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Judgment
PER MANISH AGARWAL, ACCOUNTANT MEMBER :
The present appeal is filed by Revenue against the order dated 10.06.2025 passed by Ld. Commissioner of Income Tax (A), National Faceless Appeal Centre (“NFAC”), Delhi [“Ld. CIT(A)”] in Appeal No. CIT(A), Delhi-5/10388/2019-20 u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of assessment order dated 22.12.2019 passed u/s 147 r.w.s. 143(3) of the Act pertaining to Assessment Year 2012-13.
Brief facts of the case are that the assessee is a company incorporated on 02.12.2002 under the Companies Act, and engaged in the business of sales, maintenance and repair of motorcycles, related parts and accessories. The return of income was filed on 30.03.2015, declaring loss of INR 27,38,847/- which was accepted in the order passed u/s 143(3) of the Act dated 30.03.2015. Thereafter, based on the information received from DDIT, Investigation-1, Ghaziabad that assessee has high value transaction of suspicious nature with one Shri Rajan Adlakha, the case of the assessee was re-opened for examination of such transactions with Shri Rajan Adlakha of more than INR 5.02 crores. The notice u/s 148 was issued on 30.03.2019, in response to which the assessee filed the return of income on 23.04.2018, declaring the same income as was declared in the return filed u/s 139(1) of the Act. Thereafter, the AO completed the reassessment by holding that during the year under appeal, the assessee has received a sum of INR 5,49,25,000/- from Shri Rajan Adlakha as interest free loans towards share application money however, the source of the same remained unexplained and therefore, the addition was made of the said amount u/s 68 of the Act and accordingly, the total income of the assessee was assessed at INR 5,21,86,150/-.
Against the said order, the assessee filed appeal before Ld. CIT(A), who vide impugned order dated 10.06.2025, allowed the appeal of the assessee after examining/appreciating the source of the funds given to the assessee and deleted the entire addition made.
Aggrieved by the said order, the Revenue is in appeal before the Tribunal by taking various Grounds of appeal mentioned in the appeal memo.
All the Grounds of appeal raised by the Revenue are with respect to the deletion of addition of INR 5,49,25,000/- made by the AO, therefore, they all are taken together for consideration.
Before us, Ld. Sr. DR for the Revenue vehemently supported the orders of the AO and submits that the assessee was having authorized capital of INR 2.00 crores however, had received share application money of more than INR 5.00 crores from Shri Rajan Adlakha which clearly shows that the assessee has violated the provisions of Companies Act. Ld. Sr. DR further submits that assessee has failed to explain the source of funds available in the hands of Shri Rajan Adlakha and therefore, the AO has rightly made the addition of the said amount as unexplained credit in the hands of the assessee company. She prayed for the confirmation of the addition so made.
On the other hand, Ld.AR for the assessee vehemently supported the order of Ld. CIT(A) and submits that the assessee has fully explained the source of the deposits received during the year from Shri Rajan Adlakha, one of the Directors of the assessee company. Ld. AR submits that assessee has submitted following documents in order to substantiate the source and creditworthiness of Shri Rajan Adlakha:-
[i] copy of confirmation;
[ii] copy of ITR of Shri Rajan Adlakha
[iii] copy of bank statement of Shri Rajan Adlakha
[iv] copy of loans sanctioned letters of assessee company alongwith the bank statements from where the loans were repaid to Shri Rajan Adhalka and reinvested by him.
Ld. AR further submits that Ld. CIT(A) after appreciating the source in the hands of Shri Rajan Adhalka, has deleted the additions made by the AO. Ld.AR submits that out of the total loan received of INR 5,49,25,000/- during the year, the assessee has repaid the loan of INR 5,02,80,000/- and balance amount of INR 1,57,50,000/- (including the opening balance of INR 1,11,05,000/-) remained payable at the end of the year which was less than the authorized share capital therefore, it cannot be said that the assessee company has received funds more than the authorized share capital and violated the provisions of the Companies Act. He further submits that said amount was taken as share application money and therefore, has not relevance of the authorized share capital. He prayed accordingly.
Heard the contentions of both the parties at length and perused the material on record. The solitary issued in this appeal is with respect to the receipt of loan as share application money of INR 5,49,25,000/- out of which a sum of INR 5,02,80,000/- were repaid during the year under appeal itself. The assessee filed the copy of confirmation received from Shri Rajan Adlakha who is one of the Directors of the assessee company and also filed the copy of his ITR and computation according to which he has declared income of INR 7,38,98,210/-comprising salary income of INR 7.20 crores and interest income of INR 11,99,706/-. Ld. AR submits that assessee has filed bank statement of Shri Rajan Adlakha wherein each and every entry of transfer of funds to the assessee was duly backed by the sufficient funds in the shape of salary receipts/repayment of loans. Ld. CIT(A) in para 6.3 of its order has tabulated each and every entry and the source thereof. The relevant observations of Ld. CIT(A)in para 6.2 to 6.6 of the order are as under:-
6.3“The ground no. 4 relates to the addition of Rs.5,49,25,000/- u/s 68 of the Act on account of share application money received from the Director.
The assessee company has received share application money of Rs.5,49,25,000/- from Mr Rajan Adlakha one of the directors of the company. The payments has been received from normal banking channel through account payee cheques. The applicant has submitted the confirmation from the party, bank statement showing source of the party and has also explained the source from which the appellant has received funds. Genuineness of the loan transactions was duly proved and an identity of the depositor was also established. The Audited Financial Statements, Bank account of JPC Infra Private Limited along with ITR, Confirmation of account from Mr Rajan Adlakha, Bank statements of Mr Rajan Adlakha along with ITR and Computation has been examined and they substantiate the claim of the appellant. The breakup of share application money is detailed as under:
Adlakha from Uttam Sucrotech International Private Limited in which he is Managing Director 23/07/2011 42,00,000 Amount received from Share Applicant HUF account 28/07/2011 27,75,000 Remuneration received in Bank Account by Mr Rajan Adlakha from the company in which he is Managing Director 28/07/2011 10,00,000 ---Do--- 10/08/2011 73,00,000 ---Do--- 13/08/2011 75,00,000 ---Do--- 27/08/2011 45,00,000 ---Do--- 04/10/2011 46,00,000 ---Do--- 15/10/2011 (3,00,00,000) Amount refunded to Mr Rajan Adlakha from term Loan received by the Appellant 28/10/2011 (1,12,80,000) ---Do--- 10/12/2011 27,50,000 ---Do--- 10/01/2012 20,00,000 ---Do---
Adlakha from Uttam Sucrotech International Private Limited in which he is Managing Director 23/07/2011 42,00,000 Amount received from Share Applicant HUF account 28/07/2011 27,75,000 Remuneration received in Bank Account by Mr Rajan Adlakha from the company in which he is Managing Director 28/07/2011 10,00,000 ---Do--- 10/08/2011 73,00,000 ---Do--- 13/08/2011 75,00,000 ---Do--- 27/08/2011 45,00,000 ---Do--- 04/10/2011 46,00,000 ---Do--- 15/10/2011 (3,00,00,000) Amount refunded to Mr Rajan Adlakha from term Loan received by the Appellant 28/10/2011 (1,12,80,000) ---Do--- 10/12/2011 27,50,000 ---Do--- 10/01/2012 20,00,000 ---Do---
6.4The appellant has explained and produced before Assessing Officer copy of PAN and bank accounts, copy of Board resolution, to prove identity, genuineness and creditworthiness of Share applicant.
6.5The addition has been made under section 68 and the same is reproduced below:
Section 68:- Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year:
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:
Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10.
6.6In the facts of the present case, both the nature & source of the share application received was fully explained by the assessee. The assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants. The PAN details, bank account statements, audited financial statements and Income Tax acknowledgments were placed on AO's record. Accordingly, all the three conditions as required u/s. 68 of the Act i.e. the identity, creditworthiness and genuineness of the transaction was placed before the AO and the onus shifted to AO to disprove the materials placed before him. As the assessee has discharged his onus the appeal filed is hereby allowed in favour of the assessee.
7.0As a result, the appeal of the appellant is allowed.
Before us, Ld. Sr. DR for the Revenue has failed to controvert the findings given by Ld. CIT(A)with regard to source in the hands of Shri Rajan Adlakha. Further, an attempt was made by us of making verification of the funds in the hands of Shri Rajan Adlakha from his bank statement as and when amounts were transferred to the assessee company and it is observed that sufficient funds were available in the bank account with Shri Rajan Adlakha whenever the funds were transferred to the assessee company. Once the assessee has successfully demonstrated the identity as well as the creditworthiness of Shri Rajan Adlakha and AO has failed to controvert such evidences, no addition could be made u/s 68 of the Act.
A bare reading of Section 68 suggests that there has to be credit of amounts in the books maintained by an assessee; such credit has to be of a sum during the previous year; and the assessee offer no explanation about the nature and source of such credit found in the books; or the explanation offered by the assessee in the opinion of the Assessing Officer is not satisfactory, it is only then the sum so credited may be charged to income-tax as the income of the assessee of that previous year. The expression "the assessee offer no explanation" means where the assessee offer no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee. However, where the assessee has explained the credits with the help of documentary evidences, the opinion of the Assessing Officer for not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of the evidences produced by the assessee and other attending circumstances available on record. Application of mind is the sine qua non for forming the opinion.
Further, the majority of amounts received during the year was repaid in the year itself thus the question of getting accommodation entries in the guise of loan does not survive. The Hon’ble Gujarat High Court in the case of PCIT Vs Ojas Tarmake Pvt Ltd reported in 156 Taxmann.com 75 has observed as under:
“Where appellant showed unsecured loans received during relevant assessment year and AO made addition on ground that appellant failed to discharge onus of liability as laid down under section 68, since amount of loan received by appellant was returned to loan party during year itself and all transactions were carried out through banking channels, impugned addition was to be deleted.”
If the AO wanted to inquire further, he has powers under the provisions of the section 131 and section 133(6) of the Act which he could have opted and could have verified whatever is submitted before him however, the AO has not opted for the same. The Hon’ble Supreme Court in the case of Orissa Corporation reported in [1986] 159 ITR 78 (SC) has observed that when the assessee furnishes names and addresses of the alleged creditors and the GIR numbers, the burden shifts to the Department to establish the Revenue's case and in order to sustain the addition the Revenue has to pursue the enquiry and to establish the lack of creditworthiness and mere non-compliance of summons issued by the Assessing Officer under section 131, by the alleged creditors will not be sufficient to draw an adverse inference against the assessee.
On the issue of discharging of onus, the Hon'ble Delhi High court in the case of Mod. Creations (P.) Ltd. v. ITO reported in [2013] 354 ITR 282, has held as under:
"It will have to be kept in mind that Section 68 of the I.T. Act only sets up a presumption against the Assessee whenever unexplained credits are found in the books of accounts of the Assessee. It cannot but be said that the presumption is rebuttable. In refuting the presumption raised, the initial burden is on the Assessee. This burden, which is placed on the Assessee, shifts as soon as the Assessee establishes the authenticity of transactions as executed between the Assessee and its creditors. It is no part of the Assessee's burden to prove either the genuineness of the transactions executed between the creditors and the sub-creditors nor is it the burden of the Assessee to prove the creditworthiness of the sub-creditors.”
It was further observed by the Hon’ble Court as under:
14.“With this material on record in our view as far as the Assessee was concerned, it had discharged initial onus placed on it. In the event the revenue still had a doubt with regard to the genuineness of the transactions in issue, or as regards the creditworthiness of the creditors, it would have had to discharge the onus which had shifted on to it. A bald assertion by the assessing officer that the credits were a circular route adopted by the Assessee to plough back its own undisclosed income into its accounts, can be of no avail. The revenue was required to prove this allegation. An allegation by itself which is based on assumption will not pass muster in law. The revenue would be required to bridge the gap between the suspicions and proof in order to bring home this allegation. The ITAT, in our view, without adverting to the aforementioned principle laid stress on the fact that despite opportunities, the Assessee and/or the creditors had not proved the genuineness of the transaction. Based on this the ITAT construed the intentions of the Assessee as being mala Ride. In our view the ITAT ought to have analyzed the material rather than be burdened by the fact that some of the creditors had chosen not to make a personal appearance before the A.O. If the A.0. had any doubt about the material placed on record, which was largely bank statements or the creditors and their income tax returns, it could gather the necessary information from the sources to which the said information was attributable to. No such exercise had been conducted by the A.O. In any event what both the A.O. and the ITAT lost track of was that it was dealing with the assessment of the company, i.e., the recipient of the loan and not that its directors and shareholders or that of the sub-creditors. If it had any doubts with regard to their credit worthiness, the revenue could always bring it to tax in the hands of the creditors and/or sub-creditors. [See CIT v. Divine Leasing & Finance ltd (20092-229-178.268 (Delhi) and CIT v. Lovely Exports (P.) Ltd. 2006) 215 CTR 495 (SC).”
The Hon'ble Delhi High Court in the case of CIT vs. Vrindavan Farms Pvt. Ltd. etc. in ITA. No.71 of 2015 dated 12th August, 2015 held as under :
"The sole basis for the Revenue to doubt their creditworthiness was the low income as reflected in their return of income. lt was observed by the ITAT that the Assessing Officer had not undertaken any investigation of the veracity of the documents submitted by the assessee, the departmental appeal was dismissed by the Hon’ble High court.”
The Hon'ble Delhi High Court in the case of PCIT vs. Agson Global Pvt. Ltd reported in [2022]134 Taxmann.com 256 (Delhi) while allowing the appeal in favour of the assessee towards the additions made u/s 68 of the Act has held as under :
“Section 68 of the Income-tax Act, 1961 – Cash credits (Share capital money) – Assessment years 2012-13 to 2017-18 – Assessee-company received share capital and share premium money from several investors – Assessing Officer made addition in respect of same on account of unaccounted income under section 68 on basis of recorded statement of managing director of assessee-company – Whether since assessee placed sufficient documentary evidence to establish that money which assessee had paid to investors was routed back to it in form of share capital/share premium and identity, creditworthiness and genuineness of investors was proved, there was no justification to make addition under section 68 – Held, yes [Paras 11.4, 11.5 and 14.4] [In favour of assessee]”
From the above discussion, it is observed the assessee has discharged the burden casted upon it u/s 68 of the Act by placing every precise detail of the availability of funds in the hands of Shri Rajan Adhalaka, under these circumstances, by respectfully following the orders of the jurisdictional high court and of the Gujarat High court, in our opinion, Ld. CIT(A) has rightly deleted the addition, which order is hereby, upheld. All the Grounds of appeal raised by the Revenue are dismissed.
In the result, appeal filed by the Revenue is dismissed.