The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) ruled that mere non-appearance of directors does not justify additions under Section 68 of the Income Tax Act, 1961, when the assessee has furnished complete documentary evidence establishing the genuineness of the transactions.
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Mandvi Salts & Logistics Pvt. Ltd., the assessee, had received Rs. 5 crores in share capital and premium from two private companies during the Assessment Year 2012–13. The AO treated the amount as unexplained income under Section 68, citing the absence of personal appearance of the directors of the investing companies, despite the assessee furnishing PAN details, share application forms, bank statements, audited financials, and confirmations from both subscribers.
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The AO observed that both companies responded to notices under Section 133(6) and provided the requested documentation. But without identifying any deficiencies in the records or conducting further inquiries, the AO concluded the investments were accommodation entries.
The assessee appealed before the CIT(A), who found that all three conditions under Section 68 identity, creditworthiness, and genuineness were satisfied. The CIT(A) observed that the AO had not brought any adverse findings or contradictions in the documents submitted and held that additions could not be sustained merely on the ground that directors were not personally produced.
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On further appeal by the Revenue, the ITAT comprising Amit Shukla (Judicial Member) and Girish Agrawal (Accountant Member) upheld the findings of the CIT(A). The tribunal observed that once the assessee had submitted adequate documentary evidence, the burden shifted to the Revenue to conduct further inquiry, which it failed to do.
Relying on the Supreme Court’s decision in Orissa Corporation (P) Ltd. and Bombay High Court’s ruling in Gagandeep Infrastructure Pvt. Ltd., the bench ruled that non-appearance of directors cannot be the sole ground for making additions under Section 68.
The tribunal ruled that the assessee had discharged its burden under law and that the Revenue’s addition lacked substantive support. The ITAT dismissed the appeal and upheld the deletion of Rs. 5 crore added under Section 68 of the Income Tax Act.
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