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Income Tax Appellate Tribunal, DELHI BENCH ‘E’, NEW DELHI
Before: Sh. Amit ShuklaDr. B. R. R. Kumar
ORDER
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeal has been filed by the assessee against the order of the ld. CIT(A), Kanpur-4 dated 24.08.2021. 2. The orders relevant to the adjudication of the case are reproduced below: 1. The order of the ITO, Ward-6(2), Kolkata dated 03.01.2012 passed u/s 147 of the Income Tax Act, 1961 2. Order u/s 263 of the ld. CIT dated 21.03.2014 3. Order u/s 143(3) r.w.s. 263 of ITO, Ward-1(2), Kolkata Dated 31.03.2015 4. Order u/s 250(6) of ld. CIT(A)-4, Kanpur dated 24.08.2021 Intellectual Securities Pvt. Ltd.
3. For the sake of ready reference and completeness, the relevant part of the Assessment Order of the ITO, Ward-6(2), Kolkata dated 03.01.2012 is reproduced as under: Order u/s 147/143(3) dated 30.01.2012 1. The assessee company filed its return of income for the assessment year 2010-11 on 29.09.2010 declaring a total income of Rs.19,340/-. The return was duly processed u/s 143(1) on returned income. Subsequently, the assessee company has filed a letter where the company has brought to the notice that the company has received consultancy charges of Rs.37,500/- from various parties in cash in the financial year 2009-10. But the company has not accounted for the above income in the account of the assessee company during the financial year 2009-10 relevant to the assessment year 2010-11, as a result an income of Rs.37,500/- has escaped assessment. As such, there was reason to believe that the income chargeable to tax had escaped assessment. Thus, notice u/s 148 of the I.T. Act, 1961 was issued and duly served on the assessee company. In response, the assessee company stated that the return filed on 29.09.2010 may be treated as return in reply to notice u/s 148.
2. Notices u/s 143(2) & 142(1) were issued and duly served on the assessee company……….
3. During the financial year 2009-10, the assessee was a NBFC and shown income from interest and Mutual Fund. During the year, the assessee company has raised share capital by Rs.42.70 Crore (including premium) by private placement which have been duly examined.
4. During the financial year 2009-10 relevant to the assessment year 2010-11 the assessee company has received consultancy charges of Rs.37,500/- in cash which was not incorporated into its total return of income by mistake. Hence, total receipts of Rs.37,500/- is added back to the total income.
Intellectual Securities Pvt. Ltd.
5. The assessee company has claimed preliminary expenses write off Rs.41,300/-. While examining the said claim it was seen that the assessee company has claimed excess amount of Rs.25,500/- which was part capital expenditure Rs.1,27,500/-. In this connection, the assessee company was asked to offer explanation as to why excess claim of preliminary expenses W/off to the extent of Rs.25,500/- should not be treated as capital expenditure. In reply, the AR of the assessee company has admitted the excess claim and offered no objection to the proposed disallowance. Hence, excess preliminary expenses W/off of Rs.25,500/- is added back to the total income of the assessee company.
In view of the above, the total income/loss of the assessee company for the year under consideration is computed adding an amount of Rs.37,500/- under consultancy Charges and an amount of Rs.25,500/- excess preliminary expenditure. It can be established from the Assessment Order, the issue of receipt of share capital has been duly examined by the Assessing Officer.
Subsequently, the ld. CIT, Kolkata-2, Kolkata held that the order of the Assessing Officer is erroneous and prejudicial to the interest of the revenue so far as the AO has not examined in detail the receipt of the share capital and held that the Assessing Officer has missed the wood for the trees and set aside the order of the Assessing Officer with a directions 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. The ld. CIT has also directed the AO to examine the bank account for the entire period to find out the money trial of the share capital. To that extent, the order of the ld. CIT was detailed and directive. For the sake of completeness and ready reference,
Intellectual Securities Pvt. Ltd. the relevant part of the order u/s 263 passed by the ld. CIT, Kolkata -2 dated 21.03.2014 is as under: Order u/s 263 of ld. CIT, Kolkata-2 Before going into the merits of the instant case, it is necessary to highlight the background which led to it, so that the facts are viewed in correct perspective. Firstly, this particular case should not be viewed in isolation. In fact, as in the immediately preceding year, this year too, on identical facts and under similar circumstances, in a very large number of cases, orders under section 148 of the IT Act were passed under different corporate CsIT charges in Kolkata. In all these cases, completed assessments were re-opened at the request of the assessee. The assesses offered paltry amounts as income which had escaped assessment and requested, the A.O to tax it by passing order under section 148 of the IT Act. However, manifestly the real motive was not the sudden awakening of the fiscal honesty of the assessee, but to get the stamp of scrutiny on the huge amount of share capital and share premium which all these assesses have brought in the books…………….. Facts of the case In the instant case the return of income was filed declaring income of Rs.19,340/-. The Balance Sheet of the company shows share capital of Rs.42.7 crore and Reserve (Share premium) of Rs.38,60,64,000/-. Subsequently, the assessee filed a letter before the A.O. on 30.11.2011 stating that the intimation u/s 143(1) had not been received and that income of Rs.37,500/- had not been shown in its return of income by mistake. The Assessing Officer, on receipt of this letter, issued notice u/s. 148 and subsequently, passed order u/s. 147/143(3) on 30.01.2012 determining the total income at Rs. 82,340/-. In view of the background mentioned at the beginning of this order a show-cause notice u/s.263 of the Act was issued vide letters dated 23.01.2014 and 07.02.2014. The assessee was asked to show cause as to Intellectual Securities Pvt. Ltd. why the impugned under section u/s 148 not be revised u/s 263 of the IT Act, 1961 in view of the fact that requisite and proper inquiries were not conducted regarding the identity and creditworthiness of the share holders and the impugned order was passed mechanically without application of mind which rendered the assessment order erroneous and prejudicial to the interest of revenue. Attempt was made by the Notice Server to serve the notice dated 23.01.2014 on 27.01.2014 but the assesee company was not traceable at the address given in the return. Further attempt was made by the Inspector to serve the show-cause notice u/s.263 of the I.T Act, 196) dated 07.02.2014 on 18.02.2014 and again on 19.02.2014 but the assessee company was not traceable in the given address on both the occasions. The notice dated 07.02.2014 was, therefore, served by affixture on 19.02.2014 as the assesee company was not traceable at the address given in the return. There being no compliance to the notice, the order is passed ex-parte. The fact that notice in the instant case was served by affixture as the assessee company was not traceable at the given address itself shows that the assessee, in all likelihood, is a paper company. The failure of the Assessing Officer to conduct independent enquiry, which would have brought out this fact, renders the impugned order u/s. 148 of the I.T. Act, 1961 erroneous and prejudicial to the interest of revenue. It is a settled position of law that even before the amendment to section 56(2) of the I.T. Act, 1961, effectively only from assessment year 23013- 14, the genuineness of share capital in a private limited company could be examined in the course of assessment and if found to be not genuine, could be taxed under the deeming provision of section 68 of the I T Act. It is also trite law that the A.O is duty bound to examine the genuineness share holding and if he fails to do so it would render the assessment order erroneous and prejudicial to the interest of revenue. In this connection reliance is placed on following authorities: i) Rampyari Devi Saraogi vs, CIT 67 iTR 84 (SC) ii) Tara Devi Agarwal vs. CIT 88 ITR 323 (SC) iii) Gee Vee Enterprises vs. Addl.CIT 99 ITR 375,386 (Del) iv) CIT vs. Sophia Finance Ltd. 205 ITR 98 (Del)
Intellectual Securities Pvt. Ltd. v) CIT vs. Active Traders P Ltd. 214 ITR 583 (Cal) vi) CIT vs. Nivedan Vanijya Niyojan Ltd. 263 ITR 623 (Cal) vii) CIT vs. Bhagwafi Jewels Ltd. 201 ITR 461 (Del) The broad principles emerging out of the above cases can be summed up as under:
1. 1. The Assessing Officer has the powers to investigate the identity of the share holders to satisfy that they exist.
2. The genuineness of the investment has to be examined to the extent that the shareholders have invested the money. The corporate veil can be lifted and the argument that the shareholders and corporate are two different legal entities can no longer hold good. If the assessee wished to convert his unaccounted money in the form of share capital the court will not remain silent. This view has been further re-iterated in the recent decision of the Delhi High Court in the case of CIT vs. Nova Promoters & Finlease Pvt. Ltd. [342 ITR 169). It is worthwhile to mention that in the instant case i) The notices u/s. 133(6) have been sent on only on a test check basis ii) It is further seen that only that extract of the bank statement has been submitted which reflects only the impugned transaction and is not for the whole year, making it impossible to make any analysis of the source of the funds and whether shareholders had the financial capability to invest such substantial amounts. The A.O. should have called for the bank statement of the full financial year for proper analysis & verification. iii) The replies were just placed on record and no independent inquiries were carried out regarding the fact whether the subscribing companies were available at the given address, and whether they were genuine corporate entities. iv) The A.O. did not examine any Director of the assessee company or of the subscribing companies.
Intellectual Securities Pvt. Ltd. It is pertinent to mention here that mere verification by sending letters by post has no meaning in such cases of paper companies floated by entry operators. The letters for hundreds of companies are collected from just one desk at one address. Only when actual physical verification is done that it can be found out whether or not the company exists only on paper. No such exercise has been carried in this case and merely the replies which are often sent by the assessee itself have been accepted on the face value. This vital aspect has been examined rather superficially and the enquiry done therefore, amounts to actually no enquiry in real terms and is a mere formality carried out. It is thus clear that no enquiry worth the name has been conducted in this case even though the surrounding circumstances called for in-depth enquiry of share capital. The only issue relevant for consideration in the instant case is whether or not the impugned order u/s 148 IT Act is erroneous and prejudicial to the interests of Revenue in the context of section 263 of the IT Act. In this connection, the observation the Delhi High Court in the case of Gee Vee Enterprises Vs Addl.CIT 99 ITR 375,386 (Del) quoted below is of particular relevance. "Intention of the legislature was to give a wide power to the Commissioner. He may consider the order of the Income-tax Officer as erroneous not only because it contains some apparent error of reasoning or of law or of fact on the face of it but also because it is a stereo-typed order which simply accepts what the assessee has stated in his return and fails to make inquiries which are called for in the circumstances of the case. The AO is both an adjudicator as well as an investigator, and it is his duty to ascertain the truth of the facts stated in the return if such an exercise is 'provoked', or becomes 'prudent'. Section 263 which deals with the Revision of orders prejudicial to the revenue by the Commissioner comes into operation wherever the AO fails to make such an inquiry, because it renders the order of the AO “erroneous." it seems to us that if this duty pervades the normal functioning of the AO, if becomes acute and Intellectual Securities Pvt. Ltd. essential in the special circumstances surrounding Section 68 of the IT Act."(Emphasis supplied) Attention is further invited to the observation of the Kerala High Court in Bismillah Trading Co. vs. Intelligence Officer 248 ITR 292, reproduced below: "In our opinion the word "prejudice" must be judicially examined. What constitutes "prejudice to the Revenue" has been the subject-matter of a judicial debate. One view was that "prejudicial to the interests of the Revenue" does not necessarily mean loss of revenue. The expression "prejudicial to the interests of the Revenue" is not to be construed in a petti-fogging manner, but must be given a dignified construction. The interests of the Revenue are not to be equated to rupees and paise merely. There must be some grievous error in the order passed by the Income-tax Officer which might set a bad trend or pattern for similar assessments which, on a broad reckoning, the Commissioner might think to be prejudicial to the Revenue administration. The prejudice must be prejudice to the Revenue administration. "(emphasis supplied) As has been pointed out in the beginning of this order, under the head 'background', the case of the assessee is not to be viewed in isolation. The fact that under similar circumstances, similar order u/s 148 has been passed in nearly 250 cases in my charge of CIT- II alone, also should not be lost sight of I am given to understand that in other corporate CIT charges in Kolkata also, similar orders have been passed. The A.O seems to have missed the larger picture and unwitting has ended up giving a certificate of genuineness of share capital by passing the impugned order. This by itself establishes that such orders are erroneous and prejudicial to the interests of the Revenue administration, as observed by the Kerala High Court in the decision quoted above. 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, Intellectual Securities Pvt. Ltd. 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 in 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. The impugned order u/s 148 is accordingly set aside and assessment should be done afresh.
Following the directions of the ld. CIT, Kolkata, the proceedings u/s 143(3) have been re-initiated by the Assessing Officer, completed the proceedings culminating into passing of an Assessment Order dated 31.03.2015. For the sake of ready reference, the entire order of the Assessing Officer is reproduced as under: Order of AO dated 31.03.2015 The assessee filed return of income on 29.09.2010 declaring loss of Rs.19,341/-. The case was reopened on 05.12.2011 when the assessee desired to revise its total income to Rs.56,840/-. The reassessment proceedings was concluded on 30.01.2012 after verification u/s. 133(6). It was again scrutinized u/s.263 on 21.03.2014 when the previous order was Intellectual Securities Pvt. Ltd. set aside for fresh adjudication. The consequential scrutiny proceedings was initiated by re-fixing the case on 26.02.2015 and notice u/s. 143(2) and 142(1) were enclosed, but none appeared. On perusal of available records, it is seen that Rs.1,73,28,500/- and Rs.40,96,71,500/- were credited in the books of the company as fresh share capital and share premium respectively in the relevant F.Y. Summons u/s.131 were issued to fresh share-holders and the- then directors on 10.03.2015 for examination of identity, genuineness and credit worthiness of these investors. None appeared and most of the summons returned unserved. It is clear from the entire proceedings that the subscribers to share capital and premium must be dubious for which they preferred not to attend for deposition. It can be inferred from the above observations that it is a dummy company which was brought into existence merely for building share capital. The taxability of share premium is further warranted by the observations of the ITAT, Kolkata Bench in Bisakha Sales Pvt. Ltd. in Para 7.9 and 7.10. A letter was issued on 19.03.2015 giving the assessee the last opportunity to explain the reason for not treating the said fresh share capital and premium as unexplained cash credit u/s.
Share-holders' documents were filed along with assessee's details. Careful examination of their submission/documents reveals that all the share-holding companies declared Nil/meagre total income, had no tangible assets but large reserves and surplus and ne revenue from operations. Many of the subscribers filed their first return in the relevant A.Y. It indicates that the credentials of the subscribers are not commensurate with their investments. Thus it is evident that they had no business operations and exist in paper only. In view of the above, the amount of Rs. 1,73,28,500/- and Rs.40,96,71,500/- must be treated as unexplained cash credits u/s.68 and added back to the assessee's total income.
7. Aggrieved with the additions, the assessee filed appeal before the ld. CIT(A) who adjudicated the issue as under:
Intellectual Securities Pvt. Ltd. Order of ld. CIT(A) dated 24.08.2021 In this case, the company filed return of income for AY 2010-11 on 29.09.2010 declaring total income of Rs. 19,340/-. Then the return was processed u/s 143(1) of IT Act. The AO mentions in his order passed u/s 147/143(3) of IT Act dated 30.01.2012 that subsequently the assessee company filed letter bringing to the notice of the AO that the company had received consultancy charges of Rs. 37,500/- from various parties in cash in FY 2009-10 but the company has not accounted for this income in the accounts and as a result of the same an income of Rs. 37,500/- has escaped assessment. Therefore income escaping assessment proceeding were initiated by issuing a notice u/s 148 of IT Act and the assessment was completed by making a addition of Rs. 37,500/- as consultancy charges and Rs. 25,500/- as excess preliminary expenses written off. Therefore returned income of Rs. 19,340/- was assessed at Rs. 42,340/- on 30.01.2012. Thereafter order u/s 263 of IT Act was passed on 31.03.2014 by CIT-2, Kolkata setting aside the order passed u/s 147/143(3) of IT Act dated 30.01.2012 and issuing the detailed instructions to the AO to examine the genuineness and source of share capital. The AO i.e. the ITO Ward- 1(2) Kolkata passed order u/s 263/143(3) of IT Act on 31.03.2015 by making addition of Rs. 40.70 crore u/s 68 of IT Act. The AO categorically mentions in the assessment order that the summons u/s 131 of IT Act dated 10.03.2015 were issued to the share holders and then to the directors for examination of identity, genuineness and creditworthiness of these investors but none appeared and most of the summons returned un-served. The AO further observes that a letter was issued on 19.03.2015 giving the assessee last opportunity to explain the reason for not treating the said fresh share capital and premium as unexplained cash credit u/s 68 of IT Act and in response to the same share-holders documents were filed along with assessee details. The AO inferred that all the share holding companies declared nil/meager total income, had no tangible assets but large reserves and surplus and no revenue from operations and many of the subscribers filed their first return in the relevant AY. This order was challenged before Ld. CIT Appeal- 17 Kolkata, who passed the order dated 18.07.2019 observing that hearing was fixed on 24.01.2018, 12.02.2019, Intellectual Securities Pvt. Ltd. 06.03.2019 and 07.02.2019 and nobody attended. Therefore ex-parte order was passed confirming the additions made by the AO. This order was challenged before Hon’ble ITAT and Hon'ble ITAT ‘C’ Bench, Kolkata in for AY 2010-11 passed order dated 19.02.2020 in which Hon’ble ITAT has observed that the assessee has not appeared before the Ld. CIT Appeal and hence an ex-parte order was passed dismissing the appeal of the assessee, hence the issue has been restored to the file of CIT Appeal for fresh adjudication. WRITTEN SUBMISSIONS Facts 1. Intellectual Securities Pvt. Ltd. (hereinafter referred to as ‘the appellants') is a non banking financial company registered with the Reserve Bank of India.
The appellants filed their return of income on 29th September, 2010 declaring total income of Rs 19,341.
The case of the appellants was re-opened and the Assessing Officer by order dated 30.01.2012 passed under section 143(3) r.w.s 147 assessed the total income at Rs 82,340. The Assessing Officer on page no 2, para 3 mentioned ‘During the year, the assesses company has raised share capital by Rs 42.70 crore (including premium) by private placement which have been duly examined'.
4. Thereafter, the Commissioner of Income-tax, Kolkata - II, invoked the provisions of section 263 and passed an order dated 21.03.2014. Consequently, the Assessing Officer passed an order dated 31.03.2015 under section 143(3) r.w.s. 147 r.w.s. 263 and assessed the total income at Rs 42,71,24,620, making aggregate addition of Rs 42,70,00,000 (being share capital Rs 1,73,28,500 and share premium Rs 40,96,71,500) that were received during the year under reference. Against the said additions made by the Assessing Officer the appellants on 2&h September, 2015 filed appeal with the CIT(A) and the GIT(A) by his order dated 19.07.2019 dismissed the appeal of the appellants for non-attendance.
5. Thereafter, the appellants filed an appeal with the Tribunal against the order of the CIT(A) and the Tribunal by their order dated February Intellectual Securities Pvt. Ltd. 19th, 2020 restored the appeal to the CIT(A) for fresh adjudication; thus, the present appeal. Contentions 6. Re - Addition under section 68 - Rs 42,70,00,000 6.1. The Assessing Officer has made an addition of Rs 42,70,00,000 (share capital Rs 1,73,28,500 and share premium Rs 40,96,71,500) under section 68 of the Act in respect of share application monies received by the appellants from the following parties – Sl Name of the shareholders No of Share Premium Total No shares capital @ @ Rs 190 Rs 10 per share per 1 Brijbhumi Commerce Pvt. Ltd 16,500 1,65,000 31,35,000 33,00,000 2 Disha Goods Pvt Ltd 40,250 4,02,500 76,47,500 80,50,000 3 Parrot Agencies & Credit Pvt. Ltd 14,000 1,40,000 26,60,000 28,00,000 4 S L Con-Fin Pvt. Ltd 3,500 35,000 6,65,000 7,00,000 5 Prabhu Dhan Travels Pvt. Ltd 50,000 5,00,000 95,00,000 1,00,00,000 Total (A) 2,48,50,000 Sl. Name of the shareholders No of Share Premium @ Total No shares capital Rs 240 per @ Rs 10 share per share 1 Bnjbhumi Commerce Pvt Ltd 43,800 4,38,000 1,05,12,000 1,09,50,000 2 Disha Goods Pvt Ltd 40,000 4,00,000 96,00,000 1,00,00,000 3 Parrot Agencies & Credit Pvt 10,600 1,06,000 25,44,000 26,50,000 Ltd 4 S L Con-Fin Pvt Ltd 11,800 1,18,000 28,32,000 29,50,000 5 For numbering, considered in above table 6 Akansha Dealers Pvt Ltd 38,000 3,80,000 91,20,000 95,00,000 7 Allied Commercial Pvt Ltd 20,000 2,00,000 48,00,000 50,00,000 8 Amar Commercial Pvt Ltd 70,000 7,00,000 1,68,00,000 1,75,00,000 9 Bihar Techno & Finance Co Pvt 32,000 3,20,000 76,80,000 80,00,000 Ltd 10 Bluesky Tradelink Pvt Ltd 59,400 5,94,000 1,42,56,000 1,48,50,000 11 DeffodilDealcom Pvt Ltd 43,600 4,36,000 1,04,64,000 1,09,00,000 12 Devalaya Commercial Pvt Ltd 33,600 3,36,000 80,64,000 84,00,000 13 Dhanasri Merchants Pvt Ltd 20,400 2,04,000 48,96,000 51,00,000 14 FestinoAgro Pvt Ltd 38,000 3,80,000 91,20,000 95,00,000 15 Gajanand Agrotech Pvt Ltd 52,400 5,24,000 1,25,76,000 1,31,00,000 16 Goodfaith Pharmaceuticals Pvt 28,000 2,80,000 67,20,000 70,00,000 Ltd 17 GulmoharTradecom Pvt Ltd 36,000 3,60,000 86,40,000 90,00,000 18 KasaContrade Pvt Ltd 72,000 7,20,000 1,72,80,000 1,80,00,000 Intellectual Securities Pvt. Ltd. 19 Kuber Goods Pvt Ltd 22,000 2,20,000 52,80,000 55,00,000 20 Kushal Infotech Pvt Ltd 22,400 2,24,000 53,76,000 56,00,000 21 Mainstream Commercial Pvt 1,03,000 10,30,00 2,47,20,000 2,57,50,000 Ltd 0 22 Malavika Merchants Pvt Ltd 20,800 2,08,000 49,92,000 52,00,000 23 Matribhumi Commodities Pvt 22,000 2,20,000 52,80,000 55,00,000 Ltd 24 Monalisa Commercial Pvt Ltd 35,600 3,56,000 85,44,000 89,00,000 25 MupnarTrexim Pvt Ltd 400 4,000 96,000 1,00,000 26 Naviplast Suppliers Pvt Ltd 32,000 3,20,000 76,80,000 80,00,000 27 Quick Management. Services 1,07,000 10,70,00 2,56,80,000 2,67,50,000 Pvt Ltd 0 28 Sahaj Dealcom Pvt Ltd 36,000 3,60,000 86,40,000 90,00,000 29 SanjwaniDealcom Pvt Ltd 52,400 5,24,000 1,25,76,000 1,31,00,000 30 SanketDealcom Pvt Ltd 39,600 3,96,000 95,04,000 99,00,000 31 SanyogVyapar Pvt Ltd 20,000 2,00,000 48,00,000 50,00,000 32 Sensitive Merchandise Pvt Ltd 82,600 8,26,000 1,98,24,000 2,06,50,000 33 Shyambaba Distribution Pvt 40,200 4,02,000 96,48,000 1,00,50,000 Ltd 34 Titanic Chemical Pvt Ltd 21,600 2,16,000 51,84,000 54,00,000 35 Trikuta Commercial Pvt Ltd 31,600 3,16,000 75,84,000 79,00,000 36 Vaibhav Dealers Pvt Ltd 45,200 4,52,000 1,08,48,000 1,13,00,000 37 Variety Retails Pvt Ltd 1,07,200 10,72,00 2,57,28,000 2,68,00,000 0 38 Vashali Commercial Pvt Ltd 44,400 4,44,000 1,06,56,000 1,11,00,000 39 WeldoneVinijya Pvt Ltd 23,200 2,32,000 55,68,000 58,00,000 40 Yashoda Merchandise Pvt Ltd 49,800 4,98,000 1,19,52,000 1,24,50,000 Total (B) 40,21,50,000 Total (A + B) 42,70,00,000 The Companies from whom share application monies have been received by the appellants are corporate entities incorporated under the Companies Act, 1956 and hence, their identity stands proved. The transaction is through banking channels and are supported by the various documents of the share applicants - Form 2, photo copy of confirmation, acknowledgement for filing return of income for income tax assessment year 2010-11, audited annual accounts for the year ended 31st March, 2010, bank statement of the share applicants evidencing payment of share application money - refer- page nos102 to 1441 of the paper book. It is pertinent to mention that the same have been filed during the course of re-opened proceedings and have been considered by the Assessing Officer at the time of passing the assessment order under 143(3) r.w.s 147. Thus, the genuineness of the transactions and creditworthiness of the lending- Companies is proved. The appellants therefore, submit that they have furnished all the details to prove the identity of the lending-Companies as also their creditworthiness and the genuineness of the transactions.
Intellectual Securities Pvt. Ltd. 6.3. It is imperative to mention that during the course of re-opened proceedings there is total compliance to notices issued by the Assessing Officer under section 133(6) to the lending-Companies from whom share application money is received - refer page nos. 1442 to 1462 of the paper book. 6.4. The Assessing Officer ought to have brought enough positive material on record to support his conclusion that the transactions are not genuine and that share applicants dubious, but he has failed to discharge his duty and has brushed aside all the positive evidences filed by the appellants and has come to the conclusion on the basis of assumptions and presumptions, which Courts have held have no place in framing an assessment under the Income-tax Act. 6.5. It is therefore, contended that the impugned addition under section 68 ought not to have been made in view of the fact that the three litmus tests of section 68 namely, identity, creditworthiness and genuineness of the transaction have all been proved by the appellants. 6.6. The Assessing Officer has merely mentioned the order passed under section 263 by the CIT, Kolkata - II, without mentioning why he is not accepting the voluminous documents submitted by the appellants. The Assessing Officer, being quasi judicial authority has to pass an order on the basis of his own investigations and by applying his own judicial mind which is missing in the impugned order. 6.7. Further, there is gross violation of principles of natural justice by the Assessing Officer in asmuch as he not given an opportunity to the appellants to cross-examine the Directors of the share applicants and/ or other witnesses, inasmuch as they are the witness of the Department. 6.8. The Assessing Officer has not even verified whether any addition has been made in the assessments of the lending-Companies. If addition is made in their assessments, addition again cannot be made in the assessment of the appellants. If no addition is made in their assessments, then there is no reason or justification to make the impugned addition in the case of the appellants. In any view of the matter, if the identity of the Intellectual Securities Pvt. Ltd. share applicant is proved, the Apex Court in the case of Lovely Exports (216 CTR 195) has held that- "If share application money is received by assessee-company from alleged bogus shareholders, whose names are given to Assessing Officer, then Department is free to proceed to reopen their individual assessments in accordance with law but this amount of share money cannot be regarded as undisclosed income under section 68 of assessee-company." Thus, the impugned addition could not have been made in the hands of the appellants. 6.9 The appellants thus, submit that impugned addition has been made merely on the basis of assumptions and presumptions; the appellants contend that assessment cannot be based on assumptions and presumptions. Reliance is placed on the decision of the Honourable Apex Court in Umacharan Shaw & Bros (37ITR 271) at page 272 in clause (v) has held that no addition could be made on presumption; suspicion however, strong, cannot take place of evidence. In view of the above, the appellants contend that the impugned addition made by the Assessing Officer under section 68 of the Act ought to be deleted. Enclosure 1 - Statement giving details of shareholders and their relevant papers and documents in the paper book. Enclosure 2 - Statement giving details of share application monies received by the appellants together with corresponding credit entry in the bank accounts of the respective shareholders’.
