Case Law Details
Fortune Credit Capital Limited Vs DCIT (ITAT Mumbai)
Introduction: In a recent development, the Income Tax Appellate Tribunal (ITAT) Mumbai directed re-adjudication in the case of Fortune Credit Capital Limited vs DCIT (Mumbai). The order, dated 10/05/2023, has implications related to the failure to produce documents concerning loan transactions and the purchase and pledge of shares. This article delves into the details of the case, analyzing the background, arguments, and the ITAT’s directive for re-examination.
Detailed Analysis: The case originated with the Assessing Officer (AO) receiving information suggesting irregularities related to M/s Nivyah Infrastructure and Telecom Services Ltd’s shares. The AO, upon forming a reason to believe that income had escaped assessment, issued a notice under section 148 of the Income-tax Act, 1961. The Assessee responded, providing its e-return of income, declaring total income at Rs. 2,59,35,940/-. The crux of the Assessee’s claim was that Shri Hemant Madhusudan Sheth had taken a loan and pledged shares, which, upon default, were sold, and the remaining amount was written off as bad debts.
The Assessing Officer, however, found the explanation insufficient, noting that the Assessee had not disclosed these facts in the original assessment. Summonses were issued to Shri Hemant Madhusudan Sheth, who failed to provide the required documents. The AO, based on the lack of evidence and non-disclosure, added Rs. 5,01,650/- under section 68 of the Act, treating it as income.
The Assessee contested the addition before the Commissioner, reiterating its stance. The Commissioner, considering the absence of loan transaction documents and shares-related documentation, upheld the addition. The crucial aspects highlighted included the initiation of the sale transaction by the appellant, the absence of cost of acquisition for the shares, and the non-disclosure of income from the sale in the return.
The ITAT, upon hearing the parties, observed that the Assessee had failed to produce essential documents during the assessment proceedings. However, the Assessee, post the lower authorities’ decisions, submitted documents before the ITAT. Acknowledging this discrepancy, the ITAT set aside the orders of the lower authorities and remanded the case to the AO.
The ITAT directed the AO to consider the documents already filed by the Assessee before the Tribunal, with verification. The Assessee was instructed to appear, if necessary, and provide relevant documents needed for the adjudication.
Conclusion: The Fortune Credit Capital Limited vs DCIT (Mumbai) case presents a scenario where the failure to produce crucial documents during the initial assessment became a focal point. The ITAT’s decision to remand the case signifies the importance of thorough examination and verification of evidence. It allows for a fair consideration of documents submitted post the initial assessment, ensuring that the Assessee has an opportunity to substantiate its claims.
As the case returns to the AO for re-adjudication, the Assessee has the task of validating the documents submitted before the ITAT. This case underlines the significance of maintaining transparency and providing comprehensive documentation during the assessment process.
In conclusion, the ITAT’s directive for re-adjudication emphasizes the need for a balanced and meticulous approach in tax proceedings. It encourages the verification of documents and aims to ensure a fair and just resolution of the dispute between the Assessee and the tax authorities.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal has been preferred by the Assessee against the order dated 10/05/2023 impugned herein, passed by the National Faceless Appeal Centre (NFAC) Delhi / Ld. Commissioner of Income Tax (Appeal) [in short, Ld. Commissioner ] under section 250 of the Income-tax Act, 1961 (in short, the Act) for the A.Y.2012-13.
2. In this case, the Assessing Officer (in short “AO”) on the basis of the information received from DDIT (Inv), Mumbai to the effect “that M/s Nivyah Infrastructure and Telecom Services Ltd is a penny-sotck listed at BSE with scrip code 517534 and has been used to facilitate introduction of unaccounted income of beneficiaries in the form of exempt capital gain or short term capital loss in their books of The share price of the said company rose from Rs.39 on 21/07/2009 to Rs. 2,050/- on 05th January, 2011 and dipped to Rs.47.20 on 18/07/2012. The sharp rise in the market price of this entity is not supported by financial fundamentals of the company. Both purchase and sale of share are centered within a few persons/entities. The entry providers do not have any creditworthiness. They are either non-filers or have filed nominal return of income and have not paid tax. The Assessee is one of the beneficiaries, who has traded in this scrip worth Rs.5,01,650/-“, formed the reason to believe that income chargeable to tax amounting to R.5,01,650/- has escaped assessment within the meaning of section 147 of the Act read with provisos thereto and consequently issued the notice under section 148 of the Act.
2.1 In response to notice U/s 148, the Assessee furnished its e-return of income filed on 29/04/2019 declaring total income at Rs.2,59,35,940/-. Thereafter, various statutory notices were issued. The Assessee before the Assessing Officer claimed that Shri Hemant Madhusudan Sheth, had taken loan from the Assessee and pledged shares of M/s Nivyah Infrastructure and Telecom Services Ltd for the loan availed. Since the lonee did not pay amount of loan, the share of M/s Nivyah Infrastructure and Telecom Services Ltd pledged for Rs.5,01,640/- were sold and balance amount were witten off as bad debts.
2.2 The Assessing Officer, though considered the said explanation of the Assessee, however, not found acceptable on various reasons such as the Assessee never disclosed in the original assessment about these facts and the Assessee failed to produce said party and also did not discharge the onus cast upon it by proving the genuineness of its claim by producing the concerned The Assessing Officer in order to verify also issued summons under section 131 of the Act to Shri Hemant Madhusudan Sheth on 7th October, 2019 and asked to file certain documents and to appear in person; however, Shri Hemant Madhusudan Sheth though appeared but did not produce any documents as required to be furnished as per summon under section 131 of the Act. In his statement recorded on oath before the Assessing Officer has replied to question No.4 that there is no direct transaction of any sort with the Assessee. Shri Hemant Madhusudan Sheth also not provided any document with regard to the trading in the shares of M/s Nivyah Infrastructure and Telecom Services Ltd and details of the loan account with the Assessee. Shri Hemant Madhusudan Sheth, at the later stage, in response to the summons issued under section 131 of the act on 25/10/2019, though furnished a copy of the return of income for the assessment year, as well; however, failed to furnish any copy of bank statement / passbook highlighting payments made to the Assessee and the copy of ledger account books and, therefore, by considering the peculiar facts and circumstances in totality, the Assessing Officer made the addition under section 68 of the Act to the tune of Rs.5,01,650/- which was appearing as credit in the books of the Assessee on sale of shares.
3. The Assessee being aggrieved challenged the said addition before the Commissioner and reiterated it claim as raised before the AO. The Ld. Commissioner considered the claim of the Assessee and also the fact that the Assessee did not submit the any loan transaction documents on the basis of which the sale proceeds were received by it instead of the client. Even Shri Hemant Madhusudan Sheth did not produce any evidence with regard to the loan in the assessment proceedings, and therefore ultimately affirmed the addition by holding and determining as under:-
“4.3.2. In this context, three aspects are clear :-
a. Sale transaction of the shares was initiated by the appellant and sale proceeds were received by the appellant – this is not denied.
b. There is no cost of acquisition for the appellant in respect of the shares sold – loan given and the amount of the loan is not proved.
c. The appellant has not shown income from sale of shares in its return of income – not Only objection by the appellant is that income did not arise in the sale of share transactions, but not even calculation is given even in appeal stage, as what is the income or loss in the transactions. Appellant has also not filed any ledger accounts in the appeal proceedings.
4.3.3. Thus, when there is receipt of sale proceeds by sale of shares by the appellant, which is not shown to tax and no evidence of loss/income actually derived by the sale is available nor the purchase cost of the shares, the entire sale proceeds become the income escaping assessment and same is rightly brought to tax by the AO.”
4. The Assessee being aggrieved is in appeal before us.
5. Heard the parties and perused the material on record. The Assessee has mainly claimed that loan was given to Shri Hemant Madhusudan Sheth, who, as a security, pledged the shares of Nivyah Infrastructure and Telecom Services Ltd and subsequently failed to repay the loan and defaulted and, therefore, the Assessee recovered the amount by selling the shares of Nivyah Infrastructure and Telecom Services Ltd and remaining amount written off as bad We observe that both the authorities below specifically held that the Assessee failed to produce the loan transaction documents and documents qua shares purchase and pledging of shares of M/s Nivyah Infrastructure and Telecom Services Ltd, on the basis of which the sale proceeds were received by the Assessee instead of Shri Hemant Madhusudan Sheth. It also clearly appears in the assessment order that Shri Hemant Madhusudan Sheth as well as the Assessee also failed to produce the documents pertaining to the alleged loan sanctioned / given. In the assessment order it is also noted that in reply to question No. 4, Shri Hemant Madhusudan Sheth stated that no direct transaction of any type with the Assessee. Therefore, prima facie it appears from observations made by the authorities below, that the Assessee failed to substantiate its case by not producing the relevant documents. However, before us, the Assessee by filling paper book filed on 11/10/2023 has placed certain documents with regard to the loan transactions and contract notes and transactions in demat statement of the Assessee and Shri Hemant Madhusudan Sheth and other documents, with certification that the same were also filed before the Assessing Officer, which infact goes contrary to determination made by AO and therefore in our view requires verification. Thus in order to resolve the controversy and for the proper decision in the case and for the ends of justice, we are inclined to set aside the orders passed by the authorities below and consequently the case is remanded to the file of AO with a direction to consider the documents, if already filed, which the Assessee claimed to has already filed before the Assessing Officer as per certificate given by the Assessee before the Tribunal, but not otherwise and to decide the case afresh. Accordingly the case is remanded to the file of AO.
The Assessee is also directed to appear, if necessitates and file the documents filed before the Tribunal in the same format and other relevant documents, if any, would be needed by the Assessing Officer for proper adjudication of the case.
6. In the result, appeal filed by the Assessee stands allowed for statistical purposes.
Order pronounced in the open course on 24/11/2023.
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