Uncorroborated addition based on a statement under Section 132(4) is valid if never retracted before filing return.

During a search operation under Section 132 of the Income Tax Act at the residential premises of the appellant's partners on July 29, 1992, a partner (Shri Pradyman M. Patel) disclosed ₹1,50,000 as unaccounted income for F.Y. 1991-92, admitting to suppression of trading receipts

While filing the return on October 28, 1992, the assessee did not disclose this amount

The Assessing Officer made the addition based on the statement. The CIT(Appeals) deleted the addition, citing a lack of corroborative evidence and the fact that the business premises were not searched

The Revenue appealed to the Income Tax Appellate Tribunal (ITAT), which reversed the CIT(A) order and restored the addition

1. Whether the ITAT was right in holding ₹1,50,000 as unexplained income solely based on a partner’s statement that was subsequently retracted

2. Whether the statement recorded at the time of Search can be retracted

3. Whether the decision of the ITAT was perverse due to failure to provide cogent factual reasons for reversing the CIT(A) and failure to appreciate undisputed facts

Section 132(4) of the Income Tax Act, 1961, which provides that statements recorded during a search may be used in evidence

The precedent of ACIT v. Shyamlal Developers (Tax Appeal No. 1409 of 2005), which established that if a person demonstrates an admission was mistaken or untrue, a retracted disclosure requires corroborative material for an addition to be sustained

The Court noted that the appellant did not press Issues (i) and (ii), leaving Issue (iii) regarding perversity as the primary focus

In analyzing the ITAT’s reasoning, the Court found that the ITAT distinguished the present case from Shyamlal Developers on factual grounds. While in the precedent the retraction occurred within two days, in the case at hand, the partner never formally retracted the statement recorded on July 29, 1992

The Court observed the ITAT's finding that the assessee had a gap of three months between the statement and the filing of the return to retract but failed to do so

Consequently, the ITAT concluded that the disclosure remained valid evidence under Section 132(4), and the reversal of the CIT(A)'s order was based on these specific factual distinctions rather than a lack of reasoning

The Court upheld the ITAT’s decision, finding no perversity in restoring the Assessing Officer's addition of ₹1,50,000 based on the unretracted statement. The appeal was dismissed