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Steelex India (P) Ltd., Kolkata v. I.T.O.,Ward-3(2), Kolkata

Income Tax Appellate Tribunal
Sep 9, 2022
Judgment
Subsequent
References
CaseIQ
Case Information
CITATION CODES
citation codes
CASE NO.

ITA 2666/KOL/2019

Attorney(S)

ACTS

INCOME TAX ACT 1961

rule 8D(ii)/(iii) of the Income Tax Rules, 1962

provisions of s. 68 of the Income Tax Act, 1961,

u/s 250 of the Income Tax Act (hereinafter referred

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Tribunal Opinion Summary — ITA No.2666/Kol/2019

Factual and Procedural Background

This appeal arises from an order dated 14.10.2019 of the Commissioner of Income Tax (Appeals)-12, Kolkata (CIT(A)) passed under section 250 of the Income Tax Act, in respect of Assessment Year 2012-13. The appellant is Steelex India (P) Ltd. and the respondent is ITO, Ward-3(2), Kolkata. The Assessee challenged additions made by the Assessing Officer treating a sum of Rs. 1,00,00,000 received as share subscription (share capital including premium) from M/s Lagan Vinicom P. Ltd. as unexplained cash credits under section 68 of the Income Tax Act. The Assessing Officer had required production of personal appearance of directors, bank statements, books of accounts and supporting evidence. Though documents were furnished, the Assessing Officer recorded that directors of the assessee and of the share subscriber were not produced and accordingly treated the amount as unexplained cash credits and made the addition of Rs.1,00,00,000. The CIT(A) confirmed that addition. The matter was heard by the Income Tax Appellate Tribunal, "C" Bench Kolkata, with the hearing concluded on 24 August 2022 and the order pronounced on 9 September 2022. The Tribunal deleted the addition and allowed the appeal.

Legal Issues Presented

  1. Whether the Assessing Officer was justified in treating the share subscription of Rs.1,00,00,000 received from M/s Lagan Vinicom P. Ltd. as unexplained cash credits under section 68 of the Income Tax Act.
  2. Whether the CIT(A) erred in upholding the Assessing Officer's addition under section 68.
  3. Whether the fact that the subscriber-company was itself assessed/subjected to additions in its own assessment proceedings affects the validity of the addition in the assessee's hands (i.e., whether the same amount can be added in both the subscriber's and recipient's hands).
  4. Whether the purported addition of Rs.81,007 under section 14A and the application of rule 8D(ii)/(iii) of the Income Tax Rules, 1962 (as raised in the grounds) was sustainable.

Arguments of the Parties

Appellant's Arguments

  • The assessee had discharged the initial burden to prove identity, creditworthiness of the share subscriber and genuineness of the transaction by filing required documents: copy of return, audited accounts, bank statements and source of investment.
  • The share subscriber, M/s Lagan Vinicom P. Ltd., is a body corporate incorporated on 14 January 2009 (CIN U51909WB2009PTC131974) and is independently assessed to income tax under PAN AABCL5732E; it filed its return for the assessment year disclosing a total income of Rs.1,70,693/-.
  • The balance sheet of Lagan Vinicom P. Ltd., filed with its return, disclosed the share application of Rs.4,00,000 and share premium of Rs.96,00,000 against which 40,000 equity shares were allotted — this investment was disclosed and not disputed in that company's assessment order.
  • Lagan Vinicom P. Ltd. disclosed substantial reserves and surplus (figures shown in the opinion) and there was no cash transaction in its bank account during the relevant previous year; further, the director of the subscriber company complied with summons under section 131 of the Act.
  • The director of the assessee company had appeared before the Assessing Officer and furnished necessary details.
  • The Assessing Officer in the subscriber company's assessment had made an addition of Rs.1,22,50,000 as unexplained credits under section 69A, which, according to the appellant, explains the source of the subscriber's amounts and supports that the investment in the assessee was explainable.
  • The appellant relied on a coordinate-bench Tribunal decision (DCIT vs. M/s Maa Amba Towers Ltd., ITA No.1381/Kol/2015, order dated 12.10.2018) to support the proposition that the same sum cannot be added twice in the hands of the subscriber and the recipient under section 68.

Respondent's (Departmental Representative) Arguments

  • The Departmental Representative (Ld. DR) accepted that if the addition had been made in the hands of the subscriber-company then the same amount could not be added again in the recipient's hands; however, the Ld. DR contended that a "one-to-one" proof — i.e., that exactly the same money alleged as unexplained in the subscriber's hands had been received by the assessee — had not been established.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
DCIT vs. M/s Maa Amba Towers Ltd., ITA No.1381/Kol/2015 (order dated 12.10.2018) The principle that where the investor/subscriber's own assessment or the facts on record show the amounts to be explained/genuinely recorded (or the investor's hands have been adjudicated with respect to those amounts), the same amount cannot be added again in the recipient/payee's hands under section 68 of the Income Tax Act. The Tribunal relied on this coordinate-bench decision to support the conclusion that the addition made in the hands of the subscriber (or the treatment of the subscriber's records) prevents the Revenue from making the same addition in the assessee's hands; applying this principle, the Tribunal found no reason to sustain the addition and deleted it.

Court's Reasoning and Analysis

The Tribunal proceeded through the following steps of analysis as reflected in the opinion:

  1. The Assessing Officer's action: The AO had investigated the share subscription transaction by seeking personal appearance of directors, bank statements, books of account and other supporting documents. The AO recorded that the assessee failed to produce the directors and therefore concluded the assessee had not discharged the burden of proving the identity, creditworthiness and genuineness of the transaction, treating Rs.1,00,00,000 as unexplained cash credits under section 68 and adding it to the assessee's income.
  2. CIT(A) confirmation: The CIT(A) confirmed the AO's addition.
  3. Assessee's production of records and factual pointers: On appeal to the Tribunal, the assessee's counsel pointed out that documents — returns, audited accounts, bank statements, share application details and source explanations — were filed. The Tribunal noted specific factual material placed before it: the subscriber M/s Lagan Vinicom P. Ltd. is a corporate entity with CIN and PAN, filed returns disclosing its income, and in its balance sheet disclosed the share application and premium and substantial reserves and surplus; there were no cash transactions in the subscriber's bank account for the relevant year; further, the director of the subscriber complied with summons under section 131 and the director of the assessee had actually appeared before the AO.
  4. Subscriber's assessment position: The Tribunal took into account that the Assessing Officer in the subscriber company's assessment had made an addition of Rs.1,22,50,000 as unexplained credits under section 69A — a fact relied upon by the assessee to explain the source and to show that the issue had been addressed in the subscriber's assessment proceedings.
  5. Precedential guidance and admission by Revenue: The Tribunal cited a coordinate-bench decision (DCIT vs. M/s Maa Amba Towers Ltd.) holding that the identical sum cannot be added twice under section 68 in the hands of both investor and recipient. The Ld. DR conceded that where an addition has already been made in the hands of the subscriber, the same amount cannot be added again in the recipient's hands; the Ld. DR's remaining contention was that a strict one-to-one tracing proof was not established to show the exactly same money was received by the assessee.
  6. Disposition of the DR's contention and ultimate conclusion: The Tribunal rejected the DR's argument that one-to-one proof was necessary in the circumstances because the Revenue did not dispute that the subscriber company had not invested more than the amount added in its hands. Given the inability of the Revenue to dispute the identity, creditworthiness of the subscriber or the genuineness of the transaction (and the fact that related assessments reflected the subscriber's position), the Tribunal concluded that the addition in the assessee's hands was not sustainable and directed its deletion.

Holding and Implications

Holding: The appeal is allowed and the addition of Rs.1,00,00,000 made by the lower authorities under section 68 is deleted.

Implications:

  • Direct effect: The Tribunal's order deletes the addition made by the Assessing Officer and confirmed by the CIT(A), thereby reducing the tax effect on the assessee for Assessment Year 2012-13 as contested in this appeal.
  • Precedential or broader impact: The Tribunal applied an existing coordinate-bench decision and relied on the factual position in the subscriber's assessment to reach its conclusion. The opinion does not purport to lay down new legal propositions beyond applying the cited precedent and the facts of this case.

Procedural and administrative notes extracted from the opinion: Bench constituted by Shri Sanjay Garg (Judicial Member) and Shri Rajesh Kumar (Accountant Member); hearing concluded 24.08.2022; order dated 09.09.2022. Parties represented as recorded in the order. Copy of the order was directed to be forwarded to the parties and relevant tax authorities as listed in the original order.

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IN THE INCOME TAX APPELLATE TRIBUNAL "C"

BENCH KOLKATA

Before Shri Sanjay Garg, Judicial Member and Shri Rajesh Kumar, Accountant Member I.T.A. No.2666/Kol/2019

Assessment Year: 2012-13

Steelex India (P) Ltd…….………………............................……….……Appellant C/o SN Ghosh & Associates,

Advocates, "Seben Brothers' Lodge,

P.O. Buroshibtala,

P.S. Chinsurah, Dist-Hooghly,

W.B.-712105.

[PAN:AAECS2322Q]

vs.

ITO, Ward-3(2), Kolkata...………..…............……........……...…..…..Respondent Appearances by:

Shri Somnath Ghosh, Advocate, appeared on behalf of the appellant. Smt. Ranu Biswas, Addl. CIT-DR, appeared on behalf of the Respondent. Date of concluding the hearing :August 24, 2022

Date of pronouncing the order : September 9, 2022

ORDER

Per Sanjay Garg, Judicial Member:

The present appeal has been preferred by the Assessee against the order dated 14.10.2019 of the Commissioner of Income Tax (Appeals)-12, Kolkata [hereinafter referred to as 'CIT(A)'] passed u/s 250 of the Income Tax Act (hereinafter referred to as the 'Act'). The assessee in this appeal has taken the following grounds of appeal:

"1.FOR THAT the Ld. Commissioner of Income Tax (Appeals)-12, Kolkata failed to appreciate that none of the conditions precedent existed for and/or were fulfilled by the Ld. Income Tax Officer, Ward 3(2). Kolkata for his specious action of assuming jurisdiction u/s. 68 of the Income Tax Act, 1961 in respect of the share capital received by the appellant in the instant case and the alleged addition in the amount of Rs.1,00,00,000/- upheld under such pretext is therefore ab initio void, ultra vires and ex- facie null in law.

2. FOR THAT on a true and proper interpretation of the scope of the provisions of s. 68 of the Income Tax Act, 1961, the Ld. Commissioner Of Income Tax (Appeals)-12, Kolkata was absolutely in error in upholding the specious addition of Rs. 1.00,00,000/- resorted to by the Ld. Income Tax Officer, Ward 3(2). Kolkata on account of share capital received without considering the matter in the proper perspective and such

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spurious conclusion reached on extraneous considerations not germane to the issue in dispute is absolutely arbitrary, unwarranted and perverse.

3. FOR THAT the specious approach of the Ld. Commissioner of Income Tax (Appeals)- 12, Kolkata of misreading evidence, considering improper facts, failing to consider proper position in law and thus coming to an erroneous finding in sustaining the impugned addition on account of share capital in the sum of Rs. 1,00,00,000/- made by the Income Tax Officer, Ward 3(2), Kolkata on the manifestly wrong application of the provisions of s. 68 of the Income Tax Act, 1961 basing on considerations not relevant to the issue in dispute is wholly illegal, illegitimate and infirm in law.

4. FOR THAT the Ld. Commissioner of Income Tax (Appeals)-12, Kolkata was remiss in sustaining the purported addition to the tune of Rs.81,007/- within the province of s. 14A of the Income Tax Act, 1961 made by the Ld. Income Tax Officer, Ward 3(2). Kolkata by misreading the parameters of rule 8D(ii)/(iii) of the Income Tax Rules, 1962 and the adverse conclusion reached on that behalf in violation of the statutory prescription is completely unfounded, unjustified and untenable in law."

2. Ground Nos.1 to 3 - Vide Ground Nos.1 to 3, the assessee has contested the action of the lower authorities in treating the share subscription of Rs.1,00,00,000/- received by the assessee from the share subscriber M/s Lagan Vinicom P. Ltd. as unexplained cash credits u/s 68 of the Act. During the assessment proceedings, the Assessing Officer investigated about the identity, creditworthiness of the share subscriber and genuineness of the transaction and asked the assessee to furnish the following details:

i) Personal appearance of the directors of the assessee company as well as the directors of the share holding companies who had fresh share application and premium in the said A.Y.

ii) Detailed narration of all debit and credit entries found in the bank statement of F.Y 2011-12.

iii) Bank statement for the said F.Y 2011-12 i.e. A.Y 2012-13

iv) All the books of account and supporting evidences for cross verification. Though the assessee furnished the details as asked for by the Assessing Officer, however, the Assessing Officer noted that the assessee had failed to produce before him the directors of the assessee company as well as directors of the share subscriber company.

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He, therefore, held that the assessee had failed to discharge the burden upon it regarding genuineness of transaction by producing directors of the companies and, therefore, treated the said amount of Rs.1,00,00,000/- as unexplained cash credits and added the same into the income of the assessee u/s 68 of the Act.

3. The ld. CIT(A) confirmed the additions so made by the Assessing Officer.

4. Before us, the ld. Counsel for the assessee has submitted that the assessee has duly discharged the initial burden lying upon it to prove the identity, creditworthiness of the share subscriber and genuineness of the transaction.

The ld. Counsel for the assessee has submitted that the required documents such as the copy of return, audited accounts, bank statement and source of such investment etc. were filed by the assessee. The ld. Counsel for the assessee has further submitted that the Ld. Assessing Officer did not dispute the fact that Lagan Vincom P. Ltd is a body corporate incorporated on 14thday of January 2009 having Corporate Identity Number U51909WB2009PTC131974 and is independently assessed to income tax under Permanent Account Number AABCL5732E and had duly filed its return with its Assessing Authority i.e. the Income Tax Officer, Ward 1(4), Kolkata on 22-03-2013 disclosing a total income of Rs.1,70,693/- for the assessment year under dispute. The ld. Counsel further submitted that in the balance sheet for assessment year under consideration filed by Lagan Vincom P. Ltd. along with the return of income, the share application of Rs.4,00,000/- along with premium of Rs.96,00,000/- paid, against which 40,000 equity shares were allotted by the appellant have been duly disclosed. The investment in the equity shares of the assessee was duly disclosed in the return by Lagan Vincom P. Ltd. was not disputed in the assessment order dated 24-12-2019 framed u/s. 143(3)/147 of the Income Tax Act, 1961. The ld. Counsel has further submitted that the Lagan Vincom P. Ltd. had disclosed an amount of Rs.6,40,47,351/- on account of

"Reserve & Surplus" in its balance sheet as on 31-03-2011 and the amount rose to Rs.6,41,65,300/- as on 31-03,2012. In fact, there is not a single cash transaction in the bank account of Lagan Vincom P. Ltd during the relevant previous year. Further, the director of the said share subscriber had duly made full compliance before the Ld.

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Assessing Officer in response to summons u/s 131 of the Act. In fact, there was no adverse evidence with the Ld. Assessing Officer to conclude the genuine transaction within the scope of unexplained cash credit.

5. The ld. Counsel for the assessee has further submitted that even the director of the assessee company had actually appeared before the Assessing Officer and furnished the necessary details. He has further invited our attention to page 9 of paper book which is copy of the assessment order framed in the case of subscriber company i.e. M/s Lagan Vinicom P Ltd. to submit that the Assessing Officer of that company has made addition of Rs.1,22,50,000/- as unexplained credits u/s 69A of the Act, hence, that explains the source of the amounts in the hands of share subscriber. Therefore, the investment by the said company in the hands of the assessee can be assumed to be explained. The ld. Counsel, in this respect, has also relied upon the decision of the Coordinate Bench of the Tribunal in the case of DCIT vs. M/s Maa Amba Towers Ltd. in ITA No.1381/Kol/2015 vide order dated 12.10.2018 wherein, the Coordinate bench under similar circumstances has made the following submissions:

"We find no merit in the Revenue's instant grievance in the light of relevant facts on record. There is no dispute about the assessee's having declared its share subscription premium from M/s Agrani Credit & Finvest Pvt. Ltd., Crown Mansion Pvt. Ltd., Liberal Infrastructure Pvt Ltd., Darshan Enclave Pvt. Ltd., Snow Fall Impex Pvt. Ltd. involving corresponding sums of ₹27,60,000/-, ₹55,20,000/-, ₹82,80,000/- in case of third and fourth and ₹48,30,000/- in last entity's case; respectively totalling to ₹3,01,00,000/-. Case file suggests that the assessee has placed on record their income tax acknowledgement of the impugned assessment year 2012- 13, directors' report alongwith audited financial statements, explanation regarding source of investments, bank statements, share application forms and board's resolution(s) followed by their respective regular assessment orders pertaining to very assessment year u/s. 143(3) of the Act. Their Assessing Officer(s) made u/s 68 unexplained cash credits additions of share premium amounting to ₹67,03,00,000, ₹44,85,00,000/-, ₹24,42,00,000/- & ₹21,70,00,000/- in case of first four entities and accepted similar credits of ₹20,45,00,000/- to be genuine satisfying all parameters of identity, genuineness and creditworthiness. It can therefore be safely assumed that all these additions sums forming subject-matter of the impugned additions to be accepted as genuine in respective investors entities' end as the source of the amount(s) in issue totalling to ₹3,01,00,000/-. Learned Departmental Representative fails to dispute that the same very amount cannot be added twice in payees and recipients' hands u/s 68 of the Act. We therefore see no reason to accept Revenue's instant former substantive ground. We affirm CIT(A)'s findings under challenge qua the instant former issue.

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6. The Ld. DR before us could not dispute that since the addition has been made in the hands of the subscriber company, then the same amount cannot be added twice in recipient's hands u/s 68 of the Act. However, the ld. DR insisted that one to one transaction that is to say that the exactly same money has been received in the hands of the assessee has not been proved. We do not find merit in the above contention of the ld. DR. It is not the case of the Revenue that the subscriber company has invested more than the amount it was added in its hands. In view of this, since the Revenue could not dispute the identity, creditworthiness of the subscriber as well as genuineness of the transaction, therefore, the addition made by the lower authorities is not sustainable and the same is accordingly ordered to be deleted.

7. In the result, the appeal of the assessee stands allowed. Kolkata, the 9thSeptember, 2022.

Sd/- Sd/-

[Rajesh Kumar] [Sanjay Garg]

Accountant Member Judicial Member

Dated:09.09.2022.

RS

Copy of the order forwarded to:

1. Steelex India (P) Ltd

2. ITO, Ward-3(2), Kolkata

3. CIT (A)-

4. CIT- ,

5. CIT(DR),

//True copy// By order

Assistant Registrar, Kolkata Benches

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