TOUCHSTONE SERVICE PVT. LTD.,RAJNANDGAON vs. PRINCIPAL COMMISSIONER OF INCOME TAX, RAIPUR-1, RAIPUR

Brief facts in this case are that the assessee company is engaged in the business of sales and distributorship of FMCG products since last many years. The assessee is having undertaking of sales and distributorship of P & G and Gillette India Ltd & Cadbury India Ltd. etc. and also dealt in products of Pepsi Co India (P) Ltd. products. In the computation of income apart from business income, the assessee has also disclosed income from house property. During the relevant assessment year, the assessee has shown sales turnover of Rs.177 crores on which gross profit was disclosed at 5.99% and net profit at 0.93%. Comparative figure in the immediately preceding year were on total sales of Rs.185.03 crores having gross profit and net profit of 3.85% & 0.60% respectively. The profit disclosed in this year were examined by the A.O from respective books of accounts of the assessee.

The case of the assessee was selected for complete scrutiny to examine the issue pertaining to “large amount of squared up loans during the year, cash deposits during demonetisation period and higher turnover reported in service e tax return as compared to income tax return”. During the course of the assessment proceedings, u/s.143(3) of the Act, the assessee was specifically asked to explain the issues for which the scrutiny proceedings were initiated and to file relevant papers, documents, and reconciliations wherever necessary. The

Subsequently the case of the assessee was picked up by the Pr. CIT by issuing notice u/s. 263 of the Act. For revisionary proceedings under the notice issued u/s. 263 of the Act, Pr. CIT recorded the reasons that the assessee had received unsecured loan from Gangotri Tracon P. Ltd., Kolkata during the year under consideration. The Ld. Pr. CIT further referred to the statement of Shri Amit Kumar Kedia, S/o. Shri Chedi Ram Kedia, Kolkata which were recorded on oath u/s. 131 of the Act by Dy. Director of Income Tax, Unit-II(3), Kolkata on 26.08.2014 wherein he stated that he is director of some Pvt. Ltd. companies which were engaged in providing bogus accommodation entry in lieu of commission and he did not have personal office and companies were managed by Mr. Pawan Kumar Tibrewal at 3, Saklat Place, Kolkata-700 072. Mr. Kedia had also furnished the name of the companies in annexure-A in which the name of M/s. Gangotri Tracon Pvt. Ltd. was also mentioned as one of such companies. Therefore, genuineness of the company is not established, and sum received should have been disallowed. It was observed by the Pr. CIT that the assessee had failed to furnish any document to discharge the burden cast u/s.68 of the Act and accordingly sum of Rs.12,01,24,778/- received during the year as unsecured loan should have been disallowed and added back to the total income of the assessee. Thus, the Pr. CIT was of the view that the order passed by the A.O is erroneous in so far as it was prejudicial to the interest of the revenue. With respect

Aggrieved with the order of the Pr. CIT, the assessee has filed an appeal before us alleging that the order passed u/s.263 of the Act is contrary to the law, illegal and unsustainable and without proper appreciation of the facts of the case.

At the very outset, the Ld. AR has filed a written submission and the same is extracted as under:

The Ld. AR further submitted that credentials of the company viz. Gangotri Tracon Pvt. Ltd. were examined by the Co-ordinate Bench of the Tribunal, Raipur in the case of Sun & Sun Inframteric Pvt. Ltd. Vs. ACIT, ITA No.21/RPR/2021, reported in (2021) 63 CCH 161 (Raipur). The Ld. AR had drawn our attention to Page 115 of paper book wherein the ITAT in the aforesaid case on the issue had observed as under:

The Ld. AR further drew our attention to Page 7 to 10 of paper book wherein the assessee’s submission before the Ld. Pr. CIT were furnished showing that the alleged shell company viz. Gangotri Tracon Pvt. Ltd. was termed as not genuine as SEBI marked this company as “shell company”. Statement of Shri Amit Kumar Kedia was recorded by the Dy. DIT, Unit-II(3), Kolkata wherein he had stated that this company was engaged in providing bogus accommodation entry. It was submitted by the Ld. AR that statement of Mr. Kedia which was used against the assessee was not supplied a/w notice in the interest of principle of natural justice and to provide assessee proper and reasonable opportunity of being heard in respect of material gathered on the basis of any enquiry or otherwise and proposed to be utilised for the purpose of assessment.

It was the argument of the Ld. AR that being a Private Limited company, whose shares were not listed, Gangotri Tracon Pvt. Ltd. was not governed by regulatory framework of SEBI. Therefore, the assessee was not aware as to how a Pvt. Ltd. Company has been branded as shell company in the online platform of SEBI. It was submitted by the Ld. AR that as per Para 3, Page 2 of the assessment order for the A.Y.2017-18 wherein Ld. A.O has categorically mentioned that case of the assessee was selected for complete scrutiny on

The Ld. AR further submitted that the order of the Co-ordinate Bench of the Tribunal, Raipur in the case of Sun & Sun Intrametric Pvt. Ltd. Vs. ACIT (supra) was placed before the Pr. CIT but the same had not been considered while passing the order u/s.263 of the Act. Regarding credentials of the Gangotri Tracon Pvt. Ltd., it was submitted by the Ld. AR that the said company is a NBFC registered with RBI, having active business, earning profits, has substantial assets and is also paying substantial taxes regularly. Audited financial statements of A.Y.2017/18 of the assessee company were submitted in the assessee’s paper book, Page 49 to 94 of paper book. It was submitted by the Ld. AR that operations of Gangotri Tracon Pvt. Ltd. had also been verified and no adversity was drawn in its assessment order of Gangotri Tracon Pvt. Ltd., copy of which was placed before the Pr. CIT and placed in the assessee’s paper book Page 98-107 before us. It was further submitted by the Ld. AR that nothing has been brought on record as to on what basis Gangotri Tracon Pvt. Ltd. was branded as shell company. Except for bald statement, there was no material/ evidence on record. With

With respect to the burden u/s.68 of the Act and the same was discharged by the assessee, it was submitted by the Ld. AR that documents like confirmation, ITR, Balance sheet, profit and loss account, bank statement etc. were filed before the A.O as well as Pr. CIT, however, nothing wrong found in any of these documents by either of the lower authorities, therefore, the order passed u/s.263 of the Act was bad in law, thus, is liable to be struck down.

On the other hand, the Ld. CIT-DR vehemently supported the order of the Pr. CIT and submitted that Pr. CIT had rightly invoked the provisions of Section 263 of the Act, no infirmity did emerge from the order of the Pr. CIT who had rightly held the order of A.O as erroneous in so far it was prejudicial to the interest of the revenue. It was submitted by the Ld. CIT-DR that in the present case, the

We have considered the rival contentions and perused the material available on record and case laws submitted by the Ld. AR for our consideration. Admittedly the issue pertaining to alleged shell company viz. Gangotri Tracon Pvt. Ltd. was dealt with by the ITAT, Raipur in the case of Sun & Sun Inframetric P. Ltd Vs. ACIT (supra), wherein the Tribunal has observed that in the absence of adherence to salutary principles, the purported new material is rendered extraneous and hence required to be ignored as non-est and consequently, the revisional action is required to be tested dohors such alleged material. The whole case of the PCIT built on such unintelligible and non-descript premise is thus a damp squib. On this score too, the revisional action fails.

On a perusal of the order referred to by the Ld. AR in the case of Sun & Sun Inframetric P. Ltd Vs. ACIT (supra), it is apparent that the assessee has filed copies of financial statements of the lender, ITR, ledger account of the lender for A.Y.2014-15, 2015-16 and 2016-17 before the A.O in pursuance to the claim made in this regard. It was also claimed by the Ld. AR of the assessee in the said case (Sun Inframetric supra) that total amount of Rs.16 crore alleged by the Pr. CIT was not received during the year under consideration but was received in the preceding year i.e. A.Y.2014-15. Contrary to the aforesaid facts of case in Sun Inframetric (supra), in the present case, the assessee had only submitted confirmation of Gangotri Tracon Pvt. Ltd before the A.O, placed at Page 38 of

On a perusal of the assessee’s paper book and submissions, it is discernible that documents pertaining to Gangotri Tracon Pvt. Ltd viz. confirmations, computation, acknowledgement, audit report, extract of bank account statements and assessment orders for A.Y.2014-15, 2015-16 and were produced before the Pr. CIT. However, documents before the A.O was only confirmations of the Gangotri Tracon Pvt. Ltd. This clearly shows that enquiries, even if any conducted by the A.O were not adequate and proper to acquire satisfaction by the Ld AO on the aspect of creditworthiness, identity of the loan creditors and genuineness of the transaction within the provisions of Section 68 of the Act. including the compliance in terms of the 1st proviso to section 68 which is very much applicable for the AY under consideration, therefore, we can

With respect to contentions of the assessee that certain facts were before the Pr. CIT that the company from which unsecured loans were taken by the assessee company was a shell company, though documents based on which such belief was formed by the Pr. CIT were not provided to the assessee, therefore, observations of the Pr. CIT that order passed by the A.O is erroneous in so far as it was prejudicial to the interest of the revenue could not be established.

Assessee’s reliance on the judgment in the case of Kishanchand Chellaram (supra), wherein Hon’ble Apex Court has held that the evidence to be used against the assessee without providing the opportunity to controvert is not admissible. Since in the present case the matter is restored back to the files of assessing officer for re-adjudication with adequate opportunity to the assessee, therefore, the right of assessee to controvert has not been taken away, accordingly, the assessee has all the occasion and opportunities to explain and substantiate its contention before the Ld. A.O. Thus apparently, there was no violation of the ratio of law as accorded by Hon’ble Apex Court in the case of Kishanchand Chellaram (surpa).

Pertaining to Ld. A.R’s. argument that the Ld. PCIT have not delt with the submission of the assessee, on perusal of order u/s 263 wherein at para 9 Ld.

Under such facts and circumstances, since the issues raised by the Pr. CIT was found to be persuaded and tested on the twin requisite i.e. order of the AO should be erroneous so far as prejudicial to the interest of revenue for invoking the revisionary proceedings. The issue has been remanded back to the file of the A.O for conducting proper enquiries, which was the duty of AO but was failed to do so, after affording adequate opportunities to the assessee, so, there was no infirmity in the view adopted by the Pr. CIT which needs any interference by us. Thus, order of the Pr. CIT is sustained on the basis of our aforesaid observations.

In the result, appeal of the assessee is dismissed in terms of our aforesaid observations. Order pronounced in the open court on 18/10/2023.