I.T.O, Ward-8(2), kolkata. , Kolkata V. M/s. Jagdamba Financial Management (P) Ltd. , Kolkata

ITA 617/KOL/2023

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 0996 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-07-2024
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 04-06-2024
• Assessment Year: 2008-2009
• Appeal Filed On: 20-06-2023
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Revision of order; Onus to prove; Set aside
• Section: 68; 263; 133(6); 48

Judgement Text

आयकर अपीलीय अधिकरण कोलकाता 'ए' पीठ, कोलकाता म ें IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA ‘A’ BENCH, KOLKATA श्री राजपाल यादव, उपाध्यक्ष (कोलकाता क्ष े त्र) एवं श्री संजय अवस्थी, ल े खा सदस्य क े समक्ष Before SRI RAJPAL YADAV, VICE-PRESIDENT & SRI SANJAY AWASTHI, ACCOUNTANT MEMBER I.T.A. No.: 617/KOL/2023 Assessment Year: 2008-09 ITO, Ward-8(2), Kolkata...........................................................Appellant Vs. M/s. Jagdamba Financial Management Pvt. Ltd....................Respondent [PAN: AABCJ 9320 J] Appearances: Department represented by: Subhendu Datta, CIT D/R. Assessee represented by: None. Date of concluding the hearing : June 5 th , 2024 Date of pronouncing the order : July 10 th , 2024 ORDER Per Sanjay Awasthi, Accountant Member: This is a departmental appeal in which the action of the Commissioner of Income Tax (Appeals)-NFAC, Delhi [hereinafter referred to as ld. 'CIT(A)'] in deleting the addition of Rs. 4,63,00,000/- on account of allegedly unverified share premium amount added as unexplained cash credit, has been challenged. It deserves to be mentioned that before us, this matter had had a rather unusual history of hearings. Thus, this case has been fixed as many as six times in the past and none have appeared on behalf of the assessee. In fact, attempts were also made to get the notices served through the Income I.T.A. No.: 617/KOL/2023 Assessment Year: 2008-09 M/s. Jagdamba Financial Management Pvt. Ltd. Page 2 of 11 Tax Department, but unfortunately such efforts also could not be successful as the address available on record could not be traced out. The details of hearing opportunities are as under: i) 01.08.2023— Notice came back with remark ‘left’ by postal authorities. DR directed to effect service through AO. ii) 04.10.2023— None appeared. Notice through DR. iii) 06.12.2023— None appeared. Notice through DR. iv) 21.07.2024— None appeared. Direction to effect service through AO and to inform the Bench about fate of service of earlier notices. v) Order sheet dated 23.04.2024 is extracted as under: “Earlier, the notice was attempted to be served upon the assessee through registered post as well as on email at the address of the assessee. The notice served through registered post has been received back with the remark of the postal authority 'left'. Thereafter, it was ordered to serve the notice upon the assessee through registered post, email as well as through department. As per the letter dated 11.10.2023, the department had deputed Notice Server to serve notice personally upon the assessee at the address of the assessee as available in latest return as well as mentioned in the notice. The concerned Inspector who was deputed to serve the notice namely Shri Indrajit Mukhopadhyay has reported that the assessee company was not found at the given address and that having failed to serve the notice personally upon the assessee, he made the service by affixation at the main gate at the given address in the present of Sri Asit Kumar Mahato, Inspector of Income Tax. In view of the above report of the Inspector coupled with the non-appearance of the assessee despite service of notice through READ & email etc., the assessee is proceeded against ex parte. Now to come up for ex-parte arguments on 05.06.2024.” vi) 05.06.2024— None appeared on behalf of the assessee. Case reserved for order. It is felt that no worthwhile point would be served in prolonging this matter any further and thus, this appeal is disposed off on the basis of material available on record. 1.1. In this case, assessment u/s 147/143(3) of the Income Tax Act, 1961 (in short the 'Act') dated 29.06.2010 was set aside by the ld. CIT(A) vide his order u/s 263 of the Act dated 30.03.2013 for the AY 2008-09. A perusal of I.T.A. No.: 617/KOL/2023 Assessment Year: 2008-09 M/s. Jagdamba Financial Management Pvt. Ltd. Page 3 of 11 the copy of order u/s 263 of the Act (supra) shows that the said order was set aside for making detailed enquiries regarding the share premium amounts shown as received by the assessee. It is seen that during the course of assessment proceedings, the ld. AO issued detailed questionnaire to elicit responses regarding the said share capital and also directed that the directors of the said company should make a personal appearance for explaining the genuineness of the transactions. It is seen that even before the AO there was no worthwhile compliance. Thereafter, the AO has recorded that the assessee raised fresh share capital by issuing 2,31,500 shares of Rs. 10/- face value with a premium of Rs. 190/-. The total capital raised amounted to Rs. 4,63,00,000/- (impugned amount). It has been further recorded by the ld. AO that even though the assessee company had no business activities carried out during the year under consideration, there were shareholders who were willing to invest at a massive premium of Rs. 190/- per share. Since, prima facie, investment in such a concern did not appear to make any prudent business sense, the assessee needed to prove the genuineness of the transactions. Since, as per the ld. AO, the onus of proving the genuineness of the transaction was not discharged by the assessee, he proceeded to make the impugned edition. 