2025 (6) TMI 2058 - AT - Income Tax

Rs 70 lakh addition based solely on statement under section 132(4) deleted for lack of independent corroboration

M/s. Avishkar Infrastructure Pvt. Ltd. Versus The DCIT, Central Cir. 9, Mumbai

ITAT MUMBAI held for the assessee, disallowing a Rs.70.00 lac addition made solely on a statement recorded under section 132(4). The Tribunal found the ... Determination of profit in respect of “Acme Center”, a project developed by the assessee at Ahmadabad - sole basis of the Department to assess profit of Rs. 70.00 lacs is based upon the statement recorded under section 132(4) - whether sustenance of impugned addition is in accordance with law or not? - HELD THAT:- CBDT has clearly given the mandate to the officers that during the course of search, seizures and survey no attempt should be made to obtain confession as to the undisclosed income and such instructions to CBDT were applicable when the search and seizure was made and assessment was framed. CBDT has further mandated that in respect of pending assessment also AO should rely upon the evidences/materials gathered during the course of search/survey operations or thereafter while framing relevant assessment order. The addition made in the present case is contrary to the aforementioned decision of Hon’ble Telangana & Andhra Pradesh High Court [2014 (11) TMI 57 - ANDHRA PRADESH HIGH COURT] as well as aforementioned circular of CBDT as the assessment is entirely based upon the statement recorded during the course of search and no independent material has been brought on record by the AO to show that the income returned was incorrect. So far as it relates to findings recorded by Ld. CIT(A), one of the finding is that by making admission under section 132(4) the assessee has altered the position of the Department because of which the Department did not pursue the matter further and did not visit the said Acme Centre at Ahmedabad. It may be mentioned that such opinion of Ld. CIT(A) would be contrary to the aforementioned circular issued by CBDT, where the clear mandate has been given to the Income Tax Authorities working under the CBDT that while recording the statement during the course of search/survey no attempt should be made to obtain confession of the undisclosed income and any such action would be viewed adversely. In absence of supporting material, the addition simply on the basis of statement cannot be upheld. The other findings of Ld. CIT(A) do not support the addition as they are only based upon the admission of the assessee. According, assessee had furnished all required particulars regarding sale and expenditure incurred on the impugned project and AO could not point out any defect in those particulars submitted by the assessee - Decided in favour of assessee. ISSUES PRESENTED AND CONSIDERED 1. Whether an un-retracted statement recorded under section 132(4) can, by itself, justify assessing unaccounted income when the assessee subsequently files returns reflecting a lower realized profit and furnishes full particulars of receipts and expenditures. 2. Whether a retracted or subsequently contradicted statement made during search/survey proceedings retains sufficient evidentiary value to sustain an addition in the absence of independent corroborative material (immovable/movable assets, documentary or other supporting evidence). 3. Whether reliance solely on a statement recorded during search/survey, without additional material gathered during or after the operation, is consistent with departmental instructions and established judicial principles governing evaluation of such statements. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Evidentiary Effect of an Un-retracted Section 132(4) Statement vis-à-vis Subsequent Returns Showing Lower Realized Profit Legal framework: Statements recorded under the statutory provision during search/survey are admissible as evidence and can be relied upon in pending proceedings; an un-retracted statement may be used as a basis for assessment. Precedent treatment: Prior judicial pronouncements recognize that an un-retracted admission can constitute prima facie evidence and may alone support an assessment; conversely, when a recorded statement is retracted, its standalone evidentiary weight diminishes and assessing authorities must seek corroboration. Interpretation and reasoning: The Tribunal examined factual matrix - only part of the project had been sold at the time of the statement; complete particulars of subsequent sales and project expenditures were placed before the assessing officer; the assessees' returns reflected realized profit substantially lower than the figure offered in the statement. Although the statement remained formally un-retracted until filing of returns, the Tribunal held that the assessing authority nevertheless could not rest solely on that statement when independent documentary particulars of receipts and expenses existed and were not