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Facts
The assessee challenged the disallowance of Rs. 3,72,000/- as notional interest on interest-free loans provided to related parties, where commercial expediency was questioned. Additionally, an appeal was made against the addition of Rs. 7,20,00,000/- under Section 69 for unexplained share capital, as the Assessing Officer doubted the creditworthiness and identity of certain investors. Both additions were upheld by the CIT(A).
Held
The Tribunal deleted the notional interest disallowance, ruling that since the assessee had substantial own funds (Rs. 29.96 crores), the interest-free advances were presumed to be made from these funds, applying the 'own funds first' principle. Regarding the unexplained share capital, the Tribunal directed the Assessing Officer to reconsider the addition if the assessee provides proof of share allotment by the investors, whose funds were recorded as 'application money pending allotment,' within three months. Failure to do so would allow the Assessing Officer to sustain the addition.
Key Issues
1. Whether notional interest can be disallowed on interest-free advances when the assessee possesses sufficient own funds. 2. Whether an addition under Section 69 for unexplained cash credit in the form of share capital is justified when identity is proven but the creditworthiness or source of funds of investors is doubtful, and the actual receipt of funds occurred in a subsequent assessment year.
Sections Cited
143(3), 69, 133(6), 68, 39 of the Companies Act
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “G”, NEW DELHI
(Assessment Year: 2012-13) Vashisth Builders and Engineers Pvt. Ltd., vs. DCIT, Circle-26(1), A-52, 2nd floor, FIEE Complex, New Delhi Okhla Industrial Area, Phase-2, New Delhi. (PAN: AABCV3687L) (APPELLANT) (RESPONDENT) ASSESSEE BY : Dr. Rakesh Gupta, Advocate REVENUE BY : Shir Vivek K. Upadhyay, Sr. DR. Date of Hearing : 27.08.2024 Date of Order : 11.10.2024 O R D E R
PER S. RIFAUR RAHMAN, AM :
This appeal is filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals-10), New Delhi dated 13.08.2018 for the Assessment Year 2012-13. Aggrieved with the above order, assessee is in appeal before us by raising following grounds of appeal :- i) The ld. CIT(A) has erred in law and on facts in upholding the assessment order passed by the Deputy Commissioner of Income Tax, Circle 26(1), New Delhi under section 143(3) of the Act, by making an addition of Rs. 7,23,72,000/- without appreciating the facts and circumstances of the case, the law as applicable and the submissions and the supporting evidence produced by the appellant. ii) The Ld. CIT(A) has erred in law and on facts in upholding the disallowance / addition of Rs. 3,72,000/- made by the DCIT as notional interest on interest free loans granted by the appellant out of the interest expense claimed by the appellant without appreciating the facts and circumstances of the case, the law as applicable and the submissions and the supporting evidence produced by the appellant. iii) The Ld. CIT(A) has erred in law and on facts in upholding the addition of Rs. 7,20,000/- made by the DCIT by treating the share capital received by the appellant during the year as unexplained cash- credit, without appreciating the facts and circumstances of the case, the law as applicable and the submissions and the supporting evidence produced by the appellant.
2. At the time of hearing, ld. AR for the assessee submitted that ground no.1 is general in nature and with regard to ground no.2, he submitted that during assessment proceedings, Assessing Officer observed that assessee has given loans and advances to Aardee Infrastructure of Rs.30,00,000/- and J.P. Malhotra of Rs.1,00,000/-. Assessing Officer disallowed the relevant interest on the abovesaid loans @ 12% per annum with the observation that assessee has not provided the reasons for giving abovesaid loans and not explained the commercial expediency in these advances. He determined the notional interest of Rs.3,72,000/- and disallowed the same.
3. Aggrieved assessee preferred an appeal before the ld. CIT(A) and ld. CIT (A) sustained the addition made by the Assessing Officer with the observation that diversion of interest bearing funds to other parties and the onus is on the assessee to prove the same since assessee has not been able to discharge the onus casts upon it.
In this regard, ld. AR for the assessee brought to our notice page 20 of the paper book which is the balance sheet and submitted that assessee has huge resources and surplus in the business to the extent of Rs.29.96 crores. Further, he brought to our notice page 85 of the paper book and relied on the decision of CIT vs. Reliance Utilities & Power Ltd. 313 ITR 340 wherein Hon’ble Bombay High Court held that wherein assessee has his own funds as well as borrowed funds, the presumption can be made that the advances were for non-business purposes having made out of the own funds and the borrowed funds are not used for this purpose. He relied on the abovesaid decision.
