Loading judgment…
Facts
The assessee company declared a total income and claimed a refund. The case was selected for scrutiny, and a notice u/s 143(2) was issued. The AO made an addition of Rs. 2,50,00,00,000/- under section 68 of the Act as unexplained credits regarding share capital and premium received from SEZ Biotech Services Pvt. Ltd.
Held
The Tribunal found merit in the argument that the assessee had discharged its initial burden of substantiating the identity, genuineness, and creditworthiness of the investor. However, it was also noted that these evidences were not verified by the lower authorities.
Key Issues
Whether the assessee sufficiently proved the identity, creditworthiness, and genuineness of the share subscriber and whether the lower authorities erred in not verifying the provided documentary evidence.
Sections Cited
143(2), 142(1), 144B, 68, 250, 133(6)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B” BENCH, PUNE
Before: SHRI R.K. PANDA & MS. ASTHA CHANDRA
Assessment Year : 2022-23 Shreesomnidhi Infrasolutions DCIT, Circle – 8, Pune Private Limited, (Previously known as Hans Vs. Infrasolutions Private Limited), 505, 5th Floor Victory Landmark, Nasco Estate Sr. No. 111/10/7, Opp. Dmart Baner, N.I.A. S.O., Pune-411045 PAN : AAECH6318R अपीलार्थी / Appellant प्रत्यर्थी / Respondent Assessee by : Shri Paras Munot Department by : Shri Mallikarjun Utture Date of hearing : 05-02-2025 Date of 05-05-2025 Pronouncement : आदेश / ORDER
PER ASTHA CHANDRA, JM :
The appeal filed by the assessee is directed against the order dated 03.01.2025 of the Ld. Commissioner of Income Tax (Appeals)/NFAC, Delhi [“CIT(A)”] pertaining to Assessment Year (“AY”) 2022-23.
Briefly stated the facts are that the assessee is a private limited company. For AY 2022-23, the assessee e-filed its return of income on 18.10.2022 which was subsequently revised on 30.12.2022 declaring total income of Rs.27,50,800/- and claiming refund of Rs.80,49,910/-. The case of the assessee was selected for scrutiny under CASS. Accordingly, statutory notice(s) u/s 143(2) and 142(1) of the Act along with questionnaire were issued and served on the assessee calling for certain details/information/documents contained therein in respect of the share capital and share premium received in AY 2022-23. The assessee furnished its reply/submission in part before the Ld. Assessing Officer (“AO”). After considering the reply of the assessee, the Ld. AO completed the assessment on 22.03.2024 u/s 143(3) r.w.s. 144B of the Act by making an addition of Rs.2,50,00,00,000/- u/s 68 of the Act as unexplained credits in respect of the share capital and share premium received from SEZ Biotech Services Pvt. Ltd. for the reason that the assessee failed to prove the creditworthiness of the said shareholder and genuineness of the transaction undertaken by the assessee by furnishing the relevant documentary evidence thereof.
Aggrieved, the assessee filed an appeal before the Ld. CIT(A) challenging the above addition made by the Ld. AO. Before the Ld. CIT(A), the assessee filed detailed submissions which are incorporated in para 8 and 8.1 by the Ld. CIT(A) in his appellate order which includes the relevant documentary evidence filed by the assessee in respect of the shareholder of SEZ Biotech Services Pvt. Ltd. in order to prove the identity/ creditworthiness of the shareholder as well as the genuineness of the transaction between the parties. The Ld. CIT(A), however, upheld the action of the Ld. AO observing that the assessee failed to justify the transaction based on which the addition has been made by the Ld. AO by filing the supporting documentary evidence of SEZ Biotech Services Pvt. Ltd. in respect of share capital and share premium received from it by the assessee so as to prove the creditworthiness of the SEZ Biotech Services Pvt. Ltd. and the genuineness of the transaction. The relevant observations and findings of the Ld. CIT(A) is as under :
“During the course of assessment proceedings, the Assessing officer issued various notices for furnishing the requisite details in respect of fresh shareholder namely SEZ Biotech Services Pvt. Ltd., PAN-AAJCS5738D like Nature of business of fresh shareholder in detail, Computation of total income and ITR acknowledgement for A.Y. 2022-23 and A.Y. 2021-22, 2020- 21, Copy of Balance Sheet and P/L account with all its annexures forming part of Balance Sheet and P/L account for A.Y. 2022-23, Α.Υ. 2021-22 and A.Y.-2020-21, Copy of Balance Sheet and P/L account with all its annexures forming part of Balance Sheet and P/L account for A.Y. 2022-23, A.Y. 2021- 22 and A.Y.-2020-21, Prove with documentary evidences the source of fund and complete trail of funds with them, Complete copy of bank statements for the whole year duly reflecting the payments made, Prove with documentary evidence the creditworthiness of shareholder, Copy of share application received from the shareholder, Copy of register maintained in this regard, Copy of relevant page of bank account statement of the shareholders. In response to this notice the assessee filed its reply on 16.09.2023 and 06.03.2024. In its reply the assessee has submitted details in respect of share capital & share premium received for A. Υ. 2022-23 :- Sr. Name and PAN Numbe Amount Amount in received Total amount No address PAN r of received the in the of form of received in the form . of the shares form share share premium of share capital and investor/fresh allotted capital share premium shareholder from whom capital/share share premium received 1 SEZ Biotech AAJCS5738D 6217 Rs.62,170/- Rs.2,49,99,37,830/- Rs.2,50,00,00,000/- Services shares Private Limited (Address: 212, Hadapsar, off Sali Poonawalla road, Pune- 411028
However, the Assessing officer stated that the assessee has failed to furnish supporting documentary evidences of SEZ Biotech Services Pvt. Ltd. in support of share capital and premium received such as computation of total income and ITR acknowledgement for A.Y. 2022-23 and A.Y. 2021-22, 2020- 21, Copy of Balance Sheet and P/L account with all its annexures forming part of Balance Sheet and P/L account for A.Y. 2022-23, Α.Υ. 2021-22 and A.Y.-2020-21, prove with documentary evidences the source of fund and complete trail of funds with them along with complete copy of bank statements for the whole year of M/s SEZ Biotech duly reflecting the payments made, Copy of share application received from the shareholder, Copy of register maintained in this regard. Further, the Assessing officer issued the notice u/s 133(6) to M/s SEZ Biotech Services Pvt Ltd on 27.02.2024 for furnishing the requisite details. In response to the same, M/s SEZ Biotech Services Pvt Ltd has been provided only ledger of the assessee. No other documents as required by notice issued u/s 133(6) of the Act or as claimed by the assessee in its reply have been submitted. In view of the same, it is evident that the assessee failed to explain/justify creditworthiness of the shareholder and genuineness of the transactions as the assessee has not submitted any return of income, Bank statement and other financial. Therefore, the assessing officer was made addition amounting to Rs.2,50,00,00,000/- on the account of share premium received during the year as unexplained credits. During the course of appeal proceedings, the appellant has submitted the submission and same has been carefully examined. It is stated by the appellant that due to privacy policy & security reason, the share subscriber M/s SEZ Biotech Services Private Limited is unable to provide Bank Statements and Audit Report. In this regard, during the course of assessment proceedings also, the Assessing officer issued the notice u/s 133(6) to M/s SEZ Biotech Services Pvt Ltd on 27.02.2024 for furnishing the requisite details. In response to the same, M/s SEZ Biotech Services Pvt Ltd has provided only ledger of the appellant. No other documents such as return of income, Bank statement and other financial has been submitted neither the appellant nor M/s SEZ Biotech Services Pvt Ltd. During the appeal proceedings, no documentary evidences have been submitted by the appellant to verify the claim in-spite of multiple opportunities being provided by this office as stated above. In view of above facts and the considering the explanation of the appellant, it is clear that the appellant has failed to justify the transactions based on which addition was made to income during the assessment proceedings. Moreover, the appellant failed to furnish supporting documentary evidences of SEZ Biotech Services Pvt. Ltd. in support of share capital and premium received such as computation of total income and ITR acknowledgement for A.Y. 2022-23 and A.Υ. 2021-22, 2020-21, Copy of Balance Sheet and P/L account with all its annexures forming part of Balance Sheet and P/L account for A.Y. 2022-23, Α.Υ. 2021-22 and A.Y.-2020-21, prove with documentary evidences the source of fund and complete trail of funds with them along with complete copy of bank statements for the whole year of M/s SEZ Biotech duly reflecting the payments made, Copy of share application received from the shareholder, Copy of register maintained in this regard. In view of the same, it is evident that the appellant failed to explain/justify creditworthiness of the shareholder and genuineness of the transactions. The contention of the appellant remained unjustified and unsubstantiated. Hence, the Assessment Order is upheld the ground is noted as disallowed.”
Dissatisfied, the assessee is in appeal before the Tribunal raising the following solitary ground of appeal : “1. The Ld. Assessing Officer erred in law and in fact in making addition and Ld. CIT(A)-NFAC also erred in law and in fact in confirming addition of Share Capital along with its Securities premium Rs. 2,50,00,00,000/-as unexplained credits and added to the income of the assessee as per provisions of section 68 of the Act without considering factual position regarding creditworthiness of shareholder and replies during assessment proceedings.”
The Ld. AR submitted that all the requisite documentary evidence were filed before the Ld. CIT(A) as well the Ld. AO by the assessee in support of its claim to establish all the three core ingredients of section 68 of the Act i.e. the identity, creditworthiness of the shareholder and genuineness of the transaction. He submitted that the same is evident from the appellate order of the Ld. CIT(A) itself wherein he has recorded the written submissions filed by the assessee during the appellate proceedings before him which inter alia includes all the details/ information/documents relating to SEZ Biotech Services Pvt. Ltd as mentioned therein. He, therefore, submitted that the observations and findings of the Ld. CIT(A) that the assessee has failed to prove its claim by not furnishing the required supporting documentary evidence is not correct. He also referred to the valuation report submitted by the assessee before the Ld. AO the very fact of which has been recorded by the Ld. AO himself in his assessment order. The Ld. AR therefore submitted that the assessee has adequately proved the identity, creditworthiness of SEZ Biotech Services Pvt. Ltd. as well as genuineness of the transactions by furnishing the required supporting documentary evidence in respect of its claim. The Ld. CIT(A) has grossly erred in not taking the cognizance of the submissions/ documentary evidence furnished by the assessee during the assessment as well as appellate proceedings before him and dismissing the appeal of the assessee upholding the action of the Ld. AO for want of supporting documentary evidence.
5.1 In support of its claim, the Ld. AR relied on the following cases wherein it has been held that when the assessee has discharged its burden of substantiating the identity, genuineness of the transaction and the creditworthiness of the investor, which were unambiguously established by the assessee in respect of share capital and premium raised by issue of shares, addition under section 68 is not justified: (i) DCIT Vs. Mahalaxmi TMT (P.) Ltd. [2021] 128 taxmann.com 396 (Pune Trib.) (ii) DCIT Vs. Pali Fabrics P. Ltd. [2019] 110 taxmann.com 310 (Mumbai Trib.)
The Ld. DR supported the order of the Ld. CIT(A)/ AO, he however, argued that even if the pleading of the Ld. AR that all the required supporting documentary evidence of SEZ Biotech Services Pvt. Ltd. are available on records of the Department/lower authorities, is accepted, these evidences have not been verified either by the Ld. CIT(A)/AO. He, therefore, requested that the impugned issue may be set aside to the file of the Ld. CIT(A)/AO to verify the claim of the assessee. The Ld. AR, however objected to the above proposition of the Ld. DR contending that all the documents were already on record with the Ld. AO/CIT(A) and hence should have been taken into consideration at the time of proceedings before them.
We have heard the Ld. Representatives of the parties and perused the material on record, judicial precedents relied upon by the Ld. AR as well as the Paper Book containing 976 pages filed by the Ld. AR on behalf of the assessee. The facts of the case are not in dispute. Perusal of the appellate order of the Ld. CIT(A) as well the Paper Book of the assessee reveals that the assessee had filed the documentary evidence of SEZ Biotech Services Pvt. Ltd. in respect of the share capital and share premium received from it (pages 409 to 979 of the Paper Book refers). The assessee claims to have filed the following details / information / documentary evidence before the lower authorities to prove the identity, genuineness and creditworthiness of the share subscriber, SEZ Biotech Services Pvt. Ltd. The details of the documentary evidences furnished by the assessee have been recorded by the Ld. CIT(A) in the impugned order. (pages 22 and 23 of the appellate order refers):
c. Submission with respect to hearing notice u/s 250:
1. 1. Copy of ITR Acknowledgement of SEZ Biotech Services Private Limited is attached vide Annexure L.
2. Balance Sheet, Profit & Loss of SEZ Biotech Services Private Limited is attached vide Annexure II.
3. Connection with Shreesomnidhi Infrasolutions Private Limited (previously known as Hans Infrasolutions Private Limited): SEZ Biotech Services Private Limited had previously provided funds for the purpose of various ventures and projects to the company which subsequently paid back. SEZ Biotech Services Private Limited was aware of existing management & about the business operation of Shreesomnidhi Infrasolutions Private Limited (previously known as Hans Infrasolutions Private Limited) & hence expressed interest in the stake of company. Board of directors of both the companies after due consideration & negotiations decided to take infuse equity capital of 6217 shares @ Rs.10 Face Value (Premium of Rs. 4,02,113 per share) 4. Due to privacy policy & security reason, the share subscriber M/s SEZ Biotech Services Private Limited is unable to provide Bank Statements and Audit Report. In this regard, request your honour to take necessary information u/s 133(6) of the Act.”
In view of the facts and legal position enumerated above, we find some force in the argument advanced by the Ld. DR before us that the assessee has discharged its burden of substantiating the identity, genuineness and credit worthiness of the investor, i.e. SEZ Biotech Services Pvt. Ltd. by filing the supporting documentary evidence before the Ld. CIT(A)/ AO. It is however also an admitted fact that these evidences have remained to be verified by the Ld. AO as well as Ld. CIT(A). In this view of the matter, we deem it fit, to set aside the impugned order of the Ld. CIT(A) and remand the impugned issue back to the file of the Ld. AO to decide the same afresh on merits as per facts and law after due examination and verification of the claim of the assessee in the light of the submissions/ details/documentary evidence furnished by the assessee which is ready available on the records of the Department and such other additional details/ documentary evidence as may be called upon by the Ld. AO and/or furnished by the assessee during the fresh proceedings before him. Needless to say, the assessee shall be provided with the adequate opportunity of hearing by the Ld. AO and the assessee shall also provide the requisite support in terms of submitting the relevant documents/evidence as may be required/called upon during the fresh proceedings before the Ld. AO without seeking adjournment on the appointed date unless otherwise required for reasonable cause, failing which the Ld.AO shall be at liberty to pass appropriate order as per law. The order of the Ld. CIT(A) is hereby set aside and the matter is restored back to the file of Ld. AO for de-novo adjudication on merits. We direct and order accordingly. The solitary ground of appeal (ground no.1) raised by the assessee is therefore allowed for statistical purposes.
In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on 05TH May, 2025.