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Facts
The revenue appealed against an order that deleted an addition of Rs. 9.50 crores made by the AO on account of unexplained cash credit from M/s. Orange Vyapar Pvt. Ltd. The assessee company, engaged in real estate development, received these funds as inter-corporate deposits.
Held
The Tribunal held that the reopening of assessment was not sustainable as the AO failed to establish a genuine reason to believe that income had escaped assessment. Furthermore, on merits, the AO failed to prove that the cash credit was not genuine or that it represented undisclosed income of the assessee.
Key Issues
Whether the reopening of assessment under Section 147 was validly initiated and whether the cash credit from M/s. OVPL was indeed unexplained income of the assessee.
Sections Cited
147, 148, 143(3), 68, 139, 132, 131, 144, 263
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Income Tax Appellate Tribunal, DELHI BENCH “E” NEWDELHI
Before: SHRI SUDHIR KUMAR & SHRI MANISH AGARWAL
Date of hearing 03.07.2025 Date of 18.07.2025 pronouncement ORDER
PER SUDHIR KUMAR JM:
The revenue preferred the appeal, challenging the order dated passed by Commissioner of Income Tax (Appeals)-23, New Delhi (in ACIT v. M/s Alodie Estates Pvt. Ltd. A.Y.2011-12 2 short CIT(A), passed by theAssessing Officer order dated 20.03.2015 for A.Y. 2011-12 under section 148/143(3) of the Income Tax Act,1961 (in short “the Act”).
The revenue has raised following grounds of appeal:
1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in holding that issuance of Notice u/s. 148 of the Act is not sustainable and cannot be held legally valid.
2. On the facts and circumstances of the case, the Ld. CIT(A) has erred in law deleting the addition of Rs.9,50,00,000/- made by AO on account of unexplained cash credit u/s. 68 of the Act received from M/s. Orange Vyapar Pvt. Ltd.
3. The appellant carves leave to add, amend any/ all the grounds of appeal before or during the course of hearing of the appeal”.
3. The brief facts of the case are that the assessee the company was incorporated on 18.01.2010 and is engaged in the business of real estate development. The original return u/s. 139 of the Act on 05.07.2011, declaring total income of Rs.5,42,582/-. The assessee has received Rs.9.50 crores as ‘Inter-corporate deposits’ from M/s. Orange Vyapaar Pvt. Ltd. (in short “M/s. OVPL”) which in return received money from Kolkata based companies. Hence, the source of Rs.9.50 crores received by the company was not satisfactorily explained.
ACIT v. M/s Alodie Estates Pvt. Ltd. A.Y.2011-12 3 Notice u/s. 148 of the Act was issued to the assessee on 06.02.2015 which was duly served to the assessee. In response of the notice the assessee filed reply and by stating return filed u/s. 139 of the Act may be treated as return filed in the response of notice u/s. 148 of the Act. After receiving the reply made by the assessee company, the AO completed the assessment. Aggrieved by the order of the AO, the assessee filed the appeal before CIT(A),who vide order dated 29.01.2016 partly allowed the appeal of the assessee. Aggrieved by the order of the CIT(A), the revenue is in appeal before us.
The Ld. SR. Counsel for the assessee vehemently supported the order of the AO and submitted that the assessee has failed to establish the credit and worthiness of the M/s. OVPL from which the assessee received the amount of Rs.9.5 crore. He further submitted that M/s. OVPL company merely as an intermediary routing the funds to the assessee and the creditworthiness and genuineness of the transaction is not established. During the search and seizure operation u/s 132 of the Act on the assessee group case on 08.02.2013 which was establish that the M/s. OVPL creditworthiness and genuineness was not established. The reliance has been placed on the judgment of the co-ordinate Bench of Delhi in the case of ITO vs. Bharat Hospital Ltd. in 1144 /Del/2020 order dated 16-04-2025.
ACIT v. M/s Alodie Estates Pvt. Ltd. A.Y.2011-12 4 5. The Ld. AR of the assessee has submitted during the appeal proceedings that the Ld. CIT(A) has called out the remand report in which no adverse evidence was found against the assessee. The creditworthiness of the company was established. He further submitted that the case of the assessee is squarely covered from the case of the ACIT Vs. M/s. Belisma Buildcom Pvt. Ltd. in of the Co-ordinate Delhi Bench.
We have heard the rival contentions and perused the material available on record. In the coordinate Bench held as under:
“8. Heard both the parties and perused the material available on record. With respect to the action of the AO in re-opening the assessment, we find that in para 4.1.7 of the appellate order, Ld.CIT(A) has discussed the issue in detail which observations were not controverted by the Revenue in appeal before us. The relevant observations of Ld.CIT(A) as contained in para 4.1.7 are as under:- 4.17. “As regards reopening of assessment u/s 147 of the Act and recording of reasons therefore, it is settled law as held by various Courts including the Hon'ble Supreme Court that the belief of the A.O. should not be a product or imagination or speculation; the belief must be of an honest and reasonable person based upon reasonable grounds; that the belief must not be based on mere suspicion; the belief must not be vague and there must be material, having live nexus with the belief of escapement of income; the belief entertained must not be arbitrary or irrational ACIT v. M/s Alodie Estates Pvt. Ltd. A.Y.2011-12 5 and it must be reasonable and be based on reasons which are relevant and material; there should be facts before the A.O. that reasonably give rise to such belief that income has escaped assessment and the formation of belief is possible only on the basis of certain material and if there was no such material, reason to believe cannot be entertained; certain facts, specific in nature and reliable in character, have to exist to show that assessment can be reopened and the existence of such reasons and a direct nexus between those reasons and the alleged evasion is a condition precedent for reopening of assessment; and in the absence of application of mind to the facts alleged to have been found the decision arrived at that income escaped assessment is not maintainable in law. Further, in Lupin Ltd. v. Assistant Commissioner of Income-tax (LTU), Mumbai [2014] 46 taxmann.com 396 (Bombay) it has been held that the reasons recorded should be clear and unambiguous and should not suffer from any vagueness. The reasons are the manifestation of the mind of the Assessing Officer and therefore, should be self-explanatory and should not keep the Assessee guessing for the reasons. the AO must disclose in the reasons as to which fact or material was not disclosed by the Assessee fully and truly necessary for assessment for that assessment year, so as to establish the vital link between the reasons and the evidence, and that this vital link is the safeguard against arbitrary re-opening of a concluded assessment"; in CIT vs SFIL Stock Broking Ltd. (2010) 325 ITR 285 (Del), Signature Hotels Pvt. Ltd. Vs ITO 338 ITR 51 (Del), (Pr.CIT v India Business Network Ltd.) and Pr. CIT v G&G Pharma India Ltd. (ITA No. 545/2015) Delhi High Court order dated 08.10.2015 it has been held that "mere information received from DDIT(Inv) cannot constitute valid reasons for initiating reassessment proceedings in the absence of anything to show that A.O. had independently applied his mind to arrive at a belief that the income had escaped assessment and that "an assessment cannot be reopened without the AO having made necessary enquiry before initiating of the assessment proceeding to arrive at his own independent satisfaction regarding the escapement of income". The appellant has cited quite a few judgments on ACIT v. M/s Alodie Estates Pvt. Ltd. A.Y.2011-12 6 this account and further reliance is placed on Commissioner of Income-tax-V v. Orient Craft Ltd. [2013] 29 taxmann.com 392 (Delhi), Commissioner of Income-tax, Delhi v. Kelvinator of India Ltd. [2010] 187 TAXMAN 312 (SC), Commissioner of Income Tax -Central I v Indo Arab Air Services [2015] 64 taxmann.com 257 (Delhi), Income-tax Officer v. VarshabenSanatbhai Patel [2015] 64 taxmann.com 179 (Gujarat). Therefore, the reopening of assessment by issuance of notice u/s 148 of the Act is not sustainable and cannot be held legally valid in terms of the various pronouncements in this regard. As such, considering the circumstances of reopening of the assessment together with the observations at para-4.1.4 herein above, the reassessment order u/s 147 of the Act is not sustainable. I hold accordingly. This ground is therefore allowed.”
As the Revenue has not controverted such findings, we find no infirmity in the order of Ld.CIT(A) in holding the re-opening of assessment as invalid which is solely based on the borrowed satisfaction. Accordingly, the additional ground taken by the Revenue is dismissed.
With regard to the grounds taken on merits of the addition of INR 9.15 crores, we find that Ld.CIT(A) in para 4.2 to 4.2.4 has dealt with this issue in detail while deleting the additions. The relevant observations are as under:- 4.2. “Even in respect of the merits of the addition of Rs.9.15 crore, taken in ground no. 03, the AO has overlooked and ignored the reply dated 09.03.2015 of the assessee submitted to him during the assessment proceedings though referred by him at para-5.10 of the assessment order. In this reply the assessee had stated that the above amount was received through proper banking channel and had submitted the statement of ACIT v. M/s Alodie Estates Pvt. Ltd. A.Y.2011-12 7 account of OVPL in appellant's books, submitted that OVPL is a genuine company registered with Ministry of Company Affairs vide CIN U51909WB2007PTC114466, and that OVPL duly filed its return of income and submitted copies of its income tax return and audited balance sheet (para 5.10 of assessment order). The AO, in spite of these documents having been filed before him, held that the identity of the OVPL and the genuineness of the transaction is not established. The AO relied upon the report dt. 29.05.2013 and 07.06.2013 of the Dy. Director of Income Tax (Inv.) Unit-1(4) Kolkata that OVPL, as also all the companies which had given share premium/advances to OVPL, could not be traced by the department inspector and just based on this it was concluded that these are paper companies, that too without confronting the appellant with the findings of such enquiries. 4.2.2. The AO had issued summons u/s 131 of the Act to OVPL on 15.01.2015 (ref. page 2 para 5.2 of assessment order) although the notice u/s 148 of the Act was issued on 06.02.2015 when the AO assumed jurisdiction over the case of the assessee, and summons u/s 131 of the Act was issued to a person based at Kolkata at his Kolkata address though the AO was not competent to issue summons to the person as far as in Kolkata. Yet OVPL sent reply to the AO on 16.03.2015 which was received in AO's office on 25.03.2015, enclosed at pages 32-125 of the PB submitted on 12.08.2015 during the appellate proceedings, but the AO had hurriedly already passed the assessment order on 20.03.2015, in less than a month from the date of reopening of assessment, though the limitation was on 31.03.2016. The AO has not considered this reply of OVPL forwarded to her by me as mentioned above and has not commented upon the reply of OVPL enclosing therewith ledger of the appellant in its books, copy of acknowledgment of ITRS for AYs 2007-08 to 2011-12, copy of bank statement of current account no. 03242010000079 with Kotak Mahindra Bank, Kankurgachi, Kolkata for the period 30.05.2010 to 06.08.2010 and account no. 1428002100016094 with P&B, Kalighat, Kolkata for the period 01.04.2010 to 24.07.2010 which indicated the ACIT v. M/s Alodie Estates Pvt. Ltd. A.Y.2011-12 8 moneys transferred by cheque to the appellant from different persons, and the audit report and account statements for the years 2006-07 to 2012-13. These documents, also submitted to the AU on 09.03.2015 as mentioned above, are in itself indicative of the identity of OVPL. On perusal of the assessment folder the confirmation of account of OVPL in the books of the appellant, with PAN of OVPL and duly signed by the director of OVPL, and other details relevant to OVPL submitted by the appellant during assessment proceedings on 09.03.2015 are available on AO's file. Besides, the bank statement of OVPL indicates that the immediate source of money transferred to the appellant are different companies which have been mentioned by the AO at pages 3-5 of the assessment order while the AO has himself observed in the satisfaction note that the source of the advances from OVPL are share premiums received in the preceding year, thus giving a finding contradictory to the conclusion arrived at in the Reasons recorded for reopening the assessment. The AO has failed to bring on record any material evidence that the moneys received from these companies/persons and credited in the accounts of OVPL, though deposited through proper banking channels, were not received from these companies/persons and the AO, or the Investigation Wing which conducted the initial and post-search investigations/enquiries which formed basis for reopening of assessment and reassessment, has not carried out any enquiry beyond issue of notices and spot enquiry by inspector to find out the financial/money trail of the source of money deposited in the above bank account of OVPL so as to come to a definitive conclusion that the moneys advanced by OVPL to the appellant was in fact cash generated by the appellant and re-routed into its account. Even if at all the advances to the appellant from OVPL were doubtful, the receipts in the account of OVPL could have been considered in the hands of OVPL after appropriate enquiries and considering the advances as bogus in the hands of the appellant is far-fetched and not borne out of facts and evidences brought on record, least that the appellant has routed its own funds through OVPL without a shred of evidence brought on record that the source of ACIT v. M/s Alodie Estates Pvt. Ltd. A.Y.2011-12 9 deposits in OVPL is the money of the appellant itself. Thus, on merits too the AO has not been successful in establishing that the impugned amount is in fact the undisclosed income of the appellant. Therefore, the addition cannot be sustained on merits as well. 4.2.3. It is settled law that in a case of reopening of assessment u/s 147/148 of the Act the AO has to first discharge the burden of showing that income has escaped assessment and the initial burden of proof rests on the AO. Even otherwise, the appellant had submitted all the relevant information and documents relating to the advances received from OVPL as mentioned above, which were also submitted by OVPL vide its reply dated 16.03.2015 mentioned above, and under these circumstances it is settled law that the appellant's onus regarding credits in its accounts stands discharged and the latter is not further required to prove the source from which the creditors could have acquired the money deposited with him either in terms of s. 68 or on general principle and merely because the depositors' explanation about the sources of money was not acceptable to the AO, the investment owned by such persons may be subjected to proceedings for inclusion of the amounts as their income from undisclosed sources, or if they are found benami, the real owner can be brought to tax and in the absence of anything to establish that the sources of the creditors' deposits flew from the assessee, the cash credits cannot be treated as unexplained income of the assessee. It has also been held that the assessee cannot be presumed to have special knowledge about the source of source or origin of origin and once the assessee points out a depositor from whom he has received money and if the depositor owns the advancement of money to the assessee, the further enquiry into the source of source or failure to explain source of source cannot result in invoking the provisions of section 68 and it will not, therefore, be for the assessee to explain further as to how or in what circumstances the third party obtained the money or how or why he came to make an advance of the money as a loan to the assessee, and once such identity is established and the creditors accepted that ACIT v. M/s Alodie Estates Pvt. Ltd. A.Y.2011-12 10 they have advanced the amounts in question to the assessee, the burden immediately shifts on to the department to show as to why the assessee’s case could not be accepted and the entry still represented the income of the assessee from a suppressed source which has to be based on sufficient and adequate materials. 4.2.4 Furthermore, though the AO has observed that OVPL had meager income in the relevant year he has apparently ignored that decide the capital and reserve and surplus, the moneys received by OVPL appearing in its bank account were available with it for advancing the loans. The AO has not given any finding in the assessment order that assets and income reflected in OVPL's account is false. Under these facts and circumstances, it is apparent that the AO has failed in bringing on record sufficient and reasonable material evidence to come to the conclusion that the advances received by the appellant are bogus, least that these are appellant's own cash re-routed through OVPL, and, therefore, the addition of Rs. 29.85 crore made is not sustainable. I hold accordingly. This ground is accordingly allowed.”
Further, the Revenue in the case of lender company i.e. OVPL has already held the share capital and share premium of INR 18,71,50,000/- as unexplained cash credit in the assessment completed u/s 144 r.w.s. 263 dated 28.03.2014 for AY 2008-09 and this order has not been challenged by the company. It is further claimed by the assessee that out of these funds which were added in the hands of the assessee company i.e. OVPL, loan was given to the assessee company and once the addition has been made of the amount in the hands of one entity of the transaction. The addition should not be made in the hands of the other party of the transaction. Further, before us the Revenue has failed to controvert the findings of Ld.CIT(A)
ACIT v. M/s Alodie Estates Pvt. Ltd. A.Y.2011-12 11 with regard to the genuineness of the transaction and once the additions have been made in the hands of the lender company, identity as well as creditworthiness is established to such extent and therefore, we find no error in the order of Ld.CIT(A) in deleting the addition made. Accordingly, the original grounds taken by the Revenue on merits of the case is also dismissed.”
The case of the assessee is squarely covered from the decision of the coordinate Bench. Respectfully following the judgment of the coordinate Bench, we hold that the revenue has no merit in the appeal and liable to be dismissed.
In the result, the appeal of the revenue is dismissed.
Order pronounced in the open court on 18/07/2025.