ORBIT VENTURES DEVELOPERS,MUMBAI vs. DCIT, CIRCLE 23(1), MUMBAI

The brief facts of the case are that the assessee is a partnership firm. The assessee had entered into an agreement for sale on 21.02.2019, whereby Flat No. 3302 in the construction project known as “Shikhar A” was agreed to be sold to Shri Vinodkumar Arora for a consideration of Rs. 8,00,00,000/-. During the financial year 2021-22 relevant to the Assessment Year 2022-23, Shri Vinodkumar Arora paid an additional sum of Rs. 2,90,00,000/- in connection with the aforesaid transaction, which was reflected in the books of account of the assessee as an unsecured loan. During the said financial year, the assessee repaid a sum of Rs. 45,00,000/- to Shri Vinodkumar Arora and, consequently, the net amount standing to his credit in the books of account of the assessee as on 31.03.2022 was Rs. 2,45,00,000/-.

The Assessing Officer treated the aforesaid sum of Rs. 2,45,00,000/- as an unexplained credit under section 68 of the Act. The assessee had furnished various documents in support of the transaction, including a copy of the agreement for sale, bank statements evidencing the amounts received through banking channels, the ledger account of Shri Vinodkumar Arora in the books of account of the assessee, and the address and PAN details of the said person.

Notwithstanding the aforesaid details furnished by the assessee, the Assessing Officer proceeded to make the addition under section 68 primarily on the ground that the total income returned by Shri Vinodkumar Arora was Rs. 52,950/- for Assessment Year 2021-22, Rs. 7,61,880/- for Assessment Year 2022-23 and Rs. 5,79,390/- for Assessment Year 2023-24. On the basis of the income so returned, the Assessing Officer came to the conclusion that Shri Vinodkumar Arora did not have the financial capacity to advance such a substantial amount to the assessee. The Assessing Officer also observed that the assessee had failed to furnish a copy of the income-tax return of the said person.

Before the ld. CIT(A), the assessee submitted that the said amount of Rs. 2,45,00,000/- had been erroneously reflected as an unsecured loan instead of being shown under current liabilities. The ld.CIT(A) while considering the appeal, also raised the question as to why the purchaser had paid the additional sum of Rs. 2,90,00,000/-. The ld. CIT(A), after observing that the total income returned by Shri Vinodkumar Arora, as recorded in the assessment order, gave an impression that he did not have the capacity to pay such a substantial amount to the assessee out of his own resources, further observed that the Assessing Officer ought to have made enquiries with regard to the entire amount of Rs. 8,00,00,000/- as well as whether the flat had ultimately been registered in the name of Shri Vinodkumar Arora. The ld. CIT(A) further observed that the assessee could not dictate to the Assessing Officer the manner in which an enquiry was to be conducted by issuing summons under section 131 or notice under section 133(6) of the Act and that it was the responsibility of the assessee to furnish the necessary documents to establish the identity of the creditor, his creditworthiness and the genuineness of the transaction. Since, according to the ld. CIT(A), the Assessing Officer was not satisfied with the documents produced by the assessee, the ld. CIT(A) held that the Assessing Officer was justified in making the addition of Rs. 2,45,00,000/- under section 68 of the Act and accordingly upheld the addition. Aggrieved by the order of the ld. CIT(A), the assessee is in appeal before the Tribunal.

The only ground raised by the assessee in the present appeal relates to the addition of Rs. 2,45,00,000/- made under section 68 of the Act. During the course of hearing, ld.AR took us through the paper book filed by the assessee and drew our attention to the agreement for sale, which reflected the details of the payments aggregating to Rs. 8,00,00,000/-. He further referred to the evidence showing deposit of the entire sale consideration in the RERA account maintained with Axis Bank, the relevant bank account reflecting the transaction of Rs. 2,90,00,000/- on 06.12.2021, and the ledger account of Shri Vinodkumar Arora in the books of account of the assessee, which recorded the receipt of Rs.

The ld. AR further submitted that no effective opportunity was granted to the assessee in respect of the issue relating to the alleged insufficiency of the source of income of the creditor to advance the amount in question. In this regard, the ld. AR referred to the Standard Operating Procedure relating to faceless assessment under section 144B of the Act issued by the National Faceless Assessment Centre (NFAC), Delhi, dated 03.08.2022, particularly the portion under the heading “N. Process of assessment” appearing at pages 9 and 10 thereof, according to which the show-cause notice was required to contain specific information and material proposed to be used against the assessee. It was submitted that the show-cause notice issued by the Assessing Officer did not contain any information indicating the Assessing Officer's dissatisfaction regarding the creditworthiness of the creditor.

The ld. AR also relied upon the judgment of the Hon'ble Delhi High Court in the case of Vrindavan Farms (P.) Ltd., in ITA No. 71/2015 and others, dated 12.08.2015. In that case, the issue related to share application money and the sole basis for the Revenue to doubt the creditworthiness of the share applicant was the low income reflected in the returns of income. The entire details of the share applicant, including PAN, confirmations, bank statements, balance sheet, profit and loss account, certificate of incorporation, etc., had been made available to the Assessing Officer, who did not undertake any investigation into the veracity of the documents submitted before him. The ld. AR submitted that the Hon'ble Court, in the aforesaid case, observed that the assessee had produced sufficient documentation and discharged its initial onus and that it was incumbent upon the Assessing Officer to undertake some enquiry and investigation before arriving at a conclusion on the issue of creditworthiness.

The ld. AR also relied upon the decision of the Coordinate Bench, New Delhi, in the case of M/s. SRS Educational Society in ITA No. 941/Del/2020, dated 18.06.2025, with reference to the insertion of the proviso to section 68 by the Finance Act, 2022, providing for examination of the nature and source in the hands of the creditor in respect of a loan or borrowing or any other liability credited in the books of account. It was submitted that the said amendment would take effect from Assessment Year 2023-24. By relying upon the observations of the Tribunal in the said case, the ld. AR contended that the assessee need not explain the source of the source in the hands of the creditor, since the amendment was not applicable to the year under consideration, namely Assessment Year 2022-23. The ld. AR also relied upon paragraph 19 of this Judgement, wherein it was observed that merely because the creditor had nil income or did not have sufficient source for the loan advanced to the assessee, the loan could not be treated as an accommodation entry, irrespective of the strength of the suspicion raised in that regard, as suspicion could not take the place of evidence. Accordingly, the ground raised by the assessee in that case was allowed.

The ld. AR further relied upon the decision of the Coordinate Bench, New Delhi, in the case of M/s. Dreamtech Constructions Pvt. Ltd., in ITA Nos. 90 & 91/Del/2021, dated 16.02.2024. In that case, the Assessing Officer had not issued notice under section 133(6) to the concerned parties, whereas the assessee had furnished relevant material before the ld. CIT(A), who called for a remand report from the Assessing Officer. Even during the remand proceedings, the Assessing Officer failed to conduct any enquiry to establish that the share applications were neither genuine nor bona fide. The Assessing Officer had also not issued summons under section 131 to the directors or called upon the assessee to produce the parties. The Tribunal observed, as relied upon by the ld. AR, that once the assessee had discharged the onus of establishing the genuineness of the transactions, it was for the Revenue to dispute the assessee's submissions by bringing tangible evidence on record after conducting due enquiries. Since the Revenue had failed to bring any concrete material on record to establish that the share applicants were bogus or that the assessee was a beneficiary of any entry operation or had received entries from established entry operators, the ground raised by the assessee was allowed. The learned Authorised Representative (“ld.AR”) also pointed out that the assessee had requested the Assessing Officer to issue summons under section 131 of the Act or to call for information under section 133(6) of the Act from Shri Vinodkumar Arora in order to undertake further verification of the transaction, but no verification whatsoever was carried out by the Assessing Officer.

We have heard the rival submissions and perused the material available on record. As noted above, the assessee furnished details relating to the transaction of Rs. 2,90,00,000/- by producing the relevant bank statements, the ledger account of Shri Vinodkumar Arora in the books of account of the assessee, and the PAN and address details of the said person. It is also evident from the order of the ld. CIT(A) that the assessee had requested the Assessing Officer to issue summons under section 131 or call for information under section 133(6) from the creditor in order to carry out further enquiry into the transaction. The ld. CIT(A), however, upheld the addition essentially on the ground that the income declared by the creditor did not commensurate with the amount advanced to the assessee and that a copy of the income-tax return of the creditor had not been furnished. In this regard, the decision of the Hon'ble Delhi High Court in the case of Vrindavan Farms (P.) Ltd. (supra), as relied upon by the assessee, is relevant. The High Court held that the Assessing Officer must undertake further enquiry before arriving at a conclusion on the issue of creditworthiness. Similarly, the Coordinate Bench, Delhi, in the case of M/s. SRS Educational Society (supra), also held, as relied upon by the ld. AR, that merely because the creditor had nil income or no sufficient sources, the loan taken by the assessee could not be treated as an accommodation entry. Likewise, the Coordinate Bench in the case of M/s. Dreamtech Constructions Pvt. Ltd. (supra) held that the Assessing Officer had not conducted the enquiry by issuing notice under section 133(6) or summons under section 131 for verification, nor had the assessee been asked to produce the parties. In the present case also, notwithstanding the specific request made by the assessee to the Assessing Officer to issue summons under section 131 or notice under section 133(6) to the creditor for the purpose of enquiring into the transaction, no steps were taken by the Assessing Officer in that direction.

In this context, the observation of the ld. CIT(A) that the assessee could not direct the Assessing Officer to conduct an enquiry also, in our considered view, does not advance the case of the Revenue. The request made by the assessee was not to dictate the manner in which the assessment was to be conducted, but to seek further verification of the transaction by exercising the statutory powers available to the Assessing Officer under sections 131 and 133(6) of the Act. Such enquiry was specifically sought by the assessee in the circumstances where the Assessing Officer had entertained doubts regarding the creditworthiness of the creditor. Once the assessee had placed before the Assessing Officer the agreement for sale, the relevant bank statements, the ledger account, and the PAN and address particulars of the creditor, and had further requested the Assessing Officer to undertake independent verification of the transaction, the issue, in our view, required examination on the basis of the material available on record and such further enquiry as was considered necessary. The mere fact that the creditor had declared comparatively lower income cannot, by itself, be treated as conclusive of the absence of creditworthiness, particularly when the assessee had furnished documentary evidence relating to the transaction and had specifically requested the Assessing Officer to undertake further verification.

The above facts reveal that the assessee had furnished the basic details relating to the credit in question and had placed on record material in support of the transaction. The fact that the income declared by the creditor was not substantial, by itself, cannot constitute a sufficient basis for making an addition under section 68 of the Act. We also take note of the contention of the ld. AR that the source of the source need not be explained by the assessee, since the amendment made to section 68 by insertion of the proviso thereto was applicable with effect from Assessment Year 2023-24, whereas the assessment year under consideration is Assessment Year 2022-23. In the present case, it is also material that no enquiry on this aspect was, in the first instance, specifically undertaken by the Assessing Officer. The decisions relied upon by the assessee, as discussed above, have been cited in support of the assessee's contention that the mere fact of low or nil income of the creditor, without further enquiry and material, cannot by itself establish that the credit represents an accommodation entry. Having regard to the totality of the facts placed before us, including the agreement for sale, the banking transactions, the ledger account, the PAN and address details of the creditor, and the specific request made by the assessee for further verification under sections 131 and 133(6) of the Act, we are of the view that the addition of Rs. 2,45,00,000/- under section 68 of the Act is not sustainable. Accordingly, the addition of Rs. 2,45,00,000/- made under section 68 of the Act is hereby deleted.

In the result, the appeal of the assessee is allowed.