2025 (9) TMI 627 - AT - Income Tax

Statements under s.133A lack sufficient evidentiary value; survey admissions alone cannot justify additions for undisclosed income

M/s. SBS Agencies Versus Deputy Commissioner of Income Tax Central Circle-3 (4), Chennai

ITAT (Chennai) held that statements recorded under s.133A lack requisite evidentiary value and cannot alone support determination of undisclosed income. ... Validity of statements recorded during survey proceedings - HELD THAT:- Statement recorded u/s 133A does not has requisite evidentiary value. The views have also been echoed in the case of Paul Mathews & Sons [2003 (2) TMI 25 - KERALA HIGH COURT] Thus we find sufficient force in the arguments of the assessee that the determination of undisclosed income of the assessee cannot be only based upon admissions made by the managing partner of the assessee firm. Thus the reliance by the Ld. First Appellate Authority only upon the sworn statements is misplaced particularly in view of the fact that the disclosures made have been included in the books of account by the assessee. Perusal of the assessment order shows that the Ld. AO has made the impugned additions making sweeping statements without placing on records any corroborative evidences to prove its case. No effort has been made to point out any specific defects in the books of account of the assessee or to elucidate that the entries qua amounts offered during the survey proceedings have not been included in the audited books of accounts. FAA also proceeded to confirm the addition by relying upon the principal aspect that the assessee had made disclosure during the survey. We find sufficient force in the argument of the assessee that the rise in GP / NP ratios is linked to additional income offered during the year. The impugned addition made by the Ld. AO on account of excess stock and cash deserves to be deleted. The orders of lower authorities are therefore set aside and all the grounds of appeal raised by the assessee are allowed. 1. ISSUES PRESENTED AND CONSIDERED Whether additions to income under provisions corresponding to sections 69A and 69B can be sustained where they are founded principally on disclosures/statements recorded during a survey under the provision corresponding to section 133A, without independent corroborative evidence. Whether statements recorded during survey proceedings under the provision corresponding to section 133A have independent evidentiary value to justify additions, or whether such statements require corroboration and proof of defects in audited books before additions can be made. Whether an Assessing Officer's summary rejection of the assessee's explanations and a non-speaking assessment order, without specific identification of defects in books of account or demonstration that disclosed amounts were not reflected in audited books/return, suffices to make additions under the provisions corresponding to sections 69A/69B. Whether inclusion of amounts disclosed during survey in the audited books of account and in the return of income precludes additions unless demonstrable defects or omissions are pointed out by the assessing authority (i.e., interplay with provisions corresponding to section 145(3)). 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Evidentiary value of statements recorded during survey under provision analogous to section 133A Legal framework: The statutory scheme contrasts powers under search provisions (analogous to section 132(4)) where statements on oath may be admissible as evidence, with survey provisions (analogous to section 133A) which do not confer power to administer oath and do not by themselves confer evidentiary value on recorded statements. Precedent Treatment: The Court relied on authoritative precedents of the jurisdictional High Court and other High Courts (cited in the judgment) holding that statements recorded under the survey provision lack inherent evidentiary value and cannot automatically be used as conclusive proof of undisclosed income; survey statements require corroboration by independent material. The precedents and departmental circulars were followed. Interpretation and reasoning: The Tribunal reasoned that because the officer conducting a survey under the provision analogous to section 133A is not empowered to record sworn statements, such statements cannot be treated as conclusive evidence. The word 'may' in the statutory text indicates that statements recorded during survey are not per se determinative. The departmental circular warning against reliance on confessions made during survey/search was noted as supporting the view that independent evidence should be the focus. Ratio vs. Obiter: Ratio - Statements under survey provision do not have requisite evidentiary value to sustain additions unless corroborated by independent and conclusive evidence. Obiter - Observations about the circular's advisability and practice guidance serve as contextual support but are not determinative of statutory interpretation beyond the cited ratio. Conclusions: The Tribunal concluded that reliance solely on sworn statements recorded during survey is misplaced and cannot justify additions absent corroborative material. Issue 2: Requirement of corroborative evidence and identification of defects in books before additions under provisions analogous to sections 69A/69B Legal framework: Assessment must be founded on material, and when books of account are maintained and audited, the assessing authority must point out specific defects (referencing the statutory scheme analogous to section 145(3)) or demonstrate non-inclusion