INCOME TAX OFFICER, NEW DELHI V. VERVE CONSTRUCTION LLP, NEW DELHI

ITA 2536/DEL/2023

AI Insights

The case involves the Income Tax Officer appealing against the order of the CIT (A) which had deleted the addition made under section 68 of the Income Tax Act, 1961, concerning the assessee, Verve Construction LLP. The primary issue was the addition of Rs.69,32,10,605 to the assessee's income, which was claimed to be unexplained capital introduced by the partners. The Assessing Officer had made this addition due to the non-submission of required documents and confirmations from the partners. However, the CIT (A) found that the assessee had indeed submitted all necessary documents and that the additions were unjustified. The Tribunal, after reviewing the submissions and evidence, concurred with the CIT (A) and dismissed the Revenue's appeal.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 474581 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-11-2024
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 09-09-2024
• Assessment Year: 2018-2019
• Appeal Filed On: 06-09-2023
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAPNA BHATIA
• Assessee Lawyers: AJAY BAHETI
• Keywords: Opportunity of being heard; Unexplained cash credit; Onus to prove; Principle of natural justice; Assessment record
• Section: 143(3); 142(1); 143(2); 68; 43; 133(6)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘H’: NEW DELHI BEFORE SHRI SAKTIJIT DEY, HON’BLE VICE PRESIDENT and SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA No.2536/DEL/2023 (Assessment Year: 2018-19) Income Tax Officer, vs. Verve Construction LLP, New Delhi. Flat No.502, 502A, 5th Floor, Narain Manzil – 23, Barakhamba Road, New Delhi – 110 001. (PAN : AAPFV9685D) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Ajay Baheti, CA REVENUE BY : Ms. Sapna Bhatia, CIT DR Date of Hearing : 09.09.2024 Date of Order : 06.11.2024 ORDER PER S.RIFAUR RAHMAN,AM: 1. This appeal has been filed by the Revenue against the order of ld. Commissioner of Income-tax Appeals /National Faceless Appeal Centre (NFAC) [for short ‘the ld. CIT (A)] dated 12.07.2023 for Assessment Year 2019-19. 2. Brief facts of the case are, assessee filed its return of income for AY 2018-19 on 29.08.2018 declaring total income at Rs.nil. The return of income was processed under section 143 (1) of the Income-tax Act, 1961 2 ITA No.2536/DEL/2023 (for short ‘the Act’). The case was selected for limited scrutiny. Accordingly, notices u/s 143(2) and 142(1) were issued and served on the assessee. In response, assessee furnished explanation/details through e- portal. 3. The assessee is a Limited Liability Partnership (LLP) firm. It is engaged in real estate development. This is second year of operation and in the first year, only funds were arranged to get the property in form of capital of the partners and also loan taken from partners. During the relevant year, assessee has not carried out any development and cost incurred on purchase of land was capitalized. 4. The Assessing Officer observed that the case was selected for limited scrutiny for the reason to verify share capital/other capital. The assessee was asked to furnish details of the fund introduced by the partners in the form of capital and also loans given by them which was utilised for acquiring the property. Further, the assessee was asked to submit confirmation copy of capital accounts and loans raised by them. There was no response from the assessee and in order to verify further, the Assessing Officer issued notice u/s 133 (6) of the Act dated02.08.2021 to the partners. The Assessing Officer not received any response for the notices issued u/s 133 (6) of the Act and the same was informed to the assessee through notice u/s 142(1) dated 10.08.2021. Since there was no 3 ITA No.2536/DEL/2023 response from the assessee, the Assessing Officer discussed the implications of section 68 in his order and proceeded to make the addition u/s 68 of the Act on the fixed capital of the partners, namely, M/s. Shipra Estate Limited, Verve Homes Private Limited and Regalia Properties Private Ltd. and also current capital account of M/s. Shipra Estate Limited which has introduced capital of Rs.69,31,75,605/- during the current year. Since no response or loan confirmation from the above said partners, the Assessing Officer proceeded to make addition u/s 68 of the Act of Rs.69,32,10,605/- i.e. Rs.35,000/- of fixed capital introduced by the partner, M/s. Shipra Estate Limited and current capital of Rs.69,31,75,605/-. 5. Aggrieved with the above order, assessee preferred an appeal before the ld. CIT (A) raising several grounds of appeal and also submitted that the Assessing Officer has not given sufficient time to submit the relevant information and merely gave few days through e-portal. The assessee also filed detailed submissions before the ld. CIT (A). For the sake of clarity, it is reproduced below :- “The Appellant Firm M/s. Verve Construction LLP was incorporated on 07.02.2017 with the objects to carry on the business of real estate development. The Appellant has filed its return of Income for the A. Y.2018-19 on 29.08.2018 declaring therein loss of Rs. 1,57,835/-. The case of the Appellant was selected for limited scrutiny under CASS and a notice dated 28.09.2019 u/s 143(2) of the Act was served upon the Appellant intimating that the case has been selected for scrutiny for checking 4 ITA No.2536/DEL/2023 issues with respect to \"Stock valuation and share capital lather capital.\" The Appellant was served with various notices u/s 142(1) of the Income Tax Act and it furnished required details as enquired in the notices through e-proceeding. However, the assessee was served with a show cause notice dated 21.09.2021 whereby a short date of compliance of mere 2 days was fixed since the proceedings have been initiated in an online mode, the said show-cause notice went unnoticed and the Appellant got to know about the notice only on 23.09.2021 that was the date of compliance fixed, the Appellant immediately filed an application for adjournment seeking three days to furnish response. However, Ld. AO without affording an effective opportunity of being heard went ahead in making an addition ofRs.69,32,10,310/- u/s 68 of the Income Tax Act, 1961 read with section 115BBE of the Act and passed the assessment order on 24.09.2021. The addition has been made of the entire capital Induction by the partners of the Appellant Namely M/s. Shipra Estate Ltd. Rs.69,31,75,605/-, M/s. Verve Homes (P) Ltd. Rs.8,000/- and Regalia Properties (P) Ltd. Rs.27,000/- aggregating Rs.69,32,10,605/- on the ground that the Appellant has not fulfilled the condition laid down u/s 680f the Act by not furnishing the requisite documents as asked for. Paper Book containing all the documents (pages 1 to 348) filed by the Appellant during the assessment proceedings has been filed before National Faceless Appeal Centre on 16.07.2022. Acknowledgement of the same are enclosed as Annexure - 1 to this written submission. It is respectfully submitted that the assessment order so passed is against facts of the case and is made ignoring the documents submitted by the Appellant and thus bad in law. Detailed arguments/explanations in support of various Grounds of Appeal are as follow: First Ground of Appeal 5 ITA No.2536/DEL/2023 \"That the order passed u/s 143(3) read with section 144B of the Income Tax Act, 1961 is bad in the eyes of law and on facts\" The action of Ld. AO is legally untenable as all the necessary documents comprising copies of Income Tax Returns, bank statements, confirmed copies of accounts, proof of payments of capital introduced by the three partners of the Appellant LLP aggregating Rs.69,32,10,605/- were furnished by the Appellant vide replies filed on 25.01.2021 and 08.09.2021. The Ld. AO had very conveniently ignored the aforementioned reply submitted on 25.01.2021 and made the additions. The reply submitted alongwith its acknowledgement of submission on 25.01.2021 is placed at Pages 15 to 164 of the Paper Book. Second, Third and Fourth Grounds of Appeal \"On the facts and circumstances of the case the Ld. AO erred on facts and in law in making an addition of Rs.69,31,75,605/- u/s 68 of the Act on account of capital contribution received from M/s. Shipra Estates Ltd by treating it to be an unexplained credit\" “On the facts and circumstances of the case the Ld. AO erred on facts and in law in making an addition of Rs.8,000/- u/s 68 of the Act with respect to capital contribution of M/s. Verve Homes Pvt. Ltd.\" \"On the facts and circumstances of the case the Ld. AO erred on facts and in law in making an addition of Rs.27,000/- u/s 68 of the Act with respect to capita/contribution of M/s. Regalia Homes Pvt. Ltd.\" While making the addition of Rs.69,32,10,605/- (total of Rs.69,31,75,605/-, Rs.8,000/- and Rs.27,000/-), the Ld. AO has made the following observations in the impugned assessment order: \"5.10 Now coming to the case of the assessee, it is clear that assessee has failed in following respect: (i) In furnishing confirmation copy of the loan/capital and bank statement. Thus failing to establish genuineness of transaction in 6 ITA No.2536/DEL/2023 reflecting the amounts in bank statement of the assessee and money advancing party. Non-furnishing of confirmed copy of capital and loan even leads to genuine doubts about credit worthiness of claim of the assessee. . . 5.11 In view of the foregoing discussion, claim of assessee that it has got capital from partners and loan which it used to acquire plot of land to be developed is denied and amount is added u/s 68 of the Act as cash credit.” It is respectfully submitted that the very basis of making addition is erroneous and not based on the facts with the Ld. AO. The Appellant has furnished all the relevant details as mentioned below to not only establish the partners' identity but also confirmation of investment made by them, copies of their financial statements, bank statements and sources for making the investment. 1. Relating to investment by Shipra Estate Limited: S.No. Particulars Date of filing with ld.AO Page Nos. in the Paper Book 1 Income Tax Return for A.Y. 2018-19 25.01.2021 24 2. Income Tax Return for A.Y. 2017-18 08.09.2021 246-248 3. Income Tax Return for A.Y. 2016-17 08.09.2021 212-214 4. Audited financial statement for the year ended 31.03.2018 25.01.2021 25-62 5. Audited financial statement for the year ended 31.03.2017 08.09.2021 249-286 6. Audited financial statement for the year ended 31.03.2016 08.09.2021 215-245 7. Balance confirmation for year ended 31.3.2018 25.01.2021 159, 162 It is further submitted that the Appellant not only provided all the details as mentioned above but has also discharged its responsibility to provide the details of source of source from where Shipra Estate Limited has raised the funds for making investment in the capital of the Appellant. Papers placed at Pages 90-92 and 94-96 in the Paper Book are the copies of HDFC Bank statement and India Bulls Loan Statement reflecting the loans obtained by the partner for investing in the capital of the Appellant. 7 ITA No.2536/DEL/2023 It is further submitted that perusal of the financial statements of Shipra Estate Limited filed with the Ld. AO during the assessment proceeding reveal the following facts: S.No. Particulars As on 31.3.2016 Rs. in crores As on 31.3.2017 Rs. in crores As on 31.3.2018 Rs. in crores 1 Taxable income for the year 6.97 8.32 9.45 2 Balance sheet size of the company 1,449.92 1,856.83 2,268.52 3 Net worth of the company 480.06 481.79 488.12 The above data establishes that the company had sufficient funds for making an investment of Rs. 64.35 Crores in the Applicant company which is only one of their new projects for township development, the main activities of the Shipra Group of companies. 2. Relating to Verve Homes Private Limited: S.No. Particulars Date of filing with ld.AO Page Nos. in the Paper Book 1 Income Tax Return for A.Y. 2018-19 25.01.2021 63-64 2 Income Tax Return for A.Y. 2017-18 08.09.2021 326, 327 3 Income Tax Return for A.Y. 2016-17 08.09.2021 314, 315 4 Audited financial statement for the year ended 31.3.2018 25.01.2021 65-72 5 Audited financial statement for the year ended 31.3.2017 08.09.2021 328-341 6 Audited financial statement for the year ended 31.3.2016 08.09.2021 316-325 7 Balance confirmation for year ended 31.3.2018 25.01.2021 161,164 3. Relating to Regalia Homes Private Limited S.No. Particulars Date of filing with ld.AO Page Nos. in the Paper Book 1 Income Tax Return for A.Y. 2018-19 25.01.2021 53, 54 2 Income Tax Return for A.Y. 2017-18 08.09.2021 299, 300 8 ITA No.2536/DEL/2023 3 Income Tax Return for A.Y. 2016-17 08.09.2021 287, 288 4 Audited financial statement for the year ended 31.3.2018 25.01.2021 55-62 5 Audited financial statement for the year ended 31.3.2017 08.09.2021 301-313 6 Audited financial statement for the year ended 31.3.2016 08.09.2021 289-298 7 Balance confirmation for year ended 31.3.2018 25.01.2021 160, 163 4. Relating to Verve Construction LLP (The appellant) : S.No. Particulars Date of filing with ld.AO Page Nos. in the Paper Book 1 Audited financial statement for the year ended 31.3.2018 10.01.2020 3-6 2 Bank statement for the year ended 31.3.2018 25.01.2021 156-158 3 Cash Book for the financial year 2017-18 08.09.2021 343 4 Bank book for the financial year 2017-18 08.09.2021 344-346 It is humbly submitted that the Appellant has discharged its responsibility of establishing the identity of the investors, provided details and confirmations of the investments made and provided sufficient documentary evidences proving the creditworthiness of the investors. Application of section 68 by the Ld. AO was unwarranted, legally untenable and therefore, addition of Rs.69,32,10,605/- deserves to be deleted. Fifth Ground of Appeal \"On the facts and circumstances of the case the instant order is passed against the principles of natural justice as the assessee has not been afforded with an effective opportunity of being heard\". Para 5.3 of the assessment order states that the case was transferred internally on 18.06.2021 and subsequently notice was issued to the appellant on 26.07.2021. The appellant had provided further details specifically asked for in the notice in the reply dated 08.09.2021. It is pertinent to note that there was no mention of such internal transfer of the case in the aforementioned notice dated 26.07.2021. Annexure to the notice begins with: \"Please refer your submission dated 10.01.2020 and 25.01.2021.\" and then 9 ITA No.2536/DEL/2023 asks for specific information based on the details submitted therein. Hence, the appellant had no reason to re-submit the evidences already submitted vide replies dated 10.01.2020 and 25.01.2021. However, from the assessment order, it is clear that the evidences placed on record in the reply dated 25.01.2021 were not considered by the Ld. AO when pronouncing the order. We further wish to highlight that the appellant was never asked to re- submit the evidences submitted to the earlier Ld. AO before the case was internally so transferred. In fact, Ld. AO has acknowledged in the order that he has not perused the reply submitted on 25.01.2021 by making no mention of it in the order and acknowledging that there might be some lapses on account of internal transfer. Therefore, it would be against the principles of natural justice if the evidences submitted by the appellant are not considered and the appellant is penalised for no fault. Moreover, the impugned assessment order has been passed clearly disregarding the principles of natural justice as the assessee has not been afforded with an effective opportunity of being heard in spite of request made by the Appellant for a short adjournment of three days and there was sufficient time available for the Ld. AO to pass the assessment order. Copy of the request for adjournment filed on 23.09.2022 is placed at Pages 347 to 348 of the Paper Book.” 6. After considering the details submissions of the assessee, ld. CIT (A) deleted the addition by observing as under :- “1. From the submission and the documents, it is seen that the Appellant has filed the Income Tax Return for AY 2016-17, AY 2017-18 and AY 2018-19, audited financial statements for the year ended 31/03/2016, 31/03/2-017 and 31/03/2018, balance confirmation or FY 2017-18 for all the partners. The appellant has also provided the copies of Bank Statements from HDFC Bank and India bulls Loan Statements reflecting the loan obtained by Shipra Estate Limited for investing in the Capital of the Appellant. 10 ITA No.2536/DEL/2023 1. From the confirmation of Account filed by Shipra Estate Limited, it is seen that the amount of Rs.64,35,07,800/- is credited to the current Account of the partner for the Land Acquired from Noida Authority - Sector 43 and introduced by the partner in the LLP Account and Appearing as the part of the inventory as on 31/03/2018 in the financials statements. 1. It is further submitted that perusal of the financial statements of Shipra Estate Limited filed with the Ld. AO during the assessment proceedings reveal the following facts: S.No. Particulars As on 31.3.2016 Rs. in crores As on 31.3.2017 Rs. in crores As on 31.3.2018 Rs. in crores 1 Taxable income for the year 6.97 8.32 9.45 2 Balance sheet size of the company 1,449.92 1,856.83 2,268.52 3 Net worth of the company 480.06 481.79 488.13 The above data establishes that the company had sufficient funds for making an investment of Rs. 64.35 Crores in the Applicant company which is only one of their new projects for township development, the main activities of the Shipra Group of companies. 1. The other amount of Rs35,000 introduced by Verve Homes P Ltd and Regalia Properties P Ltd also meets the criteria of identity creditworthiness and genuineness. Moreover the amount involved is too small to merit an elaborate discussion. 1. The addition made by AO u/s 68 is largely the result of ignoring submissions made by the appellant on 25/01/2021 and 08/09/2021 and consequent inability to understand the nature of transaction between the appellant and its partners. A possible reason could be internal shuffling as the case was assigned to this unit on 18/06/2021. A fresh notice was issued on 26/07/2021. However AO was aware of submissions made on 25/01/2021 as the annexure to fresh notice mentions it but chose to ignore it altogether for reasons best known to him. 1. From the above perusal of submissions and documents, the Appellant has discharged the onus to prove identity of the partners, capacity of partners to advance Capital/Loan and 11 ITA No.2536/DEL/2023 genuineness of the transactions of credits to the capital Account and, therefore, in my view, is out of preview of section 68 of the Income Tax Act. As a result, appeal is allowed for Ground No.2, 3 and 4 of the grounds of appeal. AO is directed to delete the addition made u/s 68 rws 115BBE of the IT Act 1961.” 7. Aggrieved with the above order, Revenue is in appeal before us raising following grounds of appeal :- “1. On the facts-and circumstances of the case the Ld CIT(A) erred in deleting the addition of Rs.69,32,10,605/- made u/s 68 of the Income Tax Act, 1961. 2. On the facts and circumstances of the case, the Ld. CIT(A) erred in deleting the additions u/s 68 made by the AO, stating that the submission of the assessee has not been considered by AO. It is observed from assessment records that the submission of the assessee vide dated 25.01.2021 & 08/09/2021 were duly considered by the AO on merits and the same were not found in accordance with Law. Primary onus lies upon the assessee fulfill the conditions with respect to section 68 of Income Tax Act, However, the assessee has failed to do so. Moreover, the partners have also not confirmed the capital introduced by them amounting to Rs.69,31,75,605/- in compliance of notices u/s 133(6) of income tax Act. 3. On the facts and circumstances of the case the Ld. CIT (A) erred in not appreciating the true nature of transaction including creditworthiness and genuineness and the examination of source of amount of Rs.69,31,75,605/-, the details of which have not been produced before the AO, during assessment proceedings. 4. On the facts and circumstances of case the CIT(A) order, is arbitrary, unwarranted without merit and is bad in law.” 12 ITA No.2536/DEL/2023 8. At the time of hearing, ld. DR brought to our notice page 16 of the appellate order and submitted that ld. CIT (A) has discussed the provisions of section 68 in his order and submissions made by the assessee was accepted by him. The assessee submitted before him that Assessing Officer has ignored the replies dated 25.01.2021 and 08.09.2021 during the assessment proceedings and also submitted that Assessing Officer has not understood the nature of transaction between M/s. Shipra Estate Limited and the assessee. He brought to our notice details submitted by the assessee during two occasions and also facts brought on record by the assessee. Further, he submitted that assessee has stated that there is no requirement of issue of notice u/s 133 (6) because all the information could be verified through the bank statements submitted by the assessee and NOIDA authorities. He submitted that ld. CIT(A) has accepted the above submissions and observed that all the transactions are routed through bank account and payment of Rs.5 crores was also through bank which was utilised to pay to NOIDA authority. He also brought to our notice the discussion of allotment of Housing Plot No.GH-1, Sector 43, Noida through tender system. He objected to the findings of ld. CIT (A) who merely accepted the submissions of the assessee. In this regard, he brought to our notice page 3 of the assessment order wherein the Assessing Officer has given several opportunities to the 13 ITA No.2536/DEL/2023 assessee and assessee has not responded to the notices issued by the Assessing Officer. He relied on the findings of the Assessing Officer and submitted that the relief granted by the ld. CIT(A) is not justified. 9. On the other hand, ld. AR for the assessee brought to our notice detailed findings of ld. CIT (A) and he brought to our notice page 21 of the appellate order and submitted that all the relevant informations were filed before the Assessing Officer and proof of submissions of above before the Assessing Officer was submitted before the ld. CIT (A). Further, he brought to our notice page 57 of the paper book which is the proof of submission of letter dated 25.01.2021 before the Assessing Officer. He prayed that the Assessing Officer has made addition without giving proper opportunity to the assessee and he relied on the findings of ld. CIT(A) who has appreciated the total facts on record and prayed that the appeal filed by the Revenue may be dismissed. 10. Considered the rival submissions and material placed on record. We observed that assessee has established real estate business in order to buy a large chunk of land from NOIDA authorities. The partners consist of M/s. Shipra Estate Limited, Verve Homes Private Limited and Regalia Properties Private Ltd.. The partners Verve Homes Private Limited and Regalia Properties Private Ltd. have only introduced fixed capital whereas M/s. Shipra Estate Limited has participated in the winning bid 14 ITA No.2536/DEL/2023 from NOIDA authorities and introduced the land with the partnership firm for further exploitation of business opportunity and it has paid statutory payment to NOIDA authorities of Rs.5 crores and all these payments were routed through banking channel. No doubt, the assessment was selected for limited scrutiny and the Assessing Officer issued several notices through e-portal and due to non-submission of details, the Assessing Officer proceeded to make the additions u/s 68 of the Act. However, it is brought to our notice that assessee has submitted the relevant information on 25.01.2021 and it has filed the proof of submission of the above details before the Assessing Officer in the paper book. The same was appreciated by the ld. CIT (A) and no additional information was submitted by the assessee before the ld. CIT (A). Ld. CIT (A) considered all the informations already available during the assessment proceedings and gave a detailed findings that the transactions carried on by the assessee and its partners are genuine and whatever transactions carried on by the assessee with its partners are only through book entry and through bank. Therefore, he has not found any discrepancies in the submission made by the assessee and Assessing Officer has merely proceeded to make the addition over-looking the letter containing important information submitted by the assessee. After appreciating the overall facts on record, we do not see any reason to 15 ITA No.2536/DEL/2023 disturb the findings of ld. CIT (A). Accordingly, ld. CIT (A) having co- terminus power to do the assessment with having enhancement power, he has appreciated the facts properly on record and has given relief to the assessee. Therefore, we are inclined to dismiss the grounds raised by the Revenue. 11. In the result, the appeal filed by the Revenue is dismissed. Order pronounced in the open court on this 6th day of November, 2024. Sd/- sd/- (SAKTIJIT DEY) (S.RIFAUR RAHMAN) VICE PRESIDENT ACCOUNTANT MEMBER Dated: 06.11.2024 TS Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals). 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "