Case Law Details
Gulmohar Distributors Pvt Ltd Vs ITO (ITAT Kolkata)
Conclusion: In present facts of the case, the condonation of delay was allowed for 902 days by placing its reliance over the Judgments of Hon’ble Supreme Court and it was observed that Income-tax law is a complex subject and meeting its compliance requirements is dependent on services by experts of the subject matter. Accordingly the delay was condoned and the appeal was allowed on merits.
Facts: The said appeal was filed by the assessee against the order of Ld. CIT(A)-12, Kolkata vide Appeal No. 84/CIT(A)-12/Kol./Ward-9(2)/2016-17 dated 10.07.2017 passed against the assessment order by ITO, Ward-9(2), Kolkata u/s.143(3)/147/263/144 of the Income-tax Act, 1961, dated 20.03.2015.
The appeal was barred by limitation by 902 days for which petition for condonation of delay along with affidavit was placed on record. In the petition for condonation of delay, it was stated that director of the assessee relied upon the professional competency of its authorised representative for taking appropriate action as the director was not competent to understand and deal with the taxation matters of the assessee company. Authorised representative inadvertently missed to file the appeal in time for which an affidavit by the authorised representative explaining the reason is also placed on record.
The Hon’ble ITAT observed that Sub-section 5 of Section 253 contemplates that the Tribunal may admit an appeal or permit filing of memorandum of cross-objections after expiry of relevant period, if it is satisfied that there was a ‘sufficient cause’ for not presenting it within that period.
The Hon’ble ITAT places its reliance over the Hon’ble Supreme Court from the decision in the case of Collector Land Acquisition Vs. Mst. Katiji& Others, 1987 AIR 1353, wherein it was observed as under:
- It must be grasped that judiciary is respected not on account of its power to legalize injustice on technical grounds but because it is capable of removing injustice and is expected to do so.”
Further, reliance was placed over N. Balakrishnan Vs. M. Krishnamurthy [1998] 7 SCC 123 (SC). It reads as under, wherein it was observed as under:
“Rule of limitation are not meant to destroy the right of parties. They are meant to see that parties do not resort to dilatory tactics, but seek their remedy promptly. The object of providing a legal remedy is to repair the damage caused by reason of legal injury………… Rules of limitation are not meant to destroy the right of the parties.
On basis of the above, it was observed that that there is a delay of 902 days in filing of the appeal by the assessee which is attributable to the lapses on the part of the authorised representative engaged by the assessee. Income-tax law is a complex subject and meeting its compliance requirements is dependent on services by experts of the subject matter. Assessee was dependent on the authorised representative engaged by it who has owned up the mistake and explained the delay by furnishing an affidavit, placed on record. Considering this fact with a justice-oriented approach, the delay of 902 days was condoned and the appeal was allowed on merits.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
This appeal filed by the assessee is against the order of Ld. CIT(A)-12, Kolkata vide Appeal No. 84/CIT(A)-12/Kol./Ward-9(2)/2016-17 dated 10.07.2017 passed against the assessment order by ITO, Ward-9(2), Kolkata u/s.143(3)/147/263/144 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 20.03.2015.
2. Grounds raised by the assessee are reproduced as under:
1. (a) For that upon the facts and circumstances of the case the Ld CIT(A) was not justified in confirming the addition of Rs. 5,13,00,000/- under section 68 of Rs. 3,00,28,540/- of the Income Tax Act 1961.
(b) For that upon the facts and circumstances of the case and in law Ld CIT(A) was not justified in confirming addition made by AO when the Assessee satisfies the identity of the third party and also supplies such other evidence like bank statements showing the impugned transactions and financial statements, returns of income of the lender which will show, prima facie, that the entry is not fictitious the initial burden which lies upon him can be said to be discharged by him and that the burden shall then shift to the revenue to prove the contrary with sufficient and adequate material.
(c) For that Upon the facts and circumstances of the case and in law action of CIT(A) confirming the addition in hand of appellant was not justified and same should have been made in the hands of the share subscribers and not the Appellant in the light of the Appellant discharging the initial onus placed upon it.”
3. At the outset, it is noted that present appeal is barred by limitation by 902 days for which petition for condonation of delay along with affidavit is placed on record. It is noted that order of Ld. CIT(A) dated 10.07.2017 was received by the assessee on 15.07.2017 and the due date of filing the present appeal was 13.09.2017, which in fact has been filed on 03.03.2020. In the petition for condonation of delay, it is stated that director of the assessee relied upon the professional competency of its authorised representative for taking appropriate action as the director was not competent to understand and deal with the taxation matters of the assessee company. Authorised representative inadvertently missed to file the appeal in time for which an affidavit by the authorised representative explaining the reason is also placed on record. It is submitted that there is no benefit to the assessee in filing the appeal belatedly. We have gone through the petition and the affidavit placed on record.
3.1. We have duly considered rival contentions and gone through the record carefully. Sub-section 5 of Section 253 contemplates that the Tribunal may admit an appeal or permit filing of memorandum of cross-objections after expiry of relevant period, if it is satisfied that there was a ‘sufficient cause’ for not presenting it within that period. Similarly, the phrase ‘sufficient cause’ has been used in section 5 of Indian Limitation Act, 1963. Whenever interpretation and construction of this expression has fallen for consideration before Hon’ble High Courts as well as before the Hon’ble Supreme Court, then, Hon’ble Courts were unanimous in their conclusion that this expression is to be used liberally. We may make reference to the following observations of the Hon’ble Supreme Court from the decision in the case of Collector Land Acquisition Vs. Mst. Katiji& Others, 1987 AIR 1353:
“1. Ordinarily a litigant does not stand to benefit by lodging an appeal late.
2. Refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated. As against this when delay is condoned the highest that can happen is that a cause would be decided on merits after hearing the parties.
3. “Every day’s delay must be explained” does not mean that a pedantic approach should be made. Why not every hour’s delay, every second’s delay? The doctrine must be applied in a rational common sense pragmatic manner.
4. When substantial justice and technical considerations are pitted against each other, cause of substantial justice deserves to be preferred for the other side cannot claim to have vested right in injustice being done because of a non-deliberate delay.
5. There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides. A litigant does not stand to benefit by resorting to delay. In fact he runs a serious risk.
6. It must be grasped that judiciary is respected not on account of its power to legalize injustice on technical grounds but because it is capable of removing injustice and is expected to do so.”
3.2. Similarly, we would like to make reference to authoritative pronouncement of Hon’ble Supreme Court in the case of N. Balakrishnan Vs. M. Krishnamurthy [1998] 7 SCC 123 (SC). It reads as under:
“Rule of limitation are not meant to destroy the right of parties. They are meant to see that parties do not resort to dilatory tactics, but seek their remedy promptly. The object of providing a legal remedy is to repair the damage caused by reason of legal injury. Law of limitation fixes a life-span for such legal remedy for the redress of the legal injury so suffered. Time is precious and the wasted time would never revisit. During efflux of time newer causes would sprout up necessitating newer persons to seek legal remedy by approaching the courts. So a life span must be fixed for each remedy. Unending period for launching the remedy may lead to unending uncertainty and consequential anarchy. Law of limitation is thus founded on public policy. It is enshrined in the maxim Interest reipublicae up sit finislitium (it is for the general welfare that a period be putt to litigation). Rules of limitation are not meant to destroy the right of the parties. They are meant to see that parties do not resort to dilatory tactics but seek their remedy promptly. The idea is that every legal remedy must be kept alive for a legislatively fixed period of time.
A court knows that refusal to condone delay would result foreclosing a suitor from putting forth his cause. There is no presumption that delay in approaching the court is always deliberate. This Court has held that the words “sufficient cause” under Section 5 of the Limitation Act should receive a liberal construction so as to advance substantial justice vide Shakuntala Devi lain Vs. Kuntal Kumari [AIR 1969 SC 575] and State of West Bengal Vs. The Administrator, Howrah Municipality [AIR 1972 SC 749]. It must be remembered that in every case of delay there can be some lapse on the part of the litigant concerned. That alone is not enough to turn down his plea and to shut the door against him. If the explanation does not smack of mala fides or it is not put forth as part of a dilatory strategy the court must show utmost consideration to the suitor. But when there is reasonable ground to think that the delay was occasioned by the party deliberately to gain time then the court should lean against acceptance of the explanation. While condoning delay the Could should not forget the opposite party altogether. It must be borne in mind that he is a looser and he too would have incurred quiet a large litigation expenses. It would be a salutary guideline that when courts condone the delay due to laches on the part of the applicant the court shall compensate the opposite party for his loss.”
3.3. We do not deem it necessary to recite or recapitulate the proposition laid down in other decisions. It is sufficed to say that Hon’ble Courts are unanimous in their approach to propound that whenever reasons are assigned by an applicant for explaining the delay, then such reasons are to be construed with a justice-oriented approach.
3.4. In the light of above, if we examine the facts then it would reveal that there is a delay of 902 days in filing of the appeal by the assessee which is attributable to the lapses on the part of the authorised representative engaged by the assessee. Income-tax law is a complex subject and meeting its compliance requirements is dependent on services by experts of the subject matter. Assessee was dependent on the authorised representative engaged by it who has owned up the mistake and explained the delay by furnishing an affidavit, placed on record. Considering this fact with a justice-oriented approach, we condone the delay and take up the matter for appropriate adjudication.
4. This case was heard on 16.11.2022 and order was reserved. However, certain clarifications were required for which it was refixed for hearing. Ld. Sr. DR was directed to produce assessment records including relating to the assessment carried out under section 147 rws 143(3) of the Act. The same were produced. Ld. Counsel for the assessee was permitted to examine the same in the presence of ld. Sr. DR and to supply copies of documents, if any, required from the same, for the purpose of supporting his claim in the present appeal. Ld. Counsel made submission thereafter and the case was heard.
5. Brief facts of the case are that assessee filed its return of income on 07.09.2009 reporting a total income at‘nil’ which was processed u/s. 143(1) of the Act. Subsequently, case was reopened and assessment was completed u/s. 147 read with sec. 143(3) of the Act vide order dated 30.08.2011, determining total income at Rs.63,500/-. While making this assessment, Ld. AO in his order, in para 3 had observed as under:
“During the course of hearing, on going through the details submitted by the assessee it was noticed that during the year the assessee company issued 1,02,400 no. of equity share with a face value of Rs.10/- along with a premium of Rs.490/- per share. To verify the transactions, notices u/s. 133(6) of the Act were issued to some of the share applicants on test check basis.”
5.1. Later on, ld. CIT Kolkata-III, Kolkata called for the assessment records and came to the conclusion that proper enquiries and examinations were not conducted by the ld. AO in order to verify the genuineness and source of share capital as well as identity and creditworthiness of the shareholders, which rendered the assessment order erroneous in so far as prejudicial to the interest of the revenue for which an order u/s. 263 of the Act was passed on 10.03.2014.
5.2. In this case, assessee had issued 1,02,400 shares of Rs. 10/- each, at a premium of Rs.490/- per share to ten share subscriber companies and has thus, raised share capital amounting to Rs.5,13,00,000/- including share premium of Rs.5,01,76,000/-. Details of the ten share subscriber companies furnished before the ld. AO is tabulated as under:
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5.3. To give effect to the revisionary order of ld. CIT passed u/s. 263 of the Act,ld. AO issued notice u/s. 142(1), calling for details of documents and explanations in respect of share capital of Rs.5.13 Cr. raised during the year. Summons u/s. 131 dated 26.02.2015 were issued to the directors of the assessee as well as all the share subscribers. Owing to non-compliance,ld. AO proceeded to conclude the assessment u/s 144 rws 263 vide order dated 20.03.2015,by treating the share subscribed amount of Rs.5.13 Cr. as unexplained cash credit u/s. 68 of the Act and assessed the total income at Rs.5,13,63,500/-. Aggrieved, assessee went in appeal before the ld. CIT(A) who dismissed it since no compliance was made by the assessee on various notices issued for fixing the hearing. Ld. CIT(A) held that he has no reason to interfere with the decision of the AO since no concrete evidence has been brought on record to controvert the same. Aggrieved,assessee is in appeal before the Tribunal.
6. Before us, ld. Counsel emphasized on the fact noted in the first assessment completed u/s. 147 read with section 143(3), dated 30.08.2011 wherein ld. AO has carried out investigation into the transaction of share capital and share premium raised by the assessee during the year under consideration by issuing notices u/s. 133(6) of the Act, dated 29.04.201 1to three share subscribing companies out of total ten, on test check basis. Copy of one such notice issued is extracted below so as to demonstrate the details called for by the ld. AO from the investor company.
6.1. Ld. Counsel stated that the notices were duly complied by the three investor companies by furnishing the desired details called for, duly acknowledged by sealed stamp of the office of ITO, Ward-9(2), Kolkata dated 19.05.2011.Copies of the same are placed in the paper book (volume 2) from page 18 to 59. He submitted that in this assessment, ld. AO has taken note of the fact that all the details were furnished to prove identity and creditworthiness of the investors and the genuineness of the transactions.Set of documents and details furnished by one such investor company in response to notice u/s 133(6) dated 29.04.2011 are reproduced herein for ease of reference:
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extent and manner of enquiry as desired by the ld. CIT to meet his expectations for which he has held the assessment order as erroneous in so far prejudicial to the interest of the revenue. He submitted that it is important to understand the relevancy and meaningfulness of the enquiry expected by the ld. CIT when a positive report of the Inspector is already on record.
6.4. Ld. Counsel further submitted that ld. AO in the impugned assessment has made the addition towards subscription of its share capital merely on the basis of direction given by the ld. CIT in para 17 and 18 of the revisionary order passed u/s. 263 of the Act which is reproduced as under:
“17. In this case the AO has completed the assessment u/s. 143(3) read with 147 without conducting complete enquiry into the subscription of the share capital and the large amount of premium during the year and/or by relying on the evidences produced before him without conducting independent enquiries into all the subscribers of the share capital. The AO has also not conducted any enquiries into the various layers through which the money has been rotated for bringing it ultimately in the assessee company as subscription to the share capital. The duty of the AO becomes even more onerous specially in view of the fact that the modus operandi adopted by the assessee has been repeated in large number of cases completed by the same AO.
18. In view of the above, the order passed by the AO is erroneous and prejudicial to the interest of revenue & hence, the order passed by the AO is set aside with the direction that he/she should pass the assessment order after conducting independent detailed and complete enquiries into the subscription to the share capital and premium to the extent of Rs. 5.12 crores introduced in this case. The AO should trace the source of share capital by enquiring into the various layers through which the money has been introduced in this company as share capital and also examine the’ directors of subscriber companies by issuing summons u/s 131 of the I.T. Act. The AO should send information to the AOs having jurisdiction over the subscriber company to the share capital regarding its investment into share capital and premium paid. The AO should conduct independent enquiries to verify the documents ‘f’iled’ before him in respect of proof of subscription to share- capital. The AO should not confine himself to conducting enquiries into the subscribers to the share capital only on selective basis. The A.O. should also call upon the assessee to identify the persons who are shown as directors of the assessee company and examine them on oath to verify their credential as directors. The AO should pass speaking order after providing reasonable opportunity to the assessee and verifying the source of share capital including the share premium of all the subscribers and rotation of money through various hands so as to ascertain the true nature of transaction which will bring to the fore, the reality of the transactions.
Hence the order passed by the AO u/s 143(3) r/w See 147 of the I Tax Act ’61 for the AY 2009-10 is set aside to be framed de-novo as per law.”
6.5. Ld. Counsel thus, strongly submitted that even though this assessment was subjected to revisionary proceedings u/s. 263 of the Act, ld. AO had all the records before him in respect of replies furnished against notice issued u/s. 133(6) of the Act as well as furnished by the assessee which ought to have been considered while passing the impugned order u/s. 143(3)/147/144 of the Act. Ld. Counsel also pointed out to the fact that details and documentsof all the 10 share subscribing companies were furnished before the Ld. CIT in the course of revisionary proceedings also and therefore, were available on record for the Ld. AO to consider the same while passing the impugned assessment order which he failed to do so.
6.6. Ld. Counsel also submitted that ld. AO has issued summons u/s. 133 in the present proceedings, dated 26.02.2015 to all the share subscribing companies which were not returned as unserved. According to the Ld. Counsel, as per order sheet entries, notice under section 142(1) was issued on 08.09.2014 with one reminder issued on 27.11.2014 and per entry dated 06.02.2015 for issue of summon which in fact were issued on 26.02.2015 that to at the fag-end of the year without any further follow-up and reminders. He submitted that summons were issued on 26.02.2015 and the impugned assessment order was passed on 20.03.2015 i.e. within 21 days.
6.7. He further stated that mere non-appearance of directors is no basis for invoking the provisions of section 68 of the Act for which he placed reliance on the decision of Hon’ble Supreme Court in the case of CIT vs. Orissa Corporation Pvt. Ltd. [1986] 159 ITR 78 (SC,) wherein it was held as under:
“In this case the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the revenue that the said creditors were the income-tax assessees. Their index number was in the file of the revenue. The revenue, apart from issuing notices under section 131 at the instance of the assessee, 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 credit-worthy or were such who could advance the alleged loans. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the assessee could not do any further. In the premises, if the Tribunal came to the conclusion that the assessee had discharged the burden that lay on him, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence.If the conclusion was based on some evidence on which a conclusion could be arrived at, no question of law as such could arise.
The High Court was, therefore, right in refusing to refer the questions sought for. Decision of the High Court affirmed.”
7. Per contra, ld. Sr. DR submitted that assessee failed to comply with the summons issued u/s. 131 of the Act which qualifies the addition made by the ld. AO. It was submitted that though the directions given by the ld. CIT in the order passed u/s. 263 was not followed, however, the addition so made is correct and ought to be upheld. It was also contended that furnishing plethora of documents and flawless paper work compliance is of least significance if the assessee fails to comply with the summons issued u/s 131 of the Act.
8. We have heard the rival contentions and gone through the records. It is an undisputed fact as borne out from the records that in the course of assessment proceedings u/s 147 rws 143(3), ld. AO had made enquiries in respect of share capital raised by the assessee during the year under consideration and a report from the Inspector is also placed on record in respect of three investor companies, already extracted above. Assessee had furnished all the relevant documents and details in the course of said assessment proceedings as well as during the revisionary proceedings, for all the ten investor companies, which are on record. These documents and details are also placed in the paper books furnished by the Ld. Counsel in the present appeal.
9. From the perusal of impugned assessment order, it is observed that it is an order which has summarily disposed the direction given by the Ld. CIT. In this order, after giving background of the litigation, ld. AO mentioned about the issue of notices under section 142(1) and summons u/s 131 of the Act and their non-compliance to pass the order ex parte. These observations are reproduced as under:
“In compliance to the directions of the Ld. CIT, Kolkata-III, notice u/s 142(1) of the Act was issued to the assessee company requiring it to appear before the undersigned, either personally or through its authorised representative, and furnish certain details. Summon u/s 131 of the Act was also issued to the directors of the company for their personal attendance. However, neither anyone on behalf of the assessee nor the directors of the assessee company appeared before the undersigned till date. Summons u/s 131 of the Act were also issued to the directors of the subscriber companies, as claimed by the assessee in the course of assessment proceeding, for their personal attendance. Once again none of the directors of the subscriber companies appeared before the undersigned till date. Since there was no compliance on the part of the directors of the assessee company or the directors of the subscriber companies, there is no option but to pass the order ex parte.”
9.1. After the above stated observations, ld. AO made reference to decision of Hon’ble jurisdictional High Court in the case of CIT vs. Precision Finance Pvt. Ltd. [208 ITR 463] and in the case of CIT vs. Nipun Builders & Developers Pvt. Ltd. 30 taxmann.com 292 (Del) by Hon’ble Delhi High Court. Thereafter, without taking into account the material already on record in the form of report of the Inspector, details and documents furnished by the three investor companies in response to notices issued under section 133(6) as well as details and documents furnished by the assessee for the ten investor companies in the assessment proceedings u/s 147 rws 143(3) and the submissions made by the assessee before the ld. CIT in the course of revisionary proceedings, arrived at a finding that when the subscribing companies have not been found existing at the addresses given by the assessee, it is open to the AO to hold that the identity of the share subscribers has not been proved, let alone their creditworthiness and the genuineness of the transactions. With this finding, Ld. AO made a narrative on section 68 coupled with reference to certain judicial precedents. He thus, concluded the assessment by stating that “in the light of the facts of the case and aforesaid exposition of the legal position, with regard to the identity and creditworthiness of the subscriber companies and the genuineness of the transaction, I am of the Indian that the credit of ₹5,13,00,000/- in the books of the assessee shall be considered as income of the assessee of the instant previous year and charged to income tax.” Accordingly, he added the said amount as unexplained credit in the books of the assessee company and completed the assessment.
9.2. On perusal of the complete order discussed above, it nowhere reveals about the analytical finding at the end of the ld. AO. He simply made a narrative observation on this issue. He just called for information which was already on the record as it was collected in the first round itself. He was directed by the ld. CIT to transmit the information to the ld. Assessing Officer having jurisdiction over the subscriber companies. He has not complied with the same. When we weigh the original assessment order vis-a-vis the impugned one, both are non-speaking orders, only difference being that ld. AO did not make addition in the first one which was held by ld. CIT to be without conducting any inquiry and in the second one, addition has been made but without complying with the directions given by the ld. CIT.
9.3. Ld. CIT(A) has confirmed the addition mainly on the reason that share subscriber companies did not respond to the notices issued by the Ld. AO though the same were duly served on them. Having considered the aforesaid facts and observations of the authorities below and the extent of verification done by the ld. AO in the proceedings under section 147 of the Act, we observe that ld. AO has carried out investigation in respect of share capital raised,in the initial assessment proceedings under section 147 by issuing notices u/s 133(6) of the Act which were duly supplied by the said three investors. Besides, we note that assessee had furnished details before the ld. AO to prove identity, creditworthiness of the investors and the genuineness of these transactions. But in the set aside assessment proceedings, ld. AO did not carry out any effective investigation and concluded that assessee has failed to discharge its onus to prove the identity, creditworthiness and genuineness of the transactions by ignoring and overlooking the material already available on record.
9.4. We note that ld. AO had all the records before him, on the basis of which, in the first assessment proceedings u/s 147, explanations furnished for investments in share capital/share premium was found satisfactory whereas in the set aside proceedings, the same is treated unexplained cash credit without carrying out any effective investigation but by merely observing that summons issued under section 133(6) were served but not responded by the investors and that directors of the assessee and share subscribing companies did not comply with summons issued u/s 131 of the Act. Ld. AO has not recorded any finding as to how the share capital and share premium received by the assessee were bogus and unexplained or its own money which was converted in the form of share capital and share premium. There is no adverse material brought on record to dislodge the claim of the assessee. Documents already on record have remained uncontroverted.
10. Ld. Counsel placed reliance on the decision of Coordinate Bench of ITAT Kolkata in the case of Aastha Vincom Pvt. Ltd. vs. DCIT in ITA No. 123/Kol/2015 dated 26.08.2022 wherein under similar facts and circumstances, appeal of the assessee was allowed. Since similar fact pattern is involved, we also place our reliance on this decision for the purpose of giving our finding. In this case also, ld. AO had made enquiry of five investor companies out of the total eight during the assessment proceedings u/s 147 by calling the details u/s 133(6) of the Act. Ld. AO having satisfied, did not make addition towards share capital raised by the assessee during the year. This assessment was also subjected to revisionary proceedings u/s 263 of the Act wherein directions were given by the ld. PCIT for detailed enquiry by the AO towards share capital raised by the assessee. In the effect giving order of section 263, passed by the ld. AO, additions were made u/s 68 towards share capital raised by the assessee. Matter went in appeal before the ld. CIT(A) who confirmed the addition and then Coordinate Bench of ITAT Kolkata gave relief to the assessee. observations and finding arrived at in this decision are reproduced for ease of reference:
“15. Similar details/information was filed by the other investors to whom the notices under section 133(6) of the Act were issued. We note that these investor have responded to the notices issued under section 133(6) of the Act by furnishing the details of payments duly evidenced by the bank statement, copies of ITRs, balance-sheets and Profit & Loss A/cs, and source of investments, etc. and the ld. Assessing Officer, after examining these details furnished by the assessee accepted these investments and no addition was made in the assessment u/s 143(3) r.w.s. 147 of the Act. The ld. Pr. CIT in the revisionary order passed under section 263 of the Act dated 07.03.2013 issued the following directions to the ld. Assessing Officer to carry out the investigation after conducting independent inquiry in paragraph 19 of the order, which is extracted as below:-
19. In view of the above, the order passed by the A.O. is erroneous and prejudicial to the interest of revenue and hence, the order passed by the A.O. is set-aside with the direction that he/she should pass the assessment order after conducting independent detailed and complete enquiries into the subscription to the share capital and premium to the extent of Rs. 7,86,50,000/- introduced in this case. The A.O. should trace the source of share capital by enquiring into the various layers through which the money has been introduced in this company as share capital and also examine the directors of subscriber companies by issuing summons u/s 131 of the I.T. Act. The A.O. should send information to the A.Os. having jurisdiction over the subscriber company to the share capital regarding its investment into share capital & premium paid. The A.O. should conduct independent enquiries to verify the documents filed before him in respect of proof of subscription to share capital. The A.O. should not confine himself to conducting enquiries into the subscribers to the share capital only on selective basis. The A.O. should also call upon the assessee to identify the persons who are shown as directors of the assessee company and examine them on oath to verify their credential as directors. The A.O. should pass speaking order after providing reasonable opportunity to the assessee and verifying the source of share capital including the share premium of all the subscribers and rotation of money through various hands so as to ascertain the true nature of transaction which will bring to the fore, the reality of the transactions.
Hence the order passed by the A.O. u/s 143(3) r/w 147 for the AY 2008-09 is set aside to be framed de-novo as per directions contained in the above parts of this order”.
16. It is pertinent to observe that the ld. Assessing Officer was required to conduct the enquiry as contemplated in the above finding. We have made an analysis of the assessment order dated 31.03.2014. This impugned order is running into four pages and the first one & half page, the ld. Assessing Officer has given background of the litigation. In pages no. 3 & 4, he has made reference to the judgments of the Hon’ble High Courts as well as Hon’ble Supreme Court namely CIT, Meerut –vs.- Nav Bharat Duplex Limited 35 taxman 289 (Allahabad). Some of the judgments we have already taken cognizance in our observation. The factual finding which was required to investigate is contained only in paragraphs no. 3 to 5, which read as under:-
“3. Investigation was carried out by calling for information U/S.133(6) of the IT Act, which specifically asked for, besides other details, the following information :
(A) Copies of Trade license of the subscriber companies.
(B) Certified copy of the resolution adopted by the subscriber companies for subscribing to the share capital of the assessee company.
(C) I.D proof, PAN and DIN of the directors.
None of the subscribers furnished the above details. This gives a clear indication about the back also seen from the profit and loss account and Balance they did not have any business activities and their net rupees only. It appears from the information collected; companies existed on papers only with a sole purpose a other companies, like the assessee company.
4. Further, summons u/s 131 of the I.T Act were issued to the directors of the assessee company at their .given addresses, but most of the summons were returned unserved by the India Post. However, one person namely Shri Rakesh Kumar Choubey appeared in compliance to the summons. The statement of Shri Choubey was recorded u/s.131 of the I.T. Act on 24.03.2014. The salient points that emerged from his statement are :
A) Shri Rakesh Kumar Choubey has no PAN and is not assessed to Income Tax.
B} Shri Choubey has no idea of Company, Director or Share Capital.
C) Shri Choubey is not aware of the subscriber companies or its subscription in the Share Capital of the assessee company.
D) During the relevant financial year i.e. F.Y: 2007-08 Shri Choubey worked as a Peon in M/s. Khaitan and Associates.
Therefore, it is evident from the statement of Shri Choubey that the assessee company has used the name of Shri Choubey for the purpose of their directors. It is a normal practice for such paper companies to use the name of lowly paid employees likes peons, drivers etc. as directors.
5. The results of investigations discussed above clearly bring forth the fictitious identity of the subscriber companies and also established the fact that introduction of the share capital in the assessee company is not genuine. Just the manner of payment of the share application moneys by the subscriber companies by the account payee cheques is not sacrosanct for a cash credit to become genuine and definitely this cannot make a bogus transaction as a genuine one. Reliance may be placed on the judicial decisions like CIT Vs. Precison Finance Pvt. Ltd, – 208 ITR 465 (Cal), Nizam Wool Agency Vs. CIT, 193 ITR 318 (Ail)”.
17. On perusal of the complete order, it nowhere reveals when ld. Assessing Officer has started the investigation? When he has issued notice under section 142(1) or 133(6) to the subscriber of the shares as well as summons under section 131 of the Act to the Directors of the assessee-company? There is no analytical finding at the end of the ld. Assessing Officer. He simply made a narrative observation on this issue, which is almost a cut and paste type of finding. It is pertinent to note that specific directions given by the ld. CIT in the order under section 263 are that the ld. Assessing Officer would issue summons under section 131 of the Income Tax Act to the Directors of subscriber companies. He has not issued any summons. He simply called information under section 133(6) of the Act. Such information are already on the record and collected in the first round itself. He was directed to transmit the information to the ld. Assessing Officer having jurisdiction over the subscriber companies. He has not complied with. A perusal of the finding extracted supra, nowhere disclosed the line of action required to be followed, has been followed by the ld. Assessing Officer. Thus if we were called upon the weigh the original assessment order, vis-a-vis the present one, both are non-speaking, material was collected in the original proceeding as is available on record. We have referred in this order. But the only difference is the Assessing Officer did not make addition there without conducting any inquiry. The ld. Assessing Officer put the assessee undertake liability. It struck to our mind whether it should be reinvestigated but how many proceedings are to be taken against the assessee. None of the authority is analysing the details in an analytical manner.
18. It is furnished that in the set aside assessment proceedings, the ld. Assessing Officer issued notices under section 131 of the Act to the present and erstwhile Directors of the assessee-company, who did not comply with the summons except Shri Rakesh Kumar Choubey, whose statement was recorded. The ld. Assessing Officer noted that Shri Rakesh Kumar Choubey is not having any PAN and not assessed to income-tax. The Ld. Assessing Officer also noted that Shri Choubey is not having any knowledge about its either Directors or share capital of the assessee-company and he was working as a peon in M/s. Khaitan and Associates during F.Y. 2007-08 and thus he came to the conclusion that Shri Rakesh Kumar Choubey was used by the assessee-company just for formalities sake to comply with various statutory requirements, which is a common practice and held that the share capital raised by the assessee is bogus thereby adding the same to the income of the assessee under section 68 of the Act. Further the assessee has filed the proofs of identities creditworthiness of the investors and genuineness of the transactions before the ld. Assessing Officer. We also note from the record before us that Mr. Rakesh Kumar Choubey retracted his statement as recorded under section 131 on 26.03.2014 vide Affidavit which was attested on 27.03.2014 by Notary Public. We also note that from the evidences before us that Mr. Rakesh Kumar Choubey was holding a PAN bearing No. AFHPC3909G and assessed to tax and has regularly been filing his return of income under the charge of ITO, Ward-37(1), Kolkata. Therefore, it is clear from the above that the statement as called by the ld. Assessing Officer under section 131 is not correct and cannot be allowed as basis for making addition. To the above extent, we note that the allegation of the Assessing Officer for making addition was not correct. Further the ld. Assessing Officer observed that the assessee-company being a newly incorporated company has issued and raised share capital of Rs. 7 crores by issuing shares at a premium of 19 times the face value and also that none of the subscribers furnished the details as requisitioned in the notices under section 133(6) of the Act. Besides ld. Assessing Officer noted that upon perusal of the Profit & Loss Account and Balance-sheet of the share subscriber companies, it is clear that they did not have any business activity and their net worth was meagre. The ld. CIT(Appeals) confirmed the order of ld. Assessing Officer for three reasons namely (i) the share applicants did not respond to the notices issued under section 133(6) of the Act though the notices were duly served on them; (ii) Summons issued to Shri Pradip Kejriwal, present Director of the Company remained un-served and (iii) that on the basis of statement recorded of Shri Rakesh Kumar Choubey, erstwhile Director, it appears that he was a dummy Director and therefore, an opportunity of cross examination could not be allowed since Shri Rakesh Kumar Choubey himself was the Director of the assessee-Company at the relevant point of time.
