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Income Tax Appellate Tribunal, “C” BENCH: KOLKATA
This appeal preferred by the assessee is against the order of the Ld. CIT(A)-3, Kolkata dated 10.03.2016 for AY 2009-10.
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.8,19,00,000/- 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. 2009-10 u/s 139(1) of the Act on 29.06.2009 declaring gross total income 0f Rs.1550/-. The return was processed 143(1) of the Act. Subsequently, the assessment was completed u/s 147/143(3) of the Act on 16.03.2011 at the assessed income of Rs.35,350/-. Later on, the Commissioner of Income-tax, Kolkata-III, Kolkata initiated the proceedings
2 Rose Goods Pvt. Ltd., AY 2009-10 u/s 263 of the Act. The order passed u/s 143(3)/147 of the Act dated 16.03.2011 was set aside by the CIT, Kol-III , 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 16.03.2011 had been set aside u/s 263 for the reason that the assessee company had introduced substantial amount of share capital and share premium in the assessment year 2009-10, but the AO had done verification only on test check basis and he did not examine the issue of introduction of share capital and share premium in detail. Subsequent to the order u/s.263, the initiated the assessment proceedings and passed an order u/s 147/143(3)/263/143(3) of the Act on 31.03.2014 at the assessed income of Rs.8,19,35,350/-. While completing the reassessment the AO made an addition of Rs.5,19,00,000/- 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, on perusal of the Balance Sheet of the assessee company as on 31.03.2009, it was observed by the AO that in the year under consideration the assessee company had raised share capital of Rs.21,45,000/- by issuing 2,14,500 equity shares of face value of Rs.10/- each at a total premium of Rs.8,97,55,000/- @ Rs.190/- per share. The AO noted that assessee company within a short time period had come up with the issue of share capital of more than Rs.8 crore and that too, with a premium of 19 times the face value of each share. On observing this, the AO was of the opinion that the substantial amount of Rs.8,97,55,000/- credited in the books of account of the assessee company in the garb of share capital including share premium needs investigation. For that AO issued summons u/s 131 of the Act to the directors of the assessee company at their given addresses. But, according to AO, only one such director by the name of Shri Raj Kumar Shaw filed a letter on 12.03.2014 denying any connection with the assessee company.
So, the AO concluded that the subscriber companies had used fictional names as directors of assessee company and also that of fictitious identity of the subscriber companies and was of the opinion that these facts established that introduction of the share capital in the assessee company is not genuine. According to AO, the identity as well as the creditworthiness and genuineness of the shareholders could not be established, so the 3 Rose Goods Pvt. Ltd., AY 2009-10 entire amount of Rs.8,19,00,000/- which includes Rs.21,45,000/- of share capital and Rs.7,97,55,000/- of premium 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 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: “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 investigation wherein he has acknowledged receipt of replies to notice u/s. 133(6) of the Act .The AO notes
“On examination of the replies received to the notices u/s 133(6) it is seen that the bank statements of the subscriber companies is for a very limited period and not for the whole year. On analysis of the bank statements it is seen that the bank accounts were opened only for the purpose of channelizing the fund to reach the ultimate destination. It does not throw much light into the genuineness of the-transactions,” So, according to Ld. AR only because the directors did not respond/turn up before the AO for notice sent at the fag end when assessment was time barred, the AO has made the ex parte order, without giving any credence to the documents filed before him.
However 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 in sec. 68 matters. We note that AO acknowledged receipt of replies from share subscribers asked vide notice u/s. 4 Rose Goods Pvt. Ltd., AY 2009-10 133(6) of the Act. However, since the director of the assessee company did not turn up before him and after receipt of a letter from a director informing that he has no connection with the assessee company, has drawn adverse inference against the assessee company. And we note that sec. 131 notices were sent at the fag end when the assessment was getting time barred. Except that no other investigation was conducted by AO as is discernable from the order. So, 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.”
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:-
5 Rose Goods Pvt. Ltd., AY 2009-10 “……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 ITA No. 525/2014 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
6 Rose Goods Pvt. Ltd., AY 2009-10 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 12/12/2018