ITAT Delhi remands ₹73.5 lakh share capital addition for violation of natural justice

Background

The Delhi Bench ‘F’ of the Income Tax Appellate Tribunal has set aside and remanded the additions made under Section 68 of the Income Tax Act, 1961, holding that the assessee was denied a fair opportunity to rebut adverse material relied upon by the Revenue. The Tribunal was hearing an appeal filed by Cygnus Infrabuild Private Limited against the order passed by the Commissioner of Income Tax (Appeals)–2, New Delhi, for Assessment Year 2011–12. The Assessing Officer had completed the assessment under Section 143(3), determining total income at ₹88.73 lakh after making additions of ₹73.50 lakh towards alleged unexplained share capital and share premium under Section 68, and ₹9.80 lakh by estimating profit at 5% on alleged undisclosed receipts reflected in Form 26AS. Before the Tribunal, the assessee contended that it had discharged its onus under Section 68 by furnishing confirmations, bank statements, income tax returns and other relevant documents of the share applicant companies. It was argued that the CIT(A) erred in upholding the addition solely on the basis of an Inspector’s report which was never supplied to the assessee, thereby violating the principles of natural justice.

Outcome

It observed that reliance on an un-confronted Inspector’s report, without granting the assessee an opportunity to controvert the same, rendered the appellate order unsustainable in law. The Tribunal held that such an approach was contrary to settled legal principles governing adjudication under the Act.

Accordingly, the ITAT remitted the entire matter back to the Assessing Officer for fresh adjudication, with directions to supply the Inspector’s report and provide adequate opportunity of being heard to the assessee. The appeal was allowed for statistical purposes.