SHIPRA ENCLAVE (P) LTD. ,KOLKATA vs. ITO, WARD-9(1), KOL, KOLKATA

The present appeal is directed at the instance of the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter the “ld. CIT(A)”) dt. 24/05/2023, passed u/s 250 of the Income Tax Act, 1961 (“the Act”) for the Assessment Year 2012-13. 2. The assessee has raised the following grounds of appeal:- “1. For that the Ld. CIT erred in confirming the action of the Ld. AO when the order u/s 143(3) is bad in law.

Brief facts of the case are that the assessee is a Non-banking financial company engaged in the business of shares, investments and financing. Loss of Rs.4,57,214/- declared in the e-return for Assessment Year 2012-13 e-filed on 29/09/2012. Subsequently case selected for scrutiny through CASS for the reason “to examine Large Share premium received”, followed by valid service of notices issued u/s 143(2) and 142(1) of the Act. Necessary details were called for by the Assessing Officer so as to examine the share capital and share premium of Rs.6,22,00,000/- received during the year. Though all the details were filed before the Assessing Officer which even the ld. Counsel for the assessee has filed in the paper book, however, the ld. Assessing Officer has not dealt with those details in the assessment order and came to conclusion that the assessee fell short of discharging the onus of explaining the said share capital in question and thus failed to establish the three ingredients, namely, identity and creditworthiness of the said sources of funds. The ld. Assessing Officer applying the judgments of the Hon’ble Apex Court in the case of CIT vs. Durga Prasad More (82 ITR 540) and various other decisions concluded that the alleged sum is assessee’s own undisclosed funds in the garb of subscription by shareholders and deserves to be added u/s 68 of the Act as unexplained cash credit. After adding the sum of 3 Assessment Year: 2012-13 M/s. Shipra Enclave Private Limited alleged sum of Rs.6,22,00,000/- in the hand of the assessee income assessed at Rs.6,17,42,786/- .

Aggrieved the assessee preferred appeal before the ld. CIT(A) and again filed all the details including the proof of reply to the summons u/s 131 of the Act stating that the Director himself attended the scrutiny proceedings regularly on the scheduled dates as and when called for by the ld. Assessing Officer. The ld. Counsel for the assessee also submitted that the assessee is a NBFC being registered with the Reserve Bank of India and its primary objective and the business is of loans and advances. However, the ld. CIT(A) was not satisfied with these details and observed that the assessee had failed to produce the directors of the shareholding companies and there is a failure on the part of the assessee to establish the creditworthiness of the investor companies. He further held that, merely because the assessee has filed all primary evidence, it could not be said that the onus of the assessee to establish the creditworthiness of the investor companies stood discharged. Accordingly, the finding of the Assessing Officer was confirmed.

Aggrieved the assessee is now in appeal before this Tribunal.

The ld. Counsel for the assessee referring to the various documents filed in the paper book submitted that whatever documents which are needed to explain the identity and creditworthiness of the share applicants and genuineness of the transactions have been filed before the lower authorities. Assessee being a NBFC company has to report the financials to the Reserve Bank of India as well as Ministry of Corporate Affairs. All the share Assessment Year: 2012-13 M/s. Shipra Enclave Private Limited applicants are private limited companies duly assessed to tax, financial statements duly audited and transactions carried out through banking channel and relevant part of such bank statements stands filed. Even the source of source of the funds needed to carry out the alleged transactions have been submitted. He also stated that all the share allottee companies were issued notices u/s 133(6) of the Act to which necessary compliance was made and replies were given by the share applicant companies to the Assessing Officer. Reference was also made to paper book page 316 to 318 where the copy of order sheet has been filed to show that the director of the assessee company Shri Pramod Anchalia appeared in person before the ld. Assessing Officer and filed the details. He was also asked to provide the books of accounts and the same was duly complied to. He thus contended that both the lower authorities stated that the directors have not appeared before the Assessing Officer but the fact remains that the director of the assessee company has appeared in person and as far as the remaining share allottees are concerned, they have duly replied to the notice u/s 133(6) of the Act and it was beyond the control of the assessee to bring all the share applicants before the Assessing Officer. It was also submitted that whatever best the assessee could have done, was done and merely for non-appearance of the share applicant companies, additions cannot be made. In support, reliance was placed on the decision of the Hon’ble Jurisdictional High Court in the case of Principal CIT vs. Sreeleathers reported in [2022] 448 ITR 332 (Cal). Reliance was also placed on the decision of the Co-ordinate Bench of 5 Assessment Year: 2012-13 M/s. Shipra Enclave Private Limited the M/s. Mahalakshmi Vinimay (P) Ltd. vs. ITO in ITA No. 35/Kol/2020; Assessment Year 2008-09; order dt. 18/05/2023.

The ld. D/R vehemently argued supporting the order of the ld. Assessing Officer and stated that merely filing these paper documents cannot be treated as a compliance to explain the nature and source of the alleged sum. Surrounding circumstances which includes the meagre income offered by the share subscribers, no regular business activity carried out by the assessee company as well as by the share subscribers and the typical nature of flow of funds in the bank statement indicates that share subscribing companies are engaged in rotation of funds for providing accommodation entries and they are jamakharchi or shell/paper companies and, therefore, the ld. Assessing Officer has rightly added the sum in the hands of the assessee.

We have heard rival contentions and perused the record placed before us. Assessee has challenged the finding of the ld. CIT(A) confirming the addition made u/s 68 of the Act by the Assessing Officer alleging that the assessee has failed to explain the nature and source of share application money received from 15 share applicants. The ld. Counsel for the assessee apart from referring to the various documents filed in the paper book have also stated that all the share applicants had sufficient net worth to explain the investment in the equity capital of the assessee company. Details of share applicants, address, PAN, number of equity shares applied and allotted, share application money given to the assessee and net worth of the alleged share subscribers are tabulated below:-

Further in support of its contention, all complete documentary evidence have been filed to explain the identity, creditworthiness of the share applicants and genuineness of the transactions. The ld. Counsel for the assessee took us through the following documents which are placed in the paper book including the copy of notice u/s 133(6) of the Act to the share allottee companies, copies of replies received by the Assessing Officer, copy of the order sheets etc.:-

Recently, the Hon’ble Jurisdictional High Court in the case of Principal CIT vs. Sreeleathers, has held as follows:- “Section 68 of the Income-tax Act, of 1961, deals with cash credits. It states that where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to Income-tax as the income of the assessee of that previous year. The crucial words in the provision are “the assessee offers no explanation". This would mean that the assessee offers no proper, reasonable and acceptable explanation as regards the amount credited in the books maintained by the assessee. No doubt the Act places the burden of proof on the taxpayer. However, this is only the initial burden. In cases where Assessment Year: 2012-13 M/s. Shipra Enclave Private Limited the assessee offers an explanation to the credit by placing evidence regarding the identity of the investor or lender along with their confirmations, the assessee has discharged the initial burden and, therefore, the burden shifts on the Assessing Officer to examine the source of the credit to be justified in referring to section 68 of the Act. After the Assessing Officer puts the assessee on notice and the assessee submits the explanation concerning the cash credit, the Assessing Officer should consider it objectively before he decides to accept or reject it. Where the assessee furnishes full details regarding the creditors, it is up to the Department to pursue the matter further to locate those creditors and examine their creditworthiness. While drawing the inference, it cannot be assumed in the absence of any material that there have been some illegalities in the assessee’s transaction. Held, dismissing the appeal, that the allegations against the assessee were in respect of thirteen transactions. The Assessing Officer issued a show-cause notice only in respect of one of the lenders. The assessee responded to the show- cause notice and submitted the reply. The documents annexed to the reply were classified under three categories namely: to establish the identity of the lender, to prove the genuineness of the transactions and to establish the creditworthiness of the lender. The Assessing Officer had brushed aside these documents and in a very casual manner had stated that merely filing the permanent account number details, and balance sheet did not absolve the assessee from his responsibility of proving the nature of the transaction. There was no discussion by the Assessing Officer on the correctness of the stand taken by the assessee. Thus, going by the records placed by the assessee, it could be safely held that the assessee had discharged his initial burden and the burden shifted onto the Assessing Officer to enquire further into the matter which he failed to do. In more than one place the Assessing Officer used the expression "money laundering". Such usage was uncalled for as the allegation of money laundering is a very serious allegation and the effect of a case of money laundering under the relevant Act is markedly different. The order passed by the Assessing Officer was utterly perverse and had been rightly set aside by the Commissioner (Appeals). The Tribunal had rightly deleted the additions under section 68.”

Further, this Tribunal in the case of M/s. Mahalakshmi Vinimay (P) Ltd. vs. ITO in Assessment Year 2008-09; order dt. 18/05/2023, holding in favour of the assessee, in application adjudicating similar issue observed as under:- “7. We have considered the rival submissions of the ld. representatives of the parties and also gone through the record. In this case a perusal of the Assessment order would reveal that the AO has duly acknowledged the receipt of the relevant documents/evidences not only from the assessee, but also from the subscriber companies. However, he insisted for personal appearance of the Assessment Year: 2012-13 M/s. Shipra Enclave Private Limited directors of the subscriber companies without even going through and discussing about the discrepancies, if any, in the documents furnished by the assessee as well as by the share subscriber companies to prove the identity and creditworthiness of the subscribers and the genuineness of the transaction. The AO has not pointed out in the Assessment Order as to what further enquiries he wanted to make from the directors of the subscribers to insist for their personal presence. The Assessee in this case, as noted above, explained about the identity, creditworthiness and financials etc. of each of the share subscriber company individually. However, we note that in the assessment order that the AO has not even mentioned the names of the share subscriber companies and even has not mentioned a word as to which of the share subscriber company or the corresponding transaction thereof was not genuine and on what grounds. The AO, in our view, could have taken an adverse inference, only if, he would have pointed out the discrepancies or insufficiency in the evidences and details received in his office and pointed out as to on what account further investigation was needed by way of recording of statement of the directors of the subscriber companies. Even if the directors of the subscriber companies have not come personally in response to the summons issued by the AO, in our view, adverse inference cannot be taken against the assessee solely on this ground as it is not under control of the assessee to compel the personal presence of the directors of the shareholders before the AO. The Ld. Counsel for the assessee has rightly placed reliance upon the decision of the Hon’ble Bombay High Court in the case of PCIT, Panji vs. Paradise Inland Shipping Pvt. Ltd. reported in (2017) 84 taxman.com 58 (Bom) wherein the Hon’ble High Court has held that once the assessee has produced documentary evidence to establish the existence of the subscriber companies, the burden would shift on the revenue to establish their case. Further the jurisdictional Calcutta High Court in the case of “Crystal networks (P) Ltd. vs CIT” (supra) has held as under: “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 failed to prove the existence of the creditors or for that matter creditworthiness. As rightly pointed out by the learned counsel that the CIT(Appeals) 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 produce of the assessee or not. When it was found by the CIT(Appeal) on fact having examined the documents that the advance given by the creditors have been established the Tribunal should not have ignored this fact finding.” 8. It has to be further noted that though powers of the ld. CIT(A) are co- terminus with the AO and the ld. CIT(A) had all the plenary powers as that of the AO. The Hon’ble Delhi High Court in the case of Commissioner of Income- tax vs. Manish Build Well (P.) Ltd. reported in [2011] 16 taxmann.com 27 (Delhi) has held that the CIT(A) is statutory first appellate authority and has 14 I.T.A. No. 543/Kol/2023 Assessment Year: 2012-13 M/s. Shipra Enclave Private Limited independent power of calling for information and examination of evidences and possesses co-terminus power of assessment apart from appellate powers. However, a perusal of the impugned order of the ld. CIT(A) shows that the ld. CIT(A) has not discussed anything about the material facts of the case. He has not pointed out any defect and discrepancy in the evidences and details furnished by the assessee but simply upheld the order of the Assessing Officer in mechanical manner. The order of the ld. CIT(A) is a non-speaking order. The same is not sustainable as per law.”