When Assessee-Company Can Prove Genuineness Of Transaction, Delhi HC's 'NR Portfolio' Judgment Not Applicable: Calcutta HC

In CIT v. NR Portfolio Private Limited (2014) and in CITA v. Navodaya Castles Private Limited (2014), the Delhi High Court had held that mere production of incorporation details, PAN Nos. or the fact that third persons or company had filed income tax details in case of a private limited company may not be sufficient when surrounding and attending facts predicate a cover up. These facts indicate and reflect proper paperwork or documentation but genuineness, creditworthiness, identity are deeper and obtrusive.

In the case at hand also, the Assessing Officer had made additions to the income of the assessee, doubting the genuineness of its share transactions.

AO was of the view that the share premium fixed by the assessee was abnormally high considering its financial strength. The company had thereafter responded to the notices issued by the AO during scrutiny assessment and had filed documents and the details as called for by the assessing officer.

However, the AO relying on NR Portfolio (supra) 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.

AO was thus of the view that the assessee was using shell companies and to channelise the black money, it had increased capital.

After CIT(A) ruled in favour of the assessee, the Revenue approached the High Court.

A division bench of Chief Justice T.S. Sivagnanam and Justice Chaitali Chatterjee (Das) at the outset noted that the identity and the creditworthiness of the share applicant companies was established before CIT(A), in the remand reports sought from the AO.

Therefore, the only issue before the High Court was with regard to the genuineness of the transaction.

Standing counsel for the Department contend that looking at the financials of the company, if the test of prudence is applied, it will clearly indicate that no prudent person would invest in such a company paying such a high share premium.

The High Court however observed that CIT(A) had taken note of assessee-company's growth 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 Court further noted that the audited result of the assessee had shown its profits grown by over three times between two assessment years. Further during the same period, the earning per share of the assessee company had grown from two and half times to 16% per share.

Thus noting that the assessee was a growing company, showing good returns and profits for its investors, the High Court held,

“the submission of the revenue that the allegation that unduly high premium was charged was not examined by the CIT(A) is incorrect…the paper book containing 1029 pages were filed…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.”

As such, the appeal was dismissed.

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.

Case title: The Principal Commissioner Of Income Tax Central 1, Kolkata v. Wise Investment Private Limited

Case no.: ITAT/238/2024

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