RENUKA RESORTS PVT. LTD.,NEW DELHI V. ITO, WARD- 21(2), NEW DELHI

ITA 4596/DEL/2017

AI Insights

The case involves Renuka Resorts Pvt. Ltd., which appealed against the order of the Commissioner of Income-Tax (Appeals) upholding an addition of Rs. 4,06,83,500 under Section 68 of the Income Tax Act, 1961, for the assessment year 2012-13. The addition was initially made by the Assessing Officer, questioning the genuineness of share capital contributions. The CIT(A) upheld the addition, leading to the appeal. The Tribunal found contradictions in the CIT(A)'s observations and noted procedural lapses, such as the failure to properly consider the production of directors from a Kolkata-based company and the reliance on journal entries without sufficient scrutiny of their genuineness. The Tribunal emphasized the need for a fair and thorough examination of the facts and legal provisions applicable.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 23645 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2012-2013
• Other Referred Cases: V.Datchinamurthy Vs. Asst. Director of Inspection (1984), 149 ITR 341 (Mad.), Jatia Investments 206 ITR 718 (Kol.), Pandian Distributors 259 ITR 428 (Mad.), Kerala Transport Company 50 ITD 189 (Ker.), Mahendra Kumar Agarwal 142 TTJ 35 (Jai.)
• Laws Referred To: Income Tax Act 1961, Civil Procedure Code 1908, Indian Contract Act 1872, Companies Act 1956/ Companies Act 2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HARPREET KAUR HANSRA
• Assessee Lawyers: MANOJ KATARUKA
• Keywords: Opportunity of being heard; Unexplained cash credit
• Section: 143(3); 48; 68; 133(6)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘F’, NEW DELHI BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER AND DR. MITHA LAL MEENA, ACCOUNTANT MEMBER ITA No.4596/Del/2017 Assessment Year: 2012-13 Renuka Resorts Pvt. Ltd. No.1, Zamrudpur Community Centre, Kailash Colony, New Delhi. PIN: 1100 48 PAN No. AAACR5119E Vs. ITO, Ward 21(2), New Delhi (APPELLANT) (RESPONDENT) Appellant by Shri Manoj Kataruka, Adv. Respondent by Ms. Harpreet Kaur Hansra,Sr. DR Date of hearing: 15/01/2025 Date of Pronouncement: 21/03/2025 ORDER Per Dr. Mitha Lal Meena, A.M.: This appeal is directed by the assessee against the order dated 28.04.2017 passed by the Commissioner of Income-Tax (Appeal)-36, New Delhi [hereinafter referred to as “CIT(A)” and arises out of the assessment order dated 25.03.2015 passed under Section 143(3) of the Income Tax Act 2 ITA No.4596/Del/2017 2 1961 [hereinafter referred as ‘the Act’]. [hereinafter referred to as “A.O” pertaining to assessment year 2012-13. 2. The grounds of appeal taken by the assessee are as follows: 1. The order of the Learned CIT(A)-36, New Delhi under section 250(6) dated 28.04.2017 upholding the addition made by the ITO, Ward 21(2), New Delhi vide order under section 143(3) dated 25.03.2015 is erroneous, unjustified, contrary to facts and law, unwarranted, unsustainable, biased and perverse. 2. The upholding of addition of Rs. 4,06,83,500/- u/s 68 of the Income Tax Act made by the assessing officer and dismissal of appeal by the Learned CIT(A)-36, New Delhi had arisen out of non-understanding and non-appreciation of the voluminous facts and also the provisions of Income-tax Law and other related law like Contract Act, Negotiable Instrument Act etc. 3. The order of the Learned CIT(A)-36, is nothing but a bundle of contradictions which are clear from the following observations made by her- Paragraph 7.2. \"Identity and credit worthiness of the share applicant appears acceptable. The genuineness of the transaction is not clearly established.\" Paragraph 7.3. \"The genuineness of the transaction is not proved at all. Share applicant has shared his identify by filing confirmation letter and copy of IT return is not sufficient to accept the identity of the share applicant and the credit worthiness.