IMPORTANT POINT
The court affirmed that once the assessee establishes the source of funds, the onus shifts to the Revenue to prove any unsatisfactory explanation regarding the transaction's genuineness.

JUDGMENT :

VIBHU BAKHRU, J.

INTRODUCTION

1. The Revenue has filed the present appeal under Section 260A of the Income Tax Act, 1961 (hereafter the Act) impugning an order dated 23.03.2018 (hereafter the impugned order) passed by the Income Tax Appellate Tribunal (hereafter ITAT) in ITA No.369/Del/2015 captioned The Income Tax Officer v. M/s Nucleus Steel Private Limited, whereby the Revenue’s appeal under Section 253 of the Act was rejected.

2. The Revenue had appealed the decision of the Commissioner of Income Tax (Appeals) [hereafter CIT(A)] allowing the respondent’s appeal against the assessment order dated 28.03.2013 in respect of the assessment year (AY) 2010-11. The Assessing Officer (hereafter AO) had made an addition to the income as returned by the respondent (hereafter the Assesssee) under Section 68 of the Act and disallowed the addition made under Section 14A of the Act.

3. The Assessee had filed its return of income for AY 2010-11 declaring a total income of Rs.11,145/-. The said return was initially processed under Section 143(1) of the Act. However, thereafter, the same was picked up for scrutiny and a notice under Section 143(2) of the Act was issued on 25.08.2011. The balance sheet of the Assessee for the relevant previous year reflected M/s Unitech Ltd. (hereafter Unitech) as a creditor for an amount of Rs.67.50 crores. In the aforesaid context, the AO issued a notice under Section 143(2) of the Act calling upon the assessee to furnish details of the transactions with Unitech, which had resulted in an outstanding amount of Rs.67.50 crores as reflected in its books of accounts. In response to the same, the Assessee furnished certain details including confirmation of balance by Unitech. The AO issued a notice dated 07.12.2012 under Section 133(6) of the Act to Unitech. In response to the said notice, Unitech’s Authorized Representative (AR) appeared before the AO and explained the nature of the transactions.

4. According to the Assessee, it had received a sum of Rs.67.50 crores from Unitech as an advance against sale of certain lands in Maharashtra. The Assessee had executed an Agreement to Sell dated 12.03.2010 on a stamp paper. The AO found that the stamp paper was issued on 23.03.2012 – that is, after the date on the deed – and concluded that the same was executed on a fake and bogus stamp paper. In view of the said finding, the AO held that the credit of Rs.67.50 crores standing on the books of accounts of the Assessee was unexplained credit and liable to be included in the total income of the Assessee under Section 68 of the Act. Accordingly, the AO added the said sum to the Assessee’s declared income chargeable to tax during the AY 2010-11.

5. The AO also disallowed expenses amounting to Rs.33,38,350/-under Section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 (hereafter the Rules).

6. Accordingly, the AO framed an assessment order dated 28.03.2013 assessing the Assessee’s total income at Rs.67,83,49,495/-.

7. The Assessee filed an appeal (being Appeal No.105/13-14) against the order dated 28.03.2013 before the learned CIT(A). The learned CIT(A), by an order dated 31.10.2014, substantially allowed the Assessee’s appeal. The learned CIT(A) found that addition of a sum of Rs.67.50 crores was unsustainable and accordingly deleted the said addition. The disallowance under Section 14A of the Act was also reduced from an amount of Rs.33,38,350/- to Rs.27,615/-.

8. The Revenue appealed the order dated 31.10.2014 before the learned ITAT, which was rejected by the impugned order.

QUESTIONS OF LAW

9. The above appeal was admitted by this Court on 05.02.2024 on the following questions of law as projected by the Revenue:

“(a) Whether Income Tax Appellate Tribunal [“ITAT”] is legally justified in confirming deletion of addition on account of unexplained credit under Section 68 of the Income Tax Act, 1961 [“Act”] even when the assessee has failed to discharge its initial onus to prove creditworthiness and genuinene