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Facts
The assessee filed its return for AY 2012-13, which was selected for scrutiny due to a large share premium received. The AO made an addition of Rs. 13.95 crores under Section 68 for unexplained money/share premium, as the assessee allegedly failed to justify the identity, creditworthiness, and genuineness of the transactions, and could not produce directors.
Held
The CIT(A) deleted the addition under Section 68, finding that the assessee had discharged its initial onus by providing complete details, PAN, bank statements, and documents of active shareholder companies with substantial net worth. The Tribunal upheld the CIT(A)'s order, stating that mere non-production of directors is not a ground for addition when other evidence substantiates the transaction, relying on judicial precedents from the Calcutta High Court.
Key Issues
Whether the addition under Section 68 for unexplained share premium/capital was justified when the assessee provided comprehensive documentary evidence of the identity, creditworthiness, and genuineness of the share transactions, despite the non-production of directors.
Sections Cited
143(2), 131, 68, 142, 133(6), 143(3), 143
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Income Tax Appellate Tribunal, “B” BENCH: KOLKATA
Before: Shri Pradip Kumar Choubey&Shri Sanjay Awasthi]
ORDER / आदेश Per Pradip Kumar Choubey, JM:
This is the appeal preferred by the revenue against the order of Commissioner of Income Tax (Appeal)-21, Kolkata (hereinafter referred to as the Ld. CIT(A)] dated 25.06.2024 for AY 2012-13.
Assessment Year: 2012-13 Ritesh Properties Pvt. Ltd.
Brief facts of the case of the assessee are that the assessee filed its return of income for AY 2012-13 declaring total income of Rs. 6,960/-. The case of the assessee was selected for scrutiny with the reason large share premium received. A notice u/s 143(2) was issued and served on the company. From the statement of account submitted by the assessee company for AY 2012-13 it reflects that the assessee company during FY 2011-12 issued its share involving different entities against the high premium. The AO find that the assessee company is a closely held company in which public are not substantially interested. Hence notice u/s 131 were issued requesting the assessee to appear personally along with Principal Officer, Director of all the investors company and/or individual investor as the case may be, for the purpose of primarily verified identity, creditworthiness of the shareholders and genuineness of the transactions made by them in the assessee company. In spite of having opportunity the assessee failed to justify its return with evidence, as a result of which, entire amount of money received on account of issue of shares along with quantum of premium paid for issue of share as added back as unexplained money and AO has assessed the total income of Rs.13,95,69,960/-.
Aggrieved by the said order, the assessee preferred an appeal before the Ld. CIT(A) wherein the appeal of the assessee has been allowed by giving direction to the AO to delete the addition made u/s 68 of the Act.
Being aggrieved and dissatisfied the revenue has preferred an appeal before us.
The Ld. D.R challenges the impugned order thereby submitting following grounds of appeal: a) Whether the Ld. CIT(A) has erred in facts and in law by allowing the appeal of the assessee by deleting the addition the addition of Rs. 1,39,50,000/- made by the AO u/s 68 of the Act despite the assessee failing to establish the genuineness of the transactions and the identity and creditworthiness of the creditors. b) Whether Ld. CIT(A) has erred in law by acting in contravention of the established judicial precedence of CIT vs. Durga Prasad More [1971]
82. ITR Assessment Year: 2012-13 Ritesh Properties Pvt. Ltd. 540 (SC) followed in the case of Sumati Dayal vs. CIT [1995] 214 ITR 801:
80. Taxman
89. (SC) by deleting the addition of Rs. 1,39,50,000/-. c) That on the facts and circumstances of the case and in law, through the tax effect in this case below to the monetary threshold limit as laid down CBDT’s Circular NO. 5/2024 dated 15.03.2021, however, the case falls under exceptional clause in para 3.1(h) (cases involving organized tax evasion including cases of bogus capital gain/ loss through penny stocks and cases of accommodation entries) as mentioned this circular no. 5/2024 dated 15.03.2024. d) The revenue craves the right to add, alter, amend or withdraw any grounds of appeal before or at the time of hearing.
5. Contrary to that the Ld. A.R first of all opposed the appeal by submitting that the tax effect is less than monetary limit of filing of appeal by the department and according to him, there is nothing in the impugned order that the assessee is involved in organized tax evasion. The ld. Counsel submits that the appeal of the assessee does not fall within exceptional clause as submitted by the DR. On merit the Ld. A.R submits that the share capital raised by the assessee during FY 2011-12 was in fact raised from his group concern companies in which Shri Rajendra Kumar Newatia is the father of the assessee Shri Ashutosh Agarwal brother of Shivam Agarwal, Arun Kumar Agarwal and Biswanath Agarwal are all the closely related. No capital was raised during FY 2011-2 and this was the 5th year of operation of his company. The AR further submits that all the shareholder companies are still active in the MCA website and regularly filing their respective income tax returns. The Ld. A.R has also filed net worth of shareholder company. The Ld. A.R further submits that the Ld. CIT(A) has discussed the facts of the assessee elaborately and gave his finding after going over the factual position of the shareholder companies and also gave emphasis on the judicial pronouncement and then passed an order in favour of the assessee.
6. Upon hearing the submission of the counsel of the respective parties, we have perused the order passed by the Ld. CIT(A) and AO. On perusal of the assessment order it appears to us that the sole contention of the AO is that the assessee could not present the directors of all the six share applicant companies for the purpose of verification of the identity, creditworthiness of the shareholder applicant companies and genuineness Assessment Year: 2012-13 Ritesh Properties Pvt. Ltd. of the transaction made by them in the assessee company. It is pertinent to mention here that in course of assessment proceedings, the complete details of name and address of all the six share subscriber companies from whom share application money was raised towards allotment of 69750 equity shares were furnished by the assessee company. The details of name and their PAN of each of the six shareholders were provided to the AO along with companies of related documents such as their audited balance sheet, profit and loss account etc. The assessee has also furnished the copy of bank statement as well as bank statement of the share applicant companies towards investment in shares of the assessee company. The list of directors of shareholder company during FY 2011-12 is as follows:
Assessment Year: 2012-13 Ritesh Properties Pvt. Ltd. 7. It is further important to mention here that the assessee company has also submitted copies of income tax return of all the share applicant companies and all the share applicant concern are active and filing their ROC returns as well as income tax returns on regular basis. It is further pertinent to mention here that the share applicant companies are having substantial net-worth as submitted by the assessee company as below:
There is no dispute that the bank statement of all the share applicant company substantiating that the transaction towards raising share capital along with premium was made through banking channels. Now coming to the judicial pronouncement as discussed by the Ld. CIT(A) in its order at page 22 which deal thus- “In a very recent judgement, the Hon'ble Calcutta High Court in the case of PCIT Vs. 28.06.2023 Naina Distributors has decided the issue in favour of the assessee by holding that mere non-production of director cannot be the ground for making any addition in the hands of assessee u/s 68 of the Act. The operative part is reproduced as under: “After carefully considering the findings recorded by the Commissioner of Income Tax (Appeals)-7, Kolkata (Ld. CIT(A) in his order dated 21.09.2020 and the findings recorded by the learned Tribunal we find that the entire matter is fully factual. The learned tribunal has independently examined as to the genuinity of the transaction in the matter of raising share capital and the Tribunal noted that even during the assessment proceedings, the assessee has furnished all details ill respect of the share capital and share premium raised by the assessee besides the details of the investors by their submission dated 9.6.2014 in reply to the notice issued by the Assessing Officer under Section 142 of the Act dated 5.5.2014. The Tribunal also noted that the assessee had produced all documents, disclosed the names and addresses and PAN Numbers of the investors, copies of the share allotment advice, copies of the share application form, bank statement, statement giving details of share application, money receipt during the year, copy of Form No.2 evidencing return of allotment and copy of Form No.5 for increase in various capital. Further the assessing officer has issued notice to the investors under Section 133(6) on 11.06.2014 for carrying out independent verification of the transaction and those investors duly responded to those notice and filed the requisite details such as the number of shares subscribed, ledger account, bank statement, explanation for source of funds, income tax returns and audited financial statements and also assessment order framed under Section 143(3) of the Act in all the cases. The Tribunal further noted that in spite of such being the factual position, the only reason for making the addition in the hands of the assessee the director of the assessee company did not respond to the summons issued by the assessing officer under Section131 of the Act. The correctness of this was also considered by the learned Tribunal and it was held that non appearance of the director cannot be made a ground for addition in the hands of the assessee-under Section 68 of the Act when other evidence relating to the raising of share capital qua the share subscriber were available on record as furnished by the assessee and also cross verified by the assessing officer pursuant to the enquiry conducted in response to the notices issued under Section 133(6) of the Act. The learned Tribunal also referred to the decision of this Court in the case of Crystal Networks Pvt. Ltd. Vs. CIT reported in 353 ITR 171 (CAL). Thus we find that there is no question of law much less substantial question of law arising for consideration in this appeal. Accordingly, the appeal fails and is dismissed."
Assessment Year: 2012-13 Ritesh Properties Pvt. Ltd. The Hon. Jurisdictional High Court in PCIT v. Sreeleathers [2022] 143 taxmann.com 435 (Calcutta)took a similar view: "Section 68, read with section 143, of the Income-tax Act, 1961 - Cash credit (Loans and advances) - Assessment year 2015-16-During scrutiny proceedings, Assessing Officer noted that assessee-company had received certain unsecured loans from various companies out of which 13 were alleged paper companies having no worth and, thus, issued a show cause notice - Subsequently, assessee furnished various documents, however, same were rejected by Assessing Officer in a very casual manner and an assessment order was passed - It was noted that show-cause notice issued on assessee was only in respect of one lender company, namely, FGD - Assessee provided various documents in form of PAN card, income-tax acknowledgement, copy of bank statement, certification of incorporation, master data from register of companies, certificate of incorporation and annual account to prove FGD's identity and creditworthiness and genuineness of transaction However, Assessing Officer by relying on statement of one AKA, who was alleged operator of such bogus companies, brushed aside these documents on mere ground that they did not absolve assessee from his responsibility of proving nature of transaction - It was noted that statement of AKA was not recorded in presence of assessee nor an opportunity of cross-examination was provided to it - Whether where there was no evidence brought on record by Assessing Officer to connect statement of AKA with loan transaction of assessee said statement was of little avail and could not be basis of allegations - Held, yes Whether, further, since assessee had discharged its initial burden by providing documentary evidences and burden had now shifted to Assessing Officer, who failed to bring on record any reason in writing as to why these documents did not establish identity of lender or proved genuineness of transaction, impugned assessment order passed by casually brushing aside these evidences was utterly perverse and liable to be quashed – Held, yes [para 4 and 5] [matter remanded] 9. We further find that the Ld. CIT(A) in its order has held thus- The fact is that in the instant case the share application money was raised from six companies and the requisite documents to-establish the identity, genuineness and creditworthiness of these share applicant companies were submitted to the satisfaction of a prudent assessing authority. Once this was admittedly done by the appellant, he had discharged the onus cast upon him by law. Thereafter, the onus has shifted to the AO to either accept the evidence and/or reasoning adduced by the appellant, or to reject it based upon equally compelling evidence and or reasoning bringing on record why the evidence/ reasoning adduced by the appellant could not be acceptable to a prudent person. I find that while this onus has been satisfactorily discharged by the appellant, the AO has not brought on record any reasons for controverting the evidence and reasoning adduced by the appellant. It is observed that there are several judgments including that of the Hon’ble Jurisdictional High Court in favour of the appellant which underline the propositions of law that have driven the above discussions. These have been carefully studied and some have been cited in the earlier part of this order. The propositions elaborated therein have been used to make the above discussions. In this circumstances and for the reasons elaborately discussed above as well as respectfully following the judicial precedents especially that of the Hon’ble Jurisdictional High Court, I cannot lend support to the action of the AO in this regard and the addition made u/s 68 of the Act to the tune of Rs. 1,39,50,000/- is not upheld. This ground is therefore allowed.”
Assessment Year: 2012-13 Ritesh Properties Pvt. Ltd. 10. Going over the above discussion and on perusal of the order of Ld. CIT(A) we do not find any infirmity in the impugned order, accordingly, we dismiss the appeal of the revenue.
In the result, the appeal filed by the revenue is dismissed.
Order is pronounced in the open court on 15th May, 2025
Sd/- Sd/- (Sanjay Awasthi /संजय अव�थी) (Pradip Kumar Choubey /�द�प कुमार चौबे) Accountant Member/लेखा सद�य Judicial Member/�या�यक सद�य Dated: 15th May, 2025 SM, Sr. PS Copy of the order forwarded to: 1. Appellant- DCIT, Kolkata 2. Respondent – Ritesh Properties Pvt. Ltd. ,9th Floor, 4, Synagouge Street, Kolkata-700001 3. Ld. CIT(A)- 21, Kolkata 4. Ld. Pr. CIT- , Kolkata 5. DR, Kolkata Benches, Kolkata (sent through e-mail)