ASST CIT 10(3), MUMBAI vs. BLUE DIAMOND INFRASTRUCTURE & REALITY P. LTD, NAVI MUMBAI

आदेश / O R D E R

Per Ashwani Taneja: These cross appeals have been filed against the order of Ld. CIT(A) dated 08.06.2011.

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First we shall take up assessee’s appeal in The assessee has filed on following grounds:

2. The appellant prays that the aforesaid disallowance of Rs.17,79,713/-.”

3. During the course of hearing, it was submitted by the Ld. Counsel of the assessee that though in the year under consideration the loss on valuation of stock of shares claimed by the assessee was denied by the lower authorities by treating the shares as investment but in subsequent years when these shares were sold, the income arising thereon was assessed under the head ‘business’ by the AO in the order passed u/s 143(3) dated 11th February 2014. Therefore, the action of the lower authorities in disallowing the same in the impugned year and in treating the shares as non-business item was self contradictory. In support of his arguments, he filed petition

Blue Diamond 3 dated 19th December 2016 u/r 29 of Income Tax (Appellate Tribunal) Rules, 1963 stating as under: “The captioned appeal is filed against the order under section 143(3) of the Income-tax Act, 1961 (the Act") passed by the Hon’ble Commissioner of Income Tax (Appeals) - 22 Mumbai ("CIT(A)") dated June 8, 2011. The hearing of the captioned appeal is now scheduled before the Hon'ble B Bench of Income Tax Appellate Tribunal, Mumbai today i.e. December 19. 2016. In this connection, the Appellant most humbly submits as under: In the said order, the Hon'ble CIT(A) upheld the action of the AO in disallowing the loss on valuation of closing stock of shares claimed by the Appellant on the ground that the Appellant has classified the shares as held stock in trade only to claim the valuation loss and thus the shares should be treated as Investments and the valuation loss be disallowed. The Appellant submits that the Appellant has sold the shares of Binani Cements Ltd. in FY 2010-11 on August 3, 2010 and treated the same as business income. The Appellant filed its return of income for AY 2011-12 on September 29, 2011 offering the sale of shares as business income and offering it as such. Thereafter, the assessment order was passed u/s 143(3) on February 11, 2014 whereby the department has accepted the sale of shares as business income as declared by the Appellant. The Appellant further submits that it transferred the shares of Premier Ltd. held as stock in trade to a partnership firm named Blue Chip at cost. The said transfer was treated as sales in the financial statements for FY 2015-16 and was offered as business income in the return of income filed on October 16, 2016. Since, these events have taken place after passing of the impugned order by Hon'ble CIT(A) On June 8, 2011, these documents could not be placed before Hon’ble CIT(A). The Appellant humbly submits that the aforesaid events being crucial to the decision as to whether the shares

Blue Diamond 4 were stock in trade or investments, the evidences filed in respect of the above.-Placed in Additional Evidence Paper Book on Page no. 1 to 42 ought to be admitted.” 3.1. In view of these facts Ld. counsel filed following additional evidences in pursuance to the aforesaid petition: Copies of 1. Ledger of sale of shares of Binani Cement Ltd in FY 2010-11 2. Audited Financial Statements for FY 2010-1 1 3. Computation of Income for AY 2011 -12 4. Acknowledgement of ROI filed for AY 2011-12 5. Assessment Order for AY 2011-12 6. Ledger of transfer of shares of Premier Ltd in FY 2015- 16 7. Audited Financial Statements for FY 2015-16 8. Computation of Income for AY 2016-17 9. Acknowledgement of ROI filed for AY 2016-17 3.2. In view of the above said fresh evidences, it was requested that this issue needs to be looked afresh by the lower authorities to enable them to remove contradictions in the orders passed in the case of assessee in two different yeas. 3.3. Per contra, Ld. DR fairly submitted that these evidences may be sent back to the file of the AO for fresh adjudication. 3.4. We have gone through the orders passed by the lower authorities as well as strong evidence filed before us. In our considered view and accepting joint request made by both the parties, we find it appropriate to send this issue back to the file of the AO who shall take into consideration the evidences placed before us as well as orders passed by him in A.Y. 2011- 12 for deciding this issue afresh. It is well settled that Revenue Authorities are not expected to follow inconsistence approach in different years, unless there is a change in facts or legal

Blue Diamond 5 position. Therefore, AO shall decide this issue afresh after giving adequate opportunity of hearing to the assessee. The assessee is free to take all legal and factual issues before AO with regard to this ground and shall extend requisite cooperation to AO by submitting details and evidences as may be required by the AO from time to time. This ground may be treated as allowed for statistical purposes. Now we shall take Revenue’s Appeal filed on the following grounds:

1. On the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in deleting the addition of Rs.45,00,000/- made u/s 68 of the I.T.Act on account of share application money without appreciating the fact that the assessee failed to produce the parties from whom the application money is received.

2. The appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of appeal.

5. The brief background is that during the course of assessment proceedings, the AO noted that assessee had received share application money of Rs.45,00,000/- from the following parties having their registered office in Kolkata. Name of the Company Amount (Rs.)

1. Gopalka Savings and Inv.(P) ltd. 10,00,000 2. Pushpak Suppliers (P) Ltd. 10,00,000 3. Shree Mahasati Investment Ltd. 10,00,000 4. Hanurang Mercantile (P) Ltd. 10,00,000

5. Anjani Tie –UP(P) Ltd. 5,00,000 Total 45,00,000 The AO asked the assessee to produce the parties. The Assessee submitted before AO share application forms, Income-tax Returns, Bank statement of applicant etc. The Blue Diamond 6 AO noted that in Bank statement of lenders, there was credit entry before issue of cheques and returned income was very little. Assessee submitted details of Bank statement, PAN etc. but could not produce the lenders. Therefore, AO added entire amount of Rs.45,00,000/- u/s 68 of the Act. 5.1. During the appellate proceedings before the CIT(A), the assessee contested the addition made by the AO making following averments:- (i) Sufficient time was not given by the AO to produce the parties. (ii) Sufficient documentary evidences have given to establish identity of the share holders, genuineness of the transactions and creditworthiness of the share holders. (iii) Addition could not be made similar because parties were not produced. 5.2. Ld. CIT(A) considered the submissions of the assessee and deleted the addition on the ground that assessee had furnished documentary evidences in support of its transactions, therefore, the onus upon the assessee as is envisaged u/s 68 stood discharged. Being aggrieved with the order of Ld. CIT(A), the Revenue filed appeal before the Tribunal. 5.3. During the course of hearing before us, Ld. DR vehemently contested the action of Ld. CIT(A) in deleting the addition. It was submitted by the Ld. DR that in this case despite specific requirement of the AO, the assessee failed to produce the parties, therefore the AO was not in a position to examine the transactions properly. The AO could not examine

