MEGAPIX VANIJYA PVT. LTD.,KOLKATA vs. I.T.O., WARD - 9(1), KOLKATA, KOLKATA

1. The present appeal is filed by the assessee against the order dated 13.05.2024 of the National Faceless Appeal Centre [hereinafter referred to as ‘CIT(A)’] passed u/s 250 of the Income Tax Act (hereinafter referred to as the ‘Act’) for assessment year 2012-13.

The brief facts of the case are that the assessee filed its return of income on 26.09.2012 by declaring a total loss of Rs.4,540/-. The case of the assessee was selected for scrutiny due to large share premium received by the assessee during the relevant financial year. Consequently, the Assessing Officer issued notices u/s 142(1) and 142(2) of the Act requesting for furnishing requisite information. In response to the notices, the ld. AR of the assessee appeared before the Assessing Officer and provided primary details including an explanation that the assessee company was engaged in the business of share trading. Upon Assessment Year: 2012-13 Megapix Vanijya Pvt. Ltd. verification of the records, the Assessing Officer noted that the assessee company had received share capital amounting to Rs.2,62,00,000/-. However, the Assessing Officer questioned the genuineness of the transaction and issued summons u/s 131 of the Act to the director of the assessee company and to the share-subscribers. Although, the share-subscribers submitted various details in response to the summons, however, director of the assessee company did not appear before the Assessing Officer for personal deposition on a specified date. Consequently, the Assessing Officer deemed the responses as insufficient and, therefore, an addition of Rs.2,62,00,000/- was made to the income of the assessee u/s 68 of the Act.

Dissatisfied with the above order, the assessee went in appeal before the ld. CIT(A) by making various submissions, however, the submissions made by the assessee before the ld. CIT(A) were turned down and the appeal of the assessee was dismissed without considering the submissions made by the assessee before the him.

Aggrieved by the above order, the assessee is now in appeal before us. The contention of the ld. AR is that the impugned order passed by the ld. CIT(A) was not correct and the addition made by the Assessing Officer was also not correct and liable to be set aside. In this regard, the ld. AR submitted detailed documentary evidences to establish identity, creditworthiness of the shareholders as well as genuineness of the share premium received by the assessee during the assessment year in question. In this regard, the ld. AR contended that each equity share with face value of Rs.10/- was issued at premium of Rs.990/- and this premium was capital in nature and not subject to Income Tax relying on the judicial precedents including the decision of Coordinate Hyderabad Bench of the Tribunal in in the case of ITO vs. M/s. Trident Shelters Pvt. Ltd. and the decision of Coordinate Mumbai Assessment Year: 2012-13 Megapix Vanijya Pvt. Ltd. Bench of the Tribunal in the case of Green Infra Ltd. vs. ITO reported in 145 ITR 240(Mum). The ld. AR argued that the shareholders were subjected to tax scrutiny u/s 143(3) and 147 of the Act in the previous assessment year and the Assessing Officer could not dispute identity and creditworthiness of these shareholders. Non-appearance of the directors of the company could not be the sole ground to justify for treating the share application money as undisclosed income in the hands of the assessee. Reliance in this respect has been placed on the following decisions:

Decision of Hon’ble Jurisdictional Calcutta High Court in the case of CIT vs. M/s Sagum Commercial Pvt. Ltd. in of 2001, wherein, the High Court held that merely because shareholders not produced, no adverse inference can be drawn when PAN no., other details submitted.

On the other hand, the ld. DR argued that non-compliance of directors under summons suggest a lack of transparency raising doubt about genuineness of the transaction. Since, the identity, creditworthiness and genuineness of the transactions were not satisfactorily demonstrated, the Assessing Officer was justified in adding the share capital received and treating the unexplained cash credit u/s 68 of the Act. The ld. DR argued that the case laws cited by the ld. AR were factually distinct rendering them inapplicable to the present case.

