INCOME TAX OFICER, WARD - 7(1), KOLKATA, KOLKATA V. R J C DEVELOPERS PVT LTD, KOLKATA

ITA 1207/KOL/2023

AI Insights

The case involves an appeal by the Income Tax Officer against RJC Developers Pvt. Ltd., concerning the deletion of an addition of \\u20b920,50,000/- by the ld. CIT (A) for the Assessment Year 2012-13. The addition was initially made by the Assessing Officer (AO) on account of unexplained cash credit under section 68 of the Income Tax Act, due to non-compliance with a summons issued under section 131. The CIT (A) reversed this decision after a detailed examination of the evidence and submissions, including a remand report from the AO which did not find the assessee to be a shell company and confirmed the genuineness of the transactions. The Tribunal dismissed the Revenue's appeal, agreeing with the CIT (A)'s findings and citing relevant judicial precedents.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 473791 (ITAT-KOLKATA)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2025
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Other Referred Cases: CIT v. Gagandeep Infrastructure (P.) Ltd., Bidit Financial Management Private Ltd
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: KALLOL MISTRY
• Assessee Lawyers: SUNIL SURANA
• Keywords: Retrospective amendment; Question of law; Unexplained cash credit; Bogus
• Section: 68; 131

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, KOLKATA BEFORE SHRI RAJESH KUMAR, AM AND SHRI PRADIP KUMAR CHOUBEY, JM ITA No.1207/KOL/2023 (Assessment Year: 2012-13) Income Tax Officer, Ward-7(1) Aayakar Bhawan, P-7 Chowringhee Square, Kolkata-700069, West Bengal Vs. RJC Developers Pvt. Ltd. 52A, Shakespeare Sarani, Chandan Niketan, Unit No.405, Kolkata-700017 West Bengal (Appellant) (Respondent) PAN No. AAECR2766F Assessee by : Shri Sunil Surana, AR Revenue by : Shri Kallol Mistry, DR Date of hearing: 13.01.2025 Date of pronouncement : 21.01.2025 O R D E R Per Rajesh Kumar, AM: This is an appeal preferred by the Revenue against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 26/05/2023for the AY 2012-13. 02. At the outset, we note that there is a delay of 3026 days in filing the appeal by the Revenue. For this condonation petition was filed. It was stated in the condonation petition that the order of the ld. CIT (A) is neither communicated nor any alert on passing of the appellate order by the ld. CIT (A) was sent either by SMS or on email or through any other mode of departmental system of network, therefore the order could not be accessed. The condonation petition further states that the order of ld. CIT (A) was downloaded from the departmental system of Page | 2 ITA No.1207/KOL/2023 RJC Developers Pvt. Ltd; A.Y. 2012-13 network on manual checking basis. It was further stated that from the month of January 2023 to May 2023, there was tremendous pressure of disposing of the time barred cases and therefore, due to non- available of sufficient system resources, the delay has occurred. In petition it was stated that the main reason responsible for late filing of appeal was insufficient resources and consequent no frequent search of appeal order in ITBA system on regular basis. 03. The ld. AR on the other hand, left the issue on the wisdom of the Bench. 04. After hearing the rival contentions and perusing the materials available on record, we find that there is a long delay of 3026 days in filing the appeal by the Revenue, due to non-service of appellate order and also not issuing any alert for passing of appellate order either through SMS or through email or any other mode or departmental system of network. In our opinion the revenue is a government department which is manned by the Government officials in the departmental hierarchy and the file has to go through various stages. Considering the above facts and circumstances and the reasons cited to be genuine and bonafide, we condone the delay in filing the appeal. 05. The only issue raised by the Revenue is against the deletion of addition of ₹2,05,00,000/- by ld CIT(A) as made by the ld. AO on account of unexplained cash credit u/s 68. 06. The facts in brief are that the assessee filed the return of income on 29.09.2012, declaring the total income of ₹28,174. The case of the assessee was selected for scrutiny through Computer Assisted Scrutiny Selection (CASS). The statutory notices were duly served upon the assessee along with questionnaires. The assessee furnished Page | 3 ITA No.1207/KOL/2023 RJC Developers Pvt. Ltd; A.Y. 2012-13 before the ld. AO the details/explanation as sought by the ld. AO during the assessment proceedings. During the year the assessee had issued 16400 equity shares of ₹10/- each at a premium of ₹1240 to M/s Memori Sales Pvt Ltd., who is one of the sister concerns of the assessee. The assessee replied the show cause notice issued by the ld. AO, however summon issued u/s 131 of the Act to the Director of the company, remained non-complied with. The ld. AR thereafter rejecting the reply of the assessee added the money raised in the form of share capital/ share premium of ₹2,05,00,000/- from the sister concern as unexplained cash credit u/s 68 of the Act on the ground that the assessee failed to satisfy the necessary ingredients of Section 68 of the Act. 07. In the appellate proceedings the ld. CIT (A) allowed the appeal of the assessee after taking into consideration the reply/evidences filed by the assessee during the course of appellate proceedings. The ld. CIT (A) called for the remand report from the ld. AO which was duly submitted by the ld. AO before the ld. Commissioner of Income-tax (Appeals). It was submitted that inspector of the department was deputed to visit the subscribers place and found that the address of the investor to be correct which has been mentioned by the ld. CIT (A) at page no.9 para 3 as a part of remand report was extracted by the ld. CIT (A) on para 5 page no.8 and 9 of the ld. CIT (A)’s order. Thereafter, the ld. CIT (A) called for the reply of the assessee on the remand report which was also extracted in Para 6 page 9 to 11 of the appellate order. Finally, the ld. CIT (A) deleted the addition by observing and holding as under:- “7.0 I have considered the order passed by the Ld AO, appellant’s reply, remand report and the rejoinder to the remand report. The appellant has raised the share capital of Rs 2,05,00,000/- from its sister concern, M/s Memori Sales Pvt Ltd. Further, M/s Memori Sales Pvt Ltd has received back refund of the loan Page | 4 ITA No.1207/KOL/2023 RJC Developers Pvt. Ltd; A.Y. 2012-13 earlier granted to the four sister concerns- 1. M/s Saptatarang barter Pvt Ltd, 2. M/s Zion Infra Developers Pvt Ltd, 3. M/s Liluah properties Pvt Ltd, and 4. M/s Loksangha Pvt Ltd. This money was invested by M/s Memori Sales Pvt Ltd in the share capital of the appellant. The evidence regarding sources of funds was filed by the appellant in the reply submitted and the same was considered by the Ld AO in the remand report. The Ld AO has observed that the sources of funds in the hands of M/s Memori Sales Pvt Ltd is explained. However, due to paucity of time, the sources of funds in the hands of the four sister companies (1. M/s Saptatarang barter Pvt Ltd, 2. M/s Zion Infra Developers Pvt Ltd, 3. M/s Liluah properties Pvt Ltd, and 4. M/s Loksangha Pvt Ltd) could not be examined. 7.1 The appellant has further relied on the decision Bombay High Court in the case of CIT v. Gagandeep Infrastructure (P.) Ltd. [2017] 80 taxmann.com 272, wherein it is held that the amendment to section 68 is prospective and is applicable from AY 2013-14. Accordingly, it is argued that the appellant is not required to prove the source of source. I find this judgement relevant in this case. In this case of CIT v. Gagandeep Infrastructure (P.) Ltd, the Revenue contended the fact that the shares were issued at high premium raised suspicion on the genuineness of the transactions. While dismissing this plea raised by the Revenue, the Hon’ble Bombay High Court held as under: “(e) We find that the proviso to section 68 of the Act has been introduced by the Finance Act 2012 with effect from 1st April, 2013. Thus, it would be effective only from the Assessment Year 2013-14 onwards and not for the subject Assessment Year. In fact, before the Tribunal, it was not even the case of the Revenue that Section 68 of the Act as in force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1st April 2013 was its normal meaning. The Parliament did not introduce to proviso to Section 68 of the Act with retrospective effect nor does the proviso so introduced states that it was introduced “for removal of doubts” or that it is “declaratory”. Therefore, it is not open to give it retrospective effect, by proceeding on the basis that the addition of the proviso to Section 68 of the Act is immaterial and does not change the interpretation of Section 68 of the Act both before and after the adding of the proviso. In any view of the matterthe three essential tests while confirming the pre-proviso Section 68 of the Act laid down by the Courts namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on facts it was found satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders i.e. they are bogus. The Apex Court in Lovely Exports (P.) Ltd.(supra) in the context to the pre-amended Section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee’s income as unexplained cash credit. Page | 5 ITA No.1207/KOL/2023 RJC Developers Pvt. Ltd; A.Y. 2012-13 (f) In the above circumstances and particularly in view of the concurrent finding of fact arrived at by the CIT(A) and the Tribunal, the proposed question of law does not give rise to any substantial question of law. Thus, not entertained”. 7.2 Further, I find that the issue is covered in favour of appellant by the judgement of the Bidit Financial Management Private Ltd by the jurisdictional Kolkata ITAT in the ITA no-579/kol/2017 for the AY 2012-13. Therefore, considering the above judgements, I find that the appellant is not required to prove source of source for the AY 2012-13. Accordingly, I direct the Ld AO to delete the addition made u/s 68 of the Act. This ground of the appellant is allowed.” 08. After hearing the rival contentions and perusing the materials available on record, we find that the assessee has raised share capital/ share premium by issuing equity shares of 16400 of a face value of ₹10/- each at a premium of ₹1240 from M/s Memori Sales Pvt Ltd., who is one of the sister concerns of the assessee. The assessee filed all the details before the ld. AO. Besides the ld. AO issued summons u/s 131 of the Act. According to the ld. AO, the director of the assessee company has not complied with the summons issued u/s 131 of the Act, therefore, the necessary verification could not been made. Finally, the ld. AO after rejecting the reply of the assessee made the addition on the ground that there was no compliance to summons issued u/s 131 of the Act. During the appellate proceedings, the ld. CIT (A) called for the remand report from the ld. AO which is extracted in Para 5 at page no. 8 and 9 of the appellate order. It is stated in the remand report that the assessee is not a shell company in the department data base. Similarly, it was also stated that a inspector was deputed and the assessee was found to be genuine and existing at his place. Thereafter the source of investment of the investors in its hand were explained. Finally, the ld. AO noted that the source of the capital contribution and source of source also found to be there and the transactions were through banking channels. In the last line of the remand report it is stated that the creditworthiness of Page | 6 ITA No.1207/KOL/2023 RJC Developers Pvt. Ltd; A.Y. 2012-13 the said transactions appears to be not beyond doubt. The ld. CIT (A) called for the rejoinder of the assessee, which was extracted by the ld. CIT (A) in Para 6 to 11 of the appellate order. We note that the ld. CIT (A) has recorded a clear cut finding that the assessee has raised share capital of ₹2,05,000/- from sister concern of M/s Memori Sales Pvt Ltd. and further noted that the M/s Memori Sales Pvt Ltd. has received the money by way of refund of its loan from advanced by cheques to other concerns namely; Saptarang Barter Pvt. Ltd., Zion Infradevelopers Pvt. Ltd., Liluah Properties Pvt. Ltd., Loksangaam Mercantile Pvt. Ltd. The ld. CIT (A) also relied on the decision of Hon'ble Bombay High Court in the case of Commissioner of Income- tax- 1 vs. Gagandeep Infrastructure (P.) Ltd. [2017] 394 ITR 680 (Bombay) vide order dated 20-03-2017, wherein it has been held that the amendment to Section 68 of the Act is prospective and is applicable from A.Y. 2013-14. Accordingly, the assessee is not required to prove the source of source. Thereafter, the ld. CIT (A) discussed the said judgement in which the issue of high premium is also discussed. Finally, the ld. CIT (A) deleted the addition by holding that the assessee has proved the identity and creditworthiness of the investors and genuineness of the transactions by filing all the evidences which appear to be genuine and correct. Even the ld. AO in the remand report has not adversely commented specifically on the identity of the investors and genuineness of the transactions and only stated that this creditworthiness of the parties does not appear to be not beyond doubt. We have also examined the details/ evidences filed before us and find that the assessee has duly discharged its onus by filing of the evidences before the ld. AO and also before the ld. CIT (A). Considering these facts, we do not find any infirmity in the order Page | 7 ITA No.1207/KOL/2023 RJC Developers Pvt. Ltd; A.Y. 2012-13 of ld. CIT (A) and accordingly, we are upholding the same by dismissing the appeal of the Revenue. 09. In the result, the appeal of the Revenue is dismissed. Order pronounced in the open court on 21.01.2025. Sd/- Sd/- (PRADIP KUMAR CHOUBEY) (RAJESH KUMAR) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Kolkata, Dated: 21.01.2025 Sudip Sarkar, Sr.PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. CIT 4. DR, ITAT, 5. Guard file. BY ORDER, True Copy// Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Kolkata "