NARWAL FINANCE PRIVATE LIMITED,HARYANA vs. INCOME TAX OFFICER WARD 3, ROHTAK

Brief fact of the case is that the assessee has electronically filed the return of income on 14.09.2016 for the A.Y 2016-17 declaring total income of Rs.40350/-. The case was selected for scrutiny assessment through CASS. The notice under Section 143(2) of the Act dated 22.08.2017 was issued and served upon the assessee. The A.O found that assessee’s company had raised the funds in form of the shares application money on account of capital introduced by the directors which have been received as unsecured loan far away from the persons of place of business of the Assessee. During the assessment proceedings the AO added Rs.75,00,000/- on account of unproved source of capital introduce by directors.

Aggrieved by the order of the A.O the assessee company has filed the appeal before the Ld. CIT(A). The Ld CIT(A) vide order dated 14-11-2023 has dismissed the appeal against which assessee has filed this appeal before us by raising the following grounds:-

The Ld. CIT(A) at para 6.5 in his order has observed as under :- “6.5 Due to non submission of documents which confirm the credit worthiness of the share applicants and that of the parties from whom funds were borrowed by the share applicants, the genuineness of the transactions are not proved. Hence, the addition is based on the failure of the appellant to discharge the burden cast upon it under Sec 68 of the Act and not on surmises and conjectures as averred by appellant. In the appellate proceedings no fresh facts have been brought on record by the appellant for discharging its onus. Therefore, the grounds of appeal nos 1 to 6 are not tenable and hence they fail.”

Ld. Counsel for the assessee has submitted that assessee has provided all the details of the creditors to the A.O and discharged its initial burden. It is also submitted that Assessee Company has provided the details of the bank accountants, PAN numbers and other documents of the creditors.

Ld. Counsel relied on various judgments to support his contention which are as follows ;

In the case of CIT vs Diamond Products Ltd (2009)177 Taxman 331 Delhi the Hon’ble Delhi High Court held that Section 68 of the income Tax Act 1961-cash credits for A.Y.2002-03 whether once assessee has been able to establish that transaction with his creditors is genuine and creditors identity and creditworthiness have been established, Assessing officer can examine source of source- Held, No-

We have heard the parties and perused the material available on record.

Perusal of the order of the CIT(A), it reveals that assessee company had given particulars of registration of the investing /applicant companies; confirmation from the share applicants, bank accounts details and payment made by bank accounts through account payee cheques. Assessee’s company has discharged the burden as per the first proviso of the section 68 of the Act. Unsecured loan has been provided by the creditors namely Sh. Sunil Gupta, Ms Nirmala Bhardwaj and Shreyans Finlease Pvt Ltd to the assessee company through bank accounts. In the instant case the assessee had proved that the transactions were genuine. Hence, the AO cannot be permitted to examine the source of the source once the assessee has been able to establish that the transactions with the creditors were genuine and credit worthy.

From the above discussion appeal of the assessee company is liable to be allowed accordingly. The order passed by the Ld. CIT(A) and AO are set aside.

In the result, the appeal of the assessee is allowed.