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Income Tax Appellate Tribunal, KOLKATA ‘A(SMC
Before: Shri P.M. Jagtap
Date of concluding the hearing : March 09, 2017 Date of pronouncing the order : March 17, 2017 O R D E R
This appeal filed by the assessee is directed against the order of ld. Commissioner of Income Tax (Appeals)-XXXII, Kolkata dated 07.01.2014 and the grounds raised by the assessee therein read as under:- (1) For that the ld. CIT(A)-XXXII, Kolkata has erred in law as well as on facts of the case in confirming the disallowance and addition of Rs.3,06,520/- being the amount of prior period expenses.
(2) For that the ld. CIT(A)-XXXII, Kolkata has erred in law as well as on facts of the case in confirming the disallowance and addition of Rs.5,01,480/- being the amount of loss on sale of shares.
(3) For that the ld. CIT(A)-XXXII, Kolkata has erred in law as well as on facts of the case in confirming the disallowance and addition of Rs.27,50,000/- being the amount of share investment made by four Companies.
./2014 Assessment year: 2002-2003 Page 2 of 8
At the time of hearing before us, the ld. counsel for the assessee has not pressed Grounds No. 1 & 2 raised in this appeal of the assessee. The same are accordingly dismissed as not pressed.
3. The only issue that now survives for the consideration as raised in Ground No. 3 relates to the addition of Rs.27,50,000/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of share capital by treating the same as unexplained cash credit under section 68.
The assessee in the present case is a Company, which is engaged in the business of dealing in Television and Audio items, Bajaj Products, etc. on retail basis as well as dealing in shares. The return of income for the year under consideration was filed by it on 28.10.2002 declaring total income of Rs.2,90,714/-. The said return was initially processed by the Assessing Officer under section 143(1) on 22.02.2003. Subsequently he, however, had a reason to believe that income chargeable to tax has escaped assessment. He, therefore, reopened the assessment and issued a notice under section 148 on 15.01.2007 after recording the reasons. In reply, a letter was filed by the assessee on 13.04.2007 requesting the Assessing Officer to treat the return of income originally filed by it on 28.10.2002 as the return filed in response to notice under section 148. During the course of re-assessment proceedings, the share capital amount of Rs.27,50,000/- claimed to be received by the assessee-company from the following four parties was verified by the Assessing Officer:- Sl. No. Name of party & address Amount 1. M/s. Jajoo Finance & Investment Pvt. Ltd., Rs.7,00,000/- 6, Mangoe Lane, Kolkata-1 2. M/s. Laxmi Finvest Pvt. Ltd., 6, Mangoe Rs.5,00,000/- lane, Kolkata-1 3. M/s. Intex India Trading Pvt. Ltd., 113, N.S. Rs.5,50,000/- Road, Kolkata-1 4. Sri Agro Industries Limited, 3A, Ahira Rs.10,00,000/- Pokhar 3rd Lane, Kolkata-1 TOTAL Rs.27,50,000/- ./2014 Assessment year: 2002-2003 Page 3 of 8 In this regard, the Assessing Officer issued notices under section 133(6) through his Inspector, which could not be served. The assessee, therefore, was called upon by the Assessing Officer to establish the genuineness of the relevant transactions involving receipts of share capital. The assessee, however, could not explain the said receipts representing cash credits in terms of section 68 to the satisfaction of the Assessing Officer. The Assessing Officer, therefore, invoked section 68 and added the amount of Rs.27,50,000/- to the total income of the assessee by treating the same as unexplained cash credits in the assessment completed under section 143(3)/147 vide an order dated 19.11.2007.
Against the order passed by the Assessing Officer under section 143(3)/147, an appeal was preferred by the assessee before the ld. CIT(Appeals). During the course of appellate proceedings before the ld. CIT(Appeals), it was submitted by the assesese that there was a change in the address of the concerned shareholders/creditors. Accordingly, new addresses of the said shareholders/creditors were furnished by the assessee before the ld. CIT(Appeals) and the matter was remanded by the ld. CIT(Appeals) to the Assessing Officer to make the verification at the said new addresses. During the remand proceedings, the Assessing Officer again sent notices under section 133(6) to the new addresses of the shareholders/creditors which either remained un-served or un-complied with. When this aspect was brought to the notice of the assessee by the ld. CIT(Appeals), certain more details of the shareholders/creditors were furnished by the assessee including the names and addresses of some of the Directors of the shareholder companies. When the said details were again forwarded by the ld. CIT(Appeals) to the Assessing Officer, latter issued notices to the concerned Directors under section 133(6). But even the said notices failed to invoke any positive response from the concerned parties as reported by the Assessing Officer to the ld. CIT(Appeals) in a tabular form as under:- ./2014 Assessment year: 2002-2003 Page 4 of 8 Sr. No. Name and address Notice u/s Remarks 133(6) issued on 1. Smt. Kanchan Jana, Director, 19/04/2013 Returned un-served M/s. Sri Laxmi Finvest (P) with Postal remarks Ltd., 4, N.S. Road, Kolkata- “not known”. 700 001 2. Sri Bablu Shah, Director, M/s. 19/04/2013 Returned un-served Sri Laxmi Finvest (P) Ltd., 4, with Postal remarks N.S. Road, Kolkata-700 001 “not known”.
Director, M/s Sri Laxmi 19/04/2013 Returned un-served Finvest (P) Ltd., 18, R.N. with Postal remarks Mukherjee Road, Kolkata-700 “not known”. 001 4. Sri Navneet Kumar Bihani, 19/04/2013 Returned un-served Direcgtor, M/s. Jajoo Finance with Postal remarks & Invetsment Ltd., 106, K.C. “not known”. Sinha Road, Ganges Gardens, Shibpur, Howrah-711 102 5. Director, M/s. Jajoo Finance 19/04/2013 No reply received till & Investment Ltd., 108, date Sikdar Para Street, Kolkata- 700 007 6. Sri Sanjoy Soni, Director, 19/04/2013 No reply received till M/s. Jajoo Finance & date Investment Ltd., 207, M.G. Road, Kolkata-700 007 7. M/s. Ramesh Poddar, 19/04/2013 No reply received till Director, M/s. Intex India date Trading Co. (P) Ltd., AD-227, Sector-1, Salt lake City, Kolkata-700 064 8. Director, M/s. Intex India 19/04/2013 Reply received contents Trading Co. (P) Ltd., No.2, of the reply is quoted Brabourne Road, 6t h Floor, below: “ We regret that Gobind Bhawan, Kolkata-700 records for the 001 requisite period is not preserved by us, which is also permitted by law, hence we are unable to furnish desired information This also disposes letter addressed to the Directors of the Company”.
Keeping in view the above non-compliances, one more opportunity was given by the Assessing Officer to the assessee in the second remand proceedings to explain the relevant cash credits in the form of share ./2014 Assessment year: 2002-2003 Page 5 of 8 capital introduction in terms of section 68. As reported by the Assessing Officer to the ld. CIT(Appeals), the assessee, however, once again failed to do the same satisfactorily. When these adverse findings by the Assessing Officer were confronted by the ld. CIT(Appeals) to the assessee, reliance was placed by the assessee on various judicial pronouncements including the decision of the Hon’ble Supreme Court in the case of CIT –vs.- Lovely Exports Pvt. Limited [216 ITR 195] to contend that the limited onus that lay on it to explain the relevant cash credits in the form of share capital introduction was duly discharged by the assessee in terms of section 68. After discussing the said judicial pronouncements cited by the assessee in great details, the ld. CIT(Appeals) did not find merit in the case of the assessee and proceeded to confirm the addition of Rs.27,50,000/- made by the Assessing Officer to the total income of the assessee under section 68 for the following reasons given at pages 29 & 30 in his impugned order:- “The fact of the case and the discussion on case laws above leave no doubt that the ground of appeal No.3 of the assessee deserved to be dismissed. The reasons are elaborated hereinafter.
The submissions or the assessee inter-alia proves that :_ (a) There is no proof of the identity of the 'shareholder' who has made the investment. (b) There is no proof of the capacity to invest of the alleged shareholders.
(c) The genuineness of the transaction is not proved in respect of the four cases.
The above default of the part of the assessee is compounded by the fact that:- (i) Though the assessee is a Private Limited Company and it can only issue shares through private placement amongst friends and relatives, the assessee has no evidence about the investors i.e. their identity, their capacity to pay, their bank statements, the correspondence to show why a premium of Rs.90/- was paid by them etc.
(ii) The assessee attempts to disclaim its onus by claiming that the AO should approach the four companies through their respective assessing officers after tracing the same, which is not the law.
./2014 Assessment year: 2002-2003 Page 6 of 8
(iii) The assessee only relies on share applications form and Ministry of Corporate affairs data to back its claim hit this does not discharge the primary onus of the assessee at all.
