2007 (1) TMI 287 - AT - Income Tax

Summary

Issues Involved:
1. Addition of unexplained share capital u/s 68 of the Income-tax Act, 1961.
2. Validity of the statement of Shri Sanjay Rastogi and the right to cross-examine.

Summary:

Issue 1: Addition of unexplained share capital u/s 68 of the Income-tax Act, 1961

The assessee, a company engaged in the manufacture and sale of industrial filters, filed returns for the assessment years 2000-01 and 2001-02. The Assessing Officer (AO) reopened the assessment u/s 147 based on a survey at the premises of Shri Sanjay Rastogi, alleging that the assessee received unexplained share capital from companies promoted by Rastogi. The AO added Rs. 7.5 lakhs and Rs. 14 lakhs for the respective years as unexplained income u/s 68. The assessee provided documents such as share application letters, affidavits, board resolutions, confirmations with PAN numbers, and bank statements to support the legitimacy of the share capital received. Despite this, the AO treated the amounts as bogus accommodation entries due to non-response to summons u/s 131 and a report indicating the non-existence of the investor companies at the provided addresses.

Issue 2: Validity of the statement of Shri Sanjay Rastogi and the right to cross-examine

The assessee contended that the statement of Shri Sanjay Rastogi was vague, not recorded by an authorized officer, and not provided for cross-examination. The CIT(A) upheld the AO's addition, but the assessee argued that the statement lacked evidentiary value and was not tested under cross-examination. The Tribunal noted that the entire case of the revenue was based on Rastogi's untested statement. It emphasized that the onus to prove the genuineness of the transaction shifted to the revenue once the assessee provided sufficient evidence. The Tribunal found that the revenue failed to produce Rastogi for cross-examination, rendering the addition unsustainable. The Tribunal relied on the principle that statements adverse to the assessee must be tested under cross-examination, as established in the case of Kishinchand Chellaram v. CIT [1980] 125 ITR 713.

Conclusion:

The Tribunal concluded that the assessee had discharged its onus by providing credible evidence, and the revenue failed to substantiate its claim with tested evidence. Consequently, the additions for both assessment years were deleted, and the appeals of the assessee were allowed.