Non-compliance of summons issued u/s 131 no ground to make addition u/s 68

Non-compliance of summons issued u/s 131 by investing companies is no ground to make addition under section 68 of the Income Tax Act

In a recent judgment ITAT Ranchi has held that mere non-compliance of summons issued u/s 131 of the Act and non production of the directors of the investing companies no ground to make addition under section 68 of the Income Tax Act.

ABCAUS Case Law Citation:
5020 (2026) (01) abcaus.in ITAT

The case of the appellant company was originally selected for scrutiny on the issue of share capital and share premium received during the year. The Assessing Officer completed the assessment ex parte under section 144 of the Income-tax Act, 1961, on the ground of alleged non-compliance, and made an addition being share capital and share premium received from various companies, treating the same as unexplained under section 68 of the Act.

Subsequently, a search and seizure operation under section 132(1) along with a survey under section 133A was conducted on a Group cases. Consequent thereto, notice under section 153A of the Act  was issued to the assessee, in response to which the assessee filed its return.

During the assessment proceedings under section 153A read with section 143(3), the Assessing Officer again examined the issue of share capital and share premium. According to the Assessing Officer, the directors of the investor companies failed to appear in compliance to summons u/s 131 of the Act and the Assessing Officer thereafter discussed the modusoperandi of these companies and after relying on the decision of Hon’ble Supreme Court iheld that revenue authorities were also supposed to consider the surrounding circumstances and apply the test of human probability.

The Assessing Officer held that there was no reason in issuing shares at a high premium and finally the Assessing Officer despite furnishing extensive documentary evidence by the assessee made an addition under section 68 of the Act as unexplained cash credit.

The CIT(A) sustained the addition.

The Tribunal observed that it was an admitted position that the assessee furnished all primary evidences in support of share capital and share premium received. The identity of the investor companies stands established through PAN, MCA records, and statutory filings and the creditworthiness of the investor companies are supported by their audited balance sheets showing substantial net worth and all the transactions were done through banking channels and confirmations were received.

The Tribunal noted that while framing the assessment order, the Assessing Officer issued notice u/s 131 to the assessee to produce the directors of the share applicant companies but the directors did not appear which was only the basis of the said addition u/s 68 of the Act made by the Assessing Officer.

The Tribunal also noted that in spite of nonappearance personally by the directors of the share applicant companies, the share applicant companies sufficiently complied to the notices by submitting the details such as PAN, audited accounts, ITR, Bank Statement.

The Tribunal further noted that the Assessing Officer during the course of assessment proceedings had issued notice u/s 133(6) to the investor companies which was duly complied with except in the case of one company wherein remark was made that the company has shifted from the address but it was not in dispute the fact that even as on date all these share applicant companies were active which was evident from master data as per the MCA website. Also, the investor companies had good earnings and net worth and even the source of source was proved by the investing companies and the authorities below had not done any verification or conducted any enquiry into the evidences/documents filed by the assessee and merely harped on the non-compliance of summons issued u/s 131 of the Act.

The Tribunal opined that even if the observation of the AO as to non-compliance of the summons u/s 131 of the Act by the assessee and also non productions of the directors of the investing companies was accepted even then the AO cannot make addition on the sole basis of noncompliance, even then the AO cannot make addition on the sole basis of noncompliance.

The Tribunal noted that the case of the assessee find support from the decisions of various judicial forums including the decision of Hon’ble Supreme Court, Mumbai High Court and Calcutta High Court. The case was also covered by the decision of the coordinate bench.

Accordingly, the Tribunal held that the assessee had successfully discharged the onus cast upon it under section 68 of the Act and deleted the addition made under section 68 and sustained by the CIT(A).

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