INCOME TAX ACT, 1961

Section 132

Search and seizure - Addition of excess cash found during search based on statements recorded under section 132(4) - On date of search, books of account of assessee found incomplete -

Assessee was a partnership firm, engaged in manufacturing and trading (including export) of designer jewellery made of gold and silver studded with precious and semi-precious stones. Pursuant to a search operation under section 132, unexplained cash was found and based on statement recorded on oath under sections 132(4) and 131, addition was made. Held: As on date of search, books of account of assessee were incomplete and printouts of cash book as taken by the search team did not reflect true and correct balance available which was made part of the seized papers. Cash balance as appearing in such incomplete books of account and taken as recorded cash balance as per books as on the date of search was wrong being not updated. Statements recorded under section 132(4) cannot be made the sole basis for making additions unless it is supported by any documentary evidence. CBDT has clarified by clarification dated 10-3-2003 (No. 286/2/2003-Income Tax) that while recording statement during the course of search and seizure and survey operations no attempt should be made to obtain confession as to the undisclosed income. Additions based on the alleged surrender obtained during the course of search are in contravention to the circular and instruction of the CBDT and therefore, the same deserved to be deleted. Sale was duly recorded in the books of accounts and after inclusion of the same in total sales, cash balance, profits and stocks were derived which were accepted by revenue. Further, addition by alleging the same as excess cash tantamount to taxation of an income twice-one in shape of sales and profits embedded therein and again by making addition by alleging the same as unexplained excess cash.