Considered the rival submissions and material placed on record. We observed that no doubt, assessee has borrowed funds for its business purposes but at the same time assessee also holds huge surpluses in the business and during the year, assessee has utilised an amount of Rs.31,00,000/- for other purposes. Since the assessee has both borrowed and owned funds in the business and the amount utilised for other purposes is very meager compared to surplus available in the business as held in the case of Reliance Utilities & Power Ltd. (supra) when the assessee has huge surplus as well as borrowed funds, it is natural to presume that the funds diverted for non-business purpose is only from own funds. Therefore, the disallowance made by the Assessing Officer is uncalled for. Accordingly, the same is directed to be deleted. Hence, ground no.2 raised by the assessee is allowed.
With regard to ground no.3, the relevant facts are, during assessment proceedings, Assessing Officer observed that assessee has issued share capital along with share premium to the extent of Rs.31,49,20,000/-. Details of shares issued and confirmations received are extracted by the Assessing Officer at pages 2 to 7 of the assessment order and ld. AR for the assessee submitted that assessee issued and allotted share capital to 27 shareholders. However, Assessing Officer has accepted shareholders 1 to 19 listed in the assessment order and he has not accepted shareholders listed at sl.no.2 and 20 to 26 with the observation that assessee has failed to produce Directors of the abovesaid companies for verification and the onus is on the assessee to prove the creditworthiness and identity of the abovesaid parties. Accordingly, he disallowed Rs.7,20,00,000/- u/s 69 of the Act.
Aggrieved with the above order, assessee filed an appeal before the ld. CIT(A) and ld. CIT (A), after considering the submissions and new materials, called for a remand report. After considering the submissions of the assessee and remand report submitted by the Assessing Officer, he funds and creditworthiness for subscribing such a huge share capital.
Aggrieved with the above order, assessee is in appeal before us and ld. AR for the assessee filed detailed synopsis and submitted as under :- “The details of above mentioned 8 parties are as under: S.No. Particulars Amount 1 M/s Omkareshwar Builders Pvt. Ltd. Rs. 70,00,000/- (inadvertently mentioned as Mr. Swaran Singh) 2 M/s CJ Exim Pvt. Ltd. Rs. 95,00,000/- 3 M/s Anni Shoes Pvt. Ltd. Rs. 95,00,000/- 4 M/s Latta Heritage Pvt. Ltd. Rs. 95,00,000/- 5 M/s Success Infratech Pvt. Ltd. Rs. 95,00,000/- 6 M/s Entrench Constructions Pvt. Ltd. Rs. 90,00,000/- 7 M/s Black Cobra Construction Pvt. Ltd Rs. 90,00,000/- 8 M/s Ramnik Realtors Pvt. Ltd. Rs. 90,00,000/- Total Rs. 7,20,00,000/- In this regard, first submission of assessee is that no addition u/s 68 could have been made in the year under consideration for the reason that out of the above mentioned 8 parties, sum in respect of 7 parties (S.No. 2-8 of the above table) aggregating to Rs. 6,50,00,000/- were credited in the bank account/books of account of assessee in the subsequent year and therefore, there was no cash-credit in terms of section 68 during the year under consideration. Thus, no addition u/s 68 could have been made qua this amount of Rs. 6,50,00,000/- and since made, may please be deleted. PB 111, 123, 135, 146-147, 156-157, 166-167, 176-178 are the copies of bank statement of these 7 parties showing that they have credited the amount qua their share of capital in assessee-company from their bank account to assessee’s bank account in the subsequent year i.e., AY 2013-14. Further, reliance is also placed on the following judicial decisions wherein it has been held that no addition u/s 68 could be made in the case where the actual sum has been credit in the subsequent year and mere book entry has been made in the account during the year under consideration: Manju Credit Pvt. Ltd. vs. ITO, dated 13.01.2023, ITAT Kolkata Bench.
“11.1. Out of this amount of Rs. 118.50 lacs received in the preceding year, Rs. 10 lacs was returned by the assessee. Shares have been issued and allotted to all the eighteen share subscribing companies on two different dates during the impugned year as per the chart extracted above. We note that Id. AO has made the addition of entire amount ofRs.230 lacs as received during the year, ignoring the verifiable fact that out of this total ofRs.230 lacs, an amount of Rs.118.50 lacs was received during the preceding year. Considering the facts on record and the provisions of section 68 of the Act, no addition is called for in respect of amount received by the assessee during the preceding year which has been duly accounted and reported in its audited balance sheet (supra). We direct the Id. A O accordingly to delete the addition so made in this respect. ” Further reliance is placed on the decision of CIT vs. Sat Prakash Agarwal, (1983) 140 ITR 880, High Court of Delhi. In view of the above, it is submitted during the impugned year, only the book entries of allotment of shares have been made and no actual cash has been credited in the books/bank account of the assessee and therefore, no addition u/s 68 can be made in absence of real inflow of cash and since made, may please be deleted. Second submission of assessee is that assessee-company has submitted voluminous evidences to substantiate the identity and creditworthiness of the parties/investor companies and genuineness of the transaction such as Form 2 filed with ROC, confirmations, bank statements, ITRs, audited Financial Statements of the said parties. These facts are evident from the following: PB 36 is the copy, of chart filed before Ld. AO vide letter dated 08.09.2014 showing details of share-capital raised during the year showing name of share allotees, date of allotment, no. of shares allotted, rate at which shares were allotted and the total amount. PB 39-43 and 44-50 is the copy of Form 2 filed by assessee-company before ROC submitting the allotment of shares to the above mentioned parties which was duly registered by ROC and no adverse findings were given in this regard by ROC. PB 53 is the copy of a chart showing that complete details of share allotted during the impugned year such as name of allottee, date of allotment, no. of shares allotted, face value, premium, total amount, total share capital, total premium, it further shows that assessee has allotted a total of 391292 shares during the impugned year. PB 55 is the copy of reply dated 06.02.2015 filed by assessee before Ld. AO submitting detail note on share premium. It is submitted that assessee- company was working as builder and developer and successfully completed housing project in Indirapuram namely, project Vijaya Apartment which initially projected for one tower, however, due to positive buyer response and demand, the project was extended from one tower to four towers. In Faridabad, assessee- company developed integrated industrial park known as Global Industrial Park. In Mohali, Punjab, assessee developed land for apartment and landscapes. All these projects are at primer location and therefore, company earned huge profits and in view of these successful project and further future projects, the share were issued at premium. PB 85-104 is the copy of written submissions before Ld. CIT(A). M/s Qmkareshwar Builders Pvt. Ltd. (inadvertently mentioned as Mr. Swaran Singh in Form 2) (Rs. 70,00,000/-) PB 56-57 is the copy of reply dated 18.03.2015 filed by assessee-company before Ld. AO submitting that assessee-company allotted 70,000 shares to M/s Omkareshwar Builders Pvt. Ltd. and has received Rs. 70,00,000/- from the said company. However, while filing Form 2 to ROC (PB 58-62), assessee- company inadvertently intimated ROC that shares are allotted to Swaran Singh, director of M/s Omkareshwar Builders Pvt. Ltd. The said error was rectified by the company by filing revised Form 2 (PB 63-69) rightly intimating that the share were actually allotted to M/s Omkareshwar Builders Pvt. Ltd. Moreover, in the next year i.e., AY 2013-14, M/s Omkareshwar Builders Pvt. Ltd. has sold their share and Form 20B was filed before ROC for such share transfer (PB 70-74). PB 58-62 is copy of Form 2 original filed wherein assessee-company inadvertently intimated ROC that 70,000 shares are allotted to Swaran Singh, director of M/s Omkareshwar Builders Pvt. Ltd. PB 63-69 is the copy of revised Form 2 filed by assessee-company before Ld. AO rightly intimating that the share were actually allotted to M/s Omkareshwar Builders Pvt. Ltd. PB 70-74 is the copy of Form 20B filed by assessee-company before ROC intimating ROC that s Omkareshwar Builders Pvt. Ltd. has transfer the share held by them on 01.12.2.012. PB 105 is the copy of confirmation of M/s Omkareshwar Builders Pvt. Ltd. wherein they have confirmed that they have invested Rs. 70.00.000/- in the assessee-company as share capital. Further that the entire investment is made through proper banking channels. They have further confirmed their PAN details as well. PB75 is the copy of notice u/s. 133(6) issued by ld. AO to Sh. Swaran Singh requesting him to submit the detail of transaction under taken by him with the assessee-company. PB 77 is the copy of letter dated 23.03.2015 sent by M/s Omkareshwar Builders Pvt. Ltd. to Ld. AO in response to notice u/s 133(6) submitting that they have invested Rs. 70,00,000/- with assessee company which was sold in subsequent financial year. It was further submitted that no transaction has b.een undertaken by Sh. Swaran Singh. Further, they have also submitted PAN details, complete address and their registered address. The investor company further submitted their ITR and bank statement. PB 77B-77C is the copy of bank statement of M/s Omkareshwar Builders Pvt. ' Ltd. duly showing that the entire investment of Rs. 70,00,000/- was made through proper banking channel. PB 106-108 is the copy of bank statement of assessee-company duly showing that the entire investment of Rs. 70,00,000/- made by M/s Omkareshwar Builders Pvt. Ltd. was made through proper banking channel. M/s CJ Exim Pvt. Ltd. (Rs. 95,00,000/-) PB 105 is the copy of confirmation of M/s CJ Exim Pvt. Ltd. wherein they have confirmed that they have invested Rs. 95,00,000/- in the assessee- company as share capital and shares were duly allotted to them. Further that the entire investment is made through proper banking channels. They have further confirmed their PAN details and complete address as well. PB 111 is the copy of bank statement of M/s CJ Exim Pvt. Ltd. showing that the entire investment of Rs. 95,00,000/- in assessee-company was made by them through proper banking channel in the subsequent year i.e., AY 2013-14. It further shows their complete address. PB 110 is the copy of acknowledgment of ITR of M/s CJ Exim Pvt. Ltd. showing their complete address, their tax jurisdiction which duly establishes their identity. PB 112-121 is the copy of their audited financial statements of M/s CJ Exim Pvt. Ltd. for AY 2012-13 perusal of which would show that they were engaged in the Job work and earning revenue from the same. Further, the investment made by them has duly been disclosed by them under non-current investments (PB 117). M/s Anni Shoes Pvt. Ltd. (Rs. 95,00,000/-) PB 122 is the copy of confirmation of M/s Anni Shoes Pvt. Ltd. wherein they have confirmed that they have invested Rs. 95,00,000/- in the assessee- company as share capital and shares were duly allotted to them. Further that the entire investment is made through proper banking channels. They have further confirmed their PAN details and complete address as well. PB 123 is the copy of bank statement of M/s Anni Shoes Pvt. Ltd. showing that the entire investment of Rs. 95,00,000/- in assessee-company was made by them through proper banking channel in the subsequent year i.e., AY 2013-14. It further shows their complete address. PB 124 is the copy of acknowledgment of ITR of M/s Anni Shoes Pvt. Ltd. showing their complete address, their tax jurisdiction which duly establishes their identity.
PB 125-132 is the copy of their audited financial statements of M/s Anni Shoes Pvt. Ltd. for AY 2012-13 perusal of which would show that they were engaged in the Job work and earning revenue from the same. M/s Latta Heritage Pvt. Ltd. (Rs. 95,00,000/-) PB 133 is the copy of confirmation of M/s Latta Heritage Pvt. Ltd. wherein they have confirmed that they have invested Rs. 95,00,000/- in the assessee- company as share capital and shares were duly allotted to them. Further that the entire investment is made through proper banking channels. They have further confirmed their PAN details as well. PB 135 is the copy of bank statement of M/s Latta Heritage Pvt. Ltd. showing that the entire investment of Rs. 95,00,000/- in assessee-company was made by them through proper banking channel in the subsequent year i.e., AY 2013- 14. It further shows their complete address. PB 134 is the copy of acknowledgment of ITR of M/s Latta Heritage Pvt. Ltd. showing their complete address, their tax jurisdiction which duly establishes their identity. PB 136-143 is the copy of their audited financial statements of M/s Anni Shoes Pvt. Ltd. for AY 2012-13 perusal of which would show that they were engaged in the Job work and earning revenue from the same. Further, the investment made by them has duly been disclosed by them under non-current investments (PB 141). M/s Success Infratech Pvt. Ltd. (Rs. 95,00,000/-) PB 144 is the copy of confirmation of M/s Success Infratech Pvt. Ltd. wherein they have confirmed that they have invested Rs. 95,00,000/- in the assessee- company as share capital and shares were duly allotted to them. Further that the entire investment is made through proper banking channels. They have further confirmed their PAN details and complete address as well. PB 146-147 is the copy of bank statement of M/s Success Infratech Pvt. Ltd. showing that the entire investment of Rs. 95,00,000/- in assessee-company was made by them through proper banking channel in the subsequent year i.e., AY 2013-14. It further shows their complete address. PB 145 is the copy of acknowledgment of ITR of M/s Success Infratech Pvt. Ltd. showing their complete address, their tax jurisdiction which duly establishes their identity. PB 148-153 is the copy of their audited financial statements of M/s Success Infratech Pvt. Ltd. for AY 2012-13 wherein the investment made by them in assessee-company has duly been disclosed by under non-current investments (PB 153). M/s Entrench Construction Pvt. Ltd. (Rs. 90,00,000/-)
PB 154 is the copy of confirmation of M/s Entrench Construction Pvt. Ltd. wherein they have confirmed that they have invested Rs. 90,00,000/- in the assessee-company as share capital and shares were duly allotted to them. Further that the entire investment is made through proper banking channels. They have further confirmed their PAN details and complete address as well. PB 156-157 is the copy of bank statement of M/s Entrench Construction Pvt. Ltd. showing that the entire investment of Rs. 90,00,000/- in assessee- company was made by them through proper banking channel in the subsequent year i.e., AY 2013-14. PB 155 is the copy of acknowledgment of ITR of M/s Entrench Construction Pvt. Ltd. showing their complete address, their tax jurisdiction which duly establishes their identity. PB 158-163 is the copy of their audited financial statements of M/s Entrench Construction Pvt. Ltd. for AY 2012-13 wherein the investment made by them in assessee-company has duly been disclosed by them under non-current investments (PB 163). M/s Black Cobra Construction Pvt. Ltd. (Rs. 90,00,000/-) PB 164 is the copy of confirmation of M/s Black Cobra Construction Pvt. Ltd. wherein they have confirmed that they have invested Rs. 90,00,000/- in the assessee-company as share capital and shares were duly allotted to them. Further that the entire investment is made through proper banking channels. They have further confirmed their PAN details and complete address as well. PB 166-167 is the copy of bank statement of M/s Black Cobra Construction Pvt. Ltd. showing that the entire investment of Rs. 90,00,000/- in assessee- company was made by them through proper banking channel in the subsequent year i.e., AY 2013-14. PB 165 is the copy of acknowledgment of ITR of M/s Black Cobra Construction Pvt. Ltd. showing their complete address, their tax jurisdiction which duly establishes their identity. PB 168-173 is the copy of their audited financial statements of M/s Black Cobra Construction Pvt. Ltd. for AY 2012-13 wherein the investment made by them in assessee-company has duly been disclosed by them under non-current investments (PB 173). M/s Ramik Realtors Pvt. Ltd. (Rs. 90,00,000/-) PB 174 is the copy of confirmation of M/s Ramnik Realtors Pvt. Ltd. wherein they have confirmed that they have invested Rs. 90,00,000/- in the assessee- company as share capital and shares were duly allotted to them. Further that the entire investment is made through proper banking channels. They have further confirmed their PAN details and complete address as well. PB 176-178 is the copy of bank statement of M/s Ramnik Realtors Pvt. Ltd. showing that the entire investment of Rs. 90,00,000/- in assessee- company was made by them through proper banking channel in the subsequent year i.e., AY 2013-14. PB 175 is the copy of acknowledgment of ITR of M/s Ramnilc Realtors Pvt. Ltd. showing their complete address, their tax jurisdiction which duly establishes their identity. PB 179-184 is the copy of their audited financial statements of M/s Ramnik Realtors Pvt. Ltd. for AY 2012-13 wherein the investment made by them in assessee-company has duly been disclosed by them under non-current investments (PB 184). In view of the above it is respectfully submitted that assessee-company has filed voluminous evidences in form of confirmations, ITRs, Bank statements, financial statements etc. which duly substantiated all the three ingredients of section 68 showing. Therefore, the addition made by Ld. AO is without any basis, evidence or material and is merely based on surmises and conjectures and thus, deserves to be deleted. Further reliance is placed on the following judicial decision: M/s. Mantram Commodities Pvt. Ltd. Vs ITO, ITA.No.l05/Del./2021 dated 25.04.2022, ITAT Delhi Bench. CIT vs. Bwarkadhish Investment Pvt. Ltd., (2011) 330 ITR 298, High Court of Delhi. Pr.CIT-8 vs Softline Creations Pvt. Ltd., ITA 504/2016 dated 31.08.2016, the High Court of Delhi. Commissioner of Income Tax & Ors. vs. Five Vision Promoters PVT. Ltd. & Ors., (2016) 380 ITR 0289, High Court of Delhi. CIT vs Goel Sons Golden Estate (P) Ltd., Date of order 11.04.2012, High Court of Delhi. CIT vs. Nishan Indo Commerce Ltd., (2014)101 DTR 413, Calcutta High Court. ITO vs Rakam Money Matters (P) Ltd., (2014) 41 CCH 0155 (Delhi Tribunal) PR. CIT vs Rakam Money Matters (P) Ltd., ITA No. 778/201 5 (High Court of Delhi), Date of order 13.10.2015 CIT vs. Vrindavan Farms (P) Ltd., ITA No.71/2015 (High Court of Delhi)
Commissioner of Income Tax vs. Gangeshwari Metal Pvt. Ltd. (2014) 361 ITR0010 (Delhi) CIT vs Fair Finvest Ltd., (2013) 357 ITR 146, (High court of Delhi) CIT vs Oasis Hospitalities (P) Ltd., (2011) 333 ITR 119, (High Court of Delhi) CIT vs Value capital services (P) Ltd., (2008) 307 ITR 334 (High Court of Delhi) CIT vs Winstral Petrochemicals (P) Ltd., (2011) 330 ITR 0603 (High Court of Delhi) CIT vs Expo Globe India Ltd., (2014) 361 ITR 0147 (High Court of Delhi) Adverse observation of Ld. AO and Ld. CIT(A) are met as under: Adverse observation of Ld. AO and Ld. CIT(A) are met as under:-
1.
Ld. AO in para 2 at page 2 of the assessment order has mentioned that assessee was asked to produce directors/authroized person of the investor companies chose not to produce them. In this regard, it is respectfully submitted that the investor-companies are independent third parties neither in control of assessee nor associated with the assessee company in any manner and therefore, no blame can be fastened towards the door of assessee, more so when Ld. AO could have enforce the attendance of the investor companies why the virtue of provisions, of Income Tax Act, 1961 but the same as not been done and therefore, this observation of Ld. AO cannot be read against the assessee. Moreover, Ld. AO himself admits at page 2 of the order the notice u/s 13(6) were issued, to some of the investors and all the parties to whom notices were issued have duly complied with such notices. However, no notices have been issued to the parties under dispute.
2. Ld. AO is para 2 at page 2 of the assessment order has mentioned that assessee has not filed confirmations along with the requisite documents. In this regard, it is respectfully submitted that perusal of the table enumerated by Ld. AO in the same breath would duly show that the Ld. AO himself has mentioned that confirmations of all the above mentioned (Sr. No. 2, 20-26 of the this table) investor companies was filed before him. As far as the other requisite documents are concerned all the documents such as bank statements, ITRs, audited financial statements being third Ld. CIT(A) and therefore, this adverse observation of Ld. AO does not remain good.
Ld. AO at page 2-3, mentioned that as per the confirmation received the amount was given by M/s Omkareshwar Builders Ltd. was as loan and the same has been repaid in AY 2012-13. In reply, it is respectfully submitted that this the confirmation which is mentioned by Ld. AO was inadvertently given by the director of assessee-company, however, thereafter the company filed another conformation filed by M/s Omkareshwar Builders Ltd. in response to notice u/s 133(6) enclosed at PB 77. In the said reply that have clarified that they have invested Rs. 70,00,000/- in the share capital of the assessee-company for purchase of 70,000/- shares in AY 2012-13 which were sold by them in AY 2013-14. Further, even in the confirmation provided by them enclosed at PB 105, they have duly confirmed that they shares have been duly allotted to them against the 70,00,000/- invested by them. Therefore, this observation of Ld. AO is without any basis, evidence or material and deserves to be deleted.
Ld. AO at page 7 has mentioned that the assessee-company has not proved the creditworthiness, genuineness of the transaction in the respected of 8 companies (mentioned above). In this regard, it is respectfully submitted assessee has filed voluminous evidences as narrated above which duly establishes the creditworthiness, genuineness of the transaction in respect of all the of 8 companies. Therefore, this observation of Ld. AO deserves to be ignored.
Ld. AO at page 7 has also mentioned that the onus on assessee- company would rendered even more stringent when there is evidence available impeaching the credentials of the “investor companies” and their “directors” who have admittedly been carrying on the activity of providing accommodation entries through the medium of these “companies”. In this regard, it is submitted that Ld. AO has not spelt out as to what evidence is available against these investor companies or as to what and how such alleged admission has been made by their directors. Ld. AO has brought nothing on record to show any adverse material on record to prove such allegation whereas assessee-company has duly established its claim by placing voluminous evidences placed on record as submitted above. Further, no defect were pointed out by Ld. AO or by Ld. CIT(A) in the documents filed by the assessee-company. Thus, this observation of Ld. AO is without any basis material or evidence and is merely based on surmises and conjectures and deserves to be ignored.
Ld. AO at page 9 of the assessment order has mentioned that the purported evidence regarding the address and capacity of the entity is at variance with the enquiries made at the ground level and does not facilitate cross- verification. In this regard, it is respectfully submitted that Ld. AO has nowhere mentions as to what ground level enquiries were made by him. Even perusal of table made by Ld. AO at page 2-7 of the order also shows that even notices u/s 133(6) were not issued to the investor-companies in dispute as the column “date of notice u/s 133(6)” in respect of investor-companies in dispute is left blank in respect of these 8 investor- companies and therefore, when no purported ground level enquiry or cross-verification was conducted by Ld. AO, there is no question -of any variance with the address or capacity. Therefore, it is respectfully submitted that this observation of Ld. AO is also without any basis material or evidence and is merely based on surmises and conjectures and deserves to be ignored.
Ld. CIT(A) in his appeal order has merely relied upon the findings of Ld. AO and in this regard, reliance is placed on our submissions made here and above. In view of the above, it is respectfully submitted that the addition made by Ld. AO is without any basis, evidence or material and is merely based on surmises and conjectures and may please be deleted.”
On the other hand, ld. DR for the Revenue heavily relied on the findings of the Assessing Officer and submitted that Assessing Officer made the addition after making proper investigation. He submitted that shares were allotted, however whether the shareholders are the actual investors is the issue in this case. He brought to our notice remand report submitted by the Assessing Officer which is reproduced at para 6.4 of the appellate order and also brought to our notice page 11 of the ld. CIT (A)’s order. He submitted that the income declared by the shareholders is not sufficient to make such huge investments. Therefore, the shareholders do not have the capacity to make huge investments in the assessee company. Therefore, he supported the findings of lower authorities and submitted that the addition made by the authorities below after proper verification and enquiry. He also relied on the decision of Hon’ble Bombay High Court in the case of M/s. Pratham Telecom India Pvt. Ltd. vs. DCIT dated 17.09.2018.
Considered the rival submissions and material placed on record. We observed that assessee has issued share capital with share premium during this year and the Assessing Officer called for various details to prove identity and creditworthiness of the new 27 shareholders. After considering various documents submitted before the Assessing Officer, the Assessing Officer disallowed the allotment of share capital relating to 8 parties by observing that assessee has not brought on record the respective Directors before him, however, filed additional evidences before the ld. CIT (A). Ld. CIT (A) after considering the remand report sustained the additions. The first shareholder i.e. Omkareshwar Builders Pvt. Ltd. was allotted 70,000 shares by the assessee and received Rs.70,00,000/- from this company. It was submitted that inadvertently, the assessee has intimated ROC as Swaran Singh, Director of Omkareshwar Builders Pvt. Ltd. as the shareholder and Omkareshwar Builders Pvt. Ltd. We observed that assessee has submitted confirmation from Omkareshwar Builders Pvt. Ltd. and submitted before the authorities below. As per the information submitted before us, the shares were not subscribed and allotted to Swaran Singh and the same were actually allotted to Omkareshwar Builders Pvt. Ltd. and Omkareshwar Builders Pvt. Ltd. have invested the same through proper banking channel. Since the amounts were received by the assessee through banking channel and as per the ROC record available on record, the shares were actually allotted to Omkareshwar Builders Pvt. Ltd. and they confirmed the same. Since there is not negative observation made by the tax authorities, we do not see any reason to sustain the above.
Coming to the other shareholders at sl.no.20 to 26, ld. AR for the assessee first submitted that all the parties have filed confirmations for making such investments, all the payments were made through proper channel and all the shareholders have filed acknowledgement of ITR which shows their complete address and their tax jurisdiction and all the shareholders were engaged in business activities.
Further, he submitted that the bank statement of the above 7 shareholders submitted before the authorities clearly shows that they have credited the amount qua their share capital in assessee company in the subsequent year amount qua their share capital in assessee company in the subsequent year amount qua their share capital in assessee company in the subsequent year i.e. AY 2013-14. Accordingly, he filed a relevant chart before us. For the 14. Accordingly, he filed a relevant chart before us. For the 14. Accordingly, he filed a relevant chart before us. For the sake of clarity, the same is reproduced below : sake of clarity, the same is reproduced below :-
After considering the above submissions, let us first discuss the issue of the above submissions, let us first discuss the issue of the above submissions, let us first discuss the issue of 13. receipt of payment in the subsequent assessment year for the share capital. receipt of payment in the subsequent assessment year for the share capital. receipt of payment in the subsequent assessment year for the share capital. We observed from the record submitted before us that assessee has allotted We observed from the record submitted before us that assessee has allotted We observed from the record submitted before us that assessee has allotted all the shares subscribed in the year i.e. befo all the shares subscribed in the year i.e. before 31.03.2012. Assessee also re 31.03.2012. Assessee also submitted all relevant documents in support of such allotment before the submitted all relevant documents in support of such allotment before the submitted all relevant documents in support of such allotment before the authorities and all the relevant ROC forms were submitted to claim that the authorities and all the relevant ROC forms were submitted to claim that the authorities and all the relevant ROC forms were submitted to claim that the assessee has already allotted all the shares before the end of the year i.e. assessee has already allotted all the shares before the end of the year i.e. assessee has already allotted all the shares before the end of the year i.e. 31.03.2012. Now before us, the assessee has filed a chart indicating that the 31.03.2012. Now before us, the assessee has filed a chart indicating that the 31.03.2012. Now before us, the assessee has filed a chart indicating that the assessee has actually received/realised the amount in the FY 2012 assessee has actually received/realised the amount in the FY 2012-13 and assessee has actually received/realised the amount in the FY 2012 also relied on the decision of ITAT, Calcutta in the case of DCIT vs. M/s. also relied on the decision of ITAT, Calcutta in the case of DCIT vs. M/s. also relied on the decision of ITAT, Calcutta in the case of DCIT vs. M/s.
Surya Alloys Industries Ltd. in order dated 10.08.2016 and ITAT, Ahmedabad in the case of Deem Roll Tech Ltd. vs. DCIT in ITA No.437/Ahd/2018 order dated 11.08.2020. The first decision relied by the assessee is distinguishable considering the fact that in those decisions, the payments were received by them subsequently and the reasons for such late payments were explained and the issue involved in those cases are share application money and not share allotment. Thus, share application money was subsequently received and it was held that capacity should be analysed on the date of realization. Even in the case of Deem Roll Tech Ltd., the issue involved in that case is relating to share application money not share allotment. However, in the present case, the issue involved is allotment of shares and the assessee has clearly indicated that the assessee has received the cheque and made the allotment that means what is relevant is allotment of shares and confirmation made by the assessee that assessee has already received the relevant cash and as per the provisions of section 39 of the Companies Act, shares cannot be allotted before receipt of money. It is the obligation on the part of the assessee to allot the shares only upon realization of the case. Therefore, as per the information available on record, assessee has allotted the shares after receipt of cash only. Therefore, now claiming that the assessee has actually received or realised the cash in the subsequent year cannot be accepted and it is only an after-thought. Further, it is not brought on record why the payments were received through RTGS after six months of allotment of shares. Therefore, this argument of the assessee is rejected. Coming to the next issue of various documents submitted by the assessee 14. before the authorities which includes confirmation of investment. Yes, those parties have confirmed and made the payment through banking channel. Yes, all these are regular confirmations or documentations submitted by all the parties to claim that these are genuine transactions. Now, the issue is failure to prove the capacity and identity of the investors/Directors acknowledged before the Assessing Officer during assessment proceedings as well as remand proceedings. This clearly raises several doubts that assessee has to submit additional information to substantiate the capacity and source of such investments. From the record, we observed that all the shareholders have meager income from the financial statements submitted before us. It clearly shows that they do not have means of their own to make such investment. Further we observed that all these parties have shown sources of the investment declared as other current liabilities and in detail, all the shareholders have shown as “application money received for allotment of securities and due for refund/interest accrued on above”.
Strangely all the investors have the same source that application money was received for allotment of securities and there is no document submitted that all these companies have allotted the shares against such receipt of application pending for allotment. Therefore, all these shareholders have source which are doubtful and all of them have the same source of receipt of application money and all the application monies so received were all invested in the assessee company. This transaction does raise several questions on capacity of these shareholders. Even during remand proceedings, assessee has merely submitted the information what was already available on record and capacity of the shareholders who made the investments were never proved by the assessee. Therefore, we are inclined to agree with the tax authorities that assessee has proved the identity and failed miserably to prove the capacity of the investors. However, we are inclined to give conditional benefit to the assessee to submit the details of allotment of shares by the respective investors, who has shown the source of funds received as share application pending allotment. If the assessee submits the allotment of the shares in the subsequent assessment year then we direct Assessing Officer to consider the same as genuine transaction and the assessee has proved the capacity of the investors. In case, it is not submitted within a period of three months from the date of this order, the Assessing Officer can proceed to sustain the addition. Accordingly, we dismiss the grounds raised by the assessee and sustained the addition made by the Assessing Officer with the above directions. In the result, the appeal filed by the assessee is partly allowed.
15. Order pronounced in the open court on this 11th day of October, 2024.
Sd/- sd/- (SUDHIR PAREEK) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 11.10.2024 TS