Ivy Build Real Pvt. Ltd. Vs ITO (ITAT Kolkata)
Summary: The Income Tax Appellate Tribunal, Kolkata “C” Bench, allowed Ivy Build Real Pvt. Ltd.’s appeal for Assessment Year 2012-13 against the CIT(A)-NFAC order dated 30 June 2023, which confirmed a Rs. 1.30 crore addition under Section 68 of the Income-tax Act, 1961. The dispute concerned share capital and premium received from four investors. The assessee filed its return on 21 January 2013 declaring a loss of Rs. 39,625. The Assessing Officer questioned the high premium because the company had no established record of strong performance. Although the assessee submitted documents during scrutiny, the company director did not comply with Section 131 summons. The Assessing Officer made the addition under Section 68 in an assessment dated 17 March 2015, and the CIT(A) upheld it.
The Tribunal observed that the assessee had filed documents relating to the four share subscribers but had not produced their directors or investors personally. The Assessing Officer did not examine the records in detail or conduct further enquiries and instead treated the receipts as unexplained. The CIT(A) substantially reproduced the assessment findings without an independent, reasoned appraisal of the evidence. The Tribunal held that the tax authorities must investigate the material supplied and base adverse findings on the results of those enquiries. Non-appearance alone did not establish that the receipts were unexplained.
Relying on CIT Vs Orissa Corporation Ltd., (1986) 159 ITR 78 (SC), and Crystal Networks (P) Ltd. Vs CIT, 353 ITR 171 (Cal), the Tribunal stressed the importance of examining supporting documents and pursuing enquiries into identified creditors. It also referred to ITO Vs Cygnus Developers India Pvt. Ltd., ITA No. 282/Kol/2012, and CIT Vs Orchid Industries (P) Ltd., 397 ITR 136 (Bom). The cited decisions were relevant to whether failure to produce investor directors could, without more, defeat documentary proof of identity, creditworthiness and genuineness.
The Tribunal found that the assessee and investors had supplied evidence supporting the transactions and that the authorities had neither identified specific defects nor undertaken meaningful verification. The Assessing Officer’s concerns over the share premium and non-attendance did not, on these facts, justify the addition without proper enquiry. Accordingly, the Tribunal set aside the CIT(A)’s order and allowed the assessee’s appeal, granting relief against the Rs. 1.30 crore Section 68 addition. The decision turns on the evidence furnished and the lack of adequate investigation; it does not dispense with the statutory requirements of Section 68.
Cases Discussed
- CIT Vs Orissa Corporation Ltd., (1986) 159 ITR 78 (SC)
- ITO Vs Devinder Singh Shant, ITA No. 208/Kol/2009, 17 April 2009 (ITAT Kolkata)
- CIT Vs Raj Kumar Agarwal, ITA No. 179/2008, 17 November 2009 (Allahabad High Court)
- Crystal Networks (P) Ltd. Vs CIT, 353 ITR 171 (Calcutta High Court)
- ITO Vs Cygnus Developers India Pvt. Ltd., ITA No. 282/Kol/2012 (ITAT Kolkata)
- CIT Vs Orchid Industries (P) Ltd., 397 ITR 136 (Bombay High Court)
FULL TEXT OF THE ORDER OF ITAT KOLKATA
Per Rajesh Kumar, Accountant Member: This appeal preferred by the assessee is against the order passed by Learned Commissioner of Income-tax (Appeals)-NFAC, Delhi [hereinafter referred to Ld. ‘CIT(A)’] dated 30.06.2023 for the Assessment Year (in short ‘AY’) 2012-13.
2. The only issue raised by the assessee in the grounds of appeal is against the confirmation of addition of Rs. 1.30 Crore by Ld. CIT(A) thereby upholding the order of the Assessing Officer (in short ld. ‘AO’) wherein the said addition was made as unexplained cash credit u/s 68 of the Act.
3. The facts in brief are that the assessee filed the return of income on 21.01.2013 declaring total loss of Rs. 39,625/-. The case of the assessee was selected for scrutiny through CASS and statutory notices were issued and duly served upon the assessee. Initially there was no compliance by the assessee however the assessee filed written submission on 14.10.2014 furnishing some documents called for by the AO and also requesting for re-fixation of hearing and accordingly, the case was fixed on 27.10.2014 which the assessee complied with by filing written submissions. The AO observed on the basis of the records available before him that the assessee has raised share capital/share premium to the tune of Rs. 1.30 Crore during the year beside noting that assessee company has issued shares without there being any track record of good performance and therefore, issue of shares at a high premium is nothing but a sham transaction. The AO, after discussing the modus operandi of these companies, issued summons u/s 131 of the Act to the director of the assessee company which was not complied by the assessee. Finally, the addition was made by treating the share capital/share premium as unexplained cash credit u/s 68 of the Act vide order dated 17.03.2015 passed u/s 143(3) of the Act.
4. In the appellate proceedings, the Ld. CIT(A) also simply dismissed the appeal of the assessee by reproducing the findings of the AO.
5. We have heard the rival contentions and perused the material on record. The undisputed facts are that the assessee has raised share capital/share premium from four investors. The assessee has filed all the documents however the personal presence of the directors/investors was not made before the AO. We note that the AO, instead examining and enquiring into the material further, has straightaway jumped to the conclusion that these are unexplained cash credit received by the assessee. Similarly, the Ld. CIT(A) has affirmed the findings of AO on this issue without passing any speaking order by merely extracting the AO’s order. In our opinion, when the assessee has filed all the documents before the authorities, they are duty bound to investigate the matter and conduct necessary enquiries and only base conclusion on the basis of result of search enquiry. However, we note that in the present case, no further investigation or enquiry was conducted either by the AO or by the Ld. CIT(A). Even the documents furnished by the assessee were not commented. Under the circumstances we are not in a position to concur a conclusion drawn by the Ld. CIT(A). The mere non-production of share holders/directors of the assessee before the AO cannot be the reason for making the addition. We note that despite having filed all the evidences, no enquiry was done and the Ld. CIT(A) has simply affirmed the finding of the AO by holding that no identity and creditworthiness of the creditors could not be proved by the assessee by ignoring all the evidences placed before him. Under the circumstances, we are not in a position to sustain the order of Ld. CIT(A). We find support from the decision of Hon’ble Supreme Court in the case of CIT vs. Orissa Corporation Ltd. in [1986] 159 ITR 78 (SC) in which the Hon’ble Court has held as under:
“That in this case the respondent had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assessees. Their index numbers were in the file of the Revenue. The Revenue, apart from issuing notices under Section 131 at the instance of the respondent, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the respondent could not do anything further. In the premises, if the Tribunal came to the conclusion that the respondent had discharged the burden that lay on it, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. I f the conclusion was based on some evidence on which a conclusion could be arrived at, no question of law as such arose. The High Court was right in refusing to state a case.”
6. The case of the assessee is also squarely covered by the decisions of Hon’ble Calcutta High Court in the case of Crystal Networks (P) Ltd vs CIT reported in 353 ITR 171 (Cal) wherein it has held that where all the evidences were filed by the assessee proving the identity and creditworthiness of the loan transactions, the fact that summon issued were returned un-served or no body complied with them is of little significance to prove the genuineness of the transactions and identity and creditworthiness of the creditors. The relevant portion of the decision is extracted below:
“We find considerable force of the submissions of the learned Counsel for the appellant that the Tribunal has merely noticed that since the summons issued before assessment returned unserved and no one came forward to prove. Therefore it shall be assumed that the assessee failed to prove the existence of the creditors or for that matter creditworthiness. As rightly pointed out by the learned counsel that the Ld. CIT(A) has taken the trouble of examining of all other materials and documents viz., confirmatory statements, invoices, challans and vouchers showing supply of bidi as against the advance. Therefore, the attendance of the witnesses pursuant to the summons issued in our view is not important. The important is to prove as to whether the said cash credit was received as against the future sale of the product of the assessee or note. When it was found by the Ld. CIT(A) on fact having examined the documents that the advance given by the creditors have been established the Tribunal should not have ignored this fact findings. Indeed the Tribunal did not really touch the aforesaid fact finding of the Ld. CIT(A) as rightly pointed out by the learned counsel. The Supreme Court has already stated as to what should be the duty of the learned Tribunal to decide in this situation. In the said judgment noted by us at page 463, the Supreme Court has observed as follows:
“The Income-Tax Appellate Tribunals performs a judicial function under the Indian Income-tax Act. It is invested with authority to determine finally all questions of fact. The Tribunal must, in deciding an appeal, consider with due care all the material facts and records its findings on all the contentions raised by the assessee and the Commissioner, in the light of the evidence and the relevant law.” The Tribunal must, in deciding an appeal, consider with due care all the material facts and record its findings on all contentions raised by the assessee and the Commissioner, in the light of the evidence and the relevant law. It is also ruled in the said judgment at page 465 that if the Tribunal does not discharge the duty in the manner as above then it shall be assumed the judgment of the Tribunal suffers from manifest infirmity. Taking inspiration from the Supreme Court observation we are constrained to hold in this matter that the Tribunal has not adjudicated upon the case of the assessee in the light of the evidence as found by the Ld. CIT(A). We also found no single word has been spared to up set the fact finding of the Ld. CIT(A) that there are materials to show the cash credit was received from various persons and supply as against cash credit also made. Hence, the judgment and order of the Tribunal is not sustainable. Accordingly, the same is set aside. We restore the judgment and order of the Ld. CIT(A). The appeal is allowed.”
6.1. The case of is also covered by the decision of the coordinate bench by ITO Vs M/s Cygnus Developers India Pvt. Ltd. (ITA No. 282/Kol/2012), the operative part whereof is extracted below:
“8. We have heard the submissions of the learned D.R, who relied on the order of AO. The learned counsel for the assessee relied on the order of Ld. CIT(A) and further drew our attention to the decision of Hon’ble Allahabad High Court in the case of CIT vs. Raj Kumar Agarwal vide ITA No. 179/2008 dated 17.11.2009 wherein the Hon’ble Allahabad High Court took a view that non-production of the director of a Public Limited Company which is regularly assessed to Income tax having PAN, on the ground that the identity of the investor is not proved cannot be sustained. Attention was also to the similar ruling of the ITAT Kolkata bench in the case of ITO vs. Devinder Singh Shant in ITA No. 208/Kol/2009 vide order dated 17.04.2009. 9. We have considered the rival submissions. We are of the view that order of Ld. CIT(A) does not call for any interference. It may be seen from the grounds of appeal raised by the revenue that the revenue disputed only the proof of identity of share holder. In this regard it is seen that for AY 2004-05 Shree Shyam Trexim Pvt. Ltd. was assessed by ITO, Ward-9(4), Kolkata and the order of assessment u/s 143(3) dated 25.01.2006 is placed in the paper book. Similarly Navalco Commodities Pvt. Ltd. was assessed to tax u/s 143(3) for AY 2005- 06 by ITO, Ward-9(4), Kolkata by order dated 20.03.2007. Similarly Jewellock Trexim Pvt. Ltd. was assessed to tax for AY 2005-06 by the very same ITO, Ward-9(3), Kolkata assessing the assessee. In the light of the above factual position which is not disputed by the revenue, it cannot be said that the identity of the share applicants remained not proved by the assessee. The decision of the Hon’ble Allahabad High Court as well as ITAT, Kolkata Bench on which reliance was placed by the learned counsel for the assessee also supports the view that for non-production of directors of the investor company for examination by the AO it cannot be held that the identity of a limited company has not been established. For the reasons given above we uphold the order of Ld. CIT(A) and dismiss the appeal of the revenue.”
6.2. Similar ratio has been laid down by the Hon’ble Mumbai High Court in the case of CIT Vs Orchid Industries (P) Ltd. reported in 397 ITR 136 (Bom) by holding that provisions of section 68 of the Act cannot be invoked for the reasons that the person has not appeared before the AO where the assessee had produced on records documents to establish genuineness of the party such as PAN, financial and bank statements showing share application money.
7. In the instant case before us also, the assessee has furnished all the evidences proving identity and creditworthiness of the investors and genuineness of the transactions but AO has not commented on these evidences filed by the assessee. Besides, the investors have also furnished complete details/evidences before the AO which proved the identity, creditworthiness of investors and genuineness of the transactions. Under these facts and circumstances and considering underlying facts in the light of ratio laid down in the decisions as discussed above, we are inclined to set aside the order of Ld. CIT(A) by allowing the appeal of the assessee.
8. In the result, the appeal of the assessee is allowed.
Kolkata, the 6th November, 2023.
