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Facts
The assessee company, engaged in real estate, filed its return for AY 2013-14. The Assessing Officer (AO) made additions of Rs. 32,00,000 and Rs. 36,00,000 on account of unexplained share application money from M/s SB Life Style Pvt. Ltd. and M/s Topflow Mercantile Pvt. Ltd., respectively. The AO's basis was the alleged non-existence or lack of response from these entities.
Held
The Tribunal held that the tax authorities selectively doubted the genuineness of investments without properly examining the substantial evidence provided by the assessee to establish the identity, creditworthiness, and genuineness of the transaction. Inquiry reports were not confronted to the assessee, and reliance on broad assumptions about shell companies was not sufficient.
Key Issues
Whether the additions made by the AO on account of unexplained share application money were justified, considering the evidence provided by the assessee to establish the genuineness of the investors?
Sections Cited
133(6), 131(d), 68, 143(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCHES: G : NEW DELHI
Before: SHRI ANUBHAV SHARMA & SHRI MANISH AGARWAL
Assessment Year: 2013-14 M/s Sthapna Properties Private Vs ITO, Ltd., Ward 24(2), 108, South Ex. Plaza II, New Delhi. South Ex. Part II, New Delhi – 110 049. PAN: AANCS1478C (Appellant) (Respondent) Assessee by : Shri Ajay Wadhwa, Advocate; Ms Ragini Handa, Advocate; & Shri Saksham Garg, CA Revenue by : Shri Dheeraj Kumar Kain, Sr. DR Date of Hearing : 01.07.2025 Date of Pronouncement : 30.07.2025 ORDER PER ANUBHAV SHARMA, JM:
This appeal is preferred by the assessee against the order dated 21.12.2018 of the Ld. Commissioner of Income-tax (Appeals)-31, New Delhi for AY 2013-14.
Heard and perused the records. The facts in brief are that Assessee Company was incorporated on 23.06.2009 and is engaged in the business of real estate. Return was e-filed on 01.10.2013. The case was selected for scrutiny for the reason "the Assessee has raised large share application money and share premium during the year". Impugned Assessment Order dated 30.03.16 was passed u/s 143(3) of the Income Tax Act, 1961 ("the Act") wherein the following additions were made: i. Rs. 32,00,000/- on account of unexplained share application money from M/s. SB Life Style Pvt. Ltd. ii. Rs. 36,00,000/- on account of unexplained share application money from M/s. Topflow Mercantile Pvt. Ltd.
The following reasons were stated by the Ld. AO for making the additions : i. The notice dated 22.12.2015 issued u/s 133(6) to M/s. Topflow Mercantile Pvt. Ltd. was returned back. As per report dated 29.02.2016 of the AO of M/s. Topflow Mercantile Pvt. Ltd., a summon u/s 131(d) to the director was returned unserved. The identity remained unestablished and proved to be non- existent. ii. The AO of M/s SB Lifestyle Pvt. Ltd, has conducted enquiry through the ITI and as per the report dated 18.02.2016 of the ITI. M/s SB Lifestyles Pvt. Ltd. did not exist at the address. The Ld. AO on the basis of the report of the ITI held that the share application money is not genuine transaction but a bogus transaction.
The Ld. CIT(A) vide impugned order dated 21.12.2018 confirmed both additions giving the following reasons: 2 A. M/s. Topflow Mercantile Pvt. Ltd. Refer page 14-15 of the order • Low share capital, reserves, income • Balance in bank account always remained low after passing entry of investment to various parties • Current liabilities consist of mainly advances from customers, sources of which are doubtful in the background that it was engaged in business of only entry providing. • Notice u/s 133(6), summon u/s 131(d) was returned unserved. No compliance with summon during remand proceedings. • Neither at assessment stage nor at appellate stage, the appellant produced the Principal Officer before the AO for examination. B. M/s. SB Life Style Pvt. Ltd. Refer page 15-16 of the order • Share capital is Rs. 62,25,000/- along with reserves of Rs. 2,41,82,513/-. Reserves and surpluses of Rs. 2,41,25,000/- consisted of only share premium which does not appear to be genuine as it has no worth to charge such a huge premium. • Low income • Balance in bank account always remained low after passing entry of investment to various parties • As per inquiry u/s 131(d), no such company existed at the given address. No compliance with summon during remand proceedings.
• Neither at assessment stage nor at appellate stage, the appellant produced the Principal Officer before the AO for examination. C. The identity, creditworthiness and genuineness remained totally unexplained. The Company was only a shell company existing on papers for providing accommodation entries. D. As per the first Proviso to section 68, the appellant is required to explain the nature and sources of credits in the books of account of even the investor companies.
Now admittedly the Assessee Company has furnished the following details explaining the nature and source of the share capital in the Assessee Company; Name of Documents filed during assessment, remand and CIT(A) shareholder proceedings M/s SB Life Style Reply dated 28.12.2015 filed in response to notice u/s Pvt. Ltd. 133(6) at page 109 wherein the address, CIN, email id of the company is duly mentioned. The company has replied that it had been allotted 32000 equity shares of the Assessee company at Rs. 100/- each (inclusive of 90/- per share premium). The company also enclosed copy of ledger of the Assessee in its books, copy of its ITR and bank statement showing payment of Rs. 32,00,000 made and the source to make such payment. ii. Reply dated 16.03.2016 filed by M/s S.B Lifestyle Pvt. Ltd. to the Ld. AO at page 149 Confirming that the company is located and exists at the address mentioned and the company is assessed to tax and have been filing forms with the statutory authorities. The company also stated that the notice u/s 133(6) dated 22.12.2015 was also received on the same address and has even been complied with vide reply dated 28.12.2015 at page 109. The copy of PAN, ITR, bank statement and Balance Sheet was also enclosed.
iii. Reply dated 26.02.2018 filed by M/s S.B Lifestyle Pvt. Ltd. to ADIT(Inv) in response to commission u/s 131(ld) at page 70_confirming transaction with Assessee and enclosing copy of ledger, bank statement, Balance Sheet, P&L and acknowledgement of ITR. iv. Forms for application of equity shares dated 9.10.2012, 27.12.2012, 23.03.2013 at page 110- 112 requesting for allotment of 15000/-, 13,000 and 4,000 shares of Rs. 100 each (inclusive of 90/- per share premium) and place its name in the register of members also containing the signature of director, address, date of incorporation, PAN, payment details of cheque no., cheque date, bank name and an acknowledgement slip. v. Allotment letter dated 30.03.2013 issued by Assessee Company to M/s SB Lifestyles Pvt. Ltd. at page 113 containing the address, number of shares applied for, amount received with application, shares allotted, date of allotment, certificate no., shares distinctive number, folio no. and enclosing share certificates. vi. Form No. 2 filed by Assessee at page 35-41 showing details of allotment such as date. no. of shares allotted, premium per share, amount paid on application excluding premium, name. PAN and address of allottee and shares held, mode of payment cheque details. vii. Copy of the valuation report of Assessee showing valuation of shares as on 31.03.2012 (a) 100/ share as per discounted free cash flow method at page 42-52 xiii. Ledger of the Assessee Company in the books of M/s SB Lifestyles Pvt. Ltd. at page 114 containing cheque and allotment details. ix. Bank Statements of M/s SB Lifestyles Pvt. Ltd. at page 115-117 showing payment made to Assessee company and also showing the source of such payments x. Bank Statement of Assessee at page 23-24 showing receipts from M/s SB Lifestyles Pvt. Ltd. xi. Board Resolution dated 14.09.2012 of M/s SB Lifestyles Pvt. Ltd. at page 130 xii. Audited Financial Statements of M/s SB Lifestyles Pvt. Ltd. at page 118-128- The investment of Rs. 32 lakhs in 32,000 equity shares of Assessee have been reflected in Note 6- current investments at page 126 xiii. Acknowledgement of ITR of M/s SB Lifestyles Pvt. Ltd. for the AY 2013-14 at page 129 xiv. Certificate of Incorporation dated 12.04.2005 issued bv ROC at page 132 xv. Memorandum of Association of M/s SB Lifestvles Pvt. Ltd. at page 131.133-140 xvi. Articles of Association of M/s SB Lifestvles Pvt. Ltd. at page 131.141-148 xvii. Company master data from website of MCA at Annexure 1 showing that the company is active. CIN, registration no., date of incorporation, registered address, email id, directors with DIN. M/s Topflow i. Reply dated 15.03.2016 filed in response to notice Mercantile Pvt. u/s 133(6) at page 150 wherein the address, CIN, Ltd. email id of the company is duly mentioned. The company has clarified that the registered office has shifted and has given copy of form filed with ROC as proof. The company has also clarified that incorrect name of the company was mentioned by the Ld. AO due to which the letter got undelivered. The company also enclosed copy of its ITR, PAN card, Balance Sheet and bank statement showing payment of Rs. 36,00,000 made and the source to make such payment. ii. Reply dated 5.01.2016 filed in response to notice u/s 133(6) at page 151 wherein the address, CIN, email id of the company is duly mentioned. The company has replied that it had been allotted 36,000 equity shares of the Assessee company at Rs. 100/- each (inclusive of 90/- per share premium). The company also enclosed copy of ledger of the Assessee in its books, copy of its ITR and bank statement showing payment of Rs. 36,00,000 made and the source to make such payment. iii. Reply dated 24.02.2018 filed by M/s Topflow Mercantile Pvt. Ltd. to ADIT(Inv) in response to commission u/s 131(1d) at page 90 confirming transaction with Assessee and enclosing copy of ledger, bank statement, Balance Sheet, P&L and acknowledgement of ITR iv. Forms for application of equity shares dated 8.02.2013, 14.02.2013, 15.03.2013 at page 153- 155 requesting for allotment of 20,000/-, 8,000 and 8,000 shares of Rs. 100 each (inclusive of 90/- per share premium) and place its name in the register of members also containing the signature of director, address, date of incorporation, PAN, payment details of cheque no., cheque date, bank name and an acknowledgement slip. v. Allotment letter dated 30.03.2013 issued by Assessee Company to M/s Topflow Mercantile Pvt. Ltd. at page 156 containing the address, details of number of shares applied for, amount received with application, shares allotted, date of allotment, certificate no., shares distinctive number, folio no. and enclosing share certificates. vi. Form No. 2 filed by Assessee at page 35-41 showing details of allotment such as date, no. of shares allotted, premium per share, amount paid on application excluding premium, name. PAN and address of allottee and shares held, mode of payment, cheque details. vii. Copy of the valuation report of Assessee showing valuation of shares as on 31.03.2012 @ 100/ share as per discounted free cash flow method at page 42-52 xiii. Ledger of the Assessee Company in the books of M/s Topflow Mercantile Pvt. Ltd. at page 157 containing cheque and allotment details. ix. Bank Statements of Topflow Mercantile Pvt. Ltd. at page 158-159_showing payment made to Assessee company and also showing the source of such payments x. Bank Statement of Assessee at page 24-25 showing receipts from M/s Topflow Mercantile Pvt. Ltd. xi. Board Resolution dated 10.09.2012 at page 170 xii. Audited Financial Statements of M/s Topflow Mercantile Pvt. Ltd. at page 160 -168: The investment of Rs. 36 lakhs in 36,000 equity shares of Assessee have been reflected in Note 6- current investments at page 166 xiii.Acknowledgement of ITR of Topflow Mercantile Pvt. Ltd, for the AY 2013-14 at page 169 xiv. Memorandum of Association at page 171-180 xv. Articles of Association at page 171,181-188 xvi . Company master data from website of MCA at Annexure 2 showing that the company is active, CIN, registration no., date of incorporation, registered address, email id, directors with DIN
On the basis of the aforesaid discussion, it is very apparent that the ld. tax authorities below have very selectively proceeded to doubt the genuineness of investments coming up from two companies while the AO had initiated the scrutiny for examining the investment of five companies. Para 2.1 of the assessment order makes it apparent that the AO had primarily doubted the two companies on the basis that there was lack of response and the impugned order show that attempt of both the ld. tax authorities below was to examine the identity of the two companies in terms of their very existence. However, the ld. tax authorities have very innocuously left out any discussion of the material evidences which were filed to establish the identity of the parties, their credit worthiness and genuineness of the transaction. The order of the ld.CIT(A) goes 12 to show that based on broad assumptions about as to how the shell companies work the transaction of investment has been doubted. The spot inquiry of the addresses cannot be a conclusive proof of the existence of a company when otherwise its legal existence is very much established and all statutory compliances are found to be in place. The ld. AR has sufficiently established that inquiry report in regard to M/s SB Life Style Pvt. Ltd., dated 18.02.2016 was never confronted to the assessee. In regard to M/s Topflow Mercantile Pvt. Ltd., in response to notice u/s 133 of the Act, it was clarified that the registered office was shifted. Thus, for sole reason of some ambiguity in the addresses or non-response, the substantial evidences as filed by the assessee without being rebutted by an independent inquiry, merely on assumptions cannot be left out of consideration. The Investigation Wing report was not relied by the AO and the same was also not confronted to the assessee. Thus, its over reliance by the CIT(A) cannot be sustained. There is no burden on the assessee to produce the principal officers of an investor and we fail to appreciate that how merely by production of a principal officer of an invester would have served the purpose when otherwise the evidences filed on the existence of the company, its sources and statutory compliances are filed. Moreover, when the issue is of examining an investment of share premium, then, there should be some exercise on the part of the AO to establish the valuation of share is somehow not acceptable. Thus, in the light of the aforesaid discussion, we are inclined to sustain the grounds. The appeal of the assessee is allowed. The impugned additions are deleted. 13