Case Law Details
DCIT Vs Giri Prime Housing Properties Private Limited (ITAT Mumbai)
The Revenue appealed against the order of the CIT(A)/NFAC deleting an addition of ₹4.10 crore made under Section 68 of the Income-tax Act, 1961 on account of share capital and share premium received by the assessee from six investor companies. The Assessing Officer (AO), while completing the assessment under Section 143(3), had observed that the assessee had issued shares at a high premium despite having no operational income, no fixed assets and substantial increases in share capital and reserves. After examining the financial statements, bank accounts and other records of the investor companies, the AO concluded that the investors had negligible business income, insignificant bank balances, funds sourced mainly through loans or share premium, and immediately transferred funds in round figures. The AO treated the investor companies as shell or accommodation entry providers and added ₹4.10 crore as unexplained cash credit under Section 68.
The CIT(A) deleted the addition after observing that the assessee had furnished documents such as bank statements, income-tax returns, share application forms, confirmations, Form No. 2, board resolutions and financial statements to establish the identity, creditworthiness and genuineness of the investors. The CIT(A) held that the AO had not conducted independent enquiries by issuing notices under Section 133(6) or summons under Section 131 and concluded that the burden had shifted to the AO after the assessee produced the primary documents. Relying on various judicial precedents, the CIT(A) directed deletion of the addition.
Before the ITAT, the Revenue contended that the documentation furnished by the assessee consisted of arranged documents relating to accommodation entry providers and that the CIT(A) had ignored the AO’s findings on the financial profile and functioning of the investor companies. It was argued that the CIT(A), despite having powers co-terminus with those of the AO, merely criticised the AO for not making further enquiries without examining the merits of the evidence. The assessee, on the other hand, maintained that the documents established the identity of the investors, their creditworthiness and the genuineness of the transactions.
The Tribunal noted that although the assessee had produced documentary evidence, the AO had recorded detailed findings that the investor companies had negligible income, minimal bank balances, no operational business and characteristics of shell entities. It found that the CIT(A) had concentrated primarily on the documents filed by the assessee and the absence of further enquiry by the AO, but had not dealt with the AO’s factual findings regarding the financial position and conduct of the investor companies. The Tribunal also observed that the CIT(A) had applied judicial precedents without examining whether those decisions were applicable to the facts of the present case and had not undertaken any enquiry himself or directed further enquiry despite possessing co-terminus powers.
Referring to the Bombay High Court decision in Commissioner of Income Tax v. Premkumar Arjundas Luthra (HUF), the Tribunal reiterated that Sections 250 and 251 require the CIT(A) to pass a reasoned and speaking order, consider all issues arising from the appeal, and exercise powers co-terminus with those of the AO, including making or directing further enquiries where necessary.
Holding that the CIT(A) had not recorded reasoned findings on the merits of the investor companies’ financials or the satisfaction of the requirements under Section 68, the ITAT set aside the appellate order and restored the matter to the CIT(A) for fresh adjudication through a speaking order after conducting the necessary enquiries in accordance with law. The Tribunal directed that the assessee be given a reasonable opportunity of hearing and cooperate in the remanded proceedings, failing which the appellate authority would be at liberty to decide the appeal in accordance with law. The Revenue’s appeal was allowed for statistical purposes.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The captioned appeal is filed by the Revenue against the order of Commissioner of Income Tax Appeals/ National Faceless Appeal Centre (NFAC), Delhi [in short, “the Ld. CIT(A)”] dated 19.03.2025 for the assessment year 2012-13 arises from assessment order u/s 143(3) of the Income Tax Act, 1961 (in short, “the Act”) dated 10.03.2015 passed by Deputy Commissioner of Income Tax Circle-1(1)(2), Mumbai (in short, “the Ld. AO”). The grounds of appeal are as under:
“1. Whether on the facts and in the circumstances of the case and in law the Learned CIT(A) erred in deleting the Share Capital & Share Premium amount to the tune of Rs 4,10,00,000/-as unexplained cash credit u/s 68 of the Act.
2. Whether on the facts and in the circumstances of the case and in law the Learned CIT(A) was correct by holding that the transactions of Share Capital & Share Premium amount to the tune of Rs 4,10,00,000/-arranged through bogus entity with regard to nature and source of the transactions has been established, ignoring the fact that the AO has clearly established that nature and source of the transactions as well the genuineness of the transaction are not established to the satisfaction of the AO.”
2. Brief facts of the case are that the assessee had filed its return of income on 28.09.2012 declaring a loss of Rs.33,34,875/-. Subsequently, case was selected for scrutiny. Accordingly, notices u/s 143(2) and 142(1) along with questionnaires were issued. During the course of assessment, the AO noticed that the assessee company has issued its shares on a high premium, and the proceeds are further invested in other companies. The total funds from issuance of share capital and share premium during the year are generated for Rs.4,10,00,000/-. It is also observed that the assessee had not shown any income from operations, whereas the assessee has debited finance cost of Rs.31,70,433/-. The assessee does not have any fixed assets. The share capital has been increased to Rs.50,00,000/-, which was only Rs. 1,00,000/- in previous year. The reserves of assessee are also increased from Rs. (19,890/-) to Rs.3,27,45,235/- during the relevant assessment year. The assessee was asked to furnished details of share premium received by furnishing the documents of investors, such as balance-sheets, bank statements, returned income and other details etc. In response, the documents of entities from whom the assessee has received the share capital and share premium are furnished, their names as per assessment order are:
i. Jagdamba Complex Pvt Ltd
ii. Aarika Steels and Metals Pvt Ltd
iii. Pasupati Enclave Pvt Ltd
iv. Lona Mercantile Pvt Ltd
v. Supreme Communication Ltd
vi. Mili Commodities Pvt Ltd.
3. The Ld. AO, after analyzing the balance-sheet and other records of the aforesaid investors, noted that all the aforesaid investors have hardly generated any revenue, have declared negligible returned income, have only reserves due to security premium, and have loans taken. It is also noted by the Ld. AO that the investors have heavily invested in certain companies or advances loans, one of which is the assessee company. The Ld. AO further carried out the analysis of various investors and concluded that these companies are acting as pass through or “Benami” entities. They are entry providers with no genuine business.
4. In continuation, Ld. AO further observed that the investors did not have any assets, they did not have any creditors or debtors, the only source of fund of the investor is either unsecured loan or share premium, they only deployed their funds for granting of loans or investment in shares of other investee companies, the bank statement of all the investors shows zero or negligible balance. The funds are received in their bank accounts and are immediately transferred. Such transactions are in round figures i.e., in multiple of thousands. It is also observed that all the companies have a common auditor. In terms of aforesaid findings, Ld. AO treated the amount of Rs.4,10,00,000/- received by the assessee during the year in the gab of share capital and share premium as unexplained cash credit within the meaning of section 68 of the Act.
Being aggrieved with the aforesaid addition, assessee preferred an appeal before the Ld. CIT(A), wherein the assessee succeeds as the appeal of assessee was allowed by the Ld. CIT(A), with the following observations:
“5.1. I carefully considered the submission of the appellant with reference to the impugned assessment order. Also perused and considered the details and documents uploaded by the appellant on ITBA portal during the appellant proceedings. Perused the case laws referred by the appellant and the AO.
5.2. The appellant company has raised sole ground of appeal in the present appeal i.e. against the addition u/s 68 of the Act made by the AO on account of share capital raised by the appellant during the year under reference. The appellant has strongly contended that it had furnished all the details and documents called for by the AO during the assessment proceedings. The appellant has submitted it has provided party wise documents regarding share capital introduce as Application & Allotment of Share, Balance Sheet with Schedule, Profit and Loss account, Board Resolution, Bank Statements, etc. but AO did not accept the documents submitted by the appellant.
5.3. From the impugned assessment order it transpires that the appellant had raised share capital of Rs. 4,10,00,000/- by issuing shares to six investors on face value of Rs. 10 and at premium of Rs. 190/- per share. The AO asked the appellant to furnish the Balance Sheet of Investors, their Bank statements and Return of Income for the Assessment Year under reference. In response, the appellant had furnished the following document of all six investors:
1) Bank Statement of Investors for the financial year 2011-12
2) Form No. 2 along with Board Resolution and list of allottees.
3) Share application forms
4) Return of Income of the Investors for the A.Y. under reference.
5) Confirmations from the Investors.
6) Bank Statement of the Appellant Company, and
7) Financial Statement of the Appellant Company
5.4. The appellant has furnished the above documents during the appellant proceedings also along with detailed written submission. From the above documents submitted by the appellant the AO concluded that the balance sheets of the investor companies showed that they hardly had any revenue have negligible return of income, have reserve only due to security premium or loan taken. Therefore, the AO formed his opinion that the investor companies were Benami entities, engaged in providing accommodation entries having no business. On the other hand the appellant company has strongly contended that since all the investor companies are income tax filers, having independent existence and the AO has not brought anything on record to prove them Benami entities. Since, share capital was received through banking channel and the appellant has filed not only its own bank statements but it has also filed the relevant part of the bank statement of the investor companies, the genuineness of transactions is proved. The appellant has contended that the credit worthiness of the investor companies is also proved as all of them have sufficient Reserve and Surplus.
5.5. A perusal of the impugned assessment order shows that the AO did not make any effort to conduct independent enquiry during the assessment proceedings. The appellant had filed all details and documents asked by the AO to prove Identity and the assessment proceedings. The Credit worthiness of the investor companies. The appellant had also submitted bank statements of the investor companies demonstrating that the share capital was received through banking channel. The AO has not conducted any inquiry to establish that the investor companies had deposited cash in their bank account or the appellant company somehow had rotated its own money in guise of share capital. The AO neither asked the appellant to produce the directors of the investor companies nor did he issue notice u/s 133(6) or summons u/s 131 of the Income Tax Act to verify independently their identity and creditworthiness. In my considered opinion the appellant had fulfilled its primary duty to file basic document of the investor companies such as Copy of their ITR, Balance Sheet, Bank Statements, Form no. 2 proving allotment of shares etc. Thereafter burden of proof was shifted to the AO to establish by conducting independent inquiry by issuing notice u/s 133(6) or summons 131 to the directors of the share applicant companies that the share capital introduced was actually appellant’s own money routed through accommodation entries. But, ignoring the basic documents furnished by the appellant, the AO just jumped at conclusion that the all investor companies were Benami Entities and provided accommodation entries to the appellant company in form of share capital and share premium. In my considered view the documents filed by the appellant were sufficient to prove all three components i.e. Genuineness of transactions, Identity and Credit Worthiness of the investors.
5.6. The appellant has referred many case laws in support of its contentions. In view of the facts and circumstances of the case, most of the judicial pronouncements referred by the appellant stand applicable. Apart from the case laws referred by the appellant, reliance is put on the following judicial pronouncements:
5.6.1. PCIT Vs. Paradise Inland Shipping P. Ltd., 84 taxmann.com 58 (Bombay): Companies which invest share capital cannot be treated as bogus if they are registered and have been assessed. Once the assessee has produced documentary evidence to establish the existence of such companies, the burden shifts to the Revenue to establish their case. Reliance on statements of third parties who have not been subjected to cross examination is not permissible. Voluminous documents produced by the assessee cannot be discarded merely on the basis of statements of individuals contrary to such public documents.
5.6.2. CIT Vs. Orchid Industries Pvt. Ltd., A (SC) Mere fact that parties to whom the share certificates were issued and t. Ltd., [2020] 116 taxmann.com 113 who had paid the share capital money were not traceable and did not appear before the AO in response to summons does not mean that the transaction can be treated as bogus if the documentation shows the genuineness of the transaction.
5.6.3. CIT Vs. Gagandeep Infrastructure Pvt. Ltd. [2017] 80 taxmann.com 272 (Bombay): The proviso to s. 68 (which creates an obligation on the issuing Co to explain the source of share capital & premium) has been introduced by the Finance Act 2012 with effect from 01.04.2013 and does not have retrospective effect. Prior thereto, as per Lovely Exports 317ITR 218 (SC), if the AO regards the share premium as bogus, he has to assess the shareholders but cannot assess the same as the issuing company’s unexplained cash credit.
5.6.4. PCIT v. Ami Industries (India) (P.) Ltd. [2020] 116 taxmann.com 34 (Bombay): In this case the Assessing Officer noted that assessee had disclosed funds from three Kolkata based companies as share application money. But, since where ab outs of above companies were doubtful and their identity could not be authenticated, Assessing Officer treated aforesaid funds as money from unexplained sources and added same to income of assessee as unexplained cash credit under section 68. However, it was found that assessee-company had furnished PAN, copies of income tax returns of creditors as well as copy of bank accounts of three creditors through which share application money was deposited in order to prove genuineness of transactions. Further, insofar as creditworthiness of creditors were concerned, Tribunal recorded that bank accounts of creditors showed that creditors had funds to make payments for share application money and in this regard, resolutions were also passed by Board of Directors of three creditors. Thus, first appellate authority had returned a clear finding of fact that assessee had discharged its onus of proving identity of creditors, genuineness of transactions and creditworthiness of creditors which finding of fact stood affirmed by Tribunal. The Hon’ble court held that revenue had not been able to show any perversity in aforesaid findings of fact by authorities below.
5.6.5. Gaurav Triyugi Singh v. Income Tax Officer 121 taxmann.com 86 (Bombay) Where assessee had received unsecured loan of certain amount from an individual, since loan amount was received by assessee through cheque and there was no dispute as to identity of creditor and genuineness of transaction and revenue could not prove or bring any material to impeach source of credit, no, addition under section 68 co this loan amount be made on account of this loan amount.
5.6.6. PCIT Vs. Aquatic Remedies Pvt. Ltd. (Bombay High Court): If copies of the share application form, share allotment Register and Bank Statements showing receipt of funds are on record and if all the shareholders have filed Affidavits declaring the-fact that they are investing in the assessee-Company by issuing of cheques from their Accounts, the assessee has fulfilled the requirement of proving genuineness of the transaction, identity and creditworthiness of the shareholders/investors and addition cannot be made u/s 68.
5.6.7. PCIT Vs. Veedhata Tower Pvt. Ltd. (Bombay High Court): The assessee is not required to explain the “source of source” prior to insertion of the proviso to s. 68. If the assessee has discharged the primary onus placed upon it u/s 68 by filing confirmation letters, the Affidavits, the full address and pan numbers of the creditors, the Revenue has to proceed against the persons whose source of funds are alleged to be not genuine.
5.7. In view of the facts of the case and judicial pronouncements of the Jurisdictional High Court as discussed above, I am of the considered opinion that the appellant company has duly filed the primary details and documents as asked by the AO thereafter burden of proof shifted to the AO who did not do further inquiry and just made the addition treating share capital as bogus. Therefore, the AO is directed to delete the impugned addition of Rs. 4,10,00,000/- made by him u/s 68 of the Income Tax Act. Accordingly, the sole ground of appeal is allowed.”
6. Being dissatisfied with the relief granted by the Ld. CIT(A) to the assessee, department has filed the present appeal before us.
7. At the outset, Ld. DR representing the revenue submitted that the entire documentation which is furnished by the assessee before the AO was in the form of arranged documents. The transactions and modus operand of the investors as well as assessee is found to be bogus in nature. All the entities have meager income to show, as in their return of income they did not have any income from operations. They are merely received money from someone, which is further invested in some other entity. These are peculiar features of the bogus entities involved in the transactions of accommodation entries. The order of Ld. CIT(A) was perverse in nature, who though have powers and obligations co-terminus with that of the AO, however the Ld. CIT(A) had totally decided the issue in favour of the assessee by alleging about the conduct of ld. AO, by highlighting his defaults, such as the AO did not make any effort to conduct independent enquiry during the assessment proceedings, the AO neither asked the appellant to produce the investor companies nor did he issue notice u/s 133(6) or summons u/s 131 of the Act to verify independently their identity and creditworthiness.
8. CIT(A) had further noted that the burden of proof was shifted to the AO to establish by conducting independent enquiry by showing notice u/s 133(6) or summons u/s 133(1) to the Director of shell applicant companies to prove that the share capital introduced or actually appellant’s own money was routed through accommodation entries. Ignoring the basic documents furnished by the appellant, the AO just jumped at conclusion that all the investor companies were ‘benami entities’ and provided accommodation entries to the assessee company. Ld. CIT(A) concluded that in his opinion, the documents filed by the assessee were sufficient to prove all three components i.e., genuineness of transaction, identity and creditworthiness of the investors. In view of such submissions, it was the prayer that the order of Ld. CIT(A) having no remarks on the merits of the issue was perverse and is liable to be set aside.
9. Per contra, Ld. Authorized Representative of the assessee submitted that as per various decisions relied upon before the Ld. CIT(A), once the assessee has furnished necessary documents to prove the identity and creditworthiness of the investors and genuineness of the transactions, no addition in the hands of assessee is called for.
10. We have considered the rival submissions, perused the material available on record and the case laws relied upon by the assessee. Admittedly, in the present case, the assessee had received an amount of Rs.4,10,00,000/- in the form of share capital and share premium from various investors referred to (supra). Necessary documents regarding identity, creditworthiness and genuineness of the transaction are furnished before the Ld. AO. Ld. AO made various remarks after analyzing the documents against the investors, so as to establish that these investors are shell entities / benami entities, having no operational business as well as creditworthiness. There is no dispute regarding the fact that such investors have shown negligible income in their return. They have small amounts on Nil balance in their bank accounts, huge amounts are received in their accounts and further transferred to other entities immediately.
11. On perusal of the order of Ld. CIT(A), we find that the conclusion of Ld. CIT(A) was more on the documents furnished by the assessee, stating that those are sufficient to prove genuineness of transactions, identity and creditworthiness of the investors. Ld. CIT(A) have also noted about some actions, which the AO was supposed to take but failed to do so, such as independent enquiries of the investor companies by issuing summons u/s 131 or notice u/s 133(6) of the Act. On merits, the AO had made categorical observations against the investors to prove that these investors are just paper entities, having all the ingredients of a shell company. Ld. CIT(A) chose not to make any comment about such observations. The appeal of assessee was allowed following various decisions relied upon by the assessee without any enquiry, which the Ld. CIT(A) ought to have made by himself or through the Ld. AO, in absence of such actions by the AO, so as to check the applicability of such judgments in the case of assessee. Ld. CIT(A) has made a bald statement that most of the judicial pronouncements preferred by the appellant stands applicable, however, have not made any observations as to how such judgments are applicable in the present case.
12. In terms of aforesaid deliberations, we are unable to subscribe and concur with the findings of Ld. CIT(A), who had not uttered even a single word regarding the merits of financials of investors companies and the subjected funds received by the assessee. Regarding the applicability of the case laws discussed in the order of Ld. CIT(A), we observe that the applicability of jurisprudence come into play later, once the documents furnished by the assessee are duly examined and approved by authorities. We thus deem it appropriate to set aside this matter back to the file of Ld. CIT(A) for fresh adjudication to pass a speaking order qua the satisfaction of ingredients of section 68 of the Act, after conducting necessary enquiries as envisaged by him as per law.
13. Our aforesaid view is duly supported by the principles laid down by Hon’ble Jurisdictional High Court in the case of Commissioner of Income Tax vs. Premkumar Arnjundas Luthra (Huf) (2016) 69 taxmann.com 407 (Bombay), wherein the Hon’ble High Court has held as under:
““2. At the outset, it is noticed that there was no representation on behalf of the assessee, whereas these appeals are fixed for hearing, after the adjournment as requested by the assessee on the previous date of hearing dated 22.12.2025. It is further brought to our notice by the Id. Sr. DR representing the revenue that in these matters both the impugned orders passed by revenue authorities i.e. the Id. AO and the First Appellate Authority (FAA) are ex-parte orders and there was no compliance by the assessee before both the authorities. Further on perusal of the order of Id. CIT(A) at para-4, it is evident that the Id. CIT(A) has granted 10 opportunities by fixing the date of hearing starting from 16.08.2023 up to 11.02.2025, however there was no submissions by the assessee/appellant. We further noticed that the Id. CIT(A) has mentioned in his order that “Even otherwise on the merits of its also, I do not see any reason to differ with the findings of ld. AO”. This shows, there was no discussion on merits in the order of Id. CIT(A), though he was also compelled with the circumstances as the assessee has not furnished any response before him. We find that Id. CIT(A) was under obligation to pass a reasonable, justified and speaking order by considering the facts and material on record, so as to comply with the provisions of section 250(4) & (6) of the Act. Our aforesaid view is duly supported by the decision of Hon’ble Jurisdictional High Court in the case of CIT vs. Premkumar Arjundas Luthra (HUF)-[2016] 69 taxmann.com 407 (Bombay) wherein the Hon’ble High Court has held as under:
“8. From the aforesaid provisions, it is very clear once an appeal is preferred before the CIT(A), then in disposing of the appeal, he is obliged to make such further inquiry that he thinks fit or direct the AO to make further inquiry and report the result of the same to him as found in Sec. 250 of the Act. Further, Sec. 250(6) of the Act obliges the CIT(A) to dispose of an appeal in writing after stating the points for determination and then render a decision on each of the points which arise for consideration with reasons in support. Sec. 251(1)(a) and (h) of the Act provide that while disposing of appeal the CIT(A) would have the power to confirm, reduce, enhance or annul an assessment and/or penalty. Besides Explanation to sub-s. (2) of s. 251 of the Act also makes it clear that while considering the appeal, the CIT(A) would be entitled to consider and decide any issue arising in the proceedings before him in appeal filed for its consideration, even if the issue is not raised by the appellant in its appeal before the CIT(A). Thus once an assessee files an appeal under. 246A of the Act, it is not open to him as of right to withdraw or not press the appeal. In fact the CIT(A) is obliged to dispose of the appeal on merits. In fact w.e.f. 1st June, 2001 the power of the CIT(A) to set aside the order of the AO and restore it to the AO for passing a fresh order stands withdrawn. Therefore, it would be noticed that the powers of the CIT(A) are co-terminus with that of the AO i.e. he can do all that A.O could do. Therefore, just as it is not open to the AO to not complete the assessment by allowing the assessee to withdraw its return of income, it is not open to the assessee in appeal to withdraw and/or the CIT(A) to dismiss the appeal on account of non-prosecution of the appeal by the assessee. This is amply clear from the s. 251(1)(a) and (b) and Explanation to Sec. 251(2) of the Act which requires the CIT(A) to apply his mind to all the issues which arise from the impugned order before him whether or not the same has been raised by the appellant before him. Accordingly, the law does not empower the CIT(A) to dismiss the appeal for non-prosecution as is evident from the provisions of the Act.”
15. From the findings in aforesaid order of Hon’ble Jurisdictional High Court, wherein it has been categorically held that the provisions of section 250 of the Act obliges the Ld. CIT(A) to dispose of an appeal in writing after stating the points of determination and then render a decision on each of the points, which arises for consideration with reason in support of section 251(1)(a) and (h) of the Act. It is further noted that the powers of CIT(A) are co-terminus with that of the AO i.e., he can do all that the AO can.
16. In backdrop of aforesaid facts and circumstances and the ratio of law laid down by Hon’ble Bombay High Court (supra.), we are inclined to set aside the order of Ld. CIT(A) and restore the matter back to files for fresh adjudication by way of a speaking order stating reasons for determination of the decision.
17. Needless to say, the assessee shall be afforded with reasonable opportunities of being heard in the set aside appellate proceedings. The assessee is also directed to co-operate and pro-actively assist in the set aside appellate proceedings, failing which the appellate authority would be at liberty to decide the appeal in accordance with the mandate of law.
18. In result, appeal of Revenue is allowed for statistical purposes, in terms of our aforesaid observations.
Order pronounced in the open court on 13-05-2026.
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