Blue Diamond 7 complete money trail. Further, creditworthiness of the shareholders could not be examined as the evidences were furnished very late. Further, before Ld. CIT(A) also, neither creditworthiness of the shareholders could not be established by the assessee nor genuineness of the transaction could be properly examined. Though some documentary evidences were furnished by the assessee, but Ld. CIT(A) chose to pass the order without properly examining these evidences. Even, before the Ld. CIT(A), the assessee could have offered to produce the parties or to make direct inquiries from these shareholders. But, Ld. CIT(A) passed the order without properly examining identity and creditworthiness of the shareholders and genuineness of the transactions. Under these circumstances, this issue should be sent back to the file of the AO for proper examination. The reliance was placed on the judgment of Hon’ble Delhi High Court in the case of CIT v. Jansampark Advertising and Marketing Pvt. Ltd. 375 ITR 373 wherein it was held by the Hon’ble High Court that in case proper inquiries are not made by the lower authorities, then the issue of addition made u/s 68 should be sent back to the file of the AO for proper examination. 5.4. Per contra, Ld. Counsel of the assessee vehemently supported the order of Ld. CIT(A). He drew our attention upon the evidences filed in the paper book wherein assessee had enclosed confirmation letters, bank statements and Certificate of Incorporation etc. of the share applicants. It was also submitted by the Ld. Counsel that it is not absolute burden of Blue Diamond 8 the assessee to produce the parties. He placed reliance upon the following judgments in support of order of Ld. CIT(A). Proposition 1: Where assessee submits PAN, Bank statements, confirmations, etc of the parties, addition u/s 68 cannot be made 1. CIT vs. Lovely Exports (F) ltd. (21 6 ITR 195) (SC) 2. CIT vs. Creative World Telefilms Ltd. (ITA No. 2182 of 2009) 3. CIT vs. Oasis Hospitalities Pvt. Ltd. 333 ITR 119 (Del.) 4. CIT vs. Dolphin Canpack ltd. (283 ITR 190) (Del) 5. CIT vs. Dwarkadhish Investment (P.) ltd (194 Taxman 43) (Del. HC) 6. CIT Vs. Jay Dee Securities & Finance ltd. 350 lTR 220 (All. HC) 7. Madhuri Investments Pvt. Ltd. vs. ACIT (ITA No. 110 of 2004) (Kar. HC) 8. CIT vs. Arunananda Textiles Pvt. I td (2011) 333 ITR II 6 (Kar. HC) 9. CIT vs. Shree Barkha Synthetics Ltd. (270 FIR 477) (Raj. HC) 10. DCIT Vs. Global Merchantiles (P.) Ltd. (2016) 157 ITD 924 (Kol. Trib.) 11. ACIT Vs. ETC Industries I.td. (2012) 52 SOT 159 (Indore Trib.) Proposition 2: Non production of parties cannot be a ground for making addition u/s 68 of the Act: 1. CIT Vs. Victor Electrodes Ltd. 329 ITR 271 (Del HC) 2. CIT Vs. Orbital Communication (P.) Ltd. 327 ITR 560 (Del.HC)

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Blue Diamond 10 proceedings on 22nd December 2010. In appeal before the Ld. CIT(A), these documents were put before him and simply relying upon these documents, he deleted the addition. Ld. CIT(A) has nowhere in his order given any factual findings based upon analysis of all these evidences. He has simply taken these evidences as correct on their face value without making any further verification, analysis and examination whatsoever. It has been mentioned by him in his order that AO had doubted the genuineness of the shareholders merely because the assessee could not produce as shareholder for verification before the AO. But, time given by the AO was not sufficient. However, while observing so, Ld. CIT(A) omitted to consider this fact that assessee had given the complete evidences at the fag end of the proceedings. As per section 68, the primary burden is upon the shoulders of the assessee to establish nature and source of the amount received by way of loan or share application money. The perusal of the orders passed by the lower authorities in the light of totality of facts and circumstances of this case as discussed above clearly indicates that this issue has not been properly examined in the light of complete facts. The judgments relied upon by both the parties were delivered in accordance with the facts of those cases and these are not applicable on the facts of the case before us. Therefore, we find it appropriate to send this issue back to the file of the AO where the assessee shall extend requisite cooperation to the AO by furnishing requisite details and documentary evidences well in time and shall also make sincere efforts to produce the parties before the AO for Blue Diamond 11 examination of the transactions. The AO shall be at liberty to make direct verification with the share applicants and enforce their attendance using his ample power under the law, if needed. The AO should give adequate opportunity of hearing to the assessee and shall take into consideration all the material as may be placed on record by the assessee before deciding this issue afresh. Thus, with these directions this issue is sent back to the file of the AO. Grounds raised by the Revenue may be treated as allowed for statistical purposes.