ASSISTANT COMMISSIONER OF INCOME TAX CENTRAL CIRCLE3-(4), HYDERABAD vs. AARTHIK GREENTECH SOLUTIONS PRIVATE LIMITED, HYDERABAD

Accordingly, issued notice u/s 153C of the Act on 27.02.2019 and called upon the assessee to file return of income. In response to the notice issued u/s 153C of the Act, the assessee filed its return of income on 25.03.2019 by admitting total income of Rs.2,86,900/-.

During the course of assessment proceedings, the Assessing Officer noticed that Shri Ajaz Farooqi and his associated companies have received loans / advances / investments to the tune of Rs.5,75,00,000/- from various Delhi based companies during the A.Y.2014-15. In order to verify the amount of advance / investment received from Delhi based companies, the Assessing Officer called upon the assessee to file relevant evidences and also prove identity, credit worthiness and genuineness of the transaction. During the course of post search operation, enquiries were conducted at Delhi, to verify the genuineness of claim of investment received from Delhi based companies and during search and enquiries, a statement of Mr.Abhay Chand Bardia, one of the directors of the company was recorded on oath on 28.09.2017. Mr.Abhay Chand Bardia, in his statement stated that he was a director in Tarini Enterprises Pvt.Ltd. and acting as a retainer / consultant in all the companies. The Assessing Officer, based on the enquiries conducted on the investor companies, coupled with evidences filed by the assessee, called upon the assessee to file further evidences to justify the advances / share application money received from the companies. In response, the assessee has filed names and address of the investor company along with PAN and also filed confirmation letter along with relevant financial statements of the investor companies. The Assessing Officer, after considering the relevant submissions of the assessee and also taking note of evidences collected during the course of search coupled with statements recorded from certain persons of investor companies, came to the conclusion that the assessee could not discharge the onus to prove the identity, genuineness of transactions and creditworthiness of the investor companies. Therefore, made additions of Rs.5,75,00,000/- u/s 68 of the Act as unexplained cash credit.

Being aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the Ld.CIT(A), the assessee challenged the assessment order passed by the Assessing Officer u/s 153C of the Act, in light of satisfaction note u/s 153C by the Assessing Officer of the searched person and submitted that the Assessing Officer has assumed jurisdiction by issue of notice u/s 153C on the basis of incorrect satisfaction, which is not supported by incriminating material found as a result of search. The assessee also challenged the additions made by the Assessing Officer towards investment received from Delhi based companies u/s 68 of the Act by filing necessary evidences.

The Ld.CIT(A), after considering the relevant submissions of the assessee and also taking note of satisfaction note recorded by the Assessing Officer, for initiating proceedings u/s 153C of the Act, held that, assessment for the impugned assessment year is abated as on date of search i.e. on 04.07.2017, because the time limit for issue of notice u/s 143(2) of the Act is upto 30.09.2017. Therefore, observed that once, the assessment is abated as on date of search, the Assessing Officer shall have power to assess or reassess total income, including any undisclosed income found as a result of search. Therefore, rejected the legal ground taken by the assessee.

The Ld.CIT(A) had also deleted the additions made by the Assessing Officer towards investment received from M/s Efficient Industrial Finance Ltd. u/s 68 of the Act, by holding that the assessee is able to prove the identity of the investor company and also proved genuineness of transactions and creditworthiness of the parties, by filing details like PAN, return of income filed for the relevant assessment year, financial statements along with confirmation letters. Further, since the investment is routed through proper banking channel, the Ld.CIT(A) observed that the Assessing Officer is erred in making additions towards investment u/s 68 of the Act, as unexplained money and therefore, deleted the additions made by the Assessing Officer. Relevant findings of the Ld.CIT(A) are as under :

Aggrieved by the order of the Ld.CIT(A), the Revenue is now in appeal before the Tribunal.

Ms.Narmada, Ld.CIT-DR, submitted that the Ld.CIT(A) erred in deleting the addition of Rs.5,75,00,000/- u/s 68 of the Act, without giving any credence to the material seized post search enquiries made and the enquires made during the assessment proceedings by the Assessing Officer. The Ld.CIT- DR, referring to various facts brought on record by the Assessing Officer, submitted that although the assessee filed copies of MOUs, separately entered into agreement with the companies for investment, but the fact remains that the said MOUs were not registered and the originals were not produced for verification and hence, its genuineness is not established. Further, the Ld.CIT(A) relied upon the evidence filed by the assessee including confirmation letters from investor companies, however, ignored the fact that enquiries conducted u/s 133(6) did not result in any response from the investor companies, as to the source of the funds invested. Further, the Ld.CIT(A) failed to appreciate the fact that the assessee company failed to produce directors of the investor companies for examination, despite opportunity given. Although, the Assessing Officer has brought out clear facts, but, the Ld.CIT(A) simply deleted the additions made by the Assessing Officer only on the basis of paper evidence filed by the assessee contrary to the facts brought on record by the Assessing Officer. Therefore, he submitted that the order of the Ld.CIT(A) should be reversed and additions made by the Assessing Officer should be upheld.

The learned counsel for the assessee, Shri P.Murali Mohan Rao, CA, on the other hand, supporting the order of the Ld.CIT(A) submitted that the assessing company has placed all possible evidence, including address and PAN of the creditor, their financial statement along with bank account copy and also filed confirmation letter to prove identity, genuineness of transactions and credit worthiness of the parties. Further investment has come from bank account, for which relevant evidences have been filed. Further, the Assessing Officer solely relied upon the enquiries conducted on investor company at Delhi and the statement recorded from few individuals, ignoring the fact that the Directors of the investor company have filed affidavit and confirmed investment made in the assessee company. Further, the Assessing Officer rejected the evidence in the form of MOUs between the parties, even though the MOUs clearly show the investment is for the purpose of real estate development. Although the assessee has filed all these evidences, but the Assessing Officer ignored the evidences filed by the assessee and simply made additions towards advances u/s 68 of the Act. The Ld.CIT(A), after considering the relevant facts has rightly deleted the additions made by the Assessing Officer. In this regard he relied upon the decision of Hon'ble Supreme Court in the case of CIT Vs.Lovely Exports 216 CTR 195 (SC) (supra). The assessee had also relied upon the decision of Hon'ble Supreme Court in the case of Commissioner Of Income-Tax, Orissa vs Orissa Corporation (P) Ltd. (1986) 159 ITR 78 (SC).

We have heard both the parties, perused the material on record and gone through the orders of the authorities below. We have also carefully considered the relevant case laws referred to by both the parties, in support of their arguments. There is no dispute with regard to fact that the assessee has received investment from Delhi based companies and to prove the credit, has filed various evidences, including, copy of MOU between the parties, name and address and PAN of the investor companies, financial statements and bank account copy of the investor companies and also confirmation letter from the investor companies. The Assessing Officer made additions towards investment received from the Delhi based companies, only on the basis of post search enquiries conducted at Delhi on investor companies and certain statements recorded from few individuals and came to the conclusion that those companies are paper companies and do not have any credible business, to establish creditworthiness for investment made in the assessee company. The Assessing Officer had also taken support from enquiry report and came to the conclusion that the companies are non-existent in the given address and on further enquiry, it was noticed that no such company was functioning in the given address and carrying out any business. The Assessing Officer had also taken support from certain material found during the course of search in the case of Shri V.P.Anand and Shri Ajaz Farooqi and observed that the assessee has routed its unaccounted money, by way of advances / investments from Delhi based companies and returned cash. Therefore, the Assessing Officer came to the conclusion that the assessee could not prove identity, genuineness of the transaction and credit worthiness of the investment from Delhi based investor companies.

