DILSA DISTRIBUTORS COMBINE ,MUMBAI vs. PR. CIT-16, MUMBAI

The only issue in this appeal of assessee is against the revision order passed by PCIT under section 263 of the Act setting aside the Dilsa Distributors Combine; AY 98-99 assessment framed by the Assessing Officer. For this assessee has raised the following two grounds:- “1. The learned Commissioner of Income Tax has erred in law and on the facts of the case in reopening/ initiating proceedings u/s 263 of the Income Tax Act, 1961.

Brief facts of the case are, the assessment under section 143(3) read with section 147 read with section 144A of the Income Tax Act, 1961 (in short ‘Act’) was completed on 31.03.2005 determining the income at Rs.49.5 lacs and the addition was made of Rs.49.5 lacs on account of the hawala loans and interest on such hawala loans claimed by the assessee. Aggrieved with the above order assessee preferred the appeal before CIT(A) and learned CIT(A), vide his order dated 15.02.2006 dismissed the appeal. Aggrieved, assessee preferred the appeal before ITAT and ITAT remitted the issue back to the file of the Assessing Officer vide order dated 23.07.2008.

In the second proceedings, the Assessing Officer sent several notices to Mr. Surendera Khander but he did not appear before the Assessing Officer and once again the Assessing Officer considered the above loan transaction as bogus and sustained the addition as Dilsa Distributors Combine; AY 98-99 unexplained cash credit under section 68 of the Act. Aggrieved, assessee preferred the appeal before CIT(A) and CIT(A) sustained the addition made by the Assessing Officer. Aggrieved, assessee preferred the appeal before ITAT and once again, ITAT remitted the issue back to the file of the Assessing Officer to verify the loan transaction denovo.

In view of the directions of ITAT the Assessing Officer served notice and in response, Shri Dilip Dhanwani, one of the partner of the assessee firm, attended and submitted the letter dated 25.04.2017. It was submitted before the Assessing Officer that assessee has given Satellite, Video, Cable, Pay TV, VCD rights of ‘TRISHAKTI” against loan taken by the assessee to the following parties :- Sr. Party Name Amount No.

Vikash Sales Corporation 5,00,000 2. Kartik Trading Company 5,00,000 3. Shital International 5,00,000 4. Prabhavee 2,50,000 5. Shreeji Corporation 5,00,000 6. Gayatri Enterprises 2,50,000 7. Vipco Sales Corporation 5,00,000 8. Ray Engineering 4,00,000 9. Gayatri Enterprises 4,00,000 10. Raj Enterprises 2,50,000 11. Kartik Trading Company 2,50,000 12. Gayatri Enterprises 2,50,000

Further, the assessee has also produced copy of return of income along with audit report and profit and loss account showing that the assessee has duly accounted the above amounts, sales for Assessment Year 2002-03. considering the above submissions, the Assessing Dilsa Distributors Combine; AY 98-99 Officer considering the directions of the ITAT and the copy of the promissory notice duly discharge by the above said parties and accordingly, accepted the submissions of the assessee and completed the assessment without making any addition.

On verification of above assessment records, PCIT observed that the assessment order passed by the Assessing Officer without making proper enquiry and it is prejudicial to the interest of the Revenue. Hence, the PCIT sent a notice to the assessee as to why the assessment order should not be revised under section 263 of the Act.

In response, Shri Dilip Dhanwani, partner of the firm attended and submitted his reply on 17.02.2020, for the sake of clarity it is reproduced below: - “During the proceeding before the Assessing officer in June 2017, we gave and all the information pertaining to the loan taken of 45,00,000/- (Rupees Forty five lakhs only) which was genuinely taken and necessary documents to prove the same were provided at all stages.

After considering the submissions of the assessee and relying on the explanation 2 to section 263 of the Act learned PCIT observed that the order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the Revenue and further he observed that the Assessing Officer should have applied his mind as to whether loan repaid has claimed by the assessee is at all allowable. Obviously, Assessing Officer failed to do that before passing the assessment order. Since, the Assessing Officer has failed to do so before finalizing the assessment order, the order is erroneous in as far as it is prejudicial to the interest of the Revenue and accordingly, he cancel the assessment order and directed the Assessing Officer to pass afresh assessment order after giving reasonable opportunity to the assessee of being heard as per law. Aggrieved, with the above order, assessee is in appeal before us.

At the time of hearing, the learned AR brought to our notice, the facts in the case by bringing us pages 6 to 29 of the paper book to explain the facts in this case. He brought to our notice page 36 of the paper book which is later issued by PCIT dated 07.02.2020. He brought to our notice the observation of the PCIT that ITAT has remitted the issue back to the file of the Assessing Officer on the identical direction as per the earlier ITAT’s order. The learned AR objecting to the above observation, brought to our notice page 39 of Dilsa Distributors Combine; AY 98-99 the assessee’s paper book to highlight that the assessee has submitted before Hon’ble ITAT that assessee has repaid the loan taken from those parties and in order to verify the same Hon’ble ITAT has remitted the issue back to the file of the Assessing Officer and assessee has duly submitted all the information before Assessing Officer and Assessing Officer after verifying the same duly accepted the contention of the assessee and accordingly, completed the assessment. Further, the learned AR submitted that the learned PCIT has not acted upon the reasons recorded in the notice and given directions to the Assessing Officer to verify whether the loan repaid by the assessee is liable or not and he is not given any finding as such. The learned AR further submitted that similar issue came up before ITAT in & 1619/Mum/2020 in the case of Baba Sai Films vs. PR CIT vide order dated 17.06.2021. On the identical and similar issues, the Hon’ble ITAT decided the issue in favour of the assessee. He brought to our notice to page 13-16 of the order and submitted that this issue is already covered in favour of the assessee. Further, the learned AR submitted that PCIT has given fresh reasoning in his order without giving opportunity to assessee. In this regard, he relied the order of Mumbai Bench of the Tribunal, dated 10.11.2017, in the case Ambuja Cements Ltd. vs. CIT LTU, wherein it is submitted that the order passed under section 263 is bad in law.

On the other hand, the learned DR brought to our notice page 20 of the paper book to submit that the assessee has submitted that it has given confirmation with PAN of the firms from whom loan were borrowed in the form of Hundi Papers and refunded as per terms of Hundi of Hundi / Promissory note. The nature of transaction is fully valid and legal as money has been given and paid by account payee Dilsa Distributors Combine; AY 98-99 cheques and not by way of cash. He submitted that the above observation was made by Hon’ble ITAT in the first round of appeal and he submitted that whether the payment was paid by account payee cheques or not is the issue. Further, he brought to our notice at page- 23 of the paper book, the various observation of the ITAT and submitted that ITAT has given direction to verify the repayment by cheque but in actual the assessee has settled based on pro note basis. And further, he submitted that assessee has not filed any MA to clear the above said details.

We heard the rival submissions and perused the material available on record. We found that the assessee firm has fought a long litigation before the Honorable Tribunal up to the year 2016 being the three rounds of litigation. The Co-ordinate bench of tribunal in 2011 dated 29-07-2016 has restored the disputed issue with the directions to the A.O and allowed the assesses appeal for statistical purpose. The Ld. AR contentions are that the main partner of the assessee firm, who was looking after the creditors payments and unsecured loans has expired. Due to which the assessee firm was in financial crisis and was not in a position to repay the loans. Subsequently, because of mutual understanding between the loan creditors on certain terms and conditions the loan amount was treated as investments of the creditors with profit sharing. The A.O. in order dated 30.06.2017 passed u/sec143(3) r.w,s 254 of the Act has relied on the submissions. We find the main crux of the issue that, the Pr.CIT is Dilsa Distributors Combine; AY 98-99 of the opinion that the A.O. order is erroneous and prejudicial to the interest of the revenue and was set aside for fresh adjudication. On perusal of the Pr.CIT order we found that the Pr. CIT has only verified the facts of loan and the assessee firm is in the litigation before the Hon’ble Tribunal for the third time and the Pr.CIT has not pointed out any specific error in the A.O. order and emphasized only on the status of repayment of loan by account payee cheques and has relied on the observations of the A.O. duly endorsed by the Range Head at page 4 of the Revision order as under:

The Bench required the Ld.AR to clarify the issue of filing Miscellaneous petition. The Ld.AR submitted that the assessee wanted to file a miscellaneous application but due to lapse of time allowed u/sec254(2) of the Act, the assessee could not file the miscellaneous application within the time and is not a wanton act. The assessee has squared off the loan amount with the mutual Dilsa Distributors Combine; AY 98-99 consent of creditors. The Ld.AR referred to the orders of the Hon’ble Tribunal in the case of assesse’s sister concern M/s Dilsa Distributors combine (supra) where the Hon’ble Tribunal has made observations regarding the repayment of loan and the same was followed in assesse’s own case in ITAno5850&5851/M/2011 dated 29.7.2016 which is not disputed.

We find that the Ld. AR contentions are realistic and the assessee has resolved the issue by mutual understanding and compromise with the loan creditors towards the investments and there is no fresh information available before the A.O except the directions of the Hon’ble Tribunal. The A.O. has made efforts as his predecessors have undertaken on the disputed issue and in the present situation he could not change the circumstances. Therefore, we are convinced that the A.O has taken one of the possible view in the assessment order. Further, a query was raised to the Ld.DR, whether revenue has challenged the ITAT order 29- 07-2016 before the Hon’ble High court it was clarified that no appeal has been filed. We on perusal of the Pr. CIT order find that the Pr. CIT could not find any specific error in the A.O. order but only relied on the ITAT directions on repayment of loan. We find that the Ld. AR has answered the query on the Miscellaneous Petition against the ITAT order dt 29-07-2016 and the same could not be filed due to lapse of time u/s 254(2) of the Act. We find the Ld AR submissions on the issue of outstanding loans squared off as investments in production of film with the mutual consent of the creditors considered as holistic view. Further the Pr. CIT should specifically point out the error in the order passed by the A.O. which is erroneous and prejudicial to the interest of the revenue. We find that there is no enquiry which was conducted by the Pr.CIT except Dilsa Distributors Combine; AY 98-99 relying on the A.O. submissions endorsed by the range head. We also observe that the assessee has fought the litigation for the fourth time in the present case before this Hon’ble Tribunal. We find the A.O as per the directions of the Honorable Tribunal in order dated 29.07.2016 has taken a possible view considering the litigation for a period of more than 20 years. We are convinced that the order passed by the A.O are on facts, circumstances, possible and reasonable views. We find the action of the Pr. CIT revising the A.O. order with out conducting of enquiry is not tenable. Accordingly we set aside the order of the Pr. CIT and allow the grounds of appeal