CASA BUILDERS P.LTD, MUMBAI V. PR CIT 6, MUMBAI

ITA 2463/MUM/2015

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 4850 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 9 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-02-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 01-05-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 30-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AWUNGSHI GIMSON
• Keywords: Revision of order; Share purchase agreement; Question of law; Competent authority; Assessment record; Revenue expenditure; Capital expenditure
• Section: 68; 263; 143(3); 142(1); 133(6); 205; 195

Judgement Text

1 ITA 2463/MUM/2015 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C, MUMBAI BEFORE SHRI C.N. PRASAD (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) ITA NO. 2463/MUM/2015 (ASSESSMENT YEAR : 2010-11) M/S CASA BUILDERS PVT LTD K-7, PRATHAMESH, VEER SAVARKAR MARG, PRABHADEVI MUMBAI- 400 025 PAN : AADCC1835B VS PRINCIPAL CIT-6, MUMBAI APPELLANT RESPONDEDNT APPELLANT BY SHRI NISHANT THAKKAR / HITEN CHANDE RESPONDENT BY SHRI AWUNGSHI GIMSON DATE OF HEARING 14-11-2018 DATE OF PRONOUNCEMENT 13 -02-2019 O R D E R PER G MANJUNATHA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF PRINCIPAL CIT-6, MUMBAI U/S 263 OF THE I.T. ACT, 1961 AND DAT ED 02-03-2015 AND IT PERTAINS TO AY 2010-11. THE ASSESSEE HAS RAISED TH E FOLLOWING GROUNDS OF APPEAL:- BEING AGGRIEVED BY THE ORDER OF THE LEARNED CIT U/ S. 263, THE APPELLANT BEGS TO PREFER THE PRESENT APPEAL AGAINST SETTING ASIDE OF THE ASS ESSMENT FOR A.Y. 2010-11 ON THE FOLLOWING GROUNDS: 1. DETAILS OF SHARE PREMIUM RECEIVED RS. 3,55,32, 000/- NOT VERIFIED SATISFACTORILY. 2. INVESTMENTS MADE BY THE ASSESSEE AMOUNTING TO RS. 9,43,97,530/- NOT VERIFIED SATISFACTORILY. 2 ITA 2463/MUM/2015 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN THE BUSINESS OF BUILDER AND DEVELOPER AND ALSO INVE STMENTS, HAS FILED ITS RETURN OF INCOME FOR AY 2010-11 ON 20-09-2010 DECLARING TO TAL INCOME AT NIL. THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE I.T. ACT , 1961 DETERMINING TOTAL LOSS AT RS.7,66,237 BY MAKING CERTAIN DISALLOWANCES . SUBSEQUENTLY, THE PCIT-6, MUMBAI ISSUED A SHOW CAUSE NOTICE U/S 263 AND ASKED THE ASSESSEE AS TO WHY THE ASSESSMENT ORDER PASSED U/S 143(3) OF THE I.T. ACT, 1961 DATED 22-03-2013 SHALL NOT BE REVISED UNDER THE PROVISIONS OF SECTIO N 263 OF THE I.T. ACT, 1961 FOR THE REASONS STATED IN HIS SHOW CAUSE NOTICE. IN TH E SAID SHOW CAUSE NOTICE, THE PCIT HAS QUESTIONED TWO ISSUES, I.E. FRESH SHARE CA PITAL ALONGWITH SHARE PREMIUM RAISED BY THE ASSESSEE BY ISSUE OF SHARES T O CERTAIN PARTIES AND ALSO HUGE INVESTMENTS MADE TO THE TUNE OF RS.9,43,97,530 . ACCORDING TO THE PCIT, ALTHOUGH THE AO HAS CARRIED OUT CERTAIN ENQUIRIES I N REGARD TO THE ISSUE OF SHARE CAPITAL TO SHRI ANIL DESHPANDE FAMILY, ON PE RUSAL OF ASSESSMENT RECORDS IT WAS OBSERVED THAT THE ASSESSEE CLAIMS TO HAVE RE CEIVED SHARE CAPITAL AMOUNTING TO RS.3,55,32,000, WHEN THE REPLY FILED T O SHOW CAUSE NOTICE U/S 142(1) DATED 16-08-2012, THE ASSESSEE STATED THAT I T HAS RECEIVED SHARE PREMIUM OF RS.35,52,000. THUS, THERE IS A DIFFEREN CE OF RS. 3,18,80,000. THE AO OUGHT TO HAVE VERIFIED THE ABOVE DIFFERENCE, BUT HE HAS SIMPLY ACCEPTED SUBMISSION OF THE ASSESSEE WHICH CLEARLY SHOWED THA T THE AO HAS PASSED 3 ITA 2463/MUM/2015 ASSESSMENT ORDER WITHOUT APPLICATION OF MIND WHICH RENDERED ASSESSMENT ORDER ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. FURTHER, THE PRINCIPAL CIT QUESTIONED THE ISSUE OF INVESTMENTS. ACCORDING TO THE PCIT, ALTHOUGH THE ASSESSEE HAS MADE VARIOUS IN VESTMENTS TO THE TUNE OF RS.9,43,97,530, THE AO FAILED TO MAKE OUT INDEPENDE NT VERIFICATION, WHATSOEVER, IN RESPECT OF ANY OF THOSE PARTIES EXCE PT MERELY RECEIVING INFORMATION U/S 133(6) OF THE ACT, IN SOME CASES AN D FILING OF RECEIPT, COPY OF AGREEMENT, ETC. THE AO HAS TREATED THIS AS GENUINE INVESTMENTS WITHOUT CONDUCTING NECESSARY ENQUIRIES. THEREFORE, HE OPIN ED THAT THE ASSESSMENT ORDER PASSED BY THE AO IS ERRONEOUS INSOFAR AS IT I S PREJUDICIAL TO THE INTEREST OF THE REVENUE. 3. IN RESPONSE TO SHOW CAUSE NOTICE, THE ASSESSEE H AS FILED SUBMISSIONS TO ARGUE THAT ASSESSMENT ORDER PASSED BY THE AO IS NEI THER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE AS THE I SSUE OF SHARE PREMIUM RECEIVED FROM SHRI ANIL DESHPANDE AND OTHERS HAS BE EN THOROUGHLY EXAMINED DURING THE COURSE OF ASSESSMENT PROCEEDINGS WHERE T HE AO HAS RAISED A SPECIFIC QUESTION FOR WHICH THE ASSESSEE HAS FILED COMPLETE DETAILS. INSOFAR AS HUGE INVESTMENTS APPEARING IN BALANCE-SHEET, DURING ASSESSMENT PROCEEDINGS, NECESSARY DETAILS HAD BEEN FILED BEFORE THE AO TO E XPLAIN INVESTMENTS APPEARING IN ASSETS SIDE OF THE BALANCE-SHEET AND W HATEVER ADVANCES WERE 4 ITA 2463/MUM/2015 APPEARING IN BALANCE-SHEET ARE NORMAL BUSINESS ADVA NCES GIVEN TO VARIOUS PARTIES WITH REGARD TO ITS REAL ESTATE BUSINESS. T HE ASSESSEE FURTHER SUBMITTED THAT IN REAL ESTATE BUSINESS, LONG INVESTMENT ENTAI LS A LONG GESTATION PERIOD AND THE RETURNS ARE NOT IMMEDIATE BUT FACT REMAINS THAT THESE ARE SUBJECT MATTER OF ASSESSMENT DURING ORIGINAL ASSESSMENT PROCEEDING S. THEREFORE, MERELY FOR THE REASON THAT THE AO HAS NOT CONDUCTED ENQUIRIES AS REQUIRED BY THE PCIT, THE ASSESSMENT ORDER CANNOT BE TERMED AS ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. 