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Income Tax Appellate Tribunal, “D” BENCH : KOLKATA
Before: Hon’ble Shri M.Balaganesh, AM & Hon’ble Shri S.S.Viswanethra Ravi, JM]
ORDER Per M.Balaganesh, AM
This appeal is directed against the order of the Learned Commissioner of Income Tax (Appeals) -1, Kolkata in Appeal No. 308/CIT(A)-1/W-2(4)/ 2014-15 [ in short the ld CITA] dated 29.2.2016 against the order of assessment framed pursuant to directions of Learned Administrative Commissioner under section (in short u/s) 263 of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’), by the Learned Income Tax Officer, Ward 2(4), Kolkata [ in short the ld AO] u/s 143(3) 263 of the Act dated 31.3.2014 for the Asst Year 2008-09.
The assessee’s only substantive ground challenges correctness of both the lower authorities’ action treating its share capital / premium of ₹ 4,50,00,000/- treated as M/s Snowfall Builders Pvt. Ltd. A.Yr. 2008-09 unexplained cash credits during the course of assessment as upheld in lower appellate proceedings. This assessee is a company engaged in investments and trading of shares business. There is no dispute about the assessee having issued 225000 equity shares of ₹10/- per share at a premium of ₹190/- per share each. The veracity of the same were sought to be verified and accordingly notice u/s 133(6) of the Act were issued to all the share holders, which were duly complied with by the said shareholders. Admittedly, these information / details were collected by the ld AO himself directly u/s 133(6) of the Act and behind the back of the assessee. No adverse inference were drawn by the ld AO nor any defects pointed out in the details furnished by the said shareholders in response to notice u/s 133(6) of the Act. All the shareholders confirmed the factum of investments made at a premium in the assessee company. The ld AO issued summons u/s 131 of the Act to verify identity and creditworthiness of the shareholders as well as genuineness of relevant transactions which remained uncomplied. The Assessing Officer therefore treated the assessee’s share capital / premium of ₹4.50 crores to be unexplained cash credits u/s. 68 of the Act as affirmed in lower appellate proceedings.
We have given our thoughtful considerations to rival contentions. Both parties reiterate their respective stands against and in support of the impugned addition. It transpires from the case file that both the lower authorities held the director of the assessee and the directors of the shareholders company had not responded to the summons issued u/s 131 of the Act by the ld AO. However, the ld AO acknowledges the fact that all the shareholders had confirmed the factum of making investements in the assessee company in their response to notice u/s 133(6) of the Act and no adverse inference was drawn by the ld AO on the said details. We find that the ld CIT in his section 263 order dated 11.3.2013 had directed the ld AO to make independent enquiries with the shareholders of the assessee company in the manner known to law. This is very clear from the directions of the ld CIT. In response to this, the ld DR vehemently opposed this plea of the assessee and contended that the assessee company 2
M/s Snowfall Builders Pvt. Ltd. A.Yr. 2008-09 was very well aware of the revisional order passed by the ld CIT and should have brought all evidences before the ld AO to substantiate the identity, genuineness and creditworthiness of share subscribers. The ld AO has noted that the assessee did not co-operate with the assessment proceedings and , therefore, the assessee cannot be given another innings. We find that this argument of the ld DR is factually incorrect in as much as the assessee had duly furnished the entire details of the shareholders and the same shareholders had also complied with the notices u/s 133(6) of the Act sent to them by the ld AO independently and directly. This examination was carried out behind the back of the assessee. Only the summons issued u/s 131 of the Act to the assessee and to the directors of the shareholders were not responded to before the ld AO. We note that the ld CIT invoked the revisional jurisdiction u/s 263 of the Act and found that the assessee company in its Balance Sheet has shown to have infused equity share capital of Rs 4,50,00,000/- including share premium and since the ld AO had not enquired into the source of the share capital and premium infused into the assessee company by verifying the identity, genuineness and creditworthiness of the shareholders, the ld CIT found the AO while doing assessment did not exercise the role of investigator and, therefore, the order of ld AO is erroneous so far as prejudicial to the interest of the revenue and directed the ld AO to make fresh assessment after taking into consideration the pernicious practice of converting black money by the modus operandi as described by the ld CIT. We also note in the said backdrop, the ld CIT has given certain guidelines which were given in order to facilitate deep investigation into the case. The ld AO cannot remain quiet after issuing summons u/s 131 to the share subscriber companies. The same when went unanswered, the ld AO should have resorted to other actions available as per law, which was not done in the instant case. Without resorting to such further verification / investigation / action as per law, the ld AO ought not to have drawn any adverse inference against the assessee company.
M/s Snowfall Builders Pvt. Ltd. A.Yr. 2008-09 5. At the cost of repetition, we would like to state that the ld CIT had specifically given the manner in which investigation and further enquiries are to be carried out by the ld AO to understand the genuineness of share capital raised by the assessee company in his order passed u/s 263 of the Act, wherein it is specifically mentioned that the enquires and investigation should be carried out independently by the ld AO. We also note that similarly placed assessees had challenged the exercise of revisional jurisdiction u/s 263 of the Act before this tribunal in those cases , one of it of Subhalakshmi Vanijya Pvt Ltd vs CIT in dated 30.7.2015, wherein the Tribunal was pleased to uphold the order passed by the ld CIT passed u/s 263 of the Act , which we learn to have been confirmed by the Hon’ble Jurisdictional High Court and the SLP preferred against the decision of the Hon’ble Jurisdictional High Court has been dismissed by the Hon’ble Supreme Court. We note that the shareholders had duly replied confirming the factum of investments before the ld AO . We find that it is not in dispute that the entire transactions of share capital and share premium were the subject matter of verification by the ld AO, wherein the shareholders had duly responded to notice u/s 133(6) of the Act by confirming the fact of making investments in the assessee company. The shareholders had also duly furnished their income tax assessment particulars. Pursuant to directions of the ld CIT u/s 263 of the Act, the ld AO was mandated to make direct verifications about the genuineness of the transactions and creditworthiness of the shareholders by making necessary specific enquiries as listed out in the revision order u/s 263 of the Act. The ld CIT had specifically directed the ld AO to make enquiries directly from the shareholders and not through the assessee. Hence non-appearance of the director of the assessee in response to summons u/s 131 of the Act before the ld AO and non- production of the shareholders of the assessee company before the ld AO, intentionally or unintentionally does not make any relevance here. The ld CIT had directed the ld AO to investigate into multiple layers of the investment in shares made by respective shareholders and identify the ultimate person holding controlling interest including the 4 M/s Snowfall Builders Pvt. Ltd. A.Yr. 2008-09 change in shareholding, directorship etc and then take the entire matter to its logical conclusion to bring out the facts on record. From the perusal of the assessment order, we find that this has not been done by the ld AO. In this regard, we would like to place reliance on the decision of Hon’ble Delhi High Court in the case of CIT vs Jansampark Advertising & Marketing Pvt Ltd in dated 11.3.2015 wherein after noticing inadequate enquiry by authorities below, the court had 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 Section 148 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 enquiry' 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.”
5.1. In view of the aforesaid findings in the facts and circumstances of the case and respectfully following the decision of Hon’ble Delhi High Court supra, we deem it fit and appropriate, in the interest of justice and fairplay, to remand the matter back to the file of the ld AO for de novo assessment and to decide the matter as mandated by the ld CIT in section 263 order, after giving sufficient opportunity of being heard to the assessee. Accordingly, the Grounds raised by the assessee in this regard are allowed for statistical purposes.
M/s Snowfall Builders Pvt. Ltd. A.Yr. 2008-09
The Ground Nos. 1,2 and 9 raised by the assessee are general in nature and does not require any specific adjudication.
The Ground No. 7 raised by the assessee is with regard to disallowance of claim of deduction u/s 35D of the Act in the sum of Rs 7,600/-. We find that no arguments were advanced by the ld AR before us and hence the same is hereby dismissed.
We find that the assessee had raised Ground No. 8 on the issue of disallowance u/s 14A of the Act. The ld AO made the disallowance u/s 14A of the Act by applying the third limb of Rule 8D(2)(iii) of the Rules and worked out the disallowance figure of Rs 1,12,500/- . Since the total expenditure debited in the profit and loss account itself was only Rs 16,383/- and since separate addition is made towards preliminary expenses of Rs 7,600/- thereon, the remaining expenditure of Rs 8,783/- was disallowed by the ld AO u/s 14A of the Act. This action of the ld AO was upheld by the ld CITA. We find that there is no exempt income derived by the assessee in the instant case. Hence there cannot be any application of provisions of section 14A of the Act. Accordingly, Ground No. 8 raised by the assessee is allowed.
In the result, the appeal of the assessee is partly allowed for statistical purposes.
Order pronounced in the Court on 19.09.2018