Further there is no legal dispute that u/s.68 of the Act the assessee is to prove the identity, capacity to pay and the genuineness of the transactions. The Share Capital is also a cash credit. The law laid down in (CIT v. Sophia Finance Ltd. (Supra) & CIT v. Lovely Exports (P) Ltd. (Supra) have been judicially explained and enunciated to hold that in case of privately held companies, mere identity of the shareholders is not sufficient. The entire facts of the case inform that the assessee has not proved any of the limbs specified in the celebrated case of Shankar Industries v. CIT (1978) 114 ITR 689 Cal. and others. The assessee, besides copies of the alleged share applications, has no other evidence. The assessee has not even able to prove the transactions through its own bank accounts and the bank accounts of the shareholders. Even no address or PAN is available which can be verified. The shareholders registers are also no produced to explain the latest position of such shares. Even otherwise, the Delhi High Court in CIT v. Nova Promoters & Finlease Ltd. (Supra) has declared that mere banking channel used or Registers of Companies informed of the shares being allotted, are only neutral circumstances and these do not prove the case for the assessee. In present case the full details are not made available by the assessee and the inquiries by the AO, both during the assessment and thrice during the remand proceedings, have conclusively held that the assessee has no case. The financial health of the company was not such that it could command a share premium of Rs.90/- per share and no dividends are being paid by it also. The assessee has adduced no evidence of the proof of resource of the Share Subscriber as mandated by the Delhi High Court in the case of CIT v. Nipun Builders & Developers (P) Ltd. (supra).
As regards this claim of the assessee that the AO should have enforced attendance through the respective jurisdictional assessing officers etc. of the share subscribers, such a request is fit only to be rejected, The reasons are already supplied in the case law of CIT v. Nipun Builders & Developers (P) Ltd. (supra), The onus is only on the assessee and not on the AO, who has thrice attempted to verify the details filed by the assessee already. In a private limited company there is a continuing contract between the company and its share subscribers and it is only the assessee who is best placed to explain the transactions of its "friends & relatives" who have invested in the shares.
The overwhelming burden placed in the assessee on the case laws discussed above also make it clear that the AO was correct in holding that the assessee cannot explain the share capital of ./2014 Assessment year: 2002-2003 Page 7 of 8
Rs.27,50,000/- introduced in the garb of four investing companies' subscriptions. Therefore, the ground of appeal No. 3 is dismissed”.
Aggrieved by the order of the ld. CIT(Appeals), the assessee has preferred this appeal before the Tribunal.
I have heard the arguments of both the sides and also perused the relevant material available on record. The ld. counsel for the assessee has submitted that certain specific details about the concerned shareholders/creditors were furnished by the assessee before the ld. CIT(Appeals). In this regard, he has invited our attention to such details given on page no. 9 of the ld. CIT(Appeals)’s impugned order and contended that the Assessing Officer should have made an enquiry on the basis of the said details including especially the Permanent Account Numbers of the concerned creditors given by the assessee. However, as rightly contended by the ld. D.R., the Numbers stated to be Permanent Account Numbers of the concerned shareholders/creditors do not appear to be the correct Permanent Account Numbers. Moreover, the same were furnished by the assessee only before the ld. CIT(Appeals) along with the names and addresses of the concerned Companies in whose names the amount in question was credited by the assessee-company in its books of account as share capital and the inquiry conducted by the Assessing Officer in the remand proceedings at the said addresses given by the assessee-company itself did not invoke any positive response. As further submitted by the ld. D.R., even inquiry made by the Assessing Officer at the addresses given by the assessee as those of Directors of the Investment Companies did not bring any positive reason to support and substantiate the assessee’s case. As regards the reliance placed by the ld. counsel for the assessee on the decision of the Hon’ble Supreme Court in the case of Lovely Exports (P) Limited (supra) to contend that the assessee-company having established the identity of the concerned shareholders/creditors, there was no case for making addition under section 68, the ld. D.R. has contended that the ld. CIT(Appeals) in his ./2014 Assessment year: 2002-2003 Page 8 of 8 impugned order has dealt with this stand of the assessee elaborately in the light of various judicial pronouncements and as rightly held by him, the ratio of the decision of the Hon’ble Supreme Court in the case of Lovely Exports cannot be applied in the case of the assessee-company involving private placement of shares. In any case, the onus in this regard to explain the relevant cash credit in terms of section 68 is on the assessee and it cannot be said in the facts of the case that it has satisfactorily discharged the same by even establishing the identity of the concerned shareholders/creditors. As such, considering all the facts and circumstances of the case, I find no infirmity in the impugned order of the ld. CIT(Appeals) confirming the addition of Rs.27,50,000/- made by the Assessing Officer to the total income of the assessee on account of share capital money by treating the same as unexplained and upholding the same, I dismiss Ground No. 3 of the assessee’s appeal.
In the result, the appeal of the assessee is dismissed. Order pronounced in the open Court on March 17, 2017.