Maharaja Corporate Services Pvt. Ltd., Kolkata V. ITO, Ward-2(1)(4), Ahmedabad

ITA 504/AHD/2018

• Counselvise Citation: [2023] 101 COUNSELVISE.COM (IT) 9526 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 9 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 07-11-2023
• Assessment Year: 2012-2013
• Appeal Filed On: 04-03-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Invalid notice; Gift; Opportunity of being heard; Principle of natural justice; Set aside
• Section: 68; 142(1); 48; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, AHMEDABAD BEFORE SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER & SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER I .T .A . No .5 04 /A h d / 20 18 ( A s se ss m e nt Y e a r : 20 12- 13 ) M a ha r aj a C o r p or a te Se r v ic es P vt. L td . 5 , We s t e r n Str ee t, 1 s t F lo or , D a lh ou s ie A r e a , K ol ka ta- 70 00 1 2 Vs .I nc o m e Ta x O f f ic er , Wa r d - 2( 1) ( 4 ) , A h m e da ba d [P A N N o.A A H C M 4 4 0 1B] (Appellant) .. (Respondent) Appellant by : Shri Anil N. Shah, A.R. Respondent by: Shri Akhilendra Pratap Yadaw, CIT D.R. D a t e of H ea r i ng 08.11.2023 D a t e of P r o no u n ce me nt 15.12.2023 O R D E R PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER: This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeal)-2, (in short “Ld. CIT(A)”), Ahmedabad in Appeal No. CIT(A)-2/156/ITO, Wd. 2(1)(4)/2015-16 vide order dated 28.12.2017 passed for Assessment Year 2012-13. 2. The assessee has taken the following grounds of appeal:- “1. The impugned Order is bad in law, passed against the natural rule of justice, without giving proper opportunity of being heard and is liable to be quashed. 2. The Ld. AO have erred in law and on facts in making addition of Rs. 40,34,00,000 U/s.68 of the Act. 3. The Ld. AO have erred in law and on facts, while making the addition in coming to the conclusion that, the transactions for which he made the addition of ITA No. 504/Ahd/2018 Maharaja Corporate Services Pvt. Ltd. vs. ITO Asst.Year –2012-13 - 2– Rs.40,34,00,000 could not be considered to be genuine and the Ld. CIT(A) have erred in law and on facts in upholding the order of the Ld. AO. 4. Ld. CIT(Appeals) have also erred in law and on facts in confirming the addition of Rs.40,34,00,000 made by the Ld. AO by holding that, the share capital is not genuine. 5. The Ld. AO have erred in law and on facts in working out an invalid demand of Rs.17,53,83,610 and the Ld. CIT(A) have also erred in confirming the said demand. 6. Your appellant craves a leave to add, amend or alter the grounds of appeal, if occasion demands.” 3. The assessee has also raised the additional grounds of appeal:- “a. The Ld. ITO have erred on facts and in law in not issuing any valid notice and in not validly serving/ not validly affixing the same stated to have issued on dtd. 18/09/2013 U/s.143(2) of the Act and even the Ld. CIT (A) have also erred in law and on facts in not considering this aspect while upholding the impugned order, b. The Ld. ITO have erred on facts and in law in issuing a further notice U/s.143(2)of the Act on dtd.09.09.2014 without ascertaining validity of notice and service thereof even though, the notice dtd.18/09/2013 was not valid / not validly served, the subsequent notice dtd.09.09.2014 was time barred. Even the Ld. CIT (A) have also erred in law and on facts in not considering this aspect while upholding the impugned order. c. Ld. AO has erred in law and on facts in initiating the assessment proceedings based on invalid notice issued U/s.143(2) and thereby has also erred in law in issuing various notices U/s. 142(1) of the Act and carrying out the assessment proceedings resulting into the impugned order. The Ld. CIT (A) has erred in law and on facts, in upholding the impugned assessment proceedings /assessment order and consequential demand without considering the above, d. The Ld. ITO have erred on facts and in law in invalidly/ serving affixing the Show cause notice dtd.19.12.2014 and thereby rendering impugned addition as invalid in law and the Ld. CIT (A) have erred in law and on facts in upholding such addition/ order,” ITA No. 504/Ahd/2018 Maharaja Corporate Services Pvt. Ltd. vs. ITO Asst.Year –2012-13 - 3– We shall first discuss the additional ground raised by the assessee 4. Before us the Counsel for the assessee submitted that he shall not be pressing additional Ground Nos. a, b, c and accordingly, additional Grounds a, b, c raised by the assessee are dismissed as not pressed. 5. Regarding Ground No. d, the assessee submitted that the show-cause notice dated 19.12.2014 was invalid in law since it was affixed at the registered office of the company instead of sending the notice at the correspondence address of the company and hence the show-cause notice was against the principle of natural justice, depriving the assessee from filing suitable response to the show-cause notice. 