KALRA FORGINGS & ALLOYS (P) LTD.,NEW DELHI vs. ITO, NEW DELHI

Brief facts of the case as recorded by the ld.AO, are as below: The assessee had filed its return of income declaring the total income of Rs. 85,609/- and a book profit of Rs. 6,12,715/- u/s 115JB. The return was processed u/s 143(1) and the case was selected for scrutiny. The assessee is engaged in the business of manufacturing forged rolls and blanks to be used by steel rolling mills. During the year the turnover was declared at Rs. 2,94,84,078/- (net of excise) yielding a G.P. ratio of 7.04% as compared to turnover of Rs. 22,10,720/- yielding a G.P. ratio of 7% in the immediately preceding year. The books of accounts produced by the assessee, at the assessment proceedings were test checked.

During the year the ld.AO observed that, the assessee had increased its paid up share capital by Rs.44,75,000/-, issued at a premium of like amount. The total amount of share application money received by the assessee in the previous year, amounted to Rs. 89,50,000/-. During the assessment proceedings, the assessee was asked to discharge the onus u/s 68 of the Income Tax Act, 1961 for share application money received, in terms of genuineness of the transactions, identity of the parties and their creditworthiness.

The ld.AO observed that, during the year, the share application money along with the share premium receipt, were issued to 34 allottees, as per Form 2, filed by the assessee, with share of Rs. 10 issued at a premium of Rs. 10/-. He observed that many of the allottees/shareholders were repeated. The Ld.AO records that during the scrutiny proceedings, the assessee filed photocopies of 26 confirmations/share application forms, which were not of current period, and they did not mention the distinctive numbers of the share allotted. The Ld.AO records that on 29/12/2008, the assessee had requested to grant some more time to submit the copy of ITR, balance sheet and bank statement in respect of share applicants. Due to the limitation of completing the assessment, the ld. AO, finalized the assessment order, and made an addition u/s.68, amounting to Rs. 89,50,000/- on the ground that, the source of the money introduced as share application money has not been satisfactorily explained

Aggrieved by the order of the ld. AO, the assessee went into appeal before the ld. CIT(A) VIII. Before the ld. CIT(A) the assessee filed under Rule 46A of the I.T. Act, copy of the affidavit of the Director of the assessee company, copies of the share application forms, confirmations of the share applicants, copy of the ITRs, copy of the balance sheet, copies of memorandum and articles of association and affidavits of the principle officers/directors of the share applicant companies. It was contended before the ld. CIT(A) that the ld. Assessing Officer did not allow proper opportunity to the assessee when there was a specific request made by the ld. AR for the assessee who appeared before the ld.AO on 29/12/2008 with a request for further adjournment to file the necessary details. It was argued by the assessee that sufficient opportunity was not granted by the ld. AO at the time of assessment proceedings.

The documents filed by the assessee under Rule 46A was sent to the ld. Assessing Officer for a report. In lieu of the same the ld. AO objected to the admission of additional evidence. In furtherance the ld. AR also filed fresh affidavits in respect of 16 companies, confirming the fact that, they had actually made payments of share application money to the assessee company. The ld. CIT(A) during the course of the hearing called for the details of shares, if any, brought back either by the assessee company or by its directors from the shareholders, the assessee was also asked to produce the shareholders registered for verification. Accordingly, the assessee filed the details before the ld. CIT(A). The ld.AO was directed to make further investigation in respect of the details filed. Accordingly, the ld. AO issued summons u/s 131 of the Act to verify. As there was no compliance by the summoned persons, the ld.AO in his report presumed that the assessee has no explanation/material in support of his case( paragraph 3.10 of the CIT(A) order). The ld. CIT(A) dismissed the appeal of the assessee on the ground that the assessee was not able to satisfactorily explain the source of the share application money in question.

Aggrieved by the order of the ld. CIT(A) the assessee is in appeal before us.

On going through the records placed before us and the orders passed by the authorities below, we observe that the ld. AO has not investigated upon the details submitted by the assessee before the ld. CIT(A). It has been recorded by the ld. AO in its remand report (para 3.10 of CIT(A) order), that on issuance of summons u/s 131, some of the summons have been received back un-served, and a few have neither complied with nor has been received back. The ld. AO has not taken any further steps, to establish that the details filed by the assessee are incorrect. We also observe that there has been a lack of investigation on behalf of the ld. AO, even after the details being filed by the assessee at the time of first appellate proceedings, wherein the remand report was called for.

Reliance has been placed on the Bombay High Court decision in the case of CIT vs. Creative World Telefilms Ltd. reported in (2011) 333 ITR 100 (Bom.). The Hon’ble High Court in this case has held that;

Further the decision of Hon’ble Delhi High Court in the case of CIT vs. Kamdhenu Steel and Alloys Ltd. and others, reported in 248 CTR 33 the has observed as under: “Something more which was necessary and required to be done by the Assessing Officer was not done. The Assessing Officer failed to carry his suspicion to logical conclusion by further investigation. After the registered letters sent to the investing company had been received back undelivered, the Assessing Officer presumed that these companies did not exist at the given address. No doubt, if the companies are not existing i.e. they have only paper existence, one can draw the conclusion that the assessee had not been able to disclose the source of amount received and presumption u/s 68 for the purpose of addition of amount at the hands of the assessee. But it has not been conclusively established that the company is non existence”.