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Facts
The assessee, engaged in investment in equity shares, filed its return of income. Information was received about high-value transactions in the assessee's bank account, specifically funds received from SanSam Polymers Pvt. Ltd. (SPPL). The Assessing Officer doubted the genuineness of these transactions and made an addition.
Held
The Tribunal held that the assessee had sufficiently explained the nature of the transaction and the source of funds, supported by corroborative documentary evidence. The reassessment proceedings and the addition made by the Assessing Officer were found to be without merit.
Key Issues
The primary issue was the validity of reassessment proceedings and the addition made under Section 68 of the Income Tax Act concerning funds received from SPPL.
Sections Cited
147, 148, 143(3), 68, 133(6)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “C” BENCH MUMBAI
Before: SHRI AMIT SHUKLA & SHRI GIRISH AGRAWAL
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
This appeal filed by the assessee is against the order of Ld. CIT(A), National Faceless Appeal Centre (NFAC), vide order no. ITBA/NFAC/S/250/2023-24/1061576503(1), dated 27.02.2024, passed against the assessment order by Income Tax Officer, Ward 14(2)(4), Mumbai u/s. 143(3) of the Income-tax Act (hereinafter referred to as the “Act”), dated 29.12.2018 for Assessment Year 2011- 12.
In the five grounds of appeals raised by assessee, issue involved is in respect of challenging the validity of reassessment proceedings and assessment thereon u/s.147 r.w.s. 148 and as well as the addition of Rs.89,50,000/- made u/s.68 of the Act.
Brief facts of the case are that assessee is engaged in the business of investment in equity shares in associate entities and maintains equity holding in group concerns having income from business and profession. Assessee filed its return of income on 30.09.2011 reporting total income at Rs.1,55,525/-. On receipt of information from DDIT(Inv), Unit-1(1), Mumbai that there are high value transactions in the current bank account of the assessee with Saraswat Bank Ltd., ld. Assessing Officer noted that assessee had received funds amounting to Rs.56,50,000/- from SanSam Polymers Pvt. Ltd. (SPPL) in two tranches, i.e., Rs.33,50,000/- on 24.03.2011 and Rs.23,00,000/- on 31.03.2011. Assessee was required to justify source of these funds along with supporting documents. Assessee made its submissions to explain that it received funds amounting to Rs.89,50,000/- from SPPL who in turn had received the funds from Forte International (M) Sdn Bhd, Malaysia.
3.1. Assessee explained the nature of transaction by submitting that SPPL was carrying on business of trading in recycled granules, plastic reprocessed granules and floor sweepings. It had to make purchase from one of the group company of assessee, i.e., Aishwarya Plast Exports Pvt. Ltd. and in order to secure the amount due to Aishwarya Plast Exports Pvt. Ltd. from SPPL, this amount was received by the assessee. Ld. Assessing Officer issued notice u/s.133(6), dated 04.10.2018 on SPPL. In response to this notice, SPPL submitted copy Parakkott Investments India Pvt. Ltd., AY 2011-12 of its return of income, loan confirmation letter alongwith its bank statement. It also furnished details of purchases made from Aishwarya Plast Export and also explained that it had received share application money from Malaysian Company, i.e., Forte International (M) Sdn Bhd, for which copy of share investment agreement was enclosed.
3.2. Ld. Assessing Officer, after considering the submissions of the assessee as well as those furnished by SPPL, doubted the genuineness of the transaction by observing that SPPL was incorporated on 09.03.2011 only and received funds from the Malaysian company within a span of 15 days of its incorporation and gave loans to the assessee company. According to him, the commercial expediency aspect is missing in respect of transaction undertaken with the assessee. He thus, held that submissions made by the assessee in respect of the un-secured loan/deposit amounting to Rs.89,50,000/- are not tenable.
Before the ld. CIT(A), assessee reiterated the submissions made. It further, clarified that SPPL had paid a deposit of Rs.89,50,000/- to the assessee, out of which Rs.56,50,000/- was credited into the bank account before 31.03.2011. However, balance Rs.33,00,000/- was credited in the next financial year and was reported as un-reconciled amount in the bank reconciliation statement prepared as on 31.03.2011. In order to establish genuineness of the transaction, assessee submitted alongwith corroborative documentary evidences that one of the promoters of SPPL was Forte International (M) Sdn Bhd, i.e, the Malaysia company. Forte International (M) Sdn Bhd contributed towards the share capital of SPPL as its promoter’s contribution, for which copy of share purchase agreement was already furnished in the course of assessment proceeding. On account of Parakkott Investments India Pvt. Ltd., AY 2011-12 pending compliance formalities with Reserve Bank of India, shares could not be allotted to Forte International in the year under consideration. Accordingly, SPPL placed the amount received by it from Forte International, with the assessee as deposit against which supplies were made by another associate company of the assessee’s group, namely Aishwarya Plast Export in September, 2011 i.e., in the next Assessment Year. It was also explained that there was a delay in supplies on account of procedural requirements of obtaining permission from Reserve Bank of India. All the corroborative documents, including confirmation, letter, bank statements, details of purchases made by SPPL from Aishwarya Plast Export, copy of income tax return were placed on record.
4.1. Further, in order to prove the genuineness of the transaction, assessment order passed in the case of SSPL for the same Assessment Year, i.e., 2011-12 u/s. 143(3) r.w.s. 148 dated 28.11.2018 was placed on record. The said assessment order was passed by Income- tax Officer, Ward – 22(3), New Delhi. From the said assessment order, it was evidently demonstrated that case of SPPL was taken up by initiating reassessment proceedings to enquire about the amount of Rs.55,67,070/- received by it towards share application money from Malaysian company. In this respect, in the said assessment order, ld. Assessing Officer has taken note of these facts and accepted the documents and explanations furnished. No adverse inference was drawn and return of income filed at Nil was accepted. Observations and findings of the ld. Assessing Officer in this respect are extracted below for ready reference. “In response to the notice us 148 assessee filed return of income declared income of Rs.NIL. on 27.04.2018. Thereafter. reasons for re-opening were provided to the A.R Sh. S.V. Subramaniam. C.A. on his request. Statutory notice us 14.302) was issued on 06.08.2018 living the case for hearing on 13.08.2018. Further notice us 142(1) was issued on 06.08.2018 posting the case for hearing on 13.08.2018. response. the assessee filed detailed reply Parakkott Investments India Pvt. Ltd., AY 2011-12 contended that the company was incorporated on 09.03.2011 by to Malaysian residence and amount of Rs.55.67.070-received as share application money. the shares for which was allotted in next year because company has only 22 working days in the current financial year. Necessary documents have been filed and after examination. placed on record. Keeping in view the details tiled by the assessee company. no adverse inference is being taken and return income of Rs.Nil as declared by the assessee is accepted. Assessed at Rs.Nil u/s 148/143(3) of the 1.T. Act, 1961. Issued notice of demand.”
4.2. It was thus, evidently established that share application money received by SPPL from Malaysian company was accepted and assessed by the Department explaining the source of source for funds received by the assessee from SPPL.
Per contra, ld. Sr. DR placed reliance on the order of the authorities below.
We have heard both the parties and perused the material on record. Addition made by ld. Assessing Officer in respect of funds received by assessee from SPPL have been added by doubting the genuineness of the transaction. We take note of various documentary evidences furnished both, by assessee as well as by SPPL in compliance to notices issued by ld. Assessing Officer u/s.133(6) of the Act. Assessee has duly explained the nature of transaction and has also gone to the extent of explaining the source of source with corroborative documentary evidence including assessment order passed in the case of SPPL whereby Department accepted the share application money received by SPPL from its promoter, i.e., the Malaysian company. In respect of part of funds, i.e., 33 lakhs received in the subsequent year, assessee has explained it by way of bank reconciliation statement duly corroborated by entries in the bank 6.1. Considering the factual position duly backed by corroborative documentary evidences, more importantly, fact that SPPL itself assessed by the Department for the transaction having a direct bearing on the addition made in the hands of the assessee, we unhesitatingly, delete the addition in the hands of assessee u/s.68. Accordingly, ground taken by the assessee in this respect is allowed. Since, we have deleted the addition on the merits of the case, legal grounds raised by the assessee are rendered academic and not adjudicated upon.
In the result, appeal of the assessee is allowed.