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2020 (5) TMI 209
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....d u/s. 143(1) of the Act. Later, the case of assessee was taken up for scrutiny under CASS. The AO noted that the assessee company was incorporated on 10-02-2010 in A.Y 2010-11. The AO noted that the authorized capital of the assessee company was Rs. 50,00,000/- and paid up share capital of the assessee company as on 31.03.2012 was Rs. 46,00,000/-. Out of which, share capital subscribed and paid up capital during the A.Y under consideration amounted to Rs. 18,60,000/- and the assessee company also received share premium amounting to Rs. 3,53,40,000/-. And later the assessment u/s. 143(3) of the Act was concluded on 20-03-2015, wherein the AO was pleased to add share capital and share premium as undisclosed cash credit and added the same to the total income which was computed at Rs. 3,72,18,170/-. Thereafter, the ld. PCIT, Kolkata-4, Kolkata exercised his first (1) revisional jurisdiction u/s. 263 of the Act on 10-06-2016, wherein he was pleased to set aside the original assessment order dt. 20-03-2015 and directed the AO to frame de novo assessment along with specific direction to carry out proper examination of books of account, bank account of the assessee as well as that of the....
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...., 1961 prima facie suffers from lack of independent and adequate enquiry on the aforesaid issues." 5. Thereafter, the ld. Pr. CIT after reproducing the assessee's reply in the impugned order date 12.03.2019 was pleased to set aside the assessment order dt. 25-11-2016 by holding as under:- "7. I have carefully considered the submission of the assessee and perused the material available on record and found that the issue pointed out in the show cause needs verification, After having considered the position of law and facts and circumstances of the instant case, I am of the considered opinion that the assessment order passed by the A.O. is erroneous in so far as it is prejudicial to the interest of revenue in accordance with the Explanation '2(c) below section 263 (1) of the Act on the ground of lack of enquiry. Accordingly, the assessment made by the Assessing officer is set aside on the issues as outlined in para 2 above, The A.O. is directed to provide reasonable opportunity to the assessee company to produce documents & evidences which it may choose to rely upon for substantiating its own claim. The AO is further directed to adjudicate the said issue de novo and pass a fres....
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....ched the NCLT for taking control over the management, or else he wondered as to who will be keen to go before NCLT for getting the management of a company if it was merely a jama kharchi company. So, according to Ld. AR, the assessee company was a genuine running company engaged in manufacturing of fly ash bricks which for expansion activities has collected share capital and premium from its own directors and group companies and cannot be compared with the so called shell companies/jama kharchi companies. And, therefore, according to him, Ld. Pr. CIT erred in appreciating these facts and has unnecessarily interfered with AO's action thinking it to be a shell company when the fact is that in the second round of assessment also, the AO did in depth enquiry and after satisfying himself about the identity, creditworthiness of share subscribers and genuineness of the share capital/premium have accepted the same. The Ld. AR of the assessee in order to show us that the assessee company is a genuine business entity also drew our attention to page-16 of the paper book, which is forming part of the financial statement. From a perusal of the same, it is noted that the assessee company has tak....
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.... Kolkata-4, Kolkata exercised his first (1) revisional jurisdiction u/s. 263 of the Act on 10-06-2016, wherein he was pleased to set aside the original assessment order dt. 20-03-2015 and directed the AO to frame de novo assessment along with specific direction to carry out proper examination of books of account, bank account of the assessee as well as that of the investors. And the AO was also directed to examine the source of share application/share applicants' identity of the investors and its genuineness. Pursuant to the order dated 10.06.201 of Ld. Pr. CIT, the AO gave effect to the order of the ld. Pr. CIT vide reassessment order dt. 25-11-2016, wherein the (AO) was pleased to accept the identity, creditworthiness of the share subscribers and genuineness of the share capital and share premium received by the assessee company in this assessment year and accepted the retuned income of the assessee at Rs. 18,166/-. This action of AO has been interfered by the ld PCIT exercising his revisional jurisdiction for the second time for the AY 2013-14. without even mentioning which direction of his have not been carried out by the AO while giving effect to his first revisional order dat....
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....ment held that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. It was further observed that when the Assessing Officer adopts one of the course permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the Ld. CIT does not agree, it cannot be treated as an order prejudicial to the interest of the revenue unless the view taken by the Assessing Officer is unsustainable in law. 8. Keeping in mind the law laid by the Hon'ble Apex Court in Malabar Industries (supra), when we examined the records and three paper books which contain 201 & 231 & 362 pages, we note the following relevant facts which would reveal that this company is engaged in genuine business of manufacturing. (a) We note that the Assessee company is engaged in the business of manufacturing and production of Fly Ash Brick and had Started setting up the factory and expansion of it is going on, which is revealed by the fact that the opening fixed assets were only to the tune of Rs. 2.32 crores and the closing fixed assets including work in pro....
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.... Sundar Khandelia (Refer page 39 paper book vol-I) and pursuant to which, reply was given vide letter dated 28.10.014 (refer page 95) with all details, viz., voter ID, bank statement, acknowledgement of filing of return, allotment of shares worth Rs. 16 lakh and source of income of Rs. 241akhs and capital of Rs. 90 lakhs. Likewise, in respect of (ii) M/s. Subhshree Grihnirmann Pvt. Ltd. notice u/s. 133(6) was issued which is placed at paper book page 41, and pursuant to which reply dated 28.10.2014 was given to AO is found placed at page 147 of vol-I paper book along with all details, viz., bank statement, source, acknowledgement of filing of return and that it had capital of over Rs. 177 lakhs. Likewise, in respect of (iii) M/s. Kushal Solutions P. Ltd. the AO had issued notice u/s. 133(6) which is placed at paper book page 43, and reply to it dated 21.10.2014 is found placed at page 61 of paper book along with all details, viz., bank statement, acknowledgement of return filing, source, copy of audited accounts and it had capital of over Rs. 84 lakhs. Likewise, in respect of (iv) M/s. Star Trade Vinimay P Ltd. the AO had issued notice u/s. 133(6) which is found placed at paper boo....
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....o the documents filed during the first round mentioned (supra) at para 6(h) - (i) copy of passport (refer page 10 of paper book), (ii) Return of Income for AY 2016-17 (page 8 of paper book) which shows that total income was to the tune of Rs. 29,22,225/-, (iii) PAN Card, (iv) Balance Sheet etc. (page 17 of paper book). Likewise, Shri Sandeep Khandelwal, director of assessee company as well as that of M/s. Kushal Solutions Pvt. Ltd. also appeared before AO on 25.11.2016 whose statement was recorded by AO which is found placed at pages 27 to 30 of paper book and he also filed documents like the other director, and filed the return of income for AY 2015-16 (refer page 32), PAN Card (refer page 33), passport (refer pages 35-36) and also filed before the AO the following details: i) Master data of M/s. Kushal Solutions Pvt. Ltd.; ii) PAN Card of M/s. Kushal Solutions Pvt. Ltd. iii) MOA/AOA of M/s. Kushal Solutions Pvt. Ltd iv) Alltoment advice of M/s. Kushal Solutions Pvt. Ltd v) Income Tax Acknowledgment & Audited financial statement of M/s. Kushal Solutions Pvt. Ltd vi) Bank Statement of M/s. Kushal Solutions Pvt. Ltd vii) statement of source of fund of Kushal solutions ....
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....he shareholders. This reassessment framed by the AO has been interfered by the ld. Pr. CIT by this impugned second revisional order. Before the impugned order was passed, the ld Pr CIT had issued SCN proposing his desire to interfere u/s. 263 of the Act (supra). However, we do not find the Ld. Pr. CIT alleging nonadherence by AO to his specific directions passed on 10.06.2016 [i.e, First Round of Revisional order]. Once the AO has reassessed pursuant to the revisional order wherein specific directions were given to the AO while framing the reassessment on the share capital and premium collected by the assessee company, the Ld. Pr. CIT ought to have pointed out where the AO faulted with or which specific directions of his has been ignored by AO, which we find the Ld. Pr. CIT has not touched upon or is found to be totally silent, which implies that ld. Pr. CIT after going through the reassessment records could not find fault with the action of AO in following his specific directions given on 10.06.2016. (1st round of revision order). So after going through the documents and facts noted supra, we find that Ld. Pr. CIT could not point out any omission on the part of AO while framing th....
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....in the business and had made the investment and premium which was agreed upon mutually by all the existing shareholders taking into consideration the expansion and future return expected of it. After appreciating these facts and taking into consideration the financial results of the assessee company as on the date of reassessment order, the AO had accepted the genuinity of the transaction, so nothing turns around in respect of this fault raised by the Ld. Pr. CIT. (c) The next fault found by the Ld. Pr. CIT is that the AO failed to examine the rationale behind the premium. From the aforesaid reasons (supra) (b), the AO has accepted the transaction which on the factual background is a probable view. (d) The other fault noted by Ld. Pr. CIT is that the AO failed to collect relevant evidences in order to reach a logical conclusion. We do not countenance this fault pointed out by ld. Pr. CIT for the simple reason that it is first of all a vague allegation without spelling out what relevant evidences were not collected by the AO. We note that assessee had filed documents before AO, copies of which are produced before us, which is running to three (3) volumes. [ Volume I-201 pages, vo....
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....ove the identity, creditworthiness and genuinity of the share transaction who are none other than the promoters, directors and group companies and the AO after examining and satisfying himself about the share capital and premium has accepted it. Thus it is noted that independent and adequate enquiry was made and further it is not pointed out by Ld. Pr. CIT as to what further enquiry was needed or how the enquiry made by AO is wrong, without which in the facts of the case as discussed supra, the ld Pr CIT cannot term the order of AO as erroneous. 14. Further, we note that the Ld Pr CIT in the impugned order u/s 263 concluded that there was lack of enquiry. We also take note that while he proposed to interfere u/s. 263 of the Act, he had opined that there was no detailed or independent enquiry but finally concluded that there was lack of enquiry. So, Ld. Pr. CIT accepts that there was enquiry made by the AO, however, he concludes that there was lack of enquiry so when there was enquiry conducted by AO then the AO has discharged the duty of an investigator. Not satisfied if the Ld. Pr. CIT wanted to still interfere invoking jurisdiction u/s. 263 of the Act, he has to show that the en....
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.... further we note that the Ld. Pr. CIT while issuing the Show Cause Notice while exercising his revisional jurisdiction for second time has not made even a whisper about the non-compliance/failure on the part of AO in respect of the specific direction given by the Ld. Pr. CIT dated 10.06.2016 while setting aside the original assessment order passed by the AO dated 20.03.2015. And in the impugned order the Ld. Pr. CIT has not found fault with the action of the AO in giving effect to the specific directions given by him while passing the first revisional order on 10.06.2016. Thus, we note that when the AO while framing the reassessment order pursuant to the specific direction of the Ld. Pr. CIT's order dated 10.06.2016 (first revisional order) has complied with the specific directions of Ld. Pr. CIT and based on the inquiry conducted and after perusal of the documents running more than 794 pages which reveals the identity, creditworthiness and genuineness of the share capital and premium collected by the assessee from the share subscribers, the satisfaction of AO as envisaged in sec. 68 of the Act is a plausible view and the share subscribers/directors participating in the reassessmen....
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....x as the income of the assessee of that previous year. In this case the legislative mandate is not in terms of the words 'shall' be charged to income-tax as the income of the assessee of that previous year". The Supreme Court while interpreting similar phraseology used in section 69 has held that in creating the legal fiction the phraseology employs the word "may" and not "shall". Thus the un-satisfactoriness of the explanation does not and need not automatically result in deeming the amount credited in the books as the income of the assessee as held by the Supreme Court in the case of CIT v. Smt. P. K. Noorjahan [1999] 237 ITR 570. We note that against the said decision of Hon'ble Gujarat High Court the special leave petition filed by the Revenue has also been dismissed by the Hon'ble Apex Court. 17. So, with the aforesaid understanding of section 68 of the Act, let us examine whether the view of AO in the light of the investigation and results as discussed supra is a possible view and cannot be termed as un-sustainable view in law and facts. For that let us look at few case laws wherein the AO made additions of share capital and premium and when the aggrieved assessee's ....
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....TR at 216 CTR 295: "Can the amount of share money be regarded as undisclosed income under section 68 of the Income tax Act, 1961? We find no merit in this special leave petition for the simple reason that if the share application money is received by the assesseecompany from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment. 20. We also rely on the decision of the Hon'ble Calcutta High Court while relying on the case of Lovely Exports, in the appeal of COMISSIONER OF INCOME TAX, KOLKATAIV Vs ROSEBERRY MERCANTILE (P) LTD., ITAT No. 241 of 2010 dated 10- 01-2011 has held: "On the facts and in the circumstances of the case, Ld. CIT(A) ought to have upheld the assessment order as the transaction entered into by the assessee was a scheme for laundering black money into white money or accounted money and the Ld. CIT (A) ought to have held that the assessee had not established the genuineness of the transaction. " It appears from the record that in the assessment proceedings it was noticed that the assessee compa....
