Statement Recorded During Survey Has No Evidentiary Value: Chhattisgarh HC Quashes Additions on Excess Stock & Cash based on SC decision [Read Order]

The Chhattisgarh High Court, quashed the additions on excess stock and cash observing the Madras HC ruling which affirmed by the Supreme Court that statements recorded during survey proceedings under Section 133A of the Income Tax Act, 1961 have no evidentiary value.

The Division Bench of Justice Rajani Dubey and Justice Amitendra Kishore Prasad, depending on the Madras HC and Supreme Court's decision in Commissioner of Income-tax v. S. Khader Khan Son, held that survey statements cannot form the sole basis for additions in assessment, particularly when the assessee retracts the statement and no independent evidence is brought on record.

The assessee-petitioner, Smt. Neetu Sharma, proprietor of M/s Venkatesh Accessories Shoppee, Raipur, was subjected to a survey under Section 133A on 3 March 2011. During the survey, she allegedly disclosed ₹29.49 lakh comprising excess cash, excess stock, and unexplained investment. Subsequently, she filed her return for AY 2011-12 declaring income of ₹13.37 lakh.

During the scrutiny proceedings, the Assessing Officer noted that she had retracted the disclosure made during the survey and had not offered the amounts for tax.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

Rejecting the assessee’s explanations, the AO proceeded to add ₹32.81 lakh to her income under Section 143(3), largely relying on her survey statement and alleging that she failed to produce sale bills or furnish convincing proof of the adjustments in stock and cash.

The CIT(A) and the ITAT upheld the additions, leading the assessee to file an appeal before the High Court under Section 260A.

Admitting the appeal, the High Court framed the substantial question whether the ITAT was justified in sustaining additions based solely on a statement recorded under Section 133A, despite the legal position that such statements are not conclusive evidence.

The Counsel for the assessee argued that the authorities had ignored binding judicial precedents, including CIT v. S. Khader Khan Son (Madras HC), which was later affirmed by the Supreme Court in CIT, Salem v. S. Khader Khan Son.

These decisions held that survey officers are not empowered to administer oath, and therefore statements recorded during survey have no evidentiary value and cannot, by themselves, support additions.

The High Court agreed with the assessee’s contention. Analysing the statute, the Court observed that Section 132(4) applicable to search proceedings expressly authorizes recording of statements on oath, giving such statements evidentiary weight.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

In contrast, Section 133A (survey) does not empower officers to administer oath. Therefore, statements recorded during the survey do not carry any evidentiary value.

The Court said that the materials collected and statements recorded during the survey cannot, by themselves, be used to make additions unless supported by independent evidence.

The bench also noted that the AO had based the additions entirely on the survey disclosure, repeatedly citing the assessee’s inability to substantiate the retraction. However, there was no corroborative material, no unexplained discrepancy in books, and no evidence of unaccounted sales or purchases. The Tribunal and CIT(A) had also ignored this principle.

Accordingly, the high court held that the assessment was unsustainable and set aside the orders of the AO, CIT(A), and ITAT.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates