Calcutta High Court
Kolkata vs Wise Investment Private Limited on 6 May, 2025
Author: T.S. Sivagnanam
Bench: T.S. Sivagnanam
ITAT NO. 238 OF 2024
REPORTABLE
IN THE HIGH COURT OF JUDICATURE AT CALCUTTA
SPECIAL JURISDICTION (INCOME TAX)
ORIGINAL SIDE
RESERVED ON: 25.04.2025
DELIVERED ON:06.05.2025
CORAM:
THE HON'BLE THE CHIEF JUSTICE T.S. SIVAGNANAM
AND
THE HON'BLE JUSTICE CHAITALI CHATTERJEE (DAS)
ITAT/238/2024
(IA NO: GA/2/2024)
THE PRINCIPAL COMMISSIONER OF INCOME TAX CENTRAL 1,
KOLKATA
VERSUS
WISE INVESTMENT PRIVATE LIMITED
Appearance:-
Mr. Soumen Bhattacharjee, Adv.
Mr. Ankan Das, Adv.
Ms. Shradhya Ghosh, Adv.
.....For the Appellant.
Mr. Abhratosh Majumdar, Sr. Adv.
Mr. Avra Mazumdar, Adv.
Mr. Kausheyo Roy, Adv.
Ms. Alisha Das, Adv.
Mr. Suman Bhowmik, Adv.
Mr. Samrat Das, Adv.
Ms. Elina Das, Adv.
Mr. Soumendra Nath Banerjee, Adv.
.....For the Respondent.
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ITAT NO. 238 OF 2024
REPORTABLE
JUDGMENT
(Judgment of the Court was delivered by T.S. Sivagnanam, CJ.)
1. This appeal filed by the revenue under Section 260A of the Income
Tax Act, 1961, (the Act) is directed against the order dated 19.11.2023
passed by the Income Tax Appellate Tribunal “B” Bench, Kolkata (tribunal)
in ITA No. 161/Kol/2023 for the assessment year 2012-2013. The revenue
has raised the following substantial question of law for consideration:-
(1) Whether the Learned Tribunal has
committed substantial error in law, in
upholding the action of the CIT(A) in deleting
the addition made u/s 68 of the Act on
account of bogus share capital & premium
amounting to Rs. 32,50,42,000/- ignoring
the Assessing Officer’s remand report dated
20/07/2022 wherein it had been
categorically stated that the share applicant
companies had no credit worthiness to
invest in the assesse company.
(2) Whether the Learned Income Tax Appellate
Tribunal has committed substantial error in
law in ignoring the fact that the CIT(A) had
not taken cognizance of the fact that the
investor companies had filed their income
tax returns showing negligible taxable
income and their reserve and surplus
mostly consisted of share capital?
(3) Whether the Learned Income Appellate
Tribunal has substantially erred in law in
ignoring that CIT(A) held that assesse had
established the identity and
creditworthiness of the share applicants
and genuineness of transaction merely
based on the fact that transaction were
through banking channels, when it been
held by the Jurisdictional High Court in the
case of CIT vs Precision Finance Pvt Ltd that
mere payment by account payee cheque is
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neither sacrosanct nor can it make a non-
genuine transaction genuine which view
has also been endorsed by the Hon’ble
Court again in the case of PCIT vs M/s. BST
Infratech Ltd?
(4) Whether the Learned Tribunal has
committed substantial error in law in
upholding the deletion of the addition u/s
68 of the Act by the CIT(A) while observing
that the investing companies were body
corporates registered with the Registrar of
Companies and individually assessed to
income tax ignoring that, is the same was
not the litmus test to discharge the burden
on the assesse to establish creditworthiness
of the investing companies as well as the
genuineness of the transaction?
2. We have elaborately heard Mr. Soumen Bhattacharyya, learned senior
standing counsel assisted by Mr. Ankan Das and Ms. Shradhya Ghosh,
learned advocates appearing for the appellant revenue and Mr. Abhratosh
Majumdar, learned Senior Advocate assisted by Mr. Avra Mazumder, learned
advocates appearing for the respondent.
3. The revenue is aggrieved by the order passed by the learned tribunal
in affirming the order passed by the Commissioner of Income Tax (Appeals),
Kolkata (CIT(A)) dated 26.12.2022 setting aside the addition made by the
assessing officer under Section 68 of the Act vide assessment order dated
26.03.2020. The assessee filed its return of income for the assessment year
under consideration, 2012-2013, declaring a total income of Rs. 42,000/-.
The case was selected for scrutiny and notice under Section 143(2) of the
Act was issued on 12.08.2013, the assessing officer heard the assessee in
person. Subsequently notice under Section 142(1) of the Act was issued with
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a questionnaire on 15.01.2015 and the assessee was heard. In the opinion
of the assessing officer the share premium as fixed by the assessee was
abnormally high and considering the financial strength of the assessee
company, the genuineness of the share transaction, identity and
creditworthiness has not been established and therefore it justified addition
under Section 68 of the Act. As could be seen from the assessment order
dated 26.03.2015, the assessee had responded to the notices and had filed
documents and the details as called for by the assessing officer. The
assessing officer opined that merely dumping papers and document on the
table of the assessing officer does not in any way mean compliance of the
notice and the burden of proof cannot be shifted on the revenue by cart load
of documents as the documents which have been submitted cannot be
explained.
4. The assessing officer therefore came to the opinion that the assessee
company and the other companies are paper/shell companies and to
channelise the black money the assessee company made its increased
capital and that the amount of share premium including face value which
was found credited in assessee account are unexplained. Accordingly, the
assessment was completed. The assessee carried the matter on appeal
before CIT(A) raising various grounds. The CIT(A) called for a remand report
from the assessing officer upon perusal of the documents and details
furnished by the assessee which documents and details were also placed
before the assessing officer during the assessment. Upon perusal of the
remand report the CIT(A) observed that the assessing officer has examined
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ITAT NO. 238 OF 2024
REPORTABLE
the directors of the assessee company and the share subscribing companies
by recording their statements under Section 131 of the Act and after
examination of the documents filed by the assessee as well as the share
subscriber companies before whom the assessing officer did not point out
any infirmity in the matter relating to the information sought for in respect
of the financial transactions namely identity of shares subscribers,
creditworthiness of share subscribers and genuineness of the transactions.
Further the CIT(A) noted that the assessing officer after independently
examining the directors of the share subscribing companies as well as the
document furnished before him had concluded that the share capital issued
by the assessee is explained. Further the sum was found credited in the
books of the assessee maintained for any previous year. Therefore, the
CIT(A) came to the conclusion that the assessee has offered its explanation
along with complete documentary evidences and produced the directors of
the company for examination and explained the nature and source thereof,
the share capital and premium selected.
5. It is seen from the remand report that the assessing officer was
satisfied about the nature and source of the investment and admitted that
share capital is explained. Therefore, the CIT(A) came to the conclusion that
the question of treating the share premium as unexplained or unjustified is
contrary to law. The CIT(A) also noted that the assessing officer himself has
given a clean chit to the assessee in respect of the share capital collected by
it and that the assessing officer after examining the directors of the share
subscribing company and after making enquiries in respect of the
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ITAT NO. 238 OF 2024
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documents filed before him has recorded its satisfaction about the nature
and source of the credits found in the books of the assessee which was in
the form of the share capital as convincing because the assessee was able to
discharge the onus of providing the identity, creditworthiness and
genuineness of the share capital and therefore the premium received for the
same set of share subscribers cannot be treated as unexplained under
Section 68. The copy of the remand report was furnished to the assessee on
which they submitted their rejoinder on 06.01.2022 as the appellate
authority had changed, the matter was once again taken up for
consideration and second remand report was called which was received by
the CIT(A), copy of which was provided to the assessee.
