THE DCIT, 2(1), INDORE vs. M/S. DIVYA JYOTI INDUSTRIES LTD., INDORE

The Revenue has raised following grounds of appeal;

Briefly stated facts as culled out from the records are that the assessee is a limited company engaged in manufacturing of soya refined oil, Soya Solvent oil and DOC. E-return of income filed on 5.9.2011 declaring loss of Rs.11,58,781/-. Case selected for scrutiny followed by serving of notices u/s 143(1) and 143(2) of the Act. During the course of assessment proceedings Ld. A.O while examining the unsecured loans received by the assessee observed that Rs.1.70 crores is received from Gajanand Ramlal Agrawal by way of two account payee cheques of Rs.90 lakhs and Rs.80 lakhs dated 30.3.2011 and 31.3.2011 respectively. Information was called u/s 131 of the Act from Gajanand Ramlal Agrawal along with other documentary evidence. After which it was revealed that the Divya Jyoti Industries Ltd 30.3.2011 and 31.3.2011 were issued through a cheque book received by the cash creditor from its bank on 28.6.2011 and these two cheques were actually issued thereafter and got cleared on 6.8.2011 and 12.8.2011. On the basis of these facts Ld. A.O came to the conclusion that the cheques received as loan by the assessee were not available with it before 28.6.2011 which implies that the transaction undertaken by the assessee are non genuine and built up story. It was also observed by him that there were three entries of Rs.58,41,853/-, Rs.36,13,622/- and Rs.75,44,525/- totaling to Rs.1.70 crores appearing in the ledger account of Gajanand Ramlal Agrawal under the head sundry creditors and their connection to loan of Rs. 1.70 crores was not properly explained. Ld. A.O accordingly treated the unsecured loan of Rs.1.70 crores as unexplained credit u/s 68 of the Act being non genuine and added it to the income of the assessee. Other minor disallowances of refinery expenses at Rs.3,50,783/-, disallowance of repairs and maintenance and staff welfare of Rs.5,00,000/- were also made.

Aggrieved assessee preferred appeal before Ld. CIT(A) against all the additions made by the Ld. A.O. Ld. CIT(A) after examining the detailed submission filed by the assessee, documentary evidences, order of CIT(A)-II, Indore dated 31.12.2015 in the case of the alleged cash creditor Gajanand Ramlal Agrawal deleted all the additions made by the Ld. A.O.

Now the revenue is in appeal before the Tribunal raising two grounds but the sole grievance is against the finding of Ld. CIT(A) deleting the addition of Rs.1,70,00,000/- made by the Ld. A.O u/s 68 of the Act.

Ld. Departmental Representative vehemently argued supporting the order of Ld. A.O.

Per contra Ld. Counsel for the assessee referring to the submissions made before Ld. CIT(A) and the documents placed in the paper book submitted that the alleged two cheques of Rs.90 lakhs and Rs.80 lakhs were entered into the books on 30.3.2011 and 31.3.2011 respectively on the dates mentioned on these cheques. At that point of time the validity of cheques was for 6 Divya Jyoti Industries Ltd months. It is true that the cheque book containing these two cheques was issued by the bank to its customer namely Gajanand Ramlal Agrawal on 28.6.2011 and the cheques were issued to the assessee in August, 2011 and the same were cleared in the bank on 6.8.2011 and 12.8.2011. However as the cheques issued in August, 2011 to the assessee were dated 30.3.2011 and 31.3.2011 and the books of accounts were not closed due to tax audit undergoing, the entry for two loan amount of Rs.90 lakhs and Rs.80 lakhs were entered into the books of accounts on the date mentioned on the cheques. These cheques were shown to be in hand with the assessee at the close of the year and have been taken into consideration in the bank reconciliation statement. As the assessee is maintaining the accounts on mercantile system, these entries were made on the date mentioned on this cheques. Apart from this mistake, no inconsistency has been observed by the Ld. A.O about the identity, genuineness and creditworthiness of the transactions. Even the similar amount of addition made in the hands of Gajanand Ramlal Agrawal stands deleted by Ld. CIT(A)-II, Indore vide his order dated 31.12.2015 which further substantiate the contention that the alleged loan of Rs.1.70 crores should not be 5 Divya Jyoti Industries Ltd Ld. CIT(A) has rightly deleted the addition.

