DCIT 4(1)(1), MUMBAI vs. DHANLAXMI COTEX LTD, MUMBAI

This is an appeal filed by the Revenue against the order of CIT(A)- 4, Mumbai dated 24/09/2018 for A.Y.2012-13 in the matter of order passed u/s. 143(3) of the IT Act. 2. The grievance of Revenue relates to deletion of addition of Rs.6.68 Crores made by the AO u/s.68 of the IT Act. 3. Facts in brief are that assessee is engaged in the business of trading and investing in shares and securities.

After having considered the submissions and documents filed by the assessee and AMPL and the statements as recorded of the persons of AMPL, the Assessing Officer was of the view that the same were not acceptable and has provided his reasons in para 4.8 of the assessment order which is reproduced as under: a. The assessee and AMPL have failed to explain their business connection, they have merely stated that “business relation and running account”. Further it can be seen that both their registered offices are the same. In contradiction, Mr.Mahavir Jain, Director of AMPL has stated that they have "no_business_connection' only they are residing in the same building for 15 years. It is amply clear that they are trying to hide facts which throws a big doubt to the genuineness of AMPL. b. The intentions of AMPL to avoid summons by sending a junior accountant who was appointed only a month before goes M/s. Dhanlaxmi Cotex Ltd., on to prove that the transaction between AMPL and the assessee are not genuine and hence AMPL tried to avoid the summons c. Despite issuing various notices, the assessee and AMPL hive failed to prove the exact source of the amounts given and taken between them. They have merely filed the Bank Statements and Bank Book of AMPL without establishing a nexus of the sums advances and repaid. Further, the assessee also has not explained the utilization of the funds taken or neither the source of the sums repaid to AMPL. d. On such huge amounts advanced by AMPL they have not charged any interest to the assessee, whereas on other loans and advances given they are charging interest @14-18% p.a. The reason given by the Director of AMPL was "out of friendship and personal relationship" The Assessing Officer also relied upon certain decisions of various Courts to state that the onus of establishing genuineness, creditworthiness and capacity of the parties is always of the assessee. Accordingly, the Assessing Officer in para 4.12 of the assessment order added the sum of Rs. 6,68,00,000/- as income from other sources.

By the impugned order, CIT(A) deleted the addition after observing as under:- .3.4. I have considered the facts of the case, assessment order passed by the Assessing Officer and the submission made by the appellant, remand report of the AO as well as appellants comment thereupon. It is seen that the appellant company has taken loan of Rs. 6,68,00,000/- from AMPL in the present assessment year i.e. AY 2012-13. There is considerable force in the argument of the appellant that all the details have been filed before AO during the entire proceedings which prove beyond doubt the identity, creditworthiness and the genuineness of the transactions. The Assessing Officer has added the said amount as unexplained cash credit on suspicion and not on the basis of any cogent evidence to suggest that the amount received by the appellant is unexplained. With respect to identity of the creditor, the said company is a public Limited Company listed on the Calcutta Stock Exchange. The appellant has submitted details of FAN, ITR acknowledgment as well as M/s. Dhanlaxmi Cotex Ltd., letters filed by AMPL in response to the summons issued by the Assessing Officer to substantiate its identity. Further, the Director of the said company i.e. Mr. Mahavir Jain has also appeared before the Assessing Officer and confirmed the transactions entered into between the appellant and the said company. With respect to creditworthiness, the Director of AMPL has categorically stated that they are in the business of providing loans to various companies. Further, the bank statements of the said company have also been submitted to prove that adequate funds were available with the company for advancing the same to the appellant. The Assessing Officer, while recording the statement of Mr. Mahavir Jain, Director of AMPL has raised various queries with respect to the transactions between the appellant and AMPL. In response, Mr. Mahavir Jain has categorically confirmed the granting of loan to the appellant. The appellant has also established that AMPL had sufficient funds at its disposal to advance the amount of Rs. 6.68 Crores to the appellant. With respect to genuineness of the said transaction, the appellant has submitted various evidences such as confirmation letters, bank statements and financial statements of AMPL. This is further corroborated with the statement recorded of the Director of AMPL. Thus, it can be concluded that the appellant has fulfilled the onus laid upon it to prove all the three conditions laid down u/s. 68 of the Act. I find that the Assessing Officer has not brought on record any evidence to disprove the stand of the appellant either during the assessment proceedings or during the remand proceedings. The Assessing Officer has relied on the fact that no interest has been charged to conclude that the said loans are not genuine. I am of the view that the loan transaction cannot be doubted merely because no interest has been charged which is a matter of commercial expediency and subject to the relationship between the two parties. The Director of AMPL has confirmed that the loan has been granted to the appellant out of personal relationship. The company has taken a conscious decision not to charge interest on the loan granted to the appellant and the Assessing Officer cannot put himself in the shoes of the company to determine what according to him is correct. The Assessing Officer is bound to examine the genuineness of the loan based on the parameters laid down u/s. 68 of the Act. From the facts emanating from the entire proceedings demonstrate that the appellant has sufficiently discharged its onus of proving the said transaction. Therefore, the additions made by the AO in the hands of appellant company will not stand the judicial scrutiny. In this regard, it will not be out of place to mention that the M/s. Dhanlaxmi Cotex Ltd., appellant company has been able to explain its source and the lender company has also confirmed the transactions. Once the source of fund is proved, the matter can be put to end there itself as per various judicial pronouncements, as referred and relied upon by the Ld.AR which have been reproduced in the earlier paragraphs and for the sake of brevity, the same is not being reproduced or quoted here. Keeping in view of the facts of the case and applying the ratio of above referred judicial pronouncements by the Ld. AR, it will be difficult to sustain the additions made by the AO. Therefore, the AO is directed to delete the amount of Rs 6,68,00,000/-. In the result, Ground No. 1, 2 & 3 are Allowed.

We have considered rival contentions and carefully gone through the orders of the authorities below. From the record, we found that CIT(A) has recorded a clear finding to the effect that assessee has discharged its burden u/s.68 by establishing identity, genuineness and creditworthiness of loan transaction. We found that lender is also continuously assessed to tax u/s.143(3). Furthermore, the transaction with lender was not an isolated transaction but Assessee had interest free running account with M/S Ajay Multi Projects Ltd since Assessment year 2007-08 and the transactions were duly and consistently accepted by the department both in the case M/S Ajay Multi Projects Ltd.

We also observe that the assessee had interest free running account with M/S Ajay Multi Projects Ltd..and it's creditworthiness was duly established during assessment proceedings as under:  All transactions were through banking channel.  M/S Ajay Multi Projects Ltd is a listed company and was maintaining duly audited books of accounts.

The detailed finding so recorded by CIT(A) at para 5 has not been controverted by learned DR by bringing any positive material on record. Accordingly we do not find any reason to interfere in the order of CIT(A).

In the result, appeal of the Revenue is dismissed.