19. Having considered the aforesaid facts and observations of the ld. CIT(Appeals) and the extent of verification done by the ld. Assessing Officer in the proceedings under section 147 of the Act, we observe that the ld. Assessing Officer has carried out full investigation into the share capital/share premium in the assessment proceedings under section 147 of the Act by issuing notices u/s 133(6) of the Act, which were duly supplied by the said investors. Besides we note that the assessee has fully furnished all the details before the ld. Assessing Officer to prove the identity, creditworthiness (source of money) of the investors and the genuineness of these transactions. But in the set assessment proceedings, the Assessing Officer has not carried out any investigation and harped on the fact that the assessee has failed to discharge its onus to prove the identity, creditworthiness and genuineness of the transactions by ignoring and overlooking the facts available on record. We note that the ld. Assessing Officer has all the records before him on the basis of which in the first assessment proceedings, the ld. Assessing Officer held the investments in share capital/share premium as genuine, whereas in the set aside proceedings, the ld. Assessing Officer has treated the same investments as bogus and non-genuine without carrying out any investigation by merely relying on the fact that summons issued under section 133(6) were served but not responded by the investors and also former and present Directors of the assessee company did not comply with summons issued u/s 131 of the Act except one Shri Rakesh Kumar Choubey. In our view, the action of the ld. Assessing Officer in making addition without complying the direction issued by the ld. Pr. CIT specifically in paragraph 19 of the order as reproduced hereinabove cannot be sustained. The addition was made simply for the reason that ld. Pr. CIT has exercised his jurisdiction under section 263 of the Act setting aside the original assessment. We also note that the ld. Assessing Officer has ignored the facts, documents, confirmations and evidences, which were available on record on the assessment folder. In our opinion, there is no bar in the Act to issue of shares at a premium as it is the prerogative of the Board of Directors to decide the premium amount and the assessee was not required to prove the purpose or justification for charging premium on shares. The ld. Counsel for the assessee to buttress the contentions in favour of the assessee placed reliance is placed on the judgment of the Hon’ble Mumbai Tribunal in the case of ACIT –vs.-Gagandeep Infrastructure Pvt. Limited (2014) 40 CCH 0128. The operating part is extracted as under:-
“We have carefully perused the orders of the lower authorities. In our considered view, the issue of shares at premium is always a commercial decision which does not require any justification. Further the premium is a capital receipt which has to be dealt with in accordance with Sec. 78 of the Companies Act, 1956. Further, the company is not required to prove the genuineness, purpose or justification for charging premium of shares, share premium by its very nature in a capital receipts and is not income for its ordinary sense. It is not in dispute that the assessee had filed all the requisite details/documents which are required to explain credits in the books of accounts by the provisions of Sec. 68 of the Act. The assessee has successfully established the identity of the companies who have purchased shares at a premium. The assessee has also filed bank details to explain the source of the shareholders and the genuineness of the transaction was also established by filing copies of share application forms and Form No. 2 filed with the Registrar of Companies. The entire dispute revolves around the fact that the assessee has charged a premium of Rs. 190/- per share. No doubt a non-est company or a zero balance sheet company asking for Rs.190/- per share defies all commercial prudence but at the same time we cannot ignore the fact that it is a prerogative of the Board of Directors of the company to decide the premium amount and it is the wisdom of the share holders whether they want to subscribe to such a heavy premium. The Revenue authorities cannot question the charging of such huge premium without any bar from any legislated law of the land. The amendment has been brought in the Income Tax Act under the head “Income from other sources” by inserting Clause (viib) to Sec. 56 of the Act wherein it has been provided that any consideration for issue of shares, that exceeds the fair value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares shall be treated as the income of the assessee but the legislature in its wisdom has made this provision applicable w.e.f. 1.4.2013 i.e. on and from A. Y. 2013-14. In so far as the year under consideration is concerned, the transaction has to be considered in the light of the provisions of Sec. 68 of the Act. There is no dispute that the assessee has given details of names and addresses of the share holders, their PAN Nos, the bank details and the confirmatory letters.”
20. The above decision of the Tribunal has been affirmed by the Hon’ble Bombay High Court by dismissing the appeal of the Revenue reported in (2017) 394 ITR 680 (Bombay.). The case of the assessee also finds support from the another decision of the Hon’ble Madhya Pradesh High Court in the case of CIT –vs.- Chain House International (P) Ltd. reported in 98 taxmann.com 47, wherein the Hon’ble Court has held as under:-
“Issuing the share at a premium was a commercial decision. It is the prerogative of the Board of Directors of a company to decide the premium amount and it is the wisdom of shareholder whether they want to subscribe the shares at such a premium or not. This was a mutual decision between both the companies. In day to day market, unless and until, the rates if fixed by any Govt. Authority or unless there is any irestriction on the amount of share premium under any law, the price of the shares is decided on the mutual understanding of the parties concerned.”
21. Therefore, the issue of share at premium cannot be a ground for making addition. We also note that the allegation of the authorities below that the share applicants did not respond to the notices issued under section 136 of the Act, whereas this is not the allegation that notices were not served upon the share applicants. We note that the information /details/evidences of all these share applicants were available with the ld. Assessing Officer such as PANs, addresses, copies of bank statement, annual audited accounts, etc. Admittedly and undeniable, the initial burden of proof lies on the assessee but once he proves the identity of the share applicants by either furnishing PAN or income tax assessment number and shows the genuineness of transaction by showing money in his books either by account payee or by draft or any other mode, then the onus of proof would shift to the revenue. Just because the creditors/share applicants could not be found at the address given, it would not give the revenue the right to invoke section 68 of the Act. One must not lose sight of the fact that it is the revenue which has all the powers to trace any person and is also settled law that the assessee need not to prove the source of source. The case of the assessee finds support from the decision of the Hon’ble Delhi High Court in the case of CIT –vs.- Orissa Corporation Pvt. Limited (1986) 159 ITR 78 (Del.), wherein it has been held as under:-
The assessee 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 number was in the file of the Revenue. The Revenue, apart from issuing notices under s. 131 at the instance of the assessee, 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 credit-worthy or were such who could advance the allowed loans. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the assessee could not do any further. In the premises, if the Tribunal came to the conclusion that the assessee has discharged the burden that lay on him then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion is based on some evidence on which a conclusion could be arrived at, no question of law as such arises. It cannot, therefore, be said that any question of law arose in these cases. The High Court was, therefore, right in refusing to refer the questions sought for”.’
22. The above decision of the Hon’ble Delhi High Court has been affirmed by the Hon’ble Apex Court in (1986) 159 ITR 78. Therefore, we observe that non-compliance of notice by the share applicants in the second round of assessment proceedings cannot be used to draw adverse inference against the assessee as the Revenue was having all the necessary evidences/documents which were filed by the share applicants in the first round of assessment in response to the notices issued under section 133(6) of the Act.
23. On the issue of share applicants, they are not having any business activity and their net worth was also very meagre. We note that the share application was received through Banking channel out of own funds of investing companies as is clear from the audited annual accounts and that it is not necessary that source of investment is to be out of taxable income. The assessee’s case finds support from the decision of Ami Industries (India) Pvt. Limited (ITA 1231 of 2017) passed by the Hon’ble Bombay High Court, wherein the Hon’ble Court has observed as under:-
“It was not necessary that share application money should be invested out of taxable income only”.
24. On the third issue that summons issued under section 131 fo the Act to the erstwhile and present Directors returned un-served except Mr. Rakesh Kumar Choubey, who was erstwhile Director and appeared to comply with the summons. We note that according to the ld. Assessing Officer, he was not assessed to tax and he was not having any PAN and he was working as a Peon to M/s. Khaitan& Associates. We note that the observations of the ld. Assessing Officer are not correct as Shri Rakesh Kumar Choubey is holding PAN and also assessed to tax and filing his return of income under the charge of ITO, Ward-37(1), Kolkata. We also note from the reasons before us that the statement given under section 131 was retracted just after two days recording. We note that in the first round of assessment, the transactions were examined and verified completely and accepted by the ld. Assessing Officer, then what new facts have come on record prompting the ld. Assessing Officer to take a contrary view. The ld. Assessing Officer has not recorded any finding as to how the share capital/share premium received by the assessee were bogus and unexplained or his own money was converted in the form of share capital/share premium. Thus no adverse material/evidences were brought on record and documents already on record remained uncontroverted. Under these facts and circumstances, the ld. Assessing Officer cannot be allowed to disturb the satisfaction recorded by the first ld. Assessing Officer in the first round based upon evidences available on record that too just on the surmises and conjectures.
25. In view of our above facts, observation and legal position, we are inclined to set aside the order of ld. CIT(Appeals) and direct the ld. Assessing Officer to delete the addition.”
11. According to us, action of ld. AO while making addition without complying with the directions issued by the ld. CIT as stated in para 18 of the order u/s 263 is unsustainable. We also note that ld. AO has ignored the facts, documents, confirmations and evidences, which were available on record in the assessment folder including that of the assessment done u/s 147, and produced in the course of hearing before the Bench. Case of the assessee is fortified by the decision of Hon’ble Apex Court in the case of CIT vs. Orissa Corporation Pvt. Ltd. (supra). We therefore, set aside the order of Ld. CIT(A) and delete the addition made by the Ld. AO in respect of share capital and share premium raised by the assessee during the year under consideration.
12. In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 9th June, 2023.
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