DCIT, CIR. -11(1), KOLKATA vs. M/S IRIS HEALTH SERVICES LTD., KOLKATA

order : January 02, 2023 आदेश / ORDER संजय गग�, �या�यक सद�य �वारा / Per Sanjay Garg, Judicial Member: The present appeal has been preferred by the Revenue and cross-objection by the assessee against the order dated 24.09.2020 of the Commissioner of Income Tax (Appeals)-4, Kolkata [hereinafter referred to as ‘CIT(A)’] passed u/s 250 of the Income Tax Act (hereinafter referred to as the ‘Act’).

“1. "That on the fact and circumstances of the case, the Ld. CIT(A) has erred in granting relief to the assessee on account of addition on undisclosed cash credit u/s 68 of Rs.9,16,20,000/- though the assessee has failed to prove the genuineness of transaction and creditworthiness of the subscribers viz M/s Fort Projects Pvt. Ltd. (Rs.2,44,20,000/-), M/s Nortex Realty Pvt. Ltd. (Rs. 4,33,00,000/-), M/s Poddar Udyog Ltd. (Rs. 2,19,00,000/-) and M/s Hope Enterprises Pvt. Ltd.( 20,00,000/- in respect of share application money received during the year.) 2. "That on the fact and circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 9,16,20,000/-made by the Assessing Officer where no personal attendance was made by any director of the share allottee companies during the course of assessment proceedings/remand proceeding and as such identity & creditworthiness of the share applicants and genuineness of transactions could not be verified." 3. "That on the facts and the circumstances of the case, the Ld. CIT(A) has erred in overlooking the principles which has been laid down by the Hon'ble Supreme Court in the case of Pr.CIT(Central)-1, Delhi Vs. NRA Iron & Steel Pvt. Ltd. (412 ITR 161), which suggests that the assessee is under a legal obligation to prove the receipt of share capital premium to the satisfaction of the A.O., failure of which, would justify addition of the said amount to the income of the assessee." 4. "That on the facts and the circumstances of the case, the Ld. CIT(A) has erred in ignoring the principle which has been laid down by the Hon'ble Supreme Court in the case of Pr.CIT(Central)-1, Delhi Vs. NRA Iron & Steel Pvt. Ltd. (412 ITR 161), which also suggests that the Assessing Officer is duty bound to investigate the creditworthiness of the creditor/subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name lenders. In the facts of the case, in spite of best efforts made by the assessing officer, he could not verify the same as there was non- appearance of Directors of the companies to whom shares were allotted on private placement basis. Thus, the decision of the Ld. CIT (A) is CO No.18/Kol/2021 M/s Iris Health Services Ltd Assessment Year: 2012-13 erroneous in holding that the raised share capital not the assessee's own income and it lacked any real profit-making business credence." 5. "That on the fact and circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 9,16,20,000/- made u/s 68 wherein the identity, genuineness and creditworthiness of investor companies remained unsubstantiated, as the Directors failed to appear before the A.O. against summons issued u/s 131 ignoring the decision of Hon'ble Supreme court in the case of Pr.CIT(Central)-1, Delhi Vs. NRA Iron & Steel Pvt. Ltd. (412 ITR 161)." 6. "That on the fact and circumstances of the case, the Ld. CIT (A) has erred in ignoring the facts that the creditworthiness of the subscribing companies were not established before the A.O. during the course of the assessment proceedings, though the onus of providing the creditworthiness of share applicants vests solely with the assessee." 7. "That on the fact and circumstances of the case, the Ld. CIT(A) has erred in not considering the facts that the real intention of the assessee company for introducing such huge amount in the form of share capital in its business only to introduce its unaccounted money in the form of fresh share capital." 8. “That the Department craves leave to add to and/or alter, amend, modify or rescind the grounds hereinabove before or during hearing of this appeal.”

“Result emanated from Remand Proceeding: At the outset to discuss this issue, the undersigned is inclined to draw kind attention of the appellate authority towards other long-term liabilities as per the audited books of accounts. From Para No.5 and 5.1 of the audited books of accounts, it is observed that a sum of Rs.5,97,58,500/- and Rs.422800600/- had been shown as other long-term liabilities as 31.03.2011 and 31.03.2012 respectively. From Note 5.1, it is further found that the sum had been shown as advance receipt from promoters and associates against issue of shares and depending upon the capital structure of the company will be adjusted there against final allotment of shares. To verify the shares through limbs of transaction viz. Genuineness, creditworthiness and capacity, notices u/s 131 of the Income Tax Act 1961 have firstly been issued on 13.02.2018, however, none appeared. Thereafter, on account of change in incumbency further enquiry proceedings vide notice u/s 131 of the Income Tax Act 1961 has been initiated on 21.01.2019. Though in the notice u/s 131 of the Act, there is a direction for personal appearance, none appeared physically, however, submissions have duly been made by all the allottee companies which have been carefully gone through and the same are also being forwarded to you for your kind reference. The response has received in pursuance to notice u/s 131 of the Act, is being summed up below for your ready reference: Sl Name of Particulars Remarks No. allottee Advance Fund Total Pendency given before introduced allotment in 01.04.2011, afresh during made allotment which was ASSESSMENT during if any CO No.18/Kol/2021 M/s Iris Health Services Ltd Assessment Year: 2012-13 pending for YEAR 2012- A.Y 2012- allotment as 13 13 on 31.03.2011 (a) (b) (c) (a)+(b)-(c) 1 Poddar Udyog 29358000 58400000 51258000 36500000 Ltd. 2 Nortex Realty 2500500 43300000 45800500 Nil Ltd. 3 Fort Projects Notice u/s 131 of the Income Tax Act, 1961 has been Pvt. Ltd. returned being unserved with postal remark not known. 4 Chandradoya 4400000 Nil 4400000 Nil Mercantile Pvt. Ltd. 5 Hope 1000000 2000000 3000000 Nil Enterprises Pvt. Ltd. 6 Pawan Kumar 1200000 Nil 1200000 Nil Poddar (HUF)

Though from the submission it is observed that all the corporate and HUF entities barring Fort Project Pvt. Ltd. are ground/subsidiary companies of M/s Iris Health Services Ltd, mere rudimentary submission does not make any sense since the purpose of summoning u/s 131 of the Act is to examine the veracity of the transactions by recording of statement of the person in charge of financial transaction of such entity but here all the corporate entities except Fort Projects Pvt. Ltd have merely deemed it fit to make a paper submission and not present themselves by way of the director of the company for the recording of the statement. Furthermore, from the submission as made during remand proceeding source to source of the investment could not be verified. In this regard, reliance is placed upon the latest order dtd. 05.03.2019 of the Hon’ble Apex Court in the case of Pr. CIT (Central)-1 vs. NRA Iron and Steel Pvt. Ltd. [SLP(Civil) No.29855 of 2018] wherein it has been held that the assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors and creditworthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of the A.O, so as to discharge the primary onus. Here in this instant case, had the companies, being the subsidiary/group entities, with whom the assessee-company has CO No.18/Kol/2021 M/s Iris Health Services Ltd Assessment Year: 2012-13 claimed to have had regular transactions, had any real existence, the assessee would have produced them in person which could have proved the authenticity of the transactions. Furthermore, as aforementioned the subscribing parties have merely made paper submission viz. Audited books of account, copy of ITR, bank statement etc. from where source to source of the alleged transaction in the guise of share application money could not be verified.” As against the said remand report, the counsel for the assessee made his rebuttal submissions.

“DECISION: After considering all the facts, it is noted that the assessee company received share application money from the share applicants in various trenches spread over five years i.e. A.Y 2007-08, 2008-09, 2009-10, 2010-11 and 2011-12. The amount received from them was credited to the books of accounts of the assessee company in the respective financial year. For the sake of brevity the details are reproduced as under: DETAILS OF SHARE APPLICATION MONEY Sl Name of allottee 2007-08 2008-09 2009-10 2010-11 2011-12 Total No. (Amount) (Amount) (Amount) (Amount) (Amount) (Amount) 1 Vivek Kr. 100000 100000 Kathotia 1 Fort Projects Pvt. 8500000 12700000 24420000 4562000 Ltd. 0 1 Nortex Realty 2500500 43300000 4580050 Ltd. 0 2 Poddar Udyog 11358000 18000000 21900000 5125800 Ltd 0 4 Pavan Kumar 1200000 1200000 Poddar (HUF) 5 Chandradoya 4400000 4400000 Mercantile Pvt. Ltd. 6 Hope 1000000 2000000 3000000 Enterprises Pvt. CO No.18/Kol/2021 M/s Iris Health Services Ltd Assessment Year: 2012-13 Ltd. Total 8500000 12800000 1385800 24600000 91620000 1513785 00 DETAILS OF SHARE ALLOTMENT SL. Name of share Share As on As on Total No. holder application 01.08.2011 07.10.11 money 1 Vivek Kumar 100000 10000 10000 Kathotia 2 Fort Projects (P) Ltd. 45620000 2120000 2442000 4562000 3 Nortex Realty Ltd. 45800500 1350050 3230000 4580050 4 Poddar Udyog Ltd. 51258000 4175800 950000 5125800 5 Pavan Kumar 1200000 12000 120000 Poddar (HUF) 6 Chandroday 4400000 440000 440000 Mercantile Pvt. Ltd. 7 Hope Enterprises 300000 100000 200000 300000 Pvt. Ltd. Total 151378500 8315850 6822000 15137850 Shares @ Share value Authorised share 230000000 10/- 2300000000 Share issued 15137850 10/- 151378500 Share subscribed 15137850 10/- 151378500 From the above, it is clear that these amounts were credited to the books of accounts of the assessee in different years and if any addition has to be made, it has to be made in respective financial year. In my considered view, the above assertions of the AO show that the AO made the addition under a belief that the sum of Rs. 15.13 Crores was received by the appellant in the year under consideration which in the present facts of the case is incorrect. This was evident from the annual financial statement of the assessee. In view of above facts let us examine whether any addition under section 68 for unexplained credits could be made in assessment year 2012-13 especially when the credit entries were made in earlier financial years. In my considered view the Answer is no. This view is supported by following judicial decisions: M/s Styntensia Network Security India Put Ltd Vs ITO 11(2)(1) wherein it has been held that no addition u/s 68 is called for where adjustment is made against opening balance brought CO No.18/Kol/2021 M/s Iris Health Services Ltd Assessment Year: 2012-13 forward from earlier years, that is to say, if no sum of money is found credited in the books in the year under consideration then no addition is warranted in the year under consideration, in the said decision, the Hon’ble ITAT Mumbai has relied on the decision of the Hon'ble ITAT Kolkata Bench in DCIT vs. M/s. Global Mercantiles Pvt. Ltd as well as that of Hon'ble Kolkata High Court in the case of Jatia Investment Co. VS. Commissioner Of Income Tax reported in (1992) 60 CCH 0516(Cal.) The appellant has also relied upon following judicial pronouncements in support of its above contention:- (a) V.R. Global Energy (P) Ltd. vs. Income Tax Officer, (2018) 305 CTR (Mad) 228: (2018) 170 DTR (Mad) 412 (2018) 407 ITR 145 (Mad); (b) Income Tax Officer, Ward-1(1), P-7, Kolkata vs. M/s Dazzle Projects Pvt. Ltd., ITA No.757/Kol/2018, ITAT Kolkata Bench-C, Kolkata; (c) M/s. Abhijeet Enterprise Ltd. vs. Income-tax Officer, Wd-2(2), Kolkata, 1.T.A. No. 308/Kol/2017, ITAT Kolkata-C Bench, Kolkata; (d) H.H. Sri Rama Verma vs. Commissioner Of Income Tax, (1991) 187 ITR 308 (SC): (1991) 95 CTR (SC) 26: (1991) 57 TAXMAN 149; (e) M/s Dharamtar Motor Services vs. Income Tax Officer, Ward 6(1)(4), Ahmedabad, ITA No.1438 & 2534/AHD/2017 dated 21.11.2019; (f) Commissioners of Income Tax Vs. Usha Stud Agricultural Farms Ltd. (2008) 76 CCH 0398 Del HC; (g) ITO v. Bhagwat Marcom (P) Ltd., ITA No.2236/Kol/2017 dated 31.07.2019, ITAT Kolkata Bench; (h) M/s Syntensia Network Security India Pvt. Ltd. vs. ITO-11(2)(4) ITA No. 2927/Mum/2017 dated 27.07.2018 for AY 2012-13; (i) ITO Vs. Nasir Khan J. Mahadik (2012) 134 ITD 0166 dated 30.11.2011; (j) Suraj Bhan Bajaj v. Income Tax Oficer (2006) 25 CCH 0294 Del Trib dated 21.04.2006; In view of the above factual and legal position in my considered opinion the AO was not correct to make an addition of entire sum in the CO No.18/Kol/2021 M/s Iris Health Services Ltd Assessment Year: 2012-13 assessment year under consideration as the entire said sum was not received in the year under consideration. The amount received in earlier financial year amounting Rs 5.97 crores is evident from the audited balance sheet. This balance sheet was available before the assessing officer from the beginning of the assessment. Considering the same the addition made by the assessing officer amounting Rs. 5.97 crores is hereby deleted. Now Coming back to the remaining amount i.e. Rs. 9,16,20,000/-. It is noted that this amount was received from the following: i) Forte Projects Pvt. Ltd. Rs. 2,44,20,000 /- ii) Nortex Reality Ltd. Rs. 4,33,00,000/- iii) Poddar Udyog Ltd. Rs. 2,19,00,000/- iv) Hope Enterprises Pvt. Ltd. Rs. 2,00,00,000 Total Rs.9,16,20,000/- From the above it can also be seen that all these persons are group entities and money has been received by the appellant on earlier occasion also and their creditworthiness and identity has been accepted by the A.O under the earlier years and no question have been raised against the share application money given by them. During the course of appellate proceedings, the AO was given an opportunity to examine the documentary evidences submitted by the appellant in respect of these entities. In the remand proceedings, the AO has accepted the following: i) Summons u/s. 131 of the I. T. Act, 1961 were issued to the share applicants and they were all served, ii) All the entities against whom summons were served have responded and furnished replies, iii) The reply Constitute documentary evidences regarding the share application money, iv) Physical appearance was not made, v) Source of source of the investment made could not be verified in remand proceedings, vi) Reference of decision of Hon'ble Apex Court in the case of NRA Iron and Steel Pvt. Ltd. was made, CO No.18/Kol/2021 M/s Iris Health Services Ltd Assessment Year: 2012-13 vii) Finally, it is stated that if the share applicants have any real existence the assessee would have produced them in person. In response to these arguments, the assessee in his rebuttal stated as under: The appellant has received the copy of the remand report dated 21.10.2019 sent by the A0. In this connection it is reiterated that during the year the assessee issued the following shares: SL. Name of share holder Consideration Share Further amount No. for which share application received during were allotted money b/f from the year earlier years 1 Vivek Kumar 100000/- 100000/- Nil Kathotia 2 Fort Projects (P) Ltd. 45620000/- 2,12,00,000/- 2,44,20,000/- 3 Nortex Realty Ltd. 4,58,00,500/- 25,00,500/- 4,3300,000/- 4 Poddar Udyog Ltd. 5,12,58,000/- 2,93,58,000/- 2,19,00,000/- 5 Pavan Kumar Poddar 12,00,000/- 12,00,000/- Nil (HUF) 6 Chandroday 44,00,000/- 44,00,000/- Nil Mercantile Pvt. Ltd. 7 Hope Enterprises 30,00,000/- 10,00,000/- 20,00,000/- Pvt. Ltd.

It is evident that all the shareholders were old and sister concerns and their last years share application money was duly accepted. Out of total allotment of Rs. 15,13,78,500/- fresh amount received during the year was only Rs. 9,16,20,000/-. In the course of assessment proceedings, the assessee submitted the details. In the course of appellate proceedings again it was specifically mentioned that all the details were filed. However, the details were again filed and evidences were produced to show that all the shareholders were either group concerns or individual directors. Evidences were also produced to show that the shareholders are of substantial means having immoveable properties of millions of rupees and are having substantial profits/turnover. It was also explained that the money has come from their own resources. Not only that all the shareholders were regular and very old assesses of the department and regular assessments were completed in their cases. In fact, some of the assessment orders viz. Vivek Kumar Kathotia was assessed on an income of Rs. 6 Crores in assessment year 2009-10, Poddar Udyog Ltd on an income of Rs. 73,19,289/- in assessment year 2009-10, Nortex Reality Ltd on an income over Rs. 1 Crore in CO No.18/Kol/2021 M/s Iris Health Services Ltd Assessment Year: 2012-13 assessment year 2011-12 were submitted. Sri Vivek Kumar Kathotia is the director of Fort Projects Ltd. a renowned builder of Kolkata who also built OASIS building having number of complexes. The balance sheet of all the shareholders were submitted. The Issue was remanded to the AO for his Comments on the submissions. The AO in the remand report examined the submissions. He has nowhere denied or controverted the submissions made by the assessee. The AO has accepted the facts that it is observed that all the corporate and HUF entities barring Fort Projects Put Ltd are group/ subsidiary company of Iris Health Services Ltd. The AO has also not adversely commented on the identity of the shareholders, their creditworthiness and the genuinity of the transactions. The AC has, however, stated that the directors did not appear for personal examination. The assessee has countered this argument by submitting that it is nowhere the requirement of sec. 68 that the directors should personally appear when there is no dispute about the identity, creditworthiness and genuinity of the transactions. The issue is squarely covered by the Judgement of the Hon'ble Calcutta ITAT in the case of Cygnus Developers Put Ltd and Devendra Kumar Sant, a copy of the said decisions has already been filed before your honour. The other reason for not accepting the investment is that the source of source was not proved. Needless to mention that the assessment relates to the assessment year 2012-13. There was no requirement in law to prove source of source in so far as the assessment year 2012-13 is concerned. The amendment in the IT Act came into force from 01.06.2012 i.e. assessment year 2013-14. The issue is covered by the judgment of Hon’ble Jurisdictional ITAT in the case of Bidit Financial Management in pronounced on 15.03.2019 which has followed Hon’ble Bombay High Court in the case of Gagandeep Infrastructure reported in 394 ITR 680. The Ld. A.O has further relied on the judgment of the Apex Court in NRA Iron Steel Pvt. Ltd. However, the said judgment is not applicable. In view of the fact that in the said case none of the shareholders were traceable at the given address nor they had any creditworthiness. In fact, the finding is that even their identity could not be proved. In fact, the issue is fully covered in favour of the assessee by the judgment of the Apex Court in the case of Paradise Shipping Company, a copy of the CO No.18/Kol/2021 M/s Iris Health Services Ltd Assessment Year: 2012-13 said judgment is enclosed herewith. In view of the above, it is humbly requested that the addition is not maintainable and may be directed to be deleted. From the above, it can be seen that – i) Coming to the amount of Rs. 9,16,20,000/- it is noted that all the individuals and entities are part of group concerns having substantial creditworthiness. As mentioned earlier the investment received from these very entities has been accepted by the AO in earlier years. The AO has stated that if these entities were real then assessee would have produced them before AO has got no basis as assessment u/s. 143(3) have been framed in their cases and therefore, their identity and creditworthiness cannot be denied. AO can also not say that assessment u/s. 143(3) have been framed on fictitious entities in earlier years. ii) As far as genuineness of the transaction is concerned none of the transaction is made other than through banking channels and therefore, even genuineness of the transaction is not in question. iii) Regarding the argument that source of source cannot be verified it is noted that Hon'ble Bombay High Court in the case of CIT vs. Gangadeep Infrastructure Pvt. Ltd. 394 ITR 680 has categorically held that for A.Y. 2012-13 source of source needs not to be approved. Moreover, this exercise was never taken up by the AO as it was not required under the act either as far as A.Y. 2012-13 is concerned. Furthermore, the above judgment of Hon'ble Bombay High Court has been followed in various subsequent decisions by Hon’ble jurisdictional ITAT. Finally, it is not clear that when identity, creditworthiness and genuineness of the transactions have been accepted from the same person/entity in earlier years why the same is being challenged in the year under consideration and that too when the creditworthiness of these entities has shown much more improvement in terms of Return of Income showing substantial income which have been filed by them. In view of the above, I am of the considered opinion that the additions made by the A.O amounting Rs.9,16,20,000/- cannot be sustained and therefore, I direct the A.O to delete the same. Therefore, this ground is allowed.”

CO No.18/Kol/2021 M/s Iris Health Services Ltd Assessment Year: 2012-13 6. Being aggrieved by the said order of the CIT(A), the Revenue has come in appeal before us.

CO No.18/Kol/2021 M/s Iris Health Services Ltd Assessment Year: 2012-13 “The present appeal is directed at the instance of the Revenue against the order of the ld. Commissioner of Income Tax (Appeals), Kolkata 4, [hereinafter the ld. CIT (A)"], dt. 24/09/2020, passed u/s 250 of the Income Tax Act, 1961 (in short the Act") for the Assessment Year 2012- 13. The ld. CIT D/R pointed out that the Tribunal vide order dt. 21/02/2022 has directed the Assessing Officer for production of assessment record. The office of the Departmental Representative has communicated this order to the Assessing Officer but it could not complied with. He seeks more time. The order of the Tribunal dt. 21/02/2022 reads as under: “The ld. CIT(DR) has casted some aspiration on the correctness of the remand report vis-a-vis the statement purportedly recorded of the director of assessee company by the Assessing Officer (DCIT). Therefore, we direct the Department to produce the assessment records to produce before this Tribunal as well as the Assessing Officer to make a report regarding the veracity of the remand report which is reproduced from page 18 to 20 of the impugned CIT (Appeals) order. The case is adjourned to 28/03/2022.” A perusal of this order would indicate that a doubt was raised in the remand report submitted by the Assessing Officer and reproduced in the impugned order. Therefore, it is necessary to ascertain the original copy of the remand report. Faced with this situation, the above direction was given to the revenue. However, it could not be complied with. On the request of the ld. CIT D/R, we adjourn the hearing to 08.08.2022. Copy of this order sheet to be supplied to the administrative CIT having jurisdiction over the Assessing Officer for ensuring the compliance.” On the date of hearing i.e. 24.11.22, the ld. DR has come along with the assessment records. He has submitted that there was no copy of the statement recorded u/s 131 in the assessment records. However, he has fairly admitted that the assessment records were not properly maintained at all. There were no file orders after 23.09.2015; whereas, the statement u/s 131 was recorded on 21.12.2017; there was no index or page numbering; even though, there was a copy of the remand report but, there was not file order in that respect. The CO No.18/Kol/2021 M/s Iris Health Services Ltd Assessment Year: 2012-13 assessment records were totally mismanaged. The ld. DR, in this respect, has submitted that the statement was recorded by the earlier Assessing Officer and that the remand report was given by the subsequent Assessing Officer and therefore, the Assessing Officer missed the statement of the director of the assessee company namely Sri Pavan Kumar Poddar who also happens to be the director of the share subscriber company also. A perusal of the copy of the aforesaid statement recorded u/s 131 of the Act reveals that the same is the photocopy of a certified copy issued by the same Assessing Officer who had issued remand report, in question, namely Shri Sudhanshu S Gautam, IRS, DCIT, Circle- 10(1), Kolkata. Since, the certified copy of the statement has been issued by the concerned Assessing Officer who happens to be the same officer who had issued the remand report, therefore, we do not find any reason to disbelieve the aforesaid copy of the statement recorded u/s 131 of the Act.