M/S STAR GRIHA (P) LTD.,KOLKATA vs. ITO, WD-5(1), KOLKATA, KOLKATA

This is an appeal filed by the assessee against the order of Ld. CIT(A)-2, Kolkata dated 01.01.2016 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.24,55,00,000/- 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.1,840/- which was processed u/s. 143(1) of the Act. AO noticed that the assessee derives income from share dealing and investment. The AO after examination of the Balance Sheet and P&L Account of the assessee company noticed that preliminary expenses of Rs.46,840/- written off which was disallowable had not been disallowed in the returned exempt income of Rs.10,539/- has not been taken into account and there was on M/s. Star Griha (P) Ltd., AY 2008-09 that account escapement of income. So, he issued notice u/s. 148 of the Act and reopened the assessment and passed order u/s. 147/143(3) of the Act on 07.07.2010 determining the total income at Rs.48,680/-.

The Ld. CIT-2, Kolkata invoked the revisional jurisdiction u/s. 263 of the Act, since the 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. So, the CIT set aside the order passed by the AO u/s. 147/143(3) of the Act on 07.07.2010 for fresh assessment vide her order dated 26.03.2013, with certain specific guidelines regarding investigation to be carried out while assessing the assessee de novo. Consequently, the AO vide order dated 30.03.2014 passed the reassessment order giving effect to the order of Ld. CIT.

We also take note that the AO has reproduced the relevant portion of the Ld. CIT-2, Kolkata’s order passed u/s. 263 of the Act from pages 1 to 5 (the total AO’s order is 6 pages) and thereafter he noticed that the order passed by CIT u/s. 263 of the Act was served upon the assessee. Thereafter, AO issued a formal notice u/s. 142(1) of the Act as well as questionnaire to the assessee asking it to produce and submit certain details and documents to substantiate its return of income; and thereafter the AO noticed that on a perusal of the Balance Sheet of the company revealed share capital of Rs.2,45,50,000/- and Reserve (share premium of Rs.22,09,50,000/-). The AO noted in his order that he has issued notice u/s. 133(6) of the Act to the shareholder of the assessee company by post and the AO acknowledges that replies were received from various parties to whom notices u/s. 133(6) of the Act were issued. After receiving replies from shareholder, the AO noticed that he issued the notice u/s. 131 of the Act to various directors of the shareholders of the assessee company to appear before him on 18.03.2014. The AO noticed that on this date since none appeared and no adjournment petition was filed, after giving the final show cause notice on 21.03.2014 asking the assessee to show cause as to why best judgment assessment should not be resorted against it; and the AO after fixing the case on 26.03.2014 and taking note that none appeared before him, the AO concluded that the identity of the shareholders and M/s. Star Griha (P) Ltd., AY 2008-09 the assessee could not be proved beyond doubt and due to the lack of cooperation of the assessee’s appeal, the shareholders creditworthiness could not be ascertained. Therefore, the sum reflected by the assessee in the Balance sheet as share capital and share premium was added back in the hands of the assessee as undisclosed cash credit and thus made an addition of Rs.24,55,00,000/-. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who was pleased to dismiss the appeal and thus confirmed the action of the AO.

We have heard rival submissions and gone through the facts and circumstances of the case. According to the assessee, this appeal emanates from the order of AO dated 30.03.2014 giving effect of the order of Ld. CIT passed u/s. 263 of the Act dated 26.03.2013. The Ld. AR brought to our notice that the AO while giving effect to the order of the Ld. CIT issued notice u/s. 133(6) of the Act to the shareholders of the assessee company by post and the AO has acknowledged clearly that replies were in fact received from the shareholders to whom notice u/s. 133(6) of the Act were issued by him. Therefore, according to assessee, the identity of shareholders stands proved. According to Ld. AR, subsequently when AO noticed that the directors of the shareholder companies did not appear before him personally on 18.03.2014, the AO issued show cause notice to assessee for invoking best judgment assessment and thereafter, concluded that the assessee could not prove the identity and creditworthiness of the shareholders. According to the Ld. AR, despite the AO was in receipt of the revisional order of the Ld. CIT on 26.03.2013 and after a lapse of more than a year did not give sufficient opportunity to the assessee and in fact had issued notices to the directors of the shareholders to appear on 18.03.2014 and within twelve days from the date of non appearance of the directors/shareholders of the company, the AO has drawn an inference against the assessee and, therefore, no proper opportunity was granted to the assessee company to assist the AO in proving the identity, genuineness and creditworthiness of the shareholders. The Ld. AR relied on the decision of Hon’ble Supreme Court (three judges Bench) 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 on 26.03.2013. The AO while giving effect to the order of the Ld. CIT has noted that he had issued notice u/s. 133(6) of the Act to the shareholders of the assessee company by post and the AO has acknowledged that he has received replies from the shareholders to whom notice u/s. 133(6) of the Act was issued. The AO noted that in pursuance of the 131 notice, since the directors of the shareholder companies had not appeared before him on 18.03.2014, the AO thereafter gave assessee another notice on 21.03.2014 as to why best judgment assessment should not be resorted to and after fixing the hearing on 26.03.2014, the AO after noticing that none appeared on behalf of the assessee, concluded that the assessee has not cooperated and, M/s. Star Griha (P) Ltd., AY 2008-09 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.24,55,00,000/-. 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 capital of Rs.24,55,00,000/- on premium of Rs.22,09,50,000/- 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 the AO while doing assessment did not exercise the role of investigator and, therefore, the order of AO is 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 noted in the said backdrop, the Ld. CIT has given certain guidelines which we can say 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 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.”

With the aforesaid direction, the Ld. CIT set aside the order of the 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 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 M/s. Star Griha (P) Ltd., AY 2008-09 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 shareholders of the assessee company has in fact replied to his notice u/s. 133(6) of the Act. However, the AO took the adverse view against the assessee on the plea that the directors of the share subscribing companies had not appeared before him on 18.03.2014 and thereafter giving notice on 21.03.2014 as to why he should not resort to best judgment assessment and after taking note that none appeared on 26.03.2014 concluded on 30.03.2014 that assessee has not proved beyond doubt the identity and creditworthiness of the shareholders and the lack of cooperation from the assessee has also been mentioned by the AO. We note that the AO had fixed the date of 18.03.2014 for the directors of share subscribing companies to appear before him, since none appeared, the AO issued notice to assessee on 21.03.2014 to show cause why best judgment assessment should not be resorted by him and fixed the matter on 26.03.2014. Thus the assessee practically got less than five days, even if the notice dated 21.03.2014 was served on the assessee on 22.03.2014. So, asking the assessee to bring all evidence before the AO within five days, in our opinion the assessee did not got sufficient opportunity before the AO. 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 M/s. Star Griha (P) Ltd., AY 2008-09 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 allowed for statistical purpose.