ITO, JAIPUR vs. HIGH RISE PROPCON PVT. LTD., JAIPUR

PER VIJAY PAL RAO, JM :

These two cross appeals are directed against the order dated 18th November,

2016 of ld. CIT (A)-5, Jaipur for the assessment year 2012-13. The assessee is a private limited company and engaged in the business of real estate development and

share trading during the year under consideration. The assessee filed the return of income electronically on 30th September, 2012 declaring loss of Rs. 83,670/-. The case of the assessee was taken up for scrutiny and during the scrutiny assessment

2 ITA Nos. 91 & 99/JP/2017 M/s. High Rise Propcon Pvt. Ltd., Jaipur.

the AO noted that the assessee has issued shares at a premium of Rs. 390/- per

share of Rs. 10/- each to three parties as under :-

S.No. Name & address of the No. of Rate of share Total amount shareholder share allotted at premium 01. M/s. Diamention Mercantiles 6250 390/- 24,37,500/- Pvt. Ltd., 85,Netaji Subhas Road, Dal house, Kolkata- 700001. 02. M/s. Giltedge Vincom Pvt. Ltd., 3750 390/- 14,62,500/- 85, Netaji Subhas Road, Dal house, Kolkata-700001. 03. M/s. NR Vincom Pvt. Ltd., 2500 390/- 9,75,000/- 08, Ganesh Chandra Avenue, 1st Floor, Chandani Chowk, Kolkata- 700013. Total : 12500 390/- 48,75,000/-

The AO asked the assessee to furnish various details of the share applicants vide letter dated 23rd January, 2015. In compliance to the said letter, the assessee

furnished various documents in support of the claim that the transactions of issue of

shares at premium are genuine and the assessee received the share application

money through banking channel against which the shares were allotted to these

three companies. The AO did not accept the contention of the assessee and made

the addition of Rs. 48,75,00/- towards the premium received by the assessee against

the allotment of shares to these three companies. The assessee challenged the

action of the AO before the ld. CIT (A). The ld. CIT (A) after considering the facts of

the case and particularly the receipt of the share application money by the assessee

from these three parties come to the conclusion that so far as the share application

money received from two parties, namely, M/s. Diamention Mercantiles Pvt. Ltd. of

Rs. 25 lacs and M/s. Giltedge Vincom Pvt. Ltd. of Rs. 15 lacs, the assessee has

3 ITA Nos. 91 & 99/JP/2017 M/s. High Rise Propcon Pvt. Ltd., Jaipur.

furnished all the supporting evidence to substantiate the claim of genuineness of the

transactions and, therefore, the addition made by the AO in respect of these two

parties was deleted to the extent of Rs. 39 lacs being the share premium received

from these parties. However, the ld. CIT (A) has confirmed the addition of Rs.

10,00,000/- on account of the share application money received from M/s. NR

Vincom Pvt. Ltd. on the ground that the notice issued under section 133(6) by the

AO was received back unserved with the remarks that the party was not available at

the address. Hence both the assessee as well as the revenue are aggrieved by the

impugned order of ld. CIT (A) and filed these cross appeals. The grounds raised in

the cross appeals are as under :-

ITA No. 91/JP/2017 (REVENUE) :

(i) On the facts and in the circumstances of the case, the CIT (A) has erred in deleting the addition u/s 68 of Rs. 39,00,000/- without the assessee proving the creditworthiness of share subscribers and genuineness of the transactions.

(ii) The appellant craves leave to add, alter, amend, withdraw or insert any ground or grounds of appeal before or at the time of hearing of the appeal.

ITA No. 99/JP/2017 (ASSESSEE) :

1) That on the facts and in the circumstances of the case and in law, the ld. CIT (A) has erred in law in confirming the addition of Rs. 10,00,000.00 made by ld. AO on account of receipt of share application money from N R Vincom Pvt Ltd merely on the ground that Notice sent to share applicant company was returned unserved.

2) That on the facts and in the circumstances of the case and in law, the ld. CIT (A) was not justified in confirming the addition of Rs. 10,00,000.00 made by ld. AO on account of receipt of share application money from N R Vincom Pvt. Ltd. when the Appellant had discharged the onus cast by law on it by proving identity of share applicant company, their creditworthiness and genuineness and relying on the same set of documents furnished in respect of each share applicant company the ld.

4 ITA Nos. 91 & 99/JP/2017 M/s. High Rise Propcon Pvt. Ltd., Jaipur.

CIT (A) had deleted the addition made in respect of share application money received from Diamention Mercantiles Pvt ltd. and Giltgedge Vincom Pvt Ltd.

3) That the appellant craves the permission to add or to amend to any of ground of appeal or to withdraw any of them.

(A) has granted the relief of Rs. 39 lacs by deleting addition made by the AO under

section 68 of the IT Act in respect of two share applicants and hence the tax effect

in the revenue’s appeal is not exceeding Rs. 20,00,000/- as per CBDT Circular No. 3

of 2018.

appeal is less than 20 lacs which is prescribed threshold limit in terms of the CBDT Circular No. 3/2018 dated 11th July, 2018 issued in supersession of its earlier Circular

No. 21 of 2015 dated 10.12.2015.

record. It is observed that the demand/ tax effect in the Revenue’s appeal in

question is below Rs. 20.00 lacs. Under the powers vested by section. 268A(1) of the I T Act, CBDT has recently issued Circular No. 3/2018 dated 11th July,

2018 (F No. 279/Misc. 142/2007-ITJ(Pt) instructing the authorities

below that departmental appeal should not be filed before ITAT where

the demand/tax effect does not exceed Rs. 20 lacs. The circular is specifically

mentioned to be applicable for all pending appeals.

departmental appeals pending before ITAT where the demand/tax effect is not

5 ITA Nos. 91 & 99/JP/2017 M/s. High Rise Propcon Pvt. Ltd., Jaipur.

exceeding than 20 lacs should be either withdrawn or not pressed by the

departmental representatives.

CBDT circular. Since the tax demand in dispute in this departmental appeal is below

the limit set out by CBDT for the appeal, the appeal of the assessee is not

maintainable in view of CBDT Circular No. 3 of 2018 dated 11.07.2018. Accordingly

the appeal of the Department is dismissed as not pressed/withdrawn.

the addition sustained by the ld. CIT (A) in respect of the share application money of

Rs. 10,00,000/- received from M/s. N.R. Vincom Pvt. Ltd. The ld. A/R of the

assessee has submitted that though the AO made the addition in respect of the

share application money received from M/s. N.R. Vincom Pvt. Ltd. only to the extent

of Rs. 9,75,000/- being the premium component, however, the ld. CIT (A) has

enhanced the said addition by making a disallowance of entire amount of Rs.

10,00,000/-. He has further submitted that the only ground of sustaining the

addition by the ld. CIT (A) is that the notice issued by the AO under section 133(6)

was returned back unserved as the party was not available at the address whereas

the said notice was issued by the AO at the incorrect address. The ld. A/R has

submitted that the AO issued the notice under section 133(6) to M/s. N.R. Vincom Pvt. Ltd., O-8, Ganesh Chandra Avenue, 1st Floor, Chandani Chowk, Kolkata-700013 whereas the correct address of the said party is : O-8, Ganesh Chandra Avenue, 1st

Floor, Saha Court, Kolkata-700013. The ld. A/R has also referred to the assessee’s

letter dated 12.03.2015 at page 66 of the Paper Book and submitted that the

assessee had duly brought this fact to the knowledge of the AO that the notice

6 ITA Nos. 91 & 99/JP/2017 M/s. High Rise Propcon Pvt. Ltd., Jaipur.

issued under section 133(6) of the Act was at the wrong address and the correct

address was again furnished by the assessee though it was already on record. Thus

the ld. A/R has submitted that when the AO has issued the notice at a wrong

address then the non-receipt of the said notice cannot be a reason for disallowance

of claim of share application money.

7.1. The ld. A/R has further submitted that when the assessee has furnished the

confirmation from the said party on account of share application, allotment of shares

as well as the bank record of the assessee company to show that the amount was

received through banking channel, then the assessee had discharged its onus of

proving the genuineness of the transaction, identity of the creditor and

creditworthiness of the creditor. The ld. A/R has also filed a copy of Balance Sheet of M/s. N.R. Vincom Pvt. Ltd. and submitted that as per the Balance Sheet as on 31st

March, 2012 the said company was having sufficient funds for making the

investment and also the said investment was duly reflected in the Balance Sheet of

the said company. Hence, the ld. A/R has submitted that even if the AO was of the

view that the share applicant was not having the creditworthiness, the addition can

be made only in the hands of share applicant and not in the hands of the assessee.

