COMMISSIONER OF INCOME TAX vs. CEYLON BISCUITS INDIA (P) LTD

IN THE HIGH COURT OF DELHI AT NEW DELHI . . . ITA 284/2012 . . . COMMISSIONER OF INCOME TAX ..... Appellant . Through Ms. Suruchi Aggarwal, sr. standing counsel . . . versus . . . CEYLON BISCUITS INDIA (P) LTD ..... Respondent . Through . . . CORAM: . HON'BLE MR. JUSTICE SANJIV KHANNA . HON'BLE MR. JUSTICE R.V.EASWAR . . . O R D E R . 27.04.2012 . . . This appeal filed by the Revenue under Section 260A of the Income Tax Act, 1961 (?Act?, for short) impugns order dated 30.9.2011 passed by Income Tax Appellate Tribunal (?Tribunal?, for short) in the case of Ceylon Biscuits India (P) Ltd. The appeal pertains to the assessment year 2006-07. . 2. Ld. counsel for the appellant-Revenue submits that the entire addition of Rs. 1.21 crores was justified as Section 68 of the Act was rightly invoked by the Assessing Officer for the respondent-assessee was not able to file confirmation of the aforesaid alleged unsecured loan from Pankaj Aggarwal, a shareholder. She relies upon the order passed by the CIT(Appeals), who had confirmed the said addition. . 3. The Tribunal by the impugned order has deleted addition of Rs.98.50 lacs for the reasons which have been set out and stated below in paragraph 9 of this order. The Tribunal has sustained addition to the extent of Rs.22.70 lacs. We clarify that we are not examining the question whether this addition of Rs.22.70 lacs is justified or not. . 4. The assessment order is devoid of details. It merely records that the assessee had not filed confirmation from Pankaj Aggarwal and notice sent to him could not be served and was returned with the remark ?left?. . 5. The stand of the respondent-assessee has been recorded by the CIT(Appeals) in detail. The stand reads as under : . ?3.During the proceedings before me, it was submitted that the assessee company had provided full details of unsecured loans obtained from Shri Pankaj Aggarwal with PAN No., address, copy of PAN Card along with the address. Copy of the loan account as appearing in the books of account of the appellant company was also submitted. The Assessing Officer was informed that the assessee is facing problems with Shri Pankaj Aggarwal who was sacked from the company and hence, the assessee could not provide confirmation from the said Shri Pankaj Aggarwal. As per letter dt. Nil, addressed to the Assessing Officer, he was informed that at the time of taking over of the assets of Bakemans Industries Ltd. Ceylon Biscuits Ltd., Sri Lanka had appointed Shri Pankaj Aggarwal to manage the transfer of assets. There was a remuneration fixed for the same which Srilankan company paid in due time. Once the said work was done Shri Pankaj Aggarwal was appointed as managing director of the company and also an agreement between the two parties was reached for a 80:20 joint venture between Ceylon Biscuits Ltd., Sri Lanka and Shri Pankaj Aggarwal respectively. It was agreed that both the parties shall contribute in the company in the said ratio. It was also agreed that since Shri Pankaj Aggarwal did not have enough money therefore Srilankan company will offer a loan to Shri Pankaj Aggarwal who will in turn invest in the company as his share which will be refunded/ adjusted over a period of time. Hence Srilankan company paid about 1.41 crores to Shri Pankaj Aggarwal and his associate concern M/s. Lotus Foodstuff (P) Ltd. as remuneration/ loan to Shri Pankaj Aggarwal which he invested in the company. Therefore, the source of the amount of investment of Shri Pankaj Aggarwal gets established. It was further submitted by the assessee that subsequently Shri Pankaj Aggarwal had carried the matter before the Company Law Board and the appellant company compromised the matter with Shri Pankaj Aggarwal. As a result of settlement, an amount of Rs.1,49,80,000/- was repaid to Shri Pankaj Aggarwal vide draft No.2919 dt. 8.5.2007. Shri Pankaj Aggarwal also filed his resignation as managing director of the company. It was thus, submitted that the provision of section 68 have incorrectly been applied to the case of the assessee company. It was also submitted that most of the amount which was transferred by Shri Pankaj Aggarwal was from his saving bank account No.3001 maintained by him with Canara Bank, Main branch, Patiala.? . . . 6. The CIT (Appeals) has also recorded the following submission: - . ?In response thereto, learned AR submitted that in terms of the agreement before the company law Board, Shri Pankaj Aggarwal has agreed and affirmed that he has extended a loan of Rs.1.21 cores to the company. Accordingly, the amount stands duly confirmed. It was further submitted . that out of Rs.1.21 crores, a sum of Rs.98 lakhs has been transferred from S.B.A/c No.3001 of Canara Bank, Patiala to the current account of the company. The balance amount of Rs.11.80 lakhs was received from another bank account of Shri Pankaj Aggarwal and the balance of Rs.11.20 lakhs represents the amount initially incurred by way of preliminary and pre-operative expenses.? . . . 7. It is therefore, clear that the assessee was able to show and establish the source was Pankaj Aggarwal as the PAN number and his address was given. It is also not disputed that there were inter se disputes between Pankaj Aggarwal and the respondent-assessee. Initially, Pankaj Aggarwal was working with the respondent-assessee and was 20% stake holder in the joint venture assessee company, between Ceylon Biscuits Ltd., Sri Lanka and Pankaj Aggarwal. Pankaj Aggarwal had paid Rs. 1.21 crores to the respondent company pursuant to mutual understanding. Later on disputes arose between Pankaj Aggarwal and Ceylon Biscuits Ltd., Sri Lanka and there was a compromise pursuant to which shareholding of Pankaj Aggarwal was purchased by Ceylon Biscuits Ltd., Sri Lanka and payment of Rs. 1,49,80,000/- was made by them to Pankaj Aggarwal. The compromise application and order passed by the CLB are not disputed. . 8. With the aforesaid evidence we fail to understand how and on what basis it can be claimed and stated that the respondent-assessee should have furnished a confirmation letter from Pankaj Aggarwal. In spite of the said factual position and material, the CIT (Appeals) confirmed the addition. CIT(Appeals) held that the respondent assessee was not able to explain receipt of Rs.15 lacs by demand drafts received from Pankaj Aggarwal. He observed that payment of US Dollar 95351 was made to Lotus Food Staff Pvt. Ltd., a company of Pankaj Aggarwal but there was no evidence that this amount was available to Pankaj Aggarwal. Another amount of US Dollar 114825 was paid to Pankaj Aggarwal, but there was no proof that this amount was advanced to the respondent assessee. Further Rs.11.80 lacs was received from another account of Pankaj Aggarwal. . 9. The tribunal has deleted the addition holding: - . ?6. We have heard both the sides on the issue. It is a fact that assessee has shown a receipt of Rs.1.21 crores from Pankaj Agarwal who is also a shareholder of assessee company. This amount has been classified as a loan in the balance sheet ending 31.3.2006, which is evident from balance sheet as well as annexure thereto. Thus, this amount was an unsecured loan from one of the share holder. This amount is not towards share application money. After close perusal of the relevant facts available on record, we find that the amount of Rs.98.50 lacs has been received from the bank of Pankaj Agarwal at Canara Bank, Patiala.? . 10. It is not the contention of the Revenue that Pankaj Aggarwal is the Hawala entry operator or accommodation entry provider. It is also apparent from the bank account statement of Pankaj Aggarwal that various amounts were deposited and withdrawn from his bank account. Payments were . made to the respondent assesse from the bank accounts. No enquiry has been made by the Revenue to find out the source of the said amounts. Pankaj Aggarwal has not been examined by Revenue. His income tax returns have not been examined and referred to. The respondent has pointed out and given details of payment made by them to Pankaj Aggarwal when they entered into the joint venture. These payments have not been denied. The respondent assessee cannot be held responsible and liable for the source and funds of Pankaj Aggarwal. Once and when there is no allegation that Pankaj Aggarwal is not an accommodation entry provider or Hawala operator, it is for Pankaj Aggarwal to explain the funds. The compromise application itself shows that there was a serious dispute between the respondent assessee and Pankaj Aggarwal. Even an FIR was registered against Pankaj Aggarwal, which was withdrawn on the said settlement. Every case cannot be put in a strait jacket and Section 68 invoked when the transaction itself is genuine and has been entered for business consideration between two parties. . 11. In view of the aforesaid position we do not find any merit in the present appeal and the Tribunal has correctly allowed the appeal of the respondent-assessee holding that the conditions mentioned under Section 68 are not satisfied in the present case. The contentions and issues raised are basically factual. The appeal is dismissed. No costs. . . . SANJIV KHANNA, J . . . . . . . R.V.EASWAR, J . APRIL 27, 2012 . vld . . . . . . . $ 37 . . .