ASSTT COMMISSIONER OF INCOME TAX, CIRCLE - 1(1), , RAJKOT vs. SYMBOSA GRANITO PRIVATE LIMITED, WANKANER

4. Later on, Learned Principal Commissioner of Income Tax ( Ld.PCIT), exercised his jurisdiction under section 263 of the Act. On perusal of records, it was noticed by the ld. PCIT that during the previous year 2015-16, relevant to A.Y 2016-17, fresh unsecured loans of Rs. 57,61,000/-, from four persons have been raised and Rs. 86,15,000/- new equity shares at Rs. 10/- each have been issued during the year under consideration, raising equity share capital by Rs.8,61,50,000/- from 44 persons. In this regard, on perusal of record it is noticed that Copies of ITR, Bank Statements of the shareholders and copy of Ledger of the Shareholders from the books of the assessee, as uploaded during the assessment proceedings are available on record. However, it is also noticed that no Balance sheet is submitted in respect of 13 shareholders, no confirmations are available in respect of 8 shareholders, no bank statement is provided in respect of 2 shareholders. Therefore, Hon'ble Pr. CIT, passed the order u/s 263 of the I.T. Act, vide order dated 24.03.2021 and the assessment has been set aside for fresh assessment taking cognizance of the fact that the assessing officer had estimated Rs. (-)5,66,01,919/-. The ld PCIT held that the assessment order passed by the Assessing Officer for the assessment year(A.Y.) 2016-17, is erroneous in so far as it is prejudicial to the interests of Revenue, the relevant portion of the order of Hon`ble PCIT is reproduced here under:-

“The assessment was finalized u/s 143(3) of the Act on 12-12-2018 accepting total loss of Rs. 5,66,01,919/- as per return of income. On perusal of record, it is seen that during the previous year 2015-16 relevant to A.Y 2016-17, fresh unsecured loans of Rs. 57,61,000/-from 4 persons have been raised and 86,15,000 new equity shares at Rs. 10 each have been issued during the year under consideration raising equity share capital by Rs. 8,61,50,000 from 44 persons. In this regard, on perusal of record it is noticed that Copies of ITR, Bank Statements of the shareholders and copy of Ledger of the Share holders from the books of the assessee as uploaded during the assessment proceedings are available on record. However, it is also noticed that no Balance sheet is submitted in respect of 13 share holders, no confirmation are available in respect of 8 share holders, no bank statement is provided in respect of 2 share holders. The facts mentioned above show that the assessment order passed by the Assessing Officer for the A.Y. 2016-17 is erroneous in so far as it is prejudicial to the interests of Revenue as the assessing officer has passed the assessment order without making inquiries or verification which should have been made. In view of the above, I intend to initiate revision proceedings u/s 263 of the Act and pass a suitable order. Before passing such an order u/s 263 of the Act, you are hereby given an opportunity of being heard in the matter either in person or through Authorized Representative and requested to attend this office on 25/07/2019 at 11:30AM. You may submit as to why the order passed by the assessing officer for the AY 2016-17 on the issues discussed above should not be revised as it is erroneous and prejudicial to the interests of Revenue. In the event of non-compliance, it shall be presumed that you do not have any objection to the proposed proceedings u/s 263 of the Income Tax Act." In view of the above, a show cause notice dated 09.07.2019 was issued proposing to render the assessment order dated 12.12.2018 for revision u/s. 263 of the income tax Act. Due to change of incumbent, the assessee was given the opportunity of being heard granted through a computer generated Letter/DIN No. ITBA/REV/F/REV1/2020-21/ 1028909858(1) dated 09.12.2020. Another opportunity of being heard was granted through a computer generated Letter/DIN No. ITBA/REV/F/REV1/ 2020- 21/1029221589(1) dated 24.12.2020. A final opportunity of being heard was granted through a computer generated Letter/DIN No. ITBA/REV/F/REV1/2020- 21/1029710134(1) dated 12.01.2021.

During the course of hearing, the AR of the assessee has filed return submission dated 06.09.2019 which is reproduced as under:- "With reference to the captioned subject and under the instruction of our above named client, we humbly submit as under: In the above notice, revision of assessment order for A.Y. 2016-17 has been proposed on the ground that (i) the A.O. has not properly verified the genuineness of the new share capital issued and unsecured loans received (ii) no details in respect of 30 sundry creditors pertaining to transportation and having outstanding amount exceeding Rs. 1 lakh was provided and (iii) only a few confirmation were submitted in respect of trade payables. In this regard, we submit as under: Regarding new share capital issued: The assessee company was incorporated on 08.12.2014. A copy of master data of ROC showing the same is enclosed. The income generating activity of the assessee- company, after setting up the project, commenced on 08.12.2015. A copy of sale register, first sales bill of the assessee-company and relevant part of audited accounts is enclosed herewith. We are enclosing herewith a chart showing date-wise receipt of money of share capital. It may please be observed from that out of total share capital of Rs.8,61,50,000/- the share capital to the extent of Rs. 7,78,97,000/- were received prior to commencement of commercial operation and Income generating activities on 08.12.2015. Only an amount of Rs. 82,53,000/- was received after 08.12.2015.

As regards the amount of Rs. 7,78,97,000/-, it is respectfully submitted that these share capital, the share capital under no circumstances can be regarded as undisclosed income of the assessee company u/s.

4. The aforesaid legal position is settled by following judicial pronouncements where in the addition made u/s. 68 in the hands of the assessee on the ground of insufficient documents was deleted on the ground that the amount represented by such addition was received prior to commercial operation and income generating activities. Further, when no addition can be made u/s. 68, the point of no inquiry made by the A.O. with reference to proviso to section 68 also becomes academic and redundant as far as the assessment of the assessee- company

is concerned. This is without prejudice to our stand that the assessment order is correct in this regard. In respect of remaining amount of Rs. 82,53,000/-, the relevant data is tabulated hereunder: Sr. Name Amount Returned Exempt Capital Balance No Received Income of the Income/Inco Agri. Of The Of Shareholder me Shareholder Shareholder 1. Becharbhai 3,55,000/- 7,69,571/- 73228/- 55,54,127/- Dharamshbhai Patel 2. Dineshkumar 47,00,000/- 6,39,034/- 1,31,782/- 34,59,941/- Mohanbhai Merja 3. Hardik Amritlal 23,98,000/- 4,64,836/- 8,57,839/- 1,00,41,244/- Patel

4. Prashant Dayabhai 3,00,000/- 8,63,116/- Sitapara 5. Vijaykumar 5,00,000/- 2,90,413/- 11,575/- 54,61,442/- Narbheram Sitapara Total... 82,53,000

In view of the above submission, it is respectfully submitted that the decision of the A.O. is not erroneous in the context of fresh issue of share capital and therefore, the revision thereof u/s. 263 is not permissible under the law. Regarding unsecured loan A chart of undisclosed loan of Rs. 57,61,000/- is tabulated hereunder;

