TaxTMI 
TaxTMI 
TaxTMI 
2022 (1) TMI 932
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....n of income for the assessment year 2010-11 on 29.09.2010 declaring a total income of Rs. 19,340/-. The return was duly processed u/s. 143(1) on returned income. Subsequently, the assessee company has filed a letter where the company has brought to the notice that the company has received consultancy charges of Rs. 37,500/- from various parties in cash in the financial year 2009-10. But the company has not accounted for the above income in the account of the assessee company during the financial year 2009-10 relevant to the assessment year 2010-11, as a result an income of Rs. 37,500/- has escaped assessment. As such, there was reason to believe that the income chargeable to tax had escaped assessment. Thus, notice u/s. 148 of the I.T. Act, 1961 was issued and duly served on the assessee company. In response, the assessee company stated that the return filed on 29.09.2010 may be treated as return in reply to notice u/s. 148. 2. Notices u/s. 143(2) & 142(1) were issued and duly served on the assessee company.......... 3. During the financial year 2009-10, the assessee was a NBFC and shown income from interest and Mutual Fund. During the year, the assessee company has raised sh....
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....f ld. CIT, Kolkata-2 Before going into the merits of the instant case, it is necessary to highlight the background which led to it, so that the facts are viewed in correct perspective. Firstly, this particular case should not be viewed in isolation. In fact, as in the immediately preceding year, this year too, on identical facts and under similar circumstances, in a very large number of cases, orders under section 148 of the IT Act were passed under different corporate CsIT charges in Kolkata. In all these cases, completed assessments were re-opened at the request of the assessee. The assesses offered paltry amounts as income which had escaped assessment and requested, the A.O to tax it by passing order under section 148 of the IT Act. However, manifestly the real motive was not the sudden awakening of the fiscal honesty of the assessee, but to get the stamp of scrutiny on the huge amount of share capital and share premium which all these assesses have brought in the books................. Facts of the case In the instant case the return of income was filed declaring income of Rs. 19,340/-. The Balance Sheet of the company shows share capital of Rs. 42.7 crore and Reserve (Sh....
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....der the deeming provision of section 68 of the I T Act. It is also trite law that the A.O is duty bound to examine the genuineness share holding and if he fails to do so it would render the assessment order erroneous and prejudicial to the interest of revenue. In this connection reliance is placed on following authorities: i) Rampyari Devi Saraogi vs, CIT 67 ITR 84 (SC) ii) Tara Devi Agarwal vs. CIT 88 ITR 323 (SC) iii) Gee Vee Enterprises vs. Addl. CIT 99 ITR 375, 386 (Del) iv) CIT vs. Sophia Finance Ltd. 205 ITR 98 (Del) v) CIT vs. Active Traders P Ltd. 214 ITR 583 (Cal) vi) CIT vs. Nivedan Vanijya Niyojan Ltd. 263 ITR 623 (Cal) vii) CIT vs. Bhagwati Jewels Ltd. 201 ITR 461 (Del) The broad principles emerging out of the above cases can be summed up as under: 1. The Assessing Officer has the powers to investigate the identity of the share holders to satisfy that they exist. 2. The genuineness of the investment has to be examined to the extent that the shareholders have invested the money. The corporate veil can be lifted and the argument that the shareholders and corporate are two different legal entities can no longer hold good. If the assessee wished to conve....
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....tention of the legislature was to give a wide power to the Commissioner. He may consider the order of the Income-tax Officer as erroneous not only because it contains some apparent error of reasoning or of law or of fact on the face of it but also because it is a stereo-typed order which simply accepts what the assessee has stated in his return and fails to make inquiries which are called for in the circumstances of the case. The AO is both an adjudicator as well as an investigator, and it is his duty to ascertain the truth of the facts stated in the return if such an exercise is 'provoked', or becomes 'prudent'. Section 263 which deals with the Revision of orders prejudicial to the revenue by the Commissioner comes into operation wherever the AO fails to make such an inquiry, because it renders the order of the AO "erroneous." it seems to us that if this duty pervades the normal functioning of the AO, if becomes acute and essential in the special circumstances surrounding Section 68 of the IT Act." (Emphasis supplied) Attention is further invited to the observation of the Kerala High Court in Bismillah Trading Co. vs. Intelligence Officer 248 ITR 292, reproduce....
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....lusion regarding the controlling interest. iii) The A.O. is directed examine the source of realization from the liquidation of assets shown in the balance sheet after the change of Directors, if any. After conducting the inquiries & verification as directed above, the A.O. should pass a speaking order, providing adequate opportunity of being heard to the assessee. The impugned order u/s. 148 is accordingly set aside and assessment should be done afresh. 6. Following the directions of the ld. CIT, Kolkata, the proceedings u/s. 143(3) have been re-initiated by the Assessing Officer, completed the proceedings culminating into passing of an Assessment Order dated 31.03.2015. For the sake of ready reference, the entire order of the Assessing Officer is reproduced as under: Order of AO dated 31.03.2015 The assessee filed return of income on 29.09.2010 declaring loss of Rs. 19,341/-. The case was reopened on 05.12.2011 when the assessee desired to revise its total income to Rs. 56,840/-. The reassessment proceedings was concluded on 30.01.2012 after verification u/s. 133(6). It was again scrutinized u/s. 263 on 21.03.2014 when the previous order was set aside for fresh adjudicati....
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....ssee company filed letter bringing to the notice of the AO that the company had received consultancy charges of Rs. 37,500/- from various parties in cash in FY 2009-10 but the company has not accounted for this income in the accounts and as a result of the same an income of Rs. 37,500/- has escaped assessment. Therefore income escaping assessment proceeding were initiated by issuing a notice u/s. 148 of IT Act and the assessment was completed by making a addition of Rs. 37,500/- as consultancy charges and Rs. 25,500/- as excess preliminary expenses written off. Therefore returned income of Rs. 19,340/- was assessed at Rs. 42,340/- on 30.01.2012. Thereafter order u/s. 263 of IT Act was passed on 31.03.2014 by CIT-2, Kolkata setting aside the order passed u/s. 147/143(3) of IT Act dated 30.01.2012 and issuing the detailed instructions to the AO to examine the genuineness and source of share capital. The AO i.e. the ITO Ward- 1(2) Kolkata passed order u/s. 263/143(3) of IT Act on 31.03.2015 by making addition of Rs. 40.70 crore u/s. 68of IT Act. The AO categorically mentions in the assessment order that the summons u/s. 131 of IT Act dated 10.03.2015 were issued to the share holders a....
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.... assessed the total income at Rs. 42,71,24,620, making aggregate addition of Rs. 42,70,00,000 (being share capital Rs. 1,73,28,500 and share premium Rs. 40,96,71,500) that were received during the year under reference. Against the said additions made by the Assessing Officer the appellants on 2th September, 2015 filed appeal with the CIT(A) and the GIT(A) by his order dated 19.07.2019 dismissed the appeal of the appellants for non-attendance. 5. Thereafter, the appellants filed an appeal with the Tribunal against the order of the CIT(A) and the Tribunal by their order dated February 19th, 2020 restored the appeal to the CIT(A) for fresh adjudication; thus, the present appeal. Contentions 6. Re - Addition under section 68 - Rs. 42,70,00,000 6.1. The Assessing Officer has made an addition of Rs. 42,70,00,000 (share capital Rs. 1,73,28,500 and share premium Rs. 40,96,71,500) under section 68 of the Act in respect of share application monies received by the appellants from the following parties- Sl No Name of the shareholders No of shares Share capital @ Rs. 10 per Premium @ Rs. 190 per share Total 1 Brijbhumi Commerce Pvt. Ltd 16 , 500 1 , 65 , 000 31 , 35 , 000 ....
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....t 22 , 000 2 , 20 , 000 52 , 80 , 000 55 , 00 , 000 24 Monalisa Commercial Pvt Ltd 35 , 600 3 , 56 , 000 85 , 44 , 000 89 , 00 , 000 25 Mupnar Trexim Pvt Ltd 400 4 , 000 96 , 000 1 , 00 , 000 26 Naviplast Suppliers Pvt Ltd 32 , 000 3 , 20 , 000 76 , 80 , 000 80 , 00 , 000 27 Quick Management . Services 1 , 07 , 000 10 , 70 , 00 2 , 56 , 80 , 000 2 , 67 , 50 , 000 28 Sahaj Dealcom Pvt Ltd 36 , 000 3 , 60 , 000 86 , 40 , 000 90 , 00 , 000 29 Sanjwani Dealcom Pvt Ltd 52 , 400 5 , 24 , 000 1 , 25 , 76 , 000 1 , 31 , 00 , 000 30 Sanket Dealcom Pvt Ltd 39 , 600 3 , 96 , 000 95 , 04 , 000 99 , 00 , 000 31 Sanyog Vyapar Pvt Ltd 20 , 000 2 , 00 , 000 48 , 00 , 000 50 , 00 , 000 32 Sensitive Merchandise Pvt Ltd 82 , 600 8 , 26 , 000 1 , 98 , 24 , 000 2 , 06 , 50 , 000 33 Shyambaba Distribution Pvt 40 , 200 4 , 02 , 000 96 , 48 , 000 1 , 00 , 50 , 000 34 Titanic Chemical Pvt Ltd 21 , 600 2 , 16 , 000 51 , 84 , 000 54 , 00 , 000 35 Trikuta Commercial Pvt Ltd 31 , 600 3 , 16 , 000 75 , 84 , 000 79 , 00 , 000 36 Vaibhav Dealers Pvt Ltd 45 , 200 4 , 52 , 000 1 , 08 , 48 , 000 1 , 13 , 00 , 000 37 Variety Retails P....
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....therefore, contended that the impugned addition under section 68 ought not to have been made in view of the fact that the three litmus tests of section 68 namely, identity, creditworthiness and genuineness of the transaction have all been proved by the appellants. 6.6. The Assessing Officer has merely mentioned the order passed under section 263 by the CIT, Kolkata - II, without mentioning why he is not accepting the voluminous documents submitted by the appellants. The Assessing Officer, being quasi judicial authority has to pass an order on the basis of his own investigations and by applying his own judicial mind which is missing in the impugned order. 6.7. Further, there is gross violation of principles of natural justice by the Assessing Officer in as much as he not given an opportunity to the appellants to cross-examine the Directors of the share applicants and/or other witnesses, inasmuch as they are the witness of the Department. 6.8. The Assessing Officer has not even verified whether any addition has been made in the assessments of the lending-Companies. If addition is made in their assessments, addition again cannot be made in the assessment of the appellants. If no....
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....dings, the AR furnished a detailed paper book in which the address of the shareholders have been given from the same it is clear that there are few addresses, which are being used by most of these share holding companies the list of these shareholders is as under: Since in the inquiries conducted by the AO it has been found that the summons issued u/s. 131 have returned back, therefore the identities of these concerns could not be proved by the appellant. 7.4 The further observes that all share-holding companies declared Nil/meagre total income and many of the subscribers filed the return for the first time. Hence, the genuineness of the transaction and credit capacity of the creditor is not substantiated by the appellant. Therefore, AO came to the conclusion that the credits from these alleged entities are unexplained and accordingly, addition is justified by the AO u/s. 68 of the Act. 7.5 On the other hand, ld. A.R. of the appellant has submitted that, confirmation and the ITR copies and Bank statements of the share applicants have been submitted to establish the three vital ingredients of cash credit i.e. identity, creditworthiness of the creditor and genuineness of the tr....
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....eposits of credit on the same date or on the prior dates. Also it is noted from the balance sheet of the shareholder companies that, they do not possess any tangible or intangible fixed assets to conduct business activities. Thus, it is concluded that, genuineness of the transaction and credit capacity of the creditors stand unsubstantiated. Appellant, on the other hand, has not placed any material before the undersigned to dislodge the finding recorded by the AO. Therefore, considering the totality of facts and circumstances of the case, it is concluded that, appellant has miserably failed to prove the credit capacity and genuineness of the transaction. Further, undersigned has noticed that the alleged share-holders filed their return of income for the first time and they declared nil/meagre income and had no tangible assets but large reserves and surplus and no revenue from operations. 7.8 It is a settled preposition of law u/s. 68 of the IT Act that the initial burden of proof rests upon the appellant to establish the identity, credit capacity of the creditor and to establish the genuineness of transaction. For the sake of clarity provision of section 68 of the Act as amended ....
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....e line valiantly ignored the directions and given a go by to all the well considered examination and directives of the ld. CIT. At the primary instance, the case has been reopened u/s. 148 and the share capital has been examined. The ld. CIT has passed order on 21.03.2014 wherein the previous order of the AO has been set aside for fresh adjudication. The process of reassessment consequent to the order u/s. 263 was initiated on 26.12.2015 by issue of notice i.e. 9 months after the passing of the order from the order by the ld. CIT. Having initiated the proceedings on 26.02.2015, the order has been passed on 31.03.2015 in a lightning speed within a narrow span of 33 days and made addition of approximately Rs. 40 crores. There were neither any directions nor reference sought u/s. 144, either by the ITO or suo moto by supervisory authorities. We have seen the action of the AO while making the addition in terms of investigation and enquiry. The AO issued summons on 10.03.2015 and held that most of the summons returned unserved which indicates that the summons have been send by post. Owing to the unserving of the summons, the AO directly came to the conclusion that it is a dummy company ....
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.... statements etc. said transaction was to be regarded as genuine and, consequently, no addition could be made in respect of same under section 68 -Held, yes Gagandeep Infrastructure Pvt. Ltd. 394 ITR 680 (Bom) Cash credit (Share Capital) - A.Y. 2008-09 - Whether proviso to section 68 introduced by Finance Act 2012 with effect from 01.04.2013, would not have retrospective effect - Held, yes -Whether where assessee- company had established identity, genuineness and capacity of shareholders who had subscribed to its shares, Assessing Officer was not justified in adding amount of share capital subscription as unexplained credit -Held, yes - Whether where revenue urged that assessee had received share application money from bogus shareholders, it was for Income-tax Officers to proceed by reopening assessment of such shareholders and assessing them to tax in accordance with law and it did not entitle revenue to add same to assessee's income as unexplained cash credit - Held, yes Orchid Industries Pvt. Ltd. 397 ITR 136 (Bom) Whether order of the Tribunal was perverse in deleting the addition made u/s. 68 of the Act, relying only on the documentary evidence produced by the Compa....
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....funds from three Kolkata based companies as share application money - But, since whereabouts of above companies were doubtful and their identity could not be authenticated, Assessing Officer treated aforesaid funds as money from unexplained sources and added same to income of assessee as unexplained cash credit under section 68 -However, it was found that assessee-company had furnished PAN, copies of income tax returns of creditors as well as copy of bank accounts of three creditors in which share application money was deposited in order to prove genuineness of transactions - Further, insofar as creditworthiness of creditors were concerned. Tribunal recorded that bank accounts of creditors showed that creditors had funds to make payments for share application money and in this regard, resolutions were also passed by Board of Directors of three creditors - Thus, first appellate authority had returned a clear finding of fact that assessee had discharged its onus of proving identity of creditors, genuineness of transactions and creditworthiness of creditors which finding of fact stood affirmed by Tribunal -Revenue had not been able to show any perversity in aforesaid findings of fact ....