Survey Surrenders Based Only on Diary Entries: ITAT Amritsar Explains Why ₹266 Lakh Addition Failed

Background and Context

The Amritsar Bench of the Income Tax Appellate Tribunal examined a series of connected appeals arising out of a Section 133A survey, where substantial additions were made on the basis of survey statements and entries in an impounded diary titled “Building Account”.

In the case of Varun Traders Vs DCIT, the central controversy was whether a surrender of ₹266 lakh recorded during the survey – later retracted – could be sustained as undisclosed investment, when the only material was a diary found on the survey premises and the assessee’s survey statement.

Alongside Varun Traders, similar issues arose in cross-appeals relating to Shri Pawan Kumar and Shri Mukesh Shingari, all originating from the same survey operation conducted on 06-02-2013.

The Tribunal’s decision reiterates settled law on:

  • Limited evidentiary status of statements recorded under Section 133A
  • The need for independent corroboration for diary notings
  • Applicability of CBDT instructions discouraging additions based solely on confessions during search/survey

Facts of the Case – Varun Traders

Nature of Business and Return Filing

  • The assessee, a resident partnership firm, was engaged in trading of blankets and other related goods.
  • A return of income was filed on 01-10-2013, declaring an income of ₹2,01,890/-.
  • The return was processed under Section 143(1).

Survey u/s 133A and Impounded Diary

On 06-02-2013, a survey under Section 133A was carried out at the business premises. During the survey:

  • Physical stock and cash were inventoried in detail.
  • A diary, marked as Annexure-1, was found and impounded.
  • This diary contained a “Building Account” with entries aggregating to ₹266 lakh, along with dates against certain amounts.

When confronted with this diary during the survey, the assessee:

  • Failed to give an immediate explanation about the entries.
  • Offered a surrender of ₹266 lakh over and above regular income, treating it as undisclosed investment.
  • Submitted a surrender letter dated 07-02-2013, which was reproduced by the Assessing Officer (AO) in the assessment order.

Retraction of Surrender

Within a short span, on 15-02-2013, the assessee:

  • Retracted the surrender in writing.
  • Alleged that the earlier surrender was obtained under pressure, coercion and undue influence during the survey.
  • Did not include the surrendered amount in the return of income.

During the assessment proceedings, when again confronted with the diary and the earlier statement:

  • The assessee maintained that the surrender had no legal basis.
  • Asserted that the diary did not represent any real undisclosed investments.
  • Reiterated that the surrender was involuntary and not supported by actual transactions.

Directions u/s 144A and AO’s Stand

The AO sought directions from the range authority under Section 144A. The directions stated that:

A legal presumption would arise that the diary (Annexure-1) belongs to the person from whose possession or control it was found during the survey.

Armed with these directions, the AO:

  • Disregarded the retraction as an afterthought.
  • Treated the diary as reliable evidence.
  • Recorded that the assessee admitted during survey that the amounts represented investments in plots out of undisclosed income.
  • Rejected the later claim that the diary was fabricated.
  • Finally, added the entire ₹266 lakh as undisclosed income in the hands of the assessee.

First Appeal Before CIT(A) – Varun Traders

Assessee’s Contentions

In appeal before the CIT(A), the assessee raised, inter alia, the following grounds: