AO cannot Draw Adverse Inference on Non response of Directors to Notices: Calcutta HC [Read Order]

The Calcutta High Court held that Assessing Officers ( AO ) cannot draw adverse inferences on the non-response of directors to notices. The court, while examining the validity of the addition made under Section 68 of the Income Tax Act, 1961, found that the AO made the addition only because the directors failed to respond to the notices issued.

The appeal was filed by the Revenue under Section 260A of the Income Tax Act, 1961 against the order dated passed by the Income Tax Appellate Tribunal,(ITAT) in favour of Atlantic Dealers Pvt Ltd.

 The issue raised was whether the addition made under Section 68 of the Income Tax Act was justified. The Tribunal has examined the facts produced by the assessee not before the Tribunal for the first time but the facts that were already placed before the Assessing Officer.

It was noted by the Tribunal that the Assessing Officer did not comment on the veracity or admissibility of any of the details or documents produced by the assessee to prove the identity, the creditworthiness of the share subscribers, or the genuineness of the transaction.

It was viewed that section 68 aims to ensure individuals and corporations transparently disclose their income by addressing unexplained cash credits in their books of accounts, placing the responsibility on the taxpayer to prove the legitimacy of such credits.

A division bench of Chief Justice T.S. Sivagnanam and Justice Hiranmay Bhattacharyya has observed that the assessing officer failed to comment on the veracity or admissibility of any of the details or documents produced by the assessee to prove the identity, the creditworthiness of the share subscribers, and the genuineness of the transaction.

The court upheld the order passed by the tribunal, stating that the tribunal has done an elaborate examination of the factual matrix, which ought to have been done by the Commissioner of Income Tax (Appeals) when the appeal was decided. The matter was decided in favour of the assessee.

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