AI Drafter 
TaxTMI 
TaxTMI 
2025 (2) TMI 393
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....uction and development of affordable housing projects. During assessment proceedings, AO observed that assessee has received share capital of Rs. 13,09,86,251/- (622,820 shares @ Rs. 210.31 per share) from various individuals. The details of shares issued with share premium are listed at page 2 of the assessment order. In order to verify the genuineness of the share capital, AO issued show-cause notice dated 08.12.2018 to the assessee to explain the identity, genuineness and creditworthiness of the shareholders. In response, the assessee submitted a copy of ITR, confirmation, bank account and computation of income and statement of affairs of the shareholders. The AO analyzed one of the shareholder, Shri Vikas Garg and analyzed the information submitted by the abovesaid shareholder and the AO observed that Vikas Garg has a salary income and other sources of income amounting to Rs. 7,20,600/- only. From the record, AO observed that assessee has obtained a loan of Rs. 35,00,000/- from Ms. Saroj Devi, however assessee has not furnished details of Saroj Devi. Further, he analyzed the bank statement and observed that assessee has received amount of Rs. 4,40,000/- and Rs. 35,00,000/- from....
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....nting to Rs. 53,19,531/-. He observed that in the present case, provisions of section 14A are applicable read with Rule 8D of the Income-tax Rules, 1962 (for short 'the Rules'). Accordingly, a show-cause notice was issued to the assessee and was asked to give details regarding disallowance of interest u/s 14A of the Act. In response, ld. AR of the assessee submitted reply vide letter dated 14.12.2018, the same are reproduced as under :- "...2. NOTE ON DISALLOWANCE u/s. 141A : During the year under consideration the assessee has received tax free dividend income of Rs. 5319531/-. All the dividend has been received on the investment in the shares of SMC Global Securities Ltd. The assessee has not incurred any expenses for earning of dividend income. However, sum of Rs. 1,20,000/- has been disallowed suo-mot u/s. 14A. There is no new investment made during the year in the shares of SMC Global Securities Ltd. from which dividend has been received. No efforts were required for earning of dividend income. The dividend income was credited to the bank account of the assessee directly through ECS. The expenses incurred and charges in the Profit and Loss A/c are normal busi....
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....O. that the investor has low income as compared to investment made, in my opinion for the purpose of section 68 of the Act what is relevant is the source of credit in the books of assessee. The investor can have many sources for making the investment viz loans, his owned accumulated funds, accumulated income etc. There is no dispute by the assessing officer with regard to identity and creditworthiness of the shareholder and the genuineness of the transaction. The assessing officer has made the addition on the ground that the assessee failed to explain the source of source of fund. 4.2.4 It is noticed that during the course of assessment proceedings the appellant company has explained to the A.O. that the shareholder Mr. Vikas Garg has received Rs. 3500000/- from his mother Saroj Devi and Rs. 440000/- from Mr. Tilak Raj,. In the assessment order, the assessing officer has himself mentioned that from perusal of bank statement of Mr. Vikas Garg, it is revealed that Mr. Vikas Garg received funds of Rs. 440000/- and Rs. 3500000/- from Mr. Tilak Raj and Saroj Devi respectively. 4.2.5 However the AO has failed in his duty since neither he had done any further enquiry nor....
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....ise Pvt. Limited 4000000 - Copy of Bank Statement -Copy of ITR acknowledgement -Confirmation of account -Copy of Bank Statement 9 Umang Leasing and Credit Co. Ltd. 11750000 -Copy of ITR acknowledgement -Confirmation of account -Copy of Bank Statement 4.3.6 The A.O. has not pointed out any discrepancy in the aforesaid documents. In this case the Appellant has raised a preliminary objection that sum total of the loan received from various companies comes to Rs. 23,12,56,456/- however the AO has made an addition of Rs. 23,71,70,947/-. This is an apparent mistake on record hence additions of Rs. 23,71,70,947/- made by the AO should -be read as additions of Rs. 23,12,56,456/-. 4.3.7 The AO has neither made any further enquiry on the basis of the details submitted by the Appellant company nor he has asked the Appellant company to explain further by submitting the missing documents. AO has simply rejected all the positive evidences submitted by the Appellant and made the impugned additions. 4.3.8 Keeping in view this fact of lack of enquiry on the part of the AO and in the interest of natural & substantial justice I, vide order shee....
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....e Delhi bench of the ITAT in the case of ITO Ward 6(2) vs. Computer Home Information Plus Pvt. Ltd. ITA NO. 5680/Del/2016 dated 24.05.2019 where a similar issue was involved and the ITAT has held as under:- "18. We have also thoroughly examined the financial accounts of the five lender companies. At the very outset, we have to state that income may be a good reason for examining the source of a person but it is certainly not the "be all end all". Let us take an example, if person is drawing salary of Rs. 10 lacs p.a. and purchases a residential fiat of Rs. 50 lacs. Can merely on the basis of his income addition be made as unexplained investment? The answer is evidently "No" because that person may have taken housing loan of Rs. 40 lacs to purchase the residential flat." 4.3.9 A similar issue has come up before the jurisdictional Delhi High Court in the case of Pr. CIT (Central)-l vs. Goodview Trading Pvt. Ltd. ITA No.3777/2016 dated 21.11.2016 wherein addition were made under section 68 on the ground that the creditor had little or no income. The Hon'ble High Court after tabulating the chart of the net worth of each of the creditor held that the creditor had s....
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....n case of Multiplex Fincap Ltd was Rs. 7,37,98,543/-, on 01.04.2015. That means the same has been accepted by AO in assessment completed on 14.12.2017 in AY 2015-16. A copy assessment order for AY 2015-16 has been filed in course of assessment proceedings. Thus the identity, genuineness and creditworthiness he already been accepted in AY 2015-16. Further it is, seen from copy assessment order filed in case of Multiplex Fincap Limited that assessment for AY 2016-17 has also been done u/s 143(3) on 14.12.2018 without any adverse inferences about its sources. The provisions of section 68 are as under:- "68. Where any sum is found credited in the books-of an assessee maintained of any previous year, and the assessee offers no explanation-about the nature am 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....
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.....14 The evidences and the explanation has been rejected by the AO merely on the basis of doubt without bringing any material to discredit the document and information on record. The appellant has lead all evidences in support of its contention and the identity, creditworthiness and genuineness of the transaction stand established. In view of the above factual and legal. position the addition of Rs. 23,71,70,947/- (correct figure 23,12,56,456/-) made by the AO is directed to be deleted. This ground of appeal is allowed." 11. Similarly, he deleted the consequential interest addition made by the AO. 12. With regard to section 14A disallowance, ld. CIT (A) partly allowed the grounds raised by the assessee by relying on the decision of ACB India Limited (formerly M/s. Aryan Coal vs. ACIT) (2015) 62 taxmann.com 71 (Delhi) as under :- "4.6.2 I have considered the facts of the case, remarks of the A.O. made in the assessment order and also the submission of the appellant. During the year under, consideration, the appellant company has received tax free dividend income of Rs. 5319531/-. The entire dividend has been received on the investment in the shares of SMC Global Securi....
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....her on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 39,36,000/- on account of unexplained credit in the form of share & security premium u/s 68 of the Income tax Act, 1961. ii. (a) Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 23,71,70,947/- on account of unexplained unsecured loan u/s 68 of the Income tax Act, 1961. (b) Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance of Rs. 27,02,664/- on account of interest expenses on unsecured loan u/s 68 of the Income tax Act, 1961. (c) Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance of interest of Rs. 16,36,678/- made by Assessing Officer by way of reduction in WIP. iii. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in directing to restrict the addition u/s 14A r.w.r 8D to Rs. 29,94,832/- by holding that for calculation under this head only those investments are to be considered for computing av....
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.... be set aside - Held, yes - Whether, further, creditors admitting that they had made payments to assessee was not sufficient to discharge burden placed on assessee by section 68 - Held, yes [Paras 39 and 45] [In favour of revenue] 2. SUPREME COURT OF INDIA in the case of Sadiq Sheikh v. Commissioner of Income Tax, Bangalore [20211 124 taxmann.com 202 (SC) Section 68 of the Income-tax Act, 1961 - Cash credit (Burden of proof) - Assessing Officer made certain addition owing to unaccounted cash receipts on ground that assessee failed to establish identity and creditworthiness of creditors from whom he had received a huge amount of Rs. 8.49 crores - On appeal, Tribunal accepted assessee's explanation that said amount was transferred into its bank account from out of bank accounts of his brother-in-law and a close friend and, further, that said creditors confirmed to have made payment to assessee - On basis of above, Tribunal held that identity of source was thus established and requirement of section 68 was proved beyond any doubt by assessee and, therefore, addition made by Assessing Officer was not sustainable - High Court by impugned order held that since Tribu....
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.... etc. These facts are basically and primarily in knowledge of the assessee and it is difficult for revenue to prove and establish the negative. Certificate of incorporation of company, payment by banking channel, etc. cannot in all cases tantamount to satisfactory discharge of onus." 15. On the other hand, ld. AR of the assessee submitted as under :- 1. Ground No. 1 (Share capital/share premium of Rs. 39,36,000/- u/s 68) The documentary evidences relating to amount of Rs. 39,36,000/- are enclosed in the paper book as under: - S.No. Name of the Party Amount (Rs.) Documents Page no. of Paper book 1 Vikas Garg 39,36,000 - Explanation given - 1 - 3 - Confirmation of Account - 5 - ITR acknowledgement - 6 - Balance Sheet - 7 - Bank Statements - 8 - Passport of Vikas Garg - 284 - ITR and Computation of Income of Saroj Devi - 285 - 287 - Balance Sheet of Saroj Devi - 288 - Bank Statement of Saroj Devi - 289 - Bank Statement of Tilak Raj Jagdish Prashad (Proprietor Ashok Kumar) - 290 - ITR of Ashok Kumar - 291 1.1. The assessing officer has made addition of share capital /....
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....n^91 about the nature and source thereof or the explanation offered by him is not, in the opinion of the ^92[Assessing] Officer, satisfactory, the sum so credited may^91 be charged to income-tax as the income of the assessee of that previous year : ^93[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.] 1.5. From the per....
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.... - Confirmation of account - 162 - ITR acknowledgement - 163 - Balance Sheet - 165-180 - Bank Statement - 164 6 SRK Tradelinks Pvt Limited 15500000 - Confirmation of account - 181 - ITR acknowledgement - 182 - Balance Sheet - 191 - 202 - Bank Statement - 183 - 188 7 Syala Buildwell Private Limited 2500000 - Confirmation of account - 223 - ITR acknowledgement - 224 - 225 - Balance Sheet - 227 - 240 - Bank Statement - 225 - 226 8 Tia Enterprise Pvt. Limited 4000000 - Confirmation of Account - 241 - ITR acknowledgement - 242 - Balance Sheet - 246 - 258 - Bank Statement - 243 - 245 9 Umang Leasing and Credit Co. Ltd. 11750000 - Confirmation of account - 259 - ITR acknowledgement - 260 - Balance Sheet - 263 - 282 - Bank Statement - 261 - 262 Total 23,12,56,456 2.1. The total of above loans is Rs. 23,12,56,456/- whereas the total mentioned by the A.O. in the assessment order is Rs. 23,71,70,947/-. Be that as it may be, it is submitted that the entire addition made by the A.O. is erroneous. Th....
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.... inference in the hand of assessee company. Under such a situation, if the A.O. still doubts the source of the amount lent by the creditor to the assessee company, adverse inference can be drawn in case of the creditor and not in the case of assessee company. 2.4. The remarks of the A.O. that the loan creditors have low income as compared to loans given by them is no ground for making the addition u/s 68 of the Act. It is humbly submitted that there is no requirement under the law that Loan creditor has to give loans out of income only. For the purpose of section 68 of the Act what is relevant is the source of credit in the books of assessee. The loan creditors can have many sources for giving the loans viz loans taken by them, their owned accumulated funds, accumulated income etc. 2.5. Similarly, the remarks of the A.O. that funds were transferred by the loan creditor to the assessee company immediately after it was received by the loan creditor is also no ground for making the addition u/s 68 of the Act. It is humbly submitted that there is no requirement under the law that loan creditor has to keep funds idle in bank accounts for some period before giving loan ....
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....d 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.] 2.8. From the perusal of aforesaid provision, it is evident that w.e.f. 01.04.2013, in respect of share capital / share application money / share premium there is requirement of offering explanation about the nature and source of amount received by the share applicant. However, there i....
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....enuineness of the transaction as well as the creditworthiness of his creditor, the burden of the Assessee to prove the genuineness of the transactions as well as the creditworthiness of the creditor must remain confined to the transactions, which have taken place between the Assessee and the creditor. What follows, as a corollary, is that it is not the burden of the Assessee to prove the genuineness of the transactions between his creditor and sub-creditors nor is it the burden of the Assessee to prove that the sub-creditor had the creditworthiness to advance the cash credit to the creditor from whom the cash credit has been, eventually, received by the Assessee. It, therefore, further logically follows that the creditor's creditworthiness has to be judged vis-a-vis the transactions, which have taken place between the Assessee and the creditor, and it is not the business of the Assessee to find out the source of money of his creditor or of the genuineness of the transactions, which took between the creditor and sub-creditor and/or creditworthiness of the sub-creditors, for, these aspects may not be within the special knowledge of the Assessee." (Emphasis Supplied) The ....
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....en 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 of 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. (2008) 299 ITR 268 (Delhi) and CIT v. Lovely Exports (P.) Ltd. (2008) 216 CTR 195 (SC)]." The Delhi High Court in its judgement dated 21.12.2015 in case of CIT v Shiv Dhooti Pearls & Investments Ltd. [2015] 64 taxmann.com 329 (Delhi) has again reaffirmed this position. In this case, the assessee had taken loans from a company TIL. The said company confirmed having loan given to assessee. The A.O. however doubted the source of credit in account of TIL (which was TCL). The A.O. concluded that TCL was not a genuine party which could have lent money to TIL, which in turn lent money to assessee company. It was, therefore concluded that the entire chain of lending and borrowing is bogus. The Hon'ble High Court held that there was no requi....
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.... entire dividend has been received on the investment in the shares of SMC Global Securities Ltd. The investments in the shares of SMC Global Securities Ltd were made in the earlier years and no new investment was made during the year in the shares of SMC Global Securities Ltd. Against this dividend income, the assessee company has made suo-moto disallowance of Rs. 1,20,000/-. The assessing officer has applied Rule 8D of Income Tax Rules and calculated the disallowance at Rs. 45,61,641/- and after reducing the suo-moto disallowance of Rs. 1,20,000/- made addition of difference amount of Rs. 44,41,641/-. It is submitted that the assessing officer has erred in including and considering all the investments for computing the disallowance u/s 14A. The amount of investments which can be considered for computing the disallowance u/s 14A are only those investments from which the assessee has earned tax free income. The Hon'ble jurisdiction Delhi High Court in the case of ACB INDIA LIMITED (FORMERLY M/S ARYAN COAL v ACIT [2015] 62 taxmann.com 71 (Delhi) has held that for computation of disallowance u/s 14A, only the value of investments of which income is not part of total income, a....
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....nhancement of the assessment or penalty (whether on his own motion or on the request of the Assessing Officer) under clause (a) of sub-section (1) of section 251 or the imposition of penalty under section 271. 5.3. The Hon'ble Jurisdictional Delhi High Court in the case of CIT v. Manish Buildwell Pvt. Ltd. (ITA no. 928/2011) has held as under: - We are highlighting these aspects only to press home the point that the conditions prescribed in Rule 46A must be shown to exist before additional evidence is admitted and every procedural requirement mentioned in the Rule has to be strictly complied with so that the Rule is meaningfully exercised and not exercised in a routine or cursory manner. A distinction should be recognized and maintained between a case where the assessee invokes Rule 46A to adduce additional evidence before the CIT (A) and a case where the CIT (A), without being prompted by the assessee, while dealing with the appeal, considers it fit to cause or make a further enquiry by virtue of the powers vested in him under sub-Section (4) of Section 250. It is only when he exercises his statutory suomoto power under the above sub-section that the requirements....
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....ssee did not get a fair opportunity to represent his case before the Assessing Officer. On a careful reading of the impugned order of learned Commissioner (Appeals) it is very much clear that considering the fact that the assessee did not get a fair opportunity to represent his case before the Assessing Officer, learned Commissioner (Appeals) took the responsibility upon himself to inquire into the matter and in the process has called for necessary evidences, not only from the assessee, but from the concerned bank through the assessee. After examining the evidences, learned Commissioner (Appeals) has factually found that the actual quantum of time deposits in Canara Bank was to the tune of Rs. 9,50,00,000/-. He has further found that even Rs. 9,50,00,000/- deposited in Canara Bank was out of overseas remittances from the income earned by the assessee as a resident in USA for past so many years. No contrary material has been brought on record by the Revenue to disturb the aforesaid factual findings of learned Commissioner (Appeals). Therefore, if, upon examining the material on record learned Commissioner (Appeals) has recorded a factual finding, without pointing out any deficiency ....
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....ts of the case of the appellant. The case law relied upon by the assessing officer was relating to share capital received from persons who were found to be established entry operators/paper companies by the investigation wing and in respect of whom notice u/s 131/133(6) were returned back unserved and they were found to be non-existent. In the assessee company's case before your honour, there are no such facts." 17. Considered the rival submissions and material placed on record. With regard to ground no.i raised by the Revenue on the issue of share capital share and share premium, we observed that the Assessing Officer made the addition under section 68 of the Act even though the assessee has submitted the relevant details and claims in respect of identity of the shareholder, confirmation from the shareholder, bank statement and statement of affairs as well as ITR from the shareholder. Further the assessee has submitted source of source of the shareholder i.e. Vikas Garg who has received the loan funds of Rs. 35,00,000/- from his mother, Mrs. Saroj Devi and Rs. 4,40,000/- from Tilak Raj. As per the provisions of section 68 of the Act, the assessee has to prove source of source i....
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....al funds available with these lender companies are much higher than the amount lend by them and he negated the findings of the Assessing Officer on the basis of lending the money merely on the basis of earning of income. He relied on the decision of coordinate Bench in the case of Addl.CIT vs. Prayag Polytech Pvt. Ltd. (supra), ITO vs. Computer Home Information Plus Pvt. Ltd. (supra) and the decision of Hon'ble Delhi High Court in the case of Pr.CIT vs. Goodview Trading Pvt. Ltd. (supra) and came to the conclusion that income alone is not the criteria for making the loan and also negated the findings of the Assessing Officer that the loan was given immediately after it was received by them and cannot be the ground for making addition u/s 68 of the Act. Finally, he deleted the addition by observing that the assessee has taken loans from these companies for short duration and almost all the loans were repaid during the year itself and only some small amount is outstanding as at the year end and that too is mainly on account of interest. He has reproduced the following chart in his order :- S.No. Name of the Party Loan amount added by A.O. (Rs.) Outstanding balance as at t....
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....income during the year, we observed that the assessee has earned exempt income of Rs. 53,19,531/- during the year and Assessing Officer invoked Rule 8D and disallowed the expenditure of Rs. 44,41,641/- after reducing the suo motu disallowance of Rs. 1,20,000/-. We observed that ld. CIT (A) partly allowed the ground raised by the assessee on the basis of exempt income i.e. dividend received by the assessee from the investment which has actually yielded exempt income. He came to the conclusion on the basis of decision of Hon'ble Bombay High Court in the case of CIT vs. JSW Energy Limited (supra ) and decision of Special Bench of Delhi Tribunal in the case of ACIT vs. Vireet Investment Pvt. Ltd. (supra). After considering the factual matrix in this case, we observed that ld. CIT (A) has rightly applied the provisions of section 14A read with Rule 8D by relying on the settled position of law. Accordingly, ground no.iii is dismissed. 24. With regard to ground no.iv on the issue of admission of additional evidences by the ld. CIT (A) without seeking remand report from the Assessing Officer, after considering the factual matrix in the present case, we observed that u/s 250(4) of the Ac....