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Facts
The assessee, Ms. Bestech Hospitalities Pvt. Ltd., received share capital/application money from two companies, M/s Apoorva Leasing Finance & Investment Co. Ltd. and M/s Micro Management Ltd. The Assessing Officer (AO) alleged these were accommodation entries and made additions. The CIT(A) sustained a part of the addition.
Held
The Tribunal held that the assessee had discharged its onus under Section 68 of the Income Tax Act by providing sufficient evidence to prove the identity, creditworthiness, and genuineness of the transactions. The AO's additions were based on presumptions and not sufficient evidence.
Key Issues
Whether the share capital/application money received by the assessee from the said companies was genuine or represented accommodation entries, and if the AO was justified in making additions under Section 68 of the Income Tax Act.
Sections Cited
68, 153A, 132, 153C, 133(6), 131, 143(3), 144A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH, ‘C’: NEW DELHI
Before: SHRI C.N. PRASAD & SHRI M. BALAGANESH, ACCONTANT MEMBER
Date of Hearing 29.01.2026 Date of Pronouncement 13.03.2026 ORDER PER C.N. PRASAD, JM,
This appeal is preferred by the Assessee against the order dated 30.10.2023 of the Ld. Commissioner of Income-tax (Appeals)-3 (hereinafter referred to as CIT(A)), Gurgaon for the Assessment Year 2011-12 in partly sustaining the addition made by the Assessing Officer U/s 68 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
The relevant facts emanating from the record and submissions are that the Assessee is a Private Limited company incorporated on 03-07-1995 and admittedly is engaged in the business of construction and running hotels and restaurants. Search and seizure proceedings were carried out in the group cases of M/s Bestech, Gurgaon. The assessee was also covered u/s 132(1) of the Act as a part of the said search proceedings. Accordingly notice u/s 153A of the Act was issued in this case on 18.03.2013. In response to the said notice the assessee filed its return of income on 22.08.2013 declaring NIL income. The AO had observed from the balance sheet of the assessee, that it has received following share capital/share application money during the financial year 2010-11 relevant to the assessment year 2011- 12 as under:
Name Face Premium Amount (in value (in (in Rs.) Rs.) Rs.) M/s ApoorvaLeasing Finance 10/- 990/- Rs. 25 and Investment Co. Ltd crore M/s Micro Management Ltd 10/- 990/- Rs. 30 crore 2.1 In the course of assessment proceedings the AO required the assessee to explain the source of the above share capital. Ongoing through the documents furnished by the Assessee in this respect and other material available on record, it was observed by the AO that M/s Apoorva Leasing Finance & Investment Co. Ltd was managed and controlled by one Shri S.K. Jain, an accommodation entry provider. Further M/s Micro Management Ltd has received share capital/ share premium from M/s Transnational Growth Fund Ltd and the said company M/s Transnational Growth Fund Ltd was also managed and controlled by Shri S.K. Jain. 2.2 As per the AO, independent search proceedings u/s 132 have also been carried out in the case of Shri S.K. Jain by the Investigation Wing, Delhi and it was alleged that Shri S.K Jain through various paper companies such as M/s Apoorva Leasing Finance & Investment Co. Ltd, M/s Transnational Growth Fund Ltd etc. were engaged in providing accommodation entries.
With regard to investment from M/s Apoorva Leasing Finance and Investment Co. Ltd it was found that it has applied for 10 lacs shares @ 1000/- i.e., total share application money of Rs.100 crores; out of which an amount of Rs.25 crores was received on 16.02.2011 (25% total share capital). However no further payment was received. Further, Shri S.K. Jain is one of the Directors of M/s Apoorva Leasing. During the course of assessment proceedings statement of one of Directors of M/s Apoorva Leasing was also recorded by the AO, copy of the same was provided to the Assessee. According to AO, M/s Apoorva Leasing has not shown any income it its return of income for AY 2011-12 and in its bank account there were credit entries immediately before date of giving share application money to the Assessee. Further in its balance sheet as on 31.03.2010, it has got share premium of Rs.94,99,90,500/- and fresh share capital introduced of Rs.9,99,99,900/- during FY 2009-10 itself. It was thus concluded by AO that it was beyond human probability that M/s Apoorva Leasing could mobilize such huge share premium in the ratio of 1:99 on the basis of such financial profile. It has no fixed assets and in it’s profit and loss account no business activities have been shown to have carried out by it.
Similarly with regard to 3 lacs shares allotted to M/s Micro Management Ltd., and receipt of Rs.30 crores as share capital, the AO observed that M/s Micro Management Ltd., has received the funds from M/s Transnational Growth Fund Ltd. M/s Micro Management Ltd., has allotted 2 lacs shares to M/s Transnational Growth Fund Ltd., @ 750/- per share (face value 10/- along with share premium of Rs.740/-). M/s Transnational Growth Fund Ltd was managed and controlled by Shri S.K. Jain. He and Smt. Preeti Jain (wife of Shri S.K. Jain) were it’s Directors. M/s Transnational Growth Fund Ltd., was not found existing at its given address. M/s Micro Management Ltd., has shown premium of Rs.69,86,40,000/- on paid up capital of Rs.14,18,85,000/-. It has no fixed assets. It has shown income of Rs.3,00,85,420/- and Rs.NIL for AY 2010-11 and AY 2011-12 respectively. Thus these investments were also alleged to be bogus.
In view of these facts the AO confronted the Assessee on 18.02.2015 and proposed to make addition of Rs.55 crores on account of such bogus share capital. The Assessee relied upon details such as PAN, ITR, bank statements, confirmations and balance sheet of the share applicants and other submissions to prove the identity, creditworthiness and genuineness of the transaction but AO was not satisfied with the evidences and explanation furnished by the Assessee. The AO also mentioned that the Assessee could not explain the basis of charging of share premium @ 990/- per share on face value. The AO also examined the trading of some other companies which were in similar trade as that of the Assessee and found that shares of one such company EIH Limited traded at Rs.75/- to Rs.150/-., so there was no reason for investment in Assessee company for such high premium. The AO further relied upon the decisions of Hon'ble Delhi High Court in the case of CIT vs N.R. Portfolio Pvt Ltd., and CIT vs Nova Promoters and Finlease Pvt Ltd. In view of these facts and discussion made in assessment order, the AO made addition of Rs.55 crore u/s 68 of the Act on account of bogus share application money received during the assessment year under consideration.
6. The ld. CIT(A) has deleted the addition of Rs.30 crore on account of share investments from M/s Micro Management Ltd., and sustained the addition of Rs.25 crore from M/s. Apoorva Leasing Finance & Investment Company Ltd, for which the assessee is in appeal raising following grounds ;
1. (A)That on the facts & circumstances of the case the Assessing Officer and CIT(A) NFAC Delhi, while passing the order U/s 250 erred in: 2. a. The Assessing Officer and CIT (A) erred in not recognizing the fact that Assessing Officer erred on facts and law in completing assessment made under section 153A(1)(b) of the Income Tax Act, 1961 at an income of Rs. 55,00,00,000/- which is reduced to Rs. 25,00,00,000/-by
CIT(Appeal) as against income of Rs. Nil/- returned by the Appellant, treating share application/share capital received during the year Rs. 25,00,00,000/- from M/s. Apoorva Leasing Finance & Investment Company Ltd as bogus/unexplained income u/s 68 of the Income Tax Act despite the fact that the Appellant has fully discharged its onus of proving identity, genuineness and creditworthiness of the persons from whom application money has been received by submitting all the relevant documents. 3. b. The CIT (A) erred in not recognizing that the A.O. erred in arbitrarily treating the share application/capital as bogus despite independently verifying the transaction by calling information from the share applicant M/s. Apoorva Leasing Finance & Investment Company Ltd. u/s 133(6) of Income Tax Act and by recording the statement of directors of M/s. Apoorva Leasing Finance & Investment Company Ltd. On oath u/s 131 of Income Tax Act these transactions are genuine. They have even submitted relevant documents in support of the same. 4.c.The CIT (A) erred in not recognizing that making addition of share application money/ share capital received from M/s Apoorva Leasing Finance & Investment Company Ltd. merely on the basis of observation/ allegation by Investigation wing, Delhi that one of the director of Apoorva Leasing Finance & Investment Company Ltd. is also engaged in the activities of providing accommodation entries whereas none of the paper seized during the course of search operation and also on post search investigations made by the investigating officer as well as enquiries made by assessing officer, suggests that share capital received by the Appellant company is accommodation entry. 5 d. The CIT (A) erred in not recognizing that Id. A.O. erred in making these additions on the basis that the Directors of share applicant company have failed to provide documentary evidence to prove the sources of funds during recording of statement u/s 131 of Income Tax Act although the Assessing Officer only asked for the sources of funds and has never asked/ insisted on the furnishing of documentary evidences. Never the less, these documentary evidences have been duly furnished by the appellant company during the course of assessment proceedings.
6. e. The CIT (A) erred in not recognizing that the A.O. erred in not relying upon the judgment laid down by Hon'ble Supreme Court in the case of Lovely Exports simply on the ground that facts and circumstances of the case are different and appellant company is a private limited company although the fact and circumstances of the Lovely Exports is in line with facts of the appellant company and this judgment very well applies to private limited company as plaintiff in this case was a private limited company i.e. Lovely Export Private Limited. 7 f. The CIT (A) erred in not recognizing that the assessing officer has erred in making addition by relying judgment of Nova Promoters & Finlease (P) Ltd. & NR Portfolio Pvt. Ltd. although the facts and circumstances in these cases were totally different from the case of appellant company. 8.g. The CIT (A) erred in not recognizing that the Assessment order is erroneous and unsustainable in law as well as on merits and so the addition made therein. 9. h. That the orders passed by A.O. & CIT are bad in law and against the principles of natural justice. 10. The Assessee craves leave to add, Alter or amend the grounds of appeal at or before the hearing.”
7. During the appellate proceedings before Ld. CIT(A) as well before us reasserting the same, the Ld. AR stated that in order to discharge onus u/s 68 of the Act, the Assessee has proved the identity and creditworthiness of the share applicants and genuineness of transactions by furnishing requisite documents such as PAN, address, copy of share application form, allotment letter, copy of acknowledgment of ITR, copy of bank statement, confirmation, copy of board resolution for making investment in shares of the Assessee company, share holders agreement, copy of balance sheet of the share applicants and that of the Assessee company, share application money received through banking channel, during the assessment proceedings before the AO.
7.1 The Ld. AR has cited before us various decisions as in the case of Heat Flex Cables P. Ltd. vs. ITO, and CIT vs. Vrindavan Farms P. Ltd., of 2015 of the Hon’ble Delhi High Court, wherein it has been held that the assessee should be considered to have fully discharged the onus cast on it as per section 68 of the Act to prove the identity of the shareholders and genuineness of the transaction by filing requisite proofs/documents like PAN, copy of income-tax return of share applicants, copy of balance sheet, the fact of receiving application money through banking transaction.
7.2 Further Ld. counsel relying on Arbitration orders and order of NCLT it was submitted that the transaction with Apoorva Leasing have been unreasonably tainted while the said scrip has been found to be genuine as confirmation were received and Directors of investor company had appeared. It was also argued that additions if any could have been made only in the case of share applicants and for this proposition, reliance was placed 9 upon the decision of Hon'ble Supreme Court in the case of M/s Lovely Export Pvt. Ltd. (2008) 216 CTR 195. It was argued that once documents have been furnished in support of share application money, further onus shifts upon the AO. In this case the AO has made addition based upon presumptions and without any evidence.
The Ld. AR also submitted that M/s Apoorva Leasing Finance & Investment Company Ltd., is listed in various stock exchanges of the country, complying with the various listing requirements of the various stock exchanges / registrar of companies/ SEBI. The company has its issued, subscribed and paid up Capital of Rs.19.97 Crores and Reserves & Surplus of Rs.99.89 Crores. The company is doing a regular business and has a base of Rs.119.86 crore of its own funds. It has invested a sum of Rs.25 crore to buy a stake in growth oriented Assessee Company which is engaged in the business of operating Hotels under 'Radisson' brand. Further, during the year under assessment, the Assessee company was operating two hotels i.e. 'Radisson Suites, Gurgoan' and 'Radisson Indore'. Another hotel i.e. Radisson Nagpur was also nearing completion and starting operation. Further, Assessee company was also at advanced stage of discussion / negotiation with Carlson, USA for entering in to exclusive territory agreement which entitled it to exclusively establishing and opening hotels under the brand name 'Park Inn by Carlson' in entire northern and central India. This agreement has been duly executed between assessee company and Carlson in following year by virtue of which assessee company is expected to establish 53 hotels in the next 13 years. Thus there was sufficient justification for investment in Assessee Company.
