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Income Tax Appellate Tribunal, “C”, BENCH KOLKATA
Before: SHRI A. T. VARKEY, JM &DR. A.L.SAINI, AM
Assessee by :Shri Subhash Agarwal, Advocate Respondent by :Shri Robin Chowdhury, Addl. CIT, Sr. DR सुनवाईक"तार"ख/ Date of Hearing : 04/04/2018 घोषणाक"तार"ख/Date of Pronouncement : 25/04/2018 आदेश / O R D E R Per Dr. A. L. Saini: By way of this appeal, the assessee has challenged the correctness of the order dated 02.12.2015, passed by the ld. CIT(A)-2, Kolkata, in the matter of assessment order under section 143(3)/263/143(3)/147 of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’), for the Assessment Year 2008- 09. 2.The main grievance of the assessee is against the action of the ld. CIT(A) in confirming the addition of Rs.4,21,75,125/- made by the Assessing Officer on account of share capital/share premium money being added as unexplained cash credit by invoking the provisions of section 68 of the Income Tax Act, 1961.
Briefly stated, the relevant material facts of the assessee`s case are as follows. The assessee before us is a private limited company who has filed its original Income Return of Income for the Financial Year 2007-08 on M/s Pusya Tradelink Pvt. Ltd. Assessment Year: 2008-09 11.08.2010declaring total income of Rs.180/-. The Return was duly processed u/s 143(1) of the I.T. Act, 1961. The assessee derives income from Share trading and investments. Later on,Assessing officer, on examination of the Balance Sheet & Profit &Loss account of the assessee company, found that certain expenseswhich were disallowable had not been disallowed and certain income had not been disclosed by the assessee in the return of income. The A.O. therefore issued notice u/s 148 and subsequently, passed order u/s 147/143(3) on 16.09.2010 determining the total income at Rs.15,080/-. Thereafter, the Ld. CIT, Kolkata-Il, found that requisite and proper inquiries werenot conducted regarding the identity and creditworthiness of the shareholders and theimpugned order was passed mechanically without application of mind which rendered theassessment order erroneous and prejudicial to the interest of revenue as per the provisionsof section 263 of Income Tax Act, 1961. Therefore, Ld. CIT set aside the impugned order passed u/s 148 of I.T Act for fresh assessment, vide her order passed u/s 263 of I.T. Act, on 30.03.2013. In the light of the aforesaid order of the ld. CIT, the Assessing Officer, in order to give appeal effect to the order of the ld. CIT, thecase was fixed for hearing and letter for the same was issued on 04.04.2013. A formal notice u/s 142(1) of the Act and questionnaire was issued and served upon the assessee on 10.04.2013, asking assessee to produce and submit certain details and documents to substantiate his return of income. But there was no compliance from assessee’s end. Again a notice u/s 142(1) of the Act along with questionnaire was issued and served upon the assessee 22.11.2013. In response to the same, Mr. K. K. Chandak, AR of the assessee appeared from time to time and submitted the details/documents as asked for.
4.While giving appeal effect to the order of CIT U/s 263, the Assessing Officer noticed from the balance sheet of the assessee that assessee has received a share application money of Rs.4,21,75,125/- during the assessment year. 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 131of the Act was issued to directors of all of the shareholder companies of M/s Pusya Tradelink Pvt. Ltd. Assessment Year: 2008-09 the assessee. They were asked to appeal personally before the AO with documents in support of justification for the investment made by them in the assessee company. But none of them appeared before the AO. After that, the AO issued letter to the assessee on dated 11.03.2014 informing the said facts and asked the assessee to produce the Directors of the shareholder company. The assessee was also asked to show cause as to why share application money received by it should not be treated as bogus and why the same should not be treated as its unaccounted money introduced in its books of accounts as share application/premium money.Taking note that directors did not appear before him, the AO concluded that the identity, creditworthiness and genuineness of the alleged shareholders could not be proved. According to AO, since the Directors of the Assessee Company could have given an explanation to the issues involved, and because of their non-cooperation of the Directors leads to the conclusion that the Assessee is not confident to justify the source of capital introduced and accordingly, share application money of Rs.4,21,75,310/- received by the Assessee Company during the year was disallowed and added to the total income of the Assessee as unaccounted cash credit in the Books of the Assessee as per provisions of section 68 of the Act.
The assessee has also not replied to the assessing officer therefore, based on the above facts, the Assessing Officer noted that assessee has nothing to say in his defense and the assessee has introduced its own unaccounted fund in the form of share application money, to legalize its own black money. Therefore, considering the aforesaid facts, the Assessing Officer made addition of Rs.4,21,75,310/- on account of unaccounted share application money received, u/s 68 of the Act.
Aggrieved by the stand of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) but without any success, the assessee is in further appeal before this Tribunal. M/s Pusya Tradelink Pvt. Ltd. Assessment Year: 2008-09
The ld. Counsel for the assessee begins by pointing out that at the assessment stage, adequate opportunity was not given to explain the identity, creditworthiness and genuineness of the said application money. Entire documents and explanations were on the file of the Assessing Officer except the appearance of the directors of the company in response to notice u/s 131 of the Act. The ld. Counsel stated that it is beyond his control to produce directors before the Assessing Officer. However, the ld. DR for the Revenue has defended the stand taken by the Assessing Officer.
7. We have given a careful consideration the rival submissions and gone through the facts and circumstances of the case. The main grievance of the assessee (which spells out by ground No.4 raised by the assessee), is that sufficient opportunity was not granted to the assessee by the Assessing Officer. According to the Ld. Counsel, the AO issued notice on 04.04.2013 and 22.11.2013 for which the assessee made compliance. However, to verify the identity, creditworthiness and genuineness of the shareholders of the assessee company, notice u/s 131 of the Act was issued to directors of all of the shareholder companies of the assessee. The directors were asked to appear personally before the Assessing Officer and to produce documents in support of the justification for the investment made by them in the assessee company and other details as asked for. But none of them appeared before the Assessing Officer. After that, a letter was issued to the assessee on 11.03.2014 informing the said facts and was asked to produce the directors of the shareholder companies. According to Ld. Counsel, during the reopened assessment proceedings the assessee had produced all the documents to prove the identity, creditworthiness and genuineness of the share capital which are already in the file of AO and the Ld. CIT’s revisional order asked the AO to 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”. So, the AO after issuing M/s Pusya Tradelink Pvt. Ltd. Assessment Year: 2008-09 notices to assessee-company came to conclusion that assessee failed to prove the identity, creditworthiness and genuineness of the transaction and thereafter finally, the Assessing Officer issued notice on 11.03.2014. We note that as per order sheet of the Assessing Officer (P.B - 5), the Assessing Officer noted on 28.03.2014 that “AR of the assessee appeared and filed written submissions” and it is also mentioned that a show-cause notice was issued to the assessee. However, we note that after hearing the assessee on 28.03.2014, the Assessing Officer has framed the assessment order in back dated on 27.03.2014, without giving final opportunity to the assessee to defend his case. According to Ld. Counsel, it cannot be lost sight that all relevant documents to discharge the onus on assessee to prove identity, creditworthiness and genuineness of the share transactions were in the possession of AO and the AO while giving effect to CIT’s 263 order ought to have enquired as directed by him not through the assessee and took us to the following direction of ld. CIT:
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 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. iii) 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.
Without following the express direction of Ld. CIT to examine the genuineness and source of share capital, not on test check basis, by conducting independent enquiry not through assessee, it was brought to our notice that the AO has mentioned in his order that the directors of the assessee company was summoned u/s 131 of the I.T. Act for personal appearance. Thereafter, Assessing Officer provided another opportunity to the assessee on 28.03.2014 (PB - 5) being a last opportunity, in response to M/s Pusya Tradelink Pvt. Ltd. Assessment Year: 2008-09 that Shri K.K. Chandak, AR of the assessee appeared before him and the Assessing Officer ignored the submissions given by the AR andframed the assessment order in back dated on 27.03.2014. We note that the assessment order passed by the Assessing Officer pursuant to the order passed u/s 263 of the Act by ld. CIT, the main grievance of the assessee is that it did not get proper opportunity to place the evidence before the AO to satisfy him as to the identity, genuineness and creditworthiness of the shareholders when the documents to discharge the initial onus is already in his file. Therefore, the Ld. AR relied on the order of (three judge bench) the Hon’ble Supreme Court in Tin Box Company Vs. CIT (2001) 249 ITR 216 (SC) wherein the Hon’ble Supreme Court 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 afore-stated.”
On the other hand, 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 evidence M/s Pusya Tradelink Pvt. Ltd. Assessment Year: 2008-09 before the AO to substantiate the identity, genuineness and creditworthiness of the share subscribers. The AO has noted that the assessee did not cooperate 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 order was passed in 30.03.2013. 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.4,21,75,310/- and since the 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 that the AO while doing assessment did not exercise the role of investigator and, therefore, the order of AO was found to be erroneous so far as prejudicial to the interest of the revenue and directed the 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 that in the said backdrop the Ld. CIT has given certain guidelines which we can say was in order to facilitate a thorough deep investigation into the case and for that we note that the Ld. CIT had given the following directions at the sake of repetition.
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 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. iii) 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.
We note that the AO pursuant to the order of Ld. CIT had taken note of the directions of the Ld. CIT and issued three notices altogether dated 04.04.2013, M/s Pusya Tradelink Pvt. Ltd. Assessment Year: 2008-09 22.11.2013& 11.03.2014. In response to the notice, the counsel for the assessee appeared before the assessing officer on 28.03.2014 (pb.5). We note from the order sheet of the Assessing Officer that on dated 28.03.2014, the counsel for the assessee appeared before the Assessing Officer and submitted written submissions and details and the Assessing Officer without considering the submissions/details filed by the Counsel for the assessee on dated 28.03.2014,(pb-5) passed the assessment orderin back dated on 27.03.2014, which is against the principle of natural justice. 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.
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 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 afore-stated 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 ITA No. 525/2014 dated 11.03.2015 wherein after noticing inadequate enquiry by authorities below have held as under: M/s Pusya Tradelink Pvt. Ltd. Assessment Year: 2008-09 “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. 42. 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."
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.
In the result, the appeal of assessee is allowed for statistical purposes.
Order is pronounced in the open court on 25/04/2018. (A. T. VARKEY) (A. L. SAINI) "या"यक सद"य / JUDICIAL MEMBER लेखा सद"य / ACCOUNTANT MEMBER कोलकाता /Kolkata; "दनांक Date: 25/04/2018 (RS, SPS) M/s Pusya Tradelink Pvt. Ltd. Assessment Year: 2008-09