Discussion & decision on merits of the case: 7.1 Ground no. 1 and 2 pertain to addition of Rs. 42,70,00,000/- on account of share capital and premiums received from various parties. 7.2 The AO in the assessment order observes that the summons issued u/s 131 of IT Act dated 10.03.2015 to the shareholders as well as directors returned back un-served. Therefore it is clear that the appellant Intellectual Securities Pvt. Ltd. failed to prove the existence and identity of the shareholders. In the paper book filed before the undersigned the details of the shareholders have been given but since the identity and existence of the same could not be proved in the inquiries conducted by the AO, the same cannot be accepted in the appellate proceedings. 7.3 In the appellate proceedings, the AR furnished a detailed paper book in which the address of the shareholders have been given from the same it is clear that there are few addresses, which are being used by most of these share holding companies the list of these shareholders is as under: No Name of the shareholders No of shares Address 1. Brijbhumi Commerce Pvt Ltd 43,800 6B, Bentick Street, Asha Chembers, Kolkata- 700001 2. Disha Goods Pvt Ltd 40,000 1/H/2, Ramesh dutta Street, 1 s t Floor, Kolkata- 700006 3. Parrot Agencies & Credit Pvt Ltd 10,600 11 Brabourne Road, 5 t n Floor, Room no. 504, Kolkata- 700001 4. S L Con-Fin Pvt Ltd 11,800 12, Mangoe lane 1 s t Floor, Kolkata - 700001 5. Prabhu Dhan Travels Pvt Ltd 50,000 6B, Bentick Street, Kolkata- 700001 6. Akansha Dealers Pvt Ltd 38,000 23/24, Radha bazaar Street, 1 s t Floor, R.N. 3HP, Kolkata- 700001 7, Allied Commercial Pvt Ltd 20,000 5, Mangoe lane 2 n 0 Floor, Kolkata-700001 Amar Commercial Pvt Ltd 70,000 7A, bentick street, 4 t h Floor, 8. Kolkata- 700001 9. Bihar Techno & Finance Co Pvt Ltd 32,000 Bluesky Tradelink Pvt Ltd 59,400 4, Ballav Das Street, 4 t n 10. Floor, Kolkata - 700007 Daffodil Dealcom Pvt Ltd 43,600 4, Ballav Das Street, 4 l h 11. Floor, Kolkata - 700007 12. Devalaya Commercial Pvt Ltd 33,600 23/24, Radha bazaar Street, 1st Floor, R.N. 3HP, Kolkata- 700001 13. Dhanasri Merchants Pvt Ltd 20,400 132/1 MG Road 4th Floor Kolkata- 700007 Festino Agro Pvt Ltd 38,000 26, WC Banerjee Street, 14. Kolkata - 700006 Gajanand Agrotech Pvt Ltd 52,400 4, Ballav Das Street, 4tn 15. Floor, Kolkata - 700007 Goodfaith Pharmaceuticals Pvt Ltd 28,000 132/1 MG Road 4tn Floor 16. Kolkata- 700007 Gulmohar Tradecom Pvt Ltd 36,000 4, Ballav Das Street, 4tn 17. Floor, Kolkata - 700007 Kasa Contrade Pvt Ltd 72,000 6B, Bentick Street, 1st Floor, 18. Kolkata- 700001 Kuber Goods Pvt Ltd 22,000 23/24, Radha bazaar- Street, 19. 1st Floor, R.N. 3HP, Kolkata- 700001 Intellectual Securities Pvt. Ltd. Kushal Infotech Pvt Ltd 22,400 4, Ballav Das Street, 4tn 20. Floor, Kolkata - 700007 Mainstream Commercial Pvt Ltd 1,03,000 Karnani Mansion, 25A, Park 21. Streer, 2nd Floor, Kolkata- 700016 Malavika Merchants Pvt Ltd 20,800 50, Weston Street, Kolkata- 22. 700012 Matribhumi Commodities Pvt Ltd 22,000 4, Ballav Das Street, 4tn 23. Floor, Kolkata -700007 Monalisa Commercial Pvt Ltd 35,600 4, Ballav Das Street, 4tn 24. Floor, Kolkata - 700007 Mupnar Trexim Pvt Ltd 400 4, Ballav Das Street, 4tfl 25. Floor, Kolkata - 700007 Naviplast Suppliers Pvt Ltd 32,000 Asha Chembers, Chember - 26. 121, 6B, Bentick Street, Kolkata- 700001 Quick Management Services Pvt 1,07,000 Karnani Mansion, 25A, Park 27. Ltd Streer, 2nd Floor, Kolkata- 700016 Sahaj Dealcom Pvt Ltd 36,000 132/1 MG Road 4tn Floor 28. Kolkata- 700007 Sanjwani Dealcom Pvt Ltd 52,400 132/1 MG Road 4m Floor 29. Kolkata- 700007 Sanket Dealcom Pvt Ltd 39,600 23/24, Radha bazaar Street, 1st Floor, R.N. 3HP, Kolkata- 30. 700001 Sanyog Vyapar Pvt Ltd 20,000 23/24, Radha bazaar Street, 1st Floor, R.N. 3HP, 31. Kolkata-700001 Sensitive Merchandise Pvt Ltd 82,600 Karnani Mansion, 25A, Park 32. Streer, 2nd Floor, Kolkata- 700016 Shyambaba Distribution Pvt Ltd 40,200 4, Ballav Das Street, 4kn 33. Floor, Kolkata - 700007 Titanic Chemical Pvt Ltd 21,600 132/1 MG Road 4in Floor 34. Kolkata 700007 Trikuta Commercial Pvt Ltd 31,600 35. Vaibhav Dealers Pvt Ltd 45,200 23/24, Radha bazaar Street, 36. 1st Floor, R.N. 3HP, Kolkata- 700001 Variety Retails Pvt Ltd 1,07,200 Karnani Mansion, 25A, Park 37. Streer, 2nd Floor, Kolkata- 700016 Vashali Commercial Pvt Ltd 44,400 Karnani Mansion, 25A, Park 38. Streer, 2nd Floor, Kolkata- 700016 Weldone Vinijya Pvt Ltd 23,200 132/1 MG Road 4th Floor 39. Kolkata 700007 Yashoda Merchandise Pvt Ltd 49,800 6B, Bentick Street, Asha 40. Chembers, Kolkata- 700001 Since in the inquiries conducted by the AO it has been found that the summons issued u/s 131 have returned back, therefore the identities of these concerns could not be proved by the appellant. 7.4 The further observes that all share-holding companies declared Nil/ meagre total income and many of the subscribers filed the return for the first time. Hence, the genuineness of the transaction and credit capacity of the creditor is not substantiated by the appellant. Therefore, AO came to Intellectual Securities Pvt. Ltd. the conclusion that the credits from these alleged entities are unexplained and accordingly, addition is justified by the AO u/s 68 of the Act. 7.5 On the other hand, Id. A.R. of the appellant has submitted that, confirmation and the ITR copies and Bank statements of the share applicants have been submitted to establish the three vital ingredients of cash credit i.e. identity, creditworthiness of the creditor and genuineness of the transaction. It was also contended that, no incriminating material was brought on record by the AO. Hence, the addition made by the AO is illegal, invalid and bad in law, which need to be deleted, and grounds of appeal of the appellant need to be upheld. 7.6 The undersigned has carefully gone through the assessment order, written submission as well as verbal arguments of the Ld. A.R. The details that have been filed as regards the share-holders do not inspire much confidence. The AR has filed explanations along with documentary evidences in support of identity & creditworthiness of the share-holders and genuineness of the transaction in the shape of their confirmation, Share Application Forms, Memorandum of Association and Articles of Association, their bank statement, Investment confirmation showing source of investment, copy of their annual accounts in support of credit worthiness, copy of their ITRs in respect of subscription. However, as mentioned above the same do not inspire much confidence. 7.7 Careful perusal of the assessment order reveals the following relevant facts; i) The alleged share-holders filed their return of income for the first time ii) The alleged share-holders declared nil/ meagre income and had no tangible assets but large reserves and surplus and no revenue from operations. Further, undersigned has noticed that the credit capacity of the creditor also stands unsubstantiated. From the analysis of details of income it has been found, that most of the income of each lender is from the interest received on the loans advanced by it. This income has been shown on the Intellectual Securities Pvt. Ltd. shell company to give it a color of genuine financial concern. Further, a careful, perusal of Bank statements of this alleged creditor reveal the astonishing similarity in the pattern of fund flow. It is invariably noted that the creditor’s accounts were deposited with cheque of equivalent or more amount of credit on the same date or prior to advancing the share application money to the appellant company. Thus, the evidence submitted by the appellant does not inspire the confidence regarding credit capacity of the creditors and genuineness of the transactions, especially considering the fact that, share-holders have nil/ meagre income in their returns and each credit of share application money to the appellant company is preceded by the equivalent or more amount of deposits of credit on the same date or on the prior dates. Also it is noted from the balance sheet of the shareholder companies that, they do not possess any tangible or intangible fixed assets to conduct business activities. Thus, it is concluded that, genuineness of the transaction and credit capacity of the creditors stand unsubstantiated. Appellant, on the other hand, has not placed any material before the undersigned to dislodge the finding recorded by the AO. Therefore, considering the totality of facts and circumstances of the case, it is concluded that, appellant has miserably failed to prove the credit capacity and genuineness of the transaction. Further, undersigned has noticed that the alleged share-holders filed their return of income for the first time and they declared nil/ meagre income and had no tangible assets but large reserves and surplus and no revenue from operations. 7.8 It is a settled preposition of law u/s. 68 of the IT Act that the initial burden of proof rests upon the appellant to establish the identity, credit capacity of the creditor and to establish the genuineness of transaction. For the sake of clarity provision of section 68 of the Act as amended reads as under: "68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation91 about the nature and source thereof or the explanation offered by him is not, in the opinion of the [Assessing] Officer, Intellectual Securities Pvt. Ltd. satisfactory, the sum so credited may be charged to income-tax- as the income of the assessee of that previous year: [Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless— (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10.]" The present facts of the case are squarely covered by the provisions of law mentioned here-in-above, wherein it is imperative for the appellant to simultaneously prove the identity and creditworthiness of the creditors along with the genuineness of transaction. In the instant facts of the case, appellant has miserably failed to prove genuineness of the transaction and creditworthiness of the creditors, made by Assessing Officer is perfectly justified.
Before us, both the parties reiterated the arguments taken up before the authorities below as well as the orders of the revenue.
Having gone through in detail into the order u/s 147/143(3) of the ITO, Ward-6(2), Kolkata dated 30.01.2012, the order u/s 263 of ld. CIT, Kolkata-2 and the order u/s 263/143(3) of the ITO, Ward-1(2), Kolkata, we find that the AO Intellectual Securities Pvt. Ltd. has miserably failed to bring anything on record to prove the case of the revenue. Unfortunately, the detailed instructions given by the ld. CIT have been given a crackpot. While the ld. CIT has examined the issue in detail and set aside the order, the revenue authorities down below the line valiantly ignored the directions and given a go by to all the well considered examination and directives of the ld. CIT. At the primary instance, the case has been reopened u/s 148 and the share capital has been examined. The ld. CIT has passed order on 21.03.2014 wherein the previous order of the AO has been set aside for fresh adjudication. The process of reassessment consequent to the order u/s 263 was initiated on 26.12.2015 by issue of notice i.e. 9 months after the passing of the order from the order by the ld. CIT. Having initiated the proceedings on 26.02.2015, the order has been passed on 31.03.2015 in a lightning speed within a narrow span of 33 days and made addition of approximately Rs.40 crores. There were neither any directions nor reference sought u/s 144, either by the ITO or suo moto by supervisory authorities. We have seen the action of the AO while making the addition in terms of investigation and enquiry. The AO issued summons on 10.03.2015 and held that most of the summons returned unserved which indicates that the summons have been send by post. Owing to the unserving of the summons, the AO directly came to the conclusion that it is a dummy company which was brought into existence merely for building share capital. (Refer Assessment Order of the AO) At the same time, the AO mentions that the documents have been filed with regard to the shareholders. The AO absolutely did not make “any” enquiry whatsoever it is to come to a conclusion that it is a case assessed u/s 68. No field enquiry Intellectual Securities Pvt. Ltd. was conducted nor the Inspector has been deputed nor the help of the Investigation Wing has been requisitioned nor there have been any pre-enquiries conducted by the revenue department to aid the AO to come to conclusion of treating this amounts u/s 68. This is a classic case of collective failure on the part of the revenue authorities.
Notwithstanding that, we have also examined the order of the ld. CIT to decipher anything to support the contention of the Assessing Officer. The complete address of the contributors have been filed before the ld. CIT(A) and there also there has been a failure of the revenue authorities to resort to any fresh enquiries or to remand the matter or to cause further examination and investigation. The ld. CIT(A) confirmed the addition solely on the basis of low returned income of the subscribers. On the other hand, the assessee has filed all the documents to prove their case prima facie and thus discharge the primary onus. At this juncture, it is for the revenue to pick up the addresses, names, locations and carry on further investigations to prove the credibility non-creditability of the parties which was abysmally lacking. On going through the entire order of the ld. CIT(A), other than the theoretical rhetoric, no iota of tangible material has been brought on record. The established adages are that the primary onus to prove that the income is non-taxable lies on the assessee whereas the primary onus to prove that the income is taxable lie with the revenue authorities. In the instant case, we find that nothing has been proved to come to a conclusion that the income falls within the ambit of Section 68. In this connection, Intellectual Securities Pvt. Ltd. we also rely on the spectrum of judgments quoted below to arrive at a conclusion, they are as under: Gangeshwari Metal (P) Ltd. 30 taxmann.com 328 (Del) Whether where assessee in support of transaction of receipt of share application money brought on record various documents such as names and addresses of share applicants, their confirmatory letters, copies of bank statements etc. said transaction was to be regarded as genuine and, consequently, no addition could be made in respect of same under section 68 - Held, yes Gagandeep Infrastructure Pvt. Ltd. 394 ITR 680 (Bom) Cash credit (Share Capital) - A.Y. 2008-09 - Whether proviso to section 68 introduced by Finance Act 2012 with effect from 01.04.2013, would not have retrospective effect - Held, yes - Whether where assessee- company had established identity, genuineness and capacity of shareholders who had subscribed to its shares, Assessing Officer was not justified in adding amount of share capital subscription as unexplained credit - Held, yes - Whether where revenue urged that assessee had received share application money from bogus shareholders, it was for Income-tax Officers to proceed by reopening assessment of such shareholders and assessing them to tax in accordance with law and it did not entitle revenue to add same to assessee's income as unexplained cash credit - Held, yes Intellectual Securities Pvt. Ltd. Orchid Industries Pvt. Ltd. 397ITR 136 (Bom) Whether order of the Tribunal was perverse in deleting the addition made u/s. 68 of the Act, relying only on the documentary evidence produced by the Company while ignoring the key factor that these entities were not traceable at their given addresses - Held no, as the Assessee had produced the PAN of all the creditors along with the confirmation, Bank Statement showing payment of share application money and relevant record is produced with regard to the allotment of shares to those parties - The share application form, allotment letter, share certificate are also produced - Even the balance sheet, profit and loss account, the books of account of these creditors were produced on record showing that they had sufficient funds for investing in the shares of the Asses see - Whether on the facts and in the circumstances of the case and in law, the Tribunal erred in not appreciating the observations made by the Delhi High Court in Nova Promoters and Finlease Pvt. Ltd. 18 Taxman.com 217 wherein the Court has observed that cases of this type cannot be decided only on the basis of documentary evidences above and there is need to take into account the surrounding circumstances - High Court also considered the fact that the assessee was not able to produce even a single party before the AO despite agreeing before the CIT(A) that it will produce all parties before the AO during remand proceedings. Creative World Telefilms Ltd. 333 ITR 100 (Bom) Assessee had received share application money from shareholders - In order to prove genuineness of said Intellectual Securities Pvt. Ltd. transactions, assessee-company had given names and addresses of shareholders etc. - Assessing Officer rejected assessee's explanation and added amount so received to its taxable income * Tribunal, however, set aside addition made by Assessing Officer holding that if share application money was received by assessee- company from alleged bogus shareholders, whose names were given to Assessing Officer, then department could always proceed against them and if necessary reopen their individual assessments - Whether on facts. Assessing Officer should have found out details of shareholders through PAN cards, bank account, etc., so as to reach them because all relevant details and particulars were given by assessee to Assessing Officer - Held, yes - Whether, therefore, impugned order passed by Tribunal was to be upheld - Held, yes Ami Industries (India) (P) Ltd. 116 taxmann.com 34 (Bom) Section 68 - Assessment year 2010-11 - Assessing Officer noted that assessee had disclosed funds from three Kolkata based companies as share application money - But, since whereabouts of above companies were doubtful and their identity could not be authenticated, Assessing Officer treated aforesaid funds as money from unexplained sources and added same to income of assessee as unexplained cash credit under section 68 - However, it was found that assessee-company had furnished PAN, copies of income tax returns of creditors as well as copy of bank accounts of three creditors in which share application money was deposited in order to prove genuineness of transactions - Further, insofar as creditworthiness of creditors Intellectual Securities Pvt. Ltd. were concerned. Tribunal recorded that bank accounts of creditors showed that creditors had funds to make payments for share application money and in this regard, resolutions were also passed by Board of Directors of three creditors - Thus, first appellate authority had returned a clear finding of fact that assessee had discharged its onus of proving identity of creditors, genuineness of transactions and creditworthiness of creditors which finding of fact stood affirmed by Tribunal - Revenue had not been able to show any perversity in aforesaid findings of fact by authorities below - Whether therefore, Tribunal was right in confirming order passed by Commissioner (Appeals) and holding that no addition could be made under section 68 - Held, yes - Also held that assessee is not required to prove source of source - NRA Iron & Steel Pvt. Ltd. 412 ITR 161 (SC) distinguished Laxman Industrial Resources Ltd. in ITA 169/2017, C.M. Appeal 7385/2017 (Del) AO issued reassessment notice on the ground that information received from the Investigation Wing pointed to assessee being the beneficiary of accommodation entries - these were subjected to addition under Section 68. Upon appeal, the CIT(A) took note of the materials filed by the assessee and provided an opportunity to the AO to remand proceedings. The AO merely objected to the materials furnished but did not undertake any verification. The CIT(A), found favour with the assessee, and directed that the amounts brought to tax should be deleted Department argued that the Investigation Wing’s report confirmed unequivocally that the assessee was beneficiary to Intellectual Securities Pvt. Ltd. bogus transactions whereby the genuineness of identity of the shareholders, the genuineness and identity of the share applicants and the genuineness of transactions was suspect. The Court noticed that the assessee had provided several documents that could have showed light into whether truly the transactions were genuine, it was not a case where the share applicants have merely provided confirmation letters - They had provided their particulars, PAN details, assessment particulars, mode of payment for share application money, i.e. through banks, bank statements, cheque numbers in question, copies of minutes of resolutions authorizing the applications, copies of balance sheets, profit and loss accounts for the year under consideration and even bank statements showing the source of payments made by the companies to the assessee as well as their master debt with ROC particulars. The AO strangely failed to conduct any scrutiny of documents and rested content by placing reliance merely on a report of the Investigation Wing. This reveals spectacular disregard to an AO’s duties in the remand proceedings which the Revenue seeks to inflict upon the assessee in this case. No substantial question of law arises. The appeal is dismissed.
Hence, keeping in view, the entire factual position and examination of the record with relevance to the judgments quoted above, we hold that the action of the ld. CIT(A) cannot be sustained.