Assessment order u/s 153C will supersede an earlier order passed u/s 143(3) – ITAT allowed additional ground

Assessment order u/s 153C will supersede an earlier order passed u/s 143(3). ITAT allowed the additional ground raised and restored the issue to the file of Assessing Officer

ABCAUS Case Law Citation:
ABCAUS 2582 (2018) (10) ITAT

Important Case Laws Cited/relied upon by the parties:
CIT vs. Anil Kumar Bhatia 352 ITR 493
CIT vs. Kamdhenu Steel and Alloys Ltd.
CIT vs. Oasis Hospitalities (P) Ltd., 198 Taxman 247 (Del.)
CIT vs. Winstral Petrochemicals Pvt. Ltd., 10 Taxman 137
CIT vs. Dwaradheesh Investment Pvt. Ltd., 194 Taxman 42
CIT vs. N.R. Portfolio Pvt. Ltd.
National Thermal Power Co. Limited vs. CIT (1998) 229 ITR 383 (SC)
VMT Spinning Co. Ltd., vs. CIT & Another (2016) 389 ITR 326 (P & H)
CIT vs. Neelkant Concast (P.) Ltd., (2016) 387 ITR 568 (Del.)

The instant appeal by the assessee was directed against the Order of the CIT(A).

The assessee during the relevant year derived income from Investments. The return of the assessee-company was processed under section 143(1) of the Income Tax Act, 1961 (the Act) . Subsequently, the case was selected for scrutiny.

During the year under consideration, the assessee had received an amount of Rs. 100 crores as share capital and share premium. Initially the shareholder were 555 in number. However at the close of the year, the shareholders were only eight investment and finance companies i.e. all the shares from the shareholders had been transferred to the eight listed companies.

The assessee submitted confirmation, copy of bank account, copy of ITR, copy of audited balance sheet, statement of account and copies of earlier assessment orders in respect of all eight parties. Information under section 133(6) was called for from the Bank, which revealed that almost all the accounts were opened towards the end of the year in the month of February and March. None of the account opening forms were introduced by any introducer. The account opening forms were not properly filled-up.

The AO, therefore, found it to be dubious. The AO also noted that funds have moved from one company to another company and finally went into a company which was not part of this web of companies.

The AO in order to investigate further, deputed the Inspector to identify the addresses and business addresses/activities of the shareholders companies. The Inspector filed enquiry report mentioning the at the time of local inspection done by him, the five of the shareholder companies were not functioning from the property in question. The Inspector did not find any share Register/Share Transfer Certificate at the time of his visit.

The assessee, during the assessment proceedings could not produce any of the single shareholder out of 555 shareholders. The AO also examined director of the assessee-company under section 131 of the Act. He finally concluded that the share capital, share premium received by the assessee were nothing but sham transaction to give legal colour to the unaccounted money of the assessee-company. Therefore, entire amount of Rs. 100 crores was added to the income of assessee under section 68 of the Act.

The assessee company challenged the addition before the CIT(A). The assessee company  argued that it had proved the identity of the shareholders, their creditworthiness and genuineness of the transaction. It was explained that assessee-company had no concern with the opening of the bank account by the shareholders as they were existing companies and assessed to tax.

However, confirmed the addition and dismissed this ground of appeal of assessee.

The assessee company challenged the inter alia addition of Rs. 100 crores under section 68 of the Act before the Tribunal. It also filed an application for admission of an additional ground of appeal that assessment order passed in the appellant’s case under section 153C/153A need be given precedence over the impugned order of assessment passed u/s 143(3).

The Tribunal observed that the AO passed the impugned assessment order under section 143(3) of the Act and made the additions which were under challenge before the Tribunal. The AO passed another assessment order in the case of same assessee-company under section 153C/153A of the Act. In this order, AO mentioned that search and seizure operation was carried-out at various premises of a group where books of account and documents belonging to the assessee company were found and seized and Assessing Officer (AO) was satisfied to proceed under section 153C against the assessee-company.

The A.O. accordingly issued notice under section 153C/153A of the Act and directed the assessee-company to file return of income. The assessee company submitted before A.O. that the return originally filed may be treated as return filed in response to notice under section 153C/153A of the Act. Later, the AO after discussion, assessed the income at the returned income.

The Tribunal noted that Hon’ble Delhi High Court in a case held that there can be only one assessment order in respect of each of the six assessment years in which both the disclosed and undisclosed income would be brought to tax. The High Court had observed that in case, assessments are completed under sections 143(1) or 143(3) and such order is already in existence, having obviously been passed prior to initiation of search/requisition, AO is empowered to reopen those proceedings and re-assess the total income taking note of undisclosed income, if any, unearthed during the course of search. Therefore, no multiple assessment orders shall have to be passed.

The Tribunal opined that the findings of the Delhi High Court supported the additional ground of appeal raised by the assessee-company.

The Tribunal opined that since the additional ground of appeal was legal in nature and all the facts prima facie supported by the Judgment of Honb’le Delhi High Court, such additional ground should be admitted for the purpose of hearing. There is no bar in admitting such additional ground of appeal even if it was not taken before the authorities below. The delay in filing the additional ground is of no consequence because when appeal is filed within the period of limitation, the additional ground could be raised at any time during the pendency of the appeal before the Tribunal.

The Tribunal observed that since the issue went to the root of the matter and authorities below had no occasion to examine the correctness of the additional ground raised by the assessee-company for the first time before the Tribunal, therefore, the additional ground should be set aside to the file of A.O. for deciding the same in accordance with law.

Accordingly, the Tribunal set aside the Orders of the authorities below and restore the additional ground of appeal to the file of A.O. with a direction to decide the additional ground of appeal strictly in accordance with law, by giving reasonable, sufficient opportunity of being heard.

Regarding the merit of the addition u/s 68, the Tribunal observed that there were more facts which also justified for remanding of the matter on merits to the file of AO.

The director of the company, in his statement had given justification for issuing shares at premium and the SEBI guidelines were filed to support the same. But the authorities below did not examine or probed the explanation of assessee-company in this regard.

The company had submitted several documentary evidences of the investor companies to show their identity, creditworthiness and genuineness of the transaction in the matter, to the authorities below. However, the authorities below had not examined the documentary evidences in detail. The report obtained from the Bank under section 133(6) and the report of the Inspector giving adverse comment against the investors had not been confronted to the assessee-company, therefore the same would not be admissible in evidence against the assessee-company.

Whatever material is collected in the remand proceedings had not been provided to the assessee-company or confronted for proper explanation.

The Tribunal stated that it is well settled law that the authorities below should not see profit of the investors, but shall have to see their worth in making investments. The authorities have failed to record any specific finding of fact against the assessee-company based on the evidence and material available on record. Therefore, in such circumstances, when entire evidence on record would require reconsideration at the level of the A.O.

Accordingly the Tribunal set aside the orders of the authorities below on addition on merit of Rs. 100 crores under section 68 also to the file of A.O. with a direction to re-decide this ground of appeal in accordance with law on the basis of the entire evidence and material on record, by giving reasonable, sufficient opportunity of being heard to the assessee. It was alsi directed that the AO shall pass the order on merit discussing all the evidences in the assessment order.

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