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....peals) being the First Appellate Authority and contended that the Assessing Officer had no material to show that the share capital was the income of the assessee company and as such the addition made by the Assessing Officer under Section 68 of the Act was wrong. The learned Commissioner of Income Tax (Appeals) after hearing the department and the Assessee Company deleted the addition of Rs. 52, 03,500/to the income of the assessee company during the Assessment Year in question. The learned Commissioner of Income Tax Appeals found that there were as many as 2155 allottees, whose names, addresses and respective shares allocation had been disclosed. The Commissioner of Income Tax Appeals, further found that the Assessee Company received the applications through bankers to the issue, who had been appointed under the guidelines of the Stock Exchange and the Assessee Company had been allotted shares on the basis of allotment approved by the Stock Exchange. The Assessee Company had duly filed the return of allotment with the Registrar of Companies, giving complete particulars of the allottees. The Commissioner of Income Tax (Appeals) found that inquires had confirmed the existence ....
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....ot found available at their addresses, and that too, in course of assessment proceedings in the year 1994, i.e., almost 3 years after the allotment. By an order dated 2nd May, 2001, this Court admitted the appeal on three questions which essentially centre around the question of whether the Appellate Commissioner erred in law in deleting the addition of Rs. 52, 03, 500/to the income of the assessee as made by the Assessing Officer. We are of the view that there is no question of law involved in this appeal far less any substantial question of law. The learned Tribunal has concurred with the learned Commissioner on facts and found that there were materials to show that the assessee had disclosed the particulars of the shareholders. The factual findings cannot be interfered with, in appeal. We are of the view that once the identity and other relevant particulars of shareholders are disclosed, it is for those shareholders to explain the source of their funds and not for the assessee company to show wherefrom these shareholders obtained funds." 22. We also rely on the decision of the Hon'ble High Court, Calcutta in the case of Commissioner of Income Tax vs M/s. Leonard Commerc....
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....d is dismissed summarily as it does not involve any substantial question of law. 23. So, in the light of the case laws discussed supra, we find that in the case in hand and from the details as discussed (supra) which emerges from the paper book filed before us as well as before the lower authorities, it is vivid that all the share applicants are (i) income tax assessee's, (ii) they are filing their return of income, (iii) the share application form and allotment letter is available on record, (iv) the share application money was made by account payee cheques, (v) the details of the bank accounts belonging to the share applicants and their bank statements, (vi) in none of the transactions the AO found deposit in cash before issuing cheques to the assessee company, (vii) the applicants are having substantial creditworthiness which is represented by a capital and reserve as noted above, consequently we find that AO's view is a plausible view. 24. We also note that recently the ITAT Kolkata in several cases has deleted the addition on account of share application in similar circumstances. The relevant portion of the decisions are as follows: (a) The Ld ITAT Kolkata. in DC IT Vs Glo....
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....ppeal. The appeal is devoid of any substance and is dismissed. 3.4.2. In view of the aforesaid findings and respectfully following the decision of the apex court (supra) and Jurisdictional High Court (supra) , we find no infirmity in the order of the Learned CIT(A) and accordingly, the ground no.2 raised by the Revenue is dismissed. 4. The last ground to be decided in this appeal of the Revenue is as to whether the Learned CIT(A) is justified in deleting the addition u/s 68 of the Act made in respect of allotment of shares to 20 individuals for an amount of Rs. 57,00,000/in the facts and circumstances of the case. 4. 1. The brief fact of this issue is that the assessee had received share application monies from 20 individuals in the earlier year which were kept in share application money account. During the asst year under appeal, the assessee allotted shares to these 20 individuals out of transferring the monies from share application money account to share capital account. The details of 20 individuals are reflected in page 6 & 7 of the Learned CIT(A) order. The Learned AO asked the assessee to produce the shareholders before him. He found that the assessee did not do so bu....
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....tly supported the order of the Learned CIT(A). 4.4. We have heard the rival submissions and perused the materials available on record including the detailed paper book filed by the assessee. We find that the additional ground raised by the assessee separately before us vide its covering letter dated 9. 12.2011 is admitted as it appears to be a genuine and bonafide error of omission on the part of the Revenue from not raising this ground in the original grounds of appeal filed along with the memorandum of appeal. Moreover, it does not require any fresh examination of facts. Hence the same is admitted herein for the sake of adjudication. 4.4. 1. We find from the details available on record that the share application monies from 20 individuals in the sum of Rs. 57,00,000/has been received by the assessee during the financial year 200405 relevant to Asst Year 200506 and only the shares were allotted to them during the asst year under appeal. Admittedly no monies were received during the asst year under appeal and hence there is no scope for invoking the provisions of section 68 of the Act. Hence we hold that the order passed by the Learned CITA in this regard does not require any i....
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....t in the cases of CIT vs M/s Lovely Exports Pvt Ltd, we are at one with the tribunal below that the point involved in this appeal is covered by the said Supreme Court decision in favour of the assessee and thus, no substantial question of law is involved in this appeal. The appeal is devoid of any substance and is dismissed." 6.2. We find that the issue is also covered by the decision of Hon'ble Delhi High Court in the case of CIT vs Value Capital Services P Ltd reported in (2008) 307 ITR 334 (Del) , wherein it was held that: "In respect of amounts shown as received by the assessee towards share application money from 33 persons, the Assessing Officer required the assessee to produce all these persons. While accepting the explanation and ITA No. 632/KoI12011CAM M/s. R.B Horticulture 6 & Animal Proj. Co. Ltd the statements given by three persons the Assessing Officer found that the response from the others was either not available or was inadequate and added an amount of Rs. 46 lakhs pertaining to 30 persons to the income of the assessee. The Commissioner (Appeals) upheld the decision of the Assessing Officer. On appeal, the Tribunal set aside the order of the Commissioner....
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....essee that those companies had changed their addresses since filing of Form 2 with the Registrar. Further, it was none of the business of the assessee to question the addresses of the applicants as long as they affirm the address. The applicants were duly incorporated bodies under the Companies Act. 1956 since long. They have been regularly filing their returns of income under the Income Tax Act and are being assessed by the Revenue since long. Some of them are even registered as NonBanking Financial Companies with Reserve bank of India. They have been filing returns regularly with Registrar of Companies and RBI since long. The letters might have been received at their old addresses because in case of change in the address, people instruct the incumbents at old addresses not to refuse the receipt of letters and receive the same. Just because, a letter was received at the old address instead of present address, it cannot be said that the identity of the applicant has not been verified. All of these companies had duly replied to notice u/s. 133(6) and confirmed the transaction with all the evidences. The AO has not raised any objection on any of the information furnished before him. ....
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....: "6. On appeal by the assessee the CIT(A) deleted the addition made by the AO observing as follows "6) I have considered the submission of the appellant and perused the assessment order. I have also gone through the details and documents filed by the appellant company in the course of assessment: proceedings vide letter dt. 31-02-007. On careful consideration of the facts and in law I am of the opinion that the AO was not justified in making, the addition aggregating to Rs. 54,00,000/u/ s.68 of the Act being the amount of share application money by holding that the appellant company has failed to prove the identity, and creditworthiness of The creditors as well as the genuineness of transactions. It is observed that all the three share applicant companies i.e. M/s. Shree Shyam Trexim Pvt. Ltd., M/s Navalco Commodities Pvt. Ltd. and M/s. Jewellock Trexim Pvt. Ltd. had filed their confirmations wherein each of them confirmed that they had applied for shares of the appellant company. All the three companies providedthe cheque number, copy of bank statements and their PAN. It is observed that these companies also filed, copies of their return of income and financial statements for....
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....er. In this regard it is seen that for A Y.200405 Shree Shyam Trexim Pvt. Ltd., was assessed by ITO, Ward9( 4), Kolkata and the order of assessment u/s/143(3) dated 25.01.2006 is placed in the paper book. Similarly Navalco Commodities Pvt. Ltd., was assessed to tax u/s 143(3) for A Y.200506 by I TO, Ward9( 4), Kolkata by order dated 20.03.2007. Similarly Jewellock Trexim Pvt. Ltd was assessed to tax for A Y.200506 by the very same ITOWard9( 3), Kolkata assessing the Assessee. In the light of the above factual position which is not disputed by the Revenue, it cannot be said that the identity of the share applicants remained not proved by the assessee. The decision of the Hon'ble Allahabad High Court as well as ITA T Kolkata Bench on which reliance was placed by the learned counsel for the assessee also supports the view that for non production of directors of the investor company for examination by the AO it cannot be held that the identity of a limited company has not been established. For the reasons given above we uphold the order of CIT(A) and dismiss the appeal of the Revenue. " 25. Thus, in the light of the judicial precedents of the Hon'ble Apex/High court/Tribunal, we....