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Income Tax Appellate Tribunal, “D” BENCH: KOLKATA
This is an appeal filed by the assessee against the order of Ld. CIT(A)- 17, Kolkata dated 20.03.2017 for AY 2008-09.
The main grievance of the assessee in this appeal is against the action of Ld. CIT(A) in upholding by an ex parte order the addition of Rs. 6,40,85,000/- made by the AO, which, according to Ld. AR, was in violation of the principles of natural justice in having passed the ex parte order qua the assessee without affording adequate opportunity of being heard to the assessee.
At the outset, ld. Counsel for the assessee submitted before us that the Ld. CIT(A) did not consider that the AO being influenced by the order of Ld. CIT passed u/s. 263 of the Act made the re-assessment without affording proper opportunity of being heard to the assessee and ignoring all material evidences which were already on record submitted during assessment proceedings and hence the addition of Rs. 6,40,85,000/- u/s. 68 of the Act sustained by him is erroneous and an arbitrary action. Hence, he urged before the Dhenu Merchandise Pvt. Ltd., AY 2008-09 bench to set aside the order of Ld. CIT(A) and restore the matter to the file of the AO for fresh adjudication. On the other hand, the Ld. DR relied on the order of Ld. CIT(A). We note that AO after receipt of Ld. CIT’s order u/s. 263 of the Act dated 28.03.2013 had issued formal notice u/s. 142(1) of the Act and questionnaire was served upon the assessee on 16.12.2013. Thereafter issued notice u/s. 131 of the Act for appearance of the assessee company’s director. Because of non-appearance of the directors of the assessee company the AO has made the addition. 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, we note that AO’s investigation as per his own words as stated as under: “3. In the light of aforesaid Order passed u/s 263 of I.T. Act by Ld. CIT, Kol-II, Kolkata, a formal notice u/s 142(1) of the Income Tax Act, 1961 and questionnaire was issued and served upon the assessee on 16.12.2013, asking it to produce and submit certain details and documents to substantiate its Return of Income. None appeared in response to the said notice.
4. It was noticed the assessee during the year has raised a paid-up share capital of Rs. 6.40 crores by issuing equity shares including premium. To verify the genuineness of the said transactions and to verify the identity and creditworthiness of the shareholders of the assessee company, notice u/s 131 of I.T. Act was issued to directors. They were asked to appear personally before the undersigned and to produce/furnish details/documents in support of the justification for the investment made by them in the assessee company and other details as asked for. But none was appeared in response to the notice u/s 131 of IT Act 1961. From the aforesaid facts and discussion it is evident that assessee has nothing to say in this matter. It is very clear that assessee has introduced its own unaccounted fund in the form of share application money, to legalize its own black money. Considering the aforesaid facts and discussion, share application money of Rs. 6.40 crores received by the assessee during the year is disallowed and added to the total income of the assessee as unaccounted cash credit in the books of the assessee as per the provisions of section 68 of I. T. Act..”
Dhenu Merchandise Pvt. Ltd., AY 2008-09
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 are concerned. According to assessee, one formal notice u/s. 142(1) of the Act was issued by AO as noted by him in the assessment order i.e. fixing the date of hearing on 16.12.2013. Thereafter, AO in the assessment order notes that he issued notice u/s. 131 of the Act to the directors of Assessee Company to appear before him. However, the contention of the assessee is that the directors did not receive any such notice. We note that though the AO has stated that he has issued summons u/s. 131 of the Act, no dates of issue of summons have been mentioned in the assessment order. We note that no other investigation was conducted by AO is discernable from the order. So, we find force in the submission of the Ld. AR that no proper opportunity before the AO during the reassessment proceedings because only one date was fixed for hearing on 16.12.2013 to Assessee Company. We note that since the directors of Assessee Company could not appear before the AO in pursuance of the summons u/s. 131 (this fact of summons issued is contested by assessee), the AO saddled the addition by drawing adverse inference is per-se without application of mind, which action of A.O. cannot be countenanced. So, we find force in the submission of the Ld. AR that no proper opportunity was given to assessee by AO during the reassessment proceedings and so we are, therefore, of the opinion that assessee did not 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.
Dhenu Merchandise Pvt. Ltd., AY 2008-09 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:-
……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 Dhenu Merchandise Pvt. Ltd., AY 2008-09 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 AO 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), and the ld DR accepted that assessee did not get proper opportunity before the AO during reassessment proceedings, 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.