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Income Tax Appellate Tribunal, “D” 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)-7, Kolkata dated 28.02.2018 for AY 2010-11.
Though the assessee have raised 5 grounds of appeal, but the sole issue involved is against the action of Ld. CIT(A) in confirming the addition of Rs.8,97,65,750/- 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.
3. Briefly stated facts are that the assessee company filed its return of income for the A.Y. 2010-11 u/s 139(1) of the Act on 18.03.2011 showing total income of Rs.4,750/-. The return was processed 143(1) of the Act. Subsequently, the assessment was completed u/s 147/143(3) of the Act on 19.01.2012 at the assessed income of Rs.44,753/-. Later on, the Commissioner of Income-tax, Kolkata-II, Kolkata initiated the proceedings u/s 263 of the Act. The order passed u/s 143(3)/147 of the Act dated 19.01.2012 was set aside by the CIT, Kol-II , Kolkata u/s 263 of the Act vide order dated 14.03.2013. The said order u/s. 143(3)/147 of the Act dated 21.03.2014 had been set aside u/s 263 for the reason that Dreamland Vintrade Pvt. Ltd., AY- 2010-11 requisite and proper inquiries were not conducted regarding the identity and creditworthiness of the shareholders and the impugned order was passed mechanically without application of mind which rendered the assessment order erroneous and prejudicial to the interest of revenue as per the provisions of Sec. 263 of the Act. Subsequent to the order u/s.263, the AO initiated the assessment proceedings and passed an order u/s 144/263/147/143(3) of the Act on 10.03.2015 at the assessed income of Rs.8,97,65,750/-. While completing the reassessment, the AO made an addition of Rs.8,97,21,000/- u/s 68 of the Act on account of introduction of share capital and share premium subscribed by various shareholders in the year under consideration. During the course of reassessment proceedings, as directed in the order passed u/s. 263 of the Act, the AO issued summons u/s. 131 of the Act to all subscribers and to the assessee company. But no subscribers who had invested money in the assessee company came forward for examination on oath u/s. 131 of the Act. Hence, according to AO, the genuineness of the share premium and capital received by the assessee company remained unverified. According to AO, it is very astonishing that the investors who had invested money at a premium of Rs.390/- per share with a face value of Rs. 10/- per share in a company whose total income for the earlier year is small and has not turned out before him to summons u/s. 131 of the Act, creates doubt as the identity and creditworthiness of investors and most importantly the genuineness of transaction of share capital and premium received by the assessee company. According to AO, the identity as well as the creditworthiness and genuineness of the shareholders could not be established, so the entire amount of Rs.8,97,21,000/- received by the assessee during the year was added by the AO as unexplained credit in the books of the assessee company and added to the total income u/s. 68 of the Act. Aggrieved, assessee preferred an appeal before the Ld. CIT(A), who confirmed the action of AO. Aggrieved, assessee preferred this appeal before us.
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 14.03.2013. 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:
Dreamland Vintrade Pvt. Ltd., AY- 2010-11 “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.”
5. However, the Ld. AR drew our attention to the AO’s investigation wherein he has observed that in the light of aforesaid order passed u/s. 263 of the Act, a notice u/s. 142(1) of the Act and questionnaire was issued to the assessee on 21.05.2014 which was returned by the postal authorities. After the change in incumbency, a fresh notice u/s. 142(1) dated 22.09.2014 was sent to the assessee company which was again returned by the postal authorities. On 10.10.2014 a show cause notice was sent to the assessee through the post and on the e mail ID. But no response whatsoever was made by the assessee company. On 27.10.2014, the assessee informed about the change in address. Thereafter the AO issued last notice fixing the hearing on 18.02.2015. Then assessee filed a written submission on 17.02.2015. After that the AO passed the reassessment order ex parte by invoking sec. 144 of the Act. The Ld. AR also submitted that even the Ld. CIT(A) has also passed the 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. We note that AO has drawn adverse inference against the assessee company since assessee/investors failed to personally appear before him. And we note the address of the assessee had changed and the assessee had informed the AO on 27.10.2014 the new address. Thereafter, when the AO fixed the hearing as last opportunity to assessee, the assessee had filed written submission along with documents to substantiate identity, genuineness and creditworthiness of the investors/share subscribers. And the AO passed the reassessment order on 10.03.2015. So this exercise of effective verification of the documents produced by the assessee could not be possible because within 30 days of the assessee submitted the Dreamland Vintrade Pvt. Ltd., AY- 2010-11 written submission along with documents, 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 (to old address) 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 during the reassessment proceedings before the AO. 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.”
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:-
Dreamland Vintrade Pvt. Ltd., AY- 2010-11 “……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."
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 Dreamland Vintrade Pvt. Ltd., AY- 2010-11 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.
Order is pronounced in the open court on 27th February, 2019 Sd/- Sd/- (P. M. Jagtap) (Aby. T. Varkey) Vice President Judicial Member Dated : 27th February, 2019 Jd.(Sr.P.S.) Copy of the order forwarded to: Appellant – Dreamland Vintrade Pvt. Ltd., 4, Fairlie Place, 5th floor, 1. Kolkata-700 001. Respondent – ITO, Ward-6(1), Kolkata. 2 3. CIT(A)-7, Kolkata (sent through e-mail) CIT- , Kolkata. 4.
DR, ITAT, Kolkata. (sent through e-mail)