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Income Tax Appellate Tribunal, KOLKATA BENCH “A” KOLKATA
Before: Shri J.Sudhakar Reddy & Shri S.S.Godara
आयकर अपील�य अधीकरण, �यायपीठ – “ए” कोलकाता, IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH “A” KOLKATA Before Shri J.Sudhakar Reddy, Accountant Member and Shri S.S.Godara, Judicial Member ITA No.2266/Kol/2017 Assessment Year: 2012-13
Income Tax Officer M/s Bangabhumi Barter बनाम / Ward-5(4), 8th Floor, Pvt. Ltd, 23B, Netaji V/s. Aayakar Bhawan, P-7, Subash Road, Kolkat-001 Chorwinghee Square, [PAN No.AAECB 9445 M] Kolkata-700 069 .. अपीलाथ� /Appellant ��यथ� /Respondent
Shri Anindya Kr. Bhandopadhyay, JCIT-DR अपीलाथ� क� ओर से/By Appellant Shri V.K.Jain, FCA ��यथ� क� ओर से/By Respondent 19-11-2019 सुनवाई क� तार�ख/Date of Hearing घोषणा क� तार�ख/Date of Pronouncement 10-01-2020 आदेश /O R D E R PER S.S.Godara, Judicial Member:- This Revenue’s appeal for assessment year 2012-13 arises against the Commissioner of Income Tax (Appeals)-2, Kolkata’s order dated 03.08.2017 passed in case No.99/CIT(A)-2/15-16 involving proceedings u/s 143(3) of the Income Tax Act, 1961; in short ‘the Act’. Heard both the parties. The assessee’s detailed paper book running into 255 pages comprising of assessment records, scrutiny notices & replies, sec. 133(6) notices, its subscribers’ declarations of source of fund, ledger account, allotment letter, ITR acknowledgement(s), balance-sheets with details of shareholders, confirmation response to sec. 133(6) notices, share subscribers
ITA No.2266/Kol/2017 Assessment Year 2012-13 ITO Wd-5(4), Kol. Vs M/s Bangabhumi Barter Pvt. Ltd. Page 2 agreements alongwith their multiple assessment orders u/s 143(3) of the Act; stands perused.
It emerges at the outset that the Revenue’s former substantive grievance canvassed in the instant appeal seeks to reverse the CIT(A)’s action deleting the unexplained cash credits addition of ₹2,51,00,000/- made by the Assessing Officer by treating the assessee’s share capital / premium as bogus. The CIT(A)’s detailed discussion to this effect reads as under:- “I have considered the submissions of the authorized representative of the appellant as well as the assessment order framed in the light of the materials available on record before the assessing officer during the assessment proceedings. The issue under consideration is that whether the issue of shares against the shares disclosed by the appellant invite the mischief of the provisions of s. 68 of the Act or not and as to whether the AD is justified in making the addition towards share capital raised in the facts and circumstances of the case. The main point of the appeal is against the addition of share capital and share premium of Rs2,51,00,000 as unexplained cash credit. The AR of the appellate has submitted that the order of the assessing officer (AO), though lengthy but is mere theory and based surmises and presumptions not having relevance to the facts of the appellant. There is no specific finding of the AO to treat such receipts as unexplained cash credit. The additions are made with no regards to the facts and records filed before the AO. The AO failed to mention and consider the replies with supporting documents filed by the share subscribers. It is pertinent to know that such replies are submitted independently by each of the share subscribers in reply to the notices issued under section 133(6) of the Act by the AO of the appellant. The AO in his order neither mentioned nor refuted the submission of the assessee and third parties affirmations of the transaction. The AO without making any verification took the shelter of ambiguous relevant language to justify his predetermined biased order to make the addition somehow. The act of the AO is against the law and defeat the process of adjudication of the case with prudent-mind-in judiciary manner. In support of the submission of the appellant, the documents filed by the assessee, share subscribers and third parties are filed herewith. The appellant also, file the assessment records of the share subscribers which are not filed before the AO, but were easily accessible to him from the income tax records of such share subscribers. The AO is trying to justify the falsified addition by taking the plea that the share subscribers did not attended the hearing on summons. The truth is far off. The share subscribers were denied the opportunity and hence left with no alternate but to file the documents as asked for by registered post. Further the AO had issued summons to 3 companies directors, but added the subscriptions of all 5 companies. It is also not the case of the AO that the share subscribers are bogus and no not exist as all the notices were sent by him independently by registered post to share subscribers. None of the notices returned un-served. All the notices were complied with. The assessee had duly discharge its onus to prove the genuineness of the transaction and there is no adverse finding. The reason' quoted by the AO is not applicable to treat the transaction as unexplained cash credit. The AR has further submitted that the assessment of the share subscribers were completed u/s 143(3) of the Act. The relevant portion of the respective assessment order passed u/s 143(3) of the Act, wherein the respective AO adjudicated/referred the amount raised by the respective Assessee towards share subscription as mentioned in the submissions as above. It
ITA No.2266/Kol/2017 Assessment Year 2012-13 ITO Wd-5(4), Kol. Vs M/s Bangabhumi Barter Pvt. Ltd. Page 3 was plead by the appellant that the sum so raised by the respective assessee (share subscriber) of the appellant, has been utilized to acquire the investments by them. The Share subscribers after holding the investments over a period sold and transferred the some of the investment to the appellant. The appellant in turn, allotted its own equity shares in consideration thereof. The transaction was recorded in books by journal entries only. The AO during the assessment proceeding issued notice u/s 142(1) was issued for asking the details and the assessee has submitted that these requisite details during the assessment proceedings. The notices u/s 133(6) were issued by the AO to all the shares holder companies asking the details of the investments. The AR of the assessee has submitted that these requisite details were filed by the shareholder companies. However, the AO was not impressed by such evidences adduced on record. The notices u/s 133(6) were also issued by the AO to all the shares holder companies of the share subscribers of the appellate i.e. second layer of the shareholders asking the details of the investments vide notice dated 24.07.2014 and these second layer share holder companies submitted requisite details to the AO. However, the AO was again not impressed by such evidences adduced on record. The AO again issued summon u/s 131 to the directors of the appellate as well as shareholder companies. The directors of the appellate as well as shareholder companies did not appeared personally before the AO but again filed requisite details as required by the AO. The did not verify the transaction independently to collect the evidences but cited the fact of non- compliance to the summons as one of his reason for drawing the adverse conclusions against the investment as were made by the shareholder companies. However, he has not initiated any step for conducting the enquiries on the transactions to form a logical view. On the other hand AR has stated that the appellate and share subscribers have filed the documents and supporting before the AO. The documents to prove the Identity, Creditworthiness of the investors and genuineness of the transactions were filed, but the AO failed to take the recognition of such facts. For the reasons known to him, the verification of the documents if made would have made his observation authentic and legal. The AO found that share application monies received by the assessee was nothing but assessee's own unaccounted money which was brought to the books using banking channel in the form of share capital. Accordingly, it was added to the total income of the assessee. I fully endorse the view of the AR that the AO's action in making addition u/s 68 by relying upon the decision in the case of Bisakha Sales (P) Ltd. vs. CIT, Kolkata- II is totally misplaced. The AO has drawn adverse inference on the ground that director of the appellant-company and Shareholders Company did not appear in person in response to summons. The failure on the part of the directors to appear in person does not suggest that identity, proof and genuineness of transactions furnish by the appellant Company stands disproved. The AO has not found any defect and/or deficiency in the source of funds explained by the share applicants through their replies to the statutory notices issued u/s. 133(6) of the Act to them. It is not in dispute that the assessee had furnished all possible documents relating to the share applicants before the AO. It is also observed that every share applicant in their respective replies to the statutory notices issued u/s. 133(6) of the Act, furnished copies of their relevant documents. The doubts expressed in the reasoning of the AO in the instant case is based on the premise of “non-appearance by the Directors" of the appellant company and shareholders in response to summons issued u/s. 131 of the said Act. In this respect, it is observed that there is no ground to draw any adverse inference against the appellant, in relation to the provisions contained in sec.-68 of the said Act since the appellant had adduced all possible evidence in support of the share capital raised by it and there was nothing more for the directors to state in that respect.
ITA No.2266/Kol/2017 Assessment Year 2012-13 ITO Wd-5(4), Kol. Vs M/s Bangabhumi Barter Pvt. Ltd. Page 4 The assessment order does not show any investigation have been carried out of any information collected by the department to conclude that the payment recovered by the assessee was actually accommodation entries. No material was brought by the AO to prove that the money was the assessee own undisclosed money. All the share applicants are assessed to income tax and had regularly filed their income tax and ROC returns. The AR has also brought to my notice with copy of assessment order where the assessment of these shareholder companies were completed u/s143 (3) of the act by the different assessing officers in different years. Hence, the identity of the share applicants was duly proved. These companies are being assessed u/s 143(3) of IT Act by respective AOs The AR further argued that the transaction will not come under the preview of cash credit, as there is no cash receipt or receipt of any money or credit of any money. The assessee did not receive any share application money too. The assessee allotted its shares to the companies to whom it had debts to pay. The allotment of shares is against the discharge of such debts only. The facts were duly disclosed and explained with documents to AD during the course of hearing. The AR in this regards placed his reliance in Hon'ble Jurisdictional High Court case of Jatia Investment Co vs CIT [1994] 206 ITR 718 (Cal) wherein it had been accepted the contention of the assessee and stated that in case there is no cash receipts, the question of cash credit does not arises. The shares were allotted against the acquisition of investments under the agreements. The copies of these documents were also filed during the appellate proceedings. . The AO has placed his reliance in the case of Star Griha Pvt. Ltd. and Bishakha Sales Pvt. Ltd, etc but the facts of these cases are not similar to the case the appellate. The basis difference is that in the case of appellate there is no cash involved on issue of share capital. Furthermore, the facts on said cases are totally different. In those cases, the assessee had received monies by cheques / drafts and allotted shares. Whereas in the case under consideration, no money was received by the appellant. Furthermore, the facts on said cases are totally different. In those cases, the assessee had received monies by cheques/ drafts and allotted shares. Whereas in the case under consideration, no money was received by the appellant. Further, I find that there has been no cash transaction in this case, the mode of consideration was shares and there was no money involved in these-transactions; The appellant did not have any intention to rotate his money without paying any taxes as alleged by the AO in his order. I find that there is no real cash entry on the credit side of the cash book. The shares were issued against the share. It is merely a notional entry and there is no real credit in the cash book and bank account. Therefore, the question of cash credit does not come in, there being no actual passing or receipt of cash. In other words, the transactions are mere book entries. The transactions showing the amount as received in cash and paid away were not actual but only notional. As far as the question of section 68 is concerned, the nature of the transactions and the entries clearly show that no cash, in fact, flowed. It is pertinent to discuss the provision of the section 68 of the act. The section 68 says:- Cash credits. 68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year: The observation of the Hon'ble jurisdictional High Court decision in the case of Jatia Investment Co vs CIT [1994] 206 ITR 718 (CAL.) dated 06.08.1992 in the similar matter are as under.-
ITA No.2266/Kol/2017 Assessment Year 2012-13 ITO Wd-5(4), Kol. Vs M/s Bangabhumi Barter Pvt. Ltd. Page 5 "there is no real cash entry on the credit side of the cash book, but merely a notional or I fictitious cash entry there is no real credit of cash any its cash book, the question of inclusion of the amount a/the entry unexplained cash credit cannot arise" The facts of the case are similar to the facts of the cases of the Hon'ble Jurisdictional high Court in the of Jatia Investment Co. [1994] 206 ITR 718 (CAL.). The AR of the appellate vide his letter dated 25.07.2017 has further submitted that on the ground of appeal, that the grounds of deletion on the share capital amount, together with shares premium added u/s 68 is supported by the appellate order passed by the CIT(23), Kolkata in the case of DSR Impex Pvt Ltd appeal No 265CIT(A)-23/TECH-2/2016-17/Kol for assessment year 2012-13,Dhankamla Commosales Pvt Ltd appeal No 230/CIT(A)- 23/W- 6(1)2016-17/Kol for assessment year 2012-13 and Coolhut Marketing Pvt Ltd appeal No 181/CIT(A)-23/TRO-2/2016/Kol for assessment year 2012-13. In all such cases the grounds granted are relating to on applicability of section 68 where in no sum was credited or received during the year. The facts of the cases (supra) are similar to the above appeal. The AO failed to appreciate the fact that there was no sum credited in the books of account of the appellate and no money was received. The assessee had allotted its shares against the discharge of debts by journal entries in books. The AO failed to verify the facts of the case. The shares were allotted against the acquisition of investments under the agreements. The copies of these documents were also filed during the appellate proceedings. I find that there is no real cash entry on the credit side of the cash book. The shares were issued against the share. It is merely a notional entry and there is no real credit in the cash book and bank account. The question of inclusion of the amount of the entry unexplained cash credit cannot arise. Therefore, the question of cash credit does not come in, there being no actual passing or receipt of cash. In other words, the transactions are mere book entries. The transactions showing the amount as received in cash or in kind and discharged were not actual case but only notional by journal entries. As far as the question of section 68 is concerned, the nature of the transactions and the entries clearly show that no cash, in fact, flowed. Therefore, considering the totality of the facts and circumstances of the case, I find substance in the argument of the AR that there is no cash involved in the issue of share capital in the appellate case. In view of the aforesaid findings and respectfully following the decisions of Hon'ble Jurisdictional High Court decision in the case of Jatia Investment Co, I have come to the conclusion that the issue is squarely covered by the decision of Jurisdictional High Court as mentioned and discussed above. I have no option but to accept the arguments tendered by the AR of the appellant in this respect that there is no sum was credited in the book of account as per the provision of u/s 68 of the act. Accordingly, the case of appellate does not come under the preview of the section 68 of the Act. Further, I have no hesitation to hold that the impugned addition made by invoking the provisions of section 68 by the AO is not justified in the circumstances. Accordingly, the AO is directed to delete the addition made on this account. These grounds of appeal are allowed.” 3. Learned departmental representative took us to the Assessing Officer’s assessment order dated 0.03.2015 making the impugned sec. 68 addition of unexplained cash credits. It emerges from perusal thereof that the Assessing Officer had quoted the assessee’s failure in proving identity, genuineness and creditworthiness of its investor parties having subscribed the share capital alongwith premium despite affording umpteen opportunities during the course of scrutiny. Mr. Bhandopadhyay
ITA No.2266/Kol/2017 Assessment Year 2012-13 ITO Wd-5(4), Kol. Vs M/s Bangabhumi Barter Pvt. Ltd. Page 6 next submitted that the CIT(A) has mainly gone by assessee’s and its investors’ documentary evidence only without putting the same to factual verification. He further contended that the lower appellate findings are mutually contradictory qua nature of assessee’s share capital / premium. The Revenue accordingly seeks to restore the impugned addition back to the assessing authority by pleading that the CIT(A) has erred in law and on facts in reversing the Assessing Officer’s action.
Learned authorized representative on the other hand vehemently supported the CIT(A)’s foregoing detailed discussion deleting the impugned addition. His first and foremost argument is that the CIT(A) has rightly held that the sec. 68 does not come into play in facts of the instant case since we are dealing with an instance of share swapping between assessee and its investor entities than that of any sum credited in the books of account which could be added as unexplained cash credits. It is further submitted that the Assessing Officer’s assessment order had not taken note of the assessee’s voluminous evidence (supra) running into more than 256 pages proving identity, genuineness and creditworthiness of the investors share swapping and therefore, the CIT(A) has deleted the impugned addition. 5. We have given our thoughtful consideration to the foregoing rival pleadings. There is hardly any dispute that the Assessing Officer had quoted assessee’s failure in discharging its onus for proving identity, genuineness and creditworthiness of the investor parties. We do not find any discussion in the assessment order that the Assessing Officer had been able to factual verify either of the three foregoing parameters of identity, genuineness and creditworthiness or that of correctness of the alleged share swapping agreements between the taxpayer and the corresponding entities. Coming to the CIT(A)’s findings under challenge, we take note in he has treated the assessee’s case as an instance of sum credited; but at the sametime, he observes that it had allotted its shares to investor entities to whom it had some debts to discharge Mr. Jain also fails to rebut the Revenue’s clinching argument that the assessee’s plea of having swapped its shareholding with the investor entities had neither put to factual verification in the course of scrutiny nor in lower appellate proceedings. We therefore deem it appropriate that this former issue of unexplained
ITA No.2266/Kol/2017 Assessment Year 2012-13 ITO Wd-5(4), Kol. Vs M/s Bangabhumi Barter Pvt. Ltd. Page 7 cash credits amounting to ₹2,5100,000/- requires to be sent back to the Assessing Officer for afresh detailed factual verification as per law. We order accordingly. Suffice to say, the assessee shall be afforded three effective opportunities of hearing in consequential proceedings. This former substantive grievance is taken as accepted for statistical purposes. 6. Next comes the latter issue of sec. 14A disallowance amounting to ₹6,772/- made in the curse of assessment and deleted in lower appellate proceedings. Suffice to say, it has come on record that assessee has not derived any exempt income. Hon'ble jurisdictional high court’s decision in CIT vs. Ashika Global Securities Ltd ITAT 100/2009 GA No.2122 of 2014 dated 11.06.2018 holds that the impugned disallowance does not apply in absence of any exempt income. The Revenue’s instant latter grievance fails therefore. This Revenue’s appeal is partly allowed for statistical purposes in above terms. 7. Order pronounced in open court on 10/01/2020
Sd/- Sd/- (लेखा सद'य) (�या)यक सद'य) (J.Sudhakar Reddy) (S.S.Godara) Accountant Member Judicial Member *Dkp-Sr.PS *दनांकः- 10/01/2020 कोलकाता / Kolkata आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. अपीलाथ�/Appellant-ITO Ward-5(4),8th Floor, P-7, Chowringhee Sq. Kolkata-69 2. ��यथ�/Respondent-M/s Bangabhumi Barter Pvt. Ltd., 23B, N.S. Road, Kolkata-001 3. संबं-धत आयकर आयु.त / Concerned CIT 4. आयकर आयु.त- अपील / CIT (A) 5. /वभागीय �)त)न-ध, आयकर अपील�य अ-धकरण कोलकाता/DR, ITAT, Kolkata 6. गाड3 फाइल / Guard file. By order/आदेश से, /True Copy/ सहायक पंजीकार आयकर अपील�य अ-धकरण, कोलकाता ।