Calcutta High Court
Principal Commissioner Of Income Tax 2 … vs M/S Mundhra Construction Private … on 7 March, 2025
Author: T.S. Sivagnanam
Bench: T.S Sivagnanam
1
OD - 6
IN THE HIGH COURT AT CALCUTTA
SPECIAL JURISDICTION [INCOME TAX]
ORIGINAL SIDE
BEFORE :
THE HON'BLE THE CHIEF JUSTICE T.S SIVAGNANAM
-A N D-
THE HON'BLE JUSTICE CHAITALI CHATTERJEE (DAS)
ITAT/10/2025
IA NO: GA/1/2025
PRINCIPAL COMMISSIONER OF INCOME TAX 2 KOLKATA
VS
M/S MUNDHRA CONSTRUCTION PRIVATE LIMITED
Mr. Aryak Dutt, Advocate
Mr. Soumen Bhattacharjee, Advocate ....for the Appellant.
Mr. S. M. Suraja, Advocate
Mr. Bhaskar Sengupta, Advocate . . .for the Respondent.
HEARD ON : 07.3.2025
JUDGMENT ON : 07.3.2025
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 13.8.2024 passed by the
Income Tax Appellate Tribunal, "B" Bench, Kolkata in ITA No.807/Kol/2024 for
the assessment year 2012-13.
2. The revenue has raised the following substantial questions of law for
consideration.
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"1. Whether the learned Income Tax Appellate Tribunal has committed
substantial error in law in ignoring the settled position of law in respect of
provisions of Section 68 of the Income Tax Act, 1961 that the onus of
proving the identity & creditworthiness of the parties from whom the
assessee received money and the genuineness of such transaction is on
the assessee and the assessee miserably failed to prove so in the instant
case ?
2. Whether the learned Income Tax Appellate Tribunal has committed
substantial error in law in deleting the total addition of Rs.2,82,00,000/-
made under section 68 of the Act ignoring the judicial principles laid down
in the matter of Pr. CIT vs. Swati Bajaj reported in 2022 SCC Online 1572
[Cal] wherein the Hon'ble High Court at Calcutta laid down guidelines on
the manner in which the allegation against the assessee has to be
considered ?
3. Whether the learned Income Tax Appellate Tribunal has committed
substantial error in law in appreciating the principle which has been laid
down by the Hon'ble Supreme Court in the case of Pr. CIT [Central]-1,
Kolkata vs. NRA Iron & Steel Private Ltd. [412 ITR 161] [2020] 117
taxmann.com 752 [SC] ?
4. Whether the learned Income Tax Appellate Tribunal has committed
substantial error in law in not following the judicial principles laid down in
the matter of Pr. CIT 2, Kolkata [C]-2, Kolkata vs. M/s. BST Infratech Ltd.
in ITAT/67/2024 dated 23.4.2024, which is an earlier decision of Hon'ble
High Court having a precedence value ?
5. Whether the learned Income Tax Appellate Tribunal has committed
substantial error in law in ignoring the judicial principles laid down in the
matter of Sumati Dayal v. CIT [1995] 214 ITR 801 [SC] ?
6. Whether the learned Income Tax Appellate Tribunal has committed
substantial error in law in not taking cognizance of the judicial principles
laid down in CIT vs. Durga Prasad More 1973 CTR [SC] 500 : [1971] 82 ITR
540 [SC] ?
7. Whether the learned Income Tax Appellate Tribunal has committed
substantial error in law in giving the verdict in favour of the assessee
where the case is covered by clause [h] of Exceptions laid down under para
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3.1 of the CBDT Circular No.5/2024 vide F.No.279/Misc-142/2007-ITJ[Pt],
Dated 15th of March, 2024 ?
8. Whether the order of the Learned Tribunal is perverse in not
considering the issue of the present case ?
3. We have heard learned advocates on either side.
4. The issue which falls for consideration is whether the tribunal was justified in
setting aside the order passed by the Commissioner of Income Tax (Appeals),
National Faceless Appeal Centre dated 27.3.2024 by which the appellate
authority confirmed the order passed by the Assessing Officer dated 23.3.2015
by holding that there is an unexplained cash credit as contemplated under
section 68 of the Act to the tune of Rs.2,84,15,960/-. The learned tribunal has
referred to the details of the share subscribers/companies in paragraph 11 of
the impugned order which contains a tabulated format giving the names of the
shareholders, number of equity shares, share capital, share premium, share
application money and net worth. In the said tabulated format, the names of
the directors of the respondent/assessee also find place in serial nos. 22 and 23
and surprisingly those two directors have not paid any share premium.
Furthermore, on a perusal of the said tabulated statement it is seen that the
share premium paid by all the share subscribing companies/entities are
substantial in nature. Therefore, we need to consider as to whether the three
factors which have to be established namely, creditworthiness of the investors,
the genuineness of the transaction and the identity has been established. It is
true that the identity of the share subscriber companies have been established,
inasmuch as, it has been shown that they are registered companies, yet to
escape from the rigor of section 68 of the Act, the assessee is also bound to
prove the creditworthiness of the parties and also genuineness of the
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transaction. Thus, we are required to see as to whether this exercise has been
done by the assessee. The Assessing Officer issued notices under section 133(6)
for which reply has been stated to have been received. Summons was issued
under section 131 on the directors of the assessee/company to appear
personally and to produce various documents. However, the assessee filed
written statement in response to the summons with photo identity of the
directors of the invested companies but no reason was assigned as to why the
directors did not appear in response to the summons. The Assessing Officer
took up the case for discussion, took note of section 68 of the Act and held that
there was no compliance from the assessee. The identity, the genuineness and
creditworthiness of the share applicant companies have not been established
against the primary issues regarding the due diligence permission, steps taken
for protection of the fund and most importantly the reason for investment in the
company with no track record and that too with such huge premium was not
clarified. Furthermore, the Assessing Officer has noted that due to non-
compliance on the part of the assessee the details of the shareholders were not
available and, hence, identity of the shareholders is questionable. If the identity
of the creditors are not established, consequently, question of establishment of
genuineness of the transaction or creditworthiness of the creditors did not and
could not arise. Furthermore, the Assessing Officer observed that the case has
to be judged in the light of preponderance of probability and non human
behaviour from which it will be easily inferred that the entire transaction lacks
substance. Furthermore, on facts the Assessing Officer noted that a company
that has been recently incorporated without any proven track record does not in
any way justify the hefty premium. Thus, on facts the Assessing Officer came to
the conclusion that the receipt of share application money is only façade for
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conversion of unaccounted money and the non-appearance of the directors only
strengthen on this point. Reference was made to the decision of CIT vs.
Precision Finance Pvt. Ltd. [208 ITR 465] and another decision of the learned
tribunal in the case of Agarwal Coal Corpn. [Pvt.] Ltd. vs. Asstt. CIT 63 DTR 20,
and, ultimately, assessment was completed holding that the share application
money received along with premium amounting to Rs.2,82,10,798/- remained
unexplained and was, accordingly, added back under section 68 of the Act. The
assessee was informed that penalty proceeding under section 271(1)(c) will be
initiated separately. The assessee carried the matter on appeal before the
appellate authority namely, National Faceless Appellate Centre (NFAC). The
assessee contended that the addition made by the Assessing Officer is bad in
law, unwarranted and unlawful and the interest charged is also unlawful and
not acceptable. The appellate authority took note of the observations of the
Assessing Officer, noted the submissions made by the authorised representative
of the assessee and the grounds canvassed in the written statement and
thereafter proceeded to take a decision in the matter.
5. The first issue which was considered by the appellate authority was whether
the tax recovery officer was an Assessing Officer after referring to various
statutory provisions which was held that the assessee was covered under
clause (a) of sub-section (3) of section 143 of the Act. Apart from that it was
held that not only the tax recovery officer-10/tax recovery officer-4, Kolkata was
fully empowered to pass the order under section 143 of the Act and the
question of the assessee raising the issue of jurisdiction beyond the prescribed
time limit does not arise.
6. The next issue which was taken up for consideration is with regard to the
correctness of the addition made under section 68 of the Act. The assessee
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among other things contended that the notices under section 133(6) of the Act
was issued only out of 9 out of 30 shareholders and the details having been
furnished, the assessee submitted that they have discharged burden cast upon
them. Furthermore, the assessee submitted that the profit and loss account
and the balance-sheet containing substantial income was before the Assessing
Officer and, hence, creditworthiness was proved. Certain decisions were also
referred to in support of such contention. The appellate authority, in our
considered opinion, rightly noted the legal position that the onus is on the
assessee to prove not only the identity of the share applicant but also the
creditworthiness of the share applicants and last but not the least the bona fide
or genuineness of the share application money credited in the books of account.
It was held that merely providing proof of identity and other relevant documents
is not sufficient as creditworthiness of the share applicant and the genuineness
of the transaction is also important. After noting the decision of the Hon'ble
Supreme Court in PCIT vs. NRA Iron and Steel Pvt. Ltd. (2019) 412 ITR 161 (SC),
CIT vs. Durga Prasad More, (1971) 82 ITR 540 (SC) and Sumati Dayal vs. CIT,
(1995) 214 ITR 801 (SC) the appellate authority proceeded to examine the
documents in the case of the share subscriber companies which are 21 in
number. The appellate authority has discussed the factual aspect in respect of
each such share subscribers. By way of an illustration, if we take up the case of
Lucky Prime Financial Consultants Pvt.Ltd., the company was shown to be an
existence from June, 2011 with an authorised share capital of Rs.500000/- and
paid up capital of Rs.4,59,600/-, the subscriber company has collected share
premium of Rs.1.76 crores on the share capital of Rs.4,59,600/- which was
found to be abnormal as the subscriber company had no track record of any
identity whatsoever or there were any projection of any activity and it had a
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surplus of only Rs.53,230/-. Furthermore, the subscriber companies had
received Rs.5,22,174/- on which profit of Rs.44,330/- was earned.
Furthermore, on facts it was found that the funds collected are entirely invested
in land and advances of Rs.1.06 crores and there is a bank balance of Rs.88.69
lakhs. Further, the subscribers claimed to have invested Rs.2,50,000/- as
share application money and premium in the financial year 2011-12. However,
there are no investments shown in the balance-sheet of Lucky Prime Financial
Consultants Pvt.Ltd. as on 31.3.2012. Therefore, the appellate authority came to
the conclusion that the creditworthiness of the share subscriber remains
unproved and the genuineness of the transaction is also not proved from the
documents produced. Similar discussion has been made in respect of all the 21
share subscribers. In paragraph 6.5 of the order passed by the appellate
authority the common features of all the subscriber companies were noted
namely that the registered address of some of the companies are common and
the directors of the company were also found to be a group of persons. The
accounts of the companies were audited by the same group of auditors. There
are no activities apparent from the profit and loss provided except for receipt of
interest and all companies have only furniture and computers as assets and
there are no vehicles or office premises in the schedule of assets. Thus, noting
all the facts the appellate authority held that the assessee has not discharged
the onus under section 68 of the Act. More importantly the appellate authority
noted that the first two entities are individuals and they are promoters of the
assessee company and the shares issued to them are not added as premium.
This peculiar aspect was noted and it was pointed out that the promoters do
not share the view of the other companies who have subscribed to the shares at
premium, about the prospects of the assessee company. Moreover, the assessee
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has not provided any documentary evidence for the creditworthiness of the
promoters, i.e., Aditya Mumdhra & Sonali Mundhra. It was found that the
remaining 28 companies have contributed Rs. 2.77 crores towards the share
capital at par along with share premium and the creditworthiness and the
genuineness of the transactions were not proved. Accordingly, the addition of
Rs.2,82,00,000/- was confirmed and the addition of Rs.10,798/- was deleted.
7. The assessee carried the matter on appeal to the tribunal which was allowed
the assessee's appeal by the impugned order when surprisingly the learned
tribunal has not discussed or dealt with the correctness of the findings recorded
by the appellate authority, which, in our view, was done after a detailed factual
exercise. The learned tribunal has stated in paragraph 17 of the impugned
order that on perusal of the paper book and document three factors have been
proved by the assessee. This, in our view, is wholly inadequate and insufficient
for the tribunal to set aside the order passed by the appellate authority. In
other words, the tribunal was required to examine the correctness of the factual
findings recorded by the appellate authority and then recorded its views as to
why it is not in agreement with the findings of the appellate authority. On
reading of the impugned order it is seen that this aspect of the matter is
conspicuously absent. At this juncture, it will be relevant to take note of the
decision of this court in Balgopal Merchants [P] Ltd. vs. Principal Commissioner
of Income Tax, [2024] 162 taxmann.com 465 [Cal]. The said decision also arose
under section 68 of the Act and the facts and circumstances of the case were
more or less identical. In the said case also the appellate authority on
examining the facts found that the assessee company therein had no track
record or asset base for demanding astronomical high premium per share
which defied all commercial and financial prudence and logic. Furthermore, the
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test of human probability was also applied and when done so it was held that
high premium share defying logic. Thus, if the test of human probability is
applied in the facts of the case on hand, it should have been established by the
assessee as to why and for what reason the share subscription invested in
shares of the assessee company at such huge premium despite the factual
position being that the assessee company had no track record.
8. Thus, we are of the view that the learned tribunal did not go into all these
aspects and proceeded to accept the case of the assessee solely by making
certain observations with regard to the paper book which was filed by the
assessee. The tribunal over-turning the order passed by the appellate authority
was required to examine the correctness of the findings recorded by the
appellate authority and then come to the conclusion why such findings are not
acceptable and while doing so reasons have to be recorded in writing. In the
absence of all these essential requirements, we have no hesitation to hold that
the impugned order is not sustainable in law and the learned tribunal
committed an error of law in allowing the assessee's appeal.
9. For the above reasons, the appeal filed by the revenue is allowed and the
substantial questions of law are answered in favour of the revenue.
10. The application being GA/1/2024 stands closed.
.
(T.S. SIVAGNANAM)
CHIEF JUSTICE
I agree.
(CHAITALI CHATTERJEE (DAS), J.)
Pkd./S.Das
AR[CR]
