SAPPHIRE DEALMARK PVT. LTD.,KOLKATA V. I.T.O., WARD - 12(3), KOLKATA

ITA 2156/KOL/2024

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Sapphire Dealmark Pvt. Ltd. appealed against the order of the National Faceless Appeal Centre, which confirmed the addition of \\u20b990 lacs to the assessee's income as unexplained cash credit under section 68 of the Income Tax Act. The addition was initially made by the Assessing Officer during the scrutiny assessment, which was contested by the assessee on grounds of procedural and substantive inadequacies in the assessment process. The Tribunal examined the evidences and arguments presented, including the financial documents of the share subscribers for the relevant financial year, and found them adequate to establish the legitimacy of the share capital raised.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 25404 (ITAT-KOLKATA)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2017-2018
• Other Referred Cases: CIT vs. Orissa Corporation Pvt. Ltd. (1986) 159 ITR 0078, Dy. CIT Vs. Rohini Builders [2002] 256 ITR 360
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAMA CHOUDHARY
• Assessee Lawyers: S. K. TULSIYAN; ACCOUNT
• Keywords: Set aside; Question of law; Unexplained cash credit; Unexplained investment
• Section: 143(3); 68; 131; 133(6)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, KOLKATA BEFORE SHRI RAJESH KUMAR, AM AND SHRI SONJOY SARMA, JM ITA No.2156/KOL/2024 (Assessment Year:2017-18) Sapphire Dealmark Pvt. Ltd. 226/1, A.J.C. Bose Road, 3F, Trinity House, Kolkata-700020 West Bengal Vs. ITO, Ward 12(3) Aaykar Bhavan, P-7, Chowringhee Square, Kolkata-700069, West Bengal (Appellant) (Respondent) PAN No. AAPCS7197C Assessee by : Shri S.K. Tulsiyan, AR Revenue by : Shri Rama Choudhary, DR Date of hearing: 13.01.2025 Date of pronouncement : 31.01.2025 O R D E R Per Rajesh Kumar, AM: This is an appeal preferred by the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 14.10.2024 for the AY 2017-18. 02. The only issue raised in the various grounds of appeal is against the confirmation of addition of ₹90 lacs by the ld. CIT (A) as made by the ld. AO towards share capital by the ld. AO by treating the same as unexplained cash credit u/s 68 of the Act. 03. The facts in brief are that the assessee filed the return of income on 31.10.2007, declaring total income at ₹8,63,420/-. The case of the Page | 2 ITA No.2156/KOL/2024 Sapphire Dealmark Pvt. Ltd.; A.Y. 2017-18 assessee was selected for scrutiny through Computer Assisted Scrutiny Selection (CASS) and statutory notices along with questionnaires were duly issued and served upon the assessee. During the instant financial year the assessee has issued 2,07,000 equity shares thereby raising share capital of ₹1,50,00,000/- from five parties the details whereof are given hereunder:- Sl No. Name of Allottee No. of shares allotted Amount invested 1. Good Point Traders Pvt. Ltd. 50,000 30 Lac 2. Innova Commercial Pvt. Ltd. 50,000 30 Lac 3. Aakansha Advisory Services Pvt. Ltd. 1,00,000 30 Lac 4. Sunirmiti Mercantile Pvt. Ld. 40,000 20 lac 5. Arihant Enterprises Ltd. 30,000 18 lac Total 2,70,000 162 Lac 04. During the course of assessment proceeding, the assessee filed in responses/replies to questionnaires issued by the ld. AO filing the copies of PAN Nos, Postal addresses of the subscribers, etc. Besides, the assessee filed its ITR audited accounts, bank statements showing receipt of payments through banking channel, form no.2 for allotment of shares, etc. The ld. AO also issued notice u/s 133(6) of the Act to share subscribers and out of 5 share subscribers only two subscribes namely; Good Point Traders Pvt. Ltd. and Innova Commercial Pvt. Ltd., furnished the reply with the remaining three parties’s replies namely; Aakansha Advisory Services Pvt. Ld., Sunirmiti Mercantile Pvt. Ltd and Arihant Enterprises Ltd. , were received in the office of the ld. AO on 23.12.2019, whereas the assessment was framed vide order dated 21.12.2019. Accordingly, the ld. AO issued show cause notice to the assessee on 17.12.2019, to Page | 3 ITA No.2156/KOL/2024 Sapphire Dealmark Pvt. Ltd.; A.Y. 2017-18 explain why the share application money received from three parties till 20.12.2019, which have not responded to the notice u/s 133(6) of the Act, and finally added the same to the total income of the assessee. The show cause notice was checked by the assessee on the portal only on 19.12.2019, and while the assessee was in the process of preparing the reply of the show cause notice, the ld. AO already passed the order on 20.12.2019, making addition in respect of three parties as stated in above in the assessment framed. 05. Aggrieved assessee preferred an appeal before the ld. CIT (A). However, the same was dismissed by the ld. CIT (A) on the ground that the replies to the notices issue du/s 133(6) of the Act from three parties as stated above, were received on 23.12.2019. However the balance sheet, Profit and Loss account furnished by the parties related to F.Y. 2015-16 instead of F.Y. 2016-17. Since, the application money was received in F.Y. 2016-17, the ld. CIT (A) dismissing the appeal of the assessee by observing as under:- “\"vii. The appellant assessee has stated that, the three share applicants namely Akansha Advisory Services Pvt Ltd, Sunirmiti Mercantiles Pvt Ltd, Arihant Enterprises Ltd has submitted their replies to notice u/s 133(6) of the Income Tax Act 1961 but the said replies reached the Ld AO's officerafter the passing of the impugned order. But then it is noted that, the documents which-were-given to the Assessing officer like Balance sheet, Profit and loss account are pertaining to the FY 2015-16 (for all the three parties) and whereas the Appellant assessee's case is of FY 2016-17. Thus, In this scenario also the appellant assessee has not provided the documents/information asked by the Assessing officer for the relevant AY and in absence of which the Assessing officer has gone ahead and made the addition. Moreover, the contention of the appellant assessee that these parties have sent their replies to the Ld AO after passing of the assessment order cannot be accepted as neither they have submitted the documents in time in response to notice u/s 133(6) of the Act. Further, even the documents/information claimed to have been submitted after the passing of the assessment order by the AO are not relevant to the case for this AY. Page | 4 ITA No.2156/KOL/2024 Sapphire Dealmark Pvt. Ltd.; A.Y. 2017-18 viii. Further, the same evidences have now been submitted before this Appellate authority and which cannot be considered by this authority as they are relevant to the FY 2015-16 and this appeal pertains to the FY 2016-17 relevant to AY 2017-18.\" 11. Aggrieved, the assessee is in appeal before Your Honours.” 06. The ld. AR vehemently submitted before us that the first appellate authority sustained the addition on the ground that the share applicants furnished before the ld. AO the replies to the notice issued u/s 133(6) of the Act on 23.12.2019 and also that the balance sheet and Profit and Loss account for F.Y. 2015-16 were filed , whereas the instant case of the appellant was for F.Y. 2016-17. The ld. AR argued that this is purely in inadvertent mistake on the part of the subscribers. The ld AR placed before the Bench the audited accounts of three applicants namely; Aakansha Advisory Services Pvt. Ltd, Sunirmiti Mercantile Pvt. Ltd. and Arihant Enterprises Ltd. for F.Y. 2016-17. The ld. AR further submitted that even on perusal of the balance sheet for F.Y. 2015-16, it would be amply evident that share applicants were having sufficient funds which were much more than the share application money. Similarly, on the perusal of the current year audited accounts i.e. F.Y. 2016-17, the share applicants were having sufficient funds to invest in the share capital of the assesssee company in the current year as well. Thereafter, the ld. AR filed before the Bench, the share application money received from these parties and net worth as on 31.03.2016 and 31.03.2017 respectively which is available in the Paper Book. The ld. AR submitted that considering the above facts and the documents of the it is quite apparent that these parties were having sufficient creditworthiness. The ld. AR thereafter submitted that the subscribers were regular income tax assessees and therefore, their identity was proven. The ld. Page | 5 ITA No.2156/KOL/2024 Sapphire Dealmark Pvt. Ltd.; A.Y. 2017-18 AR finally submitted that the assessee has filed all the evidences before the authorities below and the notices issued u/s 133(6) of the Act were also replied therefore the addition as confirmed by the ld. CIT (A) is wrong and against the facts of the case on record as assessee has proved the identity and creditworthiness of the subscribers and the genuineness of the transactions. The ld. AR thereafter also referred to the source of source by explaining the source of money in the hands of the share subscribers which was either out of refund of loans or interest on loans or sale proceeds of shares. The ld. also submitted that the Revenue has plenary powers to enforce the attendance of the subscribers and even if though share applicants have not replied to the notices issued u/s 133(6) of the Act on the stipulated time. The ld AR submitted that the ld. AO has even power to issue summon u/s 131 of the Act to the director of these companies. The ld. AR further submitted that even the ld. CIT (A)’s powers are co-terminus with the power of the ld. AO and therefore, the ld. CIT (A) could have assumed the power and issued notice u/s 133(6) of the Act to the share applicants and summons u/s 131 of the Act. In defense of his argument the ld. AR relied on the relied on the decision of Hon'ble Apex court in the case of CIT vs. Orissa Corporation Pvt. Ltd. (1986) 159 ITR 0078. 07. The ld. DR on the other hand strongly opposed the arguments of the ld. DR by submitting that the notices issued u/s 133(6) of the Act were replied only by two subscribers out of total five subscribers and three subscribers who replied the notices u/s 133(6) of the Act were received after passing the order u/s 143(3) of the Act. Even if the reply of the subscribers were presumed to have been received in time Page | 6 ITA No.2156/KOL/2024 Sapphire Dealmark Pvt. Ltd.; A.Y. 2017-18 the said reply contained wrong information such as balance sheet, Profit and Loss account for F.Y. 2015-16 and not for F.Y. 2016-17, which is year under consideration. Therefore, the decision of the ld. CIT (A) may kindly be affirmed by dismissing the appeal of the assessee. 