PCIT Vs Saileela Synthetics Pvt. Ltd. (Rajasthan High Court)
The Rajasthan High Court dismissed the Revenue’s appeal under Section 260A of the Income-tax Act, 1961, challenging the order dated 21.12.2020 passed by the Income Tax Appellate Tribunal, Jodhpur Bench. The dispute principally concerned the deletion of an addition made under Section 68 in respect of share application money received by Saileela Synthetics Pvt. Ltd.
The assessee, engaged in manufacturing and trading synthetic fabric, filed its e-return on 28.09.2015 declaring total income of Rs.1,14,56,120/-. The case was selected for scrutiny through CASS. A notice under Section 143(2) was issued on 27.07.2016, followed by a notice under Section 142(1).
During Assessment Year 2015-16, the assessee raised share capital through allotment of equity shares. It first issued 1,81,816 equity shares and subsequently issued 3,40,665 equity shares, aggregating to 5,22,481 shares. Each share had a face value of Rs.10/- with share premium of Rs.45/- and Rs.50/-, and the shares were issued to 11 companies. The assessee accordingly received Rs.3,04,39,780/- on allotment of the shares.
According to the Revenue, the details furnished concerning the 11 companies were not proper. The Assessing Officer consequently passed the assessment order dated 29.12.2017 under Section 143(3), assessing total income at Rs.4,20,76,100/-. The assessment included the share capital addition of Rs.3,04,39,780/- under Section 68, a lump-sum addition of Rs.1,50,000/-, employees’ contribution towards ESI of Rs.5,540/-, and an addition of Rs.25,00,000/- relating to an unsecured loan together with interest of Rs.24,658/-. Penalty proceedings under Section 271(1)(c) were also initiated.
The assessee appealed before the Commissioner of Income-tax (Appeals), Ajmer. By order dated 13.03.2018, the CIT partly allowed the appeal, deleted the Rs.25 lakh addition under Section 68 and the related interest disallowance, and granted relief in respect of other additions. The Revenue thereafter appealed to the Income Tax Appellate Tribunal, Jodhpur Bench, which dismissed the Revenue’s appeal by order dated 21.12.2020.
Before the High Court, the Revenue contended that the Assessing Officer had made enquiries under Section 133(6) concerning the 11 companies, but none of the companies replied and five notices were returned by the postal authority with the remark “Left”. The Revenue further contended that the addresses of the investor companies were furnished only towards the end of the assessment proceedings and that the source of investment remained unexplained. It also argued that the assessee had failed to explain the allotment of 5,22,481 shares.
The High Court, however, noted that the assessee had furnished each necessary and requisite document to establish the identity and creditworthiness of the persons from whom it received share application money and the genuineness of the transactions. The documents included copies of share applications, bank statements of shareholders, acknowledgements of income-tax returns, PAN cards, balance sheets with audit reports, balance confirmation-cum-affidavits, memorandum and resolutions, details of immediate sources of funds, the company’s bank statement, ROC share allotment forms with annexures, and ledger accounts relating to share application money, share capital and share premium.
The Court observed that once the assessee had furnished the relevant documents, nothing in the assessment order demonstrated that the assessee had introduced its own undisclosed income in the form of share capital. The Court held that the assessment order had proceeded only on suspicion and doubt, which was not permissible in law. It therefore found that the CIT and the Appellate Tribunal had rightly deleted the addition and concluded that the amount could not be treated as unexplained credit under Section 68.
The Court also considered the other components of the assessment. The Assessing Officer had made a disallowance of Rs.1,50,000/- out of various expenses, which the CIT restricted to Rs.75,000/-. The High Court found that relief to the extent of Rs.75,000/- was justified.
With respect to the employees’ contribution to ESI of Rs.5,540/-, the CIT had directed the Assessing Officer to verify the assessee’s contention that the employees’ contribution towards PF and ESI had been deposited on or before the due date for filing the return under Section 139(1). The Appellate Tribunal upheld that direction, and the High Court observed that the issue did not require reconsideration.
The High Court further noted that the CIT and the Appellate Tribunal had arrived at concurrent, well-reasoned findings after considering the overall facts and circumstances and analysing the material available on record. In view of those findings and the factual matrix, the Court found no ground to grant relief to the Revenue.
Consequently, the Rajasthan High Court dismissed the Revenue’s appeal and disposed of all pending applications.
FULL TEXT OF THE JUDGMENT/ORDER OF RAJASTHAN HIGH COURT
1. This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred as Act of 1961) has been preferred by the appellant-Income Tax Department claiming the following reliefs:
“It is, therefore, prayed that this appeal may kindly be allowed. By an appropriate order or direction, the impugned order dated 21.12.2020 passed by the Tribunal may kindly be set aside and the order of AO may kindly be restored and upheld.
Any other order which may be considered just and proper in the facts and circumstances of the case may kindly be passed in favour of the appellant. Cost of the appeal be awarded in favour of the appellant.”
2. The respondent-Company (assessee) is engaged in the manufacturing & trading of synthetic fabric and filed its e-return on 28.09.2015 declaring its total income as Rs.1,14,56,120/-. Thereafter, the case was selected for scrutiny through CASS and a notice under Section 143 (2) of the Act of 1961 was issued on 27.07.2016 to the respondent-Company, and subsequently, another notice under section 142 (1) of the Act of 1961 was issued, which was duly was served to the respondent-Company, while fixing the date of hearing.
2.1 The respondent Company, during the Assessment Year 201516, raised its share capital by allotment of equity shares; firstly it issued 1,81,816 number of equity shares and later issued 3,40,665 number of equity shares, in total 5,22,481 numbers of equity shares each having face value of Rs. 10/- and share premium of Rs. 45/- and Rs. 50/- were issued to total 11 companies. The respondent-Company accordingly, received a sum of Rs.3,04,39,780/- on allotment of total 5,22,481 paid up shares. 2.2 As per the appellant, the details furnished by the respondent -Company regarding the said 11 companies was not found to be proper, and therefore the Income Tax Department issued Assessment Order (AO) dated 29.12.2017, assessing the total income of the respondent-Company as Rs. 4,20,76,100/- including lump-sum addition, employees contribution towards ESI, and on account of unsecured loan of Rs.25 lacs and interest on unsecured loan Rs. 24,658/- under Section 143 (3)Section 143 (3) of the Act of 1961 and tax and interest was charged as per ITNS-150, and the penalty proceedings under Section 271 (1) (c) of the Act of 1961 were initiated.
2.3 Being aggrieved by the aforesaid assessment order dated 29.12.2017, the respondent-Company preferred an appeal (Appeal No. 557/2017-2018) before the Commissioner of Income-Tax (Appeals), Ajmer (in short, ‘CIT’); the learned CIT vide order dated 13.03.2018 partly allowed the appeal, while quashing the assessment order dated 29.12.2017, accordingly, deleted the addition of Rs.25 lacs made by the Assessing Officer under Section 68 of the Act of 1961 and disallowance of the interest of Rs.24,658/-.
2.4. Being aggrieved by the order dated 13.03.2018 passed by the learned CIT, the appellant preferred an appeal (I.T.A. No. 279/ Jodh/2018) before the learned Income Tax Appellate Tribunal, Jodhpur Bench, (in short, ‘Appellate Tribunal’). The learned Appellate Tribunal vide the impugned order dated 21.12.2020 dismissed the said appeal. The copy of the said order was received on 10.02.2021. Thus, being aggrieved of the said order, the present appeal has been preferred claiming the afore-quoted reliefs.
3. Learned counsel for the appellant-Department submits that during the assessment proceedings, the Assessing Officer had made enquiry under Section 133 (6) of the Act of 1961 regarding those 11 Companies stated by the respondent-Company, wherein none of the Companies filed a reply to the notice and even the five notices have been returned by the postal authority with the remark “Left”.
3.1. Learned counsel further submits that the details of shareholders/investors Companies of the assessee was furnished on 15.12.2017 and thereafter on 28.12.2017, new addresses of investor companies were provided, which is clearly at the end of the year, and the same was done to avoid and evade verification of such addresses, and that, the source of investment also remained unexplained, and therefore, the impugned order is not justified in law.
3.2. Learned counsel also submits that the respondent-Company did not explain the allotment of total 5,22,481 paid up shares, but the learned CIT has deleted the addition made by the Assessing Officer without appreciating the facts of the case and the same was also upheld by the Appellate Tribunal vide the impugned order, and therefore, the present appeal has been preferred raising the substantial questions of law.
4. Heard the counsel for the appellant-Department as well as perused the record of the case.
5. This Court observes that the respondent-Company filed its e-return on 28.09.2015 declaring a total income of Rs. 1,14,56,120/-. Thereafter, the case was selected for scrutiny through CASS and notices were issued. The respondent-Company raised its share capital by allotment of equity shares; firstly, it issued 1,81,816 number of equity shares, and later, issued 3,40,665 number of equity shares, in total 5,22,481 number of equity shares each having face value of Rs. 10/- and share premium of Rs. 45/- and Rs. 50/- were issued to total 11 companies; the respondent-Company received a sum of Rs. 3,04,39,780/- on allotment of total 5,22,481 shares.
5.1. Thereafter, the appellant-Department issued the Assessment Order (AO) dated 29.12.2017, assessing the respondent-Company’s total income as Rs. 4,20,76,100/-, and accordingly, the penalty proceedings under Section 271 (1) (c) of the Act of 1961 were initiated. Aggrieved by the same, the respondent-Company preferred an appeal before the learned CIT, and the learned CIT vide order dated 13.03.2018 has partly allowed the appeal, while quashing the assessing order dated 29.12.2017; aggrieved thereby, the appellant-Department preferred an appeal before Appellate Tribunal, but the same was dismissed vide the impugned order.
6. This Court further observes that subject to the remarks, as contained in the assessment order dated 29.12.2017, the assessee’s total income was computed as indicated in the following table, as mentioned in the said order:
| Income as per Return of Income filed by the assessee | Rs.1,14,56,120/- | |
| Add:- (i) As discussed in Para-3 above u/s.68 of the I.T. Act. | Rs.3,04,39,780/- | |
| (ii) Lump-sum addition as discussed in Para-4 | Rs.1,50,000/- | |
| (i) Employees’ contribution towards ESI (Para 5) | Rs.5,540/- | |
| (i) On account of Unsecured Loan of Rs.25.00 lakhs and Interest on unsecured loan Rs.24,658/- as discussed in Para 6 |
Rs.25,00,000/-Rs.24,658/- | Rs.3,06,19,978/- |
| Total Income | Rs.4,20,76,098/- | |
| Round off u/s.288 A | Rs.4,20,76,100/- | |
7. This Court also observes that the grounds of appeal as raised by the present respondent-Company before the learned CIT are reproduced as hereunder:
“1. The learned assessing officer has grossly erred in law and on the facts of the case on ad-hoc addition i.r.o. consideration received on allotment of new shares amounting to Rs.30439780. The Ld Assessing Officer has invoked and initiated Section 68 of the act (i.e. unexplained credit) without considering the facts provision of the act and reasoning of the various judgments.
2. Ld AO grossly erred in disallowing Rs.150000 out of various expenses without appreciating that all the expenditure are supported by details, voucher and fully explained and considering the volume of business of the assessee.
3. The Ld AO grossly erred in disallowing Rs. 5540 of Employees Contribution to ESI without appreciating the fact that all the contributions are deposited on or before the due date of filing the return by the assessee.
4. The learned assessing officer has grossly erred in law and on the facts of the case on making addition of Rs.25,00,000 on account of unsecured loan obtained from the shareholders and Rs.24,658 which is interest on the same.”
7.1. This Court further observes that the respondent-Company furnished each and every necessary and requisite documents to prove the identity and creditworthiness of the persons from whom the respondent-Company received share application(s) and the same was recorded in the order dated 13.03.2018 of the learned CIT; relevant portion whereof is reproduced hereunder:-
“4.4 The appellant has furnished, in respect of each person following documentary evidences to prove the identity and creditworthiness of the persons from whom the appellant has received share application money and genuineness of the transactions:
> Copy of the share applications
> Copy of Bank statement of shareholder showing that it had sufficient balance in its accounts to enable it to subscribe to the share capital
> Acknowledgement copy of Income Tax Return of shareholder
> Copy of PAN card to verify the identity
> Copy of Balance sheet alongwith audit report of the above share applicants confirming complete details of Sources of funds and Investments made.
>Copy of balance confirmation cum affidavit to verify the genuineness
> Copy of memorandum and copy of resolution.
> Details of the immediate sources of the funds invested by the share applicants
> Copy of Bank statement of the company
> ROC Share allotment form alongwith complete annexures
> Ledger copy of share application money, Share capital and share premium”
7.2. This Court also observes that once the respondent-Company furnished all the relevant and requisite documents, and in the assessment order, there is nothing which could show that the respondent-Company introduced its own income from undisclosed sources in the form of shares; the assessment order was passed only on the basis of suspicion and doubt, which is not permissible under the law, as has rightly been held by the learned CIT in its order, which in turn has rightly been upheld by the learned Appellate Tribunal vide the impugned order.
7.3. This Court further observes that the learned CIT as well as learned Appellate Tribunal have rightly ordered deletion of the above-said amounts, because the respondent-Company had furnished all the required the details, and further held that it cannot be said to be an unexplained credit under Section 68 of the Act of 1961. Therefore, the impugned order passed by the learned Appellate Tribunal is justified in law.
8. This Court also observes that in the Assessment Order there is a disallowance of Rs. 1,50000/- out of various expenses, and the said disallowing is on a higher side and the same was considered by the learned CIT, and that the disallowance was restricted to Rs.75,000/- and the respondent-Company got the relief of Rs. 75,000/-, which is completely justified in law.
9. This Court further observes that there is another aspect regarding the Assessment Order to the effect that there is disallowance of Rs.5540/- of employees contribution to ESI, and in this regard, the learned CIT directed the Assessment Officer to verify the contention of the respondent-Company that the employees’ contribution towards PF and ESI was deposited on or before the due date of filing the return under Section 139 (1) of the act of 1961; the same was upheld by the learned Appellate Tribunal. Therefore, now the same does not require any reconsideration by this Court.
10. This Court further observes that there are concurrent findings arrived at by the learned CIT as well as learned Appellate Tribunal, which are well reasoned and have been arrived at after taking into due consideration the overall facts and circumstances of the case and upon duly analyzing the material available on record before them.
11. Thus, in light of the aforesaid observations and looking into the factual matrix of the present case, this Court does not find it a fit case so as to grant any relief to the appellant in the present appeal.
12. Consequently, the present appeal is dismissed. All pending applications stand disposed of.
