ITO, NEW DELHI vs. M/S. SAMARTH FINCAP SERVICES PVT. LTD., NEW DELHI

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “G”: NEW DELHI BEFORE Shri C.M. Garg, Judicial Member AND Dr. B. R. R. Kumar, Accountant Member ITA No. 276/Del/2013 (Assessment Year: 2007-08) ITO, Vs. M/s. Samarth Fincap Services Ward-7(2), Pvt. Ltd, New Delhi F-2, Green Park Main, New Delhi (Appellant) (Respondent) PAN:AABCS7132F Assessee by : Dr. Rakesh Gupta, Adv Shri Somil Agarwal, Adv Revenue by: Shri Anuj Garg, Sr. DR Date of Hearing 06/07/2023 Date of pronouncement 30/08/2023

O R D E R PER C. M. GARG, J. M.: 1. This appeal has been filed by the Revenue against the order of the ld CIT(A)-X, New Delhi dated 26.11.2012 for AY 2007-08. 2. The revenue has raised the following grounds of appeal:- “1. The Ld. CIT(A) erred in law and on the facts and circumstances of the case, in deleting the addition of Rs. 2,40,00,000/- made by the AO as unexplained cash credits from undisclosed sources u/s 68 of the I.T. Act." 2. The Ld CIT(A) erred in law and on the facts and circumstances of the case, in deleting the addition of Rs. 35,00,000/- made by the AO as unexplained unsecured loans." 3. The Ld. CIT(A) erred in law and on the facts and circumstances of the case, in restricting the estimated business income from Rs. 2,31,200/- to Rs. 1,00,000/- which is below the returned income."

Ground No. 1 3. Apropos ground No.1 the ld Sr. DR submitted that the assessee received a total amount of Rs. 3,70,00,000/- as share application Page | 1

ITA No. 276/Del/2013 Samarth Fincap Services Pvt. Ltd money during the year and the amount of Rs. 1.30 crores accepted by the AO but an addition of remaining part of it amounting to Rs. 2.40 crores added back to the total income of the assessee as unexplained credit from undisclosed source u/s 68 of the Act. The ld Sr. DR submitted that only a few persons provided fund to the assessee company in the form of share application money and unsecured loans and most of them stated that their source of investment is from sale of shares. The ld SR DR submitted that the when the applicants were confronted then no reply was received nor any confirming was submitted therefore, the AO was right in making addition in the hands of the assessee u/s 68 of the Act. The ld Sr. DR submitted that the ld CIT(A) has granted relief to the assessee without any basis therefore, impugned first appellate order may kindly be set aside by restoring back to the AO. 4. Replying to the above the ld counsel of assessee submitted that the ld CIT(A) after considering the submission of assessee, objections and remand report of the AO and rejoinder of the assessee to the remand report along with all relevant documentary evidence and found that it is not a case of any entry operator and hence, the ld CIT(A) was right in granting relief to the assessee. The ld counsel drawing our attention towards annexures to the written submission and submitted that the assessee furnished information pertaining to almost all applicants showing amount of share application money, share application form, copy of bank statement and copy of balance sheet and Profit and Loss Account as applicable, he further submitted that in response to the notice issued by the AO u/s 131 of the Act. These investors also submitted direct response before the AO submitting the identical documentary evidence and in addition to that resolution of board of directors, master data from website and copy of allotment letter was also submitted directly to the AO by the investors therefore, there was no IOTA of any doubt regarding their identity, capacity and

ITA No. 276/Del/2013 Samarth Fincap Services Pvt. Ltd creditworthiness and genuineness of the transaction and hence, the ld CIT(A) was quite correct and justified in deleting baseless addition made by the AO and granting relief to the assessee. The ld counsel strenuously contested that the grounds of revenue are being devoid of merit may kindly be dismissed. 5. On careful consideration of the above submission, we note that the ld CIT(A) after noting the stand and allegations of the AO summarized the submission of the assessee at pages 5 to 9 of the first appellate order. Thereafter, the ld AO reproduced the detailed submissions of the assessee, AO’s submission regarding objections of the AO, remand report of the AO and assessee’s rejoinder/ reply to the remand report. Thereafter, the CIT(A) proceeded to examine and verify the identity, capacity and creditworthiness of the share applicants and loan creditors. The ld CIT(A) also noted annexure A which was attached to the first appellate order containing list of evidences filed by the assessee and examined by the CIT(A) by way of calling remand report by AO and taking on record rejoinder of the assessee. 6. We further note that the ld CIT(A) proceeded to record his findings from page 50 onwards and reproduce the submissions of the assessee and summarized the same in view of the drawing conclusion/ findings thereon. For the sake of completeness we find it appropriate to reproduce the relevant operative portion of the first appellate order as follows:- “3.8. I have gone through the facts and circumstances of the case, observations of the A.O., submissions made by the A.R. of the appellant, remand report of the assessing officer, rejoinder to the remand report, various judicial pronouncements on this issue and the provisions of the I.T. Act. I have also called for the assessment records and examined the same. This ground of appeal is being finalized after making following observations: (a) On going through the assessment it is observed that the assessing officer has considered the total share application money of Rs.3.70 crores and has accepted an amount of Rs. 1.30 crores as genuine, while rejecting the claim of Rs.2.40 crores as not having been explained u/s 68 of the 1.T. Act. In the assessment order, no specific

ITA No. 276/Del/2013 Samarth Fincap Services Pvt. Ltd

details were provided regarding the persons from whom the amount of Rs.2.40 crores was not being as genuine. The assessing officer has made general remarks stating that in response to summons u/s 131 only some persons had responded and provided details and confirmations. The assessing officer had also received letters from various persons in response to the summons u/s 131 confirming that they had provided the share application money to the appellant company. This aspect was also confirmed by calling for the assessment records wherein letters of various persons were also found on record. The assessing officer did not bring on record any material or document where the summons had not been served or the details provided by the appellant had been found to be incorrect except in the case of one Ms Shashi Aggarwal, about whom explanations and clarifications was subsequently provided by the appellant. Accordingly, the finding of the assessing officer regarding making additions amounting to Rs.2.40 crores, while at the same time accepting the contention of the assessee regarding Rs.1.30 crores appears to be self-contradictory. (b) On going through the submissions of the A.R. of the appellant it is quite clear that this is not a case related to any entry operator and during the course of assessment proceedings, various details including addresses, PAN No., confirmation letters, income tax returns, bank statements and other details relating to share application and share issued were provided to the assessing officer from time to time. As per the detailed submissions of the A.R. of the appellant, through various letters and submissions, all the relevant details to establish the identity, creditworthiness and genuineness of the various persons had been provided to the assessing officer. Though it is also true that in all cases parties did not appear in person, but except in one case, in all other cases the persons either appeared or responded through letters to confirm the transaction. The assessing officer has not brought anything on record to establish that the various persons from whom the share application money had been taken they are not genuine, they did not exist, or there was no information or material available to establish that the share application money had been manipulated or managed by the appellant company. The assessing officer himself has stated that statements of Sh. Harish Aggarwal and Suresh Aggarwal had also been taken in detail regarding the financial transactions relating to the appellant company, but no adverse comments were brought on record by the assessing officer regarding these statements. The various parties had been specifically investigated by the assessing officer and despite the investigations no adverse findings were brought on record by the assessing officer on the basis of which the addition of Rs.2.40 crores. (c) The A.R. of the appellant has made detailed submissions which have been reproduced earlier in the order and has also provided a chart regarding the various persons from whom the share application money had been taken. On the basis of the chart which summarises the details about the different parties, it is also clear that the appellant had discharged initial onus of establishing the identity, genuineness and creditworthiness of the various parties through details like PAN, ITR, bank statements etc. On the other hand, the assessing officer has Page | 4

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merely stated that since many of the persons to whom summons had been issued u/s 131 did not attend personally, the amounts totalling Rs.2.40 crores was being added u/s 68 of the I.T. Act. Even on going through the assessment records it is not clear as to how this total amount of Rs.2.40 crores was computed and who were the persons with which the assessing officer was not satisfied with regard to the amounts shown as share application money in the appellant company.

(c) During the appellate proceedings, the assessing officer was also asked to provide a report with regard to the various parties and vide letter dated 31-01-2012, a remand report had been submitted by the A.O. The A.R. of the appellant reiterated in his rejoinder that the assessing officer has nowhere disputed the basic evidences and documents relating to the various parties to establish the identity, genuineness and creditworthiness of the persons. It was further argued that the assessing officer had also sent confirmations to the assessing officers of various parties since all the parties were identified, assessed to tax and have confirmed the transactions. On the basis of the remand report and other details and submissions of the A.R. of the appellant, it is clear that there was no adverse information regarding the letters or summons having been received back, persons not existing or any adverse report from any of the assessing officers of various persons to whom letters had also been issued by the assessing officer. In this context, the assessing officer has not made out any case as to how once the details and submissions have been made by the assessee and even after enquiries made by the assessing officer, when no adverse information was found, how there could be a justification of making the addition u/s 68 of the I.T. Act. In this regard, the A.R. of the appellant has strongly relied upon various judicial pronouncements which are as follows:

(1) CIT v. Lovely Exports (SC) (ii) CIT v. Oasis Hospitalities (Del) (iii) CIT v. Dwarkadhish Investments (Del) (iv) CIT v. Dataware P. Ltd (Kol.) (v) CIT v. Kamdhenu Steel & alloys Ltd (Del) The facts of the present case appear to be very clear since the assessing officer has not pointed out any discrepancy or reasons for disputing the contentions of the A.R. of the appellant regarding the identity, creditworthiness and genuineness of the transaction. The assessing officer has not disputed the various evidences provided by the A.R. of the appellant and also carried out specific enquiries as well as inform the various assessing officers regarding this transaction. In spite of all the investigations and efforts made by the assessing officer, no specific adverse information has been pointed out by the A.O. to come to this conclusion that the amount of Rs.2.40 crores was not genuine or the persons did not have creditworthiness for providing this amount. In view of the various judicial pronouncements on this issue as well as the provisions of the I.T. Act, I do not see any reason for the

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assessing officer to have made this addition, specially because no specific adverse information was available with him. (e) with regard to the issue of TEP, it is clear that the TEP had been fully considered by the assessing officer and on the basis of the same statements of Sh. Harish Aggarwal and Shri Suresh Aggarwal have been taken. Despite the information with the assessing officer available through the TEP, there was no specific allegation or information on the basis of which any addition has been made by the assessing officer. The allegations had been made in respect of Shri Harish Aggarwal, but no specific allegation regarding information of the other share applicants or the appellant company must have been available with the assessing officer, on the basis of which any addition could have been made. The assessing officer had also made efforts to investigate the issues and financial transactions of the appellant company, but from the records there is nothing to establish the general allegations in the Tax Evasion Petition, where there is nothing specific regarding the appellant company. Accordingly, despite the information and the TEP since the assessing officer has not brought any adverse material on record, no addition can be made on general apprehensions or surmises. f) The A.O. has specifically observed in the order that he was providing a benefit of Rs.1.30 crores in view of the decision of Lovely Exports, but was not accepting Rs.2.40 crores since the letters received in support of the company does not carry out and the possibility of fabrication cannot be ruled out. Considering the fact that in the present case no adverse finding other than this observation has been given by the assessing officer and also that this is not a case relating to entry operators, rather all the parties are being regularly assessed to tax and intimations have also been sent to the various assessing officers to take necessary follow up action, it appears that the assessing officer has followed the decision of Lovely Exports and also intimated the various assessing officers of different parties in the same as directed in the case of Lovely Exports (Supreme Court). The details in the remand report as well as various documents filed by the A.R. of the appellant have clearly established that the onus cast upon the appellant with regard to the share application amounts has been discharged. The judicial pronouncements of the Hon'ble Apex Court in CIT v. Lovely Export as well as plethora of other judgements with regard to the share application money have already been elaborated by the A.R. of the appellant including cases of CIT v. Ninstral Petrochemical Ltd. in ITA No.592/2010 dated 12-05-2010 (Del); CIT v. Victor electrodes in ITA No.586/2010; CIT v. Oasis Hospitalities in ITA No. 2093, 2095 of 2010 (Del), CIT v. Dwarkadhish Investment in ITA No.911/2010 (Del). 3.9. After careful consideration of the specific facts of the case, the provisions of the I.T. Act, the evidences and submissions made by the A.R. of the appellant, the enquiries conducted by the assessing officer as well as the replies received from various parties, I am convinced that in this case the onus has been discharged by the appellant with regard to the share application amounts and no specific adverse information or evidence has been brought on record by the assessing officer to justify the addition of Rs.2.40 crores. Accordingly, this

ITA No. 276/Del/2013 Samarth Fincap Services Pvt. Ltd amount of Rs.2.40 crores is deleted. This ground of the appellant is treated as allowed.”

ITA No. 276/Del/2013 Samarth Fincap Services Pvt. Ltd concluded that the appellant has discharges its initial onus of establishing the identity, creditworthiness and genuineness of the investors by way of filing details like PAN, ITR, bank statement etc and the AO had merely stated that since many of persons to whom summons had been issued u/s 131 of the Act did not attend personally. The ld CIT(A) also took cognizance of remand proceedings and after perusal of the remand report and rejoinder of the assessee to the remand report recorded the findings that there was no adverse information regarding the letters and summons having being received back, persons not existing or any adverse report from any of the AO of various share applicants to whom letters had also been issued by the AO. The ld CIT(A) gave a clear findings that the AO has not made out any case as to how once the details and submission have been furnished by the assessee and even after enquiries made by the AO, when no adverse remark was made how there could be a justification of making addition u/s 68 of the Act. 9. The ld CIT(A) while granting relief to the assessee has relied on the various judgments of Hon'ble Supreme Court and jurisdictional Delhi High court which supports the conclusion drawn by the ld first appellate authority. The ld CIT(A) also considered the allegation made in the tax evasion petition and noted that the despite the information of TEP the AO has not brought any adverse material on record, no addition can be made on general apprehensions or surmises. 10. The ld CIT(A) finally relying on the proposition rendered by the Hon'ble Supreme Court in the case of CIT Vs. Lovely Exports (supra) concluded that no adverse finding other than baseless observation given by the AO and also that this is not a case relating to entry operators and the ld CIT(A) has recorded categorical finding that all the parties are regularly assessed to tax and intimation have also sent to various AO to take necessary follow up action. The ld CIT(A) finally concluded the details in the remand report as well as various

ITA No. 276/Del/2013 Samarth Fincap Services Pvt. Ltd documents filed by the assessee have clearly established that the onus cast upon the appellant with regard to establishing identity, capacity and creditworthiness of contributor/ investor of share application amount has been discharged. Thus, we are unable to see any ambiguity, perverse to any valid finding recorded by the ld CIT(A) that the onus discharged by the appellant with regard to share application amount and no specific adverse information or evidence has been brought on record by the AO to justify the addition of Rs. 2.40 crores u/s 68 of the Act. Accordingly, we hold that the findings of the ld CIT(A) are quite correct and justified based on sustainable & self speaking documentary evidence which requires no interference by this bench. Accordingly, ground No. 1 of the revenue is dismissed. Ground No. 2 11. Apropos ground No. 2, the ld Sr. DR submitted that the AO was right in making addition of Rs. 35 lakhs on account of unsecured loan unexplained credit from undisclosed source u/s 68 of the Act which are deleted by the ld CIT(A) without any basis therefore, first appellate order may kindly be set aside by restoring that to the AO. 12. Replying to the above the ld counsel of the assessee drew our attention towards findings recorded by the CIT(A) in para 4 to 4.3 of first appellate order and submitted that the assessee submitted all the details in the form of names, addresses, PAN, copies of confirmation and bank statement before authorities below but the AO made addition merely on the basis of surmises and conjectures which was rightly deleted by the ld CIT(A). The ld counsel vehemently pointed out that even a major part of Rs. 31 lakhs received from M/s. Abhinav Leasing & Finance Ltd was repaid during the same financial period therefore, the ld CIT(A) was right in deleting the addition. 13. On careful consideration of the above submissions and perusal of the relevant part of the first appellate order particularly para 4 to 4.3, we note that the ld CIT(A) observed that all the relevant supporting Page | 9

ITA No. 276/Del/2013 Samarth Fincap Services Pvt. Ltd documentary evidence including PAN, bank statement, ITR etc have been provided by the appellant to the AO during the assessment proceedings and the AO could not place any reason for making impugned addition and has also not brought on record any adverse information regarding two parties from whom the impugned fund received. The ld CIT(A) thereafter, noted that as per various judicial pronouncement unless the onus is shifted by the AO with regard to establishing the identity, genuineness and creditworthiness of the transaction or any specific adverse observation or findings are made there cannot be any addition without specific reason and evidence to establish that the amount was not explained. After observing above, the ld. CIT(A) deleted the addition by observing that the evidence and circumstances under which the unsecured loan have been taken and the AO did not controvert the various evidence of facts brought on record, there is no justification to sustain the addition made by the AO u/s 68 of the Act. It is pertinent to mention that on being asked by the bench the ld Sr. DR did not controvert the factual position noted by the ld CIT(A) that the amount of Rs. 31 lakhs was repaid during the same financial period to the respective loan creditor i.e. M/s. Abhinav Leasing and Finance Ltd. 14. In view of the foregoing, we are unable to see any valid reason to interfere with the findings arrived and recorded by the ld CIT(A) and thus we uphold the same. Accordingly, ground No. 2 of the revenue is also dismissed. Ground No. 3 15. Apropos ground No. 3, after considering the rival submissions we note that the ld CIT(A) has restricted the addition to Rs. 1 lakhs instead of Rs. 2,31,200/- estimating the business income. The grievance of the ld Sr. counsel is that if the business income of assessee is estimated to Rs. 1 lakhs then it would be lesser then the return income of the assessee. In our considered opinion, returned

ITA No. 276/Del/2013 Samarth Fincap Services Pvt. Ltd income of assessee was Rs. 1,92,270/- and the AO estimated business income from operations Rs. 2,31,200/- above the returned income by considering the net profit @10% on the total turnover/ receipt of the assessee. It is well accepted principle of tax jurisprudence that the returned income cannot be reduced by allowing claims or deduction to the AO. From the relevant part of the first appellate order we note that the ld CIT(A) despite noting that the assessee could not establish that the expenses have been properly vouched and restricted the addition from Rs. 2,31,200/- to Rs. 1 lakhs only without mentioning the valid justified reason and basis therefore, the findings of ld CIT(A) in this regard being un-sustainable are reversed restoring the addition made by the AO. Accordingly, ground No. 3 of revenue is allowed. 16. In the result, appeal of the revenue is partly allowed. Order pronounced in the open court on 30/08/2023.

-Sd/- -Sd/- (B. R. R. Kumar) (C. M. GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated: 30/08/2023 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi