Evidentiary Value of Retracted Statements in Bogus Purchase Additions: ITAT Surat Grants Relief to Diamond Trader

The intersection of third-party statements, subsequent retractions, and the matching principle of accounting frequently forms the epicenter of tax litigation in India. In a significant ruling, the Surat Bench of the Income Tax Appellate Tribunal (ITAT) has reinforced the principle that revenue authorities cannot selectively rely on a third party's statement while conveniently ignoring its subsequent retraction.

In the case of Devdarshan Diamonds Private Limited Vs ITO (ITA No. 1434/SRT/2025), the Tribunal dismantled an assessment order that had categorized specific diamond purchases as bogus accommodation entries. The decision, pronounced on 22 October 2026, offers a comprehensive look into the evidentiary requirements for making additions under the Income-tax Act, 1961 , particularly when dealing with alleged shell entities and retracted confessions.

The assessee, a company actively engaged in the business of trading diamonds, filed its original return of income for the Assessment Year 2012-13 on 29 September 2012. In this initial filing, the assessee declared a total income of Rs. 50,580.