BALAJI AGARBATHI COMPANY PRIVATE LIMITED,BANGALORE vs. ASSISTANT COMMISSIONER OF INCOME TAX, WARD-1(1)(3), BANGALORE

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ITA 2025/BANG/2025Status: DisposedITAT Bangalore02 June 2026AY 2011-1215 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the AO's addition of share capital as unexplained credit under Section 68 was justified. The investor companies failed to prove their creditworthiness and the genuineness of the transactions, especially given the losses incurred and the nature of their operations.

What were the facts?

The assessee company received share capital investments from several Kolkata-based companies. The Assessing Officer (AO) found that these investor companies were operated by providing accommodation entries and had incurred significant losses on selling shares to the assessee's directors' HUFs. The AO treated the share capital as unexplained credit.

What were the issues?

Whether the share capital introduced by certain companies was genuine and whether the AO was justified in treating it as unexplained credit. The validity of reopening the assessment was also challenged.

Which sections of the Income-tax Act were involved?

Section 68,Section 147,Section 148,Section 143(2),Section 143(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “A” BENCH : BANGALORE

Before: SHRI BALAKRISHNAN S & SHRI KESHAV DUBEY

For Appellant: Shri. S. Parthasarthi, Advocate
For Respondent: Shri. N. Balusamy, JCIT(DR)(ITAT), Bengaluru
Hearing: 16.04.2026Pronounced: 02.06.2026

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH : BANGALORE BEFORE SHRI BALAKRISHNAN S, ACCOUNTANT MEMBER AND SHRI KESHAV DUBEY, JUDICIAL MEMBER ITA No.2025/Bang/2025 Assessment Year : 2011-12 M/s. Balaji Agarbathi Company Pvt. Ltd., Vs. ACIT(OSD), 13/2, Vinayaka Temple Street, Ward – 1(1)(3), 12th Cross, Kaderenahalli, BSK II Stage, Bengaluru. Bendre Nagar, Bengaluru – 560 070. PAN : AABCB 6611 Q APPELLANT RESPONDENT Assessee by : Shri. S. Parthasarthi, Advocate Revenue by : Shri. N. Balusamy, JCIT(DR)(ITAT), Bengaluru. Date of hearing : 16.04.2026 Date of Pronouncement : 02.06.2026 O R D E R Per Balakrishnan S, Accountant Member :

This appeal is filed by the assessee against the order of learned Commissioner of Income Tax – Appeals (NFAC, Delhi) [in short “CIT(A)”] vide DIN & order No.ITBA/NFAC/S/250/2025-26/1079494892(1) dated 11.08.2025 for the Assessment Year 2011-12 arising out of the order passed under section 143(3) r.w.s. 147 of the Act dated 26.12.2017.

2.

Briefly stated facts of the case are assessee being a company is engaged in the manufacture of agarbathi, filed its return of income on 28.09.2011 declaring a taxable income of Rs.9,67,070/- for the Assessment Year 2011-12. The return was summarily processed under section 143(1) of the Act on

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10.01.2012. Subsequently, on receipt of information from the Investigation Wing, Kolkata, notice under section 148 of the Act was issued to the assessee for reopening the assessment. Subsequently notice under section 143(2) of the Act was also issued to the assessee. In response, the Director of the company Shri. P R Balaji and Shri. Prakash, Auditor, appeared before the learned Assessing Officer [in short ‘AO’] and furnished information but has not filed the books of accounts. It was stated that due to the fire accident in the premises on 13.12.2011 books of accounts were destroyed. The learned Authorized Representative [in short ‘AR’] also requested to provide reasons for reopening of the assessment vide letter dated 16.05.2017 which was submitted to the assessee on 25.05.2017. Later, the assessee objected to the reopening of assessment vide letter dated 06.06.2017 which was disposed off vide letter dated 19.06.2017 by the learned AO. During the course of assessment proceedings, the learned AO noticed that the assessee has received share capital investments from the Kolkata company as detailed below:

3.

Further, on verification of the financial statements and the submissions made by the assessee, the learned AO also noticed that the assessee has received further share capital investment from the following companies.

i. M/s. Ashta Vinayak Vanijya Pvt. Ltd.,

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ii. M/s. Aashish Retal garmets Pvt. Ltd., iii. M/s. Tehon Commercial Pvt. Ltd., iv. M/s. Honesty Mercantile Pvt. Ltd.,

4.

It was also noted that Shri. Ramesh Kumar Khaitan is the Director of these four companies and operated by providing accommodation entries. The learned AO noted that these companies subscribed to the share capital of the assessee for 1,50,000 shares with a face value of Rs.1/- per share at a share premium of Rs.99/-. These shares are allotted to the various investors as detailed below:

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5.

The learned AO sent notices to the said investors and to the Director Shri. Ramesh Kumar Khaitan calling for the details of the investment made by them along with the documentary evidences like offer letter for issue of share capital, bank account statements and share certificates. The Investor companies partially responded which are detailed in page No. 6 of the Assessment Order. The learned AO also observed from the details provided from Shri. Ramesh Kumar Khaitan that these shares were sold out by the investor companies @ Rs.2/- per share to Shri. P. R. Balaji, HUF and P. R. Bhaskar, HUF on 01.08.2012. The learned AO also found that Shri. P. R. Balaji, and P. R. Bhaskar, are directors of the assessee company. The learned AO also noticed that no explanation has been provided by investor companies for incurring loss of Rs.1,47,00,000/- from the said investment in the assessee company. The learned AO also perusing the bank statement and the financial statement provided by some of the investors found that these companies have shown

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meagre income while filing the return of income for the Assessment Year 2010- 11 which is detailed below:

6.

Further, on examining the bank statements, the learned AO found that investor companies have shown some deposits in the bank account either on the same day or on the previous day before making such investment in the assessee company. On the examination of the bank statement filed by the assessee, it was noticed that there are receipts amounting to Rs.1,65,00,000/- and withdrawals amounting to Rs.1,63,00,000/- during the period from 01.07.2018 to 10.08.2010. Considering all the observations/findings, the learned AO held that the investments made by the 8 companies towards share capital including the premium is not genuine and also the credit worthiness of these companies was not satisfactorily proved by the assessee. Therefore, he proceeded to make an addition of Rs.1,50,00,000/- recorded as capital against the corresponding investments and treated the same as unexplained credit under section 68 of the Act.

7.

On being aggrieved by the order of the learned AO, assessee filed appeal before the learned CIT(A). Before the leaned CIT(A) the assessee challenged

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the jurisdiction of the AO for issuance of notice under section 148 of the Act. He referred to the objections made by the assessee which was disposed off by the learned AO on 19.06.2017. The learned CIT(A) therefore opined that there is no procedural irregularity or denial of natural justice and did not find merit on the ground of the jurisdiction raised by the assessee. On merits regarding the addition of Rs.1,50,00,000/-, the learned CIT(A) concurred with the views of the learned AO and dismissed appeal of the assessee.

8.

Being aggrieved by the order of the learned CIT(A), assessee is in appeal before us raising the following grounds:

1.

On the facts and in the circumstances of the case, the order of the CIT(A) is unsustainable in that the submissions and evidence as placed before him were not considered and also failed to consider the case law cited by the Appellant and consequently, the order of CIT(A) is liable to be set aside. 2. On the facts and in the circumstances of the case, the Learned CIT(A) ought to have appreciated that the reopening of the assessment under Section 147 of the Income-tax Act was without jurisdiction and opposed to law and accordingly, the re-assessment is liable to be cancelled. 3. The Learned CIT(A) failed to appreciate that the objections of the Appellant with regard to the validity of the reopening had not been considered by the Assessing Authority and further the CIT(A) had also failed to take notice of the objections and also the fact that there was violation of principles of natural justice in sustaining the reopening and consequently, the Appellate Order is bad in law and liable to be set aside. 4. The Learned CIT(A) failed to appreciate that the Appellant was not given an opportunity to cross-examine the allegators after furnishing the materials collected behind its back for its rebuttal and the impugned addition was made only on the basis of the above materials and accordingly, the impugned addition as made is opposed to law and liable to be deleted.

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5.

