UMANG BOARDS (MUMBAI), PVT. LTD,JAIPUR vs. WARD 14(3)(1), MUMBAI, MUMBAI

On the perusal of the case file, we found that Ld. CIT(A) has dismissed the appeal of the assessee, but the merits of the case have been duly considered. Therefore, keeping in view the decision of the Ld.CIT(A) on the merits of the appeal, we have decided to adjudicate the grounds of appeal on merits as all the documents filed by the assessee before AO are already on the case file. Ground no 1 1. In the facts and circumstances of the case and in law, Id. CIT(A) has erred in passing the order, in the first appellate proceedings, ex-parte, without providing adequate opportunity to the assessee company, to present its case and make appropriate submissions. The action of the Id. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may be please be granted by quashing the entire order passed by the Id. CIT(A), being passed against the principles of natural justice.

This ground raised by the assessee relates to challenging the order of Ld. CIT(A) in adjudicating the appeal against the principles of natural justice.

In this regard, Ld. AR submitted that proper and due opportunity was not granted to the assessee and Ld. CIT(A) has adjudicated the grounds raised by the assessee in violation of the principles of natural justice

Whereas on the contrary, Ld.DR submitted that due and proper opportunities were granted to the assessee, but even in spite of that assessee failed to appear before

We have heard counsel for both the parties and perused the material placed on record and the orders passed by the revenue authorities. From the records we noticed that during the course of appellate proceedings several notices were sent to the assessee from 2018 to 2021, but the assessee had only filed adjournment letters . Apart the assessee also failed to place on record specic documents as directed by Ld. CIT(A). Therefore, we are of the view that proper and sufficient opportunities were granted to the assessee but the assessee failed to avail opportunities and hence Ld.CIT(A) has rightly decided the appeal ex-parte after considering the submissions of the assessee and taking into consideration the documents filed by the assessee, therefore we see no reasons to interfere into or to deviate from the findings so recorded by Ld. CIT(A), hence ground no.1 raised by the assessee stands dismissed. Ground no 2. 2. In the facts and circumstances of the case and in law, Id. CIT(A) has erred in confirming the action of the Id. AO, in making additions of Rs. 1,63,99,200 to the income of the assessee company under Section 68. The action of the Id. CIT(A) is illegal, unjustified, arbitrary and against the facts of case. Relief may please be granted by deleting the entire such additions made by Id. AO as confirmed by the Id. CIT(A)

1 During the course of assessment proceedings, assessee company submitted the following documents in relation to the amount received from PL:

1.i Copy of the bank statement of the assessee company, reflecting the receipt of the entire amount of consideration through the banking channel.

1.ii Audited financial statements of PL for the periods ending 31.03.2014 and 31.03.2015, clearly evidencing the investments made by PL in the assessee company.

1.iii Confirmation letter from PL, dated 27.11.2017, confirming:

2 During the assessment proceedings, Id. AO issued notice under Section 133(6) dated 16.11.2017 to PL, seeking specific details. The notice was duly served on PL, and a reply dated 14.12.2017 was submitted by PL, along with certain documents.

3 However, the Id. AO noted that the letter received from PL did not mention the date of issuance and seal or logo of the PL. Based on these observations, Id. AO concluded that PL was a shell company. Consequently, additions were made to the income of the assessee company under Section 68 for the amount received from PL.

4 It is pertinent to note that the action of the Id. AO in making the addition to the income of the assessee company is not pursuant to any search conducted on a third party. It is not the case of the lower authorities that any search was conducted on a third party, which revealed that PL was engaged in providing bogus transactions or was a shell company.

5 Further, the documents submitted by the assessee company before the Id. AO did not reveal any discrepancies. Once the assessee company submitted the required documents, the onus under Section 68 was fully discharged on its part. Thereafter, the burden shifted to the Id. AO to rebut the claim of the assessee company.

6 However, the Id. AO arbitrarily categorized the investor company, PL, as a shell company merely because the reply submitted by PL lacked a. covering letter. It is important to note that PL itself confirmed the source of the investment, stating that it was derived from the sale of shares of other entities. Thus, the cash flow of the investor company was fully explained and made known to the Id. AO.

The lower authorities have questioned the genuineness of the investment made by PL into the assessee company, primarily on the ground that the company was not carrying out any business at the relevant point in time. Essentially, Id. AO and Id. CIT(A) have cast doubt on the investor's acumen in making the decision to invest in the assessee company. Their contention is based on the premise that, as the company was not generating any profits, no prudent investor would choose to invest in such a company. On this basis, the genuineness of the transaction has been doubted.

8 It is respectfully submitted that the decision to invest in any company, as well as the valuation at which such an investment is made, is a matter of mutual understanding and meeting of minds between the investor and the investee. Such subjective considerations cannot be used as a basis to declare the investment as non-genuine.

9 At the time the investment was made, the assessee company had significant future prospects in the field of electrification and related production activities. Considering these prospects, the investor deemed it fit to make the investment in the assessee company. Therefore, the doubts raised regarding the genuineness of the transaction are baseless and unwarranted.

10 It has also been contended that no prudent person would lend such a significant amount to a company in the assessee's financial position. It is respectfully submitted that the present case involves an investment in equity shares, not a loan. When an investor decides to invest in a company, they are aware of the inherent risks associated with such an investment. The decision to invest is made after careful consideration of the risk-return analysis, which differs significantly from the principles governing the lending of money.

11 In the case of lending, the lender primarily assesses the financial position of the borrower to ensure repayment. In contrast, an investment decision is driven by the investor's confidence in the business strategy and future prospects of the company. The investor, in this case, was willing to place their trust in the assessee company's business model and its potential for future growth.

12 It is submitted that although the Id. CIT(A) has dismissed the appeal of the assessee company, the merits of the case have been duly considered. In this regard, reference has been drawn by the Id. CIT(A) from the order of the first appellate authority for the AY 2012-13. 7 Umang Boards (Mumbai) Pvt Ltd, Mumbai

13 It is further submitted that in the first appellate proceedings for AY 2012-13, the appeal of the assessee company before the first appellate authority was dismissed on the ground that the assessee company was unable to furnish the bank statement of the investor company at that stage. "If share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO. Then the department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as undisclosed income of assessee company." CIT vs. Stellar Investment Ltd. [2001] 251 ITR 263 (SC) "Even if it is assumed that the subscribers to the increased