JUSTIFY BARTER PVT. LTD.,KOLKATA vs. ITO, WARD 6(1), KOLKATA, KOLKATA

The appeal filed by the assessee is against the order of Ld. CIT(A)-6, Kolkata dated 28.07.2016 for AY 2008-09.

Justify Barter Pvt. Ltd. , AY- 2008-09 3. Coming to the AO’s order, we note that the AO was giving effect to the order of Ld. CIT passed u/s. 263 of the Act on 30.03.2013 wherein the Ld. CIT has given the following guidelines as to how to investigate. “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. 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. 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. After conducting the inquiries & verification as directed above, the AO should pass a speaking order, providing adequate opportunity of being heard to the assessee.”

4. It was noticed the assessee during the year has raised a paid-up share capital of Rs. 4.12 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. 4.12 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.”

Justify Barter Pvt. Ltd. , AY- 2008-09 6. 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. According to assessee, no statutory notices were served upon it. We note that other than a notice u/s. 142(1) of the Act dated 28.08.2013, the AO has not issued any other statutory notices to assessee. However, in response to that notice AR of the assessee appeared and produced written submissions which fact has been acknowledged by the AO. The AO thereafter taking note that the assessee during the year has raised a paid-up share capital of Rs. 4.12 crores by issuing equity shares (including premium) in order to verify the genuineness of the said transactions and to verify the identity and creditworthiness of the shareholders of the assessee company, issued notice u/s 131 of the Act to directors and they were asked to appear personally before him and directed to produce/furnish details / documents in support of the justification for the investment made in the assessee company. Since none appeared in response to the notice u/s 131 of the Act, according to AO, it is evident that assessee has nothing to say in this matter. So, the AO concluded that assessee has introduced its own unaccounted fund in the form of share application money, to legalize its own black money and so Rs. 4.12 crores received by the assessee during the year was added to the total income of the assessee as unaccounted money by the AO. The main grievance of the assessee is that no proper opportunity was granted to it during reassessment proceedings. We note that only one notice u/s. 142(1) of the Act was issued against the assessee company on 28.08.2013 and the Ld. AR of the assessee attended the hearing and filed written submission, which fact has been acknowledged by the AO. However, thereafter no notice was issued to assessee. The AO after issuing sec. 131 notices to the share applicants (date not specified) and taking note that none appeared before him, drew adverse inference against the assessee. Since the Ld. AR of the assessee appeared, he should have called him again for proper explanation and conducted the investigation in a fair manner. Without doing that AO has suddenly come to a conclusion that assessee failed to prove the genuineness of the share capital. Therefore, 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 Justify Barter Pvt. Ltd. , AY- 2008-09 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.”

……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…….

Justify Barter Pvt. Ltd. , AY- 2008-09 8. 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.

Order is pronounced in the open court on 13th June, 2018.