JARUL GLASSWORK PRIVATE LIMITED,HARYANA vs. ITO WARD 1(3), FARIDABAD
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Income Tax Appellate Tribunal, DELHI BENCH “C” DELHI
Before: SHRI PRADIP KUMAR KEDIA & SHRI YOGESH KUMAR US
PER PRADIP KUMAR KEDIA, A.M.:
The captioned appeal has been filed by the assessee against the order of the Commissioner of Income Tax (Appeals), Faridabad [‘CIT(A)’ in short] dated 18.03.2020 arising from the assessment order dated 06.12.2018 passed by the Assessing Officer (AO) under Section 143(3) of the Income Tax Act, 1961 (the Act) concerning AY 2016-17.
The grounds of appeal concised by assessee read as under:
“1. That the Ld. CIT (A) has erred in law as well as on facts in confirming addition of Rs.96,00,000/- u/s 68 of the IT Act.1961 on account of alleged unexplained share premium and share capital despite furnishing all the documentary evidence for establishing identity, creditworthiness of the investors and the genuineness of
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the transaction. 2. That the Ld. CIT (A) has erred in law as well as on facts in enhancing the income of appellant u/s 251(1) of the Act by Rs. 64,00,000/- under the head income from other sources by applying section 56(2)(viib) of the Act on protective basis and rejecting the valuation report furnished under Rule 11UA(2)(b) of Income Tax Rules, 1962 i.e., Discounted Cash Flow Method. 3. That the Ld. CIT(A) has erred in law as well as on facts in enhancing the income of appellant by not issuing valid show cause notice as mandated u/s 250(2) of the Act. 4. That the Ld. CIT(A)has grossly erred in enhancing the income of appellant on protective basis us 56(2)(viib) r.w.r 11UA of IT rules without appreciating the fact that the case was selected for limited scrutiny to verify "whether the funds received in the form of share premium are from disclosed sources and have been correctly offered to tax" which restrict the scope of assessing authorities to scrutinize only the source of share premium. 5. That the Ld. CIT(A) has erred in law as well as on facts in initiating the penalty proceedings u/s. 271(1)(c) of the Act.”
When the matter was called for hearing, the ld. counsel made multi fold arguments;
(i) the addition of Rs.16 lakh was made under Section 68 of the Act by the Assessing Officer on account of alleged unexplained share premium and share capital which comprises of five subscribers (a) M/s. Gharonda Nirman Pvt. Ltd. (b) M/s. Rishikesh Buildcon Pvt. Ltd. (c) M/s. Texcity Constructions Kovai Pvt. Ltd. (d) M/s. Raysonic Infracon Pvt. Ltd. (e) M/s. Herculese Builders (Coimbatore) Pvt. Ltd. The ld. counsel for the assessee submitted that the assessee has received subscription only from M/s. Raysonic Infracon Pvt. Ltd. during the Financial Year 2015-16 relevant to Assessment Year 2016-17 under consideration. The money towards subscription in respect of other four parties have been received in the earlier years which is self evident from the bank
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statement of the subscriber as well as the assessee. The provision of Section 68 thus cannot be applied in respect of other four parties in so far as AY 2016-17 is concerned.
(ii) the assessee filed various details on ITBA Portal in respect M/s. Raysonic Infracon Pvt. Ltd. from whom the subscription money was received during the year. The details uploaded were income tax returns, audit report, balance sheet, bank statement, confirmation of account from investor-company including M/s. Raysonic Infracon Pvt. Ltd. and their ITRs etc. The bank statement of the allotees were also filed before the CIT(A) as noted by the CIT(A) in page no.7 of the appellate order. The CIT(A) however at page 29 of its order has observed that the assessee has not furnished any confirmation in respect of the subscription money which is factually incorrect and contradictory.
(iii) the enhancement proceedings were initiated by the CIT(A) under Section 251(1)(a) of the Act without issuing show cause notice in this regard as contemplated under Section 251(2) of the Act. The CIT(A) has not made any reference to any notice issued in this regard in the first appellate order as well. The whole enhancement proceeding is thus null and void at the threshold.
(iv) the provisions of Section 56(2)(viib) has been invoked in the first appellate proceedings along with Section 68 of the Act. As against Section 68 invoked by the Assessing Officer, the invocation of provisions of Section 56(2)(vii) alongside, for charging premium of Rs.20 per share on share issued has however been made on protective basis which is not permissible in law in so far as Appellate Authority is
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concerned. The Appellate Authority is required to give a definite finding, more so, in an enhancement proceedings and cannot supposedly enhance the income of the assessee on protective grounds. The tentative action in enhancement proceedings by appellate authority is not sustainable in law.
We have perused the assessment order and the first appellate order and also considered the material referred to and relied upon in the course of hearing.
The assessee obtained share subscription from 5 parties and the shares were allotted at a premium of Rs.20 per share against the face value of Rs.10 per share to these 5 different entities. The amount received against the issue of share at premium stands at Rs.96 lakh in aggregate. The Assessing Officer has cast shadow on the genuineness, identity and creditworthiness of the entities to whom shares were allotted at a premium. Section 68 of the Act was thus invoked by the Assessing Officer and it was held that the onus which lay upon the assessee under Section 68 was not discharged in respect of credits against such allotments.
In the first appeal, the assessee challenged the action of the Assessing Officer but however while the CIT(A) has confirmed the additions, the CIT(A) also invoked the enhancement powers vested under Section 251(1)(a) of the Act and invoked provisions of Section 56(2)(viib) of the Act to question the justification of premium of Rs.20 per share received against the face value of Rs.10 per share. The action was however taken on protective basis and without giving any enhancement notice in this regard and consequently the assessee was denied the opportunity to respond to the proposed enhancement. The action of the CIT(A) is thus contrary to the explicit mandate of law in terms of Section 251(2) of the Act.
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Consequently, the enhancement action of the CIT(A) cannot be countenanced in law and thus set aside. The enhancement action is also not sustainable on the ground that the enhancement cannot be done by the first appellate authority on a protective basis without any cogent and definite finding expected of an appellate officer as pleaded on behalf of the assessee. The enhancement action is thus set aside on twin grounds.
We now advert to the second plank of the arguments advanced on behalf of the assessee. The assessee claims that section 68 could not have been invoked by the Assessing Officer in relation to the credits received in the earlier years. In the instant case, four out of the five entities have contributed towards shares subscription in the earlier years and thus Section 68 has no application in respect of entities other than M/s. Raysonic Infracon Pvt. Ltd. We find palpable merit in such plea on first principles. The provisions of Section 68 are applicable only in relation to any sum found credited in the books of the assessee qua the previous year relevant to assessment year and thus unless the credit has been made in the financial year 2015-16, the rigors of Section 68 would not apply. This aspect is thus remitted back to the file of the Assessing Officer. The Assessing Officer will be entitled to verify the claim of the assessee that the share subscription money has been received in respect of four parties in the previous year other than F.Y. 2015-16 relevant to Assessment Year 2016-17 in question. It shall be open to the assessee to demonstrate the factual position on the contour of Section 68 of the Act. Thus, the Assessing Officer shall revisit its action having regard to the provisions of Section 68 of the Act.
We now advert to the third limb of argument i.e., the documentary evidences were duly placed in respect of share
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subscription money for all five entities including M/s. Raysonic Infracon Pvt. Ltd. It is observed from the submissions made by the assessee before the CIT(A) that such documents were claimed to have been uploaded in ITBA Portal. The CIT(A) has however given a contradictory finding that no such documents have been placed on record. In the interest of justice, we consider it expedient to remit the matter back to the file of the Assessing Officer. The assessee shall be at liberty to adduce all the evidences in support of bona fides of subscription under question. The Assessing Officer shall after objective consideration of evidences and submissions made on behalf of the assessee pass assessment order afresh in accordance with law.
In the light of the above delineations, the matter is set aside and restored to the file of the Assessing Officer for framing the assessment afresh in accordance with law.
In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the open Court on 27/09/2023
Sd/- Sd/- [YOGESH KUMAR US] [PRADIP KUMAR KEDIA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: /09/2023 Prabhat
