THE DCIT, 1(1), INDORE vs. M/S. MODERN LABORATORIES, INDORE

DCIT v 1(1) v Modern Laboratories / I. T. A. No. 277/Ind/2014& CO.No.16/Ind/2014/AY:08-09 Page 1 of 29 आयकर अपील�य अ�धकरण, इंदौर �यायपीठ, इंदौर IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE �ी सी.एम.गग�, �या�यक सद�य तथा �ी ओ.पी.मीना, लेखा सद�य के सम� BEFORE SHRI C.M.GARG, JUDICIAL MEMBER AND SHRI O.P.MEENA, ACCOUNTANT MEMBER आ.अ.सं./ ./ ./ I.T.A. No.277 & CO.16/Ind/2014 ./ �नधा�रण वष� /Assessment Year:2008-09

DCIT v 1(1) v Modern Laboratories / I. T. A. No. 277/Ind/2014& CO.No.16/Ind/2014/AY:08-09 Page 2 of 29 2. Ground No. (i) of Revenue relates to direction of restriction to 50% of commission expenses of Rs. 63,82,160/- by the Ld. CIT (A). Whereas by Ground No. 1 in Cross Objection, of the assessee has challenged the confirmation of 50% commission expenses at Rs. 31,91,080/-, even though, it was proved before CIT (A) that the commission to Shafa A. M. Consultants was paid as business expediency and confirmation was duly filed. 3. Succinctly, facts as culled out from the orders of lower

authorities are that the assessee is in the business of

manufacturing and sales of pharmaceuticals products and

around 95% sales is to government Departments. The assessee

supplies goods to M. P. Laghu Udhyog Nigam (MPLUN). The

assessee has debited commission expenditure of Rs. 63,82,162

and Rs. 27,57557 under the head commission on sales and

MPLUN commission respectively to Profit & Loss Account. The AO

was of the view that there is no scope of any middlemen for giving

assignment of purchase of medicines to the State government

Departments. The AO therefore, allowed commission payments

to MPLUN and disallowed the entire commission payments paid

to other against of Rs. 63,82,162 on the ground that middlemen

is not allowed in sales and products made to government

agencies, as government takes serious view of the same. The AO

DCIT v 1(1) v Modern Laboratories / I. T. A. No. 277/Ind/2014& CO.No.16/Ind/2014/AY:08-09 Page 3 of 29 also observed that no explanation was offered as regards the

service rendered by such commission agents. The AO noted that

some State government have assigned the task of carrying out

any formalities relating to purchase to government body, like

MPLUN in the case of Government of MP. This aspect makes it

clear even if any commission is requires to be paid it goes to

coffers of a government agency only of which books of accounts

are subject to audit by the C&AG. As per agreement executed

between the assessee and MPLUN, which is submitted only in

respect of one contract, shows that MPLUN charges 1% service

charge +12% Service tax and 1% on inspection charge + 12%

service tax. Accordingly, the aggregate charge payable to MPLUN

worked out to 2.24% of the supply amount. The AO was of the

view that same hold good to different Departments of government

of MP through MPLUN. The AO found that there is exorbitant

commission payments varying from 0.5% to 25% shown in

respect of some parties. The AO noted that commission payments

of Rs. 24,14,034 to M/s. Shafa-E-Am Consultants, Delhi relates

to supply of goods to Director of Health Services, Guwahati,

Director of Animal Husbandry, Delhi, Medical Officer Delhi,

Medical Superintendent, Delhi, Superintendent Health Services,

DCIT v 1(1) v Modern Laboratories / I. T. A. No. 277/Ind/2014& CO.No.16/Ind/2014/AY:08-09 Page 4 of 29 Dibrugarh and Silchar in addition to some Private Parties. The

commission ranging from 6% to 25% in case of government

supply whereas in case of private parties it ranging from 5, 8,

and 10%. In case of Nav Enterprise, commission shown @5% on

one occasion and on other occasion it is 10%. Further, the

assessee has not furnished copy of ledger account and details of

intermediate government bodies like MPLUN in respect of other

states. In view of these facts, the AO hold that commission paid

is nothing but entry to minimize the incidence of tax. In case of

Ms. Leena Mohanty, Bhubneshwar through which supply to Dy.

Director Medical Health Services at different places of Orissa to

whom commission rate is shown at 4% to 11% and to Dy.

Director of Medical Health Services, Balasor on which different

rate of commission of 9% to 11% is charged. The AO further

noted that there were certain infirmities like bill of previous year

debited in this year and bills were not tallying with TDS

certificates and there was huge variation from 1% to 25%.

Accordingly, the AO disallowed the entire commission of Rs.

63,82,162 claimed in respect of commission to other agents.

CIT (A). The assessee filed details submissions before the CIT (A)

DCIT v 1(1) v Modern Laboratories / I. T. A. No. 277/Ind/2014& CO.No.16/Ind/2014/AY:08-09 Page 5 of 29 which are reproduced by the CIT (A) at para 2 on page No 2 to 6

of his order. The CIT (A) has also called for remand report from

the AO on this issue. After careful consideration , the CIT (A)

observed that it emerges that the appellant is into business of

manufacturing and sales of pharmaceuticals products, where

selling is entirely based on canvassing done by selling agents.

Hence, existence of selling agents is reality is such business and

this is proved from the facts that all these parties are unrelated

to the appellant and each one of them have confirmed to the AO

that they were working as agents to the appellant The CIT (A)

further observed that such commission agents are not

middlemen as so far no proof has been adduced by the AO that

out of such payments to agents any gratification was paid to

government Departments for procuring such orders. But these

commission payments were for helping to the appellant for filing

various tenders , pursuing the authorities for placement of

orders, helping in smooth supply of goods and recovery of monies

from the government. MPLUN only doing the tendering job. But

the pre tender and post tender activity can very well be done by

the commission agents as held in the case of Nestor

Pharmaceuticals (P.) Ltd. [2010] 33 DTR 293(Del), Bharat Medical

DCIT v 1(1) v Modern Laboratories / I. T. A. No. 277/Ind/2014& CO.No.16/Ind/2014/AY:08-09 Page 6 of 29 Stores [2009] 308 ITR 373(P&H) and Voltamp Transformers Pvt.

Ltd. [1981] 129 ITR 105 (Guj). This explain the role of

commission agents in government contract and describes the

details of service rendered by them in such contracts. On merits,

the CIT (A) observed that there is mismatch in the case of M/s.

Apex Pharmaceuticals, Bhopal regarding bills and TDS and

variation of commission payments from 1% to 25%. The appellant

explained that though the bills may pertains to earlier year but

payment is made during the current year, but that could not be

valid explanation as the assessee follows mercantile system of

accounting. With regard to higher amount of commission, the CIT

(A) observed that the appellant has explained that it was paid

because supplies were made in remote areas/ location and

different agencies were involved and in such situation it was not

practically possible to mange affairs by himself. Beside, some

long pending recoveries were made from remote location. But the

appellant has failed to proved specific details as to what was the

amount of recovery from these remote areas was collected. Beside

it was noticed that out of total 20 commission agents commission

was paid ranging between 1% to 5% in case of 16 commission

agents , in respect of 4 commission agents namely Shafa- E-Am

DCIT v 1(1) v Modern Laboratories / I. T. A. No. 277/Ind/2014& CO.No.16/Ind/2014/AY:08-09 Page 7 of 29 Consultants, Ms. Chanchal Jain, Mr. RK Jain, Ms. Leena

Mohanty, commission rate was ranging as high up to 25%. No

satisfactory explanation and specific details given as to what

service rendered by these 4 commission agents and how they

were superior to services rendered by 16 commission agents.

Considering these facts, the Ld. CIT (A) has disallowed 50%

commission expenses out of Rs. 63,82,160 as claimed by the

appellant. Thus, relief of Rs. 31,91,080 was allowed on this

account.

payments, the Revenue has filed this appeal before us and the

assessee has aggrieved against the sustenance of 50%

disallowance through Cross Objection. The ld. Sr. DR submitted

that the assessee is supplying drugs through nodal agency

MPLUN. The commission payments to MPLUN was allowed by the

AO while commission payments to other private parties was

disallowed as there was no system keeping middleman in supply

to goods to government Departments. The Ld. Sr. D.R. contended

that the Ld. CIT (A) has accepted that the commission payments

to 16 parties was in the range of 1% to 5% whereas commission

payments to 4 commission agents was in the range up to 25%.

DCIT v 1(1) v Modern Laboratories / I. T. A. No. 277/Ind/2014& CO.No.16/Ind/2014/AY:08-09 Page 8 of 29 Further, the assessee was unable to prove that what type of

services were rendered by these agents. Therefore, the Ld. CIT (A)

was not justified is allowing deduction of 50% out of total

commission payments. The Ld. Sr. D.R. also relied in the case of

DCIT v. Shri Nautmal & Sons I.T.A. No. 78/Ind/2013 dated 19-

07-2013 [Indore-Tribunal] wherein such exorbitant commission

payments at the rate of 20% allowed by the CIT (A) was set-aside

to the file of the AO by the Tribunal. The Ld. Sr. D.R. further

place reliance in the case of DCIT v. Mcdowell & Co Ltd. [2007]

