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Income Tax Appellate Tribunal, “D” BENCH : KOLKATA
Before: Hon’ble Shri M.Balaganesh, AM & Hon’ble Shri S.S.Viswanethra Ravi, JM]
IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH : KOLKATA [Before Hon’ble Shri M.Balaganesh, AM & Hon’ble Shri S.S.Viswanethra Ravi, JM] I.T.A No. 1755/Kol/2016 Assessment Year : 2008-09 Royal Crystal Dealers P Ltd -vs- ITO, Ward-4(4), Kolkata [PAN: AADCC 0441 K] (Appellant) (Respondent)
For the Appellant : Shri M.D. Shah, AR For the Respondent : Shri G. Hangshing, CIT Date of Hearing : 27.03.2018 Date of Pronouncement : 04.04.2018
ORDER Per M.Balaganesh, AM
This is an appeal of the assessee directed against the order passed by the Learned Commissioner of Income Tax (Appeals) – 6, Kolkata (in short the ld CITA) in Appeal No. 396/CIT(A)-6/Kol/2015-16 dated 28.7.2016 against the order of assessment framed by the Learned Income Tax officer, Ward -4(4), Kolkata (in short the ld AO) u/s 144/263/143(3)/147 of the Act dated 28.3.2014 for the Asst Year 2008-09.
The Ground No. 1 & 7 raised by the assessee are general in nature and does not require any specific adjudication.
2 ITA No.1755/Kol/2016 Royal Crystal Dealers (P) Ltd. A.Yr. 2008-09 3. The first issue 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 32,71,45,000/- , in the facts and circumstances of the case.
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 30.9.2008, 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 5.5.2010 determining total income at Rs 93,834/-. 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 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 5.5.2010 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 notice u/s 142(1) of the Act calling for certain details and fixed the case for hearing on 7.10.2013 to produce documents, accounts or any other evidence in support of the share capial increased by the assessee during the year under consideration. Notice u/s 133(6) of the Act was issued by speed post to all the shareholders on 2.12.2013 for verification of the genuineness and source of share capital. Out of the 33 notices issued, 22 have been returned by the posal department with the comment ‘left’’ or ‘not known’. No reply has been received from the other 10 parties on whom notices were served. Mr Ashok Kumar Lunia, A/R of the assessee company appeared before the ld AO on 21.1.2014 and again on 29.1.2014 and submitted documents relating to rental agreement and change of Directorship. Later the ld AO issued a show cause notice dated 30.1.2014 asking to explain why the 2
3 ITA No.1755/Kol/2016 Royal Crystal Dealers (P) Ltd. A.Yr. 2008-09 allotment of shares in Asst Year 20085-09 should not be considered as not genuine and be taxed under the deeming provisions of section 68 of the Act. A complete reply to the notices u/s 133(6) of the Act similar to the one filed during the reassessment proceedings u/s 147/143(3) of the Act were filed by the A/R before the ld AO during this assessment proceedings. Summons u/s 131 were issued to the Directors of the company on 4.3.2014 to verify the genuineness and creditworthiness of the shareholders. They were asked to appear personally before the ld AO and produce / furnish details / documents in support of their case. None appeared before the ld AO and one of the Director Sri Binod Sharma refused to accept the summons.
The ld AO noticed that the assessee had received share application money of Rs 32,71,45,000/- during the year in question. The ld AO observed that the assessee failed to provide any details / documents in support of the share application money received and accordingly the same was added as unexplained cash credit u/s 68 of the Act. Aggrieved, the assessee preferred an appeal before the ld CITA , who was pleased to dismiss the appeal and thus confirmed the action of the ld AO.
Aggrieved, the assessee is in appeal before us on the following grounds:- 2. For that the Assessment order passed on 28.03.2014 was not in terms of direction passed in the order u/s 263 of the IT Act, 1961. Hence, the said assessment order is liable to be set aside.
For that in the facts and circumstances the Ld. Commissioner of Income Tax(Appeals) erred in upholding the addition of Rs. 32,71,45,000/- on account of share application money being added as cash credit u/s 68 of the IT Act, 1961. The addition is not called for and hence the same be deleted.
The appellant craves leave to produce additional evidences in terms of Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963.
For that the Ld. Commissioner of Income Tax (Appeals) did not permit the assessee to produce relevant documents/evidences in the course of the hearing.
4 ITA No.1755/Kol/2016 Royal Crystal Dealers (P) Ltd. A.Yr. 2008-09 Hence, the appellate order was bad in law for want of opportunity and proper hearing and thus be quashed.
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. Therefore, according to assessee, the identity of shareholders stands proved. According to ld AR, the ld AO was directed by the ld CIT in the section 263 order to make independent enquiries from the shareholders of the subscribing companies on his own and not through the assessee. The ld CIT had also given some more directions to the ld AO explaining the manner of conducting enquiries with regard to receipt of share application money. The ld AO without adhering to the directions of the ld CIT u/s 263 of the Act, proceeded to frame the assessment by treating the entire share application money as ingenuine. 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 ?”
5 ITA No.1755/Kol/2016 Royal Crystal Dealers (P) Ltd. A.Yr. 2008-09 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.”
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 passed on 26.3.2013. The ld AO after noticing that none appeared on behalf of the assessee company in response to the summons issued u/s 131 of the Act, 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 32,71,45,000/- . 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 application money of Rs 32,71,45,000/- and since the ld AO had not enquired into the source of the same 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 guidelines which were, we can say, in order to
6 ITA No.1755/Kol/2016 Royal Crystal Dealers (P) Ltd. A.Yr. 2008-09 facilitate deep investigation into the case and for that we note that the ld CIT had given the following directions:- 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.”
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 ITA No. 1104/Kol/2014 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 assessee company who did not appear 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 ex parte order.
7 ITA No.1755/Kol/2016 Royal Crystal Dealers (P) Ltd. A.Yr. 2008-09 9.1. We find that it is not in dispute that the entire transactions of share application money were 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 or its directors 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 in spite 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 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 ITA No. 525/2014 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. 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 7
8 ITA No.1755/Kol/2016 Royal Crystal Dealers (P) Ltd. A.Yr. 2008-09 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."
9.2. 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 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 2 to 5 raised by the assessee are allowed for statistical purposes.
The Ground No. 6 raised by the assessee with regard to charging of interest u/s 234A/ B/C/D of the Act is consequential 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 04.04.2018
Sd/- Sd/- [S.S. Viswanethra Ravi] [ M.Balaganesh ] Judicial Member Accountant Member
Dated : 04.04.2018
SB, Sr. PS 8
9 ITA No.1755/Kol/2016 Royal Crystal Dealers (P) Ltd. A.Yr. 2008-09
Copy of the order forwarded to: 1. Royal Crystal Dealers Pvt. Ltd., C/o, D.J. Shah & Co., Kalyan Bhavan, 2, Elgin Road, Kolkata-700020. 2. ITO, Ward-4(4), Aayakar Bhawan, P-7, Chowringhee Square, Kolkata-700069. 3..C.I.T.- 4. C.I.T.- Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata.