Income Tax Appellate Tribunal - Kolkata
M/S Rkb Securities Ltd., Kolkata vs I.T.O.,Ward-12(2), Kolkata on 8 November, 2019
आयकर अपील य अधीकरण, यायपीठ - "B" कोलकाता,
IN THE INCOME TAX APPELLATE TRIBUNAL
KOLKATA BENCH "B" KOLKATA
Before Shri J.Sudhakar Reddy, Accountant Member and
Shri S.S.Godara, Judicial Member
ITA No.1144/Kol/2019
Assessment Year: 2012-13
M/s RKB Securities Ltd., बनाम Income Tax Officer Ward-
19, Banamali Ghosh Lane, / 12(2), Aayakar Bhawan,
LP 114/7/1, Kolkata-54 V/s . 7 t h Floor, P-7,
[PAN No.AABCR 1412 P] Chowringhee Squre,
Kolkta-700 069
अपीलाथ /Appellant .. यथ /Respondent
अपीलाथ क ओर से/By Appellant Shri S.M.Surana, Advocate &
Shri Abhishek Bansal, FCA
यथ क ओर से/By Respondent Shri Radhey Shyam, CIT-DR
सुनवाई क तार ख/Date of Hearing 23-10-2019
घोषणा क तार ख/Date of Pronouncement 08-11-2019
आदे श /O R D E R
PER S.S.Godara, Judicial Member:-
This assessee's appeal for assessment year 2012-13 arises against the Principal Commissioner of Income Tax-4, Kolkata's order dated 15.03.2019 involving proceedings 263 of the Income Tax Act, 1961; in short 'the Act'.
Heard both the parties. The assessee's twin paper book(s) containing case records as well as judicial precedents running into 272 and 101 pages; respectively stand perused.
2. We advert to the basic relevant facts. This appears to be second round of sec. 263 revision proceedings between the parties. The assessee is an NBFC "Non Banking ITA No.1144/Kol/2019 Assessment Year 2012-13 M/s RKB Securities. Ltd. Vs ITO Wd-12(2), Kol. Page 2 Financial Company". It filed its return on 25.03.2012 stating total income of ₹7,310/-. The Assessing Officer completed his regular assessment on 31.03.2015 assessing its total income of ₹51,05,42,310/- thereby adding share capital / premium of ₹51,05,35,000/- as unexplained cash credits u/s. 68 of the Act. The CIT thereafter initiated sec. 263 revision proceedings. The same stood culminated in his revision order in former round dated 30.11.2016 holding the above stated regular assessment as erroneous causing prejudice to the interest of the revenue since the Assessing Officer had not verified genuineness of the investments made in the assessee's shares as well as its purchases of unquoted shares in various private limited companies alongwith loans and advances. The said former revision order dated 30.11.2016 forms part of paper book in pages 25 to 28. The CIT further observed that the assessee had discharged its onus of proving identity, genuineness and creditworthiness of the share capital / premium involving varying sums raised from six entities M/s Ahalya Builders and Constructions Pvt. Ltd., Aroma Tradecom Pvt. Ltd., Balaji Turnkey Project Solutions Pvt. Ltd., Compact Commodeal Pvt. Ltd., Golden Investment Management Pvt. Ltd. & Ratnagiri Commercial Pvt. Ltd. The CIT therefore directed the Assessing Officer to frame afresh assessment.
3. Case file suggests that the Assessing Officer took up consequential assessment proceedings in issue. The assessee had not only filed all the documentary evidence of six foregoing investors entities but also it produced the concerned directors before the Assessing Officer. We find from the assessee's former paper book that Assessing Officer issued detailed notice(s) u/s 142(1) of the Act to all the six investor entities on 08.12.2016 followed by u/s 133(6) / 131 process to their directors who appeared and deposed in assessee's favour. Their statements, Assessing Officer's order-sheets, assessee's agreement(s)with the investors entities, its detailed explanation regarding statement of shares purchased / corresponding investments and justification of the share premium in letter dated 16.12.2016 stand completed in the above stated detailed paper book. The Assessing Officer observed in his latter assessment order dated 20.12.2016 that the assessee had successfully proved identity, genuineness and creditworthiness of its six investors regarding share application / premium amount of ITA No.1144/Kol/2019 Assessment Year 2012-13 M/s RKB Securities. Ltd. Vs ITO Wd-12(2), Kol. Page 3 ₹51,05,35,000/-. It is the said assessment which stands revised in the PCIT's revision order under challenge in the instant lis to be suffering from lack of inquiry as under:-
"The contention of the Assessee is not acceptable. The assessee company is trying to prove that the identity, genuineness and creditworthiness of the transaction was proved with the ROC records and bank account of the share subscriber and assessee company as well as confirming of the transaction by the share subscriber. Creditworthiness is proved from the Annual report and ITR submitted during the course of Re-assessment. As this is a judicially settled proposition to satisfy the requirement of Sec 68 of the Act, hence no further investigation is needed in this fully settled matter. Ld. A/R has stated that the assessee has discharged its obligation by submitting the details as called for thereby discharged its primary duty of proving the credit of share capital in its books and the same was also allowed by the Assessing Officer.
It would be worthwhile to mention here that the assessee's duty to establish that the amounts of cash credit does not cease by merely furnishing the names, addresses and PAN particulars, or relying on entries in a Registrar of Companies website. It would be worthwhile to mention here that the assessee company is a Private Limited Company, which is barred by law to opt for general issue of shares thus it can be inferred that the share applicant are known to it, since they are issued on private placement. If the assessee has access to the share applicant's PAN particulars, or bank account statement, surely its relationship is closer than arm's length. Under such a backdrop, the Assessing Officer was supposed to look beyond the extent of what is apparent. The enquiries should have been conducted more extensively by including the issue of viability of alleged transaction vis-à-vis the financials of the investor companies into the scope of investigation, but unfortunately the same was not done.
4.1 However, on perusal of the Assessment record, it is observed that Pr. CIT-4, Kol, has set aside the order u/s 144/143(3) of the Act for De-novo assessment with an intention to verify the issue of share capital credit in the books of the assessee, which was remained unverified for non-compliance on the part of the assessee company. It is also observed that though relevant documents were collected from the share subscribers the same were not verified judiciously from the angle of financial capabilities of the share subscribers to invest in the shares at a high premium of an entity which has no exponential business of worth mentioning. From above it can be concluded that the Assessing Officer has accepted and allowed the claim for the assessee without going into examine the authenticity of the claim by scrutinizing the material that were brought in record. it is evident that the bank accounts of the share subscriber companies were not analyzed properly and the source of the fund generated there in was required to be looked into which was not done.
4.2 Moreover, the Assessing Officer being a quasi -judiciary authority was supposed to enquire into the mater judiciously under prevailing circumstances, as there are many instances throughout the country, especially in Kolkata region where the companies were reported to have taken bogus accommodation entry in the form of share capital to bring in there unaccounted money. The AO also failed to examine the reason for charging such huge premium. The AO further failed to examine the directors on oath regarding the genuineness of controlling interest and also not ITA No.1144/Kol/2019 Assessment Year 2012-13 M/s RKB Securities. Ltd. Vs ITO Wd-12(2), Kol. Page 4 examined the bank statement to trace out the money trail to ascertain the genuineness of source of fund invested by shareholders. Thus the impugned order suffers from lack of enquiry making the same erroneous so as prejudicial to the interest of revenue.
4.3 On perusal of the Assessment record, it is also apparent that no enquiry was made to rule out the possibility of the transaction being illusive and sham and the activity being an attempt to launder black unaccounted income. no enquiry had been made to ascertain whether the investors had sufficient income of their own to enable them to have the capacity to make impugned investment. The Assessing Officer has failed to enquire into the gaping holes manifests in the-By not doing so, the assessment order suffers from infirmity as above which has made the assessment order erroneous in so far as prejudicial to the interest of revenue.
4.4 It would be worthwhile to mention here that, some dummy/shell companies had made it a common practice to introduce unaccounted money by way of share capital which returns to in a circuitous way through layering of bank accounts in exchange of certain commission. The share capital is introduced by rotating the money to dummy companies which have been created solely for this purpose. The Directors of such companies are more often than not low paid employees such as peons, darbans, drivers or other persons of humble means. The modus operandi for introduction of unaccounted money as share capital is that unaccounted cash is deposited in the bank accounts of different persons/companies. Thus, under such a backdrop, when the Assessing Officer has information that the assessee has raised fund through issuance of share capital by issuing shares at such a high premium, this should have raised suspicion of the Assessing Officer In fact, such high premium is not commanded even by blue chip quoted companies. Thus the Assessing Officer was expected to make independent enquiries to trace out the genuineness of the claim. Under such a scenario, the AO is duty bound to carry out through & detailed inquiries and go beyond the layers created by the so called "entry operators" so that it may be established that the share capital is genuine."
4.5 From the discussion above, it is evident that the facts, figures, evidences available on records to decide the case on merits did not find place in assessment order. The AO also failed to examine the veracity of the reason that weighted with the investors, in absence of any history of the concern to generate substantial return on capital to prompt them to pay usually high share premium. How the share premium has been fixed at high value is not forthcoming. By not conducting any enquiry to ascertain and examine the crucial facts as above, severe prejudice to revenue has been caused and also the assessment order suffers from infirmity due to lack of proper and adequate enquiry.
4.6 Thus from the above facts, I am of the opinion that the impugned Assessment order passed u/s 143(3)/ 263 of the Act is erroneous so far as prejudicial to the interest of revenue. The interests of the revenue are not to be equated to superficially examine the inflow and outgo of money but to go much deeper to unearth the true colour and contour of transactions. Further, shall be prejudicial to the interest of revenue (Revenue Administration). Therefore the impugned Assessment order stands erroneous so far as prejudicial to the interest of revenue.
ITA No.1144/Kol/2019 Assessment Year 2012-13M/s RKB Securities. Ltd. Vs ITO Wd-12(2), Kol. Page 5 The Assessing Officer is required to carry out proper examination of the books of account including bank accounts of assessee as well as investors and make a fresh assessee AO is also required to examine the genuineness of source of fund appearing in the nomenclature of share capital including premium and nature of transactions, identity of investor and its genuineness. Assessing Officer is further required to complete the assessment on the basis of outcome of enquiry. The submission of the assessee also doesn't clarify the actual investigation done as per the above points raised in the above Paras. Thus such non-consideration or omission of that point by the Assessing Officer in the Assessment order in this regard is considered as erroneous and prejudicial to the interest of revenue.
4.7 Further, the AO failed to examine the above facts in judicious manner. Thus, the impugned Assessment order passed u/s.143(3) / 263 of the Act on suffers from lack of enquiry / inadequate verification, making the order erroneous so far as prejudicial to the interest of revenue. As regards the plea of the Ld. A/R of the assessee could be judicially examined only after bringing on record full facts which the AO has failed to do at the time of assessment proceedings.
4.8 Thus during assessment proceedings, in addition to conduct enquiries for identity, creditworthiness and transaction of shareholder, AO has to verify following documents / details to check the genuineness of transactions. But he did not verify those relevant documents and accepted the documents / details furnished by assessee as it was.
A. How prices are shares determined, how and where negotiation have been done B. Is there any business/personal relation with investing party directly or indirectly.
C. Minutes of board, meeting for issue/share application.
D. Lasts 3 years details of company in following format:
AY Profit of Equity Share Net worth Book
your shares premium value
company
E. Basis of fixing share premium all documents of meeting/advice/consultant advice.
F. Copy of all minutes of meeting of related financial year and copy of board resolution.
G. Resolution authorizing issuance of share under section 81(1A) of companies Act, when sent to ROC.
H. Date of issue of share application form.
I. Attendance register of AGM.
ITA No.1144/Kol/2019 Assessment Year 2012-13M/s RKB Securities. Ltd. Vs ITO Wd-12(2), Kol. Page 6 J. Share certificate.
K. Proof of communications to shareholders.
L. Proof of dispatch of share certificates.
M. Date on which issue was approved by passing of special resolution of AGM.
N. Date of execution of share application forms.
O. Copies of share application forms/letters received and share allotment letters.
4.9. 1st Assessment Order in this case was found erroneous and prejudicial to interest of revenue by PcIt-4, Kolkata. Hence PCIT-4 vide his order u/s. 263 dtd. 30-11-2016 directed AO to conduct sufficient amount of enquiries and finalize the ordered accordingly. Intention of said order u/s. 263 of the Act was to strengthen the assessment order passed dtd.31.03.2015, as it could stand the test of judicial proceedings. But subsequent order passed by the AO u/s 143(3) was made without conducting proper enquiries of transactions and creditworthiness of investors AO ought to have. Any order passed subsequent to order u/s. 263 must be in favour of revenue. Either earlier assessed income should be enhanced or should be same as earlier order but with enhanced enquiries so that addition should be strengthen to pass in appellate proceedings. But here the assessment order passed u/s.143(3) r.w.s. 263 was erroneous as addition made u/s. 68 on account of unexplained share capital//premium was allowed in favour of the assessee without taking sufficient enquiry.
5. Here is a case where a privates limited company has obtained share premium much more than its share value. In a recent judgment of Kerala High Curt [2018] 90 taxmann.com 43 it has been held that:
"In a case of a company in which public is not substantially interested, any premium received by said company on sale of shares, in excess of its face value, would be treated as income from other sources."
5.1 On excessive share premium in a recent judgment by Mumbai ITAT in case of Pratik Syntex (P) Ltd. it was held that:
"Where AO made addition to assessee's income under sec. 68 in respect of amount received as share capital. In view of the fact assessee could not even give correct address of share applicant companies and moreover such companies were not in a financial position to subscribe to shares issued at a huge premium, impugned addition was to be confirmed."
5.2 In the case of M/s Rajmandir Estates Pvt Ltd vs. CIT the honorable Calcutta High Court has concluded the issue of share capital / premium received from such shell companies stating as under:
ITA No.1144/Kol/2019 Assessment Year 2012-13M/s RKB Securities. Ltd. Vs ITO Wd-12(2), Kol. Page 7 "a) Promoters/directors have the object of creating large capital base by private placement of shares to private limited companies, but in fact these companies are mere paper companies having no real worth.
b) The identity of the shareholder company is known but the transactions was not genuine transaction.
c) The transactions were nominal and not real. The creditworthiness was not established as they did not have any fund of their own. Each of them has received fund from somebody and the said somebody form somebody. Prima facie the share holders are name lenders.
5.3 In the case of Commissioner of Income Tax - Vs N.R. Protfolio (P) Ltd. reported in (2013) 2014 Taxman 408 (Delhi) honourable Delhi High Court stated that:
"An assessee's duty to establish that the amounts which the AO proposes to add back, under Section 68 are properly sourced, does not cease by merely furnishing the names, addresses and PAN particulars, or relying on entries in a Registrar of Companies website. One must remember that in all such cases, more often than not, the company is a private one, and share applicants are known to it, since they are issued on private placement, or even request basis. If the assessee has access to the share applicant's PAN particulars, or bank account statement, surely its relationship is closer than arm's length.
In the case of closely held companies, investments are made by known persons. therefore, a higher onus is required to be placed on such companies besides the general onus to establish identity and creditworthiness of creditor and genuineness of transaction. This additional onus, needs to be placed on such companies to also prove the source of money in the hands of shareholder or persons making payment towards issue of share as before such sum is accepted as genuine credit. If the company fails to discharge the additional onus, the sum shall be treated as income of the company and added to its income.
5.4 In a recent judgment on 05.03.2019 in the case of PCIT(Cen)-I, Delhi vs. M/s NRA Iron & Steel Pvt. Ltd., the Supreme Court of India stated that the practice of conversion of unaccounted money through the cloak of Share Capital/Premium must be subjected to careful scrutiny. This would be particularly so in the case of private placement of shares, where a higher onus is required to be placed on the assessee since the information is within the personal knowledge of the Assessee. The Assessee is under a legal obligation to prove the receipt of share capital/premium to the satisfaction of the AO, failure of which, would justify addition of the said amount to the income of the Assessee.
5.4.1 In the said judgement Apex Court laid down the principles which emerge where sums of money are credited as Share Capital / Premium are:
"i. The assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors, and creditworthiness of the investors who should have the financial capacity to make the investment in question, to ITA No.1144/Kol/2019 Assessment Year 2012-13 M/s RKB Securities. Ltd. Vs ITO Wd-12(2), Kol. Page 8 the satisfaction of the Assessing Officer, so as to discharge the primary onus. 14 (2007) 158 Taxman 440 15 [2008] 307 ITR 334 23 ii. The Assessing Officer is duty bound to investigate the creditworthiness of the creditor / subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name-lenders.
iii. If the enquiries and investigation is reveal that the identity of the creditors to be dubious or doubtful, or lack creditworthiness, then the genuineness of the transaction would not be established. In such a case, the assessee would not have discharged the primary onus contemplated by Section 68 of the Act.
6. The power of revision by the CIT u/s.263 of the Act is very wide and it is in the nature of supervisory jurisdiction. It is well settled that incorrect assumption of facts or application of law satisfies the requirement of law i.e. order being erroneous & prejudicial to the interest of the revenue. The order passed by the AO without application of mind or order showing apparent error of reasoning or the order where the AO simply accepts where the assessee stated in his return of income and fails to make the enquiries which are called for in the facts and circumstances of the case will also call for intervention u/s 263 of the Act by the CIT/Pr.cit. I is a trite law that the disclosure of facts by the assessee in the return of income and / or in the course of assessment proceedings cannot give immunity from revisional jurisdiction of the CIT / PR. CIT u/s.263. In this context, it may be mentioned here that in the case of Commissioner of Income tax, Central-I Kolkata Vs. Maithan International, it was held by Calcutta High Court [2015] 56 taxmann.com 283 (Calcutta) that "It is not the law that the Assessing Officer occupying the position of an investigator an adjudicator can discharge his function by perfunctory or inadequate investigation. Such a course is bound to result in erroneous and prejudicial order. Where the relevant enquiry was not undertaken, as in the case, the order is erroneous and prejudicial to and therefore revisable. Investigation should always be faithful and fruitful. Unless all fruitful areas or enquiry are pursued the enquiry cannot be said to have been faithfully conducted."
6.1 The Hon'ble Supreme Court, further, in the case of Rampyari Devi Saraogi Vs. CIT (1968) 67 ITR (SC) and Smt. Tara Devi Aggarwal Vs. CIT (`1973) 8B ITR 323 (SC) has held that in absence of proper enquiries, the assessment order would become erroneous and prejudicial to the interest of the revenue.
6.2 The Hon'ble Delhi High Court in the case of Gee Vee Enterprise Vs Addl. CIT (1975) 99 ITR 375 has also held as under:-
"The reason is obvious. The position and function of the income tax officer is very different from that of a Civil Court. The statements made in a pleading proved by the minimum amount of evidence may be accepted by a Civil Court in the absence of rebuttal. The Civil Court is neutral. It simply gives decision on the basis of pleading and evidence which comes before it. The income tax officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of return which is apparently in order but calls for further ITA No.1144/Kol/2019 Assessment Year 2012-13 M/s RKB Securities. Ltd. Vs ITO Wd-12(2), Kol. Page 9 enquiry. It is his duty to ascertain the truth of facts stated in the return when the circumstances of case are such as to provoke an enquiry. The meaning to be given to the word "erroneous" in section 263 emerges out of this context. It is because it is incumbent on the income tax officer to further such an enquiry prudent that the word "erroneous" in section 263 includes the failure to make such an enquiry. The order becomes erroneous because such an enquiry has not been and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct."
6.3. In view of the facts and the legal position stated above, I am of the view that the order passed on an incorrect assumption of facts or incorrect application of law and without making requisite inquiries will satisfy the requirement of the order being erroneous and prejudicial to the interest of the revenue within the meaning and scope of Section 263 of the Income Tax Act,1961.
6.4 The afore stated decisions postulate that when the officer is expected to make an inquiry of a particular item of income and if he does not make an inquiry as expected, that would be ground for the Commissioner to interfere with the order passed by the Officer since such an order passed by the Officer is erroneous and prejudicial to the interests of the Revenue (K.A. Ramaswamy Chettiar V. CIT (1996) 220 ITR 657). 6.5 Learned. A/R has referred to some case laws in his submission, the same has been considered. As they are clearly distinguishable and not applicable to the facts of the assessee hence the said case laws are not acceptable.
7. In my considered opinion, this is a cases of lack of enquiry on the part of the AO. Not collecting the full facts and not taking enquiry to logical end which could enable AO to take decision based on the totality of facts makes this order erroneous in so far as it is prejudicial to the interest of revenue in accordance with the Explanation 2(c) below section 263 of the Act. Accordingly, the issue is set aside to the table of AO. The AO is directed to provide reasonable opportunity to the assessee company to produce documents & evidences which it may choose to rely upon for substantiating its own claim. The AO is further directed to adjudicate the said issue De-novo and pass a fresh Assessment order in accordance with relevant provisions of law."
4. Learned authorized representative first of all narrated all the developments in the twin rounds of assessment(s) as well as revision proceedings. He submitted that the PCIT herein has erred in law and on facts in exercising his revision jurisdiction despite the fact that the Assessing Officer had accepted the assessee's share application / premium in issue to have satisfied all the three parameters of identify, genuineness and creditworthiness of the six investors. He placed strong reliance on the CIT's revision directions in former round (supra) the assessee had duly discharged its onus by filing all necessary evidence before Assessing Officer case law Bariuns Chemical Ltd. and Another vs. A.J. Rana and Others (1972) SCC (1) 240 regarding interpretation of the clinching statutory expression "considers" employed in the ITA No.1144/Kol/2019 Assessment Year 2012-13 M/s RKB Securities. Ltd. Vs ITO Wd-12(2), Kol. Page 10 statute sec.263 of the Act, case law M/s Gemini Oils Pvt. Ltd. vs. The ITO-2(1)(4) Mumbai ITA No.2563/Mum/2005 decided on 31.10.2012 regarding nature and scope of such a de novo assessment in light of the CIT's specific directions (supra) in revision proceedings; is also cited in support. Learned counsel then takes us to assessee's latter paper book containing compilation of following judicial precedents:-
Sl. No. Cases 1 CIT vs. Sohan Lal Sighania 235 ITR 616 (All) 2 Jatia Investment Co. vs. CIT 206 ITR 718 (Cal) 3 CIT vs. Pancham Dass Jain 205 CTR 444 (All) 4 CIT vs. Godavari Sugar Mills Ltd. 203 ITR 773 5 H.H. Sri Rama Verma Vs. CIT 187 ITR 308 (SC) 6 CIT vs. Gopal Krishna Singhania 121 ITR 260 (All) 7 Saru Smelting & Refining Corpn. (P) Ltd. vs. CIT 116 ITR 766 (All) 8 Kantilal & Bros. Vs. ACIT 521 ITD 412 (Pune Bench) 9 ACIT, CC-15 Vs. Paras Healthcare Pvt.Ltd. (ITA No.2207/Del/2012) 10 Vijaipat Singhania Vs. CIT 193 ITR 274 (SC) 11 ITO Ward-46(1) Kolkata Vs. Shri Anupam Nandi (ITA No.774/Kol/2012) 12 V.R. Global Energy (P) Ltd. Vs. ITO Corporate Ward-3(4), Chennai (2018) taxmann.com 647 (Mad) 13 ITO Ward-13(1), Kolkata Vs. Anand Enterprises Ltd. Nandi (ITA No.1614/Kol/2016 dated 26.09.2018 14 ABA Earthline Communications Ltd. Vs. Ito Ward-1(4), Kolkata (ITA No.1141/Kol/2017 dated 09.11.2018 15 ITO Ward-10(1), Kolkata Vs. Sunglow Dealcom Pvt. Ltd. (ITA No.2178/Kol/2016 dated 16.11.2018 16 ITO Ward-1(4), Kolkata Vs Kaner Investments, Ltd. (ITA No.2095/Kol/2017) dated 23.01.2019 17 ITO Ward-5(3), Kolkata Vs. Bhagwat Marcom Pvt. Ltd. (ITA No.2236/Kol/2017) dated 31.07.2019
It is accordingly prayed that the PCIT's revision order under challenge is not sustainable since the Assessing Officer's latter assessment is neither erroneous nor prejudicial to the interest of the Revenue as per hon'ble apex court's landmark decision in Malabar Industrial Co. Ltd. vs. CIT (2000) 243 ITR 83 (SC).
ITA No.1144/Kol/2019 Assessment Year 2012-13M/s RKB Securities. Ltd. Vs ITO Wd-12(2), Kol. Page 11
5. Learned CIT-DR strongly supports the PCIT's assumption of revision jurisdiction in facts of the instant case. He submits that the former round of revision proceedings could not be interpreted as going in assessee's favour since the purpose thereof is to make it sure that the Assessing Officer's earlier assessment is not erroneous causing prejudice to the interest of revenue. He buttress the PCIT's findings under challenge that the Assessing Officer had not conducted the due enquiries as stipulated u/s 263(1) Explanation to 2(a) of the Act. And also that the assessee's all six investors are not genuine since they had not carried out any business activities going by the assessee's evidence itself forming part of case record. Mr. Radhey Shyam quotes VISP (P) Ltd. Vs. CIT (2004) 186 CTR 718 (MP) and hon'ble Karnataka judgment Smt. Rekha Krishnaraj vs. The Income Tax Officer Ward-1 Hospet ITA No.811 of 2009 dated 13.03.2013 that it is for the assessee to prove genuineness of the cash credits. Our attention is time and again invited to the fact that various recent judicial precedents taken note of in the PCIT's revision order under challenge indicate a paradigm shift on the issue of bogus share capital / premium involving accommodation entry providers. He therefore seeks to affirm the PCIT's assumption of revision jurisdiction under challenge.
6. We have heard rival contentions. The assessee's detailed paper book(s) in pages 238 to 249 investment agreements with all the six investors; involving varying sums; respectively. We find that the assessee as well as all the six parties had swapped their shares than passing any cash credits in the respective accounts of all the six parties. They had not exchanged any consideration since the parties transferred their shareholdings to each other. This clinching fact has nowhere been rebutted at the Revenue's behest. Learned CIT-DR's strongly contended that this issue cannot be raised in the instant second round of revision proceedings. We find no force in the Revenue's instant plea since the assessee had objected to the CIT's former revision proceedings qua the instant legal aspect as it is evident from a perusal of said order dated 30.11.2016 in page 26 in the paper book. The question as to whether such a swapping of shares invites unexplained cash credits addition u/s. 68 or not stands ITA No.1144/Kol/2019 Assessment Year 2012-13 M/s RKB Securities. Ltd. Vs ITO Wd-12(2), Kol. Page 12 answered in assessee's favour in ITO Ward-5(3) Kolkata vs. M/s Bhagwat Marcom Pvt. Ltd. in ITA No.2236/Kol/2017 decided on 31.07.2019 as under:-
"6. We have considered the rival submissions and also perused the relevant material available on record. It is observed that its shares were issued by the assessee company during the year under consideration at premium to certain companies in lieu of the shares held by the said companies and there was thus no inflow of cash involved in these transactions. The said transactions were entered into in the books of account of the assessee company by way of journal entries and it did not involve any credit to the cash amount. The learned DR at the time of hearing has not brought anything on record to rebut or controvert this position. He however has contended by relying on the decision of Hon'ble Madhya Pradesh High Court in the case of V.I.S.P.(P) Ltd. (supra) as well as the decision of Mumbai Bench of this Tribunal in the case of Panna S.Khatau (supra) that section 68 was still applicable in the present case involving credit to the share capital and share premium amount. It is however observed that the facts involved in the case of V.I.S.P. (P) Ltd. were different inasmuch as the liability in question in the said case represented trading liability of the assessee accruing as a result of purchase made by the assessee during the relevant year and since the said liability was found to be a bogus liability, addition made by the AO was held to be stainable by the Hon'ble Madhya Pradesh High Court
7. In the case of Panna S. Khatau (supra) cited by the learned DR, both section 68 and 56(2)(vi) were held to be applicable by the Tribunal but no concrete or cogent reasons were given to justify the applicability of section 68 to the credits not involving any receipt or inflow of cash in the relevant year. Moreover, the view taken by the Tribunal in the said case is contrary to the decision of Hon'ble Calcutta High Court in the case of Jatia Investment Co. (supra) relied upon by the Ld. CIT(A) to give relief to the assessee on issue under consideration in the present case. In the said case, the three NBFCs had taken loans from proprietary concern belonging to the same group. Since the said loans were required to be liquidated as per the RBI guidelines and there was no cash available with the NBFCs to repay the loans, the shares held by the three NBFCs were transferred to a partnership firm namely Jaita Investment Co. and the amount receivable against the said sale of shares as adjusted by the NBFCs against the loan amount payable to proprietary concern. The partnership firm of M/s Jatia Investment Co. thus received shares from the three NBFCs and also took over the loans payable by the said NBFCs to the proprietary concern. These transactions were entered into in its books of account by the partnership firm through cash book by debiting the investment in shares and crediting the loan amount of the proprietary concern. This credit appearing in the books of account of the partnership firm M/s Jatia Investment Co. was treated by the AO as unexplained cash credit u/s. 68 and on confirmation of the same, when the mater reached to the Hon'ble Calcutta High Court, it was held by their lordship that when the cash did not pass at any stage and since the respective parties did not receive cash nor did pay any cash, there was no real credit of cash in the cash book and the question of inclusion of the amount of the entry as unexplained cash credit could not arise. In our opinion, the ratio of this decision of the Hon'ble jurisdictional High Court in the case of Jatia Investment Co. (supra) is squarely applicable in the facts of the present case and the Ld. CIT(A) was fully justified in deleting the addition made by the AO u/s 68 by holding that the said provision was not applicable."ITA No.1144/Kol/2019 Assessment Year 2012-13
M/s RKB Securities. Ltd. Vs ITO Wd-12(2), Kol. Page 13
7. We observe in line with the above extracted detailed discussion that since sec.
68 of the Act is not attracted in facts of the instant case involving swapping of shares of the PCIT's action assuming sec. 263 revision jurisdiction in seeking to add the assessee's share application / premium amount (supra) is We are of the view that even if the latter assessment accepting assessee's share applications / premium is held erroneous the same does not cause any prejudicial to the interest of the Revenue therefore. Hon'ble apex court's landmark decision in Malabar Industrial Co. Ltd. (supra) settled the law long back that the CIT must satisfy himself that the assessment forming the subject-matter of revision simultaneously satisfies both limbs of erroneous as well as causing prejudice to interest of the revenue. We therefore accept assessee's arguments and restore the Assessing Officer's latter assessment order dated 20.12.2016. The PCIT's order under challenge dated 15.03.2019 stands reversed. All other arguments hereinafter are rendered academic.
8. This assessee's appeal is allowed.
Order pronounced in open court on /11/2019
Sd/- Sd/-
(लेखा सद&य) ( या(यक सद&य)
(J.Sudhakar Reddy) (S.S.Godara)
Accountant Member Judicial Member
*Dkp-Sr.PS
)दनांकः- 08/11/2019 कोलकाता / Kolkata
आदे श क त ल प अ े षत / Copy of Order Forwarded to:-
1. अपीलाथ /Appellant
2. यथ /Respondent-
3. संबं,धत आयकर आयु-त / Concerned CIT
4. आयकर आयु-त- अपील / CIT (A)
5. .वभागीय (त(न,ध, आयकर अपील य अ,धकरण कोलकाता/DR, ITAT, Kolkata
6. गाड2 फाइल / Guard file.
By order/आदे श से, /True Copy/ सहायक पंजीकार आयकर अपील य अ,धकरण, कोलकाता ।