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Income Tax Appellate Tribunal, “D” BENCH : KOLKATA
Before: Hon’ble Shri A.T.Varkey, JM& Shri M.Balaganesh, AM ]
ORDER Per M.Balaganesh, AM
This is an appeal by the assessee directed against the order passed by the Learned Commissioner of Income Tax(Appeals)-6, Kolkata [in short the ld CIT(A)] in Appeal No.424/CIT(A)-6/Kol/2015-16 dated 01.11.2016 against the order of assessment framed by the Learned Income Tax Officer, Ward-6(4), Kolkata [ in short the ld AO] under section 263/144 of the Income Tax Act, 1961 (in short “the Act”) dated 31.03.2014 for the Assessment Year 2008-09.
The only to be decided in this appeal is as to whether the ld CITA was justified in upholding the addition made u/s 68 of the Act towards share application money in the sum of Rs 3,68,00,000/- and enhancement by the ld CITA from Rs 3,68,00,000/- to Rs 3,69,01,543/- , in the facts and circumstances of the case.
Wise Enclaves Pvt. Ltd. A.Yr.2008-09 3. The brief facts of this issue is that the assessee is an investment company. The return of income for the Asst Year 2008-09 was filed on 9.8.2008 declaring total income of Rs 2,230/-, which was duly processed u/s 143(1) of the Act. Later the assessment was reopened by issuance of notice u/s 148 of the Act and re-assessment was completed u/s 147/143(3) of the Act on 22.7.2010 determining total income at Rs 9,870/-. 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 application money / share capital 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 26.3.2013 by setting aside the order passed by the ld AO u/s 147/143(3) of the Act dated 22.7.2010 with certain specific guidelines regarding investigation to be carried out while assessing the assessee de novo. The ld AO in the consequential proceedings giving effect to the order of ld CIT u/s 263 of the Act, had reproduced the relevant portion of the ld CIT’s directions. The ld AO observed that the assessee had raised share capital by issuing shares of Rs 10 each with premium of Rs 390 each and thereby raised a total amount of Rs 3,69,01,543/-. This money received from this issue of shares were used by the assessee in making investments to the tune of Rs 3,68,00,000/-. A notice u/s 142(1) of the Act calling for certain details was issued on the assessee asking it to produce and submit certain details and documents at the last known address of the assessee, but the said notice was returned unserved by the postal department. The inspector was directed to inquire the whereabouts of the assessee and it was reported that the assessee could not be found at the given address. Notice u/s 133(6) of the Act was sent to the bank branch asking to deliver the bank transaction details for the whole year where the assessee maintained the bank account as found on record. Summons u/s 131 of the Act was also issued to Director of the assessee company for personal appearance in order to examine him about the controlling interest and his credentials. But no compliance was made against such summons. The ld AO accordingly observed that the transactions of 2
Wise Enclaves Pvt. Ltd. A.Yr.2008-09 share capital are not genuine one in as much as the assessee had failed to produce the persons who were directors of the assessee during the relevant period, failed to produce the shareholders before the ld AO for verification of share capital investments obtained from them. He also observed that the identity and creditworthiness of the shareholders could not be explained. The ld AO further observed that since the source of fund of the huge investments made by the assessee during the financial year was the share capital raised together with share premium, which have remained unexplained, it can be said that the source of such investment in shares of other corporate bodies have also remained unexplained within the meaning of section 69 of the Act. Therefore the unexplained investment to the tune of Rs 3,68,00,000/- was added to the total income of the assessee u/s 69 of the Act.
The ld CITA observed that since the assessee company’s share capital which was the source of investment remained unexplained in the light of the failure of the directors to attend personally and explain the business prudence of the investments and their own credentials, the addition on the facts of the case should have been made u/s 68 of the Act in respect of share capital of Rs 3,69,01,543/- as unexplained cash credit. Accordingly the ld CITA enhanced the addition to Rs 3,69,01,543/- from Rs 3,68,00,000/- and upheld the action of the ld AO. Aggrieved, the assessee is in appeal before us.
We have heard the rival submissions. According to the assessee, 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. According to ld AR, the notices issued to the assessee company could not be served as the address mentioned by the ld AO even in the assessment order is incomplete in as much as ‘Block A’ , where the office of the assessee was situated, had not been 3
Wise Enclaves Pvt. Ltd. A.Yr.2008-09 mentioned in the notice as well as in the assessment order. That is the reason the assessee could not appear before the ld AO and present its case which eventually lead to framing of best judgment assessment u/s 144 of the Act by the ld AO. Hence the mistake committed by the ld AO in not fully mentioning the address of the assessee company had resulted in exparte order passed u/s 144 of the Act and accordingly no proper opportunity was granted to the assessee company to prove the genuineness of transactions and creditworthiness of the share subscribers. The ld AR relied on the decision of the Hon’ble Supreme Court in the case of Tin Box Company vs CIT reported in 249 ITR 216 (SC) wherein it was held that:- "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.
Wise Enclaves Pvt. Ltd. A.Yr.2008-09 The matter shall now be remanded to the assessing authority for fresh consideration, as afore stated.”
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. We note that the ld CIT’s exercise of revisional jurisdiction u/s 263 of the Act setting aside the 147/143(3) order was passéd on 26.3.2013. The ld AO while giving effect to the order of the ld CIT has noted that he had issued summon u/s 131 of the Act to the directors of the shareholder companies , who had not appeared before him , the ld AO thereafter gave assessee another notice as to why the best judgment assessment should not be resorted to in the facts and circumstances of the case. The ld AO after noticing that none appeared on behalf of the assessee, 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 3,68,00,000/- which was later enhanced to Rs 3,69,01,543/- by the ld CITA . 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 3,69,01,543/- at a premium of Rs 390/- per share 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 noted in the said backdrop, the ld CIT has given certain 5
Wise Enclaves Pvt. Ltd. A.Yr.2008-09 guidelines which were given in order to facilitate deep investigation into the case and for that, we note that the ld CIT had given the following directions:- "In view of the special facts and circumstances as well as the judicial decision. relied upon, the impugned order u/ s 148 is therefore, set aside u/s 263 of the IT Act and 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 m the balance sheet after the change of Directors, if any.
After conducting the inquiries & verification as directed above, the A. O. should pass a speaking order, providing adequate opportunity of being heard to the assessee. “
With the aforesaid direction, the ld CIT set aside the order of the ld AO which was passed u/s 147 / 143(3) of the Act. 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 during the original re-assessment proceedings confirming the factum of investments before the ld AO . The ld AO chose to issue summons to the directors of the shareholders companies who did not appear
Wise Enclaves Pvt. Ltd. A.Yr.2008-09 before him which lead to ld AO drawing adverse inference against the assessee by resorting to make best judgment assessment. We find that the assessment order has been passed u/s 144 of the Act on the ground of non-cooperation by the assessee. Similarly the ld CITA also had passed an exparte order for non-service of notice and non-appearance of the assessee. In this regard, we find that the address of the assessee noted by the ld CITA in his order is “M/s Wise Enclaves Pvt Ltd, 9/12A, Lal Bazar Street, 1st Floor, Kolkata -700001”. The ld AR stated that Lal Bazar street is a huge place and in the absence of specific mention of Room Number and Block Number, it is not practically not possible to serve any notice. In the instant case, the notices of the ld AO and the physical verification by the Inspector could not be served and implemented , as the case may be, as the Block Number was not mentioned in the notice. He stated that similar mistake could have been committed by the ld AO also while sending certain notices, which in his opinion, were not complied with by the assessee.
7.1. We find that it is not in dispute that the entire transactions of share capital and share premium was the subject matter of verification in the re-assessment proceedings 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 supra. 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 intentionally or unintentionally does not make any relevance here. The ld AO admittedly did not resort to make enquiries in the manner stated by the ld CIT u/s 263 of the Act inspite of the fact that all the necessary details were very much available before him. The ld CIT had directed the ld AO to investigate into multiple layers of the investment in shares made 7
Wise Enclaves Pvt. Ltd. A.Yr.2008-09 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.
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.”
7.2. 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 8
Wise Enclaves Pvt. Ltd. A.Yr.2008-09 assessee. Accordingly, the Grounds raised by the assessee are allowed for statistical purposes.
The Ground No. 8 raised by the assessee is with regard to charging of interest u/s 234A / 234B/ 234C and 234D of the Act which is consequential in nature. We direct the ld AO to recompute the same as per law.
The Ground No. 9 raised by the assessee is general in nature and does not require any specific adjudication.
In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the Court on 23.05.2018.