DCIT, CC-15, NEW DELHI vs. BDR BUILDERS & DEVELOPERS P. LTD., NEW DELHI

Per Dr. B. R. R. Kumar, Accountant Member:

1. On facts and circumstances of the case and in law the Ld. CIT(A) has erred deleting the addition of Rs. 5,93,69,699/-, made by AO on account of unexplained source of source of Share Capital and Share Premium u/s 68 of the Income Tax Act, 1961. 2.(a) The Ld. Commissioner of Income Tax (Appeals) is erroneous and not tenable in law and on facts.

(b) The appellant craves leave to add, amend any/all the grounds of appeal before or during the course of hearing of the appeal.”

3. The assessee furnished its original return of income u/s 139(1) of the Act declaring net taxable income of Rs.6,73,11,320/- Thereafter an order u/s 153A read with section BDR Builders & Developers P. Ltd 143(3) of the Act was passed in this case on 30.12.2019 determining the assessed income of Rs.28.44 crores. The ld CIT(A) deleted the entire addition of Rs. 21.71 crores The revenue accepted the deletion Rs. 14.56 crores

4. Aggrieved with the deletion of Rs. 5.93 crores the revenue filed appeal before us.

5. Before us the ld AR relied on the arguments taken up before the ld CIT(A) and ld DR relied on the assessment order.

6. Heard the arguments of both the parties and perused the material available on record. We have perused the order of the ld CIT(A) in detail. For the sake of ready reference the said order adjudicating the issue is reproduced as under:-

“4. Ground No 1: I have considered the facts of the case and submission of the appellant.

4.1 The only issue under appeal is the addition of Rs 21,71,87,500/- made by the AO u/s 68 of the IT Act 1961 on account of share capital and share premium received by the appellant company. During the course of assessment proceedings, the details of increase in the share capital (including share premium) were called by the AO alongwith the valuation of share premium. There was no adverse finding by the AO regarding valuation of share premium charged by the appellant company. However, the AO was not satisfied with the details filed by the appellant regarding share capital and accordingly the share capital received of Rs. 21,71,87,500/- was added u/s 68 of the IT Act 1961 with the following observations & conclusion by the AO:

"On 28.11.2019, assessee company has filed the reply regarding proof of the identity, creditworthiness and genuineness of the persons/ entities. While gone through the submissions, it was noticed that the assessee company did not file the required details, regarding creditworthiness and genuineness of the transaction made with the assessee company regarding share premium. To verify the same, another show cause notice was issued on 05.12.2019 and served on the assessee through ITBA portal and the case was fixed for hearing on 09.12.2019 vide which the assessee was again requested to establish the identity, genuineness and creditworthiness of all the credit entries in all the bank accounts of the persons/entities i.e. source of source who have applied for shares and from whom share premium of Rs. 19,21,87,500/-was received. Vide its letter dated

BDR Builders & Developers P. Ltd

09.12.2019 the assessee filed the confirmations of the parties along with copies of their ITRS and bank statements which were examined and placed on record.

On a perusal of the submission filed by the assessee particularly the bank account statements of the parties from whom share premium was received during the year it has been noticed that there were deposits and immediate withdrawal thereafter for the purposes of making the payment for share premium to the assessee company. The verification of ITRS also revealed that the income declared by the parties was not upto the mark to fit with the investment and shares and share premium with the assessee company. It is ascertain that Assessee Company has failed to prove the source of the person/entities reflected in the person from whom they had taken credit entries, reflected in their bank accounts. In view of these facts, copies of PAN, ITRS, confirmations and bank account statements do not prove the creditworthiness of the parties and the parties and the genuineness of the transactions in respect of heavy investment in shares and premium. The fact is, as even investigation Wing has already established in various cases of accommodation entries, it is evident process of layering and trailing of funds come to in the accounts above mentioned four closely, family linked persons/entities from assessee company has taken accommodation beneficiary entries total amounting to Rs. 21,71,87,500/- in guise of share premium.

Hence, considering surrounding circumstances and applying the test of human probabilities, it is held that the assessee has entered into pre- designed modes of transactions and taken entries of Rs. 21,71,87,500/- as beneficiary entry. Therefore, I hold that share premium of Rs. 21,71,87,500/- so inducted by the assessee company during the year remains unexplained and will be added to the income of the assessee as its income from explained source as per the provisions of section 68 of the Income Tax Act, 1961."

