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Income Tax Appellate Tribunal, “G” Bench, Mumbai
Before: Shri Shamim Yahya (AM) & Shri Pavan Kumar Gadale (JM)
O R D E R Per Shamim Yahya (AM) :-
This appeal by the Assessee is directed against the order of learned CIT(A)-21 dated 01.10.2016 and pertains to Assessment Year 2009-10.
2. The grounds of appeal
read as under :
1. On the facts and circumstances of the case and in law, the learned CIT (A) has failed to appreciate that the Appellant has established the Identity, Credit worthiness and Genuineness (ICG Test) in respect of share capital and premium of Rs.1, 50,00, 007- received from the three share holder companies during the assessment proceedings by filing various documents with the AO.
2. On the facts and circumstances of the case and in law, the learned CIT (A) has erred in sustaining the impugned addition of Rs. 1,50,00,000/- (a) by making certain observations in the concluding para which reflect suspicion in his mind and which were never confronted to the Appellant during appellate proceedings and (b) by assuming and suspecting various facts and also by indirectly expecting to know from 2 White Pearl Chemicals Trading & Manufacturing Pvt.Ltd. the Appellant (without specifically demanding the same during appellate proceedings) the source of the source of the share holder companies who subscribed to the shares of the Appellant company.
3. On the facts and circumstances of the case and in law, the Appellant humbly submits that (a) since the promoter director of the Appellant Company who was instrumental in negotiating and obtaining share capital from the said three share holder companies expired on 6th February 2011 and (b) further since the Appellant Company is in non-operational state after his demise the present directors were finding it extremely difficult to extract further information from those three share holder companies and provide further information in appellate proceedings and hence the Appellant urges the honourable Tribunal to restore the matter to AO or CIT (A) to kindly afford the Appellant Company one more opportunity to clear all the suspicion and apprehension raised by the AO and CIT (A) and establish beyond doubt the ICG pertaining to share capital transactions with the impugned share holder companies.
3. The assessee has also filed an additional grounds, which reads as under;- The Commissioner of Income-tax (Appeals) - 21, Mumbai (hereinafter referred to as the CIT(A)) erred in upholding the action of the Income-tax Officer- 13(3)(2), Mumbai (hereinafter referred to as the Assessing Officer) in issuing notice under section 148 of the Act.
The appellants contend that on the facts and in the circumstances of the case and in law, the issue of notice under section 148 is without jurisdiction, and hence, bad in law and as such, the assessment order ought to be quashed.
The appellants further, contend that the reasons recorded by the Assessing Officer are vague, insufficient and without application of mind and hence, the notice under section 148 is bad in law and thereby the consequent assessment order needs to be quashed.
It has been pleaded that the aforesaid additional ground is a legal ground and the same may be admitted on the touchstone of Hon’ble Supreme Court decision in the case of National Thermal Power Company Ltd. vs CIT reported in 229 ITR 383.
We note that this appeal was earlier disposed-off by an exparte order dated 14/02/2019. Subsequently, the same was recalled in M.A.No.479/Mum/2019 for AY 2009-10 by order dated 18/11/2019.
3 White Pearl Chemicals Trading & Manufacturing Pvt.Ltd.
Pursuant to the aforesaid recall, this appeal has been heard by us.
Brief facts of the case and the reasons for reopening are recorded in the AO’s order, which reads as under:-
The return of income was filed by the assessee on 29.03.2010 declaring income of Rs.NIL. The return was processed u/s 143(1) of the Income Tax Act. 1961.
Subsequently, after recording reasons, assessment for AY 2009-10 was reopened by issuing notice u/s 148 of the IT Act 1951 dated 28.03.2014, which was duly served on the assessee 2.1 In response to the said notice, assessee's AR vide letter filed in this office on 30.04 2014 has furnished copy of return of income for AY 2009-10 filed on 29.03,2010 in response to notice u/s 148 The assessee further requested to provide copy of reasons recorded for reopening of the assessment. Thereafter, notice u/s 143(2) was issued and served on the assessee. Reasons for reopening the assessment were also provided to assessee during the course of assessment proceedings. The reasons for reopening the assessment are reproduced as under:
The return of income for AY 2009-10 was filed on 29.3.2010 declaring total income of Rs.NIL. The return was processed u/s 143(1) of the Act.
On perusal of the information available on record and information received from the office of the CCIT(CCA), Mumbai it is noticed that the assessee during the previous year relevant to AY 2009-10 has issued 75000 shares on premium, the face value for which is Rs.10/-. The premium amount received on cash amounts to Rs.1,42,50,000/~, which comes to Rs. 190/- per share. On going through the balance sheet and P&L A/c of the assessee for Y£.31,03.2008 and YE 31.3.2009, the intrinsic value of the shares are much less to command such a huge amount of premium and the purported transactions were not genuine.
In view of the same, I have reason to believe that the nature of the transaction is note genuine. Hence, in view of the above. I have reason to believe that the premium of Rs. WO/- per share received is unreasonable and the amount of Rs.1,42.50,000/- has escaped assessment and the same represents unexplained cash credits of the assessee which are chargeable in assessee's hand as income under Sec.68 of the income Tax Act. 1961."
The assessee filed the objection to the reassessment proceeding after perusing the reasons. The objection disposed off on 23-02-2015 and final show cause issued for compliance issued and served on the assessee on 27-02-2015.
4 White Pearl Chemicals Trading & Manufacturing Pvt.Ltd.
Thereafter, AO noted that he has asked for the details for share allotted by assessee company alongwith share premium receipt, alongwith other details. That after receiving the details, he has issued notice u/s 133(6) to three parties. That out of three parties one notice of M/s. Aarika Steels & Metal Pvt.Ltd. returned by postal authorities remarked as left. That balance two parties notice was served, but reply was not submitted. Hence, AO held as under:- After a careful perusal of the facts of the case"evidences produced and the submissions on file, the creditworthiness and genuineness of the parties not proved and the assessment is completed as under.
5. Addition of Rs.1,42.50,000/- and Rs.7,50,000/-as bogus share premium and share capital received: By considering the above facts and the submissions and contentions of the assessee cannot be considered and will have to be failed. Accordingly, the amount of Rs. 1,42,50,000/- and Rs.7,50,000/-, are treated as unexplained cash credit in the books of the assessee company and added to the income of the assessee u/s 68 of the Income Tax Act, 1961.
Penalty proceedings u/s 271(l)(c) are initiated separately for furnishing inaccurate particulars of income. 6. Subject to the above the taxable income of the assessee company u/s. 147 r.w.s 143(3) of the I.T.Act, 1961 is determinate as under: Computation of Total Income I. Rs. NIL/- Taxable Income as per statement of Total income
As discussed in para.5 above Rs.1,50.00.000/- Add
Rs.1,50.00,000/- Total Income Assessed Taxable Income Rs. 1,50,00,000- Rs. 1,50,00,000/- Rounded off u/s.288 A of the I.T. Act,1961
Against the above order, the assessee is in appeal before the Ld.CIT(A). Ld.CIT(A) dismissed the assessee’s challenge to the validity of reopening by observing as under:-
5 White Pearl Chemicals Trading & Manufacturing Pvt.Ltd. 5.1. The first ground of appeal is against the re-opening of the assessment. It has been argued that there is no reason to believe that income had escaped assessment. There is no material that has come to the knowledge of the AO for forming the belief. The AO has not formed any belief of his own and the same is only on the basis of the information from CCIT (CCA). There is no incriminating material which could suggest that the share premium of Rs.1,42,50,000/- is unexplained cash credit. The requirement of law is there must be u reason to believe " and not "reason to suspect".
5.2. I have considered the submissions carefully. This is not a case where there was any previous order u/s 143(3} where this issue was examined. The reasons recorded were communicated to the appellant. Objections raised were disposed by the assessing officer. It is trite law that before issue of notice u/s 148, the assessing officer has only to formed a reason to believe that income has escaped assessment. This need not be proved to the hilt. It is up to the assessee to rebut this belief with evidence. The aspect of issue of shares at huge premium of Rs 190/- on a Rs 10 face value of share when the intrinsic worth did not justify the same did suggest that the transaction was not genuine and section 68 would apply. There is no bar on the information having come from any source. There is nothing to suggest that the assessing officer did not apply his mind to the information received. In this fact position, I do not find merit in th^/contention of the appellant ground of appeal no 1 is dismissed.
10. Thereafter, Ld.CIT(A) details with the merits of the case, after noting the facts as noted by the AO. Ld.CIT(A) referred to the assessee’s submissions as under:- 6.2. In the appellate proceedings it was submitted that the share application money received is a capital receipt. The issue of shares at premium is a commercial decision which does not require any justification. As per the assessee’s valuation report, the valuation of shares was Rs.200/- which included premium of Rs.190/- per share. The appellant company had received share application from three companies namely, (i) Talent Infoway Ltd. - 50000 shares, (ii) Aarika Steels & Metal Pvt.Ltd. - 12500 shares and (iii) Alliance Intermediaries & Network Pvt, Lid. - 12500 shares. The share applications were received through proper banking channels which was reflected in the bank statements of the appellant company. The details of appellant specifying the name of the bank from which the cheques were issued, date of cheque, cheque number, amount of share application, number of shares applied for and the rate of the shares was furnished to the AO. The shares allotted were reported in the return filed with Registrar of Companies. Thus the identity, credit worthiness and genuineness of the transaction has been established. The fact that the notice u/s 133(6) was served or was not replied by the parties was not communicated to the appellant. The opportunity to contact the parties or to locate them was not granted by the AO. The AO could have made further enquiries and the details of the balance sheet and profit & loss account of these companies could be obtained from the ROC website. Reliance was placed by the appellant on the decision of the Supreme Court
6 White Pearl Chemicals Trading & Manufacturing Pvt.Ltd. in CIT v. Orissa Corporation Pvt.Ltd. - 159 ITR 78. It was therefore submitted by the Ld.AR that the addition of Rs. 1,50,00,000/- should be deleted.
Ld.CIT(A) proceeded to hold that he did not find any merit in the submissions of the assessee that the merits fall within the scope of section 68. He referred to several case laws as under:- (i) N.Tarika Proprty Invest.(P.) Ltd. v CIT [2014] 51 taxmann.com 387(SC) (ii) CIT v. Sophia Finance Ltd. [1994] 205 ITR 98/[1993] 70 Taxman 69 (Delhi) (iii) CIT vs. Steller Investment Ltd. [1991] ITR 287/59 Taxman 568 (Delhi) (iv) CIT v. Lovely Exports Ltd. [2008] 299 ITR 268. (v) CIT v. Nova Promotoers & Finlease (P.) Ltd. (vi) CIT v. Nipun Builders & Developers [2013] 350 ITR 407/214 Taxman 429/30 taxmann.com 292 (Delhi) (vii) CIT v. N.R.Protfolio (P.) Ltd. [2014] 222 Taxman 157/42 taxmann.com 339 (Delhi)
Thereafter, Ld.CIT(A) concluded as under;- 6.9. Thus, it can be safely concluded that even in case of credit appearing as share capital and premium, section 68 can be invoked in the case of a private limited company. 6.10. In the course of appellate proceedings the Lei AR was asked to furnish the current address of the appellant, evidence of credit worthiness and genuineness of the transaction in respect of the investments received, and details with evidence of changes in ownership of shares in question in the period after allotment till date. Despite opportunities, the same was not provided. This belies the contention of the appellant that adequate opportunity was not provided in the assessment proceedings. This is a case of a private limited company. There are no evidences of how the investors were identified, contacted and roped in. What was the to invest to such huge premium not supported by the intrinsic worth of shares of the appellant? What was the source of funds for investments made in shares of the appellant? Did these shareholders sell/transfer back the shares to promoters at a much lower value/par later? By avoiding to answer these questions and avoiding furnishing of relevant details, the appellant has shied away from discharging its onus to explain the credit as required u/s 68. In these facts and circumstances.
Against the above order, assessee is in appeal before us.
We have heard both the parties and perused the records. Ld. Counsel of the assessee submitted that reopening of this case is bad inasmuch as from the reasons
7 White Pearl Chemicals Trading & Manufacturing Pvt.Ltd. recorded for reopening, it is clear that all the information on which reopening is done were already in the assessment record. No outside tangible material come to AO AO’s possession. Hence, ld. Counsel submitted that reopening in bad on the touchstone of Hon’ble Supreme Court decision in Kelvinator of India 256 ITR 1. He further submitted that this is clearly a change of opinion also not sustainable in law. In this regard, he referred to the decision of ITAT in the case of Malchand Dindayal Salts Pvt.Ltd..in for AY 2010-11 vide order dated 01/12/2018, where in the reopening similarly done on the basis of material available in the assessment records was quashed.
Furthermore, Ld. Counsel of the assessee submitted that the reasons for reopening mentions that the same has been reopened to examine the issue of unreasonable share premium. Ld. Counsel submitted that amendment in the Act by way of proviso to section 68 (which creates an obligation on the assessee to explain the source of share capital and share premium) was brought into statute books w.e.f. Finance Act, 2012 w.e.f 01/04/2013. He submitted that this was not applicable for the current assessment year. He further submitted that Hon’ble Bombay High Court in Gagandeep Infrastructure(P.) Ltd. has duly held that such addition cannot be brought to the tax for AY prior to AY 2012-13. Hence. Ld. Counsel pleaded that prior to the insertion of the concerned statute, there was no issue of taxing unjustified share premium and hence, it cannot be a reason for reopening. Hence, he submitted that reopening is bad.
He further submitted that assessee has duly submitted all the documentary evidence and necessary documents, which are as under:- 1) Details of Shares allotted by the assessee company alongwith share premium received 2) Copy of supporting documents for the allottee parties. a) Copy of share application form b) Copy of acknowledgment of income.
8 White Pearl Chemicals Trading & Manufacturing Pvt.Ltd. c) Copy of computation of income d) Copy of balance sheet. e) Copy of Bank statement for payments made by them 3) Form 2 filed with ROC for allotment of aforesaid shares.
Hence, Ld. Counsel submitted that assessee has duly discharged its onus. He submitted that there is no finding by the authorities below that on examination of the documents, the creditworthiness of the parties has not been found to be in order. Moreover, he submitted that Hon’ble jurisdictional High Court in the case of Veedhata Tower Pvt.Ltd. on identical issue of non response from the concerned parties has held that assessee has discharged its onus and adverse inference cannot be drawn.
Per contra Ld. DR relied upon orders of the authorities below.
We have heard both the parties and perused the records. At the outset, we note that Hon’ble jurisdictional High Court in the case of Gagandeep Infrastructure (P.) Ltd. 394 ITR 680 has held that necessary statute of taxing unjustified share premium was brought into statute books from assessment year 2012-13. We may refer to the decision as under:-
During the previous relevant to the subject Assessment Year the assessee had increased its share capital from Rs.2,50,000/to Rs.83.75 lakhs. During the assessment proceedings, the Assessing Officer noticed that the respondent had collected share premium to the extent of Rs.6.69 crores. Consequently he called upon the respondent to justify the charging of share premium at Rs.190/per share. The respondent furnished the list of its shareholders, copy of the share application form, copy of share certificate and Form no.2 filed with the Registrar of Companies. The justification for charging share premium was on the basis of the future prospects of the business of the assessee. The Assessing Officer did not accept the explanation/justification of the respondent and invoked Section 68 of the Act to treat the amount of Rs.7.53 crores i.e. the aggregate of the issue price and the premium on the shares issued as unexplained cash credit within the meaning of Section 68 of the 9 White Pearl Chemicals Trading & Manufacturing Pvt.Ltd. Act. This addition was deleted by the CIT(A) and the Tribunal. Before the High Court, the department contended that the proviso to Section 68 of the Act which was introduced with effect from 1st April, 2013 would apply in the facts of the present case even for A.Y. 2008-09. The basis of the above submission was that the de hors the proviso also the requirements as set out therein would have to be satisfied. HELD by the High Court dismissing the appeal:
(i) We find that the proviso to Section 68 of the Act has been introduced by the Finance Act 2012 with effect from 1st April, 2013. Thus it would be effective only from the Assessment Year 2013-14 onwards and not for the subject Assessment Year. In fact, before the Tribunal, it was not even the case of the Revenue that Section 68 of the Act as in force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1st April, 2013 was its normal meaning. The Parliament did not introduce to proviso to Section 68 of the Act with retrospective effect nor does the proviso so introduced states that it was introduced “for removal of doubts” or that it is “declaratory”. Therefore it is not open to give it retrospective effect, by proceeding on the basis that the addition of the proviso to Section 68 of the Act is immaterial and does not change the interpretation of Section 68 of the Act both before and after the adding of the proviso. In any view of the matter the three essential tests while confirming the pre proviso Section 68 of the Act laid down by the Courts namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on facts it was found satisfied.
(ii) Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders i.e. they are bogus. The Apex Court in CIT v/s. Lovely Exports (P)Ltd. 317 ITR 218 in the context to the preamended Section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee’s income as unexplained cash credit.
10 White Pearl Chemicals Trading & Manufacturing Pvt.Ltd.
Furthermore, we note that Hon’ble jurisdictional High Court in Veedhata Tower Pvt.Ltd. vide order dated 17.04.2018 has also held that when all documentary evidences has been submitted by the assessee, and adverse inference is drawn only for non response by the concerned party, such adverse inference against the assessee is not sustainable. We find that the aforesaid case laws duly applies on the facts of the case. No adverse inference has been noted from the bank statement, balance sheet and other document of the parties from whom share capital & share premium has been received, which were duly filed before AO. Hence, the addition on merits also is not sustainable. Accordingly, on the touchstone of above Hon’ble jurisdictional High Court decision, we set aside the order of the authorities below and decide the issue in favour of the assessee. Since, we have decided the issue on merits in favour of assessee, adjudication on reopening is only of academic interest. Hence, we are not engaging into the same.
In the result, this appeal is allowed.
Pronounced in the open court on 24.08.2021