DEPUTY COMMISSIONER OF INCOME TAX, KOLKATA vs. PHPL PROPERTIES PVT. LTD., KOLKATA

PER RAKESH MISHRA, ACCOUNTANT MEMBER:

This appeal filed by the Revenue is against the order of the Commissioner of Income Tax (Appeals)-21, Kolkata [hereinafter referred to as Ld. 'CIT(A)'] passed u/s 250 of the Income Tax Act, 1961
(hereinafter referred to as ‘the Act’) for AY 2013-14 dated 26.12.2023, which has been passed against the assessment order u/s 153A/143(3) of the Act, dated 31.03.2016. 1.1. The Registry has informed that the appeal filed by the Revenue is barred by limitation by 170 days. A petition seeking condonation of delay has been filed by the Revenue giving sequence of events. It is submitted that there was a delay in filling of the Appeal by 158 days.
Therefore, it has been requested to condone the delay in filing appeal for the sake of substantial justice. Considering the application for I.T.A. No.: 1714/KOL/2024
Assessment Year: 2013-14
PHPL Properties Pvt. Ltd.
Page 2 of 20

condonation of delay and the reasons stated therein, we are satisfied that the Revenue had a reasonable and sufficient cause and was prevented from filing the instant appeal within statutory time limit. We, therefore, condone the delay and admit the appeal for adjudication.
2. The Revenue is in appeal before the Tribunal raising the following grounds of appeal:
“1. Whether the Ld. CIT(A) has erred in facts and in law by allowing the appeal of the assessee by deleting the addition of Rs. 1,23,50,000/- made by the AO under section 68 of the Act despite the assessee falling to establish the genuineness of the transactions and the identity and creditworthiness of the creditors?
2. Whether the Ld. CIT(A) has erred in facts and in law by allowing the appeal of the assessee by deleting the addition of Rs. 61,750/- made by the AO for payment of commission in lieu of providing accommodation entry?
3. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.1,23,50,000/- made by the AO under section 68 of the Act derived by the assessee from the pre-arranged transactions, since the Investor companies could not be traced at their recorded address. Therefore, there were strong indications that the so-called share applicants were mere paper entities and did not have the requisite capacity to advance the impugned amount. Hence, the assessee was a beneficiary of accommodation entry through private placements with paper entities, which is in the nature of organized tax evasion, and comes under exception as per clause (h) of section 3.1 of CBDT circular no. 5/2024 dated
15/03/2024, falling under the category of cases involving organized tax evasion including cases of bogus capital gain/loss through penny stocks and cases of accommodation entries.
4. The department craves the right to add, alter, amend or withdraw any ground of appeal before or at the time of hearing.”
3. Brief facts of the case are that a search and seizure action u/s 132(1) of the Act was conducted at the assessee’s premises on 07.11.2013 and on subsequent dates and survey operation u/s 133A of the Act was also conducted on the same date and/or on subsequent dates at the premises of the Dollar group. The assessee filed its return
I.T.A. No.: 1714/KOL/2024
Assessment Year: 2013-14
PHPL Properties Pvt. Ltd.
Page 3 of 20

of income on 30.09.2013 showing total income of ₹9,49,590/-. A notice u/s 153A of the Act was issued which was served upon the assessee and in response to which the assessee filed the return of income showing total income of ₹9,49,590/- which was the same as that originally declared in the return filed u/s 139 of the Act. Notices u/s 143(2) and 142(1) of the Act were issued. The assessee had issued
35,000 number of shares at a face value of ₹ 10/- and raised share capital of ₹3,50,000/- with share premium of ₹2,24,00,000/- at a premium of ₹640/- per share. On perusal of the list of investors, it was seen that the majority of share subscription had come from Parivartan
Enclave Pvt. Ltd. (“PEPL”) and Parivartan Residency Pvt. Ltd. (“PRPL”) having office at 7, Burnt Salt Gola Lane, Howrah. The Assessing Officer
(hereinafter referred to as Ld. 'AO') carried out investigation for ascertaining the genuineness of the share transactions and issued notice u/s 133(6) of the Act to the investor companies at the above address but in case of Parivartan Enclave Pvt. Ltd. and Parivartan
Residency Pvt. Ltd. notices came back with most of the remark “Not found”. In the course of post search investigation, the Investigation
Wing carried out investigation to verify the physical existence and to serve summon on the above referred investor companies by deputing departmental Inspector but both the companies could not be traced out at the recorded address. Subsequently, during the course of assessment proceedings that departmental Inspector was also deputed to make the spot enquiry regarding the physical existence of the investor companies i.e. PEPL and PRPL to serve summons on the directors of the above referred investor companies, but the Inspector’s report dated
04.02.2016 revealed that the above referred two investor companies had no existence at their recorded address. M/s. Parivartan Enclave Pvt.
I.T.A. No.: 1714/KOL/2024
Assessment Year: 2013-14
PHPL Properties Pvt. Ltd.
Page 4 of 20

Ltd. at invested ₹71,50,000/- and M/s. Parivartan Residency Pvt. Ltd.
invested ₹52,00,000/- in the shares of the assessee company. During the course of block assessment proceedings, the assessee company was asked to produce the director of each investor company who had subscribed in shares of the assessee company, in order to prove the genuineness, creditworthiness and existence of the investor companies, but the assessee failed to produce the directors of both the companies.
However, supporting documents with regard to share subscriptions made by the two applicants were filed. After considering the facts of the case and the judicial pronouncements in this regard, a sum of ₹1,23,50,000/- being the credits found in the case of Parivartan Enclave
Pvt. Ltd. and Parivartan Residency Pvt. Ltd. were held as own money of the assessee company shown in the garb of share capital/share premium and added back to the total income of the assessee u/s 68 of the Act. Another sum of ₹61,750/- on account of commission to the entry operators was also added and the sum was treated as commission paid out of unaccounted income. Another sum of ₹4,100/- towards preliminary expenses written off was added back to the income of the assessee which was related to the issue of raising of share capital and the total income was computed at ₹1,33,84,730/- and the book profit u/s 115JB of the Act was also computed at ₹9,68,880/- vide order u/s 153A/143(3) of the Act dated 31.03.2016. Aggrieved with the assessment order, the assessee filed an appeal before the Ld. CIT(A) who examined the facts of the case, the findings of the Ld. AO and partly allowed the appeal of the assessee by deleting the additions of ₹1,23,50,000/- and ₹61,750/- made by the Ld. AO. The discussion and findings of the Ld. CIT(A) are as under:
I.T.A. No.: 1714/KOL/2024
Assessment Year: 2013-14
PHPL Properties Pvt. Ltd.
Page 5 of 20

“I have carefully examined the impugned assessment order, the submissions of the appellant, the citations relevant to this appeal as well the other material on record. Thereafter, this appeal, ground-wise, is being disposed as under:
Ground 1
This ground agitates against the action of the AO in making addition u/s 68
of a sum of Rs. 1,23,50,000/- on account of share application money received on the ground that the share applicants were not found at the given address.
During the year under consideration the assessee company had raised share capital & premium amounting to Rs.1,23,50,000/-. The assessee company received share capital and premium of Rs. 71,50,000/- from M/s
Parivartan Enclave Pvt. Ltd. and Rs. 52,00,000/- from M/s Parivartan
Residency Pvt. Ltd. respectively.
In the course assessment proceedings details of share capital raised i.e., name & address of the share applicants, no of shares allotted and amount along with Form No-2 filed with ROC were submitted before the AO by the appellant. The appellant has in his submission has stated that the share application money was received through proper banking channels, and that the share holder companies had sufficient fund in their books of account for the purpose of investment & the investments are reflected in their books of account. The appellant has submitted the Bank account statements of the shareholders to confirm that the transactions were made through banking channels.
On perusal of the assessment order, it is observed that the AO made the additions on the following grounds.
i. The share subscribers were not found in the given address ii. The assessee did not produce the director of the subscriber company.
iii. Share applicant companies disclosed meagre income
The documents submitted by the appellant have been perused. From the audited books of account of the two share subscriber companies, viz. the following facts emerge:
Name of the Share Subscriber
Company
Total own funds as on 31.03.2013
1. M/s Parivartan Enclave Pvt.
Ltd.
Rs. 2,21,37,520/-
2. M/s Parivartan Residency Pvt.
Ltd.
Rs. 2,21,95,421/-
I.T.A. No.: 1714/KOL/2024
Assessment Year: 2013-14
PHPL Properties Pvt. Ltd.
Page 6 of 20

The appellant in its submission has stated that in the case of Parivartan
Residency Pvt. Ltd. (herein-after referred as PRPL), assessment u/s 144 for AY 2012-13 was completed on 19.03.2015 making addition of Rs.2,22,00,000/-, which was entire share capital raised during the FY
2011-12 (AY 2012-13). The Hon'ble ITAT D' Bench Kolkata vide order dated
27.02.2019 in ITA No. 449/Kol/2018. set aside the issue to the file of assessing officer for fresh adjudication. In pursuance to the said order of Hon'ble ITAT. the AO in the case of PRPL has completed the assessment and passed order u/s 143(3)/254 dated 30.12.2019, accepting the genuineness of the share capital and investment.
Similarly in case of Parivartan Enclave Pvt. Ltd. (herein-after referred as PEPL'), assessment u/s 144 for AY 2012-13 was completed on 19.03.2015
making addition of Rs.2,21,50,000/-, which was entire share capital raised during the FY 2011-12 (AY 2012-13). The Hon'ble ITAT ‘D’ Bench Kolkata vide order dated 27.02.2019 in ITA No. 44&'Kol/2018, set aside the issue to the file of assessing officer for fresh adjudication. In pursuance to the said order of Hon'ble ITAT. the AO in the case of PEPL has completed the assessment and passed order u/s 143(3)/254 dated 30.12.2019. AO accepting the genuineness of the share capital and investment.
In both these, cases orders were passed by the AO u/s 143(3) wherein these companies had duly complied and appeared before the AO. The appellant has also adduced evidences such as ROC data from MCA to establish that these share subscriber companies are active as on date and are filing income tax returns regularly. Copies of bank statements have also been filed by the appellant to establish that these transactions were made through banking channel.
In view of these discussions. I find that since both the share subscriber companies appeared before the AO recently in the set aside assessment proceedings and made the necessary compliance, the identity of these companies cannot be placed under doubt. Similarly the fund inflow of both these companies during the F.Y: 2011-12. has also been accepted by the AO during the course of set aside assessment proceedings, and it was these funds only which were invested by these share subscriber companies in the appellant company during the F.Y:2012-13, no doubt can be raised on the source of these funds as well as the share subscribing companies creditworthiness during the relevant year. The transactions were also made through banking channels and therefore these transactions are nevertheless genuine.
Owing to the above discussion. I cannot agree with the contention of the AO that the identity, creditworthiness and genuineness of the transaction were I.T.A. No.: 1714/KOL/2024
Assessment Year: 2013-14
PHPL Properties Pvt. Ltd.
Page 7 of 20

not proved. The addition of Rs. 1,23,50,000/- therefore cannot be sustained and stands deleted. This ground is allowed.
Ground 2 agitates against addition of commission on share capital to the tune of Rs.61,750/-. As per the adjudication made in Ground No. 1. the share capital cannot be held to be bogus, and therefore question of making addition towards commission on bogus share capital does not arise. The addition made on this count also stands deleted. This ground is allowed
Ground 3 raised against interest charged u/s 234A & 234B is consequential in nature and is disposed off with directions to the AO to recompute these interests as per law at the time of giving effect to this order.
Ground 4 against initiation of penalty u/s 271(1)(c) has not been pressed by the appellant. This ground is therefore dismissed.
Ground 5 is general in nature and needs no adjudication and does not need further adjudication.
In the result, the appeal is partly allowed.”
4. The appeal was accordingly partly allowed by the additions made on account of share capital and share premium were deleted. Aggrieved with the order of the Ld. CIT(A), the Revenue has filed the appeal before the Tribunal.
5. Rival contentions were heard and the submissions made have been examined. In the course of the appeal before us, it was argued by the Ld. DR that neither the ITIs could trace out the companies post search as well as during the course of the assessment proceeding nor the directors of the companies were produced and none of the three ingredients could be identified. The Ld. DR relied upon the decision of the Hon'ble Delhi High Court in the case of Commissioner of Income- tax, Delhi-V vs. N.R. Portfolio (P.) Ltd. [2013] 29 taxmann.com 291
(Delhi)/[2013] 214 Taxman 408 (Delhi)/[2013] 263 CTR 456
(Delhi)[21-12-2012] as well as in the case of CIT vs. Nipun Builders &
Developers (P.) Ltd. [2013] 30 taxmann.com 292 (Delhi)/[2013] 214
Taxman 429 (Delhi)/[2013] 350 ITR 407 (Delhi)/[2013] 256 CTR 34
I.T.A. No.: 1714/KOL/2024
Assessment Year: 2013-14
PHPL Properties Pvt. Ltd.
Page 8 of 20

(Delhi)[07-01-2013] and also in the case of Balgopal Merchants (P.)
Ltd. vs. Principal Commissioner of Income-tax [2024] 162
taxmann.com 465 (Calcutta)/[2024] 468 ITR 136 (Calcutta)[13-05-
2024] and Commissioner of Income-tax, Kolkata-II vs. Trinetra
Commerce & Trade (P.) Ltd. [2016] 75 taxmann.com 70
(Calcutta)[15-09-2016] and Principal Commissioner of Income-tax
(Central)-2 vs. BST Infratech Ltd. [2024] 161 taxmann.com 668
(Calcutta)/[2024] 468 ITR 111 (Calcutta)[23-04-2024]. Our attention was drawn to paras 7 and 8 of the order in the case of N.R. Portfolio
(P.) Ltd. (supra) which are reproduced as under:
“7. In the present case, the assessee claimed that it received Rs. 35 lakhs from seven share applicants. Its assessment was reopened. The assessee did not attend the reassessment proceedings, and suffered an adverse order. On its moving an appeal, the Commissioner sought a remand report.
The remand report, an exhaustive 41 page document, discusses threadbare the opportunities granted to the assessee, to establish the identity and creditworthiness of the share applicants. The report highlights, among other facts, the following salient features:
(1) Share applications were received on 18.2.2004 but the shares were sent to the parties only on 15.6.2004;
(2) The share applicants did not attend the proceedings despite summons under Section 131; most of the notices were received unserved;
(3) The assessee, which was a stock broker, did not show any transactions in that activity, but was receiving dividends. However, it did not declare any dividend, to its investors. Its financial condition was such that there was no need to infuse fresh share capital;
(4) The assessee's bank accounts showed large amounts of cash debits and credit entries.
8. This court is conscious of a view taken in some of the previous decisions that the assessee cannot be faulted if the share applicants do not respond to summons, and that the state or revenue authorities have the wherewithal to compel anyone to attend legal proceedings. However, that is merely one aspect. An assessee's duty to establish that the amounts which the AO proposes to add back, under Section 68 are properly sourced, does not cease
I.T.A. No.: 1714/KOL/2024
Assessment Year: 2013-14
PHPL Properties Pvt. Ltd.
Page 9 of 20

by merely furnishing the names, addresses and PAN particulars, or relying on entries in a