In a significant ruling, the ITAT Delhi held that the department cannot rely upon the statement recorded under section 132(4) of the Income Tax Act if the right to cross examination has not been given to the assessee during the course of proceedings.
The bench further clarified that no addition u/s 68 can be made if the assessee furnished the details of the shareholders and has proved the genuineness and credit worthiness of the shareholders. The ITAT, while scrapping a bunch of orders passed against a group of Companies of the assessee also held that the A is duty bound to consider all the material evidences brought before him by the asessee in order to the veracity of the transaction.
In the instant case, the assessee company, engaged in the business of investment, had received share application money to the tune of Rs.5.75 crores from various Companies. AO noted that assessee attempted to transfer the entire/substantial shareholding in favour of KJS Group of minimal or negligible value. As required by the AO, the assessee furnished all details including documents in order to prove identity, creditworthiness and genuineness of the transaction. Without conducting an enquiry on these documentary evidences, AO completed assessment against the assessee u/s 68 of the Act.
The department relied on statement of person representing KS Group u/s132(4) wherein he admitted that he had provided accommodation entries to KJS Group through the above said companies who are the shareholders in the assesee-Company.
The bench noted that on perusal of the records, it is evident that the investor companies are existing and are genuine companies. Diving deeply into the facts of the case, the bench noticed that the decision of Hon’ble Delhi High Court in the case of Pr.CIT vs Laxman Industrial Resources Ltd. clearly apply to the facts of the case of the assessee that the assessee received genuine share application money from both the investor companies.
Bench further rejected the evidentiary value of the statement recorded u/s 132(4) on ground that it was not recorded during the course of search and he was not produced at assessment stage to allow cross-examination by the assessee. “No right to cross-examination have been given to assessee to cross-examine the statement of Mr.Suresh Kumar Jain, therefore, his statement cannot be read any evidence against the assessee”.
The bench found merit in the contention of the assessee that net worth of both the investor companies are very substantial so as to make investment in assessee company. They were having sufficient funds with them to make investment in assessee company. The material produced by the assessee have not been doubted and rebutted by the authorities below.
It may be noted again that the investor companies have confirmed making investment in assessee company who were having sufficient net worth to make investment in assessee company. Therefore, the assessee has been able to prove identity of the share applicants, their creditworthiness and genuineness of the transaction in the matter.
Quashing the orders impugned, the bench held that the assessee has been able to prove identity of the investors, their creditworthiness and genuineness of the transaction in the matter. Therefore, the authorities below should not have made or confirmed the addition of Rs.5.75 crores in the hands of the assessee.
Read the full text of the Order below.
