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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI AMARJIT SINGH, JM & SHRI S. RIFAUR RAHMAN, AM
PER AMARJIT SINGH, JM: The assessee has filed the present appeal against the order dated 06.08.2020 passed by the Commissioner of Income Tax (Appeals)- Thane [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2012-13. 2. The assessee has raised the following grounds: - “1) The assessment order passed by the Id. Assessing Officer (AO) is invalid and bad in law. 2) (a) The Id. Commissioner of Income Tax (Appeals) [CIT(A)] erred in law and facts in confirming the action of the ld. Assessing Officer A.Y. 2012-13 [AO] in making addition of Rs.4,93,50,000/-, being share premium u/s. 56(2)(viib) of the Act.
(b) The ld. CIT[A] erred in law and facts in appreciating that since the share application money was utilised for advancing funds to Loha Ispat Ltd & Loha Commodities Ltd, the intrinsic value of the said companies was attributable to the shares of the appellant company.
(c) The ld. CIT[A] and AO erred in law and facts in not determining the intrinsic value of shares in accordance with Rule 11UA and merely adding the entire amount of share premium w/s. 56(2)(viib) of the Act.
3) The ld. Commissioner of Income Tax (Appeals) [CIT(A)) erred in law and facts in confirming the action of the Id. Assessing Officer [AO] in making addition of Rs.4,93,50,000/-; being the amount of share premium u/s. 68 of the Act without appreciating the facts of the case.
4) Without prejudice to above grounds, even if the version of the Id. AO and 1d. CIT(A) that the appellant company has siphoned the entire funds to its group companies namely M/s Loha Ispat Ltd and M/s. Loha Commodities Ltd is considered; then no addition u/s. 56(2) vii by 68 would be called for as the assessee company would then be only acting as a conduit in the whole transaction and cannot be stamped as the ultimate beneficiary.
5) The above grounds of appeal are without prejudice to one another and the appellant craves leave to add, alter, amend, delete or modify any of the above grounds of appeal.” A.Y. 2012-13
The brief facts of the case are that the assessee filed its return of the income on 26.09.2012 declaring total income to the tune of Rs.87,178/-. The case was selected for scrutiny under CASS. Notices u/s 143(2) & 142(1) of the Act were issued and served upon the assessee. The assessee did not appear before the assessing authority. The final notice dated 13.02.2015 was issued. Company C.A. attended the office but he was not having any authority. On appraisal of the P & L Account, it was observed that there was no receipt either from operational or other income and the only expenses debited was on account of preliminary expenses written off of Rs.4,07,786/- and after reducing allowable expenses u/s 35D loss to be carried forward was claimed of Rs.87,178/-. The appellant company collected the share premium of Rs.4,93,50,000/- from five parties i.e. namely M/s Matrix Systel P. Ltd., M/s. Kumaon Engg. Co. P. Ltd., M/s JMD Sounds Ltd. & M/s. Nimidhi Consultants P. Ltd. The assessee was asked to substantiate the claim but no explanation was received, therefore, share premium in sum of Rs.4,93,50,000/- was added to the income of the assessee u/s 68 of the Act. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who confirmed the addition, therefore, the assessee has filed the present appeal before us.
We have heard the argument advanced by the Ld. Representative of the revenue and has gone through the case filed carefully. The assessee did not appear before us despite issuance of number of notice. The address given to the office was found closed every time. There is no other address with us. Before going further, we deem it necessary to advert the finding of the CIT(A) on record: - A.Y. 2012-13 “5. There are two stark facts of the case which need to be brought to surface before proceeding with the grounds of appeal and merits of addition to income. These are:
The appellant company was incorporated on 17th January 1. 2012 and therefore it has been in existence only for 73 days during which a nominal amount has been spent as administrative expenditure and there are no receipts of revenue nature and yet, the company has received huge amount of premium of Rs. 4,93,50,000/on shares issued to non-promoters during this short span of 73 days. It is this amount which has been added to income and is the primary subject matter of appeal.
Sr. No. Date of Notice Comments 1 08.08.2013 143(2) notice
2 25.06.2014 142(1) notice 3 29.10.2014 142(1) notice 4 12.01.2015 142(1) notice 5 30.01.2015 Letter seeking explanation 6 13.02.2015 Show cause for ex-parte assessment 7 19.02.2015 This is an adjournment date. Substantiation of premium sought 8 03.03.2015 This is an adjourned date; Unauthorized person had attended without details required 9 10.03.2015 Final Show cause for addition
On two occasions, one chartered accountant did appear, which corresponds to adjournments reflected in table above but he had no A.Y. 2012-13 letter of authority and consequently the opportunity remained uncompiled. Assessing officer has categorically referred to Section 288 of the Act in this respect which is correct.
Ironically, in appeal proceedings the very first ground of appeal states that adequate opportunity has not been given. Other than the ground of appeal nothing has been said to substantiate the claim. It is further stressed that no case has been Made out before me that there were any specific reasons for non-compliance before assessing officer and yet request for additional evidence has been made which is discussed in subsequent paragraphs.
The position detailed above clearly reveal is that the order of assessment passed by assessing officer is an ex-parte order after giving a specific show cause proposing to make the order ex-parte. This was issued on 13th February 2015 There has not been any response to this show cause so logically an ex-parte order has to follow. The Assessing Officer has, in the body of assessment order, followed the pan of ex-parte order but in the table on top of the first page of assessment order and in the last paragraph of the order of assessment It has been inadvertently mentioned as an order u/s 143(3) of the Act. This may as well be a typographical error which remained to be corrected in any case this is a mistake and in my capacity as the appellate authority having co-terminus and co-extensive juri iction with that of assessing officer, | am correcting this mistake and hence forth this order shall be treated as passed u/s 144 of the Income Tax Act as an exparte order. I must add that the Law, ever emerging as it has been, has recently taken a turn towards “Substance over Form”. A.Y. 2012-13 This has been so categorically held by the Apex Court m recent judgments starting with the judgment in the case of Japan Airlines
“………the issue involved relates to the deduction of tax at source ('TDS'). In both the cases, assessees are foreign Airlines. One is Japan Airlines Company Limited (hereinafter referred to as the 'JAL') and the other is Singapore Airlines Limited (hereinafter referred to as the 'SAL'). As both are international Airlines, they are flying their aircrafts to various destinations across the world. Their services include inward and outbound air traffic to and from New Delhi as well. For landing the aircrafts and parking thereof at New Delhi Airport i.e. Indira Gandhi International Airport ('IGIA'), New Delhi, the Airports Authority of India ('AAI') which manages IGIA levies charges on these two Airlines. For payment of landing and parking charges in respect of its aircrafts, the two Airlines are deducting TDS under Section 194-C of the Income Tax Act, 1961 (hereinafter referred to as the 'Act'). The TDS under Section 194-C of the Act is deductible @ 2%. After deducting this TDS while making payment to AAI, the same is deposited with the Income Tax Authorities. The Income Tax Authorities, however, are of the view that the TDS is to be deducted under the provisions of Section 194-I of the Act which calls for deduction @20%. Thus, the dispute is as to whether TDS to be deducted under Section 194- C or under Section 194-I of the Act.
We may point out at this stage itself that in the appeal pertaining to JAL, it is the JAL which is the appellant as the High Court of Delhi by the impugned judgment dated 23.10.2008 has taken the view that the TDS is to be deducted under Section 194-I of the Act. In the other A.Y. 2012-13 appeal which involves SAL, it is the Commissioner of Income Tax/Revenue which has filed the appeals as the High Court of Madras in its judgment dated 13.07.2012 has taken contrary view holding that the case is covered under Section 194- C of the Act and not under Section 194-I of the Act thereof. The Madras High Court has taken the note of the judgment of the Delhi High Court but has differed with its view. Thus, the two judgments are in conflict with each other and we have to determine as to which judgment should be treated in consonance with the legal position and be allowed to hold the field.
For the sake of convenience, we are mentioning the facts of JAL's case, with the reiteration that the operations of the two Airlines on the basis of which the case is to be decided is identical.
JAL is a foreign company incorporated in Japan and is engaged in the business of international air traffic. It transports passengers and cargo by air across the globe and provides other related services. The assessement year involved in this appeal is the assessement year 1998-1999, corresponding to the financial year ending on 31.03.1998. The International Civil Aviation Organization ('ICAO') to which India is also a contracting state has framed certain guidelines and rules which are contained in the Airports Economic Manual and ICAO's Policies on Charges for Airports and Air Navigation Services. All member States abide by the guidelines and rules prescribed for various charges to be levied for facilities and services provided including landing/parking charges. A.Y. 2012-13 The AAI under the provisions of the Airport Authority of India Act, 1994 has been authorized to fix and collect charges for landing, parking of aircrafts and any other services and facilities offered in connection with aircraft operations at the airport and for providing air traffic services such as ground safety services, aeronautical communications and navigational aids, meteorological services and others at the airport.
JAL is a member of the International Air Transport Agreement ('IATA') and during the relevant year it serviced inward and oubound air traffic to and from New Delhi, India. The AAI levied certain charges on the JAL for landing and also for parking its aircrafts. The JAL paid the charges after deducting tax at source under Section 194- C of the Act. The JAL received letter dated 02.08.1996 from the AAI informing it that AAI had applied to the Income Tax Authorities for exemption from the tax deduction and were awaiting the clearance. It was further stated in the said letter that in the meanwhile JAL should deduct the tax on landing and parking charges @2% under Section 194-C. JAL, accordingly, starting making TDS @2%. In the relevant assessement year, it paid AAI a sum of Rs.61,60,486/- towards landing and parking charges. On this amount, TDS comes to Rs.1,57,082/- when calculated @2% which was deducted from the payments made to AAI and deposited with the Revenue. The JAL thereafter filed its annual return in Form 26-C for the financial year 1997-1998. The Assessing Officer passed an order under Section 201(1) of the Act on 04.06.1999 holding the JAL as an assessee-in-default for short A.Y. 2012-13 deduction of tax of Rs.11,59,695/- at source. He took the view that payments during landing and parking charges were covered by the provisions of Section 194-I and not under Section 194-C of the Act and, therefore, the JAL ought to have deducted tax @20% instead of @2%. The JAL filed the appeal against this order before the Commissioner of Income Tax (Appeals). The CIT(A) accepted the contention of the JAL and allowed the appeal vide order dated 31.01.2001, holding that landing and parking charges were inclusive of number of services in compliance with the International Protocol of the ICAO. The Revenue challenged the order of CIT(Appeals) by filing appeal before the Income Tax Tribunal. ITAT dismissed this appeal on 25.10.2004 confirming the order of the CIT(Appeals).
The Revenue persisted with its view that the matter was covered by Section 194-I and, therefore, dissatisfied with the orders of the ITAT, it went to the High Court by way of further appeal under Section 260A of the Act. Two questions were raised - (i) whether the Tribunal was correct in holding that the landing/parking charges paid by the JAL to the AAI were payments for a contract of work under Section 194-C and not in the nature of 'rent' as defined in Section 194-I; and (ii) whether the Tribunal was correct in law in holding that the JAL was not an assessee-in-default. The High Court allowed the appeal by answering the questions in favour of the respondent following its earlier decision in the case of United Airlines v. CIT[1]. In that case, the High Court had taken the view that the term 'rent' as defined in Section 194-I had a wider meaning than 'rent' in the common parlance as it included any agreement or arrangement for use of land. The High Court further observed that the use of land A.Y. 2012-13 began when the wheels of an aircraft touched the surface of the airfield and similarly, there was use of land when the aircraft was parked at the airport.
Special leave petition was filed against the aforesaid judgment of the High Court in which leave was granted and that is how the present appeal arises for consideration of the issue at hand.
Before proceeding further, it would be apposite to take note of the provisions of Section 194-C as well as 194-I of the Act. Insofar as Section 194-C is concerned, our purpose would be served by reproducing sub- section (1) which deals that the nature of payments on which tax at source is to be deducted. It reads as under:
“Section 194C. (1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to-
(i) one per cent. where the payment is being made or credit is being given to an individual or a Hindu Undivided family;
(ii) two per cent. where the payment is being made or credit is being given to a person other than an individual or a Hindu undivided family, of such sum as income-tax on income comprised A.Y. 2012-13 therein.” Section 194-I, on the other hand, which was in force at the relevant time, reads as under:
“Section 194-I Any person, not being an individual or a Hindu undivided family, who is responsible for paying to any person any income by way of rent, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of-
(a) fifteen per cent. if the payee is an individual or a Hindu undivided family; and (b) twenty per cent. in other cases.
“rent” means any payment, by whatever name called, under any lease, sub- lease, tenancy or any other agreement or arrangement for the use of any land or any building (including factory building), together with furniture, fittings and the land appurtenant thereto, whether or not such building is owned by the payee.” Since the main discussion in the impugned judgment rendered by the High Court of Delhi and also the High Court of Madras centres around the interpretation that is to be accorded to Section 194-I of the Act, we would first discuss as to whether the case is covered by this provison or not. In fact, even before us the main focus of the counsel for the assessees as well as counsel for the Revenue was on this very issue. Otherwise also, the fate of these appeals would depend on the answer to the question as to whether the case is covered by the provisions of Section 194-I of the Act or not. A.Y. 2012-13 Section 194-I of the Act, which was inserted by Finance Act, 1994 w.e.f. June 01, 1994, provides for deduction of tax at source in respect of payment of 'rent' by any person, other than an individual and a hindu undivided family, at the time of payment or credit, whichever is earlier. The rate at which deduction of tax is to be made at source is 20%. There have been amendments in this Section in the years 2002, 2007 and 2009 and with these amendments, the scope of this Section has been enlarged. However, as the assessement year in question is prior to 2002 and otherwise also, the later amendments have no bearing insofar as the assessees are concerned, it is not necessary to spell out the amendments made to this Section.
From the reading of this Section, it becomes clear that TDS is to be made on the 'rent'. The expression 'rent' is given much wider meaning under this provision than what is normally known in common parlance. In the first instance, it means any payment which is made under any lease, sub- lease, tenancy. Once the payment is made under lease, sub-lease or tenancy, the nomenclature which is given is inconsequential. Such payment under lease, sub-lease and/or tenancy would be treated as 'rent'. In the second place, such a payment made even under any other 'agreement or arrangement for the use of any land or any building' would also be treated as 'rent'. Whether or not such building is owned by the payee is not relevant. The expressions 'any payment', by whatever name called and 'any other agreement or arrangement' have the widest import. Likewise, payment made for the 'use of any land or any building' widens the scope of the proviso. A.Y. 2012-13 In the present case, we find that these Airlines are allowed to land and take-off their Aircrafts at IGIA for which landing fee is charged. Likewise, they are allowed to park their Aircrafts at IGIA for which parking fee is charged. It is done under an agreement and/or arrangement with AAI. The moot question is as to whether landing and take-off facilities on the one hand and parking facility on the other hand, would mean to 'use of the land'.
As pointed out above, the impugned judgment of the Delhi High Court refers to its earlier judgment in the case of United Airlines. Therefore, in order to ascertain the reasons that persuaded the High Court to take the view that it amounted to use of land, one has to scan through the reasons given in United Airlines case. In this case, the High Court held that the word 'rent' as defined in the provision has a wider meaning than 'rent' in common parlance. It includes any agreement or arrangement for use of land. In the opinion of the High Court, “when the wheels of an aircraft coming into an airport touch the surface of the airfield, use of the land of the airport immediately begins.” Similarly, for parking the aircraft in that airport, there is use of the land. This is the basic, nay, the only reason given by the High Court in support of its conclusion.
The Madras High Court, on the other hand, had a much bigger canvass before it needed to paint a clearer picture with all necessary hues and colours. Instead of taking a myopic view taken by the Delhi High Court by only considering use of the land per se, the Madras High Court examined the matter keeping wider perspective in mind thereby encompassing the utilization of the airport providing the A.Y. 2012-13 facility of landing and take-off of the airplanes and also parking facility. After taken into consideration these aspects, the Madras High Court came to the conclusion that the facility was not of 'use of land' per se but the charges on landing and take-off by the AAI from these airlines were in respect of number of facilities provided by the AAI which was to be necessarily provided in compliance with the various international protocol. The charges, therefore, were not for land usage or area allotted simpliciter. These were the charges for various services provided. The substance of these charges was ingrained in the various facilities offered to meet the requirement of passengers' safety and on safe landing and parking of the aircraft and these were the consideration that, in reality, governed the fixation of the charges. To our mind, the aforesaid conclusion of the High Court of Madras is justified which is based on sound rationale and reasoning.
We are convinced that the charges which are fixed by the AAI for landing and take-off services as well as for parking of aircrafts are not for the 'use of the land'. That would be too simplistic an approach, ignoring other relevant details which would amply demonstrate that these charges are for services and facilites offered in connection with the aircraft operation at the airport. To point out at the outset, these services include providing of air traffic services, ground safety services, aeronautical communication facilities, installation and maintenance of navigational aids and meteorological services at the airport.
Before the High Court of Madras, the assessee had filed the material in the form of Airport Economics Manual, the International Airports A.Y. 2012-13 Transport Agreement (IATA) to the contracting states on charges for airport and air navigation services. This material which was shown for our perusal as well, would candidly show that there are various international protocols which mandate all such authorities manning and managing these airports to construct the airports of desired standards which are stipulated in the protocols. The services which are required to be provided by these authorities, like AAI, are aimed at passengers' safety as well as on safe landing and parking of the aircrafts. Therefore, it is not mere 'use of the land'. On the contrary, it is the facilities, that are to be compulsarily offered by the AAI in tune with the requirements of the protocol, which is the primary focus.
For example, runways are not constructed like any ordinary roads. Special technology of different type is required for the construction of these runways for smooth landing and take-off of the aircrafts. According to ICAO, a runway is a “defined rectangular area on a land aerodrome prepared for the landing and takeoff of aircraft.” Runways may be a man-made surface (often asphalt, concrete, or a mixture of both) or a natural surface (grass, dirt, gravel, ice, or salt). Specialised kind of orientation and dimensions are needed for these runways which are prescribed with precision and those standards are to be adhered to. Further, there has to be proper runway lighting, runway safety area, runway markings etc. Technical specifications for such lighting, safety area and markings are stipulated which have to be provided. Insofar as runway lighting is concerned which is essentially used at airports that allow night landings, requires that there has to be Runway End Identification Lights, Runway End Lights, Runway Edge Lights, Runway Centerline Lighting System, A.Y. 2012-13 Touchdown Zone Lights, Taxiway Centerline Lead-Off Lights, Taxiway Centerline Lead-On Lights, Land and Hold Short Lights, Approach Lighting System etc. Technical specifications for all these lights have to be complied with. Same applies to runway markings. Runway markings and signs on most large runways include Threshold, Touch Down Zone, Fixed Distance Marks, Center Line etc. and all these have specific purpose. So much so, designs and quality of pavement on these runways are also to be taken compliant.
All these technical specifications keep in mind the basic fact, namely, on landing the aircraft is light on fuel and usually less than 5% of the weight of the aircraft touches the runway in one go. On take-off the aircraft is heavy but as the aircraft accelerates the weight gradually moves from the wheels to the wings. It is while the aircraft is being loaded and taxiing prior to departure, that the apron experience significant loads from aircraft weight.
We have emphasised the technological aspects of these runways in some detail to highlight the precision with which designing and engineering goes into making these runways to be fool proof for safety purposes. The purpose is to show that the AAI is providing all these facilities for landing and take-off of an aircraft and in this whole process, 'use of the land' pails into insignificance. What is important is that the charges payable are for providing of these facilities.
In fact, the charges which are taken from the aircrafts for landing and even for parking of the aircrafts are not dependent upon the use of the land. On the contrary, the protocol prescribes a detailed methodology of fixing these charges. Chapter 4 of Airport Economics Manual A.Y. 2012-13 issued by International Civil Aviation Organization deals with 'Determine the cost basis for charging purposes'. The charges on air- traffic which includes Landing Charges, Lighting Charges, Approach and Aerodrome Control Charges, Aircraft Parking Charges, Aerobridge Charges, Hangar Charges, Passenger Service Charges, Cargo Charges etc. are to be fixed applying the formulae stated therein. A reading thereof would clearly point out the cost analysis which is to be done for fixing these charges. Thus, when the airlines pay for these charges, treating such charges as charges for 'use of land' would be adopting a totally naïve and simplistic approach which is far away from the reality. We have to keep in mind the substance behind such charges. When matter is looked into from this angle, keeping in view the full and larger picture in mind, it becomes very clear that the charges are not for use of land per se and, therefore, it cannot be treated as 'rent' within the meaning of Section 194-I of the Act.
We, therefore, are of the considered opinion that the view taken by the Madras High Court is correct and we are unable to subscribe to the view taken by Delhi High Court in United Airlines case. The judgment in United Airlines case as well as the impugned judgment of the Delhi High Court are accordingly over-ruled.
