Case Law Details
Prompt Barter Private Limited Vs ITO (ITAT Kolkata)
Introduction: In a recent case involving Prompt Barter Private Limited versus the Income Tax Officer (ITO) at the Income Tax Appellate Tribunal (ITAT) in Kolkata, a significant decision was made regarding the addition of income tax. The primary issue revolved around the consideration of evidence to establish the identity and creditworthiness of investors, as well as the genuineness of the transaction. The ITAT directed the AO to delete the income tax addition, and in this article, we will delve into the details of this case, the arguments presented, and the reasoning behind the ITAT’s decision.
Detailed Analysis:
1. Background of the Case: The case involved Prompt Barter Private Limited, an appellant, who appealed against the order of the Commissioner of Income Tax (Appeals) [CIT(A)]. The appeal was related to the assessment year 2012-13.
2. The Contested Issue: The primary issue in this case was the addition of INR 2,73,00,000 made by the Assessing Officer (AO) under section 68 of the Income Tax Act, 1961. The AO had considered this amount as an unexplained cash credit.
3. Factual Overview: The appellant had filed its income tax return on September 28, 2012, declaring an income of INR 3,41,310. The return was processed under section 143(1) of the Income Tax Act. Subsequently, the case was selected for scrutiny under the Computer Assisted Scrutiny System (CASS), and notices were duly served on the assessee. The reason for selecting the case for scrutiny was the substantial share capital received during the year. The AO sought to verify the identity and creditworthiness of the shareholders and the genuineness of the transactions.
4. Evidence Presented: In response to the AO’s request, the assessee provided various pieces of evidence, including annual audited accounts, PANs and identity cards of the directors, share allotment advice, and bank statements, among others. The AO also issued notices under section 133(6) and summon under section 131 of the Act, requesting additional details and information from the subscribers, which the appellant duly complied with by providing replies.
5. The AO’s Addition: Despite the substantial evidence provided by the appellant, the AO added the aggregate amount of INR 2,73,00,000 to the appellant’s income. The reason for this addition was the non-compliance of the subscribers with the summons issued under section 131 of the Act. The AO did not comment on the evidence submitted by the appellant and did not conduct any further inquiries.
6. CIT(A) Confirmation: The appellant challenged the assessment before the CIT(A), but the CIT(A) upheld the AO’s order, reiterating the same reasoning, without providing a comprehensive explanation.
7. Appellant’s Argument Before ITAT: The appellant vehemently argued before the ITAT that the CIT(A)’s decision was flawed and not in alignment with the facts and established judicial precedents. The appellant’s representative, while referring to the evidence submitted by both the appellant and the subscribers, emphasized that they had provided ample proof of the identity and creditworthiness of the subscribers, as well as the genuineness of the transactions.
8. Lack of AO’s Verification: The appellant’s representative pointed out that despite the wealth of evidence provided, the AO failed to conduct any further verification. The AO did not identify any defects or deficiencies in the evidence presented by the appellant. The appellant maintained that when all the evidence related to subscribers, including names, addresses, PANs, audited accounts, and bank statements, had been provided, and no further verification had been conducted by the AO, the addition could not be justified based solely on the non-compliance with the summons issued under section 131 of the Act.
9. Legal Precedents Cited: In defense of the appellant’s argument, the representative cited several legal precedents, including CIT vs. Orissa Corporation Pvt. Ltd., CIT vs. Orchid Industries Ltd., Crystal Networks Pvt. Ltd. vs. CIT, ITO vs. M/s. Cygnus Developers India Pvt. Ltd., and Joy Consolidated Pvt. Ltd. vs. ITO.
10. Department’s Response: The Departmental Representative (D.R) contested the appellant’s arguments, asserting that the share application money was received from subscribers who lacked creditworthiness. The D.R argued that responding to the notices under sections 133(6) and 131 of the Act did not automatically establish compliance with the conditions outlined in section 68 of the Act. The D.R also claimed that the AO’s inability to conduct inquiries and investigations was due to the subscribers’ non-compliance with the summons issued under section 131 of the Act.
11. ITAT’s Decision: After hearing the arguments from both sides and reviewing the case, the ITAT came to a decisive conclusion. The ITAT found that the appellant had raised INR 2,73,00,000 from two subscribers and had furnished a substantial amount of evidence to support the identity and creditworthiness of these subscribers, as well as the genuineness of the transactions. Notably, both the AO and CIT(A) had not commented on the evidence submitted.
12. Failure to Investigate: The ITAT expressed its concern that the AO had not conducted any further investigation or inquiries but had hastily concluded that the amount constituted unexplained cash credit under section 68 of the Act. The CIT(A) had also merely affirmed the AO’s findings without providing a detailed explanation.
13. Legal Precedents Supported the Appellant: The ITAT cited legal precedents, including the decision of the Hon’ble Supreme Court in the case of Orissa Corporation Ltd., to emphasize the importance of the Revenue conducting proper investigations when substantial evidence had been provided by the taxpayer. It noted that the mere non-compliance with summons by shareholders should not be the sole basis for making such an addition.
14. Decision to Delete the Addition: In light of the above findings, the ITAT set aside the CIT(A)’s order and directed the AO to delete the income tax addition, affirming that the appellant had discharged the burden of proof regarding the identity, creditworthiness of subscribers, and the genuineness of the transactions.
Conclusion: The decision by the Income Tax Appellate Tribunal (ITAT) in the case of Prompt Barter Private Limited versus the Income Tax Officer (ITO) is significant as it reaffirms the importance of thorough investigation and proper consideration of evidence by tax authorities. In this case, the ITAT directed the AO to delete the income tax addition, highlighting that when taxpayers provide substantial evidence to support
FULL TEXT OF THE ORDER OF ITAT KOLKATA
This is an appeal preferred by the assessee against the order of Ld. CIT(A), Income Tax Department, National Faceless Appeal Centre (NFAC), Delhidated 25.07.2023 for AY 2012-13.
2. The only issue raised by the assessee is against the confirmation of addition of 2,73,00,000/- by Ld. CIT(A) which was added by the AO as unexplained cash credit u/s. 68 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”).
3. The facts in brief are that the assessee filed the return of income on 28.09.2012 declaring income of Rs.3,41,310/- which was processed u/s. 143(1) of the act. Thereafter, the case of the assessee was selected for scrutiny under CASS and notices were issued and duly served on the assessee. The reason for selecting the scrutiny of the assessee’s case was large share capital received during the year and accordingly the AO called upon the assessee to prove the identity and creditworthiness of the shareholders and genuineness of the transactions. The assessee filed before the AO necessary evidences comprising annual audited accounts, PANs and Identity cards of the directors, share allotment advice, bank statemenst etc. The AO also issued notices u/s. 133(6) of the Act as well as summon u/s. 131 of the Act calling for various details and information from the subscribers which were duly complied with by filing replies. However, the personal attendance was not made before the AO, so he added the aggregate amount of share capital and share premium raised during the year of Rs.2,73,00,000/- to the income of the assessee on the ground that no compliance was made to the summons issued u/s. 131 of the Act without commenting on the evidences filed by the assessee as well as by the subscribers nor conducting any further enquiries. The aggrieved assessee challenged the assessment before the Ld. CIT(A) and Ld. CIT(A) also confirmed the order of AO reiterating the same reasoning.
4. Ld. Counsel for the assessee vehemently submitted before the bench that the order passed by the Ld. CIT(A) is wrong and against the facts on record and various decisions given by different judicial forum. The Ld. AR ,while referring to the evidences filed by the assessee as well as by the subscribers, submitted that the assessee as well as the subscribers have filed all the evidences proving the identity and creditworthiness of the subscribers as well as genuineness of the transactions. The Ld. AR referred to the replies filed in response to notice u/s. 13 3(6) of the Act and in response to summons u/s. 131 of the Act and submitted that the AO has not pointed out any defect or deficiency in these evidences, which abundantly proved the three conditions of section 68 of the Act. The Ld. AR stated that where the assessee has filed all the evidences qua the subscribers consisting of names and addresses, PANs, audited accounts, bank statements etc. and AO has not carried out any further verification, then the addition cannot be made merely on the ground that there was no compliance to summon issued u/s. 131 of the Act. The Ld. AR stated that even the information sought by the AO in the summons issued u/s. 131 of the Act were duly complied. In defense of his argument he relied on the following decisions:
(i) CIT Vs. Orissa Corporation Pvt. Ltd. (1986) 159 ITR 78 (SC);
(ii) CIT Vs. Orchid Industries Ltd. 397 ITR 136 (Bom);
(iii) Crystal Networks Pvt. Ltd. Vs. CIT 353 ITR 171 (Kol);
(iv) ITO Vs. M/s. Cygnus Developers India Pvt. Ltd. (ITA No. 282/Kol/2012) and
(v) Joy Consolidated Pvt. Ltd. Vs. ITO (ITA No. 547/Kol/2020.
