INCOME TAX OFFICER, WARD-6(1)(1), BENGALURU, BMTC BUILDING, KORAMANGALA, BENGALURU vs. SHUBHANKAR ESTATES PRIVATE LIMITED, BANGALORE, LALBAGH ROAD

The assessee has raised the following grounds of appeal: 1. Whether in the facts and circumstances of the case, the ld. CIT is right in law in deleting addition made u/s 68 of the Act without appreciating that the Assessing Officer had done necessary enquiries by issuing commission u/s 131(1)(d) of the Act?

Whether in the facts and circumstances of the case, the ld. CIT is right in law in deleting addition made u/s 68 of the Act without appreciating that the Assessing Officer issued Summons u/s 131 of the Act and the directors of the assessee company itself had been show caused to explain as to why addition u/s 68 of the Act should not be made? Shubhankar Estates Pvt. Ltd., Bangalore Page 2 of 11

Further, the revenue has raised following additional ground of appeal: “Whether in facts and circumstances of the case, the ld. CIT(A) is right in not considering the remand report duly submitted while submitted in compliance to directions of ld. CIT(A), while deciding the issue on merits.”

We have heard the both the parties on admission of additional ground. In our opinion, all the facts are already on record and there is no necessity of investigation of any fresh facts for the purpose of adjudication of above ground. Accordingly, by placing reliance on the judgement of Hon’ble Supreme Court in the case of NTPC Vs. CIT 229 ITR 383 (SC) we inclined to admit the additional ground for the purpose of adjudication as there was no investigation of any fresh facts otherwise on record and the action of the assessee is bonafide. 5. Brief facts of the case are that the assessee company filed return of income for the assessment year 2016-17 on 6.9.2016 declaring total income of Rs.5,11,930/-. The case was selected for complete scrutiny under CASS and accordingly notices u/s 143(2) as well as 142(1) of the Act were served on the assessee asking to furnish the details online through e-proceedings facility. In response to the said notices, the details were furnished by the assessee. During the course of scrutiny proceedings, it was noticed by the AO that the company had issued 1,41,500 shares @ Rs.234/- per share including premium at Rs.134/- per share during the financial year 2015-16. The total investment received is Rs.3,31,11,000/-. The assessee furnished the return of income of the investors along with audited financial statements for AYs 2015- 16, 2016-17 & 2017-18 along with bank statement. On verification of the statements received, it was observed by the AO as follows: Shubhankar Estates Pvt. Ltd., Bangalore Page 3 of 11 1. The same address for the investor companies were found. 2. The contact details given are also same. 3. Kolkata has a very distinctive place among the cities of India so far as accommodation entries is concerned. It is the hub of Jamakharchi/accommodation entry providers. 4. This led to suspicion on the nature of the investor companies. 5.1 In order to verify the veracity and genuineness of the investor companies and to gather evidence about the nature and actual expenses and business transaction of the companies, it was decided to issue commission to the investigation wing, Kolkata and accordingly, the AO issued a commission u/s 131(1)(d) of the Act to DDIT (Inv.), Investigation Wing, Kolkata requesting that an enquiry may be carried out to ascertain the existence of these companies. The ADIT (Inv.) Unit-2(3), Kolkata sent a report from which it appears that summons issued were not received and therefore, the existence and nature of the companies could not be verified. Further, the Kolkata Investigation wing had also carried out detailed investigation on various entry operators and the name of M/s. Isotech Tie-Up Pvt. Ltd. was found to be in its database. On receiving the report from the investigation wing, Kolkata summons u/s 131 of the Act were issued to different parties. During the course of assessment proceedings, the assessee submitted that these companies are genuine and hence provision of section 68 of the Act is not applicable in this case. The ld. AO however, did not accept the contention of the assessee due to the following reasons: 1. The companies were not operating from the address furnished to this office as reported by the ADIT (Inv.), Unit- 2(3), Kolkata. Shubhankar Estates Pvt. Ltd., Bangalore Page 4 of 11 2. Mere production of PAN number Income Tax Returns and Bank statement of a investor does not establish identity of a investor. 3. There are many companies operating from the same address and a screen shot from the web site of Zauba is placed for ready reference. 4. Shri Suresh Kumar Ramsisaria and Shri Karan Ramsisaria stated under oath that the company was incorporated in 2011 wherein they have invested in a property bought from Union Bank of India, Bangalore. This property is still under litigation and though the registration has been done, Debt Recovery Tribunal (DRT), Chennai has passed an order for invalidation of the auction. The assessee company is yet to receive the amount invested from the Union Bank of India. 5. Apart from this, there is no other business activity till date. 6. No prudent investor would make investment in such a company. 7. From the financials and bank statements of the company, it is observed that it is acting as a conduit of funds. 8. The report clearly mentions that the details called for was not furnished by the investor companies which further strengthens the fact that the creditworthiness and nature of these companies is questionable. 9. The share holders in the investor companies (i.e. PIYUSH FISCAL LIMITED, YASHMAN VYAPAAR LIMITED, ISOTECH TIE-UP PVT LTD AND RGF FINCOM PVT LTD.) are mostly related parties operating from the same premise. Therefore, the true nature and source of amounts entered in the book of assessee company cannot be explained satisfactorily and the genuineness of the transaction could not be established and hence the sum of Rs.2,65,82,400/- received from M/s. Isotech Tie Shubhankar Estates Pvt. Ltd., Bangalore Page 5 of 11 Up Private Limited, M/s. Piyush Fiscal Limited, M/s. Yashman Vyapaar Limited and M/s. RGF Fincom Private Limited (Rs.66,45,600/- each) on issue of shares is treated as unexplained cash credits u/s 68 of the Act and added back to the total income. 6. Again, aggrieved by the order of AO, the assessee preferred an appeal before the ld. CIT(A)/NFAC. 7. Ld. CIT(A)/NFAC allowed the appeal of the assessee with the following observations: Shubhankar Estates Pvt. Ltd., Bangalore Page 6 of 11 Shubhankar Estates Pvt. Ltd., Bangalore Page 7 of 11 Shubhankar Estates Pvt. Ltd., Bangalore Page 8 of 11

Aggrieved by the order of ld. CIT(A)/NFAC the revenue has filed the appeal before this Tribunal. 9. Before us, the ld. A.R. of the assessee vehemently submitted that the revenue appeal is liable to be dismissed as the ld. CIT(A)/NFAC has passed an order in favour of the assessee on the ground of absence of show cause notice in the impugned assessment framed u/s 143(3) of the Act. However, the revenue has not taken any grounds related to this. Further, ld. A.R. of the assessee supported the order of ld. CIT(A) and submitted that the ld. CIT(A)/NFAC after taking into consideration the networth as well as income tax return and the amount of tax paid by the investor company has rightly held that the same are genuine and therefore, prayed to dismiss the appeal of the revenue. 10. The ld. D.R. on the other hand, vehemently submitted that ld. CIT(A)/NFAC erred in deleting the addition u/s 68 of the Act without appreciating that the AO issued summon u/s 131 of the Shubhankar Estates Pvt. Ltd., Bangalore Page 9 of 11 Act and the Directors of the company had been show caused to explain as to why the addition u/s 68 of the Act should not be made. Further, ld. D.R. submitted that the AO had done necessary enquiries by issuing commission u/s 131(1)(d) of the Act and therefore, the ld. CIT(A)/NFAC erred in allowing the appeal of the assessee. Lastly, ld. D.R. submitted that the ld. CIT(A)/NFAC should have considered the remand report while passing the appellate order. 11. We have heard the rival submissions and perused the materials available on record. On going through the order of the Id. CIT(A)/NFAC, we take note of the fact that ld. CIT(A)/NFAC allowed the appeal of the assessee by considering the net worth of the investor companies as on 31.3.2016 by verifying audited balance sheet as well as ITR showing income of the investor companies along with the tax paid by them. Based on the above record, the CIT(A)/NFAC held that all the four companies are having sufficient financial capacity and means to invest in the shares of assessee company. Further, the ld. CIT(A)/NFAC observed that no single notice sent by the investigation wing had been returned unserved at the address of the investor companies. Further, the Id. CIT(A)/NFAC observed that there is no single notice u/s 133(6) of the Act issued from the AO to the above investor companies to verify the investment in share capital and the AO merely satiated on the information from investigation wing without making independent verification and examination. After careful consideration of above, the ld. CIT(A)/NFAC was of the opinion that addition u/s 68 of the Act is unwarranted. 11.1 Further, we also take a note of the fact that ld. CIT(A)/NFAC also quashed the assessment order by holding that the assessment order has been passed in breach of the CBDT instruction No.20/2015 which cast mandatory obligation on the part of the AO Shubhankar Estates Pvt. Ltd., Bangalore Page 10 of 11 to issue prior show cause notice before making additions in the assessment order. The ld. CIT(A)/NFAC held that it is trite law that CBDT instructions are binding upon AO and therefore, assessment framed by the AO in contravention of the CBDT instruction are liable to be quashed. 11.2 Thus, from the above, the ld. CIT(A)/NFAC not only allowed the appeal of the assessee on merits but also on the legal ground stating that the breach of CBDT instruction which cast mandatory obligation on the AO to issue prior show cause notice before making addition in the assessment order are liable to be quashed. On going through the grounds of appeal, we take a note of the fact that the revenue has raised mainly two grounds i.e. the ld. CIT(A)/NFAC erred in deleting addition without appreciating that AO had done necessary enquiries by issuing commission u/s 131(1)(d) of the Act and secondly the ld. CIT(A) erred in deleting addition without appreciating that the assessing officer issued summons u/s 131 of the Act and the director of the assessee company itself had been show caused to explain as to why addition u/s 68 of the Act should not be made. Further, the revenue has also raised additional ground that ld. CIT(A)/NFAC erred in fact and in law in not considering the remand report duly submitted in compliance to direction of ld. CIT(A)/NFAC while deciding the issue on merits. We find that the revenue has not raised any ground related to adjudication of legal issue by the ld. CIT(A)/NFAC. We are completely in agreement with the ld. CIT(A)/NFAC that assessment order has been passed in breach of the CBDT. instruction no.20/2015 which cast mandatory obligation on the AO to issue prior show cause notice before making additions in the assessment order. Failure to do so is a gross violation of principles of natural justice. Further, we are also of the opinion that CBDT instructions are binding upon the AO and therefore, we also held that the assessment framed by the AO in contravention of the CBDT instruction are liable to be quashed. Shubhankar Estates Pvt. Ltd., Bangalore Page 11 of 11 Since the revenue notably and admittedly has not assailed findings/ conclusion of ld. CIT(A) qua absence of show cause notice in violation of CBDT instruction No.20/2015 in which the ld. CIT(A)/NFAC considering this as principle issue held the impugned proceedings invalid and quashed the assessment framed & therefore, we are of the considered opinion that revenue appeal needs to be dismissed at the outset being infructuous/academic on this count alone. 12. In the result, appeal filed by the revenue is dismissed.

The Applicant 2. The Respondent 3. The CIT 4. The DR, ITAT, Bangalore. 5 Guard file