DCIT CC-1, LUDHIANA V. M/S OSWAL FASHION (P) LTD., LUDHIANA

ITA 1018/CHANDI/2019

AI Insights

The case involves appeals by the Revenue against the order of the CIT(A) which had deleted additions made under section 68 of the Income Tax Act, 1961, concerning the assessee, M/s Oswal Fashion (P) Ltd., for the Assessment Years 2008–09 and 2009–10. The additions were initially made by the Assessing Officer (AO) based on the entries in the balance sheet and the absence of share transfer documents, alleging unexplained credit entries as liquidation of investments. The CIT(A) found no basis for these additions as no incriminating material was found during the search, and the assessments were not pending at the time of the search. The Tribunal agreed with the CIT(A)'s decision, emphasizing the lack of incriminating evidence and the concluded nature of the assessments prior to the search.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 398226 (ITAT-CHANDIGARH)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-06-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Other Referred Cases: Dhakeshwari Cotton Mills Ltd. (26 ITR 775), CIT v. Kabul Chawla, PCIT v. Abhisar Buildwell (P.) Ltd. [2023] 289 Taxman 1 (SC)
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KUSUM BA NSAL; VIRTUAL MODE
• Assessee Lawyers: GAURVA SHARMA; C.A
• Keywords: Unexplained cash credit; Capital Gains; Liquidation
• Section: 153A; 68

Judgement Text

"आयकर अपीलीय अिधकरण,चǷीगढ़ Ɋायपीठ “बी” , चǷीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “B”, CHANDIGARH HEARING THROUGH: HYBRID MODE ŵी लिलत क ुमार, Ɋाियक सद˟ एवं ŵी मनोज क ुमार अŤवाल, लेखा सद˟ BEFORE: SHRI. LALIET KUMAR, JM & SHRI. MANOJ KUMAR AGGARWAL, AM आयकर अपील सं./ ITA Nos. 1018 & 1019/ Chd/2019 िनधाŊरण वषŊ / Assessment Year : 2008-08 & 2009-10 The DCIT, Central Circle-I Ludhiana बनाम M/s Oswal Fashion (P) Ltd. G.T. Road (West) Jalandhar Bye Pass, Ludhiana, Punjab-141001 ˕ायी लेखा सं./PAN NO: AAACO2183R अपीलाथŎ/Appellant ŮȑथŎ/Respondent Cross Objection Nos. 2 & 3/Chd/2020 In (आयकर अपील सं./ ITA Nos. 1018 & 1019/ Chd/2019 ) िनधाŊरण वषŊ / Assessment Year : 2008-08 & 2009-10 M/s Oswal Fashion (P) Ltd. G.T. Road (West) Jalandhar Bye Pass, Ludhiana, Punjab-141001 बनाम The DCIT, Central Circle-I Ludhiana ˕ायी लेखा सं./PAN NO: AAACO2183R अपीलाथŎ/Appellant ŮȑथŎ/Respondent िनधाŊįरती की ओर से/Assessee by : Shri Gaurva Sharma, C.A राजˢ की ओर से/ Revenue by : Smt. Kusum Bansal, CIT, DR (Virtual Mode) सुनवाई की तारीख/Date of Hearing : 02/06/2025 उदघोषणा की तारीख/Date of Pronouncement : 04/06/2025 आदेश/Order PER LALIET KUMAR, J.M: These appeals by the Revenue and Cross Objections by the Assessee arise out of the order of the Ld. CIT (A)-5, Ludhiana dated 04.04.2019 for the Assessment Years 2008–09 and 2009–10. 2. At the outset the Registry has pointed out that the both the above C.O. Nos. 2 & 3 /Chd/2020 are barred by limitation by 09 days. 3. After considering the condonation applications filed by the assessee in both the Cross Objections, we condone the delay for which sufficient cause is shown, and admit both the Cross Objections for adjudication. 2 4. The assessee, in its Cross Objection for A.Y. 2008–09, has raised a legal ground challenging the validity of the addition made under section 68 of the Income-tax Act, 1961, on the ground that the said addition was made without the support of any incriminating material found during the course of search, and the assessment for the year was not pending on the date of search. 5. Briefly, the assessee filed its original return of income for A.Y. 2008–09 on 22.08.2008 declaring income of Rs.13,87,500/-. The return was processed under section 143(1) and no notice under section 143(2) was issued. The assessment stood concluded as on the date of search conducted on 10.05.2012. In response to notice under section 153A, the assessee filed the return reiterating the same income. 6. During the course of assessment under section 153A read with 143(3), the AO made an addition of Rs. 2.30 crore under section 68, on the basis that the assessee had shown liquidation of investment in shares of M/s Oswal Clothing Pvt. Ltd., but could not establish the actual transfer of shares to M/s Saturn Stock Investment Pvt. Ltd. The addition was made solely on the basis of the entries in the balance sheet and the absence of share transfer documents. No material found during the search was referred to in support of the addition. 7. The Ld. CIT(A) deleted the addition in the impugned order by observing as under: 3.2 Ground of Appeal No. 2 is regarding transfer of jurisdiction u/s 127 of the Act. This issue is not appealable before this office and cannot be raised in appeal filed before the CIT(Appeal) as per the provisions of Section 246A of the Income Tax Act, 1961. The appellant has to approach the appropriate Court for the same. Hence, this ground does not require any adjudication by this office. 3.3 Grounds of Appeal Nos. 4 & 5 relate to addition of Rs. 2,30,00,000/- for assessment year 2008-09 and addition of Rs. 2,70,00,0000/- for assessment year 2009-10. The AO has mentioned that from the perusal of the balance sheets of the assessee as on 31.03.2008 and 31.03.2009, it was noticed that the company has raised credit entries of Rs. 2,30,00,000/- and Rs. 2,70,00,000/- in its books for 3 assessment year 2008-09 and 2009-10 respectively being its investment in M/s. Oswal Clothings Pvt. Ltd. partly liquidated during each of the two years. It was also noted by the AO that the company has invested these amounts in the shares of another sister concern M/s. Oswal Apparels Pvt. Ltd. The AO further mentioned that the company was asked to provide details of such liquidation and in reply received on 20.02.2015, the assessee submitted that during the financial year 2007-08, the assessee sold 46000 equity shares of M/s. Oswal Clothing Pvt. Ltd. to M/s. Saturn Stocks Investment Pvt. Ltd. @501/- per share whereas its cost was Rs. 500/- per share and the resultant profit was shown under the head 'other income'. It was also submitted that copy of account of investment and purchase along with the bank statement are enclosed. Similarly, the company sold remaining 54000 shares in financial year 2009-10 @ 501/- per share for Rs. 2,70,54,000/-. However, as per the AO, from the perusal of ROC data of M/s. Oswal Clothing Pvt. Ltd., it was noticed that the assessee company did not sell any of the shareholding of M/s. Oswal Clothing Pvt. Ltd. during these periods. It is also mentioned by the AO that as per the details of annual return of AGM of 29.09.2012, the assessee company sold 1,00,000 shares of M/s. Oswal Clothing Pvt. Ltd. to Sh. Rakesh Jain and Smt. Shalini Jain (50,000 each) only on 01.10.2011. As per the AO, hence the assessee was confronted on this issue and asked to furnished details like share allotment certificate, statement of accounts of investment, name, address etc. of the party to whom such shares were sold and copy of the bank account statement showing receipt of liquidated investment in M/s. Oswal Clothing Pvt. Ltd., copy of share transfer certificate etc. It was also conveyed that as per information filed with ROC, the company submitted that the assessee transferred 1,00,000 shares on 01.10.2011 @ Rs.10/- per share to Sh. Rakesh Jain and Smt. Shalini Jain (50,000 each). In the absence of reply, the assessee was show caused as to why these credit entries being investment liquidated from M/s. Oswal Clothing Pvt. Ltd. shown in the balance sheet may not be treated as unexplained u/s 68. As per the AO, the assessee failed to submit the share allotment certificate or share transfer certificate vide which transfer of 46,000 and 54,000 shares of M/s. Oswal Clothing Pvt. Ltd. on 31.03.2008 and on 31.03.2009 respectively was made to M/s. Saturn Stock Investment Pvt. Ltd. As per the AO, in the absence of share transfer certificate or any other document, the assessee company could not prove that it actually sold its investment to M/s. Saturn Stock Investment Pvt. Ltd. As per the AO, the assessee failed to submit proof in support and hence failed to establish the source and genuineness of the credit entry of Rs. 2,30,00,000/- and Rs. 2,70,00,000/- (for assessment year 2008-09 and 2009-10 respectively) shown in its books of accounts as liquidation of its investment. Therefore, these amounts were added u/s 68 of the Income Tax Act, 1961 to the returned income of the assessee. The facts of the case, the basis of addition made by the A.O. and the arguments of the AR during the appellate proceedings have been considered. The AR has argued that in the return of income filed by the assessee on 04.09.2008 for assessment year 2008-09 (and on 29.08.2009 for assessment year 2009-10), in the computation chart, the assessee has given complete details regarding the sales of shares under the head 'capital gain' showing the sale value along with indexed cost of purchase value and loss to the tune of Rs. 33,56,083/- for assessment year 2008-09 and Rs. 56,83,500/- for assessment year 2009-10 which was to be carry-forward. It is also mentioned that the assessee has given sale value of shares at Rs. 2,30,46,000/- and Rs. 2,70,54,000/- for assessment year 2008-09 and 2009-10 respectively whereas the AO has considered the amounts as Rs. 2,30,00,000/- and Rs. 2,70,00,000/- for assessment year 2008-09 and 2009-10 respectively and it seems that these amounts have been taken by the AO from the balance sheet. It is also submitted that the AO gave show cause for 28.03.2015 which was a Saturday and the representative of the assessee went on 30.03.2015 to file the reply but he was refused since the 4 assessment order has already been passed. It is also argued that the AO has raised an issue about transfer of shares on 01.10.2011 to Sh. Rakesh Jain and Smt. Shalini Jain which has no relevance with the transactions by the assessee during the period relevant to assessment year 2008-09 and 2009-10. As per the AR, the shares sold by the assessee were in physical form (and not an electronic form) and it was the duty of the purchaser to get these shares transferred in his name. It is also mentioned that the shares were of Private Limited Company and were not trading in stock exchange in India. As per the AR, the purchaser M/s. Saturn Stock Investment Pvt. Ltd. confirmed the copy of the accounts and filed PAN of that company. The AR filed the copy of the bank account statements of the company with Canara Bank and HDFC Bank Limited and State Bank of India arguing that the sale proceeds have been received through clearing in these bank accounts. The AR gave the date wise details along with amounts and bank accounts in which the money was received on sale of shares. It is also mentioned that the AO had made addition on the basis of balance sheet figures whereas in the computation filed by the assessee, the exact amount of Rs. 2,30,46,000/- and Rs. 2,70,54,000/-for assessment year 2008- 09 and 2009-10 respectively, received as sale consideration against the sales of shares was duly reflected. It is argued that the AO has not considered the correct figure and applied the incorrect figures which clearly show that the assessment has been framed only for the purpose of making the addition which is illegal and bad in the eyes of law. The AR relied upon the judgment of the Supreme Court in the case of Dhakeshwari Cotton Mills Ltd. (26 ITR 775). The AR has filed copy of the balance sheet along with the computation of income for the two years. A perusal of the same shows that the assessee has duly disclosed the calculation of capital gains on the sale of shares giving the sale consideration amount along with the date of purchase and cost of purchase, resulting into loss after applying indexation for the respective years. It is also mentioned that the loss is to be carry-forward as there is no other income against which this can be set-off during the year. Further, the assessee has duly reflected the investments in the shares of M/s. Oswal Clothing Pvt. Ltd. as on 31.03.2007 at Rs. 5,00,00,000/-, as on 31.03.2008 at Rs. 2,70,00,000/- and as on 31.03.2009 at Rs. Nil in the respective balance sheets. Thus, there is no capital enhancement and the transactions in shares (both purchase and sales) have been duly reflected in the balance sheet of the assessee and in the computation of income before the date of search. The returns for these years were filed on 04.09.2008 and 29.08.2009, before the date of search which took place on 10.05.2012. The sale proceeds of the shares have been received in the bank account of the assessee during the financial year 2007-08 and 2008-09 and duly accounted for in the books of accounts of the assessee and the AR has filed the bank reconciliation also. From the records, it is seen that the assessee sold these shares and duly reflected the same in the computation of income and the returns filed for the respective years before the date of search. The AO has not brought on record anything to indicate that the transactions are false. The money has been received through banking channel and duly accounted for in the books of accounts of the assessee. The only basis of the AO for making the addition is that the assessee could not substantiate the transfer with the transfer certificate. However, this aspect has been explained by the AR that it was the duty of the purchaser to get the shares in physical form transferred in its name and it was not an obligation on the assessee to get its name deleted. The assessee, as per the AR, was concerned only with the receipt of money from the purchaser against the sale of shares by the assessee to the purchaser. Once the shares in physical form were handed over by the assessee to the purchaser M/s. Saturn Stock Investment Pvt. Ltd., it was the duty of the purchaser to get the same recorded in the stock register of M/s. Oswal Clothing Pvt. Ltd. and got those shares registered/transferred in its name (or as argued by the AR, M/s. Saturn Stocks Investment Pvt. Ltd. could have sold those shares to a third party and take the payment). There is merit in the argument of 5 the AR that the assessee was under no obligation to get the entries made in the records of M/s. Oswal Clothing Pvt. Ltd., once it handed over the physical shares to M/s. Saturn Stock Investment Pvt. Ltd. and got the payment for the sales of shares of M/s. Oswal Clothing Pvt. Ltd. held by it. The assessee has duly disclosed these sales in its computation of income and thus fulfilled its legal obligation with respect to the sales made by it. Under the facts and the circumstances of the case, the arguments of the AR appears acceptable and the addition of Rs. 2,30,00,000/- and Rs. 2,70,00,000/- for assessment year 2008- 09 and 2009-10 respectively, made by the AO are not found sustainable and hence deleted. Accordingly, these grounds of appeal are allowed. 3.4 ……………………… 3.5 …………………….. 3.6 …………………….. 3.7 …………………….. 3.8 Additional Ground of Appeal: During the appellate proceedings, the appellant raised an additional ground contending that no incriminating material was found during the search and hence the assessment was not sustainable. However, this ground does not require adjudication in view of deletion of addition made by the AO vide grounds of appeal nos. 4 & 5. 8. Feeling aggrieved by the order passed by the Ld. CIT(A) the Revenue is in appeal before us, and the assessee had filed the Cross Objection against the order of the Ld. CIT(A) for not deciding the additional ground pertaining to making the addition despite the fact there was no incriminating material. 9. The Ld. AR relied upon the order passed by the Hon’ble Supreme Court in the case of Abhisar Buildwell and also of Delhi High Court in the case of CIT v. Kabul Chawla and other judgments, holding that no addition can be made in such concluded assessments without incriminating material. 10. Per contra, the Ld. CIT DR relied upon the order passed by the lower authorities. 11. We have considered the rival contentions and perused the material available on record. The facts are undisputed. The assessment was concluded, and the additions were made in the hands of the assessee on the basis of the balance sheet. No incriminating material was found during the search and no incriminating documents was referred to or relied upon by 6 the Assessing Officer in his order. The relevant portion of the assessment order reads as under: 4.4 From the above it can be seen that there has been contradictory statements submitted by the assessee Company in contradiction to the annual return filed by M/s Oswal Clothing Pvt. Ltd. duly signed by its Directors, which show the sale of shares held by the assessee company only on 01/10/2011 and that too for only Rs.10 per share. The above facts, along with the failure of the assessee to submit any proof is support means that the assessee has failed to explain and establish the source & genuineness of the credit entry of Rs. 2,30,00,000/- shown in its books as liquidation of its investments. Hence,, this unexplained credit entry shown in the books of the assessee company is added u/s 68 to the taxable income of the assessee company being unexplained credit entry. 11.1 Thus, it is clear that the addition under section 68 was made only on the basis of entries in the books of account already filed with the return. The Hon’ble Supreme Court in PCIT v. Abhisar Buildwell (P.) Ltd. [2023] 289 Taxman 1 (SC) has held that no addition can be made under section 153A in the case of a completed assessment in the absence of incriminating material found during the search. 11.2. Accordingly, we find merit in the Cross Objection filed by the assessee in C.O. No. 2/Chd/2020 for A.Y. 2008–09. The addition made by the AO is unsustainable in law, and the relief granted by the CIT(A) is upheld, though on the ground that in the absence of incriminating material, no addition could be made under section 153A. The C.O. No. 2/Chd/2020 for A.Y. 2008– 09 is accordingly allowed. 12. Since we have allowed the Cross Objection of the assessee for A.Y. 2008–09 holding that no addition can be made in the absence of incriminating material, we do not find it appropriate to adjudicate the grounds raised by the Revenue in its appeal in ITA No. 1018/Chd/2019 for A.Y. 2008–09, as the foundational jurisdiction itself is lacking. 7 13. In C.O. No. 3/Chd/2020 For A.Y. 2009–10, we find that the facts are identical. The return of income was filed within time, no notice under section 143(2) was issued, and therefore, the assessment stood concluded on the date of search. The addition made under section 68 is not based on any incriminating material found during the course of search. Accordingly, the Cross Objection in C.O. No. 03/Chd/2020 is allowed by following the same reasoning as discussed in C.O. No. 02/Chd/2020 for A.Y. 2008–09. Consequently, the appeal filed by the Revenue in ITA No. 1019/Chd/2019 for A.Y. 2009–10 is dismissed. 14. In the result, the Revenue’s appeals in ITA Nos. 1018 &1019/Chd/2019 for A.Ys. 2008–09 and 2009–10 are dismissed whereas the Cross Objections Nos. 2 & 3/Chd/2020 filed by the assessee for A.Ys. 2008–09 and 2009–10 are allowed. Order pronounced in the open Court on 04/06/2025. Sd/- Sd/- मनोज क ुमार अŤवाल लिलत क ुमार (MANOJ KUMAR AGGARWAL) (LALIET KUMAR) लेखा सद˟/ ACCOUNTANT MEMBER Ɋाियक सद˟ /JUDICIAL MEMBER AG आदेश की Ůितिलिप अŤेिषत/ Copy of the order forwarded to : 1. अपीलाथŎ/ The Appellant 2. ŮȑथŎ/ The Respondent 3. आयकर आयुƅ/ CIT 4. आयकर आयुƅ (अपील)/ The CIT(A) 5. िवभागीय Ůितिनिध, आयकर अपीलीय आिधकरण, चǷीगढ़/ DR, ITAT, CHANDIGARH 6. गाडŊ फाईल/ Guard File आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar "