Sherda Polyster Pvt. Ltd., Mumbai V. The Income Tax Officer, Ward-2(1)(2), Surat

ITA 763/AHD/2017

AI Insights

The case involves Sherda Polyster Pvt. Ltd., which appealed against the order of the Learned Commissioner of Income Tax (Appeals)-2, Surat, confirming the additions made by the Assessing Officer under section 68 of the Income Tax Act, 1961, concerning unexplained share premium/share capital and an ad hoc addition assuming income from accommodation entries. The Assessing Officer had made these additions after the assessee failed to provide satisfactory explanations and compliance to notices regarding the investments in equity shares. The CIT(A) upheld the AO's decision, leading to the current appeal. The ITAT found that the assessee had not been given a proper opportunity to present its case before the CIT(A), as the order was passed ex-parte. Consequently, the ITAT remitted the matter back to the CIT(A) for a fresh examination.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 301895 (ITAT-SURAT)
• Duration Of Justice: 5 year(s) 10 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 27-12-2022
• Assessment Year: 2012-2013
• Appeal Filed On: 27-03-2017
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Principle of natural justice; Valuation report; Accommodation entries; Set aside
• Section: 131; 68; 154; 143(3); 133(6); 251

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JM & DR. A. L. SAINI, AM आयकर अपील सं./ITA No.763/AHD/2017 Ǔनधा[रणवष[/Assessment Year: (2012-13) (Physical Court Hearing) Sherda Polyster Pvt. Ltd., C/o DK Jhanwar & Associates, 705, Morya Bluemoon, Near Monginis Cake Factory, Opp. City Mall, Link Road, Andheri West, Mumbai-400053. Vs. The ITO, Ward-2(1)(2), Surat. (Appellant) (Respondent) èथायीलेखासं./जीआइआरसं./PAN/GIR No.: AADCS3803P Assessee by Shri Hiren Vepari, CA Respondent by Shri Ashok B. Koli, CIT-DR Date of Hearing 28/12/2022 Date of Pronouncement 30/01/2023 आदेश / O R D E R PER DR. A. L. SAINI, AM: Captioned appeal filed by the assessee, pertaining to Assessment Year (AY) 2012-13, is directed against the order passed by the Learned Commissioner of Income Tax (Appeals)-2, Surat [in short “the ld. CIT(A)”], in Appeal No. CAS/2/339/2015-16, dated 06.09.2016, which in turn arises out of an assessment order passed by Assessing Officer under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”), dated 31.03.2015. 2. The concise grounds of appeal raised by the assessee are as follows: “(1) The learned CIT(A) has erred in law and on the facts for (i) ignoring actions of the AO for completing scrutiny assessment without providing CASS script generated thru AIR & without showing the exact reason of scrutiny, and (ii) confirming additions made by the AO of the transactions outside scope of the CASS script without authority of the law. (2) The learned CIT(A) has erred in law and on the facts for confirming additions of Rs.43,00,000/- made by the AO u/s.68 on account of unexplained share premium/share capital. Page | 2 ITA 763/AHD/2017/AY.2012-13 Sherda Polyster Pvt. Ltd. (3) The learned CIT(A) has erred in law and on the facts for confirming the ad hoc addition of Rs.7,75,872/- made by the AO assuming that the assessee earned 5% income from accommodation entries. (4) The learned CIT(A) has erred in law and on the facts ignoring the fact that the assessment was based on incorrect grounds & wrong inferences drawn by the AO disregarding the legal points & evidences on the records. (5) The learned CIT(A) has erred in law and on the facts for confirming the additions made by the AO without affording an effective opportunity of being heard and orders have been passed against to the principles of natural justice by the authorities below. (6) The appellant craves leave to add, alter, amend or modify any of the grounds of appeal till disposal of this appeal by the Hon'ble Tribunal.” 