2023 (2) TMI 1366 - HC - Income Tax

Addition u/s 68 - creditworthiness of the subscriber of the share capital - Tribunal was justified in law in not allowing the AO an opportunity to cross-examine the assessee when there was an admission of introduction of entry operators which was subsequently retracted without assigning any reason for such retraction what so ever ? HELD THAT - Assessee was a public limited company established in the year 1956 but ran into rough weather and ultimately declared a sick industrial undertaking and reference was made before the Board for Industrial and Financial Reconstruction (BIFR). Subsequent developments which took place before the BIFR as to how the scheme was sanctioned etc., has been brought out in extenso by the learned Tribunal. Addition made in the instant case was based upon the statements recorded from two persons. Tribunal has considered those statements and has pointed out that the assessee was not confronted with those statements nor any opportunity of cross-examination was afforded to the assessee. Tribunal held that nothing turns out against the assessee on the said ground. That apart, the Tribunal also noted that the AO has not independently examined Sri Anand Sharma and has not allowed the assessee to cross-examine the said person and therefore the statement given by the said person could not have been relied upon. Tribunal also took note of the various documents which were filed by the assessee before the authorities and on facts found that the authorities could not controvert the veracity of those documents nor its genuinity and therefore held that an addition made in Section 68 based on two statements would not be sustainable in law. Tribunal took note of was the adverse view drawn by the Assessing Officer with regard to the audit report of the assessee stating that the said report does not mention anything about the joint venture. No substantial question of law, arises for consideration in this appeal.

Summary

Issues:
1. Whether the Tribunal was justified in not allowing the Assessing Officer an opportunity to cross-examine the assessee regarding admission of entry operators?
2. Whether the Tribunal was justified in not examining the creditworthiness of the subscriber of the share capital and the immediate source of funds?

Analysis:
The High Court of Calcutta heard an appeal filed by the Revenue under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal. The main issue in question was whether the Tribunal was correct in setting aside the orders of the Commissioner of Income Tax (Appeals) and the Assessing Officer. The Tribunal's detailed analysis revealed that the respondent, a public limited company, faced financial difficulties and was referred to the Board for Industrial and Financial Reconstruction. The addition made by the Assessing Officer was based on statements from two individuals, but the assessee was not given a chance to cross-examine them. The Tribunal also considered a joint venture agreement and found that the Assessing Officer's concerns were unfounded as the land was converted for industrial use as per the agreement.

Furthermore, the Tribunal noted that the Assessing Officer did not independently examine a key individual and did not allow the assessee to cross-examine them, leading to the conclusion that the statement could not be relied upon. The Tribunal also reviewed various documents submitted by the assessee and found them to be genuine and uncontroverted by the authorities. Additionally, the Tribunal addressed discrepancies in the audit report, highlighting that the joint venture agreement was terminated before the audit report date, which explained the absence of related information in the report.

Ultimately, the High Court determined that the matter was primarily factual, with no substantial legal questions arising for consideration. Consequently, the appeal was dismissed, and the application for stay was also rejected.