M/S. SIMERO VITRIFIED P. LTD. ,MORBI vs. THE PR. CIT-3 , RAJKOT

The ld PCIT based on the details submitted during the assessment proceeding, a chart summarizing party- wise documents was prepared, during the review process, which was enclosed as Annexure. On perusal of the said chart reveals that some shareholders claimed to have invested amounts of about 10-15 times of their returned income. Sr.No.19 of the chart where Rasilaben H Adroja invested Rs. 42,25,450/-, as share capital and given Rs.1,98,300/-, as unsecured loan whereas her returned income for AY 2016-17, is only Rs. 3,16,790/-, is one such glaring example. Sl. No.10. 16 etc. are also similar examples. Even in such glaring instances, the AO did not examine the nature and source of the shareholders / loan providers. The ld PCIT noted that first proviso to section 68 of the Act, clearly provides that in respect of share capital, explanation offered by the assessee-company shall be deemed to be not ITA 276 / Rjt/ 2019 (AY 2016-17) SIMERO VITRIFIED P. LTD. satisfactory unless the shareholder offers explanation about the nature and source of such investment and the AO is satisfied about such explanation. First proviso to section 68 of the Act is as under:

The ld PCIT further, noticed from the bank statements of the Share Holders/ Loan Providers that there is huge amount of cash deposit/ DD/ cheque amount that is used as the source for share investment as well as for giving loans to the assessee-company. In most of these cash was deposited, which is unaccounted money of the assessee and/ DD / Cheques have been taken for the purpose of Share Investment/Unsecured loan. For example, in the case of Vishal H Adroja HUF (Sr. No. 23 of the Chart), where total cash deposit is of Rs. 9,00,000/-, in the bank account from which investment was made towards Share Capital, in the assessee-company. Similarly, Sl. No. 10, 19 etc. are some ITA 276 / Rjt/ 2019 (AY 2016-17) SIMERO VITRIFIED P. LTD. such similar examples where frequent amount from cash deposit / DD / cheque have been used for investment in the assessee- company. The above point to glaring and obvious mismatch/discrepancies between the source of income/funds and the capacity/creditworthiness for making investment in the Share Capital, as well as in providing loans. These glaring discrepancies/mismatches should have raised the antenna of the AO and he should have conducted necessary enquiries/verifications. However, the AO accepted the share capital investment and loans without carrying out inquiry/verification that should have been done. It is evident from the facts of the case that the AO, who is duty bound to verify and enquire/investigate the identity and credit-worthiness of the creditor /shareholder and ascertain whether the transaction is genuine, or these are bogus entries of name-lenders, has failed to conduct verifications/inquiries that should have been done and accepted the share capital as well as the unsecured loans as genuine.

The Ld.PCIT noticed that trade payables of Rs. 11,61,51,118/-,have been reported as on 31/03/2016. In this regard, the AO vide notice dated 18/07/2018, at sr. no. 14. asked to "Furnish full name, complete address, PAN, copies of ledger accounts, confirmation and contra accounts of all parties from whom purchases exceeding Rs. 1 lakhs have been made during the period under consideration." In response, it has been requested to refer page no. 1005- 1017(F-3) of the online submission, where a table has been submitted containing names, amount outstanding at the year end, total amount involved, address and nature of transaction of creditors whose outstanding amount is more than Rs. 1 lakhs (total 100 entries amounting Rs. 10,01,73,667/-). However, out of 100 creditors, contra confirmations from only 11 creditors (amounting Rs. 2,99,42,176/-) are available physically on the record.

The ld PCIT also noticed regarding the claim of Investment Allowance u/s 32AC of the Income Tax Act, 1961, vide letter dated 10/12/2018, following calculation has been submitted:

Therefore, learned PCIT, issued a show- cause notice, under section 263 of the Act, to the assessee, to explain the transactions. In response to the notice under section 263 of the Act, the assessee submitted its reply before the learned PCIT, which is reproduced by the ld.PCIT in his revision order. However, after going through the reply of the assessee, the learned PCIT, has dealt with the issue and concluded as follows:

Therefore learned PCIT observed that since the twin conditions namely, (i) the order of the Assessing Officer sought to be revised is erroneous: and (ii) it is prejudicial to the interests of the Revenue are satisfied, the assessment order passed u/s 143(3) dated 21/12/2018, therefore was set aside by ld PCIT with the direction to make proper enquiries/verification in respect of share capital introduced during the year under consideration, unsecured loans (squared up or not) raised during the year and the trade creditors. The AO shall carry out inquiries about the various layers through which the money has been rotated and landed as share capital to the assessee-company. The AO is directed to summon the share applicants and examine them regarding the source of the money in their hands either through cash or through cheque and the veracity and genuineness of huge loans taken by them, without making interest payment for years together, for investing/ giving loans to the assesses- company and others. The Trade creditors shall also be properly verified. Further, the bills/ vouchers of the new Plant & M/c installed, on which investment allowance u/s 32AC has been claimed and the bifurcation of the electrification expenses shall be also verified. Subsequent to the inquiries & verification of all relevant aspects of the ITA 276 / Rjt/ 2019 (AY 2016-17) SIMERO VITRIFIED P. LTD. case, the AO shall pass a speaking order, after affording proper opportunity of being heard to the assessee.

Aggrieved by the order of the learned PCIT, the assessee is in appeal before us 13.We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record.Learned Counsel for the assessee submitted that assessing officer has made due inquiries, in the course of the assessment proceedings and the assessee has furnished various evidence to discharge the onus under the Law. Thus, it is not a case of lack of inquiry as assumed by the Id. PCIT. That there is a clear difference between 'lack of inquiry' and 'inadequate inquiry'. The Id. PCIT cannot revise the assessment order u/s. 263 of the Act merely because he has a different opinion regarding the extent of inquiries than that is made by the assessing officer during the course of the assessment proceedings. The Law is settled that if the assessing officer has made inquiries, the PCIT cannot revise the assessment order u/s. 263 of the Act, merely because he either has a different view or he is not satisfied with the extent of the inquiries made by the assessing officer. The Ld. Counsel also placed reliance on several judicial pronouncements, which we have gone through.

On the other hand, ld DR for the Revenue, took us through, the appeal effect order passed by the assessing officer, under section 143(3) r.w.s. 263 of the Act, vide order dated 24.09.2021, and stated that even assessee failed to prove the source of the transactions in the appeal effect order. The entire appeal effect order of the assessing officer is reproduced below:

Thereafter, Pr. Commissioner of Income Tax-3, Rajkot found some discrepancies in passed assessment and on the basis of their judgement, order for revision u/s 263 was passed on 13.09.2016 and AO was directed to re-assess the income of the assessee depicting the following issues: (a) Share Capital introduced during the year under consideration; (b) Unsecured Loans (squared up or not) raised during the year; (c) Sundry Creditors, and (d) Sustainability of claim u/s 32AC 3. Accordingly, a notices u/s 142(1) of the Income Tax Act, 1961 dated 03-02-2021 along with questionnaire were issued to the assessee for calling details/explanations regarding above relating the raised issues in its justification.

In its response assessee company failed to furnish any written submission and documentary evidence relating the raised issues in its justification. On 30.07.2021 a response was received asking the reasons u/s 148 r.w.s. 147 for reassessment. Since the reassessment has no relation with provisions of section 148 and 147, the reply becomes null and void.

Show cause notice was issued to the assessee on 11-09-2021 and the date of compliance has been fixed as 16-09-2021. In compliance of the above, the assessee filed his reply on 16-09-2021. The assessee has submitted his reply of more than 600 pages. Earlier, the assessee was issued notices under section 142(1) on 23-07-2021, 05-09-2021 and 06-09-2021 and asked to produce the necessary documents/details related to the case, but the assessee did not give any reply. And the required documents were not produced in compliance with the above notices. Now that the time barred period of the case is very near, the assessee has deliberately submitted documents more than 600 pages along with his written reply, so that their duly third- party verification and creditworthiness of the parties cannot be done. Doing so by the assessee to be a strategy and a question arises on the intention of the assessee. Since the assessee has knowingly not furnished his reply in compliance with the notices issued earlier and has furnished the reply/documents/details in bulk in the final stages of the time barring of the case, the main issues of verifications relating to his case such as fresh introduction of share capital, fresh unsecured loans accepted, data relating additional creditors and depreciation etc. could not be examined and third- party verification could not be done. The assessee has not cooperated in getting the verifications related to the case. Therefore, in view of the above circumstances, reply of the assessee is rejected.

We note that learned Counsel submitted before us that some of the documents physically filed before the assessing officer were not filed before the learned PCIT, during the revision proceedings, under section 263 of the Act, therefore we are of the view that one more opportunity should be provided to the assessee to plead his case before the ld. PCIT, with the direction to the assessee to submit all the documents and evidences to prove the source of the source and the evidences filed physically by the assessee before the assessing officer, should also be provided to learned PCIT.

Therefore, considering the above facts, we are of the view, that this matter should be remitted back to the file of the Ld. PCIT with the direction to the assessee to submit all details and documents to prove the source of the source and other transaction also. We have considered the submissions of both the parties and noted that entire documents and evidence were not furnished by the assessee even before the assessing officer or before the Ld. PCIT. Some of the documents to prove the first decree of evidences are to be submitted before the Ld. PCIT. We also find that the second decree evidences to prove the source of the source in respect of share capital have not been furnished by the assessee before the Ld. PCIT. Therefore, we are of the view that one more opportunity should be given to the assessee to furnish the required documents and evidences to prove the source of the source before the Ld. PCIT. We note that the Hon’ble Supreme Court in M.S.Gill vs The Chief Election Commission 1978 AIR SC 851 held “The dichotomy between administrative and quasi-judicial function vis-à-vis the doctrine of natural justice is presumably obsolescent after Kraipak (A.K. Kraipak vs UOI AIR 1970 SC 150) which makes the water-shed in the application of natural justice to administrative proceedings. The rules of natural 15 ITA 276 / Rjt/ 2019 (AY 2016-17) SIMERO VITRIFIED P. LTD. justice are rooted in all legal systems and are not any new theology. They are manifested in the twin principles of nemo judex in parte sua (no person shall be a judge in his own case) and audi alterem partem (the right to be heard). It has been pointed out that the aim of natural justice is to secure justice. We note that it is settled law that principles of natural justice and fair play require that the affected party is granted sufficient opportunity of being heard to contest his case. Therefore, without delving much deeper into the merits of the case, in the interest of justice, we restore the matter back to the file of Ld. PCIT for de novo adjudication and pass a speaking order after affording sufficient opportunity of being heard to the assessee, who in turn, is also directed to contest his stand forthwith. Therefore, we deem it fit and proper to set aside the order of the PCIT and remit the matter back to the file of the ld. PCIT to adjudicate the issue afresh on merits. For statistical purposes, the appeal of the assessee is treated as allowed.

In the result, the appeal of the assessee is allowed for statistical purposes.