THE PR COMMISSIONER OF INCOME TAX CIT (A) V. M/S jaico realtors pvt ltd

ITA/711/2019

AI Insights

The case involves an appeal by the Income Tax Department against M/s. Jaico Realtors Pvt. Ltd. concerning the assessment year 2008-2009. The primary issues revolved around the creditworthiness of an investor, Shri. Samyak C. Veera, and the legitimacy of investments made in the assessee company. The Assessing Officer had initially treated the investments as unexplained credits under Section 68 of the Income Tax Act, leading to an addition of Rs.4,06,98,779 to the taxable income. However, both the CIT(A) and the ITAT found that the Assessing Officer had not adequately substantiated his doubts about the investor's creditworthiness, especially considering the investor's net income and the nature of the bank transactions involved. The High Court upheld the ITAT's decision, dismissing the Revenue's appeal.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 728338 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 06-03-2023
• Assessment Year: misc
• Other Referred Cases: Principal Commissioner of Income-tax (Central)-1 Vs. NRA Iron and Steel (P.) Ltd.
• Laws Referred To: Income Tax Act 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: H VANI
• Assessee Lawyers: E I SANMATHI
• Keywords: Assessment year 2008-2009; Credit-worthiness; Investment; Unexplained credit
• Section: 148; 143(3); 132; 68; 260-A

Judgement Text

" - 1 - ITA No.711 of 2019 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 6TH DAY OF MARCH, 2023 PRESENT THE HON'BLE MR JUSTICE P.S.DINESH KUMAR AND THE HON'BLE MR JUSTICE C.M. POONACHA INCOME TAX APPEAL NO. 711 OF 2019 BETWEEN : 1. THE PR. COMMISSIONER OF INCOME-TAX, CIT (A) CENTRAL CIRCLE, C.R.BUILDING QUEEN’S ROAD BENGALURU-560 001 2. THE ASST. COMMISSIONER OF INCOME-TAX CENTRAL CIRCLE-1(4) C.R.BUILDING, QUEEN’S ROAD BENGALURU-560 001 …APPELLANTS (BY SHRI. E.I. SANMATHI, STANDING COUNSEL) AND : M/S. JAICO REALTORS PVT. LTD., NO.2650, GROUND FLOOR 37TH B CROSS, 28TH MAIN 9TH BLOCK, JAYANAGAR BENGALURU-560 009 PAN :AABCJ 8421G …RESPONDENT (BY SHRI. H. VANI, ADVOCATE) . . . . Digitally signed by YASHODHA N Location: HIGH COURT OF KARNATAKA - 2 - ITA No.711 of 2019 THIS ITA IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 08.05.2019 PASSED IN ITA NO.1444/BANG/2018 FOR THE ASSESSMENT YEAR 2008-2009 PRAYING TO FORMULATE THE SUBSTANTIAL QUESTION OF LAW STATED THEREIN AND ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL, BENGALURU IN ITA NO.1444/BANG/2018 DATED 08.05.2019 FOR ASSESSMENT YEAR 2008- 2009 ANNEXURE-C CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE ASST. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-1(4), BENGALURU AND ETC. THIS ITA, COMING ON FOR HEARING, THIS DAY, P.S.DINESH KUMAR, J., DELIVERED THE FOLLOWING: JUDGMENT This appeal directed against the order dated 08.05.2019 in ITA No.1444/Bang/2018 passed by ITAT1 has been admitted to consider following questions of law: 1. Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in holding that the Assessing Officer was not justified in holding investor to be not credit worthy? 2. Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in not considering the total aggregate investment claimed to be made by Shri. Samyak C. Veera, the investor to determine as to whether the investor was credit worthy? 3. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside addition made under Section 68 of the Act even when assessee – Company was unable to submit any supporting documents and as 1 Income Tax Appellate Tribunal - 3 - ITA No.711 of 2019 such claim of the assessee was rejected by treating remittance in question as unexplained credit under Section 68 of the Act resulting in addition of Rs.4,06,98,779/-? 2. Heard Shri. E.I.Sanmathi, learned Standing Counsel for the Revenue and Smt. H.Vani, learned Advocate for the assessee. 3. Brief facts of the case are, for A.Y. 2008-09 assessment under Section 143(3) of the Income Tax Act, 19612 was completed. On 05.11.2012, a search under Section 132 of the Act was conducted in the premises of Shri. K.G. Krishna and Group and the residence of one Shri.Chandrakanth Shah. It was noticed by the authorities that huge amounts were introduced as loans from various Companies and assessee was also one such Company. The assessee – Company’s Director is one Mr. Chandrakanth Shah and his son Shri. Samyak C. Veera is a shareholder. On 30.03.2015, a notice under Section 148 of the Act was issued to the assessee and assessment was reopened. Upon receipt of the notice, assessee filed its returns. The assessee was 2 ‘the Act’ for short - 4 - ITA No.711 of 2019 called upon to prove the genuineness of transactions with regard to investments made during the A.Y. 2008-09 along with relevant documentary evidence. The Assessing Officer held that assessee had not furnished any documentary evidence to prove the credit worthiness of the remitter namely Shri. Samyak C. Veera as he had declared huge loss for the year ending December 31, 2003, 2004 and 2006 and accordingly a sum of Rs.4,06,98,779/- shown as receipt towards investment of shares by Shri. Samyak was brought to tax as unexplained credit under Section 68 of the Act and added to taxable income. 4. The CIT(A)3 in his order dated 28.02.2018 has recorded that evidence in the form of Bank accounts were furnished in support of the investment made by Shri. Samyak C. Veera. The entries were available in the said Bank documents of Foreign Bank accounts and transactions were in the nature of inter Bank transfers and accordingly held that it was not a case for the Assessing Officer to invoke provisions under Section 68 of the Act. So far as assessee’s 3 Commissioner of Income Tax (Appeals) - 5 - ITA No.711 of 2019 challenge with regard to invocation of jurisdiction under Section 147 of the Act, the CIT(A) held that there was no infirmity in the order passed by the Assessing Officer. Revenue challenged CIT(A)’s order before ITAT. Assessee also challenged the said order. 5. The ITAT has recorded in para 4 of the impugned order that there were Bank entries dated 31.05.2007 for remittance of USD1,000,006.53 and dated 05.06.2007 for USD equivalent to INR 4,06,98,779/-. Assessing Officer’s specific case is that in view of the loss incurred during 2003, 2004 and 2006, credit worthiness of the remitter was in doubt. The ITAT has noted that Shri. Samyak C. Veera, even after suffering loss for the years 2003, 2004 and 2006 was having net income of USD33,12,256 and had made the remittance of only USD 10 Lakhs and accordingly dismissed Revenue’s appeal on that ground. Consequently, assessee’s appeal was also dismissed as having become infructuous. 6. Shri. Sanmathi, learned Standing Counsel for the Revenue, placing reliance on Principal Commissioner of - 6 - ITA No.711 of 2019 Income-tax (Central)-1 Vs. NRA Iron and Steel (P.) Ltd.,4 submitted that admittedly, the investor had suffered huge loss and hence his credit worthiness was in question. Therefore, despite giving several opportunities, assessee has not satisfactorily proved that Shri. Samyak C. Veera had credit worthiness to make investment in assessee-Company. He submitted that the case on hand is similar to NRA Iron and Steel (P.) Ltd and sought to justify the action of the Assessing Officer. 7. Smt. H. Vani, learned Advocate for the assessee, argued opposing the appeal. 8. We have carefully considered rival contentions and perused the records. 9. The first and second questions of law revolve upon the credit worthiness of the investor. Revenue’s case is that investor had suffered loss during 2003, 2004 and 2006 and therefore, assessee’s claim with regard to his investment in 4 [2019] 103 taxmann.com 48 (SC) (paras 11 & 13) - 7 - ITA No.711 of 2019 the Company was doubtful. We may record that the Tribunal, which is the last fact finding authority has recorded in para 4 of the impugned order that remittances were made on two dates namely 31.05.2007 and 05.06.2007 and both these dates are relevant for A.Y. 2008-09. In para 6 it is recorded that the net income of the investor was USD33,12,256 whereas the remittances are only USD10 Lakhs. There is no other material on record to draw any contrary inference. Therefore, on facts, the Tribunal having recorded as aforesaid, we find no ground to interfere in the Revenue’s appeal insofar as first and second questions are concerned. The third question is, whether the Tribunal was right in setting aside the addition made. The proper course for the Assessing Officer as held in para 11(ii) of NRA Iron and Steel (P.) Ltd. was to investigate the credit worthiness of the creditor and to ascertain whether the transaction was genuine. However, the Assessing Officer has chosen a reverse mode by calling upon the assessee to show that investor was credit worthy. We may record that the investor is none other than the son of the Director. Therefore, the Assessing Officer had all the - 8 - ITA No.711 of 2019 material before him and power to cause proper investigation. Even otherwise, the factual matrix recorded by the ITAT that the remittances were through Bank and as against a net income of USD 3 Million, the remittances are only to the extent of USD 1 Million. In these facts, the third question also does not merit any consideration. 10. In the light of the above, following: ORDER (a) Appeal is dismissed. (b) Questions of law are answered in favour of the assessee and against the Revenue. No costs. Sd/- JUDGE Sd/- JUDGE SPS List No.: 1 Sl No.: 50 "