M/S SAKET DEVELOPERS PVT. LTD. ,KOLKATA vs. ITO,WARD-2(4),KOLKATA, KOLKATA

O R D E R

PER DR. MANISH BORAD, ACCOUNTANT MEMBER :

2. For that on facts and circumstances of the case, the Ld. CIT(A) erred in confirming the action of Ld. AO in adding the entire share capital of the assessee when no adverse fact was found by the Ld. AO during his course of scrutiny and it may be held accordingly.

Assessment Year: 2012-13 M/s. Saket Developers Private Ltd. 2 3. For that the Ld. CIT(A) erred in confirming the action of Ld. AO in making the addition of the share capital of the assessee on the ground that notices could not be served on appellant since appellant was not available at the address and such statement by Ld. AO is far from truth since appellant has been available all though at such address and has been operating subsequent years also from such address only and hence Ld. AO's notices in such respect is bad in law and it may be held accordingly.

6. That the appellant craves leave to adduce additional grounds and / or to amend or withdraw any of the foregoing grounds on or before the hearing of appeal.”

1. For that in view of the facts and in the circumstances, the order so passed by the AO u/s 144/ 143(3) is wholly bad, illegal and void abinitio both on points of law as well as facts and in view of the facts and in the circumstances the order so passed is liable to be quashed / cancelled and in view of the facts and in the circumstances it may kindly be held accordingly.

2. For that in view of the facts and in the circumstances, the original return filed having been processed u/s 143(1) only and hence there being no assessment as per decision of Hon'ble apex court, there could be no valid re-assessment and hence the entire order is liable to be quashed/ cancelled.

3. For that the Ld. AO erred in completing the assessment by making addition u/s 68, when the case relates to assessment year 2012-13 and in this connection, at the outset, this is to submit that treating Share Capital and or Share Premium as undisclosed income u/s 68 having been brought into the Statute by Finance No. 2 Act, 2012 effective from 1.4.2013 relevant to A.Y 2013-14 and subsequent years. Such action of the AO to apply retrospective to A.Y 2012-13 is itself is bad, illegal and void abinitio.

4. For that your petitioner craves the right to put additional grounds and/or to alter/amend/modify the present grounds at the time of hearing.”

Assessment Year: 2012-13 M/s. Saket Developers Private Ltd. 3 4. Facts in brief are that the assessee is a private limited company which declared NIL income for Assessment Year 2012-13 in the return submitted electronically on 01/11/2012. Case selected for scrutiny under CASS for the reason “large share premium received” followed by issuance of notice u/s 143(2) and 142(1) of the Act but the same were not served as the addresses could not located. In spited of several opportunities, none appeared before the ld. Assessing Officer and he accordingly proceeded to frame best judgment assessment u/s 144 of the Act. The ld. Assessing Officer noticed from the income tax return that there is an increase in share capital and share premium to the tune of Rs.8.51 Crores. The ld. Assessing Officer wanted to examine the nature and source of the said sum in the light of the provisions of Section 68 of the Act but since no documents were filed by the assessee, ld. Assessing Officer proceeded to make addition of Rs.8.51 Crores and assessed the income accordingly.

wherein the assessment proceedings have been claimed to be bad in law and void ab initio being passed without providing prior opportunity and that though the original return was processed u/s 143(1) of the Act, there can be no valid re- assessment and hence the entire order is liable to the quashed. As far as the merits of the case is concerned, it has been contended that the I.T.A. No. 683/Kol/2023 Assessment Year: 2012-13 M/s. Saket Developers Private Ltd. 5 transaction receiving share application money i.e., the sum received towards share capital and share premium from nine share subscribers have been carried out through banking channel and the subscriber companies are having substantial net worth and only a part of their net worth has been invested and such investment is duly reflected in their investments show in audited accounts for the relevant year under consideration and hence all the three ingredients i.e., identity and creditworthiness of the share subscribers and genuineness of the share transactions have been satisfied and, therefore, addition u/s 68 of the Act is liable to be deleted. Reference also made to various documents filed in the paper book running into 299 pages in order to bring forth the facts of the case regarding alleged sum received from various share applicant companies which are duly supported by Board resolution, disclosures made in the auditor’s report, income tax returns, compliance certificates issued by the company secretaries and confirmation of account. On the strength of these documents it is contended that the transactions of receiving share capital and share premium is a genuine transaction and the alleged subscribers have prudently invested in the assessee company. It is also stated that all the relevant documents were uploaded before ld. First Appellate Authority and the same have been noted in the impugned order but merely by observing that the alleged subscriber companies are paper companies and without placing any contrary evidence on record to prove that the alleged companies are paper or shell companies, the ld. CIT(A) grossly erred in confirming the addition. The ld. Counsel for I.T.A. No. 683/Kol/2023 Assessment Year: 2012-13 M/s. Saket Developers Private Ltd. 6 the assessee also referred to the following decisions in support of its grounds raised on merits:-  Crystal Networks Pvt. Ltd. vs. CIT - 353 ITR 171 (Cal HC.)  ITO vs. Cygnus Developers India Pvt. Ltd. (ITA No. 282/Kol/2012)  CIT vs. Gagandeep Infrastructure Pvt. Ltd. (2017) 394 ITR 680 (Bom.)  Pr. CIT vs. Chain House International Pvt. Ltd. (2018) 408 ITR 561 (MP)  CIT vs. Kamdhenu Steel and Alloys Ltd. (2014) 361 ITR 220 (Del.)  CIT vs. Orissa Corporation Pvt. Ltd. (1986) 159 ITR

78. (SC)  CIT vs. Creative World Telefilms P. Ltd. (2011) 333 ITR 100 (Mad.)  Pranav foundations Ltd. (2015) 229 Taxman

58. (Mad.)

Assessment Year: 2012-13 M/s. Saket Developers Private Ltd. 7 9. We have heard rival contentions and perused the material placed before us. Apart from the legal issues, the sole issue raised on merits is regarding the addition confirmed by the ld. CIT(A) which was made by the Assessing Officer invoking the provisions u/s 68 of the Act treating the share capital and share premium of Rs.8.51 Crores received from nine share subscriber companies as unexplained.

11. As regards additional ground No. 3, the assessee has raised a plea that before the amendment brought in u/s 68 of the Act effective from 01/04/2013, the share capital or share premium cannot be considered for the purpose of making addition u/s 68 of the Act. This ground of the assessee also deserves to be dismissed because Section 68 of the Act, relates to any sum found credited in the books of accounts maintained for any previous year and if the assessee offers no explanation about the nature and source thereto 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 previous year. So far as the amendment brought in from 01/04/2013, inserted by way of Finance Act, 2012, it provides that where the assessee is a company, (not being a company in which the public are substantially interested) and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless— (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory 11.1. Perusal of this proviso inserted from 01/04/2013 indicates that “sum so credited” refers to the phrase “any sum credited in the books”

Assessment Year: 2012-13 M/s. Saket Developers Private Ltd. 9 as mentioned in Section 68 of the Act. The proviso merely provides more detail of the phrase “sum so credited”. In other words, even before the amendment brought in by 01/04/2013 any sum which is found credited in the books includes share premium, share application money, share capital and, therefore, additional Ground No. 3 raised by the assessee has no legs to stand and the same is dismissed.

13.1. Further we notice that the ld. Counsel for the assessee has placed following details before the ld. CIT(A) in support of its contentions Assessment Year: 2012-13 M/s. Saket Developers Private Ltd. 10 that genuine share application money has been received and there is sufficient proof of the identity of the investors and their creditworthiness and genuineness of the alleged transactions. For the sake of convenience, we reproduce below, the index of the paper book which provides the list of documents which the ld. Counsel for the assessee has submitted during the course of hearing:-

Note: This space has been left blank intentionally.

Assessment Year: 2012-13 M/s. Saket Developers Private Ltd. Assessment Year: 2012-13 M/s. Saket Developers Private Ltd. Assessment Year: 2012-13 M/s. Saket Developers Private Ltd. Assessment Year: 2012-13 M/s. Saket Developers Private Ltd. Assessment Year: 2012-13 M/s. Saket Developers Private Ltd. 15 13.2. From perusal of the above details, we notice that though these details were not filed before the ld. Assessing Officer but ld. CIT(A) who has co-terminus power to that of the ld. Assessing Officer had all these details before him while adjudicating the issues raised in the instant appeal. The ld. CIT(A) has mentioned that all these documents were uploaded on the portal and the same were there for consideration but only with a general observation that the alleged share subscribing companies appear to be paper and shell companies, he confirmed the addition. No discussion has been made about the financials of any of the companies or any further examination or specifically pin pointing any error to the assessee. The ld. CIT(A) ought to have taken note of the fact that prior to the amendment brought in Section 68 of the Act from 01/04/2013, the assessee was required to furnish nature and source of the alleged sum and not the source of source. The best that the assessee could do to explain the Assessment Year: 2012-13 M/s. Saket Developers Private Ltd. 16 nature and source of the alleged sum, has been done by the assessee. All the documentary evidence referred above prima facie are sufficient to prove the identity and creditworthiness of the share subscribers and genuineness of the transactions. Even the chart which is extracted supra, shows that the share applicant companies were having sufficient net worth and only 0.3% to 2.04% of their total net worth has been invested in the assessee company. In absence of any contrary material having been placed by the ld. D/R or referred by the lower authorities, we fail to find any merit in the finding of the ld. CIT(A) confirming the addition made by the Assessing Officer merely by observing that the share subscriber companies are paper and shell companies and that the alleged sum is not explained. 13.3. Our view is further supported by various judicial decisions which have been referred to by the ld. Counsel for the assessee. Some the decisions are as under:- a) The Hon’ble Apex Court in the case of CIT vs. Orissa Corporation Pvt. Ltd. (supra), under identical circumstances, has held as follows:- “In this case the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the revenue that the said creditors were the income-tax assessees. Their index number was in the file of the revenue. The revenue, apart from issuing notices under section 131 at the instance of the assessee, 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 credit-worthy or were such who could advance the alleged loans. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the assessee could not do any further. In the premises, if the Tribunal came to the conclusion that the assessee had discharged the burden that lay on him, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence.

Assessment Year: 2012-13 M/s. Saket Developers Private Ltd. 17 If the conclusion was based on some evidence on which a conclusion could be arrived at, no question of law as such could arise.” {emphasis ours} b) The ITAT Kolkata Bench in ITO vs Cygnus Developers (I) P Ltd in dated 2.3.2016, held as follows: 9. We have considered the rival submissions., We are of the view that order of CIT(A) does not call for any interference. It may be seen from the grounds of appeal raised by the Revenue that the Revenue disputed only the proof of identity of the shareholder. In this regard it is seen that for A Y.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 A Y.2005-06 by I TO, Ward- 9(4), Kolkata by order dated 20.03.2007. Similarly Jewellock Trexim Pvt. Ltd was assessed to tax for A Y.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 ITA T 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 CIT(A) and dismiss the appeal of the Revenue. " c) Further the co-ordinate bench in the case of ITO vs. Forceful Estates Pvt. Ltd. in ITA No. 2558/Kol/2018; Assessment Year 2012-13, order dt. 08/02/2023, and for necessary reference, the facts and findings of the Tribunal read as follows:- “5. The ld. counsel has further invited our attention to the impugned order of the CIT(A) to submit that the ld. CIT(A) has categorically noted that the assessee during the year had raised share capital including share premium amounting to Rs.7,60,00,000/- from six share subscribers. The Assessing Officer had issued notices u/s 133(6) of the Act to the share applicants and in response, they all confirmed the transactions and furnished details/documents as called for including source of fund in their hands. The Assessment Year: 2012-13 M/s. Saket Developers Private Ltd. 18 ld. CIT(A) has considered the evidences and details on record and found that the assessee has been able to prove the identity and creditworthiness of the share subscribers and genuineness of the transaction. The relevant part of the order, for the purpose of ready reference, is reproduced as under: “5. Conclusion: Ground No.1 & 2 I have considered the order of the A.O as well as the submission of the appellant. I have also considered the judicial decisions relied upon by the appellant. The facts of the case have already been discussed as above. It is observed that in the year under consideration the appellant company had raised share capital of Rs.7,60,00,000/-from 6 parties. In the course of the assessment proceedings, to verify the receipt of share capital, the AO issued notices u/s.133(6) to all the 6 share applicants and in response, they all confirmed the transactions submitted the details/document in respect of the subscription of shares of the appellant. In the course of the appellate proceedings, the appellant filed copy of each of the assessment orders passed in all the 6 cases of the shareholders for that year in which the share subscription amount has been received by the assessee company. Besides, the income-tax return filing acknowledgment, Audited Balance and sheets as on 31.03.2012, relevant bank, copy of the notices issued u/s 133(6) to the shareholders and reply thereof were also submitted. It is observed form the details & documents furnished by the appellant that in the cases of 2 share holders, namely 1) M/s Alfort Merchants Private Limited, 2) M/s Sharekhan Merchants Private Limited, the Assessment Orders u/s 143(3) for Lne AY 2012-13 were passed u/s. 143(3) without taking any adverse view. Therefore, it can be assumed that the respective Assessing Officers have all verified the accounts and therefore any amount that is credited from these two companies to the assessee company is fully explained. The assessment in the case of the other 4 share holders, namely, 1) M/s. Dhanamrit Commercial Private Limited, 2) M/s Jealous Commercial Private Limited, 3) M/s Mutual Merchants Private Limited, 4) Winsom Vanijya Private Limited were also passed u/s.143(3) where additions u/s 68 & u/s.14A of the Act were made. Therefore, the entire capital of all the above mentioned share holders had been added in its hands u/s 68 of the I.T. Act Thus, once an amount is already taxed, whatever investment is being made out of it in the assessee company can be treated as explained and the Same cannot be taxed again. Further, it is apparent from the records that the notices u/s.133 (6) issued to the shareholders were served on the their respective address by the postal authorities and in response, they confirmed the transactions and also submitted the details of the source of funds for making investment. Hence, the identity & creditworthiness of the shareholders are not in doubt. Further, all the share application money was I.T.A. No. 683/Kol/2023 Assessment Year: 2012-13 M/s. Saket Developers Private Ltd. 19 received through banking channels. Therefore, the issue for my consideration now is -whether the share capital of Rs.7,60,00,000/- raised during the year by the appellant can be treated as unexplained cash credit u/s. 68 of the I.T Act or not. When the identity & creditworthiness of the shareholders have been clearly established because all of them were scrutinized u/s 143(3) and thus the source of the share capital and the share premium are clearly established and the transactions have all taken place through banking channels, merely for failure of the directors of the assessee and the shareholders to appear before AO in person in response to the summons issued to them u/s.131 of the Act, the addition cannot be in my considered opinion, unjustified. Where the corpus becomes technically explained in the eyes of law, how can, the credits arising out of the same corpus can be viewed as unexplained u/s 68 of the IT Act. In view of the facts & circumstances of the case it is held that the addition of Rs.7,60,00,000/- for the share capital raised by the appellant from 6 share applicants as unexplained cash credit u/s 68 of the Act was not justified and the same is directed to be deleted. The appeal of the assessee company on Grounds No.1 & 2 are treated as allowed. Ground no. 3 is general in nature, which does not require adjudication.

6. In the result, the appeal of the assessee is treated as allowed.”

6. A perusal of the above concluding part of the order of the CIT(A) reveals that the ld. CIT(A) has not only taken note of the accounts of the share subscribers but also, noted that all the six share subscribers were assessed u/s 143(3) of the Act. Out of which, no additions were made in case of two share subscribers. However, in the case of other four share subscribers, the additions were made regarding their source of income. Now, it is settled law, once the addition has been made in the hands of the share subscribers, the investments by which share subscribers in the hands of the other company whose shares have been subscribed stood explained then no additions in such a case would be warranted in the hands of the assessee company as it would amount to double additions of the same amount. Even if the said addition stand confirmed in the appeal or stand deleted, in both the instances, the investment in the hands of the assessee company will stand proved. Reliance has been placed in this respect on the decision of the Coordinate Kolkata bench of the Tribunal in the case in the case of DCIT vs. M/s Maa Amba Towers Ltd. in ITA No.1381/Kol/2015 vide order dated 12.10.2018. The aforesaid decision has been further relied upon by the coordinate Kolkata bench of the Tribunal in the case of “Steelex India (P) Ltd vs. ITO, Ward- 3(2), Kolkata”I.T.A. No.2666/Kol/2019 decided vide order dated 09.09. 2022. I.T.A. No. 683/Kol/2023 Assessment Year: 2012-13 M/s. Saket Developers Private Ltd. 20

7. Further, 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 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 Assessment Year: 2012-13 M/s. Saket Developers Private Ltd. 21 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. As the ld. CIT(A), in this case, has not only duly examined the facts and explanation as furnished by the assessee but also has given a categorical finding that the identity and creditworthiness of the share subscribers and genuineness of the transaction stood established.

10. In view of the above, we accordingly upheld the order of the CIT(A). The appeal of the revenue is, therefore, dismissed.”

13.4. Our views are further fortified by the judgment of the Jurisdictional Calcutta High Court in the case of Principal CIT vs. Sreeleathers reported in [2022] 448 ITR 332 (Cal) 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 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 Assessment Year: 2012-13 M/s. Saket Developers Private Ltd. 22 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.”