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Income Tax Appellate Tribunal, “H” BENCH, MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI SANDEEP SINGH KARHAIL
PER SANDEEP SINGH KARHAIL, J.M.
The present appeal by the Revenue and cross objection by the assessee are against the order dated 17/10/2017, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals)–45, Mumbai, [“learned CIT(A)”], for the assessment year 2012–13.
ITA no.697/Mum./2018 Revenue’s Appeal : A.Y. 2012–13
In its appeal, the Revenue has raised following grounds:
“1. On the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the addition of Rs. 10,12,91,595/- as unexplained cash credit u/s.68 of the Income Tax Act, 1961, without appreciating the fact that the creditworthiness of creditors and genuineness of the transactions were not established. 2. The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of Assessing officer be restored.”
The only grievance of the Revenue, in its appeal, is against deletion of addition made on account of unexplained cash credit under section 68 of the Act.
The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is running proprietary concern in the name and style of M/s. Krushy Trading Company and is engaged in the business of trading of aluminium material and copper ingots. During the year under
Shri Kiritbhai K. Thummar ITA No.697/Mum./2018 CO No. 115/Mum./2019 consideration, the assessee has shown income from business and profession and income from other sources. The assessee filed the return of income on 30/09/2012 declaring total income at Rs. 54,89,832. The said return was processed under section 143(1) of the Act. Subsequently, the case was selected for scrutiny under CASS and accordingly notice under section 143(2) was issued and duly served on the assessee. Thereafter, notice under section 142(1) of the Act was issued and certain details were called. Upon verification of details filed by the assessee and upon verification of annexure to form No. 3CD, it was observed that assessee has received loans from various parties during the year under consideration. Further, while the assessment proceedings were in progress, it came to the notice that the case of the assessee was reopened under section 147 of the Act and notice under section 148 of the Act was issued on 09/02/2015. As per reason recorded, during the course of search under section 132 of the Act in the case of Shri Bhanwarlal Jain group on 03/10/2013, who has been indulged in providing accommodation entries like bogus purchases, sales, unsecured loans, share capital etc., statement of Shri Bhanwarlal Jain, and various other persons who assisted him in providing bogus loans and advances was recorded in which they admitted and revealed the modus operandi of accommodation entries. The aforesaid fact was also brought to the notice of assessee. In reply, assessee submitted that all the details required to prove that the transaction was actually in the nature of loan were provided. Further, the loan confirmation of the parties along with the bank statements and return of income was also furnished. The assessee further submitted Page | 3
Shri Kiritbhai K. Thummar ITA No.697/Mum./2018 CO No. 115/Mum./2019 that it has paid interest and deducted TDS on all loans he has taken, which justifies the transaction entered into by the assessee are genuine in nature. The Assessing Officer („AO‟) vide order dated 31/03/2015 passed under section 143(3) of the Act did not agree with the submissions of the assessee and held that in respect of loan taken from Shri Ashok Kumar Jain (proprietor M/s.Varsha Gems), Little Diam and Meridien Jewellery, during the course of search, Shri Bhanwarlal Jain and group company have on oath accepted the fact that they are only giving accommodation entries in view of cash. Further, the AO held that the payment of interest or TDS cannot be sole criteria for genuineness. The AO also held that the aforesaid 3 entities have not made any compliance to notice issued under section 133(6) of the Act, which again confirms the fact that the assessee has taken benefit of accommodation entries. During the course of assessment proceedings, notices dated 20/03/2015 under section 133(6) were also issued to all the entities from whom the assessee has taken loan during the year under consideration. However, as noted in the assessment order, no compliance has been received pursuant thereto. Accordingly, the AO made an addition of entire amount of Rs. 10,12,91,595, to the total income of the assessee under section 68 of the Act.
In appeal before the learned CIT(A), assessee submitted that the notices were issued under section 133(6) on 20/03/2015 and the assessment order was passed on 31/03/2015, therefore, there was no reasonable time to reply to the aforesaid notices and submit the details.
Shri Kiritbhai K. Thummar ITA No.697/Mum./2018 CO No. 115/Mum./2019 Accordingly, the assessee filed additional evidences before the learned CIT(A) under Rule 46A of the Income Tax Rules, in respect of its loan transactions. The said additional evidences filed by the assessee were forwarded to the concerned AO for seeking remand report on admissibility of the additional evidence as well as on merits of the case, after necessary examination. During the remand proceedings, the concerned AO asked the assessee to produce Ledger copy of the loan confirmation along with copy of return of income for the relevant period, bank statement for the relevant period and audit report (Form 3CD) of all the entities. The AO vide letter dated 26/07/2017, submitted the remand report as per the directions of learned CIT(A). The assessee also submitted its reply to the remand report of the AO vide letter dated 25/09/2017. After considering all the materials available on record including additional evidences filed by the assessee, remand report of the AO, assessee‟s reply thereto and assessment record requisitioned during the course of appellate proceedings, the learned CIT(A) vide impugned order dated 17/10/2017, recorded separate findings in respect of each of the entity and deleted the addition made by the AO under section 68 of the Act allowing the appeal filed by the assessee. Being aggrieved, Revenue is in appeal before us.
We have considered the rival submissions and perused the material available on record, including the AO‟s remand report and submissions filed by both the sides. As is evident from the record, return of income filed by the assessee was picked up for scrutiny and various details were sought in
Shri Kiritbhai K. Thummar ITA No.697/Mum./2018 CO No. 115/Mum./2019 respect of the loans received by the assessee from following entities, during the year under consideration:
Sr. Amount of Loan (Rs.) Nam of the Lender no. 8,00,000 Little Diam 1. 40,00,000 Meridian Jewellery Pvt. Ltd. 2. 87,50,000 Paresh Babulal Patel 3. 6,00,000 Parul Mittal 4. 2,90,000 Ram Avtar Mittal HUF 5. 6,31,00,595 Shreeji Aluminum Pvt. Ltd. 6. 20,00,000 Ram Avtar Paper Pvt. Ltd. 7. 5,24,000 Sanjay Mittal & Sons 8. 9,00,000 Shivkumar & Sons HUF 9. 10,60,000 Suyash Mittal Family 10. 1,10,00,000 Ashokkumar Jain 11. 3,87,000 Vikas Mittal & Sons 12. 6,00,000 Kirit K. Thummar HUF 13. 7,80,000 Krushy Metal 14. 65,00,000 Shetlaben K. Thummar 15. 10,12,91,595 TOTAL
As per the information available on record, notices under section 133(6) were issued to all the aforementioned entities, however, no compliance were received by the AO. During the continuation of the scrutiny assessment proceedings, notice under section 148 of the Act was also issued in the case of the assessee on the basis of information received during the course of search conducted in the case of Shri Bhanwarlal Jain group, wherein statement of Shri Bhanwarlal Jain, and various other persons, who assisted him in providing bogus loans and advances, was recorded in which they admitted and revealed the modus operandi of accommodation entries. Page | 6
Shri Kiritbhai K. Thummar ITA No.697/Mum./2018 CO No. 115/Mum./2019 The fact was brought to the notice of the assessee and reply has sought. As per the assessee, the loan confirmation of the parties along with the bank statement and return of income was submitted to justify the genuineness of the transaction. Further, assessee submitted that it has paid interest and deducted TDS on loans taken. However, the AO disagreeing with the submissions of the assessee and made addition of the entire amount of loan of Rs. 10,12,91,595 under section 68 of the Act. In its appeal before the learned CIT(A), the assessee filed additional evidence in respect of the loan transaction with aforesaid parties on the basis that the said information could not be filed in response to notices issued under section 133(6) due to paucity of time. The learned CIT(A) forwarded the additional evidence filed by the assessee to the concerned AO and sought its report both on admissibility of the evidence as well as on merits of the case. We find from the remand report dated 26/07/2017, of the AO, which forms part of the record, that the AO made detailed enquiry and sought various information from the assessee viz. Ledger copy of the loan confirmation, return of income, profit and loss account, balance sheet, bank statement and audited report for the relevant period in respect of the aforementioned entities. We find that the AO also issued notice under section 133(6) dated 06/01/2017, to the aforementioned entities. The remand report filed by the AO was forwarded to the assessee for this reply. From the said reply, which forms part of the impugned order passed by the learned CIT(A), it is evident that AO not only issued notice under section 133(6) but also issued summons under section 131 of the Act and recorded the statement of some of the Page | 7
Shri Kiritbhai K. Thummar ITA No.697/Mum./2018 CO No. 115/Mum./2019 aforesaid loan lenders, during the remand proceedings. We find that since, during the original scrutiny assessment proceedings, due to paucity of time, details could not be filed by the assessee in response to notices issued under section 133(6), therefore, the AO proceeded merely on the basis of statement recorded in the case of Shri Bhanwarlal Jain group during the search conducted on 03/10/2013. However, learned CIT(A) had the advantage of various factual details and submissions filed by the assessee as well as remand report of the AO, while deciding assessee‟s appeal. Thus, in order to decide this appeal, which involves independent loan transaction of the assessee with aforementioned 15 entities, it is relevant to analyse and examine the facts, as available on record, in respect of each and every of these loan transactions. At the outset, it is relevant to note that in respect of all the loan transactions, identity of the lender is not in dispute.
In the present case, it has not been disputed that summons under section 131 of the Act were issued and statements were recorded in respect of loan lenders viz. Little Diam, Meredian Jewelry Private Limited, Ashok Kumar Jain, Shri Paresh Babulal Patel and Shree Aluminium Pvt Ltd. in addition to information sought pursuant to notice issued under section 133(6) of the Act. Therefore, loan transaction with these entities is examined first in this order.
Little Diam (i)
During the course of assessment proceedings, it was noticed that assessee has received loan of Rs. 8,00,000, from this entity. The assessee Page | 8
Shri Kiritbhai K. Thummar ITA No.697/Mum./2018 CO No. 115/Mum./2019 filed confirmation and bank statement as well as return of income of this entity to prove the genuineness of the transaction. The AO on the basis of search conducted in the case of Shri Bhanwarlal Jain group came to the conclusion that this entity is engaged in providing accommodation entries in lieu of cash. The AO further noted that this entity has filed return of income at Rs. 2,47,508, for assessment year 2012–13 and before the issuance of cheque to the assessee funds were received on immediately preceding day itself. Accordingly, the AO made the addition under section 68 of the Act.
Before the learned CIT(A), assessee submitted that the turnover of Little Diam is Rs. 1,09,57,01,945, with gross profit of Rs. Rs.1,95,41,416. Further, the assessee also submitted that this entity is Income Tax assessee and audited under the Act and bank statement reflected the loan creditor has provided funds to the assessee through proper banking channels, therefore, genuineness of the transaction is proved. In its remand report, filed before the learned CIT(A), AO made reference to the statement recorded during the search conducted under section 132 in the case of Shri Bhanwarlal Jain group, wherein statement of Shri Bhanwarlal Jain, and various other persons were recorded in which provision of bogus loans and advances was admitted and revealed. The AO, in its remand report, further submitted that the proprietor of this entity has accepted in the statement under section 132 recorded on 03/10/2013, that he is indulged in only providing accommodation entries to other persons including the assessee. Accordingly, it was submitted that this transaction of unsecured loan
Shri Kiritbhai K. Thummar ITA No.697/Mum./2018 CO No. 115/Mum./2019 pertains to Shri Bhanwarlal Jain and other group and therefore not in order. In its reply to the remand report, assessee submitted that the AO issued notice under section 133(6) as well as summons under section 131 to which the concerned person of this entity has replied to and attended. Further the statement of the loan lender was recorded by the AO pursuant of the aforesaid summons. Assessee further submitted that the AO in its remand report neither commented nor relied upon the documentary evidence placed on record and the statements so recorded is also not dealt with by the AO.
The learned CIT(A) vide impugned order noted that statement under section 131 was recorded on 03/02/2017, wherein the fact of grant and receipt of loan and interest was accepted. Further, the learned CIT(A) accepted the contention of the assessee in regard to the loan transaction with Little Diam, by observing as under:
“When we examine these facts, here appellant had appeared before AO u/s 131 and also Income tax return was filed, so identity is proved. All these loans of Rs.80 lakhs were through banking channel and given by cheque, this proves the genuineness of transaction. With respect to loan extended to the appellant, appellant had sundry creditor of Rs.59,33,97,087/- from which this concern ws extending loans to various persons and which had also earned interest of Rs.41,50,542/- which was shown in P & L A/C. When alongwith this balance sheet and nature of banking transaction were same, appellant is receiving various amounts from his business receipt as appellant has a sales of Rs. 127 Crs and also from sundry creditors appellant had extended the loans. By the nature of the balance sheet and the way loans were extended to others, it shows creditworthiness of Little Diam. So according to me, the evidence presented shows that in the case of Little Diam, appellant has proved the identity, genuineness and creditworthiness of the transaction.”
From the submission dated 06/08/2019 filed by the AO, through office of learned DR, we find that though the AO accepted the fact that pursuant to
Shri Kiritbhai K. Thummar ITA No.697/Mum./2018 CO No. 115/Mum./2019 summons issued under section 131 statement of Shri Rohit Birawat, proprietor of this entity, was recorded, however, the AO again placed reliance on the search conducted under section 132 on 03/10/2013, in the case of Shri Bhanwarlal Jain group to justify the addition under section 68 of the Act. As noted above statement recorded during the search under section 132 in the case of Shri Bhanwarlal Jain group was also relied upon by the AO in its remand report before the learned CIT(A). We find that even in the latest submission dated 12/07/2022, filed by the learned DR, statement recorded under section 131 is stated to be self-serving in nature, which is not corroborated with balance sheet and profit and loss account. However, nothing has brought on record to contradict the factual findings of learned CIT(A) and the initial reliance on the statement recorded during the search under section 132 has also found to be superseded by the recording of statement section 131 during the remand proceedings. Merely because the statement recorded under section 131 is not in favour of the Revenue, the same cannot be disregarded without any material on record. Therefore, we find no infirmity in the aforesaid findings of the learned CIT(A).
Meridian Jewellery Pvt Ltd. (ii)
Similar to the aforesaid transaction, during the course of assessment proceedings it was noticed that assessee has received loan of Rs. 40,00,000 from this entity. The AO on the basis of search conducted in the case of Shri Bhanwarlal Jain group and the fact that this entity has filed nil return of income, made addition under section 68 of the Act. Before the learned Page | 11
Shri Kiritbhai K. Thummar ITA No.697/Mum./2018 CO No. 115/Mum./2019 CIT(A), assessee filed additional evidence and remand report of the AO was sought. In the remand report filed before the learned CIT(A), reference was again made to the statement recorded during the course of aforesaid search on 03/10/2013. In reply, assessee submitted that the AO in the remand proceedings issued notice under section 133(6) as well as summons under section 131 of the Act. Further statement of the loan lender was also recorded, which is not dealt with by the AO in its remand report.
The learned CIT(A) vide impugned order noted that statement under section 131 was recorded on 03/02/2017, wherein the fact of grant and receipt of loan and interest was accepted. Further, the learned CIT(A) accepted the contention of the assessee in regard to the loan transaction with Meridien Jewellery Pvt. Ltd., by observing as under:
“When we examine all the above facts, as appellant had attended summons u/s 131 and also filed Income tax return copy which has PAN & address, this proves the identity of the lender. Here loan was paid of Rs.40 lakhs through banking channel and amount was also received back through banking channel. In this loan. interest was paid and also TDS was deducted, this proves the genuineness of transaction. Further, when we examine lender's balance sheet, lender has networth Rs. 2,64,37,176/- and turnover of Rs.159 Crs. Alongwith this bank statement of the lender is examined. It shows that lender is receiving payments from various business receipts which are credited to his bank account and there was also payments from the same account. Considering the networth and also turnover and nature of transaction in the bank statement, so creditworthiness of the lender is also satisfied. Here it is pertinent to mention that loan was repaid within this year. It is clear from the above details that appellant had proved his identity, genuineness and creditworthiness from the above details.”
Similar to the aforesaid loan transaction, even in this case also, from the submission dated 06/08/2019 filed by the AO, through office of learned DR, we find that though the AO accepted the fact that pursuant to summons
Shri Kiritbhai K. Thummar ITA No.697/Mum./2018 CO No. 115/Mum./2019 issued under section 131 statement of Director of the Company, proprietor of this entity, was recorded, however, the AO again placed reliance on the search conducted under section 132 on 03/10/2013, in the case of Shri Bhanwarlal Jain group to justify the addition under section 68 of the Act. As noted above statement recorded during the search under section 132 in the case of Shri Bhanwarlal Jain group was also relied upon by the Assessing Officer in its remand report before the learned CIT(A). We find that even in the latest submission dated 12/07/2022, filed by the learned DR, statement recorded under section 131 is stated to be self-serving in nature, which is not corroborated with balance sheet and profit and loss account. However, nothing has brought on record to contradict the factual findings of learned CIT(A) and the initial reliance on the statement recorded during the search under section 132 has also been superseded by the recording of statement section 131 during the remand proceedings. Merely because the statement recorded under section 131 is not in favour of the Revenue, the same cannot be disregarded without any material on record. Therefore, we find no infirmity in the aforesaid findings of the learned CIT(A).
(iii) Ashok Kumar Jain
During the course of assessment proceedings, it was noticed that assessee has taken loan of Rs. 1,10,00,000 from Ashok Kumar Jain. The AO on the basis of search conducted in the case of Shri Bhanwarlal Jain group and in absence of any detail, made addition under section 68 of the Act. Before the learned CIT(A), assessee filed additional evidence and remand Page | 13
Shri Kiritbhai K. Thummar ITA No.697/Mum./2018 CO No. 115/Mum./2019 report of the AO was sought. In the remand report filed before the learned CIT(A), reference was again made to the statement recorded during the course of aforesaid search on 03/10/2013. In reply, assessee submitted that the AO in the remand proceedings issued notice under section 133 (6) as well as summons under section 131 of the Act. Further statement of the loan lender was also recorded, which is not dealt with by the AO in its remand report.
The learned CIT(A) vide impugned order noted that statement under section 131 was recorded on 26/04/2017, wherein the fact of grant of loan was accepted. Further, the learned CIT(A) accepted the contention of the assessee in regard to the loan transaction with Ashok Kumar Jain, by observing as under:
“On examination of these facts and also the the statement recorded u/s 131, it is clear that appellant's identity was proved as Income tax return copy was submitted. All the transactions were carried through banking channels and loan was given through cheques and also repaid through cheques, so genuineness of transaction was satisfactorily explained. When we examine the balance sheet turnover and creditors and net worth of lender, lender is having turnover of Rs.39,89,69,378/-, net worth of Rs.1,43,85,552/- and creditors of Rs.33,07,74,886/. Lender in his statement in Q.10 stated that from this sundry creditors he was extending loans and receiving interest on it. So here it is clear that from the sundry creditors, lender had extended the loan to the appellant. When we examine the lender's bank account, various transactions are there where lender had received money for business and also payments were made. Here on examining Balance Sheet and Bank statement it is seen that lender had enough fund to extend the loan. So here as lender had enough fund to extend the loans, lender's creditworthiness cannot be doubted. Appellant had paid the interest and also TDS was deducted.”
Similar to the aforesaid loan transaction, even in this case also, from the submission dated 06/08/2019 filed by the AO, through office of learned
Shri Kiritbhai K. Thummar ITA No.697/Mum./2018 CO No. 115/Mum./2019 DR, we find that though the AO accepted the fact that pursuant to summons issued under section 131 statement of loan lender was recorded, however, the AO again placed reliance on the search conducted under section 132 on 03/10/2013 in the case of Shri Bhanwarlal Jain group to justify the addition under section 68 of the Act. As noted above statement recorded during the search under section 132 in the case of Shri Bhanwarlal Jain group was also relied upon by the AO in its remand report before the learned CIT(A). We find that the latest submission dated 12/07/2022, filed by the learned DR, is silent regarding loan from Ashok Kumar Jain. We find that the learned CIT(A) vide impugned order mentions that the net worth of Varsha Gems, wherein Ashok Kumar Jain is the proprietor, is Rs. 1,43,85,552. However, from the perusal of balance sheet of Varsha gems at page 216 of the paper book, we find that the net worth is only Rs. 1,43,855.32. Further we find that this entity has sundry creditors of Rs. 33,07,74,886 and there sundry debtors is nil. There are also no short-term borrowings. Further, the bank balance is also Rs. 8,61,871.32. Though, the learned CIT(A) has noted that the turnover is of Rs. 39,89,69,378, however, we find that the gross profit is only Rs. 9,56,747. Therefore, since the facts have not been correctly appreciated by the learned CIT(A), we deem it appropriate to remand the addition pertaining to this loan transaction of the assessee with Ashok Kumar Jain to the file of learned CIT(A) for de novo adjudication. The learned CIT(A) shall be at liberty to seek any other information / document for complete adjudication of this issue. Needless to mention that no order
Shri Kiritbhai K. Thummar ITA No.697/Mum./2018 CO No. 115/Mum./2019 shall be passed without affording opportunity of being heard to both the sides.
(iv) Paresh Babulal Patel
During the course of assessment proceedings, it was noticed that assessee has taken loan of Rs. 87,50,000, from Paresh Babulal Patel. In absence of reply pursuant to notice issued under section 133(6) of the Act, the AO made the addition in respect of this loan transaction under section 68 of the Act. Before the learned CIT(A), assessee filed additional evidence and remand report of the AO was sought. In the remand report filed before the learned CIT(A), it was submitted that unsecured loan have been advanced by the lender on the same day on which he had received the money from other person. In reply, assessee submitted that the AO in the remand proceedings issued notice under section 133(6) as well as summons under section 131 of the Act. Further statement of the loan lender was also recorded, which is not dealt with by the AO in its remand report.
The learned CIT(A) vide impugned order after taking note of the statement recorded under section 131 of the Act, agreed with the submissions of the assessee, by observing as under:
“Here when we examine the evidence and statements filed by the lender as lender has filed Income tax return copy and attended summons, identity is proved. Lender had also filed his bank statement, loan confirmation and also stated that loans were repaid through banking channels, so genuineness of transaction is also established. With respect to creditworthiness, lender's balance sheet is examined and lender has net worth of Rs.5,54,12.269/- and bank statement of the lender has various transaction which shows debit and credit entries, receipts received from business during the year. From these Page | 16
Shri Kiritbhai K. Thummar ITA No.697/Mum./2018 CO No. 115/Mum./2019 business receipts lender had lended the money to the appellant. As here the newworth of the lender and also bank statement shows that lender has enough funds to extend loan to the appellant, so by the above details lender's creditworthiness cannot be doubted. So it is clear here also lender has identified himself, genuineness and creditworthiness was also established. So as all the amount was repaid during the year, AO's addition u/s 68 cannot be sustained.”
From the submission dated 06/08/2019 filed by the AO, through office of learned DR, we find that the AO accepted the fact that pursuant to summons issued under section 131 statement of Paresh Babulal Patel. In the latest written submission dated 12/07/2022 filed by the learned DR, creditworthiness of the lender is doubted on the basis that Paresh Babulal Patel, has major income from salary, which is around Rs. 9,00,000 and has given interest-free loan of Rs. 87,50,000. From the perusal of financials of Paresh Babulal Patel, we find that salary income is earned from the firm Shiv Enterprises Eximp Private Limited. Paresh Babulal Patel, also has capital of Rs. 5,54,12,269 and fixed assets of Rs.81,11,492. Thus, we don‟t find any basis on mere reliance upon the salary income earned by the loan lender to make addition under section 68 of the Act. Therefore, we find no infirmity in the aforesaid findings of the learned CIT(A).
v) Shreeji Aluminium Pvt Ltd.
During the course of assessment proceedings, it was noticed that assessee has taken loan of Rs.6,31,00,595, from Shreeji Aluminium Pvt. Ltd. In absence of reply pursuant to notice issued under section 133(6) of the Act, the AO made the addition in respect of this loan transaction under section 68 of the Act. Before the learned CIT(A), assessee filed additional Page | 17
Shri Kiritbhai K. Thummar ITA No.697/Mum./2018 CO No. 115/Mum./2019 evidence and remand report of the AO was sought. In the remand report filed before the learned CIT(A), it was submitted that unsecured loan have been advanced by the lender on the same day on which he had received the money from other person. In reply, assessee submitted that the AO in the remand proceedings issued notice under section 133(6) as well as summons under section 131 of the Act. Further statement of the loan lender was also recorded, which is not dealt with by the AO in its remand report. The assessee further submitted that out of the whole amount of Rs. 6,31,00,595, Rs. 3,74,95,540, is the opening balance. The assessee also submitted that during the year it had business transaction with this lender and made purchases of Rs. 59,30,055 and balance amount was received as cash credit for Rs. 1,99,75,000.
The learned CIT(A) vide impugned order noted that statement under section 131 was recorded on 21/01/2017, wherein the aforesaid facts was confirmed by the lender. Further, the learned CIT(A) accepted the contention of the assessee in regard to the loan transaction with Shreeji Aluminium Pvt Ltd., by observing as under:
“On examination of the above details it is clear that out of the credit of Rs.6,31,00,595, Rs.3,71,95,5407 is a trade advance which is closing balance of previous year which was the advance received in the earlier year. As per section 68 of the I.T. Act, additions can be made under this section for the cash credit credited in the books of account of the appellant maintained for any previous year and offers no explanation for the nature and source of the credit. The sum so credited may be charged to income tax of the assessee of that previous year. It is clear from the section that sum credited in the previous year can be added u/s 68 if the assessee's explanation was satisfactory. However, in this case Rs.3,71,95,540/- is previous year balance. This amount cannot be added in this year in view of the above section and also Supreme Court case in CIT vs Noorjahan 237 ITR 570. Hence, this addition of Rs.3,71,95,540/- has to be deleted. Page | 18
Shri Kiritbhai K. Thummar ITA No.697/Mum./2018 CO No. 115/Mum./2019
With respect to balance amount as here statement was recorded u/s 131 and lender has also submitted Income tax return which proves identity of the lender and all these transaction of lending and repaying are carried through banking channels and reflected in the bank statement of the lender and creditor, so genuineness of the transaction is established. With respect to source through which the amount was extended to the appellant by the lender, they have explained in the statement that they have credit worth Rs.79 Crs from Karnataka Bank from which they extended the loan and this was also trade advance for normal business purposes. This source of the funds and also the way in which the transaction was carried out proves the creditworthiness. Here it is clear that lender has established his identity, genuineness and creditworthiness, hence AO's addition of Rs. 6,31.00.595/– is deleted.”
From the perusal of remand report we find no mention of statement recorded under section 131 of the Act. Further, from the submission dated 06/08/2019 filed by the AO, through office of learned DR, we find that the AO accepted the fact that pursuant to summons issued under section 131 statement of Director of Shreeji Aluminium Pvt Ltd. We find that even in the latest submission dated 12/07/2022, filed by the learned DR, statement recorded under section 131 is stated to be self-serving in nature, which is not corroborated with balance sheet and profit and loss account. From the perusal of financials of Shreeji Aluminium Pvt Ltd., forming part of the paper book from page 131–156, we find that the company has Revenue from operations of Rs. 8,55,41,652. Further, it has long-term borrowing of 3,90,15,064, from Karnataka bank Ltd. The company has fixed assets of Rs. 2,54,93,062. We further find that the company has trade payables of Rs. 1,83,68,844 in comparison to trade receivables of Rs. 5,79,22,610. Therefore, in view of the aforesaid financial position of Shreeji Aluminium Pvt Ltd., we do not agree with the submissions of the Revenue. As a result, we find no infirmity in the aforesaid findings of the learned CIT(A). Page | 19
Shri Kiritbhai K. Thummar ITA No.697/Mum./2018 CO No. 115/Mum./2019
In respect of all the other entities, the AO in its remand report gave similar reply that unsecured loan lender have advanced the fund on the same day or within 10 to 12 days on which they have received the same. In its latest submission dated 12/07/2022, the Revenue has made submission only regarding loan from Parul Mittal, and submitted that the response under section 133(6) is self-serving and is not corroborated with balance sheet and profit and loss account.
In respect of addition on account of Sheelaben Thummar, Kirti Thummar HUF and Krushy Metal, we find from the details available in the paper book that these are appearing as loans / deposits by the assessee‟s proprietary concern viz. Krushy trading company. Thus, we find no infirmity in the findings of the learned CIT(A) that same cannot be added under section 68 of the Act.
As regards, the other loan transactions, the learned CIT(A) vide impugned order observed as under:
“All the above mentioned lenders are from Delhi. They all have submitted confirmation under section 133(6), Income tax return copy, bank statements, ledger statements, source of funds and all the loan interest was paid and TDS was also deducted. Here also AO had doubted their creditworthiness in extending their loan. I had examined bank statement, source of funds and net worth of above persons. Networth of the above persons is as under: Ram Avatar Paper Pvt. Ltd. - Rs.68,17,941/- Parul Mittal - Rs.59,04,304/- Sanjay Mittal & Sons Rs.24,03,896/- Shivkumar & Sons HUF-Rs. 23,59,835/- Suyash Mittal Family- Receipts of repayment of earlier loans Vikas Mittal & Sons Rs. 25,57,454/- Ram Avatar Mittal HUF Rs.23,44,760/- Page | 20
Shri Kiritbhai K. Thummar ITA No.697/Mum./2018 CO No. 115/Mum./2019
Here except for Suyash Mittal family when we examine the bank statement and net worth, all the above lenders have enough funds to lend the amount and their networth is more than twice the amount lend by the lenders. If the networth is twice the amount lend by the lenders, here it should be considered that lenders are having enough credit in view of Delhi High Court case in CIT vs Mayawati.”
In respect of loan of Rs. 20,00,000 from Ram Avtar Paper Ltd., we find from audited financial at page 191 and 192 of the paper book that the company has capital and reserves of Rs. 68,17,941 and short term borrowings from bank of Rs. 26,91,870. Further, this entity has inventory of Rs. 30,54,584. Thus, we are of the considered view that learned CIT(A) has correctly deleted the addition in respect of this entity.
Further, as regards payment from Suyash Mittal family, it is the claim of the assessee that this is in respect of repayment of earlier loan. No material contrary to assessee‟s claim has been brought on record. Thus, we are of the considered view that learned CIT(A) has correctly deleted the addition in respect of this entity.
In respect of loan of Rs. 6,00,000 from Parul Mittal, we find from page 123 of the paper book that the person has capital of Rs. 59,04,304, loans and advances receivable of Rs. 42,92,118, and fixed assets of Rs. 4,87,510. In respect of loan of Rs. 52,24,000 from Sanjay Mittal & Sons, we find from page 201 of the paper book that it has capital of Rs. 23,53,896. In respect of loan of Rs. 9,00,000 from Shivakumar & Sons HUF, we find from page 208 that it has capital of Rs. 23,09,835.17. As regards loan of Rs. 3,87,000 from Vikas Mittal & Sons, we find from page 228 that it has capital of Rs. Page | 21
Shri Kiritbhai K. Thummar ITA No.697/Mum./2018 CO No. 115/Mum./2019 25,07,454.50. Further, as regards loan of Rs. 2,90,000 from Ram Mittal HUF, we find from page 129 of paper book that it has capital of Rs. 22,94,715. However, we find that the details of capital account of aforesaid loan lenders were not examined by the learned CIT(A) and these details are also not placed in the paper book. Further, other aspects of the financial statement of the loan lenders have also not been examined by the learned CIT(A). Therefore, we deem it appropriate to remand the addition pertaining to loan transactions of the assessee with Parul Mittal, Sanjay Mittal & Sons, Shivakumar & Sons HUF, Vikas Mittal & Sons, and Ram Mittal HUF to the file of learned CIT(A) for de novo adjudication. The assessee is also directed to file all the details of the loan lenders in support of its claim for necessary examination by the learned CIT(A). The learned CIT(A) shall be at liberty to seek any other information / document for complete adjudication of this issue. Needless to mention that no order shall be passed without affording opportunity of being heard to both the sides.
In the result, appeal by the Revenue is partly allowed for statistical purpose in view of our aforesaid findings.
C.O. no.115/Mum./2019 (Arising out of Revenue’s Appeal being ITA no…697/Mum./2018)
While, assessee, in its cross objection, has raised following grounds:
“1. AO's claim to set aside the order of the ld. CIT(A)-45, Mumbai and to restore his order taking the ground that the creditworthiness and the genuineness of the transactions were not been established for the addition made u/s.68 for a sum of Rs.10,12,91,595/- is being frivolous Page | 22
Shri Kiritbhai K. Thummar ITA No.697/Mum./2018 CO No. 115/Mum./2019 one for the want of application of mind hence, appeal filed may be held as not admissible. 2. Assessment completed was without jurisdiction as assessment was completed, by the different ward then where ROI was filed and assessment was initiated, without issuing the notice u/s.143(2) of the Act hence, assessment is bad in law being void ab initio. 3. Assessment completed was merged with the reassessment proceeding which itself was also without authority of the law and therefore also this proceeding is bad in law.”
At the outset, we noticed that the present cross objection is delayed by 22 days. In this regard, assessee has also filed an application seeking condonation of delay. In the said application, it is submitted that there were certain issues related to the jurisdiction and to verify the same certain information was required from the AO, which could not be availed despite being sought and hence resulting in delay in filing the present cross objection. In view of the above, assessee has submitted that the delay was in the bona fides circumstances and has prayed for condonation of same. The learned DR did not raise any serious objection and therefore, in view of the submissions made in the application seeking condonation of delay, we are of the considered view that there was sufficient cause for not filing the present cross objection within the limitation period. Accordingly, we condone the delay in filing the present cross objection by the assessee.
The ground No. 1, raised in assessee‟s cross objection, is more of an argument by assessee in support of the impugned order passed by the learned CIT(A). Therefore, the same needs no adjudication.
Shri Kiritbhai K. Thummar ITA No.697/Mum./2018 CO No. 115/Mum./2019 35. In grounds No. 2 and 3, assessee has challenged issuance of notice under section 143(2) of the Act on the ground that the same is without jurisdiction. It is the plea of the assessee that notice under section 143(2) was issued by ITO Ward 25 (2) (1), however, the jurisdiction in the case of the assessee lies with ACIT – 33 (2), Mumbai. From the perusal of record we find that this issue was not raised by the assessee in its appeal before the learned CIT(A) and has been raised for the first time in the present cross objection against the Revenue‟s appeal. Though, this fresh issue should have been raised by way of an application seeking admission of additional ground, however, the assessee has raised the same in the present cross objection. It is settled that being a legal issue, same can be raised at any stage of proceedings. However, since, this legal issue was not raised and therefore was not considered by the learned CIT(A), thus, we deem it appropriate to remand the issue arising in grounds no.2 and 3, raised in assessee‟s cross objection, to the learned CIT(A) for necessary adjudication. Needless to mention that no order shall be passed without affording opportunity of being heard to both the parties. Further, the learned CIT(A) shall have the liberty to call for any details/documents from either parties for adjudication. As a result, grounds No. 2 and 3 raised in assessee‟s cross objection are allowed for statistical purpose.
In the result, assessee‟s cross objection is allowed for statistical purpose.
Shri Kiritbhai K. Thummar ITA No.697/Mum./2018 CO No. 115/Mum./2019 37. To sum up, appeal by the Revenue is partly allowed for statistical purpose, while assessee‟s cross objection is allowed for statistical purpose. Order pronounced in the open Court on 19/09/2022
Sd/- Sd/- OM PRAKASH KANT SANDEEP SINGH KARHAIL JUDICIAL MEMBER ACCOUNTANT MEMBER
MUMBAI, DATED: 19/09/2022 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Mumbai City concerned; (5) The DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary Assistant Registrar ITAT, Mumbai