2026 (1) TMI 243 - AT - Income Tax

Survey-based undisclosed income and cash expense payments u/s40A(3) challenged; additions deleted for lack of evidence upheld.

Addition based on alleged undisclosed income admitted during survey under s.133A was held unsustainable because the AO relied primarily on a retracted ... Undisclosed income admitted by the assessee during survey u/s 133A - AO accepted the profit on transportation business at 2.9% meaning thereby that if the income after addition is considered the turnover of the assessee would be 152 crores which is approximately 5.5 times higher than the declared turnover - CIT (A) allowed the appeal of the assessee on this issue after taking into account the contention and submission of the assessee and by relying upon the various decisions and also the fact that the statement relied by the ld. AO has been retracted by the assessee immediately within a few days - HELD THAT:- We note that AO has not brought on record any substantive evidences proving the undisclosed income. CIT (A) has recorded a very detailed finding on this issue and relied on series of decision including decision in case of CIT vs. S. Khader Khan Son [2013 (6) TMI 305 - SC ORDER] wherein it has been held that the statement recorded during the course of survey u/s 133A of the Act has no evidentiary value and no addition can be made on the basis of such statement. We have perused the appellate order carefully. Moreover, the addition made on the basis of statement taken under coercion and duress cannot be the basis for making addition along unless the corroborative material is there. CBDT has issued a Circular F No. 286/2/2003-IT (Investigation), wherein the ld. CBDT issued instructions revenue officers that during the course of search/survey operations no attempt should be made to obtain confession as to disclose income and the ld. AO should rely upon the evidences/ material gathered during the course of survey and search operations. Decided against revenue. Addition u/s 40A(3) - AO found that the assessee has made some cash payments in violation of provisions of section 40A(3) - CIT (A) deleted the addition partly - HELD THAT:- We have perused the material on record as well as the appellate order and found that the ld. CIT (A) has recorded a very detailed finding on this issue by analyzing the expenses and recording a finding that some of the expenses were paid by an account payee cheque. Therefore, we do not find any infirmity in the order of ld. CIT (A) - Decided against revenue. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether the delay in filing the departmental appeal was liable to be condoned on the reasons shown and absence of opposition. (ii) Whether an addition for 'undisclosed income' could be sustained when it was based substantially on a statement recorded during survey and a computer printout treated as an incriminating document, where the statement was promptly retracted and no corroborative material was brought on record. (iii) Whether disallowance under section 40A(3) could be sustained in respect of impounded vouchers/payments, when the appellate authority found (on scrutiny of records) that substantial payments were through account payee cheques and the remaining disallowance was appropriately restricted/deleted. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i): Condonation of delay in filing appeal Legal framework: The Tribunal considered the explanation offered in the condonation petition for delayed filing and the position of the opposing party. Interpretation and reasoning: The delay was attributed to time taken in obtaining administrative approvals from competent authorities. The delay was not opposed by the respondent. Considering the stated cause as genuine and bona fide, the Tribunal exercised discretion to condone the delay. Conclusion: Delay was condoned and the appeal was admitted for hearing. Issue (ii): Addition based on survey statement and 'dumb' computer printout; effect of prompt retraction and lack of corroboration Legal framework: The Tribunal applied the principle that a statement recorded during survey under section 133A does not, by itself, have evidentiary value sufficient to sustain an addition unless supported by corroborative material. The Tribunal also relied on the administrative instruction that officers should not seek confessional disclosures during search/survey and should base additions on evidence/material gathered. Interpretation and reasoning: The addition was made solely on the basis of (a) a statement recorded during survey and (b) an impounded computer printout (treated as page 33 of an impounded set) containing dates and amounts without identifying particulars. The assessee retracted the survey statement within a few days by affidavit, asserting it was made under pressure and denying nexus with the printout. The Tribunal noted that, despite the retraction being on record and acknowledged in the assessment order, the assessing authority did not bring any substantive corroborative evidence to prove undisclosed income, did not establish linkage of the printout to the assessee's business through investigation, and did not demonstrate any supporting indicators (such as unaccounted cash, assets, parallel books, or defects in regular books). The Tribunal accepted the appellate finding that the printout was a 'dumb document' lacking signatures, names, transaction particulars, and contextual details, and therefore could not, by itself, justify an addition. The Tribunal also found the allegation of massive unaccounted turnover/profit implausible in the absence of any supporting material discovered during survey. Conclusion: The deletion of the addition for undisclosed income was upheld; the Tribunal affirmed that no addition could be sustained merely on a retracted survey statement and an uncorroborated dumb document. Issue (iii): Disallowance under section 40A(3) for cash payments reflected in impounded vouchers Legal framework: The Tribunal considered the applicability of section 40A(3) to payments alleged to have been made in cash in excess of prescribed limits, as examined by the appellate authority on the basis of vouchers, bank payments, and recorded entries. Interpretation and reasoning: The disallowance was made on the basis of impounded debit vouchers indicating payments allegedly in contravention of section 40A(3). The appellate authority analysed the impounded material along with books and supporting records and recorded findings that a part of the payments was made through account payee cheques, and the disallowance did not survive to the extent deleted. The Tribunal found that the appellate authority's findings were detailed and based on examination of the payment mode and particulars, and it found no infirmity warranting interference. Conclusion: The Tribunal upheld the appellate order deleting/restricting the disallowance under section 40A(3), and dismissed the departmental challenge on this ground.