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Income Tax Appellate Tribunal, KOLKATA BENCH “SMC”, KOLKATA
Before: SHRI SONJOY SARMA & SHRI GIRISH AGRAWAL
O R D E R
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
This appeal by the assessee is arising out of the order of CIT(A), National Faceless Appeal Centre (NFAC), Delhi vide Order No. ITBA/NFAC/S/250/2022-23/1046315143(1) dated 14.10.2022 against the assessment order passed u/s 143(3) read with sections 147 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’).
Grounds taken by the assessee are as under:
“1. That on the facts and circumstances of the case and in law the ld. CIT(A) has erred in confirming the addition of Rs. 42,00,000/- as unexplained cash credit u/s 68 of the Income Tax Act, 1961 (‘Act’) made by Assessing Officer. The Ld. CIT(A) has erred in appreciating the fact that the assessee has completely discharged its onus by furnishing cogent documentary evidence in support of the contentious transaction(s) and the addition has been made without controverting the said documentary evidence.
2. That on the facts and circumstances of the case and in law the Ld. CIT(A) has erred in confirming the addition of Rs.42,00,000 as 2 Hastings Tower Private Limited A.Y. 2011-12 unexplained cash credit u/s 68 of the Act, even though the addition has been made solely on the basis an uncorroborated statement of a third party with utter disregard to the materials on record.
3. That the Learned CIT (A) has erred in comprehending that the satisfaction for reopening the assessment by the Learned Assessing Officer was not self but a borrowed one, thereby violating the provisions of the statute including sections 147/148 of the Income- tax Act 1961.
4. That on the facts and circumstances of the case and in law the Ld. CIT(A) has erred in confirming the addition of Rs.42,00,000 as unexplained cash credit u/s 68 of the Act, even though the assessee was denied the right to cross-examine and hence the principles of natural justice has clearly been violated.
5. The appellant craves leave to make any addition, alteration or modification etc. of the grounds either before the appellate proceedings or in the course of appellate proceedings.” 2.1. We note that there is a delay of 2 days in filing the present appeal for which petition for condonation of delay is placed on record. Considering the explanation given by the assessee, this meagre delay of 2 days in filing the present appeal is condoned.
Brief facts of the case are that assessee filed its return of income on 17.09.2011 reporting total income income as Nil. The case of the assessee was reopened u/s 147 vide notice u/s 148 issued on 30.03.2018. Assessee filed its return of income in response to notice u/s 148 on 26.04.2018. Assessment was completed on 22.12.2018 at assessed income of Rs. 42 lacs, after making addition of Rs. 42 lacs u/s 68 of the Act by treating the share capital raised by the assessee during the year as unexplained cash credit. In the reasons to believe recorded for the purpose of issuing notice u/s 148 of the Act, it was noted that assessee had received Rs. 42 lacs as a beneficiary, the details of which is tabulated as under:
Name of company Bank Beneficiary Amount
3 Hastings Tower Private Limited A.Y. 2011-12 M/s. Chaturang OBC Hastings Tower Pvt. 1000000 Commercials Pvt. Ltd. Ltd. Liberal Spinners Pvt. Ltd. OBC Hastings Tower Pvt. 900000 Ltd. Pushker Trading Holdings OBC Hastings Tower Pvt. 700000 Pvt. Ltd. Ltd. Oven Commercial Pvt. Ltd. OBC Hastings Tower Pvt. 800000 Ltd. Chanda Cast Iron Industries OBC Hastings Tower Pvt. 800000 Pvt. Ltd. Ltd.
In the reasons to believe recorded by the ld. AO, it was also noted as under, which is reproduced from the order of ld. AO:
“The ADIT(Inv.), Unit 6, Kolkata, vide letter bearing no. ADIT(Inv)/U- 6/Search & Seizure/SS & Jhunjhunwala/17-18/2030 dated 29/03/2018 has communicated reliable information that the assessee company had made bogus transactions with the shell companies through its own unaccounted money routed back in its regular books of account. The fact of the case is given below:
A search & seizure operation ufs 132 of the I. T Act, 1961 and survey operation u/s 133A of the Income Tax Act, 1961 was conducted at the various premise of group concerns of Supersonic and Jhunjhunwala Group with two entry operators namely Bhartia group and Newatia group at Kolkata, Hyderabad, Jamshedpur and Indore on 03/01/2018.
During the search operation statement of Sri Subhash Kumar Bhartia was recorded u/s 132(4) of I. T. Act, 1961 on 03.01.2018 . He has stated in his statement that M/s. Chaturang Commercials Pvt. Ltd., Liberal Spinners Pvt. Ltd., Oven commercial Pvt. Ltd, Chanda Cast Iron Industries Pvt. Ltd., Pushker Trading Holdings Pvt. Ltd. are shell companies controlled and managed by him and these companies were formed for providing accommodation entry to the various beneficiaries in the form of bogus share capital & share premium and unsecured loan etc. Relevant part of the statement recorded u/s 132(4) at the residential premised at 8, Ballygunge Park Road, 1st Floor, Flat No. 18, Kolkata-19 is reproduced here.
Q8. I am showing you the statement of Sri Satya Narayan Bhartia and Sri Sanjay Kumar Bhartia, which was recorded u/s 132(4) and u/s 131 of I. T. Act, 1961 respectively on 03/01/2018 wherein they had stated that they had no idea about the nature and any business
4 Hastings Tower Private Limited A.Y. 2011-12 activity performed by the companies in which they are associated as a director and they act on your direction and put signature on the documents related to the companies in which they are/were director as and when asked by you. They also clearly accepted that they are mere dummy directors and all accommodation entries regarding share capital and unsecured loans are provided based on your direction to various beneficiaries. Please go through both the statements which are being shown to you and confirm them to be true and offer your comment.
Ans: I have gone through both the statement and confirm their statements to be true. They are really not aware about the activity performed in the companies in which they are/were associated as director. They merely carry out my instruction and act as dummy directors and all accommodation entries regarding share capital and unsecured loans are provided as per my wishes. All the companies in which they are found to be director are actually owned and controlled by me. Apart from them, my son Sudeep Kumar Bhartia is also a dummy director and act as per my instruction and as per my wishes.
Q.
During the Search/Survey conducted on 03/01/2018 at your residential and office premises of the companies in which you or your family members are associated as director, no proof of any real business activity was found and books of account were also found at their registered address, even director of the company other than you are mere dummy directors and act an your direction and provide the accommodation entries as per your wishes. In such a case the above listed companies in which you or your family members found to be director are nothing but paper/shell companies, please confirm.
Ans: Sir, I accept that all these companies in which anyone including myself, my brother, son and nephew are associated as directors are nothing but paper/shell companies formed for the purpose of providing accommodation entries in the form of share capital, unsecured loans, bogus billing etc and that these directors are merely my dummy directors and act as per my wishes.
Above facts are further substantiated with financial analysis of these companies in which it can be easily seen that no rent was paid with almost no fixed asset, shares allotted on huge premium without any financial rationale, very low PBT etc.
5 Hastings Tower Private Limited A.Y. 2011-12 It is found that the entity mentioned in the subject cited above entered into transaction during the F.Y. 2010-11 with above mentioned shell company/companies controlled and managed by Subhas Chandra Bhartia.
In view of the above, the impugned transactions are merely bogus transactions and concerned entity routed its own unaccounted money in its regular books of accounts through above mentioned shell company/companies controlled and managed by Subhas Chandra Bhartia.”
In the course of re-assessment proceeding, assessee made detailed submissions on various dates including 18.07.2018, 30.10.2018, 05.11.2018, 29.11.2018 and 19.12.2018. Assessee filed details and documents in his submission which included copy of acknowledgement of return, audited annual financial statement, profit & loss a/c, balance sheet, computation of income, director details and their statements. In the course of assessment, ld. AO had issued notices u/s 133(6) of the Act to all the five share subscribing companies. Summons u/s 131 were also issued by the ld. AO.
5.1. The solitary basis for enquiring into the transaction of the assessee was the statement of one Shri Subhash Kumar Bhartia which was recorded u/s 132(4) of the Act on 03.01.2018 in the course of search and seizure operation conducted at the various premises of group concerns of Supersonic and Jhunjhunwala group with two entry operators namely Bhartia Group and Newatia Group at Kolkata, Hyderabad, Jamshedpur and Indore. On the basis of the statement given by Shri Subhash Kumar Bhartia, ld. AO concluded that assessee has obtained benefit by the accommodation entries by raising share capital through the above tabulated five share subscribing companies through the entry operation, Shri Subhash Kumar Bhartia.
6 Hastings Tower Private Limited A.Y. 2011-12 5.2. Before arriving at such conclusion, ld. AO has also noted that share subscribing companies had submitted the annual audited report, balance sheet and profit and loss a/c. They have shown nominal income in the return and that their accounts show huge, share capital and share premium and corresponding investment.
Aggrieved by the above assessment, assessee went in appeal before the ld. CIT(A) who dismissed it.
Aggrieved, assessee is in appeal before the Tribunal.
Ld. Counsel submitted that all the relevant details and evidence to explain the identity, creditworthiness and genuineness of the transactions were placed on record and the assessee had fully discharged its initial burden casted u/s. 68 of the Act. Ld. Counsel stated that the nature of these receipts is towards share capital and share premium which is by cheques from share subscribing companies who are regular income tax assessees. He further stated that assessee has explained the source and nature of receipts of fund and has brought on record all the documentary evidence in this respect.Ld. Counsel also referred to various documents and details furnished in respect of each of the investing companies as noted in the assessment order itself.
8.1. Ld. Counsel further submitted that Ld. AO in his order has concluded merely on the basis of non-production/attendance of the director of the assessee and share subscribers in the assessment proceedings and without finding any fault or deficiency with the material placed on record. He also submitted that though none attended to the summon issued u/s 131 of the Act, all the details and documents were placed on record which have not been controverted by the authorities below in any manner, whatsoever. As per him, since ld.
7 Hastings Tower Private Limited A.Y. 2011-12 AO was not impressed with these submissions and resorted to making addition of the entire share application money along with share premium, totaling to Rs.42,00,000/-, on the sole ground that compliance u/s. 131 and 133(6) of the Act by the directors of the assessee and share applicant companies was not done by way of their personal appearance. He thus, strongly submitted that Ld. AO had not brought anything contrary to undisputable facts and has merely acted on whims and fancies.
8.2. To buttress his submissions, Ld. Counsel placed reliance on the decision of Hon’ble Jurisdictional High Court of Calcutta in the case of CIT v. Dataware Pvt. Ltd. in ITAT No. 263 of 2011 dated 21.09.2011 wherein Hon’ble jurisdictional High Court held that: “After getting the PAN number and getting the information that the creditor is assessed under the Act, the Assessing officer should enquire from the Assessing Officer of the creditor as to the genuineness" of the transaction and whether such transaction has been accepted by the Assessing officer of the creditor but instead of adopting such course, the Assessing officer himself could not enter into the return of the creditor and brand the same as unworthy of credence.”
8.3. Reliance was also placed on the decision of Hon’ble Bombay High Court in the case of CIT v. Creative World Telefilms P. Ltd. (2011) 333 ITR 100 (Bom) wherein it was held as under:
“In the case in hand, it was not disputed that the assessee had given the details of name and address of the shareholder, their PAN/GIR number and had also given the cheque number, name of the bank. It was expected on the part of the Assessing Officer to make proper investigation and reach the shareholders. The Assessing Officer did nothing except issuing summons which were ultimately returned back with an endorsement "not traceable". The Assessing Officer ought to have found out their details through PAN cards, bank account details or from their bankers so as to reach the shareholders since all the relevant material details and particulars
8 Hastings Tower Private Limited A.Y. 2011-12 were given by the assessee to the Assessing Officer. In the above circumstances, the view taken by the Tribunal could not be faulted. No substantial question of law was involved in the appeal.'' 8.4. Ld. Counsel also submitted that mere non-appearance of directors is no basis for invoking provisions of section 68 of the act for which he placed reliance on the decision of Hon’ble Supreme Court in the case of CIT v. Orissa Corporation (P) Ltd. (1986) 159 ITR 78 (SC) wherein it was held as under:
“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. If the conclusion was based on some evidence on which a conclusion could be arrived at, no question of law as such could arise. The High Court was, therefore, right in refusing to refer the questions sought for. Decision of the High Court affirmed.” 8.5. Ld. Counsel submitted that instead of pointing out any defect or discrepancy in the evidence and the details furnished by the assessee, Ld. AO proceeded to take adverse inference only on the ground that the directors of the subscriber companies did not appear personally before him. In this respect he placed reliance on the decision of Hon’ble Jurisdictional High Court of Calcutta in the case of Crystal Networks Pvt. Ltd. v. CIT in ITA 158 of 2002 dated 29.07.2010.
9 Hastings Tower Private Limited A.Y. 2011-12 8.6. Ld. Counsel has also relied upon the decision of the Co-ordinate Kolkata Bench of the Tribunal in the case of Super Iron Foundary vs ACIT in ITA No. 270/Kol/2022 vide order dated 11.01.2023, wherein the coordinate bench of the tribunal, while further relying upon various decisions held that addition made on the basis of said statement cannot be sustained. In the said decision, it was obsesrved that, “Further, we note that assessee was not allowed cross examination of Shri Sharma despite specific request from the assessee and the AO stated that on the date fixed for cross examination the said person did not turn up and the said cross examination could not happen but this in our opinion is not the excuse for not allowing the cross examination. Therefore, the addition made on the basis of statement of a person which was retracted subsequently without allowing cross examination is bad in law. We, note that the assessee has furnished all the evidences before the authorities below but no defect or deficiencies pointed out except the statement of lender which was also withdrawn and retracted as stated above.”
9. Per contra, ld. Sr. DR placed reliance on the order of the authorities below and submitted that assessee’s own income has been infused in the guise of share capital through the allottee companies by layering the transactions to make appear a non-genuine transaction as a genuine one.
We have heard the rival contentions and gone through the material placed on record. We note that Ld. AO without even going through and discussing the details submitted by the subscriber companies, insisted for personal appearance to prove the identity, creditworthiness of the subscribers and the genuineness of the transactions. To our mind, Ld. AO could have taken an adverse view only if he could point out the discrepancies or insufficiency in the evidence and details furnished in his office and also as to get further
10 Hastings Tower Private Limited A.Y. 2011-12 investigation was needed by him by way of recording of statement of the directors of the subscriber companies. We draw our force from the decision of the Hon’ble Bombay High court in the case of PCIT v. Paradise Inland Shipping Pvt. Ltd. [2017] 84 taxmann.com 58 (Pan) wherein it was 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. We also draw our force from the decision of Hon’ble Jurisdictional High Court of Calcutta in the case of Crystal Network Pvt. Ltd. v. CIT (supra) which 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." 10.1. Ld. AO has not bothered to discuss or point out any defect or deficiency in the documents furnished by the assessee of the share subscribing companies. These evidences furnished have been neither controverted by the Ld. AO during the assessment proceedings nor anything substantive brought on record to justify the addition made by him. Ld. AO has simply added the amount of share capital and share premium on the ground that assessee has not produced the directors/shareholders.
11 Hastings Tower Private Limited A.Y. 2011-12 10.2. 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 except reproduction of contents of the assessment order and submission made by the assessee. He has not pointed out any defect and discrepancy in the evidences and details furnished by the assessee but simply cited certain case laws even without pointing out as to how these case laws were applicable to the facts and circumstances of this case. By simply reproducing the contents of the case laws without discussing about their application on the facts of the case, in our view, would not make the order of the Ld. CIT(A) justifiable speaking order and hence, the same is not sustainable as per law.
Considering the facts and circumstances of the case and the material placed on record, we find that assessee has discharged its onus to prove the identity and creditworthiness of the share subscribing companies and the genuineness of the transactions towards sum of Rs. 42,00,000/- received during the impugned year. Accordingly, considering these facts and in the light of the judicial precedence referred above, we set aside the order the ld. CIT(A). Accordingly, grounds taken by the assessee in this respect are allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 21.04.2023.