ACIT-1(1), INDORE vs. RANBIR SINGH, INDORE

आदेश/ O R D E R

Per B.M. Biyani, A.M.:

Feeling aggrieved by order of first appeal dated 07.03.2024 passed by learned Commissioner of Income-Tax (Appeals), National Faceless Appeal Centre, Delhi [“CIT(A)”] which in turn arises out of assessment-order dated 22.12.2019 passed by learned DCIT/ACIT 3(1), Indore [“AO”] u/s 143(3) of Income-tax Act, 1961 [“the Act”] for Assessment-Year [“AY”] 2017-18, the revenue has filed this appeal.

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Ranvir Singh ITA No. 385/Ind/2024 – AY 2017-18 2. The background facts leading to present appeal are such that the

assessee-individual is engaged in civil construction (contract) business

under the name and style of M/s Saiji Constructions, a proprietorship

concern. For AY 2017-18, the assessee filed his return declaring total

income of Rs. 20,08,360/-. The case was selected under scrutiny and

notices u/s 143(2)/142(1) were issued which were complied by assessee.

Ultimately, the AO passed assessment-order u/s 143(3) determining total

income at Rs. 2,22,99,719/- after making certain additions. Aggrieved, the

assessee carried matter in first-appeal and got full relief. Now, the revenue

has come in next appeal before us assailing the order of CIT(A).

“1. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in law in deleting the addition of Rs. 1,39,01,463/- u/s 68 of the Act made by AO without appreciating the facts that assessee failed to prove the identity, creditworthiness, and genuineness of the introduction of capital out of Debtors. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in law in deleting the addition of Rs. 10,50,410/- u/s 68 of the Act made by AO without appreciating the facts that the assessee failed to furnish any documentary evidences for e.g. stock register, sales register, purchase register, sales of stock register for purchase, transportation of bills etc. in support of his submission during assessment and appeal proceedings.” Ground No. 1:

deleting the addition of Rs. 1,39,01,463/- made by AO u/s 68 on account of

unexplained capital in the form of sundry debtors.

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Ranvir Singh ITA No. 385/Ind/2024 – AY 2017-18 5. The AO has made this addition vide Para No. 4 of assessment-order.

Precisely the issue is such that during assessment-proceeding, the AO

observed that the assessee has increased opening capital as on 01.04.2016

by Rs. 1,39,01,463/- by transfer of sundry debtors as on 31.03.2016 from

his personal books to proprietorship concern and show-caused assessee to

explain the same. In response, the assessee submitted that in order to show

a better picture of proprietorship concern and obtain contracts from

government, he has transferred business debtors standing in his personal

statement of affairs to proprietorship concern. The assessee also filed

Balance Confirmations Letters of three debtors, namely (i) M/s Dilip

Buildcon Ltd – Rs. 1,32,13,943/-, (ii) M/s Gayatri Projects Ltd. – Rs.

4,96,217/-, and (iii) M/s IVRCL Ltd. – Rs. 1,91,304/- from whom aggregate

amount of Rs. 1,39,01,484/- was receivable as on 31.03.2016. However, the

AO rejected assessee’s submission and treated the increase in capital as

unexplained and made addition u/s 68 r.w.s. 115BBE.

and filed the same documents as filed to AO. The CIT(A) considered

assessee’s submission supported by documents and deleted addition.

under:

“Ground No.2:- The ground of appeal is directed against addition of Rs. 1,39,01,463/- u/s 68 of the Act by the Ld. AO. During the course of assessment proceedings, the Ld. AO had sought the detailed documentary evidences and reasons for the increase in the capital of the assessee. The Ld.

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Ranvir Singh ITA No. 385/Ind/2024 – AY 2017-18 AO could give the finding that the identity, creditworthiness and genuineness of the introduction of capital out of debtors of previous years shown to be transferred from individual books and shown as net of receipts by assessee is not genuine and no justification hence was put forth by the assessee. Consequently, an addition of Rs.1,39,01,463/- was made to the total income of the assessee u/s 68 r.w.s. 115BBE of the Act. As on 31.03.2016, a total of INR 1,39,01,464/- sundry debtors were outstanding in the personal books which were added back by the Ld. AO as below:-

Name of debtor Amount due M/s Dilip Buildcon Ltd. INR 132,13,943/- M/s Gayatri Projects Ltd. INR 4,96,217/- M/s IVRCL Ltd. INR 1,91,304/- Total INR 1,39,01,484/-

The appellant has filed confirmation letters from his debtors namely M/s Dilip Buildcon Limited, M/s Gayatri Projects Limited and M/s IVRCL Limited alongwith bank statements showing these business transactions during assessment proceedings itself. From the perusal of Form 26AS for AY 2017-18, it can be seen that TDS u/s 194C of the Act has been duly deducted by 2 out of the 3 Debtors viz. Dilip Buildcon Ltd and Gayatri Projects Ltd. The Ld. AO in his remand report has commented that no adverse inference can be drawn from these documentary evidences. It is pertinent to mention that the appellant had transferred his personal assets in the beginning of A.Y.2017-18 in order to increase net worth of the proprietary firm. The appellant has submitted the Audited Balance Sheet and P&L Account to substantiate his claims. In view of the same, the business debtors and stock-in-trade that were outstanding in the personal books as on 31.03.2016 (i.e. at the end of previous F.Y.) were now in the books of his sole proprietorship firm namely M/s Saiji Construction. From the submissions made by the assessee before the Ld. AO, it is seen that the appellant had submitted not only details of names of debtors but also the balance confirmation letters from the parties in question. It is further seen that transfer of outstanding debtors from the individual books to the books of his sole proprietorship firm is merely a journal entry and this increase in capital does not represent any fresh infusion of funds which may form the definition of cash credits u/s 68 of the Act. Hence, the Ld. AO was not correct in invoking the provision of section 68 of the Act as the source of the

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Ranvir Singh ITA No. 385/Ind/2024 – AY 2017-18 funds were well explained by the assessee and he had to only rely and tally the books of accounts of the assessee. Reliance is placed on the order of Hon'ble ITAT Pune in the case of ITO vs. Hindustan Breweries and Bottling Pvt. Ltd. in ITA No. 1673/PUN/2019 dated 01.06.2023 wherein the Hon'ble ITAT was examining the case of the assessee having received fresh share capital amounting to Rs. 6.00 crore through journal entries. The Hon'ble Tribunal noted that the said entries merely represented a transformation of unsecured loans into equity share capital. It was observed that the credit to share capital was only through these journal entries and not by actual monetary transaction. Furthermore, the Hon'ble ITAT dismissed the addition of Rs. 6.00 crore made by the AO u/s 68, emphasizing that a mere journal entry does not necessitate an addition under this section. This ruling reinforced that, unless there is tangible evidence of actual monetary transaction, a mere transfer entry should not trigger addition u/s.68 of the Act. In view of the facts and the circumstance as stated above, the addition of Rs.1,39,01,464/- made by Ld. A.O. u/s 68 of the Act is hereby deleted. The ground of appeal no.2 is allowed.” 8. During hearing before us, Ld. AR for assessee referred following

documents filed in Paper-Book qua the three debtors:

(i) Page 10 of Paper-Book – Copy of Balance Confirmation Letter dated

11.12.2019 issued by M/s Dilip Buildcon Limited on their letter head,

duly sealed and signed by their authorized signatory, showing credit

balance of Rs. 1,32,13,943/- payable to assessee as on 31.03.2016;

(ii) Page 8 – 9 of Paper-Book – Copies of two Balance Confirmations

Letters dated 14.12.2019 issued by M/s Gayatri Projects Ltd. on their

letter head, duly sealed and signed by their Manager - Accounts,

showing credit balance of Rs. 79,600/- (+) Rs. 4,16,617/- =

4,96,217/- payable to assessee as on 31.03.2016.

(iii) Page 11 – 17 of Paper-Book – Copies of documents of claim lodged

by assessee as ‘operational creditor’ to NCLT for recovery of sum of Rs.

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Ranvir Singh ITA No. 385/Ind/2024 – AY 2017-18 1,31,034/- from M/s IVRCL Ltd. since the said debtor is under the

corporate insolvency resolution process. At Pages 15-17 of Paper-Book,

the assessee has attached a copy of Ledger A/c extracted from books

of account of M/s IVRCL Ltd. for the period 01.04.2011 to 31.03.2013

showing a credit balance of Rs. 1,33,052.73 payable to assessee as on

30.06.2012. Ld. AR narrated that the assessee is claiming due of Rs.

1,31,034/- from M/s IVRCL Ltd. whereas M/s IVRCL Ltd. is showing

a sum of Rs. 1,33,052/- payable to assessee, the small difference is on

account of some accounting adjustments.

Thus, Ld. AR submitted, the amounts receivable by assessee from all three

debtors is fully evidenced by above documents. Ld. AR submitted that the

outstanding debtors as on 31.03.2016 were only transferred to the books of

proprietary concern of assessee as on 01.04.2016 by way of transfer entry

by crediting assessee’s capital a/c. Ld. AR further submitted that the

assessee has also filed Ledger A/c of M/s Dilip Buildcon Limited at Pages

40-46 of Paper-Book and Ledger A/c of M/s Gayatri Projects Ltd. at Pages

48-50 of Paper-Book for the financial year 2016-17 from which it is clearly

discernible that those debtors were subsequently recovered through banking

channel and there is no cash receipt. So far as M/s IVRCL is concerned, the

assessee has only filed claim before NCLT and there is no recovery. Ld. AR

thus submitted that the impugned debtors as on 31.03.2016/01.04.2016

are fully supported by evidences and the AO’s order treating the same as

unexplained and making addition u/s 68 is bad. Ld. AR submitted that the

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Ranvir Singh ITA No. 385/Ind/2024 – AY 2017-18 CIT(A) has passed a proper order after taking into accounts documents of

assessee and there is no error or perversity in CIT(A)’s order, hence the same

must be upheld.

perused the orders of lower authorities as well as the documents narrated

above to which our attention has been drawn. The dispute here is qua the

addition of Rs. 1,39,01,463/- made by AO but deleted by CIT(A) in first-

appeal. Admittedly, the assessee has passed a journal entry in the books of

his proprietorship concern M/s Saiji Construction on 01.04.2016 by

bringing outstanding debtors from his personal books to the books of

proprietorship concern and thus increased his capital in the books of

proprietorship concern. The assessee has not filed ‘Statements of Affairs as

on 31.03.2016’ or ‘personal books of financial year 2015-16’ to Income-tax

Department and hence it has given rise to a controversy as to whether the

debtors of Rs. 1,39,01,463/- being claimed by assessee as on 31.03.2016

are genuine or not. The assessee has, however, given the names of three

debtors from whom the total sum of Rs. 1,39,01,463/- was receivable and

also filed supporting evidences to AO. The evidences were also filed to CIT(A).

The assessee has also filed evidences in Paper-Book which are in the form of

Balance Confirmation Letters of M/s Dilip Buildcon and M/s Gayatri

Projects and documents of claim lodged before NCLT against M/s IVRCL Ltd.

Thus, there are sufficient documentary evidences to prove the assessee’s

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Ranvir Singh ITA No. 385/Ind/2024 – AY 2017-18 claim of debtors. Although the AO rejected assessee’s claim of debtors and

made addition but the CIT(A) reversed AO’s action on a vehement

consideration of assessee’s documents. In the situation, we do not find any

error, illegality or perversity in CIT(A)’s order. Hence, the impugned order

passed by CIT(A) deleting the addition is upheld. Ground No. 1 of revenue is

accordingly rejected.

Ground No. 2:

deleting the addition of Rs. 10,50,410/- made by AO u/s 68 on account of

unexplained capital in the form of stock.

of lower-authorities qua this issue. The AO has made this addition vide Para

No. 6 of assessment-order. He has noted that the assessee has increased

opening capital as on 01.04.2016 by claiming transfer of stocks of Rs.

10,50,410/- from his personal books to proprietorship concern. The AO

show-caused assessee to explain the same. The assessee filed a reply but

the AO, on consideration, found that the assessee has not filed any detail or

evidence of stock holding. Accordingly, the AO rejected asessee’s submission

and made addition. During first-appeal, the CIT(A) has deleted addition and

granted relief to assessee although there was no detail or document of stock

before him. During hearing before us also, the position of assessee remains

same. Ld. AR for assessee expressed in open court assessee’s inability to file

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Ranvir Singh ITA No. 385/Ind/2024 – AY 2017-18 any detail or document in support of holding of stock of Rs. 10,50,410/- as

on 31.03.2016 except relying upon the “Statements of affairs as on

31.03.2016” filed by assessee to lower authorities. Here is it a fact that the

said ‘Statement of Affairs’ was never filed to income-tax department in

earlier financial year 2015-16. Furthermore, the assessee is not having any

detail or evidence whatsoever to support the holding of stock. Being so, the

assessee’s claim of holding of stock remains unsubstantiated. We therefore

agree with AO’s action. The CIT(A)’s order is, in our view, not correct in so

far this issue is concerned. Therefore, we uphold the addition made by AO.

The Ground No. 2 raised by revenue is allowed.

Order pronounced in open court on 17/06/2025

Sd/- Sd/-

(PARESH M. JOSHI) (B.M. BIYANI) JUDICIAL MEMBER ACCOUNTANT MEMBER

Indore

िदनांक/Dated : 17/06/2025

Patel/Sr. PS Copies to: (1) The appellant (2) The respondent (3) CIT

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Ranvir Singh ITA No. 385/Ind/2024 – AY 2017-18 (4) CIT(A) (5) Departmental Representative (6) Guard File By order E COPYSr. Private Secretary Income Tax Appellate Tribunal Indore Bench, Indore

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