M/s. Lado Ceramic Pvt. Ltd., Bela (Rangpar), Dist. Morbi. V. The Pr. CIT-1, Rajkot, Rajkot

ITA 72/RJT/2021

AI Insights

The case involves M/s. Lado Ceramic Pvt. Ltd., which appealed against the order of the Principal Commissioner of Income Tax, Rajkot, setting aside the assessment order for the Assessment Year 2016-17. The PCIT had observed that the Assessing Officer failed to verify the source of substantial investments and unsecured loans received by the assessee, which raised concerns about the genuineness of these transactions. The Tribunal examined whether the Assessing Officer had conducted sufficient inquiries during the assessment proceedings. It was found that while some inquiries were made, they were not adequate to address the discrepancies noted by the PCIT, leading to the dismissal of the appeal.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 138316 (ITAT-RAJKOT)
• Duration Of Justice: 2 year(s) 5 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 03-09-2023
• Assessment Year: 2016-2017
• Appeal Filed On: 16-05-2021
• Other Referred Cases: Babulal S. Solanki vs. ITO, Umesh Krishnani vs. ITO, Malabar Industrial Co. Ltd. vs. ITO, Neelkantha Commosales (P.) Ltd. vs. ITO, Nisha Sharma vs. ITO, Himachal Pradesh Financial Corpn. vs. ITO, Deepak Kumar Garg vs. ITO
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Sale consideration of property below Jantri Value; Prejudicial to interest; Bogus
• Section: 68; 263; 143(3); 50C; 142(1); 64; 48; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT (Conducted through E-Court at Ahmedabad) BEFORE SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER & SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER I .T .A . N o .7 2 / R j t/2 0 2 1 ( A s se ss m e nt Y e a r : 20 16- 17 ) M/ s . La d o C e r a mic Pv t. Lt d . , Su r v e y No . 25 5 / P1 / P1 , J e t pa r Pi pa li R o a d, A t B e la , Di s t . Mo r bi - 3 63 64 1 V s .The P r in c ip al C o m mi s s i on e r o f In c o me Ta x , Ra j ko t- 1 [ P A N N o. A A C C L7 48 9F ] (Appellant) .. (Respondent) Appellant by : Shri Mehul Ranpura, Ld. A.R. Respondent by: Shri Shramdeep Sinha, CIT DR D a t e of H ea r i ng 04.09.2023 D a t e of P r o no u n ce me nt 18.10.2023 O R D E R PER SIDDHARTHA NAUTIYAL, JM: This appeal has been filed by the assessee against the order passed by the Ld. Principal Commissioner of Income Tax-1, (in short “Ld. PCIT”), Rajkot in DIN/Order No. ITBA/REV/F/REV5/2020-21/1031638876(1) vide order dated 22.03.2021 passed for Assessment Year 2016-17. 2. The assessee has taken the following grounds of appeals:- “1. The grounds of appeal mentioned hereunder are without prejudice to one another. 2. The order passed by Pr. Commissioner of Income, Rajkot- 1[hereinafter referred as to the “Pr. CIT”] is bad and illegal and requires to be quashed. 3. Ld. Pr. CIT erred in law and on facts in exercising revisional jurisdiction ignoring the fact that AO made full inquiry and satisfied with the reply/submission of the appellant and accordingly the order ITA No.72/Rjt/2021 M/s. Lado Ceramic Pvt. Ltd. vs. PCIT Asst.Year –2016-17 - 2 - passed by Pr.CIT is required to be quashed and may kindly be quashed. 4. The learned Pr. CIT erred on facts as also in law in alleging that the order u/s. 143(3) is erroneous and prejudicial to the interest of revenue as the AO had not made inquiry & verification in terms of provision of Section 68 of the Act in respect of (1) equity share capital of Rs.1,39,90,000/- and (2) unsecured loan of Rs.1,88,99,850/- and thereby setting aside the order passed u/s 143(3) of the Act dated 27.11.2018. The order passed u/s 263 of the Act by the learned Pr. CIT is totally unjustified on facts as also in law therefore the same may kindly be quashed. 5. Your Honour’s appellant craves leave to add, to amend, alter, or withdraw any or more grounds of appeal on or before the hearing of appeal.” 3. The brief facts of the case are that on perusal of records, the PCIT observed that the assessee company had issued 13,99,000 equity shares at Rs. 10 each to 21 persons thereby raising equity share capital by Rs. 1,39,90,000/-. Further, it was observed that the assessee has also availed fresh unsecured loans aggregating to Rs. 1,88,99,850/- from 26 persons during the year and out of such 26 persons, 18 persons happened to be share-holders. Perusal of the records further revealed that the assessee furnished copies of IT, Bank Statements and Confirmations from all the persons (Share-holders and/or loan providers) but out of 21 share- holders, only 4 persons had submitted their Balance sheets. Perusal of the bank statements of some of these persons also revealed that in some cases Cash / Cheques were deposited / Credited in their bank accounts immediately prior to issuing funds to the assessee company either as share capital or as loan and in some cases, the money was routed through two layers. Further, PCIT observed that, out of 21 subscribers to share capital, only four persons submitted their balance-sheets and in the cases of these four persons also, ITA No.72/Rjt/2021 M/s. Lado Ceramic Pvt. Ltd. vs. PCIT Asst.Year –2016-17 - 3 - apart from mere filing of balance sheet, no explanation was available on record for the source of investment in the hands of these subscribers. On perusal of such balance-sheets in the cases of these four persons, it was observed that huge amount of unsecured loans was availed by these persons indicating that the money invested by them was not their own but was a loan in their hands. Further, it is also observed that all these share-holders, had invested substantial amount of money by way of unsecured loan or share application money but barring only three persons, all of them are having income less than 3.00 lacs as per the copy of return filed by them. Accordingly, the PCIT was of the view that this proves that these subscribers are not men of affluent means who can afford making investments irrespective of the chances of return on investments. The PCIT was of the view that looking to the income declared by the assessee, it can be stated that no reasonable return on such investment by way of dividend is visible in these cases. In such scenario, no prudent investor would like to block such huge amount of money, that too borrowed money, in shares of the assessee company where no return on investment appeared forthcoming. In view of these glaring discrepancies, the Ld. Assessing Officer should have conducted necessary enquiries/ verifications. However, the AO accepted the share capital investment without any verification as required by the first proviso to Section 68 of the Act and he was duty bound to verify and enquire / investigate the identity and credit-worthiness of the creditors (loans) / shareholder and ascertain whether the transaction was genuine or whether these were bogus entries of name lenders. The Assessing Officer had failed to conduct verifications / enquiries that should have been done and accepted the share capital as well as the unsecured loans as genuine. ITA No.72/Rjt/2021 M/s. Lado Ceramic Pvt. Ltd. vs. PCIT Asst.Year –2016-17 - 4 - Accordingly, the principal CIT set-aside the assessment order as erroneous and prejudicial to the interests of the revenue, since the same was passed by the Assessing Officer without making necessary and adequate enquiries into the source of investment in the shares of the assessee company. 4. Before us, the Counsel for the assessee invited our attention to Page 2 of the assessment order and submitted that the evidence regarding share capital introduced/unsecured loan was accepted by the assessee were scrutinized by the Assessing Officer, and accordingly it cannot be held that the Assessing Officer did not conduct the necessary enquiries during the course of assessment proceedings. Further, the Counsel for the assessee drew our attention to notice under Section 142 (1) of the Act issued by the Assessing Officer dated 18.07.2018, wherein details of new share capital introduced during the year under consideration was called for during the impugned assessment proceedings. Further, vide the aforesaid notice, the Assessing Officer had also called for details of unsecured loans raised during the year under consideration. Further, the Counsel for the assessee submitted that vide notice issued under Section 142(1) of the Act dated 09.11.2018, the Assessing Officer had again called for details of unsecured loans taken by the assessee during the year under consideration. Accordingly, the Counsel for the assessee submitted that the Assessing Officer had made adequate enquiries on the aforesaid aspects during the course of assessment proceedings and accordingly, the Counsel for the assessee placed reliance on judicial precedents, including by the Rajkot Tribunal in support of his contention that once Assessing Officer made ITA No.72/Rjt/2021 M/s. Lado Ceramic Pvt. Ltd. vs. PCIT Asst.Year –2016-17 - 5 - sufficient enquiries, proceedings under Section 263 of the Act cannot be initiated by the principal CIT. 5. In response, the Ld. DR placed reliance on the fact that the principal CIT has made a specific observation that sufficient enquiries which was required to be made in the matter was not done by the Assessing Officer during the course of assessment proceedings. The Ld. DR placed reliance on the case of Babulal S. Solanki104 taxmann.com 155 (Ahmedabad - Trib.), wherein it was held that Revision proceedings under Section 263 were justified as Assessing Officer accepted assessee's claim of considering sale consideration as per agreement, instead of jantri value on which stamp duty was collected as sale consideration under Section 50C for computation of capital gains, which was clearly unsustainable. The Ld. DR placed reliance on the case of Umesh Krishnani 35 taxmann.com 598 (Gujarat), wherein the Gujarat High Court held that where substantial amount was deposited in bank accounts of lenders shortly prior to issuance of cheques by them, transaction in question being sham, loan amount was to be added to assessee's taxable income under Section 68. 