Case Law Details
DCIT Vs Bhawani Alumina Products Pvt. Ltd. (ITAT Kolkata)
ITAT Kolkata held that CIT(A) rightly deleted addition under section 68 of the Income Tax Act since identity and creditworthiness of share purchased duly explained. Accordingly, appeal of revenue dismissed.
Facts- The assessee being a company M/s Bhawani Alumina Products Pvt. Ltd. engaged in the business of manufacturing of Aluminium goods, having its factory at Jalan Complex and Jangalpur in Howrah and in Orissa. The return of income of the assessee was selected for scrutiny, notices u/s 143(2) and 142(1) were issued. AO after considering the submission made by the assessee held that Rs. 2,06,50,000/- in the form of share capital being bogus in nature and accordingly added back u/s 68 of the Act. Penalty proceedings has also been initiated.
CIT(A) allowed the appeal. Being aggrieved, revenue has preferred the present appeal.
Conclusion- Held that CIT(A) after going over the every aspects of the case of the assessee and arguments furnished by him have clearly established that the assessee has been able to prove identity and creditworthiness and thereafter adjudicated the matter regarding the addition of Rs. 2,06,50,000/-. Also held that there is no illegality in the impugned order. The Ld. CIT(A) has not only discussed the case of the assessee rather adjudicated the same with judicial pronouncement and documentary evidences. We do not find any infirmity in the impugned order. Accordingly, the appeal of the revenue is hereby dismissed.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
This is the appeal preferred by the revenue against the order of the Ld. Commissioner of Income Tax (Appeals)-21, Kolkata (hereinafter referred to as the “Ld. CIT(A)”] dated 20.05.2024 for the AY 2012-13.
2. Brief facts of the case of the assessee is that the assessee being a company M/s Bhawani Alumina Products Pvt. Ltd. engaged in the business of manufacturing of Aluminium goods, having its factory at Jalan Complex and Jangalpur in Howrah and in Orissa. The assessee company filed its return of income disclosing total income at Rs. 54,22,660/-. The return of income was selected for scrutiny, notices u/s 143(2) and 142(1) were issued. The AO after considering the submission made by the assessee held that Rs. 2,06,50,000/- in the form of share capital being bogus in nature and accordingly added back u/s 68 of the Act. Penalty proceedings has also been initiated.
3. The assessee company preferred an appeal before the Ld. CIT(A). The assessee company preferred appeal before the Ld. CIT(A)-5, Kolkata and communicated about the same before the DCIT, Circle-13(1), Kolkata on 18.05.2015 and made request for stay of demand till the disposal of first appeal. The assessee thereafter prayed for stay of demand collection before Ld. CIT(A)-5, Kolkata. On 08.02.2015 the assessee company filed an application before the Pr. CIT-5, Kolkata requesting to transfer the jurisdiction over his case from Kolkata to Hazaribag on ground that the company had shifted their business and operation/books of account to their new office at 186, Lepo Road, Bowden bazar, Hazaribag. The company also filed a copy of Form no. AOC-5 filed with Register of company in support of the claim of transfer of office. As requested by the assessee company, the jurisdiction over the case was transferred to Ward-1(2), Hazaribag, On 31.03.2016 seeking revision of its case u/s 264 of the Income Tax Act, 2012-13, a report was called for by the Pr. CIT, Hazaribag from ITO, Ward-1(2), Hazaribag to DCIT, Circle-1, Hazaribag. On receiving the relevant file, the DCIT, Circle-1, Hazaribag sent a report to the Pr. CIT, Hazaribag in connection with the proceedings u/s 264 of the Act supporting the additions made in the assessment order passed in that case u/s 143(3) of the Act. The Jt. CIT, Range-1 & 2 forwarded the report to the Pr. CIT, Hazaribag requesting not to refer for fresh scrutiny assessment work again. Considering the facts involved in this case, Ld. Pr. CIT, Hazaribag passed order u/s 264 of the Act on 30/12.2016, setting aside the case for de novo assessment after making fresh enquiries. In the said order it is also guided that the present AO may restrict himself to that aspect of the enquiry which was not carried out by the then AO for the sake of avoidance of duplication of work and unnecessary wastage of time. In the said order u/s 264 Pr. CIT, Hazaribag commented – “A plethora of judicial pronouncements have been relied upon by the assessee company in support its argument made in the revision petition. These judgments are strongly in favour of the assessee. The applicability or otherwise and significance of these case laws to the assessee’s case are to be examined meticulously by the AO who has to ascertain as to whether these verdicts are distinguishable, rebutable or controvertible” The AO pursuant to the order u/s 264 of the PCIT-Hazaribag after giving opportunity to the assessee has assessed the total income of the assessee at Rs. 2,61,02,860/-.
4. The said order has been challenged by the assessee before the Ld. CIT(A) wherein the Ld. CIT(A) has allowed the appeal of the assessee by deleting the addition of Rs. 2,06,50,000/- added u/s 68 of the Act. Being aggrieved and dissatisfied the department has preferred the present appeal.
5. The Ld. Sr. DR has challenged the impugned order thereby submitting that the Ld. CIT(A) has erred in facts and law by allowing the appeal of the assessee despite the fact that the assessee failed to establish the genuineness of the transaction and the identity and creditworthiness of the share purchased and further submitted that the Ld. CIT(A) did not consider the reality that the director of the seller of the share and purchaser of the share were the same.
6. Contrary to that the Ld. Counsel appeared on behalf of the assessee has submitted that there is no illegality and perversity in the order of the Ld. CIT(A) and the Ld. CIT(A) has not only considered the facts of the case of the assessee, considered the documents and further considered the judicial pronouncements and thereafter allowed the appeal of the assessee. The Ld. Counsel for the assessee submits that the shares were issued at premium after complying with the provision of the Companies Act, 1956 and the return of income filed with ROC have been duly approved. His further argument is that the share premium is required to be utilized for the purpose of referred to Section 78 of the Companies Act and therefore the same, not being profit, is not available for distribution of dividend and hence not taxable. The Ld. Counsel further submits that the shares were issued at a premium to minimize ROC fees. The submission of the Ld. Counsel of the assessee is that the assessee has discharged the onus of burden of prove by successively establishing the identity of the share applicant company, genuineness on the transaction which application all in routed through proper and genuine banking channel, creditworthiness / financial statement of the subscribers by way of their bank statement and other documentary evidence provided in Section 32 of the Indian Evidence Act. His further submission is that the share applicant’s companies return for AY 2012-13 was accepted without any further quarry and further the return for AY 2009-10 of the applicant company was also accepted by the department in reassessment proceedings. According to him, the share applicant’s audited financial statement since AY 2009-10 and AY 2012-13 has already been attached. His further submission is that the statement of the present director of the share applicant company been recorded by the department and the source of the share applicants fund stands fully explained.
7. Upon hearing the submission of the Counsel of the respective parties, we have perused the order of Ld. CIT(A) and find that the Ld. CIT(A)-Hazaribag asked for submission of remand report in the present case. During the course of remand report proceedings, the assessee along with three directors namely Shri Anup Kumar Lakhotia, director of Bhawani Alumina Products Pvt. Ltd., Samsung Estate Pvt. Ltd. and Lakhotia Diagnostic Services Pvt. Ltd. Shri G. T. Director of M/s Samsung Estates Pvt. Ltd. appeared and furnished the documents such as copy of Aadhar, PAN, copy of balance sheet and profit and loss account and copy of ROC with 23AC. It is pertinent to mention herein that the share applicant company M/s Samsung Estate pvt. Ltd. was incorporated on 01.03.1996 and it got its NBFC status on 15.01.2001. Present shareholders and directors were as under:
8. Since then, the said company has been assessed to tax regularly. The company raised its share capital in AY 2009-10 to 2012-13 pertaining to FY 2008-09 to 2011-12 when as per Balance Sheet companies’ investment in unlisted shares and loan given were as under:
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9. It is important to mention here that the company was assessed to tax u/s 143(3) by the ITO, ward-8(2), Kolkata for AY 2009-10 and share capital was raised was accepted by the Department after proper verification. The assessee has submitted a chart regarding share capital accepted by the department corresponding the investment which is as follows:
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10. We have gone through the order of Ld. CIT(A) and find that the Ld. CIT(A) discussed the every aspect of the case of the assessee by observing as follows:
I have carefully examined the material on record including the assessment order u/s 264 r.w.s 143(3) against which the instant appeal has been preferred, the previous assessment order u/s 143(3) passed by DCIT, Cir-13(1), Kolkata, the submissions of the appellant, the Remand Report submitted by the AO and the Rejoinders and supplementary submissions furnished by the appellant. Facts, in brief, are as under: The appellant company during the F.Y 2011-12, pertaining to the A.Y 2012-13, received share application money to the tune of Rs. 2,06,50,000/- from a single share applicant company, namely M/s Samsung Estates Pvt. Ltd. representing 2,06,500 shares of Rs. 10/- each at a premium of Rs.90/- per share. The investment was made by the share applicant company to the appellant company through banking channels. The case was selected for scrutiny under CASS and assessment u/s 143(3) of the I.T. Act was completed by the DCIT, Circle 13(1), Kolkata on a total income of Rs. 2,61,02,860/- as against retuned income of Rs. 54,22,660/- wherein the said share application money raised to the tune of Rs.2,06,50,000/- was treated as bogus and added back u/s 68 of the IT Act, 1961. The said assessment order was perused and it has been observed that the AO has recorded that the appellant company was asked to file various details pertaining to such share application along with credentials of the share applicant concern and justification of premium. Upon perusal of the documents submitted by the appellant in this regard, the AO observed that the share applicant company received funds from various entities which were paid towards the aforesaid share application on the same day or the subsequent day of such receipts. It is further observed that in the assessment order passed u/s 143(3), the primary contention of the AO was that the appellant company failed to produce the director of the share applicant company M/s Samsung Estates Pvt. Ltd before him. Thereafter the jurisdiction of the assessee company was transferred to Ward-1(1), Hazaribag which comes under Pr.CIT, Hazaribagh after which the assessee company filed a petition before the Pr. CIT, Hazaribag, on 31/03/2016 seeking revision of its case u/s 264 of the Income tax Act for the A.Y-2012-13. In pursuance to the same the Ld. Pr. CIT, Hazaribag, passed order u/s 264 of the Act on 30/12/2016, setting aside the case for denovo assessment after making fresh enquiries. During the course of denovo assessment u/s 143(3) r.w.s 264 by the ACIT, Cir-1(1), Hazaribagh, the AO gathered information from the Investigation Wing that the name of the share applicant company M/s Samsung Estate Pvt. Ltd was there in the data bank of shell/bogus/ jamakharchi company, maintained by Directorate of Investigation, Kolkata, Income tax Department. It is also reported that the company Samsung Estate Pvt. Ltd was managed by one of the Kolkata based entry operator-Ramesh Poddar and that Ramesh Poddar accepted on oath that they were involved in providing accommodation entry and for this purpose he floated several companies. During the course of proceedings u/s 143(3) r.w.s 264, the director of the share applicant company as well as the appellant company, Shri Anup Lakhotia appeared before the AO and his statement was recorded on oath on the specified date of hearing. The AO has recorded in his assessment order that the appellant company filed relevant documentary evidences such as financial statements of the share applicant company as well as the details of source of source etc. The AO has however observed that the share applicant company M/s Samsung Estates Pvt Ltd during the F.Y: 2011-12 showed a return income of Rs.31850/- and that there were no assets at that period barring huge investment in unquoted shares in private limited companies. The AO in his assessment order has stated in Page 9 that from the documents submitted by the assessee company it was observed in respect of the share applicant company M/s Samsung Estates Pvt Ltd., that during the F.Y: 2011-12 all the deposits in share applicant company came from those private limited companies which were appearing as investment of Samsung Estates Pvt Ltd. During the course of Remand proceedings the director of the share applicant company as well as the appellant company, Shri Anup Lakhotia appeared before the AO and his statement was recorded on oath on 09.04.2019 wherein, Shri Anup Lakhotia also stated that the source of funds of M/s Samsung Estates Pvt Ltd were already filed in the paper book and that shares issued to M/s Samsung Estates Pvt Ltd were still held by M/s Samsung Estates Pvt Ltd only. The share applicant company is active and regularly files its income tax returns. As per the details tabulated by the AO in his Remand Report, M/s Samsung Estates Pvt Ltd received such funds from the following 12 entities and the following documents regarding the 12entities were submitted by the appellant during the course of Remand proceedings:
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11. However, the Ld. CIT(A) after going over the every aspects of the case of the assessee and arguments furnished by him have clearly established that the assessee has been able to prove identity and creditworthiness and thereafter adjudicated the matter regarding the addition of Rs. 2,06,50,000/- by observing thus:
“The appellant in his various submissions has primarily stressed upon the fact that the Share Applicant Company namely M/s Samsung Estates Pvt Ltd (SEPL) is regularly assessed total and the creditworthiness, genuineness and bonafide of the transaction of share application made by SEPL cannot be placed under doubt and that all possible details of theshare applicant company were furnished before the Assessing Officer at the assessment stage and again during the course of Remand proceedings. The appellant company in its submission has further stated that M/s Samsung Estates Pvt Ltd was incorporated on 01.03.1996 and got it’s NBFC status on 15.01.2001 and presently is a group concern. It is not the case that SEPL was incorporated just prior to raising of share capital by the appellant company. On perusal of the voluminous documents submitted by the appellant which were also forwarded to the AO for verification, the details of share capital raised by SEPL, investments made by SEPL and unsecured loans given by SEPL in the years preceding to A.Y: 2012-13 is as below:
It is evident from the above table that after raising of share capital during the F.Y: 2008-09 pertaining to AY: 2009-10, the fund position of the share applicant company, SEPL remained more or less the same since F.Y: 2008-09 to F.Y: 2011-12 and no fresh funds have been infused into SEPL since F.Y: 2008-09.
The appellant has adduced that M/s Samsung Estates Pvt Ltd was assessed u/s 143(3) by Income Tax Officer, Ward – 8(2) Kolkata for Assessment Year 2009-10 on 15.03.2011 wherein the share capital raised during the year and the subsequent investments made in unquoted equity shares was accepted by the AO after proper verification. The said assessment order has been perused and it is observed that the AO verified the details of the fresh issuance of 10,03,500 equity shares of Rs.10/- face value issued at a premium of Rs.90/- to new share applicants. The said fresh funds raised to the tune of Rs. 10,03,50,000/- by SEPL were thereafter invested in the form of unquoted shares and unsecured loans.
The appellant has also submitted the relevant ledger for investments for the period 01.04.2011 to 31.03.2012 to substantiate the fact that existing investments to the tune of Rs. 9.49 Crores were liquidated during the F.Y: 2011-12 and were reinvested in the assessee company to the tune of Rs. 6.75 Crores and Rs. 2.06 Crores in another group concern M/s Bhawani Alumina Products Pvt.Ltd. during the F.Y: 2011-12.
For the AY: 2012-13, the appellant has submitted the relevant assessment and appellate orders in respect of SEPL. It is observed that the share applicant company, SEPL has been assessed u/s 147/143(3) by the ITO Ward-13(4), Kolkata, wherein the AO has examined the issue of sale of investments and treated certain sale of investments as bogus, which again was overturned by the Ld.CIT(A)-5, Kolkata in his appellate order dated 12.08.2020. Therefore SEPL has also been subject to assessment for the AY: 2012-13 in which SEPL invested in the appellant company. The appellant has also submitted assessment orders of SEPL from AY: 2014-15 to A.Y: 2021-22 to establish the identity and creditworthiness of SEPL.
So three important points which emerge from the above discussion are:
i. No fresh funds have been infused in SEPL since F.Y:2008-09, which does not help the AO`s case that own unaccounted funds of the appellant company were being routed in the garb of share capital,
ii. The infusion of funds in the share applicant concern, SEPL during F.Y: 200809 has been specifically examined and accepted by the AO in the assessment order dated 15.03.2011 for AY: 2009-10,
iii. The purchase of investments was accepted by the AO in earlier F.Y.s and the sale of existing investments during AY: 2012-13 and subsequent reinvestment in the assessee company also stands accepted in view of the assessment order and appellate order for AY: 2012-13.
The AO, I find, has failed to bring forth any other facts supported documentary evidences to refute these facts placed by the appellant. The mere fact that funds from various entities to SEPL were paid towards the aforesaid share application on the same day or the subsequent day by SEPL cannot render the investments made by SEPL in the assessee company during AY: 2012-13 as bogus.”
12. Going over the aforesaid facts as well as documentary evidences filed by the assessee before the Ld. CIT(A), we find substance in the argument of the Ld. Counsel for the assessee that there is no illegality in the impugned order. The Ld. CIT(A) has not only discussed the case of the assessee rather adjudicated the same with judicial pronouncement and documentary evidences. We do not find any infirmity in the impugned order. Accordingly, the appeal of the revenue is hereby dismissed.
In the result, the appeal of the revenue is dismissed.
Order is pronounced in the open court on 31st December, 2024
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