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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: HONBLE KUL BHARAT & HONBLE MANISH BORAD
Assessment Year: 2012-13 M/s. T. Logiks, ITO-3(1) बनाम/ AG-273, Scheme-74, Vijay Indore Vs. Nagar, Indore (Revenue) (Respondent) PAN: AAFCT9876B Revenue by Shri K.G. Goyal, Sr. DR Respondent by None Date of Hearing: 17.01.2019 Date of Pronouncement: 06. 02.2019 आदेश / O R D E R PER MANISH BORAD, A.M: This appeal by Revenue pertaining to A.Y. 2012-13 is directed against the order of Ld. Commissioner of Income Tax(Appeals)-I Indore, (in short ‘CIT(A)’), dated 31.01.2017 which is arising out of the order u/s 143(3) of the Income Tax Act 1961(hereinafter called as the ‘Act’) framed on M/s. T. Logiks ITANo.304/Ind/2017 30.03.2015 by ITO, 3(1) Indore. The Revenue has raised following grounds of appeal: 1.Whether on the facts and in the circumstances of the case, the Ld.CIT(A) has erred in law by deleting the addition of Rs.44,70,967/- made by the AO on account of sundry creditors without appreciating the fact that the assessee had not furnished any explanation or produced books for verification before the AO during the course of assessment proceedings or remand proceedings. 2.Whether on the facts and in the circumstances of the case, the Ld. Ld.CIT(A) has erred in law by deleting the addition of Rs.26,54,750/- made by the AO on account other liabilities and provisions without appreciating the fact that the assessee had not furnished any explanation or produced books of account for verification before the AO during the course of assessment proceedings or remand proceedings. 3.Whether on the facts and in the circumstances of the case, the Ld. Ld.CIT(A) has erred in law by restricting the addition of Rs.26,69,795/- to 11,24,565/- made by the AO on account of interest on loan and advances. 4.Whether on the facts and in the circumstances of the case, the Ld. Ld.CIT(A) has erred in law by deleting the addition of Rs.97,05,439/- made by the AO on account unexplained credits in capital account without taking any documentary evidences on record regarding the source of such huge capital. 5.Whether on the facts and in the circumstances of the case, the Ld. Ld.CIT(A) has erred in law by deleting the addition on account of unexplained credits in capital account without appreciating the fact that the assessee had not furnished any explanation or produced books of account for verification before the AO during the course of assessment proceedings or remand proceedings regarding the source of such huge introduction of capital. 6.Whether on the facts and in the circumstances of the case, the Ld. Ld.CIT(A} has erred in law by deleting the addition of Rs.5,OO,OOO/- made by the AO on account of generator charges without appreciating the fact that the assessee had not furnished any explanation or produced books of account for 2. M/s. T. Logiks ITANo.304/Ind/2017 verification before the AO during the course of assessment proceedings or remand proceedings.
2. No one appeared on behest of assessee even though the notice of hearing was duly served upon it. It was therefore, decided to hear this appeal with the assistance of the Ld. Departmental Representative and available records.
Brief facts as culled out from the records are that assessee is a partnership firm. Income of Rs.28,82,060/- was declared in e-return of income filed on 31.03.2014. Case was selected for scrutiny through CASS. Notices u/s 143(2) of the Act was duly served upon the assessee. However, the assessee did not attend the hearing and this failure to attend the hearing was thereafter followed by notices u/s 271(1)(b) of the Act and u/s 144 of the Act. Partial reply was submitted by the firm but for the remaining details non-appeared on 26.02.2015 which left no option before the assessing officer except to frame ex- parte assessment order u/s 144 of the Act, thereby making various additions totaling to Rs.2,46,24,636/- and assessing the income at Rs.2,75,06,696/-.
M/s. T. Logiks ITANo.304/Ind/2017 4. Aggrieved assessee preferred an appeal before the Ld. CIT(A) and partly succeeded.
Now the revenue is in appeal before the Tribunal against the deletion of addition by Ld. CIT(A) 6. Ld. Departmental Representative vehemently argued supporting the order of assessing officer.
We have heard the Ld. Departmental Representative (DR) and perused the record placed before us including the remand report dated 22.04.2016 prepared by ld. AO which was one of the basis with Ld. CIT(A) for adjudicating the issues raised by the assessee against the additions made by Ld. assessing officer.
Against various additions deleted by Ld. CIT(A), the issues raised by the revenue in Ground no.1 for addition of Rs. 44,70,967/- on account of unexplained sundry creditors, Ground no.2 for addition of Rs.26,54,750/- for unexplained liability and provisions, Ground no.3 for addition of Rs.11,24,565/- on account of interest on loan and advances, Ground No.4 & Ground No.5 for addition of Rs.97,05,439/- on account of unexplained credits in capital account, Ground No.6 for addition of Rs.5,00,000/- on account of generator charges. 4 M/s. T. Logiks ITANo.304/Ind/2017 9. One of the undisputed fact is that the assessee made no compliance before the assessing officer. All additional evidences in support of its contention were filed before the Ld. CIT(A) for the first time which were referred by the Ld. CIT(A) to the assessing officer calling for a remand report.
On 24.02.2016 remand report was prepared and submitted to Ld. CIT(A). Reference to this remand report has been made in the appellate order of ld. CIT(A) while framing the appeal order on 31.01.2017. The Ld. CIT(A) has deleted the addition mentioned in the grounds raised
by the Revenue observing as follows:( for sake of convenience we have mentioned the respective grounds raised by the Revenue) Ground no.1: Whether on the facts and in the circumstances of the case, the Ld.CIT(A) has erred in law by deleting the addition of Rs.44,70,967/- made by the AO on account of sundry creditors without appreciating the fact that the assessee had not furnished any explanation or produced books for verification before the AO during the course of assessment proceedings or remand proceedings. Finding of Ld. CIT(A)
11. Ground No. 3(c):- This ground of the appellant is directed against the addition of Rs.4470967/- being sundry creditors treated as bogus. The detailed facts of the case as per the' assessment order are reproduced at Para No.2 above and the detailed M/s. T. Logiks ITANo.304/Ind/2017 submissions of the appellant on the issue are reproduced at Para No. 3 above, The remand' report of the AO is reproduced at Para No.4 and the comments of the appellant are reproduced at Para No.5 above. 11.1 From the assessment order it is seen that addition has been made as no details were submitted by the appellant, during the course of appellate proceedings the appellant has filed the details. The amount of Rs.4470967/consists of the following Six Creditors:- M/s K. K. & Co. Rs.8000/ - Snehal Enterprises Rs.3144/- Shaheed Smriti Fuels Rs.1l2545/- Advance Rent Rs.1491627/- Ranbaxy Laboratories Ltd. Rs.600000 /- Ranbaxy Advance Rs.1242743/- In his remand report dated 22/04/2016, in respect of K. K. & Co. no adverse finding has been recorded by the AO, hence the amount is considered to be explained otherwise also it is only a carried forward balance from earlier years. In respect of M/s Snehal Enterprises AO has observed that in response to notice u/s 133(6) of The Act, the above concern has informed that there was no transaction during the year under consideration and hence credit not satisfactorily explained. On perusal of the ledger account placed on record, it is seen that the appellant has no transaction with M/s Snehal Enterprises during the year under consideration there was opening balance of Rs. 97644/- and there are two journal entries of Rs.23,000/- and Rs.71500/-, which as per narration are debits to M/s Pharmasia on account of payments made by M/s Pharmasia on behalf of the appellant to M/s Snehla Enterprises copy of account of M/s Pharmasia has also been filed wherein the said entries are duly reflected. In view of the above no adverse inference is justified on account of reply of M/s Snehal Enterprises as there was no 6 M/s. T. Logiks ITANo.304/Ind/2017 transaction with the appellant during the year. In respect of Shaheed Smriti Fuels copy of account has been filed and has been explained that the amount was due on account of diesel purchased by the appellant from the said party. M/s Shaheed Smriti Fuels is a proprietary concern of Ms. Shruti Jain and is duly assessed to tax copy of account has been filed confirming the balance. Copy of advance rent has been filed which shows that the amount was a carried forward opening balance being advance rent received from M/s Ranbaxy Laboratories Ltd. M/s Ranbaxy Laboratories Ltd. (advance deposit) of Rs.600000/- is also a carried forward balance. As regards, Ranbaxy Advance account of Rs.1242743/- the appellant flied a copy of lease agreement with the said company whereby an amount of Rs.5000000/- was given as interest free security deposit for carrying out modification in the building leased out to Ranbaxy Ltd. in 2009-10. Copy of ledger account from F. Y. 2009-10 to F. Y. 2011-12 was filed showing the adjustment of rent against the deposit. In view of the above explanation no adverse inference is called for in the light of the comments of the AO in the remand report that the notice issued to Ranbaxy Ltd. remained uncomplied. In view of the above discussion the addition of Rs. 4470967 [: is directed to be deleted. This ground of the appellant is therefore allowed. Rs.4470967/ - Deleted Ground No.2 Whether on the facts and in the circumstances of the case, the Ld. Ld.CIT(A) has erred in law by deleting the addition of Rs.26,54,750/- made by the AO on account other liabilities and provisions without appreciating the fact that the assessee had not furnished any explanation or produced books of account for verification before the AO during the course of assessment proceedings or remand proceedings.
M/s. T. Logiks ITANo.304/Ind/2017 Finding of Ld. CIT(A) 12. Ground No. 3(d):- This ground of the appellant is directed against the addition of Rs.2654 750/ - being other liabilities &, provisions namely Service tax and TDS held to be not allowable. The detailed facts of the case as per the assessment order are reproduced at Para 2 above and the detailed submissions of the appellant on the issue are reproduced at Para No. 3 above. The remand report of the AO is reproduced at Para No.4 and the comments of the appellant are reproduced at Para No.5 above. 12.1 The above amount of Rs.2654750/- consists of following four items:- 1.Service Tax Payable Rs.688035/- 2. Tax Deducted at Sources (2011-12) Rs.23309/- 3. UCO Bank (a/D) Rs.849567/- 4. Service Tax PayableF. Y. 2011-12 Rs.1093839/- As regards service tax the appellant has explained that the service tax of Rs.1093839/ - pertain.s to the service tax payable on rent of immovable property and has filed copy of rent account. On perusal of the same it is seen that the appellant has shown annual rent for the F. Y. 2011-12 of Rs.11713632/- against which service tax of Rs.1093839/- has been taken as deduction and the net rental income. of Rs.1061.9793/- is shown in the P & L account. From the copy of lease deed which has been filed by the appellant it is seen that the revised rent of the property was Rs. 884983/with effect from January 2010. As per the rent account the monthly rent received is Rs. 976136/-. The monthly rent received is 10.30% more than the rent to be received as per the rent agreement and the amount over and above the rent is the component of service tax which has been deducted by the appellant. Service tax does not partake the character of income in the hands of the 8 M/s. T. Logiks ITANo.304/Ind/2017 landlord and landlord is only the collection agent and hence as service tax is not income in the hands of landlord the outstanding service tax does not constitute income of the appellant and hence no adverse inference can be drawn on account of the same. As regards, UCO Bank O/D 1ccount the amount of Rs.849567/- is the O/Dt account balance and the interest component has already been paid before the due date and hence no diverse inference is called for on this account. e TDS of Rs.23309/ - has been paid and proof in this regard has been ed. In view of the above discussion the addition to be deleted. This ground of the appeal is therefore allowed. Rs.2654750/ - Deleted Ground No.3 Whether on the facts and in the circumstances of the case, the Ld. Ld.CIT(A) has erred in law by restricting the addition of Rs.26,69,795/- to 11,24,565/- made by the AO on account of interest on loan and advances. Finding of Ld. CIT(A) 13. Ground No. 3(e):- This ground of the appellant is directed against the addition of Rs. 2669795/- being interest on loans & advances disallowed in the absence of any documentary evidence in support of the said payment. The detailed facts of the case as per the assessment order are reproduced at Para No.2 above and the detailed submissions of the appellant on the issue are reproduced at Para No. 3 above. The remand report of the AO is reproduced at Para No.4 and the comments of the appellant are reproduced at Para No.5 above. 13.1 From the assessment order it is seen that the addition is made as no details of loans and advance and interest paid thereon were given at the time of assessment. During the course of appellate proceedings the appellant has submitted copy of 9 M/s. T. Logiks ITANo.304/Ind/2017 interest account according to which the total interest paid is Rs.3045880/- consisting of interest paid to UCO Bank O/D account, Pharmacos, Shri Babu Lal Jain & Partners. Against this total interest received from AFD Pharmasia is shown at Rs.5210169/- and the net interest of Rs.2164289/- is credited to the P & L account and in the computation of income filed after making adjustment, the said amount is shown as income from other sources. Another account of interest to TATA Capital Ltd. has been filed according to which the total interest paid is Rs.7691447/- which is debited to the P & L account. In the computation of income the appellant has added back the interest of Rs. 2669795/-, out of the total interest of RS.7691447 /- paid to Tata Capital Ltd., to the net profit as per P&L Account and has claimed it as a deduction under the head income from property and has explained that the amount of loan relatable to the said interest was attributable to the construction of the rented property and hence was deductible against the rent received. As regards the balance of Rs.5021652/- it has been explained that the same is relatable to sister concerns Pharmasia:Rs.368633/- AFD Pharmasia Rs.3948068/- and Vitamax Healthcare Rs. 704951/ - and is disallowed in the computation of the income from house property. However as noted above the amount of Rs.7691447/- is debited to the P&L Account and the same has not been adjusted in the computation of business income therefore the amount remaining after the adjustment of interest relatable to income from house property of Rs. 2669795/- i.e. Rs.5021652/- is claimed as a deduction in the computation of business income. The amount of Rs.5021652/ - has been worked out by adopting the interest rate of 7 % on the balances with the sister concerns. From the interest account it is seen that Rs. 5210169/- has been shown as credit of interest from AFD Pharmasia however no interest from Pharmasia and Vitamax Healthcare is shown. The 10 M/s. T. Logiks ITANo.304/Ind/2017 appellant has also not shown 'that the advances to these sister concerns were for the purposes of business and admittedly the loan from Tata Capital Ltd. was utilized in giving the interest free advance to these concerns. The disallowance of interest to the above extent i.e. Rs.368633/ - and Rs. 704951/ - is therefore confirmed in appeal. It is further seen that the interest of Rs. 50981/- paid to Shri Babulal Jain has been paid/credited without TDS and hence the same is not allowable as a deduction in view of the provisions of section 40 (a)(ia) .The addition of Rs. 2669795/- 1S therefore reduced to Rs.1073584/-+ Rs.50981/- = 1124565/-. The appellant gets relief of Rs. 1545230/-. This ground of the appellant is therefore partly allowed. Rs.1545230/- Deleted Ground No.4 Whether on the facts and in the circumstances of the case, the Ld. Ld.CIT(A) has erred in law by deleting the addition of Rs.97,05,439/- made by the AO on account unexplained credits in capital account without taking any documentary evidences on record regarding the source of such huge capital. Finding of Ld. CIT(A) 14. Ground No. 3(e):- This ground of the appellant is directed against the addition of Rs. 9705439/- being credits in capital account of the partners not satisfactorily explained. The detailed facts of the case as per the assessment order are reproduced at Para No. 2 above and the detailed submissions of the appellant on the issue are reproduced at Para No. 3 above. The remand report 9f the AO is reproduced at Para No.4 and the comments of the appellant ate reproduced at Para No.5 above. 14.1 From the assessment order it is seen that the addition is made as n details of addition to partners account was filed. During the course of appellate 11 M/s. T. Logiks ITANo.304/Ind/2017 proceeding the appellant has submitted the details of the credits Sr. Name of Partner Credit during Remark No. the year 01. Mr. Shailendra Jain 19,26,548 Rs.8,50,000/- was credited as additional capital. Further Rs.10,76,548/ -was credited as Interest on capital during the year.
Ms. Nayana Jain 20,65,682 Rs.15,50,000/ - was credited as additional capital. Further RS.5,15,682/-1 was credited as Interest on capital during; I the year. I 03. Ms. Saasha Jain 45,38,805 Rs.40,00,000 /- was credited asl additional capital. Further Rs.5,38,805/-1 I was credited as Interest on capital during the year.
4. Mr. Tanmay Jain 11,74,404 Rs.9,35,000/- was credited as additional capital. Further Rs.2,39,404/- was credited as interest on capital during the I year. I From the above explanation it is seen that fresh capital which has come ill. during the year is:- 1. Shri Shailendra Jain Rs. 850000/- 2. Ms. NainaJain Rs.155000/- 3. Ms. Asha Jain Rs.400000/- & 4. Shri Tanmay Jain Rs.935000/- Thus, total credits to capital account are to the tune of Rs.7335000/- and the balance amount is interest credited to the capital account. Appellant has filed, copies of accounts of the partners duly confirming the transaction alongwith their bank account. The partners are assessed to tax separately and the credit in the capital account is through banking channels and hence no adverse inference is warranted in the hands of the firm. The addition' is therefore directed to be deleted. This ground of the appellant is therefore allowed. Rs.9705439/-Deleted M/s. T. Logiks ITANo.304/Ind/2017 Ground No.5 Whether on the facts and in the circumstances of the case, the Ld. Ld.CIT(A} has erred in law by deleting the addition of Rs.5,OO,OOO/- made by the AO on account of generator charges without appreciating the fact that the assessee had not furnished any explanation or produced books of account for verification before the AO during the course of assessment proceedings or remand proceedings. Finding of Ld. CIT(A) 15. Ground No. 3(g):- This ground of the appellant is directed against the addition of Rs.500000 / - being generator income. The detailed facts of the case as per the assessment order are reproduced at Para No.2 above and the detailed submissions of the appellant on the issue are reproduced at Para No.3 above. The remand report of the AO is reproduced at Para NO.4 and the comments of the appellant are reproduced at Para No.5 above. 15.1 From the assessment order it is seen that the addition is made on adhoc basis as no details were submitted of generator income and expenses. During appellate proceedings the appellant has filed the details and copy of ledger account, generator charges and diesel oil etc. and has explained that the generator was installed in the warehouse building rented to Ranbaxy Ltd. for which separate charges were received and against which expenditure of diesel oil was incurred. The appellant has produced the details of the expenses the bills etc. In view of the above the addition IS directed to be deleted. This ground of the appellant is therefore allowed. Rs.500000/- Deleted
Before adjudicating the issues we are also like to reproduce the abstract of the remand report dated M/s. T. Logiks ITANo.304/Ind/2017 22.04.2016 which was heavily relied by Ld. CIT(A) for deleting the additions: “2. At the outset it is to be mentioned here that Shri Shailendra Jain, one of the partners of the firm, is the key person of the group. The group consist proprietor ship concerns, firms and companies. All the entities are interconnected and funds are transferring from one concern to other at the will and wish of Shri Shailendra Jain. The management is not at all bothered about any law or rule as far as the financial transactions of the group are concerned. 3. During the course of remand report proceedings, the assessee was required to explain its case. In reply the assessee has furnished its reply. After receiving the reply information were called for from various parties. Certain discrepancies were noticed in the replies received which were informed to the assessee vide letter dated 04.04.2016 as under: "a) M/s Snehal Enterprises - In the name of this party you have shown sundry creditors of Rs. 3144/-. However, the party has replied vide letter dated 15.03.2016 that no transaction was made with you. b) M/s Kanchan Marbles & Grcmites - In the name of this.party you have shown advance 'of Rs.1,15,0741-. However, the party has replied vide letter dated 03.03.2016 that no transaction was made with you. c) M/s Sneha Traders - In the name of this party you have shown advance of Rs. 18,1831-. However, the party has replied vide letter dated 27.02.2016 that no transaction was made with you. d) Technocrats Security Systems Pvt. Ltd. - In the name of this party you have shown advance of Rs. 25,000/-. However, the party has replied vide letter dated 26.02.2016 that no transaction was made with you. e) The notices issued in the cases of Sun Pharmaceutical Industries Ltd. (erstwhile Ranboxi Laboratories Ltd.), Shri Laxmichand Sharma, M/s Tirupati Pestcon, M/s Pharmasia etc. remained uncomplied with. 1.1. Please explain the above discrepancies with documentary evidences. 2. From the reply received from M/s AFD Pharmasia, to whom you have shown loan of Rs. 5,64,00,983/-, it is seen that you 14 M/s. T. Logiks ITANo.304/Ind/2017 have not given any loan to them. Ledger account shows that instead of loan it was payment to Tata Capital, interest to Tata Capital etc. paid by you. In the case of Vitam ax Healthcare Pvt. Ltd. you have shown advance of Rs. 1,00,70,742/-. Ledger account shows that instead of loan, it was payment of salary, service tax, taxi charges, security and labour services of Vitamax Healthcare P. Ltd. etc. paid by you. Incidentally, both the above are your family concerns. Please justify how the above payments can be treated as loan and also explain the business exigency of such payments.
3. Vide order sheet entry dated 10.02.2016 it was asked to explain the source of credits appearing in the capital account, the source of loan of Rs. 3 lakh received from Smt Shruti Jain and justify the interest account giving bifurcation of fund used for business and construction of warehouse. The case was fixed for hearing on 22.02.2016. On 22.02.2016 a written submission was filed at Dak giving only list of address of the parties of loans and advances and copy of lease agreement & supplementary lease agreement with Ranbaxi. Though specifically asked, you have not furnished the full and complete reply to the order sheet entry date 10.02.2016."
In compliance to the above letter, the assessee sought adjournment. The hearing was adjourned to 21.04.2016 on assessee's request. On 21.04.2016 the assessee filed a written reply at Oak. A perusal of the reply shows that the reply of the assessee was not to the point. As has been mentioned above, the group concerns had entered into financial transactions as per their will and wish. In reply to query regarding M/s Kanchan Marbles & Granites it was stated that M/s Pharmasia had paid Rs. 1,15,0741- on behalf of the firm through account payee cheque. Regarding Technocrat Security Services it was stated that the payment was made by M/s Pharmasia on behalf of the firm. 4.1. Regarding M/s AFD Pharmasia it was stated that an amount of Rs. 5,44,25,794/- was earlier years balance and Rs. 11,20,0001- was of during the year. Out of the above, an amount of Rs. 7,00,000/- was returned back to the firm. These advances were stated to be to cater their business need and to avoid the default and reputation of the firm and their associates. It was further stated that in repayment of such advance, M/s AFO Pharmasia paid the amount of Rs. 6,54,980/- to M/s Tata Capital Ltd. on behalf of the firm on account of repayment of term loan of M/s Tata Capital Ltd. by the firm. It was also stated that an interest of Rs. 52, I 0, 169/- was also charged by the firm.
M/s. T. Logiks ITANo.304/Ind/2017 12. From perusal of the above remand report, we find that the assessee replied partly to the questions raised in the questionnaire in letter dated 04.04.2016. But for other issues, for instance nature of loan to M/s AFD Pharmasia amounting to Rs.5,64,00,983/-, the assessee did not give explanation. Similarly regarding credits appearing for the partners in the capital account no proper explanation was given, Source of deposits in the same bank account of the partners have also not been explained. Concluding remarks of the assessing officer in this remand report dated 22.04.2016 are that the assessee has not given any proper explanation to the points on which additions were made in the assessment order.
During the course of assessment proceedings also assessee did not appear on the date of hearings. Penalty notice for not attending the hearing was issue u/s 271(1)(b) of the Act on 20.02.2015 and subsequently ex-parte order has been framed.
Even, in the appeal before us though the assessee has been served the notice of hearing it has opted not to appear before us on the date of hearing fixed on 14.05.2018, 24.10.2018 & 17.01.2019. This action of assessee of consistently not appearing on the date of hearing fixed by various authorities certainly creates doubts and suspicion in our mind. The issues raised by the revenue in various grounds of appeal purely relates to the facts of the case and it needs complete examination of the financial statement of the current year as well as preceding year for the verification of opening balance, genuineness, creditworthiness and identity of the cash creditors and M/s. T. Logiks ITANo.304/Ind/2017 unsecured loans to be established with documentary evidences.
15. We, therefore, in these given facts and circumstances of the case, are of the considered view that all the issues raised by the Revenue in ground no.1 to ground no.6 needs to be set aside to the file of Ld. Assessing officer for afresh in depth examination who shall provide proper opportunity of being heard to the assessee. We also direct the assessee to attend the date of hearing fixed by Ld. AO without taking any adjournment unless otherwise required else the assessing officer will be at his/her discretion to decide the case of the assessee as per the provisions of law.
16. In the result, all the grounds raised in appeal of the revenue are allowed for statistical purposes.
Order was pronounced in the open court on 06 .02.2019.