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Income Tax Appellate Tribunal, “A” BENCH: KOLKATA
Before: Shri Rajesh Kumar & Shri Sonjoy Sarma]
This is the appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)-NFAC, Delhi (hereinafter referred to as the Ld. CIT(A)”] dated 29.12.2023 for the AY 2012-13.
Issue raised in ground no. 1 is a legal issue and is against the notice issued u/s 143(2) of the Act by ITO, Ward-5(3) who was not vested with territorial jurisdiction
Assessment Year: 2012-13 Bright Commodeal Pvt. Ltd. on the date of issue of notice on 07.08.2013. The said ground is not pressed at the time of hearing and is accordingly dismissed as not pressed.
The common issue in other grounds of appeal i.e. 2,3 & 4 is against the order of Ld. CIT(A) upholding the order of AO thereby confirming the addition of Rs. 1,66,16,400/- as made by the AO u/s 68 of the Act in respect of unexplained share capital/share premium.
Facts in brief are that the assessee filed return of income on 13.09.2012 declaring total loss of Rs. 1,16,400/-. The case of the assessee was selected for scrutiny under CASS and statutory notices were duly issued and served on the assessee. In response to notice issued u/s 142(1) of the Act dated 07.01.2015 along with questionnaire, the Authorized Representative of the assessee Shri Bharat M. Bavishi, FCA appeared from time of time and filed the details/information as called for by the AO comprising copy of audited accounts, audited balance sheet, profit and loss account and computation of income. The AO upon examination of the details filed by the assessee observed that during the year the assessee has issued equity shares at a premium. According to AO, there is no business activity or book value / EPS and therefore there is no justification for issue of shares at premium. The AO also issued notice u/s 133(6) of the Act to investing companies and both parties complied the said notice and furnished the requisite details. Summon u/s 131 of the Act were also issued to the director of the assessee company to present personally and also produce the directors of the investing companies for examination of genuineness of the transactions and identity and creditworthiness of the lenders. But accordingly to the AO ,the directors of the assessee company failed to appear in compliance to summons u/s 131 of the Act. The AO thereafter discussed the modus-operandi of these dummy companies and after relying on the decision of Hon’ble Supreme Court in the case of Sumati Dayal vs. CIT [1995] 214 ITR 801 (SC) held that revenue authorities are also supposed to consider the surrounding circumstances and apply the test of human probability. The AO held that there was no reason in issuing shares at a Assessment Year: 2012-13 Bright Commodeal Pvt. Ltd. high premium. Finally the AO treated the share capital/share premium of Rs. 1,66,16,400/- as unexplained cash credit and added the same u/s 68 of the Act.
In the appellate proceedings, the Ld. CIT(A) dismissed the appeal of the assessee on the ground that these companies are fictitious company and have hardly any profit. The Ld. CIT(A) though recorded a finding that the identity and genuineness of the transaction were proved by the beneficiaries. The Ld. CIT(A) also noted that the finding of AO in para 7.2.2 that the director of the assessee company as well as the investing company failed to appear before the AO and therefore the condition as envisaged u/s 68 of the act could not be satisfied.
After hearing the rival contentions and perusing the material on record, the undisputed facts before us are that the assessee has raised share capital of Rs. 1,43,66,400/- and share premium of Rs. 22,50,000/- by issuing equity shares. We note that in the assessment proceedings the assessee has filed evidences as called for by the AO in respect of assessee as well as investing companies. The evidences filed by the assessee comprised of ITRs, audited balance sheet, profit and loss account, audited reports, bank statement and master data in respect of each of the subscribers. We note that the AO also issued notice u/s 133(6) of the Act to both the parties and both the parties have replied to the said notices copies whereof are available at page 76 to 79 of PB. Thereafter the AO issued notice u/s 131 of the Act dated 04.03.2015 to the director of the assessee company to present personally and also produce the directors of the investing companies by furnishing PANs, proof of addresses, bank statements with complete information etc. which was complied with by the assessee vide written submission dated 03.05.2015. Thus the AO has wrongly stated in the assessment order that there was no compliance to the summons issued u/s 131 of the Act. We also note that both the investors have good earnings and net worth and even the source of source was proved by the investing companies. Therefore the authorities below have not done any verification or conducted any enquiry into the evidences filed by the assessee and merely harped on the non compliance of summons issued u/s 131 of the Act. Even in case we accept the observation of the AO as to non compliance of the Assessment Year: 2012-13 Bright Commodeal Pvt. Ltd.
summons u/s 131 of the Act by the assessee and also non productions of the directors of the investing companies even then the AO cannot make addition on the sole basis of non compliance. The case of the assessee find support from the decisions of various judicial forums which are discussed as under. We find support from the decision of Hon’ble Supreme Court in the case of CIT Vs Orissa Corporation Ltd. ([1986] 159 ITR 78 (SC) in which the Hon’ble Apex Court has held as under:
“That in this case the respondent had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assessees. Their index numbers were in the file of the Revenue. The Revenue, apart from issuing notices under Section 131 at the instance of the respondent, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the respondent could not do anything further. In the premises, if the Tribunal came to the conclusion that the respondent had discharged the burden that lay on it, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. I f the conclusion was based on some evidence on which a conclusion could be arrived at, no question of law as such arose. The High Court was right in refusing to state a case.” 6.1 The case of the assessee is also squarely covered by the decisions of Hon’ble Calcutta High Court in the case of Crystal Networks Pvt. Ltd. vs. CIT (353 ITR 171 (Cal) wherein it has held that where all the evidences were filed by the assessee proving the identity and creditworthiness of the loan transactions , the fact that summon issued were returned un- served or no body complied with them is of little significance to prove the genuineness of the transactions and identity and creditworthiness of the creditors. The relevant portion of the decision is extracted below:
“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 Ld. CIT(A) 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 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 product of the assessee or note. When it was found by the Ld. CIT(A) on fact having examined the documents that the advance given by the creditors have been established the Tribunal should not have ignored this fact findings. Indeed the Tribunal did not really touch the aforesaid fact finding of the Ld. CIT(A) as rightly pointed out by the learned counsel. The Supreme Court has already stated as to what should be the duty of the learned Tribunal to decide in this situation. In the said judgment noted by us at page 463, the Supreme Court has observed as follows:
Assessment Year: 2012-13 Bright Commodeal Pvt. Ltd.
“The Income-Tax Appellate Tribunals performs a judicial function under the Indian Income-tax Act. It is invested with authority to determine finally all questions of fact. The Tribunal must, in deciding an appeal, consider with due care all the material facts and records its findings on all the contentions raised by the assessee and the Commissioner, in the light of the evidence and the relevant law.” The Tribunal must, in deciding an appeal, consider with due care all the material facts and record its findings on all contentions raised by the assessee and the Commissioner, in the light of the evidence and the relevant law. It is also ruled in the said judgment at page 465 that if the Tribunal does not discharge the duty in the manner as above then it shall be assumed the judgment of the Tribunal suffers from manifest infirmity. Taking inspiration from the Supreme Court observation we are constrained to hold in this matter that the Tribunal has not adjudicated upon the case of the assessee in the light of the evidence as found by the Ld. CIT(A). We also found no single word has been spared to up set the fact finding of the Ld. CIT(A) that there are materials to show the cash credit was received from various persons and supply as against cash credit also made. Hence, the judgment and order of the Tribunal is not sustainable. Accordingly, the same is set aside. We restore the judgment and order of the Ld. CIT(A). The appeal is allowed.”
6.2. The case of is also covered by the decision of the coordinate bench in ITO Vs M/s Cygnus Developers India Pvt. Ltd. ((ITA No. 282/Kol/2012)) the operative part whereof is extracted below:
“8. We have heard the submissions of the learned D.R, who relied on the order of AO. The learned counsel for the assessee relied on the order of Ld. CIT(A) and further drew our attention to the decision of Hon’ble Allahabad High Court in the case of CIT vs. Raj Kumar Agarwal vide dated 17.11.2009 wherein the Hon’ble Allahabad High Court took a view that non-production of the director of a Public Limited Company which is regularly assessed to Income tax having PAN, on the ground that the identity of the investor is not proved cannot be sustained. Attention was also to the similar ruling of the ITAT Kolkata bench in the case of ITO vs. Devinder Singh Shant in ITA No. 208/Kol/2009 vide order dated 17.04.2009.
We have considered the rival submissions. We are of the view that order of Ld. CIT(A) does not call for any interference. It may be seen from the grounds of appeal
raised by the revenue that the revenue disputed only the proof of identity of share holder. In this regard it is seen that for AY 2004
05. Shree Shyam Trexim Pvt. Ltd. was assessed by ITO, Ward-9(4), Kolkata and the order of assessment u/s 143(3) dated 25.01.2006 is placed in the paper book. Similarly Navalco Commodities Pvt. Ltd. was assessed to tax u/s 143(3) for AY 2005-06 by ITO, Ward-9(4), Kolkata by order dated 20.03.2007. Similarly Jewellock Trexim Pvt. Ltd. was assessed to tax for AY 2005-06 by the very same ITO, Ward-9(3), Kolkata assessing the assessee. In the light of the above factual position which is not disputed by the revenue, it cannot be said that the identity of the share applicants remained not proved by the assessee. The decision of the Hon’ble Allahabad High Court as well as ITAT, Kolkata Bench on which reliance was placed by the learned counsel for the assessee also supports the view that for non-production of directors of the investor company for examination by the AO it cannot be held that the identity of a limited company has not been established. For the Assessment Year: 2012-13 Bright Commodeal Pvt. Ltd. reasons given above we uphold the order of Ld. CIT(A) and dismiss the appeal of the revenue.” 6.3. Similar ratio has been laid down by the Hon’ble Mumbai High Court in the case of CIT Vs Orchid Industries (P) Ltd (397 ITR 136 (Bom) by holding that provisions of section 68 of the Act cannot be invoked for the reasons that the person has not appeared before the AO where the assessee had produced on records documents to establish genuineness of the party such as PAN ,financial and bank statements showing share application money . 6.4. Considering the facts and circumstances as narrated above in the light of the decisions as discussed above , we are inclined to set aside the order of ld. CIT(A) and direct the AO to delete the addition.
In the result, the appeal of the assessee is allowed.
Order is pronounced in the open court on 24th June, 2024