TMI Blog2022 (1) TMI 932X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 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 which was brought into existence merely for building share capital. (Refer Assessment Order of the AO) At the same time, the AO mentions that the documents have been filed with regard to the shareholders. The AO absolutely did not make any enquiry whatsoever it is to come to a conclusion that it is a case assessed u/s. 68. No field enquiry was conducted nor the Inspector has been deputed nor the help of the Investigation Wing has been re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 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 ₹ 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 ₹ 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 share capital by ₹ 42.70 Crore (including premium) by private ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olkata-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 ₹ 19,340/-. The Balance Sheet of the company shows share capital of ₹ 42.7 crore and Reserv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... genuine, could be taxed under 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Vs Addl. CIT 99 ITR 375, 386 (Del) quoted below is of particular relevance. Intention 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if applicable. He should examine them on oath to verify their credentials as director and reach a logical conclusion 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 ₹ 19,341/-. The case was reopened on 05.12.2011 when the assessee desired to revise its total income to ₹ 56,840/-. The reassessment proceedings was concluded on 30.01.2012 after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 19,340/-. Then the return was processed u/s. 143(1) of IT Act. The AO mentions in his order passed u/s. 147/143(3) of IT Act dated 30.01.2012 that subsequently the assessee company filed letter bringing to the notice of the AO that the company had received consultancy charges of ₹ 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 ₹ 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 ₹ 37,500/- as consultancy charges and ₹ 25,500/- as excess preliminary expenses written off. Therefore returned income of ₹ 19,340/- was assessed at ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner of Income-tax, Kolkata - II, invoked the provisions of section 263 and passed an order dated 21.03.2014. Consequently, the Assessing Officer passed an order dated 31.03.2015 under section 143(3) r.w.s. 147 r.w.s. 263 and assessed the total income at ₹ 42,71,24,620, making aggregate addition of ₹ 42,70,00,000 (being share capital ₹ 1,73,28,500 and share premium ₹ 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 - ₹ 42,70,00,000 6.1. The Assessing Officer has made an addition of ₹ 42,70,00,000 (share capital ₹ 1,73,28,500 and share premium ₹ 40,96,71,500) under section 68 of the Act in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 , 18 , 000 28 , 32 , 000 29 , 50 , 000 5 For numbering, considered in above table 6 Akansha Dealers Pvt Ltd 38 , 000 3 , 80 , 000 91 , 20 , 000 95 , 00 , 000 7 Allied Commercial Pvt Ltd 20 , 000 2 , 00 , 000 48 , 00 , 000 50 , 00 , 000 8 Amar Commercial Pvt Ltd 70 , 000 7 , 00 , 000 1 , 68 , 00 , 000 1 , 75 , 00 , 000 9 Bihar Techno Finance Co Pvt 32 , 000 3 , 20 , 000 76 , 80 , 000 80 , 00 , 000 10 Bluesky Tradelink Pvt Ltd 59 , 400 5 , 94 , 000 1 , 42 , 56 , 000 1 , 48 , 50 , 000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 52 , 00 , 000 23 Matribhumi Commodities Pvt 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000 1 , 24 , 50 , 000 Total (B) 40,21,50,000 Total (A + B) 42,70,00,000 The Companies from whom share application monies have been received by the appellants are corporate entities incorporated under the Companies Act, 1956 and hence, their identity stands proved. The transaction is through banking channels and are supported by the various documents of the share applicants - Form 2, photo copy of confirmation, acknowledgement for filing return of income for income tax assessment year 2010-11, audited annual accounts for the year ended 31st March, 2010, bank statement of the share applicants evidencing payment of share application money - refer- page nos. 102 to 1441 of the paper book. It is pertinent to mention that the same have been filed during the course of re-opened proceedings and have been considered by the Assessing Officer at the time of passing the assessment order under 143(3) r.w.s 147. Thus, the genuineness of the transactions and creditwor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... identity of the share applicant is proved, the Apex Court in the case of Lovely Exports (216 CTR 195) has held that- If share application money is received by assessee-company from alleged bogus shareholders, whose names are given to Assessing Officer, then Department is free to proceed to reopen their individual assessments in accordance with law but this amount of share money cannot be regarded as undisclosed income under section 68 of assessee-company. Thus, the impugned addition could not have been made in the hands of the appellants. 6.9 The appellants thus, submit that impugned addition has been made merely on the basis of assumptions and presumptions; the appellants contend that assessment cannot be based on assumptions and presumptions. Reliance is placed on the decision of the Honourable Apex Court in Umacharan Shaw Bros (37 ITR 271) at page 272 in clause (v) has held that no addition could be made on presumption; suspicion however, strong, cannot take place of evidence. In view of the above, the appellants contend that the impugned addition made by the Assessing Officer under section 68 of the Act ought to be deleted. Enclosure 1 - Statement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the AO is illegal, invalid and bad in law, which need to be deleted, and grounds of appeal of the appellant need to be upheld. 7.6 The undersigned has carefully gone through the assessment order, written submission as well as verbal arguments of the Ld. A.R. The details that have been filed as regards the share-holders do not inspire much confidence. The AR has filed explanations along with documentary evidences in support of identity creditworthiness of the share-holders and genuineness of the transaction in the shape of their confirmation, Share Application Forms, Memorandum of Association and Articles of Association, their bank statement, Investment confirmation showing source of investment, copy of their annual accounts in support of credit worthiness, copy of their ITRs in respect of subscription. However, as mentioned above the same do not inspire much confidence. 7.7 Careful perusal of the assessment order reveals the following relevant facts; i) The alleged share-holders filed their return of income for the first time ii) The alleged share-holders declared nil/meagre income and had no tangible assets but large reserves and surplus and no revenue fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... previous year, and the assessee offers no explanation 91 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: [Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless- (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment Order of the AO) At the same time, the AO mentions that the documents have been filed with regard to the shareholders. The AO absolutely did not make any enquiry whatsoever it is to come to a conclusion that it is a case assessed u/s. 68. No field enquiry was conducted nor the Inspector has been deputed nor the help of the Investigation Wing has been requisitioned nor there have been any pre-enquiries conducted by the revenue department to aid the AO to come to conclusion of treating this amounts u/s. 68. This is a classic case of collective failure on the part of the revenue authorities. 10. Notwithstanding that, we have also examined the order of the ld. CIT to decipher anything to support the contention of the Assessing Officer. The complete address of the contributors have been filed before the ld. CIT(A) and there also there has been a failure of the revenue authorities to resort to any fresh enquiries or to remand the matter or to cause further examination and investigation. The ld. CIT(A) confirmed the addition solely on the basis of low returned income of the subscribers. On the other hand, the assessee has filed all the documents to prove their case prima fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not traceable at their given addresses - Held no, as the Assessee had produced the PAN of all the creditors along with the confirmation, Bank Statement showing payment of share application money and relevant record is produced with regard to the allotment of shares to those parties - The share application form, allotment letter, share certificate are also produced - Even the balance sheet, profit and loss account, the books of account of these creditors were produced on record showing that they had sufficient funds for investing in the shares of the Asses see -Whether on the facts and in the circumstances of the case and in law, the Tribunal erred in not appreciating the observations made by the Delhi High Court in Nova Promoters and Finlease Pvt. Ltd. 18 Taxman.com 217 wherein the Court has observed that cases of this type cannot be decided only on the basis of documentary evidences above and there is need to take into account the surrounding circumstances - High Court also considered the fact that the assessee was not able to produce even a single party before the AO despite agreeing before the CIT(A) that it will produce all parties before the AO during remand proceedings. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal was right in confirming order passed by Commissioner (Appeals) and holding that no addition could be made under section 68 - Held, yes - Also held that assessee is not required to prove source of source - NRA Iron Steel Pvt. Ltd. 412 ITR 161 (SC) distinguished Laxman Industrial Resources Ltd. in ITA 169/2017, C.M. Appeal 7385/2017 (Del) AO issued reassessment notice on the ground that information received from the Investigation Wing pointed to assessee being the beneficiary of accommodation entries - these were subjected to addition under Section 68. Upon appeal, the CIT(A) took note of the materials filed by the assessee and provided an opportunity to the AO to remand proceedings. The AO merely objected to the materials furnished but did not undertake any verification. The CIT(A), found favour with the assessee, and directed that the amounts brought to tax should be deleted Department argued that the Investigation Wing's report confirmed unequivocally that the assessee was beneficiary to bogus transactions whereby the genuineness of identity of the shareholders, the genuineness and identity of the share applicants and the genuineness of transactions was suspec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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