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Facts
The assessee received Rs. 2.50 crores as share application money, which was subsequently forfeited. The Assessing Officer (AO) treated this forfeited amount as unexplained cash credit under Section 68 of the Income-tax Act, 1961, and made an addition to the assessee's income. The CIT(A) deleted this addition.
Held
The Tribunal held that the CIT(A) had correctly appreciated the facts and the evidence produced by the assessee, which demonstrated the genuineness of the transaction. The Tribunal found no correlation between the cash withdrawn by the investor company and the payments made to the assessee, and distinguished share forfeiture from regular book credits. The appeal by the Revenue was dismissed.
Key Issues
Whether the forfeited share application money constituted unexplained credit under Section 68 of the Income-tax Act, 1961, and if the CIT(A)'s deletion of the addition was justified.
Sections Cited
143(3), 68, 56(ix)
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Income Tax Appellate Tribunal, DELHI BENCHES F: NEW DELHI.
Before: SHRIS.RIFAUR RAHMAN & SHRI SUDHIR KUMAR
Order
: 23.01.2026 O R D E R
PER S. RIFAUR RAHMAN, ACCOUNTANT MEMBER :
The Revenue has filed appeal against the order of the Learned Commissioner of Income Tax (Appeals)-34, New Delhi [“Ld. CIT (A)”, for short] dated 15.10.2019 for the Assessment Year 2013-14.
Brief facts of the case are, assessee filed its return of income declaring income of Rs.39,54,870/- on 30.09.2013. The return was processed under section 143(1) of the Income-tax Act, 1961 (for short ‘the Act’). The case was selected for scrutiny and statutory notices u/s 143(2) and 142(1) were issued and served on the assessee along with questionnaire. In response, ld. AR of the assessee attended from time to time and filed relevant information as called for.
During assessment proceedings, AO observed that assessee has obtained share application money of Rs.2.5 crores during the year in cash and the same was forfeited. The assessee was asked to file details of share forfeiture account along with complete details of the applicants. The assessee filed the relevant details before the AO. In this regard, AO observed that assessee was required to file ITR/final audited accounts and confirmation of the company, M/s. Keyplayer Realcon Pvt. Ltd.. He observed that the above said company was recently formed. However, bank statement of this party shows that there are credits in the bank on 03.01.2012 and on 03.04.2012 of Rs.98 lakhs. The assessee was asked to substantiate the credit of Rs.2.50 crores in terms of section 68 and proviso to section 68 inserted by the Finance Act, 2012. Further assessee was asked to provide the basis of share premium of Rs.80 and reasons for forfeiture. In response, assessee has filed the relevant details of issue of share application money and further details of reminders for collection of share allotment money. On such failure from the shareholder, it was submitted that assessee has forfeited the above said share application money by filing Form 2 and Form 5 before the RoC. Assessee also filed ITR-5 and PAN details of M/s. Keyplayer Realcon Pvt. Ltd. along with audit report. However, AO had downloaded the audit report by the jurisdictional officer of the above said company, there are no details of share application money in their books. After considering the submissions of the assessee, the AO was not convinced with the above said submission. He was also not convinced with one of the Directors, namely, Mukesh Kaushik of M/s. Keyplayer Realcon Pvt. Ltd. who had confirmed the forfeiture of the above said amount. AO observed that the shares were forfeited itself in the same financial year. According to him, this raises a very important question as to whether any prudent person would make share application to a private limited company in cash and then have it forfeited. After analyzing the banks statement of the above said company, AO made various observations and he is of the view that the above said company had paid the share application money by cash. By relying on various decisions, he held that assessee has contravened the provisions of section 68 and proviso to section 68 of the Act. Accordingly, he proceeded to make addition of Rs.2.5 crores which were forfeited by the other company as income of the assessee u/s 68 of the Act.
Aggrieved with the above order, assessee preferred an appeal before the ld. CIT (A)-34, New Delhi and also filed various grounds of appeal and also filed detailed submissions before the ld. CIT (A) which is reproduced at pages 8 to 29 of the appellate order. After considering the same, ld. CIT (A) allowed the grounds raised by the assessee with the following observations :- “6.3 I have considered the facts of the case, findings of the AO and submissions of the appellant. During the year under consideration, appellant has received share application money amounting to Rs.2.50 crore which was later on forfeited by the appellant company. The appellant has filed the acknowledgement of return alongwith audit report of Keyplayer Realcon Pvt. Ltd. Form 1 certificate of Incorporation, MOA/ AOA, ledger account of Keyplayer Realcon Pvt. Ltd., ledger account of share capital, share application form for issue of equity shares, application for payment of final call money, letter to Directors of Keyplayer Realcon Pvt.Ltd. for forfeiture of application money, bank account statement of Keyplayer Realcon Pvt. Ltd., affidavit of Mr. Mukesh Kaushik, Director of M/s Keyplayer Realcon Pvt. Ltd. The appellant has submitted that in order to prove identity and creditworthiness of the said party and genuineness of the transaction the appellant produced various documents but AO without considering the documents added the amount received from M/s Keyplayer Realcon Pvt. Ltd. to the gross total income of the appellant by invoking the provisions of section 68 of the Act. It is further submitted by the appellant that bank statement of the said company clearly shows the source of payment made by the said company. The company M/s Keyplayer Realcon Pvt. Ltd., had two credits of Rs.98 lacs each and then certain cash withdrawals were made which were then used to apply shares in the appellant company. There is no cash deposit into the bank account of share applicant company as can be seen from the bank statement. Thus, It was claimed that it clearly proves the source of the source of such transaction. An affidavit duly signed by the Director of the said company was also filed stating that the company had paid Rs.2.50 Crore call money to the appellant company and due to paucity of funds, the said company could not pay the amount of second and final call which goes to establish the genuineness of the transaction. The appellant has also filed Form No. 5 and Form No.2 furnished to ROC reflecting share application money and equity shares forfeited as call money was not paid in spite of reminders. It is observed that appellant has brought necessary evidences on record and only on the basis of non production of the Director of the share applicant company transaction could not be held as non genuine. Appellant has filed the copy of bank account of the share applicant company from which there are sufficient cash withdrawals but there is no instance of any cash deposit and only credit entries through transfer from PACL Ltd appear. The AO has raised the doubt about the credits appearing in the share applicant company but that cannot be the basis for making addition in the hands of the appellant company. It is observed from the return of the share applicant company that it has received the amount from PAC td on account of business transaction and TDS was also deducted on the same. The AO has not brought on record any adverse finding which may prove that credits appearing in the share applicant's account are not genuine or any adverse finding of the investigative agencies. The AO has not made independent enquiry by issuing summon u/s 131 or notice u/s 133(6) to M/s Keyplayer Realcon Pvt. Ltd. It was required on the part of the AO to have undertaken some enquiry and investigation before coming to a conclusion on the issue of creditworthiness. The AO could not establish that money deposited in share applicant's account emanated from the coffers of the appellant. It is held by the judicial authorities that in the absence of any enquiry on the part of the AO, no addition can be made. In the case of the appellant AO had not brought any material on record to dislodge the veracity of the evidences filed by the appellant. It is held by Hon'ble Apex Court in the case of CIT Orissa Vs Orrisa Corporation Pvt. Ltd. (1986) 159 ITR
78. (SC) that, "In this case the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the revenue that the said creditors were the income-tax assessees. Their index number was in the file of the revenue. The revenue, apart from issuing notices under section 131 at the instance of the assessee, did not pursue the matter further. The revenue did not examine the source of income of the said alleged creditors to find out whether they were credit-worthy or were such who could advance the alleged loans. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the assessee could not do any further. In the premises, if the Tribunal came to the conclusion that the assessee had discharged the burden that lay on him, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion was based on some evidence on which a conclusion could be arrived at, no question of law as such could arise. The High Court was, therefore, right in refusing to refer the questions sought for. " ………………………………………………. 6.17 Further, taxing of forfeited money received as advance or otherwise in the course of negotiations for transfer of a capital asset without resulting in transfer of capital asset has been introduced in the statute in section 56(ix) of the act with effect from assessment year 2015-16 onwards. Therefore, the money forfeited by the appellant cannot be taxed in the year under appeal. 6.18 Considering the above facts, legal position and decisions of the judicial authorities, the addition made by the AO on account of share capital forfeiture of Rs.2.50 Crore u/s 68 is not justified and it is hereby deleted.”
Aggrieved with the above order, Revenue is in appeal before us raising following grounds of appeal :- “On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition of Rs.2,50,00,000/- made by the AO U/S 68 of the Income Tax Act, 1961.”
6. At the time of hearing, ld. DR of the Revenue submitted as under :- “1. The case was fixed for final hearing on 12.01.2026. A written submission in the said case is being filed before the Hon'ble Bench. Brief facts of the case are that the assessment u/s 143(3) of the IT Act, 1961 was completed in the case of the assessee by making addition u/s 68 of Rs.2,50,00,000/- being unexplained funds in the hands of the assessee. The assessee had obtained share application money of Rs. 2.50 cr. (Premium at Rs. 80 per share) in cash from M/s Keyplayer Realcon Pvt. Ltd. which was forfeited during the same financial year itself. The submission filed by the assessee were examined but were not found acceptable due to following: 1. Analysis of bank account Copy of the bank account of M/s Keyplayer Realcon Pvt. Ltd. Was obtained from Axis Bank. The same was opened on 22.07.2011 and showed two credits each of Rs. 98,00,000/- on 03.04.2012 and immediately there was cash withdrawal as under: Date Amount (Rs.) 03.04.2012 2,46,000 03.04.2012 41,40,000 04.04.2012 71,02,000 04.04.2012 29,10,500 04.04.2012 53,57,500 04.04.2012 42,30,000 Total 1,96,00,000 The said credits of Rs. 98,00,0001- each on 03.04.2012 were received from PACL Ltd. It is well known in public domain that this company is involved in ponzi schemes and is under investigation by various investigative agencies. No explanation received from the assessee regarding legitimate business transaction between M/s Keyplayer Realcon Pvt. Ltd. and PACL. Further, no invoices, services agreement or business correspondence produced. However the cash was received from M/s Keyplayer Realcon Pvt. Ltd. as under: Date Amount (Rs.) 05.04.2012 36,00,000 11.06.2012 36,00,000 28.08.2012 36,00,000 18.09.2012 36,00,000 20.11.2012 54,00,000 15.12.2012 52,00,000 Total 2,50,00,000 Analysis of ITR of M/s Keyplayer Realcon Pvt. Ltd. Neither the books of accounts nor directors of M/s Keyplayer Realcon Pvt. Ltd. were produced for examination. Only ITR and an affidavit dated Nil on non-judicial stamp paper of Rs.100/- of one Sh. Mukesh Kaushik, alleged to be director of M/s Keyplayer Realcon Pvt. Ltd. has been produced by the assessee, which is a self-serving document/evidence. Perusal of form 3CD of M/s Keyplayer Realcon Pvt. Ltd. shows that the total of the balance sheet of this company for the F.Y. 2012-13 is Rs.815190/- and its turnover/gross receipts are Rs.2,00,00,000/- from sale of services and total compensation to employees to Rs.120000/- conveyance expenses are Rs.58707/-. Audit fee are Rs.7000/- and other expense are Rs.19728771/- out of which job charges are Rs.18054927/- and sites expenses are Rs.1545624/-. This clearly shows that whatever revenue has been generated by M/s Keyplayer Realcon Pvt. Ltd. has gone almost totally towards; expenses this would imply that it would have no money left to make investment in share application money with assessee. The AO relied upon the decisions of the various courts in the cases of CIT vs Durga Prasad More 82 ITR 540(SC). Sanraj Engineering Co. Vs CIT in {2016- TOIL-316-HC-DEL-IT}, CIT vs Nova Promoters & Finlease (P) Ltd. (Delhi High Court), CIT vs N.R. Portfolio {2013-TIOL- 955-HC-DEL-IT}, CITT vs Nipun Builder & Developers P. Ltd. {2013-TIOL- 32-HC-DEL-IT}, CIT-IV vs Focus Exports P. Ltd. {20104-TIOL-1626-HC- DEL-IT} and CIT vs Divine Leasing and Finance Limited (Delhi High Court). Since the identity, credit worthiness and genuineness of the person i.e. M/s Keyplayer Realcon Pvt. Ltd. was not proved and accordingly the AO made the addition u/s 68 of LT. Act, 1961treating the same as unexplained credits. The CIT (A) vide order dated 09.10.2019 deleted the said addition stating that no enquiries had been conducted by the AO during the course of assessment proceedings and that the assessee had produced various documents to prove the identity, genuineness and credit worthiness of M/s Keyplayer Realcon Pvt. Ltd. and that there was no cash deposit in to the bank account of the share applicant as per the bank statement relying on decision of Apex COURT in CIT Orissa vs Orissa Corporation Pvt. Ltd. and NRA Iron and Steel Limited. The decision of the CIT (A) is not acceptable for the reasons here under: 1. All the documents produced by the assessee in respect of M/s Keyplayer Realcon Pvt. Ltd. are self serving documents. 2 No Memorandum of Understanding between the assessee and M/s Keyplayer Realcon Pvt. Ltd. defining the terms and conditions between the said parties with respect to the share application money of Rs. 2.50 Cr. and forfeiture of the same in case of non-payment by the applicant has been submitted.
Minutes of the Board meeting of the assessee company have not been submitted.
The Assessee company is a newly formed company and no basis for the working of the share premium @ Rs.80/- per share has been produced.
The entire share application money has been given in cash for which no evidence has been produced on record.
Forfeiture of the share application money is in the same financial year in which the said of the share application money has been given by M/s Keyplayer Realcon Pvt. Ltd. which is clear indicator of accommodation entry.
No balance sheet of M/s Keyplayer Realcon Pvt. Ltd. has been produced, which is a primary document.
The assessee has failed to allot shares to the extent of share application money received from M/s Keyplayer Realcon Pvt. Ltd.
Perusal of the bank account of M/s Keyplayer Realcon Pvt. Ltd. as on 04.05.2012 (page 82 of the assessee paperbook) shows NIL balance.
As regards, CIT(A) contention that "there was no cash deposit in to the bank account of the share applicant as per the bank statement.", it is submitted that there is nothing on record to show that the assessee was having only one bank account.
Further, as regards, CIT(A) contention that no enquiries had been conducted by the AO during the course of assessment proceedings, it is submitted that the audit report was called for/obtained by the AO from the jurisdictional AO of M/s Keyplayer Realcon Pvt. Ltd. and given to the assessee. Further the bank account statements of the assessee was called for from the bank.
Core point of distinction from the case law of Orissa Capital Corporation relied upon by the CIT (A) is that post 2012 the proviso to section 68 creates dual burden on the assessee as well as investor to explain. This reverses of the older" Onus shift" doctrine of Orissa Corporation. M/s Keyplayer Realcon Pvt. Ltd. has not explained its source through books or producing its director. So much so even the balance sheet of M/s Keyplayer Realcon Pvt. Ltd. has not been produced.
Unlike Orissa Corporation (where revenue made not enquiry,) here the AO has examined the bank statements and audit report/ITR, found PACL sourced credits immediately converted to cash.
Bank pattern is clearly Indicative of Accommodation Entry. Unlike normal investor transactions in Vrindavan Farms etc., here the bank pattern is classic accommodation third-party credit-immediate cash withdrawal onward to assessee. CIT v. Nova promoters explicitly recognized such patterns as indicative of entry arrangements. Assessee's attempt to distinguish Nova Promoters on basis of investigation report is unsuccessful; principle applies when facts show accommodation pattern.
Non production of the M/s Keyplayer Realcon Pvt. Ltd. director and books when the assessee was clearly directed on and 28.03.2016 unlike the cases where creditors was unavailable. Assessee's non-compliance justify adverse inference under N.R. Portfolio principle that onus reverts when assessee fails to respond to AO concerns.
As clarified by Supreme Court in the case of PCIT vs. NRA Iron & Steel (P) Ltd. mere production of PAN, ITR and bank statement is not conclusive prove. The assessee must establish the real identity, creditworthiness and genuineness, not just formal documentary compliance. Thus, in view of the facts detailed above, the share application money of RS.2.50cr. received by the assessee from M/s Keyplayer Realcon Pvt. Ltd. is clearly an accommodation entry and have been rightly assessed u/s 68 of I.T.Act, 1961. Thus in view of the facts discussed in detail above, this written submission may kindly be taken on record and it is prayed that the present appeal of the Revenue be accepted and the decision of Ld. CIT(A) be reversed.”
On the other hand, ld. AR of the assessee brought to our notice ledger account of M/s. Keyplayer Realcon Pvt. Ltd. and ledger account of share capital which is placed at pages 39 & 40 of the paper book. Further ld. AR of the assessee also brought to our notice share application issued during the year which is placed at pages 41 & 42 of the paper book. It also submitted letter dated 05.01.2013 calling for second call money and subsequent reminders dated 15.01.2013 and also 25.01.2013 informing shareholder with regard to forfeiture. Finally, the letter of forfeiture of shares dated 04.02.2013 was also filed being part of the paper book. Further ld. AR has submitted Form 2 and Form 5 filed before the Registrar of Companies (RoC) indicating the allotment of shares and subsequent forfeiture of shares. The assessee also filed copy of Board Resolution for making investment in the assessee company by M/s. Keyplayer Realcon Pvt. Ltd. and also affidavit of the Director of M/s. Keyplayer Realcon Pvt. Ltd. confirming the above transactions. It was submitted that it is a genuine transaction. The AO has made the addition for the simple reason that share application money was issued and invested by M/s. Keyplayer Realcon Pvt. Ltd. by cash. It was submitted that forfeiture of the shares is not an income for the company, it is a reserve which is not capital in nature and it cannot be an income of the assessee. Assessee also submitted its Balance Sheet indicating the forfeiture declared as part of the reserves and surplus in their Balance Sheet and heavily relied on the detailed findings of the ld. CIT (A).
Considered the rival submissions and material placed on record. We observed that it is a fact on record that assessee has issued share applications for 4,00,000 shares to M/s. Keyplayer Realcon Pvt. Ltd. and the allottee also paid the application money on 05.04.2012 of Rs.36 lakhs and again Rs.36 lakhs on 11.06.2012. Further on allotment, it has paid another Rs.36 lakhs on 25.08.2012. Assessee has brought on record details of receipt of application, allotment and first call money from the allottee and also details of forfeiture as under :-
From the above, it is clear that assessee has issued application and received the application money for share as well as share premium and subsequently allotted the shares on 25.08.2012 and further collected first call money till 25.11.2012. There was short fall in the first call money itself and the allottee failed to pay the second and final call on or before 24.12.2012. Assessee also filed before us various communications/letters issued to the allottee and after following the due process of law as per the Companies Act, assessee has forfeited the above shares and filed the relevant Form 5 before the RoC which is placed on record. It clearly shows that the assessee has forfeited shares due to default on the part of the shareholder. The main allegation of the AO was that M/s. Keyplayer Realcon Pvt. Ltd. had two credits of Rs.98 lakhs on 03.04.2012 and it has withdrawn cash to the extent of Rs.1.96 crores on 03.04.2012 and 04.04.2012. Just because they have withdrawn the cash, the AO was of the view that the same cash was invested in assessee’s company whereas in the above chart submitted by the assessee, it clearly indicates that they have received money of Rs.36 lakhs alone on 05.04.2012 and rest of the amounts were received between 11.06.2012 to 15.12.2012. There is absolutely no correlation with the cash withdrawal and payment to the assessee company. It is a matter of share forfeiture which cannot be equated or linked to the regular credits in the books of account which is relating to the regular trading or other credits which may fall under the provisions of section 68. The share forfeiture is different from other credits in the books of account. We observed that assessee has received the payment in different tranches and on failure on the part of the shareholder who failed to follow the schedule of payment for investment, the assessee has properly followed the due process of law as per the Companies Act and forfeited the above shares, as per the law, the same shares can be issued to any shareholder as per the provisions of the Companies Act.
Coming to the issue under consideration, we observed that ld. CIT (A) has appreciated the facts on record and also relied on the confirmation of the Director of M/s. Keyplayer Realcon Pvt. Ltd. and also he has rightly observed that the case under consideration will not fall under proviso to section 68 when the assessee has submitted all the relevant documents for issue of shares during the year. Further the provisions of section 56 (ix) of the Act was introduced only w.e.f. AY 2015-16. Therefore, the impugned forfeiture by the assessee cannot be taxed in the year under consideration. We observed that ld. DR submitted that the funds were received from ‘PACL’, who are involved in the Ponzi Scheme. In our view, this is the transaction between PACL and the investor (M/s. Keyplayer Realcon Pvt. Ltd.). There is no relevance to the transaction with the assessee. Further, we observed that ld. DR heavily relied on the ability to income to make the investment. Whereas the Courts have held that for evaluating the capacity, it is enough to show that the investor has capacity to arrange the investment. In this case, M/s. Keyplayer Realcon Pvt. Ltd. has enough source in their Balance Sheet to make investment in the assessee company. Therefore, after considering the detailed findings of the ld. CIT(A), we do not see any reason to disturb the same.
In the result, the appeal filed by the Revenue is dismissed. Order pronounced in the open court on this 23rd day of January, 2026.
Sd/- sd/- (SUDHIR KUMAR) (S.RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 23.01.2026/TS