Addition u/s 68 unsustainable as onus with respect to receipt of share application money discharged

Yizumi Precision Machinery (India) Private Limited Vs ACIT (ITAT Ahmedabad)

ITAT Ahmedabad held that the assessee has discharged the onus cast under section 68 of the Act with respect to receipt of share application money. Accordingly, addition under section 68 of the Income Tax Act not sustained.

Facts- The assessee company is subsidiary of M/s Guandong Yuzumi Precision Machinery Ltd Co of China in which 10% shares also held by a person of Indian resident namely Shri Ramesh Vardhan. AO invoked the provisions of section 68 of the Income Tax Act for the credit of share application money received from Shri Ramesh Vardhan for Rs. 1,23,39,500. AO further found that the assessee was required to furnish ITR and computation of income for last 3 years, but the assessee only furnishes ITR for 2 years whereas no detail was furnished regarding genuineness of transaction.

But the assessee only furnishes ITR for 2 years whereas no detail was furnished regarding genuineness of transaction. The AO accordingly held that the assessee failed to discharge the onus cast under section 68 of the Act.

AO as per direction of DRP treated the partial amount of 68,83,170/- as unexplained credit under section 68 of the Act against which the assessee is in appeal before us.

Conclusion- In our considered opinion the assessee company has duly explained the sources of fund in the hand of Shri Ramesh Vardhan. The revenue authority also accepted the partial amount but not accepted source of the other amount only based on surmises and conjecture.

Thus, in view of the above we hold that the assessee has discharged the onus cast under section 68 of the Act with respect to receipt of share application money from Shri Ramesh Vardhan. Therefore, we hereby direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is hereby allowed.

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

The captioned appeal has been filed at the instance of the Assessee against the order of the Learned DRP-2, dated 30/05/2022 Mumbai, arising in the matter of assessment order passed under s. 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (here-in-after referred to as “the Act”) relevant to the Assessment Year 2018-2019.

2. The assessee has raised the following grounds of appeal:

1. The Learned ACIT has erred in law and on fact of the case by upholding that the transaction in respect of the share premium is unexplained and has made addition of Rs. 68,83.170/- under section 68 of the Income Tax Act 1961 treating the genuine share premium as Unexplained Share Premium.

2. The Learned ACIT has erroneously added the Transfer Pricing Adjustment amounting to Rs.1,05,96,120 even though the transaction are at arm’s length price only.

3.  Learned AO has erred in law and on facts in not properly appreciating and considering various submissions, evidence and supporting documents placed on record during the course of the assessment proceedings and not properly appreciating various facts and law in its proper perspective.

4. Your Appellant reserves the right to add, alter, amend and withdraw any of the above grounds of appeal.

3. The facts in brief are that the assessee company is subsidiary of M/s Guandong Yuzumi Precision Machinery Ltd Co of China in which 10% shares also held by a person of Indian resident namely Shri Ramesh Vardhan. The assessee in the year under consideration issued 1,39,034 fresh shares at a face value of Rs. 100/- and premium of Rs. 400/- per share to M/s Guandong Yuzumi Precision Machinery Ltd Co of China (1,14,355 shares) and Shri Ramesh Vardhan(24,679 shares). The income tax return of the assessee for the year under consideration was selected for limited scrutiny under CASS on account of large volume of Share Premium in the light of section 56(2)(viib) of the Act vide notice dated 22-09­2019.

3.1 The AO during the assessment proceeding refer the case of the assessee company to TPO under section 92CA of the Act for determination of ALP of International transaction. The TPO in his order made upward TP adjustment of Rs. 1,05,96,120/- on account of purchase of goods/spares from its AE.

3.2 Meanwhile, the AO also invoked the provisions of section 68 of the Act for the credit of share application money received from Shri Ramesh Vardhan for Rs. 1,23,39,500/- (24,679 shares X Rs. 500/- per share) only. The AO found that the assessee was required to furnish ITR and computation of income for last 3 years as well proof of genuineness of transaction. But the assessee only furnishes ITR for 2 years whereas no detail was furnished regarding genuineness of transaction. The AO accordingly held that the assessee failed to discharge the onus cast under section 68 of the Act.

3.3 In view of the above, the AO made draft assessment under section 144C of the Act wherein he made addition of Rs. 1,23,39,500/- under section 68 of the Act and addition of Rs. 1,05,96,120/- being TP adjustment as per the order of the TPO.

4. Against the draft assessment order, the assessee filed objection before the learned DRP and made the following submission.

a) Regarding addition under section 68 of the Act

The assessee before the learned DRP submitted that Shri Ramesh Vardhan is an existing shares holder to whom fresh shares were issue during the year under consideration. Shir Ramesh Vradhan is high income individual declaring average annual income for last 4 years over Rs. 64 Lakh and in the year under consideration declared income of Rs. 1,01,08,046/- only. Shri Remesh Vardhan made investment in the shares out of the fund from opening bank balance, salary income, redemption of mutual fund and temporary loan from friends and relative. The amount of share application money was received through banking channel which can be verified from the bank account of the company and corresponding entry in the bank account of Shri Ramesh Vardhan. The assessee in support of its contention submitted a chart representing the amount credited in the bank of the Shri Ramesh Vardhan and sources of such credit.

b) Regarding TP adjustments:

(i) The assessee before the learned DRP submitted that its return was selected under limited scrutiny to verify the large volume of share premium in the light of the provision of section 56(2)(vii) of the Act or any other relevant section. Thus, the issue of verifying transfer pricing report was outside the purview of the purpose of limited scrutiny. The action of the AO making reference to TPO under section 92CA of the Act is amounting to extension of the scope of limited scrutiny which has been prohibited by the CBDT unless limited scrutiny is converted into complete scrutiny with previous approval of competent authority and after giving opportunity of being heard to the assessee to that effect.

(ii) The notice for initiating assessment proceedings clearly states that issue of the share premium is to be verified in view of applicability of provisions of section 56(2)(vii) of the Act and other relevant provision of the Act. Thus, the return was selected only to verify the issue of fresh shares issued at premium which has been allotted to its AE and local existing share holder. The phrase “any other relevant section” cannot be read as applicability of TP provision requiring necessary verification. The provision of section 92 of the Act which is charging section for transfer pricing clearly used the phrase “any income arises from an international transaction”. The transaction of issuing fresh share to an international AE is not in the nature of income as defined under section 2(24) r.w.s. 56(2)(vii) of the Act. As such, the TPO also worked out ALP at Rs. 5,71,77,900.00 about issue of shares to its holding company but not made any adjustment holding the same that it is not the income of assessee.

4.1 The learned DRP after considering the submission of the AO confirmed the TP adjustment on purchase of goods/spares whereas provided relief for addition made under section 68 of the Act on account of receipt of share application money and premium thereon. The relevant direction of the learned DRP reads as under:

a) Regarding addition under section 68 of the Act

5.3.17 However, we are also of the view that the entire amount of Rs.1,23,39,500/- contributed by Sh ramesh varadan (Rs.24,67,900/- as share capital and Rs.98,71,600/- as share premium) towards the allotment of 24,679 equity shares cannot be trated as unexplained. Therefore, keeping in view the facts and circumstances of the case, as discussed in earlier part of this order, it is our view in that the brought forward balance of Rs.10,43,192.53 and Rs.2,28,407.21 as on 01.04.2017, as appearing in the bank statements of the assessee with ICICI Bank can be considered as explained for the purpose of investment in equity shares issued to Sh Ramesh vardan.

5.3.17 further, the amount credited to the bank account of Sh Ramesh Varadan towards Commission income of Rs.5,96,166/- and salary received from the for the purpose of investment in equity shares issued.

5.3.18 As regards the redemption of mutual fund Rs.28.85.398/- on 07.07.2017 and rs.35,15,118/-on 10.07.2017, we have noted that the source of these investment are not disclosed in the returns of Income filed by Sh Ramesh Vardan the source of these investment shave not been disclosed before us. It is also not known whether the investments are out of the funds for current year or earlier years. And though Sh Ramesh Varadan has shown to have received Rs.28,85,398/- on 07.07.2017 and rs.35,15,118/- on 10.07.2017 as the amounts received on redemption of mutual fund, he has also transferred a sum of Rs.30,00,000/- to Alchemy Capita l Management Pvt. Ltd. PMS. Moreover, several credits to the bank statement indicate investment in the mutual funds viz. Sundram Select Food funds, Sundram Select Midcap Fund, Tata Mutual fund by Sh Ramesh Varadan, and the investment in these funds have not been disclosed in the statements submitted by Sh Ramesh Varadan. Under these circumstances we are of the view that no credit can be allowed on account of redemption of mutual funds to Sh Ramesh varadan for the purpose of investment in equity shares issued by the assessee.

5.3.19 No credit can be allowed to Sh Ramesh Varadan for the purpose of investment in equity shares issued by the assessee on account of loans from, friends and relatives either since the Sh Ramesh Varadan has not furnished any information about the loans taken from his friends and relatives as under

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The assessee has even failed to prove the identity of Smt. Sudha Satyaprakash Tiwari. Under these circumstances no credit can be allowed to Sh Ramesh Varadan on account of loans taken from his friends and relatives, for the purpose of investment in equity shares issued by the assessee.

5.5.21 The AO is directed to recompute the addition made u/s.68 of the Act in view of our findings given in the preceding paras.

5.3.22 In view of the aforesaid, the Ground of Objection No.1 is partly allowed.

5.5.23 We may clarify that our above findings are limited to genuine of the transaction as claimed by the assessee in the Grounds of Objections to be the source of funds for investment in equity shares to sh. Ramesh Varadan. We have not expressed any view on the genuineness or otherwise of any other transaction appearing in the documents/bank statements submitted by Sh Ramesh Varadan an issue which lies in the domain of the AO having jurisdiction over the case of Sh Ramesh Varadan.

b) Regarding TP adjustments:

6.3.8 In view of the aforesaid the plea of the assessee that the Share Premium received from Foreign Holding Company at the time of issue of equity share is capital nature transaction and income cannot be said to arise from this transaction, hence Section 92 is not applicable, cannot be accepted and hence rejected.

6.3.9 Further, the fact that the TPO has determined the ALP of the international transaction of Investment in Equity Shares at Rs. 9,00,01,959/- for issue of equity shares to its AE. GYPM, China at Rs 5,71,77,900/- and thereafter not proposed any adjustment for the reason that this effect of the ALP is required to be given in the case of the foreign AE GYPM, China, will also not improve the case of the assessee as it is provided in the Act, that where the adoption of arm’s length price under sub-sections (1) and (2) of section 92 would result in decrease in the overall tax incidence in India in respect of the parties involved in the international transaction sub-section (3) enjoins that principle of arm’s length price shall not be given effect to In this regard we are also guided by the ruling o f the Hon ble Authonty for Advance Rulings of New Delhi in Castleton Investment Ltd, (Supra), the applicability of section 92 does not depend on the chargability under the Act and the ruling of the Hon’ble Authority for Advance Rulings, New Delhi in Instrumentarium Corpn. In re [2005] 143 TAXMAN 1 (AAR – N. Delhi) wherein it is held that “Without complying with the statutory requirements it will be too presumptuous to assume the said transaction is beneficial for the Revenue and then invoke sub-section (3) of section 92 it is held as under

it will be necessary to bear in mind the scheme of sections 92. 92A and 928 The Assessing Officer is enjoined to work out the arm’s length price as per sub-sections (1) and (2) of section 92 following the method outlined in section 92C. If he considers necessary or expedient so to do, he may with the previous approval of the Commissioner, refer the computation of arm’s length price in relation to the transaction to the Transfer Pricing Officer under section 92CA The Transfer Pricing Officer has to determine the arm’s length price after notice to the assessee. On the basis of such determination the Assessing Officer has to compute the total income of the assessec. It is only if the Assessing Officer comes to the conclusion that the interest of the revenue would be better served by not applying sub-sections (1) and (2) than by adhering to them, sub-section (3) would be attracted and the Assessing Officer will have to proceed with the assessment without giving effect to sub- sections (1) and (2). Without complying with the statutory requirements it will be too presumptuous to assume the said transaction is beneficial for the Revenue and then invoke sub-section (3) of section 92.

6.3.10 In view of the aforesaid we do not find any infirmity in the reference made to the TPO on account international transaction of Investment in Equity Shares at Rs. 9,00,01,959/- disclosed by the assessee itself at S. No. 16 of Form No. 3CEB Further, keeping in view the provisions of section 92CA of the Income-tax Act, which provides that (2A) Where any other international transaction [other than an international transaction referred under sub-section (1) comes to the notice of the Transfer Pricing Officer during the course of the proceedings before him the provisions of this Chapter shall apply as i f such other international transaction is an international transaction referred to him under sub-section (1), we do not find any infirmity in the action of the TPO making an adjustment in the arm s-length price of the international transaction of “purchase o f goods/spare parts either

6.3.11 We also find no merits in the plea taken by the assessee that the proceedings initiated by the AO is without taking prior approval in writing from the higher authority. We have noted that the case was transferred from the jurisdictional AO, the Deputy Commissioner of Income Tax Circle 4(1) Ahmedabad, to National e- Assessment Centre, Delhi under the E-assessment Scheme, 2019 and the assessee was intimated accordingly vide letter dated 15.10.2020. The AO. National Faceless Assessment Centre. Delhi has categorically recorded a finding on page 3 and 4 of the order that a reference u/s 92CA(1) of the Act was made to the TPO to ascertain the ALP of such international transaction after taking the approval of the Principal Commissioner of Income tax. This fact was also brought to the notice of the AR that he has not disputed. The online approval given by the Pr. CIT on 25.01.2021, is also on record:

5. In view of the above direction, the AO framed final assessment order under section 144C r.w.s 143(3) of the Act wherein made addition of Rs. 68,83,170/-under section of the Act on account of share application money from Shri Ramesh Vardhan and Rs. 1,05,96,120/- on account upward TP adjustment for the transaction of purchase goods/spares .

6. Being aggrieved the assessee is in appeal before us.

7. The learned AR before us filed a paper book running from pages 1 to 189 and contended that the AO/TPO exceeded their jurisdiction by making adjustment under section 92 of the Act for international transaction though the same was not subject matter of the assessment as the case was selected for limited scrutiny. Regarding the addition under section 68 of the Act, the ld. AR contended that the assessee has discharged the onus cast under section 68 of the Act by furnishing the identity and creditworthiness of the parties.

8. On the other hand, the learned DR vehemently supported the order of the authorities below.

9. We have heard the rival contentions of both the parties and perused the relevant materials available on record before us. Admittedly, the case of the assessee was selected under “Limited Scrutiny” scheme. Before going into the fact of the case on hand, we note the CBDT in instruction No. 20/2015 dated 29/12/2015 has laid down that the Assessing Officer in case of “Limited Scrutiny” can only examine those issues for which the case has been selected or the issue mentioned therein. If the AO notice that there is a potential escapement of income which exceeds Rs. 5 Lacs, he may convert the “Limited Scrutiny” into “Complete Scrutiny” with previous approval of PCIT in writing. The relevant portion of the instruction stands as under:

3. As far as the returns selected for scrutiny through CASS-2015 are concerned, two type of cases have been selected for scrutiny in the current Financial Year- one is ‘Limited Scrutiny’ and other is ‘Complete Scrutiny’. The assessees concerned have duly been intimated about their cases falling either in ‘Limited Scrutiny’ or ‘Complete Scrutiny ‘ through notices issued under section 143(2) of the Income-tax Act, 1961 (‘Act’). The procedure for handling ‘Limited Scrutiny’ cases shall be as under:

a. In ‘Limited Scrutiny’ cases, the reasons/issues shall be forthwith communicated to the assessee concerned.

b. The Questionnaire under section 142(1) of the Act in ‘Limited Scrutiny’ cases shal l remain confined only to the specific reasons/issues for which case has been picked up for scrutiny. Further, the scope of enquiry shall be restricted to the ‘Limited Scrutiny’ issues.

c. These cases shall be completed expeditiously in a limited number of hearings.

d. During the course of assessment proceedings in l’imited Scrutiny’ cases, if it comes to the notice of the Assessing Officer that there is potential escapement of income exceeding Rs. five lakhs (for metro charges, the monetary limit shall be Rs. ten lakhs) requiring substantial verification on any other issue(s), then, the case may be taken up for ‘Complete Scrutiny’ with the approval of the Pr. CIT/CIT concerned. However, such an approval shall be accorded by the Pr. CIT/CIT in writing after being satisfied about merits of the issue(s) necessitating ‘Complete Scrutiny’ in that particular case. Such cases shall be monitored by the Range Head concerned. The procedure indicated at points (a), (b) and (c) above shall no longer remain binding in such cases. (For the present purpose, ‘Metro charges ‘ would mean Delhi, Mumbai, Chennai, Kolkata, Bengaluru, Hyderabad and Ahmedabad).

9.1 The CBDT further amended the para 3(d) of the above-mentioned instruction vide instruction No. 05/2016 dated 14-07-2016 with additional requirement that the AO will form a reasonable view regarding the potential escapement of income. The relevant portion of the instruction stands as under:

2. In order to ensure that maximum objectivity is maintained in converting a case falling under ‘Limited Scrutiny’ into a ‘Complete Scrutiny’ case, the matter has been further examined and in partial modification to Para 3(d) of the earlier order dated 29.12.2015, Board hereby lays down that while proposing to take up ‘Complete Scrutiny’ in a case which was originally earmarked for ‘Limited Scrutiny’, the Assessing Officer (‘AO’) shall be required to form a reasonable view that there is possibility of under assessment of income if the case is not examined under ‘Complete Scrutiny’. In this regard, the monetary limits and requirement of administrative approval from Pr. CIT/CIT/Pr. DIT/DIT, as prescribed in Para 3(d) of earlier Instruction dated 29.12.2015, shall continue to remain applicable.

3. Further, while forming the reasonable view, the Assessing Officer would ensure that:

a. there exists credible material or information available on record for forming such view;

b. this reasonable view should not be based on mere suspicion, conjecture or unreliable source; and

c. there must be a direct nexus between the available material and formation of such view.

4. It is further clarified that in cases under ‘Limited Scrutiny’, the scrutiny assessment proceedings would initially be confined only to issues under ‘Limited Scrutiny’ and questionnaires, enquiry, investigation etc. would be restricted to such issues. Only upon conversion of case to ‘Complete Scrutiny’ after following the procedure outlined above, the AO may examine the additional issues besides the issue(s) involved in ‘Limited Scrutiny’. The AO shall also expeditiously intimate the taxpayer concerned regarding conducting ‘Complete Scrutiny’ in such cases.

9.2 Coming to the case on hand, the AO made addition under section 68 of the Act on account of credit of share application money from one Shri Ramesh Varadan and TP adjustment on purchases of Goods.

9.3 First, we proceed to adjudicate the issue of addition on account of TP adjustment representing transaction of purchase of goods/spares. In this regard, we find that a notice under section 143(2) of the Act was issued for “Limited Scrutiny” for examination of “receipt of large volume of Premium on share and to verify the applicability of provision of section 56(2)(vii) of Act or any other relevant section”. There was no mentioning/whisper about examination of the fact with regard to “purchase made from an AE” which requires determination of ALP as per the provision of section 92 to 92CA of the Act. Further, there was no whisper in the order of the authority below that the limited scrutiny was converted into complete scrutiny. The learned DRP in his order given a finding that the AO after previous approval of PCIT made reference to TPO under section 92CA of the Act to determine ALP of international transaction. In this regard we note that the approval pf learned PCIT before referring to TPO under section 92CA of the Act is different from the approval of competent authority to convert the limited scrutiny to complete scrutiny. Therefore, we are not in agreement with the above finding of learned DRP. The Ld. DR before us has also not brought anything on record justifying that the “Limited Scrutiny” was converted by the Assessing Officer under normal/ regular scrutiny after obtaining necessary approval from the appropriate authority. Accordingly, we hold that the Assessing Officer/TPO has exceeded his jurisdiction by making upward adjustment in TP report on account of purchase of goods/spares from the AE.

9.4 The right course of action for the AO was to take the approval from the competent authority for expanding the scope of Limited Scrutiny to the regular assessment but he failed to do so. In holding so, we draw support and guidance from the order of the Hon’ble Chandigarh Tribunal in case of Rajesh Jain vs. ITO reported in 162 taxman 212 where it was held as under:

The jurisdiction of the Assessing Officer in such cases where the notices are issued for limited scrutiny is confined to the claims he has set out in the notice for verification. This position of law was further elaborated by the CBDT in its Circular No. 8/2002, dated 27-8-2002.

The CBDT Circular clarifies that the Assessing Officer does not have the powers to make the entire assessment of income in limited scrutiny cases. Now question had to be decided when the Assessing Officer does not have the powers while making limited scrutiny assessment to decide such issues which are not covered by the limited scrutiny notice, the Commissioner (Appeals) on appeal against limited scrutiny assessment can exercise the powers in excess of the power vested with the Assessing Officer. There is no doubt that the power of the Commissioner (Appeals) is co-terminus with the power of the Assessing Officer. So, however, in the instant case, when the Assessing Officer did not have the power to make a full-fledged assessment in limited scrutiny cases, the Commissioner (Appeals)’s power could not be enlarged beyond the power of the Assessing Officer in limited scrutiny cases. So, it was considered appropriate to remit the issue relating to allowance o f depreciation in respect of the plinth to the file of the Assessing Officer for the purpose of fresh decision in accordance with law. Since the notice under section 143(2)(i ) was issued for limited scrutiny, the Assessing Officer was precluded from considering any other issue while making the assessment under section 143(3) under limited scrutiny. The decision of the Commissioner (Appeals) in considering the other claim of the assessee not covered in the notice issued under section 143(2)(i) for limited scrutiny was contrary to the provisions of the Act and, accordingly, was set aside.

9.5 In view of the above and after considering the facts in totality as discussed above, we are not convinced with the finding of the authorities below. As such the entire issue should have been limited to the extent of the dispute raised in the notice issued under section 143(2) of the Act for the limited scrutiny but the AO in the present case has exceeded his jurisdiction as discussed above. Thus, we hold the addition made by the AO on account TP adjustment is without having valid jurisdiction therefore the same cannot be sustained. Hence, the ground of appeal of the assessee in this regard is hereby allowed.

9.6 Coming to the issue of addition under section 68 of the Act. The assessee received an amount of Rs. 1,23,39,500/- from its existing share holder namely Shri Ramesh Vardhan on account of issue of fresh share at premium. The AO as per direction of DRP treated the partial amount of 68,83,170/- as unexplained credit under section 68 of the Act against which the assessee is in appeal before us.

9.7 The provision of section 68 of the Act fastens the liability on the assessee to make proper and reasonable explanation regarding the nature and sources of sum credited in the books to the satisfaction AO. The assessee is liable to provide proof of the identity of the lenders, establish the genuineness of the transactions and creditworthiness of the parties. These liabilities on the assessee were imposed to justify the credit entries under section 68 of the Act by the Hon’ble Calcutta High Court in the case of CIT Vs. Precision finance (p) Ltd reported in 208 ITR 465 wherein it was held as under:

“It was for the assessee to prove the identity of the creditors, their creditworthiness and the genuineness of the transactions. On the facts of this case, the Tribunal did not take into account all these ingredients which had to be satisfied by the assessee. Mere furnishing of the particulars was not enough. The enquiry of the ITO revealed that either the assessee was not traceable or there was no such file and, accordingly, the first ingredient as to the identity of the creditors had not been established. If the identity of the creditors had not been established, consequently, the question o f establishment of the genuineness of the transactions or the creditworthiness of the creditors did not and could not arise. The Tribunal did not apply its mind to the facts of this particular case and proceeded on the footing that since the transactions were through the bank account, it was to be presumed that the transactions were genuine. It was not for the ITO to find out by making investigation from the bank accounts unless the assessee proved the identity of the creditors and their creditworthiness. Mere payment by account payee cheque was not sacrosanct nor could it make a non-genuine transaction genuine. ”

9.8 In case on hand, the identity of party subscribing share of the assessee i.e. Shri Ramesh Vardhan is not in dispute. As such the dispute is only limited to the extent of source of investment by the Shri Ramesh Vardhan in the shares of assessee company. The assessee before the AO/learned DRP furnished the copy of ITR of the impugned party for last 4 years, his bank statement and chart explaining the sources of credit in his bank account which was ultimately utilized for making investment in the share of the assessee company. As per the chart submitted by the assessee company, the bank account of Shri Ramesh was credited for Rs. 1,62,35,776/- (including opening balance of Rs. 23,41,501/- as on 30-06-17) on account of salary/remuneration from assessee company, redemption of mutual fund, advance received back from assessee company and loan from friends/relatives. The DRP/AO treated the amount Rs. 54,56,329/- credited in bank account of Shri Ramesh Vardhan on account of salary, commission income and opening bank balance from explained sources. As such the amount of credit of Rs 64,00,516/- on account of redemptions of mutual fund was not considered from explained sources because sources of investment in such mutual fund was not explained. At the outset, we note that Shri Ramesh has been showing huge amount of income which is an average of Rs. 64 lakh per annum. Therefore in our considered view it cannot be assumed that Shri Ramesh has not the sufficient credit worthiness to invest in mutual fund or made investment in mutual fund form unexplained sources. Thus, the redemption of such mutual fund and utilization of same cannot be doubted. In effect, the assessee is able justify the source of investment to the tune of Rs. 54,56,329/- on account of salary, commission income and opening bank balance from explained sources and amount of credit of Rs 64,00,516/- on account of redemptions of mutual funds which is sufficient enough to justify the source of share capital received by the assessee from the director. In our considered opinion the assessee company has duly explained the sources of fund in the hand of Shri Ramesh Vardhan. The revenue authority also accepted the partial amount but not accepted source of the other amount only based on surmises and conjecture.

9.9 Thus, in view of the above we hold that the assessee has discharged the onus cast under section 68 of the Act with respect to receipt of share application money from Shri Ramesh Vardhan. Therefore, we hereby direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is hereby allowed.

10. In the result appeal of the assessee is herby allowed.

Order pronounced in the Court on 14/06/2023 at Ahmedabad.