6. We observe that the assessee company vide letter dated 14.10.2014 had specifically given the complete address of the Head Office situated at Usmanpura Garden, Ahmedabad. Further, the assessee had also submitted that there is no such Branch Officer / facility or go-down of the assessee company. We observe that the Assessing Officer issued show-cause notice dated 19.12.2014 on the company’s registered office address, which was mentioned in the return of income as well as the last correspondence filed by the assessee with the AO’s office. Further, notably this is the same address which is mentioned in the Permanent Account Number of the assessee company. Accordingly, given the above facts, we are of the considered view that there is no violation of the principles of natural justice in serving the notice at the address of the assessee company as mentioned in the Permanent Account Number (which is a same address as has been mentioned by the assessee in its correspondences to the Assessing Officer ITA No. 504/Ahd/2018 Maharaja Corporate Services Pvt. Ltd. vs. ITO Asst.Year –2012-13 - 4– vide letter dated 14.10.2014). Accordingly, we are not inclined to admit the additional Ground No. d filed by the assessee, looking into the instant facts. 7. In the result, the additional Ground No. d filed by the assessee is dismissed. We shall now discuss the case of the assessee on merits 8. We observe that Ground Nos. 1, 5 and 6 of the assessee’s appeal are general in nature and do not require any specific adjudication. 9. We further observe that Ground Nos. 2 and 3 have been incorrectly framed and hence we are not inclined to adjudicate on the same. We shall now discuss the Ground No. 4 of the assessee’s appeal which deals with the additions confirmed by the Ld. CIT(A) on merits. Ground No. 4:- Ld. CIT(A) erred in confirming additions of Rs. 40,34,00,000/- made by the Ld. AO by holding that share capital is not genuine. 10. The brief facts in relation to this ground of appeal are that the assessee company received share capital amounting to Rs. 4,03,400/- along share premium of Rs. 40,29,96,600/- (totally to Rs. 40,34,00,000/-) from a concern namely M/s. Attentive Share Trading Pvt. Ltd. The Assessing Officer observed that the assessee company had issued 40,340 shares to M/s. Attentive Share Trading Pvt. Ltd. having face value of Rs. 10, which were issued on at a premium of Rs. 9,990/- per share. The Assessing ITA No. 504/Ahd/2018 Maharaja Corporate Services Pvt. Ltd. vs. ITO Asst.Year –2012-13 - 5– Officer observed that during the year under consideration, the assessee company had shown commodity profit of Rs. 43,701/- in its Profit & Loss Account and had shown net profit of Rs. 1,615/- in its return of income for the impugned assessment year i.e. A.Y. 2012-13. The assessee company had also been recently incorporated under the Companies Act, 1956 on 22.09.2011. The Assessing Officer asked the assessee to produce the Director of the applicant company namely M/s. Attentive Share Trading Pvt. Ltd., however, the assessee failed to do the same. Accordingly, the Assessing Officer was of the view that the identity of the share applicant remained unverified. Further, the Assessing Officer was of the view that there is no objective basis for determination of such a huge share premium of Rs. 9,990/- per share, looking into the instant facts. The Assessing Officer also observed that the share applicant company M/s. Attentive Share Trading Pvt. Ltd. had also been recently incorporated on 16.09.2011 and had filed return of income declaring income of Rs. 1,570/-. Accordingly, the assessee had failed to establish the identity, creditworthiness of the transaction related to share premium in the instant facts. Accordingly, the Assessing Officer added the sum of Rs. 40,34,00,000/- (Rs. 4,03,400 share capital and Rs. 40,29,96,600 as share premium) as unexplained cash credit under Section 68 of the Act. 11. In appeal Ld. CIT(A) held that looking into the instant facts, the assessee has not been able to establish the genuineness of the transaction and the identity and creditworthiness of the share applicant and accordingly confirmed the addition made by the Assessing Officer with the following observations:- ITA No. 504/Ahd/2018 Maharaja Corporate Services Pvt. Ltd. vs. ITO Asst.Year –2012-13 - 6– “4.7. The AO has made the addition of Rs.40.34 crores u/s. 68 of the I. T. Act, 1961. The appellant company has received share capital amounting to Rs.4,03,400/- along with share premium of Rs.40,29,96,600/- from the following concern. Sr. No. Name of the applicant Number of shares Amount of share capital Amount of share premium 1. Attentive Share trading Pvt. Ltd. 40340 4,03,400 40,29,96,000 Total 40340 4,03,400/- 40,29,96,600 The share of Rs.10/- has been issued at premium of Rs.9990/- per share. Appellant before Assessing Officer has not been able to establish identity, genuineness and creditworthiness as required u/s. 68 of the I.T. Act, 1961. Appellant during the course of appellate proceedings submitted additional evidences in the form of confirmation, copy of account which were forwarded to AO. It is evident that appellant company is incorporated on 22/09/2012 and has authorised share capital of Rs.5,05,000/-. During the year, total revenue of the company is Rs. 43,700/-. The appellant has received share capital of Rs.40.34 cores for 40340 shares at a premium of Rs.9990/- per share. As per the account, there is nothing in the company that share of Rs.10/- will command premium of Rs.9990/- per share. As regard to M/s. Attentive Share trading Pvt. Ltd. which has subscribed the share capital at the premium of Rs.9990/-, the company is incorporated on 15/09/2011. The company has revenue of Rs.44,058/- with Nil revenue from operation. The authorised capital of the company is Rs.7,25,000/-. This company in turn has received share premium for 62347 shares at the premium of Rs.9990/- per share. From the very face of it, these companies appear to be a paper company with no real business. 4.8. The Honourable ITAT, Ahmedabad in the case of Pavemkumar M. Sanghvi Vs. ITO, Wd, 3(1)(2), Baroda (2017) 81 Taxmonn.com 308 has observed on such type of transaction as under:- "8. As I proceed to deal with genuineness aspect, it is important to bear in mind the fact that what is genuine and what is not genuine is a matter of perception based on facts of the case vis-a-vis the ground realities. The facts of the case cannot be considered in isolation with the ground realities. It will, therefore, be useful to understand as to how the shell entries, which the loan creditors are alleged to be, typically function, and then compare these characteristics with the facts of the case and in the light of well settled legal, principles. A shell entity is generally an entity without any significant trading, manufacturing or service activity, or with high volume low margin transactions - to give it colour of a normal business entity used as a vehicle for various financial manoeuvers. A shell entity, by itself, it not an illegal entity but it is their act of abatement, of, and being part of, financial manoeuvring to legitimize illicit monies and evade taxes, that takes it actions beyond what is legally permissible. These entities have every semblance of a genuine business - its legal ownership by persons in existence,, statutory documentation as necessary for a legitimate business and a documentation ITA No. 504/Ahd/2018 Maharaja Corporate Services Pvt. Ltd. vs. ITO Asst.Year –2012-13 - 7– trail as a legitimate transaction would normally follow. The only thing which sets its apart from a genuine business entity is lack of genuineness in its actual operations. The operations carried out by these entities, are only to facilitate financial manoeuvring for the benefit of its clients, or, with that predominant underlying objective, to give the colour of genuineness to these entities. These shell entities, which are routinely used to launder unaccounted monies, are a fact of life, and as much a part of the underbelly of the financial world, as many other evils. Even a layman, much iess a Member of this specialized Tribunal, cannot be oblivious of these ground realities." 4.9. The Honourable ITAT Tribunal, Kolkata in the case of Advance Power Infratech Limited Vs. DCIT, Cir, 10 for A. Y. 2007-08 In ITA No. 605/KOL/2015 in order dated 23/08/2017 has confirmed the addition in the case of share capital in the hands of company as under:- "9. The ld. First Appellate Authority, at para 9,1 A, and the 9.1,8. has dealt with the issue adequately. We fully endorse the same and for the sake of brevity, we do not extract the same. 9.1. Merely furnishing PAN Numbers in routine way, does not explain the source or the creditworthiness of the party. The basis on which I.T.A. No. 605/Kol/2015 Assessment Year: 2007-08 Advance PowerInfra Tech Ltd premium has been charged for the shares has not been explained. A perusal of the financial statements do not justify the quantum of share premium charged. This Tribunal in the case of M/s. Blessings Commercial Pvt. Ltd, being I.T.A. No. 271/Kol/2014, for the Assessment Year: 2010-11, order dt. 28.06,2017 has held as follows:- "11. The second argument of the id. Counsel for the assessee, is that the assessee has proved the identity and creditworthiness of the creditor company as well as the genuineness of the transactions. We are not able to agree with the same. A 10 rupees share has been issue at a premium of 990 rupees. On a question, the assessee has not even attempted to justify the amount of share premium. A perusal of the audited statement of accounts of these companies demonstrate that there is hardly any income was disclosed or any expenditure worth mentioning was claimed. There is no activity whatsoever in these companies. The Reserve Bank of India, the Institute of Chartered Accountants of India, and certain other organisations, have laid down various methods based on which the amount of share premium can be decided. None of these methods have been followed in this case, The exorbitant quantum of share premium collected shocks the conscience of any reasonable person. A mockery has been made of the whole system. These are not transactions which can be justified by any stretch of imagination. Thus, in our view, the genuineness of these transactions is not proved." The Bench of the ITAT confirmed the addiction u/s 68 of the Act on the ground that the assessee has not proved the genuineness of the transactions. ITA No. 504/Ahd/2018 Maharaja Corporate Services Pvt. Ltd. vs. ITO Asst.Year –2012-13 - 8– 10. Applying the propositions of law laid down in the case of M/s. Blessings Commercial Pvt. Ltd (supra), we uphold the order of the id. First Appellate Authority and dismiss this appeal of the assessee." 4.10. In view of the above, the share capital is not genuine and the AO was justified to make addition u/s. 68 of the 1. T. Act, 1961, and hence, the same is confirmed. The grounds of appeal are accordingly dismissed.” 12. The assessee is in appeal before us against the aforesaid order passed by Ld. CIT(A) confirming the addition made by the Assessing Officer. On going through the facts of the instant case and the arguments made by the Ld. Counsel for the assessee and the Departmental Representative, we are of the considered view that looking into the instant facts, Ld. CIT(A) has correctly held that the assessee has not been able to establish the genuineness of the transaction and the identity and the creditworthiness of the share applicant company. We observe that the assessee was incorporated on 22.09.2012 and during the year, the total revenue of the company was Rs. 43,700/- as against this, the assessee company had received share capital of Rs. 40.34 crores for 40,340 shares issued at a premium of Rs. 9,990/- per share. Accordingly, we are of the view that the assessee has not been able to give any basis as to why the assessee company would command such a huge premium for issuance of share capital given the negligible operations carried out by the company. It is further observed that the share applicant company M/s. Attentive Share Trading Pvt. Ltd. had also been recently incorporated on 16.09.2011 and had filed return of income Rs. 1,570/- only. Accordingly, clearly the creditworthiness of the share applicant company M/s. Attentive Share Trading Pvt. Ltd. has also not been established by the assessee. Further, so far as the genuineness of the transaction is concerned, no justifiable reason has been furnished as to how and on what basis the valuation of share premium of Rs. 9,990/- per share ITA No. 504/Ahd/2018 Maharaja Corporate Services Pvt. Ltd. vs. ITO Asst.Year –2012-13 - 9– was arrived at. Therefore, looking into the instant facts we find no infirmity in the order of Ld. CIT(A) in holding that the genuineness of the transaction and identity and creditworthiness of the parties has not been established in the instant facts and accordingly, we uphold the order passed by Ld. CIT(A). We need to further mention that simply because a transaction has been carried out through banking channels or confirmation of the parties has been furnished would not make a non-genuine transaction into genuine one, and all the concerning facts of the case to be looked into in totality. 13. The Courts have taken a consistent position that the assessee is expected to establish proof of identity of creditors, capacity of creditors and genuineness of creditors in order to discharge onus cast on assessee. Mere production of party or confirmation from party will not suffice, unless the assessee is also able to substantiate their creditworthiness i.e. ability to advance the sum to the assessee. The Supreme Court of India in the case of Sadiq Sheikh v. Commissioner of Income Tax, Bangalore [2021] 124 taxmann.com 202 (SC) dismissed SLP against High Court ruling that where Tribunal deleted addition under section 68 made to assessee's income on account of cash receipts in its bank account by accepting assessee's explanation that said amount was transferred in his bank account from out of bank accounts of his brother-in-law and a close friend, since Tribunal ignored vital fact emanating from record that said creditors had not produced evidence to establish their capacity to raise such a huge amount, its order was to be set aside. The facts of the case were that the Assessing Officer made certain addition owing to unaccounted cash receipts on ground that assessee failed to establish identity and creditworthiness of ITA No. 504/Ahd/2018 Maharaja Corporate Services Pvt. Ltd. vs. ITO Asst.Year –2012-13 - 10– creditors from whom he had received a huge amount of Rs. 8.49 crores. On appeal, Tribunal accepted assessee's explanation that said amount was transferred into its bank account from out of bank accounts of his brother- in-law and a close friend and, further, that said creditors confirmed to have made payment to assessee. On basis of above, Tribunal held that identity of source was thus established and requirement of section 68 was proved beyond any doubt by assessee and, therefore, addition made by Assessing Officer was not sustainable. High Court held that since Tribunal ignored vital facts emanating from record that said creditors had not produced evidence to establish their capacity to raise such a huge amount and also that they were not clear about their precise role in transaction involving said amount, its order was to be set aside. High Court further held that creditors admitting that they had made payments to assessee was not sufficient to discharge burden placed on assessee by section 68. The Hon'ble Supreme Court dismissed the SLP filed against the order of High Court. 14. Again, the Supreme Court in the case of Sunil Thomas v, ITO [2021] 127 taxmann.com 275 (SC) dismissed SLP against High Court ruling that where donor (creditor) who was assessee's brother, apart from furnishing his employment particulars and confirming gift, couldn't explain genuineness of transactions or his creditworthiness by proving his monetary ability to make such gifts of substantial amount, gift amount was to be treated as undisclosed income. The facts of this case were that assessee claimed to have received gift from his NRI brother. The Assessing Officer treated it as assessee's undisclosed income on ground that same was not real ITA No. 504/Ahd/2018 Maharaja Corporate Services Pvt. Ltd. vs. ITO Asst.Year –2012-13 - 11– and genuine. The Assessee's brother, apart from furnishing his employment particulars, confirmed that he had made the gift. However, assessee's brother did not make any endeavour to explain genuineness of transactions or his creditworthiness by producing necessary documents proving his monetary ability to make such gift of substantial amount. 15. The Hon'ble Supreme Court in the case of Pr. CIT v NRA Iron & Steel (P.) Ltd [2019] 103 taxmann.com 48 (SC) held that that where assessee received share capital/premium, however there was failure of assessee to establish creditworthiness of investor companies, Assessing Officer was justified in passing assessment order making additions under section 68 for share capital / premium received by assessee company. 16. The High Court of Andhra Pradesh in the case of Gayathri Associates [2014] 41 taxmann.com 526 (Andhra Pradesh) has held that Identity, creditworthiness and genuineness of transaction is not established merely by filing bank account details. 17. The High Court of Allahabad in the case of Sagittraious Builders & Colonisers 2012] 17 taxmann.com 198 (Allahabad)/[2012] held that not only the identity of parties, but their creditworthiness also needs to be established by the assessee. 18. The Pune ITAT in the case of Sanjay Waman & Co. [2002] 81 ITD 1 (Pune) (TM) held that it is part of the duty of the assessee to furnish evidence regarding the creditworthiness of the creditors. ITA No. 504/Ahd/2018 Maharaja Corporate Services Pvt. Ltd. vs. ITO Asst.Year –2012-13 - 12– 19. The Delhi ITAT in the case of Anandtex international (P.) Ltd. v. ACIT [2022] 137 taxmann.com 146 (Delhi - Trib.) held that where assessee received share application money and claimed that same was invested by its director by taking advance from a company P, however assessee failed to establish creditworthiness of share applicant or genuineness of transaction, AO was justified in making additions under section 68 and concluding that assessee routed its own money in books of account through conduit of investor companies. 20. In the result, the appeal of the assessee is dismissed. This Order pronounced in Open Court on 15/12/2023 Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 15/12/2023 TANMAY, Sr. PS TRUE COPY आदेश क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं धत आयकर आय ु त / Concerned CIT 4. आयकर आय ु त(अपील) / The CIT(A)- 5. वभागीय त न ध, आयकर अपील!य अ धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड' फाईल / Guard file. आदेशान ु सार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 08.12.2023 2. Date on which the typed draft is placed before the Dictating Member 11.12.2023 3. Other Member..................... 4. Date on which the approved draft comes to the Sr.P.S./P.S 12.12.2023 5. Date on which the fair order is placed before the Dictating Member for pronouncement .12.2023 6. Date on which the fair order comes back to the Sr.P.S./P.S 15.12.2023 7. Date on which the file goes to the Bench Clerk 15.12.2023 8. Date on which the file goes to the Head Clerk.......................................... 9. The date on which the file goes to the Assistant Registrar for signature on the order.......................... 10. Date of Despatch of the Order..........................................