Corroborative evidence is essential before taxing search-based declarations or presumptive liabilities in a dissolved firm.

An ad hoc search declaration under section 132(4) and an unaccepted settlement offer could not, by themselves, justify additions where the firms had already been dissolved and no incriminating material showed post-dissolution income. A search statement has evidentiary value only when supported by corroborative material, and a rejected settlement proposal cannot be treated as proof of taxable income. Additions based on alleged excess liabilities also failed because the Assessing Officer relied on presumptions of concealed assets and unaccounted payments without evidence, and the related year-end payment finding was inconsistent with the record.

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Issues: (i) Whether an ad hoc declaration made during search under section 132(4) of the Income-tax Act, 1961 and an unaccepted settlement proposal could, by themselves, justify additions in the hands of firms already dissolved; (ii) Whether the additions made on account of alleged excess liabilities and related presumptions of concealed assets or unaccounted payments were sustainable.

Issue (i): Whether an ad hoc declaration made during search under section 132(4) of the Income-tax Act, 1961 and an unaccepted settlement proposal could, by themselves, justify additions in the hands of firms already dissolved.

Analysis: The declaration was an ad hoc figure made without supporting material, while the firms had already been dissolved and no incriminating books or assets were found to show post-dissolution income. A statement recorded during search has evidentiary value only when supported by material, and an offer made in a settlement petition cannot be relied upon if the proposal is not accepted. In the absence of evidence of income earned after dissolution, the declaration could not be treated as conclusive proof of taxable income.

Conclusion: The additions based solely on the declaration under section 132(4) and the rejected settlement offer were not sustainable and were rightly deleted.

Issue (ii): Whether the additions made on account of alleged excess liabilities and related presumptions of concealed assets or unaccounted payments were sustainable.

Analysis: The Assessing Officer proceeded on presumptions that excess liabilities must have matched with undisclosed assets or on-money expenditure, but no corroborative evidence of such assets, cash, or suppressed profits was found. The books of account were not rejected, the alleged liabilities were not shown to be unexplained in the manner required for taxation, and the further addition relating to payment made after the year-end was contrary to the factual finding recorded by the first appellate authority.

Conclusion: The additions on account of excess liabilities and the related year-end payment were not justified and the deletion was upheld.

Final Conclusion: The appellate authority's deletion of the impugned additions was affirmed, and all the appeals failed.

Ratio Decidendi: A statement recorded during search and an unaccepted settlement offer cannot, without corroborative evidence, be the sole basis for taxing income, particularly where the assessee-firm had already been dissolved and no material showed post-dissolution income.

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