ITO 9(2)(4), MUMBAI V. OLYMPIA EXIM LTD, MUMBAI

ITA 1737/MUM/2010

• Counselvise Citation: 173719914 RSA 2010
• Duration Of Justice: 1 year(s) 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 27-06-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 05-03-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Additional evidence
• Section: 133(6); 68; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, C, MUMBAI BEFORE SHRI R V EASWAR, PRESIDENT AND SHRI B RAMAKOTAIAH, ACCOUNTANT MEMBER I T A NO: 1737/MUM/2010 (ASSESSMENT YEAR: 2006-07) INCOME TAX OFFICER 9(2)(4), MUMBAI APPELLANT VS M/S OLYMPIA EXIM LTD., MUMBAI RESPONDENT (PAN: AAACO0735D) ASSESSEE BY: MR HARESH P SHAH REVENUE BY: MR PARESH JOHRI O R D E R R V EASWAR, PRESIDENT: THIS IS AN APPEAL BY THE DEPARTMENT AND THE FOLLOW ING GROUNDS HAVE BEEN TAKEN: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE U/S 68 PLACING RELIANCE ON THE DECISION OF APEX COURT IN CIT VS. LOVELY EXPORTS LTD. 216 CTR 195 (SC) WITHOUT APPRECIATING THAT THE FACT OF THE REFERRED CASE ARE DISTINGUISHABLE FROM THAT OF THE ASSESSEES CASE. IN THE ASSESSEES CASE, THE ASSESSING OFFICER HAD ISSUED NOTICES U/S 133(6) TO THE SAID SHAREHOLDERS OF THE ASSESSEE COMPANY WHICH WERE RETURNED UNSERVED AND THE ASSESSEE WAS ASKED TO SHOW CAUSE, IN THE ABSENCE OF ANY CONFIRMATIONS FROM THESE PARTIES, WHY THE SHARE APPLICATION MONEY BE NOT TREATED AS UNEXPLAINED WHICH IT HAS FAILED TO FURNISH. HENCE, THE ASSESSEE FAILED TO ESTABLISH THE IDENTITY, CREDIT- ITA NO: 1737/MUM/2010 2 WORTHINESS AND GENUINENESS OF THE CREDITS IN ITS BOOKS OF ACCOUNT. 2. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 3. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUNDS OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 2. THE APPEAL RELATES TO THE ASSESSMENT YEAR 2006-0 7. THE ASSESSEE IS A PUBLIC LIMITED COMPANY. WHILE COMPLE TING THE ASSESSMENT, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD RECEIVED ` 54,00,000/- FROM SEVEN PARTIES AS SHARE APPLICATION MONIES, THE DETAILS OF WHICH ARE AS UNDER: - 1. SANGEETA S GALA 5,00,000 2. VIRAL DIAMOND EXPORT LTD. 10,00,000 3. DIVYA V GALA 3,00,000 4. JAVDA INDIA IMPEX LTD. 9,00,000 5. PET PLASTICS LTD. 8,00,000 6. HEMA TRADING CO. P. LTD. 9,00,000 7. ALKA DIAMONDS LTD. 10,00,000 --------------- 54,00,000 ======== ON THE GROUND THAT THE ASSESSEE DID NOT FILE CONFIR MATIONS FROM THE AFORESAID PARTIES, THE ASSESSING OFFICER ISSUED NOT ICES TO THEM UNDER SECTION 133(6) OF THE INCOME TAX ACT, 1961. THOUGH THESE NOTICES WERE SENT TO THE ADDRESSES AS FURNISHED BY THE ASSESSEE, THE NOTICE ISSUED TO