ITO vs Galgotias Book Departmental Store Pvt. Ltd.

1.

“On the facts and in the circumstances of the case and in law the Ld. CIT (A) erred in deleting the addition of Rs 5,25,00,000 made under Section 68 of the Income Tax Act 1961 ignoring that the investor companies were identified as shell entities controlled by known entry operators as per specific intelligence of the Investigation Wing.

2.

The Ld. CIT (A) erred in holding that the assessee discharged the onus under Section 68 merely by furnishing PAN bank statements and ROC records while ignoring the findings of the 2 Investigation Wing and statements recorded under Section 132 (4) of the Act establishing that the investor entities were shell companies providing accommodation entries without real business activity.

3.

The Ld. CIT (A) erred in law in deleting the addition holding that the Assessing Officer did not conduct independent enquiry whereas the assessment order demonstrates corroborative enquiries including financial analysis bank account examination and field enquiries negating genuineness and creditworthiness of the investors.

4.

The Ld. CIT (A) erred in deleting the addition of Rs 50,00,000 in respect of M s LTE Infotech Pvt Ltd and Ms FLH Tour on the ground that these entities were not specifically named in the initial report ignoring the pattern of accommodation entries and lack of independent creditworthiness.

5.

The Ld. CIT (A) erred in disregarding the statements of entry operators on the ground of cross examination ignoring that such 5 statements were corroborated by surrounding circumstances bank trail and absence of commercial substance in the investment.

6.

The order of the Ld. CIT (A) is contrary to facts and law suffers 6 from serious infirmities and is liable to be set aside and the order of the Assessing Officer restored.”

7.

The appellant craves leave to add alter amend modify OR 7 withdraw any of the above grounds of appeal at OR before the time of hearing of the appeal.”

“A careful examination of these documents reveals that they not only explain the nature and source of the transaction but also affirm the financial and legal identities of the entities involved. The documents on record are not generic or vague; rather, they are specific, verifiable, and consistent with the accounting and legal framework governing such transactions in particular, the following documents were submitted by the appellant to reinforce its contentions:

a)

Affidavits produced- These sworn statement affirms the identity, legal standing, and intent behind the transaction conducted by said entities. An affidavit, being a sworn statement under oath, holds significant evidentiary value under the Indian Evidence Act. It corroborates the factual assertions made by the appellant and confirms that the transaction was neither fictitious nor sham.

b)

Balance Sheets- The balance sheet, being a part of audited financial statements, reflects the financial position of LTE and discloses its assets, liabilities, and net worth. It substantiates LTE's financial capability to enter into the transaction and negates any presumption that the funds were accommodation entries or fictitious in nature.

c)

Board Resolution for Allotment of Shares resolution passed by the board of directors establishes the corporate approval and decision-making process underlying the transaction. It reflects compliance with corporate governance norms and confirms that the transaction was duly authorized at the highest level.

d)

Appellant's Books of Accounts and Bank Statement These documents reflect the accounting entries and the flow of funds through recognized banking channels. The bank statement confirms the receipt of funds and matches the entries in the books of accounts, thereby providing irrefutable evidence of the transaction. These documents meet the dual test of identity and creditworthiness of the investor and the genuineness of the transaction as required u/s 68 of the Income-tax Act, 1961.

In the instant case, the assessee submitted a duly sworn affidavit in support of his explanation regarding the credit entries under scrutiny. In the present case, the assessee submitted a duly sworn affidavit from the concerned entities, which clearly stated key transaction details, including the date of transfer of shares, the mode of payment, the name of the remitting bank, and other relevant particulars. The affidavit was specific and supported the genuineness of the transaction, thereby strengthening the assessee's explanation u/s 68. Despite this, the AO failed to consider the affidavit or make any attempt to verify or rebut its contents. No adverse finding was recorded, nor was any effort made to cross-examine the deponent or disprove the facts stated therein.

It is a settled principle that such a detailed and uncontroverted affidavit carries evidentiary value and cannot be brushed aside without proper inquiry or reasoning. The AO's omission to consider this crucial piece of evidence renders the assessment incomplete and the addition made unsustainable in law.

The submission of this comprehensive set of documents reflects not only consistent approach adopted by the appellant during the course of proceedings but also establishes the genuineness of the transaction. These documents are corroborative and interlinked; each one complements the other to form a coherent and tenable record. There is no inconsistency or contradiction in any of these documents that could lead to an inference of falsity or fabrication. On the contrary, the consistency and credibility of these documents establish the legal, financial, and factual reality of the transaction, rendering any contrary inference by the AO untenable.

