M/S CITY SHOPPE ESTATES LIMITED,KOLKATA vs. DCIT, CIR. 4(3), KOLKATA

Present for: Appellant by : Shri A. K. Tulsiyan, FCA Respondent by : Shri Umakanta Dhrupati, Addl. CIT, DR Date of Hearing : 13.03.2024 Date of Pronouncement : 08.04.2024 O R D E R

PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:

by the assessee are reproduced as under:

1. That the Ld. CIT(A), wrongly passed ex-parte order under Section 250 of the Income Tax Act, 1961 without adjudicating the case on merit on the allegation of non-compliance whereas the assessee has not received any notice and it is not clear in which mail the notices were sent. The assessee has given an affidavit that no such notices were received in its e- City Shoppe Estates Ltd., AY 2010-11 mail. Hence, the order of the Ld. CIT(A) without giving proper opportunity of being heard to the assessee, is bad in law and need to be set aside.

2. That the Ld. CIT(A) was wrong in confirming the addition of a sum of Rs. 40,00,000/- as share application money received from two share subscriber's M/s. Terminal Sales (P) Ltd. and M/s. Vanaspati Vinimay (P) Ltd. treating the same as unexplained cash credit u/s. 68 of the IT Act, 1961. The Ld. CIT(A) wrongly confirmed the addition made by the Ld. CIT(A) and made the addition completely ignoring all the documents & evidences furnished by assessee to prove the identity and creditworthiness of the share subscriber companies and relying on the report of the Investigation Wing and Statement of third parties without independent verification and not allowing any opportunity of cross examination.

3. That the Ld. AO as well as Ld. CIT(A) was wrong in charging/confirming interest u/s. 234B of the I. Tax Act.”

City Shoppe Estates Ltd., AY 2010-11 to the extent of Rs.40 lakhs chargeable to tax has escaped assessment. 3.1. In the course of such assessment proceedings, the details of transaction of the assessee in respect share capital raised by it from two companies as tabulated in the reasons to believe recorded by the AO is extracted below:

3.2. Ld. AO observed that during the relevant year assessee had raised share application money of Rs. 20 lakh each from Terminal Sales Pvt. Ltd. and Vanaspati Vinimay Pvt. Ltd. These two companies were allotted 20000 shares each of face value of Rs. 10/- each with a premium of Rs. 90/- each. Ld. AO also noted that both the share subscribing companies had replied u/s. 133(6) vide their letter dated 27.10.2017 whereby they had explained the source of their investment made into the assessee company. Ld. AO has also acknowledged that transactions are through cheques. He also noted that mere filing of copies of ITRs/bank statement of the account of subscriber could not absolve the subscriber to the complicity of introducing unaccounted money in its books in the garb of equities. Further, Ld. AO based his conclusion on the statement of one Shri Subhash Agarwal alleged to be an entry operator who had admitted of providing accommodation City Shoppe Estates Ltd., AY 2010-11 entry to the assessee through the companies controlled by him and his associates. Assessment was thus completed by making an addition of Rs. 40 lakh by holding it as unaccounted money in the garb of share capital and share premium in the books of the assessee treating it as unexplained cash credit u/s. 68 of the Act. Aggrieved, assessee went in appeal before the Ld. CIT(A), who confirmed the said addition.

City Shoppe Estates Ltd., AY 2010-11 5.1. Ld. Counsel strongly submitted that the basis of addition made by the Ld. AO is the statement recorded of one Shri Subhash Agarwal in the course of search on Pasari Group. It is important to note that assessee was not subjected to the said search operation. Further more, the statement so recorded was later on retracted before the Ld. DCIT on 24.03.2014. In this respect, Ld. Counsel referred to a letter dated 24.03.2014 from Shri Subhash Agarwal confirming that he had retracted his statement for which an affidavit was furnished with the office of DCIT. The said affidavit is duly sworn before the 1st class City Shoppe Estates Ltd., AY 2010-11 Magistrate, Kolkata on 24.03.2014. Thus, the very basis on which the addition was made has no evidentiary value.

(a) The Hon’ble Court noted that Ld. Tribunal has independently examined as to the genuinity of the transaction in the matter of raising share capital and that even during the assessment proceedings, the assessee had furnished all the details in respect of the share capital and share premium including the details of the investors who had made their submissions before the AO.

(b) The Hon’ble Court also observed that the Tribunal has noted about the assessee had produced all the documents, disclosed the City Shoppe Estates Ltd., AY 2010-11 names and addresses and PAN of the investors including several other documentary evidence.

(c) Hon’ble Court also observed that AO had issued notices u/s. 133(6) of the Act for carrying out independent verification of the transaction and thus investors duly responded to the said notices and filed the requisite details.

(d) Also, the assessment years framed u/s. 143(3) of the investors were placed on record.

(e) Tribunal also noted that the only reason for making the addition was that the directors of the assessee company did not respond to the summons issued by the AO u/s. 131. Thus, the non-appearance of the director formed the basis of making the addition.

8.1. From the above stated observations and notes, the Hon’ble High Court came to the conclusion that there was no question of law much less substantial question of law which arose for consideration in the said appeal and thus, the appeal filed was dismissed. A reference was also made by the Hon’ble Court to its decision in the case of Crystal Networks Pvt. Ltd. Vs. CIT 253 ITR 171 (Cal) on which the Tribunal had placed its reliance.

City Shoppe Estates Ltd., AY 2010-11 10. We have heard the rival contentions and gone through the material available on record. We note that Ld. AO without even going through and discussing the details submitted by the subscriber companies, took an adverse view on 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. 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 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."

City Shoppe Estates Ltd., AY 2010-11 11. 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 basis of statement of on Shri Subhash Agrawal which was eventually retracted. Thus, going by the records placed by the assessee of the two 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.

11.1. A perusal of the impugned first appellate order 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 cited certain case laws even without pointing out as to how these case laws were applicable to the facts and circumstances of this case. By simply reproducing the contents of the case laws without discussing about their application on the facts of the case, in our view, would not make the order of the Ld. CIT(A) justifiable.

11.2. From the facts and circumstances of the case as already discussed above, we find that the case of the City Shoppe Estates Ltd., AY 2010-11 assessee is squarely covered by the decision of Hon’ble jurisdictional High Court in the case of Naina Distributor Pvt. Ltd. (Supra). We have already summarised the observations and noting as well as the finding arrived at by the Hon’ble High Court in this case which applies on the factual matrix of the present case. Considering the facts and circumstances of the case and respectfully following the decision of the Hon’ble jurisdictional High Court of Calcutta (supra), we find that the assessee has discharged its onus to prove the identity and creditworthiness of the share subscribing companies and the genuineness of the transaction towards issue of share capital of Rs.40,00,000/- during the year. Accordingly, we delete the addition so made by the AO. Grounds taken by the assessee in this respect are allowed.