ASSISTANT COMMISSIONER OF INCOME TAX ,CENTRAL CIRCLE-3(4), HYDERABAD vs. SV MULTI LOGITECH PRIVATE LIMITED , SECUNDERBAD

The first issue that came up for our consideration is addition of Rs.1,00,00,000/- u/s 68 of the Act. During the course of assessment proceedings, the Assessing Officer noticed that Shri Ajaz Farooqi and his associated companies has received loans / advances / investments to the tune of Rs.65,57,75,000/- from various Delhi based companies during the F.Y.2010-11 to 2016-17, out of which investments to the tune of Rs.20,27,50,000/- was received from Surbhi Mercantile Pvt.Ltd. During the financial year, relevant to the assessment year 2015-16, the assessee company has received investment / advance of Rs.1,00,00,000/- into its State Bank of India account from M/s Surbhi Mercantile Pvt. Ltd. based in Delhi. In order to verify the amount of advance / investment received from Delhi based company, the Assessing Officer called upon the assessee to file relevant evidences and also prove identity, credit worthiness and genuineness of the transaction. In response, the assessee company filed copy of MOU between M/s Surbhi Mercantile Pvt. Ltd. and the assessee and claimed that the above company agreed to invest in development project and for this purpose remitted an amount of Rs.1,00,00,000/-. 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 statements of Mr.Sanjay Aggarwal and Sri Rajiv Aggarwal, directors of the company was recorded on oath. 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 received from Surbhi Mercantile Pvt.Ltd. 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 company. 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.1,00,00,000/- 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 153A of the, in light of satisfaction note u/s 153A by the Assessing Officer of the searched person and submitted that the Assessing Officer has assumed jurisdiction by issue of notice u/s 153A 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 Surbhi Mercantile Pvt. Ltd 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 153A of the Act, rejected 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 Surbhi Mercantile Pvt.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.

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

The Ld.Sr.AR, Shri Srinath Sadanala submitted that the Ld.CIT(A) erred in deleting the additions made by the Assessing Officer towards advances received from Delhi based companies, by holding that the assumption of jurisdiction by the Assessing Officer u/s 153A of the Act is invalid and further on merit, the Ld.CIT(A) erred in deleting the additions, by holding that the assessee has proved the identity, genuineness of transactions and creditworthiness of the parties. The Ld.DR further submitted that the Assessing Officer has brought out clear facts in the assessment order and proved that Shri Ajaz Farooqi and associated companies have received huge amount of investment / advances from Delhi based companies and failed to prove the genuineness of transactions, which is evident from post search operation enquiries conducted on Delhi based companies, where, few of the companies are not existent in the given address and further, so called directors of the above companies denied having any knowledge of investment in the assessee company. Therefore, merely for the reason of furnishing confirmation letter, along with financial statement, genuineness of transactions cannot be proved. The Ld.CIT(A), without considering the relevant facts, simply deleted the additions made by the Assessing Officer. Therefore, he submitted that the order of the Ld.CIT(A) should be set aside and additions made by the AO should be upheld.

The learned counsel for the assessee, supporting the order of the Ld.CIT(A) submitted that the Ld.CIT(A) has come to right conclusion, based on appraisal of relevant satisfaction note recorded by the Assessing Officer as required u/s 153C of the Act, where, the Assessing Officer referred to incriminating material, but the said material is nothing, but MOU and bank account particulars, which are already disclosed in the return of income filed u/s 139 of the Act. Further, the assessee had also filed relevant evidences, including name and address along with PAN of the investor company, confirmation letter and financial statements and also filed bank statements of investor company to prove that the amount has been received through banking channel. The Ld.CIT(A) after considering relevant facts has rightly deleted the additions made by the Assessing Officer. In this regard, relied on the decision of Hon’ble Supreme Court in the case of Principal Commissioner of Income-Tax Vs.Abhisar Buildwell (P.) Ltd. (2023) 149 taxmann.com 399 (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 M/s Surbhi Mercantile Pvt. Ltd., a Delhi based company and to prove the credit, has filed various evidences, including, copy of MOU between the parties, name and address and PAN of the investor company, financial statements and bank account copy of the investor company and also confirmation letter from the investor company. The Assessing Officer made additions towards investment received from Delhi based company, 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 does 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 few 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 Ajaz Farooqi and Jayanta Kumar Dutta, where, the department has found certain pen drive, which contained the details of certain entries in the name of Kapil and Mr.Rajiv Agarwal 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 M/s Surbhi Mercantile Pvt. Ltd.