4. THE LD.PCIT, AFTER CONSIDERING RELEVANT SUBMISSI ONS OF THE ASSESSEE AND ALSO BY RELYING UPON VARIOUS JUDICIAL PRECEDENTS, I NCLUDING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MALABAR INDUST RIAL COMPANY LTD VS CIT 243 ITR 83(SC) HELD THAT ASSESSMENT ORDER PASSED BY THE AO IS ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE AS THE AO FAILED TO CARRY OUT REQUIRED ENQUIRIES INSOFAR AS SHARE PREMI UM RECEIVED FROM NRIS AND ALSO HUGE INVESTMENTS APPEARING IN THE ASSETS SIDE OF THE BALANCE-SHEET. ALTHOUGH THE AO HAS CONDUCTED PRIMARY ENQUIRIES WIT H REGARD TO THE SHARE PREMIUM BUT HAVING REGARD TO THE NATURE OF CREDITS FOUND IN THE FORM OF MONEY RECEIVED FROM NRIS, THE AO OUGHT TO HAVE COND UCTED REQUIRED ENQUIRIES THROUGH FT&TR DIVISION OF CBDT WHICH IS COMPETENT A UTHORITY TO CONDUCT CROSS BORDER INVESTMENTS THROUGH PROPER CHANNEL. IN THIS CASE, THE AO HAS SIMPLY 5 ITA 2463/MUM/2015 ACCEPTED EXPLANATION FILED BY THE ASSESSEE WITHOUT CARRYING OUT FURTHER INVESTIGATION EVEN THOUGH THE SHARES WERE ISSUED AT A HUGE PREMIUM OF RS.600 PER SHARE. SIMILARLY, THE AO HAS FAILED TO CARRY O UT NECESSARY ENQUIRIES WITH REGARD TO THE SUBSCRIPTION TO PREFERENCE SHARES OF M/S NAGARKAR DEVELOPERS PVT LTD AS WELL AS EQUITY INVESTMENTS IN REIS MAGOS PROPERTY DEVELOPERS PVT LTD. THE AO FAILED TO EXAMINE AS TO WHAT RETURNS W ERE RECEIVED BY THE ASSESSEE FROM THESE INVESTMENTS, ATLEAST, BY THE DA TE ON WHICH ASSESSMENT ORDER WAS PASSED, HAS NOT BEEN LOOKED INTO. THEREF ORE, HE OPINED THAT THE ASSESSMENT ORDER PASSED BY THE AO IS ERRONEOUS INSO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. ACCORDINGLY, HE SET A SIDE THE ORDER PASSED BY THE AO AND DIRECTED THE AO TO REDO THE ASSESSMENT AFTER VERIFYING THE FACTS CAREFULLY, IN ACCORDANCE WITH SETTLED POSITION OF L AW. THE RELEVANT PORTION OF THE ORDER OF PCIT ARE EXTRACTED BELOW:- 5.2. I AM NOT CONVINCED THAT ANY REASONABLE PERSON WOULD FEEL AFTER SEEING POOR CASH FLOW AS WELL AS POOR RETURNS THAT THERE BE HUG E PREMIUM OF RS.600/- PER SHARE FOR A COMPANY HAVING AUTHORIZED CAPITAL LESS THAN R S.L CRORE WOULD BE JUSTIFIED. THE HIGH PREMIUM CHARGED WAS TRIED TO BE JUSTIFIED ON THE BASIS OF 'ILLUSORY PROJECTED DISCOUNTED CASH FLOW STATEMENT' WITH 'RATE OF RETURN' OF 19% PER ANNUM. THE FACTS AVAILABLE ON RECORD AT THE TIME OF ASSESSMENT, CLEARLY INDICATE THAT SHARE PREMIUM WAS NOT JUSTIFIED TO THE EXTENT OF RS.600/- PER SHARE. 5.3. THE DETAILS OF LISTED COMPANY BEING AVAILABLE IN PUBLIC DOMAIN, THE A.O. COULD HAVE CONSIDERED THE P/E PREVAILING IN THE IND USTRY AS WELL AS OTHER FINANCIAL RATIOS BEFORE HE GOT SATISFIED WITH REGARD WITH THE JUSTIFICATION OF THE PREMIUM. 5.4. I THEREFORE, DO NOT AGREE WITH THE CLAIM OF TH E ASSESSEE THAT ASSESSMENT ORDER IS NOT PREJUDICIAL WITH THE INTEREST OF REVENUE. 6. AS MENTIONED IN PARA 2.6 OF THE SHOW CAUSE NOTIC E, THE A.O. DID NOT MAKE ANY ENQUIRIES WITH REGARD TO SUBSCRIPTION IN PREFERENCE SHARES OF NAGARKAR DEVELOPERS PVT. LTD. AS WELL AS EQUITY INVESTMENT IN REIS MAGO S WHAT RETURNS WERE RECEIVED BY THE ASSESSEE FROM THESE INVESTMENTS, ATLEAST BY THE DATE ON WHICH ASSESSMENT ORDER WAS PASSED HAS NOT BEEN LOOKED INTO. I THEREF ORE, DO NOT ACCEPT THE CLAIM OF 6 ITA 2463/MUM/2015 THE ASSESSEE A.O. WAS FULLY SATISFIED WITH INDEPEND ENT ENQUIRIES ABOUT GENUINENESS OF THE INVESTMENT AND CONSEQUENTLY ASSE SSMENT ORDER WAS NOT ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE. 7. AS STATED IN THE SHOW CAUSE NOTICE THAT THE A.O. DID NOT EXAMINE THE GENUINENESS OF SOURCE OF INVESTMENT I.E. THE CREDIT WORTHINESS OF THE INVESTORS AND ESPECIALLY WHEN THERE WAS NOTHING TO SHOW THAT SUBS CRIBER TO THE SHARES WERE RELATED TO THE DIRECTORS OF THE ASSESSEE AND HAD GO OD FINANCIAL HEALTH. MERELY, GATHERING INFORMATION ABOUT NRI DOES NOT IPSOFACTO SHOW THE CREDITWORTHINESS OF THE SUBSCRIBER. THERE WAS CLEAR FAILURE ON THE PART OF THE A.O. TO MAKE RELEVANT AND MEANINGFUL ENQUIRIES. 8. I AM THEREFORE, CONVINCED THAT THE AO HAS FAILED TO CARRY OUT RELEVANT AND MEANINGFUL ENQUIRIES, ESPECIALLY IN RESPECT OF AREA S MENTIONED ABOVE. IT IS SETTLED PROPOSITION OF LAW THAT FAILURE OF THE AO TO CARRY OUT RELEVANT AND MEANINGFUL ENQUIRIES AS WARRANTED BY THE FACTS AND CIRCUMSTANC ES OF THE CASE RENDERED (LIE ASSESSMENT ORDER ERRONEOUS AND PREJUDICIAL TO THE I NTEREST OF THE REVENUE. THIS ALSO EMERGES FROM THE RATIO OF THE DECISIONS SUCH AS MAL ABAR INDUSTRIAL CO. LTD. VS CIT 243 ITR 83{SC), CIT VS MAX INDIA LTD. 295 ITR 282(S C), CIT VS MANGAL CASTINGS 303 ITR 23(P&H), CIT V. KOHINOOR TOBACCO P RODUCTS(P)LTD.[1998] 234 ITR 557, CIT V. MAHAVAR TRADERS[1996] 220 ITR 167(M P), DUGGAL & CO.V. CIT[1996] 220 ITR 456, CIT VS MEPCO INDUSTRIES LTD 294 ITR 121(MAD.), MEERUT ROLLER FLOUR MILLS LTD VS CIT[2013] 35 TAXMA N.COM 183