SMT M/S SUKANYA MERCHANDISE PVT. LTD.,KOLKATA vs. ITO, WD-6(2), KOLKATA, KOLKATA

This is an appeal filed by the assessee against the order of Ld. CIT(A)-2, Kolkata dated 07.12.2015 for AY 2008-09.

The main grievance of the assessee is against the action of the Ld. CIT(A) in confirming the addition of Rs.8,06,00,000/- made by the AO on account of alleged unexplained cash credit by invoking the provisions of sec. 68 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”).

Brief facts of the case are that assessee filed its original return of income declaring total income of Rs.2,802/- which was processed u/s. 143(1) of the Act. Later on, AO took note that the assessee has brought to his notice by filing a letter that an amount of Rs.10,732/- as preliminary expenses raised in the form of authorized capital was not allowable as deduction. Therefore, the AO reopened the assessment, since the income of Rs.10,732/- had escaped assessment by issuing notice u/s. 148 of the Act. Later, the M/s. Sukanya Merchandise Pvt. Ltd., AY 2008-09 assessment was processed u/s. 147/143(3) of the Act by making addition on preliminary expenses written off of Rs.10,732/-.

The Ld. CIT-2, Kolkata on perusal of the assessment record observed that assessee had infused fresh equity share capital of Rs.16,12,000/- on a premium of Rs.490/- per share and the assessee company received Rs.8,06,00,000/-. The Ld. CIT noted that the AO had not issued any notice u/s. 133(6) of the Act to the subscribers of the shares and had not made any independent enquiry. The Ld. CIT after taking note of the racket under which large number of companies were floated in identical manner apparently showing to have introduced share capital at a huge premium by rotating the unaccounted money, the Ld. CIT was pleased to invoke her revisional jurisdiction u/s. 263 of the Act and set aside the order of the AO and directed the AO to investigate deeply into the source of source by giving the following direction: “xxxiv) 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. xxxv) 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. xxxvi) 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.”

The AO after getting the order of CIT passed u/s. 263 of the Act issued notice u/s. 142(1) of the Act dated 16.08.2013 asking the assessee company to appear and furnish certain documents on 29.08.2013. The AO acknowledges that the assessee company had filed the list of shareholders for whom shares were allotted; and that the assessee had furnished the copy of the final account, income tax acknowledgement, bank statement for the relevant period evidencing the receipt of share application money from the share applicants. The AO notes that on perusal of the details furnished by the shareholder companies it revealed that most of the alleged shareholders of the assessee company and the company from where the shareholder companies have declared their sources, and all are M/s. Sukanya Merchandise Pvt. Ltd., AY 2008-09 having 4 to 5 common addresses and few common directors namely, Shri V. K. Jain, Shri Vikash Agarwal, Shri Manoj Mondal and Shri Rohit Agarwal. Thereafter, the AO notes that from the details of the accounts filed in response to the notice u/s. 133(6) of the Act, the shareholder companies do not have any activities as such and have no fixed assets and return of income is also very nominal. He notes that the immediate source of funds were mainly from transfer from another company as against the sale of shares. The AO after verification of the bank account further noted that in respect of share applicant companies, the entire money has come through sale proceeds received from sale of shares of another such company on the very same day or immediate earlier day and the average balance in the bank account was very nominal. Thereafter the AO in order to unearth the real fact behind the investment made by the share applicants to the assessee company, the AO summoned vide notice dated 26.02.2014 for recording statement on oath of the directors of the assessee company. The AO had reproduced the summons issued on 26.02.2014 at page 4 of his order. Thereafter, the AO notes that the assessee had asked for adjournment to 14.03.2014 and since there was no compliance he summoned the director of the assessee company vide summons dated 24.03.2014 for personal appearance and recording of statement on oath on 26.03.2014. However, since neither anybody appeared from the assessee company nor from the investor companies, he concluded that the share application money received with premium amounting to Rs.8,06,00,000/- remains unexplained, so it was added u/s. 68 of the Act. On appeal, the Ld. CIT(A) was pleased to confirm the same. Aggrieved, the assessee is before us.

We have heard rival submissions and gone through the facts and circumstances of the case. The main grievance of the assessee is that sufficient opportunity was not granted to the assessee by the AO. According to the Ld. Counsel, the AO initially issued summons dated 16.08.2013 for which compliance was made by the assessee immediately by filing the list of shareholders, the copy of final account, I. T. Acknowledgement, bank statement for the relevant period evidencing the receipt for the share application money etc. which has been acknowledged by the AO. However, according to the assessee, thereafter the AO did not do anything to find fault with the documents produced before him and thereafter became M/s. Sukanya Merchandise Pvt. Ltd., AY 2008-09 active only in the fag end of February 2014. According to the assessee, the notice reproduced by the AO dated 26.02.2014 required the directors of the assessee company to attend on 06.03.2014 was only served upon it (assessee) on 07.03.2014, therefore, the assessee requested the AO to provide another opportunity of hearing vide its letter dated 10.03.2014. Thereafter, the AO fixed the date of hearing on 12.03.2014 vide notice dated 10.03.2014. The Ld. AR brought to our notice that the assessee had sought an adjournment vide its letter dated 12.03.2014 as its director was out of station till 23.03.2014. However, the AO granted adjournment only till 14.03.2014. The Ld. AR brought to our notice that the AO had issued summons to the director of the assessee company dated 12.03.2014 requiring them to attend on 19.03.2014. However, as stated before the assessee company could not comply with the aforesaid direction as its directors were out of station till 23.03.2014 which was already brought to the notice of the AO. It was brought to our notice that the AO has mentioned in his order that the directors of the assessee company was summoned vide notice dated 24.03.2014 for personal appearance of the directors on 26.03.2014. However, the said notice was not served upon them or they could have definitely complied with the aforesaid notice of the AO. We note that the reassessment order passed by AO, pursuant to the order passed u/s. 263 of the Act by Ld. CIT was passed on 26.03.2014, 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. 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:

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 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 March,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.16,12,000/- on premium of Rs.490/- per share and the company received Rs.8,06,00,000/- 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: xxxiv) 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 M/s. Sukanya Merchandise Pvt. Ltd., AY 2008-09 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. xxxv) 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. xxxvi) 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 notice u/s. 142(1) dated 16.08.2013 and has acknowledged that the assessee had furnished the copy of final account, I. T. Acknowledgement, bank statement for the relevant period evidencing the receipt of share application money from the share applicants. Thereafter, the AO makes certain inferences based on the list of shareholders and taking note of the bank statement furnished by the assessee. We note that after the initial notice dated 16.08.2013, thereafter the AO had issued the notice on 26.02.2014 which has been reproduced at page 3 of the reassessment order, wherein AO required the directors of the assessee company to be present before him on 06.03.2014. However, according to the Ld. AR, the assessee received the notice only on 07.03.2014 and thereafter, the assessee requested the AO to provide another opportunity of hearing vide its letter dated 20.03.2014. Thereafter, the AO fixed the date of hearing on 12.03.2014 vide notice dated 10.03.2014. So, according to the assessee company since the directors were not in station till 23.03.2014, the Ld. AR had requested for adjournment till that time. Though the AO has stated that he has issued summons on 24.03.2014 to the assessee company to produce the directors of the company before him on 26.03.2014, the assessee company contended that it has not received the said summon and, therefore, could not make the personal appearance. The AO has drawn adverse conclusion basically because of non- appearance of the directors of the assessee company and that of the shareholder companies. We note that initially the AO started the enquiry on 16.08.2013 which was complied by the assessee by submitting documents which has been acknowledged by the AO. Thereafter, the enquiry was started only at the fag end of February 2014 and the assessee company had informed the AO that their directors were out of station till 23.03.2014. In the light of the M/s. Sukanya Merchandise Pvt. Ltd., AY 2008-09 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 AO while giving effect to the CIT’s 263 order has noted that the assessee company has in fact furnished the documents sought by him to his notice u/s. 142(1) of the Act. However, the AO took the adverse view against the assessee on the plea that the directors of the assessee company and share subscribing companies had not appeared before him on 26.03.2014 and t after taking note that none appeared on 26.03.2014 concluded on the same day 26.03.2014 that entire amount of share application money received along with premium amounting to Rs.8,06,00,000/- which has remained unexplained and added to the income of the assessee. 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 of 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 M/s. Sukanya Merchandise Pvt. Ltd., AY 2008-09 whether the identity, genuineness and creditworthiness of the share subscribers. 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 aforestated 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 dated 11.03.2015 wherein after noticing inadequate enquiry by authorities below have held as under:

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 the result, the appeal of assessee is dismissed.