291 ITR 0107 (Karn) wherein disallowance of commission

payments for providing service of sale of liquor to canteen stores

Department of Indian Military by the assessee company was

upheld on the ground that such canvassing was prohibited by

the government Circular dtd. Dtd. 13th July 1992 and 24th July

1992.

the assessee supplies goods to various government department

like MPLUN, who is authorized to put orders for purchase of

goods on behalf of the government of Madhya Pradesh. For the

purpose of floating tenders and placing orders for which MPLUN

charge the service charge @ 2.24% and further charges 5% for

DCIT v 1(1) v Modern Laboratories / I. T. A. No. 277/Ind/2014& CO.No.16/Ind/2014/AY:08-09 Page 9 of 29 the performance guarantee. For filing of tenders, supply and

approval of the goods to the government bodies and especially for

the recovery of the amounts, the assessee engages the agencies

and pays commission to them. The commission paid to such

agencies ranges approximately 7% to 10%. For some local sales

commission is paid between 1% to 3%. In some hard cases, the

commission has been paid up to 18%. The supplies are made not

only to MP Government bodies but to other State government

bodies also. The assessee had filed complete details of

commission agents with PAN and sales effected through

them(PB34) The details of commission payment party-wise with

bills were also filed before lower authorities (PB36 to 61) It was

explained that commission was paid as business expediency on

which TDS was also deducted under section194H. In remand

report proceedings , the AO issued notice under section 133(6) to

all commission agents and all of them have confirmed rendering

services and receiving commission. The AO disallowed

commission payment on the reasons that in some cases bills are

of different dates and rate of commission of 2.24% to MPLUN

whereas rate of commission to others is at higher rate. However,

the AO failed to appreciate that the payment of MPLUN is not

DCIT v 1(1) v Modern Laboratories / I. T. A. No. 277/Ind/2014& CO.No.16/Ind/2014/AY:08-09 Page 10 of 29 commission but is the service charge/ inspection charged by

them on the basis of condition of tender. In support of his

contention, the Ld. AR also placed reliance in the case CIT vs.

Pure Pharma (P) Ltd. [2005] 270 ITR 382(MP)/ [2005] 144

Taxman 364(MP) wherein commission was found paid on

supplies made to Government and its agencies and all the

payments were made to various parties by account payee

cheques/demand drafts, the identity of each of the agents was

established and the expenditure was found incurred for business

purposes. It was held that such expenses were allowable and

consequently the addition was deleted. In the instant case also,

the agents have confirmed the services rendered and the AO has

not brought on record anything contrary to the admission of the

agents, whether the payments have been made by cheques after

deduction of TDS. The Ld. AR also cited decision of this Tribunal

in the case of Kriti Industries v. ACIT 4(1) Indore in I.T.A. No.

268/Ind/2016 dated 27-10-2016(Tribunal-Indore) (PB-16 PB-II),

CIT v. Bharat Medical Stores [2009] 308 ITR 373 (P&H), Prochem

Laboratories Pvt. Ltd. v. ACIT , I.T.A. No. 86/Ind/2010 dtd. 28-

11-2011, CIT v. Septu India Pvt. Ltd. [2008] 305 ITR 295 (P&H)

and other as per his written submissions.

DCIT v 1(1) v Modern Laboratories / I. T. A. No. 277/Ind/2014& CO.No.16/Ind/2014/AY:08-09 Page 11 of 29 7. We have considered the facts, rival submissions and

perused the material available on record. Ongoing through the

assessment record as well as findings of the ld. CIT(A), we find

that the assessee has submitted detailed evidences like names of

the agents, PAN numbers, describing services rendered by the

Agents, confirming the transaction, details of the TDS made. In

remand report proceedings, the AO issued notice under section

133(6) to these against who appeared before the AO and admitted

of rendering services as a receipt of commission from the

assessee. We also note that the MPLUN was nodal agency for

supply of goods but was not charge as commission instead it was

charging service charges as per agreement entered in to between

the assessee and it. We also note that the assessee is dealing in

supplies of pharmaceuticals products to various states like

Orissa, Assam, Meghalaya which are falling in remote areas

which is spread over a large geographical area. Therefore,

requirement of Representatives for doing such jobs cannot be

denied. Further, these commission agents have filed detailed

reply before the AO and described the various formalities and

services required to be handled by the assessee or

representatives of the agents. Further M/s. Shafa-E-Am

DCIT v 1(1) v Modern Laboratories / I. T. A. No. 277/Ind/2014& CO.No.16/Ind/2014/AY:08-09 Page 12 of 29 Consultants to whom commission of Rs. 24,14,786/- (PB-37)

paid, has filed copies of bills (PB-62 to 73). Similarly details of

commission and bills and sales effected by M/s. Chanchal Jain,

Ms. Leena Mohanty and Mr. R. K. Jain were also filed. Therefore,

we are of the considered opinion that the ld. CIT(A) was not

justified in deleting only 50% of the commission payments paid to

private parties debited to the profit and loss account. We also

find that payments made to commission agents are unrelated to

the assessee therefore, there cannot be said that the quantum of

commission is not justified. The case laws of Nautamlal & Son

(Supra) relied by the ld. Sr. D.R. is not applicable as in that case

the tribunal had set-aside the issue to the AO for further

examination of facts. Further the case laws in the case of

Macdowell Co Pvt. Ltd. (supra) is in respect of liquor supply to

Military Canteen , an government body in which canvassing was

prohibited by the government, hence, there was no question of

any commission and commission payment was against the policy

of the government, whereas in the case of the assessee, the

commission has been paid in respect of service rendered for

facilitating the recoveries, giving information of tenders etc. which

are not prohibited by law. This view is also supported by the

DCIT v 1(1) v Modern Laboratories / I. T. A. No. 277/Ind/2014& CO.No.16/Ind/2014/AY:08-09 Page 13 of 29 decision of the Jurisdictional High Court as relied upon by the

Ld. AR on the Hon'ble High Court in the case of CIT vs. Pure

Pharma, (2005) 144 Taxman 364 (MP) in para 3 & 4 held as

under :-

“3, A few facts material for deciding the said appeal, in short, may be mentioned as under :

The Respondent/assessee company is engaged in manufacturing and sale of pharmaceutical formulations. During the previous financial year, the assessee had paid total commission of Rs. 13,35,336/-. Out of this, a sum of Rs. 10,24,290/- was paid as commission on sales made to the Government and its agencies and a sum of Rs. 3,11,046/- was paid as commission to non-Government purchases. Since, a doubt was raised with regard to the payments made to various parties as commission, enquiry was held. It was found that all the payments have been made as commission to various parties by demand drafts, wherein the identity of each of the agents was also established. It has also been found that the commission was paid exclusively for business purposes only. 4. All these are findings of fact and no substantial question of law, as is required to be formulated for deciding the appeal, arises in the same. The Tribunal has also placed reliance on a judgment of the Delhi High Court reported in CIT vs. Electric Construction Equipment Co. Ltd., [1990] 182 ITR 510, wherein the Delhi High Court dealing with identical question has already decided the matter against the present appellant-Revenue.” 8. Therefore, considering the totality of the facts and

respectfully following the decision of Jurisdictional High Court,

we are of the view that no disallowance of commission payment is

called for. Accordingly, Ground No. (i) of the appeal of the

DCIT v 1(1) v Modern Laboratories / I. T. A. No. 277/Ind/2014& CO.No.16/Ind/2014/AY:08-09 Page 14 of 29 Revenue is dismissed. Further the disallowance of Rs. 31,91,080

as sustained by the Ld. CIT (A) are deleted , accordingly, Ground

No. 1 and 1.1 of Cross Objection of the assessee is allowed.

consideration the assessee has shown unsecured loan with

interest in the balance sheet from M/s. Anekant Shares and

Securities Pvt. Ltd., Mumbai Rs.5,00,000, M/s. East West

Finvest India Ltd. Bilaspur, Rs. 30,00,00, M/s. Purvi Finvest Ltd.

Bilaspur, Rs.35,00,000, M/s. Trimurthi Finvest Ltd. Bilaspur,

Rs. 30,00,000, M/s. Palasia Leasing and Investment Pvt. Ltd.,

Ujjain Rs.15,00,000, M/s. Sea Entertainment Ltd. Mumbai

Rs.5,00,000, M/s. Skytouch Infrastructure Pvt. Ltd. Mumbai Rs.

5,00,000 M/s. Uno Industries, Mumbai Rs. 23,00,000

aggregating to Rs.1,48,00,000 plus interest thereon of Rs.

1,46,660. In order to prove the genuineness of transaction, the

assessee filed copy of confirmation, copy of income-tax return,

copy of PAN etc. However, the AO made addition on the basis of

DCIT v 1(1) v Modern Laboratories / I. T. A. No. 277/Ind/2014& CO.No.16/Ind/2014/AY:08-09 Page 15 of 29 general observation that such creditors have been found to be

providing accommodation entries to a large number of persons.

The confirmation letters and copy of returns of such depositors

was furnished before the AO, but the AO was of the view that

they have low income and thus, have not having credit-

worthiness to provide such unsecured loan. The assessee had

furnished confirmation along with PAN numbers. All these

amounts, were received by cheques. Notice under section 133(6)

issued to such parties who have directly confirmed the

transaction. However, the AO made the addition of Rs.1,48,00,

000 under section 68 of the Act.

CIT (A). During the course of appellate proceedings, confirmation

letters, copy of acknowledgement of returns, copy of bank

account of depositors, were filed which were forwarded to the AO

for his comments. The CIT (A) noted that the AO has made three

observation in remand report that depositors have shown

meagre income, they have deposited substantial amounts in their

accounts just prior to advancing loans and they have failed to

produce directors of such companies to prove identity. The AO

has relied on the decisions in the case of Agarwal Coal

DCIT v 1(1) v Modern Laboratories / I. T. A. No. 277/Ind/2014& CO.No.16/Ind/2014/AY:08-09 Page 16 of 29 Corporation Ltd. v. Addl. CIT [2011] 135 ITD 270 (Indore-Trib) :

142 ITJ 409 :[2012} 13 ITR(T) 531 (Indore-Tribunal) I.T.A. No.

151/Ind/2009 dated 31.01.2011(Indore-Trib). However, the

assessee submitted that said decision is not applicable in their

case, as that was regarding addition of share capital while

appellant’s is that of receiving unsecured loans, wherein identity

of all depositors are established, as they are assessed to tax and

in number of cases even assessment were made under section

143 (3) in case of depositors is also filed. It was further

submitted that the AO framed assessment assuming that various

depositors were of Lunkad group, but none of these companies

belong to Lunkad group. It was further submitted that AO’s

remarks that there was huge deposits in their bank account is

correct but the AO had forgot to mention that all those deposits

were through cheques and none of them were cash deposits.

Considering these facts, the Ld. CIT (A) has held as under: 15. I have gone through the arguments of both AO as well as that of the appellant. Since all depositors have confirmed about giving such deposits, the amounts were given through account payee cheques, the depositors were all filing returns of income, proof of which is furnished and even bank statements of depositors were furnished except that of M/s. Plasia Leasing & Investment Pvt. Ltd. as per remand report of the AO, and in such bank accounts of depositors, no cash deposits were seen. Further, the

DCIT v 1(1) v Modern Laboratories / I. T. A. No. 277/Ind/2014& CO.No.16/Ind/2014/AY:08-09 Page 17 of 29 reference of AO to survey of Lunkad group & to the term of accommodation entries provider does not help revenue`s case because that survey took place in 2006 and after considering the findings of survey the Hon`ble ITAT, Indore in the case of M/s. Narmada Extrusion Pvt. Ltd. came to the conclusion that various credits provided by Lunkad group could be considered as unexplained only if name of such party appeared in the cash-book impounded during survey of Lunkad group failed to explain the source of the same. However, that cash-book, was pertaining to A.Y.2007-08 and there were no entries for the year under consideration i.e. A.Y. 2008-09 and that is why AO did not refer to any adverse material but made a bald remark without any evidence. In the circumstances the appellant has discharged the initial onus as held in the case of M/s. Kinetic Capital Finance Ltd. [2013] 354 ITR 282(Del). 15.1 In the event the revenue still had a doubt with regard to genuineness of transaction or as regard to creditworthiness of creditors, it would have to discharge the onus which has shifted on it. If revenue has any doubts with regards to creditworthiness of depositors, the revenue could always bring it to tax in the hands of creditors as held in case of Lovely Exports (P) Ltd. [2008] 216 CTR (SC)195 and Mod Creations (P) Ltd. [2013] 354 ITR 282 (Del). Since appellant discharge initial onus, the onus shifted on revenue and there was no legal obligation on the appellant to produce directors of creditors before AO and if AO had any doubt about identity of share applicants despite their filing income-tax returns, he could have summoned them as held in case of Victor Electrodes Ltd. [2010] 329 ITR 271 (Del). Where ROI (Return of income) was filed by the creditors of the appellant and was accepted by the AO and payments were made through account payee cheques, genuineness of transaction cannot be doubted, AO has not conducted any enquiry into the same or has no material in his possession

