ACIT Vs Yashita Finance Private Limited (ITAT Delhi)
Delhi ITAT: Low Income of Investor Alone Cannot Justify Section 68 Addition – ₹97.07 Crore Share Application Money Explained by Identity, Creditworthiness, Source of Funds & Banking Trail
The assessee, an RBI-registered NBFC, received ₹105.50 crore as share application money from Supreme Build-Cap Pvt. Ltd. During the year, ₹8.425 crore was refunded, leaving ₹97.075 crore outstanding. The transaction and supporting documents had been examined in the original scrutiny assessment under Section 143(3), where no adverse inference was drawn.
Subsequently, based on Investigation Wing information, the assessment was reopened and the AO added the outstanding ₹97.07 crore under Section 68, principally holding that the investor had declared NIL income and therefore lacked creditworthiness. CIT(A) deleted the addition, against which the Revenue appealed.
The ITAT noted that the assessee had established not merely the investor’s identity but also the source of the source. Supreme Build-Cap had received approximately ₹130.94 crore from Adamas Builders Pvt. Ltd. through HSBC Bank, pursuant to agreements for sale of immovable properties in Bangalore. These funds were utilised for making the share application payment. Further, the entire share application money was subsequently refunded through banking channels when shares were not allotted.
The investor’s creditworthiness was supported by substantial immovable assets, audited accounts and bank statements. Significantly, the corresponding property transactions subsequently resulted in taxable LTCG exceeding ₹163 crore in the investor’s hands.
The Tribunal also regarded as clinching evidence the fact that Supreme Build-Cap itself had undergone scrutiny/reassessment and the Department had not drawn any adverse inference regarding its source of funds, the transactions with Adamas Builders or the genuineness of its investment in the assessee. The subsequent ₹163-crore-plus LTCG further corroborated the source of funds.
The ITAT reiterated that where the assessee furnishes complete documentary evidence establishing identity, creditworthiness, genuineness of the transaction and the immediate source of investment, no addition under Section 68 can be sustained merely because the investor has shown low income. Once such evidence is produced, the AO cannot reject creditworthiness merely on presumptions without conducting proper enquiry.
Accordingly, the ITAT upheld deletion of the ₹97.07 crore addition and dismissed the Revenue’s appeal.
Key takeaway: Low or NIL returned income by itself is not a test of creditworthiness under Section 68. Actual financial capacity, banking trail, assets and the demonstrated source of funds are decisive-particularly where the assessee has even established the immediate “source of source.”
Cases Discussed:
- PCIT vs BDR Builders and Developers (P) Ltd., 173 Taxmann.com 93(Delhi)
- ITO vs Arpitam Builders Pvt. Limited, 180 Taxmann.com 397 (Delhi- Tribunal –
- COMMISSIONER OF INCOME TAX -9 ERSTWHILE CIT -VI versus VRINDAVAN FARMS (P) LTD, ITA 71/2015, ITA 72/2015, ITA 84/2015
FULL TEXT OF THE ORDER OF ITAT DELHI
