BIO TECH PHARMA (P) LIMITED,HYDERABAD vs. DY. COMMISSIONER OF INCOME TAX, CIRCLE-1(2), HYDERABAD

The assessee has raised several grounds however, the cruxes of the issues are as follows:-

Brief facts of the case are that the assessee is a Private Limited Company engaged in the business of manufacturing pharmaceuticals filed its return of income for the AY 2012-13 on 29/9/2012 declaring total income of Rs. 5,79,46,330/-. Subsequently, the case was taken up for scrutiny and the assessment was completed U/s. 143(3) of the Act on 31/3/2015 wherein the Ld. AO made addition of Rs. 50,33,506/- as unexplained cash credit and further denied to set off carry forward short term capital loss of Rs. 37,43,134/- from the business income of the assessee. The Ld AO had made the addition of Rs. 50,33,506/- because the assessee had not submitted confirmation statements from the creditors and also not furnished details such as PAN, address etc.

On appeal, before the Ld. CIT (A) the assessee submitted confirmation letters from M/s. B.E. Chemicals Private Limited (Rs. 33,506/-), B.E. Animal Health Private Limited (Rs. 49 lakhs) and Ms. Purnima Mantena (Rs. 1 lakh). The assessee had also submitted the bank statement supporting the repayment of loan amount to M/s. B.E. Animal Health Private Limited for Rs. 49 lakhs and Ms. Purnima Mantena for Rs. 1 lakh along with corresponding payment vouchers. However, after examining the issue, the Ld. CIT (A) observed as follows:- (a) The assessee had received unsecured interest free loan from the above said parties. (b) No reasons were attributed for receiving the loans. (c) Confirmation letters do not bear the name of the person who had confirmed. (d) PAN is not mentioned in the confirmation letter. (e) Ledger accounts of the loan creditors were not produced. (d) The assessee had stated that Ms. Purnima Mantena is one of the Directors of the assessee company however nothing was on record to establish that she had extended the loan to the assessee company.

With the above observations, the Ld. CIT (A) rejected the explanation offered by the assessee and confirmed the order of the Ld. AO.

Before us, the Ld. AR argued stating that the assessee had furnished the details of the unsecured loan creditors and their identity were also established. The loan amount received from the unsecured loan creditors were also repaid. The Ld. AR further argued that the entire transactions were made through banks and there were no cash transactions. The Ld AR further submitted that the unsecured loan received by the assessee are genuine and therefore pleaded that the addition made by the Ld. AO for Rs. 50,33,506/- as unexplained cash credit may be deleted. The Ld. DR though argued in support of the orders of the Ld. Revenue Authorities could not successfully controvert to the submissions of the Ld AR.

We have heard the rival submission and carefully pursued the materials available on record. From the facts of the case it is apparent that the entire unsecured loan transactions were made through bank and further the loan amount is also repaid. The assessee has also submitted the confirmation letters from all the loan creditors and their identity was established. It is also pertinent to mention that the assessee has huge turnover and also declared total income of Rs. 5,79,46,330/-. The Ld. Revenue Authorities have neither rejected the books of account of the assessee nor found out any flaw in the same. The particular such as name, address, identity etc., of the loan creditors are also on record before the Revenue. In such a situation, we are of the view that rejecting the claim of the assessee on flimsy grounds and without examining the loan creditors is not appreciable. Therefore, in the interest of justice, we hereby set aside the order of the Ld. CIT (A) and further direct the Ld.AO to delete the addition made for Rs. 50,33,506/- towards unexplained cash credit. Accordingly, the first grounds raised by the assessee is allowed in its favour.

With respect to denying the claim of set off of carry forward short term capital loss of the AY 2004-05 for Rs. 37,43,137/- from the business income of the assessee, we do not find any infirmity in the order of the Ld. Revenue Authorities by virtue of section 74(1)(a) of the Act. The relevant section of the Act is extracted hereinbelow for reference:- “74 (1) Where in respect of any assessment year, the net result of the computation under the head "Capital gains" is a loss to the assessee , the whole loss shall, subject to the other provisions of this chapter, be carried forward to the following assessment year, and- (a) in so far as such loss relates to a short-term capital asset, it shall be set off against income, if any, under the head “capital gains” assessable for that assessment year in respect of any other capital asset. (b)........ (c)........”

From the above, it is clear that carried forward short term capital loss can be only set off only against income under the head “capital gains” (short term capital gain as well as long term capital gain) assessable for the relevant assessment year. Therefore, Carry Forward of Short Term Capital Loss cannot be set off against the business income of the assessee in the relevant assessment year. Hence, we do not find any infirmity in the order of the Ld. AO on this issue. Accordingly, the second ground raised by the assessee is devoid of merits.

The third ground raised