ASSISTANT COMMISIONER OF INCOME TAX CENTRAL CIRCLE-3(4), HYDERABAD vs. ASMA ESTATES & INVESTMENTS PRIVATE LIMITED , HYDERABAD

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.12,06,25,000/- was received from Falcon Jersey Pvt.Ltd. During the financial year, relevant to the assessment year 2011-12, the assessee company has received investment / advance of Rs.3,18,75,000/- into its Axis bank account from M/s Falcon Jersey 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 Falcon Jersey 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.3,18,75,000/-. 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 statement of Mr.Mahendra, one of the directors of the company was recorded on oath on 27.09.2017. Mr. Mahendra, in his statement stated that he was an accountant, working in the office of M/s B.Aggarwal & Co., a Chartered Accountancy firm and Mr.Kapil Aggarwal, Chartered Accountant is the Managing Partner of this firm. 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 Falcon Jersey 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.3,18,75,000/- 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 153A / 153C by the Assessing Officer of the searched person and the Assessing Officer of the assessee 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 Falcon Falcon Jersey 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 153C of the Act, held that, upon careful examination of the satisfaction note, it is seen that the Assessing Officer relied upon the material found during the course of search from the residence of Mr.Ajaz Farooqi and from the residence of Jayanta Kumar Dutta, however, the said incriminating material pertains to copy of MOU dated 10.02.2010 at page 104 to 106 and the same does not contain details of investment as mentioned by the Assessing Officer. Further, incriminating material referred to Annexure A/JKD/RES/04 and 05 contains working copies of back up of 4 pen drives, which contains relevant cheque books and bank account details, however, the same cannot be considered as incriminating material in nature, for the purpose of section 153C of the Act. Therefore, by following the decision of Hon'ble Supreme Court in the case of Sinhgad Technical Educational Society Vs. CIT (2017) 397 ITR 344 (SC) quashed the assessment order passed by the Assessing Officer.

The Ld.CIT(A) had also deleted the additions made by the Assessing Officer towards investment received from M/s Falcon Jersey 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 153C 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).

Having said so, let us come back to whether the additions made the Assessing Officer towards / investment in the absence of incriminating material is sustainable under law. It is well settled principle of law by the decision of Hon’ble Supreme Court in the case of Principal Commissioner of Income-Tax Vs.Abhisar Buildwell (P.) Ltd., where it has been clearly held that in the absence of incriminating material, no additions can be made, in respect of completed assessment. In the present case, assessment for the year under consideration was completed / unabated as on the date of search, which is evident from the date of search in the present case, i.e. 04.12.2017 and by that time, the time limit u/s 143(2) of the Act was expired. Therefore, once assessment is unabated / concluded as on date of search, then there can not be any additions in the assessment framed u/s 153A / 153C, in the absence of any incriminating material. Since the Assessing Officer has not considered any incriminating material for making additions towards advances received from M/s Falcon Jersey Pvt.Ltd., as unexplained credit u/s 68 of the Act, in our considered view, the additions made by the Assessing Officer cannot be sustained on this count also. Therefore, we direct the Assessing Officer to delete the additions made towards amount received from M/s Falcon Jersey Pvt.Ltd u/s 68 of the Act.

Coming back to the issue on merit. Admittedly, the appellant company has received investment from M/s Falcon Jersey Pvt.Ltd., and to prove the said investment, has filed name and address of the investor companies, PAN, financial statements and also confirmation letters and proved the initial onus cast upon, in terms of section 68 of the Act. Once the initial onus is discharged by the assessee, then the onus shifts to the Assessing Officer to prove otherwise. In the present case, although the assessee has filed relevant evidences and proved all three ingredients provided u/s 68 of the Act, but the Assessing Officer made addition as unexplained cash credit only on the basis of denial statement of few persons of investor companies, without confronting those statements to the assessee for its rebuttal and cross-examination. Further, it is well settled principle of law by the decision of Hon’ble Supreme Court in the case of CIT Vs.Lovely Exports, 216 CTR 195 (SC), where it has been clearly held that if the share application money is received by the assesse company from alleged bogus shareholders, whose names are given to the Assessing Officer, then the department is free to proceed to reopen their individual assessment, in accordance with law but this amount of share money cannot be regarded as undisclosed income u/s 68 of the Act. This view is further supported by the decision of Hon’ble Supreme Court in the case of Pr. CIT vs. Chain House International (P) Ltd. (2019) 103 taxmann.com 435 (SC). From the above, it is undisputedly clear that the AO is erred in making additions towards advances 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. 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 both the assessment years. Therefore, for the sake of brevity, grounds of appeal filed for the A.Y.2013-14 are extracted as under :

The brief facts of the case are that the assessee company M/s Asma Estates & Investments Pvt.Ltd., is engaged in the business of investment in real estate and infrastructure projects, filed its return of income for the A.Y.2013-14 on 29.09.2013, declaring total income of Rs.9,93,990/- and the same was processed u/s 143(1) of the Income Tax Act, 1961 (“the Act”). A search and seizure operation u/s 132 of the Act was conducted in the case of Ajaz Farooqi and his related concerns on 04.07.2017. During the course of search at the residential premises of Jayanta Kumar Dutta, GM Finance of M/s KVR Rail Infra Projects Pvt.Ltd., certain incriminating material was found and seized vide Annexure A/JKD/RES/04 and A/JKD/RES/05. During the course of search assessment proceedings in the case of Jayanta Kumar Dutta, the seized material was verified and found that the material seized pertains to M/s Asma Estates & Investments Pvt.Ltd. and has a bearing on the total income for the year under consideration and therefore, the Assessing Officer of the searched person has recorded satisfaction u/s 153A of the Income Tax Act, 1961 (“the Act”) and forwarded the same to the Assessing Officer of the assessee along with the copy of the seized material on 14.02.2019. After receiving and further verification of the satisfaction note and copies of seized material, the Assessing Officer recorded satisfaction as required u/s 153C, with reference to seized material and found that the assessee company has received advances / investments from M/s Surbhi Mercantile Pvt. Ltd. and 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 26.03.2019 by admitting total income of Rs.2,93,990/-

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 M/s Surbhi Mercantile Pvt.Ltd. During the financial year, relevant to the assessment year 2013-14, the assessee company has received investment / advance of Rs.2,50,00,000/- into its Axis bank 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.2,50,00,000/-. 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 statement of Mr.Mahendra, one of the directors of the company was recorded on oath on 27.09.2017. Mr. Mahendra, in his statement stated that he was an accountant, working in the office of M/s B.Aggarwal & Co., a Chartered Accountancy firm and Mr.Kapil Aggarwal, Chartered Accountant is the Managing Partner of this firm. 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 Falcon Jersey 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.2,50,00,000/- u/s 68 of the Act as unexplained cash credit.

Being aggrieved by the assessment order, assesse preferred appeal before the CIT(A). Before the CIT(A) the assesse challenged the additions made by the Assessing Officer towards advance / investments received from M/s Surbhi Mercantile Pvt. Ltd, in light of relevant evidences including MOU between the assessee and the investor companies, confirmation letter along with financial statements filed for the investor company and also bank statement and argued that the Assessing Officer erred in making additions towards amount received from Delhi based companies, only on the basis of enquiries conducted during post search investigation on investor companies, including various evidences filed by the assessee to prove the creditworthiness. The Ld.CIT(A), after considering the submissions of the assessee and taking note of certain judicial precedents, deleted the additions made by the Assessing Officer towards investment as unexplained cash credit u/s 68 of the Act. Relevant findings of the Ld.CIT(A) are as under :

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

The Ld.Sr.AR, Shri Srinath Sadanala, submitted that the Ld.CIT(A) erred in deleting the addition of Rs.2,50,00,000/- 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.DR, referring to various facts brought on record by the Assessing Officer, submitted that although the assessee filed a copy of MOU dated 20.07.2012, separately entered into agreement with M/s Surbhi Mercantile Pvt. Ltd for investment, but the fact remains that the said MOU was not registered and the original was 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 letter from investor company, however, ignored the fact that enquiries conducted u/s 133(6) did not result in any response from M/s Surbhi Mercantile Pvt. Ltd 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 M/s Surbhi Mercantile Pvt. Ltd 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 fact 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 MOU between the parties, even though the MOU clearly shows 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 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) 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 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.

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

The facts and issues involved in this appeal are identical to the facts and issue, which, we had considered in for the A.Y.2013-14. But for figures, the facts and issues are identical. the reasons given by us in the preceding paragraph No.21 to 23 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 appeal filed by the Revenue.

In the result, appeal filed by the Revenue for the A.Y.2014- 15 is also dismissed.

As a result, appeals filed by Revenue for the assessment years, 2011-12, 2013-14 and 2014-15 are dismissed.