ACIT CEN CIR 45, MUMBAI vs. PARAMSHAKTI STEELS P. LTD, MUMBAI

O R D E R

PER RAVISH SOOD, JM

P a g e | Asstt. Commissioner of Income Tax, CC-45 Vs. M/s Paramshakti Steels P. Ltd. “1. On the facts and circumstances of the case and in law, the ld. CIT(A) erred in deleting theaddition made u/s 41(1) without appreciating the f act that the assessee has not satisfactorily reconciled the amount of liability shown against M/s Paramshakti Distributors Put. Ltd (PDPL).

2. On the facts and circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition made u/s 41(1) without appreciating the fact that the assessee while reconciling the amount of liability shown against M/s Paramshakti Distributors Put. Ltd (PDPL), has taken into account the transactions of other associated entities of the assessee as well as M/s PDPL even though these associated entities are independent entities as far as income tax is concerned.

3. On the facts and circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition made on account of bad debts without appreciating the fact that the assessee has not fulfilled the conditions u/s 36(1)(vii) for claiming the allowability of bad debts.

4. On the facts and circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition made u/s 41(1) of the I.T.Act, 1961 and the addition made on account of bad debts without appreciating the fact that the A.O was not given an opportunity as per provisions of Rule 46A of the I.T. Rules, 1961, to record her comments or objections.

5. On the facts and circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition made under section 68 of the I.T.Act, 1961 without appreciating the fact that the assessee could neither establish the identity of the creditors nor were the Directors of the company produced before the A.O.

The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored. The appellant craves leave to amend or alter any ground and/or add new grounds which may be necessary.” 2. Briefly stated, the assessee which is public limited company engaged in the business of manufacturing of iron and steel products had filed its „return of income‟ for A.Y. 2009-10 on 29.09.2009,

P a g e | Asstt. Commissioner of Income Tax, CC-45 Vs. M/s Paramshakti Steels P. Ltd. declaring total income at Rs.2,02,23,240/-. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act.

3. During the course of the assessment proceedings it was observed by the A.O that the assessee had shown a party viz. M/s Paramshakti Distributors Pvt. Ltd. as a creditor for Rs.7,59,83,195/-as on 31.03.2009. It was observed by the A.O that the outstanding balance against the aforesaid party was the same as on 01.04.2008. On a perusal of the records of M/s Paramshakti Distributors Pvt. Ltd., it was noticed by the A.O that the latter concern had shown the assessee as a „debtor‟for an amount of Rs.3,08,984/- as on 31.03.2009. In the backdrop of the aforesaid facts the A.O called upon the assessee to explain as to why the difference of Rs. 7,56,74,211/- may not be treated as remission of liability under Sec. 41(1) of the I.T. Act and added to its total income. On further perusal of the records it was noticed by the A.O that the liability against the name of the aforementioned party viz. M/s Paramshakti Distributors Pvt. Ltd. was on account of purchases made by the assessee from the said party in financial year 2006-07 and the earlier years. The A.O observed that the assessee despite having been afforded sufficient opportunity had failed to discharge the onus cast upon it to prove the correctness of the aforementioned liability. On the basis of his aforesaid observations the A.O characterised the liability of Rs.7,56,74,211/-as an infructuous liability and holding the same as having been remitted under Sec. 41(1)made an addition of the same to the returned income of the assessee.

4. Further, it was observed by the A.O that the assessee had during the year under consideration received an amount of Rs.7,43,40,000/- as „Share premium‟. The A.O called upon the assessee to provide the P a g e | Asstt. Commissioner of Income Tax, CC-45 Vs. M/s Paramshakti Steels P. Ltd. names and addresses of the parties who had been allotted shares at premium, alongwiththeir confirmation letters, copy of accounts etc. In compliance, though the assessee filed the names and addresses of the parties from whom share premium was received, however itfailed to file the requisite documentstill the culmination of the assessment proceedings. In the backdrop of the of the aforesaid facts the A.O held a conviction that the assessee by failing to produce before him the shareholder register, share application forms, share transfer register, confirmations of the subscribers and their returns of income had failed to discharge the primary onus as was cast upon it. On the basis of his aforesaid deliberations it was observed by the A.O that the identity, creditworthiness of the subscribers and the genuineness of the transactions had remained unproved.Further, it was observed by the A.O that the assessee had merely received the share premium from certain namesake or fictitious companies which were established only on paper for the purpose of giving accommodation entries. In the backdrop of his aforesaid observations the A.O treatingthe aforesaid amount of Rs.7,43,40,000/- received by the assessee during the year as a bogus and an unexplained credit, added the same to the total income of the assessee under Sec.68 of the I.T. Act. Still further, it was observed by the A.O that the assessee had debited a sum of Rs.27,01,881/- on account of „bad debts‟ during the year. However, the A.O being of the view that as the assessee had not furnished complete details to prove the allowability of its claim in respect of the „bad debts‟, thus concluded that the same could not be allowed as a deduction while computing the taxable income of the assessee in accordance with the provisions of the Act. The A.O being of view that as the assessee had failed to establish that proper efforts were made for the recovery of the „bad debts‟ of Rs.27,08,881/- and that the same were written off by itbonafidely, thus disallowed the said sum and P a g e | Asstt. Commissioner of Income Tax, CC-45 Vs. M/s Paramshakti Steels P. Ltd. added back the same to the returned income of the assessee.On the basis of his aforesaid deliberations the A.O assessed the income of the assessee at Rs.17,29,46,330/-.

5. Aggrieved, the assessee carried the matter in appeal before the CIT(A). The CIT(A) after deliberating on the contentions advanced by the assessee before him observed that as per the „books of account‟ of the assessee an amount of Rs. 7,56,74,211/- was outstanding as payable on 31.03.2009 to M/s ParamshaktiDistributors Private Limited. However, as per the letter filed by M/s ParamshaktiDistributors Private Limited with the A.O an amount of Rs. 3,08,984/-(Dr) was claimed by the said concern to be receivable from the assessee company. It was noticed by the CIT(A) that as the director of the aforesaid concern viz. M/s ParamshaktiDistributors Private Limited was not in good terms with the assessee due to an ongoing litigation, therefore, for the said reason the necessary reconciliation of the account in respect of the said party could not be furnished by the assessee with the A.O. It was observed by the CIT(A) that the A.O on the basis of the aforesaid difference in the balance reflected by the assessee against the name of the aforesaid party in its „books of account‟ [Rs.7,59,83,195/- (Cr) on 31.03.2009], as against the amount of [Rs.3,08,984/- (Dr) on 31.03.2009] shown by the aforementioned party viz. M/s M/s Paramshakti Distributors Pvt. Ltd. concluded that as liability to the extent of Rs.7,56,74,211/- stoodremitted thus, and added the same to the total income of the assessee. It was observed by the CIT(A) that the assessee had submitted before the A.O that the liability towards the aforesaid party was shown as outstanding due to some „debit balances‟ of other related concerns of M/s Paramshakti Distributors Pvt. Ltd. Further, it was submitted by the assessee before the CIT(A) that that due to P a g e | Asstt. Commissioner of Income Tax, CC-45 Vs. M/s Paramshakti Steels P. Ltd. anongoing litigation with M/s ParamshaktiDistributors Pvt. Ltdits counsel had advised not to write off any creditor against any debt. It was observed by the CIT(A) that the assessee in its attempt to reconcile the difference had furnished the statement for the said „credit‟ and „debit‟ balances amongst the assessee company (being a party to Rajendra Kumar Chaudhari group referred to as “R.C. Group Entity”) and Paramshakti Distributors Pvt. Ltd. (being a party to Anil Gupta Group referred to as “AG. Group Entity”), as under:

Name Group Debit Credit Net balance Paramshakti Distributors RC - Rs. 7,59,83,195/- Rs. 7,59,83,195/-(Cr) Pvt. Ltd. SKS Ispat and Power Ltd. AC Rs. 11,55,81,507/- Rs. 11, 55,81,507/-(Dr) Balance receivable Rs. 3,95,98,312/- (Dr)

6. It was further observed by the CIT(A) that froma perusal of the order of the Hon‟ble High Court of Bombay and consent terms/deed of settlement made between the assessee and Anil Gupta Group it stood revealed that M/s Paramshakti Distributors Pvt. Ltd. and M/s SKS. Ispat& Power Ltd. belonged to the same group i.e. “AG Group Entities”. In the backdrop of his aforesaid observations the CIT(A) noticed that a net balance of Rs.3,95,98,312/- (Dr.) was receivable by the assessee and no liability was therefore required on its part to be discharged towards M/s Paramshakti Distributors Pvt. Ltd. Further, it was observed by the CIT(A) that as per the consent terms/deed of settlement, dated 18.11.2011 the balance receivable by the assessee (“R.C. Group Entity”) from SKS Ispat& Power Ltd. was shown at Rs. 11,51,81,507/-(Dr.) and the liability towards M/s Paramshakti Distributors Pvt. Ltd. was Rs.3,47,28,822/-(Cr), as against Rs.7,59,83,195/-(Cr.) appearing in the „books of accounts‟ of the assessee company. As regards the difference of Rs.4,12,54,373/- [Rs. 7,59,83,195/- (-) Rs. 3,47,28,822/-], it was observed by the CIT(A)

P a g e | Asstt. Commissioner of Income Tax, CC-45 Vs. M/s Paramshakti Steels P. Ltd. that the same was for the reason that M/s Rajendra Kumar & Company (“R.C Group entity”) had to receive the amount of Rs. 4,12,54,373/- (Dr) from M/s Paramshakti Distributors Pvt. Ltd. On the basis of his aforesaid observations it was noticed by the CIT(A) that the liability of Rs.3,47,28,822/- (Cr) was reconciled by the assessee, as under:

Liability in the books of Paramshakti Steel Pvt. Ltd. (i.e assessee) Rs. 7,59,83,195/- (Cr) Amount receivable in the books of Rajendra Kumar & Co. Rs.4,12,54,373/- (Dr) Net balance appearing in the consent term Rs. 3,47,28,822/- (Cr).

On the basis of the aforesaid deliberations the CIT(A) being of the view that as the A.O had failed to place on record any material which could show as to how the balances were reconciled in the other parties assessment proceedings or whether there was any addition on account of remission or allowing of bad debts in those parties cases, norhad offered any comments in respect of the said issue in his remand report, thus deleted the addition of Rs.7,56,74,211/- made by the A.O under Sec.41(1) of the Act.

P a g e | Asstt. Commissioner of Income Tax, CC-45 Vs. M/s Paramshakti Steels P. Ltd. In the backdrop of the aforesaid facts the assessee was directed by the CIT(A) to provide the details as regards the present addresses of the said parties. Subsequently, the assessee was in receipt of correspondences from the said parties as regards their present addresses. Further, the CIT(A) in order to verify the genuineness and veracity of the transactionsdirected the assessee to produce the parties along with the details, proof of addresses and reasons for shifting from their earlier addresses. In compliance, the assessee produced the said parties along with the requisite details viz. returns of income, affidavits and the proof of addresses before the CIT(A). In the backdrop of the aforesaid facts the CIT(A) was of the view that the assessee had filed the basic details viz. names, PAN details and addresses of the parties from whom share application money of Rs.7,43,40,000/- was received by it. Further, it was also noticed by the CIT(A) that the assessee had also produced the copies of PAN Cards, board resolution and share application forms along with the cheque details mentioned before the A.O. The CIT(A) was of the view that the fact that the parties from whom share premium was received were corporate entities which were subject to the rigours of the Companies Act, 1956 and were regularly filing their annual accounts and reportswith the Registrar of companies (ROC), the same inspired confidence as regards the veracity of the transactions of the assessee with them. The CIT(A) noticed that the aforementioned parties were regularly assessed to tax and had placed on record the requisite confirmations along with their bank statements, financial statements and returns of income. Still further, the said respective parties had appeared before him during the course of the appellate proceedings. On the basis of the aforesaid observations the CIT(A) was of the view that the assessee had discharged the onus as was cast upon it and had established the identity of the parties beyond doubt.Further, he

P a g e | Asstt. Commissioner of Income Tax, CC-45 Vs. M/s Paramshakti Steels P. Ltd. was of the view that the capacity of the parties could safely be gathered on a perusal of their respective financial statements for the relevant year in which they had advanced the share application money to the assessee. Insofar, the genuineness of the transactions was concerned, it was observed by the CIT(A) that as the transactions were carried out through account payee cheques, thus the same too stood proved beyond doubt. Further, the CIT(A) observed that the „book value‟of the share of the assessee company was Rs.81.85. It was noticed by the CIT(A) that the assessee had assets viz. land, factory, building, office premises etc. whose market value was on much higher side than that appearing in its „books of accounts‟. In the backdrop of the aforesaid facts it was observed by the CIT(A) that the „net asset‟ value of the assessee company and resultant value per share was almost near to the „book value‟of the share as on 31.03.2008 as per the financial statements already on record. On the basis of his aforesaid observations the CIT(A) deleted the addition of Rs. 7,43,40,000/- made by the A.O in respect of share premium under Sec. 68 of the Act.

8. Insofar, the disallowance of the claim of „bad debts‟ written off by the assessee amounting to Rs.23,81,268/-was concerned, it was observed by the CIT(A) that the basic details pertaining to the said claim were provided by the assessee during the course of the assessment proceedings. It was noticed by the CIT(A) that the said debts were written off by the assessee in its „books of accounts‟ and a soft copy of the same was already available with the A.O. Further, it was observed by the CIT(A) that the income in relation to the aforementioned debts was offered by the assessee in the earlier years. It was taken note of by the CIT(A) that the assessee in support of its aforesaid claim of „bad debts‟ had furnished with the A.O the requisite

P a g e | Asstt. Commissioner of Income Tax, CC-45 Vs. M/s Paramshakti Steels P. Ltd. documentary evidence viz. (i) details of party wise „bad debts‟ written off; (ii) copy of ledger accounts of parties whose accounts were written off as „bad debts‟; and (iii) copy of ledger account of „bad debts‟ written off. The CIT(A) noticed that the fact that the assessee had written off the debts amounting to Rs.23,81,268/- in its profit and loss account, and as was discernible from the details and the ledger copies of the respective parties the said amount was also offered as income in the earlier years. In the backdrop of the aforesaid facts the CIT(A) was of the considered view that the requisite conditions for allowability of „bad debts‟ under Sec.36(i)(vii) were found to have duly been satisfied by the assessee. Insofar, the issue pertaining to establishing that the debt had actually became bad, the CIT(A) was of the view that subsequent to the judgment of the Hon‟ble Supreme Court in the case of T.R.F. ltd Vs. CIT (2010) 323 ITR 0397 (SC)it was no more necessary for the assessee to establish that the debt had in fact became irrecoverable and it was sufficient if the debt had been „written off‟ as irrecoverable in the accounts of the assessee. On the basis of his aforesaid deliberations the CIT(A) vacated the disallowance of the„bad debts‟of Rs.23,81,268/- claimed by the assessee. However, the balance amount of Rs.3,27,613/- claimed by the assessee as „bad debts‟ was confirmed by him.

9. The CIT(A) after necessary deliberations on the aforementioned issues, deleted the additions/disallowance made by the A.O and partly allowed the appeal.

P a g e | Asstt. Commissioner of Income Tax, CC-45 Vs. M/s Paramshakti Steels P. Ltd.

P a g e | Asstt. Commissioner of Income Tax, CC-45 Vs. M/s Paramshakti Steels P. Ltd. between the parties that the respective group entities would either write off/write back or adjust against the claim related to purchase/sale transactions of earlier years in their respective „books of accounts‟, so that there is nothing due or payable or receivable from each other towards the balances in their respective „books of account‟. It was further stated that the said adjustments shall be done by the respective group entities within a period of 3 years from the date of signing of the aforesaid consent terms/deed of settlement. In the backdrop of his aforesaid contentions it was submitted by the ld. A.R that the CIT(A) taking cognizance of the reconciliations which duly explained the difference in the balance of the aforementioned party viz. M/s Paramshakti Distributors Pvt. Ltd., which stood reflected in the „books of account‟ of the assessee at Rs.7,59,83,195/-(Cr) as on 31.03.2009, as against that shown as recoverable in the „books of account‟ of the said party viz. M/s Paramshakti Distributors Pvt. Ltd. at Rs.3,08,984/-(Dr) on 31.03.2009, had rightly vacated the addition of Rs.7,56,74,211/- [Rs. 7,59,83,195/- (-) Rs. 3,08,984/-] made by the A.O under Sec. 41(1) in the hands of the assessee. In so far, the deletion by the CIT(A) of the addition of Rs. 7,43,40,000/- made by the A.O in respect of the „Share premium‟ received by the assessee company was concerned, the ld. A.R relied on the order of the CIT(A). The ld. A.R took us through the details as were called for by the A.O vide his notice issued under Sec. 142(1) and submitted that the assessee was only called upon to place on record the details of the list of equity share holderswho were holding shares of more than 10 percent individually alongwiththeir addresses/PAN, and also to furnish requisite details as regards the said persons.(Page 36 – Sr. No. 21) of the „APB‟ . The ld. A.R submitted that the requisite details as were called for by the A.O were duly filed by the assessee [Page 48 of „APB‟]. Further, the ld. A.R submitted that the details of increase in P a g e | Asstt. Commissioner of Income Tax, CC-45 Vs. M/s Paramshakti Steels P. Ltd. the share capital was also furnished with the A.O [Page 53&Page 58- 59] of „APB‟. The ld. A.R submitted that the details of the companies from whom share premium was received during the year was also placed on record of the A.O [Page 60-61 of „APB‟]. Further, it was submitted by the ld. A.R that the fact that in the course of the remand proceedings the inspector of income-tax was not able to locate the parties at the addresses given by them in their share application forms was not brought to the notice of the assessee who learnt about the same only from the „remand report‟. The ld. A.R submitted that in the backdrop of the said facts the assessee on being directed by the CIT(A) had requested the parties to furnish their present addresses, which on being received were furnished with the CIT(A). It was submitted by the ld. A.R that in the course of the appellate proceedings the assessee was called upon by the CIT(A) to produce the parties alongwith their details viz. returns of income, affidavits and proof of addresses. The ld. A.R submitted that in compliance to the aforesaid directions the respective parties were produced before the CIT(A) alongwith the details as were called for by him. In support of his aforesaid contention the ld. A.R drew our attention to Page 24 of the order of the CIT(A). The ld. A.R distinguishing on facts the order of the Hon‟ble High Court of Bombay in the case of Konark Structural Engineering (P) Ltd. Vs. DCIT (2018) 254 Taxmann 184 (Bom), submitted that unlike the facts involved in the case before the Hon‟ble High Court, in the case of the assessee the parties had appeared before the CIT(A). It was submitted by the ld. A.R that as the assessee had duly discharged the onus cast upon it and proved to the hilt the identity and creditworthiness of the parties as well as the genuineness of the transactions, thus the CIT(A) had rightly deleted the addition of Rs. 7,43,40,000/- made by the A.O under Sec. 68 of the Act.The ld. A.R in P a g e | Asstt. Commissioner of Income Tax, CC-45 Vs. M/s Paramshakti Steels P. Ltd. support of his aforesaid contention relied on the following judicial pronouncements :

(i). CIT Vs. Gagandeep Infrastructure Pvt. Ltd. (2017) 394 ITR 690 (Bom)

(ii). CIT Vs. Orchid Industries Pvt. Ltd. (2017) 397 ITR 136 (Bom)

(iii). Pr. CIT-13, Mumbai Vs. M/s Veedhata Tower Pvt. Ltd. [ITA No. 815 of 2015; Dt. 17.04.2018] (Bom)

(iv) KLR Industries Ltd. Vs. DCIT (2015) 125 DTR (Hyd)(Trib.)33 Insofar, the disallowance of the claim of „bad debts‟ of Rs.23,81,268/- by the A.O was concerned, the ld. A.R relied on the order of the CIT(A). It was submitted by the ld. A.R that the issue under consideration was covered by the order of the Tribunal in the assesses own case for A.Y 2008-09 in ACIT-CC 45, Mumbai Vs. M/s Paramshakti Steel Ltd. [ITA No. 5587/Mum/2013]. It was submitted by the ld. A.R that involving identical facts the Tribunal in its aforesaid order had upheld the deletion of the disallowance of „bad debts‟ by the CIT(A). The ld. A.R averred that in the said order it was observed by the Tribunal that as held by the Hon‟ble Supreme Court in the case of TRF Ltd. Vs. CIT (2010) 323 ITR 397 and Vijaya Bank Vs. CIT (2010) 323 ITR 167, after the amendment in the taxation laws w.e.f 01.04.1989, the requirement of demonstrating that the debts had become bad had been dispensed with and the only requirement that remained was that the assessee should have “written off” the amount in its „books of accounts‟. It was submitted by the ld. A.R that as the assessee as per the mandate of law had „written off‟ the amounts in its „books of P a g e | Asstt. Commissioner of Income Tax, CC-45 Vs. M/s Paramshakti Steels P. Ltd. account‟, thus the CIT(A) finding that the claim of „bad debt‟ of Rs.23,81,268/- was in order had rightly vacated the said disallowance.

Liability in the books of Paramshakti Steel Pvt. Ltd. Rs. 7,59,83,195/- (Cr) Amount receivable in the books of Rajendra Kumar & Co. Rs. 4,12,54,373/- (Dr) Net Balance appearing in the consent term Rs. 3,47,28,822/- (Cr)

In pursuance of the aforesaid facts the Tribunal had in the course of hearing of the appeal called for a „remand report‟ from the A.O. The A.O in compliance to the aforesaid directions of the Tribunal had placed on record his „remand report‟, dated 06.02.2018 stating as under (relevant extract) :

P a g e | Asstt. Commissioner of Income Tax, CC-45 Vs. M/s Paramshakti Steels P. Ltd. “3. Close scrutiny of the submission of the assessee; assessment order, CIT(A)’s order and t he directions given by the Hon’ble ITAT in its interim order referred above revealed that the issue involved relate to the net addition of Rs. 7,56,74,211/- made u/s 41(1) in respect of the party namely- M/s Paramshakti Distributors Pvt. Ltd., after netting off the balance of assesses account of Rs. 3,08,984/- shown in the books of M/s Paramshakti Distributors Pvt. Ltd. The assessee has explained that the whole liability of Rs. 7,59,83,195/- appearing in its books towards M/s Paramshakti Distributors Pvt. Ltd. stands discharged against the amounts receivable from other entities of same group i.e Anil Gupta (AG) Group to which M/s Paramshakti Distributors Pvt. Ltd. also belongs to. Further, attention is also drawn to the amount of Rs. 3,47,28,822/- appearing in the consent terms against the actual liability in the books of the assessee standing at Rs. 7,59,83,195/- for the year under consideration and the reason thereof. The assessee submits that the consent terms were drawn between RC Group entities and AG Group entities on 18.11.2011 and accordingly, whatever balances appeared in the books of RC Group entities were to be cancelled as not payable/receivable any further. On a perusal of all the ledgers of of concerned parties of AG Group entities, it is noted that the liability standing at RS. 7,59,83,195/- against M/s Paramshakti Developers Pvt. Ltd. was reduced to RS. 3,47,28,822/- on account of an entry passed on 02.04.2011 in respect of an amount of Rs. 4,12,54,373/- receivable from M/s Paramshakti Distributors Pvt. Ltd. by Rajendra Kumar & Co.

3. Shree Krishna Structures Rs. Pertains to the receivable Pvt. Ltd. 30,00,000/- from said party in books of the assessee.

P a g e | Asstt. Commissioner of Income Tax, CC-45 Vs. M/s Paramshakti Steels P. Ltd. Further, the CIT, D.R vide his letter dated 03.07.2018 has stated that though the A.O had vide his „remand report‟, dated 06.02.2018 (filed in response to the direction of the Tribunal) accepted the contention of the assessee, but as the consent term was much later than the year end, therefore, the figures of Rs. 3.08 lac (Dr) and Rs. 7.59 (Cr) as on 31.03.2009on the basis of which addition was made in the hands of the assessee under Sec. 41(1) were required to be reconciled on that specific date.

Sr. No. Name of entities in RC Group Name of entities in AG Group 1. Paramshakti Steels Ltd.(i.e the Shree Krishna Structures Pvt. Ltd. assessee) 2. Rajendra Kumar & Co. Radhakrishna Roadways Ltd. (formerly known as Paramshakti Distributors Pvt. Ltd.) 3. Orbit Corporation SKS Ispat and Power Ltd. 4. Nupur International Gupta Steel Corporation

(i). The A.O observed that as on 31.03.2009 an amount of Rs. 7,59,83,195/-(Cr) was shown by the assessee [RC group entity] as payable to M/s Paramshakti Distributors Pvt. Ltd. [A.G. Group Entity]. On the other hand an amount of Rs. 3,08,984/-(Dr.)was shown as receivable by the aforementioned concern viz. M/s Paramshakti Distributors Pvt. Ltd from the assessee. The A.O treated the difference of Rs. 7,56,74,211/- [i.eRs. 7,59,83,195/- (-) Rs. 3,08,984/-] as an infructuous liability that stood remitted and added the same to the income of the assessee under Sec. 41(1) of the I.T. Act.

P a g e | Asstt. Commissioner of Income Tax, CC-45 Vs. M/s Paramshakti Steels P. Ltd. (ii). The Tribunal vide its interim order, dated 14.11.2017 called for a „remand report‟ from the A.O in respect of the Net balance of Rs. 3,47,28,822/- (Cr) [i.eRs. 7,59,83,195/- (-) Rs. 4,12,54,373/-] as was appearing in the „books of accounts‟ of the assessee.

(iii). The assessee had in its reply filed with the A.O in the course of the remand proceedings submitted that an amount of Rs. 4,12,54,373/-(Dr) was recoverable by M/s Rajendra Kumar & Co. [i.eRC Group entity] from Paramshakti Distributors Pvt.Ltd.[i.e A.G Group Entity]. It was submitted by the assessee that on 02.04.2011 the aforesaid amount of Rs. 4,12,54,373/-(Dr) was adjusted in the assesses account appearing in the „books of account‟ of M/s Rajendra Kumar & Co. [i.e RC Group entity] and the corresponding entries were also passed by the assessee. As a consequence, the amount payable by the assessee to M/s ParamshaktiDistributors Pvt.Ltd.[A.G Group entity] stood reduced to Rs. 3,47,28,822/-(Cr) [i.eRs. 7,59,83,195 (-) Rs. 4,12,54,373/-], as under:

Liability in the „books of account‟ of M/s Paramshakti Steel Pvt. Rs. 7,59,83,195/- (Cr) Ltd.(i.e assessee company- a RC group entity) as payable to M/s Paramshakti Distributors Pvt. Ltd. Amount receivable by M/s Rajendra Kumar & Co. (RC group Rs. 4,12,54,373/-(Dr) entity) from M/s Paramshakti Distributors Pvt. Ltd. Net balance payable by the assessee company Rs. 3,47,28,822/-(Cr) (as appearing in the consent terms/deed of settlement, dated 18.11.2011)

It was submitted by the assessee that on the basis of the aforesaid netting of balances on 02.04.2011 the balance payable by the assessee company to M/s Paramshakti Distributors Pvt. Ltd [ A.G Group entity]i.e on 18.11.2011 in the consent terms/deed of settlement was shown atRs. 3,47,28,822/- (Cr) (Page 129 of „APB‟).

P a g e | Asstt. Commissioner of Income Tax, CC-45 Vs. M/s Paramshakti Steels P. Ltd. (iii).The assessee had submitted before the A.O that as on the date on which the consent terms/deed of settlement was drawn i.eon 18.11.2011, the balances of the “A.G group entities”in the „books of accounts‟ of “RC group entities” was as under:

Name of the company Amount (AG Group entities) M/s Gupta Steel Corporation Rs. 48,56,144/- (Dr) (i). In „books of accounts‟ of the assessee :Rs. 43,25,164 /-(Dr) (ii).In „books of accounts‟ of M/s Rajendra Kumar & Co. :Rs. 5,30,980/-(Dr)] M/s SKS Ispat Power Ltd. Rs. 11,55,81,507/- (Dr) (In „books of accounts‟ of the assessee) M/s Paramshakti Distributors Pvt. Ltd. Rs. 3,47,28,822/- (Cr) (In „books of accounts‟ of the assessee) M/s Shree Krishna Structures Pvt. Ltd. Rs. 30,00,000/- (Dr) (In „books of accounts‟ of the assessee) Total Rs. 8,87,08,829/- (Dr)

(iv). Further, it was submitted by the assessee that subsequent to the consent terms/deed of settlement the assessee and M/s Rajendra Kumar & Co. [both RC group entities] had closed all the „ledger accounts‟ in their „books of accounts‟ pertaining to “AG group entities” and had transferred all the balances of these accounts to the ledger account of M/s SKS Ispat and Power Ltd.(as appearing in the „books of account‟ of the assessee). In result, the „Closing balance‟ of the said concern viz. M/s SKS Ispat and Power Ltd. (in the „books of accounts‟ of the assessee) stood reflected atRs. 8,87,08,829/- (Dr).

P a g e | Asstt. Commissioner of Income Tax, CC-45 Vs. M/s Paramshakti Steels P. Ltd. Ispat and Power Ltd. in the „books of account‟ of the assessee,whose balance as on 31.03.2012 consequent to the said intra account adjustments stood reflected at Rs. 8,87,08,828/-(Dr). We find that the A.O in his “remand report” had accepted that the amount of 7,59,83,195/- (Cr) payable by the assessee to M/s Paramshakti Distributors Pvt. Ltd. on 31.03.2009 was on 02.04.2011 partly adjusted against the amount of Rs. 4,12,54,373/-(Dr) that was receivable by M/s Rajendra Kumar & Co. (RC group entity) from the aforesaid concern viz. M/s Paramshakti Distributor Pvt. Ltd. Further, the A.O on a perusal of the accounts of the assessee viz. M/s ParamshaktiStels P. Ltd. had also returned a finding that the balances of other “RC group entities” wereadjusted against the amount of Rs. 11,55,81,507/-(Dr) that was recoverable by the assessee [RC group entity] from M/s SKS Ispat and Power Ltd. [A.G Group entity], as a result whereof the amount receivable by the assessee from M/s SKS Ispat and Power Ltd. was reduced to Rs. 8,87,08,828/-(Dr).

P a g e | Asstt. Commissioner of Income Tax, CC-45 Vs. M/s Paramshakti Steels P. Ltd. the Company Petition No. 5 of 2009 between the said groups. We thus are of the considered view that the reduction of the outstanding liability of Rs. 7,59,83,195/-(Cr) on 31.03.2009 to an amount of Rs. 3,47,28,822/-(Cr) on 18.11.2011 stands duly explained and can safely be held to have been reconciled by the assessee.Be that as it may, now when it is a matter of record that the assessee had indirectly in the aforementioned manner discharged part of its outstanding liability of Rs. 4,12,54,373/-(Cr) [i.eRs. 7,59,83,195/-(Cr) (-) Rs. 3,47,28,822/- (Cr)] that was due towards the aforementioned creditor viz.M/s Paramshakti Distributors Pvt. Ltd., therefore, no remission or cessation of liability in terms of Sec. 41(1) of the I.T Act can be inferred to the said extent in its hands.

Name of the company Amount (AG Group entities) M/s Gupta Steel Corporation Rs. 48,56,144/- (Dr) (i). In „books of accounts‟ of the assessee :Rs. 43,25,164 /-(Dr) (ii). In „books of accounts‟ of M/s Rajendra Kumar & Co. :Rs. 5,30,980/-(Dr)] M/s SKS Ispat Power Ltd. Rs. 11,55,81,507/- (Dr) (In „books of accounts‟ of the assessee) M/s Paramshakti Distributors Pvt. Ltd. Rs. 3,47,28,822/- (Cr) (In „books of accounts‟ of the assessee) M/s Shree Krishna Structures Pvt. Ltd. Rs. 30,00,000/- (Dr) (In „books of accounts‟ of the assessee)

P a g e | Asstt. Commissioner of Income Tax, CC-45 Vs. M/s Paramshakti Steels P. Ltd. Total Rs. 8,87,08,829/- (Dr)

Resultantly, the „Closing balance‟ of the said concern viz. M/s SKS Ispat and Power Ltd. (in the „books of accounts‟ of the assessee) stood reflected at Rs. 8,87,08,829/-(Dr).Admittedly, the aforesaid claim of the assessee had been accepted by the A.O in his „remand report‟, dated 06.02.2018 filed with the Tribunal. However, we find substantial force in the contention of the ld. D.R that the veracity of the said claim of intra accounts adjustments in the „books of accounts‟ by the assessee much subsequent to the financial year under consideration i.e 31.03.2009 and the execution of theconsent terms/deed of settlement on 18.11.2011 between the aforementioned parties cannot be accepted on the very face of it. In our considered view, the veracity of the intra account adjustments carried out by the assessee subsequent to the consent terms/deed of settlement executed on 18.11.2011 requires to be verified in the backdrop of the records of the creditor viz. M/s Paramshakti Distributors Pvt. Ltd. Apart therefrom, necessary verifications are also required to be made from the other “A.G Group entities” against whose accounts the outstanding liability of the assessee amounting to Rs.3,47,28,822/-(Cr) is claimed to have been adjusted by the assessee. We thus restore the matter to the file of the A.O who is directed to verify the factual position as regards the intra account adjustments of the outstanding liability of the assessee towards M/s Paramshakti Distributor Pvt. Ltd/ amounting to Rs.3,47,28,822/- (Cr), as is discernible from the „books of accounts‟ of the assessee, by calling for the records/informationfrom M/s Paramshakti Distributors Pvt. Ltd. and making necessary verifications to the extent relevant from the other group entities of “A.G Group” viz. (i). M/s Gupta Steel Corporation; (ii). M/s Krishna Structures Pvt. Ltd; and (iii). M/s SKS Ispat and Power Ltd. Further, the A.O shall also make necessary verification from M/s Rajendra Kumar & Co. (RC

P a g e | Asstt. Commissioner of Income Tax, CC-45 Vs. M/s Paramshakti Steels P. Ltd. group entity) in respect of the adjustment of the amount of Rs. 5,30,980/-(Dr) that was receivable by it from M/s Gupta Steel Corporation, against the account of M/s SKS Ispat and Power Ltd (as appearing in the books of the assessee). Needles to say, the A.O shall in the course of the set aside proceedings afford reasonable opportunity of being heard to the assessee who shall remain at a liberty to substantiate its aforesaid claim on the basis of fresh material. We thus in terms of our aforesaid observationsuphold the order of the CIT(A) to the extent he has deleted the addition of Rs.4,12,54,373/-. Apart therefrom, we set aside the order of the CIT(A) to the extent he had deleted the additionof Rs.3,47,28,822/- made by the A.O under Sec. 41(1), and restore the same to the file of the A.O for fresh adjudication interms of our aforesaid observations. The Grounds of appeal No. 1,2 and 4 are partly allowed.

19. We shall now advert to the deletion by the CIT(A) of an addition of Rs. 7,43,40,000/- that was made by the A.O by treating the „Share premium‟ received by the assessee company as an unexplained cash credit in terms of Sec. 68 of the I.T. Act. We find that the CIT(A) had observed that that the assessee in compliance to the directions of the A.O had vide his letter dated 09.12.2011 placed on the record of the A.O share application forms, board resolution and PAN Cards of the respective share applicants for necessary verification.It was noticed by the CIT(A) that the basic details viz. names of the share applicants, PAN details and addresses of the parties from whom share application money was received by the assessee were also placed on the record of the A.O. We find that the CIT(A) taking cognizance of the fact as was brought to his notice by the A.O in his „remand report‟ that the respective parties could not be located by his inspector at the addresses given on the share application forms, had directed the P a g e | Asstt. Commissioner of Income Tax, CC-45 Vs. M/s Paramshakti Steels P. Ltd. assessee to provide the details as regards the present addresses of the said parties, as well as produce the parties along with the requisite details, proof of addresses and reasons for shifting from their earlier addresses. In compliance to the aforesaid directions the assessee after obtaining the details as regards the present addresses of the parties had filed the same with the CIT(A). Further, in compliance to the aforesaid directions the assessee had produced the parties along with the requisite details viz. copies of returns of income, affidavits and the proof of addresses before the CIT(A). We find that the CIT(A) observed that the assessee had filed before the A.O the basic details of the share applicants viz. names and addresses, PAN details,copy of board resolution, share application forms and the cheque details of the parties from whom share application money of Rs.7,43,40,000/- was received by it. It was observed by the CIT(A) that the aforesaid parties which were corporate entities and were regularly filing their annual accounts and reportswith the Registrar of companies (ROC) and were regularly being assessed to tax, had in compliance to his directions appeared before him during the course of the appellate proceedings alongwith the requisite documentary evidences viz. confirmations, bank statements, financial statements and returns of income. In the backdrop of the aforesaid facts the CIT(A) was of the view that the identity of the aforesaid parties stood established. Further, he was of the view that the capacity of the parties could safely be gathered on a perusal of their respective financial statements for the relevant year in which they had advanced the share application money to the assessee. Insofar, the genuineness of the transactions was concerned, it was observed by the CIT(A) that as the transactions were carried out through account payee cheques, thus the same too stood proved beyond doubt. On a perusal of the order of the CIT(A), we find that he had also observed that the „net asset‟ value of the assessee company

P a g e | Asstt. Commissioner of Income Tax, CC-45 Vs. M/s Paramshakti Steels P. Ltd. and the resultant value per share was almost near to the „book value‟ of the share as on 31.03.2008 as per the financial statements already on record. On the basis of his aforesaid observations the CIT(A)haddeleted the addition of Rs. 7,43,40,000/- made by the A.O in respect of share premium under Sec. 68 of the Act.

P a g e | Asstt. Commissioner of Income Tax, CC-45 Vs. M/s Paramshakti Steels P. Ltd. the A.O about the source of funds with the said parties which were separately being assessed to tax and whose „books of accounts‟ duly reflected the funds that have been utilised by them for subscribing to the shares of the assessee company. Our aforesaid view stands fortified by the judgment of the Hon’ble Supreme Court in the case of Commissioner Of Income-tax Vs. Lovely Exports (P) Ltd. (2008) 6 DTR 308 (SC). The Hon‟ble Apex Court in its aforesaid order while dismissing the „Special Leave Petition‟ of the revenue against the judgment of the Hon‟ble High Court of Delhi, had observed as under:

“2. Can the amount of share money be regarded as undisclosed income under s. 68 of IT Act, 1961? We find no merit in this Special Leave Petition for the simple reason that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment.

“(e) We find that the proviso to Section 68 of the Act has been introduced by the Finance Act 2012 with effect from 1st April, 2013. Thus it would be effective only from the Assessment Year 2013-14 onwards and not for the subject Assessment Year. In fact, before the Tribunal, it was not even the case of the Revenue that Section 68 of the Act as in force during the subject years has to P a g e | Asstt. Commissioner of Income Tax, CC-45 Vs. M/s Paramshakti Steels P. Ltd. be read/understood as though the proviso added subsequently effective only from 1st April, 2013 was its normal meaning. The Parliament did not introduce to proviso to Section 68 of the Act with retrospective effect nor does the proviso so introduced states that it was introduced “for removal of doubts” or that it is “declaratory”. Therefore it is not open to give it retrospective effect, by proceeding on the basis that the addition of the proviso to Section 68 of the Act is immaterial and does not change the interpretation of Section 68 of the Act both before and after the adding of the proviso. In any view of the matter the three essential tests while confirming the pre-proviso Section 68 of the Act laid down by the Courts namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on facts it was found satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders i.e. they are bogus. The Apex Court in Lovely Exports (P) Ltd. (supra) in the context to the pre-amended Section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee’s income as unexplained cash credit.” Further, a similar view was arrived at by the Hon’ble High Court of Bombay in the case of Pr. CIT-13, Mumbai Vs. Veedhata Tower Pvt.Ltd.(2018) 403 ITR 415 (Bom). The Hon‟ble High Court in its said judgment had observed that as per the pre-amended Sec. 68, i.e prior to A.Y 2013-14, it was not obligatory for the assessee to explain the source of the source of a credit appearing in its books of account. The Hon‟ble High Court had held as under :

“7. The grievance of the appellant is that, even in the absence of the amendment to Section 68 of the Act, it is for the respondent-assessee to explain the source of the source of the funds received by an assessee. It is submitted that the respondent has not able to explain the source of the funds in the hands of M/s. LFPL and therefore this Appeal needs to be admitted.

No. 5 and 6 are dismissed.

23. Insofar, the deletion by the CIT(A) of the disallowance of the claim of „bad debts‟ of Rs.23,81,268/- by the A.O is concerned, we find that the issue is squarely covered by the order of the Tribunal in the assesses own case for the immediately preceding year viz. A.Y 2008-09 in ACIT-CC 45, Mumbai Vs. M/s Paramshakti Steel Ltd. [ITA No. 5587/Mum/2013] (Copy placed on record). We have perused the order of the coordinate bench of the Tribunal and find that the order of the CIT(A) deleting the disallowance of „bad debts‟ on identical facts was thereafter on appeal by the revenue upheld by the Tribunal, and the appeal of the revenue on the said count was dismissed.We find that the Tribunal in its aforesaid order following the judgment of the Hon’ble Supreme Court in the case of TRF Ltd. Vs. CIT (2010) 323 ITR 397 (SC) and VijayaBank Vs. CIT (2010) 323 ITR 167 (SC), had observed that after the amendment in the taxation laws w.e.f

P a g e | Asstt. Commissioner of Income Tax, CC-45 Vs. M/s Paramshakti Steels P. Ltd. 01.04.1989 the requirement of demonstrating that the debts had become bad had been dispensed withand the only requirement that remained was that the assessee should have “written off” the amount in its „books of accounts‟. We find that in the present case the assessee as per the mandate of law had „written off‟ the amounts in its „books of account‟, which however was disallowed by the A.O on the ground that the assessee had failed to establish that the debt had become bad. Insofar, the fact that the income in relation to such debts was offered in earlier years, the same is not in doubt. Apart therefrom, the fact that the assessee had „written off‟ the amount of „bad debts‟ in its „books of account‟ is also admitted. We thus respectfully following the order of the Tribunal in the assesses own case for A.Y 2008-09 i.e ACIT-CC 45, Mumbai Vs.M/s Paramshakti Steel Ltd. [ITA No. 5587/Mum/2013], uphold the deletion of the disallowance of „bad debts‟ of Rs. 23,81,268/- by the CIT(A). The Ground of appeal

No. 3 is dismissed.

24. The appeal of the revenue is partly allowed in terms of our aforesaid observations.

Order pronounced in the open court on 30.01.2019