2023 (2) TMI 269 - AT - Income Tax

Unexplained investment in unlisted equities - Identity and creditworthiness of entities from whom funds were taken to invest in unlisted equities during the financial year relevant to A.Y. 2015-16 were not established by the assessee company before the AO - HELD THAT - The assessment order itself reveals that the assessee submitted before the Ld. AO confirmed copy of account of both the parties, namely M/s. Rasaraj Sales Ltd. and M/s. Gunvardhan Vyapaar Pvt. Ltd. and stated that both are group entities of the assessee company and furnished their complete address. In fact, AO himself says that the summons issued by him to both the concerns u/s 131 of the Act were served at the given address. Therefore, identity of the concerns from which the assessee received the amount utilised towards purchase of 2,80,000 shares of M/s. Spectrum Distributors Pvt. Ltd. cannot be doubted. Balance sheet of these concerns for the year indicating their high networth was placed on record establishing their creditworthiness. The shares were purchased by the assessee from M/s. Kashyap Property Pvt. Ltd. (now known as Rajdarbar Group Pvt. Ltd.). Documentary evidence, namely copy of bank statement of M/s. Rajdarbar Beverages (P) Ltd. for the period from 01.04.2014 to 31.03.2015 as also copy of confirmation along with bank statements and ITR of M/s. Kashyap Property (P) Ltd. was filed before the Ld. AO to prove the genuineness of the transaction. Payment was advanced by the assessee company as investment in shares which were, however not allotted. These findings could not be controverted by the Revenue by bringing on record any adverse material either before the Ld. CIT(A) or before us. We, therefore, endorse the findings of the Ld. CIT(A) and reject the ground taken by the Revenue before us. Decided in favour of assessee.

Summary

Issues:
Appeal against deletion of addition of unexplained investment in unlisted equities.

Analysis:
The appeal pertains to the deletion of an addition of Rs 1,82,00,000 made by the Assessing Officer (AO) as unexplained investment in unlisted equities for Assessment Year 2015-16. The assessee, a private limited company, explained that the funds for the investment were received from group companies, M/s. Rasaraj Sales Ltd. and M/s. Gunvardhan Vyapaar Pvt. Ltd. The AO added the amount as unexplained investment due to the non-response of the entities to summons issued by him, questioning the identity and creditworthiness of the transaction. The AO completed the assessment under section 143(3) of the Income Tax Act, 1961.

During the appellate proceedings, the assessee provided documents supporting the transactions and the source of funds. The CIT(A) observed that the funds received from the group companies were invested earlier in 2009 and 2011, with the flow of funds supported by entries in bank statements and balance sheets. The CIT(A) ruled in favor of the appellant, stating that the non-compliance to summons by the group companies was not a basis for the addition. The Revenue, dissatisfied with the decision, approached the Tribunal with its only ground of appeal.

The Tribunal considered the submissions of both parties and analyzed the evidence on record. It noted that the identity of the entities from which the funds were received could not be doubted, as confirmed copies of accounts were submitted, and summons were served at their given address. The Tribunal found that the balance sheets of the group companies established their creditworthiness, and documentary evidence proved the genuineness of the transaction. The Tribunal endorsed the findings of the CIT(A) and rejected the ground taken by the Revenue, ultimately dismissing the appeal.

In conclusion, the Tribunal upheld the decision to delete the addition of unexplained investment in unlisted equities, emphasizing the established identity, creditworthiness, and genuineness of the transaction between the assessee and the group companies, as supported by documentary evidence and findings of fact.