We have given our careful consideration to the reasons given by the Assessing Officer to make additions towards advances / investment from M/s Surbhi Mercantile Pvt. Ltd. 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 their identify, including name and address, PAN, financial statements, bank statements and also confirmation letter 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 company 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. Further, it is also noted that Mr.Ajaz Farooqi and Mrs.Asma Farooqi, both were directors of M/s Surbhi Mercantile Pvt. Ltd. from 2012 onwards and at the time of Assessing Officer passed the assessment order, both were directors in the investor company, however, the Assessing Officer failed to examine the directors and simply made a statement that the assessee failed to produce directors of investor company. We, further, noted that the assessee has filed status of M/s Surbhi Mercantile Pvt. Ltd. as per the ROC records and the company is in active status at the time of passing the assessment order. From the above, it is abundantly clear that, the assessee has proved the identity of the investor company 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) L td. (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 M/s Surbhi Mercantile Pvt. Ltd. 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 on this ground.

The next issue that came up for consideration from Ground No.14 of Revenue appeal is deletion of addition of Rs.1,19,87,500/- made u/s 69B of the Act towards unexplained investment in purchase of property. The Ld.DR, Shri Srinath Sadanala submitted that the Ld.CIT(A) erred in deleting the addition, holding that only part of the addition made on account of purchase of agricultural land is supported by the evidence, ignoring the other evidences / calculations viz. agreement values etc. as mentioned in such documents. The Ld.DR further referring to the facts on record submitted that the Assessing Officer has brought on record clear facts in respect of payment of consideration for purchase of agricultural land over and above stated consideration in the agreement and this has not been explained by the assessee with relevant evidences. The Ld.CIT(A) after considering the relevant facts, simply deleted the addition made by the Assessing Officer.

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 assessee has purchased agricultural land at Shankarpally for establishing logistics park @6,00,000/- per acre, which is clearly mentioned in the registered document, however, the Assessing Officer allegedly claimed that the assessee has paid Rs.23,00,000/- per acre based on the dumb document available in the premises of J.K.Dutta, ignoring the fact that such document is not establishing the nature of payment, to whom the said payment has been made. Since the registered document clearly shows the value of the land, which is on par with fair market value as per stamp duty authorities, the Ld.CIT(A), after considering the relevant facts, has rightly deleted the additions made by the Assessing Officer and it is supported by the order of the assessee’s group case in ITA No.784/Hyd/2020.

We have heard both the parties, perused the material on record and gone through the orders of the authorities below. The Ld.CIT(A) had recorded a categorical finding in light of various evidences filed by the assessee, that there is evidence with the Assessing Officer to allege that the assessee has paid consideration of Rs.23,00,000/- per acre as against the registered sale deed, which shows Rs.6,00,000/- per acre. Further, as per seized documents, there is no evidence of payment of Rs.35,00,000/- to Mr.Mohd Abdul Gafoor and Rs.50,95,000/- to Mr.D.Jithender Reddy. For the balance addition made, there is no evidence as to payment by the assessee. The Assessing Officer, without conducting any independent enquiry has made additions only the basis of documents found in the premises of J.K.Dutta, which does not show any payment to the extent of Rs.1,19,87,500/-. The findings and facts recorded by the Ld.CIT(A) has not been controverted by the Revenue with any evidences, except stating that the Assessing Officer has made addition on the basis of material found from the premises of J.K.Dutta. On perusal of material relied upon by the Assessing Officer and findings given by the Ld.CIT(A), in our considered view, there is no error in the reasons given by the Ld.CIT(A) to delete the additions to the extent of Rs.1,19,87,500/- towards consideration paid for purchase of land.

In this regard, the assessee relied upon the decision of ITAT in the assessee’s own case in for the A.Y.2015-16, where the Tribunal on identical set of facts, delete the additions made by the Assessing Officer towards consideration paid for purchase of agricultural land over and above the stated consideration as per the registered sale deed. Relevant findings of the Tribunal are as under :

In view of this matter and considering the facts and circumstances of the case and also by following the decision of coordinate Bench of ITAT, in assessee’s appeal for the A.Y.2015- 16, we are of the considered view that there is no error in the reasons given by the Ld.CIT(A) to delete the addition to the extent of Rs.1,19,87,500/-, towards consideration paid for purchase of agricultural land. Thus, we are inclined to uphold the findings of the Ld.CIT(A) and reject the grounds taken by the Revenue.

In the result, appeal filed by the Revenue is dismissed.

The Revenue has raised more or less common grounds of appeal for the assessment year 2016-17. The facts and issues involved in this appeal are identical to the facts and issue, which, we had considered in A.Y.2015-16. But for figures, the facts and issues are identical. The reasons given by us in the preceding paragraph No.10 to 17 shall mutatis mutandis apply to this appeal, as well. Therefore, for similar reasons, we are inclined to uphold the order of the Ld.CIT(A) and dismiss the appeals filed by the Revenue.

In the result, appeal filed by the Revenue for the A.Y.2016- 17 is also dismissed.

As a result, appeals filed by Revenue for the assessment years, 2015-16 and 2016-17 are dismissed.