon material found during search. In fact, the ld. Commissioner of Income Tax (Appeals) though he has ultimately deleted the addition, has observed that no addition can be made on the basis of loose papers found during search. Thus, the ld. Commissioner of Income Tax (Appeals) is not confirming that no incriminating material was found during search. He is holding that addition cannot be made on the basis of un-corroborative material found during search. Thus, from the above, it is clear that incriminating materials were found during search. There was clear admission u/s. 132(4). Hence, it cannot be said that the addition in the present case is not based upon incriminating material found during search. Hence, the cross objection filed by the assessee challenging the validity of the jurisdiction, is dismissed.

(iv) Now we come to the merits of the case. In this regard, it is noted that in the statement of oath u/s. 132(4) of the Act recorded on 24.1.2011, i.e., the date of search, Smt. Madhu Chopra, the director of the company has clearly admitted to the estimate of such unaccounted income already made by Dr. Ashok Chopra said to be to the tune of Rs.1.74 crores for two years. This admission during search corroborates the statement given by Dr. Ashok Chopra the performing surgeon which was duly based upon register found by the Revenue which disclosed surgeries performed and unaccounted cash payments.

(v) From the above, it is evident that Smt. Madhu Chopra is not disputing the fact of discovery of undisclosed income. She is only disputing quantification of amount involved. She is stating that “working of the unaccounted income will be done based upon the seized papers and books of account and the unaccounted income will be declared as undisclosed income”. Subsequently, the assessee’s representative vide letter dated 11.09.2012 and 17.09.2012 has mentioned that Smt. Madhu Chopra has duly retracted and that the addition was unjustified. Here we note that there were no retraction whatsoever by Smt. Madhu Chopra that there was no undisclosed income. She had only disputed the estimate of Rs.1.74 crores and she had unambiguously submitted that the working of unaccounted income will be done based upon the seized materials and books of account. Later on, the Assessing Officer has clearly noted that the ld. Counsel of the assessee was provided with document seized on 03.11.2012 and no submission whatsoever was made by the assessee. As evident from the above, the above can by no stretch of imagination be treated as retraction of income already offered by the assessee. In the said retraction filed after 5 months, the director of the assessee company is only stating that the estimate is not correct and that the working of unaccounted income will be done based on the seized materials and books of account. Despite being provided with the copy of seized documents, etc, there was no submission by the assessee. Hence, it can clearly be said that the assessee’s dispute of the quantification of amount of Rs.1.74 crores is not cogent. By accepting that the unaccounted income has been received and by not submitting the working as per her despite being provided with the seized materials, Smt. Madhu Chopra is clearly accepting that the disclosure of Rs.1.74 crores by Dr. Ashok Chopra and which was subsequently confirmed by her also, is cogent and there is no infirmity in the same. Moreover, we also note that there is no retraction whatsoever by Dr. Ashok Chopra. He was a director of the assessee company and also the performing surgeon. As per admission by both the directors, it was Dr. Ashok Chopra who performed the unaccounted surgeries and received cash. It was Dr. Ashok Chopra who gave the detailed working of the undisclosed income.

(vi) From the above, it is apparent that the ld. Commissioner of Income Tax (Appeals)’s reliance upon the so called retraction of the admission during search is not cogent. Similarly, the ld. Commissioner of Income Tax (Appeals) reliance upon the CBDT Circular of not obtaining confession is also out of place. It is clear that the registers were found which clearly detailed about undocumented surgeries performed by Dr. Ashok Chopra and unaccounted cash receipts. Based upon this Dr. Ashok Chopra has admitted offer of Rs.1.74 crores. Dr. Ashok Chopra had also accepted the working of this figure. As already noted there was never any retraction whatsoever by Dr. Ashok Chopra. The said admission of Dr. Ashok Chopra was also duly accepted and corroborated by Smt. Madhu Chopra, the director of the company. Under these circumstances, the ld. Commissioner of Income Tax (Appeals)’s contradictory acceptance that no incriminating documents were found, is not at all acceptable. It is clear that Assessing Officer has not merely relied upon the admission of Smt. Madhu Chopra. The seized material, register found, statement of Dr. Ashok Chopra who performed the surgeries and all other related material are basis of the addition. The decision referred by ld. CIT(A) and the ld. Counsel of the assessee are not applicable on the facts of this case. The ld. Commissioner of Income Tax (Appeals) has placed reliance upon the Hon’ble Apex Court decision in the case of CIT vs. P.V. Kalyanasundaram [2007] 294 ITR 49 (SC). In our considered opinion, the said case law is not at all applicable on the facts of the present case. In the said case, i.e., P.V. Kalyanasundaram (supra), the issue was relating to jottings in loose sheets and contradictory statement of the seller with regard to on-money in the case of sale of immovable property. We find that in the present case, facts are clearly distinguishable. The ld. Commissioner of Income Tax (Appeals) has mentioned that register or loose papers cannot be made basis for the addition. That the Assessing Officer has not brought anything on record to substantiate the addition. We find this clearly contradictionary. The register detailing surgeries performed and cash receipt was very much found. It was based upon this register, that Dr. Ashok Chopra has given his admission which was subsequently corroborated and admitted by Smt. Madhu Chopra.

(vii) Furthermore, we find that the case law from the Hon’ble Apex Court decision in the case of S. Kadar Khan (supra) is not applicable on the facts of this case. In the above said case laws it was expounded that de hors any corroborating evidence a statement obtained u/s.133A in case of a survey cannot be the sole basis for addition of undisclosed income. In the present case, we find that this is not a mere statement obtained under survey. There are corroborative materials in the form of registers found. Furthermore, there is the statement obtained u/s. 132(4) of the Act making clear admission on oath accepting the earning of undisclosed income.