No Addition can be made in the hands of Assessee based on Retracted Statements: ITAT [Read Order]

In a recent ruling, the Income Tax Appellate Tribunal ( ITAT ), Jaipur Bench, comprising Judicial Member Dr. S. Seethalakshmi and Accountant Member Shri Rathod Kamlesh Jayantbhai, dismissed an appeal filed by the Income Tax Department against Amar Pratap Steels Pvt. Ltd. for the Assessment Year 2010-11.

The tribunal upheld the decision of the Commissioner of Income Tax (Appeals), deleting an addition of ₹1.7 crore made under Section 68 of the Income Tax Act, 1961, related to unexplained cash credits.

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The dispute originated from allegations that Amar Pratap Steels received accommodation entries as share application money from entities controlled by Shri Praveen Kumar Jain, whose statement under Section 132(4) during a search and seizure operation indicated such transactions. However, the tribunal ruled that retracted statements without corroborative evidence could not justify additions.

The tribunal noted that Amar Pratap Steels provided sufficient evidence, including investor PANs, income tax returns, bank statements, and confirmations, to prove the genuineness of transactions. It ruled that the burden shifted to the Assessing Officer ( AO ) to disprove the evidence, which was not done

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The tribunal also criticized the AO for relying solely on third-party statements without conducting independent inquiries or providing the assessee an opportunity to cross-examine the assessee-proprietor Shri Praveen Kumar Jain.

The tribunal referred to the Supreme Court ruling in Lovely Exports (P) Ltd., holding that share application money cannot be treated as unexplained income if investors' identities are established. It also cited Rajasthan High Court judgments affirming that retracted statements without evidence cannot form the basis for additions.

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It was noted that, “here we note that the assessee provided so as prove the identity, creditworthiness and genuineness of the transaction by placing all the records such as PAN, Application made for Shares, Board Resolution and Confirmations, Financial Statement and Bank statement of the investor company which were not at all doubted by ld.AO.

But all such vital evidence has been ignored solely on the basis of statements of third party recorded by some other officials during the course of search operation conducted. As argued by the ld. AR of the assessee relying on the decision of the Padmavati Agrico(India) Private Limited in ITA no. 702/JP/2023 it is clear that Shri Praveen Jain has retracted from his statement and as held by our jurisdictional Hon’ble Rajasthan High Court stating that on the retracted statement no addition can be made in the hands of the assessee. This has been held by our High Court in the case of PCIT Vs. M/s. Esspal International P. Ltd. DB ITA no. 25/2024 dated 03/09/2024 stating that merely based on the retracted statement no addition can be made.”

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The tribunal said that denying the right to cross-examine and relying on unverified and retracted statements violates the principles of natural justice.

The tribunal also dismissed the revenue’s arguments regarding the sufficiency of evidence and declined to sustain the addition based on vague allegations.

To Read the full text of the Order CLICK HERE

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