Case Law Details
ITO Vs Parashar Projects Private Limited (ITAT Mumbai)
The Mumbai ITAT upheld deletion of ₹3.33 crore addition made under section 68 towards alleged bogus share sale transactions, holding that the assessee had fully discharged the onus by producing audited balance sheets, investment schedules, sale notes, PAN details, confirmations, bank statements and income-tax records of purchasers. The Tribunal noted that the investments were reflected in the books since F.Y. 2006-07 and the reduction in investments during the year clearly established actual liquidation of shares.
The Revenue had relied heavily on Investigation Wing reports alleging that the purchaser companies were accommodation entry providers with negligible income and suspicious banking patterns. However, the ITAT observed that the AO failed to conduct any independent enquiry, issue notices under sections 131/133(6), or provide cross-examination of the persons whose statements were relied upon. The Tribunal reiterated that “suspicion, however strong, cannot take the place of legal evidence.”
The Tribunal further noted that the purchaser companies themselves had undergone scrutiny assessments under section 143(3), strengthening their existence and creditworthiness. Relying on the Supreme Court rulings in Odeon Builders Pvt. Ltd. and Omar Salay Mohamed Sait, the ITAT held that additions cannot be sustained merely on third-party information without proper verification or contrary evidence. Accordingly, the deletion of the entire addition of ₹3.33 crore was confirmed and Revenue’s appeal was dismissed.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The instant appeal of the revenue filed against the order of the NFAC, Delhi [for brevity the “Ld. CIT(A)”], order passed under section 250 of the Income Tax Act 1961 (for brevity ‘the Act’) for Assessment Year 2011-12, date of order 07.10.2025. The impugned order emanated from the order of the Ld. Income Tax Officer Ward-7(3)(2), Mumbai (for brevity the ‘Ld. AO’) order passed under section 143(3) r.w.s. 147 of the Act date of order 27.12.2018.
2. The revenue has taken the following grounds:
(i) “Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 18,00,000/- and. Rs. 3,15,60,000/- made u/s 68 of the IT Act towards sale of shares ignoring that in consequence to the evidences gathered during the investigation conducted by the investigation wing, Kolkata, the non genuine nature of these transactions is clearly emerged?”
(ii) “Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 18,00,000/-and. Rs. 3,15,60,000/- made u/s 68 of the IT Act towards sale of shares ignoring Assessing Officer’s investigation regarding the round tripping of funds for the sake of entries. Also, the creditworthiness of the concerns with which the transactions were made by the assessee in doubt as these concerns have negligible income”
2. The brief facts of the case are that the assessee filed the return by declaring total income Rs. 2,60,970/-. The return was processed under section 143(1) of the Act. Subsequently, information has been received by the Ld. AO from ADIT (Inv.), Unit 4(1), Kolkata. The content of the information indicated that assessee company is one of the beneficiary who has taken accommodation entry through layering in the guise of bogus share, share premium and unsecured loan to the tune of Rs. 18,00,000/-. The notice under section 148 was issued and the assessment was completed with an addition amount of Rs. 3,15,60,000/- and Rs. 18,00,000/- under section 68 of the Act. The aggrieved assessee filed an appeal before the Ld. CIT(A). The remand report was called for. After considering all, the Ld. CIT(A) allowed the appeal of the assessee and deleted the addition. Being aggrieved, revenue filed an appeal before us.
3. The Ld. DR argued and stated that the assessee is the beneficiary of the liquidation of investments amount of Rs. 18,00,000/- and Rs. 3,15,60,000/- by selling of investment and the amount was duly received from M/s. Shyam Dealtrade Pvt. Ltd. and M/s. Midpoint Traders Pvt. Ltd. The assessee sold the 15000 equity shares of Mercantule Marketing (I) Pvt. Ltd @Rs.100/- to M/s. Shyam Dealtrade Pvt. Ltd and 75 equity shares of Minutex Processor Pvt. Ltd @Rs. 4,000/- to M/s. Midpoint Traders Pvt. Ltd. The Ld. DR stated that the amount received from the parties by the assessee is not a valid transaction. The assessee is a beneficiary of underlying transaction of accommodation entry. The Ld. DR stands in favour of the order of the Ld. AO.
4. The Ld. AR argued and contended that the assessee had purchased the shared amount on the F.Y. 2006-07 & hold till F.Y. 2010-11 which is reflected in his balance sheet. The total transaction was made after liquidation of the said investment amount to Rs. 3,30,60,000/- & earned the profit amount to Rs. 3,15,60,000/-. The Ld. AO made the addition to Rs. 3,15,60,000/- and Rs. 18,00,000/- related to the liquidation of investment in the impugned assessment year and the amount was duly received through the banking channel. During the assessment and as well as in remand proceeding, the assessee submitted the PAN, sale deed, confirmation letter of the purchasers which are evidence for the identity, creditworthiness and genuineness of the transactions. In the remand report duly filed on 21.12.2018 before by the Ld. CIT(A) it is evident that the Ld. AO had not made any verification or issued any notice in relation to the verification of genuineness of the transactions. But the assessee had shifted his onus by submitting the supporting evidence related to the transactions for sale of shares.
5. The Ld. AR respectfully relied on the order of Ld. CIT(A). The relevant paragraphs 6.5 to 6.5.4 are reproduced as below:
“ 6.5 I have carefully examined the facts of the case, the submissions made by the appellant and the assessment order passed u/s 143(3) r. w.s 147 of the Income-tax Act, 1961, dated 27-12-2018.The AO, relying on information received vide letter No. ADIT/U-4(1)/S-Binod/Kol/2017-18 dated 12.03.2018 regarding fund deposits in Union Bank of India, Account No. 607701010050233, in the name of M/s Shyam Dealtrade Pvt. Ltd. and M/s Midpoint Traders Pvt. Ltd., noted that the said companies were not found operating from their declared addresses, had common directors, and were filing either negligible or nil returns. Examination of their bank statements revealed frequent credits and immediate transfers. It was further observed that the appellant had received Rs. 15,00,000/- from M/s Shyam Dealtrade Pvt. Ltd. and Rs. 3,00,000/- from M/s Midpoint Traders Pvt. Ltd. In view of these findings, the AO concluded that the identity, genuineness, and creditworthiness of the transactions stood unproved. Thus, the AO invoking provisions u/s 68 made an addition of Rs.3,33,60,000 (Rs.3,15,60,000 + Rs.18,00,000) to the total income of the appellant.
6.5.1 The appellant submitted that during the year it had sold shares amounting to Rs.3,33,60,000/- at par, out of which shares valued at Rs.3,30,60,000/- were held since F.Y. 2006-07 wherein investments in shares stood at Rs.4,18,00,000 as on 31-03-2006under Schedule ‘C’ – Investments. In support, the appellant furnished copies of its balance sheets and schedules for F.Y. 2006-07 to F.Y. 2010-11, along with a script-wise comparative chart of investments for F.Y. 2005-06 to F.Y. 2010 11. It is observed from the audited balance sheet that investments in shares stood atRs.3,77,19,100/- as on 31.03.2010 and at Rs.43,59,100/- as on 31.03.2011 under Schedule ‘C’ – Investments. The reduction of Rs.3,33,60,000/- clearly reflects sale of shares during the year. The appellant also produced copies of sale notes, bills of shares, and details of purchasers including names and PANs in support of the transactions. The effect of such sale was duly recorded in the books of account and reflected in the audited financial statements for A.Y. 2011-12. The AO, however, disregarded these evidences and made an addition of Rs. 3,33,60,000/-treating the same as unexplained, without taking cognizance of the substantiated share sale transactions reflected in the appellant’s records. The relevant extracts are reproduced below:
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6.5.2 Further, with respect to the genuineness of the sale of shares, the appellant has placed on record supporting documents such as copies of sale notes, bills of shares, purchaser details including names and PANs, relevant bank statements, audit reports, and financial statements together with copies of income-tax returns of the concerned parties. These documents had already been produced before the AO during the course of assessment as well as in the remand proceedings. On perusal of the same, it is noted that the appellant sold shares to 17 purchasers amounting to Rs.3,15,60,000/- (constituting 94.60%) and to M/s Shyam Dealtrade Pvt. Ltd. for Rs.15,00,000/- (constituting 4.49%) and M/s Midpoint Traders Pvt. Ltd. for Rs.3,00,000/- (constituting 0.89%). It is further observed that the case of M/s Shyam Dealtrade Pvt. Ltd. was subjected to scrutiny assessment for A.Y. 2012-13 and A.Y. 2015-16, wherein orders under section 143(3) were passed on 18.03.2015 and 20.09.2017 by the ITO, Ward-13(4), Kolkata. Similarly, the case of M/s Midpoint Traders Pvt. Ltd. was also subjected to scrutiny assessment for A.Y. 2012-13 and A.Y. 2014-15, wherein orders under section 143(3) were passed on 12.03.2015 and 17.07.2018 by the ITO, Ward-10(4), Kolkata. These assessment orders, when read together with the documentary evidences furnished, substantiate both the genuineness of the share transactions and the creditworthiness of the said entities. Thus, the appellant has duly discharged the onus cast upon it in establishing the identity of the parties, their creditworthiness, and the genuineness of the transactions.
6.5.3 On a careful consideration of the facts on record and the evidences furnished, it is observed that the appellant has been able to demonstrate through audited balance sheets, schedules of investments, sale notes, bills of shares, bank statements, and purchaser details including PANs, that the impugned amount of Rs.3,33,60,000/- represented proceeds of share sale transactions. The reduction in the value of investments as per Schedule ‘C’ of the audited financial statements further corroborates the occurrence of such sale. Moreover, the scrutiny assessments completed under section 143(3) in the cases of both M/s Shyam Dealtrade Pvt. Ltd. and M/s Midpoint Traders Pvt. Ltd. in subsequent years lend further credibility to the financial standing and existence of these entities. In the circumstances, the adverse inference drawn by the AO, merely on the basis of field enquiries and general observations regarding the pattern of banking transactions, cannot override the documentary evidences duly produced and verified from statutory records. The appellant has sufficiently discharged the onus cast upon it to establish the identity of the parties, their creditworthiness, and the genuineness of the transactions. The adverse inference drawn by the AO, based merely on Investigation Wing reports, field enquiries, and general observations, without conducting independent verification or disproving the documentary evidences, cannot be sustained. The appellant was denied cross-examination, and no nexus with alleged accommodation entries was established. In the absence of any evidence or contrary material, the addition rests purely on suspicion and presumption, which cannot substitute legal proof, as held by the Hon’ble Supreme Court in Omar Salas Mohamed Sait (37 ITR 151, SC). In this regard, reliance is also placed on the decision of the Hon’ble Supreme Court in the case of CIT v. Odeon Builders Pvt. Ltd. [Civil appeal no. 9604-9605 of 2018] dated 21.08.2019 wherein review petitions filed by the department were dismissed on the ground that the disallowance cannot be made solely on third party information. Relevant extract of the said decision is reproduced as under:
“However, ongoing through the judgments of the CIT, ITAT and the High Court, we find that on merits a disallowance ofRs.19,39,60,866/- was based solely on third party information, which was not subjected to any further scrutiny. Thus, the CIT(Appeals) allowed the appeal of the assessee stating:
“Thus, the entire disallowance in this case is based on third party information gathered by the Investigation Wing of the Department, which have not been independently subjected to further verification by the AO who has not provided the copy of such statements to the appellant, thus denying opportunity of cross examination to the appellant, who has prima facie discharged the initial burden of substantiating the purchases through various documentation including purchase bills, transportation bills, confirmed copy of accounts and the fact of payment through cheques, & VAT Registration of the sellers & their Income Tax Return. In view of the above discussion in totality, the purchases made by the appellant from M/s Pad mesh Realtors Pvt. Ltd. is found to be acceptable and the consequent disallowance resulting in addition to income made for Rs.19,39,60,866/-, is directed to be deleted.”
The ITAT by its judgment dated 16th May, 2014 relied on the self-same reasoning and dismissed the appeal of the revenue. Likewise, the High Court by the impugned judgment dated 5th July, 2017, affirmed the judgments of the CIT and ITAT as concurrent factual findings, which have not been shown to be perverse and, therefore, dismissed the appeal stating that no substantial question of law arises from the impugned order of the ITAT.
In these circumstances, the Review Petitions are dismissed.”
6.5.4 In view of the foregoing findings, it is held that the appellant has satisfactorily established the genuineness of the share sale transactions, the identity and creditworthiness of the counter-parties, and the receipt of consideration through verifiable banking channels. The addition of Rs.3,33,60,000/- (Rs.3,15,60,000 + Rs.18,00,000) made under section 68 is held to be unsustainable and is directed to be deleted. Hence, Ground Nos. 3, 4 and 6 raised by the appellant are allowed.”
(Emphasis supplied)
6. We heard the rival submissions and perused the material available on record. The issue involved in the present appeal pertains to the addition of Rs.3,15,60,000/- and Rs.18,00,000/- made by the Ld. AO under section 68 of the Act on account of alleged bogus share sale transactions treated as accommodation entries based on information received from the Investigation Wing, Kolkata. The Ld. AO proceeded primarily on the basis of investigation reports alleging that the entities namely M/s. Shyam Dealtrade Pvt. Ltd. and M/s. Midpoint Traders Pvt. Ltd. were engaged in providing accommodation entries and were not carrying on genuine business activities. Accordingly, the entire receipts arising from liquidation of investments were treated as unexplained cash credits. On careful consideration of the facts available on record, we find that the assessee had consistently reflected the impugned investments in its audited balance sheets since F.Y. 2006-07 onwards. The assessee sold 15,000 equity shares of Mercantile Marketing (I) Pvt. Ltd. and 75 equity shares of Minutex Processor Pvt. Ltd. during the impugned assessment year and received the consideration through normal banking channels. The audited financial statements clearly demonstrate reduction in the investment portfolio from Rs.3,77,19,100/-as on 31.03.2010 to Rs.43,59,100/- as on 31.03.2011, thereby substantiating the factum of sale of investments. The assessee had furnished complete documentary evidences including copies of sale notes, share bills, bank statements, confirmations, PAN details, audited financial statements and income-tax particulars of the purchasers. Thus, the assessee had duly discharged the initial burden cast upon it under section 68 of the Act by establishing the identity of the parties, genuineness of the transactions and creditworthiness of the purchasers.
We further find merit in the observation of the Ld. CIT(A) that despite availability of complete documentary evidences, the Ld. AO failed to conduct any independent verification. No notices under section 133(6) or summons under section 131 were issued to the purchasers for disproving the transactions. The addition has been made merely on the basis of generalized information received from the Investigation Wing and on suspicion arising from banking patterns of the purchaser entities. It is settled proposition of law that suspicion, however strong, cannot take the place of legal evidence. The assessee was also not provided any opportunity of cross-examination of the persons whose statements or investigation materials were relied upon by the department. Thus, the principles of natural justice stood violated. It is also pertinent to note that both M/s. Shyam Dealtrade Pvt. Ltd. and M/s. Midpoint Traders Pvt. Ltd. were subjected to scrutiny assessments under section 143(3) by their respective jurisdictional Assessing Officers. Therefore, the existence and taxability of the said entities cannot be doubted merely on the basis of general observations made in investigation reports. Once the assessee has produced cogent documentary evidences substantiating the transactions and the department has failed to bring any contrary material on record to disprove the same, no addition under section 68 can be sustained. We respectfully concur with the findings recorded by the Ld. CIT(A). The reliance placed by the Ld. CIT(A) on the judgment of the Hon’ble Supreme Court in the case of Odeon Builders Pvt. Ltd. (supra) is duly applicable to the facts of the present case wherein it has been held that additions cannot be sustained solely on the basis of third-party information without independent enquiry and without providing opportunity of cross-examination. Similarly, the ratio laid down by the Hon’ble Supreme Court in Omar Salay Mohamed Sait (supra) that suspicion and conjectures cannot substitute legal proof squarely supports the case of the assessee. In view of the aforesaid facts and circumstances, we do not find any infirmity in the well-reasoned order passed by the Ld. CIT(A) deleting the addition of Rs.3,33,60,000/- made under section 68 of the Act. Accordingly, the grounds raised by the revenue stand dismissed.
7. In the result, the appeal of the revenue bearing ITA No.9200/Mum/2025 is dismissed.
Order pronounced in the open court on 15th day of May 2026.
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