Facts of the Case

The Revenue filed an appeal under Section 260A of the Income-tax Act, 1961 challenging the order dated 31.05.2023 passed by the Income Tax Appellate Tribunal in ITA No. 65/Del/2017 for Assessment Year 2012–13. The assessee, Central Plastics Pvt. Ltd., had filed its return declaring a loss of ₹18,581, which was selected for scrutiny on account of receipt of substantial share capital and share premium.

During the relevant year, the assessee received share capital and premium aggregating to ₹5,79,99,060 from three investor companies, namely Confiance Trading Pvt. Ltd., Monarch Infraprojects Pvt. Ltd., and Khandelwal SRK Estate Pvt. Ltd. The amounts were received through banking channels. The Assessing Officer issued notices under Section 133(6) to the investor companies, which remained unresponded. On this basis, the Assessing Officer treated the entire amount as unexplained cash credit under Section 68 and also disallowed ROC filing fees of ₹35,458 incurred for increase in share capital.

Issues Involved

Whether the addition of ₹5,79,99,060 under Section 68 on account of share capital and share premium was justified, whether the assessee had discharged the initial onus of establishing identity, creditworthiness and genuineness of the share applicants, whether the assessee was required to establish the source of source for AY 2012–13, and whether any substantial question of law arose from the ITAT’s findings.

Petitioner’s Arguments

The Revenue contended that the investor companies failed to respond to notices under Section 133(6) and that the assessee had merely acted as a conduit for routing funds to downstream entities. It was argued that the assessee failed to satisfactorily explain the source of funds and that the ITAT erred in deleting the addition under Section 68. The Revenue also sought to justify the disallowance of ROC fees as capital expenditure.

Respondent’s Arguments

The assessee submitted that it had discharged the primary onus under Section 68 by furnishing complete documentary evidence including confirmations from investors, bank statements, income-tax returns, financial statements and MCA records showing that the investor companies were live entities assessed to tax with sufficient funds. It was argued that the investments were made through banking channels and there was no allegation that the money belonged to the assessee. It was further submitted that for AY 2012–13, there was no statutory requirement to establish source of source.

Court Order / Findings

The Delhi High Court noted that the Commissioner of Income Tax (Appeals) and the ITAT had returned concurrent findings of fact that the assessee had discharged the initial onus under Section 68 by producing sufficient documentary evidence establishing the identity and creditworthiness of the investor companies and the genuineness of the transactions. The Court observed that the investors were corporate entities duly assessed to tax and had sufficient funds to make the investments.

The Court held that even if the Revenue’s contention that the assessee acted as a conduit was accepted, the receipts could not be treated as income of the assessee since it was implicit that the amounts did not belong to the assessee. The Court further noted that for Assessment Year 2012–13, the assessee was not required to establish the source of source. The Court held that the questions raised by the Revenue were essentially questions of fact and no substantial question of law arose for consideration.

Important Clarification

The Court clarified that once the assessee discharges the primary onus under Section 68 by establishing identity, creditworthiness and genuineness of share applicants, the burden shifts to the Revenue. For assessment years prior to the introduction of the proviso to Section 68, the assessee is not required to prove the source of source.

Final Outcome

The appeal filed by the Revenue was dismissed. The Delhi High Court upheld the order of the Income Tax Appellate Tribunal deleting the addition of ₹5,79,99,060 made under Section 68 for Assessment Year 2012–13. It was held that no substantial question of law arose for consideration, and the decision was rendered in favour of the assessee and against the Revenue.

 

Link to Download Order- https://www.mytaxexpert.co.in/uploads/1769595122_PR.COMMISSIONEROFINCOMETAX1VsCENTRALPLASTICSPVT.LTD..pdf

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