3. Succinct facts are that during the course of the assessment proceedings, the Assessing Officer noticed that four persons/investor companies have made investment in equity shares of the appellant company of Rs.43,00,000/- which included share premium of Rs.34,40,000/- and share capital of Rs.8,60,000/-. In order to verify the creditworthiness and the genuineness of the transactions, the Assessing Officer issued notice under section 133(6) of the Act to the four persons/investor companies but no compliance was made. No compliance was made to the summons issued under section 131 of the Act to the appellant. The appellant company authorized representative was asked to produce the investor’s alongwith the books of accounts as they were not traceable at the given addresses vide show cause notice dated 13.03.2015. The Assessing Officer had also issued summons on 20.02.2015 to the directors of the appellant company for examining him but the directors of the appellant company did not comply. The Assessing Officer on the analysis of the bank account found that these investor companies were not carrying out any actual business activity. The Assessing Officer held that the amount of investment of Rs.43,00,000/- in form of share capital/share premium was in form of cash credit and made an addition under section 68 of the Act. The Assessing Officer also made addition of Rs.7,75,872/- on account of commission income earned @ 5% for accommodation. 4. Aggrieved by the order of Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A), who has confirmed the action of the Page | 3 ITA 763/AHD/2017/AY.2012-13 Sherda Polyster Pvt. Ltd. Assessing Officer. Before, ld CIT(A) none appeared on behalf of the assessee, therefore, ld CIT(A) has passed ex-parte order based on the material available on record. The important findings of ld CIT(A) is reproduced below: “DECISION 6.1.1. The appellant was provided many opportunities as mentioned earlier but no compliance was made. The appellant was given opportunities on 12.05.2016, 06.06.2016, 07.07.2016, 28.07.2016 and 16.08.2016. The appellant was provided with 5 opportunities to furnish the details but no compliance was made except a paper book was filed containing details furnished during the assessment proceedings. Sr. No. Date of Notice Date of Compliance Reasons for adjournment 1 15.03.2016 12.05.2016 No compliance was made 2 16.05.2016 06.06.2016 Filed an adjournment letter 3 06.06.2016 07.07.2016 No compliance was made 4 13.07.2016 28.07.2016 No compliance was made 5 02.08.2016 16.08.2016 No compliance was made On the basis of the above facts, it is evident and clear that the appellant is not interested in filing any details during the appellate proceedings and avail the opportunity under the Principles of Natural Justice. No further opportunity is being provided as the appellant has already been granted 5 opportunities. Hence this appeal is being decided on the basis of the material available on record.” 5. Therefore, on the basis of the material available on record, the ld CIT(A) confirmed the action of the assessing officer. 6. Aggrieved by the order of ld. CIT(A), the assessee is in further appeal before us. 7. The Ld. Counsel for the assessee submitted before us a chart stating the important information of the four investors, which is reproduced below: SHERDA POLYESTER PVT LTD A.Y 2012-13 Appeal no: 763/A/2017 PARTICULARS OF INVESTORS DETAILS SUBMITTED DURING APPELLATE/ASSESSMENT PROCEEDINGS Sr Name of Investors Vaishali Agrawal Chiron Finance Ltd Star Global Corporation Magicstar Multitrade Pvt Ltd Particulars Detail PB Ref No Detail PB Ref No Detail PB Ref No Detail PB Ref No Page | 4 ITA 763/AHD/2017/AY.2012-13 Sherda Polyster Pvt. Ltd. 1 PAN AAJPA2428B 101 AAACC9453 103 AABHD6823P 102 AAFCM3159E 104 2 Relationship with Assessee Director of the Assessee 6 Same Directors 6 Director's HUF is the Proprietor 6 Associate Company 6 3 Address 21,Bharat Photo House, 3rd floor, 545, Kalbadevi Road,Mumbai-400002 6,52 21,Bharat Photo House, 3rd floor, 545, Kalbadevi Road,Mumbai-400002 