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Income Tax Appellate Tribunal, DELHIBENCH ‘F’, NEW DELHI
Before: Sh. N. K. ChoudhryDr. B. R. R. Kumar
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeals have been filed by the assessee and the Revenue against the orders of ld. CIT(A)-9, New Delhi dated 22.11.2018 and 28.01.2019.
ITA Nos. 774, 2704 & 3026/Del/2019 2 Viraj Exports Pvt. Ltd. 2. In following grounds have been raised by the assessee:
“1. That on the facts & circumstances of the case, the Ld. CIT has erred in making addition of Rs. 27,25,000/- as unexplained credits u/s 68 of the Income Tax Act and made addition of Rs 27,25,000/- in the income of the assessee. The Ld. CIT has not applied his independent mind on the tangible material which forms the basis of reason to believe. Indeed it is a borrowed transaction from a well defined and credit strengthened source.
That loan from M/s Muah Retails Pvt. Ltd. (Sister Concern) for Rs 27, 25,000/- was received from identified sources and legal / proper transaction were made. The company had the proper sources which were given to assessee which was associate company. These loans were taken totally for business need of the company which was repaid later on.
That since M/s Muah Retails Pvt. Ltd. was newly incorporated company and it had basic capital and borrowed funds from directors which formed its corpus, the same was available worth/funds of the company. The loan from the M/s Muah Retails Private Limited of Rs. 27,25,000/- was given out of the unsecured loan taken from Ms. Neeru Bhargava ,one of the director of the company who had taken loan of Rs, 65,00,000 from J & K Bank and out of that money, Rs. 27,25,000/- was transferred to Muah Retails Private Limited. So, the creditworthiness was well established out of funds received from directors and later on, the same was given as the loan to the assessee. All the loans were given through the account payee cheques.
4. That the Learned ACIT has found that the confirmation of lender is available, credit worthiness and identities of parties are well established based on documents filed and examined by him & also confirmed by the third party verification u/s 133(6) on the notice of AO and later CIT(A) recording that , 2704 & 3026/Del/2019 3 Viraj Exports Pvt. Ltd. lender M/s Muah Retails Pvt. Ltd. received unsecured loan of Rs. 2725000/- from Ms. Neeru Bhargava/(director) in whose hand the source of funds was a personal loan of Rs. 65,00,000/- receipt from J & K Bank. So, it was not justified to hold that creditworthiness of this entity is not justified and therefore, the said loan cannot be genuine loan.
That, the credit worthiness cannot be measured only by means of self earned funds but it can be assessed from the sources & channels of the corpus from where it has been obtained. If they are all genuine & legal transactions the same cannot be doubted. Moreso, when the source of the source of the source is also genuine there was no IOTA of doubt left in the matter.
6. That section 68 of the income tax act, 1961 is not applicable in the present case and addition on this ground is itself illegal.
That the ld. CIT(A) neither considered to the facts of the case nor rely on the reply given during the proceedings u/s 250 of the Income Tax Act, 1961 on the above point in true and proper manner.”
3. In following grounds have been raised by the assessee:
“1. On the facts and circumstances of the case, the ld. CIT(A) erred in deleting of additions of Rs.1,69,37,240/- and Rs.8,43,843/- made by the AO u/s 68 by adding 25% of the Trade Payables and Other Payables respectively without appreciating that the assessee failed to establish the creditworthiness of these Sundry Creditors and genuineness of transactions.
2. On the facts and circumstances of the case, the ld. CIT(A) erred in deleting of additions of Rs.1,69,37,240/- and Rs.8,43,843/- made by the AO u/s 68 by adding 25% of the Trade Payables and Other Payables respectively by relying on the Remand , 2704 & 3026/Del/2019 4 Viraj Exports Pvt. Ltd. Report which was submitted by the AO without conducting any meaningful inquiry and without appreciating the judgments given by the Hon'ble Delhi High Court in case of [2015] 56 taxmann.com 286 (Delhi) Commissioner of Income Tax II v. Jansampark Advertising & Marketing Pvt. Ltd. and Hon'ble ITAT Delhi in case of ITO, Ward-18(4). New Delhi v. M/s. Yadu Steels & Power Pvt. ITA A No. 25/Del/2014 wherein it has been held that CIT(A) has conterminous powers with the AO and if the AO has not conducted any inquiry then it is the duty of the CIT(A) to conduct inquiries.
3. On the facts and circumstances of the ease the ld. CIT(A) erred in deleting of additions of Rs.1,69,37,240/- and Rs.8,43,843/- made by the AO u/s 68 by adding 25% of the Trade Payables and Other Payables respectively by holding that in case of Sundry Creditors for purchases Section 68 is not applicable unless purchases are rejected without appreciating the decision given by the Hon'ble jurisdictional High court in the case of PR. Commissioner of Income Tax, Delhi-17 v. M/s Wadhawan Designs wherein it has been held that the burden in the first instance to prove that the amounts were duly paid to the suppliers, in the course of regular commercial transaction, by establishing the identity of the recipients, genuineness of the transaction and the creditworthiness of the party concerned lies with the assessee.
4. On the facts and circumstances of the case, the ld. CIT(A) erred in allowing relief of Rs.8,90,170/- by holding that these payments (employees' contributions to EPF & ESIC) were made by the assessee before tiling of return and he relied on the judgment of jurisdictional High Court given in ease of CIT v. AIMIL Ltd. without appreciating the judgments given by the Hon'ble High Courts in cases of M/s. Unifac Management Services (India) Pvt. Ltd. v. Deputy Commissioner of income Tax, Corporation Circle 3(2), W.P. No. 5264 of 20 1 8 (Madras), Commissioner of Income Tax-II v. Gujarat Stale Road Transport Corporation (2014) 366 ITR 170 (Guj) and , 2704 & 3026/Del/2019 5 Viraj Exports Pvt. Ltd. Commissioner of Income Tax v. Merchem Ltd. (2015) 280 CTR 381 (KER) and the CBDT’s Circular No. 22/2015 dated 17.12.2015.
5 On the facts and circumstances of the case the Ld. CIT(A) erred in deleting the addition u/s 68 of the Rs. 72,00,000/- made by the AO without appreciating that the assessee failed to establish the creditworthiness of M/s. Shelter Advisory Pvt. Ltd. and genuineness of loan transaction either before the AO or before the CIT(A).”
In , following grounds have been raised by the assessee:
“1. On the facts and circumstances of the case the Ld. CIT(A) erred in deleting the addition/disallowance of Rs. 3,06,67,422/- made by the AO on account of failure to file confirmations by 14 creditors as even during the Remand Proceeding the assessee failed to file confirmations in respect of 7 creditors.
2. On the facts and circumstances of the case the Ld. CIT(A) erred in deleting the addition/disallowance of Rs. 3,06,67,422/- made by the AO on account of failure to file confirmations by 14 creditors by allowing entirely on the ground that the AO has verified the above transactions (14 creditors) in the Remand Proceeding whereas the AO has not given any such finding in the Remand Report and has clearly mentioned that the assessee has filed confirmations only in respect of 7 creditors, making the order perverse.”
5. The assessee is 30 years old company in the business of manufacturing & export of ladies garments. , 2704 & 3026/Del/2019 6 Viraj Exports Pvt. Ltd. A.Y. 2013-14 (Assessee Appeal) Unsecured loan
During the assessment, the AO treated an amount of Rs.27,25,00/- received as loan from M/s Muah Retails Pvt. Ltd. u/s 68 of the Income Tax Act, 1961.
7. Before the ld. CIT(A), the assessee submitted that the loan was taken from a related entity and the additional details have been submitted. The additional evidences filed by the assessee have been forwarded to the Assessing Officer and the remand report has been called for. Since, the creditworthiness of the party has not been proved the ld. CIT(A) confirmed the addition. It was held by the ld. CIT(A) that M/s Muah Retails Pvt. Ltd. (a sister concern), has been incorporated and started conducting its business from F.Y. 2012-13 itself and there is no revenue generation to the extent available in the form of reserve and surplus which could have enabled this sister concern to grant the unsecured loan.
After hearing the arguments of both the parties and perusing the material available on record, we find that the documents submitted by the assessee provides that the lender M/s Muah Retails Pvt. Ltd. received the unsecured loan of Rs.27,25,000/- from Ms. Neeru Bhargav, one of the Directors of the M/s.Muah Retails Pvt. Ltd. in whose hand, the source of this fund was a personal loan of Rs.65,00,000/- received from J&K Bank. In the given facts and circumstances, there is evidence of identity of the lender , genuiness of the transaction, the creditworthiness is satisfied and therefore, the impugned loan amount of Rs.27,25,000/- can be held to be genuine. The , 2704 & 3026/Del/2019 7 Viraj Exports Pvt. Ltd. sequence of events reveal that the assessee received loan from M/s. Muah Retails Pvt. Ltd. which is a sister concern who in turn received funds from the Director Ms. Neeru, who was financed the same as personal loan by J&K bank. Hence, the addition made by the AO and confirmed by the Ld.CIT(A) is here by directed to be deleted.
A.Y. 2013-14 (Revenue Appeal) Trade Payables:
The AO made addition on account of disallowance of 25% of total trade payables owing to non-filing of confirmations with regard to the purchases.
Before the ld. CIT(A), it was submitted that due to insolvency of some main buyers, the company was compelled to file before BIFR which resulted in payment of sundry creditors in the year. The assessee has submitted evidences before the ld. CIT(A) in the form of list of creditors and trade payables having brought forward balance. Out of the sundry creditors worth Rs.8.08 crores, an amount of Rs.5.63 crores pertains to opening balance and the claim of which has been accepted during the assessment for the A.Y. 2012-13. That leaves the sundry creditors worth Rs.1.15 Crore relates to the instant year before us. The AO has disallowed 25% on this amount also. The ld. CIT(A) after examination of the books of accounts, ledger statement, bank statement, bills & vouchers submitted by the assessee has accepted the transactions after duly issuing notices u/s 133(6) to the parties and getting the details verified. Since, the action of the ld. CIT(A) is after due diligence exercised and the examination of the sundry creditor, , 2704 & 3026/Del/2019 8 Viraj Exports Pvt. Ltd. we decline to interfere with the order of the ld. CIT(A). Notwithstanding that, we hold that the action of the Assessing Officer disallowing only 25% of the total outstanding amounts without any rhyme and ratio cannot be supported.
PF & ESI:
As per the judgment of the Hon’ble Supreme Court in the case of Checkmate Services P. Ltd. vs. Commissioner of Income Tax-I in Civil Appeal No. 2833 of 2016 vide order dated 12.10.2022, the assessee cannot claim the amounts wherein there was delay in payment of employee’s contribution for PF & ESI. The AO may examine the months in which there has been a delay and bring through amount to tax accordingly.
Unsecured Loan:
During the assessment, the AO treated an amount of Rs.72,00,000/- received as loan from M/s Shelter Advisory Pvt. Ltd. u/s 68 of the Income Tax Act, 1961.
Before the ld. CIT(A), the assessee submitted that the loan was taken from a NBFC, the net worth of which was Rs.4 crores and also given confirmation of the loan. The additional evidences filed by the assessee have been forwarded to the Assessing Officer and the remand report has been called for. Since, no adverse comment has been made by the AO with regard to the transactions with M/s Shelter Advisory Pvt. Ltd. The ld. CIT(A) deleted the addition. Since, the order of the ld. CIT(A) is based on the remand report of the AO, we decline to interfere with the order of the ld. CIT(A). , 2704 & 3026/Del/2019 9 Viraj Exports Pvt. Ltd. A.Y. 2014-15 Sundry Creditors:
During the assessment proceedings, the AO issued notices u/s 133(6) to various parties of fabrication & manufacturing expenses. Owing to non-reply of notices and in the absence of confirmations, the AO disallowed the amount on account of sundry creditors and brought the same to tax.
During the proceedings before the ld. CIT(A), the assessee submitted details of ledger account copy, bank statements, bills, challans, confirmations, TDS details, balance sheets and ITR of the party. The ld. CIT(A) called for a remand report vide letter dated F.No. /CIT(A)-09/Remand Report/2017-18/1179 dated 12.02.2018. The AO submitted that the confirmations/details have been test checked and found satisfactorily. Based on the remand report of the AO, the ld. CIT(A) deleted the addition. Since, the action of the ld. CIT(A) is based on the remand report of the Assessing Officer, we decline to interfere with the order of the ld. CIT(A). In the result, the appeal of the revenue is dismissed.
In the result, the appeal of the assessee is partly allowed and the appeals of the Revenue are dismissed. Order Pronounced in the Open Court on 31/01/2023.