ITAT Deletes Rs. 32.04 Crore Addition u/s 68 for Lack of Fair Enquiry and Established Evidence

The assessee, a non-banking finance company, faced reassessment for AY 2008-09 after a revisionary order under Section 263. In reassessment framed u/s 143(3)/147, the Assessing Officer treated Rs. 32,04,00,000 received by way of share capital and share premium as unexplained cash credit under Section 68, on the basis that summons issued under Section 131 of the Act to subscriber companies were not complied with by all. Certain statements of directors were recorded without confrontation. The assessee had filed audited accounts, bank statements, ITRs, subscriber details and replies to notices u/s 142(1) and 133(6) of the Act in both the original and reassessment proceedings.

The CIT(A) confirmed the addition on the ground that the identity, creditworthiness, and genuineness of the share applicants and the transactions were not proved, and that there was no basis for charging a premium on shares. The assessee argued that evidence was on record showing receipt of funds through banking channels and that summons and notices were complied with by the majority of share subscriber companies; that the AO did not follow directions of the PCIT regarding inquiries; and that adverse statements used were never confronted to the assessee nor was any opportunity for cross-examination afforded, violating principles of natural justice as per Sections 142(2) and 142(3) of the Act.

Main Issue: Whether the addition under Section 68 was sustainable where the assessee had furnished evidence to prove identity, creditworthiness, and genuineness of share capital/premium and where the AO violated principles of natural justice in not confronting adverse material and not allowing cross-examination.

ITAT Order: The Tribunal noted that in both the original and reassessment proceedings, the assessee had furnished comprehensive evidence, including names, addresses, PAN, audited balance sheets, bank statements and ITRs of share subscribers. Notices under Section 133(6) of the Act were complied with by the subscribing parties, and in the second round of assessment, as many as 23 subscribers responded to summons under Section 131. The assessee discharged the onus under Section 68 to prove identity and genuineness.

The Tribunal held that the AO could not sustain the addition merely because some summons were unserved when adequate evidence was furnished. Additionally, the statements that were recorded on summons without confronting the assessee and in the absence of an opportunity for cross-examination were in contravention of the principles of natural justice as envisioned in Sections 142(2) and 142(3) of the Act. The Tribunal set aside the decision of the CIT(A) in the matter of the addition.

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