ITAT Quashes Addition Due to Absence of Incriminating Evidence Beyond Third-Party Statements

ITAT Delhi allowed the assessee’s appeal and quashed the addition, holding that mere third-party statements without any incriminating evidence found during the search cannot justify assessment.

The present appeal has been filed by Seemsan Impex Pvt. Ltd against DCIT in the ITAT Delhi, challenging the order passed by CIT(A).

The assessee was involved in trading gold and jewellery, etc. Later, the case was selected for scrutiny under Section 143(3) read with Section 153C. During the search, the third party found that multiple shell companies were being operated and managed by the assessee or providing accommodation entries in lieu of commission.

As per the third party, the assessee is alleged to have received credits from fake companies, i.e., M/s Gladiolus Clothing Pvt. Ltd, M/s Heerak Clothing Pvt. Ltd, and M/s Azalea Clothing Pvt. Ltd. Allegedly, these credits were transferred to beneficiaries, and the assessee had earned commission income at 4%, for which an addition is made.

The AO calculated that the assessee handled credit transactions of about Rs. 6,37,18,080 and therefore estimated commission income of Rs. 25,48,723. This amount was added to the assessee’s taxable income.

The assessee then filed an appeal before the CIT(A). However, the CIT(A) agreed with the AO’s decision.

Being aggrieved with the CIT(A) decision. The assessee then approached the ITAT. During the hearing, the assessee said the addition was based only on statements recorded during the search. The assessee further added that there was no independent or incriminating evidence against the assessee.

The AR also cited a similar case decided earlier by the Tribunal (Sadhvi Exim Ltd vs DCIT) that had quashed assessments arising from the same search because they were based only on statements without evidence.

However, the DR argued that the statements of the third party clearly showed the accommodation entry business, so the addition was valid.

After considering all the facts, the tribunal noted that no specific incriminating material was found against the assessee during the search. The additions were mainly based on the statement of a third person.

Mere statements or confessions without supporting evidence are not sufficient for making additions under the law. As a result, the tribunal allowed the assessee’s appeal and quashed the impugned assessments.