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Income Tax Appellate Tribunal, KOLKATA ‘B’ BENCH, KOLKATA
Before: SRI MANISH BORAD & SRI SONJOY SARMA
order
: June 28th, 2022 ORDER
Per Manish Borad, Accountant Member:
This appeal filed by the assessee pertaining to the Assessment Year (in short “AY”) 2012-13 is directed against the order passed u/s 250 of the Income Tax Act, 1961 (in short the “Act”) by ld. Commissioner of Income-tax (Appeals)-6, Kolkata [in short ld. “CIT(A)”] dated 23.09.2020 which is arising out of the assessment order framed u/s 143(3) of the Act dated 10.03.2015.
When the case called up, none appeared on behalf of the assessee. A perusal of the records shows that the assessee a private limited company, filed its return of income on 23.09.2012.
I.T.A. No.: 535/Kol/2020 Assessment Year: 2012-13 M/s. Frontline Commodeal Pvt. Ltd. Case selected for scrutiny under CASS and necessary notices u/s 143(2) & 142(1) of the Act were served upon the assessee. Based on the financial statement, ld. Assessing Officer (in short ld. “AO”) observed that share capital along with share premium amounting to Rs. 2 Cr. was received during the year. Ld. AO asked the assessee to explain the said receipt but no proper reply was received and the summons issued to the assessee company were also not complied. Since ld. AO found that the alleged amount is unexplained, additions u/s 68 of the Act was made at Rs. 2 Cr. along with disallowance u/s 14A of the Act at Rs. 9,514/-. Income assessed at Rs. 2,00,09,514/-.
Aggrieved, the assessee preferred appeal before ld. CIT(A) and after being granted around six opportunities there was no t appearance and ld. CIT(A) partly allowed the assessee’s appeal by confirming addition of Rs. 2 Cr. u/s 69C of the Act.
Aggrieved, the assessee is in appeal before this Tribunal raising the following grounds: “
1. For that the order of the Ld. CIT (A) is arbitrary, illegal and bad in law.
2. For that the Ld. C.I.T(A) erred in deciding the appeal ex-parte without allowing the appellant any proper and reasonable opportunity of being heard.
3. For that the order passed by the Ld. C.I.T (A) is bad in law since the ld. C.I.T(A) has not decided the issues ground wise in respect of the grounds raised by the appellant in the Memo of Appeal.
4. For that the Ld. CIT (A) erred in confirming the order of the AO simply relying on the decision of various courts while the fact of the case are quite different from the case in hand.
I.T.A. No.: 535/Kol/2020 Assessment Year: 2012-13 M/s. Frontline Commodeal Pvt. Ltd.
5. For that the Ld. CIT(A) erred in confirming the action of Assessing Officer in assessing the share capital and premium as unexplained cash credits wherein the assessee filed complete details and documents to establish the identity and creditworthiness of the share applicants and genuineness of the transactions.
6. For that the ld. CIT(A) erred in confirming the order of AO even otherwise the notices issued by the Ld. Assessing Officer to verify the identity and creditworthiness of the share applicants and genuineness of the transactions were duly served upon the share allottees and complied with wherein each of the share allottees confirmed the transactions.
7. For that Ld. CIT(A) erred in confirming the action of Assessing Officer in assessing the share capital and share premium as unexplained cash credit merely for the reason of non-appearance of the share applicants in response to summon u/s 131 of the IT Act, 1961.
For that the under the facts and circumstances of the case the Ld. CIT(A) erred in considering the share application money of Rs. 2,00,00,000/- as unexplained cash credit whereas all the information were duly on records.
9. For that the Ld. CIT(A) erred in confirming the disallowance to the extent of Rs. 8,014/- u/s 14A read with Rule 8D of the IT Act, 1961 10. For that on the facts and in the circumstances of the case the order passed by the Ld. C.I.T(A) is not maintainable.
For that the order of the AO be modified and the assessee be given relief prayed for.
For that the appellant craves leave to add, alter or withdraw any ground/s of appeal on or before hearing of the appeal.”
Since there is no representation on behalf of the assessee, we are proceeding ahead to adjudicate the issue raised in this appeal with the assistance of ld. D/R who relied on the orders of both the lower authorities and the available records.
We have heard ld. D/R and perused the records placed before us. The issue before us relates to the addition made u/s 68/69C Page 3 of 7 I.T.A. No.: 535/Kol/2020 Assessment Year: 2012-13 M/s. Frontline Commodeal Pvt. Ltd. of the Act for unexplained share application money of Rs. 2 Cr. and disallowance u/s 14A of the Act at Rs. 8,014/-.
As far as the addition for unexplained share application money of Rs. 2 Cr. is concerned, we find that the assessee received share application money along with share premium at Rs. 2 Cr. No details of the share holders were filed. The assessee did not file any other proof of identity, creditworthiness of the share holders and the genuineness of the transaction. Ld. AO made addition u/s 68 of the Act for unexplained cash credit. When the matter travelled before ld. CIT(A), he confirmed the addition made by ld. AO as follows: “26. In this case the company has not explained the following vital points: 16. Whether shares were issued to the investors first and then investment was made. If yes than how the share price was fixed. It is a private limited company therefore it cannot approach general public for making investment in the company and therefore the investors into the company must be known to the assessee company. If the investors were known to the assessee company than how the process of issuance of shares took place. Was there any negotiation on the price, was there any valuation done for making investment. Nothing is known about these issues. Similarly it is not known whether any valuation was done before making any investment in these companies. How the quantum of investment was decided whether investment made by appellant company preceded issuance of shares. If investment by appellant company preceded issuance of shares than whether issuance of share was only a facade to explain the sources for making investment in the investor companies. What was the rationale behind the investment in the shares of the investee companies as the investee companies • Are not listed on stock exchanges so no price discovery can take place • They are not readily saleable I.T.A. No.: 535/Kol/2020 Assessment Year: 2012-13 M/s. Frontline Commodeal Pvt. Ltd. • No dividend has been given by them • No price appreciation • Not having any worthwhile business model where huge revenue is generated From the above it is clear that the appellant company has not explained that the issuance of shares to investors was a genuine and bona tides transaction. As per Company Act 1956 the share application money cannot be paid in kind therefore this transaction is a mala fide transaction to hoodwink the provisions of section 68 while explaining the huge investment made by the company in shares of various companies which falls under section 69C.In my considered opinion in this case instead of section 68 the AO should have invoked section 69C as the assessee company has failed to explain the source of expenditure towards huge investment made by it in investing company. Section 60 9C of the Income Tax Act states as under: 69C. Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the 67[Assessing] Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year [Provided that, notwithstanding anything contained in any other provision of this Act, such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income.] 27. Throughout the proceedings the appellant company has tried its best to explain the huge investment with the help of issuance of shares. The appellant company failed to explain the rationale behind investment in companies having no revenue model. The appellant company had no reason to issue fresh share capital other than to show that finances received from issuance of shares have been used to finance the investment made by the appellant company during the year. As the assessee has failed to do so in my considered opinion the addition made by the AO amounting rupees 20000000 stands confirmed under section 69C of the Income Tax Act. The ground is dismissed.”
I.T.A. No.: 535/Kol/2020 Assessment Year: 2012-13 M/s. Frontline Commodeal Pvt. Ltd.
8. From going through the finding of the ld. CIT(A), we find that the addition was made by ld. AO for unexplained share application money and there was no reference to any unexplained investments in shares. Ld. CIT(A) having co-terminus power to that of the AO, came to a conclusion that the assessee company has made investments in other shares and no such investment was explained by the assessee, nor it was explained that what is the source of the investment. However, ld. CIT(A) has not discussed the specific investments which were doubted. The impugned order of ld. CIT(A) does not throw light on the facts of the case in entirety. The addition was made by ld. AO for unexplained cash credit u/s 68 of the Act and ld. CIT(A) on one hand discussed in para-6 about various information asked by ld. AO from the assessee to explain the identity, genuineness and creditworthiness of the share capital and share premium of Rs. 2 Cr. received during the year and thereafter, ld. CIT(A) made reference to the decision of the Tribunal in the case of ITO vs. M/s. KNS Realtors Pvt. Ltd. in order dated 24.08.2020 and at para 7 reproduced this order but, thereafter certain discussions have been made about the unexplained investments but there is no reference to any fact or material of the case.
Under these given facts and circumstances, when the assessee has miserably failed to prove the identity, genuineness and creditworthiness of the share application and share premium of Rs. 2 Cr. and the finding of ld. CIT(A) is not clear and also since the assessee has not appeared on multiple occasions, we restore all the issues raised in the instant appeal to the file of ld. CIT(A)
I.T.A. No.: 535/Kol/2020 Assessment Year: 2012-13 M/s. Frontline Commodeal Pvt. Ltd. for afresh adjudication so as to examine the issue on unexplained cash credit u/s 68 of the Act as well as disallowance u/s 14A of the Act and in case the assessee fails to submit relevant details to explain the alleged cash credit even after being provided sufficient opportunity then ld. CIT(A) should proceed in accordance with law. In the result, all the issues raised in the instant appeal are allowed for statistical purposes.
In the result, the appeal filed by the assessee is allowed for statistical purposes. Kolkata, the 28th June, 2022. Sd/- Sd/- [Sonjoy Sarma] [Manish Borad] Judicial Member Accountant Member Dated: 28.06.2022 Bidhan (P.S.) Copy of the order forwarded to:
1. 1. M/s. Frontline Commodeal Pvt. Ltd., C/o Rajesh Mohan & Associates, Unit No. 18, 5th Floor, Bagati House, 34, Ganesh Chandra Avenue, Kolkata-700 013.
2. ITO, Ward-2(2), Kolkata.
3. CIT(A)- 4. CIT- 5. CIT(DR), Kolkata Benches, Kolkata.