2025 (11) TMI 995 - AT - Income Tax

Assessing section 132(4) statements alone cannot sustain income additions without cogent corroboration, additions set aside

ITAT held that the AO's reliance solely on statements recorded u/s 132(4) and ambiguous incriminating documents, without confronting evidentiary aspects ... Unaccounted cash receipts - assessee had filed return of income which were processed and search and seizure operation u/s 132 - HELD THAT:- AO has relied the statement recorded u/s 132(4) of the Act alone by holding that the same is descriptive and in comprehensive manner explained the whole modus operandi of the business operations of the assessee firm and Shri Hardesh Chawla in his statement has explained in detail the whole method of working of the assessee firm and this cannot be done by any person at the behest of other person and, thus, considering the admissions regarding the unaccounted receipts corroborated by the incriminating documents, the AO concluded that the assessee has failed to bring any evidence whatsoever to prove that, its director was indeed into the business of trading of food grains. The theory of food grain business propounded by the assessee company is nothing, but, an afterthought of the assessee and has no discernible rationale. Thus, the assessee's contentions have been found to be baseless. Without confronting evidentiary aspect or circumstances as part of the content of alleged incriminating documents, which the AO intends to rely for drawing any inference, the statement recorded u/s 132(4) of the Act has no substantive evidentiary value to be relied by AO and more so when the documents itself is found to be ambiguous. Thus we find the conclusion drawn by the AO to be unsubstantiated by cogent evidences and ld. CIT(A) erred in endorsing the same. The respective ground in appeals challenging the additions on merits deserves to be sustained. ISSUES PRESENTED AND CONSIDERED 1. Whether the assumption of jurisdiction under section 147 (notice for reopening) was vitiated on account of a common/consolidated approval for issuance of notices for multiple assessees and assessment years. 2. Whether a purported handwritten note seized during search (described as 'approximate', 'projections' and 'estimations') constitutes incriminating evidence to sustain additions to income and warrant rejection of books of account. 3. Whether statements recorded under section 132(4) can, without confrontation of evidentiary aspects of seized documents, furnish independent substantive evidence to support additions based on ambiguous/inconclusive documents. 4. Whether the assessee's subsequent affidavit of retraction affects the evidentiary value of earlier admissions and seized material. 5. Whether the first appellate authority erred in affirming the assessing officer's additions where the seized document is ambiguous and corroboration is limited to the section 132(4) statement. ISSUE-WISE DETAILED ANALYSIS - 1. Assumption of jurisdiction under section 147 (approval for reopening) Legal framework: Assessee challenged reopening under section 147 contending approval for issuing notices was by a consolidated/mechanical order for multiple assessees and years; challenge engages statutory requirements for valid approval preceding issuance of notice (statutory scheme for reopening and supervisory approval). Precedent Treatment: Counsel relied on authorities criticizing mechanical approvals (including High Court pronouncements requiring application of mind); the Tribunal noted such jurisprudence was invoked by the assessee. Interpretation and reasoning: The Tribunal observed that issues relating to legality of approval were raised but, given the Tribunal's findings on merits (inadequacy of evidentiary value of the seized document and the inability of the AO to substantiate additions), the question of jurisdictional validity became academic and was not adjudicated on merits. Ratio vs. Obiter: Obiter - the Tribunal did not lay down a new rule on the validity of consolidated approvals; it treated the jurisdictional question as subordinate and academic in light of substantive disposal. Conclusion: Jurisdictional/legal challenge to approval for reopening was not determined on merit; it was held academic because the substantive additions were quashed on evidentiary grounds. ISSUE-WISE DETAILED ANALYSIS - 2. Evidentiary value of the seized handwritten note (approximate/projections) and rejection of books Legal framework: Additions were made on the basis of a seized handwritten sheet listing 'receipts in cash' in approximate/projection terms; assessing officer rejected books to the extent of alleged unaccounted sales and made additions under the relevant income provisions by applying a 15% net profit margin on alleged unaccounted sales. Precedent Treatment: The Tribunal considered accepted principles that incriminating documents must be sufficiently definite and corroborated to support additions; reliance on vague or speculative material is impermissible to quantify income. Interpretation and reasoning: On examination the Tribunal found the seized document expressly used words such as 'approximate', 'projections' and 'estimation', and there was no evidence in the record showing these projections resulted in actual income. The document was an act of extrapolation/projection rather than contemporaneous record of realized receipts. Absent independent evidence of resultant transactions, the piece of paper cannot be treated as documentary proof of actual unaccounted receipts. Ratio vs. Obiter: Ratio - where a seized document is ambiguous and framed in terms of projections/estimates without corroborative evidence of realization, it cannot sustain additions or justify rejection of books to the extent premised solely on such document. Conclusion: The assessing officer's reliance on the ambiguous handwritten note to quantify and add income was unsustainable; the Tribunal directed deletion of the impugned additions and set aside the rejection of books to the extent based on that material. ISSUE-WISE DETAILED ANALYSIS - 3. Reliance on section 132(4) statement absent confrontation of evidentiary aspects of seized document Legal framework: AO relied on a statement recorded under section 132(4) admitting unaccounted cash sales; question arose whether such statement can, standing alone and without confronting evidentiary details of ambiguous seized material, furnish substantive corroboration for additions. Precedent Treatment: The Tribunal reiterated that statements under section 132(4) have evidentiary value only insofar as they are corroborated by independent material or where their contents are not ambiguous; mere recitation of admissions, if not confronted with documentary particulars, is insufficient. Interpretation and reasoning: The Tribunal held that the AO relied primarily on the section 132(4) statement but failed to confront evidentiary aspects or circumstances contained in the ambiguous seized sheet. When the documentary material itself is inconclusive, the statement's probative value is weak and cannot, prima facie, replace the need for cogent corroborative evidence. The Tribunal emphasized that without confronting and testing the content of seized documents, a statement cannot be treated as substantive proof capable of sustaining additions. Ratio vs. Obiter: Ratio - a section 132(4) statement, where used to support additions based on ambiguous documents, must be tested and corroborated by confronting evidentiary particulars; otherwise it lacks sufficient independent evidentiary value. Conclusion: The AO's reliance on the section 132(4) statement as corroboration for additions based on the seized sheet was unsustainable; the Tribunal found the statement insufficient to validate the additions in absence of proper confrontation and corroboration. ISSUE-WISE DETAILED ANALYSIS - 4. Effect of post-facto affidavit of retraction on admissions Legal framework: Director's earlier statement admitted unaccounted sales and later retracted by affidavit; question whether subsequent retraction negates earlier recorded admissions or affects AO's reliance. Precedent Treatment: The Tribunal noted the timing and availability of the retraction (affidavit filed later) but placed primary emphasis on the inherent ambiguity of the seized document and inadequacy of corroboration rather than deciding definitively on the legal effect of the retraction. Interpretation and reasoning: Even assuming a recorded admission existed initially, the Tribunal held that without clear documentary corroboration the admission-especially one later retracted-cannot be the sole basis for quantification of income. The Tribunal did not base its decision solely on the retraction but treated it as one factor in assessing the overall evidentiary matrix. Ratio vs. Obiter: Obiter - the Tribunal did not propound a general rule on effect of retraction; rather it treated retraction as part of overall insufficiency of evidence. Conclusion: The retraction weakened the evidentiary chain relied upon by the AO, but the critical basis for deletion was the ambiguity of the seized document and lack of corroboration for admissions. ISSUE-WISE DETAILED ANALYSIS - 5. First appellate authority's error in affirming additions Legal framework: Appeal to CIT(A) had affirmed AO's additions; Tribunal examined whether affirmation was legally sustainable given the evidentiary shortcomings. Precedent Treatment: Tribunal applied principles requiring cogent evidence for additions and the need for confrontation and corroboration of seized material and statements relied upon. Interpretation and reasoning: The Tribunal found that the CIT(A) erred in endorsing the AO's conclusion because the AO's finding was not supported by cogent evidence: the seized document was ambiguous (projections/estimates), there was no evidence that projections led to actual realization, and the section 132(4) statement was not properly corroborative absent confrontation of the document. Therefore the appellate affirmation could not stand. Ratio vs. Obiter: Ratio - where additions rest on ambiguous seized material and uncorroborated statements, appellate affirmation of such additions is erroneous. Conclusion: The Tribunal sustained the grounds challenging the additions on merits, held that CIT(A) erred in upholding the additions, and directed deletion of the impugned additions. FINAL CONCLUSION The Tribunal concluded that the additions based on the seized handwritten note and corroborated only by a section 132(4) statement were unsustainable due to the ambiguous/estimative nature of the document and absence of corroborative evidence; the assessing officer's and appellate authority's conclusions were therefore unsubstantiated. Consequently the impugned additions were deleted. Questions regarding the legality of the reopening approval were treated as academic and were not decided on merits.