2022 (11) TMI 1242 - AT - Income Tax

Tribunal quashes assessment, rules in favor of assessee on unexplained cash credit

The Tribunal allowed the appeal, quashing the assessment proceedings due to an invalid notice under section 143(2) and ruled in favor of the assessee ... Addition u/s 68 - bogus LTCG - bogus share application money including premium - HELD THAT:- Here is a clear connection between both the share applicant company and the assessee company and, therefore, the transaction of making investment in equity share of the assessee company cannot be regarded as ingenuine. We, therefore, is of view that the assessee has successfully explained the identity and creditworthiness of M/s. KHPL and genuineness of the transaction carried on by it in the year under appeal. We would like to further make it clear that our this finding about the alleged transaction is only on the basis of the facts in the year under appeal and the same should not be taken as a precedence for any subsequent year unless the facts of the particular year/case indicate so. Therefore, this ground of appeal on merit filed by the assessee is also allowed. Issues Involved:1. Validity of the notice issued under section 143(2) of the Income Tax Act, 1961.2. Addition of share application money and premium as unexplained cash credit under section 68 of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Validity of the Notice Issued Under Section 143(2):The assessee challenged the jurisdiction of the notice issued under section 143(2) by the Income Tax Officer (ITO), Ward-9(4), Kolkata, arguing that the correct jurisdiction lay with the Deputy Commissioner of Income-tax (DCIT) or Assistant Commissioner of Income-tax (ACIT) due to the returned income being above Rs. 30 lakh. The Tribunal noted that the Central Board of Direct Taxes (CBDT) Instruction No. 1/2011 specified that in metro cities, corporate assessees with returned income above Rs. 30 lakh should be under the jurisdiction of DCIT/ACIT. Since the notice was issued by ITO, Ward-9(4), Kolkata, who had no valid jurisdiction, the subsequent assessment proceedings were deemed invalid. The Tribunal cited the Hon'ble jurisdictional High Court's decision in the case of DCIT Vs. Nopany & Sons, which emphasized that non-issuance of a valid notice under section 143(2) is not a procedural irregularity but a mandatory requirement. Consequently, the Tribunal quashed the assessment proceedings carried out under section 143(3) of the Act.2. Addition of Share Application Money and Premium as Unexplained Cash Credit:On the merits, the assessee provided detailed evidence regarding the identity and creditworthiness of M/s. Kaushal Holdings Private Limited (KHPL), the primary investor, and the genuineness of the transactions. The assessee submitted various documents, including the share application form, income tax return, audited financial statements, bank statement, and the assessment order of KHPL. The Tribunal noted that KHPL is a non-banking finance company registered with the Reserve Bank of India and has been regularly assessed to tax. The directors of both the assessee company and KHPL were common, establishing a clear connection between the two entities. The Tribunal concluded that the assessee successfully explained the identity and creditworthiness of KHPL and the genuineness of the transactions. Thus, the addition of Rs. 5,91,00,000 under section 68 of the Act was not justified, and this ground of appeal was also allowed.Conclusion:The Tribunal allowed the appeal of the assessee, quashing the assessment proceedings due to the invalid notice under section 143(2) and also ruled in favor of the assessee on the merits of the case regarding the addition under section 68. The order was pronounced in the open court on 8th September 2022.