Wrongful Allegation of Non-Current Investment made in Share Application money of Entity: Delhi HC sets aside the Assessment order [Read Order]

In a recent case, the Delhi High Court set aside the assessment order which was made on wrongful allegation on non-current investment made in share application money of entity.

AADI India Private Limited, the petitioner challenged the notice and order passed under section 148 of the Income Tax Act, 1961. A Notice was issued under Section 148A(b) of the Income Tax Act, 1961 [“Act”] and an order was passed under Section 148A(d) of the Act. The principal allegation against the petitioner was that there were unexplained credits in its bank account amounting to Rs.1,33,89,087/-.

It was alleged that the said credit entries arose on account of transactions with three entities going by the name M.K. Traders, Luxmi Agencies, and Lucky Traders.  The record shows that the petitioner filed a reply to the aforementioned notice on 07.03.2023.

The stand taken by the petitioner was that it had not entered into any transaction with the aforementioned entities. The petitioner claims that it had also appended the bank statements of the accounts maintained with the Indian Bank and ICICI Bank to its reply. 

The Assessing Officer (AO), however, was not persuaded and proceeded to pass the impugned order dated 31.03.2023 under Section 148A(d) of the Act. Mr Nischay Kantoor, who appears on behalf of the petitioner says that while passing the impugned order dated 31.03.2023, the AO has completely changed the goalpost. It is submitted by Mr Kantoor that the AO now alleges that the petitioner has not explained the investments made in the unquoted shares of an entity going by the name Mahavir Transmission Ltd. 

On the other hand, Mr Sanjeev Menon,  Standing Counsel, who appears on behalf of the respondents/revenue, stated that a perusal of the order passed under Section 148A(d) of the Act would show that the petitioner had not furnished the bank statement concerning ICICI Bank. 

From the impugned order, in the balance sheet of the assessee during the relevant assessment year there is no increase in share capital, and there are no fresh unsecured loans, among the other current liabilities also the closing figure is Rs. 45,494/-, but in note 11 non-current investment there is share application money of Rs. 17,50,000/- pending for allotment another figure of Rs. 92,50,000/- which are an investment in the un-quoted share of Mahavir Transmission Ltd.

The investment could be considered unexplained only if some explanation was sought by the AO in the first instance.  Since Mr Menon has asserted, based on the observations made in the impugned order passed under Section 148A(d) of the Act, that the bank statement of the account maintained by the petitioner with ICICI Bank was not furnished, the Court allowed Mr Menon to obtain instructions in the matter.

A division bench of Justice Rajiv Shakdher and Justice Girish Kathpalia observed that “Since the petitioner had taken the stand that it had not dealt with these entities, it appears that the AO then proceeded to examine a noncurrent investment made in share application money of an entity going by the name of Mahavir Transmission Ltd.”

It was in the context of the stand taken by the petitioner/assessee (that it had not dealt with any of the three entities mentioned herein above), that Mr Menon was told to confirm whether the bank statement was uploaded on the designated portal, as asserted.   The Court set aside the order.

To Read the full text of the Order CLICK HERE

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