1.2. Aggrieved with the action of ld. AO, the assessee went in appeal before the ld. CIT(A). Before the ld. CIT(A), the assessee assailed the action of the ld. AO by relying on a number of judicial pronouncements and also filed a detailed paper book consisting of ITR of the company, audited accounts, details of shareholders, bank statements and share application forms etc. The ld. CIT(A) was persuaded by the line of reasoning adopted by the assessee and has recorded that the assessee has been able to fully explain the nature and source of the share application received and has also discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants. Thereafter, he proceeded to delete the said addition. 1.3. Aggrieved with this action of ld. CIT(A), the Revenue has filed the present appeal with the following single ground of appeal: I.T.A. No.: 617/KOL/2023 Assessment Year: 2008-09 M/s. Jagdamba Financial Management Pvt. Ltd. Page 4 of 11 “The Ld. CIT(A) (NFAC) Delhi es erred in not considering the financial profiles of investor companies.” 2. Before us, the ld. D/R assisted us in carefully going through the order u/s 263 of the Act (supra), the finding of ld. AO and the findings of ld. CIT(A). The ld. D/R also pointed out that while certain documents were filed in an attempt to satisfactorily prove the transactions, however, the genuineness of the transaction could not be proved by the assessee even when specific directions were given by the ld. CIT-III, Kolkata through order u/s 263 of the Act. Thus it was stressed that the assessee had a very clear idea about the adverse note taken of the impugned amount and thus he had ample opportunity to establish the bona fide of the transactions in question. The ld. D/R also relied on several authorities to canvass this point. 2.1. Furthermore, coming back to the facts of this case, we find that there is a clear finding in the Ld. AO’s order that he required the deposition of the Directors to verify the genuineness of the impugned transactions and this was not done. Instead the assessee took shelter behind various judicial pronouncements to canvass the point that through supply of certain documents in the shape of ITRs, accounts, etc the onus was discharged as far as he was concerned. In fact the authorities mentioned in the body of this order clearly give a wide mandate to the Assessing Officer to investigate funds received as share premium in closely held Companies, as in this case. Also, there is a finding by the Ld. AO that an analysis of the details of income of the Appellant Company revealed that there was no business activity carried out during the year under consideration. This further led to the finding that no prudent investor would pay a massive premium of Rs 190 per share of a Company which had no business activity worth the name and also there was no indication of appropriate business activity which could have a bright commercial future. In this regard a portion from the order u/s 263 of the Act dated 30.03.2013 deserves to be extracted: “I have gone through the assessment records and considered the matter. Notices u/s. 133(6) have been sent on a test check basis. Further, on perusal of the replies, it is seen that the bank statements of the subscribing I.T.A. No.: 617/KOL/2023 Assessment Year: 2008-09 M/s. Jagdamba Financial Management Pvt. Ltd. Page 5 of 11 companies is for a very limited period and not for the whole year. Analysis of this statement does not throw any light whatsoever on the source of the funds of the subscriber companies. The A.O. should have called for the bank statement of the full financial year for proper analysis & verification.” This extract and the finding of ld. AO clearly reveals that the financial situation of the appellant does not justify any premium whatsoever and this only strengthens the assumption that the genuineness of impugned transaction is not proved. 2.2. At this stage, it may be worthwhile to recapitulate the subject matter and findings in certain important case laws as under, which will have a bearing on the outcome: a) In the case of PCIT vs. NRA Iron & Steel (P.) Ltd. reported in [2019] 412 ITR 161 (SC) the Lordships of the Hon'ble Apex Court have held that when the assessee had received share capital/premium and there was a failure to establish creditworthiness of the investor companies, the AO was justified in passing assessment order making additions u/s 68 of the Act even when the assessee had filed confirmations from investor companies to show that the entire amounts had been paid through normal banking channels. b) In the case of Neelkantha Commosales (P.) Ltd. vs. ITO reported in [2022] 286 Taxman 48 (Calcutta), the Lordships of the Hon'ble Calcutta High Court have held that even under non-amended provisions of Section 68 of the Act, that is prior to insertion of proviso to Section 68 of the Act by the Finance Act, 2012, an Income Tax Officer was not precluded from making an enquiry about the true nature and source of any sum found credited in books of the assessee, even if same was credited as receipt of share application money. c) In the case of Bal Gopal Merchants (P.) Ltd. vs. PCIT reported in [2024] 162 taxmann.com 465 (Calcutta), the Lordships of the Hon'ble Calcutta High Court have held that when the assessee had received a huge amount as share application money, along with premium and the summons issued by the AO for the directors of the assessee company were not complied with then I.T.A. No.: 617/KOL/2023 Assessment Year: 2008-09 M/s. Jagdamba Financial Management Pvt. Ltd. Page 6 of 11 on the basis of the fact that there was no noticeable business activity by the company, high share premium was not justified and addition made u/s 68 of the Act was upheld. d) In the recent case of PCIT vs. BST Infratech Ltd. reported in [2024] 161 taxmann.com 668 (Calcutta) vide order dated 23.04.2024 the Lordships of Hon'ble Calcutta High Court have held that the mere fact that transactions were through banking channels or that investor companies were income tax assessees or registered with the Registrar of Companies could in no manner be sufficient to discharge the onus u/s 68 of the Act. Considering the relevance of this case law for the matter at hand, it would be in the fitness of things to extract the relevant portions from this judgement: “26. We also take note of the Finance Bill, 2012 which brought about certain amendments to the Act with effect from the assessment year 2013-2014 wherein under the heading "Measures to Prevent Generation and Circulation of Unaccounted Money" it was pointed out that the onus of satisfactory explaining such credit remains on the person in whose books such sum is credited. If such person fails to offer an explanation or the explanation is found to be satisfactory (sic) then the sum is added to the total income of the person. That certain judicial pronouncements have created doubts about the onus of proof and the requirements of Section 68, particularly in cases where sum is credited as share capital, share premium etc. That courts have drawn a distinction and emphasised that in case of private placement of shares the legal regime should be different from that which is followed in case of a company seeking share capital from the public at large. In the case of closely held companies, investments are made by a known person; therefore, a higher onus is required to be placed on such companies besides the general onus to establish, identity and creditworthiness of the creditors and genuineness of the transaction. This additional onus needs to be placed on such companies to also prove the source of money in the hands of such shareholders or person making payments towards issue of shares before such sum is accepted as genuine credit. If the company fails to discharge the additional onus, the sum shall be treated as income of the company and added to its income. Therefore, it was proposed to amend Section 68 of the Act to provide the nature and onus of any sum credited, as share capital premium etc. in the books of a closely held company shall be treated as explained only if the source of fund is also explained by the assessee company in the hands of the resident shareholders. However, even in the case of closely held companies, it is proposed that this additional onus of satisfactorily explaining the source in the hands of the shareholder, could I.T.A. No.: 617/KOL/2023 Assessment Year: 2008-09 M/s. Jagdamba Financial Management Pvt. Ltd. Page 7 of 11 not apply if the shareholder is a well regulated entity namely a Venture Capital Fund, a Venture Capital Company registered with SEBI. 27. It is no doubt true that this amendment which was made to Section 68 applies in relation to the assessment year 2013-2014 and the subsequent years and it has been argued that the said amendment will not apply to the assessee's case as the case concerns the assessment year 2012-2013. Though this may be true, as pointed out in Yada Hari Dalmia, Section 68 as it stood prior to the earlier amendment only codified the law as it existed before 01.04.1962 and did not introduce any new principle or rule and when Section 68 was inserted in the 1961 Act it only provided a statutory recognition to a principle which had been clearly adumbrated in judicial decisions. Therefore, it was held that ratio laid down in the earlier judgments of the Hon'ble Supreme Court is equally applicable to the interpretation of Section 68 of the 1961 Act. Thus, we can very well refer to the objects behind amendment to Section 68 by Finance Bill, 2012 which has taken note of various decision of the court where the courts have drawn a distinction and emphasised that in case of private placement of shares the legal regime should be different from that which is followed in the case of a company seeking share capital from the public at large. (emphasis added) ........................................ ........................................ 33. The tribunal fell in error in holding that the CIT(A) has not pointed out any doubt or discrepancy with regard to the identity of the investors. The learned tribunal has posed a wrong question which has led to a wrong answer. The question is not whether the identity of the investor has to be established but the question was whether the investor had requisite creditworthiness and whether such creditworthiness was a make belief situation by means of a circular transaction and if the same had been established. The learned tribunal has held that the findings rendered by the CIT(A) that the assets in the form of investments have been created through rotating of money in between the group companies and the assets mainly consists of cash and cash equivalents are not enough to prove that any unaccounted money of the assessee has been introduced in the assessee company warranting addition under Section 68 of the Act. This finding in our opinion upon consideration of the facts is perverse. ........................................ 35. We have noted that the tribunal has made certain observations as regards the future prospects of the assessee company as they are a steel industry and that their fixed assets and also the turnover had increased substantially. However, this appears to have not been the submission when I.T.A. No.: 617/KOL/2023 Assessment Year: 2008-09 M/s. Jagdamba Financial Management Pvt. Ltd. Page 8 of 11 the assessee filed an appeal before the CIT(A) challenging the addition made by the assessing officer. This is evident from the grounds of appeal which have been set out in the order passed by the CIT(A) in paragraph 2.1 of the order dated 28.11.2019. The finding rendered by the tribunal is probably taken from the written submissions made by the assessee before the tribunal giving certain facts and figures regarding the expanding of business activities of the assessee. The assessee in their submission contended that their business activity has increased considerably and for the purpose of expansion funds were required and therefore the assessee raised funds from various means, increment in share capital from associates being one of them. The fact clearly demonstrates that the source of the funds which have flown into the account of the assessee have substantially come from one company namely Gainwell Textrade Private Limited and the said company had contributed to the other companies and the funds transferred to those companies were transferred to the assessee company invariably on the same day leaving a bank balance which was almost negligible and the bank statements reveal that the prior to the inflow of the funds into those investing companies, the bank balance was negligible and after the transfer it was also negligible. The assessee had contended before the tribunal that the amount was credited through proper banking channels and the investing companies are body corporate registered with the Registrar of Companies and individually assessed to income tax and therefore the genuineness of the parties is beyond doubt. However, this is not the litmus test to discharge the burden on the assessee to establish creditworthiness of the investing companies as well as the genuineness of the transaction. Thus, we have no hesitation to hold that the explanation offered by the assessee is neither proper, reasonable or acceptable. 36. In Swati Bajaj, the court held that based on the foundational facts the department has adopted the concept of "working backward" leading to the assessee. The department would be well justified in considering the surrounding circumstances, the normal human conduct of a prudent investor, the probabilities that may spill over and then arrive at a decision. 37. Thus the CIT(A) was right in adopting a logical process of reasoning considering the totality of the facts and circumstances surrounding the allegations made against the assessee taking note of the minimum and proximate facts and circumstances surrounding the events on which charges are founded so as to reach a reasonable conclusion and rightly applied the test that a reasonable/prudent man would apply to arrive at a conclusion. On facts we are convinced to hold that the assessee has not established the capacity of the investors to advance moneys for purchase of above shares at a high premium. The credit worthiness of those investors companies is questionable and the explanation offered by the assessee, at any stretch of imagination cannot be construed to be a satisfactory explanation of the nature of the source. The assessee has miserably failed I.T.A. No.: 617/KOL/2023 Assessment Year: 2008-09 M/s. Jagdamba Financial Management Pvt. Ltd. Page 9 of 11 to establish genuineness of the transaction by cogent and credible evidence and that the investments made in its share capital were genuine. As noted above merely proving the identity of the investors does not discharge the onus on the assessee if the capacity or the credit worthiness has not been established. 38. In the light of the above discussion, we hold that the assessee has failed to discharge legal obligation to prove the genuineness of the transaction and the credit worthiness of the investor which has shown to be so by a "round tripping" of funds. For all the above reasons, the revenue succeeds.” 2.3. It is seen that the issue of applicability of the principles of the amended provisions u/s 68 of the Act would apply to the present case, since as discussed in para 27 of the BST Infratech case (supra), the said amendments merely codified the position of law as earlier expounded in various case laws. This position deserves to be clarified as it is seen that before the ld. CIT(A) this applicant had claimed that he deserves relief due to his case pre-dating the said amendment. To stress the retrospective nature of the provisions, we also rely on two cases of Hon'ble ITAT, Kolkata from which relevant portions are extracted for reference:— i) M/s. Subhlakshmi Vanijya Pvt. Ltd. vs. CIT-I, Kolkata in ITA No. 1104/KOL/2014 order dated 30/07/2015: “13.ae. The about discussed judgments from the Hon’ble Supreme Court holding a clarificatory substantive provision as retrospective, despite the same being made applicable from a particular year, fully govern the position under consideration. It is interesting to note that the judgment of the Hon’ble jurisdictional High Court in Maithan International (supra) holding that the burden of proving the credit of share capital etc. is on a closely held company and failure to do so attracts the rigor of section 68, has been delivered on 21.1.2015, much after the amendment carried out by the Finance Act, 2012. This case pertains to preamendment era as the order of the tribunal assailed in this case is dated 24.6.2011. It shows that the Hon’ble High Court has also impliedly approved the proposition that the position anterior to the A.Y. 2013-14 was the same inasmuch as the onus to prove the share capital by a closely held company was on it. We, therefore, hold that the amendment to section 68 by insertion of proviso is clarificatory and hence retrospective. The contrary arguments advanced by the ld. AR, being devoid of any merit, are hereby jettisoned.” ii) M/s. Classic Flour & Food Processing Pvt. Ltd. vs. C.I.T. in ITA No. 766/KOL/2014 order dated 05/04/2017: I.T.A. No.: 617/KOL/2023 Assessment Year: 2008-09 M/s. Jagdamba Financial Management Pvt. Ltd. Page 10 of 11 “22. As to whether enquiry into high share premium ought to have been made by the AO and also as to what was the justification for such high premium could to be investigated by the AO at all because the 1st proviso to Sec.68 of the Act inserted by the Finance Act, 2012 w.e.f. 1-4.2013 was only prospective in operation, we are of the view that since section 68 covers `any sum credited' in the books without any exception, which, inter alia, includes share capital, it cannot be held that the examination of share capital with premium etc. was earlier outside the ambit of section 68 and now this amendment has brought it into its purview. The amendment has simply made express which was earlier implied. We are therefore of the view that the assessee is always obliged to prove the receipt of share capital with premium etc. to the satisfaction of the AO, failure of which calls for addition u/s 68 of the Act.” 2.4. In fact a combined reading of the Ld. AO’s order and the order u/s 263 of the Act reveals that there were efforts made to investigate the genuineness of the impugned transactions because of sub-par business credentials, prima facie visible in the Appellant’s case. Thus there is no hesitation in holding that the findings in the authorities cited supra, especially the case of BST Infratech (supra), would apply in the assessee’s case and it deserves to be held that the Appellant was not able to prove the genuineness of the transaction. 3. In light of the discussion above, it is held that the assessee has not been able to discharge the burden of proof cast upon him by the provisions of Section 68 of the Act. Accordingly, the ground raised by the Revenue is allowed. 4. In the result, the appeal filed by the Revenue is allowed. Order pronounced in the open Court on 10 th July, 2024. Sd/- Sd/- [Rajpal Yadav] [Sanjay Awasthi] Vice President Accountant Member Dated: 10.07.2024 Bidhan (P.S.) I.T.A. No.: 617/KOL/2023 Assessment Year: 2008-09 M/s. Jagdamba Financial Management Pvt. Ltd. Page 11 of 11 Copy of the order forwarded to: 1. ITO, Ward-8(2), Kolkata. 2. M/s. Jagdamba Financial Management Pvt. Ltd., Room No. 8A, 8 th floor, Commerce House, 2A, G.C Avenue, Kolkata, West Bengal, 700013. 3. CIT(A)-NFAC, Delhi. 4. CIT- 5. CIT(DR), Kolkata Benches, Kolkata. //True copy // By order Assistant Registrar ITAT, Kolkata Benches Kolkata