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Facts
The assessee company received an advance of Rs. 82,40,09,978/- from AGEVIPL for the sale of shares. The Assessing Officer (AO) treated this as an unexplained cash credit under Section 68 of the Income Tax Act, 1961, due to doubts about the genuineness and creditworthiness of the transaction and the investor company. The assessee argued that all necessary documentation was provided to establish the transaction's legitimacy.
Held
The Tribunal held that the assessee had discharged its initial onus by providing sufficient evidence, including identity, genuineness of transactions, and creditworthiness of the investor company (AGEVIPL). The AO's addition was based on general observations and lacked cogent reasons. Therefore, the deletion of the addition by the CIT(A) was upheld.
Key Issues
Whether the advance received by the assessee from AGEVIPL for sale of shares constitutes an unexplained cash credit under Section 68 of the Income Tax Act, 1961, given the evidence provided by the assessee.
Sections Cited
68, 139(1)
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Income Tax Appellate Tribunal, HYDERABAD BENCHES “A” , HYDERABAD
Before: SHRI LALIET KUMAR, HON’BLE & SHRI G. MANJUNATHA, HON’BLE
O R D E R PER MANJUNATHA, G. A.M.
This appeal filed by the Revenue is directed against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 01.08.2024 pertaining to A.Y.2022-23. The Revenue has raised the following grounds :
“1. The Ld. CIT(A) erred both in law and on facts of the case.
2. The Ld. CIT(A) erred in law and on facts that M/s Astha Green Energy Ventures India Pvt Ltd which entity has advanced amount of Rs 82.40,09,978/- to the assessee company is a loss making company.
3. The Ld. CIT(A) erred on facts and in law in not appreciating that the assessee could not discharge its primary onus of establishing the creditworthiness and genuineness of the transaction before the AO as required u/s.68 of I.T. Act, 1961.”
The brief facts of the case are that the assessee company filed its return of income for the assessment year 2022-23 u/s 139(1) of the Income Tax Act, 1961 and declared total income at Rs.Nil. The case was selected for scrutiny under CASS to verify low income and high investments / advances / loans and further high inflow of funds in the entities consistently showing loss before depreciation. During the course of assessment proceedings, the Assessing Officer noticed that the current liability in terms of sundry creditors was increased to Rs.82,40,35,474/- when compared to previous year sundry creditors balance of Rs.37,646/-. Therefore, the Assessing Officer called upon the assessee to file relevant evidence and also to justify the increase in sundry creditors. In response, the assessee submitted that during the financial year relevant to the assessment year under consideration, the assessee company has received advance of Rs.82,40,09,978/- from M/s. Astha Green Energy Ventures India Pvt. Ltd (hereinafter referred to as “AGEVIPL”) for sale of shares in Ramesh Hydro Power Pvt. Ltd., held by the assessee. The assessee further submitted that out of this advance amount, sum of Rs.81 crores has been given to ACE Kakinada Hitech City Pvt. Ltd. as advance for a project.
The AO, after considering relevant submissions of the assessee and also taking note of the financials of the assessee company, observed that the appellant company has received advances from AGEVIPL for the sale of shares of Ramesh Hydro Power Pvt. Ltd held by it, however, the fact remains that the assessee company could not establish the genuineness of the transactions and the creditworthiness of the parties. The AO further observed that all companies are operating at one address, and further, there are common directors in all the companies, including the assessee company. Although the assessee company has filed supporting documents like ITR of AGEVIPL, but the said company has declared a loss for the year under consideration, and therefore, it is highly impossible to accept the arguments of the assessee that the transactions between the assessee company and AGEVIPL is genuine in nature. Further, the assessee company has transferred a sum of Rs. 81 crores to ACE Kakinada Hitech City Pvt. Ltd. out of the advance received from AGEVIPL for sale of shares of Ramesh Hydro Power Pvt. Ltd and ACE Kakinada Hitech City Pvt. Ltd to whom the advance has been given is into different business, and therefore, the assessee is not able to explain the circular transactions between various group companies. Therefore, observed that the assessee could not establish the genuine identity of the investor company, creditworthiness of the investor company and genuineness of the transactions. Therefore, rejected the arguments of the assessee and made additions towards advance received from AGEVIPL for sale of shares of Ramesh Hydropower Pvt. Ltd as unexplained cash credit u/s 68 of the Income Tax Act, 1961. The relevant findings of the AO are as under:
“4.6 Conclusion drawn From the above facts, it is established that the nature of transaction and source of fund received by assessee company of Rs. 82,40,09,978/- from Ashta Green Venture Energy Ventures India Pvt Ltd in the garb of sale of shares remains doubtful. The assessee company itself a loss making company since last three years. It has been well laid out that for the purpose of proving identity u/s. 68 of the IT Act, 1961, the identification of the purpose would include place of work, the staff, the fact that it was actually carrying out the business and the recognition the said company in the eye of the public. This is the position of law laid down by jurisdictional High Court in the case of Commissioner of Income Tax Vs. N.R. Portfolio Pvt. Ltd. [2014] 42 Taxmann.com 339(Delhi). It has been held that, "The identification of the person would include the place of work, the staff, the fact that it was actually carrying on business and the recognition the said company in the eye of the public. Merely producing PAN number or assessment particulars did not establish the identity of the person. The actual and true identity of the person or a company was the business undertaken by them. This according is the correct and true legal position, as identity, creditworthiness and genuineness have to be established. Strict rules of evidence are not applicable to Income tax proceedings, as they are civil proceedings: The dispute concerned the determination of the income-tax liability of the assessee rather than fixing any criminal liability or accountability for any other law or obligation. The admissibility of documents, evidence or material differs greatly in income-tax proceedings respectively. In criminal proceedings, the charge is to be proved by the State against the accused, establishing it beyond doubt, whereas as per the settled proposition of law, the income-tax liability is ascertained on the basis of the material available on record, the surrounding circumstances, human conduct and preponderance of probabilities. Rules of evidence do not govern the income-proceedings, as the proceedings under the Income-tax Act are not judicial in the sense in which the phrase 'judicial proceedings' is ordinarily used. The Assessing Officer is not fettered or bound by technical rules about evidence contained in the Indian Evidence Act, and he is entitled to act on material which may not be accepted as evidence in a Court of law. Similarly in Nihori Lal Prabhudayal, High Court of Allahabad (1951) 19 ITR 240 (ALL) vs CIT it has been held that if party on whom burden of proof lies, produces evidences which is considered to be unsatisfactory and is therefore disbelieved mere fact that there is no evidence contrary to it, does not compel Tribunal to record finding in favour of party on whom burden lies. Similarly, in the case of Roshan Di Hatti vs CIT(SC) 107 ITR 938 and Kale Khan Mohammad Hanif vs CIT (SC) 50 ITR 1 it has been held that onus of proving the source of a sum of money found to have been received by an assessee is on him. When the nature and source of a receipt, whether it be of money or other property, cannot be satisfactory explained by the assessee, it is open to the revenue to hold that it is the income of the assessee and no further burden lies on the revenue to show that the income is from any particular source. "The law also allows the authorities to test the transactions on a touches tone of human probability to arrive at a conclusion which the rationale mind would arrive at. After going behind the transactions on paper and after lifting the corporate veil, as discussed in earlier paragraphs, it has been proved that the apparent was not real." With respect to the issue of transaction having taken place through banking channel in the context of accommodation entry business for the purpose of establishing the creditworthiness & genuineness of transaction. It is stated that the money no doubt was received through banking channels, but did not reflect actual genuine business activity in terms of creditworthiness and the activities carried out by it during the year. The only fact here is that the said amount has been received through the bank account. There is nothing on record as documentary evidences which can prove the purpose of fund transfer either to assessee company or by did not reflect their The bank accounts, therefore, assessee company. creditworthiness or even genuineness of the transaction due to the reason recorded with reference to amount credited in same day before the transfer. In view of above factual and legal matrix along with human probabilities and Surrounding circumstances, It is concluded that a sum of Rs. 82,40,09,978/- credited in the books of account of the assessee fails to pass the test of genuineness and creditworthiness within the meaning of Section 68 of the Act and is held to be the income of the assessee u/s 68 of the Income Act. 1961 and this amount of Rs. 82,40,09,978/- is hereby treated as unexplained credit and added to the income of the assessee.”
Being aggrieved by the assessment order, the assessee preferred an appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee reiterated the arguments taken before the AO and submitted that the company has received advance from AGEVIPL for sale of shares of Ramesh Hydro Power Pvt. Ltd. and to prove the genuineness of the transactions, filed name and addresses of the investor company, their financial statements, ITR, and confirmation letters. The assessee has also filed relevant bank account statements of both the companies and proved that the investment has been flown from the bank account of the investor company to the bank account of the assessee company. The AO, without appreciating relevant facts, simply made addition towards advance received from AGEVIPL as an unexplained cash credit under Section 68 of the Income Tax Act, 1961.
The Ld.CIT(A), after considering the submissions of the assessee and also taken note of judicial pronouncements, including the decision of ITAT-Mumbai Bench in the case of ITO Vs. Sringeri Technologies Pvt. Ltd reported in (2018) 191 TTJ 803, observed that the assessee has filed all possible evidences, including the identity of the creditor, and also proved genuineness of the transactions and creditworthiness of the investor company by filing their ITR copies along with financial statements. The assessee had also filed relevant bank statements and proved that the amount has been transferred from bank to bank and there are no cash deposits or suspicious credits in the bank account of the investor company before the amount was transferred to the assessee company. The Ld.CIT(A) further observed that the AO has made a general observations with regard to the place of business of the assessee company, common directors in all the companies and observed that a number of companies were operating at a single address and that there are common directors in all the companies, ignoring the fact that there is no restriction under the law to have multiple companies in same address and there is no bar under the law to have common directors in one or more companies. Therefore, observed that the Assessing Officer is erred in making additions towards advance received for the sale of shares as unexplained cash credit under Section 68 of the Income Tax Act, 1961, and thus, directed the AO to delete the addition made under Section 68 of the Income Tax Act, 1961.
Aggrieved by the order of the Ld.CIT(A), the Revenue is in appeal before the Tribunal.
Before us, the Ld.CIT-DR submitted that the Ld.CIT(A) erred in deleting the addition made towards advance received from AGEVIPL for the sale of shares of Ramesh Hydro Power Pvt. Ltd., without appreciating the fact that the AO has brought out clear facts that these are suspicious transactions between group companies, and the assessee is not able to prove the genuine identity of the investor company, and also failed to prove the genuineness of transactions and creditworthiness of the investor company. The Ld.CIT-DR further submitted that although the Ld.CIT(A) observed that the assessee has established the genuineness of transactions between the assessee company and the investor company, but the fact remains that none of these entities were engaged in real time business and has not reported any ‘positive’ income for quite some time. Further, the assessee has also failed to adduce any evidence as to how the investment has been flown to assessee company by filing like Minutes of Board Meetings, Resolution of allotment of shares, and valuation of shares, if any. The Ld.CIT-DR further submitted that the Ld.CIT(A) deleted the addition only on the ground that when the AO is accepting the amount received towards the allotment of Compulsory Convertible Debentures (CCDs) as genuine in nature, then erred in not accepting the transactions between the very same company towards sale of shares held by the assessee company, but the fact remains that although there is no credible business activity in all these companies, but huge amount of fund has been rotated between various companies and this give rise to suspicion about the transactions. Since the assessee could not discharge its onus by filing relevant evidences, the AO has rightly made addition under Section 68 of the Act, and therefore, their order should be upheld.
