M/S AKSHAT ROLLER FLOUR MILLS PVT. LTD.,CHANDAULI vs. D.C.I.T., CIRCLE - 1, VARANASI

IN THE INCOME TAX APPELLATE TRIBUNAL VARANASI BENCH, VARANSI BEFORE SH. SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SH. NIKHIL CHOUDHARY, ACCOUNTANT MEMBER ITA No.81/VNS/2023 A.Y. 2013-14 M/s Akshat Roller Flour Mills Pvt. vs DCIT, Ltd., A-4A, Industrial Area, Circle-1, Varanasi Ramnagar, Industrial Area, Chandauli, Basant Nagar, S.O. 221110, Uttar Pradesh PAN: AAKCS3432K (Appellant) (Respondent) Assessee by: Sh. Arvind Shukla, Advocate Revenue by: Sh. Koushlendra Tewari, CIT DR Date of hearing: 11.05.2026 Date of pronouncement: 29.06.2026 O R D E R PER NIKHIL CHOUDHARY, A.M.: This is an appeal filed by the assessee against the orders of the ld. CIT(A), NFAC passed under section 250 of the Income Tax Act, 1961 dated 26.06.2023, wherein the ld. CIT(A) has dismissed the appeals of the assessee filed against the orders passed by the Assessing Officer under section 143(3) for the A.Y. 2013-14, passed on 30.03.2016. The grounds of appeal are as under:- “1. Because the learned CIT(A) has erred in law as well as on facts in dismissing the appeal ex-parte without appreciating the merits of the case and also without giving proper opportunity of being heard. 2. Because the learned CIT(A) has failed to appreciate that the order was passed by an officer without having proper jurisdiction over the case and hence was void ab-initio.

ITA No.81/VNS/2023 A.Y. 2013-14 M/s Akshat Roller Flour Mills Pvt. Ltd. 3. Because the learned CIT(A) has failed to appreciate that the order u/s.143(3) was passed in haste predetermined manner without giving proper opportunity of heard and by ignoring the facts and evidences placed on record additions

ITA No.81/VNS/2023 A.Y. 2013-14 M/s Akshat Roller Flour Mills Pvt. Ltd. companies and was unable to locate the persons who had subscribed to the share capital of the assessee company. Furthermore, perusal of the details submitted by four of the companies, revealed that they had no business activities and had meagre sources of income. It was also observed that they had submitted incomplete bank statements and not submitted the source of investment in the assessee company. In the case of two companies, namely M/s Ashok Investors Trust Limited and M/s Raga Tradecon P. Ltd., a commission under section 131(1)(b) was sent to the DDIT, Investigation at Mumbai, who had reported that the companies did not exist at their respective addresses. From the same, the Assessing Officer concluded that all these companies were merely paper companies which had been utilized as a conduit for transferring the unaccounted income of the assessee in the form of share capital to the assessee. Accordingly, he asked the assessee to show cause as to why the said amounts by way of share capital and security premium should not be added back to the income of the assessee under section 68 of the Income Tax Act. In response, the assessee first questioned the jurisdiction of the AO which was rebuffed by the AO. It then stated that no proper of opportunity of being heard was given to the assessee. This too was rebutted by the AO in his order. It was also submitted that the copy of the Inspector report referred to in the notice was not provided to the assessee, to which the AO recorded that the report had been discussed in the show cause notice itself. The assessee also contested the fact that the report of the DDIT, Investigation was not provided which was also rebutted by the AO, stating that it was contained in the show cause notice. Thereafter, the assessee submitted the details about the identity and creditworthiness of the share applications and the genuineness of the transactions. It submitted audited accounts of all the share subscriber companies. The AO considered the details filed by the assessee and held that mere filing of permanent 3

ITA No.81/VNS/2023 A.Y. 2013-14 M/s Akshat Roller Flour Mills Pvt. Ltd. account numbers, acknowledgment of income tax returns, bank account statements etc., was not sufficient to prove the creditworthiness of these shareholder companies. He placed reliance on the decision of the Hon’ble Delhi High Court in the case of CIT vs. Nova Promoters & Finlease (Pvt.) Limited (2012) 342 ITR 169. For this proposition, he also placed reliance on the judgment of the Hon’ble Delhi High Court in the case of CIT vs. N. Tarika Properties (2013) 40 taxman.com 525 (Delhi). Further relying upon the decision of the Hon’ble Kolkata High Court in the case of CIT vs. M/s Precision Finance Pvt. Ltd., 208 ITR 465, he observed that the companies who had subscribed to the share capital of the assessee company were mere paper companies that had almost nil business. The source of investment in their balance-sheet was security premium and investments made in shares of unquoted/ unknown companies. The assessee does not show any income from those investments and the said security premium had been advanced as loans with yielded negligible income. There were no fixed asset and no rent paid. As such the creditworthiness of these companies was not proved and reliance was placed on the decision of the ITAT Kolkata Bench in the case of M/s Patangi Trade and Holdings Pvt. Ltd. in ITA Nos. 1533 to 1537/KOL/2012 and M/s Bishakha Sales Pvt. Ltd. vs. CIT in ITA No. 1493/KOL/2013. Looking into the genuineness of the transaction, the ld. AO noted that the bank statement shown frequent debit and credit transactions. The source of investment was on account of sale of investment of other paper companies. Furthermore, the amounts that were provided as share money were deposited in the bank account of these parties and subsequently transferred to the assessee company on the next day. From all these, he concluded that the share transactions were a sham arrangement where the assessee company was routing its own unaccounted money through paper entities. These accommodation entries routed through banking channels 4

ITA No.81/VNS/2023 A.Y. 2013-14 M/s Akshat Roller Flour Mills Pvt. Ltd. could not be given the certificate of genuineness. Therefore, the ld. AO made an addition of Rs. 2,64,99,025/- on this account. He also noted from the balance-sheet dated 31.03.2013 that the average value of investment during the year was Rs. 13,12,000/-. He requested the assessee to furnish the details of expenditure pertaining to the aforesaid investment and applicability of section 14A in its case. The assessee submitted vide letter dated 19.11.2015 that the provisions of section 14A did not apply to it because the assessee did not have any exempt income. The AO rejected the said explanation, taking recourse to CBDT Circular No. 14/2001 and CBDT Circular No. 5/2014. He also placed reliance on the decision of the Hon’ble Kolkata High Court in the case of CIT-3, Kolkata vs. R.K.B.K. Fiscal Services (P) Ltd. (2013) 32 taxman.com 153 (Cal) and the order of the Punjab & Haryana High Court in the case of Avon Cycles P. Ltd. vs. CIT (2015) 53 taxman.com 297 (P&H). He noted that since the assessee did not maintain any separate books of accounts for expenditure incurred with relation to exempt income, hence the amount of expenses actually incurred could not be ascertained from the assessee’s books of accounts and therefore, the accounts of the assessee were not satisfactory with regard to the correctness of its claims. Accordingly, he invoked section 14A(2) and Rule 8(D)(2) to compute the disallowable expenditure at Rs. 62,949/-. The AO also made disallowances of Rs. 22,090/- on account of delayed deposit of PF / ESI and upon going through the individual transaction statement of the assessee, he found that the assessee had made substantial deposits of cash in its’ bank account which it could provide the explanation with regard to. Therefore, he added back Rs. 71,40,120/- on this account. 3. Aggrieved by the said assessment order, the assessee went in appeal before the ld. CIT(A). The ld. CIT(A) recorded in his order that he had issued

ITA No.81/VNS/2023 A.Y. 2013-14 M/s Akshat Roller Flour Mills Pvt. Ltd. ten notices to the assessee for making compliance during the appeal proceedings, but the assessee had not made any response to the same. From the same, he concluded that the assessee was not serious in pursuing its appeal. Since the assessee did not provide any explanation or evidence in support of the grounds of appeal, he upheld the additions made by the AO for want of explanation and on the merits. Accordingly, he dismissed the appeal of the assessee. 4. The assessee is aggrieved at the said order passed by the ld. CIT(A) and has accordingly come before us. Sh. Arvind Shukla, Advocate (hereinafter referred to as the ld. AR) appearing on behalf of the assessee submitted that the company was in the process of shifting from Kolkata to Varanasi during the period in which the matter was in appeal and it was for this reason that no compliance could be made to the notices issued by the ld. CIT(A). However, it was submitted that all the documents had been placed on record at the time of assessment and had not been appreciated in earnest by the Assessing Officer. It was submitted that unsecured loans of the previous year, amounting to Rs. 1.3 Crores, had been converted into share capital in the course of this year and since this was not a fresh credit to the books of accounts, this could not be added back under section 68 in this assessment year. Furthermore, it was argued that Rs. 1.35 Crores had been introduced by way of fresh share capital money and in response to these confirmations, bank statements, ITR and ROC documents had been furnished before the AO. The AO had refused to consider any of these because of his view that these companies could not be found at their premises. However, the ld. AR submitted that the assessee was given only six days to make compliance and produce these persons before the AO, which was not possible for the assessee. The ld. AR further pointed out that the company

ITA No.81/VNS/2023 A.Y. 2013-14 M/s Akshat Roller Flour Mills Pvt. Ltd. had re-located its business in the year 2013 and was registered with ROC Kanpur in 2015. It had also made a request for the transfer of its PAN. Owing to this shifting of the company, the assessee was not able to make compliance before the ld. CIT(A). However, it was submitted that several legal grounds had been raised before the ld. CIT(A) and even if no compliance was made by the assessee, the ld. CIT(A) was obliged to decide those legal grounds on their merits, before dismissing the case of the assessee outright. Since the ld. CIT(A) had not done so, his orders were bad in law and it was therefore, prayed that they may be set aside. 5. On the other hand, Sh. Koushlendra Tewari, ld. CIT DR (hereinafter referred to as the ld. DR) submitted that the AO had discussed everything in detail in his order as to why the additions that were made were justifiable and he placed reliance on the orders of the AO. The ld. CIT DR further pointed out that the assessee had not made any compliance before the ld. CIT(A) and therefore the ld. CIT(A) had no materials on the basis of which he could uphold the appeal of the assessee. Accordingly, he prayed that the additions may be confirmed. 6. We have duly considered the facts and circumstances of the case and the submission of both parties. We note that the assessee, in its grounds of appeal before the ld. CIT(A), had raised several legal grounds such as the receipt of a sum of Rs. 1,30,00,000/- during the F.Y. 2011-12 relevant to the A.Y. 2012-13, the disallowance of Rs. 62,949/- under section 14A r.w.r. 8D of the Income Tax Act when the company had no exempt income and also pointed out that an addition had been made in its hands without providing it with ITS data and by placing reliance upon report of ITI, DDIT (Inv.), Mumbai and replies of share applicants, without supplying the same to the assessee. Furthermore, the assessee has raised the issue that reports of the

ITA No.81/VNS/2023 A.Y. 2013-14 M/s Akshat Roller Flour Mills Pvt. Ltd. DDIT and ITI were deficient, on account of the fact that the notice server/postal department had served notices to the share applicants, but the DDIT and ITI could not locate them. We also notice that the assessee had made a specific request to the PCIT-3, Kolkata for transfer of its case to Circle-1, Varanasi, who had jurisdiction over the assessee and the AO and the PCIT, Varanasi had sent an NOC regarding the migration of PAN, upon NOC being sought by the PCIT-3, Kolkata. However, in spite of this, no action was taken on the transfer of the case to Varanasi. Furthermore, the PCIT did not reject the petition of the assessee, thereby preventing the assessee from obtaining relief at the appropriate forum. The assessee had therefore, objected to the issue of notice by the present AO holding that it did not have jurisdiction over the matter. All these facts had been placed before the ld. CIT(A) alongwith other facts and arguments in a detailed statements of facts and grounds of appeal that were furnished by the assessee to the ld. CIT(A), but it appears that the ld. CIT(A) took no cognizance of the same and dismissed the appeals of the assessee, without considering this information that was contained in the statement of facts and the grounds of appeal. As the assessee had not withdrawn its appeal, at best the ld. CIT(A) could have concluded that the assessee was not interested in making further submissions. He could not have refused to adjudicate the issues merely because his notices had not been responded to. Therefore, his action to dismiss the case in limine is not in accordance with law. In view of the same, we deem it appropriate in the interest of justice to restore the matter back to the file of the ld. CIT(A), so that the ld. CIT(A) may consider the submissions of the assessee on their merits and thereafter pass such orders as he deems appropriate. Furthermore, an opportunity may be provided to the assessee to furnish such information that the ld. CIT(A) may require for deciding the issues and the ld. CIT(A) may thereafter decide the issue as per 8

ITA No.81/VNS/2023 A.Y. 2013-14 M/s Akshat Roller Flour Mills Pvt. Ltd. his discretion. As the matter stands restored to the file of the ld. CIT(A), the appeal of the assessee is allowed for statistical purposes. 7. In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced under Rule 34(4) of the ITAT Rules, 1963 on 29.06.2026.

Sd/- Sd/- [SUDHANSHU SRIVASTAVA] [NIKHIL CHOUDHARY] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 29/06/2026 Sh Copy forwarded to: 1. Appellant – 2. Respondent – 3. CIT DR, ITAT, 4. CIT, 5. The CIT(A) By order Sr. P.S.