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Income Tax Appellate Tribunal, “C “ BENCH KOLKATA
Before: Hon’ble Shri J.Sudhakar Reddy, AM & Smt. Madhumita Roy, JM ]
The instant appeal has been filed by the assessee before us against the order dated 20.01.2016 passed by the ld. CIT(A)-2, Kolkata u/s 147/143(3)/263/143(3) of the Income Tax Act, 1961 (in short the ‘ Act ‘ ) arising out of the order dated 26.03.2014 passed by the I.T.O., Ward-4 (2), Kolkata for A.Y.2008-09.
In the instant case, the income of the assessee was determined at Rs.2,40,231/- on 17.05.2010 u/s 147/143(3) of the Act. Notice u/s 142(1) of the Act dated 23.01.2014 was served on the assessee whereupon some relevant details were submitted before the AO by the representative of the assessee. Notice u/s 131 of the Act were also served upon the then directors Shri Ajay Kumar Modi and Shankar Kumar Agarwal to verify the genuineness and creditworthiness of the shareholder. The notices came back with the postal remark marked as “ not known “ whereupon a show cause notice was issued upon the assessee on 14.03.2014 since the directors remained unverified and unexamined. The assessee was directed to explain why the entire share application money received by him should not be considered as M/s Red Hot Mercantile Pvt. Ltd. A.Y.2008-09 2 unexplained income of the company. However, no compliance, has been done on behalf of the assessee company. Since the genuineness and creditworthiness of the directors of the company during the year as claimed remained unproven and consequently the business of the assessee company and the genuineness of the fresh share capital introduced during the year also remained unverified unexamined and unexplained fresh share capital raised by the company during the relevant previous year which was disclosed by the assessee to the tune of Rs.107,750,000/- out of which Rs.54,82,500/- was issued as paid up shares and Rs.10,22,67,500 being the premium amount for issue of shares remained unexplained and the entire amount has been considered to be assessee’s income from undisclosed source of the relevant previous year which had been introduced by the company of the share capital as opined by the ld. AR and added to the income of the assessee against which the appeal was preferred. However, the ld. CIT(A) admittedly passed an order on 20.01.2016 exparte confirming the order passed by the AO with the following observations :
“6.14. As discussed hereinabove, the erstwhile directors of the assessee company had not appeared before the AO in response to hi summon issued u/s 131 and the assessee also failed to produce them before the AO. The presence of the persons working as directors of the assessee company when the alleged share application money was raised, was of immense importance to understand the modus- operandi of the business and to establish the genuineness of the transactions and creditworthiness of the subscribing companies. The assessee, therefore, failed to prove the identity and capacity of the so-called shareholders along with the genuineness of the transactions. This being the issues and also considering the pernicious practice of conversion of unaccounted money through masquerade of investment in the share capital of a company, the AO, therefore, was within his jurisdiction in treating such share capital and share premium as unaccounted cash credit of the assessee company and adding the same u/s 68 of the Act. The addition of Rs.10,77,50,000/- is therefore, confirmed.”
At the time of hearing of the instant appeal the ld. AR submitted before us for remitting the issue to the file of AO for re-examination of the matter afresh upon following the guidelines framed by the ld. CIT dated 30.03.2013 passed u/s 263 of the Act for conducting deep investigation to unearth the facts to determine the M/s Red Hot Mercantile Pvt. Ltd. A.Y.2008-09 3 identity, creditworthiness and genuineness of the shareholder. The ld. DR, however, relies on the orders passed by the authorities below.
The ld. AR also relies on the orders passed by the coordinate bench of the ld. Tribunal in for A.Y.2009-10 (M/s Shriram Tie up Ltd vs ITO) and in ITA No.1240/Kol/2012 (ITO vs M/s Deep Shikha Distributors Pvt. Ltd.)
We have heard the ld. Counsel appearing for the parties and perused the relevant materials available on record. We find that admittedly no proper enquiry has been done by the ld. AO in terms of the following guidelines framed by CIT in similar circumstances as on 30.03.2016.
" The A.O. 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 A.O. 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 A.O. is directed examine the source of realization from the liquidation of assets shown In the balance sheer after the change of Directors / if any. "
6. Further that the issue in similar circumstances matter has been dealt with by the Co-ordinate Bench of this Ld. Tribunal as relied upon by the ld. Representative of the assessee. The relevant observations are as follows :-
“5. Coming to the order of the AO at para13 it is stated that the summons was sent to the Directors of the assessee company as well as Directors of the investing companies but none of them appeared. Before the Ld. CIT(A), the assessee has specifically stated that no summons u/s 131 of the Income Tax Act, 1961 were received by the assessee. It was also argued that the assessing officer has not made any independent enquiry at his end, to disprove the claim of the assessee companies. The sum and substances of the arguments of the revenue is that the Ld. CIT(A) has passed a mechanical order without considering the legal position and the facts of the case as brought out by the AO. The ld. Counsel for M/s Red Hot Mercantile Pvt. Ltd. A.Y.2008-09 4 the assessee submits that the AO has not given adequate opportunity and has passed an order without enquiring. He supports the order of the Ld. CIT(A).
In the case of Sriram Tie Up Pvt. Ltd. supra at para 6 and 7 held as follows:
“6. In the case of M/s. Sukanya Merchandise Pvt. Ltd. vs ITO (ITA 291/Kol/2016 dated 15.12.2017) cited by the learned counsel for the assessee, a similar view has been taken by the Co-ordinate Bench of this Tribunal and the similar issue relating to the addition made under section 68 on account of share capital contribution by treating the same as unexplained cash credits is restored back by the Tribunal to the file of the A.O. in almost similar situation after recording its observations / findings as under: We note that the AO pursuant to the order of Ld. CIT had taken note of the directions of the Ld. CIT and issued notice u/s. 142(1) dated 16.08.2013 and has acknowledged that the assessee had furnished the copy of final account, I. T. Acknowledgement, bank statement for the relevant period evidencing the receipt of share application money from the share applicants. Thereafter, the AO makes certain inferences based on the list of shareholders and taking note of the bank statement furnished by the assessee. We note that after the initial notice dated 16.08.2013, thereafter the AO had issued the notice on 26.02.2014 which has been reproduced at page 3 of the reassessment order, wherein AO required the directors of the assessee company to be present before him on 06.03.2014. However, according to the Ld. AR, the assessee received the notice only on 07.03.2014 and thereafter, the assessee requested the AO to provide another opportunity of hearing vide its letter dated 20.03.2014. Thereafter, the AO fixed the date of hearing on 12.03.2014 vide notice dated 10.03.2014. So, according to the assessee company since the directors were not in station till 23.03.2014, the Ld. AR had requested for adjournment till that time. Though the AO has stated that he has issued summons on 24.03.2014 to the assessee company to produce the directors of the company before him on 26.03.2014, the assessee company contended that it has not received the said summon and, therefore, could not make the personal appearance. The AO has drawn adverse conclusion basically because of non-appearance of the directors of the assessee company and that of the shareholder companies. We note that initially the AO started the enquiry on 16.08.2013 which was complied by the assessee by submitting documents which has been acknowledged by the AO. Thereafter, the enquiry was started only at the fag end of M/s Red Hot Mercantile Pvt. Ltd. A.Y.2008-09 5 February 2014 and the assessee company had informed the AO that their directors were out of station till 23.03.2014. In the light of the aforesaid facts, we are of the opinion that the assessee did not get fair opportunity to present the evidences before the AO so, there was a lack of opportunity as aforesaid, therefore, it has to go back to AO.
8. We also note that Ld. Cit while setting aside the order of the AO which was passed u/s. 147/143(3) of the Act, the Ld. CIT gave certain guidelines to follow for conducting deep investigation. 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 Subha Lakshmi Vanijya Pvt. Ltd. Vs. CIT in dated 30.07.2015, 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. Therefore, similar order of the Ld. CIT passed u/s. 263 of the Act has been upheld. We note that the AO while giving effect to the CIT’s 263 order has noted that the assessee company has in fact furnished the documents sought by him to his notice u/s. 142(1) of the Act. However, the AO took the adverse view against the assessee on the plea that the directors of the assessee company and share subscribing companies had not appeared before him on 26.03.2014 and t after taking note that none appeared on 26.03.2014 concluded on the same day 26.03.2014 that entire amount of share application money received along with premium amounting to Rs.8,06,00,000/- which has remained unexplained and added to the income of the assessee. 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 of 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 M/s Red Hot Mercantile Pvt. Ltd. A.Y.2008-09 6 share subscribers. We note that the Hon’ble Supreme Court in 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."
M/s Red Hot Mercantile Pvt. Ltd. A.Y.2008-09 7 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.
7. We, therefore, consider it fair and proper and in the interest of justice to set aside the orders of the authorities below on the issue in dispute and restore the matter to the file of the A.O. to decide the same afresh after giving the assessee proper and sufficient opportunity of being heard and after taking into consideration the entire evidence already available on record as well as other documentary evidence which the assessee may choose to file in support of its case on the issue.” The Kolkata Bench of the ITAT has passed similar order in many cases on the same issue of additions made u/s 68 of the share capital, has set aside the assessment to the file of the AO for fresh adjudication in the lines stated above after giving the assessee adequate opportunity of being heard.
Keeping in view the totality of the facts and circumstances of the case and also the orders of the Co-ordinate Bench of the Tribunal in similar matters, we set aside this appeal to the file of the AO for fresh adjudication and in accordance with law, after giving the assessee adequate opportunity of being heard.
In the result, the appeal of the revenue is allowed for statistical purposes.”
7. With utter surprise we find the order of the ld. AO which suffers from serious irregularities has been confirmed by the ld. CIT(A) in a cyclostyled manner, in hot haste and without applying his mind. We, cannot appreciate the stand taken by the authorities below in making the addition without taking recourse of the mandate prescribed by the ld. CIT on 30.03.2013 in the matter u/s 263 as mentioned above. Further that the ld. CIT(A) has confirmed the same exparte which clearly shows that just for the sake of making addition the same has been done by him which is hereby deprecated by us.
M/s Red Hot Mercantile Pvt. Ltd. A.Y.2008-09 8
8. We, therefore keeping in mind the entire facts and circumstances of the case respectfully following the judgement of this Coordinate Bench consider it fair and proper in the interest of justice to set aside the orders passed by the authorities below and restore the issue to the file of the AO to decide the same afresh positively upon making compliance of the guidelines/mandate as mentioned above in accordance with law.
In the result the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the Court on 14.09.2018.