AARTI INFRASTRUCTURE AND BUILDCON LTD., RAIPUR,RAIPUR V. PRINCIPAL COMMISSIONER OF INCOME TAX, RAIPUR-1, RAIPUR

ITA 220/RPR/2024

AI Insights

The case involves Aarti Infrastructure and Buildcon Ltd., which appealed against the order of the Principal Commissioner of Income Tax, Raipur-1, passed under Section 263 of the Income Tax Act, 1961. The PCIT had set aside the assessment order passed by the Assessing Officer under Sections 143(3) read with 144B, citing that the original assessment was erroneous and prejudicial to the interests of the revenue. The Tribunal examined the issues of whether the loan received from Dhanlaxmi Vyapar Pvt. Ltd., identified as a shell company, constituted unexplained cash credit, and whether the conversion of capital assets into stock-in-trade required immediate taxation.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 29775 (ITAT-RAIPUR)
• Duration Of Justice: 5 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2024
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Next Hearing Date: 27-09-2024
• Assessment Year: 2018-2019
• Appeal Filed On: 16-05-2024
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S.L.ANURAGI
• Assessee Lawyers: R. B. DOSHI
• Keywords: Set aside; Capital asset; Unexplained cash credit; Unexplained expenditure; Cost of acquisition; Revision of order; Capital asset converted into stock in trade
• Section: 143(3); 143(2); 48; 68; 45(2)

Judgement Text

" आयकर अपीलीय अिधकरण, रायपुर Ɋायपीठ, रायपुर IN THE INCOME TAX APPELLATE TRIBUNAL RAIPUR BENCH, RAIPUR ŵी रिवश सूद, Ɋाियक सद˟ एवं ŵी अŜण खोड़िपया, लेखा सद˟ क े समƗ । BEFORE SHRI RAVISH SOOD, JM & SHRI ARUN KHODPIA, AM (ITA No. 220/RPR/2024) (Assessment Year: 2018-19) आदेश / O R D E R Per Arun Khodpia, AM: The captioned appeal is filed by the assessee against the order of Principal Commissioner of Income Tax, Raipur-1 [for short, “ld. PCIT”], passed u/s 263 of the Income Tax Act, 1961 (in short, “the Act”), for the AY 2018-19, dated 20.03.2024, resulted from the initiation of revisional proceedings against the order u/s 143(3) r.w.s. 144B of the Act passed by the Assessing Officer, National e-Assessment Centre, Delhi [for short, “ld. AO”], dated 26.04.2021. Aarti Infrastructure and Buildcon Limited, Aarti House, Ashoka Ratan, Vidhan Sabha Road, Shankar Nagar, Raipur (C.G.) V S Pr. Commissioner of Income Tax, Raipur-1, Aaykar Bhawan, Civil Lines, Raipur (C.G.) PAN: AADCA4099H (अपीलाथŎ/Appellant) . . (ŮȑथŎ / Respondent) िनधाŊįरती की ओर से / Assessee by : Shri R.B. Doshi, CA राजˢ की ओर से / Revenue by : Shri S.L. Anuragi, CIT-DR सुनवाई की तारीख / Date of Hearing : 27.09.2024 घोषणा की तारीख / Date of Pronouncement : 21.10.2024 ITA No.220/RPR/2024 Aarti Infrastructure and Buildcon Ltd. Vs Pr. CIT, Raipur-1 2 2. The grounds of appeal assailed by the assessee in the present appeal are extracted as under: “1. Ld. Pr. CIT erred in invoking the provisions of sec. 263 and in setting aside the assessment order for fresh enquiry. The assessment order is neither erroneous nor prejudicial to the interest of Revenue. Order passed u/s 263 is unsustainable and is passed without properly appreciating the facts of the case. 2. Without prejudice to above grounds, the revision order passed u/s 263 is illegal, bad in law & unsustainable inasmuch as it is a nonspeaking order. 3. The appellant reserves the right to amend, modify or add any of the ground/s of appeal.” 3. Brief facts of the case are that the assessee had filed its return of income dated 07.12.2018, declaring the total income of Rs.6,68,93,480/-. Subsequently, the case of the assessee, thereafter was selected for complete scrutiny under the E-assessment Scheme 2019 (changed to Faceless Assessment Scheme w.e.f. 13.08.2020). Statutory notices u/s 143(2) dated 22.09.2019 and u/s 142(2) dated 06.06.2020 were served upon the assessee, in response to which, the assessee has submitted necessary details vide its reply dated 23.02.2021 and 02.03.2021. After verification of the details furnished by the assessee and considering the explanation offered by the assessee, being satisfied with the same, the assessment was completed accepting the returned income of the assessee company and assessed the income for the relevant year. ITA No.220/RPR/2024 Aarti Infrastructure and Buildcon Ltd. Vs Pr. CIT, Raipur-1 3 In due course of time, the case records of the assessee have been examined by the ld. PCIT and found the same appropriate for triggering the revisionary proceedings u/s 263 of the Act against the assessee. The reasons for revisionary action are described in the impugned order u/s 263 of the Act, the same are culled out for proper appreciation of facts: “2. On perusal of the case record revealed that the assessee had taken loan worth of Rs.10,00,000/- and also made payment of Rs.22,10,105/- as interest to Dhanlaxmi Vyapar Pvt. Ltd (PAN- AACCD7247H) Kolkata, during the year under consideration. Since as per the list published by the SEBI on online platform, Dhanlaxmi Vyapar Pvt. is a shell company, hence all of the amount received from and payment made to the said company should have been treated as Unexplained Cash Credit u/s 68 and Unexplained Expenditure u/s 69C of the Income Tax Act, 1961 respectively and added back to the total income of assessee. (ii) Further examination of the case record vis-à-vis audit report revealed that the assessee had capital assets i.e. land situated at Mowa bearing Khasra No. 713, 715/2, 715/3 & 715/4 which were acquired 30.03.2013 and cost of acquisition was worth to Rs.175,77,059/-. During the year under consideration the assessee had converted the aforesaid land into stock-in-trade at cost of acquisition. As per provisions of Section 2(47)(iv) of the Act, 1961 the moment and assessee starts treating his/her capital Asset as Stock- in-trade for his/her business the moment liability of capital Gain arises but the assessee not computed long term capital gain nor any provision made for capital gain tax liability in the Balance Sheet as at 31” March, 2018 which is irregular. 3. Considering the facts narrated in the foregoing paras which have emanated from case record, I am of the considered view that the order ITA No.220/RPR/2024 Aarti Infrastructure and Buildcon Ltd. Vs Pr. CIT, Raipur-1 4 passed u/s 143(3) r.w.s. 144B of the Income Tax Act, 1961 vide order dated 26.04.2021 is erroneous and prejudicial to the interest of revenue and therefore, needs to be revised under the provisions of section u/s 263 of the IT Act, 1961.” 4. In view of the aforesaid observations by the ld. PCIT, a show cause notice u/s 263 of the Act dated 17.02.2023 was issued to the assessee, in response to which, the assessee filed its submissions on 23.02.2023 and requested to provide details of SEBI reference classifying the Dhanlaxmi Vyapar Pvt. Ltd. as shell company. Details were provided to the assessee by the PCIT and also notice for change of incumbency was issued on 11.03.2024. In continuation of proceedings, the assessee submitted its replies on 15.03.2024 explaining about the company Dhanlaxmi Vyapar Pvt. Ltd that this company is a group of the assessee, directors in both the companies are common, it is also contended before the ld. PCIT that Dhanlaxmi Vyapar Pvt. Ltd. is not a listed company, whereas the SEBI only deals with listed companies, therefore, their inference that Dhanlaxmi Vyapar Pvt. Ltd. is a shell company as per list published by the SEBI is misconstrued and incomprehensible. 5. Apropos, the issue regarding conversion of land situated at Mowa from capital asset to stock-in-trade, the ld. PCIT has observed that such transaction falls within the ambit of Section 2(47)(iv) of the Act and the assessee is liable to ITA No.220/RPR/2024 Aarti Infrastructure and Buildcon Ltd. Vs Pr. CIT, Raipur-1 5 pay taxes from the capital gain arising from such transactions. On this aspect, it was the submission by the assessee before the ld. PCIT that the conversion of capital asset into stock-in-trade during the relevant year, as contemplated in the provisions of Section 2(47)(iv) of the Act is not disputed, but tax liability of such stock in trade shall arise and calculated in terms of provision of Section 45(2) of the Act, only in the year in which such stock is sold. It is clarified that, there was no sale out of the land converted into stock in trade during the year under consideration, therefore, there is no tax liability on account of capital gain or business profit arises in the hands of the assessee. The order of the AO, thus, on this aspect cannot be treated as erroneous so as prejudicial to the interest of revenue. 6. The aforesaid contention and explanation by the assessee before the ld. PCIT are not accepted, as he observed that the matter needs detailed verification and enquiry, therefore, the matter is liable to be and thus set aside to the file of the Ld. AO for detail verification and fresh adjudication. 7. Aggrieved with the aforesaid order of the ld. PCIT, the assessee carried the matter in appeal by way of the present appeal before the Tribunal, which is under consideration before us. ITA No.220/RPR/2024 Aarti Infrastructure and Buildcon Ltd. Vs Pr. CIT, Raipur-1 6 8. At the outset, Shri R.B. Doshi, Chartered Accountant, learned authorized representative (in short, “ld. AR”) for the assessee had submitted a written synopsis, the same is extracted as under: ITA No.220/RPR/2024 Aarti Infrastructure and Buildcon Ltd. Vs Pr. CIT, Raipur-1 7 ITA No.220/RPR/2024 Aarti Infrastructure and Buildcon Ltd. Vs Pr. CIT, Raipur-1 8 9. Based on the aforesaid submissions, it is assailed by the ld. AR that the assessee company had received unsecured loan from Dhamlaxmi Vyapar Pvt. Ltd (in short “DVPL”) and paid interest thereon during the relevant year. It was the allegation by ld. PCIT that DVPL is a shell company, the basis to classify of the lender company as shell company was an article in the private webpage of ITA No.220/RPR/2024 Aarti Infrastructure and Buildcon Ltd. Vs Pr. CIT, Raipur-1 9 the “Tax Guru”. It is further submitted by the ld. AR that as per the same article many companies have been struck off by ROC, also the lender company has not received any notice from any authorities such as ROC / MCA for striking off or for any other adverse action against it. It was the submission that no action against the assessee’s lender company was taken which shows that it is not a shell company. To substantiate that the lender company is a shell company no enquiry has been made by the ld. PCIT. It is also contended that the lender company is a private limited company, therefore, there is no authority of SEBI declaring it as shell company, as the SEBI does not have any regulatory authority on private limited companies. On factual aspect of the receipt of loan from the said company, the ld. AR had furnished the copies of balance sheet, ITR, ROC master database, etc., of the lender company and argued that the lender company is an “active compliant” company as per ROC master data. 10. Regarding conversion of capital asset into stock-in-trade, it was the contention that as per Section 45(2) of the Act, income from sale of stock in trade is chargeable in the previous year in which the stock was sold or otherwise transferred, whereas, there was no material record and in fact there was no sale of the capital asset converted into stock-in-trade for the relevant year, therefore, the ld. PCIT perception to tax the transaction of conversion from capital asset to stock-in-trade for the year itself was misplaced and uncalled for. It was also the contention of the ld. AR that the order of ld. PCIT is a non-speaking order having ITA No.220/RPR/2024 Aarti Infrastructure and Buildcon Ltd. Vs Pr. CIT, Raipur-1 10 no mention about how the explanation furnished by the assessee are not acceptable by him. Backed by aforesaid submission, it was the prayer that the revision order passed u/s 263 of the Act is a non-speaking and unreasoned order, thus, the same is liable to be set aside. 11. In rebuttal, Shri S.L. Anuragi, learned CIT-DR submitted that the lender company was found in the list of shell companies, as prepared by the government and investigating agencies, the copy of which is furnished before us along with a letter from the ld. PCIT, the same are extracted as under: ITA No.220/RPR/2024 Aarti Infrastructure and Buildcon Ltd. Vs Pr. CIT, Raipur-1 11 ITA No.220/RPR/2024 Aarti Infrastructure and Buildcon Ltd. Vs Pr. CIT, Raipur-1 12 ITA No.220/RPR/2024 Aarti Infrastructure and Buildcon Ltd. Vs Pr. CIT, Raipur-1 13 12. It is further submitted by the Ld. CIT-DR that the list is being uploaded by the website “Tax Guru” but the same was prepared by the Government with the inputs of all investigating agencies, therefore, the same cannot be considered as unauthentic report. Also, since the matter has been restored back to the files of the AO for examining the said issue, no prejudice is caused to the assessee, as the assessee has all the opportunities to submits its response before the ld. AO. Under such facts and circumstances, the order of the ld. PCIT cannot be said to be unjustified, thus, the same deserves to be upheld. 13. We have considered the rival submissions made by the learned authorized representatives of both the parties, orders of the lower authorities and have perused the materials available on record. ITA No.220/RPR/2024 Aarti Infrastructure and Buildcon Ltd. Vs Pr. CIT, Raipur-1 14 14. In present case, admittedly, the name of M/s Dhanlaxmi Vyapar Pvt. Ltd. along with its Company Information Number (“CIN”) and PAN number published by the website Tax Guru on the basis of the list prepared by the Government with the inputs from the investigating agencies. As per facts on records, it is evident that this aspect was neither discussed, queried nor explained during the assessment proceedings u/s 143(3), therefore, there was no occasion for the Ld. AO to be look into the same. The serious allegation as to receipt of loan from a shell company needs to be examined and decided on merits which could not be touched upon by the ld. AO while completing the assessment u/s 143(3) of the Act dated 26.04.2021, therefore, ld. PCIT was right in setting aside the issue to the file of the ld. AO, thus, we approve the order of ld. PCIT qua the issue regarding Unexplained Cash Deposit u/s 68 and Unexplained Expenditure u/s 69C for unsecured loans taken by the assessee company from M/s Dhanlaxmi Vyapar Pvt. Ltd. Herein, we cannot concur with the explanations by the Ld. AR that the information available on a private webpage should not be relied upon, whereas the name of lender company DVPL along with its CIN Number and PAN No. are appearing in the list of shell companies. The other contentions in support of DVPL that the companies name is not struck off by the ROC, no adverse action taken by any of the regulatory authorities and that the SEBI is not the regulatory authority on private limited companies are subject matter of investigation and verification. We, therefore, are of the considered view that the matter has been ITA No.220/RPR/2024 Aarti Infrastructure and Buildcon Ltd. Vs Pr. CIT, Raipur-1 15 rightly restored back to the AO for necessary inquiries and fresh adjudication, also the assessee has the opportunity to furnish all necessary information and contentions before the ld. Assessing Officer, thus, there is no prejudice with the assessee. 15. Apropos, the issue regarding conversion of capital asset into stock-in- trade, we find force in the contention of ld. AR that the point of taxation for such transaction will be the disposal of the stock in trade by way of sale or otherwise transfer, whereas, as clarified by the Ld. AR that in the year under consideration there was no sale of stock, which was converted from capital asset into stock-in- trade, however, this fact also requires verifications, therefore, restoration of the same to the file of the AO is justified. 16. Herein, we observe that the capital asset converted into stock in trade of a business carried out by it is to be treated as transfer under the provisions of section 2(47)(iv), but the same can be taxed in accordance with provisions of section 45(2), in the previous year in which such stock in trade is sold or otherwise transferred. In view of such mandate of law, we direct the ld. AO to verify the facts of the case qua this issue and decide the taxability in case there is any transfer or sale of stock in trade during the year consideration. ITA No.220/RPR/2024 Aarti Infrastructure and Buildcon Ltd. Vs Pr. CIT, Raipur-1 16 17. Considering the aforesaid observations, facts and circumstances, the order of ld. PCIT is upheld with the slight modification as indicated above that the transaction of conversion of capital assets into stock exchange shall be liable to be taxed for capital gain in terms of provisions of section u/s 45(2) r.w.s. 2(47)(iv) and Sec. 48 of the Act in the previous year in which such stock is sold or otherwise transferred. 18. Resultantly, the appeal of the assessee is partly allowed in terms of our aforesaid observations. Order pronounced in the open court on 21/10/2024. Sd/- (RAVISH SOOD) Sd/-S- (ARUN KHODPIA) Ɋाियक सद˟ / JUDICIAL MEMBER लेखा सद˟ / ACCOUNTANT MEMBER रायपुर/Raipur; िदनांक Dated 21/10/2024 Hem आदेश की Ůितिलिप अŤेिषत/Copy of the Order forwarded to : 1. अपीलाथŎ / The Appellant- Aarti Infrastructure and Buildcon Limited 2. ŮȑथŎ / The Respondent- Pr. CIT, Raipur-1 3. आयकर आयुƅ(अपील) / The CIT(A), 4. The Pr. CIT -1, Raipur, (C.G.) 5. िवभागीय Ůितिनिध, आयकर अपीलीय अिधकरण, रायपुर/ DR, ITAT, Raipur 6. गाडŊ फाईल / Guard file. // स×याǒपत Ĥित True copy // ITA No.220/RPR/2024 Aarti Infrastructure and Buildcon Ltd. Vs Pr. CIT, Raipur-1 17 आदेशानुसार/ BY ORDER, //True copy// (Private Secretary) आयकर अपीलीय अिधकरण, रायपुर/ITAT, Raipur "