M/S. SARDHANA PAPERS (P) LTD.,UTTAR PRADESH vs. ACIT, MEERUT

This appeal filed by the assessee is directed against the order dated 27th June, 2016 of the CIT(A), Meerut, relating to assessment year 2012-13.

Facts of the case, in brief, are that the assessee is a company engaged in the business of manufacturing of craft paper. It filed its return of income on 10th September, 2012 declaring total income of Rs.67,07,650/-. During the course of assessment proceedings, the AO noted that the assessee has received a loan of Rs.27 lakhs from M/s Ram Alloy Casting Pvt. Ltd. The assessee filed photo copy of confirmation along with copy of bank account and ITR. From the details so furnished by the assessee, the AO noticed that the credit worthiness of the lender is not satisfactory and transaction is doubtful as the income returned by the lender was Rs.nil. Therefore, it is difficult to accept the advance given by the lender to the assessee. On perusal of the bank account, he noted that there were transfer entries and cash deposit which shows the possibility that the lender was providing accommodation entry to the assessee. He, therefore, issued notice u/s 133(6) of the Act for confirming the loan along with supportive details. However, no confirmation was received for which the assessee was required to explain the reasons for non-compliance made by the lender. The assessee submitted that the party is being contacted and the reply for the reference will be filed on the next date of hearing. Subsequently, summons were issued to the lender for compliance and the assessee was also directed to remain present on the date of hearing for filing cross objection during the statement, if any. However, on the date of compliance, none appeared on behalf of the lender. The AO, therefore, asked the assessee to substantiate the credit worthiness of the lender M/s Ram Alloy Casting Pvt. Ltd., as the details submitted by the assessee and confirmation received from the party prove that the company does not have sufficient funds to advance to the assessee. The assessee reiterated that the said party has already replied to the notice u/s 133(6) to the AO. However, the AO doubted the veracity of the confirmation made by the said party in response to notice u/s 133(6) of the Act. 2 Rejecting the various explanations given by the assessee and invoking the provisions of section 68 of the IT Act, the AO made addition of Rs.27 lakhs to the total income of the assessee which is the subject matter of appeal before the Tribunal. In appeal, the ld.CIT(A) confirmed the addition so made by the AO.

Aggrieved with such order of the CIT(A), the assessee is in appeal before the Tribunal raising the following grounds:- “

The ld. Counsel for the assessee strongly challenged the order of the CIT(A) in confirming the addition made by the AO. Referring to para 4.2 of the order of the CIT(A), the ld. Counsel drew the attention of the Bench to the same which reads as under:- “4.2 I have carefully considered the whole issue. The appellant received loan of Rs.27 lacs in 2 transactions on 12.08.2011 and 17.08.2011 for Rs.20 lacs and Rs.7 lacs respectively shown to have been received from Ram Alloy Casting (P) Ltd. From the copy of ITR acknowledgement of the depositor company for A.Y. 2012 - 2013, I find that the returned income is at Rs. NIL. From the copy of the B/s. of the depositor company as on 31.03.2012, the loan transaction is not apparent. The contention of the AO that the confirmation received through speed post allegedly sent by the depositor is in fact sent by the appellant himself in the name of the depositor remains un-rebutted effectively and constructively. The Ld. AR has also not negated the contention of the AO that the original confirmation allegedly sent by the depositor is the original copy of the same confirmation, the photocopy of which has been filed by the appellant. This confirmation is, in fact, generated from the books of appellant. The original has been claimed to be sent by the depositor and photocopy has been filed by the appellant. The Ld. AR has not brought any such material on record which may negate the observation of the AO that the said original confirmation has been sent by the appellant in the name of depositor. The Ld. AR has filed only one page of bank statement (Paper Book Pg. 50), it is the copy of PNB bank statement of depositor starting from 12.08.2011 upto _.08.2011 (date is not clear). The first entry in this bank statement is of Rs. 20 lacs issued to appellant. The source of the credit in the bank is not available as it is the very first entry. Thereafter, on 16.08.2011, there is a cash deposit of Rs. 4,19,500/-, the source thereof is also not known. The last but one entry in the bank statement is of Rs, 7 lacs issued to appellant and the source of immediate preceding credit entry of Rs. 7 iacs is also not apparent. It appears that the bank statement has been given for such a limited period so as not to enable anyone to examine and whether the same in correct perspective. It is as on date a settled law that amount received through banking channel, alone is not sufficient for holding the same as genuine. In this case, the AO was not satisfied with the genuineness of the transaction on examining the documents furnished at the first instance by the appellant. He issued notice U/s. 133 (6), in response to which, the appellant himself signed the same documents again (which were furnished by him earlier) vide speed post in the name of depositor. All efforts of the AO to examine the genuineness of the transaction by examining the depositor U/s. 131 also failed since, neither the depositor appeared, nor the appellant attempted to produce the depositor. I have also, gone through various case laws relied upon by the Ld. AR. The case of CIT vs. DAULAT RAM RAWATMULL 87 ITR 0349 (SC), is on the issue of scope of interference by the High Court wherein Hon’ble Supreme Court held that the High Court should not disturb the pure findings of fact arrived at by the Tribunal unless it appears that there was no evidence to support it or that it was perverse, hence, it is not applicable to the facts of this case. In the case of CIT VS. AWANT GRADE CARPETS LTD. (2015) 230 TAXMANN165 (ALL.), is for the preposition that if the explanation of the assessee is found un satisfactory, the sum so credited may be charged as income of the assessee. I really fail to appreciate as to how the ratio of this authority is applicable on this case.

Hence, this authority is also inapplicable. In the case of EXOIMP RESOURCES (INDIA) LTD., VS. CIT 276 ITR 87 (KOL.), the issue was as to whether any explanation was furnished by the assessee to the AO in respect of deposits. The Hon’ble High Court held that it is necessary on the AO to examine the explanation and then to arrive at a conclusion as to whether the explanation is satisfactory. In view of this the Hon’ble High Court remitted back the said case to 1TAT to see as to whether any explanation was furnished to the AO before the Asstt. was made by the AO. I really fail to understand that as to how the ratio of this authority is applicable on this case. In the case of SAROGI CREDIT CORPORATION VS. CIT 103 ITR 344 (PAT.), the creditors had appeared before AO and has admitted the fact of advancing the money. In the present case, the depositor never appeared inspite of being summoned as well as on being asked from the appellant to produce the depositor, in the case of CIT VS. PITHAMPUR CONZIMA (P) LTD 244 ITR 442 (MP), the loans were taken from the directors and the wife of one of the directors who had also declared the said loans in their respective returns of income. In the present case the facts are entirely different, therefore the ratio of this authority is also not applicable. In ANIS AHMAD & SONS VS. CIT 297 ITR 441 (SC), is not an authority for addition U/s. 68, therefore, not applicable. The authority of CIT VS. PANCHAM DASS JAIN 156 TAXMAN 507 (ALL.), is on the issue as to whether provisions of Sec. 68 are attracted on the amounts representing the purchases made on credit. This authority is also not on the issue under consideration. The reliance placed on these authorities is misplaced. Under these facts, I am of the considered opinion that the appellant has not been able to discharge his onus w.r.t. the requirements of Sec. 68 and specially in proving the genuinnity of the transaction and the credit worthiness of the cash creditor. In vide of above discussion, I am of the considered opinion that the AO has been justified in making addition of Rs. 27 lacs U/s. 68 of the l.T. Act. In the result this ground fails.”

He submitted that given an opportunity, the assessee is in a position to substantiate the credit worthiness of the same lender by producing him along with necessary evidences to substantiate the credit worthiness of the said party.

The ld. DR, on the other hand, strongly supported the order of the CIT(A) and submitted that despite opportunities granted by the AO and the CIT(A), the assessee was unable to substantiate the credit worthiness of the said party by producing the party before the AO along with necessary details. Therefore, the matter need not be restored to the file of the AO and should be decided here itself. The ld. DR also relied on the decision of the Hon’ble Supreme Court in the case of NRA Iron & Steel Pvt Ltd., reported in 412 ITR 161 and the decision in the case of Konark Structural Engineers (P) Ltd. Vs. DCIT reported in 96 taxmann.com 255 (SC).

We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the AO, in the instant case, made addition of Rs.27 lacs u/s 68 of the IT Act on the ground that the assessee failed to substantiate the credit worthiness of M/s Ram Alloy Casting Pvt. Ltd., who has advanced an amount of Rs.27 lacs to the assessee. It is the allegation of the AO that despite summons issued, the said party did not appear and the reply given by the said party in response to notice u/s 133(6) raises certain doubts. We find the ld.CIT(A) upheld the action of the AO. It is the submission of the ld. Counsel for the assessee that given an opportunity, the assessee is in a position to produce the said party along with necessary documents to substantiate their credit worthiness. Considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the file of the AO with a direction to give one final opportunity to the assessees to substantiate its case by producing the said party before him. The AO shall decide the issue as per fact and law. The AO, while deciding the issue, shall keep in mind the various decisions relied on by the ld. DR. We hold and direct accordingly. The first ground raised by the assessee is accordingly allowed for statistical purposes.

In the result, the appeal filed by the assessee is partly allowed for statistical purposes. The decision was pronounced in the open court on 31.12.2019.