In support of his contention, he has relied upon the following decisions :-

CIT vs. Oasis Hospitalities Pvt. Ltd. 238 CTR 402 (Delhi HC)

CIT vs. Devine Leasing & Finance Ltd. 207 CTR 38 (Delhi HC)

CIT vs. A.K.J. Granites Pvt. Ltd. 301 ITR 298 (Raj. HC)

7 ITA Nos. 91 & 99/JP/2017 M/s. High Rise Propcon Pvt. Ltd., Jaipur.

assessment order that the notice was issued to the said party being share applicant

at the address provided by the assessee and, therefore, if the assessee subsequently

comes out with a plea that the said notice was issued at incorrect address then there

was no time left with the AO at that point of time and, therefore, the assessee

himself is at fault in not furnishing the correct particulars. He has relied upon the

orders of the authorities below.

record. As it is apparent from the details of the share applications received by the

assessee from the three parties the address of M/s. N.R. Vincom Pvt. Ltd. is

mentioned in the said table of the assessment order reproduced in the foregoing

part of this order, the said address has been stated to be not a correct address. The assessee vide letter dated 12th March, 2015 has furnished the correct address of the

said company as under :-

M/s. N.R. Vincom Pvt. Ltd., 08, Ganesh Chandra Avenue, 1st Floor, Saha Court, Kolkatta-700013.

We further note that the address which is furnished by the assessee vide letter dated 12th March, 2015 was also available in the other records filed by the assessee

during the assessment proceedings which includes the copy of Board Resolution of

the assessee, copy of application form and the certificate of Incorporation of said

company M/s. N.R. Vincom Pvt. Ltd. Though the AO has noted this address based

on the particulars furnished by the assessee, however, when the assessee has

subsequently provided the correct address of the said company then the notice was

8 ITA Nos. 91 & 99/JP/2017 M/s. High Rise Propcon Pvt. Ltd., Jaipur.

required to be issued at the correct address to verify the genuineness of the

transaction as well as the creditworthiness of the share applicant. The ld. CIT (A)

has confirmed the addition made by the AO in para 3.5 as under :-

“ 3.5. As far as the third entity namely M/s. N.R. Vincom Pvt. Ltd. is concerned, it is observed that the notice u/s 133(6) sent to the said entity was returned back unserved and the said party was not found to be operating from the address given by the assessee. As a result, the primary onus was not discharged by the assessee since the AO could not verify the veracity of documents submitted in respect of the said entity in the absence of the correct address. The AO brought these facts to the notice of the assessee asking it to show cause as to why addition u/s 68 should not be made and also requested the assessee to produce the directors of the said company. In response, the assessee could still not give the correct address of the said entity. As a result, the assessee has failed to discharge the primary onus on it to prove the identity, genuineness and creditworthiness of the concerned entity since the failure to give the correct address has rendered the entire information submitted in respect of that entity as unverifiable. In similar circumstances, Hon’ble Delhi High Court, in the case of CIT v. Ultra Modern Exports P. Ltd. (2013) 40 taxmann.com 458 (Delhi) has held that where, in order to ascertain genuineness of assessee’s claim relating to receipt of share application money, AO sent notices to share applicants which returned unserved, however assessee still managed to secure documents such as their IT Returns as well as bank account particulars, in such circumstances, AO was justified in drawing adverse inference and adding amount in question to assessee’s taxable income u/s 68. Accordingly, the amount of Rs. 10,00,000/- received from M/s. N.R. Vincom Pvt. Ltd. is liable to be treated as unexplained cash credit

9 ITA Nos. 91 & 99/JP/2017 M/s. High Rise Propcon Pvt. Ltd., Jaipur.

u/s 68. Therefore the addition u/s 68 is restricted to Rs. 10,00,000/-. This ground is partly allowed.”

Thus it is clear that the ld. CIT (A) has observed that the failure on the part of the

assessee to give the correct address has rendered the entire information submitted

as unverifiable. We find that when the assessee has subsequently brought the

correct address on record and to the knowledge of the AO as well as the ld. CIT (A),

then the verification of the evidence submitted by the assessee could have been

done by issuing the notice under section 133(6) at the correct address provided by

the assessee. Accordingly, the in the facts and circumstances of the case and in the

interest of justice, we set aside this issue to the record of the AO for conducting a

proper enquiry and verification by considering the correct address furnished by the

assessee.

appeal of the assessee is allowed for statistical purposes.

Order is pronounced in the open court on 24/09/2018.

Sd/- Sd/- (foØe flag ;kno) (fot; iky jkWo ½ (VIKRAM SINGH YADAV ) (VIJAY PAL RAO) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member

Jaipur Dated:- 24/09/2018. Das/

10 ITA Nos. 91 & 99/JP/2017 M/s. High Rise Propcon Pvt. Ltd., Jaipur.

आदेश की प्रतिलिपि अग्रेषित@ब्वचल वf जीम वतकमत वितूंतकमक जवरू

सहायक पंजीकार@ Aेेपेजंदज. त्महपेजतंत

11 ITA Nos. 91 & 99/JP/2017 M/s. High Rise Propcon Pvt. Ltd., Jaipur.