\" 4. The statement made by the Learned CIT(A)-36, New Delhi as to the non-production of Directors of Dadar Properties and Finance Private Limited (share applicant and the holding company) is totally against Rule 19 of Order XVI of the Civil Procedure Code, 1908 as the party was in Kolkata and the assessment was made at New Delhi. As per page 3 of 9 of the Appellate Order, the AO wanted the appellant to produce the Director of Dadar Properties vide order sheet entry dated 18.03.2015 and the Director was asked to appear on 23.03.2015 3 ITA No.4596/Del/2017 3 whereas the assessment order itself was framed on 25.03.2015. The above facts contradict the statement of Learned CIT(A)-36 in page 9 of 9 where she stated \"after repeated opportunities given by AO\" 5. The income-tax authorities should have issued a commission to another Assessing Officer who has jurisdiction over the witness at Kolkata, as decided in V.Datchinamurthy Vs. Asst. Director of Inspection (1984), 149 ITR 341 (Mad.), which principle have been left to the winds by the Income-tax authorities at New Delhi. 6. The Learned CIT(A)-36, New Delhi in page 2 of 9 (in paragraph 4) quotes the reply of Dadar Properties pursuant to notice under section 133(6) of the Income-tax Act, but for extraneous reasons in page 8 of 9 and 9 of 9, the Learned CIT(A)-36 tries to shift the blame on the appellant. 7. The Learned CIT(A)-36, failed to appreciate that the party which subscribed to the shares of the appellant on 23.03.2012 acquired 303500 equity shares of the appellant company on 16.11.2007 and it is not known how a party which was genuine on 16.11.2007 at the time of acquisition of shares became non-genuine on 23.03.2012 i.e., at the time of acquisition of further shares. The Learned CIT(A)-36, failed to appreciate that the applicant on 23.03.2012 was the holding company of the appellant. 8. The inference of Learned CIT(A)-36, in paragraph 7(1), page 8 of 9 as to \"the transaction is equivalent to receiving cash as there is payment of credit through it, though no actual bank account transaction has taken place\" demolishes the theory of non- genuineness of the transaction pertaining to contribution towards share capital. The Learned CIT(A)-36, cannot blow hot and cold. 9. The Learned CIT(A)-36 failed to appreciate that in fact and in effect that all the transactions were by means of book entries/journal entry and there was no flow of cash or entries through banking channels at any time and such journal entries /book entries do not come within the purview of section 68 of the Income-tax Act. 10. The Learned CIT(A)-36, failed to understand or appreciate that- 4 ITA No.4596/Del/2017 4 a. The appellant had no bank account since several years. b. It's only asset is a prime land in Lucknow and the appellant did not commence any real estate business though it has projects pending execution. c. Therefore all the entries in the books of the appellant were by means of journal/book entries. 11. The inference of the Learned CIT(A)-36 \"that flow of fund though only through book entries cannot be encouraged as genuine\" appearing in page 8 of 9, paragraph 7.2 is against the following case laws. a. Jatia Investments 206 ITR 718 (Kol.) b. Pandian Distributors 259 ITR 428 (Mad.) c. Kerala Transport Company 50 ITD 189 (Ker.) d. Mahendra Kumar Agarwal 142 TTJ 35 (Jai.) 12. The Learned CIT(A)-36 is wrong in ignoring all the materials available with her in drawing an inference that \"in the absence of any evidence of the genuineness\" in paragraph 8, page 9 of 9 which shows the biased mind of the First Appellate Authority, 13. The contents of paragraph 6.6. (page 6 of 9) are eloquent testimony for the justification of share premium of Rs.90/- per share. Vacant land in a prime locality which clear title itself appreciates in value by leaps and bounds and no business whatsoever is ever needed and the land was acquired on 02.06.1998 and shares were allotted at a premium only on 23.03.2012 after 14 years and the appreciation of the land value is tremendous and immeasurable and accordingly share premium at Rs.90/- per share was absolutely justified and the Learned CIT(A)-36 for the sake of dismissing the appeal ignored all the facts, 14. The Learned CIT(A)-36 did not appreciate the fact that share could be allotted for consideration other than in cash and the consideration need not be by cash or by cheque. Such allotment of shares for consideration other than in cash is well recognized by the Companies 5 ITA No.4596/Del/2017 5 Act, 1956/ Companies Act 2013 and therefore allotment of shares against debts due is a valid allotment. 15. The Learned CIT(A)-36, New Delhi could not understand or appreciate the contract of novation as enshrined in section 62 of the Indian Contract Act, 1872. 16. The observations of the Learned CIT(A)-36 in paragraph 7.1. (page 7 of 9) as to \"the assessee could not explain during the assessment or appellate proceedings as to why would the two outside companies invest in the assessee just based on the land value and how they paid the amount of share application in absence of bank account of the assessee\". The above observation / particulars are irrelevant for the assessment year 2012-13 and not connected with the assessment year in question and presumably relates to earlier assessment year. The appellant craves leave to add, amend, substitute any ground or grounds before or at the time of hearing. 3. The assessee has also raised revised grounds of appeal vide his letter dated 30.08.2024 which are as under: 1) That on the facts and in the circumstances of the case the action of the CIT(A) in upholding the addition of Rs.4,06,83,500/- made by the AO u/s 68 of the Act is contrary to the material evidences on record and the addition are arbitrary, excessive and illegal. 2) That and on the facts and in the circumstances of the case the action of the CIT(A) to uphold the addition made by the Assessing Officer of Rs.4,06,83,500/- on account of unexplained cash credit u/s 68 of the Act through journal entry is contrary to the provisions of section 68 and the addition is bad in law. 3) That the order of the Ld. CIT(A) confirming the action of the A.O. is arbitrary. excessive and illegal. 6 ITA No.4596/Del/2017 6 4) That the above grounds of appeal will be argued in details at the time of hearing and the appellant craves leaves to submit additional grounds of appeal if any and or alter, vary, modify or rectify the statement of facts and grounds of appeal at or before the time of hearing. 4. After hearing both the sides and perusal of material on record, we find that the Assessing Officer (in short, the AO) made an addition of Rs. 4,06,83,500/- u/s 68 of the Income Tax Act and confirmed by the Learned CIT(A)-36, New Delhi. The Ld. AR contended in the grounds and revised grounds of appeal that the addition has been made by the AO out of non- understanding and non-appreciation of the voluminous facts and also the provisions of Income-tax Law and other related law like Contract Act, Negotiable Instrument Act etc. He argued that impugned order is nothing but a bundle of contradictions which are clear from the contradictory observations made by the CIT (A) in para 7.2 that “\"Identity and credit worthiness of the share applicant appears acceptable. The genuineness of the transaction is not clearly established.\" And para 7.3 that \"The genuineness of the transaction is not proved at all. Share applicant has shared his identify by filing confirmation letter and copy of IT return is not sufficient to accept the identity of the share applicant and the credit worthiness.\" 7 ITA No.4596/Del/2017 7 5. The Ld. AR submitted that the observation of the Ld. CIT (A) as regards to the non-production of Directors of Dadar Properties and Finance Private Limited (share applicant and the holding company) is totally against Rule 19 of Order XVI of the Civil Procedure Code, 1908 as the party was in Kolkata and the assessment was made at New Delhi, and that the AO wanted the appellant to produce the Director of Dadar Properties vide order sheet entry dated 18.03.2015 and the Director was asked to appear at short notice on 23.03.2015 and further the assessment order itself was framed on 25.03.2015. Thus, the AR submitted that Ld. CIT (A) decision was based on contradictory facts on page 9 where she stated, \"after repeated opportunities given by AO\". The AR submitted that the right course available to the Department was that the income-tax authorities should have issued a commission to another AO who has jurisdiction over the witness at Kolkata, as decided in V. Datchinamurthy Vs. Asst. Director of Inspection (1984), 149 ITR 341 (Mad.), a settled of Law. 6. The Ld. AR objected to the observation of the Ld. CIT(A) on page 2 of 9 (in paragraph 4) quoting the reply of Dadar Properties pursuant to notice under section 133(6) of the Income-tax Act, but for extraneous reasons in page 8 of 9 and 9 of 9, the Learned CIT(A)-36 tries to shift the blame on the appellant. The AR argued that the CIT(A) failed to appreciate that the party 8 ITA No.4596/Del/2017 8 which subscribed to the shares of the appellant on 23.03.2012 acquired 303500 equity shares of the appellant company on 16.11.2007 and it is not known how a party which was genuine on 16.11.2007 at the time of acquisition of shares became non-genuine on 23.03.2012 i.e., at the time of acquisition of further shares. The Learned CIT(A)-36, failed to appreciate that the applicant on 23.03.2012 was the holding company of the appellant. 7. The inference of Ld. CIT(A) in paragraph 7(1), page 8 of 9 as to \"the transaction is equivalent to receiving cash as there is payment of credit through it, though no actual bank account transaction has taken place\" demolishes the theory of non-genuineness of the transaction pertaining to contribution towards share capital. Thus, the Learned CIT(A)-36, cannot blow hot and cold at the same time. The AR has contended that CIT(A) dis not appreciate that in fact and in effect that all the transactions were by means of book entries/journal entry and there was no flow of cash or entries through banking channels at any time and such journal entries /book entries do not come within the purview of section 68 of the Income-tax Act which the Ld. CIT(A) failed to understand or appreciate by observing that a. The appellant had no bank account since several years. b. It's only asset is a prime land in Lucknow and the appellant did not commence any real estate business though it has projects pending execution. 9 ITA No.4596/Del/2017 9 c. Therefore all the entries in the books of the appellant were by means of journal/book entries. 8. From the record, we find that the Ld. CIT (A) has ignored the material available with her in drawing an inference that \"in the absence of any evidence of the genuineness\" in paragraph 8, page 9 of 9 is not justified on the part of the First Appellate Authority. In our view, the Ld. CIT (A) is expected to be fair and justified in arriving at the decision by martialing and analyzing the true facts of each case after considering the submission of the assessee after affording due opportunity of being heard. 9. Considering the peculiar facts of the present case, we deem it appropriate to restore the matter back to the file of the Ld. CIT (A) to examine the matter afresh on the issue challenged in the grounds of appeal regarding the justification of share premium of Rs.90/- per share with reference to the appreciation of the land value by appreciating the fact that whether share could be allotted for consideration other than in cash. Needless to say that the assessee shall cooperate before the 1st appellate authorities to explain why would the two outside companies invested in the assessee company based on the land value and how they paid the amount of share application in absence of bank account of the assessee if any. 10 ITA No.4596/Del/2017 10 10. Without prejudice to the above, we make it clear that we have expressed no view on merits of the case, and therefore, the Ld. CIT(A) shall be at liberty to take independent decision without being influenced by any of our observation given herein above. 11. In the backdrop of the aforesaid discussion, the impugned order is set aside and matter is restored to the file of the Ld. CIT (A) to adjudicate the matter de novo on merits of the case, in according with law. 12. In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced on 21/03/2025 in accordance with the Rule 34(4) of Income Tax (Appellate Tribunal) Rules, 1963. Sd/- Sd/- (VIKAS AWASTHY) (DR. MITHA LAL MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER *Mohan Lal* Dated: 21.03.2025 Copy forwarded to: 1.Appellant 2.Respondent 3.CIT 4.CIT(Appeals) ` 5.DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI "