In a significant ruling, the Calcutta High Court has held that it cannot interfere in factual examination of the material produced or not produced by an assessee-company to explain the share capital and premium received as it is beyond the scope of the an appeal filed under Section 260A of the Income Tax Act, 1961.
The appeal was filed by the revenue under Section 260A of the Income Tax Act, 1961 (the Act) is directed against an order passed by the Income Tax Appellate Tribunal (ITAT) which was in favour of Delta Dealers Private Limited.
The revenue has challenged the ITAT setting aside the order of the CIT(A) and deleting the additional made by the A.O. towards unexplained share capital and share premium of Rs.15,51,00,000/- under section. 68 of the Act by holding that the assessee had discharged its onus to prove the identity and creditworthiness of the share subscribing companies and the genuineness of the transactions overlooking the fact that not even a single Director of the share subscribing companies appeared before the Assessing Officer nor provided a valid reason for their non-appearance.
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The court noted that CIT(A) has not taken into consideration the creditworthiness of all the subscriber companies by going through the records and the net worth of each of them. It is also noted that all the investing companies have substantial own funds available with them to make investment in the assessee. In this respect, all the investing companies have also explained their source of funds in their reply to notices issued under section 133(6) of the Act.
It was evident that all the share applicants are income tax assessees and are filing their income tax returns. All the share applicants are having substantial creditworthiness represented by their capital and reserves.
Mr. Amit Sharma, standing counsel for the appellant department would strenuously contend that on examination of the documents which were produced by the share subscribing companies, it is evidently clear that none of those companies had any creditworthiness to invest in the shares of the assessee company, that too, at a high premium. Unfortunately, examination of the factual position as sought for cannot be done in an appeal filed under Section 260A of the Income Tax Act and it is the duty of the Assessing Officer to have done such an exercise. The Tribunal on facts found that all the share subscribing companies have responded to the notices.
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The Department contended that none of those companies had any creditworthiness to invest in the shares of the assessee company, that too, at a high premium. The ITAT observed that all the share subscribing companies had responded to the notices issued under Section 138(6) of the Act, made their submissions and produced documents.
A division bench of Chief Justice T.S. Sivagnanam and Justice Hiranmay Bhattacharyya ruled that examination of the factual position as sought for cannot be done in an appeal filed under Section 260A of the Income Tax Act and it is the duty of the Assessing Officer to have done such an exercise.
The ITAT had recorded that the AO failed to controvert the evidence furnished by the share subscriber companies during the assessment proceedings. ITAT said the AO had simply added the amount of share capital and share premium on the ground that the assessee had not produced the directors/shareholders. But, the AO ignored the reply given in response to notice, under the seal and stamp of the directors.
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Advocate Amit Sharma appeared for Appellant. Advocates Kartik Kurmy, Indranil Banerjee, and Subrata Mukherjee appeared for the Respondent.
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