Retraction of statement cannot sustain bogus purchase additions without corroboration; reopening based on prima facie survey material was upheld.

Reassessment based on survey material and a partner's statement was upheld because prima facie material was sufficient to form belief that income had escaped assessment, and the retraction did not nullify reopening. However, additions for alleged bogus purchases and personal expenses could not stand where the statement was later retracted, the books of account were not rejected under section 145(3), and no independent corroborative evidence was produced. A retracted statement alone was insufficient to sustain the additions, so the reassessment survived but the impugned additions were deleted.

---

---

Issues: (i) Whether reassessment under sections 147 and 148 of the Income-tax Act, 1961 was valid on the basis of the material emerging from survey and the statement recorded from a partner. (ii) Whether additions made towards alleged bogus purchases and personal expenses of partners could be sustained solely on the basis of the recorded statements after retraction, without rejecting the books of account or bringing corroborative material on record.

Issue (i): Whether reassessment under sections 147 and 148 of the Income-tax Act, 1961 was valid on the basis of the material emerging from survey and the statement recorded from a partner.

Analysis: The reassessment was founded on material gathered during survey under section 133A and on the statement of a partner recorded under sections 131 and 131(1A). At the stage of reopening, conclusive proof of escapement is not required. Prima facie material is sufficient to form the requisite belief that income had escaped assessment. The statement was not accepted as having been effectively withdrawn so as to nullify the reopening, and the record disclosed material connecting the survey findings with possible escapement of income.

Conclusion: The reassessment action was upheld and this issue was decided against the assessee.

Issue (ii): Whether additions made towards alleged bogus purchases and personal expenses of partners could be sustained solely on the basis of the recorded statements after retraction, without rejecting the books of account or bringing corroborative material on record.

Analysis: The additions were based primarily on statements recorded during survey and related proceedings. The assessee retracted the statement shortly thereafter and consistently disputed its correctness. The books of account were not rejected under section 145(3), and no independent, cogent corroborative evidence was brought to establish that the purchases were bogus or that personal expenses had been routed through the firm. A retracted statement, by itself, could not justify the additions in the absence of supporting material. The same reasoning applied to the addition made towards alleged personal expenses of partners.

Conclusion: The additions on account of bogus purchases and personal expenses were deleted and this issue was decided in favour of the assessee.

Final Conclusion: The appeals succeeded only to the extent of deletion of the impugned additions, while the challenge to reopening did not succeed.

Ratio Decidendi: A retracted statement recorded during survey or enquiry cannot, by itself, sustain an addition unless it is independently corroborated by reliable material, and no addition for bogus purchases can be upheld without first rejecting the books of account where the dispute is essentially evidentiary.

---