We have given our careful consideration to the reasons given by the Assessing Officer to make additions towards advances / investment from Delhi based investor company as unexplained cash credit u/s 68 of the Act, in light of various averments made by the Learned counsel for the assessee and we ourselves do not subscribe to the reasons given by the Assessing Officer for the simple reason that, the assessee had filed complete details of investor company and its identify, including name and address, PAN, financial statements, bank statements and also confirmation letters and proved identity of the investor company, genuineness of transactions and creditworthiness of the parties. Further, as per the evidences filed by the assessee, investment is sourced from the bank account to bank account and from the bank account statement of the investor company, there is no evidence of any cash deposited immediately before the date of transfer of the funds of the assessee company. Further, the investor companies have filed their financial statements and also established sources for investment made in the assessee company. Although the Assessing Officer refers to post search enquiry conducted on investor companies at Delhi, to draw adverse inference against the investment, but on perusal of affidavit filed by the Directors, Mr.Rajiv Aggarwal and Mr.Sanjay Aggarwal, it is abundantly clear that they confirmed the investment in the assessee company and their statements were not conclusive proof of the adverse comments made by the Assessing Officer. The Assessing Officer failed to examine the directors and simply made a statement that the assessee failed to produce directors of investor companies. From the above, it is abundantly clear that, the assessee has proved the identity of the investor companies and also proved the credit worthiness and genuineness of the transaction. Therefore, we are of the considered view that once, the initial onus is discharged by the assessee, then the onus shifts to the Assessing Officer, to prove otherwise, with relevant evidences and this fact is strengthened by the decision of Hon'ble Supreme Court in the case of CIT Vs.Lovely Exports (supra), where, it has been clearly held that, if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the Assessing Officer, then the department is free to proceed to reopen their individual assessments, in accordance with law, but this amount of share application money cannot be regarded as undisclosed income u/s 68 of the Act. A similar view has been taken by the Hon'ble Supreme Court in the case of Pr. CIT vs. Chain House International (P) Ltd. (supra). Further, the Hon'ble Supreme Court in the case of Commissioner of Income- Tax, Orissa vs Orissa Corporation (P) Ltd. (supra) has considered similar issue and held that once, genuineness and creditworthiness and identity of investors are established, no additions can be made as cash credit, on the ground that investor company and directors have not responded to the notices issued by the Assessing Officer. Similar view has been taken by the Hon'ble Gujarat High Court in the case of DCIT Vs. Rohini Builders (2002) 256 ITR 360 (Guj). The sum and substance of the ratios laid down by the Hon'ble Supreme Court and other High Courts is that once, identity, genuineness of transactions and creditworthiness of the creditor is proved, then the sum received from the creditor cannot be treated as income of the assessee u/s 68 of the Act. Although the Assessing Officer referred to number of judicial precedents, including the decision of Hon'ble Supreme Court in the case of PCIT Vs. NRA Iron and Steel Private Ltd. (2019) 412 ITR 161, but facts remain that the facts of the present case are entirely different from various case laws referred by the Assessing Officer and therefore, in our considered view, the case laws relied upon by the Assessing Officer are considered to be not applicable to the case of the assessee.

In view of this matter and considering the facts of the present case and also by following the ratios of Hon'ble Supreme Court in the cases discussed herein above, we are of the considered view, that the Assessing Officer is erred in making additions towards advances / investment received from the investor companies u/s 68 of the Act as unexplained cash credit. The Ld.CIT(A), after considering relevant facts has rightly deleted the additions made by the Assessing Officer. Therefore, we are inclined to uphold the order of the Ld.CIT(A) and dismiss the appeal filed by the Revenue.

In the result appeal filed by the Revenue is dismissed.

The brief facts of the case are that the assessee company, M/s Aarthik Infra Projects Pvt.Ltd. is engaged in the business of real estate development, filed its return of income for the A.Y.2014-15 on 14.07.2017, by declaring Nil total income. A search and seizure operation u/s 132 of the Income Tax Act 1961 (in short “Act”) was conducted in the case of Sri V.P.Anand and Sri Jayanta Kumar Dutta as a part of search and seizure operation in the case of Sri Ajaz Farooqi and his related business concerns on 04.07.2017. During the course of search and seizure operation at the residential premises of Sri Jayanta Kumar Dutta, GM Finance of M/s KVR Rail Infra Projects Pvt.Ltd., certain workings related to cash and cheque payment made for purchase of properties at Road No.36, Jubilee Hills, Hyderabad was found in the pen drive. On verification of the documents, it is found that the workings related to consideration paid for purchase of property at plot No.806 and 806/1, Road No.36, Jubilee Hills, Hyderabad by the company, M/s Asma Estates and Investments Pvt. Ltd. from Mr.Susheel Kumar Hora, Mrs. Kamal Hora and M/s Arthik Infra Projects Pvt.Ltd. in March, 2014. As per the sheets, the total cost of the property, excluding the stamp duty is mentioned at Rs.24,75,00,000/-, out of which, Rs.9,25,55,861/- was paid through cheques to Mr.Susheel Kumar Hora, Mrs. Kamal Hora and M/s Arthik Infra Projects Ltd. and the balance amount of Rs.15,49,44,139/- was paid in cash.

Consequent to search, notice u/s 153C of the Act was issued on 27.02.2019 and in response to the notice, the assessee filed its return of income on 25.03.2019. The case was selected for scrutiny and during the course of assessment proceedings, the Assessing Officer noticed that house property bearing MCH No.8-2-293/82/A/806/1, admeasuring 965 sq.yds of land with 100 sq.ft constructed area was owned by Mr.Susheel Kumar Hora and Mrs. Kamal Hora. There was another house property bearing MCH No. 8-2-293/82/A/806, admeasuring 600 sq.yds with built up area of 100 sq.ft. was owned by Mr.Praveen Goel. Mr.Praveen Goel executed an agreement of sale cum GPA on 12.03.2008 in favour of Mr.Susheel Kumar Hora and Mrs.Kamal Hora and agreed to sell the property admeasuring 600 sq.yds at Road No.36, Jubilee Hills, Hyderabad and deliver the possession of the property to Mr.Susheel Kumar Hora and Mrs. Kamal Hora. On 26.06.2008, Mr.Susheel Kumar Hora, Mrs. Kamal Hora and Mr.Praveen Goel (represented by GPA holders Mr.Susheel Kumar Hora, Mrs. Kamal Hora) entered into a development agreement cum General Power of Attorney with M/s Aarthik Infra Projects Pvt.Ltd. for development of both the properties and M/s Aarthik Infra Projects Pvt.Ltd. paid Rs.1,30,00,000/- to Mr.Susheel Kumar Hora and Mrs.Kamal Hora, in addition to the promised share in the developed property. On 26.06.2008, Mr.Susheel Kumar Hora, Mrs. Kamal Hora along with Mr.Praveen Goel, executed a sale deed in favour of the assessee company, vide document No.2623/2008 for sale of property at Road No.36, admeasuring 600 sq.yds., which was originally owned by Mr.Praveen Goel, but now in the possession of Mr.Susheel Kumar Hora and Mrs. Kamal Hora. Subsequently, on 06.03.2014, sale deed bearing document No.2623/2008 was cancelled vide document No.1188/2014 and on the same date the development agreement cum General Power of Attorney entered into between Mr.Susheel Kumar Hora, Mrs.Kamal Hora, Mr.Praveen Goel and M/s Aarthik Infra Projects Pvt.Ltd. was also cancelled vide document No.1187/2014 by the parties. On same date i.e. on 06.03.2014, above two properties have been sold by Mr.Susheel Kumar Hora, Mrs.Kamal Hora, Mr.Praveen Goel to M/s Asma Estates & Investments Pvt. Ltd.vide document 2004/2014 and 1189/2014. As per the above mentioned sale deeds, Asma Estates & Investments Pvt. Ltd. paid Rs.2,70,00,000/- to Mr.Susheel Kumar Hora and Mrs.Kamal Hora, by way of cheques for property, which was originally in the name of Mr.Praveen Goel and further paid a sum of Rs.6,27,25,000/- for the property, which was originally in the name of Mr.Susheel Kumar Hora and Mrs.Kamal Hora. Further, M/s Asma Estates & Investments Pvt. Ltd. paid Rs.50,00,000/- vide cheque no.589131 drawn on Axis bank dated 04.09.2013 to assessee company and also paid a sum of Rs.28,30,861/- to assessee company. The Assessing Officer based on the information found in the pen drive seized from Mr.Jayanta Kumar Dutta, coupled with various documents, came to the conclusion that, consequent to development agreement cum GPA with Mr.Susheel Kumar Hora and Kamal Hora, the rights in the property was transferred to the assessee company and on subsequent cancellation of development agreement cum GPA vide document No.1187/2014 dated 06.03.2014, the assessee has relinquished its rights over the property in favour of the purchaser, M/s Asma Estates & Investments Pvt.Ltd. Therefore, the consideration paid in cash as recorded in the documents found in the pen drive seized from Jayanta Kumar Dutta is nothing but the consideration paid for relinquishment of rights over development agreement and therefore, opined that the amount of Rs.7,76,99,000/- received by the assessee company in cash from Asma Estates & Investments Pvt.Ltd. is undisclosed income, assessable under the head ‘income from other sources’. Therefore, made addition of Rs.7,76,99,000/- to the total income of the assessee.

Being aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the Ld.CIT(A), the assessee has filed written submission on the issue, which has been reproduced in para 6.1 on pages 28 to 35 of the Ld.CIT(A) order. The sum and substance of the argument of the assessee before the Ld.CIT(A) is that the assessee is not owner of the property and whatever development agreement cum GPA entered into with Mr.Susheel Kumar Hora and Mrs.Kamal Hora along with Mr.Praveen Goel for joint development of the property has been cancelled vide document No.1187/2014 dated 06.03.2014. Therefore, the allegation of the Assessing Officer that it has relinquished rights over the property and received consideration in cash is devoid of merit and cannot be accepted. The Ld.CIT(A) after considering the relevant submission of the assessee and also taking note of relevant evidences, held that going by the transaction, as depicted in the seized material as reproduced in page 5 and 9 of the assessment order, it is undisputedly clear that the assessee, M/s Aarthik Infra Projects Pvt.Ltd. is a company associated with Ajaz Farooqi group, therefore, the question of making cash payment to the assessee by M/s Asma Estates & Investment Pvt. Ltd., another group company of Mr.Ajaz Farooqi to its own group company is beyond imagination and cannot be accepted. Therefore, directed the Assessing Officer to delete the additions in the hands of the assessee. The relevant findings of the Ld.CIT(A) are as under :

Ms.M.Narmada, Ld.CIT-LD.DR submitted that the Ld.CIT(A) erred in deleting the addition of Rs.7,76,99,000/- made towards unaccounted receipt of cash for relinquishing rights over development agreement in respect of property at Jubilee Hills without appreciating the fact that the assessee has got right over the property by way of development agreement and after a period of six years, the said agreement has been cancelled to facilitate M/s Asma Estates and Investments Pvt. Ltd to purchase property, which is nothing but relinquishing of right over the property, therefore, the cash payment as recorded in the material found in the pend drive is evidence of payment of cash to the assessee. The Ld.DR, further, referring to various agreement submitted that the assessee company entered into development agreement cum GPA and also took possession over the property. Further, the assessee company has spent amount towards development of the property, which is evident from the admission of the assessee company itself before the Assessing Officer. Therefore, any payment for relinquishment of right over the property by cancelling development agreement is assessable in the hands of the assessee under the head ‘income from other sources’. The Ld.CIT(A), without considering the relevant facts, simply deleted the additions made by the Assessing Officer. Therefore, she submitted that the additions made by the Assessing Officer should be upheld.

Shri P.Murali Mohan Rao, the learned counsel for the assessee, supporting the order of the Ld.CIT(A) submitted that there is no dispute with regard to the fact that the assessee entered into development agreement cum GPA with Mr.Susheel Kumar Hora and Mrs.Kamal Hora along with Mr.Praveen Goel for development of two properties. It is also an admitted fact that one property has been sold to assessee company by Mr.Praveen Goel vide sale deed….However, the development agreement cum GPA and sale deed has been cancelled on 06.03.2014 and the property has been purchased by Asma Estates & Investments Pvt.Ltd. from the land owners. Therefore, the allegation of the Assessing Officer that the assessee has received cash consideration over relinquishment of rights is incorrect. Further, although the assessee has received a sum of Rs.78,30,861 in two cheques, but the said amount has been received towards reimbursement of various expenses incurred in the property in pursuant to development agreement. Since the assessee has cancelled the development agreement and the property has been purchased by another company from the land owners, the question of assessee receiving cash from the purchaser does not arise. The Ld.CIT(A), after considering the relevant facts has rightly deleted the additions made by the Assessing Officer, therefore, their order should be upheld.

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 property at Road No.36, Jubilee Hills, bearing GHMC No.8-2- 293/82/A/806/1 was owned by Mr.Susheel Kumar Hora and Mrs.Kamal Hora. It is also an admitted fact that the property at Road No.36, Jubilee Hills, bearing GHMC No. 8-2- 293/82/A/806 was owned by Mr.Praveen Goel. The two parcels of land owned by Mr.Susheel Kumar Hora and Kamal Hora and Mr.Praveen Goel has been given on joint development to the assessee company, by way of development agreement cum GPA dated 26.06.2008. The said development agreement has been cancelled on 06.03.2014 and the property has been purchased by M/s Asma Estates & Investments Pvt. Ltd. from original land owners. These facts are not disputed by the Assessing Officer. However, the Assessing Officer made addition of Rs.7,76,99,000/- towards alleged cash consideration paid to the assessee company for relinquishment of rights over the property based on document found in the pen drive seized from the premises of Jayanta Kumar Dutta. According to the Assessing Officer, the assessee company got right over the property in pursuant to Development cum GPA and upon relinquishment of rights by cancellation of development agreement, the assessee company has received consideration in cash. Therefore, opined that the assessee company has received Rs.7,76,99,000/- and the same is assessable as undisclosed income under the head ‘income from other sources’.

We have given our thoughtful consideration to the reasons given by the Assessing Officer to make addition of Rs.7,76,99,000/- under the head ‘income from other sources’ towards alleged cash receipt for relinquishment of right over the property, in light of various arguments of the assessee and we ourselves do not subscribe to the reasons given by the Assessing Officer for the simple reason that the properties in question, which were sold to Asma Estates & Investments Pvt.Ltd was never owned by the assessee company. Although, the assessee company got entered into development agreement cum GPA with the land owners, but the said development agreement has been cancelled on 06.03.2014. Further, the sale deed between the above parties dated 28.06.2008, in respect of land admeasuring 600 sq.yds at Jubilee Hills was also cancelled. The above mentioned properties has been finally purchased by M/s Asma Estates & Investments Pvt.Ltd. from original land owners by way of sale deed dated 06.03.2014. If we go by the whole transaction as depicted in the seized material as reproduced at page No.5 and 9 of the assessment order, coupled with various agreements, including cancellation of development agreement cum GPA, it is undisputedly clear that originally, the property was given on joint development to the assessee company, which is part of Ajaz Farooqi group, however, subsequently, the said property has been sold to M/s Asma Estates & Investments Pvt. Ltd., another group company of Ajaz Farooqi and from the above, it is undisputedly clear that the properties have been finally purchased by Asma Estates & Investments Pvt. Ltd. from the original land owners. Therefore, in our considered view, the reasons given by the Assessing Officer to allege that the assessee company has received cash consideration for relinquishment of rights over the property is far from truth and cannot be relied upon. It is highly improbable that a company belonged to Ajaz Farooqi group has paid cash consideration to another company belonging to the same group. In our considered view, going by the evidences relied upon by the Assessing Officer, the Assessing Officer has totally misconceived the transactions and alleged that the assessee company has received cash consideration for relinquishment of right over the property, even though the properties were never owned by the assessee company and further, the properties were sold by original land owners to another company of assessee. Although the Assessing Officer relied upon the statement of Mr.Susheel Kumar Hora, where he has admitted additional income towards alleged cash consideration for sale of property, but based on the statement of third party, the liability cannot be fastened on the assessee, because the property has been finally purchased by the assessee group company and therefore, it is highly improbable to say that the two group companies have exchanged cash for purchase of property among themselves. Therefore, we are of the considered view that the Assessing Officer is erred in making additions towards alleged cash consideration received by the assessee company towards relinquishment of right over the property, which has been finally purchased by another group company of the assessee from the original land owners. The Ld.CIT(A), after considering relevant facts has rightly deleted the additions 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, appeal filed by the Revenue is dismissed.

As a result, both the appeals filed by Revenue for the assessment year 2014-15 are dismissed.