PRAYAG CAPITALS INDIA LIMITED,ALLAHABAD vs. ITO, WARD-2(2) NOW WARD-2(1), , ALLAHABAD

In this case assessment order dated 20/12/2017 was passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961 (“the Act” for short) whereby the assessee’s total income was determined at Rs.1,82,90,050/- as against returned income of Rs.11,10,050/-. In the aforesaid assessment order an addition of Rs.1,71,80,000/- was made by treating the increase in the assessee’s share capital of the aforesaid amount of Rs.1,71,80,000/- as the assessee’s income from undisclosed sources. The relevant portion of the assessment order is reproduced as under:

The present appeal before us has been filed by the assessee against the aforesaid impugned appellate order dated 21/03/2024 of learned CIT(A). In the course of appellate proceedings in Income Tax Appellate Tribunal, paper book in two parts was submitted from the assessee’s side containing the following particulars:

At the time of hearing before us, the learned A.R. for the assessee submitted that the assessee had filed additional evidence along with written submissions in the course of appellate proceedings in the office of the learned CIT(A), which were forwarded by the learned CIT(A) to the Assessing Officer and the report of the Assessing Officer was obtained. The learned CIT(A) has passed the impugned order, the learned A.R. for the assessee submitted, after considering the Assessing Officer’s aforesaid report. He drew our attention to the paper book filed from the assessee’s side during appellate proceedings in Income Tax Appellate Tribunal (already referred to in foregoing paragraph No……. of this order) containing the copy of written submissions filed by the assessee during appellate proceedings in the office of the learned CIT(A). He also drew our attention to acknowledgement receipt in the written submissions and paper book (including additional evidence) filed by the assessee during the appellate proceedings in the office of learned CIT(A). The learned A.R. for the assessee placed reliance on the written submissions filed by the assessee during appellate proceedings in the office of the learned CIT(A), which is being reproduced below for the ease of reference:

Specifically, as regards the aforesaid addition amounting to Rs.70,00,000/-, received by the assessee from M/s Sakshi Barter Pvt. Ltd., the learned A.R. for the assessee took us through the paper book to show that the amount of Rs.70,00,000/- was routed through the bank account of M/s Sakshi Barter Pvt. Ltd. He also drew our attention to bank account of the assessee and M/s Sakshi Barter Pvt. Ltd. to establish this point. He further drew our attention to bank account of M/s Infraplus India Pvt. Ltd. The learned A.R. for the assessee took us through the detailed bank account of M/s Sakshi Barter Pvt. Ltd. to establish that there was gradual accretion of fund in the bank account of M/s Infraplus India Pvt. Ltd. through steady process of multiple transactions with various parties during the preceding period from time to time. He also submitted that the assessee, M/s Sakshi Barter Pvt. Ltd., and M/s Infraplus India Pvt. Ltd. are entities of the same group. He furthermore submitted that addition in share capital of the assessee by way of capital contribution from M/s Sakshi Barter Pvt. Ltd. was a group decision as part of overall corporate strategy of the group and transactions within the groups were organized in a manner that M/s Sakshi Barter Pvt. Ltd. as well as M/s Infraplus India Pvt. Ltd. had sufficient funds for effecting the aforesaid transactions. The learned A.R. for the assessee contended that the impugned order of the learned CIT(A) and the assessment order passed by the Assessing Officer to the effect that the M/s Sakshi Barter Pvt. Ltd. was entry provider/shell company and capital contribution of the aforesaid amount of Rs.70,00,000/- by M/s Sakshi Barter Pvt. Ltd. was perverse finding and contrary to materials on record. He submitted that the assessee, M/s Sakshi Barter Pvt. Ltd. and M/s Infraplus India Pvt. Ltd. are registered companies, which filed return regularly and therefore, the identity was fully established. Further he submitted that the M/s Sakshi Barter Pvt. Ltd. had received funds from M/s Infraplus India Pvt. Ltd. (as discussed earlier) and M/s Infraplus India Pvt. Ltd. had gradually accumulated sufficient funds in order to transfer the aforesaid amount of Rs.70,00,000/- to M/s Sakshi Barter Pvt. Ltd. Thus, the capacity of M/s Sakshi Barter Pvt. Ltd. was also fully established. Further it was the bonafide group decision as part of over all strategy of the group which resulted in M/s Sakshi Barter Pvt. Ltd. transferring funds of Rs.70,00,000/- to the assessee as capital contribution. Thus, he submitted, all the three ingredients, namely identity, capacity and genuineness were established and the addition of aforesaid amount of Rs.70,00,000/- was contrary to evidence and material on record. He submitted that the Assessing Officer be directed to delete this addition.

Learned Sr. D.R. placed reliance on the written submissions [already reproduced in foregoing paragraph (3.2) of this order]. He also highlighted that the assessee did not make compliance with notices issued by the Assessing Officer in the earlier part of the assessment proceedings which led to levy of non-compliance penalty u/s 271(1)(b) of the Act, amounting to Rs.10,000/-. It was only after final show cause notice issued by the Assessing Officer that the assessee filed submissions during assessment proceedings; he submitted. He also contended that M/s Sakshi Barter Pvt. Ltd. did not have adequate funds of its own to make capital contribution and had instead taken the funds from Infraplus India Pvt. Ltd. He also contended that merely because a transaction is routed through bank account need, it not be treated as a genuine transaction. For this proposition, he placed reliance on the various case laws, which were included in the paper book filed from the side of Revenue [already reproduced in foregoing paragraph (3.2) of this order.] 6.1 In rejoinder, the learned A.R. for the assessee submitted that the assessment order had been passed u/s 143(3) of the Act. It was not a best judgment assessment order u/s 144 of the Act. Therefore, he submitted, a logical inference arises that the Assessing Officer was satisfied with the compliance made to the notices issued during the assessment proceedings. Further he submitted that the learned CIT(A) had admitted additional evidence within the provisions of Rule 46A of the I.T. Rules in accordance with law, which are now part of record and should be given full consideration. He also submitted that the learned CIT(A) had obtained remand report from the Assessing Officer in respect of additional evidence filed during the appellate proceedings before the learned CIT(A). Therefore, Revenue side had got full opportunity and there is no occasion at present for Revenue to hold any grievance against the assessee regarding lack of compliance.

We have heard both sides, We have perused the materials on record. We are of the view that accumulation of funds by Infraplus India Pvt. Ltd. through steady transactions with numerous parties, is, as submitted by learned A.R. for assessee, adequately explained. Further, the group decision that it should be M/s Sakshi Barter Pvt. Ltd. to make capital contribution in the assessee company is a bonafide decision as there is no material on record to the contrary to even remotely suggest that there was any malafide purpose behind it. Thus, the act of M/s Sakshi Barter Pvt. Ltd. taking funds from Infraplus India Pvt. Ltd. for the purpose of making capital contribution in the assessee company is treated as a genuine transaction. Further, the capacity of M/s Sakshi Barter Pvt. Ltd. to make capital contribution is also established in view of transaction of Infraplus India Pvt. Ltd. with M/s Sakshi Barter Pvt. Ltd. and with other group entities and persons. M/s Sakshi Barter Pvt. Ltd. is a registered company and regular income tax assessee and therefore, the identity of M/s Sakshi Barter Pvt. Ltd. is also established. Thus, all the three ingredients, namely identity, capacity and genuineness are established. Accordingly, we hold that the aforesaid addition of Rs.70,00,000/- is to be deleted. We direct the Assessing Officer to delete the aforesaid addition of Rs.70,00,000/-. As regards the aforesaid addition of Rs.56,80,000/-, we have considered the rival submissions and material on record. It is not in dispute that the aforesaid amount has been received by the assessee from a number of individual persons/HUF [already mentioned in the submissions of learned A.R. for the assessee in foregoing paragraph (5.1) of this order]. Moreover, it is also found that the amounts received from individual persons/HUF are small amounts which are consistent with financial capacity of the individual persons/HUF. We are of the view that no adverse view should be taken having regard to the submissions made by the learned A.R. for the assessee during appellate proceedings in the office of the learned CIT(A) and the submissions made in the course of appellate proceedings in Income Tax Appellate Tribunal. Therefore, the Assessing Officer is directed to delete the aforesaid amount of Rs.56,80,000/-.

In the result, the appeal of the assessee stands allowed.