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Judgment
Per Raj Kumar Chauhan, Judicial Member:
The appeal of the Revenue is dir ected against the order dated 13.05.2025 of ld. C IT(A)- 29, New Delhi passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) wherein the addition made vide assessment order dated 07.12.2019 were ordered to be deleted .
Facts in br ief as culled out from the order of the authorities belo w are that the assessee filed return of income for A.Y. 2017-18 declar ing income of Rs.5,29 ,89,170/- on 26.10.2017. Return was processed u/s 143(1) of the Act and subseque ntly case was se lected for limited scr utiny on the basis of CASS by issuing notice u/s 143(2) of the Act dated 13.08.2018. Subsequent notice u/s 143(2) were also issued and in response to those statutory notices, the assessee company has filed detail stating that it was engaged in business of impor t and trading of chemical and received commission as consig nment agent. The asse ssee company has issued 10,00,000 shares at face value of Rs. 10/- each and taken premium of Rs.20/- per share. The assessee company has received total share capital o f Rs. 1 ,00,00 ,000/- from three parties name ly, Ritika Chawchharia ( Rs.22,00,0 00/-), Anoop Kumar HUF (Rs. 72,00,000/-) and Rishu Agencies Pvt. Ltd. (Rs.6,00,000/-) apar t from a total share premium of Rs.2 ,00,00,000/- from these parties o nly. Vide submission dated 25.11.2019, the copy of Income Tax Re turns, state ment of income and bank state ment for Financial Year 2016-17 of the three parties to whom share capital w as allotte d during the year was filed. The AO observed that these three parties has very low gross total income/ total income as compared to amount paid on account of share capital and share premium. Hence, a show-cause notice dated 25.11.2019 w as issued. In reply to t he sho w-cause notice, the assessee has explained the sour ce of funds of the se three entities but the ld. AO did not found the explanation satisfacto ry and issued a show-cause notice as to why the amount of share premium of Rs.2 ,00,00,000/- should no t be added to the income o f the assessee u/s 56(2)(viib) of the Act. The said show- cause no tice dated 25.11 .2019 remained uncomplied. It was therefore concluded by the ld. AO that the assessee has not discharged the o nus cast on it to prove the creditworthiness of the creditors of the transaction. Hence, the sum of mo ney received by the assessee company during the year as share capital and share premium amounting Rs.3,00,00 ,000/- was added as income of the assessee u/s 68 of the Act. Penalty proceeding u/s 271AAC were also initiated.
Aggrieved by the said Asse ssment Order, the assessee filed appeal before the ld. CIT(A). The ld. C IT(A) noted that additio nal evidence was filed before the ld. CIT(A) as the Assessing Officer did not permit the filing of the additional evidence whe n requested by the assessee. A remand report was called w ith respect to the additio nal evidence under Rule 46A. The stress of the ld. AO in the remand report was that the assessee has failed to prove so urce of source . T he said remand report was considered and the ld. CIT(A) proceeded to delete that addition by making observation extracted below as under:
“9 . Gr ound Nos. 3 to 7: The appellant had filed its ret urn of i ncome on 26.10.2017 declaring i ncome of Rs. 5,29,89,170/-. S ubsequentl y, the case of the app ellant was select ed for Li mited Scr uti ny. Accordi ngly, noti ce u/s 143(2) of the Act was issued on 13.08.2018 and assessment was completed u/s 143(3) on 07.12.2019 at an assessed i nc ome of Rs.8,29 ,89,170/-. In the assessment or der, t he Assessi ng Officer made addition of Rs. 3 crores on account o f share capital rec eived from the foll owi ng 3 persons:
S. N o. N am e of t he P ar t y N o. o f Eq u it y Sh ar es Am o unt r ec e iv ed as cap it al ( Rs . ) Am o unt r ec e iv ed a s shar e p r em i um (Rs .) 1. R i t ik a Ch ha wc h h a ri a 2,2 0 , 0 00 22, 00 ,0 0 0 4 4, 00 ,0 0 0 2. A nup K u ma r H U F 7, 2 0 ,0 00 72 , 00 ,0 0 0 1,4 4 , 00 ,0 00 3. R is h u Age nc i es ( P) L t d . 60 ,0 0 0 6,0 0, 00 0 1 2, 00 ,0 0 0 10 , 0 0 ,00 0 1,0 0, 0 0 ,0 00 2, 0 0, 00 , 0 00 The present appeal e manates against t he afor esaid additi on m ade in t he asses sment order.
9.1As can be seen from the fi ndi ngs contai ned in t he assessment order, repr oduced above , the sole basis of the AO in tre ati ng t he aforesaid amo unt received from the aforesaid 3 persons to be une xplai ned cas h credi t, simply on the gr ound of doubti ng the cre ditwort hi ness of the persons on the basis t hat income reported i n the ret urn of i nco me of the y ear under consi deration did not commens urat e wi th the a mount of i nv estment made by each suc h person.
9.2Refuti ng the afor esaid fi nds of the A O, t he appellant fi led co ntemporaneous additional evidences listed supra wit h respect to eac h pi s establishing t he creditwo rthi ness and so urce of funds with eac h person before maki ng i nvest ment i n the assessee company.
9.3The a ppellant has even filed applicatio n under R ule 46A of the R ul es pleadi ng admissio n of the additi onal evidences on the ground that suffic ient opportunity was not afford ed to the appellant during the course of assessment whi ch was r aised by t he AO for the firs t ti me in the s how cause notice dated 05. 12.2019, gi ving time of onl y one day to file the reply on 07.12.2019 and assessment order was also passed on the same date.
9.4I have gone thr ough t he rec ord. I fi nd that the additi onal evidences f ur nis hed by the appellant des erves to be admitted. Firstly, the iss ue rai sed in the appellant, i.e. creditwort hi ness of the creditors /shareholde rs cannot be ¡aided wit hout s eei ng t he detailed additi onal evidences furnished by the appellant and the AO has decided t he issue with a ver y si mplistic approach of seei ng the income reported in the R OI of each party for one year. Thus, t he additional evidenc es ne ed to be admitted i n the i nterest of j ustice. Secondly, u is found tha t the A O raised t he issue of doubting t he creditwo rthi ness only on 05.12.20 19 and pass ed the order on 07.12.2 019, T hus, the appellant was clearly prevent wi th suffici ent caus e in not f urnis hi ng t he evidences, whic h justifies its admission unde r R ul e 46A of the R ul es. Thus, fo r the a for esa id multiple reas ons, additi onal evidences are admitte d and are co nsidered whil e decidi ng the gro und of appeal raised by the appellant on merits infra.
9.5On merits of the matt er, t he identit y of t he investors is not in doubt. Genuinene ss of the tra nsaction, i.e., subscripti on to s hares of the appellant company is also not i n doubt where sha re are al lott ed.
9.6As regards, creditworthi nes s, 1 do not agree with the fi ndings of the AO to o nl y see the i nc ome of the investor for the y ear of i nvestment without seei ng t he net -worth, or c orpus buil t overt -time which is the r eal evidences of j ustifyi ng the availability of the sour ce of funds for m aki ng investment.
9.7The decisi on of juri sdictional Del hi High C ourt in t he case of CIT vs . Value Capital Services Pvt. Ltd.; 307 ITR 334, clearly holds other wise in the following words:
"7 .11. Consideri ng t he facts of the case in the li ght of doc ument ary evidenc es available on r ecord and. t he fact that A.O. did. not make a ny adequate enquir y on the documentary evidences fi led by t he ass ess ee-company cl early established that ass essee -com pany prov ed identity of the c redit ors , their creditworthiness and t he genui neness of the transaction i n the matter . Merely l ow income declar ed i n the ret ur n of i nc ome by the cr editors is no gr ound to rej ect the explanati on of the assess ee c ompany bec ause t hei r creditwor thiness is i n sever al cr ores as i s already ad mitted by t he A .O , in the ass essme nt order . In vi ew of the abo ve discussion, we set aside the orders of the authoriti es bel ow and delete the entire additi on.”
The C redit -worthi ness of each s ubscrib ers needs to be seen fr om their respectiv e net -worth which was suffici ent in the pres ent case as can be seen com the followi ng:
“1 . Riti ka Chhawc hharia The copy of Balanc e Sheet/stat ement of affairs as on 31.03.2016, evidenci ng that her net-wor th as on 31.03.2016 was Rs. 4 ,10,23,379 as agai nst t he investment made by her of Rs. 66,00,000 (appro ximat ely 16%) duri ng the A Y 2017-18. (P.B. Pa ge 58)
The c opies of ITR’s e videnci ng t he gross total inc ome and the exe mpt income ea rned by her duri ng the immediately precedi ng thr ee assessment y ears , viz., AY 2014-15 to AY 2016-17. The same are reproduced herei n belo w for ease of re fer ence (P.B . Page 54-56)
Pa rt ic ul a rs Ms . R it ik a Chh aw c hha ri a AY G ros s T o ta l E x em p t e d T ota l I nc o m e 20 16 - 1 7 18 ,4 0 ,14 1 2 4 , 32 ,80 0 42, 72 ,9 4 1 20 15 - 1 6 6,8 7 , 2 57 6 ,2 10 6,9 3, 46 7 20 14 - 1 5 11 ,9 7 ,86 0 1 0 , 87 ,87 0 22, 85 ,7 3 0 Copies of bank statement for AY 2017-18; evidenci ng the availability of sufficient funds f or investment(s) (P.B. Page 57)
2.Anup K umar HUF
The copy of Balanc e Sheet/stat ement of affairs as on 31.03.2016, evidenci ng that the net-wort h o f the said HU F as on 31.03.2016 was Rs.12,19,99,515 as agai ns t the i nvest ment made by the HUF of Rs.2,16,00,000 (appr oximat ely 18%) dur ing t he AY 2017-18. (P.B . P age 67)
The c opies of ITR’s e videnci ng t he gross total inc ome and the exempt i nc ome earned by t he HU F duri ng the immediately preceding four assessment years, viz., AY 2013 14 to AY 20 16-17. The same are r eproduc ed herei n bel ow for ease o f referenc e (P.B . Pag e 62-65)
Parti culars Anup K umar HU F A Y Gross Exempte d Total Inc ome 2016-17 70,86,441 16,88,081 87,74,522 2015-16 74,50,497 - 74,50,497 2014-15 34,64,626 37,08,380 71,73,006 2013-14 47,97,771 1,15,12,684 1,63,10,455 - C opies of bank s tat ement for AY 2 01 7-18; evidencing the avail ability of sufficient funds f or i nv estment (s) (P.B. Page 66)
3.Ri shu A gencies Private Limited - The c opy of Bala nce S heet/statem ent of a ffairs as on 31.03.2016, evi denci ng that t he net -worth of the subsc riber c ompany as o n 31.03.2016 was Rs. 63,11,973 as a gai nst the i nvestment made by it of Rs. 18.00.000 (appr oximat ely 29 %) duri ng the A Y 2017-18. (P.B. Page - 73-86) - Copies of bank stat ement for AY 2017-18; evidenci ng t he availability of sufficient f unds for investments) (P .B . Page 72 )”
9.9In view of t he above, the inv est ors had s uf fi cient funds to m ake the inv estment i n s hare of the appellant company . The re is no fi nding that , the funds invested hav e bee n generated form the coffers of t he appell ant to dee m the same as unexplai ned money and attract section 68 of the Act. Ac cordi ngl y, it is held that t here was no valid b asis with the AO t o invoke s ecti on 68 in the pres ent facts. The addi tion of Rs. 3 ,00,00,000/-made by t he AO under tha t sect ion is here by deleted. Gro und of appeal Nos . 3 to 7 are hereby allowe d.”
Aggrieved by the impugned order, the Revenue is in appeal before us and r aised the follow ing grounds of appeal:
“1 . On t he facts and i n the circ umstanc es of the case, and i n law, the L d. CIT(A) err ed i n del eti ng the addition of Rs. 3,00,00,000/- made by the Assessi ng Offi cer under Secti on 68 of the Incom e Tax Act, 1961, on account of unex plained share capital and share premi um received from the followi ng parti es :-
1.Ms. Riti ka Chawchharia.
2.Anup K umar (HUF)
3.Ri shu A gencies Pvt. Ltd.
2.T hat the order of the CIT (A ) is er roneous and is no t te nable on facts and i n law.
3.That the grounds of app eal ar e witho ut prejudice to each other .”
We have heard ld. AR and ld. DR. The ld. AR at the very outset submitted that the ld. CIT(A) has legally admitted the additio nal evidence submitted by the assessee by following the provisions of Rule 46A as the case for admitting the additional evidence was successfully made out by the assessee. It is further argued that as is evident from the remand report submitted by the AO in pursuance of prayer for admitting additio nal evidence, the AO has tried to stress the point that sour ce of so urce is no t est ablished. It is argued that thoug h by relevant document the assessee has succeeded in proving even sour ce of so urce which otherwise became obligatory only w.e .f. assessment year 2023-2024. It is further submitted that ld. AO was misconceived in concluding that the net-worth of the creditor was not sufficient or not commensurate with the investment made by three parties while investing in share capital. It is further submitted that the Assessing Officer did not permit to file the relevant docume nts when the opportunity was sought by the assessee and has proceeded to pass the assessment order and making addition u/s 68 of the Act mere ly on the consideration of par ticular s in the ITR of the concerned year. It is further stated that ld. AR has relied the case of Hon’ble jurisdictional High Court in PCIT (Central)-1 Vs. Goodview Trading Pvt. Ltd . (2017) 77 taxmann.com 204 wherein para 8 to 10 it was held as under:
“8 . It is quite evident from the C IT (A )'s reasoni ng i n para graph 4.3, t hat the ma terials clearly pointed t o the share applicants' poss essi ng s ubst antial means t o invest in the assessee's co mpany. T he AO seized cert ain mat erial to say that minimal or insubstantial amounts was pai d as tax by suc h share applicants and did not carry out a deepe r analysis or rather cho se t o ignor e it. In t hese circumstances , t he i nferences drawn by the CIT (A ) are not only factual but facially a ccurate.
9.Havi ng r egard to thes e circ umstanc es , the Co urt disce rns no que sti on of law, l east a substantial question having regard t o the fac t that the judgment in Lov ely Expo rts (supra) was ci ted and applied.
10.For these reasons, t here is no merit in the appeal; the same is ac cordingly dismiss ed.”
The ld. AR has fur ther re lied the case of CIT-9 Vs. Vrindavan Farms (P) Ltd. in ITA No.71 of 2015, w herein similar circumstances the order of the ld. CIT(A) and ITAT was up held and the addition u/s 68 of the Act was ordered to be deleted. The relevant portion contained in para 3 to 5 which is extracted below as under:
“3 . Ms. S ur uc hi Aggarwal, learned S eni or St andi ng counsel for t he Appell ant, reli ed upon the decision of this Court i n CIT v. Nova Promoters & Fi nlease L td. 342 ITR 169 and urge d that t he Assessi ng Officer (AO) was not required t o “poi nt to the so urce from whic h t he mo ney was r eceived by t he Assess ee”. On the other hand , it was incumbent upo n t he Ass essee t o offer a s ati sfacto ry explanati on regarding nature and source o f the funds.
3.The ITA T has i n the impugned o rder no ticed tha t in the present case t he Rev enue has not doubt ed t he identity of the share applicants . The sol e basis f or the Revenue to doubt thei r creditwort hi ness was t he l ow income as re flected i n their Income Tax Returns . The entire details of t he share a pplicants were made availabl e to t he AO by t he Ass essee. This included t heir PAN numbers, c onfirmati ons, their bank stat ements, t heir balance sheets and pr ofit a nd loss accounts and t he certificates of i nc orporati on etc. It was observed by the ITAT that the A O had not undert aken any i nves tigati on of the veracity of the above doc uments submitted to him. It has been ri ghty commented by the ITAT that witho ut doubti ng the documents, the AO compl eted the assessment only on t he presumpti on t hat l ow ret urn of income was sufficient to doubt the credit worthi ness of the share holders.
4.The Court is o f the vi ew that the Assessee by prod uced s ufficient do cume ntatio n di scharge d i ts initial onus of s howi ng the genui neness and cr editwort hi ness of the s hare applicants. It wa s i ncumbent t o t he A O to ha ve undertake n some i nquir y and investi gati on be fore c oming to a concl usion on the iss ue of c redi tworthi ness . In pa ra 39 of t he decision in Nova Prom oters (s upra), the Co urt has taken note of a situa ti on where the complete particulars of the sha re applicants are furnished to t he AO and the AO fails to conduct an inquiry. The Court has observed that i n that event no addi tio n can be made in the hands of t he Assessee under Secti o n 68 of t he Act and it will be open to the R evenue to move agai nst t he share applicants in acc ordance with law.
5.In the facts and circumstances o f t he pr esent appeals, the Court is satisfi ed t hat no substa ntial questi on of la w arises . The appeals are di smi ssed. ”
The ld. DR on the other hand re lied upon the Assessment Order stating that the additio ns were rightly made and prayed for allowing the appeal of the Re venue.
We have conside red the rival submission. T he e xtract of the impugned order of the ld . CIT(A) would show that the ld. CIT(A) has rightly with legal justificatio n has admitted the additio nal evidence. The admission of the additional evidence has sufficiently proved the creditworthine ss of all the three subscribers to the share of the assessee in the co ncerned year. It is evident fro m the material on record as d iscussed by ld. CIT(A) that the ld. AO has simply made the addition on the ground that from the financial shown in the ITR, the creditworthiness of the three subscribers to the share of the assessee was not established. W e are convinced that by filing the additional evidence before the ld. CIT( A) w ho has admitted the same lawfully, the assessee has sufficie ntly e stablished the creditworthiness of the three subscribers. We agree with the ld. AR that for the relevant year there was no obligation upo n the assessee to establish the source of the source and there was nothing to prevent the Assessing Officer or the Revenue to examine the source of the source of the subscribers. For these reasons, we are of the considered opinion that w hile relying the judgme nt of Hon’ble High Court in the case of Goodview Trading Pvt. Ltd. (supra) and Vrindavan Far ms (P) Ltd. ( supra). We are co nvince d that the appellant/assessee has successfully discharged the onus of proving the identity, creditworthiness of the parties and genuineness of the transaction. And for these reasons, the additio n made u/s 68 of the Act was not justified and the same has been rightly deleted by the ld. C IT(A). We do not find any for ce in the grounds raised by the Revenue before us and the appeal of the Revenue is accordingly d ismissed .
In the result, the appeal of the Revenue is dismissed.