AVT HOMES PRIVATE LIMITED,. V. ITO WARD 1(1), FBD, .

ITA 1427/DEL/2024

AI Insights

AVT Homes Private Limited appealed against the order of the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre, which upheld the addition made by the Assessing Officer under section 68 of the Income Tax Act, 1961. The addition was based on doubts regarding the credibility and identity of the investors and the genuineness of the transactions involving share capital and share premium. The Tribunal examined the documents provided by the assessee, including the valuation report and the confirmations from the investor companies, and found them sufficient to establish the genuineness of the transactions. The Tribunal criticized the lower authorities for not making further inquiries and for relying solely on the absence of the investors at the assessment stage.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 398288 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-06-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2016-2017
• Other Referred Cases: CIT vs. Lovely Exports, CIT vs. Kamdhenu Steel and Alloys, PCIT v Agson Global (P.) Ltd., PCIT v Manoj Kumar Vipin Kumar, PCIT V. Kautilya Monetary Services (P) Ltd., Pr. CIT vs M/s N.C. Cables Ltd., CIT vs. Oasis Hospitalities (P) Ltd, CIT vs. Divine Leasing & Finance Ltd., CIT vs. Dwarkadhish Investment (P.) Ltd., Pr.CIT v. Laxman Industrial Resources Ltd., CIT vs. Victor Electrodes Ltd
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY KUMAR
• Assessee Lawyers: RAJIV SAXENA
• Keywords: Additional evidence; Rejection of books of accounts; Onus to prove; Valuation report; Share purchase agreement; Bogus
• Section: 142(1); 68; 133(6); 145

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘SMC’: NEW DELHI BEFORE SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA No.1427/DEL/2024 (Assessment Year: 2016-17) AVT Homes Private Limited, vs. ITO, Ward 1 (1), H-35, 1st Floor, Jangpura Extension, Faridabad. New Delhi – 110 014. (PAN : AAKCA5856H) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Rajiv Saxena, Advocate Ms. Sumangla Saxena, Advocate Shri Shyam Sunder, Advocate REVENUE BY : Shri Sanjay Kumar, Sr. DR Date of Hearing : 12.03.2025 Date of Order : 04.06.2025 O R D E R 1. The assessee has filed appeal against the order of the Learned Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi [“Ld. CIT(A)”, for short] dated 15.03.2024 for the AY 2016-17. 2. Brief facts of the case are, the return of income was processed u/s 143(1) of the Income-tax Act, 1961 (for short ‘the Act’) and subsequently the aforesaid case was selected for limited scrutiny under CASS to verify that whether the funds received in the form of share premium are from disclosed sources and have been correctly offered for tax. During the 2 ITA No.1427/DEL/2024 course of assessment proceedings, Assessing Officer issued various statutory notices against which the assessee company furnished requisite information from time to time. 3. The assessee in response to the notices issued u/s 142(1) of the Act filed the relevant documents such as Certificate of Incorporation, MoA/AoA, auditor’s report along with Balance Sheet and Profit and Loss Account for the relevant year, valuation report of shares, bank statements and bank ledger accounts. Further, the assessee furnished the documents w.r.t. investor companies, such as, confirmation of accounts, share application form, Certificate of incorporation, MoA/AoA, auditor’s report along with Balance Sheet and Profit and Loss account for the relevant year in concern. All the documents furnished with the AO have been placed in the Paper Book. 4. The AO issued notice u/s 133(6) to the investor companies requiring them to furnish relevant information and confirm the investment made in the subscription of the shares in the assessee company. In response to the same, investor companies confirmed the investment made in the assessee company and filed the relevant documents with AO as observed by AO at Page 2, Para 5 of its order by stating that “after going through the details filed by the assessee company and the information gathered u/s 133(6) from investor companies.”. However, ignored the submissions made by 3 ITA No.1427/DEL/2024 the assessee and the information given by the investor companies, the AO made the addition of the entire share application received, to the income of the assessee and raised the doubts over the credibility and identity of the investors and genuineness of the transaction. 5. Aggrieved with the above order, the assessee preferred an appeal before the NFAC, Delhi. The ld. CIT(A) upheld the addition made by the AO for entire share application money and share premium received by the assessee company from investor companies, for the sole reason that though the assessee has produced the requisite documents in order to justify the credibility and identity of the investors and genuineness of the transaction but failed to produce the investors before the Assessing Officer. 6. Aggrieved with the above order, assessee is in appeal raising following grounds of appeal :- “1. That the Ld. CIT (A), NFAC has grossly erred in law as well as on facts in sustaining the addition of Rs.44.37,500/- made by Ld. AO u/s 68 of the IT Act,1961 on account of share capital received from the shareholders whose nature and source have been explained and details have been furnished by the appellant before the Ld.AO. thereby, discharging the burden u/s 68 of the Act. 2. That the order passed by Ld. C1T(A), NFAC is bad in law as the same has been passed without appreciating that: a. The investor companies arc separate Income-tax assessees. b. The explanation and documents sought have duly been furnished which have not been controverted. 4 ITA No.1427/DEL/2024 c. No anomaly has been found in the books of the assessee. d. The explanation offered by the assessee cannot be arbitrarily rejected. 3. That Ld.CIT(A), NFAC has erred in law as well as on facts in confirming the order of Ld.AO without appreciating that such addition made without rejection of books of accounts u/s 145 of the IT Act, 1961 is bad in law. 4. That the Ld. CIT (A), NF AC has grossly erred in law as well as on facts in sustaining the addition u/s 68 of the Act even by admitting the documentary evidences filed and without calling for the remand report against as additional evidences filed under Rule 46A of the Income Tax Rules, 1962. 5. That the Ld. CIT(A) NFAC has grossly erred in law as well as on facts in not appreciating the fact that valuation of shares was made in accordance with the Rule 11 UA(2)(a) of Income Tax Rules, 1962 i.e., Net Asset Value Method, which is one of the prescribed methods for valuation of shares.” The above grounds of appeals are independent of and without prejudice to each other. 7. Ld. AR of the assessee submitted filed written submissions which read as under :- 5. “It is further pertinent to mention that during the course of assessment proceeding, Ld. AO at Page 1 Para 2 observed that assessee company has not furnished the requisite documents to prove the identity and creditworthiness of the investors and the genuineness of the transaction. Against this it is necessary to state that during the course of assessment proceeding few of the documents could not be uploaded properly on the E filing portal due to technical glitches and therefore assessee was left with no other option except to re-file the evidences to avoid any controversy. Additional evidences filed before the Ld. CIT(A) were admitted during the course of appellate proceeding as observed by Ld. CIT(A) at para “5.1. During the course of appellate proceedings, the appellant had requested for admission of additional evidence under rule 46A and the same is admitted.”. 5 ITA No.1427/DEL/2024 6. Below is the brief summary/chart showing sole issue involved in the abovementioned appeal of assessee and details of investment made by the investor companies. S.No. Particulars 1. Addition made by the Ld.AO u/s 68 of the Acton account of share capital invested by investor companies and which has been subsequently upheld by the Ld. CIT(A), NFAC. Rs.44,37,500/- (Though assessee received total Rs. 40 lacs against the 50,000/- shares issued @ Rs. 80 each during the year under consideration, and Rs. 5 lacs was the opening balance) 2. Details of Investment made by the investor companies. Total Rs. 45 Lacs (out of which 5 lacs was the opening balance) Details of investment Rs. 25 Lacs by M/s Rishi Credit & Industries Pvt. Ltd. on 03.07.2015 against the 31,250/- shares @ Rs. 80 each,(PB 117-157) Rs. 15 Lacs by M/s Pearl Durobuild Pvt. Ltd. on 18.08.2015 against the 18,750/- shares @ Rs. 80 each,(PB 74-116) and Rs. 5 Lacs by M/s RSM Construction on 20.02.2014 i.e., opening balance) (PB 58-177) 3. Information sought by the Ld. AO u/s 133(6). 133(6) Notice was complied by all the investor companies as observed by Ld. AO at Para 5 Page 2 of its order. Submissions: 6. It is submitted that the Ld. CIT(A), NFAC has sustained the addition u/s 68 of the Act while holding that though the appellant company has produced the requisite documents like copies of ITR’s, PAN, Audited Reports, Bank Statements and other requisite documents in respect of the shareholders, but failed to produce the investors before the assessing officer during the course of assessment proceeding. It is submitted that once the appellant furnishes the documents to prove identity, creditworthiness and genuineness of the transaction the same cannot be denied in absence of any material contrary 6 ITA No.1427/DEL/2024 brought by the Ld.AO or by Ld. CIT(A). It may be appreciated that after perusing the documents placed on record in the Paper book, there was nothing on the part of the assessee which was to be fulfilled. 7. It is necessary to submit that the assessee company has furnished all the relevant documents before the lower authorities along with the valuation certificate as per the Rule 11UA(2) of the Income Tax Rules, 1962 and thus, the ingredients required u/s 68 of the Act i.e., identity, creditworthiness and genuineness of the transactions were fulfilled. It is also necessary to state that assessee has again filed the documents as additional evidences along with the application for admission of additional evidences before the Ld. CIT(A). Against the evidences filed, the Ld. CIT(A)appreciated the documents by accepting the same, as sated at Para 5.1, page 15 of the order, but still dismissed the appeal of assessee for the reason that assessee has failed to produce the director of investor company during the course of assessment proceeding and merely on doubts dismissed the appeal of assessee. 8. Further from the perusal of the table placed above it is relevant to note that, Rs. 5 Lacs was received from M/s RSM Construction against the share application money and share premium received by the assessee company in preceding years. (The same could be corroborated from the bank statement placed in the PB along with various documents). However, the shares were allotted by the assessee company in the relevant assessment year in concern. Hence, the investors from whom the share application money was received in preceding years, but to whom the shares were allotted in the current assessment year, their investment could not be added in the income of the assessee in the current AY. 9. In the Paper book filed before this Hon’ble Bench the assessee has furnished all the relevant documents which were furnished before the lower authorities though for some of the investors the investment was received in the preceding assessment year for which the addition cannot be made in assessment year in concern. Further as regards to the investment made by the investors during the present assessment year in concern it is necessary to explain for each investor and the relevant documents filed before the lower authorities. A list of documents which are placed in the Paper Book in order to prove the genuineness of the transaction, identity & creditworthiness of the investor are listed herein below in a tabular format. S.No Particulars 1. Copy of Certificate of Incorporation, along with MOA & AOA 2. Copy Auditor’s report, Balance Sheet and trading and profit & loss account for the relevant AY along with notes to financial statement 7 ITA No.1427/DEL/2024 3. Copy of acknowledgement of return of income along with computation of income tax for the year in concern 4. Copy of share application form. 5. Copy of confirmation of accounts. 6. Copy of bank account statement. 7. Copy of valuation report as per rule 11UA 10. It is submitted that the nature and source of credit in the books of the appellant company have been duly explained by the appellant company. The credit is in the form of receipt of share capital and share premium from the applicants. The nature of receipt towards share capital is well established from the entries passed in the respective balance sheet of the investor companies as share capital and investments. Hence, the nature of receipt is proved by the appellant beyond doubt. The investors have furnished the bank statements through which money towards subscription of the share capital in the assessee company and Ld.AO is wrong to hold that these are not having any creditworthiness. All the companies are registered companies filing their ITR regularly, with running income and business activities. The relevant documents are being filed for your kind perusal in the PB. 11. In respect of source of credit, the appellant has to prove the three necessary ingredients i.e identity of share applicants, genuineness of transactions and creditworthiness of share applicants. The identity of the share applicants is very well proved beyond doubt by the appellant by furnishing the copies of balance sheets and income tax returns etc. in the Paper Book. Apart from this, these companies are active in the MCA website i.ewww.mca.gov.in. The creditworthiness of the share applicants, these companies are having sufficient capital and reserves to make the investment in the assessee company and the same could be evident from their audited financial statements. Thus, creditworthiness of the applicants is proved beyond doubt. Since, the monies have been directly paid to the assessee company by account payee checks out of the bank balances available in their respective bank accounts, genuineness of the transactions cannot be doubted. 12. It is relevant to state that the Ld. AO has recorded that some of the documents were not filed by the assessee in relation to aforesaid investors however Ld. CIT(A) appreciated the documents but did not agree despite there was nothing brought on record contrary to these documents. It is submitted that AY 2016-17 was the first year of assessment under faceless scheme and due to technical glitches sometimes despite uploading the documents it could not reach. The IT department also found faults and so upgraded their website later and various other issues are very well known to the public. It may be appreciated that on the part of the assessee it can only submit the documents and it was the duty of the Ld. AO to make necessary efforts and enquiry if required but cannot sit idle by not accepting the documents submitted by the 8 ITA No.1427/DEL/2024 assessee. The Ld. CIT(A) also merely on doubts ignored the documents but could not bring any material contrary during the appellate proceedings. 13. In view of the above, the appellant has discharged its onus to prove the identity, creditworthiness and genuineness of the investor and thereafter the onus shifted to the income tax authorities to disprove the documents furnished by the appellant 14. Assessee has relied on the following cases delivered by Hon’ble High Courts and Supreme Court and Comparative analysis of Judgements is done for the sake of convenience. S No. Facts Efforts made by the revenue authorities Judgements relied upon by assessee in submissions filed before lower authorities or in synopsis before the Hon’ble Bench or relied by the revenue authorities. 1. Assessee filed relevant documents in support of nature and source of credit received from corporate assessees i.e., Identity, Credit worthiness and Genuineness such as MOA/AOA, PAN, ITR, Audited Accounts, Bank Statement, Share Certificates and confirmation from the creditors. Merely stated that documents filed are not sufficient and no enquiry whatsoever by the AO. Hon’ble Supreme court expressed their view that addition made cannot be sustained even if bogus shareholders as revenue is free to proceed to reopen their individual assessment CIT vs. Lovely Exports 319 ITR 5 (St), 2. Do AO issued registered letters to the investing companies. Hon’ble Supreme Court expressed their view that AO failed to carry his suspicions to a logical conclusion by further investigations as he presumed that these companies did not exist at the given address i.e., they have only paper existence and assessee had not been able to 9 ITA No.1427/DEL/2024 disclose the source of the amount received but it has to be conclusively established that a company is non- existence. CIT vs. Kamdhenu Steel and Alloys 361 ITR 220 (PB II, Pg 57-78) PCIT v Agson Global (P.) Ltd. (Delhi HC) [2022] 441 ITR 550 PCIT v Manoj Kumar Vipin Kumar (Rajasthan HC)/[2022] 441 ITR 632 PCIT V. Kautilya Monetary Services (P) Ltd. (ITA 602/2019 dated 10.07.2019) HC (Delhi) Pr. CIT vs M/s N.C. Cables Ltd. ITA No. 335/2015 (Del) 3. AO got information from the source such as investigation wing and in response to enquiry the assessee filed all the relevant documents as stated above. AO failed to conduct any enquiry and merely relied on the report of the investigation wing. 333 ITR 119 (Del) CIT vs. Oasis Hospitalities (P) Ltd 299 ITR 286 (Del) CIT vs. Divine Leasing & Finance Ltd. 330 ITR 298 (Del) CIT vs. Dwarkadhish Investment (P.) Ltd. Pr.CIT v. Laxman Industrial Resources Ltd. ITA No. 169/2017 (Del) 4. AO got the information from the source such as investigation wing or found documents provided are insufficient such as bank statements not provided or confirmation not AO made enquiry and found that companies are non-existent or after recording statement of the directors has not found sufficiently explained or brought the chain of investment from the coffers of the assessee In such circumstances, courts held that the addition has to be sustained such as by not filing the bank particulars (NR Portfolio, NRA Iron & Steel), the assessee did not cooperate in the enquiry on the basis of investigation report (Nipun Builders, M/s Nova Promoters, Seema Jain, Navodaya Castle (P) Ltd., M/s Synergy Finlease (P) 10 ITA No.1427/DEL/2024 furnished and merely documents related to identity were filed such as PAN, ITR and payment through account payee cheques. Ltd. 5. AO doubted the premium paid by the investors. Merely rejected the valuation report or valuation submitted by the assessee. PCIT v Rohtak Chain Co. (P.) Ltd. 59 [2019] 110 taxmann.com 59 (SC), PB-II Issuing share at a premium is a commercial decision and it is prerogative of Board of Directors of a company to decide premium amount and it is wisdom of shareholder whether they want to subscribe shares at such a premium or not and, ultimately, this is a mutual decision between both companies and their shareholders. 15. It is further necessary to state that on similar facts & circumstances Hon’ble ITAT, Delhi Bench in its recent decisions has deleted the addition. Copy of those orders are placed in separate Paper books which is running into 198 pages. 16. It is further submitted that Hon’ble High Court of Delhi in the case of CIT vs Victor Electrodes Ltd reported in [2012] 20 taxmann.com 680 (Delhi) has held that non-production of parties cannot be a ground for making addition, when assessee has produced corroborative evidence in support of the claim. Hon’ble High Court at para 9 of its order stated that “There was no legal obligation on the assessee to produce some director or other representative of the applicant-companies before the Assessing Officer. Therefore, failure of the assessee to produce them could not, by itself, have justified the additions made by the Assessing Officer, when the assessee had furnished documents, on the basis of which, the Assessing Officer, if he so wanted, could have summoned them for verification. No attempt was made by the Assessing Officer to summon the directors of the applicant-companies. The addresses of these companies must be available on the share applications, memorandum and articles of association and their income-tax returns. If the Assessing Officer had any doubt about identity of the share applicants, he could have summoned the directors of the applicant-companies. No such attempt was, however, made by him. Therefore, the Commissioner of Income- 11 ITA No.1427/DEL/2024 tax (Appeals) and the Income-tax Appellate Tribunal, in our view, were justified in holding that the identity of the share applicants and the genuineness of the transactions had been established by the assessee.” Therefore, it is most humbly prayed that the addition made by Ld.AO and confirmed by Ld.CIT(A) u/s 68 of the Act may kindly be deleted and the appeal of the assessee may kindly be allowed.” 8. On the other hand, ld. DR of the Revenue relied on the orders of the lower authorities and submitted that the AO found that the investor companies were not in existence. 9. Considered the rival submissions and material placed on record. I observed that during the year, assessee has issued share capital to M/s. Rishi Credit & Industries Pvt. Ltd. of 31250 shares at Rs.80 per share and M/s. Pearl Durobuild Pvt. Ltd. of 18750 shares at Rs.80 per share. With regard to shares issued to M/s. RSM Construction on 20.02.2014, the same was issued in previous assessment year. I observed that assessee has submitted all the relevant documents relating to the issue of shares and also confirmations and copies of ITR, PAN, Audit reports and bank statements in respect of shareholders. In order to verify the same, notices were issued u/s 133(6) also, however the investors were failed to appear before the AO. I observed that the assessee has submitted all the relevant documentations before the AO and also submitted the valuation of shares under Rule 11UA before the authorities. I observed that assessee has submitted the relevant valuation report placed at pages 212 to 214 of the paper book, as per which it was valued at Rs.82.52 per share. The 12 ITA No.1427/DEL/2024 authorities below has proceeded to make the addition on the basis that assessee could not bring the shareholders before the authorities below. Considering the amount involved and the assessee has submitted all the relevant documentations including valuation report before the authorities, the assessee has fulfilled the obligations under the provisions of the Act and also duly valued the shares at Rs.82.52 per share and it has issued the shares at Rs.80/- per share. Just because the investors were not brought before the authorities below, the same cannot become non-genuine. 10. In my view, capital inflow of share capital cannot be treated as income unless the tax authorities make proper enquiries and bring on record the cogent material to prove that the whole transaction is merely an accommodation entry. I observed that these investors are still running companies and submitted the relevant confirmation proves the genuineness of the transaction. Therefore, I am inclined to direct the Assessing Officer to delete the addition made u/s 68 of the Act. 11. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on this 4TH day of June, 2025. SD/- (S. RIFAUR RAHMAN) ACCOUNTANT MEMBER Dated: 04.06.2025 TS 13 ITA No.1427/DEL/2024 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals). 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "