ITAT Delhi: Additions Based Solely on Statements Unsustainable; Partial Relief on Alleged Bogus Purchases Upheld

Key Facts and Tribunal Findings

The Delhi ITAT adjudicated cross-appeals filed by M/s Vestige Marketing Pvt. Ltd. and the Revenue for AYs 2018–19 to 2024–25, arising from assessments framed under Sections 147 read with 143(3) of the Income-tax Act. In the lead assessment year 2018–19, the Assessing Officer had disallowed the assessee’s entire purchase expenditure of ₹8.86 crore under Section 37(1), treating the same as bogus based primarily on statements recorded during a search conducted under Section 132. Additionally, an amount of ₹40.18 lakh was added under Section 69A as unexplained money.

On appeal, the CIT(A) granted substantial relief. The disallowance of purchases was restricted to ₹13.52 lakh, with the balance amount of ₹8.72 crore deleted after examining documentary evidence and responses received under Section 133(6). The addition under Section 69A was deleted in entirety due to lack of supporting evidence. Before the Tribunal, the assessee challenged the sustenance of the residual disallowance, while the Revenue sought restoration of the entire addition and revival of the Section 69A addition. The Tribunal noted that the primary basis of the Assessing Officer’s action was statements recorded during the search, some of which were subsequently retracted. It was observed that additions cannot be sustained merely on the basis of such statements, particularly in the absence of corroborative material. The CIT(A) had appropriately evaluated documentary evidence including invoices, banking transactions, and statutory records in granting relief.

However, with respect to certain parties where no response was received to notices under Section 133(6) or supporting documentation was inadequate, the partial disallowance sustained by the CIT(A) was upheld.

Legal Analysis

The Tribunal reaffirmed that statements recorded during search proceedings, even if carrying evidentiary value, cannot independently justify additions unless supported by corroborative evidence. A retracted statement, in particular, requires independent verification with reference to books of account and other material on record.It was emphasized that additions based purely on confessional statements, without supporting evidence or examination of contemporaneous records, are legally unsustainable. The Tribunal also took note that where transactions are supported by doc umentation and routed through banking channels, the burden shifts to the Revenue to establish their falsity.

At the same time, the Tribunal upheld the limited disallowance where evidentiary gaps persisted, particularly in cases involving non-responsive parties and lack of verification. The decision thus reflects a fact-specific approach, distinguishing between substantiated and unverified transactions. The ruling reiterates the necessity of corroborative material in sustaining additions and underscores that reliance on statements alone, especially when retracted, does not meet the evidentiary threshold under the Act.