08. After hearing the rival contentions and perusing the materials available on record, we find that in this case the assessee has raised share capital of ₹1,50,000/- through five subscribers during the year. Although the assessee has filed all the evidences as called for by the ld. AO during the assessment proceedings and notices u/s 133(6) of the Act were issued to the subscribers of the shares. We note that out of 5 share subscribers, only two of them replied to the notices and the remaining three subscribers replies were received after the assessment was framed by the ld. Assessing Officer. The ld. CIT (A) simply dismissed the appeal of the assessee on the ground that the replies of three subscribers contained the information i.e. the balance sheet and Profit and Loss account for F.Y. 2015-16, and not for F.Y. 2016-17. The assessee has filed all these information before us for F.Y. 2016-17. After examining the balance sheets of three subscribers namely; Aakansha Advisory Services Pvt. Ld., Sunirmiti Mercantile Pvt. Ltd and Arihant Enterprises Ltd. We find that they have adequate creditworthiness to make investments in the assessee company. Even on the basis of balance sheet and Profit and Loss account for F.Y. 2015-16, the creditworthiness of the assessee’s subscribers could be judged. Therefore, considering the facts on record, we are of the view that assessee has discharged its onus cost upon it by the statute and in our opinion, addition cannot be made mainly on the ground that Page | 7 ITA No.2156/KOL/2024 Sapphire Dealmark Pvt. Ltd.; A.Y. 2017-18 notice issued u/s 133(6) of the Act were not complied with. In the case of Orissa Corporation Pvt. Ltd.(supra), Hon'ble Apex Court has held has under:- \"The assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assessees. Their index number was in the file of the Revenue. The Revenue, apart from issuing notices under s. 131 at the instance of the assessee, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were credit-worthy or were such who could advance the allowed loans. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the assessee could not do any further. In the premises, if the Tribunal came to the conclusion that the assessee has discharged the burden that lay on him then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion is based on some evidence on which a conclusion could be arrived at, no question of law as such arises. It cannot, therefore, be said that any question of law arose in these cases. The High Court was, therefore, right in refusing to refer the questions sought for.\" 09. Similarly, the Hon'ble Gujarat High Court in the case of Dy. CIT Vs. Rohini Builders [2002] 256 ITR 360, after following the decision of Hon'ble Apex court has held as under:- “\"Merely because summons issued to some of the creditors could not be served or they failed to attend before the Assessing Officer, cannot be a ground to treat the loans taken by the assessee from those creditors as non-genuine in view of the principles laid down by the Supreme Court in the case of Orissa Corporation (1986) 159 ITR 78. In the said decision the Supreme Court has observed that when the assessee furnishes names and addresses of the alleged creditors and the GIR numbers, the burden shifts to the Department to establish the Revenue's case and in order to sustain the addition the Revenue has to pursue the enquiry and to establish the lack of creditworthiness and mere non- compliance of summons issued by the Assessing Officer under section 131, by the alleged creditors will not be sufficient to draw and adverse inference against the assessee. in the case of six creditors who appeared before the Assessing Officer and whose statements were recorded by the Assessing Officer, they have admitted having advanced loans to the assessee by account payee cheques and in case the Assessing Officer was not satisfied with the cash amount deposited by those creditors in their bank accounts, the proper course would have been to make assessments in the cases of those creditors by treating the cash deposits in their bank accounts as unexplained investments of those creditors under section 69.\"” Page | 8 ITA No.2156/KOL/2024 Sapphire Dealmark Pvt. Ltd.; A.Y. 2017-18 010. Therefore, considering the facts of the case and the ratio laid down in the above decisions, we are inclined to set aside the order of the ld. CIT (A) by directing the AO to delete the addition. The appeal of the assessee is allowed. 011. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 31.01.2025. Sd/- Sd/- (SONJOY SARMA) (RAJESH KUMAR) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Kolkata, Dated: 31.01.2025 Sudip Sarkar, Sr.PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. CIT 4. DR, ITAT, 5. Guard file. BY ORDER, True Copy// Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Kolkata "