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Income Tax Appellate Tribunal, “G”
Before: SHRI S. RIFAUR RAHMAN, AM & SHRI RAM LAL NEGI, JM
Per S. Rifaur Rahman, Accountant Member:
The present Appeal has been filed by the assessee against the order of Ld. Pr. Commissioner of Income Tax (Appeals) - 3 in short referred as ‘Ld. PCIT’, Mumbai, dated 01.01.18 for Assessment Year (in short AY) 2013-14. 2 M/s Supras Metals Ltd.
The brief facts of the case are that the assessment order u/s 143(3) of the Act was completed on 10.03.16 for AY 2013-14 and determining the total income at Rs. 2,40,46,698/- as against return of income filed on 01.10.12 claiming a total loss of Rs. 62,41,317/-. While completing the assessment order, AO verified the loss and advances taken by the assessee with various parties and assessee was asked to submit the details with confirmation and bank statement. The assessee filed the details of the parties with their PAN no, which is reproduced below:- Name of the party PAN Opening Loan taken Loan repaid Closing Balance Balance during the during the year year Alloy Holdings Pvt. Ltd., 1,18,10,000 - - 1,18,10,000 AAACA8920E - Copper Holdings Pvt. Ltd., 14,00,000 75,00,000 89,00,000 AAACC4431E - 39,00,000 -' 39,00,000 AAGCM0280P Meta Advisory Services Pvt. Ltd., Meta Power Pvt. Ltd., - 30,73,704 - 30,73,704 AAACB9816A Venus Nevesh Pvt. Ltd., - 16,75,000 - 16,75,000 AABCV6131B Gemeni Complex Pvt. Ltd., - 21,75,000 - 21,75,000 AABCG7417M Jupiter Nevesh Pvt. Ltd., - 51,00,000 - 51,00,000 AABCJ3061C Vema Trading Pvt. Ltd., - 2,60,03,607 1,78,00,000 82,03,607 AAACV9321N Vismay Properties Pvt. Ltd., - 35,00,000 35,00,000 - AADCV6038K - 2,39,00,000 2,39,00,000 - AAHCS0312H Sapphire Fin-Tech Pvt. Ltd., - 25,00,000 25,00,000 - AABCP7672D Profinish Solutions Pvt. Ltd.,
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Kandla Equities Pvt. Ltd., - 57,00,000 57,00,000 - AAACK4238M P. G.Traders 3,04,00,000 - - 3,04,00,000 - Total 4,36,10,000 8,50,27,311 6,23,00,000 6,63,37,311
After verifying the above loan and advances in detail and AO came to the conclusion that even though identity of some parties has been established and creditworthiness of all the parties were not established. AO, with regard to genuineness, he observed that mere routing the transaction through banking channel does not prove the genuineness. After establishing that assessee has not proved the creditworthiness and genuineness of the transactions, AO even though considered the total loan received during this year as unexplained cash credit. However, he considered the repayment made during this year to the extent of Rs. 6,23,00,000/- and excluded the above repayment from the addition and restricted the disallowance to the extent of Rs. 2,27,27,311/- u/s 68 of the Act. Further AO also made addition in respect of non-business expenses to the extent of Rs. 75,60,703/-.
Consequently, Pr.CIT while examining the assessment records, it was observed that assessee has taken loan totaling Rs.
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5 crores and assessee has not established identity, creditworthiness and genuineness of the transaction and assessee has repaid the amount to the extent of Rs. 6.25 crores to the said parties and the difference of amount of Rs. 2.27 crores was treated as unexplained cash credit and the peak credit should have also been held as unexplained cash credit. Accordingly, he issued show cause notice u/s 263 of the Act. In response, AR of the assessee attended and made submission by way of letter dated 27.07.17 and 23.07.17 at sub-para no. 2.1 to3.4 of the order of PCIT. For the sake of clarity, which is reproduced below:-
1 Unsecured Loans Taken: During the year under consideration, the Company had taken loan ofRs.8,50,27,311 from various parties and made repayments of Rs.6,23,00,000/- in respect of the same. The details of loans taken and repaid during the year are summarized below for your good selfs ready reference:
Name of the party Opening Loan taken Loan repaid Closing Balance Balance during the year daring the year 11,810,000 11,810,000 Alloy Holdings Pvt. Ltd. - . 1,400,000 7,500,000 8,900,000 - Copper Holdings Pvt. Ltd. - • 3,900,000 3,900,000
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Meta Power Pvt. Ltd. 3,073,704 3,073,704 - 1,675,000 - 1,675,000 Venus Nevesh Pvt. Ltd. Gemini Complex Pvt. Ltd. - • 2,175,000 - 2,175,000 - 5,100,000 - 5,100,000 Jupiter Nevesh Pvt. Ltd. . 26,003,607 8,203,607 Vema Trading Pvt. Ltd. 17,800,000 - 3,500,000 - 3,500,000 Vismay Properties Pvt. Ltd. - 23,900,000 - 23,900,000 Sapphire Fin-Tech Pvt. Ltd. - 2,500,000 • 2,500,000 Profinish Solutions Pvt. Ltd. - 5,700,000 - 5,700,000 Kandla Equities Pvt. Ltd. 30,400,000 . 30,400,000 PG Traders - 4,36, 1 0,000 8,50,27,311 6,63,37,311 TOTAL 6,23,00,000
5 The teamed AO after due consideration of the details and documents submitted by the assessee and the parties from whom loan was taken, made the addition of loan amount of Rs.2,27,27,311 (net of repayment of Rs.6,23,00,000) as unexplained cash credit under section 68 of the Act.
0 Objections for revision u/s.263 of the Act
1 At the outset, the assessee hereby objects the revision of assessment order under consideration as the AO had examined the documents submitted by the Assessee, had applied his mind and then passed the 6 M/s Supras Metals Ltd.
assessment order wherein he has in details provided party-wise analysis of loan taken during the year.
3, 1. 6 In the instant case, the learned AO had issued notice dated 22 July 2015 under section 142(1) of the Act wherein vide point number 16 of the said notice the AO had asked to furnish party wise details of loans and advances received along with details to prove the identity, creditworthiness of the parties and genuineness of the transactions (copy of notice enclosed herewith market as Annexure E). In response to the said notice the Company vide its letter dated 24 November 2015 (point number 4) submitted party wise details of loans and advances taken during the captioned assessment year along with party confirmations and bank statements of the assessee highlighting the amounts of loan taken. (Please refer Annexure D)
7 Further, in order to verify the identity, creditworthiness of the parties and genuineness of the transactions, the learned AO had also issued notices under section 133(6) of the Act to the parties from whom loans were taken during the year. In response to the same, the parties had submitted various documents such as bank account statements, financial statements
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and ledger accounts of the assessee as appearing in their books of accounts.
8 The details submitted by the parties have been duly examined and summarized by the learned AO in the assessment order. The learned AO has perused each of the documents submitted by the parties and mentioned his specific observations in para 5.3 of the assessment order.
9 After due consideration of the above submissions the learned AO in para no. 5.4 of the order, was of the opinion that though identity of some parties has been established, creditworthiness of Vie parties were not established. In his view, the assesses has failed to discharge its onus of providing the genuineness of the transactions and establish the identity and creditworthiness of the parties.
10 The learned AO in para 5.4 of the order concluded as follows:
"...Therefore the entire amount of Rs.8,50,27,311 shown as loans received is held as unexplained cash credit, however, considering the repayment made of Rs.6,23,00,000 the remaining amount of Rs.2,27,27,311 being the amount remained credited in the assessee's books of account as on 31.03.2013 is 8 M/s Supras Metals Ltd.
treated as the unexplained cash credit u/s.68 of the Income Tax Act, 1961 and the same is taxed assessee's unexplained income..."
