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Judgment
PER MANISH AGARWAL, A.M.:
The present appeal is filed by assessee against the order dated 28.11.2025 passed by Ld. Commissioner of Income Tax (A), Delhi-25 [“Ld. CIT(A)”] in Appeal No. CIT(A), Delhi-9/10163/2016-17 u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of assessment order dated 23.03.2016 passed u/s 143(3) of the Act pertaining to Assessment Year 2013-14.
Brief facts of the case are that the assessee is a company, engaged in the business of providing complete IT infra Solution and services including system integration comprising network design, hardware, software, warranty and management solution for imported and indigenous equipment and development, implementation and maintenance of software application. The return of income was filed on 30.03.2014, declaring total income of INR 2,22,54,590/-. The case of the assessee was taken up for scrutiny and assessment was completed in terms disallowances were made including the addition on account of share capital and premium totaling to INR 3.25 crores held as unexplained credit u/s 68 of the Act.
Against the said order, the assessee preferred appeal who vide impugned order dated 28.11.2025, had partly allowed the appeal of the assessee and deleted various disallowances however, has confirmed the addition of INR 3.25 crores made u/s 68 of the Act towards the share capital received during the year under appeal.
Aggrieved by the order of ld. CIT(A), the assessee is in appeal before the Tribunal by taking following Grounds of appeal:
1)“On the facts and circumstances of the case and in law, the instant assessment order is bad in law and void-ab-initio.
2)On the facts and circumstances of the case and in law, the Ld.AO and the Ld. CIT(A) erred in making an addition of Rs.3,25,00,000 on account of share application money received alleging the same as unexplained cash credit without considering that the Assessee has duly discharged the onus cast under Section 68 of the Act.
3)The Assessee craves leave to add, alter, modify the above ground of appeal.”
As could be observed the solitary effective Ground of appeal taken by the assessee is with respect to the addition of INR 3.25 crores made u/s 68 of the Act. In support of the ground of appeal taken, the ld. AR for the assessee submits that during the year under appeal, assessee has issued 4,64,285 shares of INR 60/- each and accordingly, total sum of INR 3.25 crores was received during the year from 02 entities namely, M/s. R.K.G Enterprises Pvt. Ltd. of INR 2.75 crores and M/s. Cross Road Infraprojects Pvt. Ltd. of INR 50.00 Lakhs. Ld. AR submits that before the lower authorities, assessee has submitted all the documents in the form of copy of ITR, audited financial statements, bank statements, confirmations of accounts, ledger accounts and source in the hands of the investors to prove the identity and creditworthiness of both the share applicants and genuineness of the transactions. All these documents filed before the lower authorities are placed in the Paper Book filed before us.
It is further submitted that one of the applicant, M/s. R.K.G Enterprises Pvt. Ltd. is a registered NBFC and copy of RBI licenses was also filed. With respect to the creditworthiness of both the investors, ld. AR submits that bank statements of the applicants were filed wherein there were sufficient funds available in their bank accounts before making the investments. Ld. AR further submits that in case of M/s. R.K.G Enterprises Pvt. Ltd., investment was made out of the loan recovered from M/s. ARC Road Carriers Ltd. who was the related party and having sufficient net worth. As per ld. AR, M/s. ARC Road Carriers Ltd. is a company having turnover of more than INR 1070 crores and profit of more than INR 68 crores and its financial statements were also submitted.
With respect to the source in the hands of the M/s. Cross Road Infraprojects Pvt. Ltd., ld.AR submits that it had liquidated its investment made in Golden Gate Pvt. Ltd. of which all the necessary details were submitted before the AO. Ld.AR submits that when the assessee has duly discharged the burden casted upon it u/s 68 of the Act of proving the identity and creditworthiness of the investors and genuineness of the transactions by filing all the details and even prove the source of source in the hands of the investors, the burden shifted on the AO to controvert the details filed by the assessee. As per ld.AR, when the assessee has established the “source of source” i.e. funds in the hands of the investors, no addition should have been made u/s 68 of eh Act towards the investment made by such investors. Ld.AR submits AO has failed to make any independent enquiry or investigation by issue of summons u/s 133A / 131 of the Act, which was not done. Further the AO has not made any direct inquiries and simply proceeded on the assumptions and presumptions to hold the investment as unexplained credits u/s 68 of the Act. For this reliance is placed on the judgement of Hon’ble Apex Court in the case of CIT vs Orissa Corporation P. Ltd. reported in 159 ITR 78 (SC). With respect to the issue of discharge the onus casted upon the assessee u/s 68 of the Act, reliance is placed on the following judgements:-
[i] HiTech Residency (P.) Ltd. [2018] 96 taxmann.com 402 (Delhi)
[ii] CIT vs Dwarkadish Investment (P.) Ltd. 194 Taxman 43 (Del); and
[iii] CIT vs Lovely Exports Pvt.Ltd. [2008] 299 ITR 268 (Del.)
Ld.AR further submits that both the investors have their sufficient capital funds and investments were made out of recovery of loan given/recovery of investments therefore, no addition should be made. For this, reliance is placed on the following judgements:-
[i] Pr. CIT vs Goodview Trading Pvt. Ltd. in ITA No.3777/2016 dated 21.11.2016;
[ii] CIT vs Vrindavan farms Pvt. Ltd. in ITA No.71 of 2015 dated 12.08.2015 (Del.);
[iii] Addl. CIT vs Prayag Polytech Pvt. Ld. [2019] (6) TMI 930 -ITAT, Delhi
[iv] ITO, Ward-6(2) vs Computer Home Information Plus Pvt. Ltd. in ITA No.5680/Del/2016 dated 24.05.2019; and
[v] Carissa Investment (P.) Ltd. vs ACIT in ITA No.6448/Del/2016 dated 22.01.2021.
In the last, it is submitted that the AO has proceeded in arbitrary manner while holding that the investors have no creditworthiness without rebutting the evidences filed by the assessee by bringing on record any contrary material gathered as a result of independent inquiry or investigation. Ld.AR submits that merely because both the applicants are from Kolkata, AO presumed that they are the entry providers without having any cogent material in his possession to allege so. Therefore, it is prayed that addition made be deleted.
On the other hand, ld. Sr. DR for the Revenue supported the orders of the lower authorities and submits that AO has discussed this issue in detail. The assessee has failed to prove the creditworthiness of both the share applicants who has made such a large investment in the shares of the assessee company. It was observed by the lower authorities that the applicant companies are having very low income as compared to the investment made and therefore, he prayed for the confirmations of the order of lower authorities. Ld. Sr. DR placed reliance on the judgements of Hon’ble Supreme Court in the case of PCIT v. NRA Iron & Steel Pvt. Ltd. reported in (2019) 412 ITR 161/262 (SC).
Heard the contentions of both the parties and perused the material available on record. During the year under appeal, assessee has received share application of INR 2.75 crores from M/s. R.K.G Enterprises Pvt. Ltd., a registered NBFC and further INR 50.00 Lakhs received from M/s. Cross Road Infraprojects Pvt. Ltd. To establish their identity as well as creditworthiness and source in their hands, following documents were submitted before the lower authorities:-
With the above, details, we now discuss the issue of identity, creditworthiness of both the investors and the genuineness of the transactions:
[1]. M/s. R.K.G Enterprises Pvt. Ltd.
From this company, assessee has received INR 2.75 crores as share application money and the assessee has filed the copy of the confirmation as per which the funds were received through banking channel thus, genuineness cannot be doubted. With respect to the identity, the assessee has filed its bank statements, copy of ITR and certificate of NBFC registration issued by RBI dated 24.04.1998. All these documents are placed at pages 113 to 120 of the Paper Book which established its identity.
Now coming to the creditworthiness of M/s. R.K.G Enterprises Pvt. Ltd. From the perusal of its bank statements placed at pages 113 to 116 of the Paper Book, it is observed that whenever funds were invested in the assessee company, sufficient balances were available in the bank account of M/s. R.K.G Enterprises Pvt. Ltd. With respect to the credit entries appearing immediately before the transfer of funds to the assessee, it was explained that M/s. R.K.G Enterprises Pvt. Ltd. had given loan to one of its associate company, M/s. ARC Road Carriers Ltd. who was also a Kolkata based company and it is stated that M/s. R.K.G Enterprises Pvt. Ltd. & M/s. ARC Road Carriers Ltd. are group companies. The financial statements of M/s. ARC Road Carriers Ltd. alongwith the confirmed copy of account of transactions between M/s. R.K.G Enterprises Pvt. Ltd. & M/s. ARC Road Carriers Ltd. and bank statement of ARC were also filed which are placed in the paper book. On perusal of the same, it is observed that M/s. ARC Road Carriers Ltd. had repaid the loan to M/s. R.K.G Enterprises Pvt. Ltd. which were invested in the assessee company. As per the confirmed copy of account placed at Paper Book page 160, M/s. R.K.G Enterprises Pvt. Ltd. had given a loan of INR 2,42,25,211/- out of which major loan was liquidated and invested in the assessee company. The copy of the bank statement of M/s. ARC Road Carriers Ltd. was also placed at pages 161 to 165 of the Paper Book which shows that the company has sufficient balances. Further, from the perusal of the financial statements of M/s. ARC Road Carriers Ltd., it is observed that it had share capital and reserves of INR 280.50 crores and turnover in the year under appeal was INR 10690.72 crores having net profit of INR 66.87 crores. A copy of ITR is also placed at page 159 of the Paper Book wherein total income of INR 68.06 crores were declared by ARC.
All these facts clearly established that M/s. R.K.G Enterprises Pvt. Ltd. has discharged the burden of proving the “source of source” in its hands as M/s. ARC Road Carriers Ltd. has having sufficient net worth to repay the loan to M/s. R.K.G Enterprises Pvt. Ltd. In view of these facts, we are of the considered opinion that the share application received from M/s. R.K.G Enterprises Pvt. Ltd. cannot be held as unexplained credit. We order accordingly.
[2] Cross Road Infra Projects Ltd.
This company has invested a sum of INR 50.00 Lakhs during the year in the share capital of the assessee company. It was the claim of the assessee that the said company had liquidated its investment made in the share of M/s. Golden Gate Tie Up of INR 50.00 Lakhs for which the necessary confirmation of M/s. Golden Gate Tie Up was also submitted alongwith bank statement of M/s. Cross Road Infraprojects Pvt. Ltd. The assessee also filed financial statement of M/s. Cross Road Infraprojects Pvt. Ltd. All these documents are placed at page 259 to 278 of the Paper Book. From the perusal of the Balance Sheet of M/s. Cross Road Infraprojects Pvt. Ltd., it is observed that the said company is having share capital and reserves of more than INR 35.00 crores and though it had no regular business activity during the year under appeal however, it has made investments of INR 35.00 crores in various companies out of which certain investments were liquidated and invested in the assessee’s company. From the details so filed alongwith the bank statements, it is established that this company has sufficient net worth and no inquiry or investigation was made by the AO before making allegation that this company is an entry provider company or a paper company.
From the above discussion, it is clear that the assessee has discharged the burden casted upon it u/s 68 of the Act of proving the identity and creditworthiness of the investors coupled with the “source of source” and genuineness of the transactions have also been established. No inquiry whatsoever was made by the AO to allege that both the investors are bogus entities and are entry provider. In this regard, reliance is placed on the judgment of Hon’ble Supreme Court in the case of Orissa Corporation Pvt. Ltd. (supra) wherein it is held as under:-
"The power to levy assessment on the basis of best judgment is not an arbitrary power; it is an assessment on the basis of best judgment. In other words, that assessment must be based on some relevant material. It is not a power that can be exercised under the sweet will and pleasure of the concerned authorities. The scope of that power has been explained over and over again by this Court.
The Agricultural Income-tax Tribunal gave no reasons in its order for affirming the decision of the Asstt. Collector. It appears to have been of the view that once the assessing authorities reject the material placed before them as being unreliable those authorities can proceed to levy whatever tax they may levy. It failed to bear in mind the scope of the power of the assessing authorities to levy assessment on the basis of best judgment. Therefore, the Tribunal was clearly in error in confirming the decision of the Asstt. Collector. Hence, the High Court was justified in interfering with the order of the Tribunal."
The Hon’ble Delhi High Court in the case of HiTech Residency (P.) Ltd. reported in [2018] 96 taxmann.com 402 (Delhi) had held that where the assessee has discharged its onus of establishing the identity and creditworthiness of the investors and genuineness of the transactions to whom shares were allotted, no addition could be made u/s 68 of the Act. It is relevant to state that aforesaid order of Hon’ble Delhi High Court was confirmed by Hon’ble Supreme Court by dismissing the SLP filed by the Revenue as reported in [2018] 96 taxmann.com 403 (SC).
Regarding the judgment relied upon by the Revenue of the hon’ble Apex court in the case of NRI Iron & Steel, the facts of that case are distinguishable as in that case, the assessee failed to file any evidences to establish the genuineness and creditworthiness of the investors/lenders however, in the instant case, as observed above, all the details have been filed therefore, the ratio laid down by Hon’ble Supreme Court in the case of PCIT v. NRA Iron & Steel Pvt. Ltd. (supra) is not applicable to the facts of the present case.
The Hon’ble Delhi High Court in the case of Pr. CIT vs Goodview Trading Pvt. Ltd. in ITA No.3777/2016 order dated 21.11.2016 had held that merely because the investors have shown minimal or unsubstantial taxable income, investment cannot be held as unexplained if the net worth or documents sources show valid capacity of investments. Likewise, Hon’ble Delhi High Court in the case of CIT vs Vrindavan Farms Pvt.Ltd. etc in ITA No.71 of 2015 order dated 12.08.2015 (Del.) has held as under:-
"The sole basis for the Revenue to doubt their creditworthiness was the low income as reflected in their return of income. It 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.”
Thus, considering the aforesaid discussion and respectfully following the judgements of Hon’ble jurisdictional High Court as discussed herein above, we are of the considered view that the assessee has been able to discharge the burden casted upon it u/s 68 of the Act of proving the identity, creditworthiness of the lenders and also genuineness of the transactions has been established. Besides this the assessee has proved the source of source which has not been controverted by the AO by bringing on record any contrary material as a result of independent enquiry or investigation who merely because the investor companies are from Kolkata, the AO has doubted their identity and creditworthiness. Under these circumstances the addition made u/s 68 of INR 3.25 crores is hereby, deleted. Accordingly, the solitary Ground of appeal raised by the assessee is allowed.
In the result, appeal of the assessee is allowed.