Ld. AR contended that the Assessee was not required to prove the source of the source and reliance was placed for this proposition on the decision of Hon’ble Supreme Court in the case of CIT vs Daulat Ram Rawat Mull (87 ITR 349). Decision of Hon'ble High Court of Delhi in the case of CIT vs Value Capital Services Ltd. (307 ITR 334) was also relied to contend that the additional burden lay on the revenue to show that even if the applicant does not have means to make the investment in shares, the investment has emanated from the coffers of the assessee. In case, this additional burden is discharged, the investment cannot be treated as undisclosed income of the Assessee.
Ld. Counsel has submitted that in the assessment order framed, the assessing officer has alleged that the share applicant companies do not have any real business and has no means to make such investment with other reasons. It was submitted that such allegation made by the assessing officer are just presumptions and has no basis to allege so. As with regard to the fact that in the assessment order, the assessing officer has raised the issue of non declaration of dividend by the share applicant companies, Ld. Counsel submitted that declaration of dividend has no relation with making of investments and no where it undermines the investment potential of respective investor companies. Then with regard to the issue that the working of net asset value of the Assessee company at Rs.1000/- per share as on 31.03.2010, the working of the same stands submitted and the Assessing Officer has also gone through the same during the course of assessment and nothing adverse was noticed.
Ld. Counsel also cited how the reliance of the Assessing Officer on judgment of M/s Nova Promoters & Finlease (P) Ltd., & N.R Portfolio Pvt Ltd., was erroneous as the facts and circumstances in these cases were totally different from the case of Assessee company.
On the other hand the Ld. DR has heavily relied on the orders of the Ld. CIT(A) and Assessing Officer.
We have heard rival contentions, perused the record, the submissions placed before us and the case laws relied upon. Now in the case before us, though the addition on account of investment by M/s Micro Management Ltd., stands deleted by the ld. CIT(A) and revenue is not in appeal for the same, still one aspect from same becomes crucial to determine the genuineness of the investment from Apporva Leasing & Finance Company Ltd. The fact that the value of share of Assessee valued at Rs.999 for investment stands no more disputed by the Revenue for the reason that such valuation of shares was accepted from the investment from M/s Micro Management Ltd., by accepting the Ld. CIT(A) order and not contesting further. Thus where the value of share premium is not found to be excessive and fair to the financials and prospects of Assessee company then to allege that the Assessee has got its own funds infused through accommodating entry is neither prudent not justified. If there is justification to the premium, the as such appellant company could have got this investment from any other source.
We observed that like Micro Management Ltd, the investor Apoorva Leasing Finance & Investment Ltd., is also an NBFC. All basic documents with regard to the identity of the this company were filed with the AO. With regard to the genuineness and creditworthiness we find that the assessing officer has also independently verified all the facts by issue of notice U/s 133(6) of the Act and thereafter by issue of summons U/s 131 of the Act. All such summons/ notices / correspondences were received, complied and answered by the said share applicant company to the satisfaction of the assessing officer by filing of all such documents which were called for or could be filed in support of said share application money besides appearing in person and answering all the questions raised during the course of recording of statement on oath U/s 131 by the Assessing Officer. The director was not confronted with any fact or figures to allege that there was any trail arising from sources of assessee company.
Now what AO has finally relied is investigation wing report on the basis of statements of directors of share applicant companies recorded by Investigation Wing. Nowhere in the assessment order anything is mentioned as to if any specific question was put up about assessee company. No incriminating document has been mentioned in any part of assessment order to establish how assessee was beneficiary of S.K Jain companies, otherwise than in due course of the investments made by alleged companies where S.K Jain held some interest.
16. Further in the course of hearing, we were apprised and could not be disputed by the Ld. DR that Apoorva Leasing & Finance Ltd., was considered to be a shell company and certain investigations were initiated by Serious Fraud Investigation Office and even a company petition was filed before NCLT, Delhi seeking winding up of the company by virtue of section 271 and 272 of the Companies Act, 2013 and this Petition was dismissed by order dated 18.01.2019. Going through this order dated 18.01.2019, we find that primarily it was for non-compliance of mandate of section 272 of the Companies Act in issuing the show-cause notice the petition was dismissed, but, at the same time, certain relevant observations were made with regard to genuineness of the activity of this company, wherein it was concluded by the NCLT that: “It is also difficult to accept that a company formed in 1993 with a paid-up capital of Rs.19.97 crores can be construed as a shell company incorporated for the purpose of money laundering. Its present business under a different management is a flourishing legal one. Winding up a company is a serious affair and cannot be done at the mere asking of the Central Government. Without evidence, the Tribunal cannot be expected to sound the death knell of a company which is allegedly doing voluminous business, merely on the basis of SFIO
report, without even reproducing allegations specific to the respondent company.”
This matter was challenged before NCLAT and order was upheld and the Department’s appeal before the Hon’ble Supreme Court stands dismissed. This order of NCLAT is dated 4th December, 2019 and the Hon’ble Supreme Court dismissed the SLP by order dated 29.01.2021 and at the time of dismissal of this SLP by the Hon’ble Supreme Court and though it was mentioned that the appeal was filed beyond the limitation period which could be condoned but still the Hon’ble Supreme Court had given the appellant i.e., the Union of India through the Secretary, Ministry of Corporate Affairs, New Delhi for taking recourse to the remedies available in law, after following due process. Nothing has been cited that after 29th January, 2021 order any subsequent development has taken place to show cause that allegations of money laundering which was allegedly investigated by SFIO are still pressed. We find that this company still stand registered and listed at Bombay Stock Exchange and shares are trading.
We further observed that the genuineness and credit worthiness of this company have been examined by the coordinate Bench of Delhi in the case of DCIT vs. Garg Acrylics Ltd. in vide order dated 27.10.2020 and the relevant extract of the same is reproduced below:- “ 33.3 It is the settled proposition of law that for accepting any share capital / share premium / cash credit as genuine, the onus is always on the assessee to prove to the satisfaction of the AO regarding the identity and credit worthiness of the loan creditor/share applicants and the genuineness of the transaction. In the instant case, the assessee in our opinion has duly discharged such onus and the AO has not disproved any of the vital documents furnished before him. When the AO himself mentions that the investor companies are group companies and in the past also their investment in the assessee company has been accepted in the order passed under section 143(3), he could not have mentioned that these companies are merely entry provider companies. XXXXXXXXXXX 33.7 Similarly, in the case of M/s Apoorva Leasing Finance & Investment Co., is concerned, we find from the details furnished by the assessee company in the paper book that the said company is a listed company with a capital and free reserve of more than Rs.120/- crores. Further, we find from the paper book pages 496 and 497 (PDF paper book pages 68 and 69) that assessment in this company was completed u/s 153C/153A on 28.03.2013 for the A.Y. 2010-11 accepting the returned income. Further, the CIT(A) has also examined the source of source of M/s Apoorva Leasing Finance & Investment Co. Ltd. and has given a finding that the source of the same came to M/s Apoorva Leasing Finance & Investment Co.Ltd. from M/s Anu Vijay Investment and Revenue has not brought any material to controvert the same. 33.8 So far as the report of the Inspector that these companies are not existing at the given address is concerned, the same, in our opinion, cannot be a valid ground for making the addition under section 68 of the Act especially when the AO is fully aware that all these companies are group companies except M/s Apoorva Leasing Finance & Investment Co. Ltd. which is a listed company. Further, in the past as well as in the subsequent
assessment years the investment of some of these companies have been accepted in the order passed under section 143(3) and in the immediately succeeding assessment year, i.e., assessment year 2013-14, such investment has been accepted in the order passed u/s 143(3) as per direction of the joint Commissioner under section 144A of the Act.”
In the case of Modinagar Rolls Ltd. vs. ACIT (ITA No.333/Del/2015 dated 07-08-2015 also this company’s working has been examined and its operations with regard to investment through share application money were not found to be doubtful. The relevant findings are reproduced below;
“20. We are of the confirmed view that the ratio laid down in the aforesaid referred to cases is squarely applicable to the facts of the present case because the assessee furnished the PAN No. and copy of Income Tax Return of the share applicants to prove their identity and filed the copy of their balance sheets to prove the creditworthiness, share application money was received through banking channel and after allotment of the shares the information was furnished to the Registrar of Companies. Therefore, the transaction was genuine. In the present case, the assessee discharged the onus cast upon it to prove the identity and creditworthiness of the share applicant and genuineness of the transaction. Therefore, the addition made by the AO and sustained by the ld. CIT(A) was not justified. Accordingly, the same is deleted.”
The above decision of the Tribunal has been confirmed by the Hon’ble Delhi High Court in PCIT Vs. M/s Modinagar Rolls Ltd., in of 2016 by order dated 30-05-2017 dismissing the revenue’s appeal by holding as under:
Reserved Case :- INCOME TAX APPEAL No. 23 of 2016 Appellant :- Pr. Commissioner Of Income Tax Respondent:- M/S Modinagar Rolls. Ltd. Counsel for Appellant :- Manu Ghildyal Counsel for Respondent:- Ashish Bansal, Kartikeya Saran Hon'ble Pankaj Mithal, J. Hon'ble Vinod Kumar Misra, J. The Revenue has come up in this appeal against the order of the Income Tax Appellate Tribunal dated 07.08.2015 by which the appeal of the assessee respondent has been allowed and the additions made under Section 68 of the Income Tax Act, 1961 (hereinafter referred to as the Act) have been deleted. In respect to the assessment year 2010-11 the respondent assessee declared gross income of Rs.30,77,084/-, The case of the assessee respondent was selected for scrutiny and on the basis of the information received that the respondent assessee has received accommodation entries from some dummy/paper companies which were actually not in existence, the assessment was completed by inter alia making additions in the income of the assessee respondent under Section 68 of the Act. The appeal to the Commissioner of Income Tax (Appeals) on the aforesaid point failed whereupon a further appeal was preferred before the Tribunal and the same has been allowed. The argument of Sri Manu Ghyildyal, learned counsel for the appellant is that the respondent assessee had received entries in respect of share application money from M/s Shailini Holdings Ltd. to the tune of Rs.1,70,00,000/- and from M/s Apoorva Leasing Finance and Investment Company Ltd. to the tune of Rs.20,00,000/-. These entries were bogus entries as the aforesaid company were not in- existence or were simply paper companies. The said companies have no genuine source of income to make such investment with the respondent assessee. Sri Rajiv Singhal, learned counsel appearing for the respondent along with Sri Ashish Bansal in response to the above arguments submits that all these aspects have 19 been dealt with by the Tribunal and in this connection clear findings of fact have been recorded that the said companies were registered with Registrar of Companies (R.O.C.) and were regularly assessed to Income Tax Department and had sufficient creditworthiness to make the aforesaid investiment. The Assessing Officer has opined that since the Officer deputed to serve summons to the Managing Director/Directors of the aforesaid companies could not found any of them, the said companies were only in the name and their creditworthiness is in doubt and as such the entries cannot be treated as genuine. Accordingly, he made an addition of Rs.1,90,00,000/-under Section 68 of the Act which was confirmed by the Commissioner of Income Tax (Appeals). On behalf of the assessee respondent the submission before the Tribunal was that in order to prove the share application money received from the two companies sufficient documentary evidence was adduced viz. Form No.2 i.e. return of allotment of shares along with board resolutions, name and address of allotties of the shares, copies of the balance sheets, bank statements, share applications Form and the income tax retums of the two companies but these documents were not considered. The Assessing Officer never gave any opportunity to the respondent assessee to produce the Directors or the employees of the above two companies so as to verify the above transaction. The Tribunal returned a finding of fact that both the above companies were registered with R.O.C. and were regularly assessed to tax with the Income Tax Department. This was proved by the assessment orders of the two companies for the assessment year 2010-11. The said companies had submitted application forms for allotment of the shares of the respondent assessee and the amount was paid through account payee cheques/RTGS as per their bank account statements. The said two companies were having worth of Rs.119.85 crores and Rs.124.87 crores respectively as per their balance sheers. The said companies were duly allotted shares and the allotment Forms No.2 were filed with the R.O.C. which is established by the receipt given by the R.O.C. The said documents clearly prove the existence of the two companies their creditworthiness to invest the aforesaid amount and that they have been duly allotted shares of the respondent company. 20
Thus, there is no occasion to doubt the genuineness of the above transactions so as to add the above amount under Section 68 of the Act. It is well settled that where the assessee discharges the burden to prove the creditworthiness of the persons/companies making investment and the identity of those persons/companies is established, the burden to prove otherwise shifts upon the Assessing Officer and if he fails to discharge the said burden that transactions are not genuine then it would not be a case for any addition under Section 68 of the Act. In this connection the Tribunal relied upon the decision of the Delhi High Court in Commissioner of Income Tax Vs. Gangeshwari Metal Pvt. Ltd. (2013) 361 ITR 10 wherein it was held as under:- "Whether amounts are shown as share application money it is a simple question of whether the assessee has discharged the burden placed upon it under Section 68 of the Income-tax Act, 1961, to prove and establish the identity and creditworthiness of the share applicant and the genuineness of the transaction. In such a case, the Assessing Officer cannot sit back with folded hands till the assessee exhausts all the evidence or material in its possession and then merely reject it, without carrying out any verification or enquiry into the material placed before him." The finding of the Tribunal with regard to the existence of the companies, their creditworthiness and the genuineness of the transactions are all findings of fact as has been held in the case of Commissioner of Income Tax Vs. Expo Global India Ltd. (2014) 361 ITR 147. Accordingly, we are of the opinion that this matter stands concluded by the findings of fact to the effect that the transaction as appearing in the books of accounts of the respondent assessee in respect of the share application money of the above two companies are genuine and since the respondent assessee has discharged the onus cast upon it to prove the identity and creditworthiness of the two companies, the amount is not liable to be added under Section 68 of the Act in the absence of any contrary evidence to prove the transaction to be bogus.
In view of the aforesaid facts and circumstances, no substantial question of law is involved and the matter stands concluded by findings of fact. Thus in the absence of any substantial question of law, we find no merit and the same is dismissed. Order Date:- 30.05.2017 Piyush”
It is also the claim of the Assessee that Apoorva Leasing & Finance Ltd., has liquidated its earlier investments in order to invest in the assessee company. These facts were very much before the AO and well as CIT(A) and we find that no investigation was conducted by the AO to point out as to how the said transactions gave rise to accommodation entries in favour of the assessee. No nexus or money trail is discovered from the financials of the assessee, its Directors or Directors of Apoorva, to establish that the funds have been circulated or the cash arising out of any possible source of the assessee or its directors reached investor company for subscribing as share application money. We find substance in the contentions of the counsel that the case pertains to AY 2011-12 and at that time, the assessee was not required as per law to establish the source of source. Still, sufficient evidences were there before the tax authorities to show that the said company had liquidated some of its investments to make the investments in the assessee company. To be more precise, the share capital was around Rs.19 crores on 31.03.2010 and total net worth of around Rs.120 crores on 31.03.2010 and this company was holding an investment of around Rs.118 crores on 31.03.2010 and then was having total net worth of same amount on 31.03.2011 with the only investment came down to Rs.1,11,00,000/-. All these aspects needed due consideration and needed to be rebutted, which has not been done.
We find that the transaction between the two seems to be a bona fide arrangement in due course of their business, Apoorva being NBFC and Assessee needing funds for expansion. A letter of intent and other pre-agreement communication between the parties, copies of which are available at pages 65 to 67 of the paper book, minutes of the Board Meeting of the assessee company, share purchase agreement having ordinary recitals followed by proper share application forms, share allotment letter, confirmation of accounts establish that it is not a stray transaction, but quite likely a bona fide investment from Apoorva Leasing and Finance Company Ltd. The nature of transaction arising out of share transfer agreement have been subject matter of a dispute between the investing company and the assessee and the AR has sufficiently demonstrated that both the parties were contesting their rival claims on this share transfer agreement and it was ultimately the assessee company which succeeded in the arbitration proceedings and also in Civil Court, leading to forfeiture of the investments.
We are of the considered view that in cases where investments flow from companies primarily holding NBFC licenses, the regulatory mechanism of RBI and other agencies is too strong to keep a check on their activities to be in conformity with law. A presumption of genuineness needs to be attached to their activities and source of investments unless they are not cornered by any statutory authority regulating their functioning. There is no such material on record to show that any statutory authority was able to demonstrate by substantive evidences the allegation of alleged money laundering business by this company. At the same time, the Appraisal report prepared by the investigation wing has no presumption of truth attached so as to be relied without any independent enquiry. It is merely for the guidance and assistance of the Assessing officer. It is bounden duty of AO, to rely the said appraisal report only by rebutting the case of assessee. Here it appears that the AO has heavily relied the Investigation Wing, Gurgaon report for drawing the conclusions on the basis of appraisal report that Shri S.K. Jain through his various companies including Apoorva Leasing & Finance Ltd. is engaged in accommodation entries. That may be true, but, too general a conclusion that all the activities of all the companies in which Shri S.K. Jain was a functionary were engaged in providing accommodation entries only. As quasi judicial authority, like the AO, cannot brush aside all the ordinary evidences of assessee alleging that same is mere paper work. Ld. CIT(A) has fairly appreciated the evidences of same nature in case of M/s Micro Management Ltd., but failed to be just to the investments coming from Apoorva Leasing.
In CIT v. Divine Leasing & Finance Ltd. 2007 (299) ITR 268 (Del), Hon’ble Delhi High Court in paras 13 & 16 has held as under:- “13. There cannot be two opinions on the aspect that the pernicious practice of conversion of unaccounted money through the masquerade or channel of investment in the share capital of a company must be firmly excoriated by the revenue. Equally, where the preponderance of evidence indicates absence of culpability and complexity of the assessee it should not be harassed by the Revenue's insistence that it should prove the negative. In the case of a public issue. the Company concerned cannot be expected to know every detail pertaining to the identity as well as financial worth of each of its subscribers. The Company must, however, maintain and make available to the Assessing Officer for his perusal, all the information contained in the statutory share application documents. In the case of private placement the legal regime would not be the same. A delicate balance must be maintained while walking the tightrope of sections 68 and 69 of the IT Act. The burden of proof can seldom be discharged to the hilt by the assessee: if the Assessing Officer harbours doubts of the legitimacy of any subscription he is empowered, nay duty-bound, to carry out thorough investigations. But if the Assessing Officer fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the Company.
In this analysis, a distillation of the precedents yields the following propositions of law in the context of Section 68 of the Income Tax act. The assessee has to prima facie prove (1) the identity of the creditor/subscriber; (2) the genuineness of the transaction, namely: whether it has been transmitted through banking or other indisputable channels: (3) the creditworthiness or financial strength of the creditor/subscriber: (4) If relevant details of the address or PAN identity of the creditor/subscriber are furnished to the Department along with copies of the Shareholders Register, Share Application Forms, Share Transfer Register etc. it would constitute acceptable proof or acceptable explanation by the assessee. (5) The Department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices: (6) the onus would not stand discharged if the creditor/subscriber denies or repudiates the transaction set up by the assessee nor should the Assessing Officer take such repudiation at face value and construe it, without more, against the assessee. (7) The Assessing Officer is duty-bound to investigate the creditworthiness of the creditor/subscriber the genuineness of the transaction and the veracity of the repudiation.”
Similarly in CIT vs. Value Capital Services Ltd. (2008) 307 ITR 334 (DeI.), Hon’ble Delhi High Court has held as under:- "5. While setting aside the order of the Commissioner of Income-tax (Appeals), the Tribunal relied upon two 26 decisions of this court, namely CIT v. Stellar Investment Ltd. [1991J 192 ITR 287 and a Full Bench decision in CIT v. Sophia Finance Ltd [1994] 205 ITR 98. Several other decisions have been rendered by this Court following the above two decisions. The principle that has Page 3 of 8 www.taxguru.in been laid down by the various decisions rendered by this Court from time to time is that if the existence of the applicant is proved, normally no further inquiry is necessary.
Learned counsel for the Revenue submits that the creditworthiness of the applicants can nevertheless be examined by the Assessing Officer. It is quite obvious that is very difficult for the assessee to show the credit- worthiness of strangers. If the Revenue has any doubt with regard to their ability to make the investment. Their returns may be reopened by the Department.
In any case what is clinching is the additional burden on the Revenue. It must show that even if the applicant does not have the means to make the investment, the investment made by the applicant actually emanated from the coffers of the assessee so as to enable it to be treated as the undisclosed income of the assessee. This has not been done in so far as the present case is concerned and that has been noted by the Tribunal also.
8. Under the circumstances, we are of the the view that the Tribunal has not committed any error in deleting the addition.
9. No substantial question of law arises ".
In the light of aforesaid facts and settled tenets of law, and more particularly taking into consideration the judicial decisions where in this investor company is found to be a genuine NBFC investor, we are inclined to reverse the findings of the authorities below and sustain the grounds raised by the Assessee. The impugned addition stands deleted.
In the result appeal of the Assessee is allowed.
Order pronounced in the open court on 13.03.2026.