ITO-5(1)(1), MUMBAI, MUMBAI vs. BKC DWELLINGS PRIVATE LIMITED, MUMBAI

6. We have heard both the sides and perused material on record.

2 Assessment Year: 2018-19 7. We note that CIT(A) has deleted addition by placing reliance on the decision of the Tribunal in the case of BKC Abode Private Limited [ITA No. 1587/Mum/2023, dated 08/09/2023, Assessment Year 2018- 19] The CIT(A) noted that BKC Abode Private Limited is an associate company of the Assessee. Both, the Assessee and its associate company, had received funds from Tracstar Investments Pvt. Ltd. by way of subscription to preference share capital. In identical facts and circumstances, the funds received from Tracstar Investments Pvt. Ltd. as preference share capital were taxed in the hands of BKC Adobe Private Limited as unexplained cash credit under Section 68 of the Act by the Assessing Officer. The CIT(A) confirmed the aforesaid addition. However, the Tribunal deleted the addition holding as under:

“011. We have carefully considered the rival contentions and perused the orders of the lower authorities. The fact shows that the assessee has issued the preference share capital of ₹2,73,46,200/- non-cumulative redeemable preference share of ₹10 each to M/s Tracstar Investment Private Limited. During assessment proceedings, the assessee submitted the confirmation of the investors, confirmation of accounts of the investors, balance sheet of the assessee and the investor company showing the transaction and bank statement of the assessee disclosing details of the above transaction and showing the trail of the fund. The learned Assessing Officer issued notice under Section 133(6) of the Act to the investor, which was replied to by submitting the balance sheet, confirmation and income tax return. The learned Assessing Officer says that assessee did not file the bank account of the investor and therefore, looking at the return of income, the addition was made under Section 68 of the Act. Before the learned CIT (A), the assessee submitted the bank statement of investor also. The learned CIT (A) dealt with this issue in paragraph no.4.5 and 4.6 that the bank statement of the assessee with the Punjab National Bank was available and further the bank statement submitted of the investor is merely supporting the facts stated by the assessee available and both 3 Assessment Year: 2018-19 the bank accounts in the same bank are showing complete trail of the funds from assessee and to assessee through the investor. Undisputedly, M/s Tracstar Investment Private Limited has paid unsecured loan to the assessee which was outstanding in F.Y. 2016-17 amounting to ₹27,26,96,805/- after adjustment on 31st March, 2017, the above amount was repaid. This fact is demonstrated in note number 11 of the annual accounts of the assessee company. At page no.26 of the paper book, the Punjab National bank Account of the assessee in Account No.4046 is placed for the year 2017, which shows that the amount of unsecured loan paid by the assessee company and the amount of investment in preference share received by the assessee company to and from M/s Tracstar Investment Private Limited is 8th November, 2017. Therefore, assessee repaid the unsecured loan on 8th November, 2017 and on the same date received the sum from the same entity for which preference shares were issued. Thus, investor converted its unsecured loan with the assessee company into redeemable preference shares with the same funds which were available with it on repayment of unsecured loan of the assessee of the investor company. The facts are also corroborated by the bank statement of M/s Tracstar Investment Private Limited with Punjab National Bank of account no. 79831, also shows that on 8th November, 2017, the investor received unsecured loan and converted the same in preference share capital. The source of the funds of the investor also shows at ₹196 crores as per the balance sheet as on 31st March, 2018 and As on 31st March, 2017, it was Rs. 193 crores. It is not the case of the Revenue that the amount of unsecured loan received by the assessee is not genuine, because same is accepted without any enquiry for the year ended on 31st of March 2017. The facts before the lower authorities also do not suggest that there is any enquiry to show that the transaction of borrowing of unsecured loan or the preference share capital is not genuine. In fact, the investor company and the assessee company are both having 4 Assessment Year: 2018-19 the same address. Both are disclosed as related parties in the annual accounts transactions of both the parties. Even in response to notice under Section 133(6) of the Act, the investor submitted the bank statement to the learned Assessing Officer. The return of income was also available of the investor, the learned Assessing Officer has also recorded the income of the investor. The Revenue, does not dispute that the source of funds invested by the investor in the assessee company is not the repayment of the share capital. Further, the bank statement of the investor as held by the learned CIT (A) was merely supporting the claim of the assessee which is adequately evidenced from the bank statement of the assessee itself showing the date wise flow of fund to the investor on account of repayment of loan and receipt of the funds on the same day on account of issue of preference share capital. In view of this, we do not find any infirmity in the order of the learned CIT (A) in deleting the addition under Section 68 of the Act of ₹27.34 crores. Accordingly, the ground nos. 4 to 6 of the appeal are dismissed.”

“5.5 Decision: The submissions made by the appellant and the case laws relied upon are duly considered. It is seen that part of written submission reproduced in the assessment order at pages 11 to 13 clearly explains the transaction of receipt of share capital contribution from investor Company along with its bank statement. It not only explains source of contribution of preference share capital but also source of source of share capital contribution. In reply to notice u/s 133(6) the investor company had submitted confirmation from Oriental Radios Pvt. Ltd. as to amount refunded by the aforesaid company towards loan to investor company through proper banking channel. The aforesaid confirmation indicating address, Permanent Account Number, acknowledgement of Income Tax Return, ledger account of M/s Oriental Radios Pvt. Ltd. in the books of account of investor company and same are at pages 103 to 105 (Annexure-A). The aforesaid company is again associate company indicating same address as that of investor company as well as appellant company. In view of above, observation of A.O. at page 13 that appellant did not submit any document to prove genuineness and creditworthiness of fund received from M/s. Oriental Radios Pvt. Ltd. by investor company is factually incorrect and contrary to evidence on record. In the case of appellant source of source of capital contribution stands explained with evidences. In fact A.O. has ignored the evidence on record and made adverse observation without any valid justification. It is to be noted that The Hon’ble ITAT, Mumbai in the case of BKC Abode Private 6 Assessment Year: 2018-19 Limited which is another associated company like the appellant in identical issue of share capital received from M/s. Tracstar Investment Pvt. Ltd. has decided in favour of the assessee. The relevant portion of decision is reproduced for ready reference:- “We have carefully considered ……..” 5.6 In my considered view and from the submissions of the appellant, the assessee has adduced evidences to prove the identity, genuineness and creditworthiness of the investing company and also established the source of source of the investing company. Thus the case of the appellant is not attracted by the first proviso under section 68 of the act. Further the AO has not recorded any note or brought any evidence in the assessment order for his belief through investigation to establish that the share capital amount received is the unaccounted income of the appellant or the loan transaction with regard to the source to source is to be treated as unexplained or not genuine. Mere suspicion and non-acceptance of the legally valid evidences like bank statements, audited financials and registration with Govt authorities as submitted by the appellant to prove the identity, genuineness and creditworthiness of the investing company will not make the case of the AO to jump into a conclusion that the transaction is unexplained. It is seen from the order of Hon’ble ITAT hereinabove that the investor in the case of appellant company M/s. Tracstar Investments Pvt. Ltd. was same for which it has been concluded that no addition u/s 68 of I.T. Act 1961 was justified. Nature of transaction being on the same date in the same bank account between the associate companies is similar/identical to the facts in the case of appellant company. Resolution submitted by investor company in response to notice u/s 133(6) which is at pages 10 & 11 (Annexure-A) indicates names of appellant company as well as M/s BKC Abode Pvt. Ltd. in respect to investment made by 7 Assessment Year: 2018-19 investor company in Preference Share Capital of the appellate company as well M/s BKC Abode Pvt. Ltd. which was for consideration before Hon’ble ITAT, Mumbai Bench, Mumbai. The facts and circumstances being identical respectfully following the same I am of the considered opinion that addition made in the case of assessee is unjustified and unsustainable.

5.7 Considering the facts and evidence on record I am of the considered opinion that assessee has established by placing legal evidence on record to prove the identity, creditworthiness and genuineness of transaction of receipt of preference share capital. There remains no scope for making any addition u/s 68 of I.T. Act, 1961. Respectfully following the ITAT, Mumbai order cited supra, it is held that the addition made by the AO is not sustainable.