4.2 The share capital including share premium had been received by the appellant company from existing directors and close family persons/entities as per the following table:

S. Name Pan Face value (FV) Nominal Total no No. of and share value (Rs.) Share (Rs.) Share premium (SP) Premium allotted per share (Rs.) (Rs.) 1. Shreyansh AKCPG2622A 2,81,250 FV=Rs. 10/- 28,12,500 4218750 4,50,00, Gupta SP=Rs. 140/- 0 000 2. R. Dinesh AAGHR5116N 5,00,000 FV=Rs. 10/- 50,00,000 7500000 8,00,00, (HUF) SP=Rs. 140/- 0 000 3. R.D. AAGHR4693Q 2,50,000 FV=Rs. 10/- 25,00,000 3750000 4,00,00, DINESH SP=Rs. 140/- 0 000 HUF 4. Ram Kumar AAAHR5865C 2,50,000 FV=Rs. 10/- 25,00,000 3750000 4,00,00, SP=Rs. 140/- 0 000

BDR Builders & Developers P. Ltd

Total 1,28,12,500 19,21,87,5 20,50,0 00 0,000 As per the assessment order, the appellant had filed confirmation of these parties along with copies of their ITRs and bank statements to prove the identity, creditworthiness and genuineness of these persons/ entities. The AO observed that :

• As per the bank statements, there were deposits and immediate withdrawal thereafter for the purpose of making the payment of share premium to the appellant company. • The ITRs of these entities also revealed that the income declared by the parties was not upto the mark to fit with the investment made in shares of the appellant company by these entities. • The fact is, as even Investigation Wing has already established in various cases of accommodation entries, it is evident process of layering and trailing of funds come to in the accounts above mentioned four closely, family linked persons/entities from assessee company has taken accommodation beneficiary entries total amounting to Rs. 21,71,87,500/- in guise of share premium.

4.3 During the course of appellate proceedings, the appellant has contended that out of total amount of Rs. 20,50,00,000/- shown to have received as share capital (including share premium) from four entities, the amount of Rs. 16,37,96,100/- had been received in earlier years and only the amount of Rs. 4,12,03,900/- was received during the year under consideration as per the following table: S. no Name Pan No. of Share Total (Rs.) Amount Amount allotted received in received earlier years during instant year 1. Shreyansh AKCPG2622A 2,81,250 4,50,00,000 4,50,00,000 Gupta 2. R. Dinesh AAGHR5116N 5,00,000 8,00,00,000 6,32,25,050 1,67,74,950 (HUF) 3. R.D. DINESH AAGHR4693Q 2,50,000 4,00,00,000 4,00,00,000 HUF 4. Ram Kumar AAAHR5865C 2,50,000 4,00,00,000 1,55,71,050 2,44,28,950 TOTAL 20,50,00,000 16,37,96,100 4,12,03,900 These facts were brought to the knowledge of the AO during the course of assessment proceedings as is evident from the copy of reply submitted by the appellant which was filed by the appellant with the AO vide letter dated 28.11.2019.

4.4 The ledger account of loans taken by the appellant company from these entities in the books of accounts of the appellant company from 01.04.2015 to 31.03.2017 can be summarised as under:- Name Period Opening Total Total Interest TDS Closing paid balance Credits Debits deducted Balance (1) (2) (3) (4) (5) (6) = (1)+ (2) + (4) -

BDR Builders & Developers P. Ltd

-(5) (3) Sh. Shreyansh 01.04.2015 0 49500000 125000 954668 95467 50234201 Gupta to 31.03.2016 50234201 12800000 57700000 1086206 108621 6311786 01.04.2016 to (4.5 crores 31.03.2017 transferred to share capital) R Dinesh 0 62600000 150000 861167 86117 63225050 01.04.2015 Gupta (HUF) to 31.03.2016 63225050 30000000 90400000 1047086 104709 3767427 01.04.2016 to (9 crores 31.03.2017 transferred to share capital) R D Gupta 0 51200000 0 1100500 110050 52190450 01.04.2015 (HUF) to 31.03.2016 52190450 10600000 49100000 1048619 104862 14634207 01.04.2016 to (4 crores 31.03.2017 transferred to share capital) Ram Kumar 0 15100000 100000 634500 63450 15571050 01.04.2015 Gupta (HUF) to 31.03.2016 15571050 51500000 40700000 952513 95251 27228312 01.04.2016 to (4 crores 31.03.2017 transferred to share capital)

