Telangana High Court: Assessee's Inability to Disprove Sworn Statement Results in Tax Addition

Introduction

In Smt. Konda Sanjeeva Rani v. Assistant Commissioner of Income-tax[i], the Hon’ble High Court of Telangana examined the admissibility and evidentiary value of statements recorded under s. 132(4) of the Income-tax Act, 1961 (‘Act’), in the context of unexplained investments. The key issue before the Court was whether the sworn statements made by Konda Sanjeeva Rani’s (‘Assessee’) husband during a search operation could serve as the sole basis for an addition to her income under s. 69B of the Act.

Brief Facts

• A search and seizure operation under s. 132 of the Act was conducted at the Assessee’s husband’s residence and business premises. The search operation revealed substantial unaccounted investments in a residential-cum-commercial complex.

• The Assessee’s husband, under oath, admitted to a total investment of Rs. 15 lakhs, of which only Rs. 7 lakhs was accounted for, leaving Rs. 8 lakhs unexplained.

• Based on this statement, the Assessing Officer (‘AO’) attributed Rs. 4 lakhs to the Assessee and treated the whole amount of Rs. 8 Lakhs as unexplained investments.

• The Commissioner of Income-tax (Appeals) (CIT(A)’) ruled in favour of the Assessee, holding that sworn statements alone were insufficient to justify the additions and accordingly set them aside.

• The Income Tax Appellate Tribunal (‘Tribunal’) restored the Assessing Officer’s findings, observing that the Assessee failed to disprove the sworn statements. Aggrieved by the same, the Assessee filed an appeal under s. 260 A of the Act before the High Court.

Held

• The Telangana High Court upheld the Tribunal’s decision, affirming that statements recorded under s. 132(4) of the Act carries evidentiary value unless disproven.

• The High Court held that statements under oath are presumed true unless successfully rebutted by the Assessee or proven to be coerced. The High Court further stated that the statements recorded under s. 132(4) of the Act can be used as evidence against the Assessee, and the burden lies on the Assessee to establish if the admission made in those statements is either incorrect or wrong.

• The High Court observed that the Assessee had failed to discharge the said burden to disprove the addition and hence dismissed the appeal of the Assessee.

Our Analysis

This judgment underscores the legal principle that statements recorded under s. 132(4) of the Act holds significant evidentiary weight in assessment proceedings. The Court emphasized that while admission is not conclusive proof, it constitutes a critical piece of evidence that can be relied upon unless the Assessee effectively rebuts it with cogent evidence.

This judgement aligns with the Supreme Court’s ruling in Pullangode Rubber Produce Co. Ltd. v. State of Kerala[ii], which held that while an admission can be challenged, the burden of proof rests on the claimant.

Furthermore, the ruling reiterated the importance of consistency in statements made during search operations and subsequent assessment proceedings. This case establishes a significant precedent, reaffirming that an Assessee cannot retract admissions without presenting credible evidence to substantiate their claims.

End Notes

[i] 2024 169 taxmann.com 591 (Telangana) [09.12.2024].

[ii] [1973] 91 ITR 18 (SC).

Authored by Onam Singhal, Chartered Accountant at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.