Section 68 Addition can’t be confirmed for Mere Non-Production of Director of Share Holder Company: ITAT [Read Order]

The Delhi Bench of the Income Tax Appellate Tribunal ( ITAT ) in the case of Moti Adhesives P. Ltd. v. ITO by the order dated June 25, 2018 holding in favor of the assessee ordered that mere non production of Director of said Share Holder company cannot justify adverse inference under Section 68 of the Income Tax Act.

The present appeal has been filed against the order of the Commissioner of Income Tax (CIT) on the issue that whether the CIT has erred in sustaining the order passed by the Assessing Officer (AO) u/s 147/143(3) without appreciating that assumption of jurisdiction u/s 148 by AO was in violation of mandatory jurisdictional conditions stipulated under the Act.

The facts of the case are that a search operation was carried out in the case of Surendra Kumar Jain group of cases wherein after intensive and extensive enquiry and examination of documents seized during the course of search it has been noticed that the said group is involved in providing accommodation entries which were not named in the report. The Assessing Officer (AO) observed that Rs. 25 lacs has been found credited in the books of accounts of the assessee, the immediate source of which was found to be received from one of the entities controlled by Jain Bros. The AO hence added the amount to the income of the assessee u/s 68.

The contentions of the assessee-appellant are that the CIT-A is not right to hold that reasons given in the proceedings are merely based on purported documents seized from premises of Mr. SK Jain and the same cannot be put against the assessee unless statement of Mr. Jain on those documents is brought on records and the same is duly followed by cross examination. Further, that sole reason for addition has been non production of director of companies which is held to be not the valid reasons for addition u/s 68.

The Tribunal after referring to a number of decisions by the Adjudicating Authorities of India held that “mere non production of Director of said share holder company cannot justify adverse inference u/s 68 of the Act. Even if there was any doubt if any regarding the creditworthiness of the share applicants was still subsisting, then AO should have made enquiries from the AO of the share subscribers which has not been done, so no adverse view could have been drawn. In this case on hand, the assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants, thereafter the onus shifted to AO to disprove the documents furnished by assessee and in my view it cannot be brushed aside by the AO to draw the adverse view which here in present facts cannot be countenanced. Therefore addition of Rs. 25,45,000 made by AO and sustained by Ld CIT(A) are hereby deleted.

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