MUNDHRA CONSTRUCTION P LTD.,KOLKATA vs. ITO, WARD-10(2), KOLKATA

This appeal filed by the assessee pertaining to the Assessment Year (in short ‘AY’) 2012-13 is directed against the order passed u/s 250 of the Income Tax Act, 1961 (in short the ‘Act’) by the National Faceless Appeal Centre (NFAC), Delhi, dated 27.03.2024 arising out of Assessment Order dated 23.03.2015, passed under Section 143(3) of the Act.

Brief facts of the case are that the assessee filed its return of income for the AY 2012-13 by disclosing total income of Rs. 2,05,157/-. The case of the assessee was processed under section 143(1) of the Act. Later on the case of the assessee was selected for scrutiny under CASS followed by statutory notices issued under section 143(2) and 142(1) of the Act. In response to the notices, Ld. AR of the assessee appeared time to time before the AO. During the assessment proceedings, the Ld. AO issued notices under section 133(6) of the Act to the assessee and reply against the said notices were received. Similarly, the Ld. AO issued summon under section 131 of the Act to the Director of the assessee-company to appear before him requisiting to file his submission by producing and justify the following points: 2 Mundhra Construction Pvt. Ltd. (a) Proof of your photo identity/PAN card. (b) List of companies where you were directors/shareholders from the A.Y. 2008-09 till date with dates of appointments thereto with your DIN. (c) Proof of acknowledgment of filing your personal IT Return, copies of accounts Proof of your address (d) Copy of bank statement of your company reflecting the all transaction during the period 01.04.2011 to 31.03.2012 with complete narration & source of fund. (e) Produce the directors of investors' company along with their proof of photo identity and copy of bank statement of their company reflecting the all transaction during the period 01.04.2011 to 31.03.2012 with complete narration & source of fund. (f) A write-up on justification of large share premium

However, the assessee-company had filed written submission along with proof of identity of the Director of investee company but no reasons provided for non-compliance of Director of such investee company before him. The Ld. AR after considering the various aspects of the case, he find that share application money received along with premium amounting to Rs. 2,82,10,798/- which were remained unexplained and added to the income of the assessee under section 68 of the Act.

Aggrieved by the above order, the assessee went in appeal before CIT(A) where appeal of the assessee was dismissed. Before the Ld. CIT(A) assessee took additional ground on the issue of jurisdictional point that the assessment having been completed by TRO and has no jurisdiction to frame the assessment. However, this plea taken by the assessee was rejected by Ld. CIT(A) observing that case of the assessee was covered under clause (a) of sub section (3) of Section 124 of the Act as the assessee did not challenge the jurisdiction of AO within the expiry of one month from the issuance of notice Mundhra Construction Pvt. Ltd. under section 142(1) of the Act on 31.10.2024 and claim of the assessee was rejected.

Dissatisfied with the above order, assessee is in appeal before this Tribunal raising multiple grounds on the jurisdictional issue as well as on the merits of the case. The Ld. Counsel for the assessee placed on record a paper- book containing 463 pages in support of corroborating the transaction of share capita including share premium raised during the year. The Ld. Counsel for the assessee has made detail and elaborate submissions on the jurisdictional issue. He placed before the bench on the merit of the case to demonstrate that onus discharge by the assessee in terms of section 68 of the Act. He categorically pointed out that the Ld. AO himself noted in the assessment proceedings that the assessee has furnished sheaves of paper documents in response to the summon issued. The Ld. Counsel pointed out that notice u/s 133(6) of the Act were issued and reply against the notice received by him which evidently demonstrate that all the relevant documentary evidence were placed before the Ld. AO although adverse view was taken. He also stated that summons were issue u/s 131 of the Act on the Director of the assessee which even though were not applied in terms of personal attendance but assessee had responded by making all the necessary details and documents which had been acknowledged by Ld. AO. The Ld. AR stated that the AO had failed to exercise the provision prescribed u/s 131 of the Act for summoning the Director of the investee company and instructed the Director of the assessee-company to produce the director of the investee company before him for their deposition is against the spirit of law of the land. Therefore, alleged addition made by the AO is not correct and liable to be set aside by this Tribunal.

The Ld. Counsel also submitted that mere non-appearance of director is no bass of invoking the provision of Section 68 of the Act for which he placed Mundhra Construction Pvt. Ltd. reliance on the decision of Hon'ble Supreme Court in the case of CIT V. Orissa Corporation (P) Ltd. (1986) 159 ITR 78 (SC) wherein it was held as under:

The Ld. Counsel for the assessee submitted that in order to establish the identity and creditworthiness of the shareholders and genuineness of the transactions, assessee has submitted all the relevant details and documents in the course of assessment as well as appellate proceeding, details of which are tabulated and is extracted below from the index of the paper book for ease of reference:

Ld. Counsel reiterated that the share subscribers are body corporate, registered with ROC and are assessed to income tax. He further stated that these subscribers had confirmed the transactions, filed relevant papers and documents and also explained the source of funds in their hands for making investment in the assessee company. He thus, emphasized that assessee had discharged its primary onus casted upon its u/s. 68 of the Act. According to him, the onus thus shifted to the Ld. AO to disprove the material placed before him, without doing so, the addition made by the Ld. AO is based on conjectures and surmises and, therefore, cannot be sustained. He pointed that Ld. AO for reasons known to him alone, did not choses to issue notices/summons u/s. 133(6)/131 to the share subscribers.

Ld. Counsel submitted that instead of pointing out any defect or discrepancy in the evidence and the details furnished by the assessee, Ld. AO proceeded to take adverse inference only on the ground that the directors of the assessee did not appear personally before him. In this respect he placed reliance on the decision of Hon'ble Jurisdictional High Court of Calcutta in the case of Crystal Networks Put. Ltd. v. CIT in ITA 158 of 2002 dated 29.07.2010. 11 Mundhra Construction Pvt. Ltd.

The Ld. Counsel also emphasized on the fact that in the submissions including ITRs, audit reports, share application details etc, as listed above, the Ld. AO has not found fault in any of the details submitted and simply proceeded to make addition in respect of the amount of share capital and premium. The documents furnished are to be prima facie considered as correct unless evidence is brought on record to falsify the claim made therein.

On the three basic ingredients for any cash credit viz., identity, creditworthiness of the subscribers and the genuineness of the transactions, Ld. Counsel submitted that all of these are fulfilled. In this respect he submitted as under:

It was thus, submitted that the above table containing details on "source of source" unequivocally testifies and proves that the subscribers had sufficient fund for making investment in the share capital of the assessee.

On genuineness of the transaction: It was submitted that the amounts were invested by the subscribers through proper banking channel which is duly reflected in the respective financial statements of the subscribers. Since 13 Mundhra Construction Pvt. Ltd. the investments reflected in their respective financial statements have been duly reported in their respective returns with the Department are thus genuine and transaction cannot be doubted.

Per contra, ld. Sr. DR placed reliance on the order of the authorities below and submitted that assessee’s own income has been infused in the guise of share capital through the allottee companies by layering the transactions to make appear a non-genuine transaction as a genuine one 15. We have heard the rival contentions and gone through the material placed on record. We note that Ld. AO without even going through and discussing the details submitted by the subscriber companies, insisted for personal appearance of the directors of the assessee to prove the identity, creditworthiness of the subscribers and the genuineness of the transactions. To our mind, Ld. AO could have taken an adverse view only if he could point out the discrepancies or insufficiency in the evidence and details furnished in his office and also as to what further investigation was needed by him by way of recording of statement of the directors of the assessee. We draw our force from the decision of the Hon’ble Bombay High court in the case of PCIT v. Paradise Inland Shipping Pvt. Ltd. [2017] 84 taxmann.com 58 (Pan) wherein it was 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. We also draw our force from the decision of Hon’ble Jurisdictional High Court of Calcutta in the case of Crystal Network Pvt. Ltd. v. CIT (supra) which held as under: “We find considerable force of the submissions of the learned counsel for the appellant that the Tribunal has merely noticed that since the summons issued before assessment returned unserved and no one came forward to prove. Therefore, it shall be assumed that the assessee failed to prove the existence of the creditors or for that matter creditworthiness. As rightly pointed out by the learned counsel that the CIT(Appeals) has taken the trouble of examining of all other materials and documents viz., confirmatory statements, invoices, challans and vouchers showing supply of bidi as against the advance. Therefore, the attendance of the witnesses 14 Mundhra Construction Pvt. Ltd. pursuant to the summons issued in our view is not important. The important is to prove as to whether the said cash credit was received as against the future sale of the produce of the assessee or not. When it was found by the CIT (Appeal) on fact having examined the documents that the advance given by the creditors have been established the Tribunal should not have ignored this fact finding."

Ld. AO has not bothered to discuss or point out any defect or deficiency in the documents furnished by the assessee of the share subscribing companies. These evidences furnished have been neither controverted by the Ld. AO during the assessment proceedings nor anything substantive brought on record to justify the addition made by him. Ld. AO has simply added the amount of share capital and share premium on the ground that assessee has not produced its directors. Thus, going by the records placed by the assessee of all the share subscribing companies, it can be safely held that the assessee has discharged its initial burden and the burden shifted on the Ld. AO to enquire further into the matter which he failed to do so. It is also noted from their audited financial statement and chart extracted above that all the investing companies have sufficient own funds available with them to make investment in the assessee.

From the perusal of the paper book and the documents placed therein, it is vivid that all the share applicants are (i) income tax assessees, (ii) they are filing their income tax returns, (iii) share application form and allotment letter is available on record, (iv) share application money was made by account payee cheques, (v) details of the bank accounts belonging to share applicants and their bank statements, (vi) in none of the transactions there are any deposit of cash before issuing cheques to the assessee, (vii) all the share applicants are having substantial creditworthiness represented by their capital and reserves, (viii) details relating to ‘source of source’ also placed on record by the subscribers.

Before concluding, to give our finding, we place reliance on the following judicial precedents to buttress our observations and conclusions : 15 Mundhra Construction Pvt. Ltd. i) The decision of Hon’ble Jurisdictional High Court of Calcutta in the case of CIT v. Dataware Pvt. Ltd. in ITAT No. 263 of 2011 dated 21.09.2011 wherein Hon’ble jurisdictional High Court held that “After getting the PAN number and getting the information that the creditor is assessed under the Act, the Assessing officer should enquire from the Assessing Officer of the creditor as to the genuineness" of the transaction and whether such transaction has been accepted by the Assessing officer of the creditor but instead of adopting such course, the Assessing officer himself could not enter into the return of the creditor and brand the same as unworthy of credence.” ii) Decision of Hon’ble jurisdiction High Court of Calcutta in the case of CIT Vs. Sagun Commercial P. Ltd. (ITA No. 54 of 2001 dated 17.021.2011) wherein it was held as under:

We note that authorities below have relied upon the decision in the case of M/s Bisakha Sales Pvt. Ltd. v CIT [2014] 52 taxmann.com 305 (Kolkata- Trib.). In this case, it was held that where assesseecompany received share application money with huge and unjustified share premium from corporate entities, merely because said amount was received through banking channel, Assessing Officer was not justified in accepting said transactions as genuine without making proper enquiries. Apparently, the AO has not properly appreciated that decision of the Hon'ble ITAT. The Hon'ble ITAT has never held that share capital and share premium can be assessed as unexplained cash credit merely for high share premium even though the identities and creditworthiness of the share applicant and genuineness of the transactions have been established. What is held by the Hon'ble ITAT is that revision proceedings u/s 263 are valid where the transactions have been accepted as genuine without making proper enquiries.

Further, in the judgment of Hon’ble Supreme Court in the case of NRA Iron & Steel Pvt. Ltd. (412 ITR 161), Ld. AO has made extensive enquiries and some of investors were found to be non-existent. Upon going through the facts involved in that judgment, it is noted that, in the decided case, the AO had made extensive enquiries and from that he had found that some of the Mundhra Construction Pvt. Ltd. investor companies were non-existent, which is certainly not the case before the undersigned. In the said decided case, certain investor companies also failed to produce their bank statements for proving the source for making investments in assessee company. In the facts of the present case however, not only have the shareholders furnished their bank statements and investment schedules to establish the source of funds but they have also furnished their respective sources of funds.

Considering the facts and circumstances of the case and the material placed on record, we find that assessee has discharged its onus to prove the identity and creditworthiness of the share subscribing companies and the genuineness of the transactions towards sum of Rs.2,76,50,000/- received during the impugned year. Accordingly, considering these facts and in the light of the judicial precedence referred above, we set aside the order of the ld. CIT(A) and delete the addition made towards share capital and share premium u/s. 68 of the Act. Accordingly, grounds taken by the assessee in this respect are allowed.

Since on the merits of the case, we have deleted the addition made by the Ld. AO in terms of our observations and findings recorded above, the legal issue raised by the assessee in this appeal on the jurisdiction of TRO to make the impugned assessment is rendered as a mere academic exercise. Accordingly, we desist ourselves from indulging into such an exercise. Ld. Counsel for the assessee has made a detailed written submission on the legal issue which is placed on record. Ld. CIT, DR in the course of hearing had also submitted that he be given an opportunity to make a submission on the legal issue in case it is being adjudicated upon which in the present case is not warranted. Accordingly, grounds taken by the assessee in this respect are not adjudicated upon.