On the other hand, the Learned Counsel for the assessee Shri R. Mohan Kumar, Advocate, supporting the order of the Ld.CIT(A), submitted that the assessee had received advance for the sale of shares from AGVIPL Company through proper banking channels. The assessee has also furnished relevant evidence, including confirmation letters from AGVIPL along with their financial statements, ITR copy, and bank statements. AGVIPL was assessed to tax and has filed returns of income for the relevant assessment years. Once the assessee has discharged the initial onus by filing relevant evidence and proved the identity, genuineness of the transactions and creditworthiness of the parties, then the Assessing Officer cannot treat the sum received from the investor company, as unexplained cash credit. In this regard, he relied upon the decision of ITAT-Mumbai in the case of ITO Vs. Sringeri Technologies Pvt. Ltd (supra) and also the decision of ITAT, Delhi in the case of Sona Electrical Company Vs. CIT reported in 152 ITR 507. The assessee has also relied upon the decision of Hon'ble Supreme Court in the case of Lovely Exports Vs. CIT reported in (2008) 216 CTR 195 (SC) and also the decision in the case of CIT Vs. Orchid Industries Ltd reported in 116 Taxman.com 113 (SC).
We have heard both the parties, perused the material on record, and gone through the orders of the authorities below. There is no dispute with regard to the fact that the assessee company has received advances of Rs.82,40,09,978/- from AGEVIPL towards sale of shares of Ramesh Hydro Power Pvt. Ltd. held by it. The advance has been received through proper banking channels. The assessee has also filed relevant evidences, including name and address of the investor company, PAN number, ITR copies filed for the relevant assessment year along with financial statements and also relevant bank account statements to prove the genuineness of the transactions between the parties. The assessee has also filed confirmation letters from AGEVIPL, where the investor company has certified the investment made for purchase of shares of Ramesh Hydro Power Pvt. Ltd from assessee company. Therefore, it is necessary for us to decide the addition made by the AO towards the advance received for sale of shares as unexplained cash credit under Section 68 of the Act, in light of various evidences filed by the assessee.
The Provisions of Section 68 deals with unexplained cash credit, and as per the said provisions, where any sum is found credited in the books of accounts of the assessee for any previous year, and the assessee offers no explanation about the nature and source thereof, or the explanation offered by the assessee is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited shall be charged to income tax as income of the assessee for that previous year. The second Proviso provided to Section 68 of the Act, also deals with deeming satisfaction of the AO, and as per the said provision, the person, being a resident in whose name such credit is recorded in the books of such company, also offers an explanation about the nature and source of such sum so credited, and such explanation, in the opinion of the Assessing Officer, aforesaid has been found to be satisfactory, then the sum found created shall be deemed as income of the assessee. In other words, in order to come out of the provisions of Section 68 of the Act, the assessee needs to prove the identity of the investor company, genuineness of the transactions, and creditworthiness of the investor company. Further, the assessee also needs to prove the source of source of the investor company. Once the assessee proves the identity, genuineness of the transactions, and creditworthiness of the creditor, then the onus shifts to the AO to prove otherwise.
In the present case, admittedly, the assessee has received advance from AGEVIPL towards sale of shares held by it in Ramesh Hydro Power Pvt. Ltd and to prove the advance, assessee has filed relevant evidence, including confirmations from AGEVIPL where the investor company has confirmed the amount invested for purchase of shares. The assessee has also filed relevant ITRs filed by AGEVIPL along with their financial statements. From the evidences filed by the assessee, we find that the amount of advance paid by the assessee company has been declared in the books of accounts, and the assessee has also filed relevant bank account statements of the investor company and proved that the amount has been transferred through RTGS and further, there is no cash deposits or suspicious credits in the bank account of investor company before the date of transfer of funds to the assessee company. Further, the assessee company has proved the source of source of the investor company and as per the details filed by the assessee, the investor company has received funds from other group companies. From the details filed by the assessee, it is undisputedly clear that the assessee has discharged the genuine identity of the investor company, and also proved the genuineness of the transactions and creditworthiness of the investor company. Once the assessee discharged its initial owners by filing relevant documents, in our considered view, the onus shifts to the Assessing Officer to disprove the claim of assessee with cogent reasons. In the present case, the AO made addition towards advance received from AGEVIPL as unexplained cash credit of 68 on filmsy grounds, which is evident from the reasons given by the Assessing Officer in the assessment order, where the AO ignored the evidences filed by the assessee and discussed the issue in light of address of the investor company and various other companies and observed that many companies are functioning in the same address, but in our considered view, there is no bar in the Income Tax Act, 1961, nor in the Companies Act, 2013, that there should be only one company registered in one address and there cannot be any multiple companies at single address. Further, the AO has also discussed about the common directors of the companies and observed that in many companies, there are common directors, however, did not bring on record any law which prevents the companies having common directors in one or more companies. Therefore, in our considered view, the reasons given by the AO to make addition towards advance to AGEVIPL as an unexplained cash credit is devoid of merit and cannot be upheld.
Coming back to various case laws relied upon by the learned counsel for the assessee. The Learned Counsel for the assessee has relied upon the decision of Hon'ble Supreme Court in the case of CIT Vs. Lovely Exports Pvt. Ltd. reported in (2008) 216 CTR 195 (SC), where the Hon'ble Supreme Court held that if the share application money is received by the assessee company from alleged bogus companies whose names were given to the AO, then the department is free to reopen the assessments in accordance with law, but the sum received from the investor company cannot be regarded as undisclosed income of the assessee company. A similar view has been taken by the Hon'ble Supreme Court in the case of CIT Vs. Steller Investment Ltd. reported in (2001) 251 ITR 263. The Hon'ble Supreme Court in the case of CIT Vs. Orchid Industries Ltd. (supra) held that where the assessee has received the share application money and produced documents to establish about genuineness of the documents, such as PAN of the creditors along with confirmation letters and their bank statements showing the payment of share application money, merely because those persons had not appeared before the AO would not negate the case of the assessee, so as to invoke Section 68 of the Act. The sum and substance of the ratio laid down by the Hon'ble Supreme Court is that once the initial burden is discharged by filing relevant evidences, then the AO can proceed to reopen the assessment of the creditors in accordance with law, but sum received from the creditor cannot be regarded as income of the assessee.
The assessee has also relied upon the decisions in the case of Sona Electrical Company Vs. CIT (supra) and Hazarilal Vs. CIT reported in 1963 47 ITR 516 (AP) and many other cases, where it was held that the explanation given by the assessee cannot be rejected arbitrarily or capriciously, without sufficient grounds, on suspicion or un-imaginary or irrelevant grounds.
Similarly, the assessee has also relied upon the decision of ITAT Mumbai Benches in the case of ITO Vs. Sringeri Technologies Pvt Ltd. (supra) dismissing the appeal of Revenue, the Tribunal held that when all the details vis-à-vis issue of share capital were submitted to the Assessing Officer and the assessee had provided the identity, genuineness of transactions and creditworthiness of the parties by filing various documents including PAN, CIN Master data, share application from Board Resolution, share certificate, confirmation of account, I.T. Acknowledgment receipt of subscribers, balance sheets, bank statements, reply to the notice issued u/s 133(6) of shareholders, affidavit filed by the directors of shareholder companies, sales-tax returns and share capital and reserves of shareholders, addition was not justified. (A.Y 2010-11). Similarly, assessee also relied upon the decision of Jaipur Tribunal in the case of ITO Vs. Dhanalakshmi Equipment P. Ltd (2018) 63 ITR 33 (SN) / 165 DTR 177 (Jaipur) dismissing the appeal of Revenue, the Tribunal held that the assessee has furnished complete particulars such as name, address, permanent account numbers, confirmation letters, income tax returns and balance sheet, and all are existing shareholders therefore share application money cannot be assessed as undisclosed income of the assessee (A.Y. 2010-11).
In this view of the matter and considering the facts and circumstances of the case and also by following the ratios of various case laws discussed hereinabove, we are of the considered view that the assessee has filed relevant evidences and proved identity, genuineness of the transactions, and creditworthiness of the investor company towards advances received from AGEVIPL for sale of shares of Ramesh Hydro Power Pvt. Ltd. The LD.CIT(A) after considering relevant facts, has rightly deleted the addition made by the Assessing Officer. Thus, we are inclined to uphold the order of the LD.CIT(A) and dismiss the appeal filed by the Revenue.
In the result, the appeal filed by the revenue is dismissed.
Order pronounced in the Open Court on 24th February, 2025.