2025 (9) TMI 829 - AT - Income Tax

Set-aside of assessing officer's action overturned where assessee failed to respond after survey disclosure and retraction

ITAT (AT) held that the tribunal cannot sustain CIT(A)'s set-aside of the AO's action where the assessee failed to respond or make any representation ... Disclosure made during the survey operation - statement under oath was not reflective of the exact state of affairs and therefore, needed to be retracted - HELD THAT:- While there is some merit in the finding of Ld. CIT(A) that a bald statement under oath may not be sufficient to enhance the income of an assessee, especially when the same has been retracted. However, a perusal of the two orders of Ld. AO reveal that there was no response from the side of the assessee and no representation before the AO. In such a situation, the action of CIT(A) cannot be upheld since he has under-played the non-compliance by the assessee before the AO and has been persuaded by the submissions made before him. While the Ld. AO would give adequate opportunity to the assessee, the assessee would do well to cooperate with the Ld. AO during the course of these fresh proceedings. ISSUES PRESENTED AND CONSIDERED 1. Whether a confessional statement recorded under oath during a survey can, by itself, form the basis for making additions to the income of the assessee when the statement is later retracted. 2. Whether the Assessing Officer (AO) is obliged to conduct independent enquiries and seek corroborative material before making additions based on a survey statement, particularly where the assessee retracts that statement. 3. What is the evidentiary and procedural consequence of the assessee's non-cooperation and failure to respond to notices under section 142(1) during assessment proceedings after a survey disclosure. 4. Whether the appropriate remedy, when first appellate authority deletes additions relying on retraction but the AO record shows no engagement by the assessee, is remand to the AO for fresh investigation. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Confessional statement during survey as sole basis for addition Legal framework: Confessional statements recorded under oath during survey operations are admissible but their weight depends on corroboration; statutory provisions and administrative guidance require that additions be based on relevant material and proper enquiry, not solely on survey confessions. Precedent Treatment: The first appellate authority relied on authorities and CBDT Circulars holding that a confessional statement alone is insufficient to make additions. The Tribunal acknowledged those authorities as having merit but did not treat them as mandating absolute exclusion of survey statements in every case. Interpretation and reasoning: The Court recognised the general principle that a bald statement recorded under oath may not be sufficient to enhance income, especially if retracted. However, that principle is contextual: where no further material or explanation is furnished by the assessee before the AO, the absence of corroboration does not automatically invalidate the use of the disclosure. The Tribunal emphasised that the AO may rely on the disclosure if supported by independent enquiries or if the assessee fails to engage with the assessment process. Ratio vs. Obiter: Ratio - A survey confession alone is not ipso facto conclusive; its probative value depends on corroboration and the procedural context. Obiter - Remarks as to duress in the assessee's retraction were noted but not determinative because not tested before the AO. Conclusions: Confessional statements recorded during survey cannot be universally treated as conclusive for additions if retracted, but such retraction does not automatically negate the disclosure where the assessee has not participated in the assessment or provided alternative explanations; corroborative enquiries remain necessary in appropriate cases. Issue 2 - Duty of the AO to make independent enquiries before relying on survey statements Legal framework: The AO is required to make enquiries, seek materials and afford opportunity to the assessee under the assessment proceedings provisions before assessing undisclosed income. Reliance on statements must be tested against available material and procedural fairness. Precedent Treatment: The CIT(A) held that AO should not rely solely on survey statements and should undertake independent enquiries; Tribunal acknowledged that principle but found the CIT(A) erred in failing to account for the assessee's non-compliance before the AO. Interpretation and reasoning: The Tribunal balanced the duty of AO to investigate with the reality of non-cooperation. Where notices under section 142(1) remain unanswered and the assessee did not make representations to the AO, the AO's reliance on the survey disclosure is not improper if the AO conducts or is enabled to conduct appropriate follow up enquiries on remand. The appellate court must consider whether the AO had opportunity to gather corroboration; absent such opportunity, appellate deletion may be premature. Ratio vs. Obiter: Ratio - AO should ordinarily make independent enquiries, but appellate acceptance of retraction cannot substitute for the AO's fact-finding when the assessee has not cooperated. Obiter - The extent and nature of required corroboration will depend on factual matrix. Conclusions: The AO's duty to investigate remains, but the appellate authority should not negate additions purely because a statement was retracted if the assessee failed to cooperate with the AO; remand is appropriate to enable proper enquiries. Issue 3 - Effect of non-cooperation and failure to respond to notices under section 142(1) Legal framework: Procedural provisions require the assessee to respond to notices and participate in assessment proceedings; failure to do so affects evidentiary balance and the AO's ability to determine correct income. Precedent Treatment: The Tribunal treated the assessee's non-response as a material factor undermining the CIT(A)'s reliance on retraction; prior authorities emphasising that retraction weakens probative value were applied subject to this procedural context. Interpretation and reasoning: Non-cooperation (no reply to 142(1) notices, no representation to AO) means the AO lacked access to explanations or documents that might corroborate or repudiate the survey disclosure. The Tribunal found that the CIT(A) underplayed this non-compliance when deleting additions merely on the basis of a retracted confession; procedural default by the assessee justifies remand to allow AO to conduct inquiries and give the assessee an opportunity to cooperate. Ratio vs. Obiter: Ratio - Non-cooperation is a relevant and weighty factor that can justify the AO relying on survey disclosures in the absence of alternative material; appellate deletion must consider the assessee's conduct before the AO. Obiter - Speculation that cooperation might have yielded a more accurate assessment. Conclusions: The assessee's failure to respond materially affects the assessment process; where such failure exists, appellate authorities should not set aside additions based solely on retraction but should ensure the AO is given scope to investigate afresh with opportunity for the assessee to cooperate. Issue 4 - Remedy of remand where appellate deletion rests on retraction but AO record shows no engagement Legal framework: Appellate tribunals have power to remit matters for fresh adjudication where facts require further inquiry; fairness requires AO be afforded opportunity to examine records, seek corroboration, and give the assessee a chance to explain. Precedent Treatment: The Tribunal applied this remedial principle, noting the CIT(A)'s reliance on authorities but concluding that in the presence of non-cooperation remand is the appropriate course. Interpretation and reasoning: The Tribunal found that although principles limiting sole reliance on confessions are sound, the factual matrix (no response to notices, no representations to AO) made outright deletion inappropriate. A remand allows the AO to undertake proper investigation, evaluate corroborative material, and determine true income, while ensuring procedural fairness through affording the assessee adequate opportunity. Ratio vs. Obiter: Ratio - Where appellate deletion is premised on retraction but the record shows the AO was not afforded full opportunity to investigate due to assessee's non-cooperation, remand to the AO for fresh enquiry is the correct remedy. Obiter - Directions that the assessee 'would do well to cooperate' are advisory and not binding. Conclusions: The correct course is to remit the matters to the AO for fresh proceedings with directions to investigate the accounts and determine correct income, affording the assessee opportunity to cooperate; appellate deletion in such circumstances is set aside and matters remanded.