Survey Statement alone cannot Justify Bogus Purchase Additions: ITAT Deletes ₹3.60 Cr Addition u/s 68 [Read Order]

The Pune Bench of the Income Tax Appellate Tribunal (ITAT) has held that additions under Section 68 of the Income Tax Act, 1961 cannot be sustained solely on the basis of statements recorded during a survey under Section 133A of the Income Tax Act, 1961.

The appellant, Deputy Commissioner of Income Tax, Satara, challenged the orders passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [CIT(A)], against Kay Bouvet Engineering Limited for the A.Y.s 2018-9 and 2019-20. The assessee is engaged in the business of manufacturing sugar mill machinery and executing turnkey sugar projects.

A survey under Section 133A of the Income Tax Act, 1961 was conducted at the premises of a third-party entity, during which a director allegedly admitted accommodation of entries through bogus purchase and sale transactions. Based on information received from the survey proceedings and GST intelligence authorities, the Assessing Officer (AO) reopened the assessee’s completed assessments, alleging that the assessee had availed bogus purchase entries from certain entities.

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The AO treated the transactions as sham and added a sum of ₹3.60 crore as unexplained credit under Section 68 of the Income Tax Act, 1961, by estimating commission income at 2% on the alleged bogus purchases. On appeal, the CIT(A) deleted the addition in the light of documentary evidence, including invoices and bank statements. This led the Revenue to file appeals before the Tribunal.

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The Revenue argued that the assessee had merely routed paper transactions and earned commission income, justifying the addition under Section 68 of the Income Tax Act, 1961. Further, argued that certain evidence relied upon by the appellate authority was admitted in violation of Rule 46A of the Income Tax Rules, 1962, without providing the AO an opportunity for rebuttal.

The Assessee highlighted documentary evidence and argued that payments were made through banking channels and the books of account were never rejected by the AO. Further, contended that survey statements recorded do not carry evidentiary value as supported by multiple judicial precedents on this position of law.

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The Bench of R. K. Panda, Vice President, and Astha Chandra, Judicial Member, dismissed both the appeals of Revenue and upheld the deletion of the addition of ₹3.60 crore,observing that the AO had accepted the assessee’s audited books of account, quantitative records, and banking transactions. Subsequently, no discrepancies were pointed out in the sales or purchase figures.

The Tribunal held that the entire addition was solely based on survey statements under Section 133A of the Income Tax Act, 1961, which do not empower authorities to record sworn statements. Further, it was noted that the assessee was never provided with a copy of the third-party statement nor granted an opportunity for cross-examination, rendering the reliance on such statements legally untenable.

The Tribunal also rejected the Revenue’s allegation of violation of Rule 46A, finding no material evidence to substantiate the claim.

Accordingly, the Tribunal deleted that the addition under Section 68 of the Income Tax Act, 1961 was.

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