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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI V. DURGA RAO, HON’BLE & SHRI MANJUNATHA. G, HON’BLE
आदेश /O R D E R
PER MANJUNATHA. G, ACCOUNTANT MEMBER:
This appeal filed by the revenue and cross objection filed by the assessee are directed against the order passed by the learned Commissioner of Income Tax (Appeals)-15, Chennai, dated 18.11.2019 and pertains to assessment year 2013-14. Since, facts are identical and issues are common, for the sake :-2-: ITA. No: 179/Chny/2020 & CO: 01/Chny/2021 of convenience, the appeal filed by the revenue and the cross objection filed by the assessee are being heard together and are being disposed off, by this consolidated order.
ITA No: 179/Chny/2020 ASSESSMENT YEAR 2013-14: 2. The revenue has raised the following grounds of appeal: “1. The order of the Ld. CIT(A) is contrary to the law and facts of the case.
2. The Ld. CIT(A) erred in accepting the claim of the assessee that the amount shown as "Trade Payable" and this financials has been certified by a Statutory Auditor and filed before the Registrar of Companies (ROC) 2.1. The Ld. CIT (A) erred in allowing the appeal of the assessee without obtaining any revised Balance Sheet approved by the Board or submission of any re-classification of accounts by the Statutory auditor. 2.2. The Ld. CIT(A) has failed to notice that the assessee has shown corresponding entry as in the assets side of the Balance Sheet as "Trade Receivables" 2.3. The Ld. CIT(A) has erred in placing the onus on the Assessing Officer in respect of the documentary evidence regarding the impugned transaction when the onus is on the assessee to establish as to why it has classified the amount under "Trade Payables".
3. The Ld. CIT(A) ought to have appreciated that when the claim of Trade payable itself has been disallowed, the claim of the interest expenditure is also to be disallowed.
:-3-: ITA. No: 179/Chny/2020 & CO: 01/Chny/2021 4. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the ld. CIT(A) be set aside and that of the Assessing Officer be restored.”
The brief facts of the case are that, the assessee company is engaged in the business of trading in Iron and Steel Scrap. The assessee filed their return of income for the assessment year 2013-14 on 03.10.2013, admitting total income of Rs. 3,77,770/-. During the course of assessment proceedings, the Assessing Officer noticed that there is an increase in Trade payables when compared to previous financial year, even though there is no activities carried out by the assessee for the impugned assessment year. Therefore, the Assessing Officer called upon the assessee to file necessary details and justification for increase in trade payables. In response, the assessee has submitted relevant ledger extract of sundry creditors and argued that the company has received funds from M/s. Ruchika Global Interlinks Pvt. Ltd., through proper banking channels and the same has been remitted back to the SLO Steel Ltd and SLO Industries and finally adjusted against due payables by M/s. Ruchika Global Interlinks Pvt. Ltd., to other two group companies. The Assessing Officer, however was not convinced :-4-: ITA. No: 179/Chny/2020 & CO: 01/Chny/2021 with the explanation furnished by the assessee and according to the Assessing Officer, the assessee could not justify increase in trade payables even though there is no substantial business activities for the impugned assessment year. The Assessing Officer, further observed that the assessee has received funds from M/s. Ruchika Global Interlinks Pvt. Ltd and transferred to SLO Steel Ltd through proper banking channel, but could not explain how said funds has been transferred to SLO Steels Ltd. Therefore, rejected arguments of the assessee and made additions towards trade payables u/s. 68 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”).
Being aggrieved by the assessment order, assessee preferred an appeal before the CIT(A). Before the CIT(A), the assessee has reiterated its arguments made before the Assessing Officer along with certain additional evidences to justify increase in trade payables when compare to previous financial years. The ld. CIT(A), has forwarded additional evidences filed by the assessee to Assessing Officer for his comments. The Assessing Officer vide their remand report dated 12.02.2019 commented upon additional evidence filed :-5-: ITA. No: 179/Chny/2020 & CO: 01/Chny/2021 by the assessee and admissibility. The ld. CIT(A), after considering relevant submissions of the assessee, including various evidences filed in support of sundry creditors opined that the assessee has received funds from M/s. Ruchika Global Interlinks Pvt. Ltd, a third party in relation to trading activities. Therefore, there is no ground for suspecting the transactions between the assessee and creditor. The ld. CIT(A), further observed that funds received from M/s. Ruchika Global Interlinks Pvt. Ltd was recorded under running account as loan and finally transferred to a sister concern namely SLO Industries Ltd, towards trade dues receivable from said company. All these transactions are routed through proper banking channels. The assessee had also filed confirmation from creditors and also other two sister concern to confirm the transactions. Therefore, there is no reason for the Assessing Officer to make additions towards sundry creditors only on the ground that there is an increase in sundry creditor, even though there is no regular business activity, ignoring the fact that all amounts have been received through proper banking channel and further, the assessee had also explained reasons for receiving funds from M/s. Ruchika Global Interlinks Pvt. Ltd and transferring to SLO Industries Ltd. Therefore, deleted :-6-: ITA. No: 179/Chny/2020 & CO: 01/Chny/2021 additions made by the Assessing Officer towards sundry creditors u/s. 68 of the Act. Being aggrieved by the CIT(A) order, the revenue is in appeal before us.
The ld. CIT-DR, Shri. S. Senthil Kumaran, submitted that the ld. CIT(A) erred in accepting the claim of the assessee that amount shown as trade payable is reflected in the financial statement of the assessee and certified by the auditor ignoring the fact that the assessee could not explain as to how huge amount has been received from M/s. Ruchika Global Interlinks Pvt. Ltd, even though there is no business activity for the impugned assessment year. The ld. DR, further submitted that the ld. CIT(A) has failed to notice that the assessee has shown amount received from creditors under the head trade payable and claims that said amount is loan received from the party without any documentary evidence. However, ld. CIT(A) without appreciating relevant facts simply deleted additions made by the Assessing Officer.
The Ld. Counsel for the assessee, supporting order of the CIT(A) submitted that the assessee has filed all possible evidences including confirmation from M/s. Ruchika Global :-7-: ITA. No: 179/Chny/2020 & CO: 01/Chny/2021 Interlinks Pvt. Ltd, SLO Steel Ltd and SLO Industries Ltd and explained transactions between the parties. The assessee had also filed relevant ledger extract of parties in the books of accounts along with bank statement to prove that funds has been transferred through proper banking channel. The assessee had also explained sum of Rs. 20 crores received from M/s. Ruchika Global Interlinks Pvt. Ltd with necessary evidence. All three parties have confirmed the transactions along with their financial statement. The ld. CIT(A), after considering relevant submissions has rightly deleted additions made by the Assessing Officer and their order should be upheld.
We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The sole basis for the Assessing Officer to make additions towards sundry creditors on the ground that there is an increase in sundry creditors when compared to previous financial year even though there is no significant business activities in the impugned financial year. Except this, the Assessing Officer has failed to bring on record why and how sundry creditors shown in the books of accounts of the :-8-: ITA. No: 179/Chny/2020 & CO: 01/Chny/2021 assessee is non-genuine in nature and only an accommodation entry. From the above it is very clear that the Assessing Officer has made additions towards sundry creditors purely on suspicion and surmises basis without there being any factual recording as to how such amount is unexplained cash credit of the assessee which can be taxed u/s. 68 of the Act. Be that as it may, the assessee has filed all evidences including confirmation letter from all the parties, relevant ledger account in their books of accounts and also bank statement to prove that funds has been received through proper banking channel. The assessee had also filed financial statement of all three parties and explained transactions between the assessee and those parties and also proved transactions are are recorded in their regular books of accounts and reported in their financial statement. The assessee had also explained why it has received funds from M/s. Ruchika Global Interlinks Pvt. Ltd and finally transferred to SLO Industries Ltd. According to the explanation of the assessee, it was in the business of trading in steel and iron scrap in the earlier years and further, it has two sister concerns which are engaged in the business of manufacturing and trading of steel and iron products and declared huge turnover. There is a financial transaction :-9-: ITA. No: 179/Chny/2020 & CO: 01/Chny/2021 between M/s. Ruchika Global Interlinks Pvt. Ltd and SLO Industries Ltd and SLO Steel Ltd. Since, the assessee is a group company managing financials of other group companies, M/s. Ruchika Global Interlinks Pvt. Ltd has routed amount payable to other two group companies through account of assessee and finally said amount has been transferred to SLO Industries Ltd by passing journal entries in the books of assessee and other parties and adjusted against dues payable by M/s. Ruchika Global Interlinks Pvt. Ltd to SLO Industries Ltd. The said explanation of the assessee was supported by necessary confirmation letters filed by M/s. Ruchika Global Interlinks Pvt. Ltd, SLO Industries Ltd and SLO Steel Ltd. It was further supported by ledger extract of all three parties in their respective books of accounts. From the above, it is very clear, that sundry creditors appeared in the books of accounts of the assessee is genuine in nature which is supported by necessary evidences. The assessee has satisfied all three conditions prescribed u/s. 68 of the Act and proved identity of the creditor, genuineness of transactions and trade creditworthiness. Once, the assessee has proved three ingredients u/s. 68 of the Act, then there is no reason for the Assessing Officer to make additions towards trade payables :-10-: ITA. No: 179/Chny/2020 & CO: 01/Chny/2021 u/s. 68 of the Act, as unexplained money of the assessee. This legal propositions is supported by the decision of Hon’ble Supreme Court in the case of CIT vs Lovely Exports Ltd [2008] 216 ITR 195 SC, where Hon’ble Apex Court clearly held that once share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the assessee, Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as undeclared income of the assessee.
The assessee had also relied upon the decision of Hon’ble Gujarat High Court in the case of DCIT vs Rohini Builders [2003] 127 Taxman 523 (Guj), where the Hon’ble Gujarat High Court has held as under: "Section 68 of the Income-tax Act, 1961 - Cash credits - Assessing Officer made addition of Rs. 12,85,000 as unexplained cash credits in respect of loans taken by assessee from 21 parties - Assessee had discharged initial onus by providing identity of all creditors by giving their complete addresses, GIR numbers/ permanent account numbers and copies of assessment orders wherever readily available - Assessee had also proved capacity of creditors by showing that amounts were received by account payee cheques drawn from bank accounts of creditors - Repayment of loans and interest thereon was also made by account payee cheques by assessee and tax also had been deducted at source on interest payments and remitted - Whether assessee was not expected to prove genuineness of cash deposited in bank accounts of creditors, because :-11-: ITA. No: 179/Chny/2020 & CO: 01/Chny/2021 under law, assessee can be asked to prove source of credits in its books of account but not source of source - Held, yes - Whether merely because summons issued to some of creditors could not be served or they failed to appear before Assessing Officer, could not be ground to treat those credits as non-genuine Held, yes - Whether considering totality of facts and circumstances of case, especially fact that Assessing Officer had not disallowed interest claimed/ paid in relation to those credits in assessment year under consideration or even in subsequent assessment years, and tax at source had been deducted out of interest paid/ credited to creditors, Tribunal was justified in deleting addition made –Held, yes – whether as there was no substance in appeal and no substantial question of law arose, appeal was liable to be dismissed – Held, yes.”
In this view of the matter and considering facts and circumstances of the case, we are of the considered view that the assessee has explained trade payables appearing in their books of accounts with necessary evidences and the ld. CIT(A), after considering relevant facts has rightly deleted additions made by the Assessing Officer towards trade payables u/s. 68 of the Act. Thus, we are inclined to uphold the findings of the ld. CIT(A) and dismiss appeal filed by the revenue.
CO.No: 1/Chny/2021: 10. The assessee has raised the following grounds of cross objection:
:-12-: ITA. No: 179/Chny/2020 & CO: 01/Chny/2021 “1. On the facts and circumstances of the case, the order of the Learned Commissioner of Income Tax (Appeals)-15 (Hereinafter referred as CIT(A)), is not in accordance with the law and the principles of natural justice.
The Learned CIT(A) failed to appreciate the fact that no opportunity was provided to the Assessee as per the proviso to Section 144A of the Act.
3. The Learned CIT(A) ought to have considered the objection raised by the assesse with respect to the specific directions issued by the JCIT under Section 144A of the Income Tax Act 1961 to the Assessing Officer on the aspect of verification of the genuineness of the transactions.”
The only issue that came up for our consideration from grounds of cross objection filed by the assessee is validity of assessment order passed by the Assessing Officer u/s. 143(3) of the Act, dated 29.03.2016, in pursuant to directions of the Joint Commissioner of Income-tax u/s. 144A of the Act, without giving an opportunity to the assessee to furnish its reply to the proposed directions of the JCIT, as per provisions of section 144A of the Act. The Ld. Counsel for the assessee, referring to RTI reply received from Central Public Information Officer, dated 21.06.2019 u/s. 7 of the Right to Information Act, 2005 submitted that the sole basis for the Assessing Officer to make assessment and additions towards trade :-13-: ITA. No: 179/Chny/2020 & CO: 01/Chny/2021 payables is direction issued by the JCIT, Corporate Range-6, Chennai u/s. 144A of the Act, which is evident from the directions issued by the JCIT vide their order dated 27.01.2016 and the issue taken up by the Assessing Officer in the assessment proceedings. However, the JCIT, before issuing directions which is prejudicial to the interest of the assessee did not provided an opportunity to the assessee as required under proviso to section 144A of the Act, which vitiates the entire proceedings, including assessment proceedings and consequently, assessment order passed by the Assessing Officer is liable to be quashed.
The ld. CIT-DR, supporting the order of the ld. CIT(A) submitted that although, the Counsel for the assessee refers to directions issued by the JCIT, Corporate Range-6, u/s. 144A of the Act, but fact remains that the Assessing Officer did not referred said directions in their assessment order and hence, it cannot be said that the assessment order passed by the Assessing Officer is in pursuant to direction issued u/s. 144A of the Act and consequently, the CIT(A) has rightly rejected arguments of the assessee for annulment of assessment.
:-14-: ITA. No: 179/Chny/2020 & CO: 01/Chny/2021 13. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. We have also carefully considered provisions of section 144A and proviso provided therein and we find that as per the provisions of section 144A of the Act, the Joint Commissioner may, on his own motion or on a application of an assessee, call for and examine the record of any proceedings in which an assessment is pending and, if he considers that having regard to the nature of the case or the amount involved or for any other reason, it is necessary or expedient so to do, he may issue such directions as he thinks fit for the guidance of the Assessing Officer to enable him to complete the assessment and such directions shall be binding on the Assessing Officer. Proviso provided to section 144A makes it very clear that no directions which are prejudicial to the assessee shall be issued before an opportunity is given to the assessee to be heard. Further, Explanation provided therein also clarifies that for the purpose of this section no direction as to the lines on which an investigation connected to the assessment should be made shall be deemed to be a direction prejudicial to the assessee. From conjoint reading of section 144A of the Act, proviso provided therein and Explanation inserted to said section, it is :-15-: ITA. No: 179/Chny/2020 & CO: 01/Chny/2021 abundantly clear that if a direction issued by the JCIT is prejudicial to the assessee, then before issuing such direction, the JCIT should provide an opportunity to the assessee to be heard.
In this case, there is no dispute with regard to the fact that before issuing directions u/s. 144A of the Act, the JCIT does not gave any opportunity to the assessee. Further, the reply received under RTI also made it very clear that the JCIT, on his own motion has issued said directions. Further, if you go through directions issued by the JCIT u/s. 144A of the Act along with assessment order passed by the Assessing Officer, in our considered view the directions issued by the JCIT is on the lines on which the investigation connected to the assessment should be made and also the Assessing Officer has made additions as per the directions of the JCIT issued u/s. 144A of the Act. Since, the assessment order framed by the Assessing Officer is on the basis of directions issued by the JCIT u/s. 144A of the Act and further, said directions is prejudicial to the assessee, the JCIT ought to have given an opportunity to the assessee to be heard before issuing such directions. Since, the JCIT had issued directions u/s. 144A of :-16-: ITA. No: 179/Chny/2020 & CO: 01/Chny/2021 the Act, without providing an opportunity to the assessee to be heard as provided under proviso to section 144A of the Act, in our considered view the whole proceedings including assessment proceedings is vitiated and consequent assessment order passed by the Assessing Officer is liable to be quashed.
In so far as argument of the ld. DR is concerned, since the Assessing Officer did not refer to the directions issued by the JCIT u/s. 144A of the Act, it cannot be presumed that the assessment framed is in pursuant to directions u/s. 144A of the Act, we find that although, the Assessing Officer did not specifically referred to the directions of the JCIT issued u/s. 144A in the assessment order, but if you go through the directions and the assessment order, the directions issued by the JCIT is in lines on which the investigation connected with the assessment should be made. Therefore, we are of the considered view that, the assessment made in pursuant to directions of the JCIT issued u/s. 144A of the Act, without providing opportunity to the assessee to be heard as per provisions of section 144A of the Act is illegal, void and liable :-17-: ITA. No: 179/Chny/2020 & CO: 01/Chny/2021 to be quashed. Thus, we quash the assessment order passed by the Assessing Officer u/s. 143(3) dated 29.03.2016.