INCOME TAX ACT, 1961

Section 68

Income from undisclosed sources - Addition under section 68 - Receipt of 0% optionally convertible debentures - AO doubted source in the hands of investor and genuineness of the transaction

Assessee-company received Rs. 67 crores from Infotel Technologies (P) Ltd. in the form of 0% optionally convertible debenture. AO treated the same as unexplained credit under section 68 on the ground that how a company which is incurring such huge loss and having a huge accumulated losses could give loan to assessee company with no business activity and having a meager capital only of Rs. 1 lakh, to the tune of Rs. 67 crores and that too, without charging any interest. Held: Infotel Technologies Ltd. had received fund from Sun Vision Engineering Co. Private Limited, which was also demonstrated by showing the bank statement. Accordingly assessee disclosed the source of fund available with Infotel Technologies Private Limited from Sun Vision Engineering Co. Private Limited. Further, amount of investment made was also proved by assessee by submitting annual accounts, income tax return and the assessment order passed under section 143(3) in case of investor as well as taxation of FSI Income in subsequent years and due payment of tax thereon. Even representative of investor company also remained present in response to summons issued under section 131 confirming the investment, but to rebut all those evidences had not made any enquiry to show that documentary evidences submitted by assessee did not not exhibit a genuine transaction. Merely saying that assessee had a small capital of Rs. 1 lakh and nobody would invest in such a company of the sum to the magnitude of Rs. 67 crores remained merely conjectures and surmises in view of the overwhelming evidences submitted by the assessee and in absence of any inquiry by the revenue, for several years, assessee, Investor, Investor in the investor company were assessed under section 143(3) and such assessment orders were produced by assessee before AO, therefore, it could not be said that investment made by Infotel Technologies Ltd. in assessee company of Rs. 67 crores failed the test of genuineness under section 68 especially when assessee's income was accepted in the return by granting deduction of interest expenditure on the debentures issued which later on carried interest rate at the rate of 6% instead of 0%.

Supported by:CIT v. Vrindavan Farms Pvt. Ltd., etc. [ITA No. 71 of 2015, dated 12-8-2015] (Del.) : 2015 TaxPub(DT) 4373 (Del-HC). Distinguished:Pee Aar Securities Ltd. v. Dy. CIT (2018) 96 Taxmann.com 602 (Del-Trib) : 2018 TaxPub(DT) 5551 (Del-Trib) [23-8-2018].

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