5. The Ld. D.R strongly controverted and opposed the arguments as put forth by the Ld. R by submitting that the share application money was received by the assessee from various subscribers who were not having any creditworthiness. The Ld. D.R submitted that ireplying to the notices u/s 133(6) and u/s 131 of the Act does not mean that the ingredients as envisaged in section 68 of the Act were duly satisfied. Besides the ld DR stated that the enquiries and investigation could not be carried out by the AO when the subscribers did not appear personally in compliance to summons issued u/s 131 of the Act. Therefore the Ld. D.R ,therefore, submitted that the addition was rightly made by the AO and also confirmed by the Ld. CIT(A) after taking into account the reply of the assessee and the various circumstantial evidences.
6. We have heard the rival contentions and perused the material on record. The undisputed facts are that the assessee has raised money of Rs. 2,73,00,000/- from two subscribers. The assessee has filed all the documents with the AO as stated above. Even the notices issued u/s 133(6) and 131 of the Act were duly honoured by furnishing all the details as called for by the AO however the personal presence of the subscribers/investors was not made before the AO. We note that the AO, instead examining and enquiring into the material further, has straightaway jumped to the conclusion that these are unexplained cash credit within the meaning of section 68 of the Act. Similarly the Ld. CIT(A) has affirmed the findings of AO on this issue without passing any speaking order by merely discussing the decision in the case of Durga Prasad More (supra)and Sumati Dayal (supra) and by discussing the human probability. In our opinion, when the assessee has filed all the documents before the authorities below, they are duty bound to investigate the matter and conduct necessary enquiries and only base the conclusion on the basis of result of enquiry. However we note that in the present case, no further investigation or enquiry was conducted either by the AO or by the Ld. CIT(A). Even the documents furnished by the assessee were not commented. Under the circumstances we are not in a position to concur a conclusion drawn by the Ld. CIT(A). The mere non compliance by appearance of share holders before the AO can not be the reason for making the addition. We note that despite having filed all the evidences, no enquiry was done by the AO. We also note that the Ld. CIT(A) has simply affirmed the finding of the AO by holding that no identity and creditworthiness of the creditors could not be proved by the assessee by ignoring all the evidences placed before him. Under the circumstances, we are not in a position to sustain the order of Ld. CIT(A). We find support from the decision of Hon’ble Supreme Court in the case of Orissa Corporation Ltd. (supra)
“That in this case the respondent 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 numbers were in the file of the Revenue. The Revenue, apart from issuing notices under Section 131 at the instance of the respondent, 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 creditworthy. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the respondent could not do anything further. In the premises, if the Tribunal came to the conclusion that the respondent had discharged the burden that lay on it, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. I f the conclusion was based on some evidence on which a conclusion could be arrived at, no question of law as such arose. The High Court was right in refusing to state a case.”
6.1 The case of the assessee is also squarely covered by the decisions of Hon’ble Calcutta High Court in the case of Crystal Networks Pvt. Ltd. vs. CIT (supra ) wherein it has held that where all the evidences were filed by the assessee proving the identity and creditworthiness of the loan transactions , the fact that summon issued were returned unserved or no body complied with them is of little significance to prove the genuineness of the transactions and identity and creditworthiness of the creditors. The relevant portion of the decision is extracted below:
“We find considerable force of the submissions of the learned Counsel for the appellant that the Tribunal has merely noticed that since the summons issued before assessment returned unserved and no one came forward to prove. Therefore it shall be assumed that the assessee failed to prove the existence of the creditors or for that matter creditworthiness. As rightly pointed out by the learned counsel that the Ld. CIT(A) has taken the trouble of examining of all other materials and documents viz., confirmatory statements, invoices, challans and vouchers showing supply of bidi as against the advance. Therefore, the attendance of the witnesses pursuant to the summons issued in our view is not important. The important is to prove as to whether the said cash credit was received as against the future sale of the product of the assessee or note. When it was found by the Ld. CIT(A) on fact having examined the documents that the advance given by the creditors have been established the Tribunal should not have ignored this fact findings. Indeed the Tribunal did not really touch the aforesaid fact finding of the Ld. CIT(A) as rightly pointed out by the learned counsel. The Supreme Court has already stated as to what should be the duty of the learned Tribunal to decide in this situation. In the said judgment noted by us at page 463, the Supreme Court has observed as follows:
“The Income-Tax Appellate Tribunals performs a judicial function under the Indian Income-tax Act. It is invested with authority to determine finally all questions of fact. The Tribunal must, in deciding an appeal, consider with due care all the material facts and records its findings on all the contentions raised by the assessee and the Commissioner, in the light of the evidence and the relevant law.”
The Tribunal must, in deciding an appeal, consider with due care all the material facts and record its findings on all contentions raised by the assessee and the Commissioner, in the light of the evidence and the relevant law. It is also ruled in the said judgment at page 465 that if the Tribunal does not discharge the duty in the manner as above then it shall be assumed the judgment of the Tribunal suffers from manifest infirmity.
Taking inspiration from the Supreme Court observation we are constrained to hold in this matter that the Tribunal has not adjudicated upon the case of the assessee in the light of the evidence as found by the Ld. CIT(A). We also found no single word has been spared to up set the fact finding of the Ld. CIT(A) that there are materials to show the cash credit was received from various persons and supply as against cash credit also made.
Hence, the judgment and order of the Tribunal is not sustainable. Accordingly, the same is set aside. We restore the judgment and order of the Ld. CIT(A). The appeal is allowed.”
6.2. The case of is also covered by the decision of the coordinate bench by ITO Vs M/s Cygnus Developers India Pvt. Ltd. (supra) the operative part whereof is extracted below:
“8. We have heard the submissions of the learned D.R, who relied on the order of AO. The learned counsel for the assessee relied on the order of Ld. CIT(A) and further drew our attention to the decision of Hon ’ble Allahabad High Court in the case of CIT vs. Raj Kumar Agarwal vide ITA No. 179/2008 dated 17.11.2009 wherein the Hon ’ble Allahabad High Court took a view that non-production of the director of a Public Limited Company which is regularly assessed to Income tax having PAN, on the ground that the identity of the investor is not proved cannot be sustained. Attention was also to the similar ruling of the ITAT Kolkata bench in the case of ITO vs. Devinder Singh Shant in ITA No. 208/Kol/2009 vide order dated 17.04.2009.
9. We have considered the rival submissions. We are of the view that order of Ld. CIT(A) does not call for any interference. It may be seen from the grounds of appeal raised by the revenue that the revenue disputed only the proof of identity of share holder. In this regard it is seen that for AY 2004-05 Shree Shyam Trexim Pvt. Ltd. was assessed by ITO, Ward-9(4), Kolkata and the order of assessment u/s 143(3) dated 25.01.2006 is placed in the paper book. Similarly Navalco Commodities Pvt. Ltd. was assessed to tax u/s 143(3) for AY 2005-06 by ITO, Ward-9(4), Kolkata by order dated 20.03.2007. Similarly Jewellock Trexim Pvt. Ltd. was assessed to tax for AY 2005-06 by the very same ITO, Ward-9(3), Kolkata assessing the assessee. In the light of the above factual position which is not disputed by the revenue, it cannot be said that the identity of the share applicants remained not proved by the assessee. The decision of the Hon ’ble Allahabad High Court as well as ITAT, Kolkata Bench on which reliance was placed by the learned counsel for the assessee also supports the view that for non-production of directors of the investor company for examination by the AO it cannot be held that the identity of a limited company has not been established. For the reasons given above we uphold the order of Ld. CIT(A) and dismiss the appeal of the revenue.”
6.3. Similar ratio has been laid down by the Hon’ble Mumbai High Court in the case of CIT Vs Orchid Industries (P) Ltd (supra) by holding that provisions of section 68 of the Act can not be invoked for the reasons that the person has not appeared before the AO where the assessee had produced on records documents to establish genuineness of the party such as PAN ,financial and bank statements showing share application money .
7. In the instant case before us also, the assessee has furnished all the evidences proving identity and creditworthiness of the investors and genuineness of the transactions but AO has not commented on these evidences filed by the assessee. Besides the investors have also furnished complete details/evidences before the AO which proved the identity , creditworthiness of investors and genuineness of the transactions. Under these facts and circumstances and considering underlying facts in the light of ratio laid down in the decisions as discussed above , we are inclined to set aside the order of Ld. CIT(A) by directing the AO to delete the addition.
8. In the result, the appeal of the assessee is allowed.
Order is pronounced in the open court on 11th October, 2023
