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
This appeal is preferred by the revenue against the order dated 28.03.2024 of the Ld. National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred as Ld. First Appellate Authority or in short Ld. ‘FAA’) in DIN & Order No: ITBA/NFAC/S/250/2023-24/1063551437(1)arising out of the order dated 31.12.2019 u/s 147/143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) passed by ITO, Ward-27(4), New Delhi for AY: 2012-13.
2. Heard and perused the records. Assessee, is a company engaged in the business of financing and is registered as a Non-Banking Financial Company with the Reserve Bank of India. As, for Assessment Year 2012-13, the Assessee filed its return of income declaring a total income of Rs.3,33,03,480/-. The return was selected for scrutiny and the original assessment was completed under section 143(3) of the Act vide order dated 13.02.2015, accepting the returned income. During the relevant financial year, the Respondent-Assessee received an aggregate amount of Rs.105,50,00,000/- from M/s Supreme Build- Cap Private Limited towards share application money. Out of the said amount, a sum of Rs.8,42,50,000/- was refunded during the year, leaving a balance of Rs.97,07,50,000/- as on 31.03.2012. Based on submissions and the documents placed on record during the course of the original assessment proceedings, including the details of the amount received towards share application money, the amount refunded out of the aggregate sum of Rs. 105,50,00,000/- during the relevant previous year and the subsequent year, and the confirmation furnished by M/s Supreme Build-Cap Private Limited, the Ld. AO did not draw any adverse inference with respect to the said amount while completing the original assessment. Accordingly, no addition was made in the original assessment order on this account.
3 Subsequently, the Assessing Officer received information from the Investigation Wing regarding certain transactions involving the Assessee, M/s Supreme Build-Cap Private Limited and certain group concerns. On the basis of the said information, the assessment was reopened under sections 147/148 of the Act. The reassessment proceedings culminated in an order dated 31.12.2019, passed under section 147 read with section 143(3) of the Act, determining the total income of the Respondent Assessee at Rs. 100,40,53,480/-. In the reassessment order, the Assessing Officer treated the outstanding share application money of Rs.97,07,50,000/- received from M/s Supreme Build-Cap Private Limited as an unexplained cash credit and added the same under section 68 of the Act. The Ld. AO while making the above addition alleged that the income declared by Supreme Build-Cap Private Limited is NIL, thus the creditworthiness of aforesaid party is not proved, therefore the amount of closing balance of share application money amounting Rs.97,07,50,000/- is added in hands of the respondent assessee under section 68 of the Act.
4. Aggrieved by the reassessment order, the Assessee preferred an appeal before the Ld. CIT(A). During the appellate proceedings, the Respondent- Assessee also furnished additional supporting evidence under Rule 46A of the Income-tax Rules, 1962. and Written Submission in support of admission of additional evidence under Rule 46A. The ld. CIT(A) had adjudicated the appeal partly in favour of the Respondent in respect of the two issues arising from the reassessment order passed by the Ld. AO on 31.12.2019 in the following manner:
(i) Reopening of the assessment under section 148 of the Act being decided against the assessee by the Ld. CIT(A), and
(ii) Addition of Rs. 97,07,50,000/- made under section 68 of the Act being decided in favour of assessee by the Ld. CIT(A) and directed to delete the addition so made in the reassessment order by the Ld.
5. The Department being aggrieved filed an appeal on the solitary issue of deletion of addition of Rs. 97,07,50,000/- made under section 68 of the Act. The Respondent Assessee filed an application under Rule 27 of the Income Tax (Appellate Tribunal) Rules. 1963 (Tribunal Rules), before dated 15.12.2025 raising the issue of initiation of reassessment proceedings under section 148 of the Act which being decided against the assessee by the Ld. CIT(A) in its order.
6. During the course of hearing held on 14.07.2026, the Respondent- Assessee did not press its application filed under Rule 27 accordingly same was dismissed withdrawn.
7. Ld. DR has substantially relied the findings of ld. AO and the grounds as raised while ld. Counsel of assessee relied the order of ld. CIT(A) and filed a detailed written submission. The findings of ld. CIT(A), under challenged are reproduced here for completeness;
“6.7.4… Further, specific source of funds invested by M/s. Supreme Build Cap Pvt. Ltd. in shares of appellant have also been explained with adequate proof. Thus, it can be said that the appellant has been able to establish the creditworthiness of this company as well as genuineness of impugned transaction through the details and evidences filed by it.
6.7.5 Further, as an additional evidence the appellant has also filed copies of assessment order M/s Supreme Build-cap Private Limited that original assessment order u/s. 143(3) for A.Y. 2012-13 dated 27.03.2015as well as subsequent reassessment order u/s. 147/143(3) of the Act dated 31.12.2019 passed by Central Circle-5, New Delhi. Thus, it is noted that the company M/s. Supreme Build Cap Pvt. Ltd. has also been assessed to Income-tax for the relevant assessment year 2012-13 and assessment order in its case has been passed by Central Circle-5, New Delhi for A.Y. 2012-13 on the very same date i.e. 31.12.2019 u/s. 147/ 143(3) of the I.T. Act. In this order, the transactions with S.V.G.Contractors Pvt. Ltd. (this company is also mentioned in the reasons recorded in the case of the appellant) have also been discussed and it is noted that in this assessment order total addition of Rs. 75,96,050/- has been made which is in the nature of disallowance of preliminary expenses and disallowance of certain interest expenses. Thus, it is noted that no adverse inference has been drawn in this reassessment order of Supreme Build Cap Pvt. Ltd.on issues mentioned in the reopening reasons of the appellant viz. receipt of funds from Cyprus Entity, doubtful transactions with SGV Contractors Pvt. Ltd. In this reassessment order of Supreme Build Cap Pvt. Ltd. the interest amount of Rs. 46,87,650/- paid to SGV Contractors Pvt. Ltd has been held to be without any business purpose besides disallowance of preliminary expenses. As pointed out above, the date of this reassessment order i.e. 31.12.2019 is same as that of the reassessment order in the case of the appellant. Therefore, this company M/s Supreme Build-cap Private Limited has been simultaneously assessed by its AO and no adverse inference regarding its non-genuineness, creditworthiness, source of fund received from Cyprus Entity etc. have been drawn. Further, no adverse inference has been drawn by the AO of SGV Contractors Pvt.Ltd regarding its sources of investments made in Yashita Finance Pvt.Ltd. Therefore, the stand of the AO in doubting this company Supreme Build Cap Pvt. Ltd. on account of its lack of creditworthiness and lackof genuineness of impugned transaction is not matching with the findings in the reassessment order of the M/s Supreme Build-cap Private Limited for the same assessment year passed under same section on the same date. Furthermore, it is noted that appellant has also filed copy of ITR of A.Y. 2013-14 of M/s Supreme Build-cap Private Limited filed on 25.03.2015 along with computation etc. as per which this company has shown substantial income of Rs.162,50,45,282/-. It is noted that substantial part of this income has been earned as long term capital gains of Rs. 163,07,47,470/. Thus, this company has prima facie shown the income earned on account of sale of capital assets in 4.Y. 2013-14, against which it had received funds on account of agreement to sale in earlier assessment year 2012-13 and which has been stated to be the source of making the impugned investments in the share application money advanced to the appellant.
6.7.6 Therefore, the appellant has filed necessary evidences and documents to prove the nature and source of impugned credits received and to establish the identity and creditworthiness of M/s Supreme Build- cap Private Limited from whom the said funds had been received during the relevant financial year and to establish the genuineness of the impugned transactions and hence the necessary ingredients to fulfill the requirement of Section 68 of the Act (as discussed in detail in paragraphs above) are seen to be satisfied in the instant case and it is noted that the case laws relied upon by the appellant in this regard are applicable to the instant case. As a result, it is clear that the addition ofRs.97,07,50,000/- made by the AO u/s.68 of the Act is not correct and therefore the same is directed to be deleted. As a result, grounds of appeal No.8 & 9 are allowed.”
8. We find from the impugned order of ld. CIT(A) that assessee had contended that detailed replies and supporting documents had been uploaded on the income-tax portal on 28.11.2019 and again on 21.12.2019, but the same were neither considered nor discussed in the reassessment order. Reference to same was made before us too as copy of reply dated 28.11.2019 filed against notice u/s 142(1), Annexure – 16, Paper Book Pg. 271-378 and Copy of reply dated 21.12.2019, Annexure – 18, Paper Book Pg. 381-488.
9. Then Ld. CIT(A) independently verified the electronic records available on the departmental system and found that the replies dated 28.11.2019 and 21.12.2019 had, in fact, been filed by the Respondent-Assessee during the reassessment proceedings. Based upon the above, the objection of the AO regarding the additional evidence and documents filed in the course of the reassessment proceedings accepted by the Ld. CIT(A). The Ld. CIT(A) while admitting the additional evidence held that additional evidence so furnished by the assessee including the fresh confirmation, assessment orders of M/s Supreme Build-Cap Private Limited and agreements for sale of properties, was found to be in continuation and further support of the case already put forward before the Assessing Officer.
10. It is pertinent to observe here that the department has not challenged the admission of the additional evidence under Rule 46A of the Act in its appeal before nor the Ld. DR made any submission in respect of the additional evidence filed before the Ld. CIT(A) and admitted under Rule 46A after obtaining the remand report from the AO in the appellate proceedings before the Ld. CIT(A).
11. The explanation and case of Assessee is that receipt of share application money aggregating to Rs. 105,50,00,000/- from M/s Supreme Build-Cap Private Limited during the relevant previous year is through normal banking channels and duly recorded in the books of account of the Assessee. Admittedly, out of the aforesaid amount, a sum of Rs.8,42,50,000/-was refunded during the year itself and the balance amount of Rs.97,07,50,000/-remained outstanding as on 31.03.2012 which being the subject matter of the addition under section 68 of the Act made in the reassessment order, though the aforesaid amount of Rs.97,07,50,000/- was also refunded by the assessee due to non-allotment of shares to share applicant namely Supreme Build-Cap Private Limited. Then admittedly, the said transaction was disclosed in the audited financial statements filed along with the return of income and was specifically examined during both the original assessment proceedings as well as the reassessment proceedings.
12. During the course of original assessment proceedings, the Assessee furnished documentary evidence in the form of bank statement, return of income of share applicant for the year under consideration, computation of income etc., along with confirmation of share applicant. We find that in re-assessemnt proceedings, ld. AO has re-examined the above issue based solely upon the information received from the Investigation Wing in the present reassessment proceedings. While in the course reassessment proceedings, the assessee explained not only the source of the share application money but also the source of funds available with the investor. The Assessee explained that M/s Supreme Build-Cap Private Limited had received substantial funds amounting to Rs.130,94,92,469/- on 28.10.2011 from M/s Adamas Builders Private Limited through HSBC Bank pursuant to agreements for sale of immovable properties situated in Bangalore, and it was out of these funds that the impugned share application money was advanced to the Assessee. The Assessee further brought on record that the entire share application money was subsequently refunded through banking channels, thereby demonstrating that the transaction was a genuine commercial transaction. Attention in this regard was brought to Pg. 585-634 of PB, being the agreement of sale entered by the M/s Supreme Build- Cap Private Limited with M/s Adamas Builders Private Limited at total consideration of Rs. 221 Crores. Further, the sale deed executed in consequence to the above agreement was placed on record before us as Annexure-33 at Pg 720-814 of PB.
13. Now with regard to the identity of the investor it can be seen that M/s Supreme Build-Cap Private Limited is an incorporated company assessed to income tax, having a valid PAN, regular income-tax assessments and duly audited financial statements. Its complete corporate particulars, income-tax records and assessment orders were furnished before the Assessing Officer/CIT(A). 13.1 The creditworthiness of the investor can be examined form the audited financial statements disclosed ownership of substantial immovable assets including commercial land, Global Technology Park, buildings and plant and machinery. The financial statements further reflected significant borrowings and advances received against agreements to sell valuable commercial properties. The bank statements demonstrated receipt of more than Rs.130.94 crore immediately before the investment in the Assessee, while the subsequent assessment records established that the corresponding sale transactions ultimately resulted in taxable long-term capital gains exceeding Rs.163 crore. Thus, the financial capacity of the investor was sufficiently demonstrated by documentary evidence and not merely by assertions.
13.2 As with regard to the genuineness of the transaction it can be seen that every receipt and subsequent refund of share application money was routed through normal banking channels. The transaction was duly recorded in the books of both parties, supported by confirmations, reflected in audited financial statements and accepted during assessment proceedings of the investor. Then there is no material whatsoever was brought on record by the Assessing Officer to demonstrate that the money represented the Assessee’s own unaccounted income or that the banking transactions were sham or fictitious on the contrary the evidence is that there is confirmation of M/s Supreme Build-Cap Private Limited containing its PAN and complete address, thereby conclusively establishing the identity of the investor. The copy of acknowledgement of return of income, computation of income and audited financial statements of the investor for the relevant assessment year which established the investor was a regularly assessed company under the Income-tax Act and possessed substantial assets and business operations. Copy of bank statements of M/s Supreme Build- Cap Private Limited evidencing receipt of Rs.130.94 crore from M/s Adamas Builders Private Limited and the subsequent transfer of share application money to the Assessee through normal banking channels. These bank statements directly established the immediate source of funds and conclusively demonstrated the movement of money through identifiable banking transactions. Copies of the agreements to sell executed by M/s Supreme Build-Cap Private Limited in respect of the Global Technology Park and Hotel Land Parcel situated at Bangalore, pursuant to which advances were received. These agreements constituted primary documentary evidence explaining the commercial source of funds available with the investor and completely rebutted the allegation that the investor lacked financial capacity.
13.3 The clinching evidence is the copy of the original assessment order under section 143(3) as well as the reassessment order passed under sections 147/143(3) in the case of M/s Supreme Build-Cap Private Limited. These assessment orders assume considerable significance since the Income-tax Department itself accepted the affairs of the investor after scrutiny and did not record any adverse finding regarding the alleged source of funds, the transactions with Adamas Builders Private Limited or the genuineness of the investment made in the Assessee. Copy of income-tax return and computation of income of Supreme Build-Cap Private Limited of subsequent assessment year wherein substantial long-term capital gains exceeding Rs.163 crore arising from sale of the aforesaid capital assets were duly offered to tax by the investor, thereby corroborating the explanation regarding the source of funds advanced to the Assessee.
13.4 Confirmations of M/s Supreme Build-Cap Private Limited covering the relevant year as well as the subsequent financial years evidencing that the entire share application money was refunded through banking channels. These confirmations, read together with the corresponding bank statements and ledger accounts, conclusively established the complete life cycle of the transaction from receipt to repayment.
14. On examination of issue as above, we find no reasons to interfere in the findings of ld. CIT(A). Ld. AO’s primary concern was low income of invertor, but for that we are of considered view that it is now well settled that where an assessee receives share application money, share capital, share premium, or loans and furnishes complete documentary evidence establishing the identity and creditworthiness of the investor/lender, the genuineness of the transaction, as well as the immediate source of the investment, no addition can be sustained under section 68 of the Act. In support of the aforesaid proposition, reliance is rightly placed by ld. Counsel of assessee, upon the following judicial decisions:
- 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, the High Court of Delhi held as under:
“3. The ITAT has in the impugned order noticed that in the present case the Revenue has not doubted the identity of the share applicants. The sole basis for the Revenue to doubt their creditworthiness was the low income as reflected in their Income Tax Returns. The entire details of the share applicants were made available to the A by the Assessee. This included their PAN numbers, confirmations, their bank statements, their balance sheets and profit and loss accounts and the certificates of incorporation etc. It was observed by the ITAT that the AO had not undertaken any investigation of the veracity of the above documents submitted to him. It has been righty commented by the ITAT that without doubting the documents, the AO completed the assessment only on the presumption that low return of income was sufficient to doubt the credit worthiness of the share holders.
4. The Court is of the view that the Assessee by produced sufficient documentation discharged its initial onus of showing the genuineness and creditworthiness of the share applicants. It was incumbent to the 40 to have undertaken some inquiry and investigation before coming to a conclusion on the issue of creditworthiness. In para 39 of the decision in Nova Promoters (supra), the Court has taken note of a situation where the complete particulars of the share applicants are furnished to the AO and the AO fails to conduct an inquiry. The Court has observed that in that event no addition can be made in the hands of the Assessee under Section 68 of the Act and it will be open to the Revenue to move against the share applicants in accordance with law.
5. In the facts and circumstances of the present appeals, the Court is satisfied that no substantial question of law arises. The appeals are dismissed.”
15. Consequently, we find no substance in the grounds of appeal. Thus appeal of revenue is dismissed.
Order pronounced in the open court on 14.08.2026
