Mumbai ITAT Deletes ₹60 Lakh Addition Under Section 68 — Zippy Finance Private Limited Vs ITO

Case Overview

Background and Factual Matrix

For Assessment Year 2010-11, Zippy Finance Private Limited had filed its return of income disclosing nil income. The Assessing Officer received intelligence from the Investigation Wing indicating that the assessee had allegedly received accommodation entries disguised as share application money — ₹30 lakh each from M/s. Alka Diamond Industries Ltd. and M/s. Kush Hindustan Entertainment Ltd. — aggregating to ₹60 lakh.

The Investigation Wing's findings originated from a search conducted on one Shri Pravin Kumar Jain, who was characterized as an accommodation entry operator. During the search, statements were recorded under Section 132(4) in which Jain purportedly admitted to operating a network of shell companies with dummy directors for the purpose of channelling bogus share capital, loans, and sales entries. Based entirely on this investigation material, the AO initiated reassessment proceedings under Section 147 read with Section 148 of the Income-tax Act, 1961, and ultimately treated the ₹60 lakh as unexplained cash credit, adding the entire sum under Section 68.

Proceedings Before the CIT(A)

Before the CIT(A)/National Faceless Appeal Centre (NFAC), Delhi, the assessee placed on record a comprehensive set of documents to substantiate the share application transactions. These included:

• Confirmations of accounts from both investor companies
• Affidavits of directors
• PAN details and ITR acknowledgements
• Audited financial statements of the investors
• Share application forms and Board resolutions
• Bank statements reflecting inflow through cheques/RTGS

The assessee argued that both companies — M/s. Alka Diamond Industries Ltd. and M/s. Kush Hindustan Entertainment Ltd. — were duly incorporated, assessed to income tax, possessed valid PANs, were listed on recognized stock exchanges, and continued to appear on the records of the Registrar of Companies. The investments were made at face value and routed entirely through banking channels.

The assessee also challenged the AO's reliance on Jain's statement, noting that:

1. No specific reference to the assessee company was made in Jain's statement
2. Jain had subsequently retracted his admission
3. No opportunity for cross-examination of Jain or associated persons was afforded

CIT(A)'s Decision

The CIT(A) rejected the assessee's contentions and confirmed the addition. Key observations included: