INCOME TAX OFFICER, NEW DELHI vs. VERVE CONSTRUCTION LLP, NEW DELHI

Aggrieved with the above order, assessee preferred an appeal before the ld. CIT (A) raising several grounds of appeal and also submitted that the Assessing Officer has not given sufficient time to submit the relevant information and merely gave few days through e-portal. The assessee also filed detailed submissions before the ld. CIT (A). For the sake of clarity, it is reproduced below :- “The Appellant Firm M/s. Verve Construction LLP was incorporated on 07.02.2017 with the objects to carry on the business of real estate development. The Appellant has filed its return of Income for the A. Y.2018-19 on 29.08.2018 declaring therein loss of Rs. 1,57,835/-. The case of the Appellant was selected for limited scrutiny under CASS and a notice dated 28.09.2019 u/s 143(2) of the Act was served upon the Appellant intimating that the case has been selected for scrutiny for checking "Stock valuation and share capital lather capital." The Appellant was served with various notices u/s 142(1) of the Income Tax Act and it furnished required details as enquired in the notices through e-proceeding. However, the assessee was served with a show cause notice dated 21.09.2021 whereby a short date of compliance of mere 2 days was fixed since the proceedings have been initiated in an online mode, the said show-cause notice went unnoticed and the Appellant got to know about the notice only on 23.09.2021 that was the date of compliance fixed, the Appellant immediately filed an application for adjournment seeking three days to furnish response. However, Ld. AO without affording an effective opportunity of being heard went ahead in making an addition ofRs.69,32,10,310/- u/s 68 of the Income Tax Act, 1961 read with section 115BBE of the Act and passed the assessment order on 24.09.2021. The addition has been made of the entire capital Induction by the partners of the Appellant Namely M/s. Shipra Estate Ltd. Rs.69,31,75,605/-, M/s. Verve Homes (P) Ltd. Rs.8,000/- and Regalia Properties (P) Ltd. Rs.27,000/- aggregating Rs.69,32,10,605/- on the ground that the Appellant has not fulfilled the condition laid down u/s 680f the Act by not furnishing the requisite documents as asked for. Paper Book containing all the documents (pages 1 to 348) filed by the Appellant during the assessment proceedings has been filed before National Faceless Appeal Centre on 16.07.2022. Acknowledgement of the same are enclosed as Annexure - 1 to this written submission. It is respectfully submitted that the assessment order so passed is against facts of the case and is made ignoring the documents submitted by the Appellant and thus bad in law. Detailed arguments/explanations in support of various Grounds of Appeal are as follow: First Ground of Appeal "That the order passed u/s 143(3) read with section 144B of the Income Tax Act, 1961 is bad in the eyes of law and on facts" The action of Ld. AO is legally untenable as all the necessary documents comprising copies of Income Tax Returns, bank statements, confirmed copies of accounts, proof of payments of capital introduced by the three partners of the Appellant LLP aggregating Rs.69,32,10,605/- were furnished by the Appellant vide replies filed on 25.01.2021 and 08.09.2021. The Ld. AO had very conveniently ignored the aforementioned reply submitted on 25.01.2021 and made the additions. The reply submitted alongwith its acknowledgement of submission on 25.01.2021 is placed at Pages 15 to 164 of the Paper Book. Second, Third and Fourth Grounds of Appeal "On the facts and circumstances of the case the Ld. AO erred on facts and in law in making an addition of Rs.69,31,75,605/- u/s 68 of the Act on account of capital contribution received from M/s. Shipra Estates Ltd by treating it to be an unexplained credit" “On the facts and circumstances of the case the Ld. AO erred on facts and in law in making an addition of Rs.8,000/- u/s 68 of the Act with respect to capital contribution of M/s. Verve Homes Pvt. Ltd." "On the facts and circumstances of the case the Ld. AO erred on facts and in law in making an addition of Rs.27,000/- u/s 68 of the Act with respect to capita/contribution of M/s. Regalia Homes Pvt. Ltd." While making the addition of Rs.69,32,10,605/- (total of Rs.69,31,75,605/-, Rs.8,000/- and Rs.27,000/-), the Ld. AO has made the following observations in the impugned assessment order: "5.10 Now coming to the case of the assessee, it is clear that assessee has failed in following respect: (i) In furnishing confirmation copy of the loan/capital and bank statement. Thus failing to establish genuineness of transaction in reflecting the amounts in bank statement of the assessee and money advancing party. Non-furnishing of confirmed copy of capital and loan even leads to genuine doubts about credit worthiness of claim of the assessee. . . 5.11 In view of the foregoing discussion, claim of assessee that it has got capital from partners and loan which it used to acquire plot of land to be developed is denied and amount is added u/s 68 of the Act as cash credit.” It is respectfully submitted that the very basis of making addition is erroneous and not based on the facts with the Ld. AO. The Appellant has furnished all the relevant details as mentioned below to not only establish the partners' identity but also confirmation of investment made by them, copies of their financial statements, bank statements and sources for making the investment.

Relating to Regalia Homes Private Limited S.No. Particulars Date of Page filing with Nos. in ld.AO the Paper Book 1 Income Tax Return for A.Y. 2018-19 25.01.2021 53, 54 2 Income Tax Return for A.Y. 2017-18 08.09.2021 299, 300 3 Income Tax Return for A.Y. 2016-17 08.09.2021 287, 288 4 Audited financial statement for the year ended 25.01.2021 55-62 31.3.2018 5 Audited financial statement for the year ended 08.09.2021 301-313 31.3.2017 6 Audited financial statement for the year ended 08.09.2021 289-298 31.3.2016 7 Balance confirmation for year ended 25.01.2021 160, 163 31.3.2018 4. Relating to Verve Construction LLP (The appellant) : S.No. Particulars Date of Page filing with Nos. in ld.AO the Paper Book 1 Audited financial statement for the year ended 10.01.2020 3-6 31.3.2018 2 Bank statement for the year ended 31.3.2018 25.01.2021 156-158 3 Cash Book for the financial year 2017-18 08.09.2021 343 4 Bank book for the financial year 2017-18 08.09.2021 344-346 It is humbly submitted that the Appellant has discharged its responsibility of establishing the identity of the investors, provided details and confirmations of the investments made and provided sufficient documentary evidences proving the creditworthiness of the investors. Application of section 68 by the Ld. AO was unwarranted, legally untenable and therefore, addition of Rs.69,32,10,605/- deserves to be deleted. Fifth Ground of Appeal "On the facts and circumstances of the case the instant order is passed against the principles of natural justice as the assessee has not been afforded with an effective opportunity of being heard". Para 5.3 of the assessment order states that the case was transferred internally on 18.06.2021 and subsequently notice was issued to the appellant on 26.07.2021. The appellant had provided further details specifically asked for in the notice in the reply dated 08.09.2021. It is pertinent to note that there was no mention of such internal transfer of the case in the aforementioned notice dated 26.07.2021. Annexure to the notice begins with: "Please refer your submission dated 10.01.2020 and 25.01.2021." and then asks for specific information based on the details submitted therein. Hence, the appellant had no reason to re-submit the evidences already submitted vide replies dated 10.01.2020 and 25.01.2021. However, from the assessment order, it is clear that the evidences placed on record in the reply dated 25.01.2021 were not considered by the Ld. AO when pronouncing the order. We further wish to highlight that the appellant was never asked to re- submit the evidences submitted to the earlier Ld. AO before the case was internally so transferred. In fact, Ld. AO has acknowledged in the order that he has not perused the reply submitted on 25.01.2021 by making no mention of it in the order and acknowledging that there might be some lapses on account of internal transfer. Therefore, it would be against the principles of natural justice if the evidences submitted by the appellant are not considered and the appellant is penalised for no fault. Moreover, the impugned assessment order has been passed clearly disregarding the principles of natural justice as the assessee has not been afforded with an effective opportunity of being heard in spite of request made by the Appellant for a short adjournment of three days and there was sufficient time available for the Ld. AO to pass the assessment order. Copy of the request for adjournment filed on 23.09.2022 is placed at Pages 347 to 348 of the Paper Book.”

It is further submitted that perusal of the financial statements of Shipra Estate Limited filed with the Ld. AO during the assessment proceedings reveal the following facts: S.No. Particulars As on As on As on 31.3.2017 31.3.2016 31.3.2018 Rs. in Rs. in Rs. in crores crores crores 1 Taxable income for the year 6.97 8.32 9.45 2 Balance sheet size of the 1,449.92 1,856.83 2,268.52 company 3 Net worth of the company 480.06 481.79 488.13 The above data establishes that the company had sufficient funds for making an investment of Rs. 64.35 Crores in the Applicant company which is only one of their new projects for township development, the main activities of the Shipra Group of companies.

The other amount of Rs35,000 introduced by Verve Homes P Ltd and Regalia Properties P Ltd also meets the criteria of identity creditworthiness and genuineness. Moreover the amount involved is too small to merit an elaborate discussion.

The addition made by AO u/s 68 is largely the result of ignoring submissions made by the appellant on 25/01/2021 and 08/09/2021 and consequent inability to understand the nature of transaction between the appellant and its partners. A possible reason could be internal shuffling as the case was assigned to this unit on 18/06/2021. A fresh notice was issued on 26/07/2021. However AO was aware of submissions made on 25/01/2021 as the annexure to fresh notice mentions it but chose to ignore it altogether for reasons best known to him.

From the above perusal of submissions and documents, the Appellant has discharged the onus to prove identity of the partners, capacity of partners to advance Capital/Loan and Account and, therefore, in my view, is out of preview of section 68 of the Income Tax Act. As a result, appeal is allowed for Ground No.2, 3 and 4 of the grounds of appeal. AO is directed to delete the addition made u/s 68 rws 115BBE of the IT Act 1961.”

Aggrieved with the above order, Revenue is in appeal before us raising following grounds of appeal :- “1. On the facts-and circumstances of the case the Ld CIT(A) erred in deleting the addition of Rs.69,32,10,605/- made u/s 68 of the Income Tax Act, 1961.

On the other hand, ld. AR for the assessee brought to our notice detailed findings of ld. CIT (A) and he brought to our notice page 21 of the appellate order and submitted that all the relevant informations were filed before the Assessing Officer and proof of submissions of above before the Assessing Officer was submitted before the ld. CIT (A). Further, he brought to our notice page 57 of the paper book which is the proof of submission of letter dated 25.01.2021 before the Assessing Officer. He prayed that the Assessing Officer has made addition without giving proper opportunity to the assessee and he relied on the findings of ld. CIT(A) who has appreciated the total facts on record and prayed that the appeal filed by the Revenue may be dismissed.

Considered the rival submissions and material placed on record. We observed that assessee has established real estate business in order to buy a large chunk of land from NOIDA authorities. The partners consist of M/s. Shipra Estate Limited, Verve Homes Private Limited and Regalia Properties Private Ltd.. The partners Verve Homes Private Limited and Regalia Properties Private Ltd. have only introduced fixed capital whereas M/s. Shipra Estate Limited has participated in the winning bid NOIDA authorities and introduced the land with the partnership firm for further exploitation of business opportunity and it has paid statutory payment to NOIDA authorities of Rs.5 crores and all these payments were routed through banking channel. No doubt, the assessment was selected for limited scrutiny and the Assessing Officer issued several notices through e-portal and due to non-submission of details, the Assessing Officer proceeded to make the additions u/s 68 of the Act. However, it is brought to our notice that assessee has submitted the relevant information on 25.01.2021 and it has filed the proof of submission of the above details before the Assessing Officer in the paper book. The same was appreciated by the ld. CIT (A) and no additional information was submitted by the assessee before the ld. CIT (A). Ld. CIT (A) considered all the informations already available during the assessment proceedings and gave a detailed findings that the transactions carried on by the assessee and its partners are genuine and whatever transactions carried on by the assessee with its partners are only through book entry and through bank. Therefore, he has not found any discrepancies in the submission made by the assessee and Assessing Officer has merely proceeded to make the addition over-looking the letter containing important information submitted by the assessee. After appreciating the overall facts on record, we do not see any reason to disturb the findings of ld. CIT (A). Accordingly, ld. CIT (A) having co- terminus power to do the assessment with having enhancement power, he has appreciated the facts properly on record and has given relief to the assessee. Therefore, we are inclined to dismiss the grounds raised