ACIT, MEERUT vs. M/S. PIONEER FABRICATORS PVT. LTD., MEERUT

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “E”: NEW DELHI BEFORE SHRI I.C.SUDHIR, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA No. 2861/Del/2015 (Assessment Year: 2011-12) ACIT, Vs. Pioneer Fabricators Pvt. Ltd, Circle-2, Meerut B-2, Saraswati Industrial Estate, Partapur, Meerut PAN:AABCP3296R (Appellant) (Respondent)

ITA No. 3434/Del/2015 (Assessment Year: 2011-12) Pioneer Fabricators Pvt. Ltd, ACIT, Vs. B-2, Saraswati Industrial Estate, Circle-2, Meerut Pioneer Partapur, Meerut Fabricators Pvt. Ltd, PAN:AABCP3296R B-2, Saraswati Industrial Estate, Partapur, Meerut PAN:AABCP3296R (Appellant) (Respondent)

Revenue by : Shri HC Choudhary, CIT DR Assessee by: Shri K Sampath, Adv Shri Rajkumar, Adv Date of Hearing 31/08/2017 Date of pronouncement 19/09/2017

O R D E R PER PRASHANT MAHARISHI, AM 1. These are the cross appeals filed by the assessee and the Department against the order of the ld CIT (A)-Meerut dated 27.02.2015 for the Assessment Year 2011-12. 2. The revenue in ITA No. 2861/del/2015 has raised the following grounds of appeal:- “1. Whether in the facts and circumstances of the case, the ld Commissioner of Income tax (appeals) has erred in law in deleting the addition of Rs. 64985536/- made by the AO on account of sundry creditors in spite of the fact that assessee failed to prove the genuineness of the creditors. The onus was certainly upon the assessee to prove the credits appearing in its books which remained totally undischarged. 2. Whether the in the facts and circumstances of the case, the ld Commissioner of Income tax (appeals) has erred in law and facts in holding that the Assessing Officer has erred in estimating the net Profit @3% of manufacturing and trading receipts and 5% of contract receipts ignoring the fact that no bills and vouchers and books of accounts were

Page 2 of 18 produced before the AO during the course of assessment proceedings inspite of opportunity granted to the assessee. 3. In the Fact and circumstances of the case, the Order of the ld Commissioner of Income tax (appeals) may be set aside and that of the AO be restored.”

Page 3 of 18 at Rs. 118445290/–. The Ld. assessing officer in his assessment order made the following addition to the total income of the assessee. i. During the course of examination of the relevant details filed by the assessee, Ld. assessing officer noted that in the preceding year the assessee has offered the tax at the rate of 5% on contract receipt. However, during the year the assessee has offered the profit on the basis of its books of account, which is less than profit agreed in earlier year. Therefore, the Ld. assessing officer issued a show cause notice to the assessee stating that why the profit at the rate of 5% on contract income and 3% on trading/ manufacturing account should not be applied for. The Ld. assessing officer therefore worked out the total profit of the assessee at Rs. 15462271/– and as the assessee has already declared a sum of Rs. 9529820/– a difference amount of Rs. 5932451/– was added to the total income of the assessee. ii. It was noted by the assessing officer that the assessee has shown interest on Term deposit Rs. 777854/-, However, the interest income as per the form No. 26AS is shown to be Rs. 903706/– and therefore he made the addition of Rs. 125852/– iii. The Ld. assessing officer noted that assessee has shown the creditors of Rs. 89547529 and assessee was asked to provide the list of sundry creditors and confirmation of those sundry creditors. The Ld. assessing officer issued the notices under section 133(6) of the income tax act to creditors. However, no confirmation could be received and therefore the Ld. assessing officer noted that sundry creditors of Rs. 64985536/- are not confirmed and therefore he made the addition to the total income of the assessee. iv. It was further noted by the assessee that assessee has made payment of interest to some nonbanking financial companies and no deduction of tax at source is made on these payments. Therefore he disallowed a sum of Rs. 1187421 under section 40 (a) (ia) of the income tax act. v. The Ld. assessing officer during the year noted that the assessee has unsecured loan of Rs. 10912667/– and assessee was asked to produce the details of unsecured loans along with the confirmation and copy of the transactions etc. Further, the notices under section 133 (6) of the income tax act were also issued to the unsecured loan depositors. The assessee

Page 4 of 18 filed confirmation of the some of the creditors. However, it could not file the other details as required by the assessing officer showing the identity, creditworthiness, and genuineness of the transactions. Therefore, the addition of Rs. 4116644/- was made to the total income of the assessee. vi. The Ld. AO noted that there is an increase in the share capital of Rs. 20330,000 and share premium of Rs. 63.70 Lacs and assessee was required to show that why the addition in the said capital should not be added to the income of the assessee and to provide the complete details. However, no submissions of been made and in absence of these details increase in share capital was added by the assessing officer to the total income of the assessee amounting to Rs. 267,00,000/-. vii. The Ld. AO noted that there is an addition to the fixed assets during the year amounting to Rs. 5867570/–. However, in absence of the any bills etc provided by the assessee Ld. assessing officer treated them as unexplained cash credit in the books of the assessee in absence of bills and vouchers and made the addition. 5. Assessee, aggrieved with the order of the Ld. assessing officer preferred an appeal before the Ld. CIT (A) who by order dated 27/02/2015 deleted the addition of Rs. 64985536/- on account of sundry creditors and he estimation of net profit of Rs. 5932451/–. Therefore, revenue is in appeal before us on these issues. 6. The Ld. CIT A confirmed the addition on account of difference in form No. 26 AS amounting to Rs. 125852, addition on account of unsecured loan of Rs. 4116644/-, addition on account of share capital of Rs. 2.67 crores and addition of Rs. 58.67 Lacs on account of addition to the fixed assets. Therefore, assessee is in appeal before us on these issues. 7. We have heard the rival contentions on appeal of both the parties. The Ld. authorized representative submitted a written synopsis of his arguments coupled with the original paper book, supplementary paper book, details of the shareholding, copies of the accounts of various parties and reconciliation of account of sundry creditors. The assessee also produced the books of accounts along with the vouchers and bills during the course of the hearing for verification. Ld DR relied on many of the decisions to support the addition u/s 68 of the act. Ld DR also produced the assessment records to support his contentions.

Page 5 of 18 8. Now we first take up the ground No. 1 of the appeal of the revenue, wherein the revenue has challenged the deletion of the addition of Rs. 64985536/– made by the assessing officer on account of sundry creditors in spite of the fact that the assessee failed to prove the genuineness of the creditors. It was the argument of the revenue that assessee has failed to prove the existence of those creditors appearing in its books of accounts. 9. Ld. departmental representative took us to the Para No. 6 of the assessment order wherein the Ld. assessing officer discussed the merits of the addition. He submitted that out of the 20 creditors, in case of eight creditors the letters sent by the Ld. assessing officer under section 133 (6) were returned. In nine cases, no information was received from them and in two cases, the confirmations were received. He further submitted that wherever the confirmation is received there are vide variations in the balances as shown by the assessee as well as the balances confirmed by those creditors. He further submitted that in the party No. 3 in the table in case of M/s Shiv das and sons private limited assessee has shown the closing balance of Rs. 4 260089/– Whereas the party has confirmed only a sum of Rs. 8 513 and therefore there is a difference of Rs. 4251576/- , which has been added by the Ld. assessing officer. Similarly he referred to the confirmation received from Bengal revates and bolts company where the balance shown by the assessee is Rs. 361436, whereas the party confirmed only Rs. 5532 and therefore there was a difference of Rs. 355904/–. He further referred to the several other parties and stated that when there is no confirmation received from them the addition has rightly been made by the Ld. assessing officer. With respect to the order of the Ld. CIT (A), he submitted that Ld. CIT has deleted the above addition on the basis of submission of the assessee. He further submitted that merely for the perusal of the purchaser register Ld. CIT A has deleted the addition. He submitted that from the purchase register, the details of the purchases are available but how the Ld. CIT A obtains the confirmations of above parties is not clear. He therefore submitted that the Ld. first appellate authority should have upheld the addition made by the Ld. assessing officer. 10. The Ld. authorized representative vehemently contested the argument of the Ld. departmental representative and submitted that assessee has submitted the copies of the account of the all the creditors where the payments have been made through cheques or through RTGS. He further submitted that assessee has submitted the complete copy of the purchaser register along with the bills of the purchases for the

Page 6 of 18 whole year, which shows parties mentioned in the assessment order, their name and they are having the relevant registration number with VAT authorities excise authorities etc. He further submitted that the bills produced of the parties clearly show their name, address etc. He submitted that merely because some of the parties have not replied to the query of the Ld. assessing officer it does not amount that they are bogus or assessee has failed to prove the genuineness of the transactions or existence of those parties. He further submitted the bank account statements of the assessee where the payments are made to these parties are also shown. It was also argument of the assessee that the parties from whom the purchases have been made have not been disputed by the Ld. assessing officer, and therefore when the purchases are accepted the outstanding amount of those creditors are result of those purchases therefore, the Ld. assessing officer has incorrectly doubted the outstanding balance of those creditors which are already paid in subsequent years. He further submitted that assessee has produced the copies of all the 20 parties, which were named in the assessment order and the Ld. CIT appeal, on verification of them has held that they are genuine. He further referred to the decision of the Hon’ble Allahabad high court wherein it has been held that the payments have been made by cheque and were reflected in the books of accounts of the assessee no adverse inferences could be drawn. He further referred to the decision of the Hon’ble Calcutta High Court in 334 ITR 111 wherein it has been held that if an assessee purchase material by way of account payee cheques from a 3rd party and subsequently 3 years after the purchases said party did not appear before the assessing officer pursuant to the notice or even has stopped business, the claim of the assessee on that account could not be discarded as non- existent. He further relied upon the decision of the Hon’ble Supreme Court in case of CIT versus Orissa Corporation private limited 159 ITR 78, wherein it has been held that after giving names and address of the creditors, it was within the knowledge of the revenue about the creditors that they were income tax assessee and their index numbers are on the file, the burden laid on the assessee to prove the credits is discharged. He referred that when the suppliers are having the VAT number and excise number and the payments have been made to them through account payee cheques or RTGS and when such purchases are used for the purpose or sale of the goods in contracts, there is no reason that such creditors/suppliers can be termed as non-genuine. In view of this, he submitted that the Ld. CIT A has rightly deleted addition. With respect to the two parties M/s Shiv Das and sons private limited he submitted the copies of the account of those parties and submitted that the balances

Page 7 of 18 extracted by the Ld. assessing officer of Rs. 8 513 is not as per the companies knowledge. He further submitted that this is the balance of the Meerut account and the supplier maintains two different accounts in his books of account one account are for the Delhi office and other account is for the Meerut office and AO has only called for Meerut account and therefore has noted the difference. He further submitted that the bills with respect to the party amounting to Rs. 2794287 and of Rs. 1405713 were not included in the above reconciliation. He further submitted that the outstanding amount as on 31/03/2011 in the books of that party is Rs. 104515.63 in Delhi account and if the amount of Rs. 2794287 in Delhi account and Rs. 1405713/- in Meerut account are considered of the bill of Rs. 1405713/-, then minor difference remains which is on account of the discount/ commission etc. He also submitted the copies of the bills of this party. He therefore submitted that with respect to Shiv Das and sons’ private limited, there is a complete reconciliation of accounts along with the confirmation of these parties and therefore the Ld. CIT has rightly deleted the above disallowance. With respect to the account of Bengal Revates and bolts company, he submitted that the differences arise in because of the purchase bills No. 3, which is been accounted by the above parties in the subsequent years. He therefore submitted that there is no difference in the Ledger account of those parties with respect to the balances as per the books of the assessee as well as with respect to their balances. He referred to the paper book wherein the complete details of the copy of account of these parties were submitted before the Ld. assessing officer as well as before the CIT appeal. In the end he submitted that for the subsequent year the assessee has been assessed under section 143 (3) by the assessing officer of the income tax act for assessment year 2012-13 and no adverse inferences has been drawn by the assessing officer. He further submitted that the assessee is being assessed by the revenue under scrutiny assessment for the subsequent as well as in the previous years and in none of the assessment years, this issue has been taken up. He further submitted that the sundry creditors in this year are repaid in subsequent years, which has been accepted by the revenue and not disturbed the books of accounts of the assessee for the subsequent years and therefore the Ld. AO has wrongly made this addition. In view of this, it is submitted that there is no error in the order of the Ld. CIT appeal in deleting the above addition. 11. We have carefully considered the rival contention and perused the orders of the lower authorities. Before the Ld. AO, assessee submitted the details of the creditors with their name, address, permanent account number, and copy of the accounts. All

