DY. COMMISSIONER OF INCOME TAX, CIRCLE-16(2), HYDERABAD vs. MS AGARWAL FOUNDRIES PRIVATE LIMITED, HYDERABAD

Facts of the case, in brief, are that the assessee company is engaged in manufacture of sponge iron. It filed its return of income for the A.Y 2012-13 admitting income of Rs.5,730/- and also revised return of income admitting income of Rs.9,760/-. Subsequently, the case was converted into scrutiny under CASS and statutory notices u/s 143(2) and 142(1) of the I.T. Act, 1961 were issued and served on the assessee to which the Authorised Representative appeared before the Assessing Officer and furnished the requisite details as called for.

It is the case of the Assessing Officer that during the year under consideration, the assessee had received huge share capital of Rs.21,85,00,000/- from M/s. Shri Kamal Fashion (P) Ltd. The Assessing Officer completed the assessment by making addition of Rs.21,85,00,000/- in the hands of the assessee. In para 5.2 to 5.6 of the assessment order, the Assessing Officer mentioned as under:

Aggrieved with such order of the Assessing Officer, the assessee filed appeal before the learned CIT (A), who in turn had allowed the appeal of the assessee while observing as under:

Now the Revenue is in appeal before the Tribunal and raised the following grounds:

The learned CIT (DR) submitted that the Tribunal vide its earlier direction had directed the Revenue to file the report with respect to the settlement of M/s. Shrikamal Fashions (P) Ltd from which the assessee had revised the amount.The learned CIT (DR) had filed the report which is as under:

The learned CIT (DR) further submitted that after the settlement of the amount, nothing remained to be explained and therefore, the matter is required to be decided in accordance with the law.

Per contra, the learned AR submitted that the order passed by the Assessing Officer was not in accordance with the law as the Assessing Officer had made glaring errors while passing the order. It was submitted that the Assessing Officer has relied upon the statement given by one Shri Praveen Agarwal (Calcutta based company) which leads to the addition made by the Assessing Officer. It was submitted that in fact, the assessee has not received the money under consideration from the above person or from a company operated and managed by Shri Praveen Agarwal (Calcutta based company). In fact, it was submitted that the Assessing Officer obtained the statement of the Managing Director of Shri Kamal Fashion which was recorded on 25.03.2015 by the Revenue during the assessement proceedings. However, despite recording the statement of Shri Gopal Babu Agarwal, the Assessing Officer has wrongly mentioned herein above that the assessee has not given the details of persons from whom the money was received. It was submitted that the assessee had proved the identity, genuineness and creditworthiness of M/s. Shri Kamal Fashion (P) Ltd. The learned AR drew our attention to the paper book filed on 11.5.2021 whereby the assessee had filed Form I, II and III issued by the Department and thereafter, the order passed by the Tribunal in the case of Shri Kamal Fashion (P) whereby the appeal of Shri Kamal Fashion (P) Ltd was dismissed Ltd bearing No.895/Hyd/2019 being settled under the vivad-se-vishwas scheme. It was submitted that once the said assessee namely Sri Kamal Fashion (P) Ltd had stated in Page 7 of 10 the assessement proceedings that the amount was paid to the assessee by the said Shri Kamal Fashion (P) Ltd and thereafter the said company paid due taxes to the Department on the amount given by Shri Kamal Fashion (P) Ltd to the assessee. Therefore, the appeal of the revenue is to be dismissed. It was submitted that once Shri Kamal Fashion (P) Ltd had declared and disclosed the income, though under the vivad-se-vishwas scheme, then the amount on which the tax was paid would have been available with Sri Kaman Fashion (P) Ltd for giving it to the assessee. Thus, the assessee explained the legitimate source of income of the assessee namely Shri Kamal Fashion (P) Ltd and the amount received by the assessee was adequately been explained.

We have heard the rival arguments made by both the sides, perused the available material on record. We find from the perusal of the report filed by the Revenue, it is abundantly clear that the Revenue had accepted the settlement under vivad-se- vishwas scheme with Shri Kamal Fashion (P) Ltd. In fact, in the report the Assessing Officer had mentioned that the amount of Rs.41,20,00,000 were invested by the said company in the assessee company and the said Shri Kamal Fashion (P) Ltd had availed the benefit under vivad-se-vishwas scheme and paid the due taxes and further it was mentioned “that the amount incurred by Sri Kamal Fashions (P) Ltd cannot be taxed again in the hands of the assessee as unexplained credit is found to be acceptable”.

Once Shri Kamal Fashion (P) Ltd had paid the due taxes on the amount invested by the said company in the assessee company, then the necessary sequence to that the Page 8 of 10 money received by the assessee become the legitimate and explained money. Thus, the assessee was able to explain the source of the investment made in the assessee company by Shri Kamal Fashion (P) Ltd.

Since the learned CIT (A) decided the issue in favour of the assessee by relying upon the judgment of the Lovely Exports (Supra) and thereafter Shri Kamal Fashion (P) Ltd as mentioned herein above has availed the benefit under vivad-se-vishwas scheme and paid the due taxes, therefore, it is now essential for the Assessing Officer to examine afresh and record an independent finding whether the assessee was able to prove the identity, creditworthiness and genuineness of the transactions having regard to the said settlement made by M/s.Shri Kamal Fashion (P) Ltd under vivad-se-vishwas scheme. In the light of our above discussion, the matter is remanded back to the file of the Assessing Officer for fresh adjudication. Needless to say, the Assessing Officer shall decide the issue after affording due opportunity of being heard to the assessee.

In the result, appeal filed by the Revenue is allowed for statistical purposes.