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Income Tax Appellate Tribunal, “SMC”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM
आदेश / O R D E R PER R.C.SHARMA (A.M):
This is an appeal filed by the assessee against the order of CIT(A)- 10, Mumbai dated 30/11/2016 for A.Y.2008-09 in the matter of order passed u/s.143(3) r.w.s. 147 of the IT Act.
Following grounds have been taken by the assessee:- OBJECTION AGAINST CONFIRMING THE VALIDITY OF REASSESSMENT (a) On the facts and in the circumstances of the case, the Commissioner of Income-tax (Appeal), hereinafter referred to as the "CIT (A)", has erred in confirming the validity of reassessment made only with the purpose of making inquiry and in absence of any tangible information. (b) On the facts and in the circumstances of the case, the CIT (A) has erred in confirming the validity of reassessment where it is not clear from the reasons recorded as to the necessary approval of the Jt. CIT as required under provisions of section 151 had been obtained prior to issue of notice u/s. 148 of the Act.
M/s. Crystal Natural Food Processors Pvt. Ltd., (c) The appellant, therefore, prays that the reassessment made by the assessing officer shall please be quashed. OBJECTION AGAINST CONFIRMING THE ADDITION OF RS. 30,00.000/- on ACCOUNT OF LOAN (a) Without prejudice to Ground I above, on the facts and in the circumstances of the case, the CIT (A) has erred in confirming the addition of Rs. 30,00,000/- made on account of loan from Shri Tarachand Ishwarlal by treating the same as unexplained cash credits. (b) On the facts and in the circumstances of the case, the CIT (A) has erred in confirming the impugned addition without appreciating various documentary evidences and also the correct facts of the case. (c) The CIT (A) has erred in confirming the addition on the basis of incorrect and perverse findings of facts which are self contradictory. (d) Your appellant, therefore prays that the impugned addition of Rs. 30,00,000/- shall please be deleted. OBJECTION AGAINST NOT ALLOWING CARRY FORWARD OF BUSINESS LOSS OF Rs. 3.56,913/- (a) Without prejudice to Ground I above, on the facts and in the circumstances of the case, the CIT (A) has erred in confirming the action of the assessing officer in not allowing the carry forward of business loss of Rs. 3,56,913/- for the reason that the business of the appellant has not started during the year under consideration. (b) The CIT (A) has erred in not appreciating the fact that the business of the appellant is already set up and accordingly the expenses incurred after setting up of the business are eligible to deduction and the resultant loss is eligible to be carried forward to the subsequent year under the scheme of the Income-tax Act, 1961. (c) Your appellant prays that the expenses incurred during the year shall be allowed as deduction and the resultant business loss shall please be permitted to be carried forward for set off against future business profits of the appellant.
Rival contentions have been heard and record perused.
The facts of the case, in brief, are that the assessee company wanted to run a hotel business. Prior to 29/1/2008 it was known as Crystal Inn and Entertainment P Ltd. During the year under consideration the assessee has purchased an immovable property through auction M/s. Crystal Natural Food Processors Pvt. Ltd., conducted by Debt Recovery Tribunals (DRT) for carrying out the business activity. It furnished its return of income for A.Y.2008-09 on 22/01/2009 declaring total income at Rs. Nil. The return was processed u/s 143(1). Subsequently the case was reopened by issue of notice u/s 148 of the Act on 03/12/2014 based on the information gathered during scrutiny proceedings for A.Y 2012-13 that the assessee has received certain loans in F.Y relevant to the A.Y under consideration. The AO has completed the assessment u/s 143(3) r.w.s.147 of the Act on 13/01/2016 determining total income at Rs.30,00,000/- by making the addition of Rs.30,00,000/- on account of loan from Tarachand-Ishwarlal. Not allowing carry forward of business loss of Rs.3,56,913/-.
By the impugned order CIT(A) confirmed the action of the AO against which assessee is in further appeal before us. 6. I have heard the rival contentions and carefully gone through the orders of the authorities below. I had also verified the documents placed on record in support of the assessee’s contention regarding loan of Rs. 30 lakhs. From the record, I found that for the assessment year 2008-09, the assessee filed Return of Income declaring NIL income. The return was originally processed u/s. 143(1) of the Act. However, during the course of assessment for A.Y. 2012-13, the assessing officer noticed that the assessee has borrowed a sum of Rs. 30,00,000/- from Shri Tarachand Ishwarlal in the financial year 2007-08. The Assessing Officer wanted to examine the genuineness of the said loan and therefore, merely with a view to examine the genuineness of the said loan, the M/s. Crystal Natural Food Processors Pvt. Ltd., assessing officer reopened the assessment by issuing notice dated 3/12/2014 u/s. 148 of the Act.
It was argued by learned AR that reassessment made in the case of the assessee is merely for the purpose of making some inquiries. As per settled position of law, the assessing officer cannot initiate reassessment proceedings merely with a view to make some inquiries for any matter. Before resorting to action u/s. 147, the Assessing Officer should have at least some prima facie reasons to believe that income has escaped assessment. The above reasons to believe cannot be a mere suspicion or doubt. Reliance was placed on various judicial decisions which support the contention that reassessment cannot be taken up merely with a view to make some further inquiries in respect of a concluded assessment. Hon. Supreme Court in the case of Chhugmal Rajpal Vs. S. P. Chaliha & Ors. 79 ITR 603 (SC) has categorically held that where there is a mere suspicion that some income has escaped assessment, there cannot be any reassessment proceedings. Similar view has been taken up by the Hon. Supreme Court in the case of Sheo Nath Singh Vs. Appellate Asst. CIT 82 ITR 147 (SC).
Further reliance was placed on the following judicial pronouncements:- Bhor Industries Ltd. v/s. AC1T 267 ITR 161 (Bom) Ajanta Pharma Ltd. v/s. ACIT 267 ITR 200 (Bom) Grindwell Norton v/s. Jagdish Prasad Jabgid, ACIT 267 ITR 673 (Bom) Hindutan Lever Ltd. v/s. R. B. Wadkar, ACIT 268 ITR 332 (Bom) Bhagwati Sahakari Sakhar Karkhana Ltd. v/s. Dy. CIT 269 ITR 186 (Bom)
M/s. Crystal Natural Food Processors Pvt. Ltd., 9. In view of the above judicial pronouncements, learned AR vehemently argued that the opening in the case of the assessee is not justified merely, because it was for purpose of making inquiries.
Our attention was also invited to the reasons recorded for reopening and it was contended that it is clear that the reassessment has been made in the case of the assessee, only on the basis of conjectures, surmises and suspicions due to non filing of the confirmation letter from the loan creditor during the assessment for A.Y.2012.-13. There is absolutely no fresh tangible material available with the assessing officer other than the above suspicion to initiate the reassessment proceedings. As per learned AR the requirement of fresh tangible material is not altered at all due to the original assessment being a summary assessment u/s. 143(1) of the Act. For this proposition, reliance was placed by learned AR on the following decisions: Prashant S. Joshi Vs. ITO 324 ITR 154 (Bom.) Inductotherm India P. Ltd. Vs. DCIT 356 ITR 481 (Guj) C1T Vs. Atul Kumar Swami 362 ITR 693 (Del.) Mohan Gupta HUF Vs. CIT (WP No. 7660/2012)(Del HC) - itatonline.org Telco Dadajee Dhakjee Ltd. Vs. Dy. CIT (ITA No. 4613/Mum/2005) (Mum)(TM) -itatonline.org
With regard to merit of the addition, it was submitted by learned AR that assessee company had acquired a property at Village Pale, Khurd, MIDC Taloja, Dist. Raigad in an. auction undertaken by Debt Recovery Tribunal. This property was auctioned by the Debt Recovery Tribunal as a recovery of loan granted by IDBI Bank, Nariman Point Branch to M/s. Sudesh Seafoods Ltd. The total payments made by the company to the M/s. Crystal Natural Food Processors Pvt. Ltd., Debt Recovery Tribunal was Rs. 6,86,80,010/-. This payment was made by pay orders. Part of the payment was made by the company out of the funds available with it and some portion of the payments was out of the funds borrowed from various parties. One of the borrowings made by the company for the above purpose was that of Rs. 30,00,000/-from Shri Tarachand Ishwarlal. The loan from Shri Tarachand Ishwarlal was taken by the company through one M/s. I. B. Enterprises who acted as a intermediary for arranging the loan of Rs. 30,00,000/- for the company. Shri Tarachand Ishwarlal had issued two pay-orders drawn on Vijaya Bank BhuSeshwar Branch Mumbai, being pay order No. 725902 for Rs. 25,00,000/- and pay order No. 725903 for Rs. 5,00,000/- aggregating to Rs. 30,00,000/- for the above loan. The pay orders were issued by Shri Tarachand Ishwarlal directly in favour of "Recovery Officer DRT II, Mumbai". The assessee handed over the said pay orders directly to the Debt Recovery Tribunal towards payment for purchase of the property.
As per learned AR assessee has discharged its burden of proving the genuineness of the loan by furnishing all the documentary evidence, accordingly AO was not justified in adding the same in assessee’s income. 13. On the other hand learned DR relied on the order of the lower authorities. 14. I have considered rival contentions and carefully perused the documents placed before us. From the record, I found that during the financial year 2007-08, the company had acquired a property at Village M/s. Crystal Natural Food Processors Pvt. Ltd., Pale, Khurd, MIDC Taloja, Dist. Raigad in an auction undertaken by Debt Recovery Tribunal. This property was auctioned by the Debt Recovery Tribunal as a recovery of loan granted by IDBI Bank, Nariman Point Branch to M/s. Sudesh Seafoods Ltd., The total payments made by the company to the Debt recovery Tribunal was Rs. 6,86,80,010/-. This payment was made by pay orders. Part of the payment was made by the assessee company out of the funds available with it and some portion of the payments was out of the funds borrowed from various parties. : of the borrowings made by the assessee company for the above purpose was that of Rs. 30,00,000/- from Shri Tarachand Ishwarlal. The loan from Shri Tarachand Ishwarlal was taken by the company through one M/s. I. B. Enterprises who acted as a intermediary for arranging the loan of Rs. 30.00,000/- for the company. Shri Tarachand Ishwarlal had issued two pay-orders drawn on Vijaya Bank Bhuleshwar Branch Mumbai, being pay order No. 725902 for Rs. 25,00,000/- and pay order No. 725903 for Rs. 5,00,000/- aggregating to Rs. 30,00,000/- for the above loan. The pay orders were issued by Shri Tarachand Ishwarlal directly in favour of "Recovery Officer DRTII, Mumbai". The assessee handed over the said pay orders directly to the Debt Recovery Tribunal towards payment for purchase of the property. On verification of the documents placed on record, I found that Shri Tarachand Ishwarlal had debited the account of M/s. I. B. Enterprises (the intermediary) for the above pay orders issued instead of debiting the account of the assessee. M/s. I. B. Enterprises did not record the above transaction in its books of accounts since it was M/s. Crystal Natural Food Processors Pvt. Ltd., merely acting as an intermediary for the above loan and the loan transaction was not its own transaction. The assessee was informed by the intermediary about the actual lender and therefore, the assessee recorded the loan of Rs. 30,00,000/- in the name of Shri Tarachand Ishwarlal in its books of accounts. Subsequently M/s. I. B. Enterprises came to know that Shri Tarachand Ishwarlal has recorded the loan in its name instead of recording the same in the name of the assessee. On being made aware of this fact, M/s. I. B. Enterprises recorded a journal entry by debiting the account of the assessee company and crediting the account of Shri Tarachand Ishwarlal in its books of accounts. This journal entry was passed by M/s. I. B. Enterprises on 1/4/2010 with a view to tally the account with the books of Shri Tarachand Ishwarlal.
From the record, I also found that during the assessment proceedings, the assessee requested for issuing summons to Shri Tarachand Ishwarlal. The assessing officer issued the summons as per the request of the assessee. Shri Tarachand Ishwarlal did not attend but had filed a letter dated 23/10/2015 before the assessing officer. Vide this letter, Shri Tarachand Ishwarlal admitted certain factual aspects of the matter which explains the case of the assessee. Copy of the letter dated 23rd October 2015 filed by Shri Tarachand Ishwarlal is placed on record. In this letter, it has been clearly mentioned as under: "On 3-8-2007 we have given DID bearing no. 729902 for Rs. 25,00,000/- and 729903 for Rs. 5,00,000/- total Rs. 30,00,000 (Rupees Thirty Lakhs Only) drawn on Vijaya Bank, Bhulashewar Branch, Mumbai to I. B. Enterprises in favour of Recovery Officer DRT II, Mumbai and have debited to I. B. Enterprises "
M/s. Crystal Natural Food Processors Pvt. Ltd.,
The above facts as admitted by Tarachand Ishwarlal proves the point that the payment was directly made by Tarachand Ishwarlal to Debt Recovery Tribunal and was debited to I. B. Enterprises instead of debiting to the assessee's ledger account. Further, Shri Tarachand Ishwarlal also filed the copy of ledger account of I. B. Enterprises alongwith the above letter. The said copy of ledger account is placed on record. When one refers to the said ledger account, the entry for total amount of Rs.30,00,000/- as stated above is clearly traced in the said ledger account.
I have also verified the following documents which were filed by the assessee during the course of assessment proceedings (i) Copy of the ledger account of Tarachand Ishwarlal in the books of I. B. Enterprises from 1/4/2010 to 18/8/2015. As can be seen from the ledger account, M/s. I. B. Enterprises has passed a journal entry on 1/4/2010 debiting the account of Crystal Inn & Entertainment Pvt. Ltd. (former name of the assessee company) by Rs. 30,00,000/- and crediting the account of Tarachand Ishwarlal by the same amount. (ii) Copy of the ledger account of the assessee in the books of M/s. I. B. Enterprises for the period from 6/4/2008 to 28/12/11.This ledger account also confirms the above journal entry passed by M/s. I. B. Enterprises on 1/4/2010.
M/s. Crystal Natural Food Processors Pvt. Ltd., (iii) Copy of letter from I. B. Enterprises confirming the arrangement of loan of Rs. 30,00,000/- stating the details of pay order and name of bank etc. (iv) Copy of ledger account of Tarachand Ishwarlal in its books of accounts. The details in the ledger accounts also explain the fact that the pay orders issued by Tarachand Ishwarlal has been utilized directly for the purpose of making payment to DRT for acquisition of the property."
I have also verified copy of the Schedule of payment forming part of order of confirmation of sale issued by the Debt Recovery Officer. As can be seen from the said schedule, the pay order Numbers 725902 for Rs. 25,00,000/- and 725903 for Rs. 5,00,000/- totaling to Rs. 30,00,000/- completely matches with the pay orders as mentioned in the letter of Shri Tarachand Ishwarlal filed before the assessing officer.
In view of the above documentary evidences, I found that the assessee has proved genuineness of loan with all the possible documentary evidences. It appears that even after noting all these things the assessing officer has confused himself with the accounting entries and has concluded that there are two different transactions for the amount of Rs. 30,00,000/-. The said observation is not correct and is arising merely due to wrong understanding of accounting entries.
Accordingly, I direct AO to delete the addition of Rs.30 lakhs.
Assessee is also aggrieved for not allowing carryforward of business loss of Rs.3,56,913/-.
M/s. Crystal Natural Food Processors Pvt. Ltd., 22. I have considered rival contentions and found from record that the assessing officer has not allowed the carry forward of business loss of Rs.3,56,913/- on the plea that the business of the assessee has not started during the year under consideration.
I observed that the assessing officer has failed to appreciate that all the expenses after setting up of the business is allowable as a deduction even if there is no revenue generation during the particular year. Setting up of business is different than earning of revenue from business operations. A business can be said to be set up in various situations even if there is some of the activities for the same and it is not necessary to enter a transaction generating revenue.
From the record I found that during the year under consideration, the assessee has: Purchased a property in an auction undertaken by Debt Recovery Tribunal Appointed security person and has paid security charges as can be seen from Profit and Loss A/c. Incurred Advertisement Expenses as can be seen from Profit and Loss A/c.
25. Accordingly the above activities of the assessee and specially the activity of purchasing the property through auction by DRT itself establishes that the business is set up during the year and all the expenses incurred during the year are to be allowed as deduction. As a consequential effect, the losses arising from the business are to be allowed to be carried forward to subsequent year for set off. I, therefore, M/s. Crystal Natural Food Processors Pvt. Ltd., direct the AO to allow carry forward of unabsorbed business loss of Rs. 3,56,913/-.
As I have already decided the issue on merit, I am not going to deal with the legal issue raised regarding validity of reopening of assessment which has now become academic.
In the result appeal of the assessee is allowed in terms indicated hereinabove.