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Facts
The Revenue filed an appeal against the order of the CIT(A) which deleted an addition of Rs. 2,10,00,000 made by the AO under Section 68 of the Income Tax Act, 1961. The addition was made for unexplained share capital and premium. The AO contended that the assessee company had meagre income and turnover and thus could not attract substantial premium. The CIT(A) deleted the addition, finding that the assessee had produced sufficient documents to discharge the onus.
Held
The Tribunal noted that some documents were filed for the first time before it. While the AR argued that directors would appear before the AO, the Tribunal found merit in the AO's contention regarding the company's low income and turnover. Therefore, the Tribunal remanded the matter back to the AO for fresh examination of all material, including the examination of the Directors.
Key Issues
Whether the CIT(A) was justified in deleting the addition of share capital and premium under Section 68 of the Income Tax Act, 1961, without proper inquiry and consideration of evidence.
Sections Cited
68, 250, 147, 271(1)(c), 131, 143(2), 142(1), 161
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Income Tax Appellate Tribunal, “D” BENCH KOLKATA
ITO Ward-1(2), Kolkata, Aayakar Bhawan, P-7, Chowringhee Square, R. No. 18, 4th Floor, Kolkata - 700069 .....................…...…………….... Appellant vs. M/s KA Vanijya Pvt. Ltd., 1A, Grant Lane, 2nd Floor, Room No. 217, Kolkata - 12 ...............…..….................... Respondent [PAN: AADCK9958K] Appearances by: Assessee represented by : Vinod Jain, AR Department represented by : P.N. Barnwal, CIT-DR Ranu Biswas, Sr. DR Date of concluding the hearing : 28.01.2025 Date of pronouncing the order : 10.02.2025 O R D E R
PER SANJAY AWASTHI, ACCOUNTANT MEMBER:
1. In this case, there is a delay of more than and a year in filing of this appeal. The revenue has filed a petition for condoning the said delay as under:
“I, Malay Patra, son of Tapan Patra, aged about 47 years, by faith Hindu, by occupation Service, working for gain at Aayakar Bhawan, 7th Floor, P-7, Chowringhee Square, Kolkata 700069, do hereby solemnly affirm and say as follows:-
M/s KA Vanijya Pvt. Ltd.
That I am the Income Tax Officer, Ward-1(1), Kolkata of the appellant/petitioner above named and as such well acquainted with the facts and circumstances of the above case.
That the main reason for filling of appeal was because of the fact that the ASR was submitted after 12 months: 3. That there was a huge pendency of reopened cases u/s 147 of the 1.T. Act, 1961, those cases were time barred on 31.12.2019.
4. That the assessment record could not be located instantly. After several efforts, the record was ultimately traced out on 29.01.2020 and thereafter the ASR was submitted.
5. That the order of Ld. CIT(A) was received by the office on 07.11.2019 (copy enclosed) where there was a delay of 10 months. After, filling of the 2nd appeal on 19.03.2020 lockdown started from 22.03.2020. But inadvertently the date of service of communication of Ld. CIT(A) order was mentioned as 22.02.2020 in Form 36 6. That after the lockdown, restructuring was made by the Department on 13.08.2020 and Ward-1(2), Kolkata was merged with Ward -1(1), Kolkata. This condonation of delay petition is submitted with a request to accept the same. Solemnly affirmed by the said Malay Patra on this the 4th day of February 2025.” 1.1 Considering the facts mentioned in the above said petition, the delay is hereby condoned.
2. This appeal arises from the order of the Ld. Commissioner of Income Tax (Appeals)-17, Kolkata [hereinafter referred to as “the Ld. CIT(A)”] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”), dated 06.02.2019.
In this case, the Ld. AO vide order dated 23.03.2015 enhanced the income of the assessee by adding Rs. 2,04,75,000/- as unexplained cash credit. The Ld. AO has recorded a finding as under:
“It is clear from the entire proceedings that the subscribers to share capital and premium must be dubious due to which they preferred not to attend for deposition. Due to lack of details of share-holders, a comparative study of this company's profile was made for the three A.Y.s in which returns were filed. It was noted that the company filed its first return in A.Y.2011-12. During these three years, there appears to be no substantive business of the assessee. There was meagre total income and no turnover in this period. It is surprising that the company succeeded in attracting so high premium for its shares at such an early stage without any solvent track record and reputation in the market. It can be inferred from the above observations that it is a dummy company which was brought into existence merely for building share M/s KA Vanijya Pvt. Ltd. capital. Still another opportunity was provided on 27/02/2015 asking the reason for not treating fresh credits of share capital/premium as unexplained cash credits u/s.68. This letter is deemed to be received as it did not return unserved. But there was no compliance. In view of the above, the share capital/premium of Rs.5,25,000/- and Rs.2,04,75,000/-must be treated as unexplained cash credits u/s.68 and added back to the assessee's total income. It is to be noted here that the taxability of share capital/premium is further warranted by the observations of the ITAT, Kolkata Bench in Bisakha Sales Pvt. Ltd. in Paras 7.9 and 7.10. Penalty u/s.271(1)(c) is initiated on these amounts for concealment of income.” 2.1 However, this action of Ld. AO did not find favour with the Ld. CIT(A), who has discussed the fact that considerable number of documents were produced before the Ld. AO which were sufficient to discharge the onus cast on the assessee with respect to escaping the rigours of section 68 of the Act.
2.2 Aggrieved with the action of the Ld. CIT(A), the Revenue has filed the present appeal with the following grounds:
1. Whether the Ld. CIT(A) was justified in deleting the addition of Rs. 2,10,00,000/- made u/s 68 wherein the identity, genuineness and creditworthiness of investor company remained unsubstantiated as it failed to appear before A.O. against summons issued u/s 131 ignoring the decision of Hon'ble Supreme Court in the case of Pr. CIT(Central)-1 Versus NRA Iron & Steel Pvt Ltd in Civil Appeal No. of 2019 [Arising out of SLP (Civil) No. 29855 of 2018] 2. Whether the Ld. CIT(A) was justified in deleting the addition of Rs. 2,10,00,000/- without making any enquiry regarding identity, genuineness and creditworthiness of the investor company either through his own office or through the A.O. failing to follow the law as declared by Hon'ble Supreme Court in the case of Pr. CIT(Central)- 1 Versus NRA Iron & Steel Pvt Ltd in Civil Appeal No. of 2019 (Arising out of SLP (Civil) No. 29855 of 2018) 3. Whether on the facts and circumstances of the case and law the L.d. CIT(A) was correct in granting relief wherein assessee was under a legal obligation to prove the receipt of share capital/premium to the satisfaction of A.O. failure of which justified the addition of Rs. 2,10,00,000/- as held by Hon'ble Supreme Court in the case of Pr. CIT(Central)-1 Versus NRA Iron & Steel Pvt Ltd in Civil Appeal No. of 2019 [Arising out of SLP (Civil) No. 29855 of 2018] 4 The appellant craves leave to make any amend, addition, alternation, modification etc. of the grounds either before the appellate proceedings, or in the course of appellate proceedings.
3. Before us, the assessee has filed a paper book which contains documents which were produced either before the Ld. AO or the Ld. CIT(A). However, it is seen that as per the index to the paper book some documents 3.1 The Ld. DR vehemently argued that the Ld. AO was not convinced about the genuineness of the transactions since the assessee company did not have a viable business model to justify a considerable premium for its share. Also the directors did not present themselves for interrogation and confirmation.
3.2 The Ld. AR on the other hand, supported the finding of the Ld. CIT(A) and stated that all manner of documentation was presented before the authorities below to justify the transaction as also prove the creditworthiness etc expect of the impugned transactions. He also stated that the department’s reliance on the case law- NRA Iron & Steel Pvt. Ltd. reported in 412 ITR 161 (SC), was misplaced and the Ld. CIT(A) had passed a well-reasoned order.
M/s KA Vanijya Pvt. Ltd.
We have carefully heard the rival contentions and also gone through the documents placed before us. Right at the outset, it is worthwhile mentioning that item Nos. 15 to 24 filed with the paper book of which the index has been extracted (supra), are also relevant for ascertaining the genuineness of the transaction. Admittedly, these were not before any of the authorities below. The Ld. AR mentioned that the Directors would readily appear before the Ld. AO for examination and any verification that may be required. Furthermore, on perusal of the order of Ld. CIT(A) it is revealed that he has overly relied on the fact that the share applicants, prima facie, had means to invest in the shares of the assessee company. We find that the Ld. AO’s contention that the assessee company was having meagre income and turnover and hence would normally not attract a substantial premium over the face value of each share, has some merit on the face of it. Accordingly, we are persuaded to remand this matter back to the file of Ld. AO for fresh examination of all material that is available with the assessee, including examination of the Directors of the company. Thereafter the Ld. AO must arrive at a fair conclusion regarding the applicability, or otherwise, of section 68 of the Act. We direct accordingly,
With these remarks, the matter is remanded back to the file of the Ld. AO and the appeal of the Revenue is treated as allowed for statistical purposes.
Order pronounced in the court on 10.02.2025