impugned. Ratio vs. Obiter: Ratio - An un-retracted statement under section 132(4), while admissible, cannot by itself sustain an addition where the assessee produces contemporaneous, unchallenged particulars of actual receipts and expenditures that contradict the estimate contained in the statement; the assessing authority must look for corroborative material before making an addition. Obiter - Observations on the effect of market recession evidence and on departmental conduct vis-à-vis follow-up enquiries. Conclusion: The addition based solely on the section 132(4) statement was not sustainable in the facts; the realized receipts and expenses produced by the assessee neutralized the evidentiary value of the statement for making the impugned addition. Issue 2 - Effect of Retraction or Subsequent Contradiction of Statements Recorded During Search/Survey Legal framework: A retracted statement's evidentiary value is materially weakened; where a recorded admission is later retracted, assessing authorities must seek independent supporting material (e.g., seized assets, corroborative documents) to sustain an assessment based on that admission. Precedent treatment: Judicial authorities have held that a retracted admission cannot operate as conclusive proof; if the statement is retracted, it requires independent corroboration to be acted upon. Administrative guidance cautions against relying solely on confessions obtained during searches or surveys. Interpretation and reasoning: Although in the present case the Tribunal noted that formal retraction occurred by filing returns (i.e., the statement was not maintained as basis for returns), it applied the principle that where a statement's strength is diluted by subsequent conduct and where independent material is available and unrebutted, the statement cannot be the sole basis for an addition. The Tribunal stressed that the assessing officer produced no material contradicting the sales receipts and expenses furnished by the assessee. Ratio vs. Obiter: Ratio - Where a statement recorded during search is subsequently contradicted by the assessee's returns and detailed corroborative particulars are furnished and not discredited by the Revenue, the statement (even if technically un-retracted until return filing) cannot serve as the sole basis for addition; corroboration is required. Obiter - Comparison to principles applicable to retracted statements under criminal procedure was used illustratively. Conclusion: The statement's evidentiary weight was insufficient to justify the addition absent independent corroborative material; the Tribunal deleted the addition. Issue 3 - Compliance with Administrative Instructions and Requirement for Independent Evidence When Relying on Search/Survey Statements Legal framework: Administrative circulars/directives instruct authorities to focus on collection of corroborative evidence during search/survey and to avoid obtaining mere confessions; pending assessments should be supported by evidences/materials gathered during or after operations. Precedent treatment: Courts have relied on such administrative directions to hold that assessments founded solely on admissions/confessions made during searches/surveys - when not supported by independent material - reflect a perfunctory investigation and are unsustainable. Interpretation and reasoning: The Tribunal referred to the relevant administrative mandate that discourages treating confessions obtained during searches as an end in themselves, and emphasized that the Revenue in this case failed to produce any independent corroborative material contradicting the detailed sales receipts and expense accounts provided by the assessee. The Tribunal held that sustaining an addition on such a perfunctory basis would run counter to both the administrative instruction and judicially recognized safeguards. Ratio vs. Obiter: Ratio - Assessing authorities must adhere to the directive to seek and rely on independent corroborative evidence when an assessment is predicated on statements made during search/survey; absence of such evidence undermines additions based solely on those statements. Obiter - Remarks on departmental practice and the propriety of follow-up enquiries. Conclusion: The addition was contrary to the administrative instructions and established judicial approach; in absence of independent corroboration the addition was deleted. Integrated Conclusion and Disposition The Tribunal concluded that the assessing officer's addition, founded solely on the section 132(4) statement estimating a profit of Rs. 70 lakhs, was not sustainable because the assessee produced complete particulars of actual sales receipts and expenditures for the project which were not impeached by the Department, and because reliance solely on the recorded statement without corroborative material ran afoul of both judicial principles and departmental guidance. The appeal was allowed and the addition deleted.