AROTO TRADE INDIA PVT. LTD.,KOLKATA vs. I.T.O.,WARD-9(1), KOLKATA

order

: April 11th, 2023 ORDER

Per Manish Borad, Accountant Member:

1) For that the Assessment order passed was in violation of principals of natural justice and hence the entire proceeding was bad in law and thus the assessment order be cancelled/ quashed. 2) For that the order passed by the learned CIT (Appeals) is bad in law and therefore the same was unjustified and be deleted. 3) For that the addition made u/s 68 of the Income Tax act, 1961 for non-compliance of summon u/s 131 of the Income Tax Act, 1961 is not justified and hence the same be deleted. 4) For that the learned CIT (Appeals) erred in confirming the addition of Rs. 1,71,37,590/- made on account of unexplained cash credit in the books of the assessee being share capital contribution u/s 68 of the Income Tax Act, 1961 this was not justified and thus the same be deleted. 5) For that the learned CIT (Appeals) erred in confirming the interest u/s 234 A/B/C the same was unjustified and hence the same be directed to recomputed the interest as per law. 6) The appellant craves leave to produce additional evidences in terms of Rule 29 of the Income Tax (Appellate Tribunal) Rules 1963. 7) For that the learned CIT (Appeals) relied on judgments and definition without giving any proper opportunity to the Appellant to distinguish the same and therefore the Appellate order was bad in law. 8) The appellant craves leave to press new, additional grounds of appeal or modify, withdraw any of the above grounds at the time of hearing of the appeal.”

3. Brief facts of the case as culled out from the records are that the assessee is private limited company engaged in the business of I.T.A. No.: 1637/KOL/2019 Assessment Year: 2014-15 M/s. Aroto Trade India Private Limited. trading and investment. Income of Rs. 1,14,260/- declared in the e-return filed for AY 2014-15 on 27.09.2014. Case selected for scrutiny through CASS followed by serving of notices u/s 143(2) & 142(1) of the Act. During the course of assessment proceedings ld. AO noticed that the share capital of the assessee including premium has increased to the tune of Rs. 1,71,37,590/-. Notices u/s 133(6) of the Act were sent to the share subscriber companies which were duly served and replies were received. Thereafter, ld. AO based on the examination of the financial statements, came to a conclusion that the income returned by the share subscribers is very negligible and they do not have sufficient revenue and other assets to justify the investment in the assessee company. He, accordingly invoked the provisions of Section 68 of the Act and placing reliance on various judgments held that the assessee has introduced his own undisclosed funds in the garb of subscription of share capital by shareholders and as the creditworthiness of the shareholders could not be established, addition of Rs. 1,71,37,590/- for unexplained share capital was made u/s 68 of the Act and income assessed at Rs. 1,72,51,850/-.

4. Aggrieved, the assessee preferred appeal before ld. CIT(A) and filed detailed submissions and also placed reliance on plethora of judgments. It was submitted that the assessee has discharged his primary onus casted upon it and has provided all the relevant information as was available with it and which in its knowledge and which in view of the assessee were sufficient to explain the alleged receipt of share capital and share premium. Ld. CIT(A) was I.T.A. No.: 1637/KOL/2019 Assessment Year: 2014-15 M/s. Aroto Trade India Private Limited. not satisfied and he confirmed the finding of ld. AO based on the surrounding circumstances and test of human probability.

5. Aggrieved, the assessee is now in appeal before this Tribunal. Ld. Counsel for the assessee vehemently argued referring to the written submissions filed before ld. CIT(A) placed at pages 2 to 77 of the paperbook. It was also submitted that out of the alleged sum Rs. 70,47,350/- was received in the earlier year from most of the share applicants and on such sum provisions of Section 68 of the Act cannot be invoked. As regards the amount received during the year it was submitted that all necessary evidences were filed to explain the alleged sum. Even notices issued to the alleged parties have been duly served and the replies have been received by ld. AO confirming the transaction of subscribing to the share capital of the assessee company along with the share premium. Reliance placed on various judgments referred in the written submissions and further, reliance placed on the recent judgment of the Hon'ble Jurisdictional High Court in the case of PCIT vs. M/s. Sreeleathers reported in [2022] 448 ITR 332 (Cal).

1,71,37,590/- is in challenge before us by the assessee. The said sum is on account of increase in the share capital and share premium of the assessee company which both the lower authorities have held to be unexplained calling for the addition u/s 68 of the Act. The details of the alleged sum is mentioned below which is from 32 share applicants:

SN Name Address PAN Total Share Premium Premium Received prior to Amount AY 2012-2013 1 Amit & Sumit 113, N. S. Road, 5th AACCA1495J 1,98,000 1,98,000 Credit (India) Pvt. Floor, Kolkata- Ltd 700001 2 Aristo Trade & 40/3, Strand Road, AACCA1492R 3,22,500 Credit Pvt. Ltd. 5th Floor, Kolkata- 700001 3 Divine 113, N. S. Road, 5th AAACD9027F 3,000 3,000 Construction & Floor, Kolkata- Metals Pvt. Ltd. 700001 4 Deepmala Vyapaar 40/3, Strand Road, AABCD9197P 14,97,000 14,97,000 Pvt. Ltd. 5th Floor, Kolkata- 700001 5 Ekata 40/3, Strand Road, AAACE5597M 8,18,100 Retailers Pvt. 5th Floor, Kolkata- Ltd. 700001 6 Greenrose 8, Lyons Range, AABCG9057F 1,69,500 Commodities Pvt. Ground Floor, Ltd. Kolkata-700001 7 Kit Distributors 113, N. S. Road, 5th AACCK2931M 2,49,750 2,45,750 Pvt. Ltd. Floor, Kolkata- 700001 8 Mortex Light India 77, N. S. Road, 5th AADCM2726K 4,47,750 Pvt. Ltd Floor, Kolkata- 700001 9 Mahima Trade & 40/3, Strand Road, AABCM7154R 4,99,500 4,99,500 Credit Pvt. Ltd. 5th Floor, Kolkata- 700001 10 Newera Fiber & 77, N. S. Road, 5th AABCN1455E 2,28,750 Fabrics Pvt. Ltd. Floor, Kolkata- 700001 11 Pavitra 40/3, Strand Road, AADCP1883C 1,50,000 1,50,000 Commodities Pvt. 5th Floor, Kolkata- Ltd. 700001 12 Parjadeen Sales 113, N. S. Road, 5th AABCP5500A 37,50,000 Pvt. Ltd. Floor, Kolkata- 700001 13 Pingle Commotrade 77/79, N. S. Road, AADCP1882D 1,50,000 1,50,000 Pvt. Ltd. 5th Floor, Kolkata- 700001 I.T.A. No.: 1637/KOL/2019 Assessment Year: 2014-15 M/s. Aroto Trade India Private Limited.

14 Pakton 113, N. S. Road, 5th AADCP1884F 99,750 99,750 Commodities Floor, Kolkata- Pvt. Ltd. 700001 15 Panorama Fiscal 113, N. S. Road, 5th AABCP6489N 2,01,750 Services Pvt. Floor, Kolkata- Ltd. 700001 16 Rishikesh 40/3, Strand Road, AABCR3317F 3,43,500 Commercial Co. 5th Floor, Kolkata- Pvt. Ltd. 700001 17 Skyline Vinimay 77/79, N. S. Road, AALCS0347N 1,50,000 1,50,000 Pvt. Ltd. 5th Floor, Kolkata- 700001 18 Spotlite Dealer Pvt. 40/3, Strand Road, AAHCS8911J 3,03,600 3,600 Ltd. 5th Floor, Kolkata- 700001 19 Sadhana Trade & 48, Canning Street, AADCS59461R 8,49,750 2,00,000 Credit Pvt. Ltd. Janaki Centre, 6th Floor, Kolkata- 700001 20 Shweta Trade 40/3, Strand Road, AADCS9455K 9,33,750 9,33,750 Services Pvt. Ltd. 5th Floor, Kolkata- 700001 21 Sunflower 77/79, N. S. Road, AALCS0345Q 1,24,500 1,24,500 Commodities Pvt. 5th Floor, Kolkata- Ltd. 700001 22 Trimudra 8, Lyons Range, AABCT0282B 9,750 9,750 Credit Ltd. Ground Floor, Kolkata-700001 23 Tropex Suppliers 113, N. S. Road, 5th AABCT1459N 58,500 58,500 Pvt. Ltd. Floor, Kolkata- 700001 24 Ujjawal Mercantile 113, N. S. Road, 5th AAACU3435G 1,53,750 1,53,750 Pvt. Ltd. Floor, Kolkata- 700001 25 Ultra Marketing 77, N. S. Road, 5th AAACU3818K 12,48,000 2,58,000 Pvt. Ltd. Floor, Kolkata- 700001 26 Universal 113, N. S. Road, 5th AAACU9138Q 1,24,500 1,24,500 Vanijya Pvt. Ltd. Floor, Kolkata- 700001 27 Venus 113, N. S. Road, 5th AACCV5146P 2,25,000 Vanijya Pvt. Floor, Kolkata- Ltd. 700001 28 Virtual 40/3, Strand Road, AABCV3096P 4,30,500 4,30,500 Communications 5th Floor, Kolkata- Pvt. Ltd. 700001 29 Vital Fiscal 48, Canning Street, AAACV9361L 1,35,000 Services Pvt. Ltd. Janaki Centre, 6th Floor, Kolkata- 700001 30 Walden Barter Pvt. 77/79, N. S. Road, AAACW2857N 12,18,000 8,00,000 Ltd. 5th Floor, Kolkata- 700001 31 Winsome 77/79, N. S. Road, AAACW7206N 1,24,500 1,24,500 Agency Pvt. Ltd. 5th Floor, Kolkata- 700001 I.T.A. No.: 1637/KOL/2019 Assessment Year: 2014-15 M/s. Aroto Trade India Private Limited. 32 Wizard 113, N. S. Road, 5th AAACW7204P 19,20,000 8,33,000 Merchandise Floor, Kolkata- Pvt. Ltd. 700001 Total 1,71,37,950 70,47,350 8. From perusal of the above details, we find that the sum of Rs. 70,47,350/- was received by the assessee prior to the AY 2012-13 and since the said sum was received by the assessee in the earlier years and duly credited in the books of accounts, the provisions of Section 68 of the Act may have been invoked in the year in which such sum was received but could not be invoked for the year under appeal. Therefore, out of the alleged sum of Rs. 1,71,37,950/- the addition of Rs. 70,47,350/- is deleted being the sum not received during the year and therefore, ld. AO erred in invoking the provisions of Section 68 of the Act.

9. As far as the remaining amount of Rs. 1,00,90,600/- is concerned firstly, we observe that it includes the sum received from 22 share subscribers who gave part of the money in the preceding years and that has been accepted by the Revenue authorities. We also notice that ld. AO issued notices u/s 133(6) of the Act to all the alleged share subscribers and the notices were duly served and the replies were sent directly to ld. AO enclosing therein the following details: (a) Income Tax Return of the share holders (b) Certificate of incorporation of the share holders (c) Audited Accounts of the share holders (d) Share Application Forms (e) Share Allotment Letters (f) Copy of the bank account of the share holders (g) Transaction with the appellant was duly highlighted in the bank statement (h) Copy of Ledger Account (i) Evidences of source of source of the share holders I.T.A. No.: 1637/KOL/2019 Assessment Year: 2014-15 M/s. Aroto Trade India Private Limited.

10. We also notice that all the share subscriber companies are duly assessed to tax and in the written submissions filed before ld. CIT(A) details of the CIN, PAN, bank statement, confirmation letters have been filed and it is also stated that the share subscribers had sufficient free capital and reserves to justify the investment made in the assessee company. Ld. AO has mainly disputed the creditworthiness of these share applicants. However, once the assessee has discharged its initial burden of proof casted upon it, u/s 68 of the Act to explain the alleged sum, it is the turn of ld. AO to examine these documents and find out the discrepancies and other defects so as to again make the assessee liable to furnish further evidences to explain the transaction. However, in this case ld. AO has not made any such effort and merely based on the financials of the share subscriber companies came to a conclusion that such companies could not invest into the share capital of the assessee company. We fail to understand that when the assessee company has furnished sufficient details which clearly proves the identity and creditworthiness of the share subscribers to invest the said sum, genuineness of the transaction being the investment in equity capital of the assessee company through banking channel and duly supported by the financials of the assessee company justifying the premium then under such circumstances it is not justified to invoke the provisions of Section 68 of the Act. We drew support from the decision of this Tribunal in the case of ITO vs. M/s. Kemex Engineering (P) Ltd. in order dated 01.02.2023 wherein similar issue was under consideration, however, the facts of the present I.T.A. No.: 1637/KOL/2019 Assessment Year: 2014-15 M/s. Aroto Trade India Private Limited. assessee are on much better footing since in the instant case the share subscribers have furnished the requisite information directly to ld. AO. Relevant finding of the Tribunal is reproduced below:

“7. We have heard the rival contentions and perused the material available on record and have given our thoughtful consideration to the elaborate observations and findings given by the Ld. CIT(A) while giving relief to the assessee. At the outset, we note that notices u/s. 133(6) of the Act were issued by the Ld. AO to all the five subscribers, who had replied giving all the details and documents required by the Ld. AO along with confirming the transaction of they making investment in the share capital of the assessee. We also take note of the fact that the share subscribers had furnished copies of their ITR acknowledgments which showed that each of them were regular income tax assessees, testifying their identity. 7.1. From the perusal of the paper book and the documents placed therein, it is seen that all the share applicants are (i) income tax assessees, (ii) they are filing their income tax returns, (iii) share application form and allotment letter is available on record, (iv) share application money was made by account payee cheques, (v) details of the bank accounts belonging to share applicants and their bank statements, (vi) in none of the transactions there are any deposit of cash before issuing cheques to the assessee, (vii) all the share applicants are having substantial creditworthiness represented by their capital and reserves. 7.2. We also take note of the elaborate and well reasoned findings and decisions arrived at by the Ld. CIT(A) by taking into consideration all the details and documents placed on record. The relevant findings and decisions from the following paras are extracted as under: “4.5. To sum up the foregoing, it is observed that all the notices u/s. 133(6) were served at the respective addresses of ach of the five shareholders by registered post. The share subscribers had furnished copies of income-tax Acknowledgments which showed that each of them were regular income-tax assessees who were assessed in their own rights with reference to their audited financial results. These facts established the identity of the share applicants. It is further noted that each of the share subscriber had furnished copies of the audited accounts for the FY 2011-12. Examination of these accounts I.T.A. No.: 1637/KOL/2019 Assessment Year: 2014-15 M/s. Aroto Trade India Private Limited. revealed that each share subscribing company was having substantial own funds in the form of capital & reserves which were several times more than the share subscription amount paid to the appellant. In find that only a fraction of the net owned funds of the respective subscribing companies was invested in assessee’s equity shares. The investments made by each of the share subscribers were paid by way of account payee cheques and/or RTGS and there was no prior cash deposit in their bank accounts. In view of the aforesaid facts it can be safely inferred that the assessee had discharged its onus of substantiating the creditworthiness of the shareholders. The shareholders had also furnished copies of their share allotment advices. They had also explained the nature of their respective source of funds. All these facts considered cumulatively substantiate the genuineness of the transactions involving subscription of share capital. 4.6. It is noted that in the impugned order much emphasis was placed on the act that the shareholders did not respond to the notices u/s.

I.T.A. No.: 1637/KOL/2019 Assessment Year: 2014-15 M/s. Aroto Trade India Private Limited. i) 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.” ii) Decision of Hon’ble Madras High Court in the case of CIT v. Creative World Telefilms P. Ltd. (2011) 333 ITR 100 (Mad) 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 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.'' iii) Judgment of Hon’ble Jurisdictional High Court in the case of Exoimp Resources (India) Ltd. vs. CIT (supra), wherein it was held as follows: “It is incumbent upon the Assessing Authority to examine the explanation of the creditor and arrive at a conclusion as to whether the explanation was satisfactory. The conclusion arrived by the Assessing Authority is to be communicated to the assessee if such explanation is not considered satisfactory. If thereupon the assessee submits any comments or furnishes further information, in that event, the Assessing Authority has to examine the same and arrive at his own conclusion. The inbuilt safeguard provided in section 68 cannot I.T.A. No.: 1637/KOL/2019 Assessment Year: 2014-15 M/s. Aroto Trade India Private Limited. be ignored by the Assessing Authority at his sweet will. The Assessing Authority can add the share capital as undisclosed income if no explanation is offered by the assessee. But since the details/explanations were offered, it was incumbent on the Assessing Authority to examine the same and arrive at a cogent conclusion. Assessing Officer having failed to discharge such obligation the addition is not sustainable in law.., case of CIT vs. Lovely Exports Ltd. (2008) 216 CTR 195 (SC) that where share application money.” 7.4. In the course of assessment proceeding, Ld. AO directed the assessee to produce the director of the assessee and also the directors of the subscriber companies along with relevant documentary evidence and details which was not complied with in full. Ld. Counsel 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.”

I.T.A. No.: 1637/KOL/2019 Assessment Year: 2014-15 M/s. Aroto Trade India Private Limited. Merely for non-appearance of the directors, the ld. Assessing Officer disregarded all these documents which have been placed before various statutory authorities including Registrar Of Companies, Income Tax Department and Schedule Banks. The assessee by way of filing all these documents necessary to prove identity, creditworthiness and genuineness of the alleged transaction, has discharged the initial burden casted upon it under the provisions of section 68 of the Act. Unless and until, the assessing authority finds any lacuna or adversity or defect in the said documents, the burden to prove remains on the Revenue authorities. In the instant case, ld. Assessing Officer failed to discharge the burden and summarily disregarded the documents filed by the assessee by merely referring to some decisions and not going into the facts of the case except referring to the price per share.

I.T.A. No.: 1637/KOL/2019 Assessment Year: 2014-15 M/s. Aroto Trade India Private Limited.

12. We, therefore, respectfully following the judgment referred hereinabove by the Hon’ble Courts and also considering the facts and circumstances of the case, are of considered view that since the assessee has sufficiently explained the identity and creditworthiness of the share subscriber companies and the genuineness of the transaction of applying for the equity shares of the assessee company and since nothing contrary to the evidence filed by the assessee has been placed on record by the Revenue, except the reason that the directors failed to appear to the summons issued u/s. 131 of the Act, we find no reason to interfere with the meritorious finding of the Ld. CIT(A). We accordingly dismiss the grounds raised

by the revenue in this respect.

13. In the result, appeal of the revenue is dismissed.”

11. Further, we find that recently the Hon'ble Jurisdictional High Court in the case of M/s. Sreeleathers (supra) adjudicating similar issue relating to the addition u/s 68 of the Act and dealing with the onus casted upon the assessee to establish the existence, genuineness and creditworthiness of the new loans held as follows: “3. We have heard Mr. Vipul Kundalia, learned Senior Standing Counsel along with Mr. Anurag Roy, learned Advocate for the I.T.A. No.: 1637/KOL/2019 Assessment Year: 2014-15 M/s. Aroto Trade India Private Limited. appellant and Mr. Avratosh Mazumder, learned Senior Advocate assisted by Mr. Avra Mazumder and Mr. Md. Bilwal Hossain, learned Advocates for the respondents.

I.T.A. No.: 1637/KOL/2019 Assessment Year: 2014-15 M/s. Aroto Trade India Private Limited.

6. For all the above reasons, we find that no question of law much less, substantial question of law arises for consideration in this appeal.

7. Accordingly, the appeal fails and is dismissed.”

by the assessee on merits of the case are allowed.

13. Other grounds being general and consequential in nature, need no adjudication.