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Facts
The assessee filed a 'Nil' return for AY 2018-19. The Assessing Officer (AO) selected the case for limited scrutiny concerning share premium received and added Rs. 1,59,75,500/- to the total income as unexplained credits under Section 68 of the Income Tax Act, 1961. The assessee failed to provide complete documentation regarding the identity, creditworthiness, and genuineness of share transactions.
Held
The ITAT noted that the issue of limited scrutiny was raised for the first time before them. Considering the facts and interests of justice, the Tribunal restored the issue to the file of the CIT(A) for fresh consideration. The CIT(A) was directed to provide a reasonable opportunity to the assessee and decide the issue based on law after the assessee produces necessary documents.
Key Issues
Whether the addition made by the AO under Section 68 for unexplained share premium and share capital is sustainable, and whether the assessment was beyond the jurisdiction of the AO in the context of limited scrutiny.
Sections Cited
68, 115BBE, 143(2), 56(2)(viib), 142(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI NARENDER KUMAR CHOUDHRY & SHRI LAXMI PRASAD SAHU
PER SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER
This is an appeal filed by the assessee against the order passed by the NFAC, New Delhi on 25/09/2023 in DIN No. ITBA/NFAC/S/250/2023-24/1056495048(1) for the assessment year 2018-19 on the following grounds:
‘1. The learned CIT (A) (NFAC) has erred in assessing total Income of Rs. 1,59,75,500/-instead of declared NIL income in Return of Income.
2. The learned CIT (A) (NFAC) and the Learned ITO has erred in not relying the documents produced before him to prove the entire transaction in terms of Identity, Creditworthiness & Genuineness of the Transaction except one party .
3. The learned CIT (A) (NFAC) has erred upholding the aforesaid addition made by Ld. AO of Rs. 1,59,75,500/- towards share premium and share capital u/s 68 without bringing on record any discrepancies in books of accounts and on the document produced before him
2. The assessee has also raised additional grounds of appeal
vide dated 24/01/2024 which is as under:-
1. The Learned Assessing Officer has failed to appreciate that he has issued notice under section 143(2) of the Act in the `LIMITED SCRUTINY' category under CASS to verify justification of `SHARE PREMIUM' and he has actually gone beyond the reason mentioned while selection of the case of the Appellant for limited scrutiny.
The Learned Assessing Officer has failed to appreciate that similar notices were issued under `LIMITED SCRUTINY' category under CASS for A.Y 2016-17 and A.Y 2017-18 respectively and no adverse view has been taken by the Department at least as far as justification of `SHARE PREMIUM' is concerned, if not otherwise.
3. The Appellant craves the right to add, amend, alter, delete or modify any of the grounds of appeal at the time of hearing.
4. The Appellant craves leave to make further submissions during the course of Appellate proceedings.”
3. The brief facts of the case are that the assessee filed ‘Nil’ return of income on 31/10/2018. The case was selected for limited scrutiny through Cass citing reason for selection as large share premium received during the year and verify applicability of sec.56(2)(viib) or other relevant section. Accordingly, notice u/s 143(2) was generated and served on the assessee through electronic mode and subsequently other statutory notices were issued to the assessee. The details were called for from the assessee in the specified format. The assessee submitted part reply on 01.04.2021 in respect of eight share purchasers with the documents like PAN,Copy of ITE-V, Amount of shares subscribed, Balance Sheet, Capital Account of eight subscribers out of nine, but without supporting documents of banking transactions and further requested that the balance documents shall be submitted in a day or two. The assessee did not submit reply by 05.04.2021. Accordingly, the AO issued further notice asking for various details and directed to furnish the documents within three days, against this the assessee submitted partial documents on 20/04/2021 after 10 days of the due date and the assessee mentioned in reply that the details of Neha Chandok which is called for takes some time to furnish because of the lockdown and as and when the assessee receives, he will submit the same. The assessee also not furnished Form No. SH-7 though it was mentioned in the submission. After observing the details submitted by the assessee the AO noted that assessee failed to substantiate identity, genuineness of the transaction and creditworthiness of share subscribers with supporting documents/evidences of Rs.1,59,75,500/- received during the financial year 2017- 18. Since the assessee failed to submit supporting documents regarding income from share premium amounting to Rs.1,59,34,537/- plus share capital amounting to Rs.40,963/- satisfactorily, these income is treated as unexplained credits as per provisions u/s 68 of the Act and the said income of Rs.1,59,75,500/- added back into the total income of the assessee and the AO applied sec. 115BBE of the Act and completed the assessment.
