BABA IRON INDUSTRIES PVT. LTD. ,KOLKATA vs. ITO,WARD-9(1), KOLKATA., KOLKATA

The brief facts of the case are that the assessee has filed its return of income on 27.09.2013 declaring total income of Rs. 22,345/-. An assessment order was passed u/s 143(3) of the Income Tax Act, 1961 (in short the 'Act') on 18.11.2014 whereby total income of the assessee was determined at Rs. 2,33,783/-. The ld. Commissioner took cognizance of this assessment order and formed an opinion that it is erroneous as well as caused prejudice to the interests of the revenue. Therefore, action u/s 263 of the Act is required to be initiated. Ld. Commissioner passed an order u/s 263 of the Act dated 06.03.2017 and set aside the impugned assessment order. He directed the Assessing Officer (in short ld. 'AO') to pass a de-novo assessment order. The AO has passed an ex-parte assessment order u/s 144 read with Section 263 of the Act. This order was passed on 20.12.2017. The assessee challenged this order before the Commissioner of Income Tax (Appeals) [in short ld. 'CIT(A)'] and its appeal was dismissed vide order dated 05.07.2018.

4. Dissatisfied with this order, assessee carried the matter to the Tribunal and the Tribunal has set aside the orders of Revenue authorities remitting the issue back to the file of the AO for fresh adjudication.

Dissatisfied with both these orders, assessee came up before the Tribunal. The Registry has pointed out that appeal of the assessee is time barred by 149 days. In order to explain the delay, assessee has filed two affidavits. We have duly considered the rival contentions and gone through the record carefully. Sub-section 5 of Section 253 contemplates that the Tribunal may admit an appeal or permit filing of memorandum of cross- objections after expiry of relevant period, if it is satisfied that there was a sufficient cause for not presenting it within that period. This expression sufficient cause employed in the section has also been used identically in sub- Page 2 of 13 I.T.A. No.: 925/KOL/2023 Assessment Year: 2012-13 Baba Iron Industries Pvt. Ltd. section 3 of section 249 of Income Tax Act, which provides powers to the ld. Commissioner to condone the delay in filing the appeal before the Commissioner. Similarly, it has been used in section 5 of Indian Limitation Act, 1963. Whenever interpretation and construction of this expression has fallen for consideration before Hon'ble High Court as well as before the Hon'ble Supreme Court, then, Hon'ble Court were unanimous in their conclusion that this expression is to be used liberally. We may make reference to the following observations of the Hon’ble Supreme court from the decision in the case of Collector Land Acquisition vs. Mst. Katiji & Others, 1987 AIR 1353: “1. Ordinarily a litigant does not stand to benefit by lodging an appeal late.

Refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated. As against this when delay is condoned the highest that can happen is that a cause would be decided on merits after hearing the parties.

When substantial justice and technical considerations are pitted against each other, cause of substantial justice deserves to be preferred for the other side cannot claim to have vested right in injustice being done because of a non-deliberate delay.

There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides. A litigant does not stand to benefit by resorting to delay. In fact he runs a serious risk.

It must be grasped that judiciary is respected not on account of its power to legalize injustice on technical grounds but because it is capable of removing injustice and is expected to do so. 7.1. Similarly, we would like to make reference to authoritative pronouncement of Hon'ble Supreme Court in the case of N. Balakrisknan vs. M. Krishnamurtky (supra). It reads as under: “Rule of limitation are not meant to destroy the right of parties. They are meant to see that parties do not resort to dilatory tactics, but seek their remedy promptly. The object of providing a legal remedy is to repair the damage caused by reason of legal injury. Law of limitation fixes a life-span for such legal remedy for the redress of the legal injury so suffered. Time is Page 3 of 13 I.T.A. No.: 925/KOL/2023 Assessment Year: 2012-13 Baba Iron Industries Pvt. Ltd. precious and the wasted time would never revisit. During efflux of time newer causes would sprout up necessitating newer persons to seek legal remedy by approaching the courts. So a life span must be fixed for each remedy. Unending period for launching the remedy may lead to unending uncertainty and consequential anarchy. Law of limitation is thus founded on public policy. It is enshrined in the maxim Interest reipublicae up sit finis litium (it is for the general welfare that a period be putt to litigation). Rules of limitation are not meant to destroy the right of the parties. They are meant to see that parties do not resort to dilatory tactics but seek their remedy promptly. The idea is that every legal remedy must be kept alive for a legislatively fixed period of time. A court knows that refusal to condone delay would result foreclosing a suitor from putting forth his cause. There is no presumption that delay in approaching the court is always deliberate. This Court has held that the words "sufficient cause" under Section 5 of the Limitation Act should receive a liberal construction so as to advance substantial justice vide Shakuntala Devi lain Vs. Kuntal Kumari [AIR 1969 SC 575] and State of West Bengal Vs. The Administrator, Howrah Municipality [AIR 1972 SC 749]. It must be remembered that in every case of delay there can be some lapse on the part of the litigant concerned. That alone is not enough to turn down his plea and to shut the door against him. If the explanation does not smack of mala fides or it is not put forth as part of a dilatory strategy the court must show utmost consideration to the suitor. But when there is reasonable ground to think that the delay was occasioned by the party deliberately to gain time then the court should lean against acceptance of the explanation. While condoning delay the Could should not forget the opposite party altogether. It must be borne in mind that he is a looser and he too would have incurred quiet a large litigation expenses. It would be a salutary guideline that when courts condone the delay due to laches on the part of the applicant the court shall compensate the opposite party for his loss”. 7.2. We do not deem it necessary to re-cite or recapitulate the proposition laid down in other decisions. It is suffice to say that the Hon'ble Courts are unanimous in their approach to propound that whenever the reasons assigned by an applicant for explaining the condonation of delay, then such reasons are to be construed with a justice oriented approach.

The affidavit of Sh. Prachin Kumar, S/o. Sh. Binod Kumar Agrawal, Age-35 has been placed on record. In this affidavit, the deponent has deposed that he is the director of M/s. Iron Industries Pvt. Ltd. On coming to know that appeal has been decided by ld. CIT(A), he handed over the papers to Sh. Vinay Singh, Advocate for further steps to be taken. According to him, the said ld. A/R had forgotten about it and he was not well-versed with filing of Page 4 of 13 I.T.A. No.: 925/KOL/2023 Assessment Year: 2012-13 Baba Iron Industries Pvt. Ltd. appeals before the Tribunal. Therefore, he approached the Counsel who is well-versed with the proceedings before the ITAT and filed the appeal. The ld. Counsel for the assessee contended that no doubt, this is second round of litigation but in each round, assessee is being not provided due opportunity of hearing and therefore, proceedings are being taken ex-parte by the AO. The assessee has been litigating since a very long period and every time submitting the details. The assessee has given its mail ID which is available in Form no. 35 also but no notice has been issued on this mail ID. An affidavit to this effect is also filed that notices have not been sent on the mail ID given in Form no. 35. He prayed that the delay in filing the appeal be condoned and appeal be decided on merit.

On the other hand, ld. D/R contended that assessee is just adopting a delaying practice and lingering the matter instead of submitting any substantial evidence before any of the authorities. He therefore, submitted that this appeal be dismissed being time barred. 10. We have duly considered the rival contentions and gone through the record carefully. In the light of above, if we examine the impugned order and the submission of ld. Counsel for the assessee that no notice was issued on e-mail address (baba.iron@rediffmail.com) mentioned by the assessee in Form no. 35. With the help of this very mail assessee has made submissions before the AO also which has been recognised by the AO about filing of the details. He took us through paragraph no. 4.3 of the assessment order which read as under: “During the course scrutiny, the assessee was asked to furnish documentary evidences to prove identity, creditworthiness of the share applicants as well as genuineness of the transactions with respect to share money received from the above investors. In response to the query, the assessee submitted application for allotment of shares, confirmation from the investors, Bank Statement, copy of acknowledgement of ITR for the AY 2012-13, computation of total income and Auditor’s Report along with Balance Sheet & P & L Account in respect of all the investors.” 11. It is discernible from the above paragraph that assessee has been submitting the details before the AO. Therefore, it cannot be construed that it I.T.A. No.: 925/KOL/2023 Assessment Year: 2012-13 Baba Iron Industries Pvt. Ltd. is not cooperating with the Department. The addition made by the AO is of Rs. 96.65 Crore which will lead to a huge demand. Therefore, no assessee would adopt a delaying strategy. It will not give any benefit to the assessee. There might have some bona-fide lapse either at the end of tax consultant or at the end of the management of the assessee. But the punishment in the shape of tax liability on a huge addition of Rs. 96.65 Crore would disproportionate to the negligence. Therefore, we deem it appropriate to condone the delay and decide the appeal on merit.

The brief facts of the case are that assessee is a non-banking financial company and engaged in investment activities. According to the AO, a perusal of record would show that fresh capital has been introduced in the accounts of the assessee. The ld. AO thereafter, noticed the details of all share applicants, number of shares allotted, face value of the share and the premium collected by the assessee. The details of these 33 share applicants are being tabulated in paragraph no. 4.1 of the impugned assessment order. The AO thereafter, straightway observed that perusal of these details would indicate that some of the investors have used common address i.e. Sl. No.-21 namely Mountview Merchandise Pvt. Ltd., Jeenmata Commercial Pvt. Ltd., Fabert Telecomm Pvt. Ltd. All these applicants have shown their address as 27, Weston Street, Kolkata-700012. Similarly, two other concerns have shown their address as 52, Weston Street, Kolkata-700012. The AO thereafter, made reference to the details submitted by the assessee and then in a faceless assessment order, he analysed those submissions and made the addition of Rs. 96.65 Crore.

Appeal to the ld. CIT(A) did not bring any relief to the assessee.

While impugning the order of the AO, ld. Counsel for the assessee took us through paragraph no. 4.3 (taken note by us while considering the application for condonation of delay). After taking note of all these details, he has not issued either notice u/s 133(6) of the Act or summons u/s 131 of the Act. He simply reproduced the details of certain investor companies which read as under and formed an opinion that all these transactions are bogus:

With regard to the finding of ld. CIT(A), he has filed the affidavit of Sh. Prachin Kumar who is the director of the assessee company deposing therein that no notice was issued by ld. CIT(A) on the registered e-mail of the assessee company. Thus, it is to be construed that impugned order is being passed ex- parte.

The ld. D/R on the other hand, contended that there may some technical issues in the proceedings but ultimately all these share applicant companies are paper companies. Nothing substantial is being possessed by the assessee.

We have duly considered the rival contentions and gone through the record carefully. The assessee has filed a paperbook in three volumes containing 1530 pages. It contains the details of all the share applicant companies. Before we embark upon an inquiry on the facts of the present appeal, in order to find out whether the share capital and share premium money received by the assessee during the year is required to be treated as its unexplained credit and deserves to be added under section 68 of the Income Tax Act, 1961. We deem it appropriate to bear in mind certain basic principles/tests propounded in various authoritative pronouncements of the Hon'ble High Courts and Hon'ble Supreme Court. We do not deem it necessary to recite and recapitulate them because that would make this order repetitive and bulky. We take cognizance of some of them. It is pertinent to observe that in so far as companies incorporated under Indian Companies Act are concerned, whether private limited or public limited companies, they raise their share capital, through shares, though manner of raising share capital in private limited company on one hand and public limited company on other hand, would be different. The share capital and share premium are basically irreversible receipts or credits in the hands of the companies. Share capital is considered to be cost of shares on equivalent amount issued and premium is considered as extra amount charged by the company for issue of that capital. In the case of private limited company, normally shares are subscribed by family members or persons known/close to the promoters. Public limited company, on the other hand, generally raised by public issue inviting general Page 8 of 13 I.T.A. No.: 925/KOL/2023 Assessment Year: 2012-13 Baba Iron Industries Pvt. Ltd. public at large for subscription of these shares. Yet, it is also possible that in the case of public limited company, the share capital is issued in close-circuit. When companies incorporated under the Companies Act raise their capital through shares, various persons would apply for shares and then give share application money. This amount received from such share holder would naturally be credited in the books of accounts of the assessee. Once the alleged share capital is credited to the accounts of the assessee, then role of section 68 would come. It is pertinent to take note of this section. It reads as under: “Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the officer, satisfactory the sum so credited may be charged to income tax as the income of the assessee of that previous year.”

A perusal of the section would indicate that basically this section contemplates three conditions required to be fulfilled by an assessee. In other words, the assessee is required to give explanation which will exhibit nature of transaction and also explain the source of such credit. The explanation should be to the satisfaction of the AO. In order to give such type of explanation which could satisfy the AO, the assessee should fulfil three ingredients viz. (a) identity of the share applicants, (b) genuineness of the transaction, and (c) credit-worthiness of share applicants. As far as construction of section 68 and to understand its meaning is concerned, there is no much difficulty. Difficulty arises when we apply the conditions formulated in this section on the given facts and circumstances. In other words, it has been propounded in various decisions that section 68 contemplates that there should be a credit of amounts in the books of an assessee maintained by the assessee, (b) such amount has to be a sum received during the previous year, (c) the assessee offers no explanation about the nature and source of such credit found in the books, or (d) the explanation offered by the assessee is not, in the opinion of the Assessing Officer, satisfactory. The Hon'ble Delhi High Court in the case of CIT v. Novadaya Castles (P.) Ltd. 367 ITR 306 has considered a large number of decisions I.T.A. No.: 925/KOL/2023 Assessment Year: 2012-13 Baba Iron Industries Pvt. Ltd. including the decision of Hon'ble Supreme Court in the case of CIT Vs. Durga Prasad [1971] 82 ITR 540 (SC). According to the Hon'ble Delhi High Court basically there are two sets of judgments. In one set of case, the assessee produced necessary documents/evidence to show and establish identity of the share-holder and bank account from which payment was made. The fact that payment was received through bank channels, filed necessary affidavit of the shareholders or confirmations of the directors of the shareholder company. But thereafter no further inquiry was made by the AO. The second set of cases are those where there was evidence and material to show that the shareholder company was only a paper company having no source of income, but had made substantial and huge investments in the form of share application money. The assessing officer has referred to the bank statement, financial position of the recipient and beneficiary assessee and surrounding circumstances.

Let us take into consideration observations made by the Hon'ble Delhi High Court in the case of Softline Creations P. Ltd. (supra) while taking note of judgment of Hon'ble Delhi High court in the case of CIT Vs. Fair Finvest Ltd., 357 ITR 146 (Delhi). Hon'ble Delhi High Court made following observations: “..... This court has considered the concurrent order of the Commissioner of Income-tax (Appeals) as well as the Income-tax Appellate Tribunal. Both these authorities primarily went by the fact that the assessee had provided sufficient indication by way of permanent account numbers, to highlight the identity of the share applicants, as well as produced the affidavits of the directors. Furthermore, the bank details of the share applicants too had been provided. In the circumstances, it was held that the assessee had established the identity of the share applicants, the genuineness of transactions and their creditworthiness; The Assessing Officer chose to proceed no further but merely added the amounts because of the absence of the directors to physically present themselves before him. The Income-tax Appellate Tribunal has relied upon a decision of this court in CIT v. fair Finvest Ltd. [2013] 357 ITR 146 (Delhi), where in somewhat similar circumstances, it was stated as follows (page 152): "This court has considered the submissions of the parties. In this case the discussion by the Commissioner of Income-tax (Appeals) would reveal that the assessee has filed documents including certified copies issued by the Registrar of Companies in relation to the share application, affidavits of the I.T.A. No.: 925/KOL/2023 Assessment Year: 2012-13 Baba Iron Industries Pvt. Ltd. directors, Form 2 filed with the Registrar of Companies by such applicants confirmations by the applicant for company's shares, certificates by auditors etc. Unfortunately, the Assessing Officer chose to base himself merely on the general inference to be drawn from the reading of the investigation report and the statement of Mr. Mahesh Garg. To elevate the inference which can be drawn on the basis of reading of such material into judicial conclusions would be improper, more so when the assessee produced mate- rial. The least that the Assessing Officer ought to have done was to enquire into the matter by, if necessary, invoking his powers under section 131 summoning the share applicants or directors. No effort was made in that regard. In the absence of any such finding that the material disclosed was untrustworthy or lacked credibility the Assessing Officer merely concluded on the basis of enquiry report, which collected certain facts and the statements of Mr. Mahesh Garg that the income sought to be added fell within the description of section 68. Having regard to the entirety of facts and circumstances, the court is satisfied that the finding of the Tribunal in this case accords with the ratio of the decision of the Supreme Court in Lovely Exports (supra)”

We also deem it appropriate to take note of some of observations of the Hon'ble Delhi High Court from the decision of Fair Finvest Ltd. (supra). The Hon'ble Court has noticed proposition laid down by the Hon'ble Delhi High Court in the case of CIT Vs. Victor Electrodes Ltd., 329 ITR 271 (Delhi) regarding non-production of share applicants before the AO. The following observations are worth to note:

We are conscious of the fact that it is second round of litigation up to the Tribunal. An assessment order was framed u/s 143(3) of the Act. No additions were made. That was set aside by ld. PCIT by exercising powers u/s 263 of the Act. The AO thereafter, framed an ex-parte assessment order. Appeal was also decided ex-parte. Tribunal set aside both the orders and restored the matters to the AO. The AO has again made the additions. But let us evaluate the quality of the assessment order passed by the AO. At the cost of repetition, we will again take note of paragraph no. 3 of the assessment order which read as under: “During the course scrutiny, the assessee was asked to furnish documentary evidences to prove identity, creditworthiness of the share applicants as well as genuineness of the transactions with respect to share money received from the above investors. In response to the query, the assessee submitted application for allotment of shares, confirmation from the investors, Bank Statement, copy of acknowledgement of ITR for the AY 2012-13, computation of total income and Auditor’s Report along with Balance Sheet & P & L Account in respect of all the investors.”

The AO himself noticed that assessee has furnished documentary evidence to prove identity, creditworthiness as well as genuineness of the transaction. After filing of all these documents, he did not take any investigation nor issued any notice to any of the share applicants. In the absence of such an exercise, how ld. AO formed an opinion that the transactions of the assessee are non-genuine and it is the assessee’s own money which is to be added. While taking note of the jurisprudence propounded by various Courts, in the upper part of this order, we have identified that there are two categories of cases; (a) where assessee fails to submit the details and (b) where assessee has submitted the details but ld. AO has not carried out any investigation. Therefore, this assessment order is not in consonance with the requirement of law.

Before ld. CIT(A), the assessee has registered a mail ID and alleged that no notice was ever given on this mail ID. A perusal of the impugned order would reveal that ld. CIT(A) adopted a cut & paste method by taking note of Page 12 of 13