We, after hearing the rival submissions of the parties and perusing the materials available on record, find that the contention raised by lower authorities is that the director of the subscriber companies did not appear in response to the summons issued u/s 131 of the Act. On this aspect, the ld. counsel has submitted that the directors of the share subscriber companies though have shown inability to appear personally on the date fixed, however, they had duly responded to the summons issued and sent the requisite details and evidences to the Assessing Officer. The Assessing Officer has not pointed out in the Assessment Order as to what further enquiries he wanted to make from the directors of the subscribers to insist for their personal presence. In the present case, the assessee duly explained about the identity, creditworthiness and financials etc. of each of the share subscriber company. The Assessing Officer, in our view, could have taken an adverse inference, only if, he would have pointed out the discrepancies or insufficiency in the evidences and details received in his office and pointed out as to on what account further investigation was needed by way of recording of statement of the directors of the subscriber companies. Even if the directors of the subscriber companies have not come personally in Assessment Year: 2012-13 Megapix Vanijya Pvt. Ltd. response to the summons issued by the Assessing Officer, in our view, adverse inference cannot be taken against the assessee solely on this ground as it is not under control of the assessee to compel the personal presence of the directors of the shareholders before the Assessing Officer. The Ld. Counsel for the assessee has rightly placed reliance upon the decision of the Hon’ble Bombay High Court in the case of PCIT, Panji vs. Paradise Inland Shipping Pvt. Ltd. reported in (2017) 84 taxman.com 58 (Bom) wherein the Hon’ble High Court has held that once the assessee has produced documentary evidence to establish the existence of the subscriber companies, the burden would shift on the revenue to establish their case. Further the jurisdictional Calcutta High Court in the case of “Crystal networks (P) Ltd. vs CIT” (supra) has held as under:

So far as the reliance of the Ld. DR on the decision of the hon’ble Supreme Court in the case of “PCIT v/s NRA Iron & Steel (P) Ltd.” (supra) has taken note of the observations made by the Supreme Court in the “the land mark case of Kale Khan Mohammed Hanif v. CIT [1963] 50 ITR 1 (SC) and Roshan Di Hatti v. CIT [1977] 107 ITR 938 (SC) laid down that the onus of proving the source of a sum of money found to have been received by an assessee, is on the assessee. Once the assessee has Assessment Year: 2012-13 Megapix Vanijya Pvt. Ltd. submitted the documents relating to identity, genuineness of the transaction, and credit-worthiness, then the AO must conduct an inquiry, and call for more details before invoking Section 68. If the Assessee is not able to provide a satisfactory explanation of the nature and source, of the investments made, it is open to the Revenue to hold that it is the income of the assessee, and there would be no further burden on the revenue to show that the income is from any particular source.”

It has to be further noted that though powers of the ld. CIT(A) are co-terminus with the Assessing Officer and the ld. CIT(A) had all the plenary powers as that of the AO. The Hon’ble Delhi High Court in the case of Commissioner of Income-tax vs. Manish Build Well (P.) Ltd. reported in [2011] 16 taxmann.com 27 (Delhi) has held that the CIT(A) is statutory first appellate authority and has independent power of calling for information and examination of evidences and possesses co-terminus power of assessment apart from appellate powers. However, a perusal of the impugned order of the ld. CIT(A) shows that the ld. CIT(A) has not discussed anything about the material facts of the case. He has not pointed out any defect and discrepancy in the evidences and details furnished by the assessee but simply upheld the order of the Assessing Officer in mechanical manner. The order of the ld. CIT(A) is a non- speaking order. The same is not sustainable as per law. In this case, the assessee has provided detailed evidences to establish identity and creditworthiness and genuineness of the transaction in the shape of bank statements, acknowledgement of Income Tax Returns and transaction evidencing for each of the shareholders at the time of Assessment Year: 2012-13 Megapix Vanijya Pvt. Ltd. framing of assessment order and also before the ld. CIT(A). The non- appearance of the director of the assessee company before the Assessing Officer may raise concern, that alone does not invalidate otherwise credible documentary evidences. The Hon’ble Supreme Court in the case of CIT vs. Kamdhenu Steel & Alloys Ltd. in SLP(CC) No.15640 of 2012, dated 17-09-2012 held that mere non-appearance of director cannot be held to be justified in treating the share premium and share capital as unexplained income if sufficient documentary evidences are provided. In the present case of the assessee, the shareholders were scrutinised u/s 143(3)/147 of the Act, further detailed evidences were submitted to establish genuineness of the transactions. In this regard, we rely on the decision of the Hon'ble Apex Court in the case of CIT vs Lovely Exports (P) Ltd. reported in (2008) 216 CTR 195 (SC), wherein, it was held that once company proves the existence and authenticity of shareholders, it had discharged its burden u/s 68 of the Act. We find merit in the contention of the ld. AR. That the premium is matter of business prerogative as held in the Coordinate Mumbai Bench of the Tribunal in the case of M/s Greek Infra Ltd. vs. ITO in and in the case of Trident Shelters Pvt. Ltd. (supra). That revenue cannot question the quantum of share premium in the absence of evidence of collusion or mala fide intent. Considering the facts and submissions and judicial precedents, we hold that the addition made by the Assessing Officer of Rs.2,62,00,000/- as unexplained cash credit u/s 68 of the Act is unsustainable since the assessee has sufficiently established the identity, creditworthiness and genuineness of the transaction relating to the share capital received during the relevant financial year. We, therefore, direct the Assessing Officer to delete the addition of Rs.2,62,00,000/- u/s 68 of the Act in the hands of the assessee.