The Learned CIT(A) ought to have appreciated that the Appellant has proved the genuineness of the transactions with the evidence available which fully supported the claim of the Appellant and in the circumstances, the Learned CIT(A) ought to have accepted the explanation and refrained from upholding the impugned addition. 6. On the facts, the Learned CIT(A) ought to have appreciated that the Appellant had provided the identity of the shareholders and also the proof of payment of the money through banking channels and the shares were allotted with intimation to the Registrar of Companies and accordingly, the Appellant had discharged the onus of proving the genuineness of the transactions and consequently, the impugned addition as made is opposed to law and accordingly liable to be deleted. 7. On the facts, the Learned CIT(A) ought to have appreciated that the provisions of Section 68 of the Income-tax Act were not applicable in the case of the Appellant and addition as made by applying Section 68 of the Income-tax Act is opposed to law and impugned addition is liable to be deleted. 8. On the facts, the Learned CIT(A) ought to have considered the Written Submissions in toto which were supported by adequate evidence and refrained from upholding the re-assessment and especially ought to have deleted the impugned addition and directed the Assessing Authority to accept the return filed by the Appellant in toto. 9. The learned CIT(A) erred in sustaining the interest u/s.234A of the Income-tax Act. 10. The learned CIT(A) erred in sustaining the interest u/s.234B of the Income-tax Act. 11. Without prejudice, the impugned addition is arbitrary and excessive and required to be reduced substantially. 12. For these and such other grounds that may be urged at the time of hearing of the Appeal, the Appellant prays that the Appeal may be allowed.

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9.

Ground Nos.1 and 12 are general in nature and needs no adjudication. Ground Nos.2 to 4 challenges the reopening of the assessment based on the information received from the Investigation Wing, Kolkata. On this issue, the learned AR stated that learned AO does not have any material on record and has reopened the assessment based on information received from the Investigation Wing, Kolkata along with mere statement obtained from the director of the company Shri. Ramesh Kumar Khaitan. He submitted that the learned AO without verifying the statement recorded by the director Shri. Ramesh Kumar Khaitan and without providing any opportunity for the assessee to cross examine, issued notice under section 148 of the Act on mere conjunctures and surmises. The reasons furnished by the learned AO merely is a verbatim of the summary of the information received from the Investigation Wing. He also submitted that the learned AO has not carried out any specific enquiries before issuing notice under section 148 of the Act and hence the notice issued under section 148 of the Act is invalid and the consequent assessment become void- ab-initio. On this issue, he relied on the decision of the Hon’ble High Court of Bombay in the case of Principal Commissioner of Income Tax Vs. Shodiman Investments (P) Ltd., reported in 422 ITR 337(Bom) and judgment of Hon’ble High Court of Delhi in the case of Principal Commissioner of Income Tax Vs. RMG Polyvinyl (I) Ltd, reported 396 ITR 5 (Del).

10.

On the contrary, the learned DR submitted that the assessment was originally completed under section 143(1) of the Act and no scrutiny of assessment was made by the Revenue. He also submitted that the learned AO has disposed off the objections raised by the assessee vide letter dated 06.06.2017 and on perusal of the same, it is very clear that the AO has made preliminary enquiries for the accommodative transactions. He therefore pleaded that notice issued is a valid notice and the proceedings consequent to the issuance of valid notice is to be sustained.

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11.

We have heard the rival submissions and perused the material available on record. It is an admitted fact that the assessee’s case was reopened under section 148 of the Act based on the information provided with respect to accommodation entries from the Investigation Wing, Kolkata, along with statement recorded from Shri. Ramesh Kumar Khaitan on such transactions. The learned AO while disposing off the objections raised by the assessee, observed as under:

“It is also informed that it is not the case of the revenue that these transactions are held to be cash transactions but it is a case of financial accommodative transactions made through banking channels wherein the financial transactions made by the other companies are held to be not genuine on the fact that the companies providing finance have not confirmed the financial investment provided to your company”

12.

From the above, it is noticed that the AO has made preliminary enquiries regarding the financial accommodative transaction made through banking channels and based on the information had reason to believe that income has escaped assessment in the hands of the assessee. There is no merit in the argument of the learned AR that learned AO has not conducted enquiry before issuance of notice under section 148 of the Act. We also find that the AO not just relied on the information provided by the Investigation Wing, Kolkata, but also conducted preliminary enquiries with respect to the information received from the Investigation Department before issuance of notice under section 148 of the Act. At the time of issuance of notice, the learned AO was under belief that the income has escaped in the hands of the assessee and therefore notice issued under section 148 of the Act is valid notice in our opinion. In the case relied on by the learned AR, the facts are distinguishable as no enquiry was made by the learned AO in those cases and hence cannot be applied to the instant

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case. We are therefore of the opinion that the issuance of notice and the consequent proceedings are valid in law and hence we are inclined to dismiss the ground Nos.2 to 4 raised by the assessee.

