M/S. FROLIC REALTY PRIVATE LIMITED,INDORE vs. THE ITO 3(3), INDORE

PER MANISH BORAD.

The above captioned three appeals filed at the instance of three different assessees pertaining to Assessment Year 2010- 11 are directed against the orders of Ld. Commissioner of Income Tax (Appeals)-I (in short ‘Ld.CIT(A)’], Indore dated 22.12.2014 which are arising out of the orders u/s 143(3) dated 30.03.2013 framed by ITO-3(3), Indore.

Avocado Trading Co. and others ITA Nos.362 to 364/Ind/2012

In the case of Avocado Trading Company Private Limited in ITA No.362/Ind/2015, grounds raised by the assessee are as follows:

GROUND 1: ADDITION OF SHARE APPLICATION MONEY u/s 68: 1.On the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (Appeal)-1 Indore ("CIT(A)") erred in upholding the action of the Income tax Officer 3(3), Indore (" the AO") in making addition of share application money amounting to Rs. 94,00,000/- received towards share capital and share premium under Section 68 on the alleged ground that it is unexplained cash credit. 2. The Appellant prays that the said addition be deleted. GROUND 2: ADDITION OF TRADE ADVANCES AS UNEXPLAINED CREDIT 1.On the facts and in the circumstances of the case and in law, the CIT(A) erred in the upholding the action of the AO in making addition of trade advances amounting to Rs.24,77,18,200/- u/s 68 of the Act 2.The CIT(A) failed to provide an opportunity of cross examination of the persons whose statement was relied by AO while making impugned additions. 3. The Appellant prays that since the Identity, credit worthiness and genuineness was proved by the Appellant, the impugned addition be deleted. GROUND 3: ADHOC DISALLOWANCES 1.On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in upholding the various adhoc disallowances made by AO amounting to Rs.2,62,243 towards Audit fees, bank charges, salaries, etc. and Rs. 78,148 towards depreciation on vehicle. 2. The Appellant prays that the said disallowances be deleted. In the case of Aspirant Mercantile Company Private Limited in ITA No.363/Ind/2015, grounds raised by the assessee are as follows:

GROUND 1: ADDITION OF SHARE APPLICATION MONEY u/s 68: 2.On the facts and circumstances of the case and in law, the learned

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Commissioner of Income Tax (Appeal)-1 Indore ("CIT(A)") erred in upholding the action of the Income tax Officer 3(3), Indore (" the AO") in making addition of share application money amounting to Rs. 1,15,00,000 received towards share capital and share premium under Section 68 on the alleged ground that it is unexplained cash credit. 2. The Appellant prays that the said addition be deleted. GROUND 2: ADDITION OF TRADE ADVANCES AS UNEXPLAINED CREDIT 3.On the facts and in the circumstances of the case and in law, the CIT(A) erred in the upholding the action of the AO in making addition of trade advances amounting to Rs.9,03,41,500 u/s 68 of the Act 2.The CIT(A) failed to appreciate and ought to have held that Rs.9,03,41,500 is actually repayment of trade advance of Rs.9,48,51500 leaving balance of Rs.45,00,000 3.The CIT(A) failed to provide an opportunity of cross examination of the persons whose statement was relied by AO while making impugned additions. 4.The Appellant prays that since the Identity, credit worthiness and genuineness was proved by the Appellant, the impugned addition be deleted. GROUND 3: ADHOC DISALLOWANCES 2.On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in upholding the various adhoc disallowances made by AO amounting to Rs.2,60,947 towards Audit fees, bank charges, salaries, etc. and Rs. 78,148 towards depreciation on vehicle. 2. The Appellant prays that the said disallowances be deleted.

In the case of Frolic Realty Private Limited in IITA No.364/Ind/2015, grounds raised by the assessee are as follows:

GROUND 1: ADDITION OF SHARE APPLICATION MONEY u/s 68: On the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (Appeal)-1 Indore ("CIT(A)") erred in upholding the action of the Income tax Officer 3(3), Indore (" the AO") in making addition of share application money amounting to Rs. 1,15,00,000 received towards share capital and share premium under Section 68 on the alleged ground that it is unexplained cash credit.

Avocado Trading Co. and others ITA Nos.362 to 364/Ind/2012

Avocado Trading Co. and others ITA Nos.362 to 364/Ind/2012

Avocado Trading Co. and others ITA Nos.362 to 364/Ind/2012

the cases of Avocado Trading Company Private Limited, Aspirant Mercantile Company Private Limited & Frolic Realty Private Limited, respectively. Both the lower authorities have held the alleged share applicants as bogus and accommodation entries provider.

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certificate of incorporation of the companies and the proof of receiving share application money by account payee cheques. Even in the remand report Ld. AO has categorically mentioned that in the case of Jodhpur Ispat Private Limited, Bhiwandi, Maharashtra, Benco Iron Steel Private Limited and Gandhar Spinning Mills Private Limited the alleged share applicants have confirmed that they have been allotted respective number of equity shares. Thus, it emerges that the assessee tried its level best by furnishing necessary details to explain the source of share application money, but could not escape the addition. Further looking to the fact that only around two weeks were provided to make necessary compliance, we, being fair to both the parties and applying the principles of natural justice, are of the considered view that this common issue deserves to be set aside to the file of Ld. AO for afresh examination as the assessee deserves one more opportunity in order to satisfy the assessing officer about identity, genuineness and creditworthiness of the alleged share application money of Rs.94,00,000/-, Rs. 1,15,00,000/- and Rs. 1,15,00,000/- in the cases of Avocado Trading Company Private Limited, Aspirant Mercantile Company Private Limited & Frolic

Avocado Trading Co. and others ITA Nos.362 to 364/Ind/2012

Realty Private Limited, respectively. Needless to mentions that a proper opportunity of being heard as well as reasonable time to be provided to the assessee and alleged share applicants. Before deciding the issue Ld. AO should give cognizance to remand report dated 17.09.2014 and other details/evidence and documents furnished before him, in order to satisfy about identity, genuineness and creditworthiness of the alleged share applicants. Accordingly this common issues raised in ground no.1 of each of the three appeals is allowed for statistical purposes.

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application money (as has been discussed by us in the preceding paras), the Ld. AO also inquired about the transactions entered with M/s Satguru Iron & Steel P. Ltd. wherein total credits for the year amounted to Rs.13,42,08,200/-, unsecured loan from Shreeyam Power & Steel Pvt. Ltd. of Rs.10,76,60,000/- and the amount received at Rs.48,50,000/- from Frolic Reality Pvt. Ltd. and Rs.10,00,000/- from Benco Finance and Investment Pvt. Ltd. During the course of assessment proceedings assessee submitted that these are regular trade advances having debit and credit transactions during the year and they are not in the nature of unsecured loans but Ld. AO was not convinced and he made the addition for Rs.24,77,18,200/- for the alleged trade advances/cash credits. Against their addition assessee failed to get any relief from Ld. CIT(A) who too raised suspicion on the genuineness of the transactions and confirmed the addition of Rs.24.77 cr. observing as follows:

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objective of its own and all its transactions are directed & controlled by the Ruchi Soya Group. It does not require elaborate arguments to prove this point. Appellant is not doing any real business and few transactions of trading of yellow peas is shown with a little help from Ruchi Soya Group to create a facade. Even for such facade of a small time trader appellant has no requirement of its own, either to raise a huge share capital & share premium of Rs.24.80 crore or to take unsecured loans of Rs.10 lacs from M/s Benco Finance & Investment P. Ltd., Rs.48,5O,000/- from M/s Frolic Reality P. ltd, Rs.10.76 crore from M/s Shreeyam Power & Steel Industries ltd. & Rs.13,42,08,200/ - from M/s Satguru Iron & Steel P. ltd. All these transactions therefore do not make any business sense, so far as appellant is concerned, but they have been carried out keeping in mind transfer of funds to beneficiary companies in guise of share capital/ share premium/loans/business transactions etc. Although appellant is not a real trader & have only a facade of a trader, but even for a moment if we consider, that it is a real trader of commodity, its normal transactions will be of purchase & sale of commodity & for a turnover of Rs.14.80 crore in commodity market in whole of the year, requirement of funds as loan/share capital is at the most 1/ 10th of such amount i.e. Rs.l.48 crore as there is continuous rotation in trading activity. But as against that requirement, appellant has raised a share capital & share premium of Rs.24.80 crores & over and above that , appellant is showing receipt of unsecured loans of Rs.24.77 crore. So appellant has shown total cash credits in it.s accounts to the extent of Rs.49.57 crores for arriving at a trading turnover of Rs.14.80 crore. Though some of loans were returned back, but fact remains that at some point of time during the year, such loans were outstanding & fact that such loans were not used for any business purpose by appellant, is also not controverted by appellant. 11.1 In fact, on being confronted with such daunting task to explain these huge credits, appellant came up with a funny idea during remand proceedings before the AO, that transactions of Rs.13.42 crores with M/s Satguru Iron & Steel P. ltd are not unsecured loans but trade advances & while they want to purchase some commodity item from appellant, appellant wanted to purchase Steel from them. Firstly not an iota of evidence is there to show any purchase or sale of steel/ commodity between the two. Secondly that is pitiable nature of such companies, as both the companies here i.e. appellant & M/

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s Satguru Iron & Steel P. ltd being shell companies of Ruchi Soya Group, who were projected as doing some trade, suddenly changed nature of trade, as a result of which appellant who was trader of yellow peas was suddenly shown as ordering certain steel from M/s Satguru Iron & Steel P. ltd & vice-versa. In view of this the subsequent statement of some other director namely Sh. Vijay Rao of M/s Satguru Iron & Steel ltd recorded during remand proceeding, who explained this as "trade advance" even further exposed the modus operandi of appellant. 11 !lie transactions of Rs.13.42 crore with M/s Satguru Iron & Steel P. ltd could not be explained as unsecured loan, as there was no requirement of such loans, than appellant tried to explain it as "trade advance". But there are no purchases or sales between these two concerns during the year. Then same question persists - what is the need of such trade advance & why will appellant as a trader of yellow peas would give advance for purchase of steel. So the question of purpose of taking such credit of Rs.13.42 crore from M/s Satguru Iron & Steel P. ltd remain unanswered because appellant is a shell company & this transaction, as well as other credit transactions do not make any sense from the point of view of appellant. 11.2 This point is beautifully captured by AO in the statement of one of the directors Sh. Shailesh Gupta of M/s Satguru Iron & Steel P. ltd. recorded by AO during assessment proceedings, in which the director failed to answer all relevant questions as he failed to tell as to who signs the cheques or who are share holders or where are bank accounts of M/s Satguru Iron & Steel P.ltd., of which he was a director. In a real company, director knows answers to all these questions. But namesake directors of paper I shell companies do not know answers of such simple questions, because such companies exist on papers, they do business on papers only, their directors merely exist on papers & in reality they are employees of beneficiary co. Rotation of slush funds & transfer of the same to beneficiary cos of Ruchi Soya Group is being done by select group confident, in this case by Sh. Ravindra Kumravat group accountant & the so called directors of shell companies ware not privy to such rotation of funds & that is why they hardly knew anything about such shell companies. In this case Sh. Shailesh Gupta was an employee of M/s National Steel & Agro ltd for past 18 years, was projected as a director of M/ s Satguru Iron & Steel P. ltd. but he existed as director on paper as he had no knowledge about activities of such company. Furthermore he stated that the

Avocado Trading Co. and others ITA Nos.362 to 364/Ind/2012

other director of such company- was Mrs. Reena Gomes, who interestingly was also director of appellant company namely M/s Avocado Trading Co. P. Ltd., but during remand proceedings they produced a third person Mr. Vijay Rao for examination before AO. Appellant's hesitation in producing same directors namely Sh. Shailesh Gupta (for M / s Satguru Iron & Steel P. ltd.), Sh. Dinesh Gupta (M/s Frolic Reality P. ltd) & Shri Vijay Unde (M/s Shreeyam Power & Steel Ind.) during remand proceedings before AO proved two things firstly that proves the ignorance of those directors regarding such shell companies as the statements of such directors recorded during assessment became final, as procedure required that same directors should have been produced before AO for examination during remand proceedings but appellant failed to do that & thus statements of those directors became final & those statements could not be reversed by statements of some other directors/employees recorded during remand proceedings. Secondly during remand proceedings AO did not follow the procedure as he did not demand for production of same directors. AO also did not act on his brief, as it was not sheer confirmation of loan entry which was required to be asked in a statement, for which even a confirmation letter could do, but what was required here was to examine whether there was any need of such huge loans/share capital in business of appellant as a trader & whether any real business was carried out by such company and whether such directors were aware of various facts about the company. In view of such discussion, it is clear that entire of such credits of Rs.24.77 crore remained unexplained, as absolutely no business purpose was shown by appellant for taking such loans. 12. Aggrieved assessee is now in appeal before the Tribunal.

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M/s. Frolic Reality P. Ltd. stands explained. As regards the advance of Rs.13,42,08,200/-, it was submitted that the total of these transactions were carried out on the same date i.e. 31.03.2010 and they were corresponding debit entries of Rs.13,42,08,200/- and the net debit balance of the year was Rs.20,00,000/-. With Regard to the unsecured loan of Rs.10,76,60,000/-, it was submitted that the Deputy General Manager of M/s. Shreeyam Power & Steel Industries Ltd., Mr. Vijay Unde, was produced before Ld. Assessing Officer along with the necessary documentary details and it was stated that amount of Rs.10,76,60,000/- has been given by Shreeyam Power & Steel Industries Ltd. to the assessee company. Ld. counsel for the assessee also relied on the following written submission filed during the hearing: 1 REGARDING ADDITION ON ACCOUNT OF TRADE ADVANCES – Rs. 58,50,000/-

During the year under consideration the Appellant has received Trade Advances from following parties: Name of Lender Amount in Rs.

M/s Benco Finance Private 10,00,000 Limited M/s Frolic Reality Private 48,50,000

Avocado Trading Co. and others ITA Nos.362 to 364/Ind/2012

Limited

2.1. That during the assessment proceedings Appellant has submitted various documents to prove the identity of the creditors, genuineness and creditworthiness and some documents has been filed along with the paper book. Below is the snapshot showing the documents filed before the LD AO.

2.2 That during the Assessment proceedings the Appellant produced the directors of M/s Benco Finance and Investments and M/s Frolic Realty Private Limited i.e Shri Vijay Koshti and Shri Dinesh Gupta respectively before the AO and their statements were recorded and The learned AO made impugned addition of the advances on the ground that the directors were not able to answer some questions properly and assumed that the identity and creditworthiness are doubted.

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2.5 Strong reliance is placed on remand report dated 17/09/2014 REMAND PROCEEDINGS In the remand proceedings as regards the advance from M/s Benco Finance Private Limited the Director Shri Vijay Koshti once again appeared and confirmed the transaction of trade advance been made by his Company. On enquiry he stated that he was not able to answer certain queries in the Assessment proceedings since he had became a Director in the Company in the month of February 2013 only and in such small time he was not aware of entire framework of the Company. Moreover he was not allowed to refer any documents and consult his employees since nobody was allowed in the cabin when the statement was being recorded. In respect of trade advance received from M/s Frolic Realty Private Limited another director Shri Rajendra Magar appeared and confirmed the transaction of impugned loan as trade advance. With regard to statement of Director Shri Dinesh Gupta which was recorded in Original Assessment Proceedings he stated that Shri Gupta was looking after marketing function of the Company and therefore was not aware of administrative function of the Company. Further in Para 5.1.1, 5.1.2 & 5.2 of Remand Report dated 17/09/2014 the LD AO has accepted the genuineness of the transaction relevant para are reproduced as under:- 5.1. In reply to the notice u/s 133(6) of th Act mentioned supra the share applicants, Jodhpur Ispat Pvt. Ltd., Bhiwandi, Benco Iron & Steel Pvt. Ltd and Gandhar Spinning Mill Pvt. Ltd, vide their letter dated 6th and 8th September, 2014, have confirmed that they had paid Rs. 24,00,000/-, Rs. 21,50,000/- and Rs, 48,50,000/- respectively, totaling to Rs. 94,00,000/-, to the assessee company towards share application money. It was also confirmed ha they have been allotted respective number of equity shares. In support of the contention they have furnished the copy of share application and share allotment letter. The payment was made through cheques.

5.1.1. Since the share applicants have confirmed the transaction with supporting documentary evidences. it appear that the transaction was genuine.

5.1.2. Regarding unsecured loans from Benco Finance & Investment Pvt. Ltd., the director, $hri Vijay Koshti, was once again called »[« 131 of the Act and his statement was recorded. In his statement he has categorically stated that his company, Benco Finance & Investment, had

Avocado Trading Co. and others ITA Nos.362 to 364/Ind/2012

given advance of Rs. 10 1akh to the assessee company out of its reserves and surplus. When asked as to why he was not able to answer the important questions asked by the AO at the time of assessment proceedings, he answered that he became the: director of the company in the month of February. 2013 only and, therefore, at that time he was not aware of the entire frame work of the company. He also stated that at the time of recording statement nobody was allowed to sit with him.

5.1.3. In respect of Frolic Reality Pvt. Ltd., the director, Shri Rajendra Magar, was called u/s 131 of the Act and his statement was recorded. In his statement Shri Magar has categorically stated that his company had given Rs. 4850,000/- to the assessee company during the period under consideration as trade advance. Regarding the statement given by Shri Dinesh Gupta during the course of assessment proceedings, 8M Magar has stated that the reason may be that since Shri Gupta was looking after marketing area of the company he was not aware of the administrative side of the business. In support of his contention he has furnished the copy of bank account wherein the transaction appears.

5.2. In view of the above facts, it appears that the assessee had actually received the above sums from the two companies.

CONCLUSION: In view of above facts, circumstances, and submission made above it is submitted that the impugned addition on trade advances is based on presumptions and surmises and without prejudice to this in light of remand report dated 17/09/2014 the trade advances are genuine. Therefore it is humbly submitted before your Honour that the addition is bad in law, without jurisdiction and in breach of principle of natural justice and same deserve to be deleted.

3 REGARDING ADDITION OF REPAYMENT OF TRADE ADVANCES – RS. 13,42,08,200

3.1. During the year under consideration, the Appellant had taken and given various trade advances to M/s Satguru Satguru Iron and Steel Company Pvt. Ltd. Total of debit side of the account arrives at Rs.13,62,08,200/- and total of credit side arrives at Rs. 13,42,08,200/-. The balance amount of Rs. 20, 00,000/- was outstanding as on the year end and therefore, it was shown as debtor in Appellant’s books of account. The learned AO made addition only of the credit side of the account ignoring 17

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the debit entries which is without appreciation of facts and in gross violation of principles of natural justice. 3.2. During the Assessment Proceedings the various documents were submitted before the AO to in regard to transaction.

Below is snapshot showing details of documentary evidences filed before LDAO

Strong reliance is placed by the appellant on remand report sent by the Ld. AO dated 17/09/2014 and the Finding of Remand report is extracted as under :

6.1. Here it is worth mentioning that from the assessment order it appears that the AD misconceived the transaction. In para 10 of the assessment order it is written that "Assessee company had made payment of Rs. 13162,08.200/~ to Satguru Iron &: Steel and received Rs. 13,42,08,200/-. Thus there remains debit balance of Rs. 20,OO,000/,- of Satguru Iron & Steel Co. Pvt. Ltd.", In fact, as can be seen from the documents on record and as has been explained by the director, with documentary evidence , the above transactions were in the shape of trade advances. The assessee company had advanced some money to Satguru Iron & Steel Company Pvt. Ltd. for purchase of iron & steel and Satguru Iron & Steel Co. Pvt. Ltd. had also advanced some money for purchase of dal etc. However, due to cancellation of the deal, 'the advances were returned back. The balance Rs, 20 lakh was remaining with Satguru Iron & Steel, as has been explained by the director. This fact was also confirmed by Satguru Iron & Steel Co. Pvt. Ltd. vide their confirmation letter dated 12.06.2010 which was also filed in remand proceedings. Therefore, the sum of Rs. 13,42,08,200/was not the money of Sat guru Iron & Steel as has been held by the AO.

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3.5 Without prejudice to above – the Addition of Only Credit Entries Shows Non Application of Mind

• Creditors for purchases Creditors for purchases – applicability of s.68 applicability of s.68 Once purchases accepted as genuine Once purchases accepted as genuine – outstanding credit outstanding credit liability of such purchase cannot be a treated as unexplained cash credit unexplained cash credit – CIT v. Pancham Dass Jain (2006) CIT v. Pancham Dass Jain (2006) 156 Taxman 507 (All); Annamaria Travels & Tours (P.) Ltd. v. DCIT (2005) 95 TTJ 71 (Del); Manoj Agarwal v. DCIT (2008) 113 ITD 377 (Del) (SB) Even otherwise, if purchase is considered as non-genuine, genuine, it would be disallowed u/s.69C or trading results would be rejected and profits estimated or unexplained capital investment for making such purchases added u/s.69, hence, in any eventuality, sec.68 may not be applicable. • It is submitted that the addition is made without application of mind and based on conjectures and surmises deserves to be deleted. The Supreme Court in Dhakeshwari Cotton Mills Limited v. CIT (26 ITR 775) has held that the ITO cannot make assessment on a pure guess without any evidence or material and hence, such ad hoc disallowance is unjustified. • In CIT Vs. Ramesh Bhayana (296 ITR 101(P&H)): wherein it has been held that Mere conjectures and surmises cannot form basis for making additions • That the learned AO cannot treat only one side (i.e.) credit side as bogus and make addition when he himself is accepting the debit side there of as correct. • In case of ITO v. Nisha Danish Merchant (I.T.A.NO.4329/Mum/2009) it was observed that it is not every figure of credit found in bank accounts which may constitute income and the account needs to be seen as a whole. In that case also only credit entries were considered and debit side of Bank Account was ignored by the AO. The CIT(A) deleted the additions and ITAT dismissed the appeal of revenue. • Similarly in case of ITO v. Shubh Medicine (ITA No. 456/Rjt/2008) it is held that the assessing officer has grossly erred in treating only one side of the account whereas he ought to have considered both the sides of the statement, the debits and the credits

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• Also in the case of ITO v. Rakesh Mehra (ITA No. 5463/Del/2011) it is observed that only credit sides cannot be considered and debit entries should also be considered by the Assessing Officer. 3.7. Since in the instant case there is net debit balance therefore the addition made by learned AO is unwarranted and uncalled for. Accordingly the Appellant prays that the same be deleted. Accordingly it is submitted that the said addition without any application of mind be directed to be deleted. In view of the above, we have explained the transaction based on documentary evidence, the transaction cannot be treated as unexplained and therefore, the application of section 68 of the Act is not warranted.

CONCLUSION: It is submitted that the Identity, Creditworthiness and Genuineness of the transaction is proved since the Director of the Company appeared and confirmed the transaction alongwith explanation of source of such advance. Also it is an admitted fact that all the transactions were carried out through proper Banking Channels. Accordingly it is humbly prayed that the addition deserves to be deleted even on merits in light of remand report dated 17/09/2014. 4 REGARDING ADDITION OF UNSECURED LOAN – RS. 10,76,60,000 4.1. That Appellant has field documentary evidences before the LD AO to proof the identity of the creditor, genuineness, Creditworthiness of the creditor. Below is snapshot showing the details of documentary evidences filed before LD AO

4.2 During the year under consideration the Appellant received Rs. 10, 76, 60,000 from M/s Shreeyam Power and Steel through proper Banking Channels as same is evident from documentary evidences. During the

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Original Assessment Proceedings the Appellant produced Shri Vijay Unde, DGM of Shreeyam Power and Steel before the AO. Reliance is placed on remand report dated 17/09/2014: During the Remand Proceedings Shri Navneet Pawar, the Finance Manager of Shreeyam Power and Steel P. Limited appeared before the AO and confirmed the transaction and explained the source of such loan given and furnished the ledger account also. As regards the statement of Shri Vijay Unde he submitted that Shri Unde is DGM of Company and did not handle overall work therefore he may not be able to answer certain questions. Since the Identity was established by the appearance of authorized person who explained the creditworthiness of the credit by demonstrating the sources the learned AO has expressed his satisfaction in Para 6.3 of his report on the genuineness of the transaction. 14. Ld. counsel for the assessee also referred and relied to the judgment of Hon'ble High Court of Allahabad in the case of CIT, Gorakhpur vs. Abdul Haseeb, Prop. M.S. JB Silk & others ITANo.213 of 2007 dated 5th September, 2014 submitting that only net effect of the transactions with the concern should be considered and not only the credit entries.

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Total–Rs.24,77,18,200/-

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genuineness of financial transactions entered into by these two companies.

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transaction was not aware of the administration work because he looks after the marketing areas. It is also pertinent to note that in the remand report Ld. AO has specifically mentioned that “it appears that assessee had actually the received above sums from the two companies”.

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Ld. AO while examining the ledger account of SISPL observed that as on 31.03.2010 there was various credit entries totaling to Rs.13,42,08,200/- received by cheques. None of these cheques cleared during the year there were certain debit entries also on the very same date i.e. 31.03.2010 but the ld. AO only considered the credit entries in isolation and took a view that the alleged credits are not genuine and made the addition, Ld. CIT(A) also confirmed the view treating it to be accommodation entries.

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assessee's AR has submitted the name and address of the director of the company. In order to ascertain the nature of the transaction and genuineness thereof the director of Satguru Iron & Steel Pvt. L d., Shri Vijay Rae, was summoned and his statement on oath was recorded on 04.09.2014. In his statement, in reply to question o. 12 (a page 3) he has categorically stated that both his company and the assessee company had used to give and take trade advances for purchase of dal and iron. Sometimes due to some unforeseen reasons the deals were cancelled and the advance amount got repaid or received back as the case may be. At the end of the period relevant to AY 2010-11 a sum of Rs. 20.00,000/- was with his company. In support, he has produced account statement of his company showing the transactions. 6.1. Here it is worth mentioning that from the assessment order it appears that the AD misconceived the transaction. In para 10 of the assessment order it is written that "Assessee company had made payment of Rs. 13162,08.200/~ to Satguru Iron &: Steel and received Rs. 13,42,08,200/-. Thus there remains debit balance of Rs. 20,OO,000/,- of Satguru Iron & Steel Co. Pvt. Ltd.", In fact, as can be seen from the documents on record and as has been explained by the director, with documentary evidence , the above transactions were in the shape of trade advances. The assessee company had advanced some money to Satguru Iron & Steel Company Pvt. Ltd. for purchase of iron & steel and Satguru Iron & Steel Co. Pvt. Ltd. had also advanced some money for purchase of dal etc. However, due to cancellation of the deal, 'the advances were returned back. The balance Rs, 20 lakh was remaining with Satguru Iron & Steel, as has been explained by the director. This fact was also confirmed by Satguru Iron & Steel Co. Pvt. Ltd. vide their confirmation letter dated 12.06.2010 which was also filed in remand proceedings. Therefore, the sum of Rs. 13,42,08,200/was not the money of Sat guru Iron & Steel as has been held by the AO. 6.2. In view of the above fact it appears that the addition of Rs.

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13,42,08,200/was made owing to a misconception. 21. The above remarks of the assessing officer in the remand report, clear various facts, and thus it emerges that the assessee entered into business transactions with M/s Satguru Iron & Steel Pvt. Ltd. on 31.03.2010. Various cheques totaling to Rs.13,42,08,200/- were received and on the very same dated various cheques totaling to Rs.13,62,08,200/- were issued leaving behind net debit balance of Rs.20,00,000/-. Documentary evidence were placed to prove that the transactions were in the nature of credit advance towards purchase of iron steel from M/s Satguru Iron & Steel Pvt. Ltd. as well as for purchase of pulses. Due to cancellation of the deal, advance were returned back. All these transactions have been duly confirmed by M/s Satguru Iron & Steel Pvt. Ltd. It is surprising to note that the assessing officer has applied the pick and choose theory by only concentrating on the credit amount of chques totaling to Rs. 13,42,08,200/- received on 31.03.2010 but completely ignored the debit entries in the form of various cheques, issued for Rs.13,62,08,200/-. In the instant case all these transactions of debit and credit have taken place on the same date i.e. 31.03.2010.

Avocado Trading Co. and others ITA Nos.362 to 364/Ind/2012

In CIT Vs. Ramesh Bhayana (296 ITR 101(P&H)): wherein it has been held that “Mere conjectures and surmises cannot form basis for making additions. That the learned AO cannot treat only one side (i.e.) credit side as bogus and make addition when he himself is accepting the debit side there of as correct”.

In case of ITO v. Nisha Danish Merchant (I.T.A.NO.4329/Mum/2009) it was observed that “it is not every figure of credit found in bank accounts which may constitute income and the account needs to be seen as a whole”. In that case also only credit entries were considered and debit side of Bank Account was ignored by the AO. The CIT(A) deleted the additions and ITAT dismissed the appeal of revenue.

Similarly Coordinate Bench of Rajkot in the case of ITO v. Shubh Medicine (ITANo.456/Rjt/2008) “it is held that the assessing officer has grossly erred in treating only one side of 28

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the account where as he ought to have considered both the sides of the statement, the debits and the credits”.

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advance received from M/s Satguru Iron & Steel Pvt. Ltd and the same deserves to be deleted.

Avocado Trading Co. and others ITA Nos.362 to 364/Ind/2012

Ld. AO was not convinced with the statement of Mr. Vijay Unde and accordingly treated Rs.10,76,60,000/- as unexplained credit u/s 68 of the Act and added to the income of assessee. Ld. CIT(A) also confirmed the view taken by the Ld. AO completely brushing aside the remand report dated 17.09.2014 given by the assessing officer wherein Ld. AO has made detailed examination about identity, genuineness and creditworthiness of the unsecured loan from M/s. Shreeyam Power & Steeel Industries Ltd. giving following remarks in the remand report dated 17.09.2014;

6.3. Regarding unsecured loan from Shreeyam Power & Steel Pvt. Ltd., in order to verify the genuineness of the transaction. the Finance Manager of that company was called u/s 131 of the Act. In his statement he has stated that his company, Shreeyam Power & Steel Pvt. Ltd., had given unsecured loan of Rs. 10,76,60,000/- to the aeseesee company vide cheques Nos. 785174 to 785116 da ed 18.03.2010. He has also explained the source of such unsecured loan. In support of his contention he has furnished the ledger account also. The AO made addition of the above sum u/$ 68 of the Act due to the reason that the person present could not explain the transaction properly. Further, no responsible person such as director attended on behalf of Shreeyam Power & Steel Pvt. Ltd. during the course of assessment proceedings. Now the director, who is the responsible person and having knowledge of the day to day affairs of the company, has explained the transaction with supporting documents. 7. During the course of remand proceedings, it has been explained by the assessee that some of the notices u/s 133(6) of' the Act issued during the course of assessment proceedings might have been returned back due to change of addresses. This fact came to the knowledge of the assessee company after the completion of the assessment proceedings. However during the course of remand proceedings, in reply to specific query in query letter, the assessee has provided the correct and complete present postal addresses of the concerned parties from whom confirm action have been

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obtained by issuing fresh notices u/s 133(6) 0 the Act. The information so received in compliance to such notices are placed on record. 27. On perusal of the above finding of the Assessing officer in his remand report, we observe that there is a substantial difference between the finding of the AO at the time of the assessment proceedings and the finding at the time of issuing remand report. During course of assessment proceeding when the alleged cash creditors M/s. Shreeyam Power & Steel Industries Ltd. was sent a notice calling the Director of the company to explain the transactions, Director could not attend and the Deputy General Manager attended the proceedings. Pursuant to which Ld. AO gave a finding that no responsible person attended on behalf of M/s. Shreeyam Power & Steel Industries Ltd., therefore, the identity of the company is not established. The other factors namely genuineness and creditworthiness were not examined treating them to be secondary. Whereas, in the remand proceedings Ld. AO again called for the Finance Manager of the Company u/s 131 of the Act who in his statement has categorically stated that unsecured loan of Rs.10,76,60,000/- has been given to the assessee company vide three separate cheques dated 18.03.2010. Finance Manager also explained the source of such unsecured loan 32

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along with filing necessary documents to prove identity, genuineness and creditworthiness. We find that in the remand proceedings Ld. AO had gone to the root facts of the issue and has gathered sufficient evidence to verify the transactions of unsecured loan of Rs.10,76,60,000/-. It is also pertinent to note that the account of M/s. Shreeyam Power & Steel Industries Ltd. was squared off during the year itself as the balance amount was transferred to Frugal Trading Co. Pvt. Ltd. which was duly received back in the subsequent year.

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and similarly there is no negative finding by both lower authorities about the identity, genuineness and creditworthiness of Frugal Trading Co. Pvt. Ltd.

Avocado Trading Co. and others ITA Nos.362 to 364/Ind/2012

adjudicated by us in the case of Avocado Trading Company Private Limited wherein also similar type of advance was received.

Avocado Trading Co. and others ITA Nos.362 to 364/Ind/2012

considered together the debit and credit entries entered into the books of accounts on same date before deciding the issue. Accordingly in our considered view the net effect of the debit and credit entries which in the instant case is debit balance of Rs.45,00,000/- there remains no possibility for making any addition u/s 68 of the Act. We, therefore, allow ground no.2 of assessee’s appeal in the case of Aspirant Mercantile Company Pvt. Ltd. and delete the addition made u/s 68 of the Act for alleged cash credit from Satguru Iron & Steel P. Ltd.

i. Trade advance/unsecured loan from M/s. Satguru Iron & Steel P. Ltd. at Rs.10,81,24,000/-.

ii. Rs.63,00,000/- received as loan from M/s. Shubh Mangal Traders P. Ltd.

Avocado Trading Co. and others ITA Nos.362 to 364/Ind/2012

Avocado Trading Co. and others ITA Nos.362 to 364/Ind/2012

Sanjay Khandelwal again appeared before the ld. AO and the statement was recorded on 04.09.2014. In his statement he confirmed that loan of Rs.63,00,000/- was given to the assessee company during the F.Y. 2008-09 and the amount was received back in the month of May, 2010. He also stated that source of loan was reserve and surplus of the company. Necessary evidence to prove identity and genuineness of the transactions stands already submitted. In our view the statements of the Director along with documents are sufficient enough to prove the identity, genuineness and creditworthiness of the alleged transactions of Rs.63,00,000/- received from Shubh Mangal Traders P. Ltd., which was repaid back during the financial year 2010-11. We thus find no justification in the finding of both lower authorities confirming the addition for unexplained cash credit u/s 68 of the Act and the same stands deleted and therefore, Ground No.2 in the appeal of assessee i.e. Frolic Reality Pvt. Ltd. is allowed.

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counsel for the assessee submitted that assessing officer disallowed the expenditure for want of necessary verification and therefore, one more opportunity may be provided to satisfy the assessing officer about the genuineness of the expenditure incurred.

Avocado Trading Co. and others ITA Nos.362 to 364/Ind/2012

for statistical purposes.

Sd/- Sd/- ( KUL BHARAT) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER �दनांक /Dated : 13th February, 2019 Patel/PS Copy to: The Appellant/Respondent/CIT concerned/CIT(A) concerned/ DR, ITAT, Indore/Guard file.

By Order, Asstt.Registrar, I.T.A.T., Indore