Can a Third-Party Statement Under Section 132(4) Be Held Against the Assessee?

In the high-stakes world of Income Tax searches and seizures, statements recorded under Section 132(4) of the Income Tax Act, 1961, often play a pivotal role. But what happens when such a statement comes from a third party? Can it be automatically used to incriminate the assessee? This question—statement under 132(4) of third party cannot be held against the assessee—arises frequently in tax litigation and deserves a nuanced exploration.

Taxpayers facing raids worry about the weight given to these statements, especially if coercion or retraction is involved. This post breaks down the legal principles, judicial precedents, and practical insights to help you navigate this complex area. Note: This is general information based on judicial trends and not specific legal advice. Consult a tax professional for your case.

What is Section 132(4) of the Income Tax Act?

Section 132 empowers tax authorities to conduct searches and seizures during investigations into suspected tax evasion. Under Section 132(4), officers can examine any person on oath and record their statement, which is statutorily deemed to have evidentiary value in assessment proceedings 2021 0 Supreme(Del) 1631.

These statements are admissible as evidence but are not conclusive. Their reliability hinges on factors like voluntariness, context of recording, and the assessee's subsequent actions

Manmohansingh Vig VS Deputy Commissioner of Income-tax, Circle 1(1) - Income Tax Appellate Tribunal (2005)

Evidentiary Value of Section 132(4) Statements

Statements under Section 132(4) carry significant weight because they are recorded under oath during search operations. Courts have consistently held that they form a strong basis for assessments if made voluntarily2021 0 Supreme(Del) 1631.

However, this value is not absolute:- Voluntary statements are generally binding and can support additions to income.- Involuntary ones, obtained through coercion, threat, or duress, lose credibility.

As noted in judicial analysis, statements recorded voluntarily, without coercion or threat, are binding and can form the basis of assessments 2021 0 Supreme(Del) 1631.

Third-Party Statements: A Special Consideration

The core issue is whether a third-party statement under Section 132(4) can be held against the assessee. Generally, such statements cannot be automatically used without corroborative evidence linking them directly to the assessee.

Key principles include:- Material from a third party's premises may trigger proceedings under Section 153C against that party, but it requires satisfaction that it belongs to the assessee 2025 0 Supreme(Kar) 2610 2025 0 Supreme(Kar) 2794.- Mere denial by the third party or lack of direct implication weakens its use: Merely because the assessee was a distant relative of Shri NRV could not be reason enough to allege that, he was receiving payments on his behalf, particularly when, he had denied having any such transactions in his statement recorded u/s 132(4) 2026 Supreme(Online)(ITAT) 1199.- Third-party statements alone, without incriminating the assessee, cannot sustain additions: AR further argued that even in the statement recorded, the parties have not stated anything pertaining to the assessee and therefore the addition made merely based on third party statement cannot be sustained 2026 Supreme(Online)(ITAT) 194.

In one case, Further, third party statements also cannot be pressed into service as against the assessee 2020 0 Supreme(Mad) 1280. This underscores that third-party evidence needs strong corroboration.

Coercion, Threat, and Retraction: Challenging the Statement

Even if a statement implicates the assessee, it may not hold if proven involuntary. Courts emphasize:- Burden on assessee to prove coercion; mere allegation isn't enough

Manmohansingh Vig VS Deputy Commissioner of Income-tax, Circle 1(1) - Income Tax Appellate Tribunal (2005)

Judicial views reinforce this:- Statements have great evidentiary value and it cannot be retracted at the mere will of the party 2012 Supreme(Online)(Ker) 38196 2018 0 Supreme(Raj) 1565 2018 0 Supreme(Raj) 1503 2018 0 Supreme(Raj) 2299.- Retraction after a delay, especially during assessments, is scrutinized: retraction, is almost after an year and that too when the assessment proceedings were being taken up 2018 0 Supreme(Raj) 1565.- Bald retractions without proof fail: Burden lay on the assessee to show that the admission made by him in statement earlier at the time of survey was wrong. Such retraction, however, should be supported by a strong evidence 2018 0 Supreme(Raj) 2299.

In cases of alleged duress, like in Sashi Jena v. Khadal Swain, statements under duress are not conclusive

Manmohansingh Vig VS Deputy Commissioner of Income-tax, Circle 1(1) - Income Tax Appellate Tribunal (2005)

Judicial Precedents and Key Rulings

Courts have clarified these nuances:- Hiralal Maganlal & Co. v. Dy. CIT: Voluntary statements bind, but coercion negates them 2021 0 Supreme(Del) 1631.- Surjit Singh Chhabra v. Union of India: Retraction requires proof of involuntariness

Manmohansingh Vig VS Deputy Commissioner of Income-tax, Circle 1(1) - Income Tax Appellate Tribunal (2005)

Additional insights from sources:- Reliance on retracted statements is untenable if statutory value exists: The reliance placed by the Tribunal on the retraction statement is totally untenable in so far as any statement recorded under S.132(4), statutorily deemed to have evidentiary value; cannot be retracted at the mere will of the party 2012 Supreme(Online)(Ker) 38196.- In capital gains cases, third-party statements plus documents were insufficient without proof: the incriminating documents, statements, and valuation report were not sufficient to prove the receipt of on-money 2017 0 Supreme(Raj) 2794.

These rulings show courts examine circumstances of recording and subsequent conduct.

Exceptions and Limitations

While third-party statements aren't automatically binding, exceptions apply:- If the department proves voluntariness and corroboration, they can support assessments 2026 Supreme(Online)(ITAT) 1664.- Incriminating material belonging to the assessee found at third-party premises may invoke Section 153C 2025 0 Supreme(Kar) 2610.- Delayed retractions without evidence strengthen the original statement 2018 0 Supreme(Raj) 1503.

Practical Recommendations for Taxpayers

To protect your interests:- Document coercion immediately—affidavits, witness statements.- File timely retraction with supporting evidence, not belatedly.- Challenge admissibility in appeals, highlighting lack of direct link for third-party statements.- Seek legal aid during searches to ensure voluntariness.

Authorities must prove voluntary nature before reliance 2021 0 Supreme(Del) 1631.

Key Takeaways

• Third-party Section 132(4) statements generally cannot be held against the assessee without corroboration or proof of voluntariness.
• Coercion or duress diminishes evidentiary value; prove it substantively.
• Retractions need evidence—mere denial fails.
• Judicial trends favor case-specific analysis over blanket reliance.

Stay informed on tax raids to safeguard your rights. For personalized guidance, consult a chartered accountant or tax lawyer.

References:- 2021 0 Supreme(Del) 1631,

Manmohansingh Vig VS Deputy Commissioner of Income-tax, Circle 1(1) - Income Tax Appellate Tribunal (2005)