11 In view of the above, it can be said that the learned AO had made sufficient enquiries and verified all the details in respect of Vie issue on hand. Further, the learned AO also applied his mind on the issue of the quantum of disallowance to be made and then treated the loan amount of Rs.2,27,27,311 (net of repayment of Rs.6,23,00,000) as unexplained cash credit under section 68 of the Act.
13 The assessee would like to draw your Honour's kind attention on the following judgments of various courts wherein it is held that where if a query is raised during assessment proceedings and responded to by the assessee, the mere fact that it is not dealt with in the assessment order would not lead to a conclusion that no mind had been applied to it. It pertinent to note that in the case of the assessee company, the learned AO not only raised the query but also discussed the same in the assessment order after applying his mind on the same.
1 The Assessee company has relied on the following case laws and has stated that the order passed by the 9 M/s Supras Metals Ltd.
AO is not erroneous and prejudicial to the interests of Revenue.
> CIT v. Fine Jewellery (India) Ltd. [2015] 55 taxmann.com 514 (Bombay)
> CIT v. Anil Kumar Sharma [2010] 194 Taxman 504 (Delhi)
> Salora international Ltd. v ACIT [2005] 2 SOT 705 (Delhi)
2 The Assessee has further relied on the following judgments wherein it is held that after examining the details the Assessing Officer has taken a view, which is a possible view then it cannot be treated that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the revenue and CIT cannot assume revisionary powers under section 263 of the Act.
> CIT v. Max India Ltd. [2007] 295 ITR 82/[2008] 166 Taxman 188
> Apollo Consulting Services Corporation v OIT [2012] 26 taxmann.com 127 (Mum.)
> CIT-I, Pune v. Gera Developments (P) Ltd. [2016] 71 taxmann.com 65 (Bombay) ......
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3 The Assessee's AR has further stated as under:
2 Further, addition made towards the aforesaid loan and the expenses treated as non-business in nature are already a subject matter of appeal before the CIT(A) and as such, initiating revision proceeding u/s. 203 of the Act would result in depriving the appellate authority of the power to examine the correctness of the order under appeal.
3 In this context, the Company would like to request your Honour to drop the revision proceedings under section 263 of the Act.
4 Assessee made further submission dated 23/11/2017 on similar lines.
After considering the submission of the assessee, PCIT observed that assessee company challenged the validity of the proceedings u/s 263 of the Act by stating that the AO has enquired into the matter, applied his mind to the materials on record and then the view was taken by him on the assessability of the amounts. Further that the assessment order was not erroneous and no prejudice was caused to Revenue. The PCIT brought on record the detailed findings of the AO in the assessment order
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and came to the conclusion that AO even though considered the whole advance received by the assessee as unexplained cash credit. However, he considered the closing as on 31.03.13 as unexplained cash credit u/s 68 of the Act and reduced the amount of repayment made by the assessee during the assessment year. According to Pr.CIT, all such unexplained cash credits, the peak credits should have been disallowed as when the said loans were considered as unexplained, disallowance was called for in respect of each said party based on the peak credit in each case. To this extent the order of the AO is erroneous in so far as it is prejudicial to the interest of revenue. Accordingly, AO is directed to re-do the assessment after giving opportunity to the assessee and to complete the assessment as per the observations of Pr.CIT.
Aggrieved with the above order, assessee preferred the appeal before us on the following grounds:-
1) On the facts & in the circumstances of the case the Ld. Principal Commissioner of Income Tax-3 ('PCIT- 3') erred in exercising the powers u/s 263 by setting aside the order passed u/s 143(3) dated 10/03/2016 for 12 M/s Supras Metals Ltd.
AY 2013-14 & the reasons assigned for doing so are contrary to the facts of the case, provisions of the Act and the rules made there under.
2) On the facts & in the circumstances of the case the Ld PCIT -3 has erred in passing the order u/s 263 since the assessment order passed by the assessing officer was not erroneous and no prejudice was caused to the revenue since the AO has enquired into the matter, applied his mind on the materials on record and then the view was taken by him on assessability of the amounts. Thus 263 is bad in law and void ab initio
3) On the facts & in the circumstances of the case the Ld PCIT- 3 in his order u/s 263 has erred in treating unsecured loans which have been squared off during the year as unexplained cash credit u/s 68 of Income Tax Act, 1961 without understanding the facts & circumstances of the case & the reasons assigned for doing so are wrong & contrary to the provisions of the Income tax Act & the rules made there under.
4) The appellant craves leave to add, alter, amend and/ or modify all or any of the above ground of appeal on or before the date of hearing.
Each of the grounds of appeal is independent and without prejudice to the other grounds of appeal.
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Before us, Ld. AR submitted that assessee has taken certain loans and AO has verified the above loans and dealt with this issue in detail and he brought to our notice at para no. 5 to 5.4 of the assessment order and AO has verified the loans taken by the assessee. He further brought to our notice the detail of loans taken by the assessee during the year i.e. 8.5 crores and during this year, assessee has repaid the majority of the loan taken by the assessee i.e. 6.23 crores. The AO has disallowed only to the extent of closing balance of the loans. He further submitted that AO has applied his mind and taken one of the view, in which he disallowed only to the extent of closing balance of the loan outstanding at the end of the year. Further, he submitted that against the above order, assessee is in appeal before Ld. CIT(A) which is still pending for adjudication. He brought to our notice at page no. 33 of the paper book, wherein assessee has filed appeal before Ld. CIT(A). He submitted that above matter is before Ld. CIT(A), Pr. CIT cannot invoke the provisions of section 263 of the Act when the matter is pending before Ld. CIT(A). In this regard, he relied upon the decision of Hon’ble Madras High Court in the case of Renuka Filip Vrs.
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ITO (2018) 103 CCH 0100 (Chen) and CIT Vrs. Commissioner of Wealth Tax vrs. Sampathmal Chordia (2003) 127 taxman 525 (Mad). With regard to one of the possible view taken by the AO, Ld. AR relied upon the following cases:- i) CIT vrs. V. Goetze 361 ITR 505 (Delhi HC) ii) Malabar Industrial Co. Ltd. vrs. 243 ITR 83 (SC) iii) CIT vrs. Max India 295 ITR 282 (SC)
On the other hand, Ld. DR submitted that even though AO has established that the whole loan transaction is not properly explained by the assessee and not established identity, creditworthiness and genuineness of the transactions, but AO restricted the addition only on closing balance of the loan. He further submitted that certain investigation made and AO has categorically found that loan creditors not responded to the notice of the AO. He further submitted that addition made by the AO only to the extent of closing balance of the loans and wrongly interpreted the facts and law by the AO. He further submitted that assessee is in appeal before Ld. CIT(A) on the additions made by 15 M/s Supras Metals Ltd.
the AO, which is only closing balance of the loans. Whereas PCIT has invoked the provisions of section 263 of the Act, wherein AO has wrongly interpreted the facts and law and the PCIT has rightly invoked the provisions of section 263 of the Act and directed the AO to make the addition of whole of the loan taken by the assessee during this year or as per the words of PCIT, the peak credit of each loan should have brought on record u/s 68 of the Act. Therefore, the issue before Ld. CIT(A) is different and he submitted that the case laws relied by Ld. AR distinguishable on fact and some of the orders relied by Ld. AR are per enquirium and he relied upon the decision of Hon’ble Supreme Court in the case of CIT vrs. Shri Arbuda Mills Ltd (1998) 98 taxman 457 (SC), Malabar Industrial Co. Ltd. Vrs. CIT (supra) and CIT vrs. Jaykumar B. Patil (1999) 236 ITR 469 SC.
Since, Ld. DR submitted that the case laws referred by Ld. AR i.e. Renuka Philip vrs. ITO (supra) and CIT vrs. Sampathmal Chordia (supra) were per enquirium and Ld. AR requested the bench, to submit the written submission on the 16 M/s Supras Metals Ltd.
above as the DR has not provided the copy of the decision in the case of CIT vrs. Shri Arbuda Mills Ltd (supra).
Ld. AR filed the written submission, which is reproduced below:-
Facts of the above case is that assessee has not filed appeal on the issue which was subject matter of appeal, which was discussed by the Apex Court in the body of judgement and the same is reproduced hereunder:
"
The assessee is a company. The relevant assessment year is 1975-76 ending on 31-12-1974. The assessment was completed under section 143(3), read with section 144B of the Act on 31-3-1978, in which the net business loss was computed at Rs. 3,61,086 and the income under the head 'Capital gains' at Rs. 38,874. The ITO had made certain additions and disallowances while computing the loss and income as above and had also accepted, inter alia, the following three claims :
(i) Deduction of a sum of Rs. 23,82,621 by way of provision for gratuity;
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(ii) Depreciation on Rs. 4,21,000 which was paid by the assessee to United Textile Industries as consideration for transfer of installed property of 17,480 spindles and 400 looms of Old Manek Chowk Mills;
(iii) Loss on account of difference in exchange rate which was referable to the purchase of machinery, etc., as revenue expenditure.
For the purposes of the present matter, it is only these three items of claim which are relevant.
In the appeals filed by the assessee, the items in respect of which the decision was in its favour were not the subject-matter of the appeals. In respect of these three items, the Commissioner exercised his power under section 263 of the Act. The above question arises in this context."
From the above facts it is very clear that in the case before the Supreme Court, the issues raised by PCIT in 263 notice was not subject matter of the appeal, hence the Apex Court held that such appeal order will not restrict power of PCIT to invoke provisions of section 263 of the act. But in the case of appellant before Your Honour, the appeal was filed on the very same issue as AO has made addition partly taking one of the possible
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view. Hence the facts of the said decision not at all relevant in this case. Hence the allegation of Ld CIT (DR) on the decision of Hon'ble High Court is not justified.
In this regard, the Appellant would also wish to place reliance on the Hon'ble Supreme Court decision in the case of CIT vs. Sun Engineering Works P. Ltd. (1992) 198 ITR 297 wherein it was held that,
"It is neither desirable nor permissible to pick out a word or a sentence from the judgement of Supreme Court divorced from the context of the question under consideration and treat it to be the complete law declared by the Court. The judgment must be read as a whole and the observations from the judgement have to be considered in the light of the questions which were before the Court. A decision of the Supreme Court takes its colour from the questions involved in the case in which it is rendered and, while applying the decision to a later case, courts must carefully try to ascertain the true principle laid down by the decision."
Again in the case of Padmasundara Rao Deed. & Ors. Vs. State of Tamil Nadu & Ors. (2002) 255 ITR 147, the Hon'ble Supreme Court held that, circumstantial flexibility, one additional fact or different fact may 19 M/s Supras Metals Ltd.
make a world of difference between conclusion in two cases. Therefore, Courts should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed. The relevant extract at Para. 9 of the decision is reproduced herein below:
"Courts should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed. There is always peril in treating the words of a speech or judgment as though they are words in a legislative enactment, and it is to be remembered that judicial utterances are made in the setting of the facts of a particular case, said Lord Morris in Herrington vs. British Railways Board (1972) 2 WLR 537 (HL). Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases."
Given the above factual and legal analysis and considering the facts of the case before the Supreme Court, the aforesaid decision is distinguishable on facts as issue raised in 263 notice was not at all subject matter of appeal whereas in the Appellants' case, the very same issue is pending before Ld CIT(A). It is 20 M/s Supras Metals Ltd.
therefore, humble submission of the Appellant, that the aforesaid decision on which the Ld. DR seeks to place reliance is incorrect.
Considering the rival submission and material placed on record, we notice from the records submitted before us that assessee has taken loan from certain creditors to the extent of Rs. 8.50 crores and repaid the certain part of the loan during the year to the extent of Rs. 6.23 crores and the closing balance stood as on 31.03.13 was Rs. 2.27 crores. AO made verification of the above loan and came to the conclusion that assessee has established the identity, but failed to establish the creditworthiness and genenuiness of the creditors, however he choose to disallow only to the extent of closing balance stood as on 31.03.13 and he has not considered the repayment of Rs. 6.23 crores the disallowance u/s 68 of the Act.
Aggrieved with the above order, assessee filed appeal before Ld. CIT(A), which is still pending before first
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appellate authority. In the meantime, Ld. PCIT on verification of the records, found that the addition is to be made to the total amount of loan taken by the assessee, which assessee has failed to establish creditworthiness and genuineness of the transactions. Even though assessee has not made any grounds of appeal, however Ld. AR submitted that this issue is pending before Ld. CIT(A) for adjudication and the same issue, PCIT cannot invoke the provision of section 263 of the Act. When looking at the facts on record, no doubt the addition made by the AO is u/s 68 of the Act to the extent of Rs. 2.27 crores which is nothing but outstanding balance of the loan creditors as on 31.03.13, but the interpretation made by the AO u/s 68 of the Act is not in order, even though he established that the loan taken by the assessee during the year is not established the genuineness. According to PCIT, he should have made the addition to the extent of peak credit of the individual loan instead of restricting it to the outstanding balance of the loan at the end
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of the year. According to the submission of Ld. AR, both the issues are same and similar, therefore PCIT cannot invoke the provision of section 263 of the Act and he relied upon the decision of Hon’ble Madras High Court. Considering the issues, no doubt addition made u/s 68 of the Act, but with regard to restricting the deduction to the extent of outstanding balance or to the extent of total credits in the books of accounts are two different issues. Ld. AR submitted that AO has taken one of the possible view. In our considered view, there is no two views available to the AO, it is the only one view i.e. disallowance to be made u/s 68 of the Act and he interpreted the disallowance and came to the conclusion to restrict the deduction to the extent of outstanding loan balance, whereas PCIT by interpreting the section 68 of the Act came to the same conclusion, but the disallowance amount has to be enhanced as whole loan amount was not established as genuine. Therefore, in our considered view and the facts of the present case, Pr. CIT
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has rightly invoked the provisions of section 263 of the Act as there is no two views in this case for disallowance u/s 68 of the Act and the issue before Ld. CIT(A) is no doubt the same u/s 68 of the Act, but the disallowance made by the AO by interpreting differently is lesser than what he actually disallowed. This falls under wrong interpretation of law. Further, on reading of Explanation 1 to Section 263 of the Act, for the sake of clarity it is reproduced below:-
From the above, it is clear that Ld. CIT can invoke the provision of section 263 of the Act when the appeal is pending before Ld. CIT(A), not after the order passed by Ld. CIT(A). Therefore, in the given case, Ld. CIT(A) has not decided the issue. Hence, the order passed by PCIT u/s 263 is proper.
Therefore, Pr. CIT can invoke the provision of section 263 of the Act in this case. We consider the submission of Ld. AR and the case laws relied by him and we found to be 24 M/s Supras Metals Ltd.
not applicable in the present case. Accordingly, grounds raised by the assessee are dismissed.
In the net result, the appeal filed by the assessee stands dismissed. Order pronounced in the open court on 10th Dec 2019. (Ram Lal Negi) (S. Rifaur Rahman) न्याययकसदस्य / Judicial Member लेखासदस्य / Accountant Member मुंबई Mumbai;यदनांक Dated : 10.12.2019 Sr.PS. Dhananjay
आदेशकीप्रनिनिनिअग्रेनर्ि/Copy of the Order forwarded to : अपीलाथी/ The Appellant 1. 2. प्रत्यथी/ The Respondent 3. आयकरआयुक्त(अपील) / The CIT(A) 4. आयकरआयुक्त/ CIT- concerned यवभागीयप्रयतयनयि, आयकरअपीलीयअयिकरण, मुंबई/ DR, ITAT,
Mumbai 6. गार्डफाईल / Guard File आदेशधिुसधर/ BY ORDER, .उि/सहधयकिंजीकधर (Dy./Asstt.