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Judgment
PER M. BALAGANESH, AM
The appeal in ITA No.5265/Del/2025 for AY 2011-12, arises out of the order of the ld ld. Commissioner of Income Tax (Appeals)-3, Gurgaon [hereinafter referred to as ‘ld. CIT(A)’, in short] dated 25.06.2025 against the order of assessment passed u/s 147 r.w.s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 26.12.2018 by the Assessing Officer, DCIT, Central Circle-1, Faridabad (hereinafter referred to as ‘ld. AO’).
The only issue argued by the Learned AR is that whether the Learned CITA was justified in confirming the addition of Rs 2 crores on account of share application money under section 68 of the Act in the facts and circumstances of the instant case.
We have heard the rival submissions and perused the materials available on record. A search action under Section 132 of the Act was conducted on 23-11-2012 on CHD Developers group of cases including the Assessee. The return of income for the assessment year 2011-12 was filed by the Assessee Company on 22-08-2013 declaring Nil income. The assessment was originally completed under Section 153A of the Act on 11-03-2015 determining total income of Rs 2 crores representing the receipt of share application money by treating it as unexplained cash credit under Section 68 of the Act. The said addition stood deleted by the Tribunal for want of incriminating material as it was a completed assessment on the date of search. Later the case was reopened under Section 147 of the Act vide issuance of notice under Section 148 of the Act after getting prior approval from Learned Principal CIT(Central), Gurugram. Accordingly notice under Section 148 of the Act stood issued to the Assessee on 19-03-2018. The Assessee vide reply dated 26-04-2018 requested the Learned AO to consider its original return filed under Section 139(1) of the Act as a return in response to notice under Section 148 of the Act. The Learned AO observed that on perusal of the balance sheet of the Assessee for the year under consideration, a sum of Rs 2 crores was received on account of share application money from M/s Rangoli International Private Limited. The Assessee was asked to furnish the balance sheet and ITR of Rangoli International Private Limited together with the confirmation, bank statements, share certificates, share allotment details and share valuation report.
The Learned AO noted that notice under section 133(6) of the Act was issued to Rangoli Investment Private Limited for verification of the veracity of the claim of the Assessee that share application money of Rs 2 crores was received from the said party. No reply in response to the said notice was received from Rangoli International Private Limited. The Learned AO also noted that M/s Rangoli International Private Limited had not shown share application / share premium paid to the Assessee company in its balance sheet. Accordingly, the Assessee was show caused as to why the amount received from Rangoli Investment Private Limited of Rs 2 crores be not treated as unexplained cash credit under Section 68 of the Act in the hands of the Assessee company. The Learned AO noted that in the first round of proceedings, the Learned CITA while confirming the addition of Rs 2 crores had observed that Assessee had filed false and fabricated submissions just to prove the creditworthiness of Rangoli Investments Pvt Ltd. and they did not tally with the ITR filed by the company with the Income Tax Department. The discrepancies noted by the Learned CITA were reproduced in tabular form in page 5 of the assessment order by the Learned AO. The Learned AO noted in Para 7.2 of his order that vide reply dated 28-11-2018, the Assessee furnished the confirmation of account along with the audited balance sheet of Rangoli Investments Pvt Ltd. The Learned AO sought to serve the notice under section 133(6) of the Act through his Inspector in person and the Inspector filed a report which is reproduced in page 7 of the assessment order stating that there was no name plate or display board of Rangoli Investments Pvt Ltd and that the said notice under 133(6) of the Act could not be served on Rangoli Investments Pvt Ltd. The Learned AO based on this report that notice under section 133(6) of the Act could not be served on the Assessee, proceeded to treat the receipt of share application money of Rs. 2 crores as unexplained cash credit and added under section 68 of the Act in the assessment. This action of the Learned AO was upheld by the Learned CITA.
We find that the addition has been prima facie made only for non-compliance to notice under Section 133(6) of the Act. But the Assessee had stated before the Learned CITA that in response to notice issued under Section 133(6) of the Act, Rangoli Investments Pvt. Ltd. had indeed replied vide letter dated 1-4-2015 by furnishing the following documents:-
Copy of audited financial statements as on 31-3-2011
Copy of its bank statements
Copy of its confirmation
Copy of its income tax return acknowledgement for assessment year 2011-12. This goes to prove that Assessee was able to discharge its primary onus by furnishing the requisite details from its side which were also duly confirmed by the concerned investor company Rangoli Investments Pvt. Ltd. directly before the Leonard AO. Hence the statement made by the Learned AO that no response was made to notice under Section 133(6) of the Act is factually incorrect. Further, we find from the letter dated 28-11-2018 addressed by the Assessee company before the Learned AO that apart from furnishing the confirmation together with the copy of financial statements of Rangoli Investments Pvt. Ltd. as on 31-3-2011, the Assessee had also duly replied by stating that there was no allotment of shares that was made to the concerned investor company and Assessee company had refunded the whole amount of Rs 2 crores on 21-2-2012. The Assessee in support of this had enclosed the ledger account along with the bank statement to prove the payment of Rs 2 crores back to the investor company. Before us, the Learned AR also placed on record the copy of assessment order of Assessment Year 2012-13 framed in the hands of Rangoli Investments Pvt. Ltd. under Section 144 r.w.section 147 of the Act dated 20-6-2019. Further, we find from the audited financial statements of Rangoli Investments Pvt. Ltd., the said investor company had share capital of Rs 5,86,20,000 and reserves and surplus of Rs 31,95,52,332 as on 31-3-2011. The profit for the year after tax was Rs 6,18,68,214. All these transactions duly prove the sufficient credit worthiness available with the investor company to make investment of share application money of Rs 2 crores with the Assessee Company. From the assessment order framed on Rangoli Investments Pvt. Ltd., it is noticed that for assessment year 2013, the returned income of the investor company itself was Rs 1,27,37,520 and assessed income was Rs 2,97,27,820. When the income tax department is able to frame an assessment on Investor Company, how the Inspector of income tax was not able to notice the said company is not known. It is a fact that the investor company is duly assessed to income tax thereby proving its identity beyond doubt. From its audited financial statements, it has sufficient net worth to advance Rs 2 crores towards share application money with the Assessee Company thereby proving its credit worthiness. All the transactions have been duly routed through regular banking channels and duly reflected in the books of accounts of Rangoli Investments Pvt. Ltd. Hence, the genuineness of the transactions are also proved beyond doubt. The Assessee had also refunded the said share application money on 21-02-2012. The investor company had duly confirmed the entire transactions of having made the investment with the Assessee company and having received back the said investment of Rs 2 crores in the confirmation. All these documents go to prove beyond reasonable doubt that Assessee had discharged by proving the three ingredients of section 68 of the Act. Even the investor company had responded to the notice issued under section 133(6) of the Act directly before the Learned AO by furnishing the requisite details. Hence, we have no hesitation to delete the addition of Rs 2 crores made in the hands of the Assessee company as unexplained cash credit as no part of it could be treated as unexplained in the facts and circumstances of the instant case. Accordingly, the grounds raised by the Assessee on merits are allowed.
In the result, the appeal of the Assessee is partly allowed.