It may please be seen from the above chart that the capacity of the lender for the amount advanced is sufficient. Hence, it is submitted that the adverse remarks as mentioned in the show cause notice are not applicable in respect of the aforesaid unsecured loans. Further, the requirement of proving source of source (provisio to section 68) is not applicable in respect unsecured loans. Hence, it is respectfully submitted that the decision of the A.O. in this regard is not erroneous and this amount of Rs. 57,61,000/- is also not fit for revision under section 263 of the Act. As regard the assessee submission it may mentioned that the assessee has not disputed the fact that the assessing officer has not conducted proper inquiry. The only contention of assessee is that though the company was incorporated on 08.12.2014, company started commercial production on 08.12.2015 and first sale bill was raised on 08.12.2015. Further it is submitted that out of total share capital of Rs. 8,61,50,000/-, the share capital to the extenet of Rs. 7,78,97,000/- were received prior to commencement of commercial operation and income generating activities and only an amount of Rs. 82,53,000/- were received after 08.12.2015. Therefore, under no circumstances, share capital of Rs. 7,78,97,000/- can be regarded as undisclosed income of assessee-company. As per the assessee, the reason for such logic is that when there was no source of income, there cannot be any question of having earned undisclosed income. The assessee has relied on various case law in supportof above mentioned proposition of law. Findings of Learned PCIT “However, the submission of assessee lacks merit and not acceptable, fact that we are concerned with invoking the provision of sec. 263 of I.T. Act for which both considering the two essential condition i.e the order is erroneous and so far it is prejudicial to the interest of revenue are found to be applicable in this case in as much as the assessing officer has not conducted proper inquiry as mandated u/s 263 of I.T. Act in respect of fresh issue of share capital as also in respect of genuineness of sundry creditors. The above judgments made it clear beyond doubt that courts are not required to look into the object or intention of the Legislature by resorting to aids to interpretation where the language of the provision is clear and unambiguous. Consequently, the meaning of each word used by the Legislature is to be given its plain and natural meaning and no word should be ignored while interpreting a provision of a statute. Keeping in view the said judgements it may be mentioned that the provisions of section 68 of the I. T. Act are very clear and unobvious and if any sum is found credited in the books of account of the assessee for which proper explanation is not furnished by the assessee then such sum is to be treated as undisclosed income of the assessee. Therefore, addition, if any, was to be made u/s. 68 of I.T. Act, the same was to be made in the case of company itself. It may be also mentioned that the Hon'ble Supreme Court in the case of PCIT Central-1 vs. NRA (Iron & steel Pvt. Ltd.) [2019]. 103 taxmann.com 48 vide order dtd. 05.03.2019 has upheld the addition of share capital/premium in the hands of assessee company.”

“The show cause notice was issued to the assessee on 24.03.2022 giving an opportunity to explain as to why the order passed by the Assessing Officer for A.Y. 2016-17 should not be revised by invoking the provisions of Section 263 of the Act. Accordingly, notice was issued to the assessee and opportunity to submit written submissions in the case on or before 25.03.2022 was given to the assessee. In response to the notice issued, assessee submitted written submissions through e- mail dated 25.03.2022 and 26.03.2022. The assessee has filed written submission but I have found not acceptable. Further considering review report and reply of the assessee submitted on 30/03/2022, it is found that reply submitted by the assessee is not satisfactory as we have already examined the documentary evidences like, balance sheet, share capital, unsecured loan, ITR of 3 years and made assessment on the information and document furnished by the assessee.”

3. Complete address of the investors/Creditors. 4. Copies of financials and Balance Sheet for last three years. 5. Copy of Bank Statement through which cheques were issued. Based on the above documents and evidences, learned CIT(A)held that the assessee has fulfilled the onus of establishing the identity of the investors/Creditors, Genuineness of the transaction and the Creditworthiness of the investors/Creditors. The assessing officer has not brought any evidence/ material on record to prove that these are unexplained Investments/Credits. In view of the above, the assessing officer was not justified in making an addition of Rs. 8,36,58,000/-( Rs.57,61,000 +Rs.7,78,97,000) u/s 68 of the Act, and therefore learned CIT(A) deleted the addition.

"Faceless Assessment. 144B. (1) Notwithstanding anything to the contrary contained in any other provision of this Act, the assessment, reassessment or re-computation under sub-section (3) of section 143 or under section 144 or under section 147, as the case may be, with respect to the cases referred to in sub-section (2), shall be made in a faceless manner as per the following procedure, namely:………….. (xvi) the National Faceless Assessment Centre shall examine the draft assessment order in accordance with the risk management strategy specified by the Board, including by way of an automated examination tool, whereupon it may decide to- (a) finalise the assessment, in case no variation prejudicial to the interest of assessee is proposed, as per the draft assessment order and serve a copy of such order and notice for initiating penalty proceedings, if any, to the assessee, along with the demand notice, specifying the sum payable by, or refund of any amount due to, the assessee on the basis of such assessment; or (b) provide an opportunity to the assessee, in case any variation prejudicial to the interest of assessee is proposed, by serving a notice calling upon him to show cause as to why the proposed variation should not be made; or (c) assign the draft assessment order to a review unit in any one Regional Faceless Assessment Centre, through an automated allocation system, for conducting review of such order,…………..”

……..31. It is a matter of concern that the AO has in the present case has chosen to label the order of the DRP to being valid and that is the justification for not complying with the said order. As already noticed, the DRP, interims of Section 144C(15)(a) is a collegiums of three Principal Commissioners or the Commissioner of Income Tax. The DRP admittedly is the superior authority in relation to an AO who in this case appears to be Additional CIT. Section 144C(10) read with Section 144C (13) makes it abundantly clear that there is no option with an AO but to be bound by orders and subject to review by the DRP. It is bound by the DRP. A reference may also be made to the decision in Zuari Cement Ltd. (supra) where it was held that an order of assessment which is contrary to the mandatory provisions of Section 144C of the Act was declared as one without jurisdiction, null and void and enforceable." It is therefore, for this reason, in the said case, the High Court of Andhra Pradesh set aside the impugned order while allowing the writ petition notwithstanding that the Petitioner had a statutory remedy available to it.

and Machinery etc. which was stand at around rupees 31.77 Crores excluding the working capital as reflect in the balance sheet on record. (c) The relatives and well-wishers of the promoters came out voluntarily and contributed the funds within their reach. In the course of original assessment proceedings assessee had furnished various details of share application money and unsecured loans vide letters dated 10.10.2018, 03.12.2018 which include the copy of contra confirmation, copy bank statement, copy of IT return along with computation of income, copy of PAN card/ID proof and copy of financial statements along with balance sheet. The assessing officer found the evidences furnished as sufficient and as such finalized the assessment u/s 143(3) on 12.12.2018 accepting the loss at Rs. 5.66 Crores mainly due to claim of depreciation on large investment in machineries, building etc. (d) However, Id. PCIT in stray cases found the evidences related to the unsecured loans and share capital as insufficient and vide order dated 24.03.2021 set aside the assessment with a direction to the AO to the effect that (i) to frame the assessment order a fresh after conducting in-depth inquiries in respect of share capital, share premium as also sundry creditors shown during the period under consideration and (ii) to properly consider the observation and discussion on the issue made in the revision order and complete the assessment after giving proper opportunity of being heard to the assessee. (e) The AO however, followed the Id. PCIT's direction referred at (ii) supra directing him to properly consider the observation and discussion on the issue made in the revision order. He accordingly at below para 3, page 2 to 5 of the assessment order has reproduced Id. PCIT's observations. Immediately after Id PCIT'S observation the assessing officer at beginning of page 6 (no para number is given) of the assessment order has recorded that: “The show cause notice was issued to the assessee on 24.03.2022 giving an opportunity to explain as to why the order passed by the Assessing Officer for A.Y. 2016-17 should not be revised by invoking the provisions of Section 263 of the Act. Accordingly, notice was issued to the assessee and opportunity to submit written submissions in the case on or before 25.03.2022 was given to the assessee. In response to the notice issued, assessee submitted written submissions through e-mail dated 25.03.2022 and 26.03.2022. The assessee has filed written submission but I have found not acceptable. Further considering review report and reply of the assessee submitted on 30/03/2022, it is found that reply submitted by the assessee is not satisfactory as we have already examined the documentary evidence like, balance sheet, share capital, unsecured loan, ITR of 3 years and made assessment on the information and document furnished by the assessee. Considering the above and on the basis of replies filed, the assessed income of the assessment year 2016-17 is determined as under- In fact the notice dated 24.03.2022 is not a show cause notice as contemplated in the amended section 144B but a notice u/s 142(1) of the Act. Copy of the notice is attached as Annexure-

1. 1. It may be observed from the notice that the assessing officer issued the same on 24.03.2022 and sought assessee's compliance on 25.03.2022 at 11.00 a.m. Further in the annexure to the said notice he has stated as under: ANNEXURE In connection with assessment proceedings, you are requested to furnish the following information and documents in respect of unsecured loan and advance of Rs. 57,61,000/- and share capital raised of Rs. 8,61,50,000/-.

1. Copy of ITR for A.Y. 2014-15, 2015-16 and 2016-17 along with computation of income.

2. Copy of audit report P/L account, balance sheet and capital account as on 31.03.2014, 31.03.2015 and 31.03.2016.

3. Bank statement from 01.04.2014 to 31.03.2016.

On this ground alone the assessment finalized deserves to be quashed and may be quashed. (h) Though the assessing officer had given very short time as explained supra the assessee vide its letter dated 25.03.2022 has firstly has shown its displeasure as under: We regret to express our displeasure to the conduct of the proceedings. The order u/s 263 was passed by the Pr. CIT setting aside the assessment order with a direction to reframe the same in March, 2021. Since April, 2021, we did not receive any notice for the de novo assessment proceedings. Now, when the de novo assessment is getting time barred on 31.03.2022, your good self has issued first notice on 24.03.2022 in noon and sought compliance thereof on 25.03.2022 i.e. within 12 hours without appreciating the fact that the details called for are highly voluminous and the assessee should always be allowed proper and sufficient time to respond to the notices issued. Thus, we are compelled to observe and state that the de novo assessment proceedings are not being conducted in accordance with principles of natural justice and fairness is apparently missing. Nevertheless, we submit that we have already started gathering and compiling the details and the same shall be submitted, to the maximum extent possible in this short time, as soon as possible to. We hereby request your good self to kindly refrain from ex-parte order as there is no fault on our part and we are trying our level best to ensure that the de novo assessment gets completed before the time barring date in proper and justified manner. Kindly appreciate out positive approach and oblige. Besides, if the explanation is found short or unsatisfactory then the same may kindly be brought into the notice of the undersigned along with the specific requirements so that the same may kindly be provided in time. (i) Though the opportunity offered was so short, the assessee in order to avoid long drawn litigation [as this is the third inning being played by it i.e. first in original assessment. 2nd before PCIT and third in the present de-novo assessment has vide letter dated 25.03.2022 uploaded vide acknowledgment No. 29706781250322 on has furnished following documents. i) With respect to details asked for by your honor, it may please, be noted that all the persons are attached to tax and we hereby submitting details all the shareholders in Annexure-1 ii) We hereby submit copies of IT returns along with computation of income for last three years i.e. for AY 2014-15. AY 2015-16 & for AY2016-17 in case of all the persons Annexure-2. iii) Further, we hereby duly submit copies of financials including balance sheet of all the persons as on 31.03.2014, 31.03.2015 and 31.03.2016, as asked for by your honor in Annexure-3. iv) Complete bank statement for the year under considerations of all the required persons are duly submitted herewith in Annexure-4 Further, as mentioned earlier our another submission is under preparation & compilation and which we will submit as soon as possible, and we should be given proper opportunity of being heard under principle of natural justice and fairness. (j) Subsequently on 26.03.2022 vide acknowledgement Nos. 434535851260322, 436336361260322 and 440073051260322 and on 29.03.2022 vide acknowledgement No. 465931731290322 475083321290322 had furnished documents as stated supra in balance cases.

(k) Finally, the assessee vide letter dated 28.03.2022 has stated that: With respect to above captioned subject, we humbly submit asunder: In continuous to our earlier replies, we hereby submit as under. With respect to your notice we have already submitted all the required documents in case of all the subscribers and lenders which includes copies of IR returns of last 3 years, copies of bank statements of last 2 years, copies of contra confirmation. Further, copies of financials including balance sheet for source of investment. There are accumulated funds in balance sheet of each shareholder/lender or borrowed fund which have been duly utilized for the investment in the company. Further, we hereby submitting comprehensive chart of each person for your kind reference as per attachment, which includes, total investment in share capital, unsecured loan, total income as per ITR of last 3 years including exempt income, subscribers own fund in nature of capital in his/her balance sheet and his/her borrowed fund. Further, with reference to above in support of the same, where by submitting additional documents and details of source of investment in Annexure attached. Thus, from the above details, information, explanation, evidences, documents and justification submitted, in our humble opinion all the required and necessary details have been duly provided and thereby discharged our onus in all manners. Further, it is clearly evident by considering income history and accumulation of fund in Balance sheet, creditworthiness of all the persons are worth enough and beyond any doubt. Further, it is appreciated that we have provided details of complete source in case of each person. Please, find the above Information, justification & details along with all the Annexure as attached herewith in order& oblige us. Besides, if the explanation is found short or unsatisfactory then the same may kindly be brought into the notice of the undersigned along with the specific requirements so that the same may kindly be provided in time. In case your good self require any further information, explanation, evidences then we hereby kindly request you to provide us sufficient opportunity under principle of natural justice and fairness oblige us. In order to appreciate the facts in proper perspective copy of submissions made in response to notice u/s 142(1) dated 24.03.2022 before assessing officer as stated supra is affixed as Annexure-A. However, for sake of clarity and brevity in nutshell the source of the source in the hands of the shareholders and the lenders as stated in the comprehensive chart supra is reproduced below……………………………………………………………………………………………… ………………………………………………. (l) Thus, the assessee has discharged the initial onus lies on it by furnishing the identity, creditworthiness [regular IT filers]duly supported by ITRs, Bank statements, and importantly the financial statements of three years reflecting the source of income and other financial transactions as reflects in the balance sheet. As regards the genuineness of transactions, it is through banking channel. Since the assessee being company in view of the proviso inserted to section 68 by F.A. 2012 w.e.f. 01.04.2013 would be applicable in its case. The proviso read as under: [Provided that] where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless-

(a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: It may be observed from the above that the condition laid down at (a) above has been discharged by the person(s) in whose name the credit in the form of share application money and other credit appears in the books of the assessee company. In support of such credits all the persons have furnished their financial statements and the ITRs etc. which are not in dispute. Thus, source of the sources stand explained. The second limb of the proviso casts onus on the revenue. Under this second limb it is assessing officer's opinion about the non satisfaction of the evidences brought on record. The assessing officer needs to justify his belief as to how the explanation is not satisfactory. (m) Since the assessment proceedings were going on in the case of the assessee it was expected to make available the source in its books accounts being the first degree evidence. The assessee has discharged the same by providing ROI, Balance sheet, Bank statement, PAN, contra and ledger of such shareholder supra. (n) As regards the second degree evidence being the source of the source, the assessee is expected to make available the nature of credits in such shareholder's books of account to discharge the onus lies on it within the meaning of newly inserted proviso to section 68 by F.A. 2012. Thus, in order to discharge the additional onus the assessee had obtained the source in the hands of the shareholder and furnished the same supra. (o) However, it may be observed from the assessment order that the assessing officer did not take any cognizance of the voluminous evidences placed before him and in one line has concluded the proceedings by stating that: "In response to the notice issued, assessee submitted written submissions through e- mail dated 25.03.2022 and 26.03.2022. The assessee has filed written submission but I have found not acceptable. Further considering review report and reply of the assessee submitted on 30/03/2022, it is found that reply submitted by the assessee is not satisfactory as we have already examined the documentary evidences like, balance sheet, share capital, unsecured loan, ITR of 3 years and made assessment on the information and document furnished by the assessee. Considering the above and on the basis of replies filed, the assessed income of the assessment year 2016-17 is determined as under." It may be seen that the assessing officer did not speak a single word as to how the evidences placed by the assessee are not satisfactory and unacceptable. It is not known to which the assessing officer refers the REVIEW REPORT supra. Thus, the assessment can be put in to the category of "High Pitched Assessment" as no judicial and procedural norms have been followed. In this regard assessee would like to bring on record CBDT's OM [F. No. 279/MISC/52/2014-(ITJ)] dated 07.11.2014 wherein it was emphasized to avoid high pitched assessment (p). On the above back drop it may be seen that all the three ingredients i.e. the identity, genuineness of transactions and the creditworthiness in respect of cash credits within the meaning of section 68 of the Act are satisfied within the fours of the amended section 68 of the Act w.e.f. 01.04.2013. Reliance is placed on following decisions which are pronounced keeping in mind the newly inserted proviso to section 68 of the Act by F.A. 2012.

(i)Hon'ble High Court of Calcutta in the case PCIT v. Overtop Marketing Pvt. Ltd [2023] 146 taxmann.com 94 (Calcutta) has held that: “Assessment year 2015-16 assessee-company had taken unsecured loans from various parties Assessing Officer based on information received from Investigation Wing was of belief that said lender parties were shell companies- He thus made addition of amount of unsecured loans as unexplained cash credit under section 68- Commissioner (Appeals) deleted said additions on ground that assessee had completed his responsibility by providing details to prove creditworthiness and genuineness of lenders and it was responsibility of Assessing Officer to prove them wrong, which he had failed Tribunal upheld order of Commissioner (Appeals) - It was noted that assessee had filed income-tax acknowledgements, audited accounts, long-term investments, bank statements, PAN and registered addresses of creditor companies -It was further noted that Assessing Officer had issued notices under 133(6) to lender companies and some of them returned - Whether since creditworthiness of lenders of assessee had been examined in depth by lower authorities and lenders companies had directly submitted documents before Assessing Officer, no substantial question of law arose for consideration from order of Tribunal affirming deletion of impugned additions under section68 - Held, yes (Para 6 and 7] [In favour of assessee)” (ii)Hon'ble High Court of Delhi in the case PCIT v. Enrich agro Foods Products (P) Ltd (2023) 148 taxmann.com 26 (Delhi) has held that: “Assessment year 2015-16 assessee-company issued equity shares at premium to a person and received share capital and premium of certain amount Assessing Officer made addition under section68 to assessee's income on account of said share capital and premium amount alleging that assessee did not substantiate required information regarding creditworthiness of investor It was noted that Tribunal as well as Commissioner (Appeals) had noted that upto certain amount source of funds was investor's salary, who was also a director in assessee-company, while balance amount was secured by him via unsecured loans Clearly, assessee had furnished documents to establish that it was a genuine transaction where companies which provided unsecured loans to investor, l.e.. source of source, vere identified. Further, assessee had also produced valuation report of Chartered Accountant to support valuation of shares. Thus, both Commissioner (Appeals) and Tribunal had returned concurrent finding that triple test forged by Courts, i.e., creditworthiness and identity of investors and genuineness of transactions stood satisfied. Whether, therefore, impugned addition under section68 by Assessing Officer was unjustified and same was to be deleted - Held, yes [Para 13] [In favour of assessee]” (iii)Hon'ble High Court of Calcutta in the case PCIT v. Golden Goenka Fincorp Ltd [2023] 148 taxmann.com 313 (Calcutta) has held that: “Assessment years 2013-14 and 2015-16-A search action under section 132 was conducted upon group concern of assessee company, engaged in providing non- banking financial services - During search, it was found that assessee had arranged cash through SKB for infusing its share capital - Subsequently, a statement of director of assessee was recorded wherein he admitted that alleged amount represented unaccounted income, not recorded in books of account, and was paid to various entry operators to infuse share capital - Assessing Officer on basis of such statement made additions under section68 by treating share application money of assessee as undisclosed income - It was noted that although during course of search operations, director of assessee had affirmed to share application money so received, however, said statement was retracted during search proceedings contending that coercive measures were taken to obtain said statement. Commissioner (Appeals) noted said retraction and held that additions made under section68 were to be deleted since Assessing Officer had failed to bring on record any evidence in support of writing with pen on printouts taken out from pen drive and there was no cash trail or any other corroborative evidence or investigation Tribunal upheld said order of Commissioner (Appeals) - Whether in entire matter revolving on facts had been appreciated and re- appreciated by both Commissioner (Appeals) and Tribunal, no substantial question of law arose for consideration - Held, yes (Paras 4 and 5] [In favour of assessee]” (iv)Hon'ble ITAT, Raipur Bench in the case ChhatisgarhMetaliks and Alloys (P) Ltd v. ITO [2023] 147 taxmann.com 414 (Raipur-Trib) has held that: “Assessment year 2015-16 assessee-company had received share application money from certain company. In order to verify genuineness and veracity of aforesaid transaction of receipt of share application money, Assessing Officer called upon assessee company to furnish supporting documentary evidence substantiating creditworthiness of aforesaid investor - However, as assessee failed to place on record requisite documents to support creditworthiness of the investor-company, Assessing Officer made addition under section 68-It was noted that capital account of investor-company revealed beyond doubt that investment in question was made out of its 'opening balance' as a partner with certain firm and not on basis of any fresh amount which was found parked in same during year under consideration - Further, a copy of bank account of investor-company clearly evidenced investment made by it towards share application money and source thereof and a confirmation in that regard was also filed Whether onus cast upon assessee for proving nature and source of share application money and additional burden cast upon it as per "first proviso' to section 68 stood duly discharged and, therefore, impugned addition was to be deleted - Held. yes [Para12] [in favour of assessee) (v)Hon'ble ITAT Kolkata Bench 'A' in the case BST Infratech Ltd v. DCIT (2023) 146 taxmann.com 406 (Kolkata-Trib) has held that: “Assessee-company in account books had shown receipt of share capital and share premium from different private limited companies (group companies) and furnished required documents to prove identity and creditworthiness of share subscribers and genuineness of transactions Assessing Officer treated share capital and share premium as unexplained income and added same to assessee's income under section68 Commissioner (Appeals) confirmed addition. It was noted that assessee had established that share application money was received through proper banking channels, shareholders had sufficient fund for purpose of investment and investments were reflected in their books of account and bank accounts of shareholders confirmed transactions. Whether as lower authorities had not brought on record any evidence to show that it was assessee's own fund that was brought back in form of share application money and also they could not point out any rebuttal to evidences furnished by assessee to prove identity, creditworthiness of share subscribers and genuineness of transactions, there was no justification on part of lower authorities in making/confirming impugned addition - Held, yes [Para 5] [In favour of assessee)” (vi)Hon'ble ITAT Surat Bench in the case of DCIT v. Gandhi Capital (P) Ltd (2022] 137 taxmann.com 75 (Surat-Trib) has held that: “In relevant assessment year, assessee-company received substantial amount of share application from its share applicant companies-Assessing Officer held that said transactions were not genuine and made additions under section 68 in respect of amount received as share application money on ground that said share applicant companies had meager income and were only engaged in providing accommodation. entries It was noted that share application money was paid through account payee cheques and share applicants provided details of their bank statements when notice under section 133(6) were issued to them by Assessing Officer Furthermore, Assessing Officer could not find any cash deposits in share applicant's bank accounts prior to issue of cheques to assessee-company. Whether since all basic relevant documents were filed to prove identity, creditworthiness and genuineness of transactions entered into with share applicants, impugned additions made under section 68 were to be deleted - Held, yes [Para 35] [In favour of assessee]” (vii)Hon'ble ITAT Delhi Bench 'A' in the case DCIT v. BDR Builders and Developers (P) Ltd [2023] 147 taxmann.com 486 (Delhi-Trib) has held that: “Assessing Officer made addition to income of assessee on account of unexplained source of share capital and share premium- On appeal, assessee contended that all shareholders were existing income tax payees and their identity and creditworthiness stood proved from copies of income tax return acknowledgements, PAN numbers and all transactions were through proper banking channels Commissioner (Appeals) deleted said addition On further appeal, Tribunal noted that subsequent to order passed by Commissioner (Appeals), there was a search conducted at premises of assessee wherein inquiries were conducted by investigation wing on parties in question. Under these circumstances, Tribunal restored issue to file of Assessing Officer with direction to go through enquiries conducted by investigation wing of department as well as enquiry conducted by Assessing Officer in Section 153A proceedings in respect of above parties and delete addition if nothing adverse was found -Pursuant to remand of Tribunal, Assessing Officer had not done anything but copy and paste its earlier order. In this view of matter Commissioner (Appeals) complied with Tribunal's direction and deleted addition - Whether since no adverse material was found during course of search or post-search inquiries to establish that assessee had received any bogus share capital or share premium, Commissioner (Appeals) was justified in complying with Tribunal's direction and, accordingly, same was to be upheld – yes”

Facts The assessee was a company engaged in the business of letting out properties. For the relevant assessment year 2013-14, the assessee had filed return of income declaring total loss of Rs. 1.69 crores on 25-9-2013.During scrutiny assessment, the Assessing Officer noted that, during the year the assessee had issued 2627shares having face value of Rs. 100 at a premium of Rs. 49,900 to sixteen (16) bodies corporate and had accordingly raised share capital of Rs. 13.14 crores. Based on the information provided by the assessee, the Assessing Officer made enquiries from each of the share subscribers by issue of notice under section133(6), however, not being satisfied with replies received from share subscribers, the Assessing Officer sent a Commission under 131(1)(d) to DDIT(Inv) who furnished his report stating that the Inspector attached with his office could not find the shareholders at their given addresses and that these shareholders belonged to purported entry operators. The Director of the assessee company denied the allegation/contents of the said report, however, the Assessing Officer did not agree with the same and thus added the aggregate amount of Rs. 13.14 crores received from the share subscribers during the year byway of unexplained cash credit under section 68. On appeal, the Commissioner (Appeals) deleted sum of Rs. 6.91 crores and confirmed the remaining amount of Rs. 6.22 crores on ground that subscription monies aggregating to Rs. 6.91 crores whose source of source' emanated from flagship company of the Group to which the assessee belonged i.e. RGIL was genuine and the remaining sum of Rs. 6.22 crores whose 'source of source' of funds were other unrelated bodies corporate were bogus. Held The phraseology of section 68 is clear. The Legislature has laid down that in the absence of a satisfactory explanation, the unexplained cash credit may be charged to income tax as the income of the assessee of that previous year. In this case, the Legislative mandate is not in terms of the word 'shall' be charged to income-tax as the income of the assessee of that previous year. The Supreme Court while interpreting similar phraseology used in section 69 has held that in creating the legal fiction, the phraseology used therein employs the word 'may' and not 'shall'. Thus, the un satisfactoryiness of the explanation does not and need not automatically result in deeming the amount credited in the books as the income of the assessee.[Para 9]

Hence, the initial onus is upon the assessee to establish three things necessary to obviate the mischief of section 68. These are: (i) identity of the investors; (ii) their creditworthiness/investments; and (iii)genuineness of the transaction. [Para 10]

The said provision casts the initial onus to prove the nature of credit on the recipient i.e. the assessee. There is a marked distinction between 'onus of proof' and 'burden of proof'. The 'burden of proof' lies on a person who has to prove a fact initially and if he fails to prove it, when asked to do so by the Assessing Officer, then Assessing Officer can draw adverse inference against the assessee under section 68. But if the assessee discharges its obligation and prove the nature and source of the credit entries to Assessing Officer's satisfaction, then the 'onus of proof' shifts. However, for the purposes of section 68, the 'burden to proof' begins with the assessee and once the assessee submits evidence in support of the credit and makes out a prima facie case, then the 'onus of proof' shifts to the revenue. Such shifting of 'onus' is continuous process in the evaluation of evidence. If the evidence on record weighs in favour of the assessee [based on preponderance of probability which is the standard of proof required in income tax assessments] or that the explanation put forth cannot be said to be completely unsatisfactory, then the onus cast upon the assessee under section 68 can be said to have been discharged. In view of the foregoing, the initial burden on the assessee was only to substantiate the source of its share application monies and if it is found that the identity and creditworthiness of the share applicants along with the genuineness of the transaction is established, then the addition under section 68 would be unwarranted. [Para 11]

The next aspect which requires consideration, is the proviso to section 68, which was inserted by the Finance Act, 2012, which now put further burden upon the assessees to substantiate the 'source of source' of funds. It is noted that even though the Parliament has inserted the proviso in section 68, by the Finance Act, 2012, with effect from 1-4-2013, one must bear in mind that there is no change or amendment in the substantive provision of section 68 wherein if any sum is found by the Assessing Officer to have been credited in the books of an assessee in the relevant financial year, then when called upon by him(Assessing Officer) to the assessee to explain the nature and source of the credit; and pursuant to which if the assessee fails to explain to the satisfaction of Assessing Officer the nature and source of the credit, then the Assessing Officer may treat the credit as income chargeable to tax. In other words, if the assessee is able to explain the nature and source of the credit to the satisfaction of Assessing Officer, then Assessing Officer cannot use this provision to charge the credit appearing in the books of the assessee as income for the purpose of taxation under the Act. It is settled position of law that 'satisfaction' contemplated in section 68 is that of a reasonable prudent person (Assessing Officer) and not that of anunreasonable person. So, when the Assessing Officer calls upon the assessee to explain the nature and source of the credit found in assessee's book, then initial burden is on the assessee to bring material on record to show the nature and source of the credit i.e. identity, creditworthiness and genuineness of the transaction in question. And once an assessee is able to discharges the initial burden which lies upon it, then the onus shifts to the Assessing Officer to disprove/rebut the material adduced by the assessee to substantiate the nature and source of the credit transaction. And if the Assessing Officer is not able to disprove/rebut the evidence brought on record by the assessee to prove the nature and source of the credit entry, then section 68 cannot be used by the Assessing Officer to charge the credit appearing in the books of the assessee as income for taxation. This position of law remains the same even after the insertion of Finance Act, 2012, wherein additional requirement/burden is brought in by the Parliament in the cases of an assessee which is a corporate entity (not being a company in which the public are substantially interested) claims to have received share application money, share capital, share premium or any such amount, then with effect from 1-4-2013, while giving the explanation to the Assessing Officer regarding of 'source of source' of the share application money, share capital, share premium. So, it is noted that till assessment year 2012-13, the requirement of law as per section 68 was that when there is a credit entry in the books, then assessee was required to satisfy the Assessing Officer in respect of the nature and source(i.e. First source from which it received) and that position of law remains in force till now also, except that after 1-4-2013 (i.e. assessment year 2013-14) onwards when an assessee company (not a public company) if they collect share application money, share capital, share premium then an additional burden is imposed by the first proviso to bring to the notice of Assessing Officer the 'source of source' of the credit entry i.e. source of the share applicant which had been invested in the assessee company. In other-words from assessment year 2013-14 and onwards, in the event if an assessee company when called upon by the Assessing Officer to explain the nature of the credit in its books claims that the credit entry is share application money, share capital and share premium, then the additional requirement of law as per the proviso to section 68 kicks in and share subscriber should be able to show the source from which it was able to invest in the assessee company. And if the 'source of source' of share application/ capital/ premium is shown to Assessing Officer and if he is satisfied with the explanation, then the deeming provision will not apply. [Para 12]

Having regard to the above legal position, the facts of the case on hand need to be examined. So, in this relevant assessment year, as noted earlier, the assessee company had issued 2627 shares to sixteen (16)shareholding companies, shares at a face value of Rs. 100 each with a premium of Rs. 49,900. Before theAssessing Officer, the assessee has furnished the necessary details of all the shareholders inter aliaincluding the name, PAN, address of the shareholders, details of share application monies received, sharesallotted along with bank statements evidencing that all payments were received through banking channel.Based on information gathered, the Assessing Officer had made enquiries under section 133(6) from allthe shareholders, who in response had filed copies of their Income-tax Acknowledgements, financialstatements, bank statements, explanation regarding source of their funds, etc. in support of their identity,creditworthiness and genuineness of these transactions. It is noted that the Commissioner (Appeals)requisitioned further details regarding 'source of source' of funds in terms of proviso to section 68, whichwas also furnished by the assessee. [Para 13]

Upon perusing the orders impugned, in light of the documents furnished by the shareholders and assessee,and looking into the facts of each investors which invested money in the assessee company in the form ofshare capital along with share premium, it is vivid that all the sixteen (16) share subscribers are (i)companies, which are noted to be active as per the MCA Master Data, (ii) income tax assessees, (iii) whoare regularly filing their return of income, (iv) the share application money was paid by account payeecheques, (v) the applicants are having substantial creditworthiness which is represented by capital andreserves and/or revenues/income as noted above from their financial statements, and (vi) all theshareholders have explained their respective source of funds out of which share application monies waspaid. Each of the shareholders is noted to have complied with the requisition issued by the AssessingOfficer under section 133(6) and the shares are noted to have been issued by the assessee at a pricemarginally lower than the fair market value as certified by the Chartered Accountant in his valuationreport. Hence, the share premium paid by the shareholders also stands justified. Thus, the inference thatflows from the aforesaid facts is that the assessee has discharged its initial onus imposed under section 68[as it stood in assessment year 2013-14]. [Para 14]

It is noted that, the Assessing Officer after analyzing the financials of all the sixteen (16) sharesubscribers, noted that none of the companies were engaged in any active business activities. For suchreason, the Assessing Officer held that their creditworthiness was in doubt. The assessee however pointedout that this observation made of the Assessing Officer was factually incorrect. In support of the same, heinvited attention to the financial statements of DTP, KJP, RGI, which were actively involved in thebusiness of trading in agri-commodities. The turnover of DTP and KJP was Rs. 136.20 lakhs and Rs.135.54 lakhs respectively and they had reported profit from such business of Rs. 16.25 lakhs and Rs.36.91 lakhs respectively. RGI had reported turnover of Rs. 111541.05 lakhs against which it had earnedprofit of Rs. 1457.33 lakhs. He further demonstrated through the financial statements of shareholders,NHP and SYP that they were engaged in the business of dealing in shares and derivatives and that theyheld demat accounts with reputed stock brokers. The assessee also pointed out that NHP, SYP, FEPL,SHPL were registered NBFCs whose certificate of registration were placed. According to him, therefore,the active business of these four companies by virtue of their NBFC registration was that of advancingloans and making investments, and this vital fact had beenoverlooked by the Assessing Officer. In respect of remaining shareholders, the assessee submitted that these companies were core investment companiesand their main object was making investments, which according to the assessee is also a recognizedbusiness activity. He further pointed out that three out of the sixteen shareholders had also declareddividend out of their profits during the relevant year on which they had paid dividend distribution taxunder section 115-O. Averring to these contemporaneous evidences, the assessee urged that the reasoninggiven by the Assessing Officer viz., none of the shareholders were engaged in active business, waspatently erroneous. The revenue was unable to controvert these facts, as pointed out by the assessee andhence, this reasoning of the Assessing Officer cannot be countenanced. [Para 15]

Another reasoning given by the Assessing Officer to justify the impugned addition was that, some of theshareholders had reported NIL or meagre income which did not commensurate with the investments madeby them and it therefore raised doubts on their creditworthiness. As already noted, each of theshareholders had sufficient own funds and reserves to justify the investments made by them in theassessee company. The fact that some of the shareholders did not derive sufficient profits during the yearcannot be the sole determinative factor to doubt their creditworthiness. It is noted that, such shareholdershave demonstrated that the investments made by them with the assessee, were either out of the proceedsreceived on sale of investments which were made in earlier years and/or refund of loans granted earlier.The source of source of funds has also been provided, which has already been discussed above. On thesefacts, it is viewed therefore, that nothing much turns on the fact that some of the shareholders had reportedmeagre income in the relevant year. [Para 16]

Further, according to the Assessing Officer, the fact that the share subscribers had issued share capital at apremium in earlier years, whose details were not furnished by the assessee, raised doubt on theircreditworthiness. This observation of the Assessing Officer is also found to be of no relevance inasmuchas by Assessing Officer's own admission, these shareholders had raised securities premium on issue ofshares in their own right in earlier year/s. No fresh capital was issued during the year by theseshareholders and therefore the securities premium balance appearing in their financial statements had beenbrought forward from earlier years. Clearly therefore, the securities premium of these shareholders did notconstitute the immediate source of payment of share subscription monies to the assessee in the relevantassessment year 2013-14. [Para 17]

For the aforementioned reasons, the entire line of reasoning given by the Assessing Officer to doubt thecreditworthiness of the shareholders cannot be countenanced. [Para 18]

The other main plank on which the Assessing Officer justified the addition made under section 68 was theCommission report obtained under section 131(1)(d) dated 22-03-2016 wherein the DDIT had stated thatnone of these companies were traceable at their given addresses and that all the sixteen (16) shareholdersbelonged to entry operators. At the time of hearing, the assessee argued that the averments made thereinwere patently erroneous which raised serious doubt on the veracity of the report. At first he invitedattention to Para 2 of the report wherein the DDIT had mentioned that he had deputed Inspectors attachedwith his office to verify the whereabouts of the companies and that none were found at their registeredoffices and even the local residents failed to acknowledge their existence. To this, he pointed out that,prior to the Commission, the Assessing Officer had on his own volition issued notices under section133(6) to these shareholders through Indian Postal authorities, which were admittedly served upon them.It was not a case that the notices were served either by hand or on e-mail. Referring to section 27 of theGeneral Clauses Act, the assessee stated that the fact that the notice was served through registered postupon the shareholders proved their existence. The assessee thus wondered that when the Indian Postalauthorities (oblivious of the nature of these enquiries) were able to locate the shareholders at their givenaddresses and serve the notices, then how come the Inspectors were unable to trace these companies.According to the assessee, the fact that the Commission report did not mention or provide the reportsgiven by the Inspector, raised further doubts as to whether any physical verification was actuallyconducted by the office of the DDIT or not. To buttress his contention, the assessee showed that, even theflagship public company of the assessee, RGILwas alleged to be untraceable in the said Commissionreport. To this, he pointed out that RGIL was a Star Export House having turnover in excess of Rs. 1000crores. RGIL has also been extended several credit facilities by several Public Sector Banks and had beenoperating from the same registered office address since several years. He further pointed out that the otherfive (5) shareholders, which are admittedly group/related entities of the assessee and belong to the RGGroup also had the same registered office as that of RGIL. The assessee thus strenuously contended thatthe Commission report stating that, even the group company shareholders could not be traced at their address was ex-facie false which thus raised serious doubt on the overall authenticity of the said report claiming that none of the 16 shareholders were traceable.[Para 19]

The assessee further invited attention to the report of the DDIT, wherein he referring to a Database, hadalleged that all the shareholders (including the six group companies) belonged to certain entry operators.In this regard, the assessee first referred to the shareholding pattern and directors of the six groupcompanies to show that the purported entry operators were neither the shareholder nor director in these sixcompanies. He submitted that, even the lower authorities i.e. the Assessing Officer andCommissioner(Appeals), were in agreement that these six companies belonged to the R Group, which wasmanaged and controlled by the Agarwal family and not any so-called entry operator. The assesseeaccordingly contended that the commission report dated 22-03-2016 was clearly in contradiction to theadmitted facts of the present case. Even with regard to the remaining ten shareholders, he contended thatthe averment made in the report that purported entry operators were managing them was misleading.According to him, none of the named persons were shown to be either shareholder or director in thesecompanies in the year under consideration, which would suggest that they exercise any influence over theaffairs of these ten shareholders. The assessee contended that heavy onus lay on the revenue tosubstantiate this assertion with independent evidence, which according to him, was not done in the presentcase. The assessee thus claimed that the allegations contained in the Commission report that all the sharesubscribers were controlled and managed by entry operators was patently erroneous and perverse. [Para20]

The assessee particularly invited attention to Para 3 of the said report wherein the DDIT had stated thatthe statement of the entry operators (who had stated that they managed and controlled the companies)were attached for ready reference. He however pointed out that, inspite of several requests including inresponse to the RTI query, no such statement (of entry operators) was ever provided to the assessee. Therevenue has not brought any such statement/s on record. In absence of these statements, which werecollected at the back of the assessee, the same cannot be relied upon, without first providing the copy ofthe same and the assessee given an opportunity to rebut the same and even cross-examining them. [Para21]

When this commission report was confronted to the Director of the assessee company and his statementwas recorded on oath under section 131, the Director had denied the allegation/contents of the said reportand claimed that all the shareholders are real companies actively involved in business. To buttress thisstatement, the assessee had furnished a rejoinder on 9-2-2016 wherein it negated the allegations levelledby the Assessing Officer. Having regard to these facts and the sequence of events, it is viewed that, if theAssessing Officer wanted to rely on the Commission report stating that the shareholders had someconnection with entry operators, then he ought to have first of all given a copy of the statement of entryoperators to the assessee and secondly, summoned the said entry operators and elicited their oraltestimonies and gather independent material against the assessee and thereafter provide an opportunity tothe assessee to cross-examine not only the purported entry operators but also the maker of the commissionreport, which it is found has not been done by the Assessing Officer in the present case. As aconsequence, the addition made by the Assessing Officer based on such unreliable report, is unsafe andcannot stand the scrutiny of law. [Para 22]

For the above reasons, the contention of the assessee that the commission report dated 22-03-2016 cannotbe relied upon for drawing adverse inference against the assessee, is accepted. [Para 24]

In the instant case on hand, it is found that, the shareholders had complied with the independent enquiriesconducted by the Assessing Officer and discharged the onus cast under the provisions of section 68 whichhas been elaborated in the preceding paragraphs. Moreover, as noted above, the Commission reportstating that the shareholders were not traceable at their given addresses has been found to be unreliable.[Para 25]

For the reasons as aforesaid and on the given facts of the case, it is thus held that the assessee haddischarged the burden cast upon it under the substantive section 68. [Para 28] Now coming to the question as to whether the additional burden cast upon the assessee under proviso tosection 68 was discharged or not; as noted above, the assessee and the shareholders had furnished relevantevidences in support of the 'source of source' of funds of the share subscription monies. These details arenoted to have been examined by the Commissioner(Appeals), who after analyzing the money trail, divided the share subscriptionmonies received by the assessee into two parts viz: (a) share subscription monies whose 'source of source' was funds received from RGIL and (b) share subscription monies whosource of source was funds received from other bodies corporate (apart from RGIL) [Para 29]

It is noted that, the Commissioner(Appeals) had examined the details and documents concerning RGILand thereafter arrived at a conclusion that the source of source viz., RGIL was an actual and existingcompany which was engaged in active business of import and export having substantial turnover andoverdraft facilities, packing credit etc. from the Bank. It was found that the 'source of source' of sharecapital originated from the coffers of RGIL which had paid these amounts to the shareholders from itsOverdraft/Packing Credit Accounts or proceeds received from sale of goods or maturity of RGIL)fixed deposits;and therefore the Commissioner(Appeals) held that these amounts could not be treated as unexplainedmonies of the assessee- company which on the basis of the uncontroverted facts as noted by theCommissioner(Appeals) is agreeable. The revenue was unable to point out any infirmity in these findingsof facts as decided by the Commissioner(Appeals) and therefore there is no reason to interfere with theorder of the Commissioner(Appeals) deleting addition made under section 68 to the extent of Rs. 6.91crores and so the action of the Commissioner(Appeals) is confirmed. [Para 30]

With regard to the balance amount of Rs. 6.22 crores, the Commissioner(Appeals) had held that thebodies corporate from whom the shareholders had received monies, out of which they had subscribed tothe share capital of the assessee, were paper companies engaged in the business of providingaccommodation entries. The general yardstick adopted by the Commissioner(Appeals) across all thetwelve (12) shareholders was that, the source of source of the remaining sum of Rs. 6.22 crores (includingRs. 1.14 crores received from two group entities) did not emanate from the coffers of RGIL but wasreceived from unrelated bodies corporate, and therefore he treated it to be bogus, alleging the source ofsource to be paper companies. This yardstick applied by the Commissioner (Appeals) is found to be onerroneous assumption/basis inasmuch as it is found to be not based on any material or evidence. As notedearlier, the documents placed on record evidenced the 'source of source' of the investment made by theshare subscribers in the assessee's share capital viz., the PAN, Certificate of Incorporation, bankstatements of the 'source of source' etc. It is thus noted that source of money from which these sharesubscribers could subscribe in assessee was clearly discernible. The assessee has therefore rightly pointedout that the assessee had discharged its initial burden of substantiating the 'source of source' of funds, andno specific infirmity had been pointed out therein by the lower authorities. At the time of hearing, eventhe revenue was unable to pin-point any defect in these evidences placed on record in support of source ofsource of funds in the paper book. [Para 31]

Further, it is viewed that after the assessee had discharged its burden by furnishing the above documentsin support of the source of source of funds, in compliance with proviso to section 68, then the onus ofdisproving or finding defects in these documents shifted to the revenue. It was then the duty of therevenue to bring on record cogent material/evidence, which would show that the source of source of fundswas unreliable or not genuine, which has not been done by them. The assessee pointed out that theCommissioner(Appeals) only made generalized observations regarding the alleged modus operandi basedon which certain unscrupulous persons were providing accommodation entries. Inviting attention to theimpugned appellate order, assessee showed that the averments made by the Commissioner(Appeals) wasgeneral in nature, wherein he tacitly shirked his responsibility of looking into the documents and findingany fault therein. According to the Commissioner(Appeals), furnishing of corporate informationpertaining to shareholders viz., bank statements, annual accounts, source of source of fund details andother paperwork cannot be treated as justifiable evidence and therefore the Commissioner(Appeals) heldthat the assessee failed in its endeavor to discharge its onus under section 68. This averment of theCommissioner(Appeals) is found to be ludicrous. It is noted that, although the Commissioner(Appeals)has observed that, the documents have been properly maintained and that there is no cash trail, and that allthe source of source companies maintained regular books of account, financial statements and regularlyfiled their tax returns, but the Commissioner(Appeals) rejected it by simply alleging it to be a windowdressing and even went on to say that 'if' dug deeper, it shall be found that they are not real companies. Itis viewed that such an observation of the Commissioner(Appeals) ought not to have made, because suchan observation itself implies that he has not investigated about the source companies and in any case, if henursed such a suspicion, he enjoying co-terminus powers as that of Assessing Officer ought to have dugdeeper/enquired/investigated and thus should have brought on record evidence to substantiate theallegation or his adverse assumption of these companies. The Commissioner(Appeals) could not haveabdicated from his duty, if he harbored a suspicion that, what was apparent was not real. It is further notedthat the Commissioner(Appeals) was unable to point out any defect in the documents furnished by theassessee to discharge the burden to prove the 'source of source' as required as per proviso to section 68and that of the shareholders. Therefore, his conclusion that the source of source of funds qua Rs. 6.22crores were unexplained or represented unaccounted monies of the assessee cannot be sustained. Hence,the impugned action of the Commissioner (Appeals) confirming addition of Rs. 6.22 crores cannot becountenanced. [Para 32]

For the reasons as aforesaid, no fault can be found in the conduct of the assessee, who had not onlydischarged its burden of substantiating the identity, genuineness and creditworthiness of the shareholders,but also the source of source of funds in accordance with proviso to section 68. Thereafter, it was for therevenue to bring on record cogent/credible evidence to show that the evidences/material furnished byassessee in support of nature and source and even the source of source of funds of share subscribers weredefective/colourable. It is however noted that the lower authorities failed to undertake any such exercise,except for casting aspirations' by airing their suspicion based on conjectures and surmises. Hence, as thesource of source, is found to be flowing through regular banking channel from various remittances bycorporate entities in the course of their business dealings, the additional burden laid upon theassessee/share-subscribers under the proviso to section 68 is held to have been discharged/satisfied in thefacts and circumstances discussed (supra). [Para 34]

As discussed above, the assessee has discharged its burden of proving the existence of the fact in respectof credit entries by bringing evidence on record regarding the nature and source of the same. The assesseehas brought on record the facts about the same by adducing documents in respect of entire sharesubscription monies received by the assessee company and it is noted that the shareholders have alsodischarged the burden of proving their source of money from which they had given credit/money to theassessee company. No independent material/evidence has been brought on record by the Assessing Officeror Commissioner(Appeals) to allay or rebut the evidences filed by the assessee company or by theshareholders. [Para 35]

For the above reasons, the action of the Commissioner (Appeals) confirming under section 68to the extent of Rs. 6.22 crores is held to be unsustainable. [Para 36]

To sum up, it is held that share subscription monies of Rs. 13.13 crores received by the assessee duringthe year cannot be held to be non-genuine. Accordingly, the order of the Commissioner(Appeals) deletingaddition to the extent of Rs. 6.91 crores is upheld and the remaining addition of Rs. 6.22 crores confirmedby the Commissioner (Appeals) is directed to be deleted. [Para 37]”

Income-tax Officer, [2024] 167 taxmann.com 746 (Kolkata - Trib.), wherein it was held that where assessee, an NBFC issued equity shares with a premium and Assessing Officer treated share capital as unexplained cash credits under section 68 due to concerns over low revenue, since assessee demonstrated identity, creditworthiness, and genuineness of share applicants, who had sufficient net worth, and were registered with MCA, addition made under section 68 was to be deleted. The Assessing Officer merely based on generalized observations and without making any attempt to dislodge the documentary evidence which were filed by the assessee before him, as well as disproving the explanation of the assessee company as regards its claim of having received genuine share application money from the aforesaid investor company/shareholders, had summarily drawn adverse inferences, which cannot be accepted. Where the assessee had placed on record sufficient documentary evidence to prove the authenticity of its claim of having received genuine share application money from the investor, viz. confirmation letter, PAN details, assessment report, mode of payment for share application money(through banks), bank account statements, cheque numbers, copy of board resolution, copy of balance-sheet, Profit & Loss account for the year under consideration, the Assessing Officer could not merely based on generalized observation draw adverse inferences as regards the authenticity of the transaction without considering the documents placed by the assessee company before him, is supported by the judgments of the High Court of Delhi in the case of Pr. CIT v. Laxman Industrial Resources Ltd. [2017]88 taxmann.com 648/397 ITR 106 and that in the case of CIT v. Vrindavan Farms (P.) Ltd. [IT Appeal Nos. 71-72 & 84 of 2015, dated 12-8-2015]. It was observed by the High Court that where the assessee had produced sufficient documents in the discharge of its initial onus of proving the identity and creditworthiness of the share applicant/subscriber company, then, it is incumbent on the part of the Assessing Officer to undertake some inquiry and investigation before concluding on the issue of creditworthiness, failing which, no addition could be made under section 68 of the Act. Hence, we delete the addition made by the assessing officer on account of share capital.

23.About unsecured loan of Rs. 57,61,000/-, the assessee submitted the returned income of the parties, exempted agricultural income shown by these parties and capital balance held by these parties in their balance sheet. Further, the requirement of proving source of source(provisio to section 68) is not applicable in respect to unsecured loans.Considering these facts and circumstances, we do not find any infirmity in the conclusion reached by the learned CIT(A).In the wake of above delineation, we see no error in the conclusion drawn by the CIT(A) in this regard. We thus decline to interfere with the conclusion so drawn by the CIT(A) whose order is under challenge by the revenue, therefore we dismiss the grounds raised by the revenue.

Order pronounced in the open court on 08 /05 /2025.