THE ACIT, CENTRAL CIRCLE-1(3), AHMEDABAD V. M/S. SURAJ LIMITED, AHMEDABAD

ITSSA 542/AHD/2019

AI Insights

This case involves cross appeals by M/s. Suraj Ltd. (the assessee) and the revenue against the order of the Commissioner of Income Tax (Appeals)-11, Ahmedabad, for the Assessment Year 2014-15. The appeals arose from a search and seizure operation conducted under Section 132 of the Income-tax Act, 1961, which led to additions for unaccounted investments, share application money, and bogus purchases. The CIT(A) partly allowed the assessee's appeal by deleting some additions but confirmed others. Both parties challenged the CIT(A)'s decision, leading to this consolidated order by the Tribunal.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 39187 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 11 month(s) 8 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 06-11-2024
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 30-10-2024
• Assessment Year: 2014-2015
• Appeal Filed On: 28-11-2019
• Other Referred Cases: Pr. CIT vs. Saumya Construction Pvt. Ltd., Pr. CIT vs. Sunrise Finlease (P) Ltd.
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R.N. DSOUZA; B.P. SRIVASTAVA
• Assessee Lawyers: JIGNESH PARIKH
• Keywords: Set aside; Corroborative evidences; Unexplained cash credit; Unexplained expenditure; Unexplained investment; Income from undisclosed sources; Documents seized; Bogus purchase; Retraction; TDS; Search and seizure; Source of fund; Opportunity of cross examination; Bogus
• Section: 143(3); 132; 153A; 68; 22; 69C; 13; 133A; 20

Judgement Text

" आयकर अपीलीय अिधकरण, अहमदा बा द \u0012ा यपीठ “ए“, अहमदा बा द \u0001 \u0001 \u0001 \u0001 IN THE INCOME TAX APPELLATE TRIBUNAL “ A ” BENCH, AHMEDABAD सु\u0017ी सुिच\u0019ा का \u001aले, \u0012ा ियक सद\u001c एवं \u0017ी मकरंद वसंत महा देवकर, लेखा सद\u001c क े सम!। ] ] BEFORE MS. SUCHITRA KAMBLE, JUDICIAL MEMBER AND SHRI MAKARAND V. MAHADEOKAR, ACCOUNTANT MEMBER 1. आयकर(ss)अपील सं /IT(SS)A No.517/Ahd/2019 – Asst.Year 2014-15 2. आयकर(ss)अपील सं /IT(SS)A No.542/Ahd/2019 – Asst.Year 2014-15 1. M/s. Suraj Ltd. “Suraj House” Vidhyanagar Society Opp. Usmanpura Garden Ahmedabad PAN: AAGCS 6939 M 2. The ACIT Central Circle-1(3) Ahmedabad बनाम/ v/s. 1.The DCIT Central Circle-1(3) Ahmedabad 2. M/s.Suraj Ltd. “Suraj House” Ahmedabad लाथ%/ (Appellants) &' यथ%/ (Respondents) Assessee by : Shri Jignesh Parikh, AR Revenue by : Shri R.N. Dsouza, CIT-DR & Shri B.P. Srivastava, Sr.DR सुनवाई की तारीख/Date of Hearing : 30/10/2024 घोषणा की तारीख /Date of Pronouncement: 06/11/2024 आदेश/O R D E R PER MAKARAND V. MAHADEOKAR, AM: These are cross appeals filed by the Assessee and the Revenue, arising from the order dated 05.09.2019 passed by the Commissioner of Income Tax (Appeals)-11, Ahmedabad [hereinafter referred to as “CIT(A)”], for the Assessment Year (AY) 2014-15. The appeals challenge the order passed by IT(SS)A Nos.517 & 542/Ahd/2019 M/s.Suraj Ltd. vs. DCIT-ACIT (by Assessee and Revenue) Asst. Year : 2014-15 2 the Deputy Commissioner of Income Tax, Central Circle-1(3), Ahmedabad [hereinafter referred to as “AO”], under Section 143(3) read with Section 153B(1)(b) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”), dated 31.03.2016. Both the appeals were heard together and are being disposed of by way of this consolidated order for the sake of convenience. Facts of the case: 2. A search and seizure operation under Section 132 of the Act, 1961 was conducted on 18.12.2013 in the Suraj Group of cases, including the premises of the assessee. Based on the materials gathered during the search, including statements recorded by the Directorate General of Central Excise Intelligence (DGCEI) and deleted files recovered from the assessee’s office computers, the AO initiated proceedings under Section 153A of the Act. The AO made following additions: - Unaccounted Investments u/s 68 of the Act Rs. 300,00,000/- - Share application Money u/s 68 of the Act Rs. 641,90,000/- - Bogus Purchases u/s 69C of the Act Rs. 376,03,586/- 3. The assessee preferred an appeal before the CIT(A), who partly allowed the appeal and deleted additions u/s 68 of the Act on account of unaccounted investments and share application money after restricting addition on account of bogus purchases to Rs.45,12,430/- being 12% gross profit on bogus purchases. 4. Aggrieved by the order of the CIT(A), both the assessee and the revenue are in appeal(s) with following grounds of appeal(s): IT(SS)A Nos.517 & 542/Ahd/2019 M/s.Suraj Ltd. vs. DCIT-ACIT (by Assessee and Revenue) Asst. Year : 2014-15 3 Grounds in Assessee’s appeal - IT(SS)A No. 517/Ahd/2019 (AY 2014-15) 1. The Ld. CIT(A) has erred in law and on facts while coming to conclusion that purchases of raw materials by the appellant company during the previous year 2013- 14 from the three parties namely (i) Shah Foils Ltd., (ii) Sunrise Stainless Pvt. Ltd. and (iii) Sunrise Tradewings Pvt. Ltd. are bogus, merely on preponderance of probability and ignoring all relevant evidences in support of the contention that the purchases from these three parties are actual and genuine. Under the facts and circumstances of the case and the evidences placed on records, the purchases from these three parties are required to be treated as genuine. 2. The Ld. CIT(A) has erred in law and on facts while confirming the addition on account of alleged purchases on the basis of statement of third parties without allowing an opportunity of cross examination. In view of the legal position, the addition is required to be deleted. 3. The Ld. CIT(A) has erred in law and on facts while confirming the addition on account of Gross Profit of Rs.45,12,430/- out of the alleged purchases of Rs.3,76,03,586/-, without proper consideration and appreciation of the facts of the case. Under the facts and circumstances of the case, the Ld. CIT(A) has erred in confirming the addition of Rs.45,12,430/- out of the addition made by the AO for alleged bogus purchases of Rs.3,76,03,586/-. Thus, the addition is required to be deleted. 4. The Ld. CIT(A) has erred in law and on facts while confirming the addition of gross profit on the total purchases from the three parties during the previous year 2013- 14, without appreciating the fact that during the course of search, no incriminating material was found. In view of the legal position, the Ld. CIT(A) ought to have deleted the entire addition in absence of any incriminating material found during the course of search. Grounds in Revenue’s appeal - IT(SS)A No. 542/Ahd/2019 (For AY 2014-15) 1. On the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in restricting the addition to Rs.45,12,430/- (ie. 12% of bogus purchases of Rs.3,76,03,586) from Rs.3,76,03,586/- made on account of bogus purchases from M/s Shah Foils Pvt. Lid. and M/s Sunrise Stainless Pvt. Ltd. 2. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in holding that the goods have actually been purchased, but from the parties other than those mentioned in the books of account though no such material facts was brought on record by the assessee. 3. On the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in holding that there were actual purchases though from the other parties not mentioned in the books of account without any corroborative evidences submitted by IT(SS)A Nos.517 & 542/Ahd/2019 M/s.Suraj Ltd. vs. DCIT-ACIT (by Assessee and Revenue) Asst. Year : 2014-15 4 assessee and that if there were actual purchases assessee could have submitted necessary proof. 4. On the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in ignoring the statement of Shri Kartik Ramesh Shah, Director of M/s Shah Foils Ltd. before DGCEl that they gave only invoices to assessee company, without delivery of goods. 5. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in ignoring the statement of Shri Ashok T Shah Chairman of the assessee company before DGEI that they had received only CENVATABLE invoices during the period from 2010-11 to till date (i.e. 06.12.2013) from Shah Foils Limited and M/s Sunrise Stainless Pvt. Ltd. 6. On the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in not appreciating the material evidences brought on record by the AO that entire purchases shown from these 2 parties are bogus and assessee claimed bogus expenses to that extent in its books of account. 7. On the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in deleting the addition of Rs.3,00,00,000/- made on account of unexplained investment without appreciating the various facts and circumstances brought on record by the AO. 8. On the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in deleting the addition of Rs.6,41,90,000/- made on account of unexplained share application money without appreciating the various facts and circumstances brought on record by the AO. 9. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the A.O. 10. It is, therefore, prayed that the order of the Ld. CIT(A) be set aside and that, of the A.O, be restored to the above extent. 5. Since both the appeals were heard together, and we now proceed to adjudicate the above grounds based on the submissions of the parties and the material on record. The following effective grounds arise for adjudication in these cross-appeals: IT(SS)A Nos.517 & 542/Ahd/2019 M/s.Suraj Ltd. vs. DCIT-ACIT (by Assessee and Revenue) Asst. Year : 2014-15 5 1. Genuineness of Purchases of Rs.3,76,03,586/- 2. Unexplained Investment of Rs.3,00,00,000/- 3. Unexplained Share- -Application Money of Rs.6,41,90,000/- 5.1. Now, we deal with each effective ground one by one. Genuineness of Purchases and Extent of Disallowance (Assessee’s Ground Nos. 1 to 4 and Revenue’s Ground Nos. 1 to 6 5.2. The AO conducted a detailed investigation and made the addition of Rs.3,76,03,586/- as bogus purchases based on evidence gathered during the search and seizure operations at the premises of assessee and other connected entities. The AO’s findings were supported by evidence obtained from the Directorate General of Central Excise Intelligence (DGCEI) and other post- search inquiries. The AO’s core finding was that the assessee received only invoices from M/s Shah Foils Pvt. Ltd. (Rs.23,86,614/-) and M/s. Sunrise Stainless Pvt. Ltd. (Rs.3,52,16,972/-) without actual delivery of goods. This was substantiated by statements of key individuals involved in the transactions, including Shri Kartik Shah (Director of M/s Shah Foils Ltd.) and Shri Ashok T. Shah (Chairman of M/s Suraj Ltd.), who admitted to issuing invoices without supplying goods. The AO outlined the modus operandi based on statements and forensic evidence. As per the same the suppliers, M/s Shah Foils Ltd. and M/s Sunrise Stainless Pvt. Ltd., issued invoices to assessee company without actually delivering any goods. Instead, the necessary raw materials were sourced from the open market by brokers, while the suppliers provided only CENVATABLE invoices, allowing the assessee to claim ineligible CENVAT credit. During the search, the assessee even reversed CENVAT credit of Rs.75,00,000/- as per entry No. 909 dated IT(SS)A Nos.517 & 542/Ahd/2019 M/s.Suraj Ltd. vs. DCIT-ACIT (by Assessee and Revenue) Asst. Year : 2014-15 6 06.12.2013, acknowledging the wrongful availment of credit on these fake invoices, further reinforcing the conclusion of bogus purchases. The AO noted that the assessee was given an opportunity to cross-examine Shri Kartik Shah, who reiterated that no goods were supplied, but only invoices were provided. Although the assessee attempted to retract statements through an affidavit, the AO pointed out that the retraction was unsupported by documentary evidence, and no proof of submission of the Affidavit to DGCEI was provided. Thus, the AO disregarded the retraction as an afterthought lacking credibility. The AO emphasized that mere submission of purchase invoices, transport receipts, and other documentation was insufficient to prove the genuineness of the transactions. The AO reasoned that in cases involving bogus purchases, it is common for the parties to meticulously fabricate paperwork to simulate a genuine transaction. The AO relied on the DGCEI report and investigation which demonstrated that the assessee had engaged in bogus purchases by obtaining fake invoices without corresponding receipt of goods. The AO also noted that, assuming the assessee had procured goods from other suppliers (as claimed by the assessee in its defence), the purchases from these alternative sources were not disclosed, thereby triggering unexplained expenditure under Section 69C of the Act. The AO concluded that the assessee had inflated its inward stock and engaged in fraudulent transactions by obtaining bogus invoices from the said suppliers, with no actual movement of goods. The entire purchase amount of Rs.3,76,03,586/- from M/s Shah Foils Ltd. and M/s Sunrise Stainless Pvt. Ltd. was treated as bogus and added to the total income of the assessee. 5.3. In the appellate order, the CIT(A) deliberated upon the addition of Rs.3,76,03,586/- made by the AO on account of bogus purchases. After a IT(SS)A Nos.517 & 542/Ahd/2019 M/s.Suraj Ltd. vs. DCIT-ACIT (by Assessee and Revenue) Asst. Year : 2014-15 7 thorough review of the facts, submissions, and prior rulings, the CIT(A) acknowledged that similar issues regarding bogus purchases had been raised in the assessee’s earlier assessments, particularly for the assessment years 2008-09 and 2011-12. In those years, the CIT(A) had already deleted the additions made by the AO, based on judicial precedents from the Hon’ble Gujarat High Court in case(s) of Pr. CIT vs. Saumya Construction Pvt. Ltd. (81 Taxmann.com 292) and Pr. CIT vs. Sunrise Finlease (P) Ltd. (252 Taxman 407, Guj. HC), where it was emphasized that additions made during assessment proceedings under Section 153A without reference to any seized material pertaining to the assessment years in question were not sustainable. Given that no seized material pertaining to the relevant assessment year (AY 2014-15) directly supported the addition for bogus purchases, the CIT(A) found it appropriate to rely on these precedents and similar earlier rulings in favour of the assessee. The CIT(A) pointed out that the case for AY 2014-15 was factually identical to that of AY 2012-13, in which the same issue of bogus purchases had been examined in detail. In the appellate order for AY 2012-13 (dated 05-09-2019), the CIT(A) had provided elaborate findings, which were equally applicable to the present assessment year. In essence, the CIT(A) found no significant variation in the facts or evidence across these years. Therefore, it concluded that the findings and reasoning provided for AY 2012-13 should also apply for AY 2014-15. Following the precedent and prior appellate decisions, the CIT(A) directed the deletion of Rs.3,30,91,156/- out of the total addition of Rs.3,76,03,586/- made by the AO. The CIT(A) justified the deletion on the grounds that there was no direct evidence or seized material to substantiate the full addition made by the AO and mere suspicion or general findings based on third-party statements or evidence from earlier years was insufficient to sustain the full disallowance. While the CIT(A) IT(SS)A Nos.517 & 542/Ahd/2019 M/s.Suraj Ltd. vs. DCIT-ACIT (by Assessee and Revenue) Asst. Year : 2014-15 8 deleted a significant portion of the addition, it did confirm an addition of Rs.45,12,430/-, which represented 12% of the total purchases as Gross Profit. This partial confirmation was based on the principle that although the specific parties from whom the purchases were claimed to be made were found to be issuing bogus invoices, it was likely that the assessee still engaged in actual business activity, albeit with alternate sources. 5.4. During the course of the hearing before us, the Departmental Representative (DR) reiterated the observations and conclusions of AO and relied on the order of AO. On the other hand, the Authorised Representative (AR) of the assessee stated that the co-ordinate bench has already decided the similar issue in assessee’s own case for A.Y. 2013-14 and earlier years (IT(SS)A No. 446,515,516,536,543 and 447/Ahd/2019 dated 14-05-2024) . The AR argued that the CIT(A)’s decision to confirm the addition of 12% of gross profit of the impugned purchases is erroneous. The AR pointed out that the CENVAT credit of Rs.75 lakhs reversed by the DGCEI authority on search conducted on the assessee in relation to alleged bogus purchases made from said parties was also refunded to the assessee vide order of the Office of the Commissioner (Appeal), Central GST, Appeal Commissionerate, Ahmedabad (CESTAT) order dated 11/09/2023. Copies of all the above orders were placed before us. He pointed out, therefore, that very basis for holding that the purchases made by the assessee from M/s.Shah Foils Ltd., M/s. Sunrise Stainless Pvt.Ltd. and M/s.Sunrise Tradewings Pvt.Ltd. were bogus no longer survived and, therefore, all the additions made in the impugned years needed to be deleted. IT(SS)A Nos.517 & 542/Ahd/2019 M/s.Suraj Ltd. vs. DCIT-ACIT (by Assessee and Revenue) Asst. Year : 2014-15 9 5.5. After considering the facts, evidence, and arguments presented by both the assessee and the Revenue, as well as the decisions of the CIT(A) and the Co-ordinate Bench in earlier years, we find that the co-ordinate bench had previously held in earlier years that the basis for holding the purchases as bogus no longer survives. The entire foundation of the additions made by the AO, including reliance on the Directorate General of Central Excise Intelligence (DGCEI) report and the statements of third parties, had been refuted by subsequent judicial findings, which include the CESTAT and Hon'ble Gujarat High Court reversing the charges against the suppliers, M/s. Shah Foils Ltd., M/s Sunrise Stainless Pvt. Ltd., and M/s. Sunrise Tradewings Pvt. Ltd., and concluding that no clandestine sales or bogus transactions were carried out. The CENVAT credit reversal of Rs.75 lakhs by the DGCEI, which was central to the AO’s claim of bogus purchases, had also been refunded to the assessee by the authorities, further indicating that the claim of bogus purchases was not substantiated. Based on these findings, we conclude that the addition of Rs.3,76,03,586/- based on bogus purchases made by the AO is unsustainable. As a result, the grounds raised by the assessee are allowed, and the addition is directed to be deleted in full. 5.6. The Revenue's contention that the CIT(A) erred in restricting the addition to 12% of the gross profit is without merit. We find that the very basis for treating the purchases as bogus has been nullified by subsequent judicial rulings. Since the suppliers were absolved of the charges of making bogus sales and the assessee had been granted refund of the CENVAT credit, there is no ground left for making even a partial addition based on gross profit. Therefore, the Revenue’s appeal to restore the full addition is IT(SS)A Nos.517 & 542/Ahd/2019 M/s.Suraj Ltd. vs. DCIT-ACIT (by Assessee and Revenue) Asst. Year : 2014-15 10 dismissed as the entire foundation for the disallowance has been rendered untenable by the legal precedents set in favour of the assessee. 6. As a result, assessee's Grounds (1-4) are allowed, the addition of Rs.3,76,03,586/- is deleted and Revenue's Grounds (1-6) are dismissed, no disallowance or partial addition on account of gross profit is sustained. Revenue’s Ground No. 7 Related to Unexplained Investment of Rs.3,00,00,000/- 7. During the course of investigation the digital evidence was recovered, specifically the files named ‘NPGC.xls’ and ‘B.S.xls’. These files indicated that the assessee made unaccounted investments through a network of 12 companies, all closely associated with the assessee, yet the amounts were not accounted for in the official records of the assessee. The AO observed that the assessee allegedly engaged in insider trading and unaccounted investments totalling to Rs.3 crores. The AO noted that the 12 companies, while appearing independent, were, in fact, managed as part of a common nexus under the control of the assessee company. It was observed that these entities shared common directors, including Sh. Kamlesh Khemchandbhai Prajapati and Sh. Hasmukh Motilal Prajapati, who were relatives of Sh. Ashok T. Shah, Chairman and CEO of assessee company. These companies were found to operate from the same address at 401, Surgicare, Sardar Patel Colony, Ahmedabad, and used common infrastructure and staff. This arrangement led the AO to conclude that these entities were effectively controlled by the assessee and were not functioning as separate independent businesses. IT(SS)A Nos.517 & 542/Ahd/2019 M/s.Suraj Ltd. vs. DCIT-ACIT (by Assessee and Revenue) Asst. Year : 2014-15 11 8. The AO issued notice to show cause why the investment of Rs.3,00,00,000/- should not be taxed as unexplained investment. The assessee denied engaging in any unaccounted investment or insider trading activities. The assessee provided explanations regarding the files \"NPGC.xls\" and \"B.S.xls,\" which the AO had cited as evidence of unaccounted investments and insider trading. The assessee claimed that these files represented internal management data used for planning and estimating the availability of funds. The assessee explained that the file \"NPGC.xls\" referred to Non-Performing Group Companies (NPGC) and was used merely to track stock positions and availability of funds for internal purposes, not as evidence of unaccounted investment. According to the assessee, the file \"B.S.xls\" contained projections and estimates related to asset positions, reserves, and other financial data. The assessee contended that it did not represent actual transactions but rather hypothetical scenarios for internal analysis. The assessee maintained that all transactions with the 12 associated entities were legitimate and fully accounted for. It argued that these companies had their own independent activities and denied any role in coordinating stock trades or manipulating the share price of assessee company. Furthermore, the assessee emphasized that the AO’s reliance on digital files and email communications as conclusive evidence was misplaced, as these records were purportedly intended for internal use and hypothetical analysis rather than actual transactions. The AO, however, concluding that the chairman and CEO of the assessee company Shri Ashok T. Shah controlled the financial aspect of 12 companies and made unaccounted investment of Rs.3,00,00,000/- and added u/s.68 of the Act. IT(SS)A Nos.517 & 542/Ahd/2019 M/s.Suraj Ltd. vs. DCIT-ACIT (by Assessee and Revenue) Asst. Year : 2014-15 12 9. During the appellate proceedings before the CIT(A), the assessee made detailed submission explaining the excel sheet found during the survey. The CIT(A) deleted the addition primarily relying on assessee’s explanation and lack of direct evidence. 10. During the course of hearing before us, the DR relied on the order of AO and pointed out that the AO identified an entry labelled \"300 NPGC\" in an Excel file (\"B.S.xlsx\") retrieved during a survey at the assessee’s premises which he interpreted as an unaccounted investment of Rs.3,00,00,000/- by the assessee in 12 associated companies. The DR further pointed out the AO’s observation that these companies, connected through overlapping operational and financial interests, were found to be linked to assessee company. The DR argued that this entry points to financial dealings outside the purview of recorded transactions. 11. The AR relied on the order of the CIT(A) and stated that the CIT(A) has deleted the addition after considering detailed submission made during the course of the appellate proceedings. 12. We have carefully examined the submissions made by both the DR and AR. After considering the evidence, arguments, and materials on record, we observe that the AO’s conclusion is primarily based on an entry labelled \"300 NPGC\" in an Excel file (\"B.S.xlsx\") recovered during the survey conducted at the assessee’s premises. The AO interpreted this entry as indicating an unaccounted investment of Rs.3,00,00,000/- by the assessee in 12 companies, allegedly controlled by the chairman of assessee company. However, we find that the entry “300 NPGC” does not explicitly refer to an IT(SS)A Nos.517 & 542/Ahd/2019 M/s.Suraj Ltd. vs. DCIT-ACIT (by Assessee and Revenue) Asst. Year : 2014-15 13 investment in the said 12 companies. The assessee explained that “NPGC” stands for “Non-Performing Group Company” and that this entry reflects internal planning for future fund availability. The assessee also provided supporting documentation showing that these anticipated funds would arise from the sale of shares by related entities, all of which were duly recorded in the books of accounts. The AO did not substantiate this interpretation with concrete evidence, such as financial transfers or bank records, directly linking this notation to an unaccounted investment by the assessee. Section 68 mandates an unexplained cash credit in the taxpayer’s books, which is absent in this case. Therefore, we find the AO’s reliance on this notation, without corroborative evidence, insufficient to justify the addition. 13. The AO obtained trading data from the Bombay Stock Exchange (BSE), showing that 12 companies, sharing directors and addresses with assessee company, frequently traded in the assessee’s shares. The AO argued that this pattern suggests coordinated trading activity indicative of unaccounted financial arrangements. We find, however, that frequent trading in shares of the assessee company, even if conducted by entities with common management or addresses, does not constitute proof of unaccounted investments by the assessee. Without direct evidence of financial transfers from assessee company to these companies, no adverse inference can be drawn solely from trading patterns. The AO did not provide any substantive evidence that the BSE trading data supported an unaccounted investment by the assessee. Thus, while the data may imply an operational link, it is insufficient to substantiate an addition under Section 68. IT(SS)A Nos.517 & 542/Ahd/2019 M/s.Suraj Ltd. vs. DCIT-ACIT (by Assessee and Revenue) Asst. Year : 2014-15 14 13.1. The AO’s findings also relied on digital documents seized during the survey conducted under Section 133A of the Act at the premises of the 12 companies, including files containing financial data and emails. We observe that while digital files such as “FBPL.doc” and “31-03-2013.xlsx” indicate financial activities among the companies, these records lack any direct evidence tying assessee company to an unaccounted investment. Further, deleted files recovered from unrelated premises (e.g., TBS Metal Limited) contained notations that the AO inferred as indicating unaccounted transactions. However, such inferences were not substantiated by any concrete evidence of financial involvement by the assessee. The AO failed to produce corroborative evidence demonstrating that funds flowed from assessee company to these entities or that any unaccounted cash was introduced. We find that such circumstantial evidence, without a clear nexus to unaccounted investment by the assessee, lacks probative value for an addition under Section 68 of the Act. 13.2. The AO relied on statements made by Mr. Kamlesh K. Prajapati, who was an alleged proxy director of these 12 companies and admitted to trading shares of assessee company. However, we observe that Shri Prajapati’s statements do not include any admission of unaccounted investments by assessee company. His role in trading shares on behalf of these entities does not establish that the assessee company made an unaccounted investment of Rs.3,00,00,000/-. Testimonies suggesting operational links, without corroborative financial evidence, do not satisfy the requirement under Section 68, which necessitates unexplained cash credits in the taxpayer’s books. Thus, Mr. Prajapati’s statements do not substantiate the addition made by the AO. IT(SS)A Nos.517 & 542/Ahd/2019 M/s.Suraj Ltd. vs. DCIT-ACIT (by Assessee and Revenue) Asst. Year : 2014-15 15 13.3. Section 68 of the Act applies when there is an unexplained cash credit in the taxpayer’s books. In this case, the assessee provided a plausible explanation, backed by documentation, that the entry “300 NPGC” was related to anticipated funds from the sale of shares, not an actual unaccounted investment. Furthermore, we agree with the CIT(A) that Section 68 cannot be invoked in the absence of actual cash credits in the books of the assessee. The AO did not identify any cash deposits or bank entries in either the assessee’s accounts or those of the 12 companies that would substantiate the alleged unaccounted investment. The audited books of both the assessee and the 12 companies were available, and no discrepancies or unrecorded transactions were noted. 13.4. In conclusion, we find that the AO’s addition of Rs.3,00,00,000/- as unaccounted investment under Section 68 of the Act is based on circumstantial evidence, speculative inferences, and assumptions. The AO has not substantiated the addition with concrete evidence of unexplained cash credits in the books of the assessee. Given the lack of direct evidence and considering the assessee’s explanations and the legal requirements of Section 68, we uphold the findings of the CIT(A) and hold that the addition made by the AO is unsustainable. Accordingly, this ground of appeal by the Revenue is dismissed. Revenue’s Ground No. 8 related to addition of Rs.6,41,90,000/- on account of share application money 14. During the course of the hearing before us, the DR relied on the order of AO on the other hand the AR relied on the order of CIT(A). The DR pointed IT(SS)A Nos.517 & 542/Ahd/2019 M/s.Suraj Ltd. vs. DCIT-ACIT (by Assessee and Revenue) Asst. Year : 2014-15 16 out observation noted by AO and the DR explained the allotment of shares and subsequent sale of shares supported by documentary evidence in the paper book. 14.1. During the course of assessment proceedings the AO scrutinized the share application money introduced by assessee company, which was allegedly routed through M/s.BSURINVEST BBA, Belgium. The AO suspected that these funds represented unaccounted income introduced into the company under the guise of foreign investment. During the search operations, documentary evidence surfaced indicating that the assessee company had introduced unaccounted funds as share application money with the assistance of M/s BSURINVEST BVBA, Belgium. 14.2. The AO issued a notice to explain the same. In reply the assessee provided a comprehensive set of documents and explanations to refute the AO’s suspicions. The assessee argued that the entire transaction was carried out with prior approval and intimation to RBI. The assessee submitted the Form FC-GPR filing, Board resolutions, and RBI approvals as evidence of compliance with foreign exchange regulations and FEMA guidelines. The assessee furnished bank statements, contractual documents, and Chartered Accountant certifications, demonstrating that the investment was routed through legitimate channels. They argued that the entire share application process was documented and disclosed, including the issuance of bonus shares and regular dividend payments to Bsurinvest Bvba. Regarding the agreement dated 02/05/2013, the assessee argued that this document did not indicate any undisclosed payments but merely outlined terms for the eventual sale of shares by Bsurinvest Bvba. They contended that the AO’s IT(SS)A Nos.517 & 542/Ahd/2019 M/s.Suraj Ltd. vs. DCIT-ACIT (by Assessee and Revenue) Asst. Year : 2014-15 17 conclusions were speculative and lacked factual basis. The assessee demonstrated that the shares were later sold in the open market by Bsurinvest Bvba through a registered broker and that the proceeds were recorded in the foreign investor’s income tax return in India, along with PAN details. 14.2. The AO noted that M/s Bsurinvest Bvba, Belgium, was claimed to be engaged in international share trading and investments. However, Belgian tax authorities confirmed that Bsurinvest had no other investments, either globally or locally, aside from its stake in assessee company. This contradicted the assessee’s claim and raised doubts about Bsurinvest’s legitimacy as an investor. An undisclosed agreement dated 02/05/2013 between Shri Ashok T. Shah and Mr. Huysentruit Eric outlined the sale of shares held by Bsurinvest in assessee company. The agreement was neither recorded in the books nor disclosed to regulatory authorities. Additionally, during a search, digital files on Shri Ashok T. Shah’s laptop contained an entry marked \"CLEAR ERIC,\" suggesting hidden financial dealings related to this transaction. The AO found that Bsurinvest was incorporated shortly before the share application (on 24/08/2006) and that its bank account was opened only on 29/12/2006, after the share application money was allegedly transferred. Furthermore, Bsurinvest’s balance sheet as of 30/09/2006 reflected a NIL balance, contradicting the claim that it had the funds to make the share application on 29/09/2006. The assessee issued shares to Bsurinvest at Rs.270 per share (Rs.10 face value plus Rs.260 premium) despite the shares trading in the market at around Rs.95 to Rs.97.45. The AO found no economic rationale for the high premium, casting further doubt on the genuineness of the transaction.During the search, files titled \"B.S.xIsx\" and \"C.A.xls\" were IT(SS)A Nos.517 & 542/Ahd/2019 M/s.Suraj Ltd. vs. DCIT-ACIT (by Assessee and Revenue) Asst. Year : 2014-15 18 found in a black pen drive at the office premises, containing entries suggesting unaccounted cash transactions amounting to Rs.5,25,30,000/-. The AO inferred that these funds could be linked to the alleged accommodation entry scheme with Bsurinvest. The AO observed that Bsurinvest did not sell its shares during the lock-in period when prices were high. Instead, it disposed of its shares at a much lower price. The AO alleged that this was a deliberate strategy, whereby associates of assessee company manipulated the share price to repurchase the shares at a fraction of the original issue price. According to the undisclosed agreement, a total consideration of Rs.6,41,90,000/- was to be paid in two tranches (Rs.2,33,18,000/- and Rs.4,08,72,000/-). The first tranche was transferred to Bsurinvest’s account in Belgium on 17/05/2013; however, this transaction was not recorded in assessee company’s books, raising concerns about the source of funds. The AO concluded that Bsurinvest was created solely to act as a conduit for introducing unaccounted money into assessee company under the guise of foreign investment. Bsurinvest’s incorporation shortly before the share allotment and its dissolution shortly after the shares were sold were viewed as indicators that it was not a genuine investor. 14.3. Based on the above findings, the AO held that the share application money of Rs.6,41,90,000/- (Rs.2,33,18,000 + Rs.4,08,72,000) received from M/s Bsurinvest Bvba, Belgium, represented unexplained cash credits and added this amount to the total taxable income of the assessee under Section 68 of the Act. IT(SS)A Nos.517 & 542/Ahd/2019 M/s.Suraj Ltd. vs. DCIT-ACIT (by Assessee and Revenue) Asst. Year : 2014-15 19 14.4. The CIT(A) observed that the AO erroneously classified the Rs.6,41,90,000/- as share application money received in A.Y. 2014-15. The CIT(A) clarified that the share application money of Rs.14.02 crore was actually received by the assessee in FY 2006-07, relevant to AY 2007-08, and shares were allotted to Bsurinvest Bvba, Belgium, in September 2006. Since no share application money was received in AY 2014-15, the addition under Section 68 on this basis was fundamentally flawed. The AO based part of the addition on an agreement dated 02/05/2013 between Mr. Eric Huysentruit (representing Bsurinvest) and Mr. Ashok T. Shah (Managing Director of M/s Suraj Ltd.), which outlined terms for the sale of shares held by Bsurinvest. The CIT(A) found that this agreement merely showed that Bsurinvest intended to sell its shares in the open market, and there was no involvement of assessee company in this transaction. Supporting documents, such as the contract-cum-bill from the broker (Shah Investors Home Ltd.), confirmed that the shares were indeed sold in the open market, and payment was directly received by Bsurinvest. The CIT(A) concluded that this open market sale had no direct financial involvement of the assessee. The CIT(A) highlighted that the AO failed to present any evidence showing that the alleged payment of Rs.6,41,90,000/- was made by the assessee. 14.4. Upon examination of Revenue’s this ground concerning the addition of Rs.6,41,90,000/- attributed to share application money under Section 68 of the Act, we carefully reviewed the findings and reasoning provided by the Assessing Officer (AO) and the observations made by the CIT(A). The AO’s addition was based on the premise that the assessee had allegedly routed unaccounted income into the company through M/s Bsurinvest Bvba, Belgium, under the guise of foreign investment. Documentary evidence, IT(SS)A Nos.517 & 542/Ahd/2019 M/s.Suraj Ltd. vs. DCIT-ACIT (by Assessee and Revenue) Asst. Year : 2014-15 20 including an undisclosed agreement, purportedly showed financial arrangements indicating unaccounted funds. In response, the assessee submitted a comprehensive array of documents, including RBI approvals, Form FC-GPR filings, bank statements, and compliance records, arguing that the share application money had been received legitimately in FY 2006-07 and that the transaction with Bsurinvest was duly recorded and disclosed. The CIT(A) subsequently examined the AO’s reasoning and determined that certain key aspects of the addition, such as the timing of the share application and the interpretation of the bank transactions, may not be factually supported. With these factors in mind, we proceed to analyze the merits of Revenue’s grounds for appeal. 14.5. The AO’s classification of Rs.6,41,90,000/- as share application money received during Assessment Year (AY) 2014-15 is fundamentally erroneous. The CIT(A) noted that the actual share application money of Rs.14.02 crore was received by the assessee in FY 2006-07, corresponding to AY 2007-08, with shares allotted to M/s Bsurinvest Bvba, Belgium, on 30/09/2006. This fact is undisputed and is corroborated by documentary evidence, including RBI filings and Form FC-GPR submissions. As no share application money was introduced during AY 2014-15, the addition under Section 68 is misplaced. The AO’s suspicion of unaccounted income introduction hinges partly on an agreement dated 02/05/2013 between Shri Ashok T. Shah and Mr. Eric Huysentruit of Bsurinvest, outlining the terms for Bsurinvest’s sale of shares. The CIT(A) correctly observed that this agreement does not suggest any undisclosed payment by assessee company. Rather, it simply details Bsurinvest’s intention to divest its holdings, an action consistent with its rights as a shareholder. We note that the sale of shares was conducted openly IT(SS)A Nos.517 & 542/Ahd/2019 M/s.Suraj Ltd. vs. DCIT-ACIT (by Assessee and Revenue) Asst. Year : 2014-15 21 through a registered broker (Shah Investors Home Ltd.), with payment directly remitted to Bsurinvest. The AO did not produce any evidence to dispute the authenticity of this transaction. Given that the proceeds were received directly by Bsurinvest and accounted for in its tax filings in India, we concur with the CIT(A) that the sale did not involve any undisclosed financial dealings by the assessee. We find merit in the CIT(A)’s observation that the AO presented no evidence of any payment of Rs.6,41,90,000/- made by assessee company. The AO’s reliance on speculation regarding Bsurinvest’s formation and alleged conduit role lacks factual support. The documentary evidence, including board resolutions, bank statements, and RBI compliance certificates, demonstrate that the funds were routed through legitimate channels and duly recorded. The AO interpreted a USD 4,25,000 transaction in Bsurinvest’s bank account as an incoming credit, implying undisclosed remittance from assessee company. However, as the CIT(A) highlighted, this entry was a debit transaction (withdrawal) and not a credit. The AO’s incorrect reading of the bank statement, therefore, further weakens the addition’s basis. We also considered the evidence submitted by the assessee that included RBI Form FC-GPR filings, board approvals, dividend payments, and bonus share issuances, which were conducted in compliance with FEMA guidelines and RBI regulations. The fact that dividends were regularly paid and remitted to Bsurinvest, with TDS applied, reinforces the legitimacy of Bsurinvest’s investment. The AO’s reliance on circumstantial observations, such as the high premium on shares and digital notations in files like \"B.S.xls\" and \"C.A.xls,\" does not substantiate the addition under Section 68. These observations do not conclusively demonstrate that the share application was a means to introduce unaccounted income. The assessee’s documentary evidence—including proof of actual market-driven sale of IT(SS)A Nos.517 & 542/Ahd/2019 M/s.Suraj Ltd. vs. DCIT-ACIT (by Assessee and Revenue) Asst. Year : 2014-15 22 shares and compliance documentation—contradicts the AO’s claim that Bsurinvest acted as a conduit for undisclosed funds. 14.6. In light of the above, we find that the CIT(A) was correct in deleting the addition of Rs.6,41,90,000/-. The AO’s allegations are unsupported by substantive evidence, and the CIT(A)’s decision is well-founded on documentary evidence and legal principles. Consequently, Revenue’s Ground No. 8 related to the addition of Rs.6,41,90,000/- as unexplained share application money under Section 68 is hereby dismissed. 15. Revenue’s ground numbers 9 and 10 are generic, hence not adjudicated. 16. In the combined result, assessee’s appeal is allowed, whereas revenue’s appeal is dismissed. Order pronounced in the Open Court on 6th November, 2024 at Ahmedabad. Sd/- Sd/- (SUCHITRA KAMBLE) JUDICIAL MEMBER (MAKARAND V. MAHADEOKAR) ACCOUNTANT MEMBER अहमदाबाद/Ahmedabad, िदनांक/Dated 06/11/2024 टी.सी.नायर, व.िन.स./T.C. NAIR, Sr. PS IT(SS)A Nos.517 & 542/Ahd/2019 M/s.Suraj Ltd. vs. DCIT-ACIT (by Assessee and Revenue) Asst. Year : 2014-15 23 आदेश की \u001fितिलिप अ ेिषत/Copy of the Order forwarded to : 1. अपीलाथ\" / The Appellant 2. \u001f#थ\" / The Respondent. 3. संबंिधत आयकर आयु% / Concerned CIT 4. आयकर आयु% ) अपील ( / The CIT(A)-11, Ahmedabad 5. िवभागीय \u001fितिनिध , आयकर अपीलीय अिधकरण , राजोकट/DR,ITAT, Ahmedabad, 6. गाड* फाईल / Guard file. आदेशानुसार/ BY ORDER, स#ािपत \u001fित //True Copy// सहायक पंजीकार (Asstt. Registrar) आयकर अपीलीय अिधकरण, ITAT, Ahmedabad 1. Date of dictation (word processed by Hon’ble AM in his laptop) : 04.11.2024 2. Date on which the typed draft is placed before the Dictating Member. : 04.11.2024 3. Date on which the approved draft comes to the Sr.P.S./P.S : 4. Date on which the fair order is placed before the Dictating Member for pronouncement. : 5. Date on which fair order placed before Other Member : 6. Date on which the fair order comes back to the Sr.P.S./P.S. : 6.11.24 7. Date on which the file goes to the Bench Clerk. : 6.11.24 8. Date on which the file goes to the Head Clerk. : 9. The date on which the file goes to the Assistant Registrar for signature on the order. : 10. Date of Despatch of the Order : "