We have heard rival contentions and perused the records placed before us. The sole grievance of the revenue is against the deletion and addition of Rs.1.70 crores by Ld. CIT(A) for the addition made u/s 68 of the Act by Ld. A.O for treating the loan of Rs.90 lakhs and Rs.80 lakhs from Gajanand Ramlal Agrawal as unexplained cash credit u/s 68 of the Act. We observe that the Ld. CIT(A) deleted the addition of Rs.1.70 crores observing as follows;

On perusal of the finding of Ld. CIT(A) and the records placed before us we observe that the assessee has regular business transaction with Gajanand Ramlal Agrawal for purchase of soya bean. Ledger account of the business transaction of purchase of soya bean. and the payments made against it are shown at page 23 & 24 of the paper book and as on 31.3.2011 the credit balance of Rs.28,49,306/- is shown in the name of Gajanand Ramlal Agrawal 7 Divya Jyoti Industries Ltd (Goods Account) which forms part of the list of sundry creditors appearing under the head current liabilities & provisions of the audited balance sheet dated 12.8.2011 placed at page 20-21 of the paper book. In this ledger account following three entries are also part of the total transactions;

The above referred three transactions which was one of the basis adopted by Ld. A.O for making the addition are actually amount paid against the goods purchased from Gajanand Ramlal Agrawal by way of three cheques bearing No. 16732, 16733 and 16734 issued in the close of financial year 2010-11 and cleared in August, 2011 in the subsequent financial year. This fact is verifiable from the bank statement and bank reconciliation statement placed on record. The confirmation for these three transactions have also been received from Gajanand Ramlal Agrawal and further this fact has been appreciated by Ld. CIT(A) in 8 Divya Jyoti Industries Ltd 18.12.2015 passed in the case of Gajanand Ramlal Agrawal adjudicating the very same issue of the above referred three transactions totaling Rs.1.70 crores. In that order Ld. CIT(A) has held that the three credit transactions are duly reflected in the books of the party and have been carried out through proper banking channel and Ld. A.O has not found any infirmity in the transaction entered in the alleged course of the business. So we can safely conclude that the alleged three entries of totaling Rs.1.70 crores have no relation with the alleged transaction of receiving loan of Rs.90 lakhs and Rs. 80 lakhs by the assessee from Gajanand Ramlal Agrawal and therefore the first basis taken by Ld. A.O of linking this trade transaction with the loan transaction is baseless.

Now the second basis for making addition by Ld. A.O that the loan amount of Rs.1.70 crores received by two cheques of Rs.90 lakhs and Rs.80 lakhs were entered in the books on30.3.2011 and 31.3.2011. The cheque books through which these cheques were issued were received by Gajanand Ramlal Agrawal from the bank in the subsequent financial year on 28.6.2011 and the cheques were physically given to the assessee in August, 2011 but the dates were Divya Jyoti Industries Ltd 30.3.2011 and 31.3.2011. Ld. A.O raised the objection for the alleged entering of the transaction in March, 2011 even when the cheques were not in hand with the assessee. It is a well accepted fact that before the finalization of the audit and filing of the income tax return certain entries relating to the year of audit may be journal or others are entered in the books before finalizing the balance sheet. Assessee is having regular business transactions with Gajanand Ramlal Agrawal as evident from the ledger account. For the business expediency assessee took loan from Gajanand Ramlal Agrawal and the cheques through were physically received by the assessee in August, 2011 and were presented in bank for clearing in August, 2011 and same were cleared, but for showing the transaction in the books of account for financial year 2010-11 both the cheques were issued with dates 30.3.2011 and 31.3.2011 and the assessee maintaining the accounts on mercantile basis of accounting entered the transaction on the date mentioned on the cheques which were falling in financial year 2010-11. The loan amount is duly reflected under the list of unsecured loans. The account payee cheque have been cleared through proper banking channel in August, 2011. Revenue 10 Divya Jyoti Industries Ltd authorities have not disputed about the creditworthiness and identity of cash creditor Gajanand Ramlal Agrawal. Even the genuineness is not in doubt because the cheques are actually cleared in the bank account. Merely for entering the transaction in March, 2011 and the cheque getting cleared in August 2011 cannot be a reasonable basis to treat the loan amount as unexplained u/s 68 of the Act because the validity of cheque was for 6 months at that point of time. The alleged transaction is duly reflected in the books of both the parties, duly confirmed by the cash creditor Gajanand Ramlal Agrawal, bank statements and bank reconciliation statements clearly shows the alleged transactions and from all four corners, we can safely conclude that the alleged transactions of loan of Rs.1.70 crores is duly explained and identity, genuineness and creditworthiness of the cash creditor is not doubtful.

We therefore in the given facts and circumstances of the case we find no inconsistency in the finding of Ld. CIT(A) deleting the addition of Rs.1,70,00,000/-, and thus we uphold the same and dismiss the appeal of the revenue.

In the result both the grounds of the revenue’s appeal are dismissed.