Loading judgment…
Facts
The assessee received share application money of Rs. 1,15,00,000/- from M/s Arora Fincap Ltd. The Assessing Officer (AO) treated this as an unexplained cash credit under Section 68, citing the arrest of the share applicant's director for money laundering. The CIT(A) confirmed the addition, finding that creditworthiness and genuineness were not established.
Held
The Tribunal held that the assessee had discharged its onus under Section 68 by providing necessary documents. The AO's doubt was based on the Enforcement Directorate's action against the director, but no concrete evidence linking the impugned transaction to being non-genuine was presented. Consequently, the addition was deemed unjustified.
Key Issues
Whether share application money treated as unexplained cash credit under Section 68 is valid without substantiated adverse material, despite the assessee furnishing documentary evidence and the director of the applicant appearing before the AO.
Sections Cited
68, 143(3), 250
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘A, NEW DELHI
Before: SHRI MAHAVIR SINGH, HONBLE & SMT. RENU JAUHRI, HONBLE
PER RENU JAUHRI : The above captioned appeal is preferred by the assessee against the order dated 17.02.2025, passed by Commissioner of Income Tax (Appeals)- 30 [for short, Ld. CIT(A)], New Delhi u/s 250 of the Income Tax Act, 1961 [hereinafter referred to as, “Act”] for A.Y. 2017-18. Assessment was framed by the Assessing Officer [for short, AO] u/s 143(3) of the Act.
The assessee has raised following grounds of appeal:
1. 2157_DEL_2025_ Sangneriya Spinning Mills Ltd “1. On the facts and circumstances of the case, the order passed by the learned CIT(A) is bad, both in the eye of law and on the facts.
2. (i) On the facts and circumstances of the case, Ld. CIT(A) bas erred both on facts an in law in confirming the addition of Rs. 1,15,00,000/- made by A.O. on account of share application money received during the year under consideration treating the same as unexplained cash credit u/s 68 of the Act. (ii) That the above-said addition has been confirmed ignoring the material and evidences brought on record by the appellant in support of its contention and addition having been made without bringing any adverse material on record.
3. On the facts and circumstances of the case, the Id. IT(A) has erred both on facts and in law in confirming the above said additions rejecting the explanation and evidences brought on record by the appellant to prove the identity and creditworthiness of the share applicants as well as the genuineness of the transaction.
4. On the facts and circumstances of the case, the Id. CIT(A) has erred both on facts and in law in making the above said additions despite the share applicant himself appearing and confirming the transaction before the Assessing Officer.
5. On the facts and circumstances of the case, Ld. CIT(A) has erred both on facts and in law in confirming the addition, which was made on the basis of material collected at the back of assessee without giving it an opportunity to rebut the same in clear violation of principle of natural justice.
6. That the appellant craves leave to add, amend or alter any of the grounds of appeal.”
Brief facts are that the assessee company filed its return for A.Y. 2017-18 3. on 28.05.2018, declaring income of Rs. 4,40,13,910/-. The case was selected for scrutiny for the reason that it had made huge transactions with a company whose registration had been cancelled by MCA.
1. 3.1 The assessee had received total share application money of Rs. 3,00,00,000/- during F.Y. 2016-17 from various entities. On going through the 2 | P a g e
1. 2157_DEL_2025_ Sangneriya Spinning Mills Ltd details, Ld. AO noted that Rs. 1,15,00,000/- had been received from M/s Arora Fincap Ltd. The assessee was asked to prove the identity and credit worthiness of the company and genuineness of the transactions made with it. Summons were also issued to M/s Arora Fincap and its Directors including Sh. Rajeev Singh Kushwaha. Ld. AO noted that Sh. Rajeev Singh Kushwaha, a CA by profession, was arrested by the Enforcement Directorate on the charges of money laundering through shell companies. After examining the financials of M/s Arora Fincap Ltd., the Ld. AO came to the conclusion that it was a shell company of Sh. Rajeev Singh Kushwaha, from which Rs. 1,15,00,000/- have been shown as received by the assessee company. He, therefore, held the same to be bogus and added it u/s 68 of the Act to the assessee’s income.
1. 3.1 Aggrieved, the assessee preferred an appeal before the Ld. CIT(A). After considering the submissions of the assessee, Ld. CIT(A) held that though the identity of the investor company had been proved, its credit worthiness and genuineness of the transactions had not been established. Accordingly, vide order dated 17.02.2025, the appeal of the assessee was dismissed. Further aggrieved, the assessee has filed the present appeal before the Tribunal.
Before us, Ld. AR has vehemently argued that the assessee had fully discharged its onus u/s 68 by furnishing the following details:
1. 2157_DEL_2025_ Sangneriya Spinning Mills Ltd i. Copy of ledger account of M/s Arora Fincap Limited in the books of Sanganeriya Spinning, Mills Ltd. for the A.Y. 2017-18 showing the receipt of share application money and allotment of shares . ii. Copy of Bank account statement of M/s Arora Fincap Limited showing the payment of share application money. iii. Copy of Bank account statement of M/s Sanganeriya Spinning Mills Limited showing the receipt of snare application money PB Pg 101-102 iv. Copy of Audited balance sheet of M/s Arora Fincap Limited for the year ending 31st March 2016. v. Copy of Form PAS-3 i.e. Return of allotment filed with the ROC along with payment challan, Copy of Board Resolution & List of allotee with their complete address, confirming the allotment of shares to M/s Arora Fincap Limited. vi. Copy of share allotment letter of shares issued to M/s Arora Fincap Limited. vii. Copy of share certificate issued to M/s Arora Fincap Limited. viii. Copy of Register of members i.e. Form MGT-1 showing the registered folio number, number of shares, date of becoming member, date of allotment, distinctive number of shares allotted, share certificate number, total amount paid in respect of M/s Arora Fincap Limited. ix. Certified list of shareholders of Sanganeriya Spinning Mills Limited as on current date (28.11.2019) showing the numbers of shares held by M/s Arora Fincap Limited & percentage thereof.
2157_DEL_2025_ Sangneriya Spinning Mills Ltd x. Copy of certificate of incorporation and AOA and MOA of Arora Fincap Ltd. xi. Copy of notice issued by Registrar of Companies, NCT of Delhi & Haryana dated 08.08.2018 (FY 2018-19) stricking off the name of M/s Arora Fincap Limited from the register of companies.
5. Ld. DR has further submitted that the statement of the director of the share applicant, M/s Arora Fincap Ltd, has also been recorded by the Ld. AO who had duly confirmed the transaction. However, the Ld. AO relied on information obtained from the public domain regarding action of the Enforcement Directorate [for short, ED] on Shri Rajeev Singh Kushwaha, Director of M/s Arora Fincap Ltd on the allegations of money laundering but the same was not confronted to the assessee. Even otherwise, the action of ED, if any against the Director of M/s Arora Fincap Ltd is not in anyway connected to the assessee company. The allegations, as per the information available in public domain, pertain to money laundering by illegal conversion of demonetized notes by Shri. Rajeev Singh Kushwaha but the assessee’s name is not mentioned in the action taken by the ED. In view of these facts, Ld. AR has argued that the impugned addition is liable to be deleted.
4.1 On the other hand, Ld. DR has strongly relied on the orders of the lower authorities and has pointed out that the action of ED against M/s Arora Fincap Ltd and its Director Shri Rajeev Singh Kushwaha pertained to the same financial
2157_DEL_2025_ Sangneriya Spinning Mills Ltd year in which the impugned transaction with the assessee company had been made and the Ld. AO was justified in doubting the genuineness of the impugned transaction in this backdrop.
We have heard the rival submissions and perused the material placed on record. It is seen that the assessee had furnished the requisite documents to discharge its primary onus u/s 68 of the Act. However, the basis of addition by Ld. AO was the action of the ED on the Director of M/s Arora Fincap Ltd. which led him to doubt the genuineness of the transaction made by it with the assessee.
5.1 In view of above factual matrix, Ld. DR was directed by the bench to furnish the report of the ED or any other information regarding the action of the ED available with Ld. AO based on which the impugned transaction has been held to be bogus. We note from the report of Ld. AO filed before us that during the course of hearing, no such information was available to indicate that the impugned transactions were found to be non-genuine by the ED.
5.2 After considering the entirety of the facts and circumstances, we note that the initial onus to prove the identity and credit worthiness of the share applicant company and genuineness of the transaction had been duly discharged by the assessee. In view of the settled legal position in this regard, we hold that no addition u/s 68 could be made in the hands of the assessee, in the absence of any further inquiry by the Ld. AO to conclude that the impugned transactions were 6 | P a g e
2157_DEL_2025_ Sangneriya Spinning Mills Ltd non-genuine. Accordingly, the addition of Rs. 1,15,00,000/- made by the Ld. AO u/s 68 of the Act and confirmed by Ld. CIT(A) is held to be not justified and the same is hereby deleted.
In the result, the appeal of the assessee is allowed. Order pronounced in the Open Court on 28 -01-2026.