The returned income shown by these entities for two years, as per the copies of returns filed by the appellant is as under: Name A.Y. 2016-17 A.Y. 2017-18 Gross Total Taxable Gross Total Taxable Income Income Income Income Sh. Shreyansh 1500244 1345830 1409071 1249070 Gupta R Dinesh Gupta 1900639 1740640 1067935 907940 (HUF) R D Gupta (HUF) 1754417 1599380 1098116 938120 Ram Kumar Gupta 1225014 1070040 1766236 1606240 (HUF)

4.4.1 The appellant has filed the copies of (i) Returns of income filed by these entities (ii) Copies of statements of accounts in the books of appellant company alongwith the confirmations (iii) Copy of bank statement (iv) Source of major credits received in the bank account of these entities (v) Confirmation of transactions from sources of these credit entries

BDR Builders & Developers P. Ltd All these details were filed by the appellant along with the evidences before the AO, as is evident from the copy of letter dated 28.11.2019 filed by the appellant before the AO, which is part of submission of the appellant.

4.5 It is observed from the above data that these four entities were having certain loan amounts as opening balances as on 01.04.2016. Certain amounts for share capital had been paid out of these opening balances and certain loan amounts have been received in these accounts during the year before debit of share capital (including share premium) amounts on 10.10.2016 from these respective accounts. The position of balances available with the appellant before making investment in share capital on 10.10.2016 can be summarised from the ledger accounts submitted by the appellant as under: Name Period Opening Total Total Closing Investmen Difference Differ balance Credits Debits t in share between ence Balance as on upto upto capital on total betw 01.04.16 10.10.1 10.10.16 10.10.16 credits een 6 and (6)&( closing 2) balance (1) (2) (3) (4) = (5) (6) = (4) (7)= (1)+ - (5) (6) - (2)-(3) (2) Sh. 5023420 124000 12700000 4993420 45000000 4934201 - 01.04.2016 Shreyansh to 1 00 1 7465 Gupta 31.03.2017 799 Dinesh 6322505 300000 10200000 8302505 80000000 3025050 - 01.04.2016 Gupta to 0 00 0 2697 (HUF) 31.03.2017 4950 R. D. 5219045 0 9000000 4319045 40000000 3190450 3190 01.04.2016 Gupta to 0 0 450 (HUF) 31.03.2017 Ram Kumar 1557105 315000 500000 4657105 40000000 6571050 - 01.04.2016 Gupta to 0 00 0 2492 (HUF) 31.03.2017 8950 From the analysis of above data, it is observed that the negative figures in Column No. 7 represent the amount of investments made by the appellant from the sources of funds brought by these entities in the appellant company during the year under consideration. Thus, the total amount of Rs. 5,93,69,699/- ( total of all negative figures in col 7 of above table) had been invested out of the funds brought in by these entities during the year under consideration. 4.6 It is further observed that as per the Chart in the assessment order the total share capital by these entities including share premium is at Rs. 20,50,00,000/- where as the total figures added by the AO on account of share capital had been taken at Rs. 21,71,87,500/-. As per the balance sheet of the appellant company as on 31.3.2017, there had been total addition of Rs 1,28,12,500/- in the share capital and addition of share premium of Rs 19,21,87,500/-. Thus the total addition to share capital on BDR Builders & Developers P. Ltd account of allotment of these shares is at Rs 20.50 crs ( Rs 1,28,12,500 + Rs 19,21,87,500) only. These figures match with the table of share capital reproduced at page in the assessment order. The AO had inadvertently taken the figure of Rs 20.50 Cr at Rs 21.72 Cr in the assessment order while making the addition on this issue. Therefore, the figures of addition of share capital including premium are taken at Rs 20.50 Cr as per the audited balance sheet& chart in the assessment order for further adjudication and not Rs 21.72 Cr as finally taken by the AO without any basis. This additional amount of Rs 1.22 Cr taken by the AO for the addition on account of share capital is not sustainable.

