ASSTT.COMMISSIONER OF INCOME TAX,CIRCLE-4, NAGPUR vs. SHRI NANDLAL B MALOO, NAGPUR

PER AMARJIT SINGH, J.M.

The appeal filed by the Revenue and the cross objection by the

assessee are against the impugned order dated 7th April 2012, passed

2 Shri Nandlal B. Maloo

by the learned Commissioner (Appeals)–I, Nagpur, relevant to

assessment year 2004–05.

ITA no.311/Nag./2012 – Revenue’s Appeal

The grounds raised by the Revenue are reproduced below:–

(1) On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the addition of ` 2,04,47,427 made by the Assessing Officer on account of transport charges and loading / unloading charges.

(2) On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the addition of ` 1,90,60,770 made by the Assessing Officer on account of interest income.”

Assessment has been completed on 30th March 2006 assessing total

income at ` 38,58,890. Notice under section 148 of the Act was issued

on 12th May 2008. The Assessing Officer has reopened the assessment

on the ground that investment in shares of IFSL amounting to `

2,75,000, was made in cash and the purported source of such

investment namely withdrawal from M/s Nandlal Enterprises, was not

verifiable with reference to the books of account of M/s Nandlal

Enterprises. The Assessing Officer has, therefore, arrived at the

conclusion that income has escaped and proceeded to reassess the

income. In the course of assessment proceedings, the Assessing

3 Shri Nandlal B. Maloo

Officer has added back an amount of ` 2,75,000, being investment by

way of cash in the shares of IFSL on the ground that the assessee

does not have details of shareholding with date of acquisition and cost

of acquisition. According to the Assessing Officer, the assessee has furnished two different cash flow statements vide letters dated 4th September 2009 and 9th November 2009. The Assessing Officer has

further stated that assessee does not maintain books of account and

the source of investment in the shares of IFSL are not verifiable. The

Assessing Officer has further added back an amount received from

M/s. Nandlal Enterprises of ` 1,51,42,000 being transport charges and

` 53,05,427 towards loading and unloading charges. According to

assessee, the assessee did not render any services to M/s. Nandlal

Enterprises and did not have any lorry receipts and other vouchers for

expenses said to have been incurred. The Assessing Officer has also

further added back an amount of ` 1,90,60,770 being interest stated

to be received from M/s Nandlal Enterprises Ltd. as per the TDS certificate.

ISSUE NO.1

addition of an amount of ` 2,04,47,427, made by the Assessing Officer

on account of transport charges and loading and unloading charges.

4 Shri Nandlal B. Maloo

Before going further, it is necessary to advert the finding of the

learned Commissioner (Appeals) on record:–

“8. I have carefully considered the issue before me. As regards the examining of issue of payment received from M/s. Nandlal Enterprises, once the assessment is reopened u/s 147, it is apparent that the entire assessment is available for consideration afresh. In the case of CIT v/s Indian Rare Earths Ltd., reported in 181 ITR 82 (Bom.), it has been held that once valid proceeding u/s 147 are started the ITO has not only the jurisdiction but also the duty to complete the assessment denovo and what is true of assm is also rule of reassessment because reassessment is nothing but a fresh assessment.

8.1 As regards the issue whether the addition is justified it is necessary to recapitulate the facts of the case. The income shown by the assessee after search was subject matter made u/s 153A from 1998-99 to 2003-04 and regular assessment for AY 2004- 05. The assessment for AY 2004-05 of Nandlal Enterprises was subject to 263 by CIT and after examining all the points the CIT (Central) directed the AO to examine the account of Ramakrishna Transport as appearing in the books of Nandlal Enterprises which was showing a credit balance of ` 22,93,417/- among various other points. After the matter was remitted to the AO, the AO passed an order holding that Ram Krishna Transport is a bogus creditor and added that amount in the hands of M/s Nandlal Enterprises. The AO also held that since he had not only authority to examine the credit of Rs.22,93,417/- but also held that the entire payment to Ramakrishna Transport to the extent of Rs. 1,51,42,000/- was not genuine. However in appeal the CIT(A) reversed his finding as his additions and restored the order of AO. Thus this matter of payment to Ramakrishna Transport has reached finality. The genuineness of the payments of Nandalal enterprises is therefore no longer in question and final as far as AO is concerned. AO has however resorted to an illogical and contradictory stand in the hands of the recipient to hold that the payments are bogus without supporting his case that the payments are not genuine. Further no specific evidence in this regard has emerged consequent to survey conducted on 03-09- 2009. Further the payments made are through cheques. Details of trucks through which the coal is transported have been kept. Payment to truck operators are less than Rs. 20,000/-. On merits I find that AO has not made out a case for adding back the entire amount of receipts received of Rs.2,04,47,427/- as transportation charges and loading and unloading charges. This ground is therefore allowed.”

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notice that the assessment of M/s. Nandlal Enterprises, and M/s.

