Simplicity Dealers Pvt. Ltd, Kolkata V. ITO, Wd 9(1), Kolkata

ITA 57/KOL/2021

AI Insights

The case involves Simplicity Dealer Pvt. Ltd., which appealed against the order of the CIT(A) dismissing their appeal ex-parte for alleged non-compliance. The primary issue was the addition of Rs. 2,59,60,000 as unexplained cash credit under section 68 of the Income Tax Act, 1961, due to the non-verification of share subscribers' identity and creditworthiness. The Assessing Officer (AO) had initially doubted the genuineness of the transactions and the existence of the companies involved in the share subscription. The CIT(A) upheld the AO's decision, leading to the current appeal before the Tribunal.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 136117 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 10 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-01-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Next Hearing Date: 26-09-2022
• Assessment Year: 2013-2014
• Appeal Filed On: 18-02-2021
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Principle of natural justice; Period of limitation; Additional evidence; Time period of passing order; Set aside
• Section: 131; 68; 250

Judgement Text

। आयकर अपीलीय अिधकरण ᭠यायपीठ, कोलकाता । IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, KOLKATA BEFORE SHRI SANJAY GARG, HON’BLE JUDICIAL MEMBER & DR. MANISH BORAD, HON’BLE ACCOUNTANT MEMBER I.T.A. No. 57/Kol/2021 Assessment Year: 2013-14 Simplicity Dealer Pvt. Ltd. C/o. Niraj Agarwal 115, Cotton Street 1 st Floor Burra Bazar Kolkata - 700007 [PAN : AANCS8168D] Vs Income Tax Officer, Ward – 9(1), Kolkata अपीलाथᱮ/ (Appellant) ᮧ᭜ यथᱮ/ (Respondent) Assessee by : Shri Akkal Dudhewala, FCA Revenue by : Shri Vijay Kumar Addl. CIT सुनवाई कᳱ तारीख/Date of Hearing : 27/09/2022 घोषणा कᳱ तारीख/Date of Pronouncement : 02/01/2023 आदेश/O R D E R Per Shri Sanjay Garg, Judicial Member: The present appeal is directed at the instance of the assessee against the order of the Learned Commissioner of Income Tax (Appeals) – 5, Kolkata (hereinafter the “ld. CIT(A)”) dt. 16/12/2019, passed u/s 250 of the Income Tax Act, 1961 (“the Act’), for Assessment Year 2013-14. 2. Though the Registry has pointed out that the appeal is time barred, however, in view of the decision of the Hon’ble Supreme Court in Miscellaneous Application No. 665 of 2021 in SMW(C) No. 3 of 2020, the period of filing appeal during the COVID-19 pandemic is to be excluded for the purpose of counting the limitation period. In view of this, the appeal is treated as filed within the limitation period. 3. The assessee has raised the following grounds of appeal:- “1. For that on the facts and in the circumstances of the case, the CIT(A) was grossly unjustified in law and on facts in dismissing the appeal ex-parte for the alleged non-compliance on the date of hearing. I.T.A. No. 57/Kol/2021 Assessment Year: 2013-14 Simplicity Dealer Pvt. Ltd. 2 2. For that on the facts and in the circumstances of the case, the order of the CIT(A) dismissing the appeal ex-parte and without dealing with the grounds of appeal on merits be held unsustainable and be therefore cancelled and/or set aside. 3. For that on the facts and in the circumstances of the case, the orders of the lower authorities making arbitrary additions and/or disallowances to the returned income be held to be unsustainable and the be additions/disallowances made deleted. 4. For that on the facts and in the circumstances of the case, the addition of Rs. 2,59,60,000/- made u/s 68 was factually as well as legally unsustainable and therefore the same deserves to be deleted. 5. For that on the facts and in the circumstances of the case, the authorities below were unjustified in not appreciating that the assessee had duly discharged its onus of establishing identity, the genuineness & the creditworthiness of share subscribers and in that view of the matter the addition of Rs.2,59,60,000/- made by way of unexplained cash credit u/s 68 was untenable on facts & in law. 6. For that on the facts and in the circumstances of the case, the AO be directed to delete the impugned disallowance in full. 7. For that the appellant craves leave to submit additional grounds and/or amend or alter the grounds already taken either at the time of hearing of the appeal or before.” 4. The brief facts of the case are that the Assessing Officer during the assessment proceedings noted that the assessee company had introduced Rs.2,59,60,000/- in the form of share capital including share premium. The Assessing Officer observed that the assessee company issued 64900 number of shares at the face value of Rs.10/- each and share premium of Rs.390/- each to nine (9) share applicants who were private limited companies. To verify the identity and creditworthiness of the share applicants and genuineness of the transactions, the Assessing Officer issued notice u/s 142(1) of the Act on 26/11/2015 through speed post which was returned I.T.A. No. 57/Kol/2021 Assessment Year: 2013-14 Simplicity Dealer Pvt. Ltd. 3 unserved with the postal remark “not known”. The said notice thereafter was also duly served on the e-mail address of the assessee company. Thereafter, Shri Deepak Agarwal, Authorised Representative (AR) of the assessee company appeared and furnished some particulars including the list of share allottee, name of directors, audited balance sheet, profit and loss account etc. The Assessing Officer asked the ld. AR of the assessee to produce the director of the assessee company as well as directors of the allottee companies along with their books of account to explain the source of the funds which the allottee companies had accumulated in their bank accounts and then transferred to the assessee company, and the case was fixed for 14/01/2016 but no one appeared before the Assessing Officer to represent the case of the assessee. 4.1. Thereafter, again a letter was issued by the Assessing Officer dated 19/01/2016 along with notice u/s 131 of the Act to the director of the assessee company which was again received back unserved with the postal remark “not known”. Thereafter, again the notice was served on the e-mail of the assessee company but no one appeared and no compliance made to the said notice. Finally, the Assessing Officer, for the sake of natural justice, again issued a showcause letter dated 29/01/2016 but the same was also received back unserved and thereafter no one appeared on behalf of the assessee. The Assessing Officer, therefore, observed that the books of accounts of the allottee companies were not produced; the share allottees were unverified/unproved; the existence of these companies was also not proved. It was apparent from the record that the allottee companies were used for routing the unaccounted money of the assessee company as share capital and share premium. That the transactions in question were not genuine. The Assessing Officer thereafter referred to various case-laws and I.T.A. No. 57/Kol/2021 Assessment Year: 2013-14 Simplicity Dealer Pvt. Ltd. 4 held that the assessee company had failed to prove the source of the share application money and share premium and added the same as unaccounted income of the assessee. 5. Being aggrieved, the assessee preferred an appeal before the ld. CIT(A). However, the ld. CIT(A) also noted from the record that most of the share subscriber companies had meagre or negligible income and hardly any business. That these subscriber companies themselves had received huge amounts on share premium on allotment of shares to the private companies which was invested in the assessee company. That the financials of the companies raised serious doubts about payment of high premium of these companies to the assessee company. The ld. CIT(A) thereafter referring to the various case-laws dismissed the appeal of the assessee. 6. Being aggrieved the assessee is in appeal before us. 7. The ld. Counsel for the assessee has submitted all necessary details relevant to the identity and creditworthiness of the share subscribers were duly furnished before the ld. CIT(A). The ld. Counsel for the assessee has further submitted that the subscriber companies had enough share capital and reserves and merely earning of profit was not the sole consideration to reject the payment of premium by the said companies. That the non- compliance of the summons issued u/s 131 of the Act cannot be a reason to reject the details furnished by the assessee company. The ld. Counsel for the assessee further submitted that even an application for additional evidence was furnished before the ld. CIT(A) under Rule 46A of the Income Tax Rules, 1963 (hereinafter the “Rules”), which was rejected by the ld. CIT(A). The ld. Counsel for the assessee has further submitted that the share premium was justified as per the provisions of Section 56(2)(viib) of the Act r.w.r. 11UA of the Rules and that the copy of the valuer’s report was I.T.A. No. 57/Kol/2021 Assessment Year: 2013-14 Simplicity Dealer Pvt. Ltd. 5 furnished before the Assessing Officer as well as the ld. CIT(A) but the lower authorities did not examine the same. 7.1. On the other hand, the ld. D/R has relied on the findings of the lower authorities. 8. We have heard rival contentions and gone through the record. 9. We find that in this case, on the one hand, the identity and existence of the assessee company itself has been doubted by the AO as the notice sent through registered post by the AO were always received back unserved with the comment of postal authorities “not known”. However, on service of notice on the e-mail address, the ld. AR appeared and furnished the requisite details. There is no direct communication received by the AO or the ld. CIT(A) from the share subscribing companies acknowledging the investment and also furnishing the documents of their creditworthiness. On the other hand, the ld. Counsel for the assessee has submitted that the assessee had tried to furnish certain details by way of additional evidence under Rule 46 of the Rules before the ld. CIT(A), however, the same has been rejected by the ld. CIT(A). Even the lower authorities have not examined the report submitted by the assessee as per the provisions of Section 56(2)(viib) of the Act r.w.r. 11UA of the Rules. 10. In view of the above discussion, the matter, in our view, needs to be re-examined at the level of the ld. CIT(A). The impugned order of the ld. CIT(A) is accordingly set aside with a direction to the ld. CIT(A) to decide the matter/appeal afresh after duly examining the issue. The ld. CIT(A) shall either himself make an enquiry or cause to make an enquiry relating to the identity and existence not only of the assessee but also the share subscriber companies and also their creditworthiness and genuineness of the transactions including source of investment and justification for the I.T.A. No. 57/Kol/2021 Assessment Year: 2013-14 Simplicity Dealer Pvt. Ltd. 6 premium amount paid by the assessee. The ld. CIT(A) will also consider the evidences and details, if any, furnished by the assessee in this respect. With the above observations, the matter is restored to the file of the ld. CIT(A) for decision afresh. 11. In the result, appeal of the assessee is allowed for statistical purposes. Order pronounced in the Court on 2 nd January, 2023 at Kolkata. Sd/- Sd/- (Manish Borad) (Sanjay Garg) Accountant Member Judicial Member Kolkata, Dated 02/01/2023 *SC SrPs आदेश कᳱ ᮧितिलिप अᮕेिषत/Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant 2. ᮧ᭜यथᱮ / The Respondent 3. संबंिधत आयकर आयुᲦ / Concerned Pr. CIT 4. आयकर आयुᲦ)अपील (/ The CIT(A)- 5. िवभागीय ᮧितिनिध ,आयकर अपीलीय अिधकरण, कोलकाता/DR,ITAT, Kolkata, 6. गाडᭅ फाईल /Guard file. आदेशानुसार/ BY ORDER, TRUE COPY Assistant Registrar आयकर अपीलीय अिधकरण ITAT, Kolkata