4.7 On the basis of the data collated above, it is observed that most of the share capital (including premium) had been paid out of the loan funds of these entities available with the appellant company in the assessment year 2016-17. It is a trite law that the additions u/s 68 can only be made of the amounts introduced in the books during the year and not in earlier years. This view is supported by various case laws cited by the appellant. The amounts which have come in the books of the appellant in earlier years as loans and part amount so of these brought forward loans converted into share capital in the year under consideration from these loan accounts, cannot be held to as new money brought in the books of the appellant company. This is just a balance sheet entry wherein the existing part loans of earlier years, of these entities in the books of the appellant company, had been converted into share capital through Journal entry. The net effect of these transactions in the balance sheet of the appellant company is that these amounts have been reduced from the loan account of these entities and there had been equivalent amount added to shares account ( share & premium) in the name of these entities. Such journal entries donot entail introduction of any fresh amount, but are reclassification of entries from the head "Loans" to the head "Share capital + Share premium". These transactions are not covered in the ambit of section 68 of the IT Act 1961. In the present case, amount of such journal entries on the basis of ledger accounts submitted by the appellant had been worked at Rs 14,56,30,301/- ( Rs 20,50,00,000 - Rs. 5,93,69,699 worked in table in para 4.5 above). This amount had not been brought into the books of the appellant in the year under consideration. Thus the addition, made u/s 68 of the IT Act 1961, of this amount of Rs 14,56,30,301/-, brought in the books of the appellant company as loans in earlier years and converted into share A.Y. 2017-18 capital in the year under consideration in not as per law. Accordingly the addition of share capital of Rs 14,56,30,301/- made by the AO u/s 68 of the IT Act 1961 is not sustainable.

4.8 The remaining amount of Rs. 5,93,69,699/- (7465799 +26974950+24928950) invested in the share capital of the appellant company had been introduced during the year under consideration. It is observed that the appellant had filed all the requisite details, as mentioned in Para 4.4.1 above, to discharge its burden of proof regarding identity, creditworthiness and genuineness of these credit transactions. All these

BDR Builders & Developers P. Ltd investing entities are either existing shareholders or closely related to the directors/shareholders of the appellant company. They are filing their returns with substantial income. The appellant had explained all the credit entries in the respective bank accounts of these entities. These credits are mainly on account of sale of unlisted equity shares, for which STCG/LTCG had been shown in the respective returns of these entities. Other sources of funds have been the return of earlier advanced loans from various entities. There are no cash deposits in any of these accounts. In my opinion the appellant had discharged his burden of proof of source of these transactions, however the AO had brought no adverse material on record to prove non-genuineness or non creditworthiness of these investors.

4.8.1 The AO had just relied on the fact that amounts in the bank accounts have come just before investment. Infact, this fact is also not supported by the bank statements of these entities. These entities have regular loan transactions with the appellant company and these amounts have been transferred at regular intervals and the amount invested in share capital is through journal entries in the loan accounts and not through bank account. It is also a fact that no prudent person will keep its capital idle. These entities have invested part capital in shares of unlisted company which had been liquidated through sale of these shares and received back loaned part of their capital to other entities which had been received back. The appellant had given source of source of these credit entries, along with relevant documentary evidences. The AO had not brought anything adverse on records to counter the evidences produced by the appellant. Thus this allegation of the AO is not based on any facts, but conjunctures & surmises and is not sustainable.

4.8.2 The other argument of the AO is that these entities do not have income to justify these amounts of investments. It is submitted that ordinarily the current year income cannot be criterion of justification any investment. There may be earlier years investments in various assets like loans/stocks/real estate/Gold, loans raised, gifts etc, which may be liquidated/received to make investments in the year under consideration. Such type of remarks are general and cannot form the basis of un- creditworthiness in the absence of any corroborating material on record, particularly, when the appellant had given the sources of credit entries with all documentary evidences. The AO had not brought anything adverse on records to counter the evidences produced by the appellant. Thus this allegation of the AO is not based on any facts, but conjunctures & surmises and is not sustainable.

4.8.3 Other argument of the AO is regarding layering of entries unearthed by the investigation wing in various cases. It is submitted that there is no such specific instance quoted by the AO in the assessment order, wherein it could be proved that any enquiry of investigation wing had corroborated this theory of the AO in the case of the appellant. Even the AO had not made any investigation of the credits in these entities leading to this BDR Builders & Developers P. Ltd conclusion. In these facts & circumstances of the case, it is held that even this allegation of the AO is general and without any material on record. Thus this allegation of the AO is not based on any facts, but on unsubstantiated opinion and is not sustainable.

4.8.4 It is observed that the loan transactions of these entities are continued with the appellant company from earlier years. There are still loan balances outstanding during the year under consideration. These loans have been accepted in earlier years as well in the year under consideration by the AO. Even the interest paid on these loans had been allowed in earlier years as well in the year under consideration by the AO. The TDS had been duly deducted on these loans. It is strange that the AO did find all parameters of section 68 satisfied w.r.t these entities on account of loan raised by the appellant company, but did not find them satisfactory when these part loans were converted to share capital, which are part of same transactions with same entities. Once the AO had accepted the loan amounts of these entities in the appellant company, there is no reason to doubt the creditworthiness of these entities when part of these outstanding loans are converted to the share capital.

4.8.5 Even the source of credit entries in earlier years had been explained by the appellant through various documentary evidences as per the chart at pages 319 to 322 of the paper book filed by the appellant. the major source had been the sale of private unquoted equity shares held by these entities and reflected in their respective copies of the returns reflecting this sale at pages 63, 66, 112, 115, 185, 188,244, 246 and 263 of the paper book.

4.8.6 Based on the above discussion it is held that the appellant had continued loan transactions with these four entities from earlier years and substantial amounts invested in the share capital during the year under consideration are from these outstanding loan balances brought forward as on 1.4.2016. No adverse view had been taken by the AO on these loan transactions and their interest payments in earlier years. Even during the year under consideration no adverse view had been taken by the AO on the loan amounts raised by the appellant from these entities during the year under consideration and even their interest payments have been allowed in this assessment order made by the AO. The share capital had been paid out of the outstanding loan balances of these entities as on 10.10.2016 & there had been subsequent loan transactions leading to closing balances of these loans as on 31.3.2017 as per the table in para 4.4 above. The AO did find all parameters of section 68 satisfied w.r.t these entities on account of loan raised by the appellant company in the year under consideration, but did not find that part of loans satisfactory which were converted to share capital. The AO failed to analyse and appreciate these transactions in totality. The AO had taken the amount of addition at Rs 21.72 Cr without any basis, whereas the total figures as the chart in the assessment order were at Rs 20.50 Cr. This additional amount of addition of Rs 1.22Cr on account of share capital is without any basis and not sustainable. Further,

BDR Builders & Developers P. Ltd the AO had added the loan amounts received in earlier years which were converted to share capital in the year under consideration through journal entry, u/s 68 of the IT Act 1961, which is not sustainable as per law. Further the AO had accepted part amounts received as loans during the year under consideration, but not the amounts invested out of these amounts as share capital through journal entry. The appellant had submitted the relevant documents including source of source of funds of these four entities, but the AO had based his conclusion on surmises & conjectures without bringing any adverse material on record. All these entities are also regularly assessed with the Income Tax department, Delhi. Deeming provisions of IT Act 1961, like section 68 need to strictly interpreted. There had to be clear evidence and not the opinions without evidences or generality of remarks not based on facts of a particular transaction, to make addition under deeming provisions of the IT Act 1961. In these circumstances, the addition on account of share capital u/s 68 of the IT Act out of the funds of these entities brought during the year under consideration is also not sustainable.

4.9 In view of the discussion in Paras above, it is held that (1) The figures of increase in share capital during the year were at Rs. 20.50 Cr and not Rs 21.72 Cr as considered by the AO, leading to excess addition of Rs 1.22 Cr without any basis on record.

(ii) Out of these figures of Rs 20.50 Cr, amounts of Rs 14,56,30,301/- had been brought in the books of the appellant in earlier year as loans from these entities and cannot be taxed u/s 68 of the IT Act 1961 in the year under consideration. (iii) Regarding the remaining amount of Rs. 5,93,69,699/- invested in share capital from the running loan ledger accounts of these entities, in my opinion, the appellant had produced the evidences to satisfactorily prove the identity, genuineness and creditworthiness of these four investor entities.

In view of the facts and circumstances of the case, as discussed above, the addition made by the AO u/s 68 of the IT Act 1961 of Rs 21,71,87,500/- on account of share capital invested by the four entities in the appellant company is not sustainable and is hereby deleted. This ground of appeal is allowed.

5. Ground No 2 relates to charging of interest. Charging of interest is consequential in nature. Therefore the AO is directed to look into this grievance of the appellant while giving effect to this order.

6. Ground no 3 relates to initiation of penalty proceedings u/s 271(1)(c) of the IT Act 1961. As no order imposing penalty has yet been passed, this ground of the appellant is premature and is therefore, dismissed.

7. Ground No 4 is general in nature and does not require any separate adjudication.”

BDR Builders & Developers P. Ltd

Order Pronounced in the Open Court on 16/03/2023.