6. In the second remand report the assessing officer had stated that he
conducted independent enquiries and reported that the director of the
assessee along with the director of 25 out of the 26 share applicants
appeared before him and submitted all evidence. The CIT(A) found that the
enquiry done by the assessing officer were in addition to the field enquiry
already made by the assessing officer at the time of the first remand
proceedings when he had deputed the departmental inspector to conduct
field enquiries in order to ascertain the physical existence of the 26th share
applicant at the addresses provided.
7. The CIT(A) had pointed out that in the course of remand the enquiry
was enlarged to the examination of the principles officers/directors of the
share applicant companies in person and that one of the important factors
which emerged from the remand report is that not only did the assessing
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ITAT NO. 238 OF 2024
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officer conducted enquiry by issuing notices under Section 131 of the Act
but in the first remand stage he went a step further and deputed a
departmental inspector to conduct field enquiry. Ultimately, the CIT(A) had
allowed the assessee’s appeal which was challenged before the learned
tribunal by the revenue and affirmed by the learned tribunal.
8. Mr. Soumen Bhattacharjee, learned senior standing counsel for the
appellant would strenuously contend that the financials of the company
may be looked into for which the learned advocate had elaborately referred
to the details of the share applicant companies and its where with all and
submitted that they are shell companies and the share premium which was
being charged is unduly high and if the test of prudence is applied, it will
clearly indicate that no prudent person would invest in such a company
paying such high share premium. Furthermore, the assessee company has
never declared dividend and it has negligible profit and the most of the
investing companies were incorporated during 2010-2011 and the most
important aspect of the matter which was not considered by the CIT(A) is
with regard to the high share premium. In support of his contention the
learned standing counsel referred to the decision in Commissioner of
Income Tax Versus NR Portfolio Private Limited 1 and Commissioner of
Income Tax Versus Navodaya Castles Private Limited 2. It is submitted
that the decision in the case of Navodaya Castles Private Limited was
affirmed by the Hon’ble Supreme Court as reported in [2015] 56
taxman.com 18 (SC).
1
[2014] 42 taxmann.com 339 (delhi)
2
[2014] 50 taxmann.com 110 (delhi)
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ITAT NO. 238 OF 2024
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9. The learned senior advocate appearing for the respondent submitted
that the aspect regarding whether the investor companies were live was
never an issue which was raised before the tribunal or before the CIT(A) and
such contention cannot be raised by the learned advocate appearing for the
department before this court for the first time. Furthermore, with regard to
the alleged high share premium, the same was considered by the assessing
officer while submitting his remand report and the CIT(A) has also discussed
the matter thoroughly on facts and therefore it is incorrect on the part of the
revenue to contend that this aspect of the matter was never considered by
the CIT(A).
10. The learned senior advocate has drawn our attention to the various
paragraphs of the order passed by the CIT(A) dated 26.12.2023. In support
of his contention, reliance was placed on the decision in Principal
Commissioner of Income Tax Versus Chain House International Private
Limited 3 which decision was affirmed by the Hon’ble Supreme Court as
reported in [2019] 103 taxman.com 435 (SC).
11. The short issue which falls for consideration in the instant case is
whether three factors which are required to be established by the
department at the first instance have been established namely identity of
the investors, their creditworthiness and the genuineness of the transaction.
12. After we have elaborately heard the senior standing counsel for the
appellant revenue, we find that the CIT(A) while considering the appeal had
called for two remand reports, we need not discuss the findings of the
3
[2018] 408 ITR 561 (MP)
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ITAT NO. 238 OF 2024
REPORTABLE
assessing officer in both the reports but suffice to observe that the identity
and the creditworthiness of the share applicant companies stands
established. Therefore, the third factor is with regard to the genuineness of
the transaction. The learned senior standing counsel would vehemently
contend that the aspect regarding abnormally high share premium was
never considered by the CIT(A) and has been brushed set aside. To consider
the correctness of this submission, we have carefully perused the order
passed by the CIT(A) and we find that this aspect was dealt with by the
CIT(A), in our view in an elaborate fashion. At this juncture, it will be
beneficial to extract a portion of the finding recorded by the CIT(A) on this
aspect namely with regard to the alleged high share premium:-
It has been explained that this premium was paid on
account of the anticipated future prospects of the
appellant company and the fact that it was felt by the
investing companies’ Boards that it would be prudent to
invest in the appellant company. It has been explained
that the appellant company was incorporated on
02.06.1992 with a paid up capital of Rs. 1,13,000/-.
This amount was subscribed by the directors of the
company as promoters. In the impugned AY, the
appellant was engaged in the business of Investment
and Finance. The appellant Company was dealing in
Equity shares. During this period the appellant was
dealing in quoted equity shares and had a turnover of
over 12.46 crores. The growth of the appellant company
was apparent from the fact that in the immediately
preceding AY, the turnover had been Rs. 8.99 crore. This
was a phenomenal reported growth of almost 39%. It
transpires that the appellant company was also
carrying impressive inventories of quoted equity shares
for a company in such nascent stages of its operations.
It had inventories respectively of Rs. 8.38 crore and Rs.
9.36 crore as on 31.03.2011 and 31.03.2012. The
Audited results of the appellant show that its profits
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ITAT NO. 238 OF 2024
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had grown by over 3 times between AY 2011-2012 and
AY 2012-2013. In the same period the EPS (Earning Per
Share) for the appellant company had grown by two and
half times to 16% per share of Rs. 10/-. The appellant
company was obvious showing good returns and was
showing good prospects for its investors. It was also a
fact growing company.
13. After noting the above factual position, the CIT(A) has observed that
the assessing officer himself has stated that the investment take place on
personal one to one contact and persuasion but did not analyze the meaning
and implication of the observation by applying them to the fact and
circumstances of the case. Thus, after considering the facts the CIT(A) has
come to the conclusion that the assessing officer has not doubted the
identity and creditworthiness of the share subscribers but has doubted the
payment of high share premium. On this aspect the CIT(A) has noted the
growth of the assessee company which was reported to be at 39% and the
assessee was also carrying impressive inventories of quoted equity shares
for company in such stages of its operation. The assessee had inventories of
Rs. 8.38 crores as on 31.03.2011 and 9.36 crores as on 31.03.2012. The
audited result of the assessee has shown its profits grown by over three
times between assessment years 2011-2012 and the assessment year 2012-
2013. Further during the same period, the earning per share of the assessee
company had grown from two and half times to 16% per share of Rs. 10 and
therefore the CIT(A) on facts held that the assessee company was showing
good returns and were showing good profits for its investors and it is a
growing company. Therefore, the submission of the revenue that the
allegation that unduly high premium was charged was not examined by the
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REPORTABLE
CIT(A) is incorrect. In fact, this aspect was also examined by the assessing
officer to certain extent as pointed out by the CIT(A). When the matter
travelled on appeal to the learned tribunal at the instance of the revenue,
the factual aspects were re-examined. The tribunal notes that the paper
book containing 1029 pages were filed and all documents were placed before
the learned tribunal and after noting the facts the learned tribunal came to
the conclusion that the CIT(A) was well justified in deleting the addition
made under Section 68 of the Act.
14. The decision in the case of NR Portfolio Private Limited and
Navodaya Castles Private Limited have to be applied considering the facts
and circumstances the case on hand it is not mere production of
incorporating details, PAN numbers etc. in the case on hand the CIT(A) had
made an elaborate exercise to examine the facts, called for two remand
reports after which finding has been recorded in favour of the assessee.
Therefore, the above decisions cannot be applied to the facts and
circumstances of the case on hand.
15. Thus, for the above reasons we find that there is no question of law
much less substantial question of law arising for consideration in this
appeal. Accordingly, the appeal fails and is dismissed.
(T.S. SIVAGNANAM, CJ.)
I Agree.
[CHAITALI CHATTERJEE (DAS), J.]
(P.A.- SACHIN)
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