Addition merely by relying on the statement of third party without resorting to verification u/s.133(6) or u/s.131 is not permissible

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Addition  merely by relying on the statement of third party without resorting to verification  u/s.133(6) or  u/s.131 is not permissible 

SETH CARBON AND ALLOYS PRIVATE LIMITED vs. DEPUTY COMMISSIONER OF INCOME TAX

(2021) 62 CCH 0144 MumTrib

 

Short Overview of the Case:

 

Income by way of Cash credit

 

Assessee filed return of income

 

Case was selected for scrutiny

 

Subsequently, case was reopened by issuance of notice u/s.148 after recording reason to believe that income has escaped assessment on account of non-disclosure of full and true material facts necessary for assessment

 

AO observed that he had received information from DGIT in case of assessee that assessee was in receipt of funds in form of share capital and share premium from A and P Further, statement of Director of E has confirmed that A and P are controlled and managed by S

 

Based on information received from DGIT (Inv.) AO has made addition

 

Held, Assessee by furnishing all aforesaid documents had duly explained nature and source of credit in form of share capital and share premium received from aforesaid two shareholders

 

All transactions are routed through account payee cheques in regular banking channels—Justification for premium was also duly made by assessee by giving explanation in writing

 

AO after receiving all information in form of various documentary evidence remained silent

 

AO did not resort to make any verification in any manner whatsoever either by issuing notice u/s.133(6) or issuing summons u/s.131 to concerned shareholders in order to examine veracity of such documents

 

AO without resorting to any sort of verification in manner known to law, had simply proceeded to make addition in hands of assessee by treating receipt of share capital and share premium as accommodation entries merely by relying on statement recorded from S and his key employess

 

Statement of S and his key employees were never furnished to assessee for its rebuttal

 

Hence, said statements cannot be relied upon as sole basis for framing addition in hands of assessee

 

Addition made u/s.68 in case of assessee is merely based on surmise and conjecture and absolutely without any basis and absolutely without any verification in manner known to law

 

Adiiton made u/s.68 is deleted

 

Assessee’s appeal allowed.

 

Another issue involved was that AO treated receipt of share capital and share premium as unexplained cash credit u/s.68

 

CIT(A) also confirmed assessment—Held, for both assessment years 2010-11 and 2012-13 in support of receipt of share capital and share premium, assessee had furnished all relevant documentary evidences thereby discharging primary onus cast on assessee in terms of Section 68

 

Onus thus, thereafter shifts to revenue to rebut assessee’s stand as well as documentary evidences by bringing on record cogent material to dislodge same

 

This was admittedly not done by AO for both years

 

Addition was solely made based on a third party statement which was never confronted to assessee either by providing statement together with evidences, if any for rebuttal of assessee or for cross-examination of assessee

 

S had even filed an affidavit on 20/12/2019 wherein he had categorically denied having provided any accommodation entries

 

No case was made out by Revenue to treat receipt of share capital and share premium as unexplained cash credit u/s.68

 

Assessee’s appeal allowed.

 

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