Midas Capital v ACIT: ITAT Cuttack Remand on Section 68 Addition

Midas Capital Pvt. Ltd., Cuttack, a company earning interest income from loans and deposits, appealed to the ITAT Cuttack against an assessment made after a search. The additions were made under Section 68 for two assessment years, in proceedings under Section 153A. The Tribunal remitted the matter to the CIT(A) for fresh adjudication. The case shows how a Section 68 addition built on seized material and entry-operator statements was challenged on both jurisdictional and natural-justice grounds.

This page is a research summary of one specific Indian tax judgment, NOT legal advice. Always verify against the full judgment and consult a professional for case-specific guidance.

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The case at a glance

• Parties: Midas Capital Pvt. Ltd., Cuttack vs ACIT, Central Circle, Cuttack
• Bench: Income Tax Appellate Tribunal - Cuttack
• Date: 23 March 2018
• Court level: Tribunal (ITAT)
• Sections engaged: 153A, 68
• Outcome: Remanded for fresh consideration

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Facts of the case

The appeals (IT(SS)A Nos. 04 & 05/CTK/2018, with stay applications) were filed by the assessee against two separate orders of the CIT(A)-2, Bhubaneswar, both dated 13.11.2017. They relate to Assessment Years 2011-12 and 2012-13. The hearing was on 20/03/2018 and the order was pronounced on 23/03/2018. The assessee was represented by an AR and the Revenue by a CITDR.

The assessee is a company deriving interest income from loans and deposits. For AY 2011-12 it had originally declared total income of Rs. 9,56,200. A search and seizure operation was conducted on 06.08.2014 on the assessee and other entities of the group. A notice under Section 153A was issued on 10.09.2015 for AYs 2009-10 to 2014-15. In response, the assessee filed a return on 19.2.2016 disclosing the same income as in its original returns for AYs 2011-12 and 2012-13.

On examining the seized tally accounts, the Assessing Officer found credits in the assessee's bank accounts. He also found that the assessee held investments in a number of Kolkata-based companies. These had been sold to other Kolkata-based companies, with money received in the assessee's bank accounts. The investments in share capital were said to have been acquired out of capital introduced by a number of Kolkata-based companies. The AO tabulated the credits, which totalled Rs. 9,94,50,000.

The AO further relied on a seized document (SGINDIA-01) listing share transfers in respect of shareholder companies of Midas Capital. He noted that all the transfers took place on a single day and that the new shareholders belonged to a single group. The earlier shareholders had been issued shares at face value of Rs. 10 with a premium of Rs. 90, while the new shareholders acquired them at a net value of Rs. 5 per share. On this basis, the AO observed that the group obtained control of Midas Capital by infusing Rs. 55 lakhs and received investment of about Rs. 10 crores. The share transfer forms were described as incomplete, carrying only the previous shareholders' names and one director's signature.

The AO also relied on statements of two Kolkata-based entry operators, Raj Kumar Tharad and Pradedp Garg (as spelled in the source). These statements were said to explain how unaccounted cash is routed through layers and brought back as share capital.

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Issues raised

• Whether the CIT(A) was right to uphold an assessment under Section 153A when, according to the assessee, no incriminating document was found or seized in the search.
• Whether the additions of Rs. 9,94,50,000 (AY 2011-12) and Rs. 15,00,000 (AY 2012-13) were sustainable under Section 68, given the assessee's claim that they represented sale proceeds of shares sold in the normal course of business.
• Whether reliance on statements of third parties, collected without intimation to the assessee, was valid when no copy of the statements was given and no opportunity of cross-examination was allowed. The assessee invoked the Apex Court's decision in Andaman Timber Industries vs CCE in its grounds.

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What the court held

The Tribunal remitted the case to the CIT(A) for fresh adjudication, as directed in para 19 of its order. The outcome is therefore a remand and not a final ruling for either side.

The Tribunal took up the common grounds together, noting that the facts and issues were common to all of them. The record sets out the AO's findings in detail: the seized material, the pattern of share transfers, the discount at which the shares changed hands, and the entry-operator statements. The assessee's grounds challenged the Section 153A assessment for want of incriminating material, the Section 68 additions, and the use of third-party statements without cross-examination. The Tribunal's operative direction was fresh consideration by the first appellate authority.

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Strategy observations

1. The assessee raised a jurisdictional ground against the Section 153A assessment, contending that no incriminating document was found or seized during the search.
2. On the merits, the assessee characterised the Section 68 additions as sale proceeds of shares sold in the normal course of business.
3. The assessee raised a natural-justice ground, citing Andaman Timber Industries vs CCE. It said the third-party statements were relied upon without being furnished to it and without cross-examination.
4. The assessee filed stay applications alongside the appeals, and the Tribunal heard these together with the appeals.

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Why this case matters

The order illustrates a recurring pattern in search assessments. The Revenue builds a Section 68 addition on seized documents, share-transfer patterns, and statements of alleged entry operators. The assessee answers with a combined challenge: no incriminating material for Section 153A, the nature of the credits, and denial of cross-examination. Here the Tribunal did not resolve these contentions finally. It returned the matter to the CIT(A).

For researchers, the case is useful for the detailed account of the AO's reasoning on Kolkata-based share-capital transactions. It also shows that, at least at this stage, the Tribunal chose remand over a conclusive ruling on the Section 153A and Section 68 questions.

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Source

This case is drawn from the TaxNoticeAI structured legal corpus (16,101 Indian tax judgments, CBIC circulars, ITAT rulings, AAR rulings, GSTAT rulings), sourced from indiankanoon.org and official court portals. Original document: https://indiankanoon.org/doc/158343207/