ACIT, Circle-10(2), Kolkata, Kolkata V. M/s Singhania & Sons Pvt. Ltd., Kolkata

ITA 1594/KOL/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3580 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 08-08-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C J SINGH
• Assessee Lawyers: MANOJ KATARUKA
• Keywords: Unexplained cash credit; Source of fund
• Section: 68; 143(3); 14A; 195; 250

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA A BENCH, KOLKATA [BEFORE SRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER & SRI S.S. GODARA, JUDICIAL MEMBER] I.T.A. NO. 1594/KOL/2016 ASSESSMENT YEAR: 2012-13 ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-10(2), KOLKATA............................APPELLANT VS. M/S. SINGHANIA & SONS PVT. LTD...................RESPONDENT 3D, DUCKBACK HOUSE 41, SHAKESPEARE SARANI KOLKATA 700 017 [PAN : AADCS 6078 A] APPEARANCES BY: SHRI MANOJ KATARUKA, ADVOCATE, APPEARED ON BEHALF OF THE ASSESSEE. SHRI C.J. SINGH, JCIT, SR. D/R, APPEARING ON BEHALF OF THE REVENUE. DATE OF CONCLUDING THE HEARING : JANUARY 24 TH , 2019 DATE OF PRONOUNCING THE ORDER : FEBRUARY 20 TH , 2019 O R D E R PER J. SUDHAKAR REDDY :- THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE ID. COMMISSIONER OF INCOME TAX (APPEALS) - 4, KOLKATA, (HEREINAFTER THE 'ID. CIT (A)'), PASSED U/S 250 OF THE INCOME TAX ACT, 1961 (THE 'ACT'), DT. 23/05/2016, FOR THE ASSESSMENT YEAR 2012-13. 2. THE ASSESSEE IS A COMPANY AND IS IN THE BUSINESS OF TRADING IN DYES, CHEMICALS, COMMISSION AGENCY AND EXPORT OF IRON ORDER. IT FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2012-13, ON 27/09/2012, DECLARING TOTAL INCOME OF RS.35,98,210/-. THE ASSESSING OFFICER COMPLETED ASSESSMENT U/S 143(3) OF THE ACT, ON 06/03/2015, DETERMINING THE TOTAL INCOME AT RS.1,63,13,550/-, INTER ALIA MAKING ADDITION OF RS.1,05,00,000/-, BEING SHARE CAPITAL RECEIVED AT A PREMIUM ON THE GROUND THAT, THE ASSESSEE FAILED TO OFFER SATISFACTORY EXPLANATION ABOUT THE CREDITWORTHINESS OF THE SHARE APPLICANTS AS UNEXPLAINED CASH CREDIT U/S 68 OF THE ACT, IN ADDITION TO DISALLOWANCE U/S 14A OF THE ACT AND OF RENT PAID AND CLAIMED AS EXPENSES. 2 I.T.A. NO. 1594/KOL/2016 ASSESSMENT YEAR: 2012-13 M/S. SINGHANIA & SONS PVT. LTD 2.1. AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL. THE ID. FIRST APPELLATE AUTHORITY GRANTED PART RELIEF. HE DELETED THE ADDITIONS MADE U/S 68 OF THE ACT, AND THE DISALLOWANCE OF RENT PAID ETC. 3. FURTHER AGGRIEVED THE REVENUE IS BEFORE US ON THE FOLLOWING GROUNDS:- 1. WHETHER THE LD. CIT(A) WAS CORRECT IN DELETING THE ADDITION ON ACCOUNT OF RS.1,80,000/- , RS.7,56,000/- AND RS.3,60,000/- RESPECTIVELY ON ACCOUNT OF RENT PAID TO P.K. SINGHANIA (HUF), SHEWANARAIN MAGRAJ FINANCE & INVESTMENT PVT. LTD. & GAUNIK TRADERS (P) LTD. RESPECTIVELY? 2. WHETHER THE LD. CIT(A) WAS CORRECT IN DELETING THE DISALLOWED A SUM OF RS.8,41,829/- U/S.14A OF THE LT. ACT READ WITH RULE 8D OF THE I. T. RULE? 3. WHETHER THE LD. CIT(A) WAS CORRECT IN DELETING THE DISALLOWANCE OF RS.64,229/-SINCE THE ASSESSEE HAD FAILED TO DEPOSIT THE SAID SUM TOWARDS THE P.F. OF ITS EMPLOYEES WITHIN THE STIPULATED TIME? 4. WHETHER THE LD. CIT(A) WAS CORRECT IN DELETING THE ADDITION MADE U/S.68 OF THE I. T. ACT, 1961 BY FOLLOWING THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. CREATIVE WORLDS TELEFLIM (P) LTD. (2011) 333 ITR 100 (BORN) AND IGNORING THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. NOVA PROMOTERS & FINLEASE (P) LTD. (2012) 18 TAXMANN.COM 217 (DEL) DESPITE THE FACT THAT THE FACTS OF THE CASE WERE SIMILAR TO THE FACTS OF THE CASE DECIDED BY THE HON'BLE DELHI HIGH COURT? 5. THAT THE APPELLANT CRAVES TO ADD, DELETE OR MODIFY ANY OF THE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING. 4. WE HAVE HEARD SHRI C. J. SINGH, ID. JCIT, SR. D/R ON BEHALF OF THE REVENUE AND SHRI MANOJ KATARUKA, ID. ADVOCATE ON BEHALF OF THE ASSESSEE. ON CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, PERUSAL OF THE PAPERS ON RECORD, ORDERS OF THE AUTHORITIES BELOW AS WELL AS CASE LAW CITED, WE HOLD AS FOLLOWS:- 5. GROUND NO.1, IS AGAINST THE DELETION MADE BY ID. CIT(A) ON ACCOUNT OF RENT PAID. THE AMOUNT OF RENT IN QUESTION IS RS.1,80,OOO/-, PAID TO P.K. SINGHANIA (HUF), RS.7,56,000/- PAID TO SHEWANARAIN MAGRAJ FINANCE & INVESTMENT PVT. LTD. AND RS.3,60,000/- PAID TO GAUNIK TRADERS (P) LTD.; RESPECTIVELY. THE ID. CIT(A) AT PARA 5.2. OF HIS ORDER CONSIDERED THE FACT THAT THE ASSESSEE IS A VERY OLD COMPANY AND IS DOING BUSINESS IN TRADING IN CHEMICALS AND IRON ORE AND THAT IT HAD TO SUPPLY GOODS AND MAINTAIN RELATIONSHIP WITH CLIENTS AND THAT THERE WERE SALES MADE BY THE ASSESSEE IN THE AREA OF UTTAR PRADESH DURING THE YEAR, AS WELL AS PREVIOUS YEARS AND HENCE THERE 3 I.T.A. NO. 1594/KOL/2016 ASSESSMENT YEAR: 2012-13 M/S. SINGHANIA & SONS PVT. LTD WAS A BUSINESS EXPEDIENCY. HE HELD THAT THE RECIPIENTS HAD DISCLOSED THE AMOUNT OF RENT IN QUESTION IN HIS INCOME-TAX RETURNS. HE FURTHER HELD THAT THE ASSESSING OFFICER'S OBSERVATION THAT THE ASSESSEE DID NOT HAVE ANY BUSINESS ACTIVITY IN NEW DELHI IS FACTUALLY INCORRECT. SIMILARLY, IN THE CASE OF RENT PAID TO SHEWANARAIN MAGRAJ FINANCE & INVESTMENT PVT. LTD., WHICH IS A SISTER CONCERN OF THE ASSESSEE, HE HELD THAT THERE IS A BUSINESS CONNECTION AS THERE WERE SALES IN THE AREA OF UTTAR PRADESH AND THE RENT PAID WAS DECLARED IN THE INCOME-TAX RETURN BY THE SISTER CONCERN. HE ACCEPTED THE EXPLANATION OF THE ASSESSEE THAT THE OFFICE AT AUGUSTA POINT, GURGAON, IS THE PIVOTAL OFFICE CONTROLLING THE MARKETS OF NEW DELHI AND UTTAR PRADESH AND NECESSITY WAS FELT FOR A BIGGER OFFICE AS COMPARED TO THE OFFICE AT NEW DELHI. AS FAR AS THE RENT PAID TO M/S. GAUNIK TRADERS PVT. LTD., FOR MAINTENANCE OF A GUEST HOUSE AND BRANCH OFFICE IN MUMBAI, THE ID. CIT(A) FOR THE VERY SAME REASON THAT THE ASSESSEE HAS SHOWN MAJOR SALES OF CHEMICALS IN MUMBAI, HELD THAT THE FINDING OF THE ASSESSING OFFICER THAT THERE WAS NO BUSINESS PURPOSE IN TAKING THIS PREMISES ON RENT IS FACTUALLY INCORRECT. 5.1. THE ID. D/R, COULD NOT CONTROVERT THIS FACTUAL FINDING OF THE ID. CIT(A). THUS, THIS GROUND OF THE REVENUE IS DISMISSED. 6. GROUND NO. 2, IS ON THE ISSUE OF DISALLOWANCE U/S 14A. THE ID. CIT(A) AT PARA 8.3. PAGE 9 OF HIS ORDER APPLIED THE PROPOSITION OF LAW LAID DOWN IN THE ORDER OF THE KOLKATA ITAT IN THE CASE OF REI AGRO LTD. VS. DCIT; 144 ITR 141 . WE FIND THAT THIS DECISION WAS UPHELD BY THE HON'BLE CALCUTTA HIGH COURT IN G.A. NO. 3022 OF 2013, ORDER DT. 23/12/2013. HENCE, WE FIND NO INFIRMITY IN THE ORDER OF THE ID. CIT(A). ACCORDINGLY, GROUND NO.2 OF THE REVENUE IS DISMISSED. 7. GROUND NO.3, IS AGAINST THE DELETION OF A DISALLOWANCE OF RS.64,229/-, BEING PROVIDENT FUND TO EMPLOYEES. 7.1. THE ID. CIT(A) HAS APPLIED THE PROPOSITION OF LAW LAID DOWN IN THE JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. SHREE VIJAY SHREE LIMITED; ITAT NO. 245 OF 2011 , CA NO. 2607 OF 2011 , JUDGEMENT DATED 6TH SEPTEMBER, 2011 , AND HELD THAT IF THE SUM OF PROVIDENT FUND DEDUCTED FROM THE EMPLOYEES IS DEPOSITED 4 I.T.A. NO. 1594/KOL/2016 ASSESSMENT YEAR: 2012-13 M/S. SINGHANIA & SONS PVT. LTD BEFORE THE DUE DATE OF FILING OF THE PROVIDENT FUND OF THE EMPLOYEES IS DEPOSITED BEFORE THE DUE DATE OF FILING OF THE RETURN, THE SAME SHOULD BE ALLOWED. HENCE, WE FIND NO INFIRMITY IN THE ORDER OF THE ID. CIT(A) ON THIS ISSUE. ACCORDINGLY, GROUND NO. 3 OF THE REVENUE IS DISMISSED. 8. GROUND NO. 4, IS AGAINST THE DELETION OF ADDITION OF RS.1,05,00,000/- IN SHARE CAPITAL U/S 68 OF THE ACT. 8.1. THE ASSESSEE DURING THE YEAR RAISED SHARE CAPITAL OF RS.1,05,00,000/-, BY ISSUE OF 40,000 EQUITY SHARE AT A FACE VALUE OF RS.10/- PER SHARE AT A PREMIUM OF RS.240/- PER SHARE. AT THE OUTSET, WE OBSERVE THAT THE ASSESSEE IS AN OLD COMPANY AND IS DEALING IN BUSINESS OF TRADING IN CHEMICALS, IRON ORES AND SUPPLY OF GOODS FOR MORE THAN 25 YEARS. THE FOLLOWING TABLE GIVES THE NET WORTH AS WELL AS THE TURNOVER, NET PROFIT AND TAXES PAID OF THE ASSESSEE COMPANY. 8.2. FROM THE ABOVE IT IS CLEAR THAT THE ASSESSEE IS NOT A PAPER COMPANY OR A JAMAKHARCHI COMPANY BUT A GENUINE COMPANY. THE ARGUMENT OF THE ID. COUNSEL FOR THE ASSESSEE THAT PREMIUM OF RS.240/- CHARGED ON A FACE VALUE OF RS.10/-, IS JUSTIFIED UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, KEEPING IN VIEW THE SALES TURNOVER AND NET PROFIT, ASSET BASE AND FUTURE GROWTH PROSPECTS, OF THE COMPANY. 5 I.T.A. NO. 1594/KOL/2016 ASSESSMENT YEAR: 2012-13 M/S. SINGHANIA & SONS PVT. LTD 9. WE NOW CONSIDER THE OTHER FACTS OF THE CASE. THE ASSESSEE HAS RAISED A FRESH CAPITAL FROM 12 SHAREHOLDERS. THE ID. CIT(A) FROM PARA 10.2. TO PARA 10.3 OF HIS ORDER HAS GIVEN A LIST OF THESE COMPANIES. THIS IS EXTRACTED FOR READY REFERENCE:- 10.2. I HAVE CONSIDERED THE ISSUE IN THE ASSESSMENT ORDER FRAMED BY THE AO IN LIGHT OF THE ARGUMENTS MADE BY THE APPELLANT. THE SHORT ISSUE FOR MY CONSIDERATION IS THAT WHETHER THE SHARE APPLICATION MONIES ALONG WITH PREMIUM IN THE AGGREGATE OF RS.1,05,00,000/- DISCLOSED BY THE APPELLANT INVITE THE MISCHIEF OF THE PROVISIONS OF S. 68 OF THE ACT OR NOT. 10.3. DURING THE YEAR FRESH SHARE HAS BEEN ISSUED TO THE FOLLOWING TWELVE (12) SHAREHOLDERS: THE SHARES WERE ISSUED AT FACE VALUE OF RS.10/- PER SHARE AT A PREMIUM OF RS.240/- PER SHARE. THE APPLICANTS WERE ALL PRIVATE LIMITED COMPANIES AND THE APPELLANT IN THE PAPER BOOK HAS FILED THE DETAILS OF THE APPLICATION COMPANIES. 10. THE LD. CIT(A) FROM PAGE 29 TO 49, RECORDS THAT COMPANY WISE AUDITED ACCOUNTS, CERTIFICATE OF BANK STATEMENTS, DETAILS OF DIRECTORS OF THE COMPANY, COPY OF PAN CARD OF THE COMPANIES, CERTIFICATE OF INCORPORATION, BOARD RESOLUTIONS, FORM OF APPLICATION FOR SHARES, COPY OF ALLOTMENT ADVICE ETC. HAVE BEEN DULY FILED BEFORE HIM. 10.1. THE FOLLOWING CHART SHOWS THE NET WORTH AND SOURCE OF FUNDS OF ALL THESE SHARE APPLICANT COMPANIES, WHICH IS EXTRACTED FOR READY REFERENCE:- 6 I.T.A. NO. 1594/KOL/2016 ASSESSMENT YEAR: 2012-13 M/S. SINGHANIA & SONS PVT. LTD 11. FROM PERUSAL OF THE ABOVE FACTUAL DATA, WE FIND NO INFIRMITY IN THE FACTUAL FINDING OF THE ID. CIT(A) THAT ALL THESE SHARE APPLICANT COMPANIES ARE ACTIVE COMPANIES AS VERIFIED FROM THE REGISTRAR OF COMPANIES AND THAT THEY HAVE MADE ALL COMPLIANCES. HE ALSO HELD THAT THE ASSESSEE HAS DISCHARGED THE PRIMARY ONUS THAT LAY ON HIM BY FURNISHING ALL THE REQUIRED DETAILS IN RESPECT OF THESE SHAREHOLDERS TO THE ASSESSING OFFICER. THE ID. CIT(A) APPLIED THE FOLLOWING JUDGMENTS FOR THE PROPOSITION THAT WHEN THE CONDITIONS PRECEDENT FOR DISCHARGING OF BURDEN UNDER THE PROVISIONS OF SECTION 68 OF THE ACT, ARE MET WITH ADEQUATE EVIDENCE, THE ADDITION MADE UNDER SUCH PRETEXT DESERVES TO BE DELETED:- CIT VS. GAYATRI PORTFOLIO FUND (P) LTD. [ITA NO.664 OF 2004 DT. 26/08/2014J (CAL HC) CITVS. SANCHATI PROJECTS (P) LTD. [ITAT 140 OF2011 DT. 08/06/2011J (CAL HC) CITVS. DATAWARE PRIVATE LTD. [ITAT NO. 263 OF2011] (CAL HC) CIT VS. DIVINE LEASING & FINANCE LTD. (2008) 299 ITR 268 (DEL) CITVS. LOVELY EXPORTS LTD. (2008) 216 CTR 195 (SC) CIT VS. KAMDHENU STEEL AND ALLOYS LTD. (2014) 261 ITR 220 (DEL) CIT VS. DOWN TOWN HOSPITAL PVT. LTD. 267 ITR 439 [GAUHATI HIGH COURT) CIT VS. OASIS HOSPITALITIES PVT. LTD. (2011) 333 ITR 119 (DEL.) CIT VS. PRANVAV FOUNDATIONS LTD. (2015) 229 TAXMAN 58 (MADRAS) CIT VS. VACMET PACKAGING (INDIA) P. LTD. (2014) 364 ITR 217 (ALL) CIT VS. NAMASTEY CHEMICALS (P.) LTD. (2013) 217 TAXMAN 25 (GUJ.) 7 I.T.A. NO. 1594/KOL/2016 ASSESSMENT YEAR: 2012-13 M/S. SINGHANIA & SONS PVT. LTD CIT VS. STL EXTRUSION P. LTD. (2011) 333 ITR 269 (MP) CIT VS. CREATIVE WORLD TELEJILMS PVT. LTD. (2011) 333 ITR 100 (BOM.] 12. THEREAFTER AT PARA 10.21, HE HELD AS FOLLOWS:- '10.21 THEREFORE, CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, I FIND SUBSTANCE IN THE ARGUMENT OF THE AIR THAT THE APPELLANT HAS MADE ITS CASE THAT THE IDENTITY OF THE SHARE APPLICANTS ARE ESTABLISHED BEYOND DOUBT. ADMITTEDLY, ALL THE SHARE APPLICANTS ARE EXISTING ASSESSEES UNDER THE ACT ESTABLISH THE IDENTITY AND AUTHENTICITY OF THE SHARE APPLICANTS. ABOUT THE GENUINENESS OF THE TRANSACTIONS THERE IS NEITHER ANY ADVERSE FINDING IN THE ASSESSMENT ORDER NOR WHICH IS SUBVERSIVE TO THE FACTS BROUGHT ON RECORD BY THE APPELLANT DURING THE COURSE OF ASSESSMENT PROCEEDING. THE CREDITWORTHINESS OF THE SHARE APPLICANTS AS REGARDS THEIR SUBSCRIPTION TO THE SHARE CAPITAL IS PROVED BY SUBMISSION OF THEIR RETURN, AUDITED ANNUAL ACCOUNTS, THEIR BANK STATEMENT AS DEPICTED HEREINABOVE. THE NET WORTH OF SUCH SUBSCRIBERS ARE IN EXCESS OF THE AMOUNT INVESTED BY EACH OF THEM AS EXPLAINED HEREINABOVE. THE ADDITION MADE BY AO IS BASED ON EXTRANEOUS PARAMETERS NOT GERMANE FOR DECIDING THE ISSUE. THE AO HAD NOT DEALT WITH THE ISSUE JUDICIOUSLY AND CONSISTENTLY WITH THE EVIDENCE ADDUCED DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS BY THE APPELLANT DO NOT WARRANT THE INFERENCE THAT SUCH SHARE APPLICATION MONIES RECEIVED IS UNACCOUNTED CASH CREDIT. THERE IS NO MATERIAL BROUGHT ON RECORD TO THAT EFFECT AND WILD SPECULATION OF THIS GENRE CANNOT BE PASSED OFF AS GOSPEL TRUTH. HENCE, I AM INCLINED TO ACCEPT THE ARGUMENTS TENDERED BY THE A/R OF THE APPELLANT IN THIS RESPECT. IN VIEW OF THE ABOVE, I HAVE NO HESITATION TO HOLD THAT THE IMPUGNED ADDITION MADE BY INVOKING THE PROVISIONS OF S. 68 BY THE AO IS NOT JUSTIFIED IN THE CIRCUMSTANCES AND ACCORDINGLY, DIRECT HIM TO DELETE SUCH ADDITION OF 1,05,00,000/- MADE ON THIS ACCOUNT. THUS, GROUNDS RAISED BY THE APPELLANT ARE ALLOWED.' 12.1. WE FIND NO INFIRMITY IN THIS ORDER OF THE LD. CIT(A) ON THE FACTS AND CIRCUMSTANCES OF THE CASE. HENCE WE UPHOLD THIS ORDER OF THE LD. CIT(A) AND DISMISS THIS GROUND OF THE REVENUE. 13. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. KOLKATA, THE 20 TH DAY OF FEBRUARY, 2019. SD/- SD/- [S.S. GODARA] [ J. SUDHAKAR REDDY] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 20.02.2019 {SC SPS} 8 I.T.A. NO. 1594/KOL/2016 ASSESSMENT YEAR: 2012-13 M/S. SINGHANIA & SONS PVT. LTD COPY OF THE ORDER FORWARDED TO: 1. M/S. SINGHANIA & SONS PVT. LTD 3D, DUCKBACK HOUSE 41, SHAKESPEARE SARANI KOLKATA 700 017 2. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-10(2), KOLKATA 3. CIT(A)- 4. CIT- , 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER ASSISTANT REGISTRAR ITAT, KOLKATA BENCHES