M/S. DAFFODIL DEALERS PVT. LTD., ,KOLKATA vs. ITO, WARD - 8(2), KOLKATA, KOLKATA

ORDER Per M.Balaganesh, AM

M/s Daffodil Dealers Pvt. Ltd. A.Yr. 2008-09 3. The brief facts of this issue is that the assessee is an investment company . The assessment for the Asst Year 2008-09 was framed u/s 143(3) / 147 of the act on 12.5.2010 determining total income of Rs 35,777/- as against the returned income of Rs Nil. This re-assessment was subjected to revision proceedings u/s 263 of the Act by the ld CIT on the ground that the ld AO had not properly enquired and verified the genuineness and source of share capital and share premium as well as the identity and creditworthiness of the shareholders who had applied for shares of the company. Hence the ld CIT passed the revision order u/s 263 of the Act on 12.3.2013 by setting aside the order passed by the ld AO u/s 147/143(3) of the Act dated 12.5.2010 with certain specific guidelines regarding investigation to be carried out while assessing the assessee de novo. The ld AO observed that the assessee had raised share capital to the tune of Rs 10,31,00,000/- by issuing shares at a premium. A notice u/s 142(1) of the Act dated 15.11.2013 calling for certain details was issued on the assessee asking it to produce and submit certain details and documents. The said notice could not be served on the assessee. Later the Inspector of Income Tax was deputed to serve the notice which went invain and accordingly the said notice was served by affixture at the last recorded address of the assessee. There was no response from the assessee to this notice. Later a summons u/s 131 of the Act was issued to the directors of the assessee company as well as of the subscriber companies. All the summons were returned back by the postal authority with remarks ‘moved / not found/ not known / no such company in this address’ etc. Accordingly the summons u/s 131 of the Act was served by affixture. There was no response to this summons either from the assessee or from the subscriber companies. The ld AO accordingly observed that the transactions of share capital are not genuine one in as much as the assessee had failed to produce the shareholders for verification of share capital investments obtained from them. Therefore, the entire share capital and share premium money of Rs 10,31,00,000/- was added to the total income of the assessee by the ld AO. The ld CITA upheld the action of the ld AO. Aggrieved, the assessee is in appeal before us. 2

M/s Daffodil Dealers Pvt. Ltd. A.Yr. 2008-09 4. We have heard the rival submissions. According to the ld AR, the shareholders of the assessee had duly responded to notices issued u/s 133(6) of the Act directly to the ld AO by giving proper replies with regard to details called for by the ld AO in the first round. Therefore, according to assessee, the identity of shareholders stands proved. We find that the ld CIT in her section 263 order dated 12.3.2013 had directed the ld AO to make independent enquiries with the shareholders of the assessee company in the manner known to law and not through the assessee. 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 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. The ld AO after noticing that none appeared on behalf of the assessee and on behalf of the subscriber companies, concluded that the assessee had not co-operated and , therefore, according to him, the identity and genuineness of the shareholder subscriber companies could not be established beyond doubt and, therefore, he made the addition of Rs 10,31,00,000/- . 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 10,31,00,000/- 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 3

M/s Daffodil Dealers Pvt. Ltd. A.Yr. 2008-09 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 Daffodil Dealers Pvt. Ltd. A.Yr. 2008-09 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 assessee 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 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.

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 5

M/s Daffodil Dealers Pvt. Ltd. A.Yr. 2008-09 and appropriate, in the interest of justice and fair play, 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 are allowed for statistical purposes.

Order pronounced in the Court on 03.08.2018