It is also crucial to note that the AO, while making the addition, has failed to bring any material on record to rebut or disprove the documents submitted by the appellant. No adverse material, independent inquiry, or third-party confirmation was relied upon by the AO to contradict the evidentiary value of the above documents. In the absence of any counter-evidence, the appellant's submission cannot be ignored.

The law is well settled that the burden of proof initially lies on the assessee to establish the genuineness of the transaction, but once documentary evidence is filed meeting the three cardinal tests, identity, creditworthiness, and genuineness - the onus shifts to the department to rebut the same with cogent evidence. In the present case, the appellant has discharged this initial burden satisfactorily through the submission of detailed documentary evidence. The AO, on the other hand, has failed to discharge the corresponding burden of rebuttal, making the addition legally unsustainable.

At the outset, it is imperative to recall the statutory contours of section 68 of the Act. Section 68 empowers the AO to treat a credit found in the books of an assessee as income of the assessee of the relevant previous year if the assessee either (i) offers no explanation about the nature and source of the credit; or (ii) the explanation offered is not satisfactory in the opinion of the AO. Jurisprudence consistently holds that the assessee's primary onus under this provision extends to establishing, in the case of share capital receipts, the three essential ingredients viz. identity of the share applicants, their creditworthiness, and the genuineness of the transaction. Once the assessee satisfactorily discharges this onus, the law, as interpreted by the Hon'ble Supreme Court and various High Courts, mandates that the onus shifts to the Revenue to bring on record cogent evidence proving that the share applicants are bogus, or that the money actually belongs to the assessee.

In the impugned case, the AO has made additions primarily on the basis of an investigation report of the Investigation Wing and statements of entry operators taken by investigation wing. The AO has relied upon broad allegations concerning accommodation entries without bringing on his own any specific adverse material on record directly linking the appellant's share applicants to such entry operators. No incriminating material has been found during the assessment proceedings that disproves or contradicts the extensive documentation filed by the appellant. Consequently, the allegations remain bald, uncorroborated, and wholly insufficient to justify an addition u/s 68.

Turning to the appellant's evidentiary disclosures, it is noted that the assessee has furnished a comprehensive set of documents including: NCOME TAX  Statements of Financial Transactions (SFT) filed with the authorities;

 Shareholder details including names, addresses, and PANs;

 Board Resolutions approving the issue of shares;

 Director affidavits affirming investment details;

 Income-tax returns and audited financial statements of investor companies;

 Bank statements of both the assessee and investors evidencing share subscription funds through normal banking channels; and  Investor confirmations for receipt of shares.

Particularly relevant is the fact that investor entities i.e. Olwin Garments Pvt. Ltd., M/s.GMZ Commodities Pvt. Ltd., M/s. Nicky marmot Pvt. Ltd, M/s. RSM Softech Solutions Pvt. Ltd., M/s. Saloni Buildtech Pvt. Ltd., M/s. RSRN Buildcon Pvt. Ltd. and M/s. Bell Indus Fibrecom Pvt. Ltd. where the AO has made no independent enquiry with these entities; no summons u/s 131 or notices u/s 133(6) have been issued to them; no cross-verification has been performed. In absence of such enquiry, the AO's conclusion that these entities are not genuine is clearly unsustainable.

The evidence produced conclusively establishes the identity of these shareholder companies. They are duly incorporated private limited companies, registered with the Registrar of Companies, filing regular statutory returns, possessing valid Permanent Account Numbers (PANs), and maintaining audited books of accounts.

There is thus no ambiguity ambiguity regarding their legal existence. It is well-settled law that once the identity of the investor is established, as held by the Hon'ble Delhi High Court in CIT v. Value Capital Services Pvt. Ltd. and the earlier decisions of Stellar Investment and Sophia Finance, the AO cannot proceed solely on suspicion and conjectures without performing further investigation.

The second limb pertaining to genuineness of the transactions is also demonstrably satisfied. The appellant has shown that all monies were received through proper banking channels, supported by corresponding bank statements. The second limb relating to the genuineness of the transactions stands clearly established on the overall facts and documentary evidence on record. The appellant has demonstrated that the share subscriptions were carried out through a process supported by contemporaneous records. The investments were made pursuant to corporate approvals, including board resolutions of the investing entities authorising the subscriptions. Further, affidavits sworn by the directors of the investing companies affirm the fact of investment and acknowledge receipt of the corresponding share certificates. Taken together, these documents form a chain of evidence, leaving little doubt as to the authenticity and bona fide nature of the transactions.

Additionally, the allotment is duly recorded in the statutory share registers, master data confirmations, and ROC filings of the appellant. Further, an independent valuation report by a qualified Chartered Accountant justifies the price at which the shares were issued, which was below the fair market value. This fact significantly undermines the AO's conclusion that the transaction was colorable or sham. These documents collectively establish that the transactions are genuine commercial transactions and not mere book entries.

The third essential condition pertains to creditworthiness of the donor or investor. Analysis of the financial statements of abovesaid entities indicated that these companies had sufficient capital, reserves, and bank balances to make the investments. Transactions have been undertaken through banking channels, without any cash deposits immediately preceding the transfer, thereby dispelling any suspicion of accommodation entries. More importantly, the appellant has explained by producing detail of source of the source to the extent required in law by furnishing financial statements and bank statements of the investors.

The law does not impose a further burden on the assessee to explain the source of the funds in the hands of the investors unless the AO first discharges his own burden by establishing that the investors are fictitious, non-existent, or mere name-lenders. In the present case, the AO has not conducted even the basic enquiries necessary to discharge such burden.

The appellant has also demonstrated that one of the alleged suspect entities, Olwin Garments Pvt. Ltd., was subjected to regular scrutiny in a prior assessment year (AY 2014-15), where its financial affairs were examined and accepted by the department u/s 143(3). The AO's attempt to disregard this fact on the ground that the investigation report was not available for that year is wholly untenable. Acceptance of returned income after scrutiny assessment is a strong indicator of the genuineness of the said entity's business operations and financial credibility.

A mere allegation that the company has low income or modest profits does not automatically transform it into a bogus entity. Courts have repeatedly held that creditworthiness does not require demonstration of high profitability, what is required is the ability to invest, which has been fully demonstrated by the appellant. Futher even after the search in the case of entry operator wherein the entity was found to be an entry operator as per ao, appellant produced documents of the entity pertaining to its identity genuineness and creditworthiness. These documents ought to have been examined by the ao which he failed to undertake.

With regard to relevance and application of Lovely Exports (SC), the appellant has placed significant reliance on the landmark decision of the Hon'ble Supreme Court in CIT v. Lovely Exports (P) Ltd. (2008) 216 CTR 195 (SC). The principle laid down in Lovely Exports has become foundational in matters involving share capital and share premium.

The Hon'ble Supreme Court held that if the share application money is received by an assessee-company from alleged bogus shareholders, whether corporate or individual, whose names and details are furnished to the AO, then the Department is free to proceed against such shareholders in accordance with law, but the share application money cannot be assessed in the hands of the assessee-company.

This decision establishes a crucial and binding principle, once the assessee provides names, addresses, and PANs of share applicants, and establishes their existence, no addition can be made in the hands of the company unless there is material establishing that the share applicants are fictitious or the money belongs to the assessee itself. Applying this principle to the present case, the appellant has provided not merely basic details (names, PAN, addresses), but a comprehensive evidentiary bundle, including:

 Financial statements and income tax returns;

 Bank statements proving direct banking transactions;

 Director affidavits confirming investment; investment;

 COME Share allotment records and confirmations.

These far exceed the minimum evidentiary threshold contemplated in Lovely Exports (SC). As per the ratio of the Hon'ble Supreme Court, once these details are provided, any suspicion harbored by the Revenue must lead to investigation in the hands of the shareholders, not in the hands of the assessee-company. The AO, instead of following this mandate, has taken the easier route of adding the amount in the hands of the appellant without conducting enquiries on the shareholders. This is directly contrary to the principle laid down by the Hon'ble Supreme Court.

In fact, the Hon'ble Supreme Court's directive expressly states that the Revenue is free to proceed against the shareholders, but it cannot evidence shows that the investment is the assessee's own money routed tax the share application money in the company's hands unless specific back. No such evidence exists in the present case.

The AO has not brought a single document, statement, or financial trail proving that the appellant company provided its own unaccounted money to the shareholders for routing back as share capital. The addition, therefore, is squarely barred by the judgment in Lovely Exports (supra).

With respect to assessment based on suspicion cannot substitute evidence, numerous judgments of the Hon'ble Delhi High Court viz. Value Capital Services, Kamdhenu Steel, Mod Creations, Kinetic Capital, among others have consistently held that mere suspicion, however strong, cannot replace evidence. The AO must bring positive material on record to justify addition u/s 68.

In the present case, apart from general references to the investigation report, no corroborative material has been found against the appellant's specific investors. No inquiry has been conducted with the shareholders. No statement of any director or shareholder has been recorded. No documentary inconsistency or defect has been pointed out in the voluminous evidence submitted by the appellant. The AO's approach is therefore contrary to the principles of natural justice and the binding judgments of higher courts.

With respect to effect of valuation report and pricing of shares, the appellant has issued shares at Rs. 17/-per share, whereas the fair market value as per the valuation report is significantly higher (Rs.21.63 paise and Rs.34.59 paise for different years). This fact alone substantially weakens the allegation of accommodation entries. Typically, entry operators are used to inflate share premium, but here the shares are issued below FMV. This demonstrates genuine investment intent and undermines the AO's suspicion entirely.”

“In the present case, it was observed that the assessee had duly discharged the initial onus cast upon him u/s 68 of the Income-tax Act, 1961, by furnishing all relevant documentary evidence, including the identity and PAN details of the creditors/investors, their bank statements, income tax returns, and confirmation letters to substantiate the credit entries. The genuineness of the transactions and the creditworthiness of the parties were also established through verifiable documents.

Once these basic parameters are met, the legal position is well-settled that the burden shifts to the AO to examine the evidence, conduct inquiries if necessary, and bring on record any material that would disprove the assessee's claim or prove that the credit entries are unexplained or fictitious. Once these basic parameters, namely, the identity of the creditor, their creditworthiness, and the genuineness of the transactions are duly established by the assessee through proper documentary evidence, the legal position is well-settled that the initial burden of proof u/s 68 of the Income-tax Act, 1961 stands discharged. Once the initial onus is discharged, the burden then shifts to the AO to examine the veracity of the documents submitted and to investigate the matter further.

It becomes incumbent upon the AO to make independent inquiries, issue summons or notices to the concerned parties, and verify the contents of the documents submitted by the assessee. Merely rejecting the evidence filed, without making any effort to disprove or counter it with cogent material, amounts to an arbitrary exercise of power and is unsustainable in the eyes of law.

The AO cannot rely solely on conjectures, surmises, or assumptions to reject the assessee's explanation, especially when no contradictory evidence has been brought on record. As held in CIT v. Orissa Corporation Pvt. Ltd. (supra) and reaffirmed in CIT v. Lovely Exports (P) Ltd. (supra), if the assessee provides sufficient details of the creditors, the AO is under an obligation to pursue those leads rather than shifting the burden back to the assessee. The failure to take proactive investigative steps, such as issuing summons u/s 131 or making third-party verifications u/s 133(6), reflects an abdication of duty on the part of the AO.

The law does not permit the AO to sit passively and draw adverse conclusions without making reasonable efforts to verify the claims. Therefore, once the assessee has discharged the primary onus, the AO must bring on record specific material or evidence to justify any addition; otherwise, such an addition u/s 68 cannot be legally sustained.

This principle finds support in the landmark judgment of the Hon'ble Supreme Court in CIT v. Orissa Corporation Pvt. Ltd. [(1986) 159 ITR 78 (SC)], wherein the Hon'ble Court held that once the assessee had furnished the names and addresses of the creditors, it was for the department to pursue the matter further and bring material on record to show that the amount represented income of the assessee. The Court further stated that in the absence of any inquiry or effort on the part of the AO to disprove the evidence filed by the assessee, no addition could be made u/s 68.

Similarly, in CIT v. Lovely Exports (P) Ltd. [(2008) 216 CTR 195 (SC)], the Hon'ble Supreme Court categorically held that if share application money is received by a company from alleged bogus shareholders, whose identities are disclosed to the AO, then the department is free to proceed to reopen the individual assessments of those shareholders, but addition cannot be made in the hands of the company u/s 68. This principle underscores that once the assessee provides primary evidence, the onus shifts to the department to establish that the same is not satisfactory or genuine.

Therefore, in light of the above judicial precedents and facts of the case, it is evident that the assessee had fulfilled the requirements laid down u/s 68, and the burden of proof had shifted to the revenue. The AO's failure to bring any material evidence or to conduct meaningful inquiry renders the addition unsustainable.

It is a well-established legal position that an affidavit is a valid and legally admissible piece of evidence, and unless rebutted or disproved through cross-examination or contrary material, it cannot be disregarded lightly. The Hon'ble Supreme Court in Mehta Parikh & Co. v. CIT [(1956) 30 ITR 181 (SC)] held that if the deponents of the affidavits are not cross-examined by the revenue authorities and the affidavits are not disproved with material evidence, then the contents of the affidavits must be accepted as true. In this case, the AO neither sought to cross-examine the deponent nor brought any material on record to discredit the affidavit filed. The AO simply ignored the affidavit without assigning any cogent reasons or making any effort to rebut its contents. Such an approach is contrary to the principles of natural justice and settled judicial norms.

An affidavit carries evidentiary value and once placed on record, it becomes incumbent upon the AO to either accept it or refute it with proper inquiry and findings. In the absence of any such rebuttal, the affidavit stands uncontroverted and must be treated as credible evidence. Accordingly, the non-consideration of the affidavit renders the assessment order defective and the addition made on that basis unsustainable in law.

In the present case, the assessee submitted a duly sworn affidavit in support of his explanation regarding the credit entries under scrutiny. In the present case, the assessee submitted a duly sworn affidavit from the concerned entities, which clearly stated key transaction details, including the date of transfer of shares, f shares, the mode of payment, the name of the remitting bank, and other relevant particulars.

The affidavit was specific and supported the genuineness of the transaction, thereby strengthening the assessee's explanation u/s 68. Despite this, the AO failed to consider the affidavit or make any attempt to verify or rebut its contents. No adverse finding was recorded, nor was any effort made to cross-examine the deponent or disprove the facts stated therein. It is a settled principle that such a detailed and uncontroverted affidavit carries evidentiary value and cannot be brushed aside without proper inquiry or reasoning.

The AO's omission to consider this crucial piece of evidence renders the assessment incomplete and the addition made unsustainable in law.

It is a well-established legal position that an affidavit is a valid and legally admissible piece of evidence, and unless rebutted or disproved through cross-examination or contrary material, it cannot be disregarded lightly.

The AO simply ignored the affidavit without assigning any cogent reasons or making any effort to rebut its contents. Such an approach is contrary to the principles of natural justice and settled judicial norms. An affidavit carries evidentiary value and once placed on record, it becomes incumbent upon the AO to either accept it or refute it with proper inquiry and findings. In the absence of any such rebuttal, the affidavit stands uncontroverted and must be treated as credible evidence. It is to mention that the whole exercise is to be based on facts and it is the duty of the AO to marshal all the facts and come to a logical conclusion about the income of the assessee for the year under consideration. For that reliance has been placed upon the Judgment of Hon'ble Supreme Court in case of Sreelekha Banerjee v. CIT [1963] 49 ITR 112 (SC) wherein it was held that "..... before the department rejects such evidence, it must either show an inherent weakness in the explanation or rebut it by putting to the assessee some information or evidence, which it has in possession..."

Accordingly, the non-consideration of the affidavit renders the assessment order defective and the addition made on that basis unsustainable in law.

Despite the availability of these materials on record, the AO has summarily disregarded them without conducting any independent inquiry, cross-examination, or verification. The AO has not pointed out any specific deficiency, contradiction, or inaccuracy in the documentation submitted. It is a settled, legal principle that once the assessee discharges the primary onus by producing such cogent and credible evidence, the burden shifts to the AO to rebut the same with proper investigation and material findings.

Mere suspicion or blanket rejection without any contrary evidence does not justify an addition u/s 68. Therefore, the AO's failure to consider or rebut these documents renders the conclusion regarding the lack of genuineness wholly untenable and unsupported by law or fact.

The AO, on the other hand, has failed to discharge the shifted onus or to rebut the appellant's evidence with any credible material. The addition made u/s 68 amounting to Rs 5,25,00,000/- is, therefore, unsustainable in law and on facts.

Accordingly, the addition of Rs.5.25 crores made u/s 68 is hereby deleted.

11.

The other part of the same ground of appeal relates to addition of Rs.50 lacs being share application money introduced by way of accommodation entry from M/s.LTE Infotech Pvt. Ltd. and M/s.FLH Tour Pvt. Ltd u/s 68 of the Income-tax Act, 1961. 11

The AO made the addition as the share capital received from the two entities i.e. M/s.LTE Infotech Pvt. Ltd. and M/s.FLH Tour Pvt. Ltd. as search conducted on Dipak Agarwal, another accommodation entry provider, who controls the said two companies who have provided sum of Rs.25 lacs each to the assessee and the companies did not exist on the given address and summons issued were returned with the remark 'no such company'.

The order passed by the AO on the said issue and the submissions of the appellant vis-à-vis the ground raised during the appellate proceedings, and the material available on record with respect to the addition of Rs. 50,00,000/- made u/s 68 of the Income-tax Act, 1961, pertaining to the share capital contributions of Rs. 25,00,000/-each received from M/s LTE Infotech Pvt. Ltd. and M/s FLH Tour Pvt. Ltd. have been considered. On going through the documents submitted by the appellant, it can be said that the appellant not only explained the nature and source of the transaction but also affirmed the financial and legal identities of the entities involved. The documents on record are not generic or vague; rather, they are specific, verifiable, and consistent with the accounting and legal framework governing such transactions. In particular, the following documents were submitted by the appellant to reinforce its contentions:

a)

Affidavit of both the concerns - The sworn statement affirms the identity, legal standing, and intent behind the transaction conducted. An affidavit, being a sworn statement under oath, holds significant evidentiary value under the Indian Evidence Act. It corroborates the factual assertions made by the appellant and confirms that the transaction was neither fictitious nor sham.

b)

Articles of Association (AoA)- The AoA lays down the rules, regulations, and objectives, thereby establishing the capacity and authority of the company to undertake the impugned transaction. It demonstrates that the said entities were legally empowered to make investments, issue shares, or conduct business transactions of the nature under scrutiny.

c)

Certificate of Incorporation- The statutory document issued by the Registrar of Companies confirms the existence as a legal entity. It is a proof of the corporate identity and existence, thereby dispelling any

d)

Balance Sheet- The balance sheet, being a part of audited financial statements, reflects the financial position and discloses its assets, liabilities, and net worth. It substantiates financial capability to enter into the transaction and negates any presumption that the funds were accommodation entries or fictitious in nature.

e)

Receipt from said entities The receipt acts as a direct documentary acknowledgment of the consideration or payment made/received. It confirms the actual occurrence of the transaction and serves as primary evidence of the financial dealings between the appellant and said two entities.

Particularly relevant is the fact that two major investor entities -LTE Info Technologies Pvt. Ltd. and FLH Tour Pvt. Ltd. have not appeared anywhere in the investigation report relied upon by the AO. The AO has made no independent enquiry with these entities; no summons u/s 131 or notices u/s 133(6) have been issued to them; no cross-verification has been performed. In absence of such enquiry, the AO's conclusion that these entities are not genuine is clearly unsustainable.

On evaluation of the factual matrix and governing legal principles, I find substantial merit in the appellant's contention that the impugned addition is wholly unsustainable in law, having been made by the AO without carrying out even the minimum enquiry mandated u/s 68 and by placing reliance on an alleged entry operator, Deepak Agarwal, without establishing any live, proximate, or case-specific connection between the appellant's transactions and the alleged accommodation entry operations.

The assessment order shows that the sole basis for the addition is the statement recorded in the course of search on Shri Deepak Agarwal and the observation that the two investor companies were allegedly controlled by him; beyond this, there is no independent verification, no attempt to examine the shareholders, no inquiry into their bank accounts, no analysis of their financials, no issuance of show-cause notices to the directors at their PAN-registered addresses, no third-party confirmations, and no effort to reconcile the documents furnished by the assessee.

The AO had not issued notices u/s 131 to the addresses available on MCA records, and just relied upon the remarks of the DDIT and proceeded to treat the entire investment as unexplained, without making any further effort to verify the existence, identity, or financial standing of the shareholders through statutory databases such as the Ministry of Corporate Affairs, the Income Tax Department's systems, or through notices at the registered email IDs, contact details, or authorised signatory information.

The Hon'ble Delhi High Court, being the jurisdictional court in the has consistently held in a long line of assessee's case decisions-including CIT v. Value Capital Services (P.) Ltd. (2008) 307 ITR 334 (Del), CIT v. Sophia Finance Ltd. (205 ITR 98) (FB), CIT v. Stellar Investment Ltd. (251 ITR 263) (Del), Mod Creations Pvt. Ltd. v. ITO (13 taxmann.com 114/202), CIT v. Kamdhenu Steel & Alloys Ltd. (206 Taxman 254), and CIT v. Kinetic Capital Finance Ltd. (202 Taxman 548)-that once the assessee furnishes the primary evidences regarding share capital-namely, the identity of the investors (supported by PAN, CIN, ROC master data, ITRs, and financial statements), the genuineness of the transaction (through banking channel payments, corporate resolutions, share application forms, and allotment records), and the prima facie creditworthiness (through audited balance sheets and bank statements), the initial burden cast on the assessee u/s 68 stands duly discharged, shifting the onus onto the Revenue to conduct further enquiries and bring material on record showing that the shareholders are sham, non-existent, or conduits for routing unaccounted funds.

In the present case, the assessee has demonstrated, through documentary evidence filed both during assessment and appellate proceedings, that M/s LTE Infotech Pvt. Ltd. and M/s FLH Tour Pvt. Ltd. were duly incorporated companies holding valid CIN numbers, PAN registrations, bank accounts, statutory filings before the Registrar of Companies, and that the payments made by them towards share capital were routed through identifiable banking channels, fully supported by confirmations, director affidavits, AOA/MOA copies, board resolutions, and financial statements.

The AO has not identified any defect, inconsistency, or falsity in any of these documents. Instead, he has summarily brushed aside the entire evidentiary record solely on the basis of a generic allegation that these companies were associated with Deepak Agarwal according to the Investigation Wing, without even verifying the alleged nexus or collecting any specific material to establish that the funds invested in the appellant company were accommodation entries. It is well-settled that an Investigation Wing report can at best serve as a starting point, but cannot, by itself, justify an addition unless the AO conducts an independent, case-specific inquiry and brings on record cogent evidence showing lack of identity, lack of creditworthiness, or lack of genuineness.

The Hon'ble Supreme Court in CIT v. Lovely Exports (P.) Ltd. (2008) 216 CTR 195 (SC) categorically held that when the assessee has provided the names and particulars of the share applicants, the Department is free to proceed against those shareholders in accordance with law, but the share capital cannot be treated as the undisclosed income of the company unless it is shown that the money belongs to the assessee itself.

The present case squarely falls within the ratio of Lovely Exports because the assessee has disclosed the complete identities and details of the two investing companies, yet the AO has not carried out any investigation in the hands of those companies nor has he brought any material to show that the funds emanated from the assessee.

The Hon'ble Delhi High Court in Value Capital Services (supra) reiterated that the ao must show that the investors are merely paper companies or that the assessee's own unaccounted money has been routed back; absent such evidence, an addition cannot survive. Similarly, in Mod Creations (supra), the Court held that a bald allegation of circular transactions or entries has no evidentiary value unless supported by material. In the present case, there is not even a whisper of any material that the assessee routed back its own funds.

The AO has not companies before making the payments, has not linked the alleged findings against Deepak Agarwal to the specific transactions of the appellant, and has not demonstrated that the alleged entry operators ever dealt with the appellant. Furthermore, the remark "no such company" on return of summons cannot be the sole basis to hold that the company does not exist, especially when it is a matter of public record that many companies maintain separate registered offices and administrative offices, and summons often fail for reasons unrelated to existence.

In any case, when the assessee has submitted complete details, it was incumbent upon the AO to verify the information through independent channels available with the Department, including through the system-generated data, the MCA portal, or by issuing electronic notices. The failure of the AO to undertake even rudimentary verification evidences that the addition is based on suspicion rather than on evidence. The law is equally clear that suspicion, however strong, cannot take the place of proof.

The AO has also not confronted the assessee with any adverse material from the Investigation Wing specific to these two companies. The assessment order does not mention even a single document, statement, or bank transaction that links these companies with accommodation entries for the assessee. In absence of such case-specific, concrete material, the addition cannot be upheld.

Therefore, considering the documentary evidence furnished by the assessee, the absence of any enquiry by the AO, the binding precedents of the jurisdictional High Court, and the ratio of the Hon'ble Supreme Court in Lovely Exports, I hold that the assessee has duly discharged the burden cast upon it u/s 68, whereas the AO has failed to bring any material to rebut the assessee's evidences or to establish that the share capital represents unexplained money of the assessee.

Accordingly, the addition of Rs.50,00,000/- made u/s 68 is unsustainable and is hereby deleted, and this ground of appeal is allowed in favour of the assessee.”