4. Aggrieved from the above order, the assessee filed appeal before the CIT(A) and before the CIT(A) the assessee file submission. The ld.CIT(A) after considering the submission of the assessee noted that the order for the assessment year 2017-18 passed by the earlier CIT(A) cannot be applied in the instant assessment year 2018-19 and the assessee failed to furnish the requisite documents as required by the AO. The ld.CIT(A) also relied on the judgment of Hon’ble Supreme Court in the case of Pr.CIT(A), Central Circle-(1) Vs. NRA Iron and Steel Pvt. Ltd., reported in 412 ITR 161 and dismissed the appeal of the assessee.
Aggrieved from the above order, the assessee filed appeal before the ITAT.
The ld.AR reiterated the submission made before the lower authorities and submitted that the total share capital including premium were received from the nine persons and all the details were submitted before the AO, only partial documents was not filed in the case of Neha Chandok. Further, the AO has wrongly added entire amount of the share capital & premium received from all persons. The assessee had proved identity of creditors genuineness of transactions and credit worthiness of the share applicants. Accordingly, he discharged its liabilities as per the requirements of sec.68 to the satisfaction of the AO. Therefore, the addition can be made only on the amount reviled from Neha Chandok. He further argued on the legal issue that the case was selected for limited scrutiny and further the AO has completed the assessment beyond his jurisdiction and in this regard he referred notification issued by the CBDT Instruction No.7/2014 dated 26/09/2014, Instruction No.20/2015 dated 29/12/2015 and the Instruction No.05/2016 dated 14/07/2016 and submitted that the AO has passed order beyond his jurisdiction, therefore, the assessment order should be quashed.
On the other hand, the ld.DR relied on the order of the lower authorities and submitted that during the course of assessment proceedings before the AO, the assessee has not complied the notices issued by the AO u/s 142(1) of the Act on various dates, which is clear from page no.3 of the assessment order, which is also clear from the point No.1 to 5 at para 2 of the assessment order and the assessee furnished part reply. The assessee sought time for furnishing the documents but not submitted. The assessee could not prove three ingredients cast upon the assessee u/s 68 i.e identify of share applicants, credit worthiness and genuineness of the transactions which lies on the assessee. He further submitted that the AO has rightly made addition of share premium received as per the selection criteria under the limited scrutiny, therefore the additional grounds raised by the assessee is not sustainable.
After considering the rival submissions, we note that the case of the assessee was selected for security on 29/11/2019 and notices was issued us/ 143(2) of the Act for limited scrutiny and the issue is regarding ‘share premium’. Accordingly, the AO issued various notices to verify the share premium received by the assessee. As per the submission of the assessee there are nine share applicants and details of 8 share applicants were submitted. Further, in the case of Neha Chandok in complete details submitted by the assessee and assessee has argued that the entire amount has been added only because of the complete details of Neha Chandok was not submitted. We have gone through the assessment order, we note that the assessee has given information partly. We further note that on 01/04/2021, the assessee furnished name of 9 subscribers of share purchasers and other information like PAN, copy of ITR-V, amount of share subscribed for balance sheet, capital amount of eight subscribers out of nine subscribers along with the supporting document of bank transaction. Accordingly, the reply is incomplete and assessee had taken time for the submission of remaining documents.. During the course of assessment proceedings, the AO had asked the following details.
“1. Details of Neha Chandok 2. Furnish the copy of relevant bank statements of the share investors, in order to establish the genuineness of the transaction.
Furnish, the relevant bank statement of your concern, highlighting the transaction relating to raising of share capital during the financial year 2017-18.
Furnish the copy of Form No.SH-7, submitted before the concerned ROC. 5. Furnish, explanation together with a valuation report of share as at 01/04/2017 to justify amount of share premium within the meaning of section 56(2)(viib).”
Further, the assessee has submitted partial details on 20/04/2021. Accordingly, in the opinion of the AO, the assessee did not discharge the onus u/s 68 of the Act and the AO made addition of Rs.1,59,34,537/- towards share premium and Rs. 40,963 for share capital. The AO noted that the assessee failed to submit the requisite documents of entire transactions in spite of giving various opportunities We noted from the order of the CIT(A) that the entire amount of Rs.1,59,75,500/- has been received from one Mr. Neha Chandok and the assessee failed to substantiate the transaction with required material. Since there are 9 share applicants as observed by the AO and the ld.CIT(A) has observed that the entire amount has been received from one share applicant named Neha Chandok. Before us, the ld.AR of the assessee raised legal grounds regarding limited scrutiny and since this issue was not raised before the CIT(A) and it raised before us first time. Considering the totality of facts and in the interest of justice, we restore this issue to the file of CIT(A) for fresh consideration and decided the issue as per law. Needless to say that the CIT(A) is directed to give reasonable opportunity of being heard to the assessee and decide the issue as per law. The assessee is directed to produce the necessary documents for substantiating its case and to avoid unnecessary adjournments for early disposal of the case.
In the result, appeal of the assessee is allowed for statistical purposes.
Order pronounced on the 23rd day of February, 2024, as per Rule 34(5) of the Income Tax [Appellate Tribunal] Rule 1963.