6,54- 56 21,Bharat Photo House, 3rd floor, 545, Kalbadevi Road,Mumbai-400002 6,53 310,Bharat Photo House, 3rd floor, 545, Kalbadevi Road,Mumbai- 400002 6, 57- 59 4 Details of Share Application form Type of Share : Preference No of Shares : 16000 FV/share : Rs.10 Premium/Share : Rs.40 52 Type of Share : Preference No of Shares : 4300 FV/share : Rs.10 Premium/Share : Rs.40 54- 56 Type of Share : Preference No of Shares : 6700 FV/share : Rs.10 Premium/Share : Rs.40 53 Type of Share : Preference No of Shares : 59000 FV/share : Rs.10 Premium/Share : Rs.40 57- 59 5 Details of Amount received towards: as Share Application Money during the year Capital : 1,60,000 Premium : 6,40,000 8,00,000 6,52 Capital : 43,000 Premium : 1,72,000 2,15,000 6,54- 56 Capital : 67,000 Premium : 2,68,000 3,35,000 6,53 Capital : 5,90,000 Premium : 23,60,000 29,50,000 6, 57- 59 6 Date of Payment of Share application money by investors 13.04.2011 52 13.12.2011, 31.03.2012 54- 56 12.12.2011 53 11.11.2011, 12.11.2011, 03.01.2012 57- 59 7 Investors Bank Account details from where money is received Current a/c at State Bank of India, Bhuleshwar Branch- Mumbai-400002 6,52 Current a/c at ICICI Bank Ltd, Lokhandwala Market, Versova Branch, Mumbai-400053 6,54- 56 Current a/c Indian Bank, Andheri Branch, Mumbai- 400058 6,53 Current a/c at Kotak Mahindra Bank,Kalbadevi Branch, Mumbai- 400002 6, 57- 59 8 Details of share application Money Refunded Back Capital : 1,60,000 Premium : 6,40,000 8,00,000 6 Capital : 43,000 Premium : 1,72,000 2,15,000 6 Capital : 67,000 Premium : 2,68,000 3,35,000 6 Capital : 5,90,000 Premium : 23,60,000 29,50,000 6 9 Investors Bank Account details in which where money is refunded Current a/c at State Bank of India, Bhuleshwar Branch- Mumbai-400002 6 Current a/c at ICICI Bank Ltd, Lokhandwala Market, Versova Branch, Mumbai-400053 6 Current a/c Indian Bank, Andheri Branch, Mumbai- 400058 6 Current A/c no 3403132870 at Central Bank of India, Bhuleshwar Branch, Mumbai- 400002 6 10 Copy of bank statement showing share application money paid and refunded back A/c no : 63035758176 Current a/c at State Bank of India, Bhuleshwar Branch- Mumbai-400002 78- 84 A/c no : 699105114363 Current a/c at ICICI Bank Ltd, Lokhandwala Market, Versova Branch, Mumbai-400053 87- 90 A/c no : 854003566 Current a/c Indian Bank, Andheri Branch, Mumbai- 400058 85- 86 (1). A/c no 09612000002020 Current a/c at Kotak Mahindra Bank,Kalbadevi Branch, Mumbai- 400002 (2). A/c no 3403132870 Current a/c at Central Bank of India, Bhuleshwar Branch, Mumbai- 400002 91- 99 100 Page | 5 ITA 763/AHD/2017/AY.2012-13 Sherda Polyster Pvt. Ltd. 11 Notice u/s 133(6) calling informations related to assessee and response thereof Attached annexures to the response:1. Bank Statement - Vaishali Agrawal2. Share Application form 3. Income Tax Return (A.Y 2012- 13)- Vaishali Agrawal4. Payment Voucher dated 13.04.20115. Receipt Voucher Dated 02.02.20136. Ledger Copies (F.Y 11-12 & F.Y 12-13)7. Confirmation of Account8. Copy Balance sheet & P&L (A.Y 2012-13)9. Certifiacte of Establishment (Form D)10. Copy of Form ST-2 105- 130 Attached annexures to the response:1. Bank Statement - Chiron Finance Ltd2. Share Application form (3 Nos) 3. Income Tax Return (A.Y 12- 13)- Chiron Finance Ltd4. Payment Voucher dated 13.12.2011,31.03.20125. Receipt Voucher Dated 03.04.2012, 12.05.20126. Ledger Copies (F.Y 11-12 & F.Y 12-13)7. Confirmation of Account8. Copy Balance sheet & P&L (A.Y 2012-13)9. Certifiacte of incorporation 155- 184 Attached annexures to the response:1. Bank Statement - Star Global Corporation2. Share Application form 3. Income Tax Return (A.Y 2012- 13)- Star Global Corporation4. Payment Voucher dated 12.12.20115. Receipt Voucher Dated 12.07.20136. Ledger Copies (F.Y 11-12, F.Y 12-13 & F.Y 13-14)7. Confirmation of Account8. Copy Balance sheet & P&L (A.Y 2012-13)9. MVAT registration certificate 131- 154 Attached annexures to the response:1. Bank Statement - Magicstar Multitrade Pvt Ltd2. Share Application form 3. Income Tax Return (A.Y 12- 13)- Magicstar Multitrade Pvt Ltd4. Ledger Copies (F.Y 10-11, F.Y 11-12 & F.Y 14-15)5. Confirmation of Account6. Copy of ITR -V , computation of income along with ITR-6 (A.Y 2012- 13)7. Certificate of incorporation8. Certificate of incorporation after change in Name- " STUTI DIAMONDS PVTLTD"9.Copy of resolution passed in extra ordinary general meeting of the company for change in name and notice thereof. 185- 244 12 Copy of assessment order Order u/s 143(3) A.Y 2008-09 dated 13.12.2010 245- 246 Order u/s 143(3) & 115WE(3) A.Y 2007-08 dated 25.11.2009 247- 250 - - - - 13 Order Issued by ITO, Ward-14(3)(3), Mumbai 245- 246 ITO Ward 1(1), Surat 247- 250 - - - - 8. The Ld. Counsel further submitted that assessee has submitted for each investor, the details of share application money subscribed and received, PAN Number, share application money raised during the financial year 2011-12 and refunded back, copy of income tax return, statutory audit report etc. Therefore, ld Counsel has submitted that entire documents and details were submitted before AO therefore addition sustained by the ld. CIT(A) should be deleted. 9. On the other hand, Learned Departmental Representative (Ld. DR) for the Revenue, stated that assessee has not appeared before ld CIT(A) and did not explain the documents and evidences to ld CIT(A), and order passed by ld Page | 6 ITA 763/AHD/2017/AY.2012-13 Sherda Polyster Pvt. Ltd. CIT(A) is an ex-parte order, therefore, matter may be remitted back to the file of the ld CIT(A) for fresh adjudication. 10. We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld. CIT(A) and other materials brought on record. We note that before us, the ld Counsel for the assessee has submitted the following documents and evidences: (1) Ledger copies of all the 4 investors showing details of the share application money subscribed and returned back later (vide paper book page nos.4 to 5). (2) Details furnished before the AO as regards to each investor showing date, Name, Address & Relationship of the investor with the Assessee, Amount Invested, Bank A/c details where debited, Investors PAN details for the share application money raised during the FY 2011-12 and Refunded back later (vide paper book page nos.6 to 9). (3) Tax Documents, Statutory Audit Report, Audited Balance Sheet and Profit and Loss A/c, Tax Audit Report of the Appellant for the AY.2012-13 (vide paper book page nos.10 to 33). (4) Master Data showing authorized share capital of Rs.36.60 lacs of the Appellant as per ROC Records i.e. not exceeding the share applications (vide paper book page no.34). (5) Receipt & Form 5 showing increase in authorized share capital from Rs.25 lacs to 30 lacs duly approved by the ROC (vide paper book page nos. 35 to 40). (6) Receipt & Form 5 showing increase in authorized share capital from Rs.30 lacs to 38.60 lacs approved by the ROC (vide paper book page nos.41 to 46) (7) Valuation Report dated 30.06.2010 for valuation of shares as per DFCF methodology (vide paper book page nos.47 to 51). Page | 7 ITA 763/AHD/2017/AY.2012-13 Sherda Polyster Pvt. Ltd. (8) Share application Forms of the investors under which the share application money was received by the Appellant during the year (vide paper book page nos.52 to 59). (9) Confirmation of Accounts of all the 4 investors showing details of the share application money subscribed & returned back later (vide paper book page nos.60 to 63). (10) Bank statements of the appellant showing reflection of the share application money paid by the investors and refunded back later (vide paper book page nos.64 to 77). (11) Bank statement of all the 4 investors showing reflection of the share application money paid by these investors and refunded back later (vide paper book page nos.78 to 100). (12) PAN documents of all the 4 investors (vide paper book page nos.101 to 104) (13) (i) Notices issued u/s 133(6) to all the investors; and (ii) Replies