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Per Anikesh Banerjee, Judicial Member:
The instant appeal of the assessee was filed against the order of Ld.
Commissioner of Income-tax (appeals)-3, Kolkata [in brevity ld. ‘CIT(A)’] dated 15.03.2018 passed u/s 250 of the Income Tax Act, 1961 (in brevity the ‘Act’) for assessment year 2012-13. The impugned order was emanated from Assessment Years: 2012-13 VSFT Quilts & Pillows Pvt. Ltd. (presently known as Mallcom VSFT Gloves Pvt. Ltd.) the order of the ld. Income-tax Officer, Ward-7(2), Kolkata (in brevity the ‘AO’) passed u/s 143(3) of the Act dated 30.03.2015.
The assessee has taken the following grounds of appeal:
“1. That no proper opportunity was given to the appellant to represent its case. 2. That based on the facts of the case and in law, the Ld. CIT(A) was wrong in confirming the additions made by Ld. Assessing Officer of Share capital of Rs. 5,07,00,000/- including share premium u/s 68 of the Income Tax Act, 1961.” The assessee has taken additional grounds. But during hearing the additional ground was not pressed.
Brief facts of the case is that the assessee is a manufacturer of quilts and pillows at Falta Special Economic Zone, West Bengal and to export them. The major customer of the Company is IKEA. During the impugned assessment year the assessee raised share capital amount to Rs. 5,07,00,000/- by way of issue of equity shares number 202800 by charging Rs. 10/- each and at a premium of Rs. 240/- each. The assessment proceeding was initiated against the assessee and the verification of investors were started. The notice u/s 131 was issued calling for personal appearance of the Directors of assessee company. Further the notice was issued in direction to appear the directors of the invested company but all are remained non-compliance. The assessee complied notice u/s 142(1) of the Act by submitting the financial documents, proof of identity, the transaction through banking channel and creditworthiness related investment.
3 Year Assessment Years: 2012-13 VSFT Quilts & Pillows Pvt. Ltd. VSFT Quilts & Pillows Pvt. Ltd. (presently known as Mallcom VSFT Gloves Pvt. Ltd.) (presently known as Mallcom VSFT Gloves Pvt. Ltd.) Due to lack of verification, the Due to lack of verification, the ld. A.O has rejected the assessee’s submission the assessee’s submission and added back the entire amount u/s 68 of the Act. and added back the entire amount u/s 68 of the Act.
Aggrieved the assessee filed an appeal before the Ld. CIT(A). All the Aggrieved the assessee filed an appeal before the Ld. CIT(A). All the Aggrieved the assessee filed an appeal before the Ld. CIT(A). All the documents are duly submitted documents are duly submitted further before the Ld. CIT(A) before the Ld. CIT(A). But the assessment order is upheld. Being s upheld. Being dissatisfied on appeal order, the assessee filed the assessee filed appeal before us.
The Ld. A.R vehemently argued and The Ld. A.R vehemently argued and filed written submission which are written submission which are kept in the record. The Ld. A.R first kept in the record. The Ld. A.R first argued about the genuineness and genuineness and creditworthiness of the invested companies invested companies. He stated that all are in nature of all are in nature of company, incorporated under , incorporated under Companies Act, 1956 and have PAN and have PAN and regular filing of income tax return income tax return. The ld. AR placed a list which which depicted the percentage of fund was used in assessee company percentage of fund was used in assessee company by the shareholders shareholders and the identity of the shareholders shareholders which are reproduced as under:
4 Year Assessment Years: 2012-13 VSFT Quilts & Pillows Pvt. Ltd. VSFT Quilts & Pillows Pvt. Ltd. (presently known as Mallcom VSFT Gloves Pvt. Ltd.) (presently known as Mallcom VSFT Gloves Pvt. Ltd.)
5 Year Assessment Years: 2012-13 VSFT Quilts & Pillows Pvt. Ltd. VSFT Quilts & Pillows Pvt. Ltd. (presently known as Mallcom VSFT Gloves Pvt. Ltd.) (presently known as Mallcom VSFT Gloves Pvt. Ltd.)
Assessment Years: 2012-13 VSFT Quilts & Pillows Pvt. Ltd. (presently known as Mallcom VSFT Gloves Pvt. Ltd.) 5. The Ld. A.R further argued and placed that during assessment the assessee has produced all the documents and evidence to substantiate the identity, genuineness and creditworthiness of the shareholders. The documents are also submitted in APB-1, pages 1 to 436 in which following details in respect of each shareholders are submitted: i) Share application form ii) source of funds iii) bank statement iv) audited accounts v) copy of income tax acknowledgment vi) copy of PAN card The Ld. A.R in argument further relied on the order of ITAT, Kolkata “A”
Bench in the matter of ITO vs. Indus Realty Pvt. Ltd. in for AY 2012-13 pronouncement date 08.11.2023. The relevant paragraph extracted as below: -
“7. During the course of hearing, it was pointed out that all these four companies are Group Company of the assessee. They filed positive return income every year though small in number. For instance first group Concern is Citizen Securities Pvt. Ltd., who has net worth of Rs.3.91 crores and this Concern invested only Rs.25 lakhs, i.e. less than 10% of its own net worth. The Directors of this Company appeared before the ld. Assessing Officer and deposed that the Company has made investment with the assessee-company and also paid share premium. Similarly the second company isDe- Con Projects Pvt. Limited. It invested Rs.50 lakhs out of its net worth of Rs.6.89 crores. This company has filed a return declaring profit of Rs.3,92,065/-. The next one is Software Conglomerate Pvt. Limited. It has also a net worth of Rs.2.63 crores and made investment of Rs.50 lakhs and the last one is Quickpay Suppliers Pvt. Limited,
Assessment Years: 2012-13 VSFT Quilts & Pillows Pvt. Ltd. (presently known as Mallcom VSFT Gloves Pvt. Ltd.) who has net worth of Rs.2.77 crores and made investment of Rs.1.75 crores. According to the assessee, this company had earned a profit of Rs.3.99 crores during the instant year and had enough funds to make such heavy investment. The assessee has filed all these documents. The only area of difference between the assessee and the ld. Assessing Officer is as to why the subscriber will invest in a Company, who is making losses. To this, ld. CIT(Appeals) has also held that it is for the businessman to decide how it wants to use its funds. The subscribers have not borrowed the money for making investment with the assessee-company. The group concern might have decided to start some activity on substantial basis in the assessee-company, therefore, it could be a support from the group concern. The ld. 1st Appellate Authority has also examined whether, this excess premium paid by the subscribers is to be construed as a gift to the assessee within the meaning of section 56(2)(vib) of the Income Tax Act but held that this provision is applicable from A.Y. 2013-14 and not in A.Y. 2012-13.”
The Ld. D.R vehemently argued and relied on the order of revenue authorities. The Ld. D.R invited our attention to assessment order which is reproduced as under:
“Response to Final Show cause: In response to the said notice there was compliance on the part of the assesses company and the assesses furnished that the source of funding of such Share Capital raised / Share premium received /share application received was correct. The contention of the assesses was supported by few documentary evidences which are kept in the records. The documents and details were perused and seen but that does not reduce the assessee's burden to prove and liability to prove a transaction to be true and genuine; Notice U/s 131 of the I TAct’61 Even though notices U/s 131 of the Income Tax Act’d 1 was issued to the assessee company but there was non compliance on the part of the assessee company. The assessee company failed to totally discharge its onus to prove a transaction to be true even though the statutory notices and further refixation notices and further notice U/s 131 of the Income Tax Act’61 was issued to the Directors of the assessee company for personal appearance and recording of statement and obtaining deposition and to substantiate that the alleged transaction was from genuine sources and not a bogus transaction and also to produce the details and documentary evidences of the sources of the source of funding of the shareholders and justification of ^ issue of shares at such a huge premium.
Assessment Years: 2012-13 VSFT Quilts & Pillows Pvt. Ltd. (presently known as Mallcom VSFT Gloves Pvt. Ltd.)
Assessee failed to discharge onus: Even though opportunity of" being heard was provided to the directors but there was non-compliance to the said 131 notice. The directors of the company failed to produce evidences required to substantiate the transactions along with the source of funding of such Shares/ Premium / applications. The assessee company and the directors of the assessee company failed to discharge the onus to provide a transaction as being genuine and failed to discharge his duties.”
We heard the rival submissions and considered the document available in the record. The addition was made by pursuing u/s 68 of the Act. The application of Section 68 is standing on 4 legs: i. Identity of the party ii. Transaction in banking channel iii. Filing the income tax return. iv. Creditworthiness.
Related to identity, banking transaction and creditworthiness, the assessee already submitted the details document before the revenue authorities and also before the bench from APB-1-page nos. 1 to 436. The ld. DR did not make any objection about the first three ingredients related to addition section 68 during the hearing. During the assessment hearing the evidence was filed and no Assessment Years: 2012-13 VSFT Quilts & Pillows Pvt. Ltd. (presently known as Mallcom VSFT Gloves Pvt. Ltd.) question about the veracity of the documents. The relevant paragraph of assessment order is extracted as below: -
“The replies received from the assessee company are kept in the records. The details and contentions of the assessee company were perused and considered. The details and documents filed and explanations received were taken in consideration but same are not acceptable.” The inference is drawn by the ld. AO is lack of reason which cannot be acceptable.
The perusal of the chart (mentioned above) related to the creditworthiness of shareholders we find that the investment varies from .12% to 24.7% of their net worth. The amount was invested from the investment of share holder. The creditworthiness of the shareholders is explained. The assessee was able to cover up all the criterias as per provision of Section 38 of the Act. But the revenue is agitated the issue “preponderance of probability” which is proved beyond the reasonable doubt and cited the order of Hon’ble Apex Court in the case of Sumati Dayal vs. CIT in 214 ITR 801(SC). The question is raised by the Ld. D.R that the issuance of share in premium @ Rs. 240/- for a loss company is against the human probability and relied on the assessment order.
Bu this company which was in loss making that time now is doing business as an export company in Falta Special Economic Zone, West Bengal. The issue was rightly discussed and dealt by the Co-ordinate Bench of Kolkata in the case Assessment Years: 2012-13 VSFT Quilts & Pillows Pvt. Ltd. (presently known as Mallcom VSFT Gloves Pvt. Ltd.) of Indus Realty Pvt. Ltd. (supra). We relied on the order of the coordinate bench in the case of Indus Realty Pvt. Ltd(supra). The order of coordinate bench is squarely covered with this case. The ld. DR was unable to place any contrary judgment during the hearing. The evidence and submission of the assessee related to the transaction are sufficient to fulfill the criteria as per provision of Section 68 of the Act. Mere, non-appearance in persuasion of notice U/s 131 cannot be the main criteria of addition U/s 68 of the Act. Considering above, we set aside the appeal order. The addition U/s 68 of the Act amount to Rs. 5,07,00,000/- is quashed. The appeal of the assessee is succeeded.
In the result, the appeal filed by the assessee in is allowed.
Order is pronounced in the open court on 23rd February, 2024