6. We have heard the rival contentions and perused the material on record. On going to the facts of the instant case, we observe that in the instant case, undeniably the Assessing Officer had made certain enquiries during the course of assessment proceedings, in response to which the assessee had also filed certain details. However, there are also certain glaring discrepancies in the facts of the assessee’s case, in respect of which evidently Assessing Officer did not make any observations/made necessary enquiries during the course of assessment proceedings. In this case, the ITA No.72/Rjt/2021 M/s. Lado Ceramic Pvt. Ltd. vs. PCIT Asst.Year –2016-17 - 6 - principal CIT has observed that the substantial investment was made in the shareholding of the assessee company, but during the course of assessment there is no explanation on record for the source of investment in the hands of the subscribers. Further, out of 21 persons, only four persons had filed their balance sheets, it was observed that huge amount of unsecured loans was availed by these persons and accordingly, the aforesaid investments in the share capital of the assessee company were made out of borrowed funds. Further, the shareholders referred to above also gave substantial amount of unsecured loans to the assessee company, but a perusal of the return of income shows that they did not have sufficient means to make the aforesaid investments/give unsecured loans to the assessee company. Accordingly, looking into the facts of the instant case we are of the considered view is that the principal CIT has correctly observed that there was an evident lack of enquiry by the Assessing Officer into the source of investment, which should have been made by the Ld. AO, looking into the facts of the instant case. Also, we observe that the Gujarat High Court in the case of Umesh Krishnani (supra) has also given a specific finding that when immediately before the issuance of funds to the assessee company there was immediate credit in the bank accounts of some of the investors, for which there is no plausible explanation, then addition under Section 68 of the Act is liable to be made. Even in the present facts, the principal CIT observed that in some of the cases prior to making the investments in the assessee company, there was immediate credits in the bank accounts of some of the investors, for which no explanation has been provided by the assessee during the course of assessment proceedings. In the case of Malabar Industrial Co. Ltd. 109 Taxman 66 (SC), the Hon'ble Supreme Court held that if due to an ITA No.72/Rjt/2021 M/s. Lado Ceramic Pvt. Ltd. vs. PCIT Asst.Year –2016-17 - 7 - erroneous order of ITO, Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to interests of revenue. In the case of Neelkantha Commosales (P.) Ltd. 135 taxmann.com 326 (Calcutta), the High Court held that even under non-amended provision of Section 68, an Income-tax Officer was not precluded from making an inquiry about true nature and source of sum found credited in books of assessee, even if same was credited as receipt of share application money. In the case of Nisha Sharma146 taxmann.com 209 (Jabalpur - Trib.), the ITAT held that where assessee's case was selected for limited scrutiny for reasons that it deposited large cash during demonetization and showed large agricultural income, however AO merely relied on assessee's submissions which included sale bills for agricultural income and claimed that cash deposits were made out of past savings, since AO did not make any findings related to opening cash ascribed to past savings nor there was mention of land holdings, crop cultivated and sold, Principal Commissioner was right in invoking revisionary proceedings. In the case of Himachal Pradesh Financial Corpn. 186 Taxman 105 (Himachal Pradesh), the High Court held that the expression 'prejudicial to interest of revenue' as understood in its ordinary meaning is of wide import and not confined to loss of tax alone. Further, if due to an erroneous order of Assessing Officer, revenue is losing tax lawfully payable by a person, it should be certainly prejudicial to interest of revenue. In the case of Deepak Kumar Garg 299 ITR 435 (Madhya Pradesh), the High Court held that where from order of Assessing Officer, it was clear that where the Assessing Officer had done only a semblance of enquiry and, that too, in very slipshod manner and Assessing Officer had accepted version of assessee without proper enquiry, ITA No.72/Rjt/2021 M/s. Lado Ceramic Pvt. Ltd. vs. PCIT Asst.Year –2016-17 - 8 - as a result of which substantial amount of taxable income was not brought to tax, Commissioner rightly held assessment order as erroneous and prejudicial to interest of revenue. Accordingly, looking into the facts of the instant case, we find an evident lack of proper enquiry by the Assessing Officer during the course of assessment proceedings. In our considered view, the enquiry made by the Assessing Officer was not adequate and he simply accepted the version of the assessee without application of mind. Accordingly, looking into the facts of the instant case and the judicial precedents on the subject, we are of the considered view that the Principal CIT has not erred in facts and in law in holding that the order passed by the Assessing Officer is erroneous and prejudicial to the interests of the revenue. 7. In the result, the appeal of the assessee is dismissed. This Order pronounced in Open Court on 18/10/2023 Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 18/10/2023 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, राजोकट / DR, ITAT, Rajkot 6. गाड' फाईल / Guard file. आदेशान ु सार/ BY ORDER, उप/सहायक पंजीकार Dy./Asstt.Registrar) आयकर अपील य अ धकरण, राजोकट / ITAT, Rajkot