SHYAMASHREE FINVEST (P) LTD,GUWAHATI vs. INCOME TAX OFFICER, WARD7(3), KOLKATA

order : January 16th, 2023 ORDER Per Manish Borad, Accountant Member: Both these appeals filed by the assessee pertaining to the Assessment Year (in short “AY”) 2014-15 are directed against separate orders passed u/s 250 of the Income Tax Act, 1961 (in I.T.A. Nos.: 105 & 106/GTY/2020 Assessment Year: 2014-15 Shyamashree Finvest Pvt. Ltd. short the “Act”) by ld. Commissioner of Income-tax (Appeals), Guwahati-2, Guwahati [in short ld. “CIT(A)”] dated 04.02.2020.

2. That the ld. CIT(A) was very much in erred in law as well as in fact while dismissing the appeal in limine.

3. That the ld. CIT(A) was not justified while dismissing the case and confirming the addition of Rs.3,77,70,600/- made by the assessing officer. Moreso, the ld. CIT(A) has failed to appreciate all the averments/objections taken by the appellant in its written submission filed through online. That the ld. CIT(A) ought to have decided the issue raised by the appellant instead of rejecting the same without entertaining.

4. That your appellant craves leave of your honour to take additional ground or grounds of appeal or to modify any grounds of appeal at or before the time of hearing.” I.T.A. No.: 106/GTY/2020: “1. That the worthy CIT(A) was not justified while dismissing the case and confirming the penalty of Rs. 1,16,71,115/- made by the assessing officer U/s 271 (1)(c) on account of unverifiable investment.

2. That your appellant craves leave of your honour to take additional ground or grounds of appeal or to modify any grounds of appeal at or before the time of hearing.”

3. First we take up the quantum appeal in ITA No. 105/GTY/2020.

4. Brief facts of the case as culled out from the records are that the assessee is a private limited company engaged in business. NIL .: 105 & 106/GTY/2020 Assessment Year: 2014-15 Shyamashree Finvest Pvt. Ltd. income declared in the return of income filed for 2014-15 on 20.03.2015. Current year loss of Rs. 21,456/- is claimed. Case selected for scrutiny through CASS for the reason, large increase in investment in unlisted equities followed by serving of statutory notices u/s 143(2) & 142(1) of the Act. On the scheduled date of hearing, the assessee did not comply. Ld. AO, based on the details in the return of income, noticed that there is an investment of Rs. 3,77,70,600/- in unlisted equities. For absence of details, the said amount being unverifiable, ld. AO made addition u/s 68 of the Act at Rs. 3,77,70,600/-.

5. Aggrieved, the assessee preferred appeal before ld. CIT(A) and filed detailed submissions stating that the alleged investment shown in the audited balance sheet is for equity shares allotted to the assessee by M/s. Hayat Hospital Pvt. Ltd. against the investment made by the assessee in the partnership firm M/s. Hayat Hospital in the past years. It was also stated that the assessee company had invested in the partnership firm in the preceding years and the opening balance as on 01.04.2013 stood at Rs. 3,62,75,676/- and there were few transactions during the year. Subsequently, during the year itself the partnership firm converted into the private limited company and against debit balance held by the assessee, it was allotted equity shares in M/s. Hayat Hospital Pvt. Ltd. A copy of Board resolution was also filed. However, ld. CIT(A) did not find any merit in the submissions made by the assessee and firstly, held that the assessee could not file any documentary evidences in support of its claim. Secondly, ld. CIT(A) denied to admit the additional evidences filed by the assessee merely for not accompanying a petition made under Rule Page 3 of 9 .: 105 & 106/GTY/2020 Assessment Year: 2014-15 Shyamashree Finvest Pvt. Ltd. 46A(1) of the Income Tax Rules, 1962 and then confirmed the addition stating that the assessee could not place any evidence on record to explain the said investment.

