Amogh Buildcon Pvt. Ltd. Vs ITO (ITAT Mumbai)
Low Returned Income Is Not Low Creditworthiness: Once Section 68 Documents Are Filed, AO Must Investigate—Not Speculate
Summary: The Mumbai ITAT has deleted additions aggregating to ₹4.95 crore u/s 68, holding that the creditworthiness of an investor or lender cannot be judged solely from the income returned during one particular year. Once the assessee furnishes confirmations, PAN, ITR acknowledgements, bank statements & ledger accounts establishing the three ingredients of section 68, the burden shifts to the Revenue to conduct an independent enquiry.
The AO cannot reject documentary evidence merely on suspicion without exercising the powers available u/s 131 or 133(6). [Section 68 – TaxGuru]
Share Application Money & Loans Treated as Unexplained
The assessee, a private limited company engaged in the business of builders & developers, filed its return declaring nil income under the normal provisions & book profit of ₹16,538 u/s 115JB.
During assessment, the AO called upon the assessee to explain:
Share application money of ₹3.86 crore received from ten parties; &
Unsecured loans of ₹1.09 crore received from Divine Construction Company & Mangesh Construction.
The AO noticed that confirmations were initially filed only from six out of the ten share applicants. Five confirmations were signed by a common signatory. He also found discrepancies between certain loan confirmations & the balances appearing in the assessee’s books.
Consequently, the AO treated the entire amount of ₹4.95 crore as unexplained cash credits u/s 68.
Additional Evidence Admitted—But Addition Still Confirmed
Before the CIT(A), the assessee filed additional evidence under Rule 46A consisting of confirmation letters, ledger accounts, bank statements & ITR acknowledgements of all the share applicants & loan creditors.
The CIT(A) admitted the evidence & obtained a remand report. In the remand proceedings, the AO accepted some of the reconciliations. In particular, he admitted that the alleged discrepancy in the closing balance of Divine Construction Company was caused by a typographical error in the assessment order.
Despite this, the AO recommended retention of the additions & the CIT(A) confirmed them, primarily because the investments and loans appeared disproportionate to the modest returned income of the respective parties.
Section 68 Burden Was Fully Discharged
The ITAT observed that the initial burden u/s 68 requires an assessee to establish:
Identity of the creditor or subscriber; creditworthiness; & genuineness of the transaction.
In the present case, all the parties possessed PAN, were assessed to income tax & had confirmed the transactions. The transactions were routed through banking channels & were reflected in the respective bank statements and ledger accounts.
Therefore, the identity & genuineness stood established.
As regards creditworthiness, the Tribunal held that it cannot be judged merely by comparing the amount invested or advanced with the income returned for that year. The examination must extend to the party’s capital, reserves, other sources of funds & availability of sufficient bank balance immediately before making the payment.
The bank statements furnished by the assessee demonstrated the availability of funds. The Revenue neither disproved those statements nor undertook any independent enquiry.
Later Strike-Off Cannot Rewrite an Earlier Transaction
The AO also relied upon the fact that four companies having a common director were subsequently struck off from the Register of Companies.
The ITAT rejected this reasoning. A company’s subsequent strike-off, occurring much after the relevant previous year, cannot retrospectively taint an otherwise documented transaction which was contemporaneously recorded & routed through banking channels.
Similarly, the presence of a common director or common signatory, without any further evidence showing that the entities were bogus or accommodation-entry providers, could not justify an addition.
Movement of Money Does Not Automatically Mean Accommodation Entry
In the case of two share applicants, there were multiple receipts & payments during the year. The Tribunal found that these were running/current account transactions fully supported by bank statements & ledger confirmations.
The mere fact that money moved between parties on more than one occasion did not establish circular movement or an accommodation arrangement. The closing balances were properly reconciled, and the underlying banking transactions remained undisputed.
Running Account Receipts Are Not Fresh Unexplained Credits
The addition relating to the loans was independently unsustainable.
In the account of Divine Construction Company, ₹41.34 lakh was already receivable by the assessee at the beginning of the year. After a further payment of ₹15 lakh by the assessee, the amount receivable increased to ₹56.34 lakh. Therefore, out of the subsequent receipts of ₹65 lakh, ₹56.34 lakh merely represented repayment of an existing receivable. Only the residual ₹8.65 lakh represented a fresh credit, and its source was duly documented.
In the case of Mangesh Construction, the opening balance itself was a payable of ₹79.36 lakh. After considering all receipts & payments, the closing payable reduced to ₹45.36 lakh. Thus, there was no fresh unexplained credit during the year.
NRA Iron Actually Required the AO to Investigate
The Revenue relied upon PCIT v. NRA Iron & Steel Pvt. Ltd. The ITAT observed that this decision itself requires the AO to conduct an independent enquiry once primary documents are furnished.
Unlike NRA Iron, where detailed investigation revealed non-existent or financially incapable investors, the AO here issued no summons, conducted no field enquiry & identified no defect in the evidence after reconciliation.
Accordingly, the additions of ₹3.86 crore towards share application money & ₹1.09 crore towards unsecured loans were deleted.
However, interest income of ₹1.20 lakh was held taxable under “Income from Other Sources”, since the assessee was not engaged in money-lending or financing.
Section 68 demands proof from the assessee—but once proof is furnished, it demands investigation from the AO. Suspicion may begin an enquiry; it cannot replace one.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal filed by assessee is against the order of ld. CIT(A)/National Faceless Appeal Centre vide DIN: ITBA/NFAC/S/250/2024-25/1065769132(1), dated 19.06.2024 passed against the assessment order by the Income-tax Officer 12(1)-1 Mumbai, u/s 143(3) of the Income-tax Act (hereinafter referred to as the “Act”), dated 26.03.2015 for the Assessment Year 2012-13.
2. Assessee has raised the following grounds of appeal:
I. Addition made u/s,68 of Rs.3,86,25.000/- as Unexplained Cash Credit in respect of Share Application Money
1. The Learned National Faceless Appeal Centre (NFAC) erred in confirming the addition of Rs.3,86,25,000/- u/s.68 as Unexplained Cash Credit for Share Application Money, without appreciating that the appellant during the assessment proceedings as well as in appellate proceedings had filed confirmation with address, PAN details, ledger accounts, a copy of bank statement, and a copy of the ITR, wherein all details of the parties are made available. As the appellant has discharged its burden by providing the details, hence the addition of Rs.3,86,25,000/- confirmed by the CIT(A) may be directed to be deleted.
2. Without prejudice to the above if the Assessing Officer or the CIT(A) had any doubt regarding the genuineness of the transactions they should have issued the summons and verified the facts, hence the addition confirmed by the CIT(A) may be directed to be deleted.
II. Addition made u/s.68 of Rs.1,09,00,000/- as Unexplained Cash Credit for Unsecured Loans
3. The Learned National Faceless Appeal Centre (NFAC) erred in confirming the addition of Rs.1,09,00,000/- u/s.68 as Unexplained Cash Credit for Unsecured Loans, without appreciating that the appellant during the assessment proceedings as well as in appellate proceedings had filed confirmation with address, PAN details, ledger accounts, a copy of bank statement, and a copy of the ITR, wherein all details of the loan parties are available. As the appellant company has discharged its burden by providing the details, hence the addition of Rs.1,09,00,000/- confirmed may be directed to be deleted.
4. Without prejudice to the above if the Assessing Officer or the CIT(A) had any doubt regarding the genuineness of the transactions they should have issued the summons and verified the facts, hence the addition confirmed by the CIT(A) may be directed to be deleted.
III. Addition made u/s,56 of Rs,1,20,000/- as Income from Other Sources instead of Business Income
5. The Learned National Faceless Appeal Centre (NFAC) erred in confirming Rs.1,20,000/- as Income from other sources u/s.56 instead of Business Income without appreciating that, the appellant has rightly shown interest income as business income as it was generated through the business of the appellant. Hence, Interest Income received by the appellant of Rs.1,20,000/- may be directed to be treated as business income of the appellant.
6. The Learned National Faceless Appeal Centre (NFAC) erred in confirming the addition of Rs.1,20,000/- u/s.56 as Income from other sources without appreciating that, the National Faceless Appeal Centre (NFAC) has allowed the business expenditure claimed against the said interest income shown as business income. Hence, Interest Income received by the appellant of Rs.1,20,000/- may be treated as business income of the appellant
3. Brief facts of the case are that assessee, a private limited company income on 05.03.2013, reporting ‘Nil’ as its total income under the normal provisions and book profit of Rs.16,538/- under section 115JB of the Act. Name of the assessee was changed from Zarna Property Pvt. Ltd. to the present name for which certificate dated 04.05.2012, issued by the Registrar of Companies (RoC); Mumbai is placed on record. During the impugned assessment proceedings, ld. Assessing Officer called upon assessee to substantiate the source of (i) share application money of Rs.3,86,25,000/- received from ten parties, and (ii) unsecured loans of Rs.1,09,00,000/- received from two parties, viz. M/s Divine Construction Company and M/s Mangesh Construction. Not being satisfied with the material placed on record during assessment due to confirmations of only six out of ten share applicants having been filed, five of which were signed by a common signatory, and certain discrepancies having been noticed in the opening/closing balances of the loan confirmations vis-à-vis assessee’s balance sheet, he treated both sums, aggregating Rs.4,95,25,000/-, as unexplained cash credits under section 68 of the Act. Ld. Assessing Officer further disallowed business expenditure of Rs.59,090/- claimed in the Profit & Loss Account on the ground that no business activity was carried out during the year, and assessed interest income of Rs.1,20,000/- earned by assessee as ‘income from other sources’ rather than business income.
4. In appeal, assessee filed an application under Rule 46A of the Income Tax Rules, 1962 (the Rules) seeking admission of additional evidence, comprising bank statements, ITR acknowledgements and confirmation letters/ledger accounts of all the share applicants and loan creditors. Ld. CIT(A) admitted the additional evidence and called for a remand report from ld. Assessing Officer in the remand report dated 01.02.2024, while accepting the correctness of certain reconciliations furnished by assessee including that the discrepancy in the closing balance of M/s Divine Construction Company was on account of a typographical error in the assessment order (correct closing balance being Rs.8,65,182/- as against Rs.45,36,815/- adopted in the assessment order), nonetheless recommended that the additions be sustained. Ld. CIT(A), by the impugned order, sustained both the additions under section 68, allowing the disallowance of business expenditure of Rs.59,090/- and confirmed the assessment of interest income of Rs.1,20,000/- as income from other sources. Aggrieved, assessee is in appeal before the Tribunal.
5. We have heard the rival contentions and perused the material placed on record. It is a settled position that under section 68 of the Act, the initial onus is on assessee to establish the identity and creditworthiness of the creditor/share subscriber and the genuineness of the transaction. Once assessee discharges this onus by furnishing PAN, confirmation, bank statements and income-tax returns of the creditors/subscribers, the onus shifts to the Revenue to disprove the material placed on record or to show that the same is not credible; the Revenue cannot rest content merely by drawing adverse inferences from surrounding circumstances without carrying out any independent verification when the means to do so, viz. issuance of summons/notices under section 131 or section 133(6) of the Act, were very much available to it.
6. On facts, we find that in respect of all ten share applicants and both loan creditors, assessee has placed on record all the relevant documentary evidence, as part of the paper book filed before the Ld. CIT(A) and examined by ld. Assessing Officer. The same is extracted below from the index of the paper book for ready reference:
| Sr. No. | Particulars |
|---|---|
| 1. | Documents in connection with addition made in respect of share application money treated as unexplained cash credit u/s. 68 of the Act: Arco Eng. & Consultants Pvt. Ltd.i. Copy of Confirmation of Accountsii. Copy of Acknowledgement of Return of Income Filed for AY 2012-13 |
| 2. | Bloomdale Finvest Pvt. Ltd.
i. Copy of Confirmation of Accounts ii. Copy of Acknowledgement of Return of Income Filed for AY 2012-13 iii. Bank Statement for AY 2012-13 |
| 3. | Jai Hind Mercantile Pvt. Ltd.
i. Copy of Confirmation of Accounts ii. Copy of Acknowledgement of Return of Income Filed for AY 2012-13 iii. Bank Statement for AY 2012-13 |
| 4. | Lalita Export Pvt. Ltd.
i. Copy of Confirmation of Accounts ii. Copy of Acknowledgement of Return of Income Filed for AY 2012-13 iii. Bank Statement for AY 2012-13 |
| 5. | Nayan Trade Resources Pvt. Ltd.
i. Copy of Confirmation of Accounts ii. Copy of Acknowledgement of Return of Income Filed for AY 2012-13 iii. Bank Statement for AY 2012-13 |
| 6. | Plumetti Exports Pvt. Ltd.
i. Copy of Confirmation of Accounts ii. Copy of Acknowledgement of Return of Income Filed for AY 2012-13 iii. Bank Statement for AY 2012-13 |
| 7. | Spring Fab and Tex Pvt. Ltd.
i. Copy of Confirmation of Accounts ii. Copy of Acknowledgement of Return of Income Filed for AY 2012-13 iii. Bank Statement for AY 2012-13 |
| 8. | Twins Best Multitrade Pvt. Ltd.
i. Copy of Confirmation of Accounts ii. Copy of Acknowledgement of Return of Income Filed for AY 2012-13 iii. Bank Statement for AY 2012-13 |
| 9. | Yatin B. Shah
i. Copy of Confirmation of Accounts ii. Copy of Acknowledgement of Return of Income Filed for AY 2012-13 iii. Bank Statement for AY 2012-13 |
| 10. | Mangesh Construction
i. Copy of Confirmation of Accounts ii. Copy of Acknowledgement of Return of Income Filed for AY 2012-13 iii. Copy of Pan Card |
6.1. This position is not disputed even in the remand report. The identity of the parties, being companies/entities assessed to tax and possessing verifiable PAN, and the genuineness of the transactions, being reflected through account payee banking channels, therefore stand duly established. As regards creditworthiness, the sole basis on which ld. Assessing Officer, in remand, and ld. CIT(A), in the impugned order, have proceeded is that the quantum of investment/loan is disproportionate to the modest returned income of the investors/lenders. In this regard, it is important to note that creditworthiness of an investor/lender is not to be judged solely with reference to the income returned by it in a particular year; it has to be examined in the context of its overall financial position, including its capital, reserves, other sources of funds and, most importantly, the availability of sufficient balance in its bank account immediately prior to advancing the sum in question which, in the present case, stands demonstrated through the bank statements placed on record and not shown to be doubted or disproved by the Revenue.
7. In respect of the ground taken by ld. Assessing Officer that four of the eight companies in which Shri Naynesh Parikh is a common director were subsequently struck off the Register of Companies, it is to be noted that a subsequent strike-off by the Registrar of Companies, an event that admittedly occurred long after the previous year relevant to the assessment year under consideration, cannot retrospectively taint the genuineness of a transaction that was otherwise supported by contemporaneous documentary evidence and routed through banking
8. As regards the two share applicants, viz. Tinal Pharmaceuticals Pvt. Ltd. and Plumetti Exports Pvt. Ltd., with whom assessee had multiple receipts and payments during the year, we find that these represent running/current account dealings in the ordinary course, fully verifiable from the bank statements and ledger confirmations placed on record, both of which reconcile with the closing balances shown as share application money outstanding at the year-end. The circumstance that money moved on more than one occasion between the parties, without anything more to suggest that the transactions were circular or accommodation in nature, is not by itself a ground to treat the closing credit balance as unexplained. Similarly, the discrepancy pointed out in respect of the opening balance in the account of Shri Yatin Shah stands duly reconciled by assessee, the debit opening balance of Rs.25,00,000/- in assessee’s books, being in the nature of an advance given by assessee in the earlier year, was correctly reflected as ‘Nil’ credit balance in the balance sheet as on 31.03.2011, and the subsequent transactions during the year resulted in the credit balance of Rs.16,00,000/- assessed by ld. Assessing Officer; this is a matter of accounting presentation and does not detract from the genuineness of the underlying banking transactions, which remain undisputed.
9. Similarly, with respect to the unsecured loans of Rs.65,00,000/- and Rs.44,00,000/- received from M/s Divine Construction Company and M/s Mangesh Construction respectively, we note that ld. Assessing Officer, in the remand report itself, has accepted assessee’s reconciliation that the discrepancy in the closing balance of M/s Divine Construction Company was a typographical error in the assessment order and that there is, in fact, no difference in the addition made qua the loan received during the year. In respect of M/s Mangesh Construction, the objection taken in the assessment order as to non-furnishing of bank statements stands cured by the additional evidence placed on record before the Ld. CIT(A), which includes the bank statement, loan confirmation and ITR-V of the said party. In these circumstances, once the identity of the lenders is not in dispute, the transactions are demonstrated to have been routed through banking channels, and the lenders are shown to be income-tax assessees who have confirmed the transactions, we find no justification for treating the sums as unexplained cash credits merely on the ground of the lenders’ relatively modest income.
9.1. We further find force in assessee’s alternative submission, supported by the working charts placed on record that both these credits, in substance, arose out of pre-existing running/current account dealings between assessee and the respective parties, and did not represent fresh unexplained credits to the extent assessed. As per the chart in respect of M/s Divine Construction Company (extracted below), an amount of Rs.41,34,818/- was already receivable by assessee from the said party as on 01.04.2011, which rose to Rs.56,34,818/- upon a further payment of Rs.15,00,000/- made by assessee on 20.04.2011. The subsequent receipts of Rs.25,00,000/- (24.09.2011), Rs.25,00,000/- (24.10.2011) and Rs.15,00,000/- (08.11.2011), aggregating Rs.65,00,000/-, the very sum added by ld. Assessing Officer as loan received during the year were to the extent of Rs.56,34,818/-, no more than repayments of the amount already receivable by assessee, and it is only the residual sum of Rs.8,65,182/- that could, at the highest, be said to represent an amount credited afresh in assessee’s books during the year, the source whereof stands duly explained and verifiable from the very same running account.
9.2. Likewise, as per the chart in respect of M/s Mangesh Construction (extracted below), the opening balance as on 01.04.2011 was itself a sum of Rs.79,36,815/- payable by assessee to the said party, and after giving effect to the running account of receipts and payments through the year, the closing balance remained a payable of Rs.45,36,815/-, which is lower in magnitude than the opening payable. It follows that no part of the gross receipts recorded during the year, which formed the basis of ld. Assessing Officer’s addition, represents a fresh, unexplained credit in assessee’s books; the running account, if anything, moved in assessee’s favor during the year. Where the additions in question represent, at the highest, book entries within a pre-existing and mutually acknowledged running account rather than fresh, unexplained sums entering assessee’s books, section 68 of the Act does not have any application.
a) Chart Showing Receipts and Payments from Divine Construction Company Assessment Year 2012-13
Assessment Year: 2012-13
ITA No. 4118/Mum/2024
Chart Showing Receipts and Payments from Divine Construction Company (Page No. 80 of Paper Book)
| Date | Particulars | Amount Received | Amount Paid | Balance Amt Receivable | Remarks |
|---|---|---|---|---|---|
| 01/04/2011 | Op. Balance | 41,34,818.00 | |||
| 20/04/2011 | Payment made by Assessee | 15,00,000.00 | 56,34,818.00 | ||
| 24/09/2011 | Received by Assessee | 25,00,000.00 | 31,34,818.00 | These amounts are out of the amount receivable by Assessee – Cannot be subjected to addition u/s. 68 | |
| 24/10/2011 | Received by Assessee | 25,00,000.00 | 6,34,818.00 | These amounts are out of the amount receivable by Assessee – Cannot be subjected to addition u/s. 68 | |
| 08/11/2011 | Received by Assessee | 15,00,000.00 | -8,65,182.00 | Out of Rs. 15 Lakhs received the amount of Rs. 6,34,818/- is on account of amount receivable by assessee – This amount cannot be subjected to Addition u/s. 68. Excess received Rs. 8,65,182/- can be examined u/s. 68. |
Note: As shown above, the maximum amount that can be examined u/s. 68 is Rs. 8,65,182/-. The source of the same can be verified and as such the assessee submits that no addition may be made for the above loan as against addition of Rs. 65,00,000/-.
b) Chart Showing Receipts and Payments from Mangesh Construction
Amogh Buildcon Pvt. Ltd.
Assessment Year: 2012-13
ITA No. 4118/Mum/2024
Chart Showing Receipts and Payments from Mangesh Construction (Page No. 86 of Paper Book)
Date |
Particulars |
Amount Received |
Amount Paid |
Balance Amt Receivable (Payable) |
Remarks |
|---|---|---|---|---|---|
01/04/2011 |
Op. Balance |
-79,36,815.00 |
This is Op. Balance B/fd – Cannot be subjected to Addition u/s. 68 |
||
07/04/2011 |
Payment made by Assessee |
30,00,000.00 |
-49,36,815.00 |
||
01/06/2011 |
Received by Assessee |
15,00,000.00 |
|||
01/06/2011 |
Received by Assessee |
10,00,000.00 |
|||
(A) |
25,00,000.00 |
30,00,000.00 |
-74,36,815.00 |
(a) The receipt of Rs. 25 Lakhs can be said to be out of 30 Lakhs paid by Assessee on 7-4-2011 – (b) Balance after these transaction is less than the Op. Balance – Cannot be subjected to addition |
|
09/06/2011 |
Payment made by Assessee |
10,00,000.00 |
-64,36,815.00 |
||
05/10/2011 |
Received by Assessee |
5,00,000.00 |
-69,36,815.00 |
(a) Receipt of Rs. 5 Lakhs can be said to be out of 10 Lakhs paid by Assessee on 9-6-2011 (b) Balance after these transaction is less than the Op. Balance – Cannot be subjected to addition |
|
(B) |
5,00,000.00 |
10,00,000.00 |
|||
21/10/2011 |
Payment made by Assessee |
5,00,000.00 |
-64,36,815.00 |
||
28/10/2011 |
Payment made by Assessee |
20,00,000.00 |
-44,36,815.00 |
||
03/11/2011 |
Payment made by Assessee |
5,00,000.00 |
-39,36,815.00 |
||
12/11/2011 |
Received by Assessee |
10,00,000.00 |
|||
(C) |
10,00,000.00 |
30,00,000.00 |
-49,36,815.00 |
(a) Receipt of Rs. 10 Lakhs is out of 30 Lakhs paid by Assessee on 21-10-11, 28-10-11 and 3-11-11 (b) Balance after these transaction is less than the Op. Balance – Cannot be subjected to addition |
|
08/12/2011 |
Received and Paid on same day |
4,00,000.00 |
4,00,000.00 |
-49,36,815.00 |
Receipt and payment on Same Day. These cancels against each other – No addition can be made |
(D) |
4,00,000.00 |
4,00,000.00 |
-49,36,815.00 |
||
09/12/2011 |
Payment made by Assessee |
4,00,000.00 |
-45,36,815.00 |
This is payment made by the assessee – Cannot be subjected to Addition u/s. 68 – Closing Balance Rs. 45,36,815/- is lesser than the opening balance |
10. Ld. Sr. DR referred to the decision of Hon’ble Supreme Court in the case of PCIT v. NRA Iron & Steel Pvt. Ltd. 412 ITR 161 (SC). In this regard, we note in para 8.2 of the said decision, the following observations:
“8.2 As per settled law, the initial onus is on the Assessee to establish by cogent evidence the genuineness of the transaction, and credit-worthiness of the investors under Section 68 of the Act.
The assessee is expected to establish to the satisfaction of the Assessing Officer CIT v. Precision Finance (P) Ltd. [1995) 82 Taxman 31/[1994]208 ITR 465 (Cal.):
Proof of Identity of the creditors;
Capacity of creditors to advance money; and
Genuineness of transaction
This Court in the land mark case of Kale Khan Mohammed Hanif v. CIT [1963] 50 ITR 1 (SC) and Roshan Di Hatti v. CIT [1977] 107 ITR 938 (SC) laid down that the onus of proving the source of a sum of money found to have been received by an assessee, is on the assessee. Once the assessee has submitted the documents relating to identity, genuineness of the transaction, and creditworthiness, then the AO must conduct an inquiry, and call for more details before invoking Section 68. If the Assessee is not able to provide a satisfactory explanation of the nature and source, of the investments made, it is open to the Revenue to hold that it is the income of the assessee, and there would be no further burden on the revenue to show that the income is from any particular source.”
10.1. Further, in para 9 of the said decision, Hon’ble Supreme Court has observed as under:
“9. The Judgments cited hold that the Assessing Officer ought to conduct an independent enquiry to verify the genuineness of the credit entries.
In the present case, the Assessing Officer made an independent and detailed enquiry, including survey of the so-called investor companies from Mumbai, Kolkata and Guwahati to verify the credit-worthiness of the parties, the source of funds invested, and the genuineness of the transactions. The field reports revealed that the share-holders were either non-existent, or lacked credit- worthiness.”
10.2. Thereafter, Hon’ble Supreme Court summed up the principles which emerged by deliberating upon various case laws as under: “11. The principles which emerge where sums of money are credited as Share Capital/Premium are:
i. The assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors, and credit-worthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of the AO, so as to discharge the primary onus.
ii. The Assessing Office is duty bound to investigate the credit-worthiness of the creditor/subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name lenders.
iii. If the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack credit-worthiness, then the genuineness of the transaction would not be established.
In such a case, the assessee would not have discharged the primary onus contemplated by Section 68 of the Act.”
10.3. Hon’ble Supreme Court, thus, held that once the assessee has submitted the documents relating to identity, genuineness of the transaction, and credit-worthiness of the subscribers, then, AO is duty bound to conduct an independent enquiry to verify the same. However, as noted above, ld. AO in this case has not made any independent enquiry in the course of impugned reassessment proceedings to verify details and documents before the ld. AO and the ld. AO has not pointed out any discrepancy or insufficiency in the said evidences and details furnished by the assessee before him. The discrepancies pointed out have been resolved and reconciled in the remand proceedings in the present case as already noted above. Also, as observed above, the assessee having discharged its initial burden casted upon it to furnish the evidences to prove the identity and creditworthiness of the share subscribers and genuineness of the transaction, onus shifted on the ld. AO to examine the evidences furnished and make independent inquiries and thereafter, to state that on what account he was not satisfied with the details and evidences furnished by the assessee by confronting with the same to the assessee.
11. For the reasons discussed above, we hold that assessee has duly discharged the onus cast upon it under section 68 of the Act in respect of both the share application money of Rs.3,86,25,000/- and the unsecured loans of Rs.1,09,00,000/-. The additions made by the ld. AO and sustained by the Ld. CIT(A) are accordingly deleted. Ground nos. I and II raised by the assessee are allowed.
12. Ground no. III is in respect of interest income assessed as income from other sources. This ground assails the confirmation by ld. CIT(A), of the assessment of interest income of Rs.1,20,000/- earned by assessee from Precision Press Tools Pvt. Ltd. as ‘income from other sources’ under section 56 of the Act, instead of business income.
12.1. Case of the assessee is that since the corresponding business expenditure of Rs.59,090/- claimed against this income has been allowed by the Ld. CIT(A), the interest income corresponding to it, ought this contention. It is well settled that interest income earned on surplus or idle funds advanced by way of loan by an assessee not engaged in the business of money-lending or financing, is assessable under the head ‘Income from Other Sources’ and not as business income, irrespective of the fact that assessee may otherwise be carrying on or intending to carry on a business. Allowability of related administrative expenditure under section 37(1) on the footing that assessee had at least commenced its business activity, operates on independent considerations from those governing the characterization and head of assessment of a particular receipt. We find no material on record to show that assessee is engaged in the business of money-lending or that the impugned interest income arose in the course of carrying on such business so as to partake the character of business income. We, therefore, find no infirmity in the finding of the Ld. CIT(A) that the interest income of Rs.1,20,000/- is rightly assessable as ‘income from other sources’. Accordingly, ground no. III raised by assessee is dismissed.
13. In the result, appeal of the assessee is partly allowed.
Order is pronounced in the open court on 17 August, 2026
