Pingash Home Appliances Private Limited, Faridabad V. ITO Ward-2(1), Faridabad

ITA 106/DEL/2021

AI Insights

The case involves M/s. Pingash Home Appliances Pvt. Ltd., which appealed against the order of the Commissioner of Income-Tax (Appeals) confirming the addition of Rs.93,00,000 under Section 68 of the Income Tax Act, 1961, concerning unexplained share premium and share capital. The Tribunal examined whether the assessee had adequately demonstrated the identity, creditworthiness, and genuineness of the investors and the transactions. The Tribunal noted that the Assessing Officer and the Commissioner of Income-Tax (Appeals) had not properly considered the evidence and submissions made by the assessee, leading to an erroneous conclusion.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 300733 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 4 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-07-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 02-07-2023
• Assessment Year: 2016-2017
• Appeal Filed On: 08-02-2021
• Other Referred Cases: PC IT v. Paradise Inland Shipping Pvt. Ltd., Crystal Network Pvt. Ltd. v. CIT, Bishakha Sales Pvt. Ltd. v. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Revision of order; Valuation report; Set aside; Bogus
• Section: 68; 263; 271(1)(c); 143(3); 142(1); 133(6); 143(2); 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: ‘H’ NEW DELHI BEFORE SHRI SAKTIJIT DEY, VICE-PRESIDENT AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA No. 106/Del/2021 Assessment Year: 2016-17 M/s. Pingash Home Appliances Pvt. Ltd., Plot No. 1043, near Pier Baba, Baba Nagar, Old Faridabad. (PAN: AAHPC6538Q) Vs. ACIT, Circle 4(1), Gurgaon (Haryana). (Appellant) (Respondent) Present for: Appellant by : Shri Rajiv Saxena & Shyam Sunder, Advs. Respondent by : Shri Ramdhan Meena, Sr. DR Date of Hearing : 03.07.2023 Date of Pronouncement : 07.07.2023 O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: This appeal filed by the assessee is against the order of learned Commissioner of Income-Tax(Appeals)-, Faridabad vide appeal No.10664/2018-19 dated 17.03.2020 against the assessment order passed under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the “Act”), dated 27.12.2018 for assessment year 2016-17, passed by ITO, Ward 2(1), Faridabad. 2. There is a delay of 23 days in filing the present appeal. The impugned order by learned Commissioner of Income-Tax(Appeals) is 2 ITA No.160/Del/2021 Pingash Home Appliances Pvt. Ltd. Faridabd dated 17.03.2020 which is claimed to have been received on 18.11.2020. Assessee has filed the present appeal on 09.08.2021. The assessee has placed on record a petition for condonation of delay along with an affidavit. The said period for filing the present appeal falls during the pandemic of COVID-19 for which Hon'ble Supreme Court in the case of suo moto writ petition (C) No.3 of 2020 dated 10.01.2022 has excluded the period from 15.03.2020 to 28.02.2022 for the purpose of taking into account limitation. Vide this order, a further period of 90 days has been granted for providing the limitation from 01.03.2022. Accordingly considering the said decision and fact of the case, the delay is condoned and the appeal is admitted for adjudication. 3. The grounds taken by the assessee are as under: 1. That the Ld. CIT(A) has erred in law as well as on facts in confirming addition of Rs.93,00,000/- u/s. 68 of the IT Act, 1961 on account of alleged unexplained share premium and share capital despite furnishing all the documentary evidence for establishing identity, creditworthiness of the investors and the genuineness of the transaction. 2. That the Ld. CIT(A) has erred in law as well as on facts in enhancing the income of appellant u/s 251(1) of the Act by Rs.62,00,000/- under the head income from other sources by applying section 56(2)(viib) of the Act on protective basis and rejecting the valuation report furnished under Rule 3 ITA No.160/Del/2021 Pingash Home Appliances Pvt. Ltd. Faridabd 11UA(2)(b) of the Income Tax Rules, 1962 i.e., Discounted Cash Flow Method. 3. That the Ld. CIT(A) has erred in law as well as on facts in enhancing the income of appellant by not issuing valid show- cause-notice as mandated u/s 250(2) of the Act. 4. That the Ld. CIT(A) has erred in law as well as on facts in enhancing the income of appellant on protective basis u/s. 56(2)(viib) r.w.r. 11UA of IT rules without appreciating the fact that the case was selected for limited scrutiny to verify “whether the funds received in the form of share premium are from disclosed sources and have been correctly offered to tax” which restrict the scope of assessing authorities to scrutinize only the source of share premium. 5. That the Ld. CIT(A) has erred in law as well as on facts in initiating the penalty proceedings u/s. 271(1)(c) of the Act. 4. Brief facts of the case as culled out from the record are that assessee filed its return of income on 28.08.2016 reporting total income of Rs.2,68,160. Case of the assessee was selected for limited scrutiny under CASS to verify “whether refund received in the form of share premium are from disclosed sources”. Statutory notices under Section 143(2) and 142(1) along with questionnaire were issued which were duly complied with by the assessee. In the course of assessment, assessee submitted copy of ITR, computation of income, audit 4 ITA No.160/Del/2021 Pingash Home Appliances Pvt. Ltd. Faridabd report along with audited financial statement, memorandum and articles of association, certificate of incorporation and other relevant annexure. In para 1 of the impugned order, learned Assessing Officer has categorically noted that “assessee f iled reply electronically on 24.10.2018 consis ting bank book and bank s tatemen t, de tails of directors and share premium and v aluation report as Rule-11UA(c) of the Act”. In the same paragraph, learned Assessing Officer further noted that “sho w-cause-no tice d ated 07.12.2018 was issued to the assessee f ixing the hearing f or 10.12.2018 and f or f iling the requisite inf ormation. In response, assessee has f urnished copy of earlier reply along with conf irmation with relevant documents from the par ties of allottee of shares during the year. The reply of the assessee company is on “IT BA and h as been placed on records.” 4.1 On the basis of various details furnished by the assessee, learned Assessing Officer observed that assessee has allotted 3,10,000 equity shares of Rs.10 per share at a premium of Rs.20 per share to five entities, the details of number of shares allotted along with the allottee companies is tabulated as under: 5 ITA No.160/Del/2021 Pingash Home Appliances Pvt. Ltd. Faridabd Name of Perso n No. Of shares No min al Val ue per sha re (in Rs.) Pre miu m per shar e (in Rs.) Share Capital (in Rs.) Share Premium (in Rs.) Total amount paid including premium (in Rs.) & date of allotment . Best Build er Pvt. Ltd. 10,000 10 20 1,00,000/ - 2,00,000 3,00,000 24.01.15 Cee Aar Decor s 80,000 10 20 8,00,000 16,00,000 24,00,000 Hercu lese Build ers Coim bator e P. Ltd. 10,000 10 20 1,00,000 2,00,000 3,00,000 13.10.15 Nu Ruchi Barte r Pvt. 90,000 10 20 9,00,000 18,00,000 27,00,000 10.3.2016 6 ITA No.160/Del/2021 Pingash Home Appliances Pvt. Ltd. Faridabd Ltd. Sanfo rd Prom oters Pvt. Ltd. 1,20,000 10 20 12,00,000 24,00,000 36,00,00 0 11.05.15 Total 3,10,000 31,00,000 62,00,000 93,00,000 4.2 Learned Assessing Officer called for details and explanation on the above transactions to which assessee furnished its replies as noted above. Learned Assessing Officer also issued notices under Section 133(6) of the Act to all the above five entities which were received by them. Out of the five entities, only one entity i.e. Best Buildmart Pvt. Ltd. replied to the notice and furnished the required documents and details. Based on the information gathered by the learned Assessing Officer, a show-cause-notice dated 07.12.2018 was issued fixing the date of hearing on 10.12.2018. In this respect, learned Assessing Officer noted that assessee did not respond to this show-cause-notice. The details called for by the learned Assessing Officer vide this show-cause-notice is listed as under: 7 ITA No.160/Del/2021 Pingash Home Appliances Pvt. Ltd. Faridabd “1. Please f urnish copy of ITR along with computation of income, P & L account, balance sheet and audit report in Forms 3CB and 3CD (if applicable) or notes there to. 2. Please f urnish brief note on nature of business and place on business carried out during the year. 3. Please f urnish copy of all bank accounts maintained by you f or the period from 1.4.2015 to 31.03.2016 relevant to the assessment year 2016-17. 4. Please f urnish comple te de tails of share premiu m received during the year. The inf ormation should include name, PAN, complete lates t address, share premium received, mode of payment f rom investors. Please give all the details to prove identity, creditwor thiness, genuineness of the investors. 5. Please provide the de tails of au thorised sh are capital and also f urnish the de tails of share application money and addition in share application money during the year, if any, the source of addition with bank s tatemen t. Also produce lis t of shareholders along with th eir PAN. 6. Comple te address, PAN, copies of ITRs and bank statements of the persons/concerns to whom share on premium have been allo tted during the year. 7. Please explain whe ther company/assessee has received any consideration f or issue of shares th at exceeds the f ace of such sh ares (share premium), th en please furnish the valuation of shares and securities in accord ance with the provisions of Rule 11UA(c) of the Income- tax Rules 1962; 8. Please give th e details when these sh ares were allo tted to the investors and whether there is any buy-b ack for the sh ares the details thereof . 9. Please provide Board’s resolution with regard to share capital and from it is to be received as it is mandatory as per law. 8 ITA No.160/Del/2021 Pingash Home Appliances Pvt. Ltd. Faridabd 10. Please provide the minutes of meeting of the directors. 11. Please provide the de tails of stamp du ty paid on the shares issued. 12. Please submit copy of share application form and share certif icate and produce origin al for verif ication in vie w of the provisions of sec. 134 of the Income Tax Act, 1961”. 4.3 Learned Assessing Officer observed that mere production of audit report, balance sheet and plea that payment is through bank is not sufficient. The onus of assessee of explaining nature and source of credits does not get discharged merely by filing the documentary evidences. He thus concluded the assessment and made an addition of Rs.93,00,000 towards share capital and share premium by treating it as bogus transaction as unexplained credits under Section 68 of the Act. While making this addition, he held that investors could not furnish the required information and that source of share premium remained not only unsatisfactory but also valued at high premium without any cogent basis. Aggrieved, assessee went in appeal before the learned Commissioner of Income- Tax(Appeals). 5. Before the learned Commissioner of Income-Tax(Appeals), assessee made a detailed submission which is reproduced in 9 ITA No.160/Del/2021 Pingash Home Appliances Pvt. Ltd. Faridabd the order of learned CIT(A) from page 2 to 19. While giving his findings, learned Commissioner of Income-Tax(Appeals) observed that assessee has not made any compliance. He further observed that though these companies are registered with ROC, having PAN, having bank accounts, filing their income-tax returns etc. but in fact these are just existing on papers. According to him, mere filing of ITR, PAN, names and addresses, balance sheet, ROC record is not enough to establish the identity and creditworthiness and genuineness in respect of the share applicants. In reference to show-cause- notice dated 07.12.2018 issued under Section 142(1) of the Act, he observed that no explanation has been furnished by the assessee. He thus concluded by upholding the addition made by the learned Assessing Officer. 5.1 In furtherance to the above, learned Commissioner of Income-Tax(Appeals) noted that assessee has failed to bring on record any evidence to justify the basis of share premium charged in excess of its face value. He further noted that no valuation report justifying the premium charged in respect of such shares was furnished by the assessee. Thus, he resorted to enhancement of assessment on protective basis by making an addition of Rs.62,00,000 for which he held that share 10 ITA No.160/Del/2021 Pingash Home Appliances Pvt. Ltd. Faridabd premium received in excess of face value is treated as income under Section 56(2)(viib) of the Act. Accordingly, appeal of the assessee was dismissed and total income was enhanced under Section 251(1) of the Act on protective basis. Aggrieved, assessee is in appeal before the Tribunal. 6. Learned counsel for the assessee submitted that all the relevant details and evidence to explain the identity, creditworthiness and genuineness of the transaction were placed on record and assessee had fully discharged its initial burden casted under Section 68 of the Act. He stated that nature of these receipts is towards share capital and share premium which is by cheques from allottee company who are all income tax assessees. He further stated that assessee has explained the source and nature of receipts of these funds and has brought on record all the documentary evidence in this respect. All these documents and evidence forms part of the paper book placed on record. Index of the paper book containing the listing of the same is reproduced as under for ease of reference: 11 ITA No.160/Del/2021 Pingash Home Appliances Pvt. Ltd. Faridabd 12 ITA No.160/Del/2021 Pingash Home Appliances Pvt. Ltd. Faridabd 13 ITA No.160/Del/2021 Pingash Home Appliances Pvt. Ltd. Faridabd 6.1 Learned counsel for the assessee strongly submitted that observations of both the learned Assessing Officer and the learned Commissioner of Income-Tax(Appeals) are grossly incorrect and de void fact on record in respect of non- compliance by the assessee of the show-cause-notice dated 07.12.2018. He submitted that assessee has furnished its reply on 23.12.2018 on the portal of the department for which he referred to the response she generated from the portal to demonstrate that response was submitted on 23.12.2018 with “response type as full”. In the same response, she also referred to the attachment which was furnished by the assessee. According to the learned counsel, this submission made by the assessee as well as the preceding submission dated 24.10.2018 which was partial in nature has been altogether ignored before taking adverse view against the assessee. Copy of response sheets for the said two submissions of 24.10.2018 and 14 ITA No.160/Del/2021 Pingash Home Appliances Pvt. Ltd. Faridabd 23.12.2018 are placed on record with the written submissions furnished by the learned counsel. 6.2 In respect of response to notices issued under Section 133(6) of the Act, learned counsel submitted one of the entities had replied to the same and furnished all the required details and documents. The other entities did not respond though they received the notices. For these entities, assessee furnished all the relevant documents and details called for by the learned Assessing Officer. In respect of the observation on the valuation of the shares towards share premium of Rs.20 per share charged by the learned Assessing Officer, learned counsel submitted that share valuaton report from the chartered accountant in accordance with Rule 11 UA(2)(b) of the Rules was furnished on record. This fact is noted by the learned Assessing Officer in para 1 page of the impugned assessment order itself. Learned Assessing Officer has not pointed out any defect or discrepancies in respect of the valuation report which justify the premium charged by the assessee wherein the valuation has been arrived by adopting Discounted Cash Flow Method (DCF). It was strongly asserted that enhancement of income made by the learned Commissioner of Income-Tax(Appeals) on the ground that no 15 ITA No.160/Del/2021 Pingash Home Appliances Pvt. Ltd. Faridabd valuation report was filed is grossly incorrect without any basis and de void of correct fact. Learned counsel further submitted that in respect of investor Best Buildmart Pvt. Ltd., the amount of Rs.3,00,000 was received in the preceding assessment year i.e. 24.01.2015 and, therefore, is not a credit raised during the year. 6.3 To buttress the submission and contentions raised by the learned counsel, he placed reliance on several judicial precedents, table of which is reproduced as under: 16 ITA No.160/Del/2021 Pingash Home Appliances Pvt. Ltd. Faridabd 7. Per contra, learned Sr. DR submitted that investor company had not responded to notices issued under Section 133(6) of the Act. He further submitted that learned Commissioner of Income-Tax(Appeals) had discussed and analysed all the documents, more particularly, the balance sheet of all the investor companies to demonstrate that they 17 ITA No.160/Del/2021 Pingash Home Appliances Pvt. Ltd. Faridabd lagged creditworthiness to make the investment in share capital of the assessee. According to him, even the valuation report for justification of the share premium charged by the assessee is not proper. He, thus, contended to uphold the addition made by the learned Assessing Officer. He placed reliance on the order of the learned Commissioner of Income- Tax(Appeals) for the same. 8. We have heard the rival contentions and gone through the material placed on record. We note that Ld. AO without even going through and discussing the details submitted by the subscriber companies, insisted for personal appearance to prove the identity, creditworthiness of the subscribers and the genuineness of the transactions. Admittedly, it is a fact on record that director representing four share subscriber companies attended before the ld. AO and furnished the required details. To our mind, Ld. AO could have taken an adverse view only if he could point out the discrepancies or insufficiency in the evidence and details furnished in his office and also as to get further investigation was needed by him by way of recording of statement of the directors of the assessee and the subscriber companies. We draw our force from the decision of the Hon’ble Bombay High court in the case of PC IT v. 18 ITA No.160/Del/2021 Pingash Home Appliances Pvt. Ltd. Faridabd Paradise Inland Shipping Pv t. Ltd. [2017] 84 taxmann.com 58 (Pan) wherein it was held that once the assessee has produced documentary evidence to establish the existence of the subscriber companies, the burden would shift on the revenue to establish their case. We also draw our force from the decision of Hon’ble Jurisdictional High Court of Calcutta in the case of Crys tal Network Pv t. Ltd. v. C IT (supra) which held as under: “W e f ind c onsider able f o rc e of the s ubmiss i ons of the l earne d co uns el f o r the ap pell an t th at the Tri bunal has merel y no tic ed th a t s inc e the s ummons iss ued bef o re ass es s ment re tur ned un s erved and no one ca me f or war d to pro ve. The ref ore i t s hall be ass umed th at the as s ess ee f ail ed to pro ve the e xis te n ce of the c r editors or f or th a t matte r c redi two r th ines s. As ri gh tl y poi n ted ou t by the l ear ned co uns el th at th e C IT(Ap pe als ) has tak e n the tr oubl e of ex ami ni ng of all o the r mate ri al s and d oc umen ts viz., c onf irmatory s tate men ts, inv oic es, c h all ans and v o uch ers s ho wi ng s uppl y of bidi as ag ai ns t the ad v anc e. Ther ef ore, the a ttend anc e of the wi tness es purs uan t to the s ummo ns is sue d in o ur vi e w is no t i mp or tan t. T he i mpor tan t is to pr ov e as to whe th e r the s aid cas h c re dit was rec ei ved as agai ns t the f uture s al e of the prod uc e of the ass es se e or n o t. Whe n i t was f ound by the C IT (Appeal) on f ac t havi ng e xami ned the d ocumen ts th at the ad v anc e gi ve n by the c redi tors hav e be en es tablis hed the Tri bunal s hould no t h ave i g nor ed this f ac t f indi ng." 8.1 Ld. AO has not bothered to discuss or point out any defect or deficiency in the documents furnished by the assessee of the share subscribing companies. These evidences furnished have been neither controverted by the Ld. AO during the assessment proceedings nor anything substantive brought on record to justify the addition made by him. Ld. AO has simply added the 19 ITA No.160/Del/2021 Pingash Home Appliances Pvt. Ltd. Faridabd amount of share capital and share premium on the ground that assessee has not produced the directors/shareholders. Thus, going by the records placed by the assessee of all the share subscribing companies, it can be safely held that the assessee has discharged its initial burden and the burden shifted on the Ld. AO to enquire further into the matter which he failed to do so. It is also noted from their audited financial statement that all the investing companies have sufficient own funds available with them to make investment in the assessee. 8.2 A perusal of the impugned order of the Ld. CIT(A) shows that the Ld. CIT(A) has not discussed anything about the material facts of the case. He has not pointed out any defect and discrepancy in the evidences and details furnished by the assessee but simply cited certain case laws even without pointing out as to how these case laws were applicable to the facts and circumstances of this case. By simply reproducing the contents of the case laws without discussing about their application on the facts of the case, in our view, would not make the order of the Ld. CIT(A) justifiable speaking order and hence, the same is not sustainable as per law. 20 ITA No.160/Del/2021 Pingash Home Appliances Pvt. Ltd. Faridabd 9. From the perusal of the paper book and the documents placed therein, it is vivid that all the share applicants are (i) income tax assessees, (ii) they are filing their income tax returns, (iii) share application form and allotment letter is available on record which were filed in response to notice u/s 133(6), (iv) share application money was made by account payee cheques, (v) details of the bank accounts belonging to share applicants and their bank statements, (vi) all the share applicants are having substantial creditworthiness represented by their capital and reserves. 10. As far as the decision of Coordinate bench of ITAT, Kolkata in the case of Bishakha Sales Pvt. Ltd. in ITA No. 1493/Kol/2013 referred by the ld. AO in sustaining the addition, in our view, it does not support the addition as the said decision is delivered in the context of proceedings u/s 263 of the Act on the issue of enquiry regarding huge premium received on share application. 11. We further observe that provision for examining the source of source under the provisions of section 68 of the Act has been brought in by Finance Act 2012 w.e.f. 01.04.2013 as per which “where an assessee is a company (not being a company in which public are substantially 21 ITA No.160/Del/2021 Pingash Home Appliances Pvt. Ltd. Faridabd interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee company shall be deemed to be not satisfactory unless: a) the person being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited and b) such explanation in the opinion of the Assessing Officer has been found to be satisfactory.” Since the instant appeal pertains to assessment year 2012-13, and the said amendment brought in by Finance Act 2012 is effective from 01.04.2013, it is not applicable on the case before us. Even otherwise, it is not in dispute that the assessee has filed all the relevant documents of the share subscriber companies and further, in order to prove the source of source, copies of bank statements, audited balance sheets of all the six subscriber companies are placed on record. 12. Considering the facts and circumstances of the case and the material placed on record, we find that assessee has discharged its onus to prove the identity and creditworthiness of the share subscribing companies and the genuineness of the transactions towards sum of Rs.4,78,50,000/- received during the impugned year. Accordingly, considering these facts and in the light of the judicial precedence referred above, we set aside 22 ITA No.160/Del/2021 Pingash Home Appliances Pvt. Ltd. Faridabd the order of the ld. CIT(A) and direct the ld. AO to delete the addition made towards share capital and share premium u/s. 68 of the Act. Accordingly, grounds taken by the assessee in this respect are allowed. 13. In the result, appeal of the assessee is allowed. Order pronounced in the open court on 07.07.2023. Sd/- Sd/- (SAKTIJIT DEY) ( GIRISH AGRAWAL) VICE-PRESIDENT ACCOUNTANT MEMBER Dated: 07 July, 2023 Mohan Lal Copy forwarded to: 1. Applicant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi