ITAT Deletes Entire Rs. 2.10 Crore Section 68 Addition Based on Unshared Third-Party Statement

JSM Oilfields Services Pvt. Ltd., engaged in technical consultancy for oilfield operations, filed its return for AY 2013-14, declaring Rs. 1.08 crore income. The assessment was completed under section 143(3), making three additions: Rs. 2.10 crore under section 68 for share call money, disallowance of Rs. 5.13 lakh for alleged personal expenses, and Rs. 5,014 under section 14A, raising the assessed income to Rs. 3.23 crore. The company had issued shares in 2011 and, during the year under appeal, received call money of Rs. 4 per share plus Rs. 396 premium from eight shareholder entities. The AO treated the receipts from certain investors as unexplained cash credits, heavily relying on an alleged statement of one Shri Vivek Kumar Jain, identified by the Investigation Wing as an entry operator.

The assessee produced complete financials, bank statements and statutory details of all investor companies, pointing out that application money and other call money received in earlier and later years from the same entities had been accepted without challenge. The CIT(A) upheld the section 68 addition for most investors, but granted partial relief by reducing disallowances of expenses

Central Issue: Whether the section 68 addition can be sustained when the AO relies on an unshared third-party statement, and when the assessee has produced complete documentary evidence establishing identity, creditworthiness, and genuineness of share call money.

Tribunal Held: The Tribunal held that the AO’s reliance on the alleged statement of Shri Vivek Kumar Jain was legally untenable, as the statement was neither provided to the assessee nor found in the assessment record. Citing Supreme Court rulings such as Krishna Chand Chela Ram, Andaman Timber Industries, and Odean Builders, the Bench emphasised that no addition can rest on a third-party statement without granting the assessee the right to cross-examine.

The Tribunal found that the assessee had furnished complete evidence proving the identity and financial strength of all investor companies. The same investors had contributed application and call money in prior and later years, all accepted by the Department, making the AO’s isolated doubt in this year unsubstantiated. All receipts were routed through banking channels, and the AO had brought no contrary material to show any cash exchange or accommodation entry. Therefore, the entire Rs. 2.10 crore addition under section 68 was deleted. The Tribunal held that personal-use disallowance cannot be made in the hands of a private limited company, a separate legal entity distinct from its directors. Following Sayaji Iron & Engineering Co., the Rs. 2.12 lakh disallowance sustained by the CIT(A) was also deleted. Therefore, the appeal was allowed in full.

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