PCIT Vs Devbhumi Vinimay Pvt. Ltd. (Calcutta High Court)
Summary: The Calcutta High Court, in Principal Commissioner of Income Tax-2, Kolkata Vs M/s Devbhumi Vinimay Pvt. Ltd., dismissed the Revenue’s appeal under Section 260A of the Income-tax Act, 1961, and upheld the Income Tax Appellate Tribunal’s deletion of an addition made under Section 68 relating to share investments for Assessment Year 2012-13. The Revenue challenged the Tribunal’s findings on the identity and creditworthiness of share applicants and genuineness of transactions, contending that the evidence relied upon by the Assessing Officer had not been properly appreciated. The Revenue also referred to the Supreme Court decision in Navodaya Castle (P.) Ltd. and the earlier Calcutta High Court decision in PCIT (Central)-2, Kolkata Vs BST Infratech Ltd. while proposing substantial questions of law.
The High Court examined the Tribunal’s order dated 14 May 2024 and observed that the assessee had produced substantial documentary evidence relating to individual as well as corporate share applicants. The individual investors, most of whom were relatives or persons known to the director of the assessee company, had submitted income-tax returns, financial statements, bank statements, account confirmations and explanations of the sources of their investments. The Tribunal found that these investors possessed PAN numbers and identifiable immediate sources of funds. The funds were derived not only from loans obtained from other applicants but also from the sale of investments and properties, supported by relevant documents, including development agreements.
In relation to corporate share applicants, the Tribunal found that the investing companies had furnished audited financial statements, income-tax returns, PAN details, confirmations of investment sources and master data. In certain cases, assessment orders passed under Section 143(3) were also submitted. The audited balance sheets demonstrated that the investing companies possessed sufficient net worth, represented by share capital, reserves and surplus, to explain the investments. Importantly, the Commissioner of Income Tax (Appeals) had also acknowledged that the relevant documents were furnished before the Assessing Officer and the appellate authority.
The High Court held that the Tribunal had re-examined the documentary evidence and correctly concluded that the addition under Section 68 could not be sustained in the circumstances. Since the Tribunal’s findings were based on appreciation of the evidence on record, no question of law, much less a substantial question of law, arose for consideration under Section 260A. Consequently, the Revenue’s appeal was dismissed, and the accompanying stay application, GA/2/2025, was also dismissed. The decision illustrates the importance of establishing the identity, creditworthiness and genuineness of share subscriptions through substantive financial documentation and identifiable sources of funds.
Cases Discussed:
1. Navodaya Castle (P.) Ltd. Vs CIT, (2015) 56 taxmann.com 18 (SC), Supreme Court: Cited by the Revenue in its proposed substantial questions of law concerning proof of the identity and creditworthiness of share applicants and genuineness of transactions. The Supreme Court had dismissed the special leave petition against the Delhi High Court’s decision concerning scrutiny of share subscriptions. The present High Court did not separately analyse or distinguish the precedent in its reasoning.
2. PCIT (Central)-2, Kolkata Vs M/s BST Infratech Ltd., ITAT/67/2024, dated 23 April 2024, [2024] 161 taxmann.com 668 (Calcutta): Cited by the Revenue as an earlier jurisdictional High Court decision concerning the genuineness of share capital transactions and the evidentiary burden under Section 68. The Revenue argued that the Tribunal had not followed the principles laid down in that decision. The High Court disposed of the present appeal on the basis of the Tribunal’s factual findings without separately discussing this precedent.
FULL TEXT OF THE JUDGMENT/ORDER OF CALCUTTA HIGH COURT
This appeal filed by the revenue under Section 260A of the Income Tax Act, 1961 (the Act) is directed against the order dated May 14, 2024 passed by the Income Tax Appellate Tribunal, C- Bench, Kolkata (the Tribunal) in ITA/1393/Kol/2023 for the assessment year 2012-13.
The revenue has raised the following substantial questions of law for consideration :
“a) WHETHER in facts and in the circumstances of the case the Ld. Income Tax Appellate Tribunal was not justified in law in not in deleting the addition u/s 68 of The I.T. Act, made on account of unaccounted transactions, without considering the evidences brought on record by the Assessing Officer to establish that the genuineness of the transactions and creditworthiness could not be satisfactorily prove in this case?
b) WHETHER in facts and in the circumstances of the case the Ld. Income Tax Appellate Tribunal was not justified in law in not in holding that the assessee has proved the identity and genuineness of transaction of cash deposit, ignoring the decision of Hon’ble Supreme Court in the case of Novodaya Castle (P) Ltd [(2015) 56 Taxmann.com 18(SC)?
c) WHETHER in facts and in the circumstances of the case the Ld. Income Tax Appellate Tribunal was not justified in law in not in not following the judicial principles laid down in the matter of Pr. CIT (Cen)-2 Kolkata vs M/s BST Infratech Ltd. in ITAT/67/2024 dated 23/04/2024, [2024]161 Taxman.co, 668 (Calcutta) which is earlier decision of Hon’ble High Court having precedence value?”
We have heard Mr. Prithu Dudheria, learned senior standing counsel for the appellant/revenue and Mr. Pratyush Jhunjhunwala, learned advocate for the respondent/assessee.
The short question which falls for consideration is whether the learned Tribunal was justified in setting aside the assessment order as well as the order passed by the appellate authority by which the addition made by the assessing officer under Section 68 of the Act was set aside. The assessee in order to demonstrate the three parameters which are required to be established by them had produced all the relevant documents which have been noted by the learned Tribunal in paragraph 9 of the impugned order. All the individual share applicant has furnished income tax returns, financial statement, bank statement, confirmation of account and also confirmed the source of fund applied for making investment in the assessee company. The Tribunal found that the individual share applicants are mostly relatives and known to the director of the assessee company. All those documents filed before the assessing officer are once again placed before the learned Tribunal and the learned Tribunal has re-appreciated the evidence brought on record and found that the assessee explained that all these individual persons were having PAN numbers and they had an immediate source of fund which was utilised for making investments. The source of fund with the individual share applicants is not only the loan received from other applicants but also from the sale of investments and properties supported by copy of the development agreements etc. With regard to the other share applicants which are private limited companies, the Tribunal found that all of them have furnished the audited financial statements and their income tax return, PAN details, confirmation of source of investments, copy of master data and in some cases copy of the assessment orders passed under Section 143(3) of the Act. Furthermore, the Tribunal noted that in the audited balance-sheet it is shown that at the time of making investment in the assessee company those share applicants which are private limited company had sufficient net worth in the form of share capital and reserve and surplus to explain the amount invested. Furthermore, the Tribunal has recorded that the CIT(A) has confirmed this fact that all details have been filed before the assessing officer as well as before it. If such be the factual situation, addition could not have been made under Section 68 of the Act and, therefore, the learned Tribunal rightly deleted the addition by allowing the assessee’s appeal. We find no question of law much less substantial question of law arises for consideration.
Accordingly, the appeal fails and is dismissed.
The stay application, IA NO: GA/2/2025, also stands dismissed.