Page 8 of 18 these parties assessee has supplied material during the year. Before the Ld. AO as well as before the Ld. CIT appeal assessee has produced the purchaser register along with the copies of the purchase bills etc for verification. As all these creditors are pertaining to the goods purchased by the assessee submitted in the purchaser register shows that all these parties are registered with VAT authorities, excise authorities etc. Merely because these parties have not responded to the query letter of the assessee under 133 (6) of the income tax act it cannot be treated as an income of the assessee when the purchases are not disputed. Such purchases are also paid by account payee cheques as well as RTGS payments in the account of those creditors. Therefore, the assessee proves the identities of those parties. All these parties are also appearing in the purchaser register and it is submitted that they are having the VAT registration as well as the excise registration. Therefore, it cannot be said that these parties are non-existent. Further, the bills of those parties were also provided by the assessee and on those addresses the Ld. assessing officer has sent the query letters under section 133 (6) of the income tax act. Many of such letters could not be served but no fault can be found of assessee in that when the address appearing in the bills are provided by the assessee. Furthermore, M/s Shiv Das and sons private limited as well as the Bengal rebates and bolts assessee has shown proper reconciliation, which has been verified by the Ld. CIT appeal as well as before us, such reconciliations, were produced. The assessee has also shown that M/s Shib Das and sons private limited is maintaining two accounts of the assessee, one with respect to the Meerut branch and another was with respect to the Delhi office. Assessee produced both the accounts from the books of Shiv Das and sons wherein there are several transactions entered into by the assessee. The copies of the bills produced by the assessee also supported the balances in the Ledger account by that party and further payments made to them are reflected in the bank account of the assessee as well as in the account of that party. It is the case with Bengal Rivates and Bolts co, therefore, for both these parties; assessee could successfully reconcile these transactions. Furthermore, by utilizing these purchases assessee has booked the turnover/ sales, which is accepted by the revenue. In view of this, we do not find any infirmity in the order of the Ld. CIT (A) in deleting the above addition of Rs. 6498 5536/- on account of the sundry creditors. In view of this ground No. 1 of the appeal of the revenue is dismissed. 12. Ground No. 2 of the appeal of the revenue is with respect to the deletion of addition to the profit of the assessee of Rs. 5932451/-. The Ld. assessing officer has made

Page 9 of 18 this addition as in the preceding year the assessee has offered the tax at the rate of 5% on contract receipt under the presumptive taxation scheme. Therefore, the Ld. assessing officer was of the view that assessee should also earn the similar kind of profit on gross receipt of contract work. He also presumed that 3% of net profits over manufacturing and trading results. Therefore, according to AO assessee must also earn the profit of 3% from these Manufacturing activities of the assessee. Hence, Ld. assessing officer took 5% net income on total turnover of Rs. 174694746/- amounting to Rs. 8734737/- on contract receipts and 3% of the profit on the turnover of Manufacturing activities of 224251119/– was estimated amounting to Rs. 6727534/-. This resulted in overall profit computed by the Ld. assessing officer of Rs. 15462271/- and from this assessee has already declared profit of Rs. 9529820 and therefore the resulted difference amount of Rs. 5932451/- was added to the total income of the assessee. 13. The Ld. CIT A deleted the above addition because the only reason of the assessing officer of making this addition was that in the immediately preceding previous year the assessee has accepted the profit at the rate of 5% for assessment year 2010-11. The Ld. CIT appeal relying on his own decision for assessment year for 2010-11 on identical addition, deleted the addition. Therefore, he also following his own order deleted the above addition. 14. Ld. departmental representative vehemently contested the finding of the Ld. CIT appeal and stated that when the books of accounts are not produced before the assessing officer then there was no occasion for the assessing officer to verify the books of accounts and hence he determined the profit which is reasonable and hence the addition may be upheld. 15. The Ld. authorized representative vehemently submitted that there is no defect in the books of accounts and the books of accounts are audited along with the quantitative details. He further submitted that in the past when the addition has been made, the Ld. CIT (A) and which the revenue accepts have deleted them. Therefore, there is no reason for making this addition by the assessing officer, which has been rightly deleted by the Ld. CIT appeal. 16. We have carefully considered the rival contention and perused the reasons recorded by the Ld. assessing officer for making the above addition and the reasons given by the CIT(A) for deleting the above addition. It is an accepted fact that the assessee was maintaining its books of accounts, which are audited by chartered accountant. Same were also produced before us and verified by the ld DR. It is also an

Page 10 of 18 accepted fact that assessee has produced the relevant Ledger account etc before the assessing officer. The only reason stated by the Ld. assessing officer for making the above addition is that in the assessment year 2010-11 assessees has accepted the above addition. However, looking to the order of the Ld. CIT (A) for assessment year 2010-11 dated 25/11/2014 wherein identical addition made by the Ld. AO was deleted. Further, the Ld. CIT appeal has also recorded the reason that there is an increase in the turnover of the assessee from 25 crores to Rs. 49 crores during this year. Therefore, even in the increasing turnover such addition cannot be sustained. We also agree with the views of the Ld. CIT (A) when even then the books of accounts are not produced the comparative figures of gross receipt was available with the assessing officer from which it was clear that there has been a huge increase in the turnover. Furthermore, for the comparative four years from FY 2009- 10 to FY 2012-13 assessee is showing the profit of 13.27%for this year, which was 11.14% in the preceding year. Therefore, it is also relevant that during the year the gross profit of the assessee has increased compared to earlier years. Furthermore, most of the gross receipts of the assessee with respect to the contract turnover were subject to TDS. Therefore, gross receipt of the assessee is verifiable. Furthermore, the assessee has produced the purchase register as well as the copies of the purchase, bill of the various material purchased by it. Therefore, the purchases of the assessee are also verifiable. In these two details, the Ld. AO pointed out no defect. The revenue accepts order of CITA of earlier years by not agitating it further. In view of this we do not find any infirmity in the order of the Ld. CIT (A) in deleting the above addition of Rs. 5932451/–. In the result ground No. 2 of the appeal of the revenue is dismissed. 17. In the result, ITA No. 2861/DEL/2015 filed by the revenue for assessment year 2011-12 is dismissed. 18. Now we come to the grounds of appeal of the assessee wherein the first ground of appeal raised by the assessee is against the addition of Rs. 125852/- made because of difference in form No. 26 AS as well as interest income shown by the assessee. Ld assessing officer noted that assessee has shown interest of Rs. 777854/- whereas, as perform No. 26 AS interest income is Rs. 903706/- is the difference of Rs. 1 25852/- was added by the Ld. assessing officer. 19. The Ld. authorized representative submitted that assessee has received interest income from state bank of India of Rs. 777854/- and discount and commission of Rs. 125852 was also received from M/s A R thermostats private limited as LC charges

Page 11 of 18 which is recorded as income by the assessee in the contract work income. As the assessing officer has merely looked into the interest income shown by the assessee where the above sum of Rs. 125852 was with respect LC charges and freight income. He further submitted that amount of TDS of Rs. 12561/- was involved therein, which was also shown by the assessee in its computation of total income. Therefore, the Ld. authorized representative submitted that the Ld. assessing officer has made the addition without looking at the other expenditure and income shown by the assessee. He further submitted that Ld. CIT appeal has confirmed the above addition without going into the merits of the case. He therefore submitted that lower authorities have not appreciated the issue before them in the proper perspective. 20. Ld. departmental representative vehemently submitted that when the assessee has not produced any detail before the assessing officer or before the Ld. CIT A, then mere assertion made by the Ld. authorized representative before the Ld. CIT appeal could not help assessee for deletion of the addition. He further submitted that there is a difference between the gross receipts of interest shown by the assessee as well as the interest in Form no 26AS and therefore the Ld. AO has rightly made the addition. 21. We have carefully considered the rival contention and perused the orders of the lower authorities. The only reason for making the addition in the hands of the assessee is that there is a difference between interest recorded in form No. 26 AS and amount of interest income shown by the assessee in Profit and loss account. It is an admitted fact that assessee has an interest income of Rs. 777854/- from state bank of India on which tax is deducted under section 194A of the income tax act. However, there is a difference that M/s AR thermostats private limited has paid a sum of Rs. 125852/– which has been credited to the parties account on account of LC charges and freight charges which has been considered by the payer as interest income and therefore they are shown in former 26 AS as interest received but in fact they’ve been credited by the assessee in its books of accounts as income and expenses by debiting the account to the parties account. Therefore, according to us there is no difference in the gross receipt offered by the assessee for taxation. Merely because the amount is shown under section 194A in form No. 26 AS it does not always stand correct that the assessee as interest income only should have also credited such amount. Even otherwise, mere difference in form No. 26 AS and the income shown by the assessee does not result in to an addition. However, it becomes a first trigger point for making further investigation and verifying/reconciling

Page 12 of 18 the amount shown by the assessee as its income and amount shown in form No. 26 AS as the income of the assessee. There may be several reasons and one of them may be different characteristics of such receipts in the hands of the assessee compared to the hands of the payer as well as the timing difference. However, in the present case, we do not find that there is any difference in the income shown by the assessee as well as the income shown in form No. 26 AS, except the reason that assessee has not shown the above amount as interest income but as it was pertaining to LC charges have been accounted for in crediting the other expenditure. In the result, we do not find any reason for sustaining the above addition in the hands of the assessee. Therefore, reversing the order of the Ld. CIT (A), we direct the Ld. assessing officer to delete the addition of Rs. 125852/-. In the result ground No. 1 of the appeal of the assessee is allowed. 22. Ground No. 2 and 3 of the appeal of the assessee is with respect to the confirmation of the addition of Rs. 4116644/– under that unsecured loan. Before the assessing officer, the assessee submitted the details of the lenders containing the names, addresses, permanent account number, and amount of opening and closing balance as well as the details of the transaction. During the year Ld. assessing officer sent the enquiry letters to the lenders out of five lenders provided the direct confirmation and some of the lenders did not file any reply or such letters were not delivered to them. Therefore, the Ld. assessing officer made an addition of Rs. 4116644/–. Before the Ld. CIT appeal, the assessee contested the above addition. However, it was confirmed. 23. The Ld. authorized representative submitted that assessee has furnished the confirmation of the lenders before the assessing officer. However, some of the enquiry letters sent by the Ld. assessing officer were not complied by the Ld. Lenders and therefore the addition has been made. He further submitted that complete details of lenders containing names, address, permanent account number, amount of opening and closing balance as well as the details of the transaction was submitted before the lower authorities. He further referred to the observation of the Ld. CIT in Para No. 7.2 and 7.3 of the order. 24. The Ld. departmental representative vehemently submitted that the assessee has failed to discharge the initial onus cast upon it of proving the identity, creditworthiness of the lenders and genuineness of the transaction therefore the addition has been rightly made by the Ld. assessing officer and confirmed by the Ld. CIT (A). He further referred to the order of the Ld. assessing officer to show that

Page 13 of 18 none of the parties have given response to the notices issued by the Ld. assessing officer under section 133 (6) of the income tax act. He further submitted that assessee also filed confirmation in only five cases, which does not prove the identity and creditworthiness of the depositor and genuineness of the transactions. Hence he submitted that additions is rightly confirmed. 25. We have carefully considered the rival contentions and perused the orders of the lower authorities. The Ld. assessing officer has made addition of Rs. 4116644/- on account of 14 parties to whom enquiry letters under section 133 (6) were sent by the Ld. assessing officer and none of them replied and letter sent to three of the parties were returned unserved. Admittedly, the lenders have not replied to the enquiry letter sent by the assessing officer. However, it is important to note that out of the 14 parties only party No. 4 Sh. Parabir Kumar Jain as well as Rashmi Jain are the only new creditors during the year and all other 12 creditors are old creditors and their balances are carried forward in the current year from earlier years. Admittedly, therefore no addition can be made with respect to those 12 parties, where the amount is not credited in the books of the assessee during the year. This is evident from the finding of the Ld. CIT (A, in para No. 7.3 of his order. Furthermore, with respect to loan from Praveen Kumar Jain assessee has furnished the confirmation, which is placed at page No. 83, wherein the address of the party as well as the permanent account number of that party, computation of total income, copy of ITR re submitted. During the year on 27/08/2010 assessee has received a sum of Rs. 1 lakh from this party and which is still outstanding. During the year, assessee has paid interest at the rate of 12% and deducted tax at source thereon. Therefore, the assessee has discharged its initial onus cast upon it by showing the identity, creditworthiness, and genuineness of the above transaction of loan. With respect to Sh. Rashmi Jain the assessee submitted confirmation at page No. 84 of the paper book. Her addresses, PAN and ITR provided at page No. 78 of the paper book. The assessee further submitted the copy of the income tax return and computation of total income of this lender. Further interest paid by the assessee to this lender was also allowed as deduction and assessee is deposited tax deduction at source on such interest payments. Therefore, the assessee has also submitted complete details with respect to this creditor to the AO. Merely because the lenders have not responded to the query letter issued by the Ld. assessing officer under section 133 (6) of the act, the addition cannot be made in the hands of the assessee under section 68 of the income tax act where the complete transaction made by the assessee through banking channels providing the address as well as the permanent

Page 14 of 18 account number of the lenders coupled with ITR copies by showing the identity of those creditors and they are existing on income tax records. It is also not a fact that lenders have not received enquiry letters sent to these parties or has come back unserved. Therefore, the addresses shown by the assessee is correct. Furthermore, the permanent account numbers of those two parties are also available with the income tax Department as submitted by the assessee along with their tax returns. In view of this we are of the opinion that assessee has shown the identity, creditworthiness, and genuineness of loan taken from Shri Praveen Kumar Jain and Rashmi Jain during the year. With respect to the other 12 creditors, the amounts have not been received during the year. Therefore, even otherwise the addition cannot be made in the hands of the assessee in this year. In view of this we do not find any reason to make addition in the hands of the assessee to the extent of Rs. 4116644/–. Therefore, we direct the Ld. assessing officer to delete the above addition and in the result, ground No. 2 and 3 of the appeal of the assessee are allowed. 26. Ground No. 4 of the appeal of the assessee is with respect to the addition of Rs. 2.67 crores made on account of increase in the share capital of the company and ground No. 5 of the appeal is with respect to non-compliance under section 133 (6) of the income tax act. During the year Ld. assessing officer has noted that assessee has issued share capital of Rs. 20330000/- and share premium of Rs. 63.70 Lacs. Therefore, the assessee was asked to furnish the requisite details and in absence of details from the assessee Ld assessing officer made the addition of Rs. 2.67 crores in the hands of the assessee. On appeal before the Ld. CIT A, the above addition was confirmed wherein it has been held by the Ld. CIT A, that confirmation submitted from only 9 parties. He further ignored the copies of the return of income submitted by these lenders as these parties returns showed small income or filed after the date of the issue of the shares. In view of this, the Ld. CIT A, confirmed the addition of Rs. 2.67 crore holding that the assessee has failed to substantiate the genuineness of the transaction as well as the identity and creditworthiness of share allottees. 27. Ld. authorized representative submitted that complete details of the shareholders both old and new comprising of 41 subscribers was filed in a tabular form along with separate individual confirmation before the Ld. assessing officer coupled with their Income tax return and confirmations. He further submitted that the complete address of the shareholders along with the permanent account number in the shareholding

Page 15 of 18 as on the opening day of the financial year and further increase during the year was also submitted before the Ld. assessing officer which was completely ignored. He further submitted that these shareholders are not tainted shareholders but are the individual shareholders independent person mostly residents of the Meerut where the company is functioning and are acquaintances of the promoters and directors of the company. It was further submitted that assessing officer also recorded the statement on oath of some of the shareholders who confirmed this transactions. It was further submitted by the Ld. authorized representative that out of the 41 shareholders, four are founder members and 11 new members are as existing shareholders. He further submitted that most of the shareholders have deposited the sum not during the year, but in the previous year and the money has been transferred from the share application money or loan account, which was received in earlier years, or unsecured loan received in the earlier year transferred to the share capital account during the year. Therefore, according to him there are only few transactions of any credited in the books of accounts of the assessee. He further submitted that the assessee has submitted the details of the shareholding along with the confirmation of the shareholders therefore the addition made by the Ld. assessing officer is incorrect to the extent of increasing share capital. With respect to the low income, he referred to the decision of Honourable Delhi High court in case of Vrindavan farms and for late filing of the return by the lenders; he submitted that, it does not go against the assessee as it is for the shareholders to show. 28. The Ld. departmental representative vehemently supported the orders of the lower authority and submitted that the assessee has failed to substantiate the identity, creditworthiness of the shareholders as well as the genuineness of the transactions. He further relied upon the host of the decisions of Hon’ble Delhi high court wherein the amount of share application money or share allotment money has been added under section 68 of the income tax act. 29. We have carefully considered the rival contentions and perused the orders of the lower authority. It is an admitted fact that the assessee has issued fresh equity capital of Rs. 2.03 crores at premium. However, the assessee has submitted the details of name of the shareholders, there addresses, their permanent account number, the number of shares allotted to them and income tax returns along with computation of total income of those parties. The assessee is also submitted the confirmation of these parties and it is further been submitted in this synopsis submitted that Ld. assessing officer has also examined some of the share allottees

Page 16 of 18 by issue of the summons and they have confirmed the transactions. This fact remains undisputed. We have also perused the details submitted, wherein most of the residents are belonging to Meerut city and have filed the return of income. One of the reasons of the Ld. CIT as well as the Ld. assessing officer for confirming the above addition is that all these parties have shown lower income as well as filed the return of income above the threshold of exemption limit. However, we do not agree with this view of the lower authorities for the reason that merely because the income shown by these persons are above the threshold limit as well as the return filed by them after the issue of the share capital by the assessee does not make the identity of the persons or the creditworthiness of those parties doubtful when it has been submitted by the assessee in its return synopsis that on sample basis shareholders have been examined by issue of summons under section 131 and recorded their statement, wherein they have confirmed the transactions, remains undisputed. Now it is for the Ld. assessing officer to further probe and prove that these persons are not capable of investing the above sum. Furthermore, cases cited before us by the Ld. departmental representative were with respect to the accommodation entries. However, facts of the case before us does not have any such allegation by the revenue that the shareholders of the company are not existing or are entry operators or assessee has obtained accommodation entries from them. In fact, it is submitted that all these persons are residing in Meerut where the company functions and are acquaintances of the directors promoters of the assessee company. They are also assessed there. Therefore, the identity and creditworthiness of these parties are not in doubt. Furthermore, it is not the case of the revenue that though shares subscribed by these parties at premium are subsequently transferred to promoters at lower rates to shows that these subscribers are merely name lenders. Showing lower income by the shareholders may not be of any concern to the impugned addition unless the AO disproves the creditworthiness of each of the depositor. This has not been done in this case. Furthermore, the filing of return of income by the subscribers after allotment of shares also does not prove anything about the genuineness of the transactions as the timing of filing of return by the lenders neither proves nor disproves their standing. For these reasons, we are of the opinion that assessee has discharged its initial onus of proving the identity and creditworthiness of the depositors as well as the genuineness of the increase in the share capital of the company. Hence, we direct the Ld. assessing officer to delete the addition of Rs. 2.67 crores made in the hands of the assessee u/s 68 of the income tax act with

Page 17 of 18 respect to increase in the share capital of the company. In the result ground No. 4 and 5 of the appeal of the assessee are allowed. 30. Ground No. 6 of the appeal of the assessee is with respect to the addition of Rs. 5 867650/– on account of fixed assets, whereas the addition made under section 68 of the income tax act. During the year assessee has made certain addition to the fixed assets for which the proper details could not be filed by the assessee before the assessing officer therefore the addition was made by the Ld. assessing officer of Rs. 5 867570 in the hands of the assessee holding that it is an unexplained cash credit in the books. The Ld. CIT A confirmed the above addition for the reason that assessee has failed to provide the details of fixed assets to The Ld. assessing officer despite sufficient opportunity given. 31. The Ld. authorized representative submitted before us that the assessee has purchased those fixed assets which are shown in the audit reports therefore it is in fact utilization of the funds, whereas the Ld. assessing officer has made an addition under section 68 of the income tax act. With respect to these additions, he further submitted that Ld. assessing officer has allowed depreciation to the assessee on these assets though acquisition of these assets has not been accepted by him. Therefore, there is no reason for the assessing officer to make this addition u/s 68 of the act. He further submitted that the Ld. CIT appeal has confirmed the above addition without any reason. He submitted that before the Ld. CIT appeal as well as before the Ld. AO assessee filed the complete details along with the copy of accounts and bill of these fixed assets in its books. 32. Ld. departmental representative relied upon the orders of the lower authorities. 33. We have carefully considered the rival contention and perused the orders of the Ld. assessing officer wherein the addition has been made. On perusal of the order of the Ld. assessing officer it is apparent that though assessee has shown that the fixed assets are purchased by it during the year and Ld. assessing officer has allowed depreciation thereon even then the additions of fixed assets were made under section 68 of the act. We failed to understand that when no money is credited in the books of accounts of the assessee with respect to those fixed assets purchased by the assessee how the addition u/s 68 can be made. More so, when Ld. assessing officer has not disputed the allowability of depreciation thereon. Furthermore looking at the paper book from page No. 134 to 178 the assessee submitted the complete details of the fixed assets showing the details of the parties from whom the assets are been purchased, there bill number and the date of such purchases. Copies of

Page 18 of 18 bills of such purchases are also made available in the paper book. In view of this we direct the Ld. assessing officer to delete the addition of Rs. 5867650 made under section 68 of the income tax act on account of purchase of the fixed assets. In the result ground No. 6 of the appeal of the assessee is allowed. 34. Ground No. 7 of the appeal of the assessee is with respect to the imposition of penalty under section 271 (1) (b) of the income tax act. No arguments erred was before us on this ground. Hence, we dismiss ground No. 7 of the appeal of the assessee. 35. Ground No. 8 of the appeal of the assessee is general in nature and therefore it does not require any adjudication hence dismissed. 36. In the result appeal of the assessee is partly allowed Order pronounced in the open court on 19/09/2017. -Sd/- -Sd/- (I.C.SUDHIR) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated:19/09/2017 Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi