KISAN AGRO MART P. LTD.,MIRA ROAD vs. PR. CIT-1, MUMBAI

Shri K. Gopal appearing on behalf of the assessee submitted that the PCIT has erred in assuming jurisdiction under section 263 of the Income Tax Act, 1961 [in short ‘the Act’] holding that the Assessing Officer ought to have made addition in respect of payment of commission @ 3% under section 69C of the Act. The ld.Counsel for the assessee submitted that assessment for assessment year 2011-12 in the case of assessee was reopened and notice under section 148 of the Act dated 28/03/2018 was issued to the assessee. During the period relevant to the assessment year under appeal, the assessee company had allotted 20,80,000 shares having face value of Rs.1/- each at a premium of Rs.99/- per share to Shri Ramesh Jain and Shri Rishabh Jain. Both the aforesaid persons were directors and the only shareholder of the assessee company. In reassessment proceedings the Assessing Officer held that the share capital of Rs.20,80,000/- and share premium of Rs.19,60,20,000/- introduced by the shareholders cum Directors of the company in assessment year 2011-12 were in fact their unaccounted money received from M/s. Suvidha Trading Pvt. Ltd. The Assessing Officer treated the aforesaid amount of share capital and share premium as unexplained cash credit under section 68 of the Act . The assessee against the assessment order dated 24/12/2018 passed under section 143(3) r.w.s. 147 of the Act filed appeal before the CIT(A). During the pendency of appeal proceedings, the PCIT issued notice under section 263 of the Act dated 08/03/2021 on the presumption that transaction of accommodation entries do entail unaccounted payment of commission, therefore, the Assessing Officer ought to have been made disallowance under section 69C of the Act towards such unaccounted commission and should have brought to tax such commission under section. 69C of the Act. Since, the Assessing Officer has failed to invoke the provisions of section 69C of the Act, the assessment order is erroneous and prejudicial to the interest of Revenue. The PCIT on wrong assumption of facts issued notice under section 263 of the Act and passed the impugned order. The ld.Counsel for the assessee submitted that the findings of PCIT that the assessee must have received commission are purely based on surmises and conjectures. There is no document on record to suggest that the assessee company has received commission. During the assessment proceedings it was held by Assessing Officer that Shri Ramesh Jain and Shri Rishabh Jain the directors of the assessee company and the only shareholders have introduced their unaccounted money by way of share capital and share premium, not admitting but presuming that it is the unaccounted money of the directors cum shareholders, there would be no reason for charging commission from them as they are the only shareholders and directors of assessee company. The PCIT has failed to point out as to what evidences were left out by the Assessing Officer indicating that there was payment of commission. The ld.Counsel for the assessee asserted that PCIT in exercise of revisional powers wants to thrust his opinion on the Assessing Officer. The opinion of the PCIT is solely based on surmises and conjectures without there being any documentary evidence. The ld.Counsel for the assessee in support of his submissions placed reliance on the decisions rendered in the case of CIT vs. Gabriel India Ltd., 230 ITR 108 (Bom).

Per contra, Shri Ajay Chandra representing the Department vehemently defended the impugned order. The ld.Departmental Representative submitted that the Assessing Officer while passing the assessment order failed to consider the fact that the transaction of accommodation entries entails payment of commission. The ld.Departmental Representative further pointed that commission charges was not subject matter of appeal by the assessee before CIT(A). It is only the issues which are subject matter of appeal before the CIT(A) that could not be raised in revisional proceedings. The ld.Departmental Representative prayed for up holding the impugned order and dismissing appeal by the assessee.

We have heard the submissions made by rival sides and have examined the orders of authorities below. The Assessing Officer passed the assessment order dated 24/12/2018 consequent to reopening of the assessment. A perusal fo the reasons recorded for reopening [at page -6 of the paper book] shows that the assessment of assessee company was reopened as the Jain Family was involved in introducing their unaccounted money by multi layering the transaction. Shri Ramesh Jain and Shri Rishabh Jain, Directors of the assessee company had received money from M/s. Suvidha Trading Pvt. Ltd. The same money was passed on to the assessee by way of capital and share premium which was further transferred to M/s. Crescent Entertainment & Tourism Ltd. for further investment in Khandesh Central Mall. The Assessing Officer in categorical terms held that the amount paid by Shri Ramesh Jain and Shri Rishabh Jain as share capital /share premium during the period relevant to the assessment year under appeal is treated as unexplained cash credited under section 68 of the Act. The findings of Assessing Officer are subject matter of appeal in separate proceedings, hence, we refrain to comment on the merits of the addition in proceedings arising under section 263 of the Act. Since, it was purportedly unaccounted money of the Directors cum only Shareholders of the assessee company, charging commission from own shareholders and directors for regularizing their unaccounted money is preposterous. Even otherwise, the PCIT has not referred to any documentary evidence which has been left out by the Assessing Officer which could suggest that the assessee has charged commission from the Directors/Shareholders. The entire findings of the PCIT are solely based on presumption. The PCIT has even assumed the rate of commission at 3% without even referring to any documents on record which suggest the rate of commission charged if any on such transaction of accommodation entries. The twin conditions necessary for exercising revisional jurisdiction i.e. the assessment order should be erroneous and prejudicial to the interest of Revenue are missing in the instant case. What appears from the impugned order is that the PCIT wants to thrust upon his own opinion that the assessee must have charged commission for providing accommodation entries. The powers conferred under section 263 of the Act are no unfettered and hence, does not give liberty to the PCIT to make additions merely on presumptions without there being any cogent material on record. We find merit in the appeal by the assessee, consequently, the impugned order is quashed and appeal by the assessee is allowed.