ITAT Delhi Quashes Section 68 Addition Due to Lack of Cross-Examination
JSM OILFIELDS SERVICES PVT. LTD. v. DCIT (ITA 4093/DEL/2024)
Facts:
1. AO made additions: total income was assessed at ₹ 3,23,99,877 by making, inter alia, an addition under Section 68 of the Income‑tax Act, of ₹ 2,10,20,000 on account of “unexplained cash credit” — i.e. share capital/premium alleged to be from non-genuine/un-creditworthy shareholders.
2. The company had, according to the.assessee, issued 52,550 equity shares in earlier years, and in the year under appeal received “call money” of ₹ 4 per share (face value) plus ₹ 396 per share as share premium, from 8 different subscribers.
3. The AO’s case was that certain subscriber-companies lacked creditworthiness; AO relied heavily on statements of one individual (Mr. Vivek Kumar Jain), alleged to be an “entry-operator,” recorded u/s 131 (Investigation Wing), that they managed/accommodated multiple companies.
4. Crucially, these statements were never placed on record during assessment, copies not given to the assessee, and no opportunity of cross-examination offered.
5. On remand, the AO admitted that the statements were not available in the assessment folder; despite requests, copies were not provided.
6. The assessee had submitted identity/financial statements / bank statements / ITRs of the subscriber-companies to show their creditworthiness.
ITAT Delhi held as below:
1. No tangible contrary evidence was placed on record by AO. The statements relied upon by AO were not supplied to the assessee nor cross-examined.
2. The subscriber companies had adequate net worth (reserves & surpluses) and prior & subsequent compliance. When all relevant particulars (identity, financials, genuineness) were furnished, mere suspicion, even if strong, cannot substitute for proof.
3. A mere suspicion or preponderance of probability cannot replace evidence and so it is improper to treat the share-capital/premium receipts as unexplained cash credit.
4. The grounds relating to addition u/s 68 are allowed. Similarly, certain disallowances (personal expenses) which AO had treated on estimation basis are also deleted, upholding the separate legal-entity status of the company vis-à-vis its promoters.
5. The 2022 amendment to Section 68 (second proviso requiring source-of-fund to be explained in the hands of the creditor) does not apply, because the assessment year under appeal is 20
The copy of the order is as under:
