ITO, Ward - 4(1), Kolkata , Kolkata V. M/s. Torsha Enterprises Pvt. Ltd., , Kolkata

ITA 1244/KOL/2018

AI Insights

The case involves M/s. Torsha Enterprises Pvt. Ltd., which was the respondent in an appeal by the Income Tax Department concerning the assessment year 2012-13. The core issue was the addition made under section 68 of the Income Tax Act, 1961, by the Income Tax Officer, Ward-4(1), Kolkata, which treated certain amounts as unexplained cash credits under the heads of share capital and share premium. These additions were contested and subsequently deleted by the CIT(A). The revenue appealed against this decision to the Tribunal, arguing that the CIT(A) erred in deleting the additions without proper consideration of the source of investment as shown in the balance sheet of the assessee company. The Tribunal, after examining the facts and the legal framework, upheld the CIT(A)'s decision, emphasizing that the additions were made without a proper basis and were contrary to the terms of the court-approved amalgamation.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 108500 (ITAT-KOLKATA)
• Duration Of Justice: 4 year(s) 7 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-01-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 23-11-2022
• Assessment Year: 2012-2013
• Appeal Filed On: 04-06-2018
• Other Referred Cases: M G Metalloy Pvt. Ltd. Vs. DCIT, Kameshwari Finance & Leasing Vs. DCIT
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Period of limitation; Source of fund; Retrospective amendment; Scheme of amalgamation; Time period of passing order
• Section: 68; 143(3)

Judgement Text

1 ITA No. 1244/Kol/2018 M/s. Torsha Enterprises Pvt. Ltd., AY 2012-13 IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH KOLKATA आयकर अपीलीय अधीकरण, ᭠यायपीठ “C” कोलकाता, BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA No.1244/Kol/2018 Assessment Year: 2012-13 Income tax officer, Ward- 4(1), Kolkata Vs. M/s. Torsha Enterprises Pvt. Ltd., 2 nd floor, Room No. 208, 4, Raja Woodmund Street, Kolkata-700001.(AADCT4454B) (Appellant) (Respondent) Present for: Appellant by : Shri G. Hukugha Sema, CIT Respondent by : Shri Siddharth Agarwal, Advocate Date of Hearing : 24.11.2022 Date of Pronouncement : 18.01.2023 O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: This appeal filed by the revenue is against the order of Ld. CIT(A)-7, Kolkata vide Appeal No. 700/CIT(A)-7/Kol/Ward-4(1)/16-17 dated 09.02.2018 passed against the assessment order by ITO, Ward- 4(1), Kolkata u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 30.03.2015. 2. Shri Siddharth Agarwal, Advocate appeared on behalf of the assessee and Shri G. Hukugha Sema, CIT appeared on behalf of the revenue. 2 ITA No. 1244/Kol/2018 M/s. Torsha Enterprises Pvt. Ltd., AY 2012-13 3. The solitary ground taken by the revenue in this appeal is reproduced as under: “Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition made u/s. 68 of the I. T. Act, 1961, in the assessment order, without considering the fact that the source of investment as shown in the Balance sheet by the assessee company remained unexplained.” 4. It is noted that there is a delay of 34 days in filing the present appeal by the revenue for which petition for condonation of delay explaining the reasons for the said delay is placed on record. The order of Ld. CIT(A) is dated 09.02.2018 claimed to have been received on 19.03.2018 and the limitation period expired on 17.05.2018. The present appeal is filed on 05.06.2018. From the perusal of the petition seeking condonation of delay of 34 days, it is noted that it is on account of administrative and procedural approvals which were required from the Range office and the office of Ld. Pr. CIT. Considering the details mentioned in the petition, we find it proper to condone the delay and admit the appeal for its adjudication. 5. Brief facts of the case are that assessee filed its return of income on 31.08.2012 reporting income as nil. Case of the assessee was selected for scrutiny through CASS for the reason “large share premium received”. Statutory notices were issued and served on the assessee which were duly complied with. In the course of assessment, Ld. AO noted from the annual accounts of the assessee that there was a substantial increase in shareholders fund and the investment pattern during the year for which details were called for. From the details and explanations furnished by the assessee it transpired that during the year under consideration vide order dated 15.11.2011 of the Hon’ble High Court at Calcutta, three companies were amalgamated into the assessee company w.e.f. 01.04.2011. Under the 3 ITA No. 1244/Kol/2018 M/s. Torsha Enterprises Pvt. Ltd., AY 2012-13 approved scheme of amalgamation the following three companies were amalgamated with the assessee company which are as under: Sl. No. Name of the company Securities premium i) Daffodils Tradelink Pvt. Ltd. Rs.2,40,00,000/- ii) Longview Tracom Pvt. Ltd. Rs.2,40,00,000/- iii) Shaswat Bio-tech Pvt. Ltd. Rs.2,73,00,000/- Total Rs.7,53,00,000/- 5.1. By virtue of the order of Hon’ble High Court approving the scheme of amalgamation, all the assets of these three transferor companies became the assets of the assessee company. The break-up of the investment held by the three transferor companies is tabulated as under: Name of Companies Investment in unquoted shares Cross investment in other amalgamating companies Investment in mutual funds Total as on 31.03.2011 Shaswat Biotech Pvt. Ltd. Rs.50,00,000/- Rs.59,00,000/- Rs.2,02,20,000/- Rs.3,11,20,000/- Daffodils Tradelink Pvt. Ltd. Rs.1,19,50,000/- Rs.48,43,750/- Rs.1,29,00,000/- Rs.2,96,93,750/- Longview Tracom Pvt. Ltd. Rs.92,50,000/- Rs.48,56,250/- Rs.1,58,50,000/- Rs.2,99,56,250/- 5.2. Further, the position of share capital and reserve and surplus (including share premium) of the three transferor companies as on 31.03.2011 is also tabulated as under: Sl. No. Name Particulars Amount 1. Daffodils Tradelink Pvt. Ltd. Share Capital : Issued, Subscribed & Paid up Rs.6,100,000 Reserves & Surplus Rs.24,000,000 2. Longview Tracom Pvt. Ltd. Share Capital : Issued, Subscribed & Paid up Rs.6,100,000 Reserves & Surplus Rs.25,005,892 4 ITA No. 1244/Kol/2018 M/s. Torsha Enterprises Pvt. Ltd., AY 2012-13 3. Shashwat Biotech Pvt. Ltd. Share Capital : Issued, Subscribed & Paid up Rs.4,000,000 Reserves & Surplus Rs.27,300,000 5.3. In order to give effect to the scheme of amalgamation as approved by the Hon’ble High Court, three transferor companies sold their investments in unquoted shares and mutual funds, totalling to Rs.2,62,00,000/- and Rs.4,89,70,000/- respectively and transferred the funds to the assessee company i.e. the transferee company. The details of investments held by the three transferor companies in unquoted shares and mutual funds duly disclosed and reported in their audited financial statements as on 31.03.2011 are extracted below: 5 ITA No. 1244/Kol/2018 M/s. Torsha Enterprises Pvt. Ltd., AY 2012-13 6 ITA No. 1244/Kol/2018 M/s. Torsha Enterprises Pvt. Ltd., AY 2012-13 5.4. The said three transferor companies sold their holdings in unquoted shares and mutual funds and all the sale consideration were deposited in their respective bank accounts which were thus transferred to the account of the assessee company. It is stated that the shares were not sold by the assessee. In the course of hearing before the Ld. AO, details relating to sale of unquoted shares by the three transferor companies were furnished which included – (i) copy of the sale bill; (ii) Copy of bank statement of the transferor companies wherein receipt of cheque from purchasers is duly reflected; 7 ITA No. 1244/Kol/2018 M/s. Torsha Enterprises Pvt. Ltd., AY 2012-13 (iii) Confirmation of account; (iv) Bank statement of purchasers reflecting the payment for above purchase and sale of such fund; (v) Certificate from the purchasers confirming the purchase and details of source of funds along with the supporting documents. 5.5. Doubting the genuineness of persons to whom the sale of shares were made by the transferor companies, Ld. AO warranted the addition u/s. 68 of the Act, and thus concluded the assessment by making an addition of Rs.7,59,00,000/- as unexplained cash credit towards share capital and share premium. Aggrieved, assessee went in appeal before the Ld. CIT(A). 5.6. Ld. CIT(A) on careful and thorough consideration of the facts placed on record vis-à-vis the terms and conditions in the approved scheme of amalgamation by the Hon’ble High Court at Calcutta, held in favour of the assessee and directed for the deletion of the addition which was made by the Ld. AO. Aggrieved, the revenue is in appeal before the Tribunal, contesting by taking the ground that the source of investment remained unexplained. 6. Ld. CIT, DR strongly contended that assessee failed to bring on record the details relating to purchasers of unquoted shares which were sold by the three transferor companies so as to establish their identity, creditworthiness and the genuineness of the transactions. He supported the order of the Ld. AO who had observed that assessee had managed to get the entire paper investment in unquoted shares liquidated, which was in turn utilised for its real investment in mutual funds. Ld. CIT, DR laid emphasis on the preponderance of probability and normal human behaviour and also the surrounding facts and 8 ITA No. 1244/Kol/2018 M/s. Torsha Enterprises Pvt. Ltd., AY 2012-13 circumstances to justify the action of the Ld. AO in making the addition. 7. Per contra, Ld. Counsel for the assessee narrated the facts owing to the amalgamation arising out of the order of Hon’ble High court at Calcutta. He strongly contended that the new shares issued by the assessee to the erstwhile shareholders of the three transferor companies are out of brought forward balances in security premium account only and no new capital has been issued with premium. He further stated that share premium is not received by the assessee in cheque but appearing in Balance Sheet on account of amalgamation of the three companies with that of the assessee company. He submitted that the entries in the books of account of the assessee are merely the follow up of the order of Hon’ble Calcutta High Court approving the scheme of amalgamation. He thus emphasized that assessee has not purchased any shares during the year and it devolved on it out of the scheme of amalgamation. There is no share premium received by the assessee during the year as alleged by the Ld. AO. 7.1. Ld. Counsel also contended that assessee had submitted all the supporting evidence like account confirmation, sales bill, relevant bank statements reflecting the payment made by them, ITR copies, balance Sheet and confirmation by the purchaser for purchase of shares and their respective payments made by the cheques which were all placed on record. He submitted that there is no fresh cash credit on account of share capital and premium during the year under consideration. He contended that in order to make an addition u/s. 68 of the Act, there must be specific finding that the amount had been received during the previous year which in the present case is not there. He further laid emphasis on the scheme of amalgamation approved by the Hon’ble High Court at Calcutta and submitted that 9 ITA No. 1244/Kol/2018 M/s. Torsha Enterprises Pvt. Ltd., AY 2012-13 the amalgamation in nature of merger is a process wherein all the assets and liabilities of the transferor companies are reflected ultimately in the accounts of the transferee company (the assessee company in present case) and they appear in the financial statements of the transferee company in the same form in which they appeared in the financial statements of the transferor companies. Thus, the identity of share capital and share premium of the transferor companies is preserved and they appear in the same from in the transferee company. Hence, there is no new cash credit on the accounts of the assessee company. 7.2. Ld. Counsel also contended that while quantifying addition, the Ld. AO, out of surmises added a sum of Rs.7.59 Cr. as share capital and share premium. There is no mention as to how this figure has been arrived at in the assessment order on account of share capital and share premium. Further , he submitted that no explanation was sought for the said figure and no show cause notice was issued seeking explanation of the same by the Ld. AO for this amount. Hence, such an arbitrary action on the part of the Ld. AO is unwarranted as claimed by Ld. Counsel. To corroborate the submissions made by the assessee in the course of assessment proceeding and to substantiate its claim, Ld. Counsel referred to the order sheet entries placed in the paper book and pointed to the notices made for the date 09.02.2015 and 27.03.2015 wherein fact and submissions made by the assessee are duly noted. 7.3. Ld. Counsel also referred to the order of the Hon’ble High Court of Calcutta approving the scheme of amalgamation, more particularly clause 3.1 (b) and 3.1(c) to point out that assessee had issued shares in lieu of the shareholding in the transferor company which is in 10 ITA No. 1244/Kol/2018 M/s. Torsha Enterprises Pvt. Ltd., AY 2012-13 accordance with the approved scheme. The said clause are extracted as under; `”3.1(b) The all equity shares to be issued and allotted to the shareholders of the Transferor Companies as aforesaid shall rank pari passu in all respect with the equity shares held by the equity shareholders of the Transferee company and shall be entitled to full dividend if any, from the Transfer date. 3.1(c) The all shareholders of the Transferor companies shall accept the shares to be allotted s aforesaid in lieu of their shareholdings in the Transferor Companies.” 7.4. Further, he emphasized on the fact that details pertaining to the investment held by the transferor companies were considered by the Hon’ble High Court and which forms part of the approved scheme of amalgamation. The relevant schedule in this respect from the approved scheme of amalgamation are extracted below: SCHEDULE OF ASSETS OF M/S. DAFFODILS TRADELINKS PVT. LTD . (The Transferor Company) TO BE TRANSFERRED AND VESTED IN M/S. TORSHA ENTERPRISES (P) Ltd. (The Transferee Company). 11 ITA No. 1244/Kol/2018 M/s. Torsha Enterprises Pvt. Ltd., AY 2012-13 12 ITA No. 1244/Kol/2018 M/s. Torsha Enterprises Pvt. Ltd., AY 2012-13 7.5. Based on the above, Ld. Counsel contended that once the scheme is approved by the Hon’ble High Court, it is a natural corollary to presume that these details were in the knowledge of the Hon’ble High Court and also that such an order has been passed after due 13 ITA No. 1244/Kol/2018 M/s. Torsha Enterprises Pvt. Ltd., AY 2012-13 deliberations of all the concerned issues. He thus submitted that once the jurisdictional High Court approves the scheme of amalgamation, the suspicion of a colourable device therein is precluded. 7.6. Ld. Counsel referred to the details of purchasers who bought the investments of the three transferor companies which had been the bone of contention in the present case. He strongly submitted that all the details were before the Ld. AO who failed to consider the same objectively. The relevant details are extracted below for ease of reference: 14 ITA No. 1244/Kol/2018 M/s. Torsha Enterprises Pvt. Ltd., AY 2012-13 15 ITA No. 1244/Kol/2018 M/s. Torsha Enterprises Pvt. Ltd., AY 2012-13 8. We have heard the rival contentions and perused the material available on record and gone through the submission made by both the parties. We find force in the submissions made by the Ld. Counsel. Admittedly, it is a fact on record that the three transferor companies enumerated above were amalgamated into the assessee company under the approved scheme of amalgamation by the Hon’ble High Court of Calcutta w.e.f. 01.04.2011. The assessee has issued its share to the erstwhile shareholders of the three transferor companies owing to the terms and conditions of the approved scheme of 16 ITA No. 1244/Kol/2018 M/s. Torsha Enterprises Pvt. Ltd., AY 2012-13 amalgamation, extracted supra. There was no fresh issue of share capital and share premium against receipt of cash consideration. It was pursuant to the scheme of amalgamation that the necessary accounting entries were passed whereby all the assets and liabilities of the amalgamated companies were transferred to the assessee company on account of merger in order to give effect to the scheme of amalgamation as approved by the Hon’ble High Court of Calcutta. 8.1. From the perusal of the order of Ld. CIT(A), we note that he has elaborately dealt with the issue and manifestly concluded on the issue. The relevant conclusion drawn by the Ld. CIT(A) in this respect is reproduced as under: “I have carefully perused the order of the A.O as well as the detailed submission made by the A/R of the assessee company. At the very outset, it needs to be mentioned that the A.O had added an amount of Rs. 7,59,00,000/- as unexplained cash credit u/s 68 on account of share capital premium received by the appellant company. However, as can be seen from the balance sheet of the appellant company ending 31st March, 2012 (i.e. A.Y. 2012-13), the appellant had actually credited a sum of Rs.7,53,00,000/- under the head securities premium account. Therefore, the A.O, prima facie, due to a typographical error, has credited an amount of Rs.7,59,00,000/- instead of the actual figure of Rs.7,53,00,000/-. Now on the basis of the merits of the case, it can be seen from the details filed that three companies namely Daffodils Tradelink Pvt. Ltd., Longview Tracom Pvt. Ltd. and Shashwat Biotech Pvt. Ltd. had share premium amounts of Rs.2,40,00,000/-, 2,40,00,000/- and Rs.2,73,00,000/- respectively. From the details filed, it is further seen that all these companies had raised the above mentioned share premium amounts before 31.03.2008. All the three above mentioned companies further got merged with the assessee company, M/s Torsha Enterprise Private Limited with effect from 01.04.2011 as per the scheme of amalgamation filed before the Honourable jurisdictional High Court. After verifying all the aspects from the Registrar of Companies as well as from the Income Tax Department, the Hon'ble High Court had duly approved the said scheme of amalgamation by passing an order on 15.11.2011 having retrospective effect from 01.04.2011. In view of the above scheme of amalgamation, the appellant company had credited an amount of Rs.7,53,00,000/- in its balance sheet under the head share premium account on amalgamation under the reserves and surplus schedule. Therefore, it is clearly seen that no fresh capital was actually raised by the appellant company as the said share premium was not received by the assessee company in cheque during the relevant financial year, instead those sums had appeared directly in the balance sheet on 17 ITA No. 1244/Kol/2018 M/s. Torsha Enterprises Pvt. Ltd., AY 2012-13 account of the amalgamation of the three companies with that of the assessee company. It is also pertinent to note that the three amalgamated companies had not received any fresh share capital and premium during the relevant period since the share amount along with premium received by them had been all done prior to 31.03.2008. Therefore, it is amply clear that there was no fresh unexplained cash credit raised by the appellant company during the relevant period and as such invocation of section 68 of the IT Act has been bad in law, since during the F.Y. 2001-02, only the necessary accounting entries were passed, whereby all the assets and liabilities of the amalgamated companies were transferred to the assessee companies on account of merger, in order to give effect to the scheme of amalgamation duly approved by the Hon'ble Calcutta High Court. In view of what has been described above, the addition made by the A.O of Rs.7,59,00,000/- (and not Rs.7,59,00,000/- as made by the A.O) is hereby deleted and the assessee's appeal on this ground is treated as allowed.” 8.2. For arriving at our conclusion, we draw force from the decision of Coordinate Bench of ITAT Delhi in the case of M G Metalloy Pvt. Ltd. Vs. DCIT in ITAT No. 3306/Del.2018 dated 23.08.2021 wherein similar issue was dealt in, relevant part of which is extracted below: “With respect to issue of share capital it is apparent that no share capital has been received during the year but only in exchange of the shares of the transferor companies the shares have been allotted to the share holders of the transferor companies. As there is no sum of money received during the year no addition u/s 68 on account of the share capital can be made. The assessee has also shown form No. 2 of the return of allotment filed with the Registrar of Companies which also clearly shows that the share capital is only on account of amalgamation approved by the Hon'ble High Court.” 8.3. We also take note of the finding given by the coordinate bench of ITAT, Delhi in the case of Kameshwari Finance & Leasing Vs. DCIT [2007] 109 ITD 173 (Del.) wherein it is observed that – “The law is well settled that absence of registration of the name of the transferee as a shareholder in the register of members of the company is not a condition precedent for holding that a particular person is a holder of shares in a company or not. In view of the above, we are of the view that the assessee became the owner of shares as on 18 th Jan., 1996.” 8.4. Considering the fact pattern, terms and conditions of approved scheme of amalgamation by the Hon’ble High Court of Calcutta, fact- 18 ITA No. 1244/Kol/2018 M/s. Torsha Enterprises Pvt. Ltd., AY 2012-13 based detail finding given by the Ld. CIT(A), corroborative evidence placed on record and the judicial precedents referred above, we do not find any reason to interfere with the finding given by the Ld. CIT(A) and accordingly, dismiss the ground taken by the revenue in this respect. 9. In the result, the appeal of the revenue is dismissed. Order is pronounced in the open court on 18th January, 2023. Sd/- Sd/- (Sanjay Garg) (Girish Agrawal) Judicial Member Accountant Member Dated: 18th January, 2023 JD, Sr. P.S. Copy to: 1. The Appellant: 2. The Respondent. 3. CIT(A)-7, Kolkata. 4. The Pr. CIT, 5. DR, ITAT, Kolkata Bench, Kolkata //True Copy// By Order Assistant Registrar ITAT, Kolkata Benches, Kolkata