VISHWAS CONCRETE PVT LTD,BENGALURU vs. ACIT, CENTRAL CIRCLE-1, BANGALORE

For AY 2011-12, the assessee filed its return of income on 23.9.2011 at a loss of Rs.86,51,558. Notice u/s. 153A was issued on 23.9.2016. The assessee filed a letter dated 21.11.2016 reiterating the returned loss of Rs.86,42,324. Necessary notices u/s. 143(2) & 142(1) were issued.

During the course of assessment proceedings it was found that there was an increase in share capital which includes Rs.90 lakhs from TRVPL. Similar facts are also for this year and the assessee did not submit any details of the source of investment and a separate letter to that effect also did not evoke any response and therefore the addition of Rs.90 lakhs was made to the total income of the assessee u/s. 68 of the Act. Assessment order was passed on 31.12.2019.

Both the assessment orders were challenged before the ld. CIT(A) which were disposed of by the common appellate order dated 29.11.2024. The assessee challenged the validity of the notice u/s. 153A of the Act and also challenged it on the merits of the addition. With respect to addition of Rs.10 lakhs it was submitted that the above sum was received by the assessee towards loans and subsequently share allotment from TRVPL which were reflected in the books of account of assessee. The above sum was received as share application money and during the subsequent year the allotment proceeds of the shares were converted into share capital. With respect to the subsequent year also, the assessee reiterated its submission.

The ld. CIT(A) decided this issue on merits as per 6.2. In para 6.2.4, the ld. CIT(A) noted that assessee has submitted the audited financial statement of TRVPL as additional evidence which were forwarded to the AO for his comments on admissibility as well as on merits. The ld. AO in the remand report dated 8.5.2024 submitted that assessee could not establish the genuineness of transaction and credit worthiness of the lender inspite of ample opportunities given and therefore the additional evidence are not to be admitted. The assessee submitted the rejoinder wherein it was shown that loan of Rs.10 lakhs is evidenced in the financial statement of the lender at page 51 of PB which is accepted by the ld. AO. The director of assessee company was also director in the investor company. Further Rs.90 lakhs is also shown as a loan from the same party which is also shown in the financial statement of the lender. Based on this additional evidences were admitted by the ld. CIT(A) vide para 6.2.5 of the order. With respect to the creditworthiness of the lender and genuineness of the transaction, the ld. CIT(A) held that the lender does not have any secured loan and it is shown as an unsecured loan of Rs.4,35,57,525 which is provided to it by its directors. He extracted the annual accounts of TRVPL at page 45 of his appellate order. In the end he held that assessee has not been able to demonstrate the genuineness of the transaction and capacity of the lender. The assessee did not furnish the details of loans from the Board of Directors and therefore all the 3 conditions provided u/s. 68 of the Act were not satisfied. He further held that assessee has neither submitted the bank account of Directors of the company and no confirmation of the lender was also submitted. Similarly the addition of Rs.90 lakhs was also confirmed. However, he found that the addition in this year only on Rs.80 lakhs as the balance of Rs.10 lakhs pertains to AY 2010-11 and therefore he confirmed the addition of Rs.80 lakhs for AY 2011-12 & Rs.10 lakhs for AY 2010-11. Accordingly this ground of appeal was dismissed. Assessee is in appeal before us.

The ld. AR submitted that assessee has received Rs.10 lakhs for AY 2010-11 and Rs.80 lakhs for AY 2011-12. This sum was received from TRVPL. He submitted that the annual account of the investor company was submitted before the ld. CIT(A), who admitted the additional evidence. For the purpose of section 68, the assessee has shown the identity of the creditor which is not in dispute. The only dispute is with respect to the creditworthiness of the lender and the genuineness of the transaction. For the purpose of creditworthiness of the lender he referred to the annual accounts wherein the investor was having the share capital of Rs.1 lakh and share application money of Rs.6,50,00,000. Investor was also having unsecured loan of Rs.3,63,19,004. The assessee has received Rs.10 lakhs from that company for the year ended on 31.3.2010 which are shown in the deposits, loans & advances at Schedule 7 amounting to Rs.19,02,70,382. He therefore submitted that the company is having

Similarly for the AY 2011-12, he submitted that Rs.90 lakhs is shown in the balance sheet of the investor company wherein 9 lakh equity shares of 10 each fully paid are shown as investment in the balance sheet of the investor company under the head ‘Investment’. Thus, there is confirmation available that TRVPL has made an investment of Rs.90 lakhs in the share capital of the assessee company. He submitted that TRVPL has unsecured loan of Rs.4.34 crores and net worth of Rs.11,39,59,952. Thus, the creditworthiness of the investor company also cannot be doubted. With respect to the genuineness of the transaction, he submitted that the director of the assessee company is also director of the investor company. Accordingly, he submitted that the addition made by the ld. AO and confirmed by the ld. CIT(A) to the extent of Rs.90 lakhs of Rs.10 lakhs & Rs.80 lakhs in respective 2 years is unwarranted and deserves to be deleted.

The ld. DR vehemently supported the orders of ld. lower authorities and submitted that neither the assessee has submitted confirmation of the investor nor submitted bank statement of the investor company to show availability of funds as on the date on which the amount of investment of Rs.10 lakhs & Rs.80 lakhs in the assessment year was made. The assessee is duty bound to prove the identity, creditworthiness of the investor and genuineness of the transaction of any sum credited in the books of account of the assessee u/s. 68 of the Act. The assessee except the annual accounts generated from the MCA website, did not produce any evidence and therefore there is no infirmity in the order of the ld. lower authorities in confirming the addition of Rs.90 lakhs u/s. 68 of the Act spread over the two years.

We have carefully considered the rival contentions and perused the orders of the ld. lower authorities. The facts show that TRVPL having office at No.L-152, 10th Street, LIC Colony, HAL 1st Stage, Bangalore – 560075 invested Rs.10 lakhs for the year ended on 31.3.2010. This amount was shown by the assessee as unsecured loan received from that entity for the year ended 31.3.2010. The assessee demonstrated before the AO the details of Cheque No. as well as sum received through banking transaction. The assessee submitted that the director of the assessee company is also the director of the investor company, however, assessee could not furnish confirmation and therefore the AO made an addition u/s. 68 of the Act. Similarly in the next year, assessee received a sum of Rs.90 lakhs from the same party and under the same circumstances and facts of the case, the addition was made u/s. 68 of the Act of Rs.80 lakhs.

With respect to the source of funds available with the investor company, it was submitted that for AY 2010-11 net worth of the investor company is Rs.10,16,00,000 for the year ended 31.3.2011 it is Rs.11,39,00,000. The investor has unsecured loan of Rs.4.34 crore and share application money of Rs.6.50 crore. The investment shown in the assessee company is disclosed in the balance sheet that 9 lakh equity shares of 10 each are invested in the assessee company in share capital. The source of the funds are also disclosed in the balance sheet. Therefore, there cannot be any doubt about the creditworthiness of the investor company. With respect to the genuineness of the transaction the ld. AO states that the director of the assessee company is also director in the investor company. Therefore, it is a fund received from group company only as claimed by the ld. AR. This fact is neither disputed by the ld. DR and with respect to comm. directorship as confirmed by the ld. AO. Therefore, we do not find any reason that assessee has failed to show the genuineness of the above transaction also. No reasons are given by the ld. lower authorities that why above transaction is stated to be non-genuine. It is also not alleged that this is an accommodation entry. Further the only reason given is that the assessee has not proved the source of source of the funds invested by the investor. We find that such provision has been by the Finance Act, 2012 w.e.f. 1.4.2013. Therefore prior to that, the assessee was not obliged to show the source of source of the funds of the investor. As the dispute in this appeal is pertaining to AY 2010-11 & 2011-12, assessee was not required to show the source of source of the funds. Accordingly, we direct the ld. AO to delete the addition u/s. 68 of Rs.10 lakhs for AY 2010-11 & Rs.80 lakhs for AY 2011-12 with respect to investment made by TRVPL as share capital in the assessee company as the assessee has proved all the 3 ingredients of identity, creditworthiness of the investor and genuineness of the transaction.

In the result, the appeals of the assessee for both the years are allowed.