MIRAGE CERAMICS PVT LTD.,MUMBAI vs. ACIT 12(3)(2), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, MUMBAI BEFORE SHRI VIKAS AWASTHY, JM AND SHRI PRASHANT MAHARISHI, AM ITA No. 2630/Mum/2019 (Assessment Year 2014 - 15) Mirage ceramics Private Limited The Assistant Commissioner of 7th floor, D Wing, Trade Income tax World 12(3)(2) Senapati bapat Marg , Aykar Bhavan Vs. kamla Mill Compound, M K Road Mumbai -400 013 Mumbai 20 PAN AAECM2513R (Appellant) (Respondent) PAN No. AAAFD0295J

Appellant by : None Respondent by : Shri C T Mathew SR DR Date of hearing: 23.02.2022 Date of pronouncement 23 .02.2022 : O R D E R PER PRASHANT MAHARISHI, AM: 1. This appeal is filed by Mirage ceramics Private Limited Mumbai (assessee/ Appellant) against the order passed by The Commissioner Of Income Tax (Appeals) – 21, Mumbai ( CIT (A)) dated 21st of January 2019 wherein appeal filed by the assessee against the assessment order passed under section 143 (3) Of The Income Tax Act (The Act) by The Assistant Commissioner Of Income Tax – 12 (3) (2), Mumbai [ the Ld AO] for assessment year 2014 – 15 was partly allowed. 2. The assessee is aggrieved by the above order and has raised following grounds of appeal.

i. Addition of alleged unexplained cash credit under section 68 of ₹ 78,600,000 on the facts and in the circumstances of the case, and also in law, the learned CIT – A erred in confirming the addition of ₹ 78,600,000 made by the learned assessing officer on account of alleged unexplained cash credit, being amount received by the appellant on issue of preferential capital. You’re appellant, therefore, prays the addition under section 68 of ₹ 78,600,000 be deleted. ii. Set off of current year’s loss and brought forward unabsorbed depreciation on the facts and in the circumstances of the case, and in law, the learned CIT – A ordinary object in the appellant’s contention of set off of the current year’s loss and brought forward unabsorbed depreciation against the above addition under section 68. You’re appellant, therefore, prays that the learned AO be directed to set off of the current year’s loss and brought forward unabsorbed depreciation as per the law. 3. Brief facts of the case shows that the assessee is a company engaged in the business of manufacturer and trader of ceramics and vitrified tiles. It filed its return of income on 22/11/2014 showing a loss of ₹ 22,208,015/–. The case of the assessee was picked up for scrutiny and notice under section 143 (2) was issued on 31/8/2015. 4. The learned assessing officer noted on perusal of the audit report that the assessee is in receipt of share capital of an amount of ₹ 78,600,000 from one party i.e. Pingle suppliers private limited having an office of 7A, Bentinck Street, old beings, 1st floor, room No. 105, Calcutta, West Bengal wherein 78,60,000 shares were issued for ₹ 78,600,000. For verification of the genuineness

of the transaction and creditworthiness of the party, the learned assessing officer issued notice under section 133 (6) to the above mentioned party, however no reply was received and the notice returned unserved. Thereafter the learned assessing officer issued a commission for local investigation under section 131 of the income tax act to The Assistant Director of Income Tax (Investigation), Kolkata on 22/11/2016. On 6/12/2016, the ADIT, Kolkata submitted his report stating that the physical existence of the party was not found at the said address. Thereafter assessee was asked to show cause why the said share capital of ₹ 78,600,000 should not be treated as unexplained cash credit under section 68 of the act. 5. On 20/12/2016, assessee replied that the directors of the above depositors are out of town and the details could be submitted when they arrive and sought adjournment. The assessee further stated that now the name of the above depositors has changed to Navkar Nivesh private limited and its present address is 81, Metcraft Street, Calcutta 700013. The ADIT investigation, Kolkata was once again contacted and asked to verify the genuineness of the above party at the new premises. According to his report dated 29/12/2016, even at the new address that party was not found. 6. As in assessment proceedings the assessee provided only Acknowledgement of the income tax return filed by the depositor and no information was received with respect to the notice under section 133 (6) of the act, The learned assessing officer noted that as the assessee has failed to prove the identity, creditworthiness of the party and genuineness of the transaction. He further noted that the assessee company was given an opportunity to produce above depositor either before the learned assessing officer or before the ADIT (investigation), Kolkata for verification and cross examination but the assessee has failed in

this regard. Thereafter, ld AO verified the Return of Depositor and noted that it has ₹ nil fixed assets and entire funds available with the company have been utilised for giving loans and advances in purchase of equity instruments in unlisted entities. He also noted that the directors of the depositor stays in some other city whereas the office of the depositor in some other city. Therefore the learned assessing officer reached at a conclusion that the depositor is a typical entry provider and which could not be found even after investigation by the ADIT (investigation) Calcutta. Therefore according to him the assessee has failed to prove the creditworthiness of the party and the genuineness of the transaction and therefore he made an addition of ₹ 78,600,000/– as unexplained cash credit under section 68 of the income tax act and passed an assessment order determining the total income of the assessee at ₹ 56,391,985/– under section 143 (3) of the act on 31 December 2016. 7. The assessee agreed with the order of the learned assessing officer preferred an appeal before the learned CIT – A. The learned CIT – A reached the conclusion that assessee has failed to provide any explanation for the credit appearing in the books of account and the capital contribution of ₹ 7.86 crores was nothing but bogus cash credit from Pingle suppliers Calcutta and hence the addition of ₹ 7.86 crores made under section 68 of the ITAT 1961 are fully justified, assessing officers action was confirmed. The 2nd ground raised before the learned CIT – A was that even if the addition of ₹ 7.86 crores was made in the hence of the assessee the assessing officers should have allowed the claim for set off of unabsorbed losses of the earlier years and unabsorbed depreciation. The learned CIT– A held that the provisions of section 72 provides about setting off of brought forward business losses against business income only and since the addition under section 68 of the act is a separate addition,

set off of brought forward business losses is not permissible. Similarly he confirmed disallowed the setting off of unabsorbed depreciation under section 32 of the income tax act. Accordingly the appeal of the assessee on this ground was dismissed however some other grounds were allowed. Therefore the assessee is agreed with that order and has preferred appeal before us. 8. Originally this appeal was fixed for hearing on 19/4/21 , however assessee remained unrepresented as none appeared on its behalf. Similar is the story on 27/5/21, 8/7/21, 26/8/21, 5/10/21, 1/12/21, 19/1/22 and also today. Thus after filing of the appeal the assessee remained unrepresented. The most of the notices issued by the registered AD post returned by the postal authorities with the remark ‘left”’. The registry at the direction of the bench, directed the learned assessing officer to serve the notice to the assessee. The report of assessing officer dated 28/10/2021 stated that the assessee is not available at the address mentioned in the records. As the assessee is not traceable, the notice has been served by affixture on 28/10/2021 at the address mentioned in the notice. Now neither the registry of ITAT or the respondent revenue Department has any other option to trace the assessee for this appeal. In view of this, we are left with no other alternative but to dispose of these appeals on the basis of material available on record. 9. The learned departmental representative vehemently supported the order of the learned assessing officer, CIT A and submitted that the assessee has failed to prove identity, creditworthiness of the depositor and also the genuineness of the transaction. He submitted that an assessee was given huge sum of ₹ 7.86 crores by a person who is allotted 78,60,000 shares of the assessee and assessee is not able to trace that particular person itself shows that the transaction is not genuine. He further stated

that even before the learned CIT A , assessee has not produced the details with respect to the depositor except the copies of the return of income of the above depositor. He specifically referred to paragraph No. 6 of the order stating that assessee produced its own share certificate dated 28th of March issued by the Assessee Company and copy of the Ledger account of the depositor from the books of the assessee as well as the bank account with bank of Baroda of the assessee. He submitted that these are all the evidence as produced by the assessee of its own and not of the depositor. He further referred that even the copy of the account was not confirmed by the creditor and therefore even the confirmation of the account was not provided. He further submitted that when the assessee has received such a huge sum from one company and even the assessee does not know the address of the party who deposited such a huge sum, this itself shows that the transaction is not genuine. He further relied on the decision of the learned CIT – A as well as the learned assessing officer. He further relied upon the decision of the honourable Supreme Court in case of NRA Iron and steel Co Ltd 103 Taxmann.com 48 (SC) wherein on identical facts and circumstances the addition made under section 68 by the learned assessing officer was confirmed. 10. We have carefully considered the contentions of the learned departmental representative and perused the orders of the lower authorities. The facts shows that assessee has received a sum of ₹ 7.86 crores from a company for allotment of 78,60,000 shares. On issue of notice under section 133 (6) of the act, at the original address given in the tax audit report, the notices remained unserved. The local investigation was also carried out by issuing commission under section 131 to the investigation Department in Kolkata who denied any fixed physical existence of the party at the given address. Thereafter the assessee was

confronted by issue of notice and assessee was directed to produce the shareholder either before the investigating authorities at Kolkata or before the assessing officer. The assessee stated that the directors of the depositor company are out of town and he will submit the necessary details as and when they arrive. Meanwhile the assessee submitted on 27/12/2016 a letter from a chartered accountant which stated that the name of the depositor has changed and the address of the depositor is now also different. The same commission of the investigation wing of the income tax, Calcutta was given commission however the report was received that even at the new address no such entity was found. As the assessee has only furnished the income tax returns of the depositor and no evidences were placed about the identity, creditworthiness of the above depositor, leave aside the genuineness of the issue of the above share capital, the learned assessing officer after noting return of income found that all the characteristics of an entry provider exist having NIL fixed assets and entire funds of the assessee utilised for giving loans and advances. Therefore the addition under section 68 of the act was made as assessee failed to discharge initial onus. On appeal before the learned CIT – A he held that there is an amendment to section 68 and a proviso is inserted with effect from 1 April 2013 which requires the assessee to prove the source of source of the sum invested. He further noted that despite the depositor investing such a huge sum of ₹ 7.86 crores did not ask for a seat on the Board of Directors of the company when the equity share capital of the assessee company was ₹ 5 crores and assessee is incurring losses consistently year after year. There was no mention of any terms regarding the preference share dividend to be paid. He further noted that the assessee is a private limited company and who has got such a huge sum deposited as share capital could not produce the investor before the learned

assessing officer or before the investigation Department Kolkata. The assessee even could not produce the confirmation of the creditor who has invested 7.86 crores as share capital. Though it is stated by the assessee before the learned CIT – A that it produced the return of income, audited accounts, bank statement, copy of share certificate, permanent account No. and copies of acknowledgement for filing of income tax returns for assessment year 2011 – 12 to 2016 – 17. The facts clearly shows that the case is identical to the issue decided by the honourable Supreme Court cited before us in NRA Iron & STell [ Supra] where the learned CIT – A, in that case looking at all these evidences , which are also before the learned CIT – A in the present case, deleted the addition. The reference can be made to paragraph No. 4 of that decision. Despite this fact the honourable Supreme Court noted that at the given address the parties did not exist and therefore there could not have been further investigation by the learned assessing officer. The assessee also did not produce the shareholder depositor either before the assessing officer or before The Assistant Director Of Income Tax (Investigation) Kolkata. The facts in the present case also are somewhat similar to paragraph No. 12 of the decision of the honourable Supreme Court wherein the parties could not be found at the addresses given and therefore the genuineness of the transaction was found to be completely doubtful. The return for a negligible taxable income filed by the depositors which creates doubt about the genuineness of the transaction. The learned CIT – A noted a peculiar aspect that the above sum of ₹ 7.86 crores were invested in lot of ₹ 20 lakhs which clearly shows that the initially funds were received as an advance but a letter on treated as preferential capital. The terms and conditions of the preferential capital whether those are redeemable, rate of dividend, nature of cumulative or

noncumulative dividend was not at all forthcoming. In view of above facts, uncontroverted findings of the lower authorities and absence of the assessee to produce any further evidence , despite repeated opportunities of hearing , we confirm the finding of the learned CIT – A wherein the addition made by the learned assessing officer under section 68 of the act of ₹ 7.86 crores is made. In view of this, ground No. 1 of the appeal is dismissed. Coming to the 2nd ground of appeal with respect to set off of 11. unabsorbed business losses and unabsorbed depreciation, we fully agree with the findings of the learned CIT – A that the provisions of section 72 speaks about setting off of brought forward business losses against business income only and as the above sum of ₹ 7.86 crores has been taxed under section 68 of the act, same cannot be said to be a business income and therefore the brought forward business losses cannot be allowed to be set off against that addition stop similarly is the case for the set off of unabsorbed depreciation under section 32 of the act. In view of this we do not find any infirmity in the order of the learned CIT – A in confirming the action of the learned assessing officer in not allowing set off of business losses carried forward and unabsorbed depreciation against the above addition. Accordingly ground No. 2 of the appeal is dismissed. 12. In the result appeal filed by the assessee is dismissed. Order pronounced in the open court on 23.02.2022.

Sd/- Sd/- (VIKAS AWASTHY) ( PRASHANT MAHARISHI) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER)

Mumbai, Dated: 23.02.2022

Sudip Sarkar, Sr.PS

Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A) 4. CIT DR, ITAT, Mumbai 5. 6. Guard file.

BY ORDER,

ue Copy//

Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Mumbai 13.