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Income Tax Appellate Tribunal, “C” BENCH: KOLKATA
Before: Shri Rajesh Kumar & Shri Sonjoy Sarma]
ORDER / आदेश Per Rajesh Kumar, AM:
This is an appeal preferred by the revenue against the order of the Ld. Commissioner of Income Tax (Appeals)-23, Kolkata (hereinafter referred to as the Ld. CIT(A)”] dated 27.03.2017 for the AY 2012-13.
At the outset, we observe from the appeal that there is a delay of 325 days in filing the appeal of revenue. We also note that the revenue has filed an Affidavit duly sworn by Shri Anup Kumar Agrawal, ITO, Ward-5(3), Kolkata wherein the delay has been explained to be on account of files moving through various stages and processes and also the pre-occupation of Department in various internal matters which contributed to delay in filing the appeal. We note that though the reasons explained in the Affidavit are not very cogent and convincing, however, keeping in view, the appeal by the revenue which is the wing of Govt. of India and manned by the Govt.
Assessment Year: 2012-13 M/s BMC Ferrocast Pvt. Ltd.
Officers, therefore, it needs to be considered leniently. We are therefore inclined to condone the delay and admit the appeal for hearing.
The only issue raised by the revenue is against the deletion of addition of Rs. 2,50,00,000/- by the Ld. CIT(A) which was made by the AO on account of unexplained cash credit u/s 68 of the act.
Facts in brief are that the return of income was filed on 30.09.2012 declaring total income of Rs. 2,43,733/-. The return was duly processed u/s 143(1) of the Act. The assessee is deriving income from mutual fund trading and also by way of capital gain. The case of the assessee was selected for scrutiny and accordingly the assessee was called upon to submit the details and documents which was duly filed before the AO. The AO observed that there were several discrepancies in the said documents. Subsequently the AO noticed from balance sheet that the assessee has received share application money/share capital/share premium of Rs. 2,50,00,000/- during the year by issuing 2,50,000 shares having face value of Rs. 10/- at premium of Rs. 90/- each to five corporate entities. The AO noted that the assessee has failed to provide any details/ documents in support of the said share application money received and failed justify the basis of charging huge premium. The AO issued notice u/s 131 to the directors of the share holder companies of the assessee and they were asked to appear personally before the AO but none of them appeared in compliance. The AO also noted that vide letter dated 10.02.2015 the assessee was required to produce the directors of the share holder companies and also show cause as to why the share application money received should not be treated as bogus and treated as unexplained in the hands of the assessee. The AO noted that the assessee was not engaged in any business activity and therefore there was no justification for such huge premium. Accordingly the money was received of Rs. 2,50,00,000/- was treated as unexplained and added u/s 68 of the Act to the assesse in the assessment framed.
In the appellate proceedings, the Ld. CIT(A) allowed the appeal of the assessee after taking into consideration the submissions of the assesse and documents
Assessment Year: 2012-13 M/s BMC Ferrocast Pvt. Ltd. furnished. The Ld. CIT(A) noted that these investor companies were sister concerns belonging to the same group. The Ld. CIT(A) further noted that each of these companies had subscribed 50,000 equity shares contributing Rs. 50,00,000/- each in the share capital of the assessee company. The Ld. CIT(A) also noted that the source of money was duly explained out of their own funds and notices issued u/s 133(6) of the Act by the AO were issued to each of these companies which were duly responded by the subscribers filing necessary details comprising balance sheets, profit and loss accounts, bank statements, PANs etc. and confirmations of the investor companies. The Ld. CIT(A) had discussed each and every investor companies’s financial position, the details of source of funds in the appellate order. The Ld. CIT(A) noted that BMC Metalcast Ltd. is a sister concern of the assessee and also an applicant for issue of equity shares as described above is an ancillary unit of Tata Motors Ltd. Jamshedpur, Pune and Lucknow and is in the business of manufacturing SG iron and cast iron castings for last 40 years supplying products to the aforesaid parties with planned capacity of 6000 M.T. pa. The Ld. CIT(A) noted that BMC Metalcast Pvt. Ltd. has been earning very good income from its business returning 32% and 26% on its paid up capital for the years ended March 2012 and 2011 respectively. The Ld. CIT(A) also noted that requirement of the above customers of the company was around 11000 MT p.a and therefore BMC Metalcast Pvt. Ltd. approached the assessee company who had a foundry of capacity of 12000 MT p.a to manufacture the goods and supply the same to BMC Metalcast Pvt. Ltd to cater to its customer. Accordingly money was raised from the sister concerns/group companies to deal customers requirement and demand . Finally the Ld. CIT(A) deleted the addition by observing that identity, creditworthiness and genuineness of the share capital and share premium was adequately established. The ld CIY(A) also recorded a finding that notices issued u/s 133(6) of the Act were duly replied by the subscribing companies and these facts were not brought on record in the assessment order by the AO. Considering all the aspects the addition was deleted by the Ld. CIT(A).
Assessment Year: 2012-13 M/s BMC Ferrocast Pvt. Ltd.
The Ld. D.R submitted before the Bench that company was incorporated 22.2.2011 and therefore this is the first year of operation of the assesse. During the year assessee issued shares 2,50,000 shares to group companies having face value of Rs. 10/- and premium of Rs. 90/- each and there was no justification for issuing shares at such a high premium. The Ld. D.R submitted that there was no compliance before the AO despite the repeated reminders by the AO and questionnaire issued. The Ld. D.R also submitted that there was no valuation done to ascertain the amount of premium besides there being no business activity. The ld. DR stated that the assessee has completely failed to discharge its onus and thus the order of ld AO needs to be restored. The Ld. D.R submitted that the issue could not be examined by the AO because the assessee has failed to produce those investor companies before the AO and therefore prayed before the Bench that the order passed by the Ld. CIT(A) allowing the appeal of the assesse may kindly be dismissed.
The Ld. A.R on the other hand submitted that summons u/s 131 of the Act were issued to the directors of the assesse company which were not complied with . However notice issued u/s 133(6) to five companies who subscribed the shares were replied by filing all the details/documents called for. The Ld. A.R drew our attention to the detailed order passed the Ld. CIT(A) discussing each and every aspect of the subscribers companies and also the fact that these are the established companies who have subscribed to share capital in the group company and in one case subscriber M/S BMC Metalplast Pvt Ltd. was doing business for last more than 40 years and were supplying Tata Motors Ltd. Jamshedpur, Pune and Lucknow. The Ld. A.R submitted that the AO has doubted the identity, creditworthiness and genuineness of this transactions as there were shell companies by ignoring the factual position that these are going sister concerns of the assessee who have invested in the assessee company out of their own funds which has been discussed by the Ld. CIT(A) from page 3 to 9 of the appellate order. The Ld. A.R drew our attention to the fact that BMC Metalcast Pvt. Ltd. has a plant capacity of 6000 MT p.a. whereas the requirement of the customer was 11000 MT p.a. The assessee had a foundry of capacity of 12000 MT p.a
Assessment Year: 2012-13 M/s BMC Ferrocast Pvt. Ltd. to manufacture the said item. The ld AR argued that the money was raised by way of share capital to manufacture the said item y the assesse and supply the same product to cater to its customer. The Ld. A.R also pointed out to the audited balance sheet of the assesse which is filed at page 3 to 11 to corroborate the argument that the assesse is engaged in doing business and the fact that assesse was not doing any business is factually incorrect. The Ld. A.R submitted that the assessee is a genuine company and is worked as an ancillary manufacturing unit in the subsequent years.
After hearing the rival contentions and perusing the material on record, we find that the assessee has raised Rs. 2,50,00,000/- by issuing equity shares 2,50,000 from five group companies. We note that during the course of assessment proceedings the assessee has furnished before the AO, the details of documents/details as required by the AO from time to time. Besides the AO issued notices u/s 133(6) of the Act to the subscribing companies which were duly responded and replied. However the AO has not discussed the same in the assessment order. The AO also issued summons u/s 131 of the Act to the subscribers which were not complied with and therefore the AO issued letter to the assessee to produce the directors of these companies for the verification purpose. However the AO has not commented on the various evidences filed by the assessee during the assessment proceedings before the AO. We observe that the Ld. CIT(A) brought all the facts on record including notices u/s 133(6) of the Act, replies of the subscribers and also non-mentioning of the same in the assessment order. The Ld. CIT(A) also note that all these companies were having their own sources and thus made the investments out of their own funds. We note that one of the group company BMC Metalcast Pvt. Ltd. is engaged in the business of manufacturing for the last 40 years and is supplied goods to Tata Motors Jamshedpur, Pune and Lucknow and has a capacity of 6000MT P.a. We note that it is only in order to increase the supply capacity of the company, money was raised so that the high demand which was around 11000 MT p.a could be met. The Ld. CIT(A) has given a detailed finding that the assessee has duly explained the source of money in the group companies and thus justified the issue of equity shares to sister company at a Assessment Year: 2012-13 M/s BMC Ferrocast Pvt. Ltd. premium. Considering these facts and circumstances we are inclined to uphold the order of Ld. CIT(A) which is very reasoned and speaking one by dismissing the appeal of the revenue.
In the result, the appeal of the revenue is dismissed.
Order is pronounced in the open court on 7th December, 2023