ITAT deletes Addition for share application/premium received

A.G. Ferro Cast P Ltd Vs ITO (ITAT Kolkata)

A perusal of the assessment order reveals that the order of the Assessing Officer is short and cryptic wherein no reasoning has been given as to why the Assessing Officer has treated the share application/share premium received from one party M/s Lagan Vincom Pvt. Ltd. as unexplained cash credit, whereas, the share subscription from other parties including from the another corporate entity M/s Mayfair Commotrade Pvt. Ltd. which was also subscribed to 50000 shares of the assessee company at a face value of Rs.10/- each and along with share premium of Rs.90/- each were accepted. The only reason given by the Assessing Officer in not accepting the share subscription from M/s Lagan Vincom Pvt. Ltd. has been mentioned as that ‘the said subscriber has made investment in all unquoted shares which are not under the scanner of SEBI’.

6. The above reasoning, in our view, is no way, justify the action of the Assessing Officer in treating the aforesaid share subscription by one party as unexplained cash credit in the hands of the assessee. The assessee, in this case, has furnished all the details and evidences proving the identity and creditworthiness of the share subscriber as well as financials of the share subscriber and other documents to prove the genuineness of the transaction. The ld. counsel has also invited our attention to the assessment order passed in the case of M/s Lagan Vincom Pvt. Ltd. for assessment year 2012-13 to submit that the said share subscriber was duly assessed to tax. In this case, the assessee has discharged the initial burden upon him to furnish the evidences to prove the identity and creditworthiness of the share subscribers and genuineness of the transaction and further the share subscribers having appeared and got recorded their statements in response to summons issued u/s 131 of the Act and the Assessing Officer without pointing out any defect or infirmity in the evidences or details furnished by the assessee or any contradiction in the statement recorded u/s 131 of the Act has made the impugned addition only in the case of one party and having accepted the share subscription/share premium in the case of other parties. As observed above, the Assessing Officer even has not given any reasoning in the impugned assessment order for making the impugned addition.

7. Even the Ld. CIT(A) though has relied upon various case laws but has not pointed out as to how those case laws were applicable to the facts and circumstances of the case of the assessee. In view of this, the impugned addition made by the Assessing Officer and further confirmed by the CIT(A) is not sustainable in the eyes of law and the same is accordingly hereby ordered to be deleted.

FULL TEXT OF THE ORDER OF ITAT KOLKATA

The present appeal has been preferred by the assessee against the order dated 14.07.2020 of the Commissioner of Income Tax(Appeals)-13, Kolkata (hereinafter referred to as the ‘CIT(A)’) passed u/s 250 of the Income Tax Act (hereinafter referred to as the ‘Act’).

2. The assessee in this appeal has contested the confirmation of addition made by the Assessing Officer of Rs.50,00,000/- received by the assessee from corporate entity M/s Lagan Vincom Pvt. Ltd.

3. The brief facts of the case are that the assessee during the year received share capital and share premium from different parties. The assessee allotted its shares to four promoters of the assessee company at the face value of Rs.10/- without any share premium. Apart from that the assessee also allotted shares to corporate entities at a share premium of Rs.90/- each. The details of the share subscribers are extracted as under:

4. The Assessing Officer during the assessment proceedings called for the various details of the assessee as well as share subscribers to verify the identity and creditworthiness of the share subscribers and genuineness of the transaction. The Assessing Officer verified the details and evidences furnished by the assessee including the address, PAN number and Form No.2 and 5 filed before Registrar of Companies of the share subscriber companies, their audited financial statements, acknowledgement of their Income Tax Return, copy of the bank statement of the allottee company and bank statement showing that all the transactions were done by banking channel and confirmed by the share subscribers. Apart from that the Assessing Officer also summoned the share subscribers u/s 131 of the Act who statements were also recorded. The Assessing Officer accepted the share subscription by all the share subscribers except in the case of Lagan Vincom Pvt. Ltd and made the impugned addition in case of the aforesaid one party only by way of short and cryptic order, the contents of which, for the sake of ready reference, are reproduced as under:

OFFICE OF THE INCOME TAX OFFICER WARD-4(3) KOLKATA
P-, Chowringhee Square, Aaykar Bhavan, 8^th floor, Kolkata-700069

Name of the assessee:- M/s A G Ferrocast P Ltd
Address:-4, B.B. D. Bag, 5″ floor, Kolkata-70000
PAN- AAJCA1032E
Status:- Domestic company
Previous Year:- 2011-12
Assessment Year:-2012-13
Date of hearing:-20/3/2015
Date of order:- 27/3/2015

Assessment order u/s 143(3) of Income-tax Act, 1961

The assessee filed its e-return showing a total income of Rs The case was selected under CASS for scrutiny u/s 143(2) of Income-tax Act, 196l [hereafter referred to this Act, unless otherwise stated]. Scrutiny notice u/s 143(2) followed by requisition u/s 142(1) was issued.

In response, Shri R.K. Agarwal, FCA and Ld AR appeared from time to time. The shareholders were summoned u/s 131. In some cases, they came. In some cases, because of old age etc., they did not. Their statement were gone through and accepted except that of Lagan Vincom P Ltd, who paid for shares with premium. When asked if the company invested in any listed companies, it denied. The assessee made investment in all unquoted shares which are not under the Scanner of SEBI. Its contribution is Rs 5000000/-. This is treated as unexplained cash credit. Penal action u/s 271(1)(c) is separately initiated for furnishing inaccurate particulars of income.

Calculation of assessed total income is made as under:-
Other source as per return = Rs 146556/-
+unexplained cash credit = Rs 5000000/-
Assessed total income = Rs 5146556/- u/s 143(3)
Tax and interest are calculated and charged.

Copy of the order, demand notice and calculation sheet be issued to the assessee.

[Sandipan Khan]
ITO-WARD-4(3) Kolkata

5. The ld. CIT(A) also confirmed the addition so made by the Assessing Officer. A perusal of the above reproduced assessment order reveals that the order of the Assessing Officer is short and cryptic wherein no reasoning has been given as to why the Assessing Officer has treated the share application/share premium received from one party M/s Lagan Vincom Pvt. Ltd. as unexplained cash credit, whereas, the share subscription from other parties including from the another corporate entity M/s Mayfair Commotrade Pvt. Ltd. which was also subscribed to 50000 shares of the assessee company at a face value of Rs.10/- each and along with share premium of Rs.90/- each were accepted. The only reason given by the Assessing Officer in not accepting the share subscription from M/s Lagan Vincom Pvt. Ltd. has been mentioned as that ‘the said subscriber has made investment in all unquoted shares which are not under the scanner of SEBI’.

6. The above reasoning, in our view, is no way, justify the action of the Assessing Officer in treating the aforesaid share subscription by one party as unexplained cash credit in the hands of the assessee. The assessee, in this case, has furnished all the details and evidences proving the identity and creditworthiness of the share subscriber as well as financials of the share subscriber and other documents to prove the genuineness of the transaction. The ld. counsel has also invited our attention to the assessment order passed in the case of M/s Lagan Vincom Pvt. Ltd. for assessment year 2012-13 to submit that the said share subscriber was duly assessed to tax. In this case, the assessee has discharged the initial burden upon him to furnish the evidences to prove the identity and creditworthiness of the share subscribers and genuineness of the transaction and further the share subscribers having appeared and got recorded their statements in response to summons issued u/s 131 of the Act and the Assessing Officer without pointing out any defect or infirmity in the evidences or details furnished by the assessee or any contradiction in the statement recorded u/s 131 of the Act has made the impugned addition only in the case of one party and having accepted the share subscription/share premium in the case of other parties. As observed above, the Assessing Officer even has not given any reasoning in the impugned assessment order for making the impugned addition.

7. Even the Ld. CIT(A) though has relied upon various case laws but has not pointed out as to how those case laws were applicable to the facts and circumstances of the case of the assessee. In view of this, the impugned addition made by the Assessing Officer and further confirmed by the CIT(A) is not sustainable in the eyes of law and the same is accordingly hereby ordered to be deleted.

8. In the result, the appeal of the assessee stands allowed.

Kolkata, the 10^th November, 2022.