ITO Vs Maa Shakambhari Infratech Private Limited (ITAT Raipur)
Share Capital Received Is Not an “Investment Made” – Section 69 Cannot Be Invoked by Turning the Provision Upside Down
The Raipur Bench of the ITAT has held that share application money received by an assessee-company cannot be treated as its unexplained investment u/s 69, particularly when the transaction is duly recorded in its books of account. Section 69 applies where the assessee has made an investment which is not recorded in the books. It cannot be invoked against a company merely because it has received an investment from another company.
The assessee, Maa Shakambhari Infratech Pvt. Ltd., had received share application money of ₹2.83 crore from Rowland Vincom Pvt. Ltd. During reassessment proceedings, the AO treated the amount as an unexplained investment and made an addition u/s 69. The allegation was apparently based on information that the investor was a shell company and that its name had surfaced during an investigation involving another entity, namely Ankush Sales Pvt. Ltd.
The assessee contended that the very foundation of the addition was legally misconceived. The assessee had not made any investment; rather, it had received share application money. Further, the receipt was admittedly recorded in its regular books of account. Therefore, both the essential conditions necessary for applying section 69 were absent.
The assessee also pointed out that the issue had already been examined during the original assessment proceedings. The AO had issued notices u/s 133(6) directly to the shareholders, and the investor had responded by furnishing its confirmation, acknowledgement of return, audited financial statements and bank statements evidencing the payment of share application money.
During the reassessment proceedings, the queries concerning the share capital were raised only at the fag end. A general query was issued on 13.12.2019, while the specific query concerning Rowland Vincom Pvt. Ltd. was raised on 28.12.2019. The reassessment order was passed immediately thereafter on 30.12.2019. As the relevant documents were already available in the assessment records, the assessee did not consider it necessary to furnish the same documents once again.
Before the CIT(A)/NFAC, the assessee nevertheless produced comprehensive documentary evidence, including the investor’s certificate of incorporation, memorandum & articles of association, share application form, board resolution authorising the investment, share allotment letter and share certificates.
The CIT(A) found that the assessee had satisfactorily established the identity and creditworthiness of the investor and the genuineness of the transaction. The investor’s identity stood proved by its PAN, address, return acknowledgement, bank statement and incorporation documents. The genuineness was supported by the investor’s direct response to the notice u/s 133(6), corresponding banking entries, share application documents, board resolution, allotment records and disclosure of the investment in the investor’s balance sheet.
Regarding creditworthiness, the CIT(A) made an important observation that an investor’s capacity cannot be judged merely with reference to its income for the particular year. What is relevant is the overall financial resources available with the investor, especially where it is not claimed that the investment was made exclusively out of the current year’s profits. The audited balance sheet demonstrated that sufficient resources were available, and the investor was also regularly assessed to tax.
The allegation that Rowland Vincom Pvt. Ltd. was a shell company was also found to be unsupported. The AO had neither supplied the information allegedly received from the Principal Chief Commissioner nor explained how the investor was connected with the investigation in the case of Ankush Sales Pvt. Ltd. No details of the alleged money trail or adverse evidence were furnished to the assessee. A company cannot be condemned as a shell company merely through a passing reference to some undisclosed investigation report. The material relied upon and the basis of the allegation must be disclosed, and the assessee must be afforded an effective opportunity to rebut it.
The CIT(A) accordingly deleted the addition. When the Revenue carried the matter to the Tribunal, the Departmental Representative could not produce any evidence to controvert the findings recorded by the CIT(A). In fact, it was conceded that Rowland Vincom Pvt. Ltd. had made the investment in the assessee-company and that the amount was duly reflected in the assessee’s books.
The Tribunal, therefore, held that the very threshold requirements of section 69 were not satisfied. Since the assessee had received the investment instead of making it, and the transaction was admittedly recorded in its books, the provision had no application. The deletion of the addition of ₹2.83 crore was upheld and the Revenue’s appeal was dismissed. The assessee’s cross-objection was separately dismissed as withdrawn.
Author’s Comments
The decision exposes a basic but recurring error in assessment proceedings—the tendency to invoke sections 68, 69, 69A and 69C interchangeably without first examining their statutory ingredients. Section 69 is concerned with an investment made by the assessee which is absent from its books. It cannot cover a share capital receipt duly appearing in the books.
Ordinarily, an unexplained credit appearing in the books may require examination u/s 68. However, even the correct section cannot rescue an addition founded only upon labels such as “shell company” or “accommodation entry”. Once the assessee produces incorporation records, returns, audited accounts, bank statements, confirmations and statutory share documents, the AO must conduct a meaningful enquiry and bring contrary evidence on record. Suspicion may trigger an enquiry, but it cannot substitute the result of that enquiry.
The ruling also reinforces an equally important principle: an investor’s creditworthiness must be tested with reference to its financial capacity and available resources, and not merely its returned income for one year. Most importantly, undisclosed investigation material cannot be used as a secret weapon. If the Revenue relies upon an alleged money trail or adverse statement, the relevant material must be supplied and subjected to proper rebuttal. An addition of ₹2.83 crore cannot rest upon an allegation whose factual foundation is never placed before the assessee.
Cases Discussed
- Pawan Kumar Agrawal vs ITO, Tax Case No. 24 of 2011, dated 04.04.2017, Hon’ble Chhattisgarh High Court.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, RAIPUR
The captioned appeal preferred by the Revenue and corresponding cross objection by the assessee emanates from the order of the Ld.CIT(Appeals)/NFAC, Delhi dated 19.09.2025 for the assessment year 2012-13 as per the grounds of appeal on record.
2. At the very outset, a petition has been filed by the Ld. Counsel for the assessee requesting for withdrawal of cross objection. The said petition is extracted as follows:
Date: 06.02.2026
Before The Hon’ble Members, Income Tax Appellate Tribunal, Raipur Bench Nava Raipur
Reg. Income Tax Officer, Ambikapur Vs. Maa Shakambhari Infratech P. Ltd., Ambikapur (PAN: AAJCA 1050 A)
– Appeal No.: ITA 696/RPR/2025 – Assessment Year: 2012-13
Sub.: Permission to withdraw Cross Objection filed on 02.02.2026
In the above matter, it is respectfully prayed as under:
1. That the respondent has filed cross objection against above appeal on 02.02.2026.
2. That the respondent is filing an application U/R 27.
It is therefore prayed that the above cross objection filed along with condonation of delay kindly be permitted to withdraw.
For this, the appellant will be obliged to your honor.
Prayed,
3. The Ld. Sr. DR did not raise any objection for such withdrawal of cross objection by the assessee.
4. Having heard the submissions of the parties herein, the assessee is permitted to withdraw the cross objection. Hence, cross objection filed by the assessee in CO No.04/RPR/2026 is dismissed as withdrawn.
5. Coming to Revenue’s appeal, in this case additions had been made by the A.O on the issue of share application money amounting to Rs.2,83,00,000/- on account of unexplained investment u/s.69 of the Income Tax Act, 1961 (for short ‘the Act’).
6. In this regard, the Ld. CIT(Appeals)/NFAC has held and observed as follows:
“5.1 The facts and grounds of the case, assessment order and other material available on record have been gone through carefully and are considered in adjudicating the issue as under. During the course of the appeal proceedings, the appellant claimed that Enquiry on the issue of share application money received by the appellant was made during the original assessment proceedings as well. During such proceedings, direct enquiry u/s 133(6) was conducted from all the shareholders of the appellant. Against such notice, the investor had submitted its response along with following documentary evidences:
1) Confirmation in the form of response to direct enquiry u/s 133(6) by the investor along with evidence of mailing
2) Acknowledgement of return filed for AY 2012-13
3) Audit report along with audited financial statements
4) Bank statements reflecting payments made towards share application.
Further the appellant company submitted that during the course of reassessment proceedings, letter containing queries w.r.t share capital received by the appellant, was issued as late as on 13.12.2019. Further, specific query relating to share application money received from Rowland Vincom Pvt. Ltd. was raised on 28.12.2019, i.e. at the fag end of reassessment proceedings as the reassessment order came to be passed on 30.12.2019. Given that all relevant documents were already filed before AO during the original assessment proceedings, the counsel for the appellant deemed it was not necessary to refurnish the same.
During the present appellate proceedings, in support of share application money received from Rowland Vincom Pvt. Ltd., the appellant company had furnished the following documents: –
1. Certificate of incorporation (page no. 20)
2. MOA / AOA (page no. 21 to 29)
3. Share application form (page no. 30 to 32)
4. Board resolution passed by the Board of investor company authorizing investment in shares of appellant, (page no. 33)
5. Share allotment letter (page no. 34 to 42) 6. Share certificate (page no. 43 to 45)
In view of the above facts, it is very much clear that the AO was already had access to all relevant documents on his record right form the stage of original assessment proceedings. In absence of any enquiry conducted by AO during the reassessment proceedings, the legal and cogent evidences could not have been discarded. For this preposition, the appellant places reliance on Pawan Kumar Agrawal vs ITO in Tax Case no. 24 of 2011 dated 04.04.2017 of Hon’ble Chhattisgarh High Court, wherein it was held that in absence of notice u/s 131 or 133(6) having been issued, addition could not be made.
5.2. Identity, genuineness and credit worthiness established
Identity
Identity of the shareholder is established by its PAN, complete address, ITR acknowledgement, bank statement, certificate of incorporation, MOA & AOA etc.
Genuineness
Genuineness of transaction is established by confirmation by investor in direct enquiry u/s 133(6), the entries in the bank account of investor and of appellant, share application letter, board resolution passed by the board of Investor Company, share allotment certificate, share certificate and the investment being reflected in the balance sheet of investor.
Credit worthiness
Credit worthiness of the investors is established by the balance sheet of investor which shows that they possessed enough resources to make investment with appellant and the investors being assessed to tax. It is a settled position of law that to justify an investment, it is not the income of the investor but overall resources available in its hands, which are required to be considered, especially when no claim is made that the investment was out of the profit/income. The resources available in the hands of investor depicted in its balance sheet and such balance sheet is being filed by the investor with its return of income and such balance sheet is being accepted in the case of the investor. Therefore, application out of such funds/resources with the appellant could not have been doubted by the AO.
5.3 No basis given against allegation of shell company
i) At the beginning of reassessment order, it is mentioned that AO has allegedly received some information from Pr. CCIT, Raipur that during the year, the appellant had issued shares worth Rs.2,83,00,000/- to a shareholder, which is a shell company transaction.
ii) Subsequently, vide page no. 2 of the assessment order, AO has mentioned that during the course of investigation in case of some Ankush Sales Pvt. Ltd., Rowlnand Vincome has allegedly agreed to money trial in the appellant and has asked to conduct investigation on the case.
iii) In this regard, it is submitted that the AO has not shared the information allegedly received by him from Pr. CCIT regarding shell company transaction, neither has he shared any details as to how Rowland Vincom Pvt. Ltd. came to be associated with the investigation in the case of Ankush Sales Pvt. Ltd. or how money trail has been identified.
iv) Prior to making an addition on account of the allegation of shell company transaction, it is important to convey the basis on which such company is being treated as a shell company and provide the related material/ evidence.
v) In the present case, it was more so for the reason that, the investor Rowland Vincom Pvt. Ltd. is a sister concern of the appellant company, and the directors of Rowland Vincom Pvt. Ltd. are not aware of any such material/ evidence classifying the company as a shell company.
5.4. Provisions of section 69 not applicable
i) AO has made addition of Rs.2,83,00,000/- on account of share application money received from Rowland Vincom Pvt. Ltd treating it as unexplained investment under section 69 of the Act.
ii) The primary condition for invoking the provisions of section 69 are: –
1. There must be an investment made by the assessee, and 2. Such investment should not be recorded in the books of accounts.
iii) In the present case, it is pertinent to note that the appellant has received investments from the impugned company, rather than making any investment.
iv) Further, such investments have been duly recorded in the boos of accounts maintained by the appellant, as evident from the financial statements submitted at page no. 5 to 15.
v) Thus, the AO has failed to meat the threshold for invoking the provisions of Section 69, as the primary conditions essential for its invocation are not satisfied in the appellant’s case.
5.5. In view of the judicial decisions and facts discussed above, it is held that identity & creditworthiness of the shareholder & genuineness of the transactions was proved with supporting documents thereby discharging the initial onus of the appellant company. Therefore the contention of the appellant is accepted and the A.O is directed to delete the addition of Rs.2,83,00,000/- on account of share application money received treating the same as unexplained investment u/s.69 of the Act. Accordingly, Ground No.1 is allowed.”
7. That the A.O had made addition of Rs.2,83,00,000/- on account of share application money received from Rowland Vincom Pvt. Ltd. treating the same as unexplained investment u/s.69 of the Act. In this regard, the Ld. CIT(Appeals)/NFAC observed that for invoking Section 69 of the Act, (i) there must be investment made by the assessee and (ii) such investment should not be recorded in the books of accounts. However, in the present case, the assessee has received investment from above mentioned company and had not made any investment. That such investments have been recorded in the books of account maintained by the assessee as evident from financial statement submitted before the Department. Therefore, the very threshold of invoking Section 69 of the Act have not been met with by the A.O.
8. The Ld. Sr. DR could not furnish any evidence in support of Revenue. The facts on record were not refuted by the Ld. Sr. DR. Further, he conceded that it is a case where the company i.e. Rowland Vincom Pvt. Ltd. had made investments with the assessee company i.e. the assesse had received such investments. He could not dispute the fact that such investments have been recorded also in the books of account of the assessee.
9. Considering the totality of the facts and circumstances, we do not find any merit in the addition made by the A.O and the relief provided to the assessee by the Ld. CIT(Appeals)/NFAC is hereby sustained.
10. In the result, appeal of the Revenue in ITA No.696/RPR/2025 is dismissed.
11. In the combined result, appeal filed by the Revenue and cross objection by the assessee are dismissed.
Order pronounced in the open court on 10th September, 2026.