6. Aggrieved, the assessee is now in appeal before this Tribunal. Ld. Counsel for the assessee stated that the investments made by the assessee in the partnership firm by M/s. Hayat Hospital Pvt. Ltd. is duly shown in the audited financial statement for FY 2011- 12 & 2012-13 and even for the audited financial statement for AY 2014-15 in the schedules attached to the balance sheet the respective details are duly incorporated which in itself show that there is an investment in partnership firm M/s. Hayat Hospital Pvt. Ltd. up to the FY 2013-14 and during the year under appeal i.e. FY 2013-14 (relevant to AY 2014-15), on conversion of the partnership firm from M/s. Hayat Hospital to M/s. Hayat Hospital Pvt. Ltd., equity shares were allotted against the debit balance standing in the name of M/s. Hayat Hospital prior to its conversion to partnership firm. He further submitted that the alleged investment is duly explained and ld. AO firstly erred to make the addition for the said amount and secondly erred to make addition under the wrong Section i.e. Section 68 of the Act which relates to unexplained cash credit but in the case of the assessee there is no unexplained cash credit. Further, reliance was placed on the decision of Hon'ble High Court of Bombay in the case of Ivan Singh vs. Assistant Commissioner of Income-tax, Circle-1(1) reported in [2020] 116 taxmann.com 499 (Bombay) wherein Hon'ble Court has held that opening balances cannot be added by invoking the provisions of Section 68 of the Act. .: 105 & 106/GTY/2020 Assessment Year: 2014-15 Shyamashree Finvest Pvt. Ltd.

7. On the other hand, ld. D/R vehemently argued supporting the order of ld. CIT(A) and also stated that the assessee failed to appear before ld. AO and therefore, at most the issues raised may be restored to ld. AO for fresh adjudication.

8. We have heard rival contentions and perused the records placed before us. Addition of Rs. 3,77,70,600/- made by ld. AO u/s 68 of the Act for unexplained investment confirmed by ld. CIT(A) is in challenge before us. We notice that the case of the assessee was selected for scrutiny for the reason of large increase in investment in unlisted equities. In the income tax return filed by the assessee during FY 2013-14 an investment in the balance sheet is shown at Rs. 3,77,70,600/-. The said sum comprise of the two amounts, a) investment in equity shares of Neza Sales Pvt. Ltd. of Rs. 12,55,000/-, b) investment in equity shares of M/s. Hayat Hospital Pvt. Ltd. of Rs. 3,65,15,600/- (totalling to Rs. 3,77,70,600/-).

9. During the course of assessment proceedings due to no- compliance, ld. AO was able to lay its hands only on the income tax return where the consolidated figure of investment of Rs. 3,77,70,600/- was appearing. For lack of necessary details, ld. AO treated the said sum as unexplained and in place of invoking the provisions of Section 69 of the Act for unexplained investment, made the addition u/s 68 of the Act for unexplained cash credit. Mentioning wrong Section can be an inadvertent mistake at the end of ld. AO and thus, for adjudication purpose, we deem that the substantive addition was made for unexplained investment. .: 105 & 106/GTY/2020 Assessment Year: 2014-15 Shyamashree Finvest Pvt. Ltd.

10. Now, when the matter travelled before ld. CIT(A), the assessee filed complete details including the audited balance sheet for the year under appeal and the preceding two years explaining the source of the alleged investment. Ld. CIT(A) simply brushed aside these evidences being not accompanied with the petition filed under Rule 46A(1) of the Income Tax Rules, 1962. In our humble understanding ld. CIT(A) has co-terminus power to that of ld. AO and in the larger interest of justice ought to have given an opportunity to the assessee to file such application and should have given due weightage to the documentary evidences filed by the assessee so as to end the litigation. However, now since the assessee filed the audited balance sheet which are also part of the public documents being uploaded on the website of the Ministry of Corporate Affairs, we do not find it reasonable to restore the issues to ld. CIT(A) or ld. AO for going through the relevant evidences which are in the form of audited balance sheet and thus, decide to adjudicate the issue in light of the facts available before us.

11. From the audited balance sheet for FY 2011-12 we note that under the head “non-current investments” there is an investment in equity shares of Neza Sales Pvt. Ltd. for a sum of Rs. 12,55,000/- and investment in partnership firm M/s. Hayat Hospital Pvt. Ltd. at Rs. 3,45,04,141/-. Thereafter, during the FY 2012-13 the investment in Neza Sales Pvt. Ltd. remains the same and the investment in partnership firm M/s. Hayat Hospital Pvt. Ltd. increases to Rs. 3,62,75,676/-. Now, moving on to the audited financial accounts statement for FY 2013-14 we notice that the investment in Neza Sales Pvt. Ltd. remains the same, investment in partnership firm M/s. Hayat Hospital becomes NIL and in place Page 6 of 9 .: 105 & 106/GTY/2020 Assessment Year: 2014-15 Shyamashree Finvest Pvt. Ltd. thereof investment in equity shares of M/s. Hayat Hospital Pvt. Ltd. for 36,51,560 equity shares of Rs. 10/- each is appearing at Rs. 3,65,15,600/-. Though the assessee has filed the copies of ledger account in the assessee’s book of M/s. Hayat Hospital and the copy of assessee’s account in the books of partnership firm M/s. Hayat Hospital but the balances appearing in the audited financial statement in itself make the picture very clear and there remains no dispute to the fact that the assessee held investment in the partnership firm M/s. Hayat Hospital in the past and during the year under appeal there was an opening balance of investment in M/s. Hayat Hospital at Rs. 3,62,75,676/- and pursuant to conversion of partnership firm M/s. Hayat Hospital into the private limited company in the name of M/s. Hayat Hospital Pvt. Ltd. against the investment made by the assessee in the past in the partnership firm, equity shares have been allotted to the assessee. Therefore, so far as the reason for which scrutiny in the case has been conducted regarding large increase in investment in unlisted equities stands duly explained and therefore, so far as the alleged addition of Rs. 3,77,70,600/- is concerned, the same comprises of two figures of which first is of investment in shares of Neza Sales Pvt. Ltd. at Rs. 12,55,000/- and the same is duly explained since the said investment has been appearing in the audited balance sheet since FY 2011-12 and therefore, no addition for the same could be made in the year under appeal. The second figure is of investment in shares of M/s. Hayat Hospital Pvt. Ltd. at Rs. 3,65,15,600/- and as discussed above there is no fresh source needed by the assessee to make the said investment and it is merely conversion of old investment in a partnership firm being I.T.A. Nos.: 105 & 106/GTY/2020 Assessment Year: 2014-15 Shyamashree Finvest Pvt. Ltd. converted into a private limited company and the investment held in the partnership firm is now held as investment in equity shares of the converted partnership firm i.e. M/s. Hayat Hospital Pvt. Ltd. Therefore, since ld. Counsel for the assessee has successfully explained the source of large increase in investment in unlisted equities, no addition is called for unexplained investment of Rs. 3,77,70,600/-. We therefore, reverse the finding of ld. CIT(A) and delete the alleged addition made by ld. AO. Therefore, the grounds raised on merit by the assessee are allowed.

12. Other grounds are general in nature which need no adjudication.

13. In the result, the appeal filed by the assessee in is allowed.

14. Now, we take up which is an appeal at the instance of the assessee against the order of ld. CIT(A) confirming the penalty levied by ld. AO u/s 271(1)(c) of the Act at Rs. 1,16,71,115/- calculated @ 100% of the tax sought to be evaded on the alleged bogus investment in equity shares u/s 69 of the Act at Rs. 3,77,70,600/-.

15. However, since we have already deleted the addition for bogus investment in equity shares at Rs. 3,77,70,600/- while dealing with the assessee’s appeal against the quantum addition in I.T.A. No. 105/GTY/2020 referred herein above, the impugned penalty deserves to be deleted since the basis on which penalty u/s 271(1)(c) of the Act has been levied has itself been deleted, there remains no legs for the penalty to stand for. We, therefore, delete I.T.A. Nos.: 105 & 106/GTY/2020 Assessment Year: 2014-15 Shyamashree Finvest Pvt. Ltd. the penalty levied u/s 271(1)(c) of the Act at Rs. 1,16,71,115/- and allow ground no. 1 raised by the assessee.

16. Ground no. 2 is general in nature which need no adjudication.

17. In the result, appeal filed by the assessee in is allowed.

18. In the result, both the appeals filed by the assessee are allowed. Kolkata, the 16th January, 2023 Sd/- Sd/- [Sonjoy Sarma] [Manish Borad] Judicial Member Accountant Member Dated: 16.01.2023 Bidhan (P.S.) Copy of the order forwarded to:

1. Shyamashree Finvest Pvt. Ltd., C/o Rahul Raj Jain & Co., H No. 15, 1st Floor, Bye Lane-2 Shaktigarh Path, Bhangagarh, G.S.Road, Assam-781 005.

2. ITO, Ward-7(3), Kolkata. 3. CIT(A)- Guwahati-2, Guwahati. 4. CIT- 5. CIT(DR), Guwahati Bench, Guwahati.