The Calcutta High Court, in determining the justification of an addition made under Section 68 of the Income Tax Act, 1961, ruled that the Assessing Officer cannot draw an adverse inference solely due to directors’ failure to respond to notices issued.
The bench comprising Chief Justice T.S. Sivagnanam and Justice Hiranmay Bhattacharyya observed that the assessing officer did not comment on the veracity or admissibility of any details or documents provided by the assessee to establish the identity, creditworthiness of share subscribers, and genuineness of the transaction.
Section 68 of the Income Tax Act aims to ensure transparent disclosure of income by addressing unexplained cash credits in books of accounts, placing the burden on the taxpayer to prove the legitimacy of such credits.
The court examined whether the addition under Section 68 was justified. It noted that the Tribunal conducted a thorough review of the factual circumstances, which should have been undertaken by the Commissioner of Income Tax (Appeals) during the appeal process.
The Commissioner of Income Tax (Appeals) issued an order that did not consider any of the grounds raised by the assessee, rendering it a non-speaking order devoid of proper application of mind.
The Tribunal reviewed facts presented by the assessee that had previously been submitted to the Assessing Officer. It noted that the Assessing Officer did not comment on the validity or admissibility of the details or documents provided by the assessee to establish identity, creditworthiness of share subscribers, or genuineness of the transaction.
The court upheld the tribunal’s order, noting that the tribunal thoroughly examined the factual circumstances, a task that should have been undertaken by the Commissioner of Income Tax (Appeals) during the appeal process. The matter was decided in favor of the assessee.
