The Rajasthan High Court has recently held that an assessee’s admission cannot be treated as conclusive evidence for income tax additions in the absence of corroborating material.
The Income Tax Department had appealed against an order passed by the Income Tax Appellate Tribunal ( ITAT ) on January 3, 2024, which had upheld the decision of the Commissioner of Income Tax (Appeals) [CIT(A)] to delete an addition of ₹3 crores made by the Assessing Officer ( AO ) on account of alleged bogus accommodation entries.
The department argued that the assessee, M/s Esspal International Pvt. Ltd., had received bogus accommodation entries from a broker, as part of a tax evasion scheme. The AO had relied heavily on a statement made by the broker under Section 132(4) of the Income Tax Act, where he admitted to providing such entries.
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The tribunal had previously found that the assessee had submitted all necessary documentation to prove the identity, creditworthiness, and genuineness of the share applicants. The department, however, had failed to provide sufficient evidence to support its claim that the assessee had paid cash for the accommodation entries. The Tribunal also cited various legal precedents, including the Andman Taubar Industries case, where the Supreme Court ruled that mere statements without corroborating evidence are insufficient for additions under Section 68 of the Income Tax Act.
After reviewing the facts, the Rajasthan High Court observed that while the statement made by the assessee was relevant, it could not be the sole basis for making additions to the assessee’s income, especially after he had retracted his statement.
The Court further cited the Supreme Court ruling in the case of Pullangode Rubber Produce Co. Ltd. v. State of Kerala (1973), which established that an admission by an assessee is not conclusive unless supported by evidence.
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The Court also noted that the Assessing Officer had failed to provide any independent corroborating material to substantiate the claim of bogus entries. In light of this, the Court held that the assessee’s admission, without any substantial proof, could not justify income tax additions.
The Rajasthan High Court Bench of Justices Kuldeep Mathur and Shree Chandrashekhar dismissed the appeal, stating that no substantial question of law arose in the case, reaffirming the importance of corroborative evidence in tax proceedings and limiting the reliance on unsubstantiated admissions for making additions to taxable income.
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The judgement was delivered in the case of Principal Commissioner of Income Tax, Udaipur vs. M/s Esspal International Pvt. Ltd., marking an important precedent on the interpretation of Section 68 of the Income Tax Act, 1961.
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