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Facts
The assessee, IRIS Realty LLP, challenged an addition of Rs. 27,00,000 made by the Assessing Officer (AO) under section 68 of the Income Tax Act, 1961. This addition pertained to capital introduced by two directors/shareholders, Shri Ajit Isaac and Shri K. Sarath Reddy, for equity shares. The AO made the addition because the assessee allegedly failed to provide sufficient evidence to prove the genuineness, identity, and creditworthiness of these investors.
Held
The Tribunal admitted additional evidence filed by the assessee, which included bank statements, Form 16, and ITR-Vs of the two directors/shareholders. The Tribunal found that this evidence suggested the directors had adequate funds for the investment. Consequently, the matter was restored to the AO for factual examination and to allow the claim if substantiated by the new evidence.
Key Issues
Whether the addition of Rs. 27,00,000 under section 68 for unexplained share capital is sustainable without proper appreciation of additional evidence. Whether the assessee is entitled to set-off of losses of Rs. 8,39,115.
Sections Cited
68, 234A, 143(3), 115BBE, 271AAC
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI GEORGE GEORGE KAND MS PADMAVATHY S
आदेश/ O R D E R
PER GEORGE GEORGE K, VICE PRESIDENT:
This appeal filed by the assessee is directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 04.11.2025 passed
2. The grounds raised read as follows:- 1. The order of the Learned CIT(A)-NFAC dated 04.11.2025 is erroneous, contrary to law, and opposed to the principles of natural justice.
The Assessment Order passed in the name of non-existing entity is illegal, void and deserves to be quashed. Despite the fact that IRIS Realty Private Ltd was converted into IRIS Realty LLP vide ROC Certificate in Form 19 dated 23-03-2018 was intimated to AO vide letter dated 27-01- 2021, the assessment notices were issued and assessment order was passed in the erstwhile company name.
3. The CIT(A) erred in upholding the addition of ₹27,00,000 under section 68 despite the shareholders are high net worth individuals and the appellant having furnished complete documentary evidence establishing their identity, credit-worthiness, genuineness and source for the funds invested.
4. The above investments were received through normal banking channels and the Bank statements reflecting the credit entries with the names of the respective investors were furnished to the Assessing Officer (AO) vide reply Acknowledgement No. 27012113943541 dated 27.01.2021.
5. The CIT(A) and the AO failed to consider the reply dated 05.03.2021 along with the supporting documentary evidence filed therein.
6. The learned CIT(A), while acknowledging that the AO granted only 2 working days (notice issued on 19.02.2021 calling for details by 22.02.2021, with intervening weekend) as against minimum time of 7 days/15 days required to be given as per CBDT's SOP on faceless assessment procedure vide F.No. Pr.CCIT (NeAC)/2019-20/343 dated 19- 11-2020, erred in upholding the AO's refusal to consider the reply filed on 05.03.2021.
7. The CIT(A) erred in holding that the evidence was insufficient, despite the filing of:
Form 16 of Mr. K. Sarath Reddy, and Bank statement of Mr. Ajit Isaac evidencing salary credits and investment outflow, submitted on 05.03.2021 (Notice reply Ack. No. 05032114365663).
8. The CIT(A) ought to have appreciated that the Loss of (-)Rs.8,39,115/- claimed in ITR and confirmed in Sec 143(3) order DIN ITBA/AST/S/143(3)/2020-21/1031292247(1) Dated 07-03-2021, but the said loss was not given effect in the computation sheet of AO vide DIN ITBA/AST/S/186/2020-21/1031292253(1) Dated 07-03-2021.
It is submitted that interest u/s.234A of the Act amounting to Rs.2,28,052/-has been wrongly levied by the Assessing Officer without appreciating that there is no default in furnishing the ROI.
The Appellant craves leave to add, alter, amend, modify, or withdraw any ground at the time of hearing
Ground Nos.1 and 10 are general in nature and no specific adjudication is called for, hence, they are dismissed. Ground No.9 is regarding charging of interest u/s.234A of the Act. Charging of interest u/s.234A of the Act is consequential in nature and hence, Ground No.9 is rejected. We shall first adjudicate Ground Nos.3 to 7 on merits namely addition of Rs.27,00,000/- u/s.68 of the Act.
Brief facts in relation to the above issue is that assessee is a company engaged in the real estate business. The assessment u/s.143(3) r.w.s 143(3A) & 143(3B) of the Act completed on 07.03.2021 by making addition of Rs.27,00,000/- u/s.68 of the Act 4 -: SA No.142/Chny/2025 on account of funds received from the two directors cum shareholders of the assessee company namely Shri Ajit Isaac and Shri K Sarath Reddy of Rs.13,50,000/- each for allotment of equity shares in the company.
The relevant finding of the AO for making addition of Rs.27,00,000/- reads as follows:- “Regarding introduction of capital, the assessee has submitted vide its reply that amount of Rs.13,50,000/- was received from Sh. Ajit Isaac and Rs. 13,50,000/-received from Sh. K. Sarath Reddy. As per bank account of the assessee company. these amounts were received through banking channels to the assessee, but assessee failed to provide the bank account statements of said Sh. Ajit Isaac and Sh.K. Sarath Reddy to prove the genuineness, identity and creditworthiness of the said persons from whom the said amounts of Rs. 13,50,000/- each were received. Vide letter dated 19.02.2021, the assessee was specifically asked to prove the identity and creditworthiness of the Sh. AjitIsaac and Sh. K. Sarath Reddy, but no details/reply has furnished in response thereto which means that assessee has nothing to say in the matter.
Thus, assessee has failed to prove the identity and creditworthiness of the persons i.e. Sh. Ajit Isaac and Sh. K. Sarath Reddy. As per provisions of section 68 of the I.T. Act. 1961, it has been provided as under:- “42 where any sum is found credited in books43 of an assessee maintained for any previous year, and the assessee offers no explanation43 about the nature and source thereof or the explanation offered by him is not, in the opinion of the 44(Assessing) Officer, satisfactory, the sum so credited may43 be charged to Income-Tax as the Income of the assessee of that previous year:"
Thus, it is seen that in case assessee fails to prove the sources of any amounts credited in the books of account in respect of any party to the satisfaction of the Assessing Officer, the amount is liable to be added back to the taxable income of the assessee. It is further observed that the 5 -: SA No.142/Chny/2025 relevant sources of the amounts credited in the books of accounts have to be proved w.r.t. not only the sources of origin of the funds but the creditworthiness as well as potential of the payers of the funds has also to be proved. In the absence of the same, the amount has to be assessed as unaccounted income/cash credits under the provisions of section 68 of the I.T. Act, 1961. Hence, the amount. Hence, the amount of Rs. 27,00,000/- is being capital introduced of Rs. 13,50,000/- each by ShriAjitlssac& K Sarath Reddy added to the taxable income of the assessee u/s 68 of the Income-tax Act, 1961 at special rate u/s115BBE Further, penalty proceedings are being initiated u/s 271AAC of the Income-tax Act, 1961on account of addition made under the deeming provisions of section 68 of the Act.”
Aggrieved by the above addition, assessee raised this issue before the First Appellate Authority (FAA). The FAA confirmed the addition made. The relevant finding of the FAA reads as follows:- “The assessee has challenged the addition of Rs. 27,00,000 made by the Assessing Officer u/s 68, contending that all necessary documents were filed online and that both investors were identifiable salaried individuals.
During appellate verification, it is noticed that although the assessee claims to have uploaded certain documents, no contemporaneous proof such as acknowledgment, portal screenshots, or e-mail trail has been furnished to substantiate this claim. Even assuming some papers were uploaded belatedly, the same were beyond the stipulated time limit of 22- 02-2021. The Assessing Officer cannot be blamed for not considering submissions filed after expiry of statutory opportunity.
Further, the evidence referred to in appeal a partial Form 16 of one investor and an extract of bank statement of another showing regular salary credits does not establish the financial capacity of either person to invest Rs. 13,50 lakh each. No complete bank statement, balance sheet, ITR, or confirmation from the investors is available. The alleged payments are not supported by any fund trail showing withdrawal from the Investors' accounts and deposit into the company's account. Thus, both the credit- worthiness and genuineness of the transactions remain unverified.
6 -: SA No.142/Chny/2025 As per settled law, the onus to prove the three essential conditions under section 68 lies squarely on the assessee. Mere receipt through banking channels or production of partial salary evidence is insufficient. The assessee has not discharged this burden. The Assessing Officer's satisfaction that the explanation offered was unsatisfactory is, therefore, well founded. Accordingly, the addition of Rs. 27,00,000 u/s 68 representing unexplained share-capital is confirmed.”
Aggrieved by the order of the FAA, assessee has filed the present appeal before the Tribunal. The assessee has filed a petition for admission of additional evidences. The Ld.AR submitted that the relevant details were furnished by the assessee company during the course of assessment proceedings two days before the completion of assessment i.e., 05.03.2021. However, the AO without taking note of the same has completed the assessment by making addition u/s.68 in a mechanical manner. It was further submitted that the FAA has erred in dismissing the appeal of the assessee without proper appreciation of evidences and by holding that documents were uploaded beyond the stipulated time without appreciating the evidences on record, which was duly filed during the course of assessment proceedings. It was contended by the Ld.AR that the additional evidences now filed clearly establishes that the Director / shareholder was having creditworthiness for making investment of Rs.13,50,000/- each in the said company since the gross salary income in each of the Directors exceeded more than Rs.2.5 crores. The Ld.AR submitted that the additional 7 -: SA No.142/Chny/2025 evidences which goes to the root of the issue may be admitted and appeal may be adjudicated taking into account the said additional documents/evidences.
The Ld.DR supported the orders of the AO and the FAA.
We have heard rival submissions and perused the material on record. The Ld.AR for the assessee has filed a petition for admission of additional evidences under Rule 29 of the Income-Tax Appellate Tribunal Rules, 1963 on 30.12.2025. The additional evidences that are sought to be admitted are as follows:- A) "Mr. Ajit Isaac (shareholder/director) i. Bank statement (July 2017-December 2017) reflecting share capital investments of ₹1,00,000 (03.10.2017) and ₹12,50,000 (11.10.2017). this is the bank account in which his monthly salary credits are received. ii. Form 16 evidencing salary income of ₹1,87,40,396/- for AY 2018-19 iii. Acknowledgement of Income Tax Return (ITR-V) for AY 2018-19 showing Gross Total Income of ₹2,73,68,243/-.
B) Mr. K. Sarath Reddy (shareholder/director) i. Bank statement (April 2017-March 2018) evidencing investment of 13,50,000 on 11.10.2017. ii. Form 16 evidencing salary income of ₹1,68,66,531/- for AY 2018-19. iii. ITR-V for AY 2018-19 showing Gross Total Income of ₹2,51,49,642/- for AY 2018-19". 9. The Ld.AR submitted that the above documents clearly evidences that the Directors namely Shri Ajit Isaac and Shri K.
8 -: SA No.142/Chny/2025 Sarath Reddy have got adequate funds for making investment of Rs.27,00,000/-. The additional documents now filed before the Tribunal goes to the very root of the addition made by the AO. Therefore for substantial cause and justice, the additional evidences now filed before the Tribunal is admitted and taken on record. Since the additional evidences now taken on record, the same needs factual examination, Hence, we restore the matter to the files of the AO. The AO is directed to consider the impugned issue based on the additional evidences which according to the assessee substantiates the creditworthiness of Shri Ajit Isaac and Shri K. Sarath Reddy and allow the claim in accordance with law. It is ordered accordingly. Accordingly, the issue raised in Ground Nos.3 to 7 is allowed for statistical purposes.
Ground No.8 : Loss of Rs.8,39,115/- 10. By raising the above ground, the Ld.AR contents that the loss of Rs.8,39,115/- which was claimed in the return of income was not given benefit of set-off in the computation sheet attached along with the assessment order completed u/s.143(3) of the Act. We restore this issue raised in Ground No.8 to the file of the AO to examine whether the assessee is entitled to set-off of losses of Rs.8,39,115/-. It is ordered accordingly. Hence, Ground No.8 is allowed for statistical purposes.
9 -: SA No.142/Chny/2025 11. Since we have decided the issues on merits, the jurisdictional issue raised in Ground No.2 is not adjudicated and is left open. It is ordered accordingly.
SA No.142/CHNY/2025 12. Since we have decided the appeal, the Stay application is dismissed as infructuous.
In the result, the appeal filed by the assessee is partly-allowed for statistical purposes and the stay application filed by the assessee is dismissed.