HEMA TRADING CO. P. LTD. WAS R ETURNED WITH THE POSTAL REMARKS NOT KNOWN. CONFIRMATION WAS RECEI VED FROM ITA NO: 1737/MUM/2010 3 JAVDA INDIA IMPEX LTD. AND ALKA DIAMOND INDUSTRIES LTD. IN RESPECT OF THE REMAINING PARTIES NO INFORMATION WAS RECEIVE D BY THE ASSESSING OFFICER IN RESPONSE TO THE NOTICES. HE H ELD THAT IN THESE CIRCUMSTANCES THE ASSESSEE CANNOT BE SAID TO HAVE D ISCHARGED THE ONUS OF ESTABLISHING THE IDENTITY AND CREDITWORTHIN ESS OF THE SHARE APPLICANTS AND THE GENUINENESS OF THE TRANSACTION. HE THEREFORE INVOKED SECTION 68 AND ADDED THE FOLLOWING AMOUNTS AS THE ASSESSEES INCOME BY WAY OF UNEXPLAINED CREDITS: - 1. SANGEETA S GALA 5,00,000 2. VIRAL DIAMOND EXPORT LTD. 10,00,000 3. DIVYA V GALA 3,00,000 4. PET PLASTICS LTD. 8,00,000 5. HEMA TRADING CO. P. LTD. 9,00,000 --------------- 35,00,000 ======== 3. ON APPEAL, THE ASSESSEE WOULD APPEAR TO HAVE FIL ED EVIDENCE BEFORE THE CIT(A) IN SUPPORT OF THE SHARE APPLICATION MONIES. THE EVIDENCE ADDUCED BY THE ASSESSEE WAS A S UNDER: - NAME EVIDENCE ADDUCED SANGEETA S GALA BANK ACCOUNT DETAILS, AFFIDAVIT, COPY OF RETURN AND COMPUTATION OF INCOME AND CONFIRMATIONS. VIRAL DIAMOND EXPORT LTD. CONFIRMATION AND AFFIDAVIT, SHARE APPLICATION FORM, CERTIFICATE, LETTER, COPY OF CANARA BANK STATEMENT, COPY OF PAN CARD AND BALANCE SHEET AS ON 31.03.2005. DIVYA V GALA AFFIDAVIT, COPY OF RETURN AND COMPUTATION. PET PLASTICS LTD. CONFIRMATION, COPY OF RELEVANT BANK STATEMENT, PAN CARD, AFFIDAVIT AND ANNUAL REPORT WITH AUDITED FINAL ACCOUNTS FOR 2005-06. HEMA TRADING CO. P. LTD. CONFIRMATION, AFFIDAVIT, RETURN, ANNUAL REPORT FOR 2006-07. ITA NO: 1737/MUM/2010 4 THE CIT(A) HELD THAT THE ASSESSING OFFICER HAD MADE THE ADDITIONS WITHOUT GIVING OPPORTUNITY TO THE ASSESSEE TO STATE ITS CASE. HE ALSO HELD THAT IN ANY CASE NO ADDITION CAN BE MADE UNDER SECTION 68 AS UNEXPLAINED CREDITS ON ACCOUNT OF MONEY RECEIVED TO WARDS SUBSCRIPTION FOR SHARE CAPITAL AS HELD BY THE SUPRE ME COURT IN THE CASE OF CIT VS. LOVELY EXPORTS (P) LTD. (2008) 216 CTR (SC) 195. IN THIS VIEW OF THE MATTER HE DELETED THE ADDITION OF ` 35,00,000/-. 4. THE REVENUE IS IN APPEAL. WE HAVE CONSIDERED TH E FACTS AND THE CONTENTIONS. IN OUR OPINION, THE MATTER HAS TO RECEIVE FRESH CONSIDERATION IN THE HANDS OF THE ASSESSING OFFICER . THE REASON IS THAT THE ADDITIONAL EVIDENCE ADDUCED BY THE ASSESSE E BEFORE THE CIT(A) HAS NOT BEEN ADVERTED TO BY HIM. HE HAS PRO CEEDED ON THE BASIS THAT NO ADDITIONS CAN BE MADE UNDER SECTION 6 8 IN RESPECT OF SHARE SUBSCRIPTION UNLESS THE SHAREHOLDERS ARE ESTA BLISHED TO BE BOGUS. BEFORE THE ASSESSING OFFICER THE ASSESSEE A DDUCED CONFIRMATION LETTERS BUT WHEN THEY WERE PUT TO VERI FICATION BY THE ASSESSING OFFICER BY ISSUING NOTICES UNDER SECTION 133(6), THERE WAS NO RESPONSE FROM THE PARTIES AND ONE OF THE NOT ICES HAD ALSO COME BACK UNSERVED. NO OTHER EVIDENCE EXCEPT THE C ONFIRMATION LETTERS WAS LED BY THE ASSESSEE BEFORE THE ASSESSIN G OFFICER. IT WAS ONLY AT THE FIRST APPELLATE STAGE THAT THE RETU RNS OF INCOME, BANK STATEMENTS, BALANCE SHEETS, AFFIDAVITS, PAN CARDS, ETC. WERE FILED BY THE ASSESSEE. OBVIOUSLY THESE ARE ADDITIONAL EV IDENCE AND SHOULD HAVE BEEN SUBJECTED TO THE PROCEDURE PRESCRI BED BY RULE 46A OF THE INCOME TAX RULES. THESE EVIDENCE WERE F ILED BEFORE THE CIT(A) BY THE ASSESSEE ONLY IN AN ATTEMPT TO SH OW THAT THE ITA NO: 1737/MUM/2010 5 PERSONS WHO APPLIED FOR SHARES ARE NOT BOGUS. BUT IT IS ALSO A FACT THAT THEY WERE NOT FILED BEFORE THE ASSESSING OFFIC ER. IT WAS INCUMBENT UPON THE CIT(A) TO GIVE A FINDING WHETHER THE SHARE APPLICANTS REALLY EXISTED OR WERE BOGUS AND SUCH A FINDING COULD NOT HAVE BEEN GIVEN BY HIM UNLESS THE ADDITIONAL EVIDEN CE IS CONSIDERED. IF THE CIT(A) HAD WANTED TO CONSIDER T HE ADDITIONAL EVIDENCE, HE OUGHT TO HAVE FOLLOWED THE PROCEDURE P RESCRIBED BY RULE 46A. UNDER THIS RULE, HE HAS TO FIRST RECORD REASONS FOR ADMITTING THE ADDITIONAL EVIDENCE AND THEREAFTER HE SHOULD HAVE GIVEN THE ASSESSING OFFICER AN OPPORTUNITY TO COMME NT UPON THE ADDITIONAL EVIDENCE. IT IS ONLY AFTER THIS PROCEDU RE IS FOLLOWED THAT THE CIT(A) CAN RECORD A FINDING, IN CASE HE ADMITS THE ADDITIONAL EVIDENCE, TO THE EFFECT THAT THE SHARE APPLICANTS W ERE NOT BOGUS AND THAT THEY WERE GENUINE, SO THAT THE JUDGMENT OF THE SUPREME COURT CITED SUPRA CAN BE APPLIED. THE CIT(A) HAS NOT DON E SO. APPARENTLY AND WITH RESPECT, IT SEEMS TO US THAT HE OVERLOOKED THAT THE ADDITION CAN BE DELETED ONLY IF THE SHARE APPLI CANTS EXISTED REALLY AND GENUINELY AND IN ORDER TO REACH SUCH A C ONCLUSION ON FACTS, HE SHOULD HAVE FIRST EXAMINED THE EVIDENCE B EFORE APPLYING THE JUDGMENT. SINCE HE HAS NOT DONE SO, WE SET ASI DE HIS ORDER AND RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO ENABLE HIM TO EXAMINE THE EVIDENCE AND GIVE A FRESH DECISI ON IN ACCORDANCE WITH LAW AND AFTER GIVING THE ASSESSEE A DEQUATE OPPORTUNITY OF ADDUCING THE EVIDENCE. WE DIRECT AC CORDINGLY. 5. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT SINCE THE JUDGMENT OF THE SUPREME COURT IS CLEAR AND SINC E THE EVIDENCE ITA NO: 1737/MUM/2010 6 ADDUCED BEFORE THE CIT(A) ALSO SHOWS THAT THE SHARE APPLICANTS REALLY EXISTED, THERE WAS NO NEED TO SEND THE MATTE R BACK TO THE ASSESSING OFFICER, WHICH WOULD DELAY THE PROCEEDING S. WE ARE UNABLE TO ACCEPT THE SUBMISSION. THE ASSESSEE OUGH T TO HAVE ADDUCED THE EVIDENCE EVEN BEFORE THE ASSESSING OFFI CER BECAUSE AS THE SUPREME COURT HAS HELD IN THE CASE OF KESHAV MILLS CO. LTD. VS. CIT (1965) 56 ITR 365 (SC), THE INCOME TAX PROC EEDINGS ARE NOT EXPECTED TO BE DELAYED AND THEREFORE IT WAS INCUMBE NT UPON THE ASSESSEE TO ADDUCE ALL THE EVIDENCE AT THE EARLIEST POINT OF TIME. IF THAT IS THE POSITION AS POINTED OUT BY THE SUPREME COURT, THE ASSESSEE, HAVING FAILED TO ADDUCE THE EVIDENCE BEFO RE THE ASSESSING OFFICER, CANNOT CONTEND THAT THE PROCEEDI NGS WOULD NOW BE UNNECESSARILY DELAYED. AT THE SAME TIME WE ALSO TAKE NOTE OF THE SUBMISSION OF THE ASSESSEE THAT IF THE CIT(A) D OES NOT INVOKE RULE 46A, THERE IS NOTHING WHICH THE ASSESSEE CAN D O ABOUT IT. THE ASSESSEE UNFORTUNATELY HAS NO CONTROL OVER THE MANN ER IN WHICH THE PROCEEDINGS ARE DEALT WITH AND DISPOSED OF BY THE C IT(A). EVEN SO IF THERE IS A FATAL PROCEDURAL FLAW IN THE PROCEEDI NGS BEFORE HIM, THAT CANNOT BE CONDONED MERELY BECAUSE THERE WOULD BE A DELAY. THE HONBLE BOMBAY HIGH COURT HAS HELD IN THE CASE OF S MT PRABHAVATI S SHAH VS. CIT (1998) 231 ITR 1 (BOM) THAT RULE 46A SHOWS THAT THE ASSESSEE CANNOT AS A MATTER OF RIGHT ADDUCE ADD ITIONAL EVIDENCE BEFORE THE CIT(A) AND THAT IT IS CIRCUMSCR IBED BY THE CONDITIONS LAID DOWN IN THE RULE. THIS DECISION AG AIN SHOWS THAT THE ASSESSEES ATTEMPT OUGHT TO BE TO ADDUCE THE EN TIRE EVIDENCE BEFORE THE ASSESSING OFFICER. NOR CAN WE ACCEPT TH E ASSESSEES ITA NO: 1737/MUM/2010 7 CONTENTION THAT THE DEPARTMENT HAS NOT RAISED A SPE CIFIC GROUND REGARDING THE FAILURE OF THE CIT(A) TO APPLY RULE 4 6A. IT WOULD BE TOO NARROW AND A TECHNICAL VIEW TO TAKE, WHEN SUBST ANTIAL JUSTICE REQUIRES THAT THE PROCEDURAL FLAW, WHICH IS QUITE S ERIOUS IN NATURE AND WHICH AFFECTS THE RIGHTS OF THE PARTIES, SHOULD BE CORRECTED. WE ARE THEREFORE NOT INCLINED TO VIEW, ON THE FACTS OF THE PRESENT CASE, THE OMISSION TO TAKE A SPECIFIC GROUND RELATI NG TO RULE 46A AS A FATAL OMISSION. 6. FOR THE ABOVE REASONS WE RESTORE THE MATTER TO T HE FILE OF THE ASSESSING OFFICER WITH THE DIRECTIONS GIVEN ABOVE A ND ALLOW THE APPEAL OF THE DEPARTMENT FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH JUNE 2011. SD/- SD/- (B RAMAKOTAIAH) (R V EASWAR) ACCOUNTANT MEMBER PRESIDE NT MUMBAI, DATED 30 TH JUNE 2011 SALDANHA COPY TO: 1. M/S OLYMPIA EXIM LTD. 1, MOTI MAHAL, STATION ROAD GOREGAON (WEST), MUMBAI 400 068 2. ITO 9(2)(4), MUMBAI 3. CIT-9, MUMBAI 4. CIT(A)-20, MUMBAI 5. DR C BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI