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Income Tax Appellate Tribunal, “A” BENCH: KOLKATA
Before: Shri P.M. Jagtap & Shri A. T. Varkey, JM]
ORDER Per Shri A.T.Varkey, JM This appeal has been filed by the assessee against the order of Ld. CIT(A)-9, Kolkata dated 22.03.2018 for AY 2008-09.
Though the assessee have raised 13 grounds of appeal, but the sole issue involved is against the action of Ld. CIT(A) in confirming the addition of Rs.80,91,00,000/- as unexplained cash credit u/s. 68 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), which sum represented amounts received by the assessee towards share capital and share premium.
Briefly stated facts are that the assessee company filed its return of income for the A.Y. 2008-09 electronically u/s 139(1) of the Act on 27.07.2009 showing total income of Rs.58,080/-. The return was processed 143(1) of the Act. Subsequently, the AO found that the assessee had claimed share issue expenses of Rs.93,000/- as deduction while computing the total income which escaped assessment. This led the AO to reopen the assessment u/s. 147 of the Act. The reassessment order was framed by the AO u/s. 143(3)/147 of the Act
Aryan Deposits & Advances Pvt Ltd., AY- 2008-09 on 29.12.2010 on a total income of Rs.1,51,080/-. During the course of re-assessment proceedings the AO also found that during the year the assessee company raised share capital of Rs.80,91,00,000/- along with premium. Accordingly, the AO asked the assessee vide notice issued u/s. 142(1) of the Act for the details of such share capital. As required, the assessee filed the confirmation letters of the share applicants, their profit and loss account, balance sheet, acknowledgment of filing of the return , PAN of the share applicants amount received , no. of shares allotted and also filed copies of Form No. 2 (Return of Allotment) and Form No. 5 (for increase in authorized share capital) to prove the identity, genuineness and creditworthiness of the share applicants. The AO then issued notices u/s. 133(6) of the Act to majority of share capital contributors. According to AO, all these share applicants duly responded to the said summons and accepted having contributed to the share capital of the assessee and they have on their own filed bank statements, acknowledgment of filing of the return balance sheets and explained the source of the investments in shares of the assessee. The AO, thereafter accepted the share capital contribution and passed the reassessment order u/s. 147/143(3) of the Act. Subsequently, the Ld. CIT, served show cause notice and passed order u/s. 263 dated 07.03.2013 cancelling the said assessment. According to Ld. CIT, the AO did not examine the issue of share capital since there was nothing on record that any details were filed. The assessee filed appeal challenging the action of Ld. CIT before the ITAT which has been dismissed. In the sec. 263 order the Ld. CIT specifically directed that the AO should pass the assessment order after conducting independent detailed and complete enquiries into the subscription of the share capital and premium and the AO should trace the source of share capital by enquiring into the various layers through which the money has been introduced in this company as share capital and also examine the then directors of subscriber companies by issuing summons under sec. 131 of the Act. And that the AO should forward information to the AOs having jurisdiction over the subscriber company to the share capital regarding its investment into share capital and premium paid. It was specifically directed by Ld. CIT that the AO should conduct independent enquiries to verify the documents filed before him in respect of proof of subscription to share capital. And that the AO should not Aryan Deposits & Advances Pvt Ltd., AY- 2008-09 confine himself in conducting enquiries into the subscribers to the share capital only on selective basis. The AO should also call upon the assessee to identify the persons who are shown as directors of the assessee company and examine them on oath to verify their credential as directors. The AO should pass speaking order after providing reasonable opportunity to the assessee and verifying the source of share capital including the share premium of all the subscribers and rotation of money through various hands so as to ascertain the true nature of transaction which will bring the reality of the transactions. Though these were the guidelines given by the Ld. CIT to AO, the AO issued notice to assessee u/s. 142(1) of the Act dated 21.02.2014 to substantiate the existence, identity and creditworthiness of its share subscribers and genuineness of share subscription transaction claimed by it. Thereafter, a final reminder dated 21.02.2014 was issued to the assessee company. Thereafter, summons u/s. 131 of the Act dated 21.02.2014 was issued and served on the director of the assessee company directing his personal appearance of the director along with complete set of books of account and all the relevant documents. Simultaneously summons u/s. 131 of the Act dated 21.02.2014 were issued to the directors of the share subscriber companies for their personal appearance along with complete set of books of account and all of the relevant details/documents to substantiate their identity, the existence, identity, creditworthiness and sources of funds of the subscriber company to make payment of share application money to the assessee company and genuineness of share subscription transactions claimed by the assessee company. According to AO, inspite of all the aforesaid notices, neither the directors of the assessee company nor the subscribing companies appeared to substantiate the genuineness of share subscription transactions. Therefore, according to AO, in the instant case the assessee’s inability to discharge its burden of proof to substantiate its claim of introduction of fresh share capital, including premium, the AO held that its purported fresh share capital along with share premium, amounting to Rs.80,91,00,000/- is nothing but assessee’s own money routed under the garb of fresh share capital into its books of account. Hence, the AO treated the said sum of Rs.80,91,00,00/- as unexplained cash credit found in the books of account of this assessee during the year and was accordingly added back to the total income of the Aryan Deposits & Advances Pvt Ltd., AY- 2008-09 assessee company and made the assessment u/s 147/143(3)/263/144 of the Act on 24.03.2014 at the assessed income of Rs.80,92,51,080/- . Aggrieved, assessee preferred an appeal before the Ld. CIT(A), who confirmed the action of AO and dismissed the appeal of the assessee. Aggrieved, assessee is before us.
The Ld. AR assailing the decision of the Ld. CIT(A), wants us to delete the addition confirmed by the Ld. CIT(A) and pointed out before us that no proper opportunity the assessee got before the AO during the assessment proceedings, so the AO’s order is bad in law. Per contra, the Ld. DR supported the action of the Ld. CIT(A) and does not want us to interfere in the order of the Ld. CIT(A).
We have heard rival submissions and gone through the facts and circumstances of the case. We note that the AO was giving effect to the order of Ld. CIT passed u/s. 263 of the Act on 07.03.2013. Whereas we note that the Ld. CIT’s direction in similar case was to make enquiries to unravel the modus operandi by investigation as per following guidelines: “The AO is directed to (i) Examine the genuineness and source of share capital, not on a test check basis, but in respect of each and every shareholder by conducting independent enquiry not through the assessee. The bank account for the entire period should be examined in the course of verification to find out the money trail of the share capital. ii) Further the AO should examine the directors as well as examine the circumstances which necessitated the change in directorship if applicable. He should examine them on oath to verify their credentials as director and reach a logical conclusion regarding the controlling interest. iii) The AO is directed examine the source of realization from the liquidation of assets shown in the balance sheet after the change of Directors, if any.”
However, the Ld. AR drew our attention to the AO’s notice i.e. dated 21.02.2014. After that the AO passed the reassessment order on 24.03.2014 ex parte by invoking sec. 144 of the Act. So, according to him, the AO passed the reassessment order ex parte without affording proper opportunity of being heard to the assessee.
Hence, the main grievance of the assessee is that no proper opportunity was given to the assessee to discharge the onus casted upon it as required when section 68 is involved
Aryan Deposits & Advances Pvt Ltd., AY- 2008-09 wherein documents/proof of identity, creditworthiness and genuineness of the cash credit needs to be adjudicated. We note that AO has drawn adverse inference against the assessee company since assessee’s as well as the investor’s directors failed to personally appear before him. Thereafter, the AO passed the “Best Judgment Assessment” u/s. 144 of the Act. And we note that other than issuing summons u/s. 131 of the directors of the assessee company no other investigation as directed by Ld. CIT was conducted by AO as is discernable from the order. So, in the light of the aforesaid facts, we find force in the submission of the Ld. AR that no proper opportunity the assessee got before the AO during the reassessment proceedings. Since proper opportunity was not given to assessee by AO during the reassessment proceedings, we are of the opinion that assessee should get proper opportunity before the AO during reassessment proceedings. The Hon’ble (three judge bench) of the Hon’ble Supreme Court in Tin Box Company Vs. CIT (2001) 249 ITR 216 (SC) has held as under:
“It is unnecessary to go into great detail in these matters for there is a statement in the order of the Tribunal, the fact-finding authority, that reads thus : “We will straightaway agree with the assessee’s submission that the Income-tax Officer had not given to the assessee proper opportunity of being heard.” That the assessee could have placed evidence before the first appellate authority or before the Tribunal is really of no consequence for it is the assessment order that counts. That order must be made after the assessee has been given a reasonable opportunity of setting out his case. We, therefore, do not agree with the Tribunal and the High Court that it was not necessary to set aside the order of assessment and remand the matter to the assessing authority for fresh assessment after giving to the assessee a proper opportunity of being heard. Two questions were placed before the High Court, of which the second question is not pressed. The first question reads thus : “1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in not setting aside the assessment order in spite of a finding arrived at by it that the Income- tax Officer had not given a proper opportunity of hearing to the assessee ?” In our opinion, there can only be one answer to this question which is inherent in the question itself : in the negative and in favour of the assessee. The appeals are allowed. The order under challenge is set aside. The assessment order, that of the Commissioner (Appeals) and of the Tribunal are also set aside. The matter shall now be remanded to the assessing authority for fresh consideration, as aforestated.”
Aryan Deposits & Advances Pvt Ltd., AY- 2008-09 8. In similar case this Tribunal in in M/s. Star Griha (P) Ltd. Vs. ITO for AY 2008-09 dated 15.12.2017 has observed as under:-
“……We also note that the Ld. CIT after looking into the pernicious practice of converting black money into white money has given the guidelines to AO as to how the investigation should be conducted to find out the source. Since similar order of the Ld. CIT passed u/s. 263 of the Act has been upheld by the Tribunal as well as by the Hon’ble Calcutta High Court as well as the SLP has been dismissed by the Hon’ble Supreme Court, similar order of the Ld. CIT has to be given effect to as directed by the Ld. CIT. We take note that the Ld. CIT with his experience and wisdom has given certain guidelines in the backdrop of black money menace should have been properly enquired into as directed by him. The AO ought to have followed the investigating guidelines and method as directed by him to unearth the facts to determine whether the identity, genuineness and creditworthiness of the share subscribers. We note that the Hon’ble Supreme Court (three judges bench) in the case of Tin Box, (supra), has held that since there was lack of opportunity to the assessee at the assessment stage itself, the assessment needs to be done afresh and thereby reversed the Hon’ble High Court, Tribunal and CIT(A)’s orders and remanded the matter back to AO for fresh assessment. So, since there was lack of opportunity as aforestated it has to go back to AO…….”
We also note that the Hon’ble Delhi High Court in the case of CIT Vs. Jansampark Advertising & Marketing Pvt. Ltd. in dated 11.03.2015 wherein after noticing inadequate enquiry by authorities below have held as under:
“41. We are inclined to agree with the CIT(Appeals), and consequently with ITAT, to the extent of their conclusion that the assessee herein had come up with some proof of identity of some of the entries in question. But, from this inference, or form the fact that the transactions were through banking channels, it does not necessarily following that satisfaction as to the creditworthiness of the parties or the genuineness of the transactions in question would also have been established.
The AO here may have failed to discharge his obligation to conduct a proper inquiry to take the matter to logical conclusion. But CIT(Appeals), having noticed want of proper inquiry, could not have closed the chapter simply by allowing the appeal and deleting the additions made. It was also the obligation of the first appellate authority, as indeed of ITAT, to have ensured that effective inquiry was carried out, particularly in the fact of the allegations of the Revenue that the account statements reveal uniform pattern of cash deposits of equal amounts in the respective accounts preceding the transactions in question. This necessitated a detailed scrutiny of the material submitted by the assessee in response to the notice under Section148 issued by the AO, as also the material submitted at the stage of appeals, if deemed proper by way of making or causing to be made a 'further inquiry’ in exercise of the power under Section 250(4). His approach not having been adopted, the impugned order of ITAT, and consequently that of CIT(Appeals), cannot be approved or upheld."
Aryan Deposits & Advances Pvt Ltd., AY- 2008-09 10. In view of the aforesaid order and in the light of the Hon’ble Supreme Court’s decision in Tin Box Company (supra) and taking into consideration the fact the order of the Ld. CIT passed u/s. 263 of the Act in similar cases being upheld up to the level of Apex Court, and taking note of Hon’ble Delhi High Court’s order in Jansampark Advertising & Marketing Pvt. Ltd. (supra), we set aside the order of the Ld. CIT(A) and remand the matter back to the file of AO for de novo assessment and to decide the matter in accordance to law after giving opportunity of being heard to the assessee.
In the result, the appeal of assessee is allowed for statistical purposes.