2016 (8) TMI 109 - HC - Income Tax

Addition unexplained credit under Section 68 - copy of the report not furnished to the Assessee - CIT-A deleted the addition confirmd by ITAT - Held that - As noted the settled legal position that it is mandatory for the AO to confront the assessee with any material collected by the AO at the back of the assessee, and in case of statement of third party recorded at the back of the assessee, opportunity of cross examination has to be offered to the assessee, failing which the said material/statement etc. will be rendered on unreliable and additions made on the basis of such material/statement etc. shall be rendered illegal. The CIT (A) concluded that the Assessee had discharged the onus of proving the identity, genuineness and creditworthiness of the four parties and that it was the AO who failed to bring material on record to doubt those materials. Having perused the impugned of the ITAT, which has discussed the materials on record extensively and concurred with the CIT (A), this Court does not find any substantial question of law arising for determination. - Decided against revenue

Summary

Issues:
1. Appeal by Revenue under Section 260A of the Income Tax Act, 1961 against ITAT order for AY 2007-08.
2. Validity of deleting addition of ?70 lakhs under Section 68 of the Act by CIT (A).
3. Compliance with legal requirements in proving identity, creditworthiness, and genuineness of shareholders.

Analysis:
1. The appeal before the Delhi High Court was brought by the Revenue under Section 260A of the Income Tax Act, 1961, challenging the order of the Income Tax Appellate Tribunal (ITAT) for the Assessment Year 2007-08. The main issue raised was whether the ITAT was correct in upholding the order of the Commissioner of Income Tax (Appeals) who had deleted the addition of ?70 lakhs made by the Assessing Officer under Section 68 of the Act.

2. The Assessing Officer initially admitted that the identity, creditworthiness, and genuineness of 19 out of 23 shareholders were proven by documents submitted by the Assessee. However, the focus shifted to 4 shareholders based on a report from the Investigation Wing, which was not shared with the Assessee. Despite the Assessee submitting similar documents and the 4 parties providing confirmation letters and bank statements, they did not respond to summons under Section 131 of the Act. Consequently, the AO added ?70 lakhs under Section 68 of the Act.

3. The Commissioner of Income Tax (Appeals) emphasized the necessity for the AO to confront the Assessee with any material collected and offer an opportunity for cross-examination in case of third-party statements. The CIT (A) concluded that the Assessee had proven the identity, genuineness, and creditworthiness of the 4 parties, shifting the burden to the AO to provide evidence to doubt these materials. The High Court, after reviewing the ITAT's decision, found no substantial question of law and dismissed the appeal, affirming the decision of the CIT (A).

In conclusion, the High Court upheld the decision of the CIT (A) in deleting the addition of ?70 lakhs under Section 68 of the Act, emphasizing the importance of following legal procedures in proving the identity, creditworthiness, and genuineness of shareholders to avoid unreliable additions based on inadequate evidence.