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Income Tax Appellate Tribunal, DELHI ‘E BENCH, NEW DELHI
Before: MS. MADHUMITA ROY, & SHRI NAVEEN CHANDRA
This appeal by the assessee is preferred against the order of the ld. CIT(A)-6, Delhi dated 24.08.2017 for A.Y 2013-14.
Page 1 of 18 the aggregate addition of Rs. 1,78,29,700/- as unexplained cash credit u/s 68.
Briefly stated, the facts of the case are that the assessee filed its Return of Income on 26.11.2014 declaring NIL income. Return was selected for scrutiny assessment through CASS and accordingly, statutory notices were issued and served upon the assessee. The AO noticed that the assessee had made investment in equity shares capital of M/s Amsons Apparels [P] Ltd under the head “non-current investment” and that the investment was made by five companies on behalf of assessee company. These five companies were subsequently explained as creditors under the head “Liabilities” in the balance sheet.
The AO, after several enquiries, held that the assessee failed to prove the identity, credit worthiness and genuineness of the transactions of the creditors leading to an addition of Rs. 1,78,29,700/- u/s 68 of the Act. The ld. CIT(A), on appeal, after considering the facts and submissions, upheld additions made by the AO.
Aggrieved further, the assessee is in appeal before us.
Before us, the ld. counsel for the assessee submitted that he relied on the submissions made by him before the ld. CIT(A) which is reflected at pages 22 to 28 of the ld. CIT(A) order. Page 2 of 18
address, Permanent Account Number, Bank statement, balance sheet and Income tax return explaining identity, creditworthiness and genuineness of transaction. The ld AR submitted that bank statement filed by it, bear round stamp of companies bearing name and further, non-mention of date on confirmation letter would not affect much. The AR reiterated that earning of low or no income or suffering loss does not mean that those companies could not make any investment. It is the say of the ld. counsel for the assessee that mere non-compliance of summon issued under section 131 to five corporate entities or notice issued to Amsons Apparels would not result in addition on account of undisclosed income as Amsons Apparels and other five corporate entities were third parties which were not under its control. The ld AR submitted that where in case summons were received by a third party and not complied with, then the assessee cannot be fastened with the liability of the amount received from these parties. For this proposition, the ld. counsel for the assessee relied upon the decision of the Hon'ble Allahabad High Court in the case of Nathu Ram Premchand
49 ITR 0561.
The ld. counsel for the assessee also pointed out that it is the findings of the ld. CIT(A) that the assessee has not commenced its Page 3 of 18 be made. For this proposition, he relied on the following decisions:
(i) CIT Vs. Bharat Engineering and Construction Com 83 ITR 187 [SC] (ii) CIT Vs. Jaiswal Motor Finance 141 ITR 706 [Ahd] (iii) DCIT Vs. Esteem Towers Pvt Ltd 99 TTJ 472 [Del] (iv) Mitesh Rolling Mills Vs. CIT 258 ITR 278.
On the other hand, the ld. DR submitted that the balance sheet shows liability of Rs 1,40,10,000/- against the name of M/s Sushil Enterprises and Rs. 38,19,700/- against the name of M/s Bishan Sons totaling to Rs 1,78,39,700/- under the heading 'other long-term liabilities.' The ld DR further pointed out that these names were later attempted to be explained as clerical error and the amount of Rs 1,78,39,700/- was actually loan received from Aavia Buildtech Pvt. Ltd. of Rs. 80,00,000/-, AMS Powertonic Pvt. Ltd. of Rs. 3,31,700/-, Core Capital Services Ltd. of Rs. 40,00,000/., Aavia Softech Pvt. Ltd. of Rs. 49,98,000/- and Nikky Printing Press Pvt. Ltd of Rs. 5,00,000/-. These loans were explained as being in the nature of investment made in the share capital of M/s Amson Apparels directly by the above five companies on behalf of the assessee.
The ld DR submitted that the assessee explanation that the amount of Rs 1,78,33,700/-, which was utilized to make investment in Page 4 of 18 directly made by the above five companies on assessee’s behalf, does not prove the identity, creditworthiness or genuineness of transaction by any cogent evidence. The explanation that due to clerical mistake in writing names of M/s Sushil Enterprises and of M/s Bishan Sons in the balance sheet against lenders as against the name of the above five companies, investors who have made investment in the company on behalf of the assessee, are not satisfactory at all. The ld DR stated that the enquiries made by the Assessing Officer with the five investor companies or with M/s Amsons Apparels P. Ltd did not yield any results with respect to genuineness of the credit entries. Thus, the ld DR reiterated that the assessee did not discharge the onus of establishing the three limbs in section 68 of identity, creditworthiness and genuineness of transaction. The ld. DR further submitted that the typical facts of the instant case is distinguishable from the facts of the cases relied upon by the ld. counsel for the assessee.
The ld. DR also pointed out that the Assessing Officer has clearly shown at page 9 of the assessment order that the promoters of the assessee company as well as the promoters of Amsons Apparels P. Ltd
Page 5 of 18 also directors of the assessee company.
We have heard the rival submissions and have perused the relevant material on record. We find that the CIT(A), upon appreciation of the facts of the case, denied the assessee’s contention on the following grounds:
“Appellant filed confirmation of companies making investment in Amsons Apparels P. Ltd. on its behalf not bearing date. The copy of extract of bank statement filed by it neither contain name of respective companies nor account number. Further, in bank statement after every credit entry there is debit entry of same amount on same date or on next immediate date. The companies were having share capital of nominal amount and many of them were not even making profits. The summons issued under section 131 to those parties and notice under section 133(6) to Amsons returned back. Thus, appellant failed to produce Amsons or entities making investment in Amsons on its behalf. This leads to the inevitable conclusion that those entities were engaged in providing accommodation entries by issue of cheques in lieu of cash received from beneficiaries parties and charging commission. In view of fact that summons issued to those five entities not complied with and still appellant was able to secure documents such as their income tax returns as well as bank statements, it would itself give rise to a circumstance in which Assessing Officer rightly proceeded to draw adverse inference. Assessee failed to discharge onus cast upon it to prove genuineness of transaction, creditworthiness and identity of party. Therefore, addition of Rs. 1,78,29,700/- made by the Assessing Officer is upheld”.
We find that the CIT(A) has arrived at his decision after careful appraisal of the verification carried out by the AO and the response
Page 6 of 18 to ascertain the truth behind the transactions with the creditors/lenders. From the sequence of events, we find that the assessee has furnished the documents such as Confirmations, MCA data, Copy of ITRs, Bank statements, Balance sheets of the lenders involved, at different point of time during the assessment proceedings, to establish the identity of the Investor/Investee company as well as the genuineness of transaction and creditworthiness of the parties. The assessee emphasis that since all the above details/documents have been filed therefore the identity and capacities of parties who have invested on behalf of assessee and genuineness of the transactions are established, is no longer good law. We are of the considered view that the Hon’ble Supreme Court in NRA Iron & Steel (P.) Ltd [2019] 103 taxmann.com 48 (SC) settled the law, in the context of addition u/s 68, that merely filing the primary documents such as ITRs, PAN, RoC etc is not sufficient to discharge the onus to establish creditworthiness of investor companies.
The assessee’s second assertion that merely because the summons under section 131 and notice under section 133(6) have not been complied with, cannot be a ground for doubting the identity and veracity of transactions, is also misplaced. We find that such an argument could
Page 7 of 18 information from the lenders. In the instant case, as we have seen that one of the director Vinay Kumar is same in both the assessee company M/s Mallaya Real Estate Private Limited as well as the investee company M/s Amsons Apparels Pvt Ltd. We also find that as far as documents such as ITRs, confirmations, bank statements of the investee as well as the investor companies are concerned, the assessee was clearly able to procure them and file before the assessing officer. This act on the part of the assessee shows that the assessee is constantly in touch with the investor companies and its failure to ensure their presence before the assessing officer is a deliberate act to hide the truth. The hon’ble Supreme Court in NDR Promoters Pvt Ltd V PCIT [2019] 109 taxmann.com 53 (SC) had upheld the addition u/s 68, in similar facts, where assessee had failed to produce directors of shareholder companies, though directors had filed confirmations and, therefore, were in touch with assessee.
We find on the issue of the director Vinay Kumar being common to the assessee M/s Mallaya Real Estate Private Limited and M/s Amsons Apparels Pvt Ltd and M/s Nikki Printing Press P Ltd, the assessee has explained that Mr Vinay Kumar, director in M/s Mallaya Real Estate Private Limited and in M/s Nikki Printing Press P Ltd are two different
Page 8 of 18 mentioned on MCA data. It is explained that DIN of Mr Vinay Kumar, director of assessee company is 06617479 and whereas DIN of director Mr Vinay Kumar of M/s Nikki Printing Press P Ltd is 03146484 and therefore the objection of the AO is not justified. We however find that the director Mr Vinay Kumar of M/s Mallaya Real Estate Private Limited is the same person as the director of M/s Amsons Apparels Pvt Ltd which the assessee skipped to mention. We are of the opinion therefore that the assessee failed to discharge its onus when it failed to provided the shares certificates issued by M/s Amsons Apparels.
The assessee’s final defense of the assessee is that this is assessee first year of business and hence no addition can be made under section 68 of the Income Tax Act relying on the decision of Supreme Court in the Bharat Engineering and Construction Company (supra). As far as the decision of Bharat Engineering and Construction Company is concerned, the same is actually against the assessee. In that case it was held that in absence of satisfactory explanation from the assessee, the ITO may assume the cash credit entries in its books represent income from undisclosed sources. The Hon’ble Court decided the issue in favour of assessee only because the Tribunal had given a finding that cash credit
Page 9 of 18 given of finding of fact, the Tribunal’s finding was upheld.
In the instant case, the sum has been credited in the books of the assessee in the instant year and in such situation where there is no satisfactory explanation for such credits in the books, the law dictates, as laid down by hon’ble Supreme Court in the case of V. Govindarajuly Mudaliar V CIT (1958) 34 ITR 807(SC) that “There is ample authority for the position that where an assessee fails to prove satisfactorily the source and nature of certain amount of cash received during the accounting year, the Income-tax Officer is entitled to draw the inference that the receipt are of an assessable nature”.
In the instant case, the creditworthiness of the lenders are not established. We find from the perusal of the ITRs of the investor companies, that they have also shown meagre income which does not justify the large investment made by them in M/s Amsons Apparel on behalf of the assessee. Their Bank statements also shows that after every credit entry there is a debit entry of almost the same amount on the same date or the next immediate date leaving minimum balance.
The assessee has explained it as sound financial management which does not in any way absolve him from discharging the onus cast on it for proving the creditworthiness of the lender companies.
Page 10 of 18 (supra) is distinguishable on facts as in that case the assessee had taken all steps to secure the presence of the lender before the ITO. Whereas in the instant case, no effort was made by the assessee to ensure the presence of the creditors whereas he could procure all the documents from them.
On the other hand, the CIT(A) has relied on several decisions among them being the decisions of Hon’ble Delhi High Court in the cases of Nippon Builders and Developers Private Limited, 30 taxmann.com 292; Navodhaya Castles Private Limited 50 taxmann.com 110. In Navodhya Castles Pvt Ltd (supra), the Hon’ble Delhi High Court further explained the legal position that the AO is not even required u/s 68 to prove that the monies emanated from the coffers of the assessee company and came back as share capital. Only relevant facts that requires to be established is that credit entries are made in the books for which there is no satisfactory explanation.
We find that the facts and circumstances of the instant case are similar with facts as discussed in the cases of NRA Iron & Steel (P.) Ltd and NDR Promoters Pvt Ltd V PCIT (supra) which are:
1) The balance sheet of assessee shows liability of Rs 1,40,10,000/- against the name of M/s Sushil Enterprises and Rs. 38,19,700/- against Page 11 of 18 heading 'other long-term liabilities' which was subsequently explained as loan received from Aavia Buildtech Pvt. Ltd.; AMS Powertonic Pvt. Ltd; Core Capital Services Ltd; Aavia Softech Pvt. Ltd. and Nikky Printing Press Pvt. Ltd. These loans were also not received directly but as investment made in assessee’s behalf in share capital of M/s Amson Apparels. When asked to furnish share certificates from M/s Amsons Apparel, where directors are common, the assessee failed to produce the details and particulars with regard to issue of shares, notices etc. to the shareholders of AGM/EGM etc.
2) None of the directors of the M/s Amsons Apparel Pvt Ltd or the lender companies appeared before the AO in response to notice u/s 133(6)/131 though the act of documents being filed by the lender/investor companies establishes the fact that they were in touch with the assessee.
3) The genuineness of the transaction and creditworthiness was found to be completely doubtful. The enquiries revealed that the lender companies had filed returns for negligible taxable income, which would show that the lender companies did not have the financial capacity to invest funds ranging between Rs. 3,00,000/- to Rs. 80,00,000/- in the Assessment Year 2013-14. For example:
Page 12 of 18 [A.Y. 2013-14] Mallya Real Estates Pvt Ltd Vs.The I.T.O i) M/s AMS Powertronics P Ltd had income of Rs 81,322/- but made an investment of Rs 40,00,000/-. ii) M/s Nikki Printing P Ltd had income of Rs 21,347/- but made an investment of Rs 49,98,000/-. It was further found that the company was struck off from the site of MCA. iii) No ITR of M/s Aavia Buidtech P Ltd was filed but it is claimed that it made an investment of Rs 80,00,000/-.
4) Furthermore, none of the so-called lender companies established the source of funds which were used for making investment on behalf of the assessee in M/s Amsons Apparel.
5) The mere mention of the PAN and RoC etc details of an investor was not sufficient to discharge the onus under Section 68 of the Act.
We are therefore of the view that the legal principles mandate that mere documents like PAN, RoC certification and transaction through banks neither establishes the identity of the investor nor the genuineness of the transaction. It is settled law, the initial onus is on the Assessee to establish by cogent evidence, the identity og the investors, genuineness of the transaction, and credit-worthiness of the investors under Section 68 of the Act which in the instant case, the assessee has failed to accomplish.
Page 13 of 18 68, were laid down by the Hon'ble High Court of Delhi in the case of CIT vs. Nova Promoters and Finance Lease Pvt Limited 342 ITR 169 (Del); by the Hon'ble Calcutta High Court in the case of Nivendan Vanijya Niyojay Limited; by the Hon'ble High Court of Delhi in the case of Divine Leasing and Finance Limited (supra) and CIT Vs. Oasis Hospitalities Pvt Ltd 333 ITR 119. The Hon'ble High Court of Delhi in the case of CIT vs. Nova Promoters and Finance Lease Pvt Limited 342 ITR 169 (Del), which was approvingly quoted in NDR Promoters (supra) by the Supreme Court, on similar facts had held that-
“the finding that the share application monies have come through account payee cheques is, at best, neutral. The question required a thorough examination and not a superficial examination. ……. The fact that the companies which subscribed to the shares were borne on the file of the ROC is again a neutral fact. Every company incorporated under the Companies Act, 1956 has to comply with statutory formalities. That these companies were complying with such formalities does not add any credibility or evidentiary value. In any case, it does not ipso facto prove that the transactions are genuine……. Compliance with statutory norms and requirements is only one aspect, but in the present case a deeper scrutiny was required and the camouflage adopted was the primary aspect that required adjudication. This aspect has been ignored. Bonafide and genuineness of the transactions was the issue.”
Page 14 of 18 Oasis Hospitalities Pvt Ltd 333 ITR 119 (Del) held that :
“whenever the issue is subscribed without quoting it on stock exchange by limited or private limited company, the presumption is very strong against the assessee that subscription is available only to the closely connected persons of the assessee. Once the inference is against the assessee that the issue is subscribed by its closely connected persons, the onus is upon the assessee to prove the identify (sic. identification) of the subscribers and their creditworthiness.”
The Hon’ble Delhi High Court had further held that "In cases where the explanation offered by the assessee about the nature and source of the sums found credited in the books is not satisfactory there is, prima facie, evidence against the assessee, viz., the receipt of money." The Hon’ble Delhi High Court further held that the" Genuineness of the transaction is to be demonstrated by showing that the assessee had, in fact, received money from the said shareholder and it came from the coffers from that very shareholder." It also laid emphasis on the factum of creditors/subscribers showing that it had sufficient balance in its accounts to enable it to subscribe to the share capital. In the instant case, the analysis of the available bank statements of the investor/lender companies demonstrated that there is credit entry on the same day or a day prior to the debit of an equal amount as invested in the share application of M/s Amsons Apparel.
Page 15 of 18 that the Assessing Officer made enquiry of the so-called lenders companies to verify the credit-worthiness of the parties, the source of funds invested, and the genuineness of the transactions. The enquiry revealed that the lenders were non-responsive, and lacked credit- worthiness. It is a trite law that identity of the creditor stands discharged only when it is proved that the said person had capacity and since the financial capacity of the lender companies in the instant case has not been established, the onus of the assessee is not discharged. We are therefore of the considered opinion that the assessee failed to discharge the onus of establishing the identity, genuineness of the transaction and creditworthiness or financial strength of the lender/investor companies. We therefore, find no infirmity in the findings of the CIT(A) that the amount received by the assessee company as loans, in the form of investment in M/s Amsons Apparel on the assessee’s behalf, remains unexplained and liable to be added as income u/s 68. Accordingly, the decision of CIT(A), upholding the AO’s treatment of the loans of Rs. 1,78,39,700/- received by the assessee as non-genuine and unexplained u/s 68 of the Act, is sustained.
Consequently, the ground no 1 and 2 of the assessee stands dismissed. Page 16 of 18 consequential in nature. is dismissed. The order is pronounced in the open court on 18.07.2025.