ITO Vs Direct Mercantile Company Pvt. Ltd. (ITAT New Delhi)
Issue- Ld. Commissioner of Income Tax (Appeal) erred in law and on facts of the case in deleting the addition of Rs. 3,14,16,000/- made by the A.O on account of unexplained share capital & share premium and Rs. 2,10,00,000/- on account of unexplained investment
Submission by Revenue
The Ld. DR submitted that the Assessing Office has taken into account, the evidences filed by the assessee and from the perusal of such evidence the assessing Officer came to the conclusion that some of the party details were not proper and, therefore, made the additions under the caption share capital and share premium u/s 68 of the Act and addition on account of investment out of books. The CIT(A) though has taken cognizance of additional evidence before him has failed to take into account that there are certain parties for which no details/insufficient details were filed. Thus, the Ld. DR submitted that the additions on both accounts should be sustained.
Submission by Assessee
The Ld. AR relied upon the order of the CIT(A) and submitted that all the details were before the Assessing Officer as well as before the CIT(A). The confirmations of the parties and the details of share capital and share premium as well as investments were before the CIT(A) as well as Assessing Officer. Thus, the CIT(A) has properly adjudicated the appeal of the assessee. The Ld. AR further submitted that this is the case of Normal scrutiny assessment under section 143(3) of the Income Tax Act. There is no information received by the Assessing Officer from the third party or investigation cell of the department against the share applicants. There is no allegation of cash deposits in the bank account of investors. All the transactions have been made through banking channels and are recorded in the books of accounts of the assessee. The assessee has discharged his onus and filed all the documents before the Assessing Officer. No defect has been pointed out by the Assessing Officer in respect of the documents filed by the assessee. The Assessing Officer has made the independent enquiry by issuing notices under section 133(6) which have been duly served upon the investors. Investors have replied to the notices issued and filed their confirmations, ITRs and bank statements during the assessment proceedings. The Assessing Officer did not make any further investigation in support of his allegations that these investor companies are entry providers. All the directors of the investor company were produced before CIT(A) in response to the notices sent by CIT(A) by exercising his powers in view of Section 250(4) of the Income Tax Act.
Held by ITAT
We have heard both the parties and perused all the relevant material available on record. From Page 108 to 110 of the paper book, it can be seen that Alfa Associates and Ram Rahim, these two entities confirmations were not mentioning any details thereof. In-fact, the CIT(A) has not taken properly sufficient evidences on account and simplicitor deleted the additions. We find that the treatment given by the CIT(A) in certain share premium companies was not at all sufficient for deleting the additions. It requires further application of mind.
From the perusal of the assessment order and the evidence produced before us by the assessee, we find that the evidence is inadequate to support assessee’s contentions that the assessee has placed all the details of the parties who have paid share capital and share premium. Though the Ld. AR also relied upon the decisions as mentioned in para 6 hereinabove, but the facts in all the cases are somewhat different from the present assessee’s case as in the present case, the assessee has given inadequate evidence which does not fully demonstrate that the transaction relating to share capital and share premium is genuine. Similar is the case as regarding investments outside the books of account. Hence, we remand back this issue to the file of the CIT(A) for taking proper cognizance of the evidence which has to be produced by the assessee before him. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal is filed by the Revenue against the order dated 05.05.2017 passed by CIT(A)-3, New Delhi for Assessment Year 2012-13.
2. The grounds of appeal are as under:-
“1. Ld. Commissioner of Income Tax (Appeal) erred in law and on facts of the case in deleting the addition of Rs. 3,14,16,000/- made by the A.O on account of unexplained share capital & share premium and Rs. 2,10,00,000/- on account of unexplained investment”
3. During the year under consideration, the assessee has shown income from handling charges and apart from business income no other source of income was admitted by the assessee. Return declaring of income Rs. 1,11,507/- was filed on 30/09/2012 which was processed u/s 143(1) and subsequently selected for scrutiny under CASS. In the year under consideration, the assessee has shown to have received share premium to the tune of Rs. 2,76,76,553/-. The assessee contended that issue of shares at premium is a commercial decision and does not require any justification and explained that share premium was raised by complying the provisions of Companies Act, 1956. During the course of assessment proceedings information u/s 133(6) have been called for from the share holders who have paid share premium to the assessee company. The details of which is as under:-
a) M/s Saras Developers Pvt. Ltd.
b) M/s Direct Trading Company Pvt. Ltd.
c) M/s Domain Enterprises Pvt. Ltd.
d) M/s Ram Rahim Trading Co. Pvt. Ltd.
e) M/s Raj Trading Co. Pvt. Ltd.
f) M/s Legacy Mercantile Co. Pvt. Ltd.
f) M/s Kabir Enterprises Pvt. Ltd.
g) M/s Nachiketa Agrotech Pvt. Ltd.
The Assessing Officer made an addition of Rs. 3,14,16,000/- on account of share capital and share premium u/s 68 of the Act and addition of Rs.
2,10,00,000/- on account of investment out of books.
4. Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee.
5. The Ld. DR submitted that the Assessing Office has taken into account, the evidences filed by the assessee and from the perusal of such evidence the assessing Officer came to the conclusion that some of the party details were not proper and, therefore, made the additions under the caption share capital and share premium u/s 68 of the Act and addition on account of investment out of books. The CIT(A) though has taken cognizance of additional evidence before him has failed to take into account that there are certain parties for which no details/insufficient details were filed. Thus, the Ld. DR submitted that the additions on both accounts should be sustained. The Ld. DR relied upon the decision of CIT Vs. M/s Jansampark Advertising (ITA No. 525/2014 order dated 11/3/205 Delhi High Court).
6. The Ld. AR relied upon the order of the CIT(A) and submitted that all the details were before the Assessing Officer as well as before the CIT(A). The confirmations of the parties and the details of share capital and share premium as well as investments were before the CIT(A) as well as Assessing Officer. Thus, the CIT(A) has properly adjudicated the appeal of the assessee. The Ld. AR further submitted that this is the case of Normal scrutiny assessment under section 143(3) of the Income Tax Act. There is no information received by the Assessing Officer from the third party or investigation cell of the department against the share applicants. There is no allegation of cash deposits in the bank account of investors. All the transactions have been made through banking channels and are recorded in the books of accounts of the assessee. The assessee has discharged his onus and filed all the documents before the Assessing Officer. No defect has been pointed out by the Assessing Officer in respect of the documents filed by the assessee. The Assessing Officer has made the independent enquiry by issuing notices under section 133(6) which have been duly served upon the investors. Investors have replied to the notices issued and filed their confirmations, ITRs and bank statements during the assessment proceedings. The Assessing Officer did not make any further investigation in support of his allegations that these investor companies are entry providers. All the directors of the investor company were produced before CIT(A) in response to the notices sent by CIT(A) by exercising his powers in view of Section 250(4) of the Income Tax Act. The Ld. AR relied upon the following decisions:
