Statements recorded during search cannot solely justify additions without corroborative evidence under Section 132(4)

ITAT Bangalore ruled in favor of the assessee regarding additions based on seized materials under Section 132(4). The tribunal held that statements recorded during search cannot solely justify additions without corroborative evidence. The AO failed to verify entries in loose slips through further enquiries or produce supporting materials for unaccounted cash receipts. Regarding physical cash found during search under Section 69A, the matter was remitted to AO for verification of cash availability as on search date, directing the assessee to produce relevant books and evidence.

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Issues Involved:
1. Legality of additions based on loose slips found during the search.
2. Validity of statement recorded under section 132(4) and its retraction.
3. Estimation of income on unaccounted cash receipts.
4. Justification of additions made by the Assessing Officer (AO) based on assumptions and presumptions.
5. Protective addition under section 69A of the Income Tax Act.

Summary of Judgment:

1. Legality of Additions Based on Loose Slips:
The Tribunal addressed the issue of whether the loose slips found during the search could be used as a basis for making additions. It was noted that the AO made additions solely based on scribblings in loose slips found during the search without corroborative evidence. The Tribunal emphasized that "suspicion however strong cannot take the place of evidence," and therefore, the additions made by the AO were not sustainable. The Tribunal relied on the principle that "admission is an extremely important piece of evidence, but it cannot be said that it is conclusive and it is open to the person who made the admission to show that it is incorrect."

2. Validity of Statement Recorded Under Section 132(4) and Its Retraction:
The Tribunal examined the statement recorded under section 132(4) of the Income Tax Act, which was later retracted by the assessee. It was held that the statement recorded during the search cannot be the sole basis for addition without any supporting documents or corroborative evidence. The Tribunal cited the Karnataka High Court's decision in Dr. Syed Anwar vs. DCIT, which held that "seized documents did not bear the signature of the assessee and seized material also did not suggest that assessee had paid any 'on-money', impugned order passed by Assessing Officer was not sustainable."

3. Estimation of Income on Unaccounted Cash Receipts:
The Tribunal addressed the AO's estimation of income at 8% on unaccounted cash receipts. It was noted that the AO had rejected the books of accounts and estimated the income at 8%, which was considered reasonable. However, the Tribunal found that the AO had failed to bring on record any materials to support his view and that there was no reason as to why the AO did not proceed further to inquire into the unaccounted income as admitted by the assessee in the statement recorded under section 132(4) of the Act.

4. Justification of Additions Made by AO Based on Assumptions and Presumptions:
The Tribunal found that the additions made by the AO were based on assumptions and presumptions without any corroborative evidence. The Tribunal emphasized that "merely on the basis of entries in the loose slips/scribbling pad coupled with the statement recorded during the course of search, addition cannot be sustained." The Tribunal deleted the additions made by the AO towards unaccounted cash receipts by the assessee.

5. Protective Addition Under Section 69A of the Income Tax Act:
The Tribunal addressed the issue of protective addition of Rs.50.60 lakhs towards unaccounted cash seized from the premises. The Tribunal remitted the issue back to the AO for verification of relevant evidence. The Tribunal directed the assessee to produce the cash book relating to the relevant period along with other evidence to prove the availability of cash balance as on the date of seizure of the cash. The AO was instructed to give credence to such evidence or material brought on record by the assessee and to decide the issue on that basis.

Conclusion:
The Tribunal allowed the appeals of the assessee in ITA Nos. 733 to 734/Bang/2022 partly and ITA No. 735/Bang/2022 partly for statistical purposes, emphasizing the need for corroborative evidence to support additions based on loose slips and retracted statements.

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