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Income Tax Appellate Tribunal, “A” Bench, Mumbai
Before: Shri Shamim Yahya (AM) & Shri Sandeep Gosain (JM)
O R D E R Per Shamim Yahya (AM) : This is an appeal by the Revenue and cross objection by the assessee directed against the order of learned CIT(A) dated 25.1.2017 and they pertain to A.Y. 2009-10.
Grounds of appeal in Revenue’s appeal read as under :- 1. "On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in directing the Assessing Officer to delete the addition made towards unexplained cash credits of Rs.10,36,43,7507- u/s 68 of the IT Act."
2. "On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in not appreciating the facts of the case that the assessee failed to justify identity and creditworthiness of the entities, invested as Share Application Money in the assessee company."
Brief facts of the case are that this case was reopened by the Assessing Officer on the ground that the assessee has received huge share premium which was not justified. Assessing Officer also noted that in the course of assessment proceedings notice were issued, and the concerned parties confirmed the transaction. The Assessing Officer opined that this only proves the transaction and other ingredients of section 68 were not satisfied. He referred to a catena of case laws and thereafter held that premium received is unexplained cash credit and added the sum of Rs. 10,36,43,750/- u/s. 68 of the I.T. Act.
Against the above order assessee appealed before learned CIT(A) challenging both validity of reopening and merits of addition.
As regards validity of reopening learned CIT(A) elaborately reproduced the assessee’s submission thereafter by a laconic small order he dismissed the same. His order reads as under :- I have gone through the reasons recorded by the AO. The AO has re- opened the case on the premise that during the course of original assessment proceedings details regarding share premium was not called for and examined and therefore genuineness of the transaction and creditworthiness of the persons to whom shares had been issued on premium is required to be examined. Hence, technically the AO will have power to re-open the case and therefore. In the result, the ground of appeal is to be treated as Dismissed.
6. As regards the merits of the case learned CIT(A) made following observation which stands in stark contradiction of his rejection of the assessee’s claim on validity of reopening. This may be gainfully referred as under:-
6.3.1. I have gone through the reasons recorded by the AO and also gone through the objections filed by the appellant. I have also gone through the notice u/s. 142(1) dated 19.08.2011 issued by the AO during the course of original assessment proceedings and submitted by the appellant company is the paper book filed before me. S.No. 1 of the said notice read as:
"1) Please give the details of the parties to whom fresh share capital issued during the year which also includes against the share application money of Rs.3,05,00,000/- show as 31/03/2008 along with details of share premium."
I have also gone through the reply of the assessee Company dated 10.10.2011 submitted by the appellant company in the paper book filed before me. S. No. i) of the said letter read as:
"1. Details of the parties to whom share capital were issued during the year are enclosed as per annexure I."
I agree with the contention of the appellant company that issue of issue of share capital and share premium was raised during the course of original assessment proceedings and the same was duly examined by the AO and statement made by the AO in the reasons recorded "On verification of assessment record it is seen that during the course of assessment proceedings the details regarding share premium received was not called for and examined" is devoid of any merit.
I have gone through the submission of the Id.AR and has also gone through the submission made by the appellant company during the course of original assessment proceedings in response to notice issued by the then AO. The AO has required the details of share capital issued along with details of share premium. The appellant company in its submission given details of shares issued. The appellant company has issued and allotted 14,80,625 equity shares of Rs.10/- each at a premium of Rs.70/- per share to promoters and non-promoters share applicants. I have also gone through the documents submitted by the assessee during the course of original assessment proceedings and copy submitted in the paper book filed before me. The appellant company has submitted copies of the Balance Sheet, bank statement reflecting the transactions, IT return acknowledgements of the share applicants. I have also gone through the copies of bank statements reflecting the transactions of share applications. I also agree with the contention of the Id.AR of the appellant company that if at all the credit worthiness of the share applicants was in question, the AO would not have accepted the share capital received from them. The AO has added only the share premium amount of Rs.10,36,43,750/- u/s.68 and share capital amount of Rs.1,48,06,250/- was allowed by him. When he has accepted the share capital amount corresponding share premium amount cannot be questioned by him on the ground of creditworthiness of share applicants.
6.3.2. I have further gone through the notice u/s. 142(1) issued by the AO and submission of the appellant company made by it during the course of course of original assessment proceedings. The appellant company has submitted copies of the same before me in the paper book filed before me. The appellant company has submitted the details of share applicants along with copies of their Balance Sheet, IT Return acknowledgements, bank statements etc. during the course of original assessment proceedings and the assessment order was passed accepting the same by the then AO. The Id.AR has filed a copy of the assessment order passed u/s.l43(3). AO mentioned therein that details filed have been verified by test check and kept on record and details of the case are discussed. Thus it is quite clear that the appellant company has submitted the details of share capital issued on premium during the course of original assessment proceedings and statement of the AO while recording reasons before issue of reassessment proceedings that "On verification of assessment record it is seen that during the course of assessment proceedings the details regarding share premium received was not called for and examined" is devoid of any merit.
Thereafter learned CIT(A) noted that the assessee has submitted all the details before the Assessing Officer. In this regard he noted the assessee submission that all the payments by the share applicants were through bank account. Learned CIT(A) also reproduced the assessee’s submission in which adequate networth of share applicants was shown. In this regard it is noted that in coming to this detail of networth no detail whatsoever was mentioned as to what is the source of funds of these share applicants. Whether the same were also obtained through unsecured loan or share premium is not established. Thereafter learned CIT(A) referred to a catena of case laws and finally concluded as under :- 3.10. Thus, it is seen that the issue in contention is that the AO has made addition of Rs.10,36,43,750/- being share premium received by the appellant company. The appellant company has allotted 1480625 equity shares of Rs. 10/- each at a premium of Rs. 70/- per share against the share application money of Rs.11,84,50,000/- received by it. The case was selected into scrutiny u/s. 143(3) and the AO has passed the order accepting the submissions made by the appellant company. The AO has reopened the case u/s. 147 on the basis of reasons recorded that issue of share premium was not examined during the course of original assessment proceedings and he has completed the reassessment proceedings by making the addition of share premium of Rs.10,36,43,750/- as unexplained cash credit u/s. 68 of the Act.
6.3.11. It has further been clarified by the Id.AR that out of total share application money, Rs.8,69,00,000/-, were received in prior years and therefore Addition u/s.68 cannot be made in AY 2009-10 when the amounts were credited in the books of the appellant company prior to F.Y.2008-09.1 have also gone through the bank statements and found that there were no cash deposits and neither the AO has made any such adverse observations. I have also seen that amount of Rs.8,33,50,000/- received from the promoter group and the same was received on the same premium of Rs.70/- per share at which other applicants has contributed and the AO has not made any allegation that the promoters were not of any means. Further when he has accepted the share capital amount, corresponding share premium amount cannot be questioned by him on the ground of creditworthiness of share applicants in view of the various Judicial Pronouncements referred above.
6.3.12. In view of the above given facts and circumstances of the case as well as binding Judicial Pronouncements of the Hon'ble Jurisdictional ITAT of Mumbai and the Hon'ble High Court, this ground of appeal of the appellant is allowed and the addition of Rs.10,36,43,750/- made by the AO is deleted.
Against the above order Revenue has filed appeal before us and assessee has filed cross objection.
As regards the order of learned CIT(A) on validity of reopening, we note that in the said order learned CIT(A) has summarily dismissed the assessee’s claim without elaborating up on the same. Further, we note that when dealings with the merits of the assessee’s case learned CIT(A) has given quite contradictory finding which is in stark contradiction of his dismissal of assessee’s calim of reopening. In our considered opinion this ambiguous order of learned CIT(A) cannot be dealt with and deserves to be remitted for passing a speaking order. In this regard we draw support from the Hon'ble Apex Court decision in the case of Kapoorchand Shrimal (Civil Appeal No. 1319 and 1320 of 1966 dated 14.8.1968) for the proposition that the appellate authority has the power as well duty to correct the errors in order of authorities below and remit the matter to them unless prohibited by law.
As regards merits of the case, we find that learned CIT(A) has noted that assessee has submitted the details of share applicants. In this regard, we note that no reference whatsoever is on record regarding the details of share applicants source of find. On a query in this regard, we note that the details has not been submitted before us by way of paper book also. We find that in the details noted by learned CIT(A), except for a few applicants whose source mentioned enormous amount of unsecured loan as source of fund, it is only mentioned that the share applicants networth was adequate and payments were through bank account. Furthermore in absence of details of share holders and directors of the share applicant companies the aspect of commonality leading to consequential inferences cannot be dealt with. The above detail does not cogently prove the creditworthiness of the share applicants. In absence of proper detail of the source of fund of the share applicants, it is not the clear whether these fund are their own or were part of circuititious route of rotating funds. In view of the aforesaid discussion in our considered opinion the issue raised in these appeals needs to be remitted back to the file of the learned CIT(A). Learned CIT(A) is directed to consider the issue afresh and pass a proper speaking order considering all the aspects including our observation as above. Needless to add the assessee should be granted adequate opportunity of being heard.
In the result, appeal of the Revenue and cross objection of the assessee stands allowed for statistical purposes.
Order has been pronounced in the Court on 13.5.2019.