BAJAJ CLOTHINGS PRIVATE LIMITED,BANGALORE vs. THE DCIT-1(1)(1), BANGALORE, BANGALORE

4. The appellant reserves the right to add, alter and modify the grounds of appeal as taken by it

3. Ground No.1 above raised by the assessee is the additional ground filed for the first time before this Tribunal and the assessee has filed a petition dated 21.12.2023 for admission of the same.

ITA No.759 & 760/Bang/2023 Bajaj Clothings Private Limited, Bangalore Page 3 of 13 5.1 The other grounds of appeal s are kept open at this stage, as the legal issue to be decided first.

6. In the result, appeal of the assessee in is partly allowed for statistical purposes. (AY 2017-18):

7. The assessee has raised following grounds of appeal: 1. “That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition of Rs. 58,00,000/- made by the Assessing Officer to the total income of the appellant on account of unsecured loan received from group concern, was Borneo Vinimay Private Limited by treating it as unexplained cash credit under section 68 of the Income-Tax Act, 1961 without properly appreciating the facts of the case and submissions made before him/ her more so when the appellant had duly established the identity and creditworthiness of the unsecured loan party and genuineness of the amount of unsecured loan received from the said party.

2. That on the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in confirming the addition of Rs. 58,00,000/- made by the Assessing Officer to the total income of the appellant on account of unsecured loan received from group concern, M/S Borneo Vinimay Private Limited by treating it as unexplained cash credit under section 68 of the Income-Tax Act, 1961 even when only an amount of Rs. 18,94,765/- was proposed to be added to the total income of the appellant in the show cause notice as issued during the course of assessment proceedings thereby grossly violating the principles of natural justice

3. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the action of the Assessing Officer in computing the amount of tax liability by invoking the amended provisions of section 115BBE of the Income-Tax Act, 1961 even in respect of unsecured loans received prior to 15-12-2016 i.e. prior to the date of obtaining assent from the President of India and hence, in any case, amended provisions of section 115BBE of Income-Tax Act, 1961 shall not be applicable to the facts of the present case 4. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition of Rs. 4,31,617/- out of addition of Rs. 8,90,282/- made by the Assessing Officer to the total income of the appellant on account of CST paid for earlier year by invoking the provisions of section 37 of the Income-Tax Act, 1961 without properly appreciating the facts of the case and submissions made before him/ her even when CST being in the nature of tax is allowable on actual payment basis under section 43B of the Income-Tax Act, 1961

5. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition of Rs. 17,71,226/- made by the Assessing Officer to the total income of the appellant on account of interest paid to M/S Jagran Commodeal Pvt. Ltd. by invoking the provisions of & 760/Bang/2023 Bajaj Clothings Private Limited, Bangalore Page 4 of 13 section 37 of the Income-Tax Act, 1961 without properly appreciating the facts of the case and submissions made before him/ her

8.1 The NFAC observed that M/s. Borneo Vinimay Private Limited is Kolkata based company where the assessee company holds 19.70% shares. From the audited account/ITR of he observed that the said company has issued 2,46,220 shares out of Rs.3,00,000/- authorized shares capita of Rs.10 each. The balance sheet also shows that it has received security premium of Rs.2,00,37,600/- and has only 'Reserve and Surplus' out of profit of the company of Rs,1,88,116/- only. The company has profit of Rs.10,929/- in the present year and in the immediately preceding year it had profit of Rs.13,480/-. The company does not have any fixed business assets. It does not pay rent either. The share capital so raised in the earlier years does not have any basis of charging premium looking at the activities of the company and its profitability. He observed that the & 760/Bang/2023 Bajaj Clothings Private Limited, Bangalore Page 5 of 13 finding of the AO in this regard who considered the company as shell company, find place in view of the activities of the company. The company does not have creditworthiness to lend loan of Rs.58,00,000/-. As per submission of assessee, NFAC observed that M/s Borneo Vinimay Private Limited received Rs.60,00,000/- from its Director, Shri Vijay Bajaj prior to advancing loan of Rs.58,00,000/- to the assessee. However, NFAC did not understand why the company has not directly taken loan from its director of this Rs. 58,00,000/- like loans taken from him. The money is being rotated among the group and utilizing at its sweet will. M/s. Borneo Vinimay Private Limited, as observed from the findings of the AO and NFAC’s observations, does not have any credential of its own. NFAC observed that it seems incorporated to introduce the unaccounted money into it without paying tax on the same and utilize for its business or to buy properties. With these observations, NFAC dismissed the ground of assessee. Against assessee is in appeal before us.

Bajaj Clothing Pv.t Ltd. - Rs. 58,00,000.00 Income Tax under protection - Rs. 5,04,585.30 Mr. Vijay Bajaj - Rs. 69,63,000.00 Total - Rs.1,32,67,585.30 11.1 However, the contention of the ld. D.R. is that before advancing Rs.58 lakhs to the present assessee M/s. Borneo Vinimay Private Limited has issued Rs.60 lakhs loan from one of its Director Mr. Vijay Bajaj and that transaction has not been properly explained and also it was not explained as to why the present assessee has not directly taken loan from Shri Vijay Bajaj and what is the reason to root through this amount through M/s. Borneo Vinimay Private Limited by Director Vijay Bajaj. According to the ld. D.R., this is a suspicious transaction, which required to be properly enquired at the end of the ld. AO. In our opinion, u/s 68 of the Act, assessee is required to prove the identity of creditors, genuineness of transaction and capacity of the lender to advance the money to assessee. There is a burden cast upon the assessee which is not discharged. 11.2 As rightly pointed out by the ld. D.R., there is a huge burden on the assessee to explain the genuineness of the transaction also. Both the lower authorities have doubted the genuineness of the transaction. In our opinion, in the interest of justice, it is appropriate to remit this issue in dispute to the file of ld. AO to carry out necessary enquiry with the transaction to the assessee to prove the genuineness of the transaction and capacity of the parties to the transaction. Ordered accordingly. 11.3 This ground of appeal of the assessee is partly allowed for statistical purposes.

12. Next ground is with regard to sustaining addition of Rs.4,37,617/- out of Rs.8,90,282/- u/s 37 of the Act made towards payment of CST. In this regard the AO has observed as follows: - & 760/Bang/2023 Bajaj Clothings Private Limited, Bangalore Page 8 of 13 "4.4.2.1 The assessee company is claiming CST of earlier year amounting to Rs.8,90,282/-. The assessee was show caused why the same shall not be disallowed.

4.4.2.2 In response to the same, the assessee submitted that the CST is an allowable expenditure and the same cannot be disallowed merely for the reason that it pertained to previous year and not to the current year. The amount of CST earlier year of Rs. 4,31,617/- as debited in the statement of profit and loss during the year under consideration was paid on account of non-submission of "C" Form for the FY 2012-13 and 2013-14 and the said amount was a debited in the statement of profit and loss for the year under consideration since the liability to pay crystallized in the current year.

The submission of the assessee is pursued and the same is not acceptable. The assessee is following a mercantile system of accounting. As per the mercantile system, the assessee ought to have created provision for claiming CST deduction in the previous years. The same should have been added in the previous year and hence the assessee could have claimed the same in the current year. As per the notes attached to and forming part of final accounts, the assessee has clearly mentioned an amount of Rs.8,90,282 for the earlier year CST. As it is prior period expenses same is not allowed during the year. Hence, Rs.8,90,282/- is hereby disallowed as the same pertains to earlier years." 12.1 The NFAC observed that the assessee submitted inter alia that- "The assessee claimed deduction on account of 'CST Earlier Year' of Rs. 4,31,617/- only in its Statement of Profit & Loss for the year ended 31st March, 2017 and not of Rs. 8,90,282/- as was mentioned in the assessment order passed by the Assessing Officer. Hence, the issue in dispute shall be with respect to the amount of Rs. 4,31,617/- only and not with respect to the amount of Rs.8,90,282/-". The assessee further given various reason and relied upon case laws of various courts which the NFAC has considered but declined to accept based upon the finding of the AO which is on a strong footing as the assessee is following mercantile system of accounting and accordingly the assessee would have created provision for claiming CST deduction in the previous years and same should have been added in the previous year and claimed the same in the current year. The assessee's claim that the issue in dispute shall be with respect to the amount of Rs. 4,31 ,617/- only and not with respect to the amount of Rs. 8,90,282/- may be verified by the & 760/Bang/2023 Bajaj Clothings Private Limited, Bangalore Page 9 of 13 AO. Thus, considering the discussion made above, the ld. NFAC sustained the action of the AO. However, to meet the end of justice, the AO was directed to verify the amount in dispute and if found in order shall allow undisputed amount. NFAC directed the assessee to furnish all necessary evidence before the AO at the time of giving effect to this order. With these observations, NFAC partly allowed this ground of appeal of the assessee.

13. The ld. D.R. relied on the orders of the lower authorities.

14. We have heard the rival submissions and perused the materials available on record. The ld. A.R. submitted that in the assessment year under consideration assessee has made actual payment of Rs.3,66,164/- which is related to earlier assessment year 2012-13 and another amount of Rs.65,453/- is related to CST paid for non-submission of ‘C’ form in respect of 5 parties as follows:- S.No. Name of the parties Amount (in Rs.) 1 ENC Holding Pvt. Ltd. (Brands Bar) 6,874 2 Malabis Fashions – Nizama 777 3 Mannequin (Cochin) 5,324 4 Suruchi Fashion – Rourkela 30,019 5 Swastik Steel – Mumbai 22,459 Total 65,453 14.1 On considering these facts, NFAC already remitted the issue to the file of ld. AO for fresh consideration. Before us, the ld. A.R. further pleaded that addition be deleted instead of remitting back to the file of ld. AO for verification. In our opinion, the finding of the NFAC on this issue by remitting to ld. AO to verify the amount in dispute and if found in order, it was directed to allow the deduction. The ld. CIT(A) cannot exercise the power of remand u/s 251 of the Act. We therefore, direct the ld. AO to verify the amount in dispute with a direction to allow the deduction, if found in order. 14.2 This ground of appeal of the assessee stands allowed partly for statistical purposes. & 760/Bang/2023 Bajaj Clothings Private Limited, Bangalore Page 10 of 13

15. Next ground is with regard to confirming addition of Rs.17,71,226/- towards payment of interest to M/s. Jagran Commodeal Private Limited. In this regard, the ld. AO observed as under: “4.4.3 Disallowance of interest on account of bogus loan: It is observed from finance cost note of the assessee that the assessee company has paid interest to others amounting to Rs.33,70,889/-. It is also noticed from the ledger of interest paid on loan account in the books of assessee company that the assessee has paid interest amounting to Rs.17,71,226/- to Jagran Commodeal Pvt. Ltd. No other details have been provided by the assessee with regard to the same. With respect to the loan there was addition on account of unsecured loan during AY 2013-14 and 2014-15. On account of bogus loan interest paid to Jagaran Commodeal Pvt. Ltd. is considered as bogus expenses and disallowed u/s 37 of the IT Act. Hence, it can be construed that the assessee has received loan from a shell company and paid off the same to claim expenses. Hence, the amount paid off as interest amounting to Rs.17,71,226/- is hereby disallowed u/s 37”. 15.1 Before the NFAC, the assessee submitted inter alia the following:- "In this respect, we would like to clarify that the aforesaid finding of the Assessing Officer was factually incorrect and completely devoid of any merits since no addition was made to the total income of the appellant on account of unsecured loan received from M/S Jagran Commodeal Private Limited in any of the preceding years'. It is being further clarified that the appellant received unsecured loan from M/S Jagran Commodeal Private Limited during the previous year 2012-13 relevant to the Assessment Year 2013-14 and that the case of the appellant was also selected for scrutiny for the Assessment Year 2013-14 and assessment order dated 29-03-2016 was passed under section 143(3) of the Act wherein the then Assessing Officer duly accepted the amount of loan received by the appellant from M/S Jagran Commodeal Private Limited as genuine but made addition to the total income of the appellant on account of unsecured loan received from the following three parties by treating it as unexplained cash credit under section 68 of the Act: Sl.No. Name of the companies in respect Amount (Rs.) of which addition was made to the total income of the appellant on account of receipt of unsecured loans 1 Idani Trading Private Limited 25,00,000 2 Colour Union Private Limited 15,00,000 3 Dev Share Private Limited 45,00,000 Total 85,00,000 & 760/Bang/2023 Bajaj Clothings Private Limited, Bangalore Page 11 of 13 15.2 From the above submission of the assessee and the observation of the AO in the assessment order, NFAC observed that it is apparent that the AO fell into an error in mentioning the name of the lenders. However, the assessee has not disputed the interest payments debited for the three lenders in which case principal loans amount in the preceding years were added to the assessee's income. The assessee has also not mentioned about finality of the said addition. Thus, NFAC observed that the expenditure on such loans is liable to be disallowed in the year in which it was added and in subsequent years, if it has debited interest of said loan in its profit and loss account. Thus, the AO correctly disallowed the amount u/s 37 though he has mentioned the name of M/S Jagran Commodeal Private Limited instead of (i) Idani Trading Private Limited, (ii) Colour Union Private Limited and (iii) Dev Share Private Limited. Mentioning a wrong name cannot be considered as illegal action by the AO. Therefore, considering the discussion made above, NFAC upheld the amount of disallowance of Rs.17,71,226/- and dismissed this ground of appeal of the assessee. 15.3. The ld. A.R. submitted that he had furnished sub- schedules of ‘Unsecured Loans’ forming part of the audited financial statements of the assessee for the year ended 31st March, 2017 wherein the amount of unsecured loan received from M/s. Jagran Commodeal Pvt. Ltd. and outstanding as at year end i.e. 31st March, 2017 was duly reflected for our verification. The closing balance as per sub-schedule of ‘Unsecured loans’ can be duly reconciled with the schedule of ‘Long Term Borrowings’ in the audited financial statements of the assessee which has been attached in the paper book at page 119. Further, he drew our attention to ledger account of M/S Jagran Commodeal Pvt. Ltd. in the books of accounts of the assessee for the Financial Year 2016-17, so as to substantiate the fact that