2021 (10) TMI 507 - AT - Income Tax

Importance of incriminating material in tax assessments emphasized by ITAT decision

DCIT, Central Circle-I, Haryana Versus M/s Frost Falcon Distilleries Ltd. And (Vice-Versa)

DCIT, Central Circle-I, Haryana Versus M/s Frost Falcon Distilleries Ltd. And (Vice-Versa) - TMI Issues:Cross appeals by Revenue and assessee against CIT(A) order for AY 2008-09.Analysis:The case involved cross appeals by the Revenue and the assessee against the order of the Commissioner of Income Tax (Appeals) for the Assessment Year 2008-09. The main issue revolved around additions made by the Assessing Officer under section 68 of the Income Tax Act, 1961, on account of unaccounted money introduced as share capital and share premium. The appeals were heard together as they raised common issues. The CIT(A) deleted additions for three parties due to lack of incriminating material during the search action and completion of original assessment before the search. However, an addition of Rs. 75 lakhs from one company was upheld based on a statement by its director during a survey. The Revenue appealed against the deletion of the addition for three parties, while the assessee contested the addition from the specific company.The ITAT upheld the CIT(A)'s decision on the three parties, citing precedents that additions cannot be made in completed assessments without incriminating material. However, regarding the addition from the specific company, the ITAT found the reliance on the director's statement during the survey action to be insufficient. The ITAT noted that the provisions cited by the CIT(A) were not applicable for the assessment year in question. The statement by the director, where he claimed to be a dummy director, was not conclusive evidence, especially since it was not confronted to the assessee for cross-examination. Citing a Supreme Court decision, the ITAT emphasized the importance of providing an opportunity for cross-examination before making additions based solely on statements. As the incriminating material was lacking and the statement alone was deemed insufficient, the ITAT ordered the deletion of the Rs. 75 lakh addition. Consequently, the Revenue's appeal was dismissed, and the assessee's appeal was allowed.In conclusion, the ITAT dismissed the Revenue's appeal and allowed the assessee's appeal, emphasizing the necessity of incriminating material and proper procedures in making additions during assessments.