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Commissioner Of Income Tax, Kolkata-Iv v. Roseberry Mercantile (P) Ltd.
Factual and Procedural Background
This appeal under Section 260A of the Income Tax Act, 1961 is directed against the order dated May 18, 2010 passed by the Income Tax Appellate Tribunal “A” Bench, Kolkata in ITA No. 2119.Kol/2009 relating to the Assessment Year 2003-04. The revenue preferred the appeal against the order of the learned CIT (A) Kolkata dated September 23, 2009. In the assessment proceedings, it was noticed that the assessee company had received Rs. 4,00,000/- as share capital and Rs. 20,00,000/- as share premium from four shareholders who were private limited companies, totaling Rs. 24,00,000/-. The Assessing Officer called for details from the assessee and the share applicants, found certain abnormal features, questioned the nature and source of the money, and was dissatisfied with the evidence produced. Consequently, the Assessing Officer invoked provisions under Sections 68 and 69 of the Income Tax Act and made an addition of Rs. 24,00,000/- to the income.
On appeal, the CIT (A) allowed the appeal by relying on the Supreme Court decision in C.I.T v. M/s. Lovely Exports Pvt. Ltd., holding that the share capital and premium received were not liable to be treated as unexplained credits under Section 68 and should not be taxed in the hands of the appellant company. The Tribunal subsequently dismissed the revenue’s appeal against the CIT (A) order.
Legal Issues Presented
- Whether the share capital and share premium amounting to Rs. 24,00,000/- received by the assessee company from private limited company shareholders constituted unexplained credits under Section 68 of the Income Tax Act, 1961?
- Whether the transaction was a scheme for laundering black money into accounted money, thus justifying addition under Sections 68/69?
- Whether the assessee had established the genuineness of the transaction to negate the addition made by the Assessing Officer?
Arguments of the Parties
Revenue's Arguments
- The transaction entered into by the assessee was a scheme for laundering black money into white or accounted money.
- The assessee failed to establish the genuineness of the transaction.
- The Assessing Officer’s addition under Sections 68 and 69 was justified due to unsatisfactory evidence and abnormal features noticed in the transaction.
Assessee's Arguments
- The share capital and share premium received were genuine and not liable to be treated as unexplained credits under Section 68.
- Reliance on the Supreme Court decision in C.I.T v. M/s. Lovely Exports Pvt. Ltd. to support the genuineness and non-taxability of the amount.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| C.I.T v. M/s. Lovely Exports Pvt. Ltd. (2008) 216 CTR 195 | Held that share capital/premium received from investors cannot be treated as unexplained credits under Section 68 if genuineness is established. | The court followed this Supreme Court decision to allow the appeal in favour of the assessee, holding that the share capital and premium were not liable to be taxed as unexplained credits. |
Court's Reasoning and Analysis
The court examined the facts and the assessment order where the Assessing Officer had found abnormal features and unsatisfactory evidence regarding the source of Rs. 24,00,000/- received as share capital and premium. However, the court relied heavily on the Supreme Court ruling in C.I.T v. M/s. Lovely Exports Pvt. Ltd., which held that if the genuineness of the share capital is established, it cannot be treated as unexplained credit under Section 68. The court agreed with the Tribunal's conclusion that the facts of the present case were covered by this precedent, and therefore no substantial question of law arose. Consequently, the appeal was dismissed for lack of merit.
Holding and Implications
DISMISSED
The court dismissed the revenue’s appeal, affirming the Tribunal’s decision that the share capital and premium received by the assessee were genuine and not liable to be taxed as unexplained credits under Section 68. The direct effect is that the addition of Rs. 24,00,000/- made by the Assessing Officer was set aside. No new precedent was established; the court applied existing Supreme Court authority to resolve the dispute in favour of the assessee.
This appeal under Section 260A of the Income Tax Act, 1961 is directed against order dated May 18, 2010 passed by the Income Tax Appellate Tribunal “A” Bench, Kolkata in ITA No. 2119.Kol/2009 relating to the Assessment Year 2003-04.
The aforesaid appeal was preferred by the revenue against the order of the learned CIT (A) Kolkata dated September 23, 2009 on the following ground:
“On the facts and in the circumstances of the case, Ld. CIT (A) ought to have upheld the assessment order as the transaction entered into by the assessee was a scheme for laundering black money into white money or accounted money and the Ld. CIT (A) ought to have held that the assessee had not established the genuineness of the transaction.”
It appears from the record that in the assessment proceedings it was noticed that the assessee company during the year under consideration had brought Rs. 4,00,000/- and Rs. 20,00,000/- towards share capital and share premium respectively amounting to Rs. 24,00,000/- from four shareholders being private limited companies. The Assessing Officer on his part called for the details from the assessee and also from the share applicants and analyzed the facts and ultimately observed certain abnormal features, which were mentioned in the assessment order. The Assessing Officer, therefore, concluded that nature and source of such money was questionable and evidence produced was unsatisfactory. Consequently, the Assessing Officer invoked the provisions under Section 68/69 of the Income Tax Act and made addition of Rs. 24,00,000/-.
On appeal the Learned CIT (A) by following the decision of the Supreme Court in the case of C.I.T v. M/s. Lovely Exports Pvt. Ltd., reported in (2008) 216 CTR 195 allowed the appeal by holding that share capital/premium of Rs. 24,00,000/- received from the investors was not liable to be treated under Section 68 as unexplained credits and it should not be taxed in the hands of the appellant company.
As indicated earlier, the Tribunal below dismissed the appeal filed by the revenue.
After hearing the learned counsel for the appellant and after going through the decision of the Supreme Court in the case of C.I.T v. M/s. Lovely Exports Pvt. Ltd. [supra], we are at one with the Tribunal below that the point involved in this appeal is covered by the said Supreme Court decision in favour of the assessee and thus, no substantial question of law is involved in this appeal. The appeal is devoid of any substance and is dismissed. In view of the dismissal of the appeal, the connected stay application is also dismissed.
Urgent photostat certified copy of this order, if applied for, be supplied to the parties subject to compliance with all requisite formalities.
(BHATTACHARYA, J.)
(DR. SAMBUDDHA CHAKRABARTI, J.)
AR[CR]
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