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Facts
The case was reopened under Section 147 based on DGIT information indicating that the Assessee received Rs. 48,00,000 as bogus share application money from companies linked to Mr. Praveen Kumar Jain, who admitted providing accommodation entries. The Assessing Officer (AO) rejected the Assessee's submitted documents as self-created and made an addition under Section 68 for unexplained cash credit, asserting failure to prove identity, creditworthiness, and genuineness of transactions.
Held
The Ld. Commissioner of Income Tax (Appeals) deleted the addition, finding that the Assessee had prima facie discharged its onus under Section 68 by providing sufficient evidence that the AO failed to rebut. The Income Tax Appellate Tribunal upheld this decision, concluding that the Assessee proved the identity, creditworthiness, and genuineness of the transactions and that the addition was unsustainable.
Key Issues
Whether the addition of Rs. 48,00,000 as unexplained cash credit under Section 68 of the Income Tax Act for share application money was justified, given the Assessee's efforts to prove the identity, genuineness, and creditworthiness of the investors, despite allegations of accommodation entries.
Sections Cited
147, 132(4), 250, 142(1), 68
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI NARENDER KUMAR CHOUDHRY
Present for: Assessee by : Shri Vimal Punmiya, Ld. A.R Revenue by : Shri V.K. Chaturvedi, Ld. Sr. D.R. Date of Hearing : 10.01.2025 Date of Pronouncement : 28.03.2025 O R D E R Per : Narender Kumar Choudhry, Judicial Member:
This appeal has been preferred by the Revenue Department against the order dated 22.03.2024, impugned herein, passed by the National Faceless Appeal Center (NFAC)/ Ld. Commissioner of Income Tax (Appeals) (in short Ld. Commissioner) u/s 250 of the Income Tax Act, 1961 (in short ‘the Act’) for the A.Y. 2010-11.
M/s. Navkiran Developers Pvt. Ltd.
In this case, the case of the Assessee was reopened u/s 147 of the Act mainly on the information received from the office of DGIT (Investigation), Mumbai to the effect that a search action u/s 132 of the Act was conducted in the case of Mr. Praveen Kumar Jain and group on 01.10.2013, wherein Mr. Praveen Kumar Jain in his statement recorded on oath u/s 132(4) of the Act has admitted to be engaged in the business of providing accommodation entries in the form of bogus unsecured loans, bogus share application/premium, bogus bills of Long Term Capital Gains (LTCG)/Short Term Capital Gains (STCG) and bogus bills of purchases routed through the companies managed and controlled by him. On perusal of the information received, it was found by the Assessing Officer (AO) that the Assessee has also made the transaction on account of accommodation entries to the tune of Rs.48,00,000/- during the assessment year under consideration from the following concerns operated by Mr. Praveen Kumar Jain:
Nature of Transaction Sr. Name of tine Bogus Amount of No. Concern Operated by Praveen Transaction (in Kumar Jain & PAN Rs.) 1. Nakshatra Business Pvt. Ltd. 2010-11 Subscription of shares 24,00,000/- (Hema Trading Co. Pvt. Ltd.) (AABCH4279G) 2010-11 Subscription of shares 24,00,000/- 2. Olive Overseas P. Ltd. (Realgold Trading Co. P. Ltd.) PAN:- AACCR4512K Total 48,00,000/-
Therefore, in order to verify the aforesaid transactions, various statutory notices were issued to the Assessee. The Assessee in response has submitted the details of shareholders along with share capital and share premium received from the aforesaid parties. Thereafter, notice dated 16.02.2016 u/s 142(1) of the Act was issued to the Assessee whereby the Assessee was asked to M/s. Navkiran Developers Pvt. Ltd. establish the identity, genuineness, nature of transaction and creditworthiness of above parties and also to justify the share application money with requisite corroborative evidence and also to explain “as to why the share application money received from such sources should not be added to the total income of the Assessee company”. The Assessee in response, filed the copies of acknowledgment of the return of income, financial statement along with all schedules, copies of publications for shares, Form 2 filed by the Assessee company with ROC, copy of investments from Investor Company etc. qua share application money received from such concerns. Though the documents have been considered by the AO, however, the same were held as self created documents and the AO therefore on the information received from the office of DGIT (Investigation), Mumbai and the statement of Mr. Praveen Kumar Jain, held that the Assessee has clearly failed to prove the identity, creditworthiness of the lenders and genuineness, and nature and source of the transaction. The AO thus ultimately held the amount of Rs.48,00,000/- shown by the Assessee as share application money received from the aforesaid concerns, as unexplained and added the same in the total income of the Assessee u/s 68 of the Act.
The Assessee, being aggrieved, preferred the first appeal before the Ld. Commissioner and submitted that before the AO in order to prove the identity, creditworthiness of the parties and genuineness of the transactions, it has submitted the following documents:
Identity i. Copy of Permanent Account Number (PAN) ii. CIN No of the Investor Companies iii. Income Tax Return Acknowledgment of the Investors The above documents clearly prove the identity of the Investors Creditworthiness i. Copy of Audited Balance Sheet of the Investors ii. Relevant Barik Statemerit iii. Copy of Certified Ledger Account iv. Net worth of the Investor Compariles are far more than investiment made in the appellant Company(as given above in point no. 8 (5) The above documents clearly prove the creditworthiness of the Investors Genuineness i. Transaction through Account Payee Cha ii. Bank Statement of the Appellant and Investors iii. Share Application Forms iv. Copy of Investment confirmation by the Investors v. Copy of Affidavit given by Directors of the two Investor Companies vi. Form No. 2 and Form No.5 of the ROC (Allotment of Shares to the Investors). vii. Stamp Duty paid challan The above documents clearly prove the genuineness of the Investors
The Assessee further submitted that by producing the aforesaid documents, all the ingredients of section 68 of the Act were fully proved and established before the AO, however, still the AO without providing the statement of Mr. Praveen Kumar Jain, who has admittedly retracted his statement and the information received from DGIT (Investigation), Mumbai and without any corroborative evidence, made the addition which is therefore at all is unsustainable.
The Ld. Commissioner while considering the aforesaid documents and claims of the Assessee ultimately deleted the addition by holding mainly that once the conditions mentioned u/s 68 of the Act are proved prima-facie by the Assessee by adducing the evidence, then the onus shifts on the AO, however, in this case M/s. Navkiran Developers Pvt. Ltd. the AO has not brought any material on record to rebut the documents furnished by the Assessee. Various judicial decisions as mentioned above are clearly applicable in the facts of this case and therefore respectfully following the same, the addition made u/s 68 of the Act is not warranted and the same is deleted. For ready reference and brevity, the conclusion drawn by the Ld. Commissioner is reproduced herein below:
“6.2 Ground No. II relate to taxing a sum of Rs.48,00,000/- as unexplained cash credit u/s 68 of the Act. The addition made by the Assessing Officer and the submissions of the appellant have been perused. The AO held that the appellant company had taken accommodation entries from Mr. Praveen Kumar Jain Group and the appellant shown Rs.48,00,000/- as share application money received from [M/s.Olive Overseas Pvt. Ltd (Real Gold Trading Co. Pvt. Ltd) and M/s.Nakshatra Business Pvt.Ltd (Hema Trading Co. Pvt. Ltd.)] and treated the same as unexplained cash credit u/s 68 of the Act stating that the appellant failed to establish the genuineness, nature and sources of the transaction. 6.2.1 On the other hand the appellant contested that it had received share application money Rs.48,00,000/- from two investors as mentioned in the assessment order during the year under consideration. The appellant also submitted that on the basis of a statement given by Mr. Praveen Kumar Jain (third party), it cannot be inferred that the share application money received from a separate legal entities were in the form of an accommodation. The appellant stated that its books of account were audited and were submitted to the AO and there were no adverse remarks of the Auditors in the said Report. The appellant further stated that the AO could not controvert the factual material and documentary evidences placed by the appellant during the assessment proceedings and had not brought out anything contrary on record to negate the documentary evidences. 6.2.2 I have gone through the above. It is evident that the Assessing Officer has made the addition u/s 68 of the I.T. Act. In order to prove the credits, the appellant needs to prove the following a. Identity of the Creditor b. Capacity of the Creditor c. Genuineness of the Transaction As could be seen from the assessment order, the appellant has furnished the details with regard to Nakshatra Business Pvt. Ltd and Olive Overseas Pvt. Ltd. but the AO has disbelieved the same. It was held by the AO that all the documents were self created. The Appellant in course of appellate proceedings has submitted as under:- 4. In the instant case, as has been stated, the addition has been made by the Assessing officer merely on the ground that the appellant company had received share application money suun of Rs. 48,00,000/-from the said above investors companies during the said assessment year.
5. The Learned Assessing Officer has erred in adding the said genuine share application money merely on the bases of the information received from the office of DGIT(Inv). Mumbai. It was alleged that Mr. Praveen Kumar Jain has admitted before the IT authorities that he had been indulged in the Business of providing accommodation entries in the form of Shares, capital gain, loans, sale and purchases etc.
6. It is also alleged that various documents were found from premises of Mr. Praveen Kumar Jain or his associates and those above said companies were also controlled by the said Mr. Praveen Kumar Jain. Thus on the basis of such Third Party admission the learned AO has made addition of Rs. 48,00,000/- being the genuine share application received from the said investors without appreciation of the facts and the documents submitted before him and without considering the judicial pronouncements submitted.
7. Only on the basis of a statement given by Third party Shri Praveen Kumar Jain, it cannot be inferred that the Share Application money received from a separate legal entities were in the form of an accommodation entry. The words of the statute are reason to believe and not reason to suspect. Therefore, initiation of re-assessment proceedings is invalid from the day one.
At the outset it is submitted that Learned Assessing Officer has ignored following vital facts as under: a. The Share Application Money received by the Appellant was by account payee cheques only. Following documents were submitted to proving the Genuineness of the transaction. Identity of the investor and Creditworthiness of the investor at the time of Re-assessment of Appellant Company.
M/s. Navkiran Developers Pvt. Ltd. PAN Card copy of Investors Copy of Certified Ledger Accounts Copy of Investment confirmation by the Investors stating about the Share Application money, Cheques No., Bank Name and branch etc. Copy of Share Application forms. Form No. 2 for Allotment of shares to the investor companies. Details of Share Application money received during the year Copy of Relevant Bank Statement of the Investors. Copy of ITR Acknowledgement of the Investors. Copy of full set of audited Balance Sheet/Capital Account/Personal Balance sheet of all the said Investor for the F. Y. 2009-10 (A.Y. 2010-11) showing prominently the investment made in the Assessee Company's equity shares. Copy of Affidavit given by Director's of the all said Investor Companies Memorandum and Article of Association of all the Investor Companies Form 5 of ROC (Increase in Authorized Capital of the appellant Company) • Stamp Duty paid challan of Form 5 of ROC • Compliance Certificate of the Company Secretary (verifying the said allotment) b. The Net worth (as per net asset method) of Investor Companies were as under :- Name of the Investor Company NET Worth (Financial year ending on 31.03.2010 (in Rs.) (approx) Nakshatra Business Pvt. Ltd. 2,64,81,708/- (Rs.2.64 crore) (Formerly Known as Hema Trading Co. Pvt. Ltd.) Olive Overseas Pvt. Ltd. (Formerly 2,68,09,320/- (Rs.2.68 crore) Known as Realgold Trading Co. Pvt. Ltd.) Thus from the above table it could be concluded that the net worth of all the Investor companies were more than Rs.250 lakhs (as per the Audited Balance Sheet for the financial year ending on 31st March 2010). The Amount of Share application money received by the appellant Company was merely Rs. 24 lakhs each as compared to their huge net worth's (more than 250 lakhs). Thus the creditworthiness of the Investor Companies is undoubtedly proved beyond any doubts by the appellant company. c. The Appellant Company's books of Accounts are Audited and were submitted to the learned Assessing Officer and there were no adverse M/s. Navkiran Developers Pvt. Ltd. remarks of the Auditors in the said Report. Therefore. the transaction entered into by the Appellant Company cannot be doubted. d. Ld. Assessing Officer has unaccepted the submission though has not provided any reason whatsoever of doing so. The Ld. AO is required to apply his mind to the proposal in the light of the material relied upon. Further, the appellant in course of appellate proceedings has submitted that in respect of the following cases, wherein the facts of the case are identical to the appellant's facts, addition u/s 68 was deleted, as under: (1) Hon'ble Jurisdictional ITAT Mumbai in the case of Bharti Lifestyle Pvt. Ltd. Vs. Income Tax Officer 9(2) (1), to ITA No. 2420/MUM/2021. (2) Hon'ble Jurisdictional ITAT Mumbai in the case of DCIT 14(3)(1), Mumbai Vs M/s Rupa Properties and Securities Pvt. Ltd., ITA No. 3596 & 3597/Mum/2019. (3) The Hon'ble Jurisdictional ITAT Mumbai in the case of Jupiter InfratradePvt. Ltd Vs. ITO, Circle 6(1)(3), Mumbai, ITA No. 2061/Mum/2022, dated 07.11.22. (4) Latest CIT (Appeals) order issued under Faceless Appeal by NFAC in the case of Anantnath Silk Mills Pvt. Ltd. Vs. DCIT, Circle 9(1)(3), Mumbai, CIT (A), Mumbai/16/10552/2015-16, dated 21.03.2023, is reproduced as under for the sake of clarity. 5.2 During the course of appellate proceedings the appellant has given the following documents: • Copy of Loan Confirmation received from the lender • Copy of resolution having issuing the shares to Mis. Alka Diamond Industries Ltd • Share Application form for Alka Diamond Industries Ltd. Investor, • Copy of Relevant Bank Statement of the lender and Copy of ITR Acknowledgement of lenders (Canara Bank account of Javda India impex Limited with account no. 012112 overdraft account, customer code-008373) (Alka Diamond Industries Limited with customer code- 008654 current account-IBBS Branch Khetwadi, Mumbai Canara Bank) • Copy of Affidavit given by Shri Nilesh Parmar, Director of M/s. Javda India Impex Ltd and Alka Diamond Industries Ltd confirming the M/s. Navkiran Developers Pvt. Ltd. transactions, Copy of Re-traction statement filed by Shri Praveen Kumar Jain to the officer of Hon'ble CBDT, Delhi 5.3 I have considered the documents submitted by the assessee. Further, In case of ITO Vs Sandeep S. Dagaria (ITAT Mumbai) Appeal Number: ITA No. 6749/MUM/2018 Date of Judgement/Order: 20/08/2021 Related Assessment Year: 2012-13. The Hon'ble Bench observed "No addition for unsecured loan received if Source & Nature explained: Related Assessment Year: 2012-13 Courts All ITAT ITAT Mumbai that Assessing Officer has merely proceeded to make addition of Rs.7,00,000/- unsecured loans merely because the Rajat Group of Companies involved in the transaction of bogus purchases and rejected the evidences submitted before him i.e. assessee has submitted the confirmation balance and the transactions were only routed through bank and there is nothing on record brought by the Assessing Officer to believe that these transactions were non-genuine and except relying on the fact that the assessee is taken some accommodation entries from Gautam Jain Group and they were subjected to search proceedings. Therefore, we inclined to accept the findings of the Ld. CIT (A)". 5.4 In view of the evidences furnished by the assessee appellate proceedings I am of the view that the assessee has discharged his onus of proving the identity, genuineness and creditworthiness of the creditors and fulfilled the requirement of law Thus, the addition made by the AO on the basis of statement of Sh. Pravin Jain of Rs. 5,00,000/- as unsecured Loan from Javda India Impex Ltd. is to be deleted. This ground is allowed. 5.5 Further in the case of Divall Capital & Finance Private Lit VS OCIT (ITAT Mumbai) Appeal Number ITA NG 2091/Mum/2018 Date of Judgment/Order: 10/01/2019 Related Assessment Year : 2007-08 & 2008-09 Diwall Capital & Finance Private LIKE VS DICIT (ITAT Mumbai) The Hon'ble Bench considered the issue of share application of money and held Addition under section 88 on basis of information received from Investigation wing as to assessee having received share application money from alleged entry operator was not justified as assessee had filed sufficient evidences and details to prove identity and creditworthiness of share application and genuineness of transaction of receipt of share application money Held AO made addition under section 68 on basis of information received from investigation wing as to assessee having received share application money from alleged entry operator. It was held assessee had duly discharged the primary onus casted upon it under the law to prove the identity of the share applicants and genuineness of the transactions. All the share applicants were registered with ROC (Registrar of companies) and they were assessed to income tax as the case of assessee, which was main investment company of the Group. AD was excessively influenced by the information received from CDIT, Investigation Wing Mumbai regarding M/s. Navkiran Developers Pvt. Ltd. 5.6 In view of the above judgment of the Hon’ble ITAT Mumbai and the evidences submitted by the appellant as mentioned in Para 5.2 above. The addition of Rs. 10,00,000/- as unexplained cash credit u/s 68 of the Income Tax Act, 1961 is deleted. This ground is allowed. In the instant case also once the conditions mentioned u/s 68 are proved prima facie by the appellant and the appellant has adduced evidence, the onus is shifted on the AO. However, the AO has not brought any material on record to rebut the documents furnished by the assessee. The various judicial decisions as mentioned above are clearly applicable in the facts of the case. Respectfully, following the above decisions, the addition made u/s 68 is not warranted and the same is deleted. This ground is allowed.”
This Court has given thoughtful considerations to the peculiar facts and circumstances of the case and the judgment relied on by the Revenue Department in the case of JK Global vs. Income Tax Officer, Mumbai (ITA no.3260/M/2023 & ors. decided on 05.09.2024, wherein the Hon’ble Co-ordinate Bench of the Tribunal by considering the peculiar facts and circumstances has held a under: “That the contention of the Ld. Counsel that loans have been repaid during the year under consideration, therefore the benefit of the same should also be given to the Assessee, has not hold any water, as it has been established that the impugned loans were nothing but accommodation entries and the repayment is also nothing but return of accommodation entries, therefore the money which has been brought in the garb of unsecured loan is nothing but the unaccounted money of the Assessee and the repayment of the same does not make any sense.
Admittedly, there are various judgments of the Hon’ble Co- ordinate Benches of the Tribunal including in the cases of Sandesh Projects Pvt. Ltd. vs. ITO in decided on 14.10.2024 and M/s. Sharda Labs Pvt. Ltd. vs. ITO (ITA no.1680/M/2020 decided on 10.02.2022) wherein the Co-ordinate Benches of the Tribunal had occasion to deal with one of the identical addition on the basis of loan received from Nakshatra Business Pvt. Ltd. as involved in the instant case and the M/s. Navkiran Developers Pvt. Ltd. statement of Mr. Praveen Kumar Jain and on consideration of identical facts and circumstances as involved in this case, deleted the addition on merit as well, by observing and holding as under:
3. During the course of assessment, Assessing Officer noticed that assessee has received unsecured loans from the following parties – Atharv Business Pvt Ltd 43,50,000 Duke Business Pvt Ltd 51,50,000 Nakshatra Business Pvt Ltd 30,00,000 1,25,00,000 4. … …….. …………………..
Considering the rival submissions and material placed on record, we notice that assessee has taken unsecured loans from the various parties mentioned above through bank and the same was settled by the assessee within the same assessment year or subsequent assessment year again through the bank only. Assessee has filed before tax authorities, the confirmation of all the parties, ledger copy in the books of parties and bank statement of assessee as well as lender parties. These documents indicate that assessee has received loans from the lenders and settled the same before end of the year or subsequent year. The AO has only considered the accounting entry in the books of accounts and considered the same as accommodation entry without considering the receipt of payment through bank and settlement of the loan by the assessee through bank. Just because these companies are controlled by Shri Praveen Kumar Jain, all the transactions cannot be termed as accommodation entry unless it is proved. But, in the given case, assessee has taken unsecured loan through bank and repaid the same within the same year or subsequent year. By taking loan and repaying the same through bank, what is the benefit assessee would have got, the tax authorities failed to appreciate that the salient features of accommodation entries are, they remain in the books of account and will be carried forward to several years. In this case, that is not the case, the assessee had settled the unsecured loans within the same year or in subsequent year. Further, Assessing Officer has made addition only relying on the report from DGIT(Inv), Mumbai.
Therefore, respectfully following the above discussions, we are inclined to accept the contentions of Ld. AR that the reopening of the assessment is bad in law as well as assessee has merit in the unsecured loan transactions and accordingly, grounds raised
by the assessee are allowed.”
8. This Court also observe that the co-ordinate Bench of the Tribunal in Dy. CIT 4(3)-1 vs. Perfect Filaments Ltd. (ITA no.5162/M/2017 decided on 12.10.2020) has also dealt with the identical addition pertaining to the share application money received from one of the investors i.e. M/s. Olive Overseas Pvt. Ltd. as involved in the instant case and the Hon’ble Co-ordinate Bench of the Tribunal has also affirmed the deletion of identical addition pertaining to such company as well, by observing and holding as under: “8. We heard the rival contentions and perused the material on record and the judicial decisions. The sole disputed issue arises with respect to three investor companies, where the assessee has received share application money along with share premium. The assessee has issued shares to seven entities which includes three entities (i) M/s Casper Enterprises Ltd,(ii)M/s Sumukh Commercial Pvt Limited. And (iii) M/s Olive Overseas Pvt Ltd., belongs to Praveen Kumar Jain Group and due to search u/sec132 of the Act on the group, the statements were recorded by the investigation wing that they are only providing accommodation entries and no business activity is conducted. The A.O based on the statements recorded in the course of the search under 132(4) of the Act of the group has made addition of share capital including premium in the hands of the assessee and over looked the various documentary evidences filed by the assessee in support of investments including the confirmation letters, PAN, income tax acknowledgement, directors report, audit report, balance sheet, bank statement, companies existence, certificate of incorporation and memorandum of Association etc. In spite of assessee filing all the details, prima-facie the A.O has not conducted any investigation or enquiry in respect of the information submitted by the assessee and relied only on the information of a third party whose statement was not cross examined or tested. We find that the CIT(A) has considered the detailed facts and the submissions of the assessee. Whereas, out of the seven investor companies, the A.O has only doubted the three entities belong to Praveen Kumar Jain group and has accepted the investments made by other investor companies including M/S Century Denim Pvt Ltd and M/s Landscape M/s. Navkiran Developers Pvt. Ltd. Vincom Pvt. Ltd were the shares were issued at a premium of Rs 490/- per share. Similarly, in respect of the three entities of Praveen Kumar Jain group, the shares were also allotted at the same amount. The assessee prima-facie has complied with the ingredients required u/s 68 of the Act of genuinity, identity and creditworthiness. The CIT(A) relied on the Catena of judicial decisions in his order and has test checked the creditworthiness and identity of shareholders and came to a reasonable conclusion that the assessee has discharged its burden on submitting the information. Further, the A.O has failed to make further enquiries and relied only on statement of the key person, which was retracted subsequently. We found the order of the CIT(A) is a reasoned and logical order, where the CIT(A) has dealt on the facts, provisions of law and Judicial decisions and applied the Ratio of decisions to the present case and deleted the addition. Further, the Ld. DR could not controvert the findings of the CIT(A) with any new cogent evidence. We considering the facts and submissions of the assessee are of the view that the CIT(A) order is reasoned and conclusive. Accordingly, we do not find any infirmity in the order of the CIT(A) and upheld the same and dismiss the grounds of appeal of the revenue.”
9. This Court observe that this case pertains to A.Y. 2010-11 and therefore the Assessee was supposed to establish the identity of the parties and the genuineness of the transactions, which have been established by the Assessee by producing the relevant documents pertaining to the identity of the parties and admittedly the transactions have been carried out through proper banking channel and therefore the genuineness of the transactions are also not in doubt, however, still the Assessee has proved the source of source as well, though it was not supposed to prove the same. As the Assessee has admittedly been able to discharge its prima-facie onus cast u/s 68 of the Act, by producing the relevant documents to prove the identity and the creditworthiness of the parties and genuineness of the transactions and discharged its prima facie onus cast u/s 68 of the Act and thus addition u/s 68 of the Act is at all un-sustainable and therefore in considered opinion of this court, has rightly been deleted by the Ld. Commissioner. Thus, the decision of the Ld. Commissioner in deleting the addition, does not require any interference of this Court and consequently the same is upheld.