Mere failure of creditor/shareholder to appear no basis to make addition u/s 68 – ITAT

Mere failure of creditor/ shareholder to appear no basis to make addition u/s 68 when assessee produced basic evidences – ITAT

In a recent judgment, the ITAT Kolkata has set aside addition u/s 68 for fresh order without shifting onus upon assessee to produce the director of the shareholder company holding that mere failure of shareholder to appear cannot be basis to make addition u/s 68 when assessee produced basic evidences. The Tribunal held that it is not the duty of the assessee company nor in control of the assessee company to direct the director of other company to appear and show the genuineness.

ABCAUS Case Law Citation:
ABCAUS 4103 (2024) (06) ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) NFAC in confirming additions u/s 68 made towards share application money received.

The appellant company had filed its return of income declaring NIL income. The case was selected for scrutiny assessment under CASS. The director of the company who had made investment in the share capital of the appellant company was was directed to appear before the AO personally to explain the details of transaction with the assessee. However, as the said director of the shareholder company failed to appear, AO held that assessee had failed to discharge the onus to provide a transaction being a genuine transaction.

Therefore, the assessment was completed inter alia making additions as unexplained credit u/s 68 of the Income Tax Act, 1961 (the Act) towards the share capital money received.

Before the Tribunal the assessee submitted that the order of CIT(A) and the Assessing Officer (AO) was bad both on facts as well as law as the appellant had submitted the entire documents relating to the shareholder company which established the identity of the shareholder, creditworthiness of the transaction and genuineness of the transaction.

It was submitted that the assessee/appellant can not force the director of shareholder company to appear before the AO or the CIT(A) though the appellant had already discharged his duty by submitting all those documents which were required by the AO and asked to submit to the assessee.

The assessee relied upon the judgment of the Hon’ble High Court where it had been held that when the basic evidences are on record the mere failure of the creditor to appear cannot be basis to make addition.

The Tribunal observed that to establish the genuineness and creditworthiness of the transaction, assessee had filed income tax acknowledgement of the shareholder company, copy of share application, copy of audited accounts along with all the annexures, bank statements for the relevant periods of transaction of the share application.

The Tribunal opined that when there was documentary evidence filed by the assessee company that was related to the company to establish the genuineness and creditworthiness of the shareholder company then nothing more remained for the assessee company to establish their case.

The Tribunal opined that it is not the duty of the assessee company nor in control of the company to direct the director of the shareholder company to appear and show the genuineness. In our view, appellant has discharged the onus cast upon it, u/s 68 of the Act.

Accordingly, the Tribunal remanded the case back to the file of CIT(A) to pass a fresh order after going over the entire papers which had been filed by the assessee to support their creditworthiness and genuineness of the transaction without shifting any onus upon the assessee to produce the director of the shareholder company. 

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