WHETHER STATEMENTS WHICH ARE UNTESTED, UNPROVEN CAN BE RELIED FOR MAKING ADDITIONS?

Respected Members

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Short note of today's case law for quick reference:

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[2024] 461 ITR 92 (All)

[IN THE ALLAHABAD HIGH COURT]

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PRINCIPAL COMMISSIONER OF INCOME-TAX

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PNC INFRATECH LTD.

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1. The assessee received share capital from three entities in the assessment year 2010-11 through banking channels.

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2. During the search under section 132 of the Income-tax Act, 1961 statements were recorded of directors and responsible functionaries of the investor entities and the assessee involved in the transactions.

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3. Relying on the statements of 5 persons, investments made in the form of share capital were added as unexplained cash under section 69 to the assessee’s income.

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4. The Commissioner (Appeals) deleted the addition and this was confirmed by the ITAT.

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5. On further appeal by revenue, HC held that investors had duly disclosed the investments in the assessee in their books of account.

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6. In the statement recorded during the assessment proceedings BK had claimed ignorance as to the actual business transaction of that company and also as to the investment made by the entity J in the assessee.

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7. Therefore, BK did not prove or disprove the fact of investment made by J in the assessee. He had only claimed ignorance.

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8. The assessing authority failed to call or examine LJ during the assessment proceedings, but had relied on the unproven or untested statement of LJ allegedly recorded during the search proceedings conducted against the entity J

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9. No material witness was examined during the assessment proceedings.

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10. The assessing authority without affording the assessee any opportunity to cross-examine any such witness had relied on ex parte statements.

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11. Other than those statements, there was no evidence to establish that investment made in the assessee by way of share capital by the three entities was bogus and not genuine.

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12. The Commissioner (Appeals) has reasoned that the doubts and suspicions howsoever strong could never lead to adverse findings against the assessee.

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13. CIT(A) had categorised the findings recorded by the assessing authority as conjectural being not based on any cogent material or evidence on record.

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14. The Department could not produce any evidence to conclude that any part of the investment made in the assessee by the three investor entities was false or bogus.

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15. The burden to prove otherwise rested on the Department.

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16. Unless the initial onus had been discharged by leading some evidence that led to the conclusion that the investment was never made, the burden that was cast on the Department remained undischarged.

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17. The findings of fact recorded by CIT(A) & Tribunal were based on material and were neither illegal nor perverse.