M/s. LGF Vitrified Pvt. Ltd., Morbi V. The CIT-3, Rajkot

ITA 226/RJT/2019

• Counselvise Citation: [2023] 101 COUNSELVISE.COM (IT) 9820 (ITAT-RAJKOT)
• Duration Of Justice: 4 year(s) 1 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 10-09-2023
• Assessment Year: 2016-2017
• Appeal Filed On: 10-10-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SHRISHRAMDEEPSINHA
• Assessee Lawyers: SHRIMEHULRANPURA

Judgement Text

आयकरअपीलीयअधिकरण,अहमदाबादनायपीप INTHEINCOMETAXAPPELLATETRIBUNAL, (ConductedthroughE-Court,Rajkot) BEFORESHRIWASEEMAHMED,ACCOUNTANTMEMBER And SHRITRSENTHILKUMAR,JUDICIALMEMBER आयकरअपीलसं./ITANo.226/Rjt/2019 निर्धररवरध / Asstt.Year:2016-17 M/s.LFGVitrifiedPvt.Ltd., SurveyNO.358atRangpar, Morbi-363641 PAN:AACCL7846C Vs. ThePrincipleCommissioner ofIncomeTax-3, Rajkot. (Applicant)(Respondent) Assesseeby:ShriMehulRanpura,A.R Revenueby:ShriShramdeepSinha,CIT.D.R सुिव्ईकीत्रीख/DateofHearing:11/09/2023 घोरर्कीत्रीख /DateofPronouncement:29/11/2023 आदेश /ORDER PERWASEEMAHMEDACCOUNTANTMEMBER: Thecaptionedappealhasbeenfiledattheinstanceoftheassessee againsttheorderoftheLearnedPrincipleCommissionerofIncomeTax(Appeals)- 3,Rajkot,(inshort“Ld.CIT(A)”)arisinginthematterofassessmentorderpassed unders.263oftheIncomeTaxAct1961(here-in-afterreferredtoas"theAct") relevanttotheAssessmentYear2016-17. ITAno.226/Rjt/2019 Asstt.Year2016-17 2 2.TheonlyissueraisedbytheassesseeisthatthelearnedPCITerredin holdingtheassessmentorderpassedundersection143(3)oftheActaserroneous insofarprejudicialtotheinterestsoftherevenue. 3.Thefactsinbriefarethattheassessee,aprivatelimitedcompany,is engagedinthebusinessofmanufacturingofvitrifiedtiles.Theassesseeforthe yearunderconsiderationdeclaredlossofRs.3,85,08,902/-only.Thecaseofthe assesseewasselectedforcompletescrutinyundersection143(2)oftheActand assessmentorderwaspassedundersection143(3)oftheActdated4-12-2018 acceptingthelossdeclaredbytheassessee. 4.ThelearnedPCITonexaminationofthecaserecordsfoundthatthebooks oftheassesseewerecreditedonaccountoffreshsharecapitalforRs10.40crores andunsecuredloanofRs.3,93,05,000/-fromseveralparties.Thereweresome partieswhomadeinvestmentinsharesoftheassesseeaswellasalsoextended unsecuredloantotheassessee.TheAOduringtheassessmentproceedingraised questionsregardingcreditofsharecapitalandunsecuredloantowhichthe assesseesubmitteddetailssuchasITRs,copyofbankstatements,ledgercopies etconlyinrespectto20shareholdersandloanpartiesbutnodetailwhatsoever wasfurnishedwithrespecttotheremainingshareholderandloanprovider.Thus, theAOfailedtomakeenquiryofidentity,creditworthiness,andgenuinenesswith respecttoremainingshareholderandloanproviderbutacceptedthesamewhich iserroneousinsofarprejudicialtotheinterestoftherevenue. 5.Further,fromthedetailsprovidedbytheassesseeofothershareholders andloanparties,itwasseenthatinmostofthecasestheloanandinvestment havebeenmadebythosepartiesexceedinglymorethan30timesoftheirincome reportedinITRs.TheAOwithoutmakingfurtherinquiryregardingthe creditworthinessofthosepartiesproceededtotheacceptthesamemerelybased onthedetailsprovidedbytheassessee.MerelytheAOaskedassesseetoproduce certaindetailtowhichassesseesubmittedbutthesamewillnotbetantamountto ITAno.226/Rjt/2019 Asstt.Year2016-17 3 theverificationorenquiry.Likewise,fromthefinancialstatementprovidedincase ofcertainshareholder,itcanbeseenthatthosepartyreceivedfundasunsecured loanandsamewasdivertedtotheassesseecompanyasinvestmentinshare capitalwhichisunusualthatapersonwilltakeloanfromthirdpartiesmorethan hisincomeandinvestmentthesameintheotherentities.ButtheAOdidnot bothertomakeanyinquiryinthisregard.Assuch,aspertheamendedprovision ofthesection68oftheActtheamountcreditedincloselyheldcompanyinthe formofsharecapitalshalldeemedtobeunexplainedunlessthesourcesoffundin thehandsofinvestorarenotexplainedbytheassessee.TheAOdespitehaving specificlegalrequirementhasnotmadeinquiryaboutthesourcesoffundinthe handsofinvestor. 6.ThelearnedPCITfurtherfoundthattheassesseehastradepayableon accountofgoodsandcapitalgoods.TheAOrequiredtheassesseetofurnish confirmationandsupportingdocumentsinthecaseofpartieswheretheamount payableexceedsRs.5lakhtowhichassesseemadesubmissionbutdetailsor confirmationwerefurnishedincaseof10capitalgoodspartiestowhomamount payablewasexceedingRs.5Lakh.ButtheAOdidnotmakefurtherinquiryor askedtheassesseetofurnishnecessarydetailsofthose10parties. 6.1Thus,thelearnedPCITinviewoftheabovestatedfactsandconsidering theprovisionofexplanation2tosection263oftheActaswellasvariouscase lawssetasidetheassessmentorderbyholdingthesameaserroneousinsofar prejudicialtotheinterestoftherevenuewiththefollowingdirection: 22.Inviewoftheabove,sincethetwinconditionsnamely,(i)theorderoftheAssessing Officersoughttoberevisediserroneous:and(ii)itisprejudicialtotheinterestsofthe Revenuearesatisfied,theassessmentorderpassedu/s143(3)dtd.4/12/2018isset asidewiththedirectiontomakeproperenquiries/verificationinrespectofsharecapital introducedduringtheyearunderconsideration,unsecuredloans(squaredupornot) raisedduringtheyearandthetradecreditors.Heshouldcarryoutinquiriesaboutthe variouslayersthroughwhichthemoneyhasbeenrotatedandlandedassharecapitalto theassessee-company.TheA.O.isalsodirectedtosummontheshareapplicantsand examinethem.Thesourceofthemoneyintheirhandseitherthroughcashorthrough chequeneedstobeexamined.TheTradecreditorsshallbeproperlyverified.Subsequent ITAno.226/Rjt/2019 Asstt.Year2016-17 4 totheinquiries&verificationofallrelevantaspectsofthecase,theA.O.shallpassa speakingorder,afteraffordingproperopportunityofbeingheardtotheassessee. 7.BeingaggrievedbytheorderofthelearnedPCIT,theassesseeisinappeal beforeus. 8.ThelearnedARbeforeusfiledpaperbooksrunningfrompages1to51and 1to417andcontendedthattheassessmenthasbeenframedbytheAOafter makingareferencetothedocumentsfiledbytheassesseeanddueapplicationof mind.Therefore,theassessmentordercannotbesaidaserroneousinsofar prejudicialtotheinterestofrevenue. 9.Ontheotherhand,thelearnedDRsubmittedthattheassessmenthasbeen framedbytheAOwithoutnecessaryverificationaspointedoutbythelearned PCITinhisorder.ThelearnedDRvehementlysupportedtheorderofthelearned PCIT. 10.Wehaveheardtherivalcontentionsofboththepartiesandperusedthe materialsavailableonrecord.Fromtheprecedingdiscussion,primarily,itappears thattheassesseehasshowncreditofsharecapitalandunsecuredloansfrom39 parties.However,theassesseedidnotdischargetheprimaryonusregardingthe identity,creditworthiness,andgenuinenessinrespectofallsharesubscribersand loanproviders.Even,inthecaseofsharessubscribersorloanproviderswhose detailswereprovided,therewereseveralglaringfactshighlightedbythelearned PCITwhichwasprimafacieevidencethattherequiredproperinquirybytheAO beforereachingtoconclusionwasnotconcluded.Theamendedprovisionof section68oftheActwhichwasapplicablefortheyearunderconsideration providesthatincaseofcreditofsharecapital,theexplanationoftheassessee shallbedeemednotsatisfactoryunlesssourcesoffundinthehandoftheinvestor areexplained.However,thereisnosuchenquiryregardingthesourcesoffundin thehandofsharesubscriberhasbeenmadebytheAO.ThelearnedCIT(A)also ITAno.226/Rjt/2019 Asstt.Year2016-17 5 highlightedthatinresponsetothequeryreadingtradepayabletheassessee madeonlypartcompliance,buttheAOdidnotraiseanyfurtherquestion. 10.1Furthermore,wehavealsoreferredtothereplymadebytheassessee regardingcreditofsharecapitalandunsecuredloaninresponsetothenotice issuedu/s142(1)oftheAct,placedonpages2ofthepaperbookintabularform andwefindthattheAOhasnotenquiredtheaspecthighlightedbytheLd.PCIT inhisorderduringtheassessmentproceedings.Assuch,wefindthattherewere severalpartiesinwhosecasesnoprimarydocumentwasprovidedbytheassessee andincaseswhereprimarydocumentswereprovidedbutthedetailsreading sourcesoffundinthehandofsharessubscriberswerenotprovided.Accordingly, itappearstousthattheAOinthegivencasehasnotconductedinquiryproperly quatothecreditofsharecapitalandunsecuredloanaswellastradepayables.In viewoftheabove,thereremainnoambiguitythattheassessmentorderis erroneousinsofarprejudicialtotheinterestofrevenueasithasbeenpassed withoutmakinginquiries/properinquiryduringtheassessmentproceedings. Accordingly,wedonotfindanyreasontointerfereinthefindingoftheLd.PCIT. Accordingly,weupholdthesame. 11.Intheresult,theappealoftheassesseeisherebydismissed. OrderpronouncedintheCourton29/11/2023atAhmedabad. Sd/-Sd/- (TRSENTHILKUMAR)(WASEEMAHMED) JUDICIALMEMBERACCOUNTANTMEMBER (TrueCopy) Ahmedabad;Dated29/11/2023 Manish