SPOLO CERAMIC PVT LTD,MORBI vs. DCIT, CIRCLE, MORBI, MORBI

Facts Of The Case as recorded by The Ld CIT(A)

1.“The appellant, a Private Limited Company, is assessed to tax by the Assistant Commissioner of Income-tax, Morbi Circle, Morbi (hereinafter referred as to the "AO"]. It is engaged in the business of manufacturing of ceramic tiles and other allied items. Regular books of account are maintained, which are duly audited as per the provisions of Companies Act, 2013 as also u/s. 44AB of the Income-tax Act, 1961 (hereinafter referred to as the "Act"). Return of Income for the assessment year under consideration was filed electronically u/s. 139(5) of the Act on 09.01.2018 (revised) declaring total income of Rs. Nil (Loss of Rs. 1,57,90,653/-) During the course of assessment proceeding, various details / information were called for vide notice u/s 142(1) of the Act in response to which all the required and relevant details had been furnished electronically through "e-assessment" proceeding from time to time. Further in assessment proceedings, the AO alleged that out of the various shareholders/lender from whom the appellant has received share capital / loan, the appellant has failed to justify the source of share capital / loan received from 9 persons and accordingly vide notice dated 14.12.2019 required to show cause as to why the amount received from such 9 persons should not be treated as unexplained credits u/s 68 r.w.s. 115BBE of the Act.

5. In response, the appellant vide letter dated 19.12.2019 strongly objected the proposal of the AO, summary of which is as under:

The appellant has discharged its primary onus with respect to proving the identity and creditworthiness of the persons and genuineness of the transaction by submitting various details which inter alia included PAN, Address, copy of ledger accounts of lenders, acknowledgement of return of income, confirmation duly signed by the lenders, copies of bank statements of lenders etc. to prove genuineness of transaction and identity and creditworthiness of share holders;

The AO in the show cause notice itself stated that "these loans appear to be the main source from which the person has invested or gave loan to you" which shows that the source of source of investment in the appellant company is already known and therefore, any further inquiries with respect to source of such creditors is outside the ambit of provisions of section 68 of the Act.

As regard furnishing of explanation in respect of loans availed by the persons it is to submit that the financial affairs of third party are not in our control and therefore the company cannot be expected to prove a fact which is in knowledge of the third party, particularly when it is once personal matter. The appellant also relied upon various decisions.

Also, as regard the observation as to unsecured loans availed by the shareholder does not commensurate with their capital it was submitted that availing loans or advancing loans is complete prerogative of the individual shareholder and the company does not have control over the actions carried out between two independent third parties.

The appellant had justified the SOURCE OF SOURCE in the hands of the said shareholders / creditors by furnishing their balance sheet showing availability of funds invested in the appellant company. Thus, the company also discharged the onus lied upon it by insertion of Proviso to section 68 of the Act

On the above background, the AO alleged that the appellant has failed to discharge its onus to prove identity, creditworthiness of the parties from whom share capital were accepted and genuineness of the said transactions and thereby treated the share capital / unsecured loan from various persons as unexplained cash credits under section 68 r.w.s. 115BBE of the Act and accordingly added Rs. 2,02,68,000/- to the appellant's total income.

3.1. That the Ld AO make an order with under mentioned observation Total Income as per return of income 0/- Addition u/s 68 in respect of unexplained cash credits 2,02,68,000/-* Total assessee income…. Rs. 2,02,68,000/-

"Notice u/s 250 of the I.T Act was issued to the appellant on 21.01.2022 asking the appellant to file details in support of the grounds of appeal on or before 07.02.2022. However, the appellant did not reply to the notice issued. Accordingly, a 2nd notice u/s 250 of the I.T Act was issued on to the appellant on 05.03.2022 asking the appellant to file details in support of the grounds of appeal on or before 21.03.2022. In this notice the appellant was duly informed that this is the final opportunity granted. However, appellant again did not reply to the 2nd notice too. In absence of details in support of GOA filed, appeal cannot be decided. The non- compliance to the 2 notices issued shows that the appellant is not interested in pursuing its appeal. The order of AO is upheld and the appeal stands DISMISSED."

(i) During the course of hearing the Ld AR has submitted that the assessee could not comply with the direction of the notice issued by Ld CIT(A).No proper and responsible opportunity was given to the assessee. That Ld AR further requested that an opportunity to explain the case before the lower Authority may kindly be granted. (ii) On the contrary the Ld DR has relied on the order of the Ld CIT(A)Ld Sr DR has submitted that number of notice was issued to the assessee, due opportunity was provided to the assessee. However Ld DR has not objected the request of the assessee.

We note that before passing the order the Ld CIT(A) had issued notice. The Ld CIT(A) has observed in the order that no infirmity or illegally was found in the order of Ld AO and confirmed the action of the AO about the unexplained investment u/s 69A of the Act. Besides this the Ld CIT(A) has dismissed the appeal of the assessee stating that assessee is not willing to pursue the appellate proceedings anymore.

We note that the assessee could not attend the hearing because the consultant of the assessee did not inform about the notice for hearing. The Ld CIT order is silent on the service of notice upon the assessee. We are of the view that assessee deserve for an opportunity to comply with the appeal. We are of the view that the request of the Ld AR asking for one opportunity to present the case before the Ld CIT(A) is accepted. We there for set-aside the order of the lower authority and the matter remit back to the file of Ld CIT(A) to adjudicate the matter according to law after giving due opportunity to the assessee to submit his case.

Order pronounced in the open court on 18 / 03 /2025.