NALAGARH CHEMICALS PVT. LTD.,CHANDIGARH vs. INCOME TAX OFFICER, WARD-1(5), CHANDIGARH

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, CHANDIGARH BEFORE HON’BLE SHRI LALIET KUMAR, JM AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM आयकरअपील सं. / (िनधा"रणवष" / Assessment Year: 2012-13) M/s Nalagarh Chemicals Private Ltd. ITO-Ward 1(5) बनाम/ No. 3, Sector 5, Aaykar Bhawan, Sector 17 Vs. Chandigarh-160005 Chandigarh "थायीलेखासं./जीआइआरसं./PAN/GIR No. AAACN-4773-A (अपीलाथ"/Appellant) : (""थ" / Respondent) अपीलाथ"कीओरसे/ Appellant by : Shri Parikshit Aggarwal (CA) and Ms Shruti Khandelwal (Advocate) – Ld. ARs ""थ"कीओरसे/Respondent by : Dr. Ranjit Kaur (Addl. CIT) – Ld. DR सुनवाईकीतारीख/Date of Hearing : 22-05-2025 घोषणाकीतारीख /Date of Pronouncement : 02-06-2025 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year (AY) 2012- 13 arises out of an order of learned Commissioner of Income Tax (Appeals), National Fearless Appeals Centre (NFAC), Delhi [CIT(A)] dated 30-01-2024 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s. 143(3) r.w.s. 147 of the Act on 12-12- 2019. The sole grievance of the assessee is confirmation of addition of Rs.75.00 Lacs. The assessee has also assailed reassessment proceedings on legal grounds. Having heard rival submissions and upon perusal of case records, the appeal is disposed-off as under. Assessment Proceedings 2.1 The assessee’s case was reopened as per due process of law pursuant to the receipt of information that the assessee received amount of Rs.75 Lacs from Smt. Surjeet Kaur which amount was deposited in cash in her HDFC account on 17-12-2011 and then transferred to the assessee-company on same date. The bank account of the lender was opened on 21-11-2011 and closed on 22- 10-2013 by banking authorities due to non-maintenance of the account. The account was opened without obtaining any evidence of address / age / details of spouse etc. of depositor but merely with the endorsement of Sarpanch. No business activity was done by the assessee during this year. Accordingly, the case was reopened and notice u/s 148 was issued on 30-03-2018. The assessee responded to the same. The reasons for reopening were duly supplied to the assessee. 2.2 In response to hearing notices, the assessee stated that the lender and the directors of the assessee-entity were from native village and the families were known to each other. The unsecured loan taken in this year was converted into share capital during financial year 2013-14. However, it was noted by Ld. AO that cash of Rs.75 Lacs was deposited in cash in the bank account of Smt. Surjeet Kaur on 17- 12-2011 and on the same day, the funds were transferred to the assessee-company. The assessee did not require the funds and the same were transferred to another entity M/s International Fresh Farm Products Pvt. Ltd. Later on the loan as received by the assessee was converted into share capital by allotting 75000 shares of Rs.100/- each in FY 2013-14. Smt. Surjeet Kaur was not resident of India and not residing in India for the last 50 years. She was not having any source of income in India. On these facts Ld. AO alleged that the money did not belong to the lender but it actually belonged to the assessee entity. The assessee failed to furnish Income Tax Return, address and PAN of the lender. The conditions of Sec.68 were not fulfilled and accordingly, the amount of Rs.75 Lacs was added u/s 68 and the assessment was framed. Appellate Proceedings 3.1 The assessee contended that it was not required to explain the source of the source since the amendment to Sec.68 was with effect from 01-04-2013. The Ld. CIT(A) observed that the amendment was not applicable to unsecured loans. The assessee failed to prove the genuineness of the unsecured loans and accordingly, the addition, on merits, was confirmed. 3.2 The assessee also questioned the validity of assessment proceedings. The Ld. CIT(A) observed that the 5 opportunities of hearings were provided to the assessee and copy of reasons were also provided as per the request of the assessee. However, the assessee failed to establish the genuineness of the loans. 3.3 The Ld. AO reopened the case upon receipt of specific information from DDIT (inv.), Bhatinda that Smt. Surjeet Kaur deposited cash of Rs.75 Lacs on 17-12-2011 in HDFC account and transferred the same to the assessee company on the same date. The bank account was opened without following KYC norms and without obtaining proper evidences but it was reopened merely on the basis of endorsement of Sarpanch which was also not legible / comprehensible. No business activity was carried out by the assessee during this year and it filed returned loss. There was increase in unsecured loans in the books of the assessee. On the basis of said information, a reasonable belief was formed by AO that income escaped assessment. Once a reasonable belief was formed, AO was not expected to conclude the issue finally or ascertain the fact by evidence or conclusion. What was required at this stage was reason to believe and not established fact of escapement of income. The decision of Hon’ble Apex Court in the case of Rajesh Jhaveri Sock Brokers Pvt. Ltd. (161 Taxman 316) was referred to support this conclusion. Similarly, in the case of Raymond Woollen Mills Ltd. (236 ITR 34), it was held that it was to be seen whether there was a prima facie case for reopening or not and sufficiency of reasons was not to be seen. Finally, the legal grounds were rejected. Aggrieved, the assessee is in further appeal before us. Our findings and Adjudication 4. From the facts, it is amply clear the pursuant to receipt of information from DDIT (Inv.), Bhatinda, the case of the assessee was reopened and notice u/s 148 was issued on 30-03-2018. It transpired that Smt. Surjeet Kaur deposited cash of Rs.75 Lacs in her bank account and transferred the same to the assessee on same day. The funds were, in turn, were transferred by the assessee to another concern. In FY 2013-14, the loan was converted into share capital and the lender became shareholder in assessee-company. However, the investigation revealed that the bank account was reopened without following KYC norms. Further, Smt. Surjeet Kaur was not a resident in India. The bank account of the lender was opened on 21-11-2011 and closed on 22-10-2013 by banking authorities due to non-maintenance of the account. The account was opened without proper KYC. The assessee did not carry out any business activity during the year. To establish fulfillment of conditions of Sec.68, the assessee merely stated that the lender and the directors of the assessee-entity were from native village and the families were known to each other. The assessee could not file even the address and PAN of the lender despite that fact that the lender became shareholder of the assessee- entity in FY 2013-14. The cash was deposited in the bank account and the same was transferred on the same very day which is evident from the bank statement of the lender as placed on record. The lender was not residing in India for more than 50 years and she had no source of income except for sale proceeds of agricultural land for Rs.59.99 Lacs. However, nothing was brought on record to establish that the funds were deposited out of sale of agricultural land and then transferred to the assessee-entity. On these facts, the adjudication of lower authorities could not be faulted with on merits. The Ld. AR has urged that source of source is not required to be proved. However, in this year, the assessee has failed to prove the first source of unsecured loans. Considering the facts of the case, we would hold that the assessee failed to prove the creditworthiness of the lender as well as the genuineness of the transaction.