M/S BLOOMS REALATORS & HOSPITALITY PVT. LTD.,LUCKNOW V. INCOME TAX OFFICER-1(4), LUCKNOW

ITA 586/LKW/2015

AI Insights

The case involves M/s Blooms Realators & Hospitality Pvt. Ltd., which appealed against the orders of the CIT(A) and the Assessing Officer regarding the addition of Rs. 4 Crores under Section 68 of the Income Tax Act, 1961, for the Assessment Year 2010-11. The addition was made on the grounds that the share capital received from nine Kolkata-based companies was unexplained and constituted accommodation entries. The Assessing Officer and CIT(A) found that the assessee failed to establish the identity, creditworthiness, and genuineness of the transactions. The Income Tax Appellate Tribunal (ITAT) partly allowed the appeal, restoring the matter to the Assessing Officer for further examination and providing the assessee an opportunity to rebut the findings.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 790089 (ITAT-LUCKNOW)
• Duration Of Justice: 10 year(s) 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: misc
• Appeal Filed On: 01-09-2015
• Other Referred Cases: CIT vs. Precision Finance Limited, CIT vs. Nipun Builders and Developers (Pvt.) Ltd., CIT vs. N.R. Portfolio Pvt. Ltd., CIT vs. Nova Promoters & Finlease (P.) Ltd., CIT vs. MAF Academy (P.) Ltd., CIT vs. Focus Exports (P.) Ltd., CIT vs. N. Tarika Properties Investment (P. Ltd., CIT vs. Navodaya Castles (P.) Ltd., Bharti Private Limited vs. CIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R.K. AGARWAL
• Assessee Lawyers: RAKESH GARG; PROVIDING ACCOMMODATION ENTRIES; SUBMITTING THEIR PANS; CERTIFICATE OF INCORPORATION; BANK STATEMENT
• Keywords: Unexplained cash credit; Onus to prove; Accommodation entries; Bogus Share capital; Bogus
• Section: 143(3); 68; 131; 133(6)

Judgement Text

"1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW ‘B’ BENCH, LUCKNOW BEFORE SH. KUL BHARAT, VICE PRESIDENT AND SH. NIKHIL CHOUDHARY, ACCOUNTANT MEMBER ITA No.586/LKW/2015 A.Y. 2010-11 M/s Blooms Realators & Hospitality Pvt. Ltd, B-1/66, Vivek Khand, Gomti Nagar, Lucknow vs. Income Tax Officer, 1-(4), Lucknow PAN: AADCB6111H (Appellant) (Respondent) Assessee by: Sh. Rakesh Garg, Advocate Revenue by: Sh. R.K. Agarwal, CIT DR Date of hearing: 28.08.2025 Date of pronouncement: 26.11.2025 O R D E R PER NIKHIL CHOUDHARY, A.M.: This is an appeal filed by the assessee against the orders of the ld. CIT(A)- Lucknow dated 30.03.2015, wherein the ld. CIT(A) has dismissed the appeal of the assessee against the orders of the Assessing Officer under section 143(3) for the A.Y. 2010-11 passed on 30.03.2013. The grounds of appeal are as under: - “1. Because the findings recorded by the learned Commissioner of Income Tax (Appeals) that the asasesse has failed to discharge the onus to establish the identity, credit worthiness of share holder company and genuineness of the transaction are wholly perverse finding. 2. Because the assessee during the assessment proceeding as well as before the Commissioner of Income Tax (Appeals) has filed the documents share application form, certificate of incorporation, acknowledgement of ITR, bank statements and copies of PAN Card of share holders company. These documents are sufficient to establish the identity, credit worthiness and genuineness of the transaction. 3. Because it is well settled law that a person, making investment in share capital is best judge regarding his investment. The 9 share holder companies on their own have made investment in the appellant company. The wrong decision of the investor cannot be a basis for making addition u/s 68 of the Income Tax Act. Printed from counselvise.com ITA No.586/LKW/2015 M/s Blooms Realators & Hospitality Pvt. Ltd. A.Y. 2010-11 2 4. Because the Apex Court had repeatedly held that if the share application money is received by a company from alleged bogus share holders whose names are available with the assessing officer and Income tax department then the department has to proceed against the share holders in accordance with law and this amount cannot be added under section 68 of the Income Tax Act. 5. Because the company was incorporated in 2008. The share application money was received by the company in 2009-2010. The said share application money was received by 9 share holder companies. This amount cannot be clubbed in the hand of the assessee company. If the department is of the view that the said amount was channelized by someone, it is open for the department to add the said amount as income in the hand of the person who has channelized the amount and in no case the said amount be added in the hand of the assessee company under section 68 of the Income Tax Act. 6. Because the Assessing Officer as well as the Appellate Authority has relied upon on the alleged spot enquiry conducted by Inspector of Income Tax but the said enquiry report has not at all been provided to the assessee thus the said enquiry report cannot be a basis for making addition in the hand of assessee. 7. Because all the 9 share holder companies are incorporated under the provisions of Companies Act, 1956. There records are available with the Registrar of the company. All the companies are assessee with the income Tax department. All the share holder companies are complying with their legal obligations under the Companies Act, 1956 as well as under the provisions of Income Tax, thus the findings recorded by the authorities below that the share holder companies are paper companies are perverse finding. 8. Because the application for allotment of share was made by the company. Under the companies Act, the assessee is not under any legal obligation to have the details of promoters of share holder companies. The share holders are the companies and not the Promoter or Director thus the findings recorded by the authorities below that the assessee has no information regarding the promoters or directors of the share holder companies are perverse and based on no evidence. 9. Because the addition of Rs. 4 cores under Section 68 of the Income Tax Act is wholly illegal and is liable to be deleted. 10. Because the provisions of Sections 68 of the Income Tax Act are not application in case of share holding. 11. Because of the findings of the authorities below are perverse and based on no evidence.” 2. The facts of the case are that the assessee e-filed its return of income at Nil on 19.09.2010. The case was selected for scrutiny for the reason of substantial increase in share capital during the financial year in question. The ld. AO, on examination found that the total share capital of the assessee on 31.03.2009 was Rs. 3,50,00,000/- and on 31.03.2010, the total paid up capital had increased to Rs. 7,50,00,000/-. A sum of Rs. 4 Crores had been paid up through subscription of equity shares by nine companies and 400,000 shares were issued to them at face Printed from counselvise.com ITA No.586/LKW/2015 M/s Blooms Realators & Hospitality Pvt. Ltd. A.Y. 2010-11 3 value of Rs. 100/- each, during the year under consideration. The assessee submitted before the AO that the entire money for the allotment of shares had been received either by account payee cheque or by draft or by RTGS from the subscribers and it also submitted copies of share applications alongwith certification of incorporation of these nine companies which had subscribed to the shares of the assessee company. By virtue of these submissions, the assessee claimed that the identity of the shareholders as well as the genuineness of the transactions had been fully established. On consideration of this reply, the ld. AO observed that while the registered office and place of business of the assessee company was in Lucknow, but the alleged shares of the company had been subscribed by nine Kolkata based companies. He noted that out of the nine alleged shareholders, eight of the shareholders were financial investment companies based out of Kolkata. He observed that all these alleged shareholder companies had not done any business activities, were interrelated to each other and held bank accounts in the same bank. He further noted that the money deposited in the bank accounts of these companies was routed the very next day to the assessee company through RTGS cheques and this modus operandi suggested that these alleged shareholder companies were operating as conduits for persons to channelize their illegal money into legal capital. His belief regarding the money laundering was reinforced by the information received from ROC, Kanpur which suggested that in the next financial year, all these alleged shareholders had transferred their shares to other Kolkata based companies within six months. The ld. AO, thereafter issued notices under section 133(6) to the companies to whom these shares had been transferred but did not receive replies to any of his notices. From the same, he came to the conclusion that the shareholder companies were non-existent paper companies and the identities of such subscribers were not proved by the assessee company. However, he initiated a series of enquiries to ascertain, identity, capacity, source, creditworthiness and genuineness of the transactions by issue of notices under section 133(6) to the companies, bank authorities and a commission under section 131(1)(d) to officers of the Printed from counselvise.com ITA No.586/LKW/2015 M/s Blooms Realators & Hospitality Pvt. Ltd. A.Y. 2010-11 4 Investigation Wing at New Delhi and Kolkata for making of enquiries about the alleged shareholders. The ld. AO records that in response to the notices issued by him under section 133(6), only two the shareholding companies namely; i. M/s Jayashree Fiscal Services Pvt. Ltd and ii. Balaji Indofin Limited had complied by sending a partial reply. The notice sent to M/s Zeus Vinimay Pvt. Ltd., returned back with the remark, ‘unserved’; the notice under section 131 issued to M/s Subroto Trading and Finance Co. Ltd., by the DDIT, Investigation, Delhi was returned back with the remark, ‘refused’ and when the Inspector visited the premises, he found that no such company existed at the given address. Subsequently, the AO discovered from the MCA data that this company was also a Kolkata based company. Enquiries had also been entrusted to the Investigation Wing of Kolkata and notices under section 131 were issued to all the alleged share holder companies. Field enquiries were conducted through Income tax Inspectors and in response to the commissions sent, the officers of the Investigation Wing at Kolkata reported back that notices issued to five of the parties had returned unserved and, on the spot, enquiry had revealed that none of those companies had existed at the given address. From the above, the ld. DDIT concluded that all the shareholding companies were in fact non-existent companies and their identity could not be established. The ld. AO confronted the assessee company with the above facts and records that no compliance was made. The ld. AO also noted that during the course of assessment proceedings, the assessee company had not provided the names and addresses of the Directors/promoters of these shareholding companies so as to prove the identity or the real character of the credits. He also concluded that the transactions were coloured on account of the fact that they were all carried out on the same two days. He noted that the shareholding companies had not done any business activities during the year or in earlier years and did not have sufficient funds but had made investments in shares of lacs of rupees. There were huge inflow and outflow of funds through banking channels without any sufficient opening of closing balance. He referred to the decision of the Hon’ble Kolkata High Court in the case of CIT vs. Precision Finance Printed from counselvise.com ITA No.586/LKW/2015 M/s Blooms Realators & Hospitality Pvt. Ltd. A.Y. 2010-11 5 Limited (1994) 208 ITR 465 (Cal.) to submit that it was not sufficient for the assessee to state that credits in their books had been received through banking channels; the identity as well as the creditworthiness of the creditor must also be proved. The ld. AO pointed out that the assessee was a closely held private companies in which the public was not substantially interested. Therefore, as per section 68, the onus was upon the assessee to establish the subscriber’s identity, its creditworthiness and the genuineness of the transaction. But these had not been established. With respect to the other company, the ld. AO noted that they had not responded to the notices issued by him under section 133(6) of the Act or by the Investigation Wing under section 131 of the Act. From the same, he came to the conclusion that those companies were also non-existent and had only been utilized by the assessee to channelize its an accounted money by the assessee by providing accommodation entries. 3. The ld. AO, thereafter discussed the details of the assessee company and its Directors. He pointed out that the Directors had no real experience in the real estate business and neither had capital and yet had managed to raise capital of Rs. 3.5 Crores in the first year and Rs. 4 Crores in the year under consideration. He noted that all the shares have been subscribed by nine Kolkata based companies on a single day and the assessee had not been able to file any documentary evidence to show how its characters were able to reach out to and invite the nine companies to subscribe to shares on a single day of transaction. He noted that the documents filed by the assessee did not prove that these companies were genuine companies. The companies had been incorporated 18 to 20 years back but were not doing any business activities during the year under consideration. Only interest income on FDRs were reflected in some accounts. The ld. AO also noted that the bank accounts of these companies had no substantial opening or closing balance but high inflow or outflow of funds and from all these, he concluded that these transactions of share application money were in fact accommodation entries arranged by the assessee through these companies. The ld. AO thereafter Printed from counselvise.com ITA No.586/LKW/2015 M/s Blooms Realators & Hospitality Pvt. Ltd. A.Y. 2010-11 6 proceeded to analyze the transaction as they occurred in the bank accounts of each of the individual companies. He observed a general pattern in the accounts of all these companies that for every credit entry of high value, there was a corresponding debit entry on either the same day or the very next day done by the alleged shareholding company and opined that this was suggestive of the fact that the accounts of that company were only being used for the routine of accommodation entries. The ld. AO also noted that just prior to the transfer of funds to the assessee company, funds were brought into the bank accounts of the shareholding companies of an equivalent amount that was later paid to the assessee company. He further noted a co-incidence that in the case of all these companies, the funds had been brought in on the same days and immediately thereafter transferred to the assessee company. Thereafter, the ld. AO after relying upon the judgment of the Hon’ble Delhi High Court in the case of CIT vs. Nipun Builders and Developers (Pvt.) Ltd. in ITA No. 120 of 2012 dated 7.01.2013, the judgment of the ITAT Indore in the case of Gagan Industries P. Ltd. vs. ITO,5(1) and the judgments of the various Hon’ble High Courts in the cases of M/s Rathi Finlease Limited (2015) CTR 429, CIT vs. Sophia Finance Limited 205 ITR 98 (Del), CIT vs. Precision Finance Limited (1994) 208 ITR 465 Kolkata, Bharti Private Limited vs. CIT, (1978) 111 ITR 951 (Kolkata) and ITAT Indore in the matter of Vaibhav Cotton P. Ltd. vs. ITO, 4(4), held that all these judgments pointed to the fact that the assessee as a closely held company could not take shelter under these Hon’ble Supreme Court decision in the case of M/s Lovely Exports and had to establish the identity and genuineness of the alleged shareholder companies. Since, the assessee had not been able to establish the identity and genuineness of these companies, the amount subscribed as share capital was unexplained and fit to be added back under section 68 in the hands of the assessee company. Accordingly, the ld. AO made an addition of Rs. 4 Crores to the income of the assessee and on this account, initiated penalty proceedings under section 271(1)(c). 4. Aggrieved with the said assessment order, the assessee filed an appeal with the ld. CIT(A)-1, Lucknow.During the appeal proceedings, it was submitted Printed from counselvise.com ITA No.586/LKW/2015 M/s Blooms Realators & Hospitality Pvt. Ltd. A.Y. 2010-11 7 that the assessee was a Private Limited Company engaged in the business of Real Estate. During the assessment year in question, it had not done any business and its return was filed at nil income. The assessee company had allotted 400,000 equity shares of Rs. 100/- each to nine Private Limited Companies which had applied for allotment of shares through applications duly signed by the Directors / Authorized signatories and the amounts subscribed were transferred to the assessee company through banking channels. Subsequently, the shares have been allotted to them in the manner provided under the Companies Act, 1956. It was submitted that in response to the notices and queries made by the AO, the assessee company had submitted detailed replies alongwith documentary evidences but the AO had not considered the replies, or the legal submissions made by the assessee and arbitrarily made an addition of Rs. 4 Crores under section 68 of the Act. It was submitted that the share application form, the certificate of incorporation, acknowledgment of ITR of shareholder companies and bank statements of seven companies were furnished by the assessee and the banks in response to the notices under section 133(6). It was further submitted that two of the shareholders M/s Jayashree Fiscal Services Pvt. Ltd and M/s Balaji Indofin Limited had furnished copies of their balance-sheets, audit report and profit and loss account etc,. Thus, it was submitted that the assessee had discharged the initial onus placed upon it and now the onus was on the Department to get confirmation from the shareholders whose identity had been established by the assessee by submitting their PANs, certificate of incorporation, bank statement and copy of acknowledgment of ITR. It was further submitted that once the identity of the shareholding companies were established, the Department was free to proceed to reopen the assessment of the shareholders in accordance with law but the addition could not be made in the hands of the assessee company. It was further submitted that the report of the Inspectors dated 20.03.2013 had not been made available to the assessee before the passing of the assessment order. Further, in the report, it was nowhere stated that the shareholding companies did not exist at the given addresses. It was, therefore, submitted that the said report could not Printed from counselvise.com ITA No.586/LKW/2015 M/s Blooms Realators & Hospitality Pvt. Ltd. A.Y. 2010-11 8 be made the basis for making an addition of Rs. 4 Crores under section 68 of the Act. The ld. CIT(A) considered these submissions and observed that the assessee company had been incorporated on 12.11.2008 at Lucknow. Its Directors had disclosed meagre incomes in their returns and did not have any experience in real estate business. Even then, they had managed to raise share capital of Rs. 3.5 Crores in the year of incorporation and Rs. 4 Crores in the next year from companies that were based at Kolkata. The ld. CIT(A) noted that the assessee was a Private Limited Company and the shares have been allotted by it through private placement and not public issue. Even then, the company had failed to explain how it came into contact with nine shareholding companies based at Kolkata. The ld. CIT(A) observed that on enquiries conducted by the Investigation Wing at Delhi and Kolkata, none of these companies were found to be existing or operating from the given addresses. He further noted that all these shareholding companies had been incorporated in the period 1993 to 1996 and had bank accounts in the same banks and paid the share application money on the same dates. He further noted that the declared income of most of these companies was in the range of the few thousand rupees and the companies were therefore, not doing any business. Perusal of their bank statement revealed that they had very low opening or closing balance in the account. However, there was huge inflow and outflow of funds amounting to crores of rupees in their accounts and the credits were transferred in favour of various parties on the next day of the deposit. The ld. CIT(A) also noted that within six months of allotment, these nine Kolkata based shareholding companies had transferred the shares to Delhi and Lucknow based companies who also did not respond to notices under section 133(6). He went on to note that the companies based at Lucknow and Delhi to whom the shares were subsequently transferred had the same Directors as the assessee company i.e. all the transferee companies were group companies floated by the Directors of the assessee company and even they had not responded to the notices under section 133(6). The ld. CIT(A) noted that as usual business practice, investment of share capital was made by shareholders either with an intention to earn dividend or to earn Printed from counselvise.com ITA No.586/LKW/2015 M/s Blooms Realators & Hospitality Pvt. Ltd. A.Y. 2010-11 9 profit by selling the shares at higher prices but in the present case, without any plausible explanation, the transfer of shares had taken place to companies owned by the Directors of the assessee company at face value. The ld. CIT(A) also pointed out that the assets of the assessee company had been attached by the Enforcement Directorate / CBI on account of the fact that funds syphoned off from the State Government had been routed through it. The ld. CIT(A) also noted that the ld. AO had faced problems in serving the notices on the assessee because the premises of the assessee company had been found to be locked and therefore, these notices had to be sent to the Banda address of the Directors. He noted that evasive nature of the replies filed by the assessee company and the fact that the AO had to obtain the information from different sources. He also noted that the assessee had given addresses in the Auditor’s report, bank account etc,. but information obtained from the Lucknow Development Authority shows that the premises claimed as its address in Lucknow actually belong to Sh. P.C. Joshi and Smt. Devika Joshi and the assessee had no office there. 5. The ld. CIT(A), thereafter, considered the decision of the Hon’ble Delhi High Court in the case of CIT vs. N.R. Portfolio Pvt. Ltd. (2014) 222 taxman 137 (Delhi) wherein the Hon’ble Delhi High Court had held that the identification of the person would not take place only on producing the PAN numbers or assessment particulars but included the place of work, staff, the fact that it was actually carrying on a business and the recognition of the said company in the eyes of the public. On the issue of creditworthiness and genuineness, the Hon’ble High Court had held that money routed through banking channels did not reflect the creditworthiness or even genuineness of the transaction because the beneficiaries had not been given any share dividend or interest and the profit motive normal in case of investment was entirely absent. On the issue of return of notices to parties, the Hon’ble High Court observed that identities had only been proved on paper in the form of neutral documents like PAN number, ITR, Registrar of company’s registration but without any details as to actual business activities undertaken by Printed from counselvise.com ITA No.586/LKW/2015 M/s Blooms Realators & Hospitality Pvt. Ltd. A.Y. 2010-11 10 these companies or why the companies had made investment in a private limited company. This coupled with the fact that there was cash deposits in their bank accounts and withdrawals were highlighted. The Hon’ble High Court observed that in the case of Private Limited companies, generally it was persons who were known to the Directors of shareholders that buy and subscribe shares and upon receipt of monies, the share subscribers do not lose touch and become incommunicado because the relationship was a continued one. Therefore, the assessee could not remain quiet if the shareholders did not respond to notices from the Department and the burden could not be passed on to the AO to enforce shareholders attendance. Similarly, the Hon’ble High Court held that creditworthiness was not proved by the mere issue of a cheque or of furnishing of a copy of the statement of the bank account, but the circumstances required that there should be some evidence to show that such subscribers had made a genuine investment after due diligence or for personal reasons. The Hon’ble High Court held that the Court or Tribunals should be convinced about the identity, creditworthiness and genuineness of the transaction and the onus to prove the three factum was on the assessee as the facts were within the assessee’s knowledge. Mere production of some details may not be sufficient when the surrounding and attending facts predicate a cover up. The Court observed that in that case, the respondent was a private limited company and it was not the case that the Directors or persons behind the companies making the investment in their shares were related or known to them and therefore, it was highly improbable that an unknown person had made substantial investment in a private limited company in two consecutive assessment years without adequately protecting the investment or ensuring appropriate returns. In such circumstances, the Court held that it would be inaccurate to say that the onus to prove the genuineness of the transaction and creditworthiness stood discharged if certain documents were furnished or payment was made through banking channels. It held that when the facts of the case indicate something else, unreliable evidence cannot take the place Printed from counselvise.com ITA No.586/LKW/2015 M/s Blooms Realators & Hospitality Pvt. Ltd. A.Y. 2010-11 11 of what was clearly evident. The ld. CIT(A), thereafter, placed reliance on various other judgments, as under:- “a. CIT v. Nova Promoters & Finlease (P.) Ltd. [2012] 342 ITR 169 (Delhi) b. CIT v. MAF Academy (P.) Ltd. [2014] 361 ITR 258 (Delhi) C. CIT v. Nipun Builders & Developers (2013) 350 ITR 407 (Del.) d. CIT v. Focus Exports (P.) Ltd., 51 taxmann.com 46 (Del.) e. CIT v. N. Tarika Properties Investment (P. Ltd. (2013) 40 taxmann.com 525 (Del.) f. CIT v. Navodaya Castles (P.) Ltd., (2014) 50 taxmann.com 110 (Del.)” He concluded that in this case, the assessee was a private limited company. The entire share capital had been received from entities who were not related to it in any way. These share subscribers did not have their own profit- making apparatus and were not involved in any business activity. The subscription to share capital had been made by companies through rotation of money through bank accounts and that did not reflect the creditworthiness of the shareholders or even the genuineness of the transaction. The assessee company had not given any dividend to the subscribers. The profit motive which is normally present in the case of investment was totally absent. The share subscribers had transferred the shares of the assessee company to other companies controlled by the Directors of the assessee company within six months and at face value. The ld. AO had given a finding that a shareholding companies were not found at the existing or given address. The ld. AO had confronted the assessee company with the above facts and asked the assessee to establish the identity, genuineness and creditworthiness of the transaction. The counsel only submitted that the report of the Inspector dated 20.02.2013 was not made available to it, but other than that was not in a position to say anything on the issue to prove the fact that the companies existed at the places which they were stated to exist. The ld. CIT(A) noted that the assessee was a private limited company. It had not come up with any public issue nor made any advertisement for issuance of share capital but yet received huge share capital of Rs. 7.5 Crores through private placement and that too from parties who were completely unrelated to the assessees or their Directors. It was observed that in Printed from counselvise.com ITA No.586/LKW/2015 M/s Blooms Realators & Hospitality Pvt. Ltd. A.Y. 2010-11 12 the case of private limited companies, it is generally persons who are known to Directors or shareholders who buy or subscribe the shares and post investment these subscribers do not lose touch or become incommunicado. Therefore, the assessee could not simply furnish details and remain quiet when the AO directed him to establish the identity and creditworthiness of the shareholders. It was incumbent upon the assessee to produce the shareholders before the ld. AO when on the spot enquiries had revealed that the companies were not existing on the addresses provided in the documents which have been submitted to establish identity and creditworthiness of the entities and genuineness of the transaction. Therefore, since the assessee had failed to discharge the onus to establish the identity, creditworthiness of the share applicants and genuineness of the transactions, he was of the opinion that the assessee company had failed to discharge the onus satisfactorily and the addition of Rs. 4 Crores made by the AO under section 68 of the Act was therefore, justified. He, accordingly, sustained the addition and dismissed the appeal. 6. The assessee is aggrieved at the dismissal of its appeal and has accordingly come before us. Sh. Rakesh Garg, Advocate (hereinafter referred to as the ld. AR) arguing on behalf of the assessee submitted that the case of the assessee had been dismissed without considering the facts of the case and on irrelevant considerations. He submitted that insinuation had been drawn from the fact that the Directors of the assessee company had meagre income, omitting to consider the fact that the company had already purchased land for carrying on a real estate business and was in the process of starting its construction activities. With regard to the allegation that the since the assessee was a Private Limited Company which had allotted shares through private placement, it was bound to explain how it came into contact with the nine shareholding companies based at Kolkata, it was submitted that these days companies that were flush with funds were always on the look out for new business by participating either as equity or joint venture. Due to the expansion of information technology, it was possible for such Printed from counselvise.com ITA No.586/LKW/2015 M/s Blooms Realators & Hospitality Pvt. Ltd. A.Y. 2010-11 13 companies to explore new businesses and prospects even from remote destination. It was submitted that the companies doing this due diligence would have realized that the assessee company was in the process of setting up real estate business which was a profitable venture. With regard to the allegation that the companies were based in Kolkata and had chosen to invest at Lucknow, the ld. AR submitted that the AO had challenged acumen of the investors by asking this question. Lucknow was an expanding city with huge prospects in real estate business and therefore an investment destination for prospecting investors. Responding to the allegation that none of the companies which had made the investment were found existing or operating from the given addresses because of return of notices and enquiries done by the DDIT (Invs) at Delhi and Kolkata, it was submitted that there was no evidence on record to show as to how and in what manner the enquires were conducted by the AO / DDIT to find out the investigation of the said companies. Only a report of the Inspector had been submitted to state that the Inspector had visited the premises but the company did not exist at the said addresses. The said report was not supported by any evidence inasmuch as it was not clear as to whom did not Inspector contact and as to whether he had reached the right address or not. It was submitted that in multi storey buildings, where multiple companies function, it was necessary that proper identification of the person to be examined with all details was required to be identified. Such identification could only be done when the assessee was present at the time. The Inspector who went to do enquiry did not inform the assessee of his visit or the assessee would have identified the premises as well as their persons of the said companies. The ld. AR submitted that it was established law that in all cases of issuing commissions under section 131 (1)(d), the procedure as laid down in the Code of Civil Procedure, 1908 was to be strictly followed. That procedure had not been followed in two aspects; i. the party had not been notified, which was required as per the CPC ii. The enquiry had been delegated to the Inspector. Therefore, the entire exercise conducted by the AO / DDIT (Invs) for verification could not be relied upon and had no evidentiary value. With regard to the Printed from counselvise.com ITA No.586/LKW/2015 M/s Blooms Realators & Hospitality Pvt. Ltd. A.Y. 2010-11 14 observation that the shareholding companies had declared income which in most cases was in the range of the few thousand rupees and these companies were not doing any business, having very small opening or closing balances in the accounts and only a huge inflow and outflow of funds, it was submitted that simply having a meagre income would not necessarily mean that the companies did not have a business. There were companies having huge non-taxable income therefore, that should not be the criteria to decide whether the investment made by the shareholding companies was genuine or not. That fact should only be judged from the share capital and reserves held by them in their balance-sheet. How a person carries out his business could not be the criteria for judging the investment made. There was no adverse inference that could be drawn from having a meagre balance at the beginning or the end of the year because keeping money idle in the bank was not a prudent business policy. The fact was that these companies had bank accounts which were identifiable and transactions were taking place in those accounts on a daily basis. Moreover, the companies were on the radar of the Income Tax Department, they had PAN numbers, they were active in status on the MCA sites and they were regularly filing their income tax returns. It was further submitted that the companies in question had invested less than 1% of their total capital and therefore, it could not be said that the companies did not have the creditworthiness to make investment into the assessee company. Nor could any adverse inference be drawn from the fact that the companies operated from the same buildings. It was a known fact that many companies have their registered offices in the same building and therefore, that could not be the ground to doubt the investments. With regard to the allegation that within six months of allotment of shares to these nine Kolkata based companies, the same had been transferred to Delhi and Lucknow based companies in which the shareholding was held by the promoters of the assessee company, it was submitted that this was not a case where the shares were allotted on premium value and thereafter taken back by companies controlled by the promoters of the assessee company at face value. In the instant case, the nine companies to whom the shares were allotted had Printed from counselvise.com ITA No.586/LKW/2015 M/s Blooms Realators & Hospitality Pvt. Ltd. A.Y. 2010-11 15 purchased the same on the face value of the share. However, subsequently since the land of the assessee company had been attached by the Enforcement Directorate, the said companies felt that their investment was no longer profitable and therefore, they sought to divest themselves of their holdings, in which case the promoters of the assessee company repurchased those shares at the same value in the hands of other companies. With regard to the failure of companies to respond to notices under sections 131 or 133(6), it was submitted that no adverse view could be taken against the assessee company and no reliance could be placed upon the postal authorities for the remarks that they wrote. There could be a number of reasons why a particular premises may not have been open or identifiable persons may not have been available at that particular time, but when the companies were filing their income tax returns and were assessed to tax, there was no reason to hold that these companies were bogus. However, it was submitted that there should not have been any difficulty on service of the notices upon the various companies by the Income Tax Department, which had a large set up only for this. With regard to the allegation that the companies in question did not perform any business activities, but were only involved in the rotation of funds, the ld. AR submitted that rotation of funds was also a part of business exercise and it could not be inferred from the same that no activities were being carried on. The ld. AR again referred to the balance-sheets of the assessees companies and pointed out that they had made a large investment in other companies also besides advancing funds on interest and therefore, the allegation that these companies were paper companies was in itself incorrect. Distinguishing the case of CIT vs. N.R. Portfolio Pvt. Ltd. (2014) 222 taxman 137 (Delhi), which have been relied upon by the ld. CIT(A), it was submitted that in that case, the assessee had deliberately and intentionally failed to produce the evidence before the AO with the desire to prevent enquiry and investigation but in the present case, the assessee had not acted in any manner which may had prevented the AO from making enquiries and investigations. On the contrary, the assessee had provided and furnished all the necessary information it had in its possession. It had submitted copies of share Printed from counselvise.com ITA No.586/LKW/2015 M/s Blooms Realators & Hospitality Pvt. Ltd. A.Y. 2010-11 16 application forms, PAN numbers of the share applicants, details with regard to share applicants as available with the ROC, balance-sheets of the investor companies and the return of the allotment filed by the investor companies with the ROC. It was submitted that none of the shareholders had denied the investments and all transactions had taken place through account payee cheques or RTGS. The perusal of the bank account which showed voluminous transactions and the balance-sheet itself accounted for the creditworthiness of the assessee companies and the total investment in the assessee company was only to the extent of 2% to 5% of their capital and reserves. The ld. AR argued that the business of investment was itself a business activity and added that, in the face of all these evidences that the assessee had submitted, the Inspector of income tax was not an authority to hold that the said companies were paper companies. In any case, it was submitted that a copy of the Inspector’s report had not been made available to the assessee and the said enquiry had been conducted behind the back of the assessee. Therefore, it had no evidentiary value as the assessee had not been given opportunity to rebut the inferences drawn. In conclusion, it was submitted that the assessee in the present case was a company incorporated with the object of entering into a real estate business. Since, there was no business or income from any sources, the question of any income arising or declaring of dividend did not arise. There were no cash deposits in the assessee’s bank accounts and since the company had no income, the question of treating share application money as the company’s money and taxing the same on account of it being unexplained did not arise. The law was clear that if the Assessing Officer was dissatisfied with the sources of investment of various investors, then the addition had to be made in their hands and not in the hands of the assessee company. However, the Department had not taken any action in the hands of the investors and therefore, the entire addition made by the Department was bad in law and infirm. 7. On the other hand, Sh. R.K. Agarwal, CIT DR, placed reliance on the orders of the Assessing Officer and that of the ld. CIT(A). He pointed out that the Printed from counselvise.com ITA No.586/LKW/2015 M/s Blooms Realators & Hospitality Pvt. Ltd. A.Y. 2010-11 17 creditworthiness of the Kolkata based companies who had invested in the assessee company had not been proved. They had all filed returns showing very meagre income. A copy of their bank accounts had not been provided to the Assessing Officer for verification and he had to independently acquire the same. Notices and summons issued to these parties by the Assessing Officer and the officers of the Investigation Wing, to whom commission had been given, had either returned unserved or had returned with remarks that indicated that the companies were not functioning at the said premises. The ld. CIT DR submitted that by furnishing the documents that he had, the assessee may have demonstrated a paper identity, but as pointed out by the Hon’ble Delhi High Court in the case of CIT vs. N.R. Portfolio Pvt. Ltd. (2014) 222 taxman 137 (Delhi), the identification of the person would include the place of work, the staff, the fact it was actually carrying on business and recognition of said company in the eyes of the public. Merely, producing PAN numbers or assessment particulars did not establish the identity of the person. Furthermore, it was submitted that the Hon’ble High Court in the said case had held that it was not enough to route the transactions through a bank account but the share subscribers should have their own profit-making apparatus and required a profit motive for the subscription. It was also pointed out that in that case, notices issued to parties which had returned back, led to the Hon’ble High Court drawing the conclusion that the identities had only been proved on paper i.e. in the form of neutral documents like PAN number, ITR, Registrar of company’s registration etc, but without full details as to the actual business activities undertaken by these companies. The Hon’ble High Court had pointed out how in the case of the private placements, the investors are usually persons who are known to the Directors of the company and attempts to transfer the onus on to the Department to elicit information from them could not be accepted. Thus, the Hon’ble High Court had held in the said case that the onus was entirely on the assessee to prove three factums i.e. identity, creditworthiness and genuineness of transaction. It was submitted that the case of the assessee was identical to the case decided in M/s N.R. Portfolio Pvt. Ltd. and for the reasons outlined by the Hon’ble Printed from counselvise.com ITA No.586/LKW/2015 M/s Blooms Realators & Hospitality Pvt. Ltd. A.Y. 2010-11 18 Delhi High Court, the ld. CIT(A) had justifiably rejected the submissions of the assessee. Furthermore, it was submitted that the enquiries that had been carried out under commission under section 131 (1)(d) were fully complaint with the rules and regulations. The DDITs had been appointed Commissioners and they had conducted the enquiries through their Inspectors. Had the DDITs simply forwarded the Inspector’s report then the assessee may have a point, but once the DDIT put his own report on the basis of those investigations, then it had to be read as the report of the Commissioner and was not in any way violative of the procedure laid down in section 131 (1)(d). The said report of the DDITs had revealed that the companies in question did not exist at their addresses and the DDIT had drawn the inference from the same that they were paper companies. Therefore, since the assessees were filing returns with limited income, were not seen to be doing any business activity except rotation of funds, did not respond to the notices issued by the AO / ADIT and were not found at the premises where they were stated to be found and further since the investment made by them had been made without any element of profit and they were seen to lack the resources to make such investment, the investments made by them could not be held to be genuine. The ld. CIT DR therefore, relied upon the orders of the ld. CIT(A) and the Assessing Officer and pleaded that the addition of share capital may be confirmed in the hands of the assessee. 8. We have duly considered the facts and circumstances of the case. At the very outset, we would like to address three legal issues raised by the assessee. The first is that the assessee was a new company that had not earned any income and therefore, no addition of unexplained share capital could be made in its hands under section 68, because there could be no allegation that the assessee had routed its own money for such purposes. In consideration thereof, we observe that the provisions of section 68 hold that any credit in the books of a company which is unexplained can be, “deemed” to be the income of the assessee on account of this fact. There is no requirement in law and no presumption that an assessee ought to Printed from counselvise.com ITA No.586/LKW/2015 M/s Blooms Realators & Hospitality Pvt. Ltd. A.Y. 2010-11 19 have income from various sources before section 68 can be applied to it as the rigors of section 68 are attracted upon unexplained credits to its accounts and no other conditions. Therefore, this argument of the ld. AR is without merit and ground number 4 is accordingly dismissed. The second question that has been raised by the ld. AR is that if at all, the share capital is not explained out of the resources of the investors, then action has to be taken not in the hands of the assessee companies, but in the hands of the investors. We note that the said proposition, which is derived from the decision of the Hon’ble Supreme Court in the case of CIT vs. Lovely Exports P. Ltd., 216 CTR 195 (SC), mainly relates to public limited companies who receives subscriptions from the public at large. The same logic cannot be applied to private placements done in private limited companies as pointed out by the Hon’ble Delhi High Court in the case of CIT vs. N.R. Portfolio Pvt. Ltd., (supra) and therefore, ground number 5 and 10 are also dismissed. Furthermore, the arguments that have been submitted by the assessee that it had submitted all the information to the Assessing Officer and by the same prove the identity, creditworthiness and genuineness of the transaction are also refuted by the findings laid down by the Hon’ble Delhi High Court in the case of CIT vs. N.R. Portfolio Pvt. Ltd., (supra) that these are at best paper identities and the identification of the person is not established until the said person has a place of work actually carries out a business and is recognized in the eyes of the public. Thus, in the case of privately held companies, the onus was clearly on the promoter of the assessee company to establish the fact of genuineness of the share capital in terms of the ratio laid down by the Hon’ble Delhi High Court in the case of CIT vs. N.R. Portfolio Pvt. Ltd., (supra) and therefore, ground no. 2 is also dismissed. 9. Be that as it may, it is observed that the Assessing Officer has conducted further enquiries in order to determine the identity and creditworthiness of the concerned parties and has issued commission under section 131(1)(d) in this regard. The commissions have been executed and a report had been furnished by the DDIT (Invs) at Kolkata vide their F No. DDIT (Inv.)/U-IV(2)/Coal/Blooms/Out Printed from counselvise.com ITA No.586/LKW/2015 M/s Blooms Realators & Hospitality Pvt. Ltd. A.Y. 2010-11 20 Enquiry/Lucknow 12-13/12406 dated 22.03.2013. The ld. AR has argued that because the assessee has not been informed prior to the issue of commission, regarding the issue of commission and because the enquiries have been delegated by the Commissioner to the Inspector, therefore, the report has no authenticity in the eyes of law, because in case of commissions issued under section 131(1)(d), the procedure as laid down in the Code of Civil Procedure (1908) have to be followed. In this context, we have duly perused the provisions of Order XXVI Rule 9 and Rule 10 which relate to commissions for local investigations and the procedure to be adopted by the Commissioner. We note from the same that wherever it is deemed necessary that a local investigation be conducted for the purpose of elucidating any matter in dispute, a commission may be issued for such local investigation and the Commissioner, after such local inspection shall prepare a report and submit the same to the Court issuing the commission. This report of the Commissioner and the evidence taken by him can be taken as evidence in dispute and can form part of the record. However, any of the parties to the suit may examine the Commissioner personally touching upon any part of the matters referred to him or mentioned in his report or as to the manner in which he has made the investigation. From a perusal of Order XXVI, we do not notice any requirement for the Department to give prior notice to the assessee before it conducts any enquiry. Furthermore, the mere fact that the enquiry was conducted by the Commissioner through the medium of his Inspectors is not, in our opinion, material because the same would form part of the evidences collected and on the basis of which the report is prepared. It is found that in the instant case, the DDIT has prepared a report where he has recorded his independent findings on the basis of these enquiries and therefore, there is no violation of the procedure as laid down in the Code of Civil Procedure. However, we note that as per the same, the assessee is entitled to examine the Commissioner, with regard to any part of the report or with regard to the manner in which he conducted his investigation. We note from the assessment order that the findings of the DDITs, which form a crucial part of the evidence on the basis of which the Department has concluded that the Printed from counselvise.com ITA No.586/LKW/2015 M/s Blooms Realators & Hospitality Pvt. Ltd. A.Y. 2010-11 21 aforesaid investor companies are ingenuine, has only been confronted to the assessee on 28.03.2013 and the assessee has only been given two days to respond to the same. The assessment order was passed on 30.03.2013. Since, the assessee was entitled to ask for an examination of the Commissioner and there was not sufficient time available for the same, it is clear that the assessee has not been given adequate opportunity to bring evidence on record to rebut the findings of the Investigation Wing or to bring out the contradictions in the investigation report prepared by the Commissioner. Therefore, the said report cannot be used against the assessee without giving the assessee an opportunity to lead evidence to prove its case. Considering the same, we deem it appropriate to restore the matter back to the file of the Assessing Officer so that the assessee may be served with a copy of the report of the DDIT (Invs), Kolkata alongwith its annexures and allowed to lead evidences to disprove the inferences drawn from the said report of the Commissioner. The assessee may also be afforded an opportunity to examine the Commissioner if it so desires. In view of the fact, the matter is being restored to the file of the Assessing Officer, ground no.6 is allowed for statistical purposes. 10. As we have restored the matter back to the file of the ld. AO for allowing opportunity to rebut the DDIT’s (Commissioner’s) report and for the AO to record his final finding thereafter, a decision is not presently required on ground numbers 1, 3, 7, 8, 9 & 11 and they are rendered infructuous. 11. In the result, the appeal is partly allowed. Order pronounced on 26.11.2025 in the Open Court. Sd/- Sd/- [KUL BHARAT] [NIKHIL CHOUDHARY] VICE PRESIDENT ACCOUNTANT MEMBER DATED: 26/11/2025 Sh Printed from counselvise.com ITA No.586/LKW/2015 M/s Blooms Realators & Hospitality Pvt. Ltd. A.Y. 2010-11 22 Copy forwarded to: 1. Appellant – 2. Respondent – 3. CIT DR , ITAT, 4. CIT, 5. The CIT(A) By order Sr. P.S. Printed from counselvise.com "