PCIT Vs Delta Dealers Private Limited (Calcutta High Court)
Conclusion: High Court could not indulge in factual examination of the material produced or not produced by an assessee-company to explain the share capital and premium received by it in an appeal filed under Section 260A and it was the duty of AO to have done such an exercise. Tribunal was justified in allowing the appeal.
Held: In the instant case, Department was aggrieved by ITAT order deleting the addition made by AO, by allegedly ignoring that assessee failed to explain its non-existence at its registered address, share capital, reserves and surplus, net worth and turnover so as to justify the share premium charged by it within a short duration of seven months after its incorporation. ITAT order was based on the fact that assessee had discharged its onus to prove the identity and creditworthiness of the share subscribing companies and the genuineness of the transactions. Before the High Court, the Department contended that none of those companies had any creditworthiness to invest in the shares of the assessee company, that too, at a high premium. It reasoned that not even a single Director of the share subscribing companies appeared before AO, nor provided reasons for such non-appearance. ITAT however had recorded in its order that all the share subscribing companies had responded to the notices issued under Section 138(6), made their submissions and produced documents. It was held that on examination of the documents which were produced by the share subscribing companies, it was evidently clear that none of those companies had any creditworthiness to invest in the shares of the assessee company, that too, at a high premium. Unfortunately, examination of the factual position as sought for could not be done in an appeal filed under Section 260A and it was the duty of AO to have done such an exercise. Tribunal on facts found that all the share subscribing companies had responded to the notices issued under Section 138(6) and made their submissions and produced documents. Therefore, it was the duty on AO to deal with those documents, point out any discrepancies and then make the addition. However, AO failed to do so and the CIT(A) also committed same error. Therefore, Tribunal was well justified in allowing the assessee’s appeal.