DCIT v 1(1) v Modern Laboratories / I. T. A. No. 277/Ind/2014& CO.No.16/Ind/2014/AY:08-09 Page 18 of 29 to show those particulars are false and cannot be acted upon, then no addition can be made in hands of the appellant u/s. 68 as held in case of Gangeshwari Metal Pvt. Ltd. [2013] 214 Taxman 423(Del). In this case it was noted by the Hon`ble judges that AO sat with folded hands till the appellant exhausted all the evidence or material in his possession and then forward to merely reject the same on the presumptions. In such an eventuality, no addition can be made u/s. 68 of I. T. Act. 15.2 Following the aforesaid discussion, the addition of Rs. 1,33,00,000/- of unsecured loan from various deposits added u/s. 68 of the I.T. Act cannot be sustained while addition of such unsecured loan of Rs. 15 Lakh received from M/s. Plasia Leasing & Investment Pvt. Ltd. is confirmed because as AO reported in a table annexed to remand report, the appellant selectively avoided to file copy of bank account of this depositor, while bank a/c of all other depositors were filed. This indicate strong possibility of cash deposits in bank a/c of such depositor which shifts back the onus on the appellant in this case and put huge question mark on genuineness of such transaction, all more so when such depositor has disclosed income only Rs. 4,777/- in its return. Deposit of cash in bank account of creditor make it questionable because Income Tax Act itself has money provisions restricting cash transaction of loans , purchases and consequently sales etc. beyond Rs. 20,000/- . Therefore, in case of Plasia Leasing & Investment Pvt. Ltd. there are sufficient grounds to make strong cse3 of addition u/s. 68 of Income Tax Act. Gr. No.2 of appeal is therefore, partly allowed in so far as out of total addition of Rs. 1,48,00,000/- addition of Rs. 15,00,000/- is confirmed and balance addition of Rs. 1,33,00,000/- is deleted.

the Tribunal. The Ld. DR submitted that the assessee has failed

DCIT v 1(1) v Modern Laboratories / I. T. A. No. 277/Ind/2014& CO.No.16/Ind/2014/AY:08-09 Page 19 of 29 to produce the directors of creditor companies before the AO

during the course of assessment proceedings and also in remand

report, hence, Ld. CIT (A) was not justified in deleting the

addition. The Ld. Sr. D.R. further relied in the case of CIT v.

Rathi Finlease Ltd. [2008] 215 CTR (MP) 429 in support of his

contentions. The Ld. Sr. D.R. further contended that depositors

does not have source for such loan and before giving loan by

cheque to the assessee. Thus, the genuineness of loan

transaction is not proved hence, the order of CIT (A) be quashed

and that of the AO be restored.

that the addition of Rs. 1,48,00,000 was made on account of

unexplained cash credit under section 68 of the Act. Out of this

the Ld. CIT (A) deleted addition of Rs. 1,33,00,000 by treating

same as genuine transaction. The assessee has borrowed fund

from various parties of which confirmation, together with PAN

numbers, bank statements and income-tax returns were

furnished. In most of the cases, notice under section 133(6) have

been issued and majority of the parties have directly confirmed

the transaction with the assessee. The AO has not bothered to

verify the creditworthiness from the PAN of respective parties,

DCIT v 1(1) v Modern Laboratories / I. T. A. No. 277/Ind/2014& CO.No.16/Ind/2014/AY:08-09 Page 20 of 29 which would show that creditors were genuine. The Ld. AR

submitted that there is no cash deposits in the account of

creditors before issue of cheques, hence, in the light of decision

in the case of Gangeshwari Metal Pvt. Ltd. [2013] 214 Taxman

423(Del). The Ld. AR submitted that the ratio of the decision of

the Hon'ble Madhya Pradesh High Court in the case of Rathi

Finlease Limited (supra) is not applicable to the present case as it

is related with share application money and the share applicants

were not found to be in existence and in that case, amounts were

paid in cash on the same dates on which the amounts were

credited to the bank accounts of such applicants. The Ld. AR

further submitted that other decisions of the Hon'ble High Court,

as relied upon by the learned DR, do not apply to the present

case having distinct facts and circumstances. Therefore, the first

appellate order may kindly be upheld and sustained by

dismissing the appeal of the revenue. The Ld. AR further relied

on following decision viz: CIT v. Tania Investment Pvt. Ltd.

[2011] 322 ITR 394 (Bombay), CIT v. Varinder Rawley [2014] 366

ITR 232 (P&H), CIT v. Kinetic Capital Finance Ltd. [2013] 354 ITR

296 (Del), ACIT v. Pravin Mittal [2016] 28 ITJ 473 (Trib-Indore),

CIT v. Metachem Industries [2000] 245 ITR 160 (MP):161 CTR

DCIT v 1(1) v Modern Laboratories / I. T. A. No. 277/Ind/2014& CO.No.16/Ind/2014/AY:08-09 Page 21 of 29 444 (MP) : [2001] 116 Taxman 572 (MP), were cited and special

attention was drawn in the case of CIT v. Pithampur Conzima (P)

Ltd. [2000] 244 ITR 442 (MP) wherein it was held that where in

appeal before the Tribunal, the assessee showed that the credits

given to the assessee duly declared by the creditors in their

respective returns, where upon Tribunal concluded that the

investment in the hands of the assessee-firm was duly explained

and no addition was called for in the hands of the assessee and

deleted the said addition. Held that deletion of addition in the

hands of the assessee on the basis of satisfaction by the Tribunal

and on the appreciation of material by the Tribunal and

accordingly, no question of law arose for reference.

Hon'ble Madhya Pradesh High Court in the case of Rathi Finlease

Limited (supra) is not applicable to the present case as it is

related with share application money and the share applicants

were not found to be in existence and in that case, amounts were

paid in cash on the same dates on which the amounts were

credited to the bank accounts of such applicants. The Ld. AR

further submitted that other decisions of the Hon'ble High Court,

as relied upon by the learned DR, do not apply to the present

DCIT v 1(1) v Modern Laboratories / I. T. A. No. 277/Ind/2014& CO.No.16/Ind/2014/AY:08-09 Page 22 of 29 case having distinct facts and circumstances. Therefore, the first

appellate order may kindly be upheld and sustained by

dismissing the appeal of the Revenue.

perused the material available on record. We find that the

creditors except M/s. Plasia Leasing & Investment Pvt. Ltd.,

when we analyze the facts of the case in view of the contentions

and submissions of the assessee vis-à-vis the findings recorded

by the authorities below then we hold that there is no dispute

regarding existence and identity of the five companies as the

assessee submitted their names, addresses and PAN along with

all relevant documents in the shape of returns, financial results

and accounts of these companies. Since undisputedly the

amounts were received from all the five companies through

cheques and banking channel, thus identity of the creditors and

genuineness of the loan transactions cannot be disputed. In the

present case, when we analyse the company wise facts then we

find that these companies have filed reply to notice under

section 133(6) to the AO directly. There are no cash deposit

before issue of cheque to the assessee. All the creditors have filed

copy of income-tax return acknowledgement, confirmation letters,

DCIT v 1(1) v Modern Laboratories / I. T. A. No. 277/Ind/2014& CO.No.16/Ind/2014/AY:08-09 Page 23 of 29 copies of the bank statements, copies of accounts,

acknowledgement of ITRs, computation, audited annual

accounts, etc. were placed on record which are available from

page 11 to 53 of the assessee’s paper book-I and at pages 5 to 9

and 37 to 41 of the departmental paper book. The balance sheet

of both the companies has been signed by the assessee himself

as director. From the copies of bank statements of these two

companies available at pages 8 and 40 of the departmental paper

book we observe that there were no cash deposits during the

assessment year under consideration in these accounts. The AO

himself in his remand report has not pointed out any major

discrepancies. In the present case in view of the above foregoing

discussion, we observe that the assessee filed all possible

documents before the AO which were also submitted to the AO by

the respective companies in response to notices u/s 133(6) of the

Act issued during remand proceedings and thus we can safely

hold that the assessee discharged its onus lay upon its shoulders

to prove the identity, creditworthiness of the creditors and

genuineness of the transactions. From the relevant part of the

assessment order, we observe that the AO merely proceeded to

make addition under section 68 of the Act keeping aside all the

DCIT v 1(1) v Modern Laboratories / I. T. A. No. 277/Ind/2014& CO.No.16/Ind/2014/AY:08-09 Page 24 of 29 relevant documents, which were filed by the assessee and the

alleged companies. Accordingly, we have no hesitation to hold

that we are unable to see any ambiguity, perversity or any other

reason to interfere with the first appellate order which granted

relief to the assessee. Hence, we uphold the same. Accordingly,

ground Nos. (ii) and (iii) of the Revenue, being de void of merit,

are dismissed.

Cross Objection No16/Ind/2014/A.Y. 2008-09 by the

assessee:

31,90,080 being commission expenses claimed by the

assessee.

appeal wherein the disallowance maintained to Rs.31,90,080 by

the Ld. CIT (A) have been directed to be deleted, hence, for the

reasons as discussed therein, this ground no. 1 and 1.1 of

appeal in the Cross Objection of the assessee is allowed.

DCIT v 1(1) v Modern Laboratories / I. T. A. No. 277/Ind/2014& CO.No.16/Ind/2014/AY:08-09 Page 25 of 29 Similarly disallowance of interest of Rs. 30,685 may also be deleted. 24. The Ld. AR submitted that the assessee had submitted the

copy of confirmation with PAN (PB-173-178) and said company is

assessed to tax at Ujjain. The amount has been received by

cheques on which interest has been paid and TDS was done,

hence, no addition should have been sustained. Further, the

Tribunal in the case of ACIT v. Pravin Mittal [2016] 28 ITJ 473

(Trib-Indore) had allowed the appeal of the assessee for deposit

from Lunkad group of companies, by the tribunal, hence, the

addition of maintained by the Ld. CIT (A) deserve to be deleted.

The Ld. AR submitted that the ratio of the decision of the Hon'ble

Madhya Pradesh High Court in the case of Rathi Finlease Limited

(supra) is not applicable to the present case as it is related with

share application money and the share applicants were not found

to be in existence and in that case, amounts were paid in cash on

the same dates on which the amounts were credited to the bank

accounts of such applicants. The Ld. AR further submitted that

other decisions of the Hon'ble High Court, as relied upon by the

learned DR, do not apply to the present case having distinct facts

and circumstances.

DCIT v 1(1) v Modern Laboratories / I. T. A. No. 277/Ind/2014& CO.No.16/Ind/2014/AY:08-09 Page 26 of 29 25. On the other hand, the ld. Sr. DR submitted that said

company is found to be paper company and addition related o

said company is also upheld by the Hon`ble Jurisdictional High

Court in the case of CIT v. Rathi Finlease Ltd. [2008] 215 CTR

(MP) 429. Therefore, the Ld. CIT (A) was justified in confirming

the addition in the case of said creditor. We have heard the rival

submissions of both the parties and perused the material

available on record. We also find that Ld. CIT (A) has also

confirmed the addition in the case of this company on the ground

that the assessee has not able to file copy of bank account and

other details. We also observe that the Ld. Sr. D.R. has

contended that Hon'ble High Court of Madhya Pradesh in the

case of CIT v. Rathi Finlease Ltd. [2008] 215 CTR (MP) 429 has

sustained the addition under section 68 of the Act in respect of

M/s. Plasia Leasing & Investment Pvt. Ltd. In para 11, the

Hon'ble High Court held that in the case of Palasia Leasing &

Finance Company, entry was not accepted on the ground that

merely by filing the confirmation letter, the burden could not be

discharged when the inquiries reveal that the company was not

in existence nor any books of accounts or directors were

traceable. Therefore, respectfully following the same, in and in

DCIT v 1(1) v Modern Laboratories / I. T. A. No. 277/Ind/2014& CO.No.16/Ind/2014/AY:08-09 Page 27 of 29 absence of relevant details like confirmations, copy of account of

this company, copy of relevant extract of bank account, copy of

account in the books of the assessee, the assessee has failed to

establish the identity, genuineness of transaction, existence and

creditworthiness of this company and failing to respond to notice

under section 133(6), we upheld the addition on account of cash

credit in respect of this company as unexplained under section

68 of the Act in the light of the ratio of the decision of the

Hon'ble Madhya Pradesh High Court in the case of Rathi

Finlease Limited (supra). Accordingly, Ground No. 2 of Cross

Objection of the assessee is therefore, dismissed.

raised loans during the year for capital work in progress of

building construction of Rs. 4,95,856 as the building has not

been put to use during the year under consideration. Hence,

interest attributable to Rs.4,985 being @10% on capital work in

progress of Rs. 4,95,856 was disallowed under section 36(1)(iii) of

the Act.

DCIT v 1(1) v Modern Laboratories / I. T. A. No. 277/Ind/2014& CO.No.16/Ind/2014/AY:08-09 Page 28 of 29 28. The CIT (A) observed that the appellant has raised this

ground for the sake of it for which no details of loans and for the

purpose for which these were provided nor any argument were

filed. Hence, disallowance of interest was confirmed.

in-law as the building was not under construction but expenses

were debited after 30-09-2006. The assessee has claimed

depreciation, which has been allowed as deduction by the

assessee. The building has been put to use during the year under

consideration and as such, disallowance of interest is not called

for.

perused the material available on record. The perusal of

Annexure -C, forming part of Form No. 3 CB (PB- 11& 20

)showed that that the assessee had shown addition of Rs.

4,95,856 after 30.09.2006 to building account on which

depreciation has been claimed and allowed by the AO. Thus, it is

discernible that there is work in progress on account of building

construction account; hence, disallowance on account of interest

on addition to building account is not justified. Therefore, the AO

DCIT v 1(1) v Modern Laboratories / I. T. A. No. 277/Ind/2014& CO.No.16/Ind/2014/AY:08-09 Page 29 of 29 is directed to delete such disallowance of interest expenses. We order accordingly. This ground of appeal is thus, allowed. 32. In the result, the CO of the assessee is partly allowed. 33. In the result, the appeal of the Revenue is dismissed and Cross Objection of the assessee is partly allowed. 34. The order pronounced in the open Court on 10th August 2017. Sd/- Sd/- ( C.M. GARG) (O.P. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER �दनांक /Dated :10th August 2017 Copy to: Assessee/AO/Pr. CIT/ CIT (A)/ITAT (DR)/Guard file. By order

Assistant Registrar, Indore