I.T.O WD - 3(2) , KOLKATA., KOLKATA vs. M/S ASHADEEP ENTERTAINMENT PVT LTD., KOLKATA

In ground no.1, the Revenue has challenged the action of the ld. CIT(A) in deleting the addition of Rs.68,05,690/- made by the AO under section 68 on the ground that the ld. CIT(A) has given relief to the assessee on this issue by relying on fresh evidence without giving opportunity to the AO to verify the same as per Rule 46A of the Income Tax rules.

The assessee in the present case is a company which is engaged in the business of film making. The return of income for the year under consideration was filed by it on 30.09.2008 declaring a total loss of Rs.39,25,744/-. During the course of assessment proceedings, it was 2 M/s.Ashadeep Entertainment Pvt. Ltd. Assessment Year 2008-09 noticed by the AO that the assessee company has received share application money aggregating to Rs.68,05,690/- from various parties. In order to verify the same, letters were issued by the AO to the concerned parties but all of them were returned unserved. Summon issued under section 131 in this regard to Shri Pradeep Bhardwaj, Director of the assessee company also remained un-complied. Thereafter, several opportunities were given by the AO to the assessee to explain the amounts of share application money representing cash credits in terms of section 68 of the I.T. Act. The assessee however failed to comply with the requirements of the AO. The AO, therefore proceeded to treat amount of Rs.68,05,690/- received by the assessee towards share application money as unexplained cash credit under section 68 and the same was added by him to the total income of the assessee.

The addition made by the AO under section 68 was challenged by the assessee in the appeal filed before the ld. CIT(A) and after considering the submissions made by the assessee and perusing the record, the ld. CIT(A) deleted the said addition for the following reasons given in his impugned order. “After careful consideration of assessment order and written submission it is noticed that assessee-company was incorporated on 27.07.2006 as certificate of incorporation issued Dy. Registrar of Companies. In the financial year under consideration the assessee- company had taken over the proprietorship concern M/s Ashadeep entertainment (Prop: Shri Pradeep Kumar Bhardwaj) w.e.f 01.04.2007 and assets and liabilities were taken over. Shri Pradeep Kr. Bhardwaj is regularly assessed to DCIT, Circle-I, Kolkata and had filed return of income for Rs.29,79,090/- for AY- 2007-08 and 71841 shares at face value of Rs.10/- each alongwith share premium of Rs.90/- per share were allotted to Shri Pradeep Kr. Bhardwaj, Mr.Yusaf Khan and five private limited companies as per Form no.2 filed with ROC 3 M/s.Ashadeep Entertainment Pvt. Ltd. Assessment Year 2008-09 and also mentioned in the assessment order. These five pvt. Ltd. companies i.e. (i) M/s Ideal Goods & Service Pvt. Ltd.,(ii) M/s Top Grain Consultant Pvt. Ltd.,(iii) M/s Strong Construction Pvt. Ltd.,(iv) M/s Transseem Commercial Pvt. Ltd. and (v) M/s Ralliwolf Dealcom Pvt. Ltd. had given Unsecured Loans to the Proprietor concern M/s Ashadeep Entertainment in earlier years and no share application money was received during the current financial year as shares were allotted for consideration other than cash. The AO did not properly appreciate the reply furnished by the assessee on 05.10.2010 before the AO. Keeping in the view the above facts and circumstance the addition made by the AO u/s 68 is deleted.”

We have heard the arguments of both sides and also perused the relevant material available on record. The limited contention raised by the ld. DR is that the submission made by the assessee before the ld. CIT(A) that the amount in question towards share application money was not received during the year under consideration and it was a case of conversion of unsecured loans taken from the concerned parties by the proprietary concern in the earlier year into share capital during the year under consideration was not made before the AO during the course of assessment proceedings and the same made for the first time before him was accepted and relied upon by the ld. CIT(A) to give relief to the assessee without giving any opportunity to the AO to verify the same. Although the ld. Counsel for the assessee has made an attempt to submit that this information was furnished by the assessee before the AO vide letter dated 5th October, 2010, a perusal of the said letter (copy placed at page nos. 34 and 35 of the paper book) shows that the submission made by the assessee before the ld. CIT(A) on this issue was not there before the AO, even in the letter dated 5th October, 2010 filed by the assessee. On the other hand, there was a complete non-compliance on the part of the assessee during the course of assessment proceedings as pointed out by the AO in the assessment order and keeping in view the same, the ld. CIT(A), in our opinion, ought to have given an opportunity to the AO to verify the submission made by the assessee on this issue for the first time before him before giving relief to the assessee 4 M/s.Ashadeep Entertainment Pvt. Ltd. Assessment Year 2008-09 by relying on the same. We, therefore set aside the impugned order of the ld. CIT(A) on this issue and restore the matter to the file of the AO for deciding the same afresh after verifying the submission made by the assessee for the first time before the ld. CIT(A) that the amount in question towards share application money was not received in the year under consideration and it was a case of conversion of loans received in the earlier year into share capital in the year under consideration. Ground no.1 of the Revenue’s appeal is accordingly treated as allowed for statistical purposes.

In ground no.2, the Revenue has challenged the action of the ld. CIT(A) in deleting the addition of Rs.67,49,377/- made by the AO on account of disallowance of assessee’s claim for opening WIP.

In its profit & loss account filed alongwith the return of income a sum of Rs.67,49,377/- was shown by the assessee as opening WIP. The AO, however found that there was no closing WIP shown by the assessee in the accounts of the immediately preceding year. Since no explanation in this regard was offered by the assessee despite several opportunities given by the AO, the AO made an addition of Rs.67,49,377/- to the total income of the assessee by disallowing its claim for opening WIP. On appeal, the ld. CIT(A) deleted the addition made by the AO on this issue after having found that the closing WIP of Rs.67,49,377/- was duly reflected in the P&L account and balance-sheet of the erstwhile proprietary concern as on 31.03.2007 which was taken over and merged with the assessee company as on 01.04.2007.

We have heard the arguments of both sides and also perused the relevant record. It is observed that the proprietary concern M/s. Ashadeep Entertainment was taken over and merged with the assessee company as on 01.04.2007 and after having found that the closing WIP of Rs.67,49,377/- was duly reflected in the P&L account 5 M/s.Ashadeep Entertainment Pvt. Ltd. Assessment Year 2008-09 and balance-sheet of the said proprietary concern as on 31.03.2007, the ld. CIT(A) accepted the claim of the assessee company for opening WIP of Rs.67,49,377/-. It is also observed that even in the letter dated 5th October, 2010 filed during the course of assessment proceedings, the amount in question on account of closing WIP was clearly indicated by the assessee in the assets and liabilities of the proprietary concern which had been taken over on merger. Having regard to all these facts of the case, we are of the view that the addition of Rs.67,49,377/- made by the AO by disallowing the claim of the assessee for opening WIP was not sustainable and the ld. CIT(A) is fully justified in deleting the same. We, therefore uphold the impugned order of the ld. CIT(A) on this issue and dismiss. Ground no.2 of the Revenue’s appeal.

In the result, the appeal filed by the assessee is treated as partly allowed for statistical purposes.