13.

With respect to Ground Nos.5 to 8 challenged by the assessee on the impugned addition, the learned AR submitted that the creditworthiness and genuineness of the transactions have been provided before the AO by the respective investors. He also submitted that these transactions made through banking channels, the copies of the bank statements have been provided before the learned AO for verification. He also submitted that the learned AO relied on the statement recorded from Shri. Ramesh Kumar Khaitan stating that he is engaged in providing accommodation entry for a nominal commission but the fact is that the assssee has not paid any commission for the investments. He also submitted that investors have submitted the copies of return of income for the Assessment year 2010-11 and hence investments made in the assessee’s company are genuine in nature. He also submitted that details of books of accounts could not be produced before the learned AO as it was damaged in the fire accident. He therefore pleaded that since the investments have been explained by the assessee, it cannot be treated as unexplained credit in the hands of the assessee under section 68 of the Act.

14.

Per contra, the learned Departmental Representative [in short ‘DR’] vehemently supported the order of the lower authorities.

15.

We have heard rival contentions and perused the material available on record. It is the case of the learned AO that the assessee has received accommodation entries in the form of share capital including premium from various parties amounting to Rs.1.50 Crores. The learned AO on examining the return of income filed by the investor companies as detailed below, observed

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that they have disclosed meagre income which does not commensurate with the size of investment made by the investors in the assessee company. He therefore concluded that investor does not have any sufficient source of money to make investments in the assessee company, whereas the Ld AO observed that assessee has routed back the cash from the withdrawals made out of amount invested by the investors. The learned AO also observed form the bank statements furnished by the investor companies, which clearly indicate that the amount has been deposited either on the same day or the previous day before the investment was made in the assessee company. Further, the learned AO also observed that the shares were repurchased by Shri. P. R. Balaji, and Shri. P. R. Bhaskar, who are directors of the assessee company. Nothing has been brought on record before the learned AO and before us to rebut the findings of the learned AO. Shri. Ramesh Kumar Khaitan who is also director in the investor companies has also recorded in his statement that he is engaged in providing accommodation entries to various parties for a commission. It is also found that some of the entities from which the investment has been made in the assessee company had no office in the address mentioned by the assessee. The enquiries also revealed that the investor companies had filed return for a negligible taxable income which clearly indicates that investor did not have financial capacity to invest huge amount in the assessee company during the Assessment Year 2010-11 for the purchase of shares at a high premium. The learned AR also could not substantiate why the shares of the assessee company was issued at a higher premium of Rs.99/- per share when the face value of the share was Rs.1/- per share. Furthermore, these investments were sold within a period of one year for Rs.2/- to the individuals / entities thereby incurring a huge loss of Rs.1.47 Crores. The mere submissions of the bank statements and the return of income of the investor cannot be considered as sufficient to discharge the onus under section 68 of the Act. The assessee is under a legal obligation to prove the receipt of share capital / premium to the satisfaction of the AO, failure of which

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would justify the addition of the said impugned amount to the income of the assessee. In the present case, assessee failed to discharge the onus under section 68 of the Act to the satisfaction of the AO and hence the learned AO was justified in adding back the amount of Rs.1.50 Crores to the assessee’s income. The Hon’ble Supreme Court in the case of PCIT Vs. NRA Iron & Steel Pvt. Ltd., under similar facts and circumstances in paragraphs 8.2, 8.3, 13 and 14 held as follows:

“8.2 As per settled law, the initial onus is on the Assessee to establish by cogent evidence the genuineness of the transaction, and credit-worthiness of the investors under Section 68 of the Act. The assessee is expected to establish to the satisfaction of the Assessing Officer CIT v. Precision Finance (P.)Ltd. [1995] 82 Taxman 31/[1994] 208 ITR 465 (Cal.): ♦ Proof of Identity of the creditors; ♦ Capacity of creditors to advance money; and ♦ Genuineness of transaction

This Court in the land mark case of Kale Khan Mohammed Hanif v. CIT [1963] 50 ITR 1 (SC) and Roshan DiHatti v. CIT [1977] 107 ITR 938 (SC) laid down that the onus of proving the source of a sum of money found to have been received by an assessee, is on the assessee. Once the assessee has submitted the documents relating to identity, genuineness of the transaction, and credit-worthiness, then the AO must conduct an inquiry, and call for more details before invoking Section 68. If the Assessee is not able to provide a satisfactory explanation of the nature and source, of the investments made, it is open to the Revenue to hold that it is the income of the assessee, and there would be no further burden on the revenue to show that the income is from any particular source.

8.3 With respect to the issue of genuineness of transaction, it is for the assessee to prove by cogent and credible evidence, that the investments made in share capital are genuine borrowings, since the facts are exclusively within the assessee's knowledge. The Delhi High Court in CIT v. Oasis Hospitalities (P.) Ltd. [2011] 9 taxmann.com 179/198 Taxman 247/333ITR 119, held that :

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"The initial onus is upon the assessee to establish three things necessary to obviate the mischief of Section 68. Those are: (i) identity of the investors; (ii) their creditworthiness/investments; and (iii)genuineness of the transaction. Only when these three ingredients are established prima facie, the department is required to undertake further exercise."

It has been held that merely proving the identity of the investors does not discharge the onus of the assessee, if the capacity or credit-worthiness has not been established. In Shankar Ghosh v. ITO [1985] 13 ITD 440 (Cal.), the assessee failed to prove the financial capacity of the person from whom he had allegedly taken the loan. The loan amount was rightly held to be the assessee's own undisclosed income. 8.4 Reliance was also placed on the decision of CIT v. Kamdhenu Steel & Alloys Limited [2012] 19taxmann.com 26/206 Taxaman 254 [2014] 361 ITR 220 (Delhi) wherein the Court that : "38. Even in that instant case, it is projected by the Revenue that the Directorate of Income Tax(Investigation) had purportedly found such a racket of floating bogus companies with sole purpose of lending entries. But, it is unfortunate that all this exercise if going in vain as few more steps which should have been taken by the Revenue in order to find out causal connection between the case deposited in the bank accounts of the applicant banks and the assessee were not taken. It is necessary to link the assessee with the source when that link is missing, it is difficult to fasten the assessee with such a liability." 13. The lower appellate authorities appear to have ignored the detailed findings of the AO from the Field enquiry and investigations carried out by his office. The authorities below have erroneously held that merely because the Respondent Company – Assessee had filed all the primary evidence, the onus on the Assessee stood discharged.

The lower appellate authorities failed to appreciate that the investor companies which had filed income tax returns with a meagre or nil income had to explain how they had invested such huge sums of money in the Assesse Company -Respondent. Clearly the onus to establish the credit

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worthiness of the investor companies was not discharged. The entire transaction seemed bogus, and lacked credibility. The Court/Authorities below did not even advert to the field enquiry conducted by the AO which revealed that in several cases the investor companies were found to be non-existent, and the onus to establish the identity of the investor companies, was not discharged by the assessee. 14. The practice of conversion of un-accounted money through the cloak of Share Capital/Premium must be subjected to careful scrutiny. This would be particularly so in the case of private placement of shares, where a higher onus is required to be placed on the Assessee since the information is within the personal knowledge of the Assessee. The Assessee is under a legal obligation to prove the receipt of share capital/premium to the satisfaction of the AO, failure of which, would justify addition of the said amount to the income of the Assessee.”

16.

In the instant case the investor companies which had filed income tax returns with a meagre income had failed to explain how they had invested such huge sums of money in the Assessee Company. The onus is in the assessee and by merely providing the identity of the investors does not discharge the onus of the assessee, if the credit-worthiness has not been satisfactorily established. Respectfully following the decision of the Hon’ble Supreme Court of India in the case of PCIT Vs. NRA Iron & Steel Pvt. Ltd., (supra), we are of the opinion that in view of the similar facts and circumstances of the instant case, we find that there is no infirmity in the order of the learned CIT(A) and hence no interference is required. Thus, the grounds raised by the assessee are dismissed.

17.

With respect to ground Nos.9 and 10 regarding the interest under section 234A and 234B of the Act, which is consequential in nature and therefore needs no adjudication.

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18.

In the result, appeal of the assessee is dismissed.

Pronounced in the open court on the date mentioned on the caption page.

Sd/- Sd/- (KESHAV DUBEY) (BALAKRISHNAN S) Accountant Member Judicial Member Bangalore. Dated: 02.06.2026. /NS/*

Copy to: 1. Appellants 2. Respondent 3. CIT 4. CIT(A) 5. DR 6. Guard file By order

Assistant Registrar, ITAT, Bangalore.

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