Delhi HC Dismisses Section 68 Appeal as Revenue Failed to Show Findings Were Perverse

PCIT Vs Hi-Tech Residency Pvt. Ltd (Delhi High Court)

Summary: The Revenue filed an appeal before the Delhi High Court against the order of the Income Tax Appellate Tribunal (ITAT) for Assessment Year 2009-10. The appeal raised three substantial questions of law relating to additions made under Section 68 of the Income-tax Act. The issues concerned deletion of an addition of ₹1.30 crore towards share capital, reduction of an addition relating to unsecured loans of ₹1,00,01,000 to ₹5,01,000, and deletion of an addition of ₹15 lakh received as earnest money in the absence of an agreement.

The Revenue contended that the assessee had failed to produce the directors, shareholders or principal officers of the companies to which shares had been allotted. It also questioned the deletion and reduction of additions made under Section 68 in respect of unsecured loans and earnest money.

The High Court examined the orders passed by the Assessing Officer, the Commissioner of Income Tax (Appeals) [CIT(A)], and the ITAT. It noted that the CIT(A) had undertaken a detailed examination of the identity, genuineness and creditworthiness of both the share capital investors and the lenders. The CIT(A) had also sought comments from the Assessing Officer and, after considering the material on record, concluded that the assessee had discharged its burden of proving the identity, genuineness and creditworthiness of the investors as well as the lenders.

The High Court further observed that the ITAT had concurred with the findings of the CIT(A) through a detailed order. It held that both the CIT(A) and the ITAT had recorded concurrent findings of fact after examining the evidence.

The Court found that the Revenue had failed to demonstrate that these concurrent factual findings were perverse. It also observed that the matter had reached virtually the fourth stage of litigation.

Accordingly, the High Court answered the first question against the Revenue and in favour of the assessee. It also answered the second and third questions in favour of the assessee and against the Revenue. Consequently, the appeal filed by the Revenue was dismissed.

FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT

This is an appeal by the Revenue against an order dated 18^th December, 2015 passed by the Income Tax Appellate Tribunal (‘ITAT’) in ITA No.4707/Del/2012 for the Assessment Year (‘AY’) 2009-10.

2. While admitting the appeal on 18^th December, 2016, the following questions were framed:

(1) Whether on facts and circumstances of the case, ITAT erred in deleting the addition of Rs 1,30,00,000 under Section 68 where assessee was not able to produce any of the Director, Shareholders or Principal Officer of the companies to which shares were allotted?

2. Whether on facts and circumstances of the case, ITAT was justified in upholding the order of CIT(A) by reducing the addition under Section 68 to Rs 5,01,000 on account of receipt of Unsecured loans of Rs. 1,00,01,000?

3. Whether on facts and circumstances of the case and in law ITAT was justified in deleting the addition of Rs 15,00,000 under Section 68 received as earnest money without any evidence of agreement?

3. The Court has been taken through the order of the Assessing Officer (‘AO’) as well as Commissioner of Income Tax (Appeals) [‘CIT(A)’] and ITAT.

4. The Court finds that the exercise for determining the identity, genuineness and creditworthiness of the investors of the share capital of the Assessee as well as lenders was undertaken in an elaborate manner by the CIT(A). Comments from the AO were sought. Detailed reasons have been given by the CIT(A) to come to the conclusion that the Assessee had discharged its onus of establishing the identity, genuineness and creditworthiness of both the investors as well as the lenders. This has been concurred with by the ITAT in the impugned order which is again an extremely detailed one.

5. The concurrent factual findings of both the CIT(A) and ITAT have not been shown to be perverse by the Appellant. This is virtually the fourth stage of the litigation.

6. Question (1) is accordingly answered in the negative, i.e., in favour of the Assessee and against the Revenue. Question (2) is answered in the affirmative, i.e., in favour of the Assessee and against the Revenue. Question (3) is answered in the affirmative, i.e., in favour of the Assessee and against the Revenue.

The appeal is accordingly dismissed.