TaxTMI 
TaxTMI 
2026 (9) TMI 1794
X X X X Extracts X X X X
X X X X Extracts X X X X
....iness and genuineness of the transactions, further enquiries in that regard was only subject of order u/s. 263 of the Act which AO failed to do 3. That on the facts and in the circumstances of the case, the learned AO having collected no negative material in the course of assessment, erred in treating the amount of share capital received during the year amounting to Rs. 12.72,00,000/- as unexplained cash credit under section 68 of the Act and the Ld. CIT(A) erred in upholding the same 4. That on the facts and in the circumstances of the case, the order of the learned AO dated 31 03.2014 and the order of the learned CTT(A) dated 08.04.2026 should be quashed and the assessment order dated 31.03.2011 passed u/s. 1-43(3)/147 of the Act should be restored 5 That the appellant craves to leave to add/alter and/or delete any of the grounds of appeal on or before the date of hearing. 3. The sole issue raised in the various grounds of appeal is against the confirmation of addition of Rs.12,72,00,000/- by the Ld. CIT (A) as made by the Ld. AO u/s 68 of the Income-tax Act, 1961 (the Act) by treating the share capital / share premium as unexplained cash credit by p....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... same to the income of the assessee in the assessment framed u/s 144 of the Act dated 31.3.2014. 7. In the appellate proceedings, the Ld. CIT (A) confirmed the order of the Ld. AO. 8. The Ld. AR vehemently submitted before us that in the first round of reopening though the reopening of assessment was made for the reason that accounting charges to the tune of Rs.36,000/- was claimed as expense without deduction of TDS. However, when the Ld. AO found that the assessee has also issued equity shares of Rs.10 each at a premium of Rs.90/- then the Ld. AO under explanation 3 of Section 147 of the Act conducted necessary enquiries into the share capital and share premium. The Ld. AR referred to the page no.1 Para no.2 of the assessment order framed u/s 143(3) / 147 of the Act dated 31.03.2011, in the first round of reopening and submitted that the Ld. AO has specifically given a finding that during the year the assessee issued 12,72,000/- equity shares of face value of Rs.10/- at a premium of Rs.90/- each. Then, the Ld. AR referred to page no. 3 to 6 of the paper book which is the order sheet entries of the assessment proceedings in the first round and submitted that the Ld. AO has c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Ld. AO issued notice u/s 133(6) of the Act to all the share applicant companies which were replied by them by furnishing all the details and evidences as called for. The Ld. AO also issued summon u/s 131 of the Act to the directors of the assessee company which remained non-complied. Therefore, the Ld. AR submitted that the Ld. AO has not followed the direction of the Ld. PCIT as given in the order passed u/s 263 of the Act as the Ld. AO has only issued letters u/s 133(6) of the Act to the subscribers which are duly complied by 31 subscribers and no summons were issued u/s 131 of the Act as per direction of the Ld. PCIT. The Ld. AR submitted that though there was no mention of compliances to notices u/s 133(6) of the Act but all share applicants submitted requisite documents comprising, ITRs, bank statements, source of funds, etc. and the Ld. AO has not examined the said documents and no fund trail of the share capital/share premium was established by the Ld. AO as directed by the Ld. Pr. Commissioner of Income Tax. The ld. AR submitted that thus the clear cut directions of the Ld. PCIT were not followed by the AO in the set aside proceedings. 8.2. The Ld. AR further argued th....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., pursuant to order u/s 263 of the Act was itself not as per law and liable to be quashed. In defense of his argument the Ld. AR relied on the decision of Hon'ble Calcutta High Court in case of PCIT Vs. M/s Aastha Vincom Pvt. ltd. in ITAT/77/2023, IA No. GA/2/2023 vide order dated 21st June, 2023. The AR also relied on the decision of the Co-ordinate Bench of this Tribunal in ITA No. 986/KOL/2024 dated 16.10.2024. 8.3. Further, the Ld. AR submitted that the non-compliance to the summon issued u/s 131 of the Act by the directors of the assessee company cannot be ground for making addition, when all the supporting evidences and documents qua the identity, creditworthiness of the subscribers and genuineness of the transactions were submitted before the AO. The Ld. AR finally prayed that the addition made to the tune of Rs.12,72,00.000/- may kindly be directed to be deleted by setting aside the order of Ld. CIT (A) on this issue. 8.4. The Ld. DR on the other hand reli1d heavily on the order of the authorities below. The ld. DR submitted that it is not necessary to follow the word by word direction given by the Pr. Commissioner of Income Tax. The ld. DR submitted that the AO h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rdingly, the Ld. PCIT directed the Ld. AO to carry out the independent enquiries and verify the details qua the share premium/ share capital of Rs.12,72,00,000/-, also establish the source of share capital by enquiring into various layers through which the money was introduced into the assessee company as share capital/premium. We note that the Ld. PCIT also directed the AO to issue summons u/s 131 of the Act to the share subscribers and examined their directors. The Ld. PCIT also directed that the Ld. AO should not confine himself to the conducting enquiry into the subscribers of shares only on selected basis but carry out independent verification of documents filed before him by the subscribers and thereafter finally directed that the Ld. AO to pass a speaking order after providing adequate opportunity to the assessee after verifying the source of capital including share premium of the subscribers and rotation of money through various hands as to ascertain the true nature of transactions. 9.2. We note that in the set aside proceedings, the Ld. AO issued notice u/s 142(1) of the Act to the assessee calling upon to furnish the details and evidences qua the 31 subscribers of equi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....which were accordingly furnished by the assessee. We note that the letters issued u/s 133(6) of the Act were also complied with by the subscribers by filing all the details and evidences, whereas in the second round the Ld. AO has not conduced any enquiry in accordance with the directions given by the Ld. CIT (A) in the revisionary order passed u/s 263 of the Act. Under these circumstances, we are inclined to hold that the addition made by the Ld. AO is incorrect and so is the order passed by the Ld. CIT (A) sustaining the same. The case of the assessee is squarely covered by the decision of Hon'ble High Court in case of PCIT Vs. M/s Aastha Vincom Pvt. ltd. (supra) wherein the Hon'ble High Court has held as under:- "We have heard Mr. Tilak Mitra, learned standing counsel appearing for the appellant and Mr. J.P. Khaitan, learned senior counsel assisted by Mr. Saumya Kejriwal, learned advocate appearing for the respondent. The revenue has raised the following substantial question of law for consideration : "WHETHER on the facts and circumstances of the case, the Learned Tribunal were justified in law in not restoring the action of the Assessing Offi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on has been done and, therefore, we find that there is no question of law much less substantial question of law is arising for consideration in this appeal. Accordingly, the appeal fails and is dismissed. Consequently, the application [GA/2/2023] stands closed." 9.4. The case of the assessee also covered by the decision of the co-ordinate Bench in case of Goodview Marketing Pvt. ltd. Vs. ITO in ITA No. 986/KOL/2024, vide order dated 16.10.2024, wherein the co-ordinate Bench has held as under:- "13. Now, in the light of the above decision of this Tribunal, we move on to deal with the facts of the instant case. We observe that in the first round of reassessment proceedings carried out vide assessment order dated 12.05.2010, the Ld. AO in light of Explanation (3) to sec. 147 of the Act went on to examine other issues which came to his notice during the course of assessment proceedings. Ld. AO observed that the assessee received share capital and share premium to the tune of Rs. 7.97 Cr. In the annexure to the notice annexed to notice u/s. 142(1) of the Act dated 19.09.2010 at point no. 4 the assessee was asked to provide the details of name, current address, PAN of share a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Summon dated 26-022014 was issued to the assessee company in its PAN and address u/s 131 of the Act as 'PAN:AADCG0582H To, The Director, M/s Goodview Marketing Pvt Limited, 28, Armenian Street, 1st Floor, Kolkata -700001' on 26-022014. Refer page 4 of the assessment order. The second learned AO in the assessment order stated that he had issued