HILTON COMMODITIES PVT. LTD.,KOLKATA vs. ITO, WARD-5(3), KOLKATA

In the appellate proceedings the ld. CIT (A) after taking into consideration the reply of the assessee, which is extracted in Para 7 to 17 and also discussing the observations of the ld. AO, dismissed the appeal of the assessee by noting in Para 5.4 that the application for additional evidences filed under Rule 46A is rejected as the assessee has failed to demonstrate the sufficient cause under Rule 46A(1)(b) and (c) of the IT Rules, 1962 to allow such evidences. Thereafter, in Para 5.5, the ld. CIT (A) noted that the assessee was non-compliant during the assessment proceedings due to which the ld. AO considered the share premium/ share capital to the tune of ₹3,61,54,000/- as unexplained cash credit. In Para 5.6, the ld. CIT (A) noted that there were total 8 share subscribers from whom the assessee raised the share capital who did not have creditworthiness and also the assessee failed to furnish the documents to substantiate its claim and identity of the share subscribers and the genuineness of the transactions. The ld. CIT (A) also noted that even the summons was issued to Section 131 of the Act were not complied with by the Director of the assessee company as none of them attended. Thereafter, relying on the certain decisions, such as B.R. Petrochem (P.) Ltd. Vs. ITO [2017] 81 taxmann.com 424 (Madras), CIT vs. N.R. Portfolio (P.) Ltd.[2014] 42 taxmann.com 339 (Delhi) and CIT Vs.Nipun Builders & Developers (P.) Ltd.[2013] 30 taxmann.com 292 (Delhi), the ld. CIT

The ld. AR vehemently submitted before us that the assessment framed u/s 147/143(3) of the Act dated 28.04.2011, was invalidly revised by the ld. CIT (A) by giving general observations without specifically dealing with the case of the assessee as to how the order is erroneous and prejudicial to the interest of the revenue. The ld. AR referred to the revisionary order particularly page no.3 passed u/s 263 of the Act, wherein the ld. PCIT has discussed the facts of the case. We note from Para 4 wherein the PCIT stated that the ld. AO has not conducted a proper and requisite enquiries regarding identity and creditworthiness of the investors and mechanically passed the order without any application of mind and thus, the order is erroneous and prejudicial to the interest of the Revenue. In para no.5, the ld. PCIT referred to the objection dated 05.03.2014, wherein the assessee requested for another opportunity to file the final submissions. Thereafter on page no.7 para 2, the ld. PCIT stated that the assessee case was not viewed in isolation and under the similar facts and circumstances, orders u/s 148 of the Act have been passed in nearly 50 odd cases his charge, wherein similar revisionary orders were passed and the assessments were set aside.

The ld. AR thereafter referred to the evidences/material filed before the ld. CIT (A) by the assessee regarding the 8 share subscribers which comprised of share application, ITRs, audited financial statements, PAN Cards, allotments receipts, bank statements of source of funds, assessment orders, u/s 147/143(3) of the Act which are available at page no. 74 to 325 of the paper book. The ld. AR submitted that in all the cases of the subscribers, the assessment

The ld. AR further contended that considering of the evidences as filed in the paper book which were also available before the ld. AO proved the identity, creditworthiness of the subscribers and genuineness of the transactions and therefore, the provisions of Section 68 of the Act were wrongly invoked by the ld. AO and confirmed by the ld. CIT (A). In defense of his arguments, the ld. AR relied on the decision of co- ordinate Bench in case of ITO Vs. M/S Saktideep Suppliers Pvt Ltd. A.Y., 2013-14 and also the decision of the Hon’ble Jurisdiction High Court in the case of PCIT Vs. Shreen Hire Purchase Pvt Ltd. in ITAT/196/2024, IA No: GA/2/2024 order dated 20.12.2024.

The ld. DR on the other hand relied on the order of the lower authorities by submitting that assessee was not compliant before the ld. AO and therefore the ld. CIT (A) has rightly rejected the application under Rule 46A of the Rules when the ld. CIT (A) found that the conditions were not fulfilled by the assessee. The ld DR ,therefore, submitted that the assessee has failed to prove that they are in accordance with the Rules 46A of the ITAT Rules and therefore, the appeal of the assessee may kindly be dismissed.