filed by all the 4 investors in respect of the said notices issued by the AO with their tax documents and balance sheets & profit & loss A/c (vide paper book page nos.105 to 238). (14) Certificate of incorporation of the investor M/s Magicstar Multitrade Pvt Ltd (Later named changed to Stuti Diamonds Pvt Ltd.) issued by the ROC (vide paper book page no. 239). (15) Fresh certificate of incorporation of the investor M/s Magicstar Multitrade Pvt Ltd issued in the new name Stuti Diamond Pvt Ltd by the ROC (vide paper book page no.240). (16) Certificate of Registration of Special Resolution passed by the investor – Magicstar Multitrade Pvt Ltd granted by ROC (vide paper book page nos.241 to 244). (17) Scrutiny Assessment Orders of the investors issued u/s 143(3) & 115WE(3) of the Income Tax Act by the income tax department in respect of their ITR and FBT returns (vide paper book page nos.245 to 250). Page | 8 ITA 763/AHD/2017/AY.2012-13 Sherda Polyster Pvt. Ltd. (18) Full details of the amounts credited in the Bank Account of the Appellant with narration each entry for the period 01.04.2011 to 31.03.2012 (covering all 100% entries in the bank statement) (vide paper book page nos. 251 to 252). (19) Full details of the amounts debited in the Bank Account of the appellant with narration each entry for the period 01.04.2011 to 31.03.2012 (Covering all 100% entries in the bank statement)(vide paper book page nos.253 to 255). (20) Ledger copies of all the parties, receipts & payments shown in the bank statement duly certified by the statutory auditors of the appellant (Covering all 100% entries in the bank statement)(vide paper book page nos.256 to 277). (21) Confirmation of Accounts of all the parties (Covering all 100% entries in the bank statement) shown in the bank statement in respect of the transactions (With PAN & Address of all these parties)(vide paper book page nos.278 to 298). (22) Copies of the Written Submissions filed by the Appellant during the Assessment Proceedings containing details, clarifications and documentary evidences (vide paper book page nos.299 to 364). (23) RTI Orders dated 02.11.2016 & 19.12.2016 for securing documents on the records of the AO & RTI Order issued by the CPIO providing these documents (vide paper book page nos.365 to 368). (24) Rectification Application submitted u/s 154 before the AO pending disposal (vide paper book page nos.369 to 378). 11. We note that above documents and evidences were not explained to ld CIT(A), as the assessee did not appear before ld CIT(A). The order of ld CIT(A) is an ex parte order. However, we note that ld CIT(A) has adjudicated the issue and confirmed the findings of assessing officer based on the material available on record. Moreover, in ground no.1 and ground no.5, the assessee stated that proper opportunity was not given to the assessee of being heard by lower authorities. Therefore, we are of the view that matter should be remitted back to the file of the Page | 9 ITA 763/AHD/2017/AY.2012-13 Sherda Polyster Pvt. Ltd. ld CIT(A) with the direction to the assessee to furnish above documents and details, with explanation, if any, before ld CIT(A), and the ld CIT(A) after considering the above documents and details, and explanation about the transaction/documents, should decide the issue in accordance with law.Therefore, we deem it fit and proper to set aside the order of the ld. CIT(A) and remit the matter back to the file of the ld. CIT(A) to adjudicate the issue afresh on merits. For statistical purposes, the appeal of the assessee is treated as allowed. 12. In the result, the appeal filed by the assessee is allowed for statistical purposes. Order pronounced on 30/01/2023 by placing the result on the Notice Board. Sd/- Sd/- (PAWAN SINGH) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER lwjr /Surat Ǒदनांक/ Date: 30/01/2023 SAMANTA Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // TRUE COPY // Assistant Registrar/Sr. PS/PS ITAT, Surat