of disclosed amounts before making additions under provisions dealing with unexplained cash/stock. Precedent Treatment: The Tribunal relied upon High Court authority and Supreme Court guidance (as discussed in the judgment) that admissions are important but not conclusive, and that where books are maintained and audited and no defect is shown, additions ought not be made merely on the basis of survey admissions. Interpretation and reasoning: The Tribunal found the Assessing Officer's order to be non-speaking, characterized by summary rejection of explanations without articulating why they were unsatisfactory or pointing to concrete inconsistencies or defects in the audited books. The Tribunal accepted the assessee's evidence that the amounts disclosed during survey were incorporated in the trading account and profit & loss account, and further supported by changes in gross profit/net profit ratios in the tax audit report, which explained the rise. The AO failed to identify misentries, manipulations, or omissions in the books that would justify additions under the unexplained assets/income provisions. Ratio vs. Obiter: Ratio - Where audited books and returns reflect amounts disclosed during survey and no specific defects in books are pointed out by the assessing authority, additions under provisions analogous to sections 69A/69B are unsustainable. Obiter - Commentary that an AO should focus on collection of evidence rather than confessions aligns with administrative guidance but supplements the legal ratio. Conclusions: The Tribunal concluded that the assessing authority's failure to point out defects or to produce corroborative evidence rendered the additions invalid; the disclosed amounts having been included in audited books/return precluded additions based solely on survey statements. Issue 3: Legality of non-speaking assessment orders and reliance by the first appellate authority on unsupported findings Legal framework: Assessment orders and appellate confirmations must be reasoned; reliance on earlier non-speaking orders without independent examination of records or demonstration of error violates the requirement of application of mind. Precedent Treatment: The judgment applied established principles that administrative orders must be speaking and demonstrate reasons for rejecting explanations, and that appellate reliance solely on such orders is inadequate. Interpretation and reasoning: The Tribunal observed the AO's order was non-speaking and summarily dismissed the assessee's explanations. The appellate authority merely reproduced and relied upon that order, centering its conclusion on the survey statement without independent analysis or evaluation of the audited books and corroborative material provided by the assessee (including tax audit report and accounts). The Tribunal treated such reproduction as insufficient to sustain additions. Ratio vs. Obiter: Ratio - An assessing authority's non-speaking order that fails to explain why the assessee's explanations are unacceptable cannot form a sustainable basis for additions; appellate confirmation that simply reproduces such non-speaking reasoning is likewise unsustainable. Obiter - None significant beyond the ratio. Conclusions: The Tribunal set aside the assessment and appellate orders to the extent they relied on non-speaking reasoning and uncorroborated survey statements. Issue 4: Effect of audited accounts and tax audit particulars (e.g., GP/NP ratios) as corroborative evidence Legal framework: Audited books and tax audit schedules are material that can corroborate the position of the assessee; in the absence of challenged entries, such records are accorded probative value and may negate the need for additions unless defects are shown. Precedent Treatment: The Tribunal applied precedents holding that where no defect is pointed out in the books and audit, additions cannot be sustained merely on statements or departmental suspicion. Interpretation and reasoning: The Tribunal accepted the assessee's explanation that the excess stock was accounted as purchases and cash as miscellaneous income, and that this was reflected in the tax audit report by movement in gross profit/net profit percentages. The Tribunal found the increase in profit ratios to be traceable to the disclosed amounts and noted absence of any pointed-out misbooking by the AO. Ratio vs. Obiter: Ratio - Audited accounts and tax audit particulars, when not shown to be defective, constitute sufficient corroboration of inclusion of disclosed amounts and preclude additions based solely on survey statements. Obiter - Use of GP/NP ratio as a diagnostic tool is illustrative, not prescriptive. Conclusions: The Tribunal treated the audited books and tax audit entries as adequate corroboration that the disclosed amounts were included in the return, undermining the basis for additions. Final Disposition Conclusions drawn from collective analysis: Additions made under provisions analogous to sections 69A and 69B were unsustainable because they were based mainly on statements recorded during survey proceedings that lack independent evidentiary value absent corroborative material; the assessing authority's order was non-speaking and failed to identify defects in audited books or demonstrate non-inclusion of the disclosed amounts; audited accounts and tax audit particulars corroborated the assessee's claim of inclusion of the amounts in the return. Disposition: The Tribunal set aside the impugned additions and allowed the appeal, deleting the additions made by the assessing authority and confirmed by the first appellate authority.