ITO WARD - 1, KARNAL V. BHARAT HOSPITAL LTD, KARNAL

ITA 1143/DEL/2020

AI Insights

The case involves appeals by the Revenue against the orders of the Commissioner of Income-tax (Appeals), Karnal, which had allowed the appeals of Bharat Hospital Ltd. for the Assessment Years 2011-12 and 2012-13. The primary issue was the addition made by the A.O. regarding the share capital received by Bharat Hospital Ltd., which was alleged to be from non-genuine sources. The A.O. had made these additions based on the failure of the assessee to produce the directors of the investor company and other evidences. However, the CIT(A) found that the assessee had provided sufficient evidence to substantiate the genuineness of the share capital received. The ITAT dismissed the Revenue's appeals, citing the lack of merit and the precedence set by a similar case involving M/s R.P. Basmati Rice Limited.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 102494 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-04-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Other Referred Cases: Raymond Woolen Mills Ltd. vs. ITO, CIT vs. Nova Promoters & Finlease & Fin Lease (P) Ltd., CIT vs. Ultra Modern Exports (P) Ltd., CIT vs. Empire Buildtech (P) Ltd., GKN Driveshaft India Ltd. vs. ITO, Sukumar Enterprises Pvt. Ltd. vs. ITO Ward 24(3), New Delhi
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHISH TRIPATHI
• Assessee Lawyers: RAKESH GUPTA
• Keywords: Reassessment proceedings; Reopening of assessment; Accommodation entries; Bogus
• Section: 143(3); 131; 43; 133(6)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: A : NEW DELHI BEFORE SHRI ANUBHAV SHARMA, JUDICIAL MEMBER AND SHRI MANISH AGARWAL, ACCOUNTANT MEMBER ITAs No.1143 & 1144/Del/2020 Assessment Years: 2011-12 & 2012-13 ITO, Ward-1, Karnal. Vs Bharat Hospital Ltd., SCO-9, Sector-3, Karnal. PAN: AAECB2375C CO Nos.48 & 50/Del/2023 (ITAs No.1143 & 1144/Del/2020) Assessment Years: 2011-12 & 2012-13 Bharat Hospital Ltd., SCO-9, Sector-3, Karnal. PAN: AAECB2375C Vs. ITO, Ward-1, Karnal (Appellant) (Respondent) Assessee by : Dr. Rakesh Gupta, Advocate; Shri Somil Agarwal, Advocate; & Shri Saksham Agarwal, Advocate Revenue by : Shri Ashish Tripathi, Sr. DR Date of Hearing : 20.02.2025 Date of Pronouncement : 16.04.2025 ORDER PER ANUBHAV SHARMA, JM: These are appeals preferred by the Revenue against the orders dated 31.01.2020 of the Commissioner of Income-tax (Appeals), Karnal (hereinafter referred to as the ld. First Appellate Authority or ‘the Ld. FAA’ for short) in ITAs No.1143 & 1144/Del/2020 COs No.48 & 50/Del/2023 2 Appeals No.IT/290/E/KNL/2018-19 and IT/289/E/KNL/2018-19 arising out of the appeals before it against the orders dated 31.12.2018 passed u/s 143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’) by the Income-tax Officer, Ward-1, Karnal (hereinafter referred to as the Ld. AO). The assessee has filed Cross Objections for the respective assessment years also. The facts and impugned decision for AY 2011-12 are taken into consideration and as facts in two appeals are common and discussion will apply pari materia to facts for appeal for AY 2012-13. 2. On hearing both the sides and after taking into consideration the copy of assessment order for AY 2011-12 dated 31.12.2018 of the AO and the order dated 18.01.2019 of the CIT(A), Karnal disposing the appeal No.IT/353/KNL/2018-19 in the case of M/s R.P. Basmati Rice Limited, it can be observed that while deciding that appeal in the case of M/s R.P. Basmati Rice Limited for AY 2011-12 (supra), the ld.CIT(A) has observed as follows:- “3.2 Findings:- I have examined the facts of the case and the submissions made by the assessee. During the year under consideration, the appellant received share capital of Rs.13,35,00,000/- from M/s Bharat Hospitals Ltd. by issuing 2,67,000/-shares of Rs. 10 each at a premium of Rs. 240 per share. The Assessing Officer (A.O.) made the addition, as the assessee had failed to produce the directors of the investor company viz M/s Bharat Hospitals Ltd. to whom summons u/s 131 of the I.T. Act had been issued. The A.O., on enquiry from the A.O. of the said M/s Bharat Hospital Ltd. had found that the said company had taken share capital from various other entities and invested in the assessee company. Therefore, he held that the assessee had failed to establish the identity and capacity of the persons who had advanced the share capital and stated that it had failed to establish the genuineness of the turnover. ITAs No.1143 & 1144/Del/2020 COs No.48 & 50/Del/2023 3 As far as, the reopening the case is concerned, I hold it to be justified as there was information regarding the receipt of share capital and premium by the appellant. It has been held by the Hon'ble Apex Court in Raymond Woolen Mills Ltd. vs. ITO and others 236 ITR (SC) (1999) that \"in determining whether commencement of re assessment proceedings was valid, it has only to be seen whether there was, prima facie, some material on the basis of which the department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at this stage.\" On merits, it is observed that there was no business activity in the investor company and that the directors of the assessee company as well as the Investor company are the same. The Directors of this company failed to respond to summons issued u/s 131 of the I.T. Act, 1961 to substantiate their claim of investment from the said investor company. This fact proves that the assessee company has nothing to say in the matter and the contention of the A.O. holding the assessee as the ultimate beneficiary of the amount received as share capital is correct. Reliance is placed on the following judgments of the Hon'ble Delhi High Court: CIT vs. Nova Promoters & Finlease & Fin Lease (P) Ltd. (2012) 252 CTR 187 (Delhi), CIT vs. Ultra Modern Exports (P) Ltd. 40 taxmann. Com 458 (Delhi) (2013) and CIT vs. Empire Buildtech (P) Ltd. (Delhi) 43 taxmann.com 269 (2014).” 3. In the case before us, for AY 2011-12, we find that the ld.CIT(A) has allowed the appeal of the assessee with a reasoned finding, incorporating necessary details, as follows:- “3.2 Findings:- I have examined the facts of the case and the submissions made by the appellant. The case laws relied upon by the appellant has also been perused. During the year under consideration, the appellant received share capital of Rs.14,00,00,000/- from thirteen companies by Issuing 2,70,000/- shares of Rs. 10 each at a premium of Rs. 490 per share. The Assessing Officer (A.O.) made the addition as the assessee had failed to produce those share holders to whom letters u/s 133(6) of the I.T. Act had been issued had been returned back and also because the report of the Inspector stated that none of the companies existed at the addresses given. Therefore, the A.O. held that the assessee failed to establish the Identity and capacity of the persons who had given the share capital and stated that the assessee had failed to establish the genuineness of the householders. ITAs No.1143 & 1144/Del/2020 COs No.48 & 50/Del/2023 4 However, in the reply filed before the A.O. on 20.12.2018, it is seen that the assessee had furnished the following evidences: 1. Share application, 2. Copy of confirmation of shareholders alongwith their PANs and place of assessment, 3. Copy of Bank statement, 4. Copy of Balance Sheet and P & L A/c of the shareholders, 5. Copy of resolution regarding allotment of shares, 6. Copy of the M.O.A. and A.O.A. of the shareholders, 7. Copy of certificate of incorporation of the shareholders which contained the change in name and 8. Copy of the ITRs of the subscribers to the share capital. The appellant has contested the additions on the legal issue of the reopening of the assessment as well as or merits. The main contention on law is the failure to dispose off the objections against the reopening of assessment by the A.O. On perusal of records, it is observed that the appellant had filed preliminary objections against the reassessment proceedings on 28.11.2018 which was not disposed off separately by the A.O. before finalizing the assessment u/s xxx(3)/147. The same was disposed off in the assessment order which is not permissible in view of the judgment of the Hon'ble Supreme Court in the case of GKN Driveshaft India Ltd. vs. (200) 259 ITR, as it is the inherent right of the assessee to know the reasons for the acceptance or rejection of its objections and to file further appeal before the appropriate legal forum. The non disposal of objections, therefore, goes through the route of assessment proceedings, including the quashing of the entire assessment proceedings. On merits, it is observed that there was no business activity in the assessee company except for investment in share capital. The main business was found to be receiving share capital and investment in M/s R.P. Basmati Rice Ltd. which is a group concern having common directors. R.P. Basmati Rice Ltd. is engaged in the business of rice milling and exports and is a larger company. All the share application money received was invested in the purchase of shares of R.P. Basmati Rice Ltd. Both the entities are assessed to tax in Karnal Range and even the share of assessment of the assessee company was found by the A.O. of R. P. Basmati Rice Ltd. whose case was also reopened by the respective A.O. for Α.Υ. 2011-12 on the ITAs No.1143 & 1144/Del/2020 COs No.48 & 50/Del/2023 5 similar issue of share application money received, which was from the assessee company only. While making the addition of share capital received from the company, the A.O. of R. P. Basmati Rice Ltd. has held as under: \"All the facts mentioned above only go to highlight the bogusness of the transaction made by the assessee company. In this case, the entire cycle of routing accommodation entries has been coming from Bharat Hospital Ltd. through share premium from shell / paper companies which was further invested in the assessee company, who happens to be the ultimate beneficiary in this case.\" Both the A.O.s, i.e. of the appellant as well as R.P. Basmati Rice Ltd. made the additions on a substantive basis in both the cases which is not justified. This case is squarely covered by the judgment of the Honble ITAT in Sukumar Enterprises Pvt. Ltd. vs. ITO Ward 24(3), New Delhi (ITA No. 6074) Del/2017) where it was held as under: \"The factual aspect that the ultimate beneficiary was M/s Rock Land Hospital was never doubted by the CIT(A) as well. Thus, the CIT(A) erred in making this addition on a substantive basis. Besides this, the Assessing Officer has also admitted that the ultimate beneficiary was M/s Rock Land Hospital and from the perusal of the assessment order in case of Rock Land Hospital, these facts are substantiated by the Ld. A. R. During the course of Assessment Proceedings, the Assessing Officer has not taken the cognizance that M/s Rock Land Hospital was already scrutinized for the said additions and admitted that the entire amount was that of Rock Land Hospital Group only. Therefore, the Assessing Officer as well as the CIT(A) was not correct in making the additions on protective/substantive basis.\" In view of the above findings, the addition made in this case, is unjustified, both in law and on facts and, is therefore, deleted.” 4. It was stated at bar by the ld. counsel that the judgment in case of M/s R.P. Basmati Rice Limited has attained finality as no appeal was filed by that assessee. Thus where addition for alleged undisclosed income is made in hands of one of the parties to the transaction the addition in hands of other party is rightly deleted by the ld. CIT(A). The grounds as raised have no substance. The appeals of the Department have no merit, thus, the same deserve to be ITAs No.1143 & 1144/Del/2020 COs No.48 & 50/Del/2023 6 dismissed. Liberty is given to Revenue to opt for recalling of this order if CIT(A) decision in M/s R.P. Basmati Rice Limited (supra) has not attained finality. The COs, of assessee are dismissed being infructuous. Order pronounced in the open court on 16.04.2025. Sd/- Sd/- (MANISH AGARWAL) (ANUBHAV SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 16th April, 2025. dk Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asstt. Registrar, ITAT, New Delhi "