notice u/s 133(6) of the Act to all the 18 share applicant companies. The second learned AO observed that out of 18 share applicants, notice could not be served to 5 share applicants. On perusal of the details of these five share applicants to whom notice could not served, it may be seen that all these share applicants had a common address i.e. 4, Raja Woodmunt Street, Kolkata - 700 001. It appears that the Post Office personnel/Inspector were not able to locate this one address. The assessee gave the address as available with it. Since there was a time gap in the year the share application money was received and the second assessment, it might so happen that the addresses have been changed. All these 5 share applicants were regular income tax assessee. The second learned AO could have himself traced their new address, in cas....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s issued to the assessee company in its PAN u/s 131 of the Act when it was specifically instructed that the enquires should be conducted independently and not through the assessee. Moreover, it is worth noting that the learned second AO has not alleged that replies were not filed by the other share applicants. Requisite documents including Bank statements were also submitted by the rest of the 13 parties in response to the notice issued u/s 133(6) of the Act to evidence their identity, creditworthiness and genuineness of the transactions. However, the said documents were not examined by the learned AO. No cash trail of share capital was made by the learned AO as directed by the learned PCIT. As such, the direction of the learned PCIT to examine the genuineness of the transaction was clearly not followed. 2 Further the A.O. should examine the directors as well as examine the circumstances which necessitated the change in directorship if applicable. He should examine them on oath to verify their credentials as director and reach a logical conclusion regarding the controlling interest. Summon dated 26-02-2014 was issued to the assessee company in its PAN and address u/s 13....
X X X X Extracts X X X X
X X X X Extracts X X X X
....with the fact that Ld. AO issued the notice to 18 share applicants and 13 of them have duly replied. The five share applicants which were all having common addresses do not reply but then the Ld. Pr. CIT has directed the AO to carry out the thorough investigation and, therefore, Ld. AO ought to have checked the PAN and the current status of the income tax return and could have easily known the whereabouts of the share applicants. Ld. AO ought to have considered the fact that it was almost 7 to 8 years since the time when assessee received the share application money and one cannot ignore the possibility of change of address. We also note that a summon to the director of M/s. Goodview Marketing Pvt. Ltd. on 26.02.2014 was not addressed to the director but only in the name of company. Ld. AO failed to take note that the directors were changed and the assessee vide letter dated 05.03.2014 specifically submitted the names and addresses of the present directors. But even after getting the current address of the present directors Ld. AO did not issue any summon to the individual directors. This act of Ld. AO proves that he has not conducted any enquiry/investigation in the manner Ld. Pr.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssarily creates difficulties and prevents ascertainment of true and correct facts as the Assessing Officer is denied advantage of the contention or factual assertion by the assessee before him. In case an assessee deliberately and intentionally fails to produce evidence before the Assessing Officer with the desire to prevent inquiry or investigation, an adverse view should be taken." It may also be justified in quoting the decision taken by Delhi High Court in Nova Promoters and Finlease (P) Ltd. ITA No. 342 of 2011 wherein the Learned Court confirms addition of Share Capital u/s. 68 of the I. T. Act. In view of the above, the entire share capital received by the assessee to the tune of Rs. 15,61,00,000/- during the year under consideration is treated as unexplained cash credit and added back to income of the assessee applying sec. 68 of I. T. Act, 1961. I am also satisfied with the fact that this is a fit case for initiation of penalty proceeding u/s. 271(1)(b) and 271(1)(c). These penalty proceedings are being initiated separately." 17. From a perusal of the above observation of Ld. AO where it is mentioned that excessive share premium being 99....
X X X X Extracts X X X X
X X X X Extracts X X X X
....son, the Assessing Officer may make such inquiry as he considers necessary. Section 142(3) of the Act reads as under: "(3) The assessee shall, except where the assessment is made under section 144, be given an opportunity of being heard in respect of any material gathered on the basis of any inquiry under sub- section (2) or any audit under sub- section (2A) and proposed to be utilised for the purpose of the assessment. " 18. Section 142(2) of the Act stipulates that Assessing officer is required to make all such inquiries as he considers necessary for the purpose of obtaining full information in respect of the income or loss of the Assessee. In immediate succession is section 142(3) of the Act which lays down that in respect of the material gathered on the basis of the said inquiry made u/s 142(3) of the Act and which is proposed to be utilized for the purposes of the assessment, the Assessing Officer has to give the Assessee an opportunity of being heard on the same. However, in the present case, as evident from the facts of the case, the results of the inquiries conducted and material gathered during the course of such enquiries were never shared with ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rinciple(s) of Natural Justice. We derive support to our line of reasoning from the decision of the coordinate Bench of the Hon'ble Kolkata Tribunal in M/s. SPML Infra Ltd. v. DCIT, ITA No. 1228/Kol/2018 wherein it has been held as under: ------------- It was further held that, 7.14 Since the results of the enquiries conducted by the A.O. u/s. 142(2) of the Act have not been confronted to the assessee's, we are inclined to agree with the Ld. A.R. that there has been a violation of the Principle(s) of Natural Justice implied within Section142 (2) of the Act and such statutory non-compliance vitiates the entire assessment proceedings, therefore, rendering it to be null and void. Thus, the Cross Objection taken on the violation of the Principle(s) of Natural Justice is also allowed in favour of the assessee's. " 19. Thus, the order passed by the learned AO in the present case without affording an opportunity of being heard w.r.t his findings and observations during the course of assessment is not as per law and in violation of principles of natural justice 20. Moving further, reliance is also placed on the judgment of the Hon'ble ju....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Commissioner (Appeals) is to be upheld." [Para 6.3] 21. The alleged share applicants having sufficient source of funds with them in the form of net worth i.e. share capital and reserve and surplus cannot be brushed aside as it has been held time and again that it is not necessary that the investment in equity and other companies should be out of the income earned by the investors. 18. The ld. D/R, on the other hand, has merely given a general statement that these companies are paper/shell companies but no concrete evidence is filed on record which could prove the substance in such submissions failing which the issue in hand can be decided only on the basis of documentary evidence available on record which clearly states that the assessee has explained the nature and source of the alleged sum thereby proving the identity and creditworthiness of the share subscribers and genuineness of the transactions. So far as the reliance of the Ld. DR on the decision of the Hon'ble Supreme Court in the case of " NRA Iron & Steel (P) Ltd. (supra)" is concerned, we note that the Hon'ble Supreme Court in the said case has taken note of the observations made by the Suprem....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d all the details and documents before the Assessing Officer and the Assessing Officer has not pointed out any discrepancy or insufficiency in the said evidences and details furnished by the assessee before him. As observed above, the assessee having discharged initial burden upon him to furnish the evidences to prove the identity and creditworthiness of the share subscribers and genuineness of the transaction, the burden shifted upon the Assessing Officer to examine the evidences furnished and even made independent inquiries and thereafter to state that on what account he was not satisfied with the details and evidences furnished by the assessee and confronting with the same to the assessee. In view of this, even applying the ratio laid down by the Hon'ble Supreme Court in the case of NRA Iron and Steel ( P.) Ltd. (supra), impugned additions are not warranted in this case. 21. Our view is further supported by the following judicial pronouncements:- (a) The Hon'ble Apex Court in the case of Orissa Corporation (P.) Ltd. (supra), under identical circumstances, has held as follows:- "In this case the assessee had given the names and addresses of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....asons given above we uphold the order of CIT(A) and dismiss the appeal of the Revenue. " 22. Our views are further fortified by the judgment of the Jurisdictional Calcutta High Court in the case of Principal CIT v. Sreeleathers [2022] 143 taxmann.com 435/448 ITR 332 (Calcutta) has held as follows: "Section 68 of the Income-tax Act, of 1961, deals with cash credits. It states that where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to Income-tax as the income of the assessee of that previous year. The crucial words in the provision are "the assessee offers no explanation". This would mean that the assessee offers no proper, reasonable and acceptable explanation as regards the amount credited in the books maintained by the assessee. No doubt the Act places the burden of proof on the taxpayer. However, this is only the initial burden. In cases where the assessee offers an explanation to the credit by placing evidence regard....