After hearing the rival contentions and perusing the materials available on record, we find that the assessment framed u/s 143(3) of “We have heard Ms. Smita Das De, learned senior standing counsel appearing for the appellant/revenue and Mr. Abhratosh Majumdar, learned senior advocate appearing for the respondent/assessee. The short question which falls for consideration is whether the learned Tribunal was right in affirming the order passed by the Commissioner of Income Tax (Appeals)– 7, Kolkata [CIT(A)] dated 2.9.2020 by which addition made under Section 68 of the Act was set aside. We find that the CIT(A) while examining the correctness of the transaction had taken into consideration the parameters which have been laid down in various decisions of the Hon’ble Supreme Court as to how a matter should be examined when the assessing officer proposes to invoke this power under Section 68 of the Act. The broad principles which were laid by the Hon’ble Supreme Court in so far as the credits of the share capital/premium are that the assessee under a legal obligation to prove the genuineness of the transactions, the identity of the creditors and creditworthiness of the investors who should have financial capacity to make the investment in question to the satisfaction of the assessing officer, so as to discharge the primary onus. The second aspect is with regard to the duty of the assessing officer, wherein it was held that the assessing officer is duty bound to investigate the creditworthiness of the creditors/subscribers, verify the identity of the subscribers and ascertain whether the transaction is genuine or there are bogus increase of name lenders. If the enquiry and investigation reveal that the identity of the creditors to be dubious or doubtful or lack of creditworthiness then the genuineness of the transaction would not be established. As noticed above, the CIT(A) had in mind the broad parameters laid down by the Hon’ble Supreme Court and examined the factual position. There were seven subscribers whose creditworthiness was considered by the CIT(A) and in paragraph 4.3 of the order passed by the CIT(A) dated 2nd September 2020, the net worth of the companies have been set out. In paragraph 4.4 the CIT(A) noted that it is evident from the information furnished by the assessee filed out of the seven subscriber companies were subjected to assessment under Section 143(3) of the Act for the assessment year under consideration and in respect of two other assesses their returns were accepted by the assessing officer without any demur. Not stopping with that, the learned Tribunal took note of various decisions of the High Courts and has recorded that the assessing officer has not pointed out that the identity of the share applicants is not proved and/or the subscription made by them to the share capital of the assessee was not genuine and/or the source of investment was not fully explained to the satisfaction of “7. We have heard the rival submissions. The facts stated hereinabove remain undisputed and hence the same are not reiterated for the sake of brevity. It is not in dispute that the assessee had furnished all the details of all the share subscribing companies that were sought for by the ld AO. The ld AO issued notices u/s 133(6) of the Act on al the share subscribing companies and the same were duly served. All the shareholders responded to notice u/s 133(6) of the Act directly by sending the requisite details to the ld AO. The assessee received share capital of Rs 1,00,00,000 comprising of 10000000 equity shares of Re 1 each ; Rs 5,00,00,000/- comprising of share capital of 200000 equity shares of Re 1 each and share premium of Rs 249 per share. The total share capital and share premium received during the financial year 2011-12 was Rs 6,00,00,000/-. We find that all the shareholders had duly confirmed the transactions with the assessee company. The evidences which were filed before the ld AO with regard to this issue are as under:- a) Income Tax Return of the shareholders b) Audited financial statements of shareholder companies. c) Share Allotment Letters d) Copy of the bank account of the shareholders e) Transactions with the assessee duly highlighted in the bank statement. f) Evidences of source of source of the shareholders. g) Form of Application for Equity Shares h) Board Resolution for making investment in assessee company Following the said provisions, the co-ordinate bench of Allahabad Tribunal in the case of Anand Prakash Agarwal reported in 6 DTR (All- Trib) 191 held as under:- “The question that remains to be decided now is whether the subject matter of transfer was the asset belonging to the transferor/donors themselves. There is enough material on record which goes to show that there were various credits in the bank accounts of the donors, prior to the transaction of gifts, which undisputedly belonging to the respective donors themselves, in their own rights. No part of the credits in the said bank' accounts was generated from the appellant and/or from its associates, in any manner. The certificates issued by the banks are construable as evidence about the ownership of the transferors or their In view of the position of law as discussed above, it is always open for a borrower to contend, that even the “creditworthiness” of the lender stands proved to the extent of credits appearing in his Bank Account and he should be held to be successful in this contention.” 7.4. In the case of Nemi Chand Kothari vs CIT reported in 264 ITR 254 (Gau), the Hon'ble Guahati High Court has thrown light on another aspect touching the issue of onus on assessee under section 68, by holding that the same should be decided by taking into consideration the provision of section 106 of the Evidence Act which says that a person can be required to prove only such facts which are in his knowledge. The Hon'ble Court in the said case held that, once it is found that an assessee has actually taken money from depositor/lender who has been fully identified, the assessee/borrower cannot be called upon to explain, much less prove the affairs of such third party, which he is not even supposed to know or about which he cannot be held to be accredited with any knowledge. In this view, the Hon'ble Court has laid down that section 68 of Income-tax Act, should be read along with section 106 of Evidence Act. The relevant observations at page 260 to 262, 264 and 265 of the report are reproduced herein below:- "While interpreting the meaning and scope of section 68, one has to bear in mind that normally, interpretation of a statute shall be general, in nature, subject only to such exceptions as may be logically permitted by the statute itself or by some other law connected therewith or relevant thereto. Keeping in view these fundamentals of interpretation of statutes, when we read carefully the provisions of section 68, we notice nothing in section 68 to show that the scope of the inquiry under section 68 by the Revenue Department shall remain confined to the transactions, which have taken place between the assessee and the creditor nor does the wording of section 68 indicate that section 68 does not authorize the Revenue Department to make inquiry into the source(s) of the credit and/or subcreditor. The language employed by section 68 cannot be read to impose such limitations on the powers of the Assessing Officer. The logical conclusion, therefore, has to be, and we hold that an inquiry under section 68 need not necessarily be kept confined by the Assessing Officer within the transactions, which took place between the assessee and his creditor, but that the same may be In these facts and circumstances, there is no need to treat the receipt of share application money from five share applicants as unexplained u/s 68 of the Act. Hence we do not find any infirmity in the order of the ld The facts of Nova Promoters and Finlease (P) Ltd. (supra) fall in the former category and that is why this Court decided in favour of the revenue in that case. However, the facts of the present case are clearly distinguishable and fall in the second category and are more in line with facts of Lovely Exports (P) Ltd. (supra). There was a clear lack of inquiry on the part of the Assessing Officer once the assessee had furnished all the material which we have already referred to above. In such an eventuality no addition can be made under Section 68 of the Income Tax Act 1961. Consequently, the question is answered in the negative. The decision of the Tribunal is correct in law”

The case on hand clearly falls in the category where there is lack of enquiry on the part of the A. O. as in the case of Ganjeshwari Metals (supra). b) In the case of Finlease Pvt Ltd. 342 ITR 169 (supra) in ITA 232/2012 judgement dt. 22.11.2012 at para 6 to 8/ it was held as follows. "6. This Court has considered the submissions of the parties. In this case the discussion by the Commissioner of Income Tax (Appeals) would reveal that the assessee has filed documents including certified copies issued by the ROC in relation to the share application affidavits of the directors, form 2 filed with the ROC by such applicants confirmations by the applicant for company's shares, certificates by auditors etc. Unfortunately, the Assessing Officer chose to base himself merely on the general inference to be drawn from the reading of the investigation report and the statement of Mr. Mahesh Garg. To elevate the inference which can be drawn on the basis of reading of such material into judicial conclusions would be improper, more so when the assessee produced material. The least that the Assessing Officer ought to have done was to enquire into the matter by, if necessary, invoking his powers under Section 131 summoning the share applicants or directors. No effort was made in that regard. In the absence of any such finding that the material disclosed was untrustworthy or lacked credibility the Assessing Officer merely concluded on the basis of enquiry report, which collected certain facts and the statements of Mr.Mahesh Garg that the income sought to be added fell within the description ofS.68 of the Income Tax Act 1961. Having regard to the entirety of facts and circumstances, the Court is satisfied that the finding of the Tribunal in this case accords with the ratio of the decision of the Supreme Court in Lovely Exports (supra).

In the result, the appeal of the assessee is allowed.