M/S.SUPRAS METALS LIMITED,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX 3(3)(2), MUMBAI

3. 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/-.

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 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 2.1.5 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.

3.0 Objections for revision u/s.263 of the Act 3.1.1 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 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)

3.1.7 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 and ledger accounts of the assessee as appearing in their books of accounts.

3.1.8 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.

3.1.9 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.

3.1.10 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 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...

3.1.11 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.

3.1.13 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.

3.1 The Assessee company has relied on the following case laws and has stated that the order passed by the 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)

3.2 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) ......

3.3 The Assessee's AR has further stated as under:

4.2 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.

4.3 In this context, the Company would like to request your Honour to drop the revision proceedings under section 263 of the Act.

3.4 Assessee made further submission dated 23/11/2017 on similar lines.

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 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.

7. 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.

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)

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:

"2. 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;

(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.

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 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 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 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.

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.