Taxation

Deletion of Additions Allowed If Transactions are Genuine: ITAT Delhi

The Income Tax Appellate Tribunal of Delhi pronounced a judgement on 25th October 2022 in the case titled DCIT Vs. Intuitent Online Venture Pvt. Ltd, wherein the revenue had filed an appeal against the Commissioner Income Tax (Appeals) order.

The article discusses the facts, issues and the final judgement produced in the case to provide a better understanding regarding the aspects covered in the case.

Facts of the Case

• Assessee is a company having a business of wholesale trading of footwear, apparel, jewellery and handbags etc. Assessee electronically filed its ITR for A.Y. 2012-13 on 29.09.2012, declaring a loss of Rs.1,00,12,996/-. The assessee’s case was selected for scrutiny, after that, an assessment was framed u/s 143(3) of the Act vide order dated 27.01.2015, and the total income was determined at Rs.1, 08, 47,910/-.  
• Aggrieved by order of AO, the assessee took the matter before CIT(A), who, vide order dated 29.01.2016 in Appeal No.63/14-15, granted partial relief to the assessee. Aggrieved by order of CIT(A), Revenue filed the appeal before the Tribunal in respect of the order dated  29.01.2016 passed by the CIT (Appeals), Faridabad relating to Assessment Year 2012-13.
• The case file revealed  that the appeal was listed for hearing on 05.03.2019, 24.04.2019, 16.07.2019, 23.09.2019, 28.11.2019, 21.01.2020, 04.03.2020, 30.04.2020, 21.07.2020, 30.09.2020, 10.12.2020, 24.02.2021, 06.05.2021, 09.08.2021, 28.10.2021, 11.01.2022, 04.04.2022, 22.06.2022 and 03.10.2022. On all the occasions, the assessee neither appeared before the Tribunal despite several notices issued through RPAD nor filed any application seeking an adjournment. Further, the notice issued by the Registry through RPAD on the address, i.e. Villa No.4400, Achievers villa, Kalandi Hills, Sector 49, Faridabad, was returned unserved with the postal remarks “as no such concern was situated/available on that address”. Considering the aforesaid facts, the tribunal had no option except disposing off the appeal on merits after hearing the Ld. D.R.  
• During the assessment proceedings, AO noticed that assessee had raised share application money of Rs.2 crore, which was pending for allotment as of 31.03.2012. AO noted that the share application was received from 3 parties which are listed in para 3 of his order, of which 02 parties are based in Mauritius. A.O. was of the opinion that since FDI^[1] was involved, the assessee was required to furnish the details about compliance with the relevant guidelines. Assessee inter alia submitted that the company was a start-up which has already established a name on the internet by the name “DONEBYONE”. It was submitted that to increase the sale and requirement of funds, the company had approached the investors for the money, and they, in turn, had transferred the money through normal banking channels as per RBI Rules. However, the AO did not find the submissions to be acceptable. According to AO, the assessee failed to furnish a copy of the share application form and also failed to justify how the investors came to know about the assessee company. AO noted that the assessee had also failed to report the receipt of money within 30 days to the Foreign Exchange Department of RBI, and it also failed to comply with the guidelines issued by FEMA as well as RBI with respect to reporting RBI about the allotment of shares. AO also noted that the financial position of the investor showed a huge loss of USD 20,75,586 but had invested in a company at a high premium whose turnover only of Rs.6,89,035/- and accumulated loss of Rs.1,00,62,858/-. With respect to the investment made by Seedfund 2 India, he noted that as per ITR for A.Y. 2012-13, it had declared a loss amounting to Rs.13,35,302/- but had made investments of Rs.6,88,766/- which was also not reflected in the bank statement of the assessee company. AO, therefore, held the whole of the investment of Rs.2 crore to be a bogus claim and accordingly treated it as income of the assessee from unexplained sources and made its addition u/s 68 of the Act. Upon being Aggrieved by order of the Assessing Officer, the assessee took the matter before CIT(A). CIT(A) after considering the submissions of the assessee deleting the addition made by AO by observing the following.
• The AO has failed to justify the additions made by him  as per sec 68 of the ITA 1961, and the identity of the share capital applicants ( venture funds) cannot be doubted as the creditworthiness of the same, as well as the genuineness of the transaction is not disapproved by the AO. It was further observed that the AO had made the additions u/s 68 on the basis of unsustainable beliefs, and moreover, the AO has failed to provide any argument against the documentary evidence furnished by the assessee, and on such grounds, the additions u/s 68 were deleted, followed by allowing the appeal of the appellant, i.e. the assessee.
• By the Hon’ble tribunal.  

Issues of the Case

If, as per the circumstances and facts in the case, the CIT(A) was correct in law in deleting the additions of Rs.2 crore on account of the disallowance of investment made in the company as Share Capital u/s 68 of the IT Act 1961.

The appellant craved for the permission to add, delete or amend the grounds of appeal prior to or at the time of hearing of the appeal.”

Judgement

The Hon’ble Judge of the Tribunal observed that the CIT(A), at the time of deleting the addition, had given a categorical finding that during the assessment proceedings assessee had filed various documents pointing out the receipt of the application money, which clearly proved that the money was invested by 2 investors based in Mauritius which are the companies registered under Companies Act and also registered under SEBI (Venture Capital Fund) Regulation 1996 (“SEBI VC REGS”). Another finding of the CIT(A) was regarding the fact that Seedfund International was a trust registered under the SEBI (Venture Capital Fund) Regulation, and it files its ITR in India. He has further given a finding that the identity of the share application cannot be doubted. Also, the creditworthiness was well established, and the AO did not dispute the genuineness of the transaction. The finding of the CIT(A) regarding the failure of the AO in bringing any argument to account the plethora of documentary evidence submitted by the assessee., Revenue has not pointed out any fallacy in the findings of CIT(A), and therefore, the current tribunal did not interfere with the order of Ld. CIT(A) and thus, the Ground of Revenue is dismissed

Conclusion

The judgement clearly provides that till the time the creditworthiness of the investor and the genuineness of the transaction is proved, the AO cannot make any additions as per section 68 of the ITA Act, which was supported by CIT (A) and ITAT Delhi, thereby dismissing the appeal of the revenue that questioned the deletion of the additions made by the AO as per section 68 Act of the Act.  

Read Our Article: Money Laundering and Terrorist Financing for NBFCs