At this stage, we would like to make one comment about the judgment of the Madras High Court. Madras High Court has given one more reason in support of its view that the charges paid by the Airlines to the AAI do not come within the definition of the 'rent' as defined under Section 194-I. The High Court has held that the words 'any A.Y. 2012-13 other agreement or arrangement for the use of any land or any building' have to be read eju em generis and it should take it colour from the earlier portion of the definition namely “lease, sub-lease and tenancy”. Thereby, it has tried to limit the ambit of words 'any other agreement or arrangement'. This reasoning is clearly fallacious. A bare reading of the definition of 'rent' contained in explanation to Section 194-I would make it clear that in the first place, the payment, by whatever name called, under any lease, sub-lease, tenancy which is to be treated as 'rent'. That is rent in traditional sense. However, second part is independent of the first part which gives much wider scope to the term 'rent'. As per this whenever payment is made for use of any land or any building by any other agreement or arrangement, that is also to be treated as 'rent'. Once such a payment is made for use of land or building under any other agreement or arrangement, such agreement or arrangement gives the definition of rent of very wide connotation. To that extent, High Court of Delhi appears to be correct that the scope of definition of rent under this definition is very wide and not limited to what is understood as rent in common parlance. It is a different matter that the High Court of Delhi did not apply this definition correctly to the present case as it failed to notice that in substance the charges paid by these airlines are not for 'use of land' but for other facilities and services wherein use of the land was only minor and insignificant aspect. Thus it did not correctly appreciate the nature of charges that are paid by the airlines for landing and parking charges which is not, in substance, for use of land but for various other facilities extended by the AAI to the airlines. Use of land, in the process, become incidental. Once it is held that these charges are not covered A.Y. 2012-13 by Section 194-I of the Act, it is not necessary to go into the scope of Section 194-C of the Act.”
In the present case the order undoubtedly conveys the substance to be that of an ex-parte order.
Having said so, the implications of an ex-parte orders needs to be looked into before going into the grounds of appeal taken up by appellant in appeal before me. It is emphasized that appellant has nowhere challenged the notice, the service thereof or the show cause proposing to make order ex-parte. There has not been „anything from appellant towards any excuses for not being able to attend before assessing officer in a period of time extending to almost two years. Therefore, there is no challenge to this exparte order and the consequences are enumerated hereunder. Consequently, the assesse appellant is in agreement with assessing officer as far as ex-parte character of the order is concerned. This is an extremely crucial fact and governs the scone of anneal, what can he decided in the present appeal and what cannot be decided herein, to which I now tum.
The judgment of Hon‟ble Bombay High Court in the case of Gauri Shankar Kedia reported in 49 ITR 655 is critical to deciding the issue of appeal proceedings and „scope in appeal of an order of assessment made under Section 144 of the Act, " ex-parte. | first take up the facts of the case before Hon'ble Bombay High Court.
In the case of Gauri Shankar Kedia: -
2 The case pertains to F.Y.1945-46 and is therefore decided under 1922 Act where the provisions were a little at variance with the A.Y. 2012-13 present Act but the principles that emerge are equally applicable to the provisions in the present Act in relation to an ex-parte assessment order. The facts as reported in the order of High Court are as under: -
“The ITO came to know that the assessee received certain amount by telegraphic transfer on 29-10-1945 from Bombay. On further inquiries, the ITO came to know that the assessee was carrying on business at Bombay. He, therefore, after obtaining the necessary sanction, affixed, a notice under section 34(1)(a) read with section 22(2) of the 1922 Act at the premises, where, according to the information received by the ITO, the assessee was carrying on business in Bombay. The assessee did not furnish any return of his income in response to the aforesaid notice. During the inquiries, the ITO further came to know that there were also other remittances from Bombay to the assessee's account and the extent of such transactions was quite a large one. In an assessment under section 23(4) of the 1922 Act, the ITO held that the amounts credited in the bank accounts represented the profits of the assessee in the business of speculation. This finding was based on the fact that the address of the assessee in Bombay was, in occupation of speculators. The ITO estimated the income of the assessee and completed the assessment under section 23(4) of the 1922 Act treating the assessee as a resident. Consequent on the assessment under section 23(4) of the 1922 Act, a notice of demand was issued, and was served at the same address. Thereafter the assessee made an application under section 27 of the 1922 Act, praying that the assessment made under section 23(4)(b) of the 1922 Act be cancelled and the ITO should proceed to make a fresh assessment after taking into consideration the objections raised by A.Y. 2012-13 him in his application under section 27 of the 1922 Act. In this application, the assessee contended that in the relevant assessment year, the assessee was residing in Jaipur only and, therefore, was a non-resident in the taxable territories ; that in that year, he had never come to Bombay, and it was also not correct that he was carrying on any business in Bombay, or that he had any taxable income accruing or arising to him in Bombay. He further stated in the application that it was not correct that he had any address in British India. The ITO dismissed the application of the assessee. The AAC dismissed the appeal of the assessee. On second appeal, the assessee contended that section 34 of the 1922 Act was not properly invoked in the case as the Income-tax Officer had no juri iction to make assessment; that the assessee was not carrying on business at Bombay; that the applicant was not a resident ; and that the estimate was excessive. The Tribunal held that the appeal before the Tribunal should be restricted to the quantum of assessment, and the question of juri iction of the ITO to make assessment could not be challenged in an appeal against the best judgment assessment under section 23(4) of the 1922 Act. The Tribunal further held that the ITO was justified in holding that the appellant was carrying on business in Bombay, and proceeding to make assessment on that basis. The Tribunal also held that the ITO was justified in concluding that the appellant was a resident in the taxable territories.
On reference :
HELD A.Y. 2012-13 When the order of assessment is made under section 23 of the 1922 Act, the right of appeal conferred by this section is confined to a challenge against the amount of income determined or the amount of tax determined. It is possible to say on the basis of the clause "or denying his liability to be assessed under this Act" that such an assessee could as well urge by way of an appeal that the provisions of the Act were not applicable to him. These are the only grounds on which the assessee, against whom an order of assessment under section 23(4) of the 1922 Act has been made, has a right of appeal. In the instant case, the Tribunal found that as a fact that the assessee was doing business in Bombay at the material time, and was also residing in Bombay at the material time. These being the facts found, the contention of the assessee that the provisions of the Act were not applicable to him, had little merit. The appeal which the assessee, therefore, had preferred against the best judgment assessment under section 23(4) of the 1922 Act would get necessarily confined to the two questions, namely, as regards the correctness or otherwise of the amount of income determined by the ITO and the correctness or otherwise of the amount of tax determined by the ITO. The Tribunal was, therefore, justified in not dealing with the contention of the assessee as regards the validity of the proceedings under section 34 of the 1922 Act.”
Hon'ble High Court placed reliance upon their own judgment in the case of Mauladi Ayub Firm v. CIT 1959 3° ITR 449 that in cases to which section 27 of the 4922 Act has application, the order made under sub-section (4) of section 23 of the 1922 Act could only be challenged in an appeal in respect of the quantum of income ar thea A.Y. 2012-13 quantum of tax as determined by the ITO and not on the ground of validity of the assessment.
4 That appeal, accordingly got confined only to the quantum of income and quantum of tax determined. It was not open to the assessee to raise any other contention in that appeal as regards the validity of the order made under section 23(4) of the 1922 Act.
The case has been decided in favour of the revenue.
5 In the case of Chotelal Goberdhan Das:
In the case of Chhotelal Gobardhan Das reported in 23 ITR 272, Hon'ble Allahabad High Court laid the foundation of appeals against ex-parte orders. This judgment was also under the 1922 Act and therefore dwells upon the legal scenario as then existing under Law. It was held that the ITO has a right under section 23(4) of 1922 Act to make a@ best judgment assessment. Against @ best judgment assessment under section 23(4) of 1922 Act, previous to the amendment made in 1939, there was an appeal, the assesses, however, had a right to make an application under section 27 of 1922 Act, explaining the reasons for his default and in case the ITO was satisfied that the assessee was prevented by sufficient cause, he was. entitled to set aside his previous order, cancel the assessment and proceed to make a fresh assessment, but in case he was not satisfied and refused the application under section 27 of 1922 Act, an appeal the AAC was provided under section 30(1) of 1922 Act. A.Y. 2012-13
6 Hon'ble Court have further observed that By the Amending Act of 1939 an appeal was provided against a best judgment assessment with the result that, after the said amendment, section 30 of 1922 Act provided for the appeals two appeals were envisaged —one against an assessment order passed under section 23(4) of 1922 Act and the other against an order passed under section 27 of 1922 Act (refusing to make a fresh assessment). An assessee may under section 30(1) of 1922 And appeal a an order of refusal to make a fresh assessment under section 27 of 1922 Act but where the ITO has made an assessment under section 23(4) of 1922 Act, or, has made a fresh assessment under section 27 of 1922 Act, the assessee could appeal under section 30(1) of 1922 Act and object to the amount of income assessed or the amount of loss computed or, to the amount of tax determined. The scope of the two appeals was, therefore, entirely separate and while, in the case of one, the question for consideration would be whether sufficient cause had or had not been made out for a fresh assessment, in the other it is accepted that the ITO was entitled to make the assessment under section 23(4} of 1922 Act and the dispute merely relates to the merits of the case, i.e., whether the amount assessed was in excess, or, whether the right amount of income-tax had been imposed on the assessee.
7 The Hon'ble High Court, dwelling upon the facts of the case observed that Section 33(1) of 1922 Act provides for an appeal by an assessee “objecting to an order passed by an AAC". The AAC had, in the case, passed two orders under section 31 of 1922 Act. The assessee had filed an appeal against the AAC‟s order which dealt only A.Y. 2012-13 with the question of quantum of the tax payable. He had filed no appeal against the order, which dealt only with the question whether the assessee had made out a sufficient case for a fresh assessment after setting aside the previous assessment order. It is clear from the facts of the case that an appeal challenging the ex-part order was not filed before the tribunal. This is critical for the purpose of the case in hand before me because in the present case no ground of appeal has been taken against the ex-part order passed by assessing officer. The nature of assessment has therefore been accepted by the appellant.
8 The Hon'ble High Court in the case under consideration before them have observed that The Tribunal therefore, had before it only an appeal against the order dealing with the quantum of the tax payable. They go on to assert that the appeal in the instant case related to the quantum of the tax payable and, in that appeal, the question whether there was sufficient cause for not complying with the previous notice did not arise, no appeal having been filed against the order under section 27 of 1922 Act though an appeal was provided for by the Income-tax Act.
9 In the circumstances in an appeal under section 33(1) of 1922 Act against an order passed under section 23(4) of 1922 Act, the validity of the assessment made under section 23(4) of 1922 Act could not be challenged when no second appeal against the order of the AAC confirming the order of the ITO passed under section 27 of 1922 Act refusing to cancel the assessment so made was filed. A.Y. 2012-13
10 It follows that when an order made as ex-parte has been accepted by the assessee appellant as to its character as being ex- parte, all that is possible under an appeal is to decide the quantum and nothing else. Every other argument taken up in appeal except on the quantum and the basis thereof is then beyond the scene of adjudication.
11 In the case of Sir Padampat Singhania:
A similar situation was considered by Allahabad High Court in the case of Sir Padampat Singhania reported in 24 ITR 141 where in the High Court after considering the facts of the case held as under (Last Para)
“The assessment being under Section 23(4) all that we are required to sae is whether the income-tax Officer's order was a reasonable order or he had made the assessment capriciously ---—.”
12 A reference to the judgment of Singh Engineering Works has been made by Hon'ble Court which needs particular attention here. | shall in the paragraphs to follow base my deciding arguments on the principle as laid out above. The head notes of the reported case make things amply clear by referring to provisions of the 1961 Act as under. A.Y. 2012-13 “Section 144, read with sections 146 and 246 of the Income-tax Act, 1961 {Corresponding to section 23(4) read with sections 27 and 30 of the Indian Income Tax Act, 1922] - Best judgment assessment - Assessees were assessed under section 23(4) of 1922 Act on their failure to submit certain account books — No application under section 27 of 1922 Act was filed by assessees for cancellation of assessment and for making fresh assessment — They however straightway filed appeals before AAC in aforesaid appeal entertain objection to assessment being made u/s 23(4) of 1922 Act - Tribunal held that AAC was not competent to entertain objection for assessment being made under section 23(4) of 1922 Act in proceedings other than those through section 27 of 1922 Act - Whether Tribunal was justified ~ Held, yes.”
13 There are several other judgments where similar proposition has been held by various Courts. Some of these decisions which are not elaborated here for the sake of brevity but nevertheless ae relied upon are as under:
Naba Kumar Singh Dudhuria 12 ITR 337 (CAL)
Sundermal & Co 68 ITR 27/ (AP)
HM Muthuwappa 46 ITR 1107 (MAD)
Girdhar Javer & Co. 24 ITR 540: p.p. 547 (BOM)
Arjan Das 112 ITR 480 (P&H)
SR Kalani 120 ITR 163 (MP) A.Y. 2012-13
14 In accordance with detailed discussion in preceding paragraph and placing reliance upon the judgments cited above | am adopting two simple principles for deciding an appeal against un order made ex-parte u/s 144 of the Act by the assessing officer in situations where the ex-parte character of the order of assessment is not under challenge and consequently by implication has been accepted by the assessee appellant:
Principle No. 1:
The assessment being under Section 23(4) all that we are required to see is whether the income-tax Officer's order was a reasonable order or he had made the assessment capriciously
“ Sir Padampat Singhania reported in 24 ITR 141 relying upon Allahabad High Court's own judgment in the case of Singh Engineering Works and other judgments referred above.
Principle No.2 :
Limitation of an appellate juri iction Is that the proprietary of best judgment assessment could not be questioned winen no steps had been taken for sett? aside the best judgment assessment “Gauri Shankar Kedia 49 ITR 665 (BOM) and other judgments referred above A.Y. 2012-13
Before proceeding, | find it necessary to dwell upon the request of appellant for admission of additional evidence which contain the details that they would have filed before assessing officer. The acceptability of additional evidence is governed by prescribed rules and are contained in Rule 46A which reads as under:
[Production of additional evidence before the [Deputy Commissioner (Appeals)] FAND Commissioner (Appeals)}.
46A. (1) The appellant shall not be entitled to produce before the [Deputy Commissioner (Appeals)], for, as the case may be, Commissioner (Appeals)), any evidence, whether oral or documentary, other than the evidence produce by him during the course of proceedings before the (Assessing Officer], except the following circumstances, namely:
(a)where the [Assessing Officer] has refused to admit evidence which ought to have been admitted; or where the appellant was prevented by sufficient cause from producing the evidence which he was called upon to produce by the [Assessing Officer} or (c) where the appellant was prevented by sufficient cause from producing before the [Assessing Officer] any evidence which is relevant to any groan of appeal; or A.Y. 2012-13 (d)where the [Assessing Officer] has made the order appealed against without giving sufficient opportunity to the appellant to adduce evidence relevant to any ground of appeal.
(2) No evidence shall be admitted under sub-rule (1) unless the [Deputy Commissioner (Appeals)] for, as the case may be, the Commissioner (Appeals)] records in writing the reasons for its admission.
The (Deputy Commissioner (Appeals) (or, as the case may be, the Commissioner (Appeals)] shall not take into account any evidence produced under sub-rule (1) unless the [Assessing Offices} has been allowed reasonable opportunity
(a)to examine the evidence or document or to cross-examine the witness produced by the appellant, or (b) to produce any evidence or document or any witness in rebuttal of the additional evidence produced by the appellant.
(4) Nothing contained in this rule shall affect the power of the [Deputy Commissioner (Appeals)] for, as the casa may be, lie Commissioner (Appeals)} to direct the production of any document. or the examination of any witness, to enable him to dispose of the appeal, or for any offer substantial cause including the enhancement of the assessment or penalty (whether on his own motion or on the "request of the [Assessing Officer}) under clause (a) of with-section (1) of section 251 or the imposing of penalty under section 271]
1 | find that the case of assessee does not fall under any of the provisions specified in the Rules. None have been claimed either. A.Y. 2012-13 Therefore, the request for admission of additional evidence cannot be accepted and stands rejected.
Conclusion:
In the present facts of the case the best judgment assessment has not been agitated against. There is no ground of appeal and no mention in any of the submission to this effect. The assessee has therefore accepted the veracity of the best judgment assessment. In view of the principles culled out above therefore | proceed to assess the best judgment of the assessing officer in quantifying the assessed, whether the its judgment is marred by capriciousness or not.
1 I find that the evidence before assessing officer is very specific. He has brought it our succinctly in his order of assessment. A corporate entity, the appellant assessee is incorporated on 17" January 2012 and therefore i has been in existence only for 73 days till the close of previous year relevant for assessment year under consideration. Ironically during this time there are no receipts and no payments effected by the company. A nominal expenditure on administrative matters has been incurred. And yet, even though the promoters had got shares at face value just a few days before, the non-promoters to whom shares have been issued have paid to the company a premium @ Rs. 2/per share and Rs. 190% per share which has been so observed by assessing officer in the order of assessment. The details are as under: A.Y. 2012-13
S. No. Partly Premium Per Share 1 The Two Promoters Nil 2 JMD Sounds Ltd. Rs.2/- 3 Nirnidhi Consultancy Pvt. Ltd. Rs.2/- 4 Matrex Syntel Pvt. Ltd. Rs.190/- 5 Kumaon Engg. Co. Pvt. Ltd. Rs.190/-
The aggregate amount of premium thus received by the company is a huge Rs. 4,93,50,000/and this when the net worth of the company is in the negative and there is no project to lead us to a discounted cash flow analysis. None has been brought on record. One critical limb of Section 68 requirements ... “the NATURE" of amounts credited in the books of account, has been thus categorically held by assessing officer ag not complied and consequently warranting attraction of the provision.
2 The A.O. has further gone on to the basic tenets of Section 68 of the Act, the requirements of explanation of the source of these credits in books of account In the course of assessment proceedings, despite repeated opportunities, no explanation has been offered before assessing officer.
3 The language of Section 68 with necessary stress provided is as below:
Section 68:
Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no A.Y. 2012-13 explanation about the nature and source thereof .... .... .... The sum so credited may be charged to income tax as the income of the assessee of that previous year: ...... ..."
4 In the present case both the requirements... explanation of the nature of credit and, explanation of the source of credit, have not been complied with at all. There is therefore a clean case for invocation of Section 68 of the Act which is exactly what the assessing officer has done in his order. This is perfectly justified the best judgment is in the facts of the case really the best and absolutely no element of capriciousness about it which could force me to look into the issues beyond what the AO has done. The requirements of Section 144 have been strictly complied with by assessing officer.
The AO has relied upon several judgments from various courts. In my wi om these are not required for the primary decision is on the first principles and there cannot be any element of doubt about the findings and conclusions of assessing officer therefore refrain from going into any of these. The appellant has also relied upon several judgments which are primarily on the issue of tenants of Section 68 and circumstances under which Section 68 ought not be invoked. But all these judgments are contingent upon the primary requirement of assessee giving explanation of source of credits and nature thereof which in the present facts are both missing. Consequently | do not find it worthwhile to dwell upon any of these judgments.
The assessing officer has also issued notices u/s 133(6) to the share-holders of the company to whom such huge premium has been paid but they also did not respond. A.Y. 2012-13 12 I now turn to the grounds of appeal taken up in the present appeal which are reproduced here as under:
The Grounds of Appeal:
On the facts and circumstances of the Appellant‟s case and in low the Learned Assessing Officer erred in passing an order without providing an adequate opportunity of being heard.
On the facts and circumstances of the Appellant's case and in law the Learned Assessing Officer erred in making an addition of a sum of Rs. 4,93,50,000/- as unexplained cash credit on account of share premium received by invoking the provisions of Sec 68 of the Income Tax Act, 1961. The appellant craves leave to alter, amend, withdraw or substitute any ground or grounds or add any new ground or grounds of appeal on or before the hearing.
1 The first ground of appeal is that adequate opportunity has not been granted. However, there is complete defiance of notices issued by assessing officer, one after the other and again and again, in a time span spread over almost two years. And the assessee has not cared even to respond, what to talk of comply with. And they are taking up a ground of appeal that adequate opportunity was not given by assessing officer. The Law ought to be having a provision to deal with frivolousness in grounds of appeal. Unfortunately, there are none. The ground of appeal is rejected as being devoid of any merits at all. A.Y. 2012-13
2 The second ground of appeal is against merits of addition made by assessing officer u/s 68 of the Act. I have already held that the manner of passing of order of assessment is an ex parte order and that substance has to prevail over form. | have also held that the best judgment of A.O. in the facts and circumstances of the case is absolutely justified without any blinkers of any sort. The addition therefore made by A.O. has to stand and the ground of appeal is rejected.”
We have gone through the finding of the CIT(A) above which has not been controverted by anyone before us. The assessee or the representative of the assessee did not appear before us. No document of any kind / material produced before us. No material is available on record on behalf of the assessee. Neither the assessee nor his representative appeared before us despite issuance of several notices. The notice received back with the „remarks‟ that the premise was closed. No other address is available on record. The facts are not distinguishable at this stage. Accordingly, we affirm the finding of the CIT(A) on these issues above, hence, these issues are decided in favour of the revenue against the assessee.
In the result, the appeal filed by the assessee is hereby dismissed. Order pronounced in the open court on 07/04/2022 (S. RIFAUR RAHMAN) (AMARJIT SINGH) लेखध सदस्य / ACCOUNTANT MEMBER न्यधनिक सदस्य/JUDICIAL MEMBER मुंबई Mumbai; ददनांक Dated : 07/04/2022 Vijay Pal Singh, (Sr. PS) A.Y. 2012-13
आदेश की प्रनिनलनि अग्रेनर्ि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. 3. आयकर आयुक्त(अपील) / The CIT(A)- 4. आयकर आयुक्त / CIT 5. दवभागीय प्रदतदनदध, आयकर अपीलीय अदधकरण, मुंबई / DR, ITAT, Mumbai 6. गार्ड फाईल / Guard file. आदेशधिुसधर/ BY ORDER, सत्यादपत प्रदत //// उि/सहधिक िंजीकधर /(Dy./Asstt.