Mere Non-Production of Directors not a Valid Ground for Addition u/s 68: ITAT [Read Order]

The Kolkata Bench of the Income Tax Appellate Tribunal (ITAT) ruled that the mere non-production of directors of investor companies cannot be a valid ground for making an addition under Section 68 of the Income Tax Act, 1961.

Kohinoor Bengal Infrastructure Pvt. Ltd., the assessee, filed its return for the Assessment Year (AY) 2013-14 under Section 139 on 27.09.2013, declaring a total loss of Rs. 8,33,753. The return was processed under Section 143(1) on 07.03.2014.

The case was reopened under Section 147 based on post-search inquiries alleging that the assessee had received bogus share capital amounting to Rs. 1.5 crores from three investor companies.

A notice under Section 148 was issued on 14.03.2019, to which the assessee responded with a return on 20.04.2019. The AO stated that the assessee failed to produce the directors of these investor companies, raising doubts about the identity, creditworthiness, and genuineness of the transactions. The AO added Rs. 1.5 crores to the assessee’s income under Section 68.

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On appeal before the CIT(A), the assessee argued that it had provided extensive documentation, including ITRs, financial statements, bank records, share application forms, and ROC details, to establish the legitimacy of the transactions. The CIT(A) deleted the addition.

Aggrieved, the revenue approached ITAT arguing that the AO’s findings were justified based on the non-production of directors and the financial status of the investor companies.

The two-member bench comprising Rajesh Kumar (Accountant Member) and Pradip Kumar Choubey (Judicial Member) observed that the AO had not conducted any meaningful inquiry beyond issuing summons and had failed to present independent evidence to substantiate the claim that the share capital was unexplained.

The tribunal observed that all investor companies were active on ROC records, had filed regular income tax returns, and possessed sufficient own funds to make the investments. The tribunal referenced the Calcutta High Court ruling in PCIT Vs. Naina Distributors Pvt. Ltd. held that the mere non-production of a director cannot be a valid ground for making an addition under Section 68 of the Income Tax Act, 1961.

The tribunal ruled that the AO had failed to establish that the share capital was bogus and upheld the CIT(A)’s order to delete the addition. The revenue appeal was dismissed.

To Read the full text of the Order CLICK HERE

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