Section 68 – Mere non production of Director of Shareholder Company cannot justify adverse inference u/s. 68 of the Act.

28.  (2018) 66 ITR (Trib.) 226
(Delhi) Gopal Forex Pvt. Ltd. vs. ITO ITA No.: 902/Del/2018 A.Y: 2008-09 Dated:
26^th June, 2018

Section 68 – Mere non production of Director of Shareholder Company
cannot justify adverse inference u/s. 68 of the Act.

FACTS

The assessee company filed its return of income. Subsequent to the
processing of return of income, information was received from the investigation
wing of Income tax about a search operation carried out in the case of Jain
Brothers who were involved in providing accommodation entries and bogus share
capital. The name of the assessee company was found in a list as one of the
beneficiaries.

Reassessment proceedings were initiated and additions were made by the
AO only on the basis of purported documents seized from the premises of Jain
Brothers. In the assessee’s case addition was sustained merely because the
director of shareholder company did not present himself physically before the
AO.

Important question raised before CIT(A) was whether adverse inference
u/s. 68 could be drawn by AO once assessee placed all the relevant documents in
its possession before AO to establish its burden u/s. 68, without discharging
secondary burden lying on the AO to point out defect in the assessee’s
submission. 

HELD

Before the Hon’ble ITAT, heavy reliance was placed by the Hon’ble bench
on Moti Adhesives P. Ltd. ITA No. 3133/Del/2018 where it was held that
once assessee places all the reliable and trustworthy documentary evidences to
support the veracity of transactions u/s. 68, it is the duty of AO to
dispassionately consider the same with objective standards and to not make
additions solely on the basis of investigation wing’s report prepared at the
time of search. This discharges the assessee’s burden u/s. 68 & shifts the
secondary burden to the AO. To discharge his burden, the AO must bring credible
incriminating material on record to displace the detailed evidence filed by the
assessee. But in the present case, it was observed that AO merely reproduced
the investigation wing’s report in the reasons recorded, the show cause notice
issued & the final order passed. If reassessment & additions are based
upon the sole ground of prima facie opinions which are used to reopen
the case, this would frustrate the entire object of law. Besides, additions
made merely on basis of non-production of directors of Share Holder Company
disregarding all the other detailed evidences on record is unjustified.

The Hon’ble ITAT also relied on the following judgements:

i)          Softline Creations
Pvt. Ltd. (387 ITR 636) [Delhi HC]

ii)         CIT vs. Orissa
Corporation Pvt. Ltd. (Vol. 159 ITR 78) [SC]

iii)        Crystal Networks Pvt.
Ltd. vs. CIT (353 ITR 171) [Calcutta HC]

iv)        Crystal Networks Pvt.
Ltd. vs. CIT (353 ITR 171) [Calcutta HC]

v)         CIT vs. Dataware Pvt.
Ltd. (ITAT No. 263 of 2011) [Calcutta HC]

vi)        Rakam Money Matters Pvt.
Ltd. (ITA no. 778/2015) [Delhi HC]

vii)       Orchid Industries Pvt.
Ltd. (397 ITR 136) [Bombay HC]

viii)      Aksar Wire Products (P)
Ltd. (ITA no. 1167/Del/2015) [Delhi ITAT]

ix)        CIT vs. Stellar
Investment Ltd. (Civil No. 7868 of 1996) [SC]

Thus, relying on the views expressed in a plethora of judgements, the
Hon’ble ITAT held that mere non production of Director of share holder company
ipso facto cannot justify straight adverse inference u/s. 68 dehors detailed
documentary evidences filed.