Swarna Kalash Commercial Pvt. Ltd. Vs ACIT (ITAT Kolkata)
The Income Tax Appellate Tribunal (ITAT), Kolkata, partly allowed the assessee’s appeal against the order of the Commissioner of Income Tax (Appeals) confirming an addition of ₹17,05,60,000 made under Section 68 of the Income-tax Act, 1961. The sole issue before the Tribunal was whether the sale consideration received by the assessee on sale of shares held as investments could be treated as unexplained cash credit on the ground that the assessee had failed to establish the identity and creditworthiness of the purchasers.
A search and seizure operation under Section 132 was conducted at the assessee’s premises on 24.01.2020, following which assessment proceedings under Sections 143(3) read with 153A were initiated. During assessment, the Assessing Officer noticed that the assessee had received ₹17.05 crore from sale of shares/investments. The Assessing Officer held that the purchasers were suspicious entities, referred to the alleged modus operandi of shell companies, and concluded that the assessee had failed to establish the genuineness of the transactions and the creditworthiness of the purchasers. Accordingly, the entire sale consideration was added under Section 68 and penalty proceedings under Section 271AAC were initiated.
Before the Tribunal, the assessee challenged the assessment on multiple grounds. It submitted that the original assessment order was merely a cryptic order containing no discussion of incriminating material or reasons supporting the addition. The assessee further pointed out that the Assessing Officer had subsequently issued another detailed but undated assessment order after the statutory limitation period, without a Document Identification Number (DIN), and that the CIT(A) had relied upon this subsequent order while confirming the addition.
The Tribunal first examined the validity of the subsequent assessment order. Referring to CBDT Circular No. 19 of 2019 and the Delhi High Court decision in CIT vs. Brandix Mauritius Holdings Ltd., it held that any communication issued without mentioning a DIN was to be treated as non-est. Since the subsequent assessment order was undated, issued after the limitation period and did not bear a DIN, the Tribunal held that no cognizance could be taken of that order.
The Tribunal further observed that the original assessment order itself was a brief and cryptic order. It found that the Assessing Officer had mechanically made the addition without discussing any specific material or evidence linking the assessee to any alleged bogus transaction. The Tribunal therefore held that the addition could not be sustained merely on the basis of such a non-speaking assessment order.
On merits, the assessee argued that the authorities had merely relied upon general observations regarding shell companies and accommodation entries without bringing any specific evidence against the assessee. It submitted that the sale proceeds related to investments already recorded in its books of account and that treating the entire sale proceeds as unexplained cash credit would amount to double taxation. It further contended that the investments sold comprised both opening investments and investments purchased during the relevant year, all of which had been accepted by the Assessing Officer. The assessee also emphasized that all sale transactions were supported by sale bills, banking records and replies furnished by the purchasers, who were identifiable and assessed to income tax.
The Tribunal noted that the assessee had raised share capital in financial year 2005-06, which had been accepted in scrutiny assessment under Section 143(3). The funds had been invested in shares of private companies. During the relevant year, the assessee held opening investments of ₹20.40 crore, purchased further investments of ₹66.47 crore, sold investments worth ₹17.05 crore and retained closing investments of ₹69.82 crore. The Tribunal observed that the Assessing Officer had accepted both the opening investments and purchases during the year, while disputing only the sale proceeds.
The Tribunal also took note of the replies furnished by purchasers in response to summons issued under Section 131. The record showed that numerous corporate and non-corporate purchasers had responded and provided details relating to the purchase transactions.
Another important issue related to reliance upon statements recorded during search under Section 132(4). The assessee pointed out that the statements of Shri Sanjib Patwari and Shri K.K. Verma had been retracted on the very next day through affidavits and that no cross-examination or further verification had been conducted thereafter. The Tribunal accepted this contention and observed that retracted statements could not by themselves form the sole basis for making additions in the absence of corroborative material. It referred to several judicial precedents holding that additions based solely on retracted statements, without supporting evidence or cash trail, were unsustainable. The Tribunal also relied upon CBDT Letter No.286/2/2003-IT(Inv) dated 03.10.2003, which advises tax authorities not to obtain confessional statements during search and to base assessments on evidence gathered during investigation.
After examining the overall facts, the Tribunal found no material casting doubt on the genuineness of the sale transactions. It observed that the investments had been reflected in the regular books of account, purchases had been accepted, sale proceeds had been received through banking channels, purchasers had responded to notices under Section 131, and no evidence had been produced to establish that the sale proceeds represented the assessee’s own unaccounted money.
However, the Tribunal also considered the Revenue’s submission that the assessee had sold investments at cost despite holding them for several years and carrying on business with a profit motive. Taking a holistic view, it held that a profit element should nevertheless be brought to tax. Accordingly, it estimated the profit element at 5% of the sale consideration, amounting to ₹85,28,000. The Tribunal deleted the balance addition of ₹16,20,32,000 made under Section 68 and sustained only the estimated profit element. Consequently, the appeal was partly allowed.
Recent Cases Discussed
• CIT vs. Brandix Mauritius Holdings Ltd. (Delhi High Court), [2023] 149 taxmann.com 238 (Del)
• Principal Commissioner of Income Tax Vs. Golden Goenka Fincorp Ltd. (Calcutta High Court), [2023] 148 taxmann.com 313 (Calcutta)
• PCIT-5, Kolkata vs. Swati Bajaj, IA No. GA/2/2022 in ITAT/6/2022 dated 14-06-2022
• Brij Resources Pvt. Ltd. vs. ITO (Delhi ITAT), ITA No.8835/Del/2019 dated 07-07-2021
FULL TEXT OF THE CESTAT KOLKATA ORDER
