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Income Tax Appellate Tribunal, “A” BENCH: KOLKATA
Before: Shri Rajesh Kumar&Shri Sonjoy Sarma]
Per Rajesh Kumar, AM:
This is the appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)- NFAC, Delhi [hereinafter referred to as ‘Ld. CIT(A)’] dated 30.06.2023 for the assessment year 2012-13.
Ground No. 1 is general in nature and does not press at the time of hearing.
Assessment Year: 2012-13 Autumn Builders Ltd. 3. Ground No. 2 pressed at the time of hearing is against the order of Ld. CIT(A) confirming the addition of Rs. 2,70,50,000/- as made by the AO in respect of share application money received from the group companies.
4. Facts in brief are that the assessee filed return of income on 30.09.2012 declaring total loss of Rs. 1,15,357/-. The case of the assessee was selected for scrutiny and statutory notices were duly issued and served upon the assessee. The AO upon perusal of the audited accounts of the assessee observed that the assessee has raised share application of Rs. 2,70,50,000/- during the instant financial year and accordingly a notice u/s 142(1) of the Act was issued along with questionnaire dated 13.11.2014 calling upon the assessee to furnish details/information which were duly furnished by the Counsel of the assessee by appearing in person filing the details of directors of company, shareholders and investments as on 31.03.2012, details of sundry debtors, details of loans and advances as on 31.03.2012, master data of the company as per MCA, bank statement of the assessee, form no. 2 and Form 18 filed with ROC and letter from BSE dated 16.04.2014 confirming listing of equity shares of the company. Thereafter the AO issued notice u/s 142(1) of the Act dated 23.01.2015 to the Principal Officer of the assessee company to submit the same information in respect of share application money. Further the AO also issued summons to the directors of the assessee company u/s 131 dated 23.01.2015 to appear personally and also to produce the directors of the share subscribers on 10.02.2015. The directors of the assessee company could not appear before the AO however the Counsel of the assessee filed the details comprising ITRs, names and addresses, acknowledgment, bank statements and audited accounts of the share applicants. The AO instead of carrying out of any further verification into evidences/details qua the share application money received by the assessee treated the share application money of Rs. 2,70,50,000/- as unexplained cash credit and added the same to the income of the assessee on the ground that compliance was not made to the summons issued u/s 131 of the Act.
Assessment Year: 2012-13 Autumn Builders Ltd. 5. The assessee preferred an appeal before the Ld. CIT(A) however the Ld. CIT(A) dismissed the appeal by upholding the order of AO by observing that the summons issued u/s 131 of the Act were not complied.
The Ld. A.R vehemently submitted before the Bench that the order passed by AO and confirmed by the Ld. CIT(A) is factually wrong and against the ratio laid in various decisions of different judicial forums. The Ld. A.R submitted that the assessee assessee has appeared through Counsel from time to time before the AO and filed all the details in respect of share application money received from the group companies as stated above. However the AO, instead of carrying out of any further verification and any enquiry into these evidences, simply treated share application money as unexplained cash credit citing the reasons that summons u/s 131 were not complied with. The Ld. A.R submitted that the order of AO as well as Ld. CIT(A) who has simply affirmed the order of AO on the same reasoning are not sustainable under the Act. The Ld. A.R submitted that the it’s is not open to the AO to make addition simply on the basis of non-compliances of summons issued u/s 131 of the Act when the assessee has filed all the evidences in respect of money raised and AO has failed to carry out any further verification or point out any defects or deficiencies in those evidences. The Ld. A.R submitted that mere non-production or non- appearance of the investors before the AO could not justify the addition when all the evidences are before the AO as well as Ld. CIT(A). In defense of arguments the Ld. A.R relied on the following decisions:
1.CIT vs. Orissa Corporation Ltd. in [1986] 159 ITR 78 (SC) 2. DCIT vs. Rohini Builders [2002] 256 ITR 360(Guj)
3.Crystal Networks (P)Ltd vs CIT reported in 353 ITR 171 (C
ITO Vs M/s Cygnus Developers India Pvt. Ltd. (ITA No. 282/Kol/2012)
CIT Vs Orchid Industries (P) Ltd 397 ITR 136 (Bom)
Assessment Year: 2012-13 Autumn Builders Ltd. Finally the ld AR prayed before the bench that the order of ld CIT(A) may be set aside and the AO may be directed to delete the addition.
The Ld. D.R ,on the other hand, relied on the orders of authorities below by submitting that the assessee has failed to prove identity and creditworthiness of the investors and genuineness of the transactions as the directors or the assessee company as well as the directors of the subscribers company did not complied with the summons. The ld DR submitted that just filed certain papers/documents to prove the investment/money received by the assessee which is not sufficient to establish the identity and creditworthiness of the investors and genuineness of the transaction. The ld DR has requested the bench to allow the revenue to file submissions for which the bench allowed 15 days.The ld DR filed written submissions dated 03.11.2023 to defend the order passed by the lower authorities which were taken into account and considered. Under this circumstances, the Ld. D.R submitted ,while relying heavily on the order of Ld. CIT(A), that the order of ld CIT(A) needs to be affirmed.
We have heard the rival contentions and perused the material on record. The undisputed facts are that the assessee has raised money by way of share application of Rs. 2,70,50,000/- from group companies. The assessee has filed all the documents concerning the investors however the personal presence of the directors of the assessee company and the investors was not made before the AO. We note that the AO, instead examining and enquiring into the materials/evidences furnished further, has straightaway jumped to the conclusion that these are unexplained cash credit . Similarly the Ld. CIT(A) has affirmed the findings of AO on this issue on the same reasoning without commenting on the evidences filed by the assessee. In our opinion when the assessee has filed all the documents/evidences before the authorities, they are duty bound to investigate the matter further and conduct necessary enquiries and only base conclusion on the basis of result of search enquiry. However we note that in the present case, no further investigation or enquiry was conducted either by the AO or by the Ld. CIT(A). Even the documents furnished by the assessee were not commented. We also observe that this is not a case of shell companies or bogus
Assessment Year: 2012-13 Autumn Builders Ltd. accommodation entries but raising share application money from the group companies. We have also considered the submissions dated 03.11.2023 filed by the ld DR and reply thereto by the assessee and are of the view that in view of the decisions as discussed below, the order of the ld CIT(A) can not be sustained. Under the circumstances we are not in a position to concur with conclusion drawn by the Ld. CIT(A). The mere non-production of share holders before the AO and non appearance of the directors of the appellant cannot be a ground for making the addition. We note that despite having filed all the evidences, no enquiry was done and the Ld. CIT(A) has simply affirmed the finding of the AO by holding that no identity and creditworthiness of the creditors could not be proved by the assessee by ignoring all the evidences placed before him. Under the circumstances, we are not in a position to sustain the order of Ld. CIT(A). We find support from the decision of Hon’ble Supreme Court in the case of CIT Vs Orissa Corporation Ltd. (supra)
“That in this case the respondent had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assessees. Their index numbers were in the file of the Revenue. The Revenue, apart from issuing notices under Section 131 at the instance of the respondent, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the respondent could not do anything further. In the premises, if the Tribunal came to the conclusion that the respondent had discharged the burden that lay on it, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. I f the conclusion was based on some evidence on which a conclusion could be arrived at, no question of law as such arose. The High Court was right in refusing to state a case.” 8.1 The case of the assessee is also squarely covered by the decisions of Hon’ble Calcutta High Court in the case of Crystal Networks Pvt. Ltd. vs. CIT (supra ) wherein it has held that where all the evidences were filed by the assessee proving the identity and creditworthiness of the loan transactions , the fact that summon issued were returned un-served or no body complied with them is of little significance to prove the genuineness of the transactions and identity and creditworthiness of the creditors. The relevant portion of the decision is extracted below:
“We find considerable force of the submissions of the learned Counsel for the appellant that the Tribunal has merely noticed that since the summons issued before assessment returned unserved and no one came forward to prove. Therefore it shall be assumed that the assessee
Assessment Year: 2012-13 Autumn Builders Ltd. failed to prove the existence of the creditors or for that matter creditworthiness. As rightly pointed out by the learned counsel that the Ld. CIT(A) has taken the trouble of examining of all other materials and documents viz., confirmatory statements, invoices, challans and vouchers showing supply of bidi as against the advance. Therefore, the attendance of the witnesses pursuant to the summons issued in our view is not important. The important is to prove as to whether the said cash credit was received as against the future sale of the product of the assessee or note. When it was found by the Ld. CIT(A) on fact having examined the documents that the advance given by the creditors have been established the Tribunal should not have ignored this fact findings. Indeed the Tribunal did not really touch the aforesaid fact finding of the Ld. CIT(A) as rightly pointed out by the learned counsel. The Supreme Court has already stated as to what should be the duty of the learned Tribunal to decide in this situation. In the said judgment noted by us at page 463, the Supreme Court has observed as follows: “The Income-Tax Appellate Tribunals performs a judicial function under the Indian Income-tax Act. It is invested with authority to determine finally all questions of fact. The Tribunal must, in deciding an appeal, consider with due care all the material facts and records its findings on all the contentions raised by the assessee and the Commissioner, in the light of the evidence and the relevant law.” The Tribunal must, in deciding an appeal, consider with due care all the material facts and record its findings on all contentions raised by the assessee and the Commissioner, in the light of the evidence and the relevant law. It is also ruled in the said judgment at page 465 that if the Tribunal does not discharge the duty in the manner as above then it shall be assumed the judgment of the Tribunal suffers from manifest infirmity. Taking inspiration from the Supreme Court observation we are constrained to hold in this matter that the Tribunal has not adjudicated upon the case of the assessee in the light of the evidence as found by the Ld. CIT(A). We also found no single word has been spared to up set the fact finding of the Ld. CIT(A) that there are materials to show the cash credit was received from various persons and supply as against cash credit also made. Hence, the judgment and order of the Tribunal is not sustainable. Accordingly, the same is set aside. We restore the judgment and order of the Ld. CIT(A). The appeal is allowed.” 8.2. The case of is also covered by the decision of the coordinate bench in ITO Vs M/s Cygnus Developers India Pvt. Ltd. (supra) the operative part whereof is extracted below:
“8. We have heard the submissions of the learned D.R, who relied on the order of AO. The learned counsel for the assessee relied on the order of Ld. CIT(A) and further drew our attention to the decision of Hon’ble Allahabad High Court in the case of CIT vs. Raj Kumar Agarwal vide dated 17.11.2009 wherein the Hon’ble Allahabad High Court took a view that non-production of the director of a Public Limited Company which is regularly assessed to Income tax having PAN, on the ground that the identity of the investor is not proved cannot be sustained. Attention was also to the similar ruling of the ITAT Kolkata bench in the case of ITO vs. Devinder Singh Shant in ITA No. 208/Kol/2009 vide order dated 17.04.2009.
We have considered the rival submissions. We are of the view that order of Ld. CIT(A) does not call for any interference. It may be seen from the grounds of appeal raised
Assessment Year: 2012-13 Autumn Builders Ltd. by the revenue that the revenue disputed only the proof of identity of share holder. In this regard it is seen that for AY 2004-05 Shree Shyam Trexim Pvt. Ltd. was assessed by ITO, Ward-9(4), Kolkata and the order of assessment u/s 143(3) dated 25.01.2006 is placed in the paper book. Similarly Navalco Commodities Pvt. Ltd. was assessed to tax u/s 143(3) for AY 2005-06 by ITO, Ward-9(4), Kolkata by order dated 20.03.2007. Similarly Jewellock Trexim Pvt. Ltd. was assessed to tax for AY 2005-06 by the very same ITO, Ward-9(3), Kolkata assessing the assessee. In the light of the above factual position which is not disputed by the revenue, it cannot be said that the identity of the share applicants remained not proved by the assessee. The decision of the Hon’ble Allahabad High Court as well as ITAT, Kolkata Bench on which reliance was placed by the learned counsel for the assessee also supports the view that for non-production of directors of the investor company for examination by the AO it cannot be held that the identity of a limited company has not been established. For the reasons given above we uphold the order of Ld. CIT(A) and dismiss the appeal of the revenue.” 8.3. Similar ratio has been laid down by the Hon’ble Mumbai High Court in the case of CIT Vs Orchid Industries (P) Ltd (supra) by holding that provisions of section 68 of the Act cannot be invoked for the reasons that the person has not appeared before the AO where the assessee had produced on records documents to establish genuineness of the party such as PAN ,financial and bank statements showing share application money .
9. In the instant case before us also, the assessee has furnished all the evidences proving identity and creditworthiness of the investors and genuineness of the transactions but AO has not commented on these evidences filed by the assessee. Besides the investors have also furnished complete details/evidences before the AO which proved the identity , creditworthiness of investors and genuineness of the transactions. Under these facts and circumstances and considering underlying facts in the light of ratio laid down in the decisions as discussed above , we are inclined to set aside the order of Ld. CIT(A) by allowing the appeal of the assessee. The ground no. 2 is allowed.
Second issue raised in ground no. 3 is against the confirmation of disallowance of Rs. 1,26,958/- by Ld. CIT(A) as made by the AO u/s 14A read with Rule 8D of the Rules.
Facts in brief are that during the year the assessee has not earned any exempt income and also not made any disallowance of expenses u/s 14A of the Act, however
Assessment Year: 2012-13 Autumn Builders Ltd. the AO by applying CBDT circular No. 5/2014 dated 11.02.2014 calculated the disallowance at Rs. 1,26,958/- and added the same to the income of the assessee.
In the appellate proceedings, the Ld. CIT(A) simply dismissed the appeal of the assessee when the assessee did not appear before the Ld. CIT(A).
After hearing the rival contentions and perusing the material on record, we find that undisputedly there is no exempt income earned during the year. However the AO disallowed the sum of Rs. 1,26,958/- u/s 14A read with Rule 8D of the Rules which was also confirmed by the Ld. CIT(A). This is a settled position that no disallowance is to be made u/s 14A read with Rule 8D where there is no exempt income as has been decided in the case of PCIT Vs State Bank of Patiala (2018) 99 taxman.com 286(SC) and CIT Vs Joint Investment Pvt Ltd (2015) 372 ITR 69 (Delhi)
We have also noted the arguments put forward by the Ld. D.R that explanation to Section 14A by Finance Act, 2022 w.e.f 01.04.2022 is explanatory in nature and retrospective and therefore disallowance was rightly made by the AO and affirmed by the Ld. CIT(A) irrespective of the fact that any exempt income was earned or not. However the said argument of the Ld. D.R was controverted by the Ld. Counsel of the assessee by submitting that the explanation to Section 14A vide Finance Act, 2022 w.e.f 01.04.2022 is prospective in nature and therefore can not be applied prior to AY 2022-23. In his defense the Counsel of the assessee relied on the following decisions:
i) Era Infrastructure (India) Ltd. [2022] 141 taxmann.com 289 (Delhi) ii) PCIT vs. Delhi International Airport (P) Ltd., [2022] 144 taxmann.com 80 (Delhi) iii) Bajaj Capital Ventures (p) Ltd. [2022] 141 taxmann.com 1 (Mumbai-trib)
We have perused the decisions and found that in all the decisions it has been held that no disallowance is made u/s 14A prior to AY 2022-23 as the explanation to Section 14A vide Finance Act, 2022 w.e.f 01.04.2022 is prospective and not retrospective.
Assessment Year: 2012-13 Autumn Builders Ltd. Accordingly we set aside the order of Ld. CIT(A) on this issue and direct the AO to delete the addition. The ground no. 3 is allowed.
In the result, appeal of the assessee is allowed.
Order is pronounced in the open court on 11th December, 2023