The ITAT Guwahati Bench has clarified that an addition under Section 69 of the Income Tax Act cannot rest solely on a survey statement later retracted by the declarant, especially when no corroborative evidence links the assessee to the alleged investment. This ruling reinforces the principle that tax assessments must be grounded in credible, contemporaneous, and unretracted evidence.
Background & Facts
The Dispute
The assessee, Shri Raghubir Choudhury, was assessed for AY 2017-18 after the Income Tax Department reopened his case under Section 147 based on information obtained during a survey under Section 133A at Hotel Maharani, Basti. The survey recorded a statement by the assessee’s son, Shri Rahul Choudhary, claiming that the assessee had invested ₹60,00,000 towards the hotel’s construction, out of a total investment of ₹1,80,00,000. Based on this, the Assessing Officer (AO) made an addition of ₹60,00,000 under Section 69 as unexplained investment.
Key Facts
- The assessee filed his original return for AY 2017-18 on 28.02.2018 declaring income of ₹16,03,090
- Survey under Section 133A conducted on 26.09.2017 at Hotel Maharani, Basti
- Statement of Shri Rahul Choudhary recorded during survey on 26.09.2017, alleging assessee’s investment of ₹60,00,000
- Assessment order passed under Section 147 read with Section 144B on 30.06.2021, adding ₹60,00,000 under Section 69
- Total assessed income: ₹76,03,090
- Assessee submitted a written denial of investment on 30.06.2021
- Affidavit of Shri Rahul Choudhary dated 01.11.2025 retracted the survey statement, asserting he alone invested ₹1,59,35,500 and Shri Vikki Choudhary invested ₹1,59,35,500
- Affidavit of assessee dated 14.03.2026 corroborated the retraction and denied any financial involvement
- No documentary evidence (bank statements, property deeds, partnership agreements) was submitted by the assessee before the AO or CIT(A)
- The affidavits were filed for the first time before the ITAT on 13.05.2026
Procedural History
- 26.09.2017: Survey conducted under Section 133A at Hotel Maharani, Basti
- 28.02.2018: Original return filed by assessee
- 30.06.2021: AO issued notice under Section 148A and completed assessment under Section 147, adding ₹60,00,000
- 11.03.2026: CIT(A) dismissed appeal, upholding addition under Section 69
- 13.05.2026: Hearing concluded before ITAT Guwahati
- 05.06.2026: ITAT order pronounced
The Parties' Positions
For the Assessee: The survey statement was retracted by the son’s affidavit, which was credible and sworn. The investment was made solely by Rahul Choudhary and Vikki Choudhary. No evidence linked the assessee to the hotel’s funding. The AO and CIT(A) erred in relying on a statement later withdrawn.
For the Department: The retracted statement was not filed before the AO or CIT(A), rendering it inadmissible under Rule 29 of the ITAT Rules. The original survey statement was recorded during a lawful survey and was the only evidence available at the time of assessment. The assessee failed to discharge the burden of proof.
Relief Sought
The assessee sought deletion of the ₹60,00,000 addition under Section 69, and in the alternative, remand to the AO for fresh consideration with opportunity to submit valuation reports and documentary proof of the actual investors.
The Legal Issue
Can an addition under Section 69 of the Income Tax Act be sustained solely on the basis of a survey statement that has been subsequently retracted by affidavit, in the absence of any independent corroborative evidence linking the assessee to the alleged investment?
Arguments Presented
For the Appellant
The assessee’s counsel argued that the survey statement of Shri Rahul Choudhary was not only uncorroborated but also retracted under oath before the ITAT. The retraction was supported by a detailed affidavit explaining that the original statement was made under misunderstanding and without knowledge of the legal consequences. The counsel emphasized that the burden under Section 69 lies on the department to establish the unexplained nature of the investment, and a retracted statement cannot fulfill that burden. Reliance on CIT v. Smt. Sushila Devi was invoked to argue that unexplained investment cannot be presumed from a statement later withdrawn.
For the Respondent
The Department contended that the affidavits were filed for the first time before the ITAT and were not part of the record before the lower authorities. Under Rule 29 of the ITAT Rules, new evidence cannot be admitted unless it was not available despite due diligence. The department argued that the original survey statement was recorded during a lawful exercise and was the only evidence available at the time of assessment. The assessee had ample opportunity to produce documents before the AO but failed to do so.
The Court's Analysis
The ITAT Bench acknowledged that while the retracted statement was not filed before the AO or CIT(A), the nature of the retraction - sworn, specific, and supported by a plausible alternative narrative - warranted a fresh look. The Bench noted that the department had no other evidence to establish the assessee’s financial involvement in the hotel. The son’s original statement was hearsay, and the department did not examine the actual investors, verify bank transactions, or obtain construction contracts.
"Since the assessee has denied that he never made any investment and the investment was instead made by Shri Rahul Choudhary and Shri Vikki Choudhary... there is no other evidence for implicating the assessee and saddle the assessee with liabilities for investment which is claimed to be never made by him."
The Bench emphasized that tax assessments must be fair and not based on stale or withdrawn assertions. The fact that the retraction occurred eight years after the survey did not, in itself, invalidate it, especially where no contrary evidence existed. The Bench held that the interests of justice required a remand to allow the assessee to substantiate his claim with documentary evidence, including a valuation report of the hotel and proof of funding by the other two individuals.
The Bench also clarified that the department would be free to examine the new evidence and reassess the claim, but could not rely on the retracted statement as the sole basis for addition.
The Verdict
The appeal was partly allowed for statistical purposes. The ITAT set aside the order of the CIT(A) dated 11.03.2026 and remanded the matter to the AO for de novo reassessment. The assessee was directed to file a valuation report of Hotel Maharani and detailed investment proofs from Shri Rahul Choudhary and Shri Vikki Choudhary within 60 days. The AO was directed to grant a full opportunity of hearing and to record reasons for acceptance or rejection of the new evidence. No addition under Section 69 shall be made unless corroborated by independent, credible, and contemporaneous documentation.
What This Means For Similar Cases
Retracted Survey Statements Cannot Sustain Section 69 Additions
- Practitioners must challenge Section 69 additions based solely on survey statements that are later retracted under oath
- The department bears the burden to prove unexplained investment - a withdrawn statement does not discharge this burden
- Affidavits filed before the ITAT, even if belated, may be considered if they reveal a material factual error in the original assessment
Documentary Evidence Is Essential for Rebuttal
- Assessees must proactively collect and submit bank statements, transfer records, partnership deeds, or construction contracts to rebut allegations of unexplained investment
- Failure to produce documents before the AO may be fatal, but the ITAT may permit belated submission if the case involves a clear miscarriage of justice
- Valuation reports of assets in question are now a critical tool for substantiating claims of third-party investment
Procedural Fairness Overrides Technical Non-Filing
- Rule 29 of the ITAT Rules is not an absolute bar to admitting new evidence if it goes to the root of the assessment
- Courts may permit belated filing where the original evidence is demonstrably unreliable and the new evidence is credible and sworn
- The principle of audi alteram partem requires that no taxpayer be penalized on the basis of a statement later proven false