Ramakrishna Transport, has been completed. The transaction was

inter–linked amongst them. The amount payable by M/s. Ramakrishna

Transport, was not held to be justifiable. There was a credit against

M/s. Nandlal Enterprises, to the tune of ` 22,93,417 and the payment

to the tune of ` 1,51,42,000. The Assessing Officer held that the said

amount is not genuine and added the same to the income of the

assessee. Thereafter, the matter of M/s. Rama Transport, was finalized

and the payment was found to be genuine. The same was not required

to be added with the total income of the assessee. Moreover, there

was no evidence on record with regard to the non–genuine claim of

the assessee. The payment to the truck operator was below to the

tune of ` 20,000. The payment was through banking channel. Details

of truck were kept. No doubt, in the said circumstances, the learned

Commissioner (Appeals) has deleted the said addition. No justifiable

facts have been placed on record to which it can be assumed that the

findings of the learned Commissioner (Appeals) is not justified. In view

of the aforesaid, we are of the view that the learned Commissioner

(Appeals) has passed the order judiciously and correctly which is not

required to be interfered with at this appellate stage. Accordingly, this

issue is decided against the Revenue.

6 Shri Nandlal B. Maloo

ISSUE NO.2

addition of ` 1,90,60,770, which was added by the Assessing Officer

on account of interest received from M/s. Nandlal Enterprises. The

learned Commissioner (Appeals) has arrived at this conclusion that the

said amount was not the interest received by the assessee. Before

coming further, it is necessary to advert the finding of the learned

Commissioner (Appeals) on this issue for the sake of convenience.

“9. Ground no. 5:-

9.1 This ground is regarding the action of the AO in adding back an amoun of Rs. 1,90,60,7701- stating that this amount is interest received from Mls Nandla Enterprises Ltd. on the basis of the narration and the TDS certificate that the amount received as interest. In submission before me appellant has stated that these amounts were received as transportation charges and have been considered in this original order of the AO dt. 30-03-2006. Appellant has stated that mentioning the entire amount as interest was an error. The AO has held that the amount is interes without referring the matter to the company or examining the concerned records. I is stated that capital required to be invested to earn interest @ 15% would be Rs.12.70 crores which itself was an absurd proposition as the total asset of appellant is only Rs. 1.13 crore. In the remand report AD has stated as follows:-

"On merits, the assessee argued that the assessee received payment to the extent of Rs.1,90,60,770/- as transport charges which was considered in the original order dated 30.3.2006.

In this connection, it is again submitted that the AO did not look into any issue other than seized material/documents/declaration. May I request the assessee to submit the copies of the submission which he filed before the Aa at the time of assessment proceedings wherein he declared the gross receipt from transport business etc? It is totally, incorrect to say that the issue was already examined by the AO while passing the order dated 30.3.2006.

7 Shri Nandlal B. Maloo

If the assessee had received the amount from M/s Nandlal Enterprises Ltd as transport charges, again the assessee was required to explain as what services he rendered and the corresponding evidences for the same. Needless to mention that during the course of survey u/s 133A, no evidence of rendering the services were found. Under such circumstances also the whole of such amount would be taxable in the assessee's hand.

He further argued that then AO did not give credit to the amount as transport charges. He further contented that the present AO treated the same as interest and added the whole amount without referring to the company or the whole records of earlier years and without considering the profit and loss e/c of M/s Ramkrishna Transport. In this connection it is submitted that I have verified the whole records and even of earlier year, the assessee never submitted profit and loss e/c showing the gross transport receipts received by the assessee. Therefore the assessee's contention is totally incorrect. The assessee may please be requested to bring on record when he submitted the profit and loss e/c showing gross receipt either with the return of income or during the course of assessment / reassessment proceedings.

The assessee further contented that the amount in question is not interest. He argued that there was no corresponding capital appearing in the Balance Sheet of the assessee.

In the connection, it is submitted that the assessee still did not explain under what circumstances and for what purpose he received the amount from M/s Nandlal Enterprises Ltd. The fact which can not be ignored that the TDS certificate was issued by M/s Nandlal Enterprises Ltd. Further M/s Nandlal Enterprises Ltd filed letter dated nil which is part of the order confirming the correctness of the TDS certificate. M/s. Nandlal Enterprises Ltd. also filed copy of challan vide which payment was also made. Under these circumstances, how the assessee's contention that it did not receive the payment from M/s Nandlal Enterprises Ltd can not be accepted?

The assessee also argued that the additions were not warranted when it was shown in bank account as transport charges and taxes were already deducted.

In the connection, it is submitted that the assessee failed to identify the corresponding entries in his bank account. The assessee did not explain in which bank account the amount of Rs 1,90,60,770/- received from M/s Nandlal Enterprises Ltd was deposited. Further the bank account dose not shown that the

8 Shri Nandlal B. Maloo

amount received was whether transport charges or other wise. Bank account only shows the amount received in cheque / cash. The deposits in the bank account is only indication of amount received by the assessee and it is not certificate of nature of payment received by the assessee. "

In reply to remand report appellant has stated as follows:-

"It was indicated by the company that the nomenclature of the nature of payment as interest instead of transport charges. But the then A.O. accepted the same condoning the wrong label given to the payment and credit was also given for the amount of TDS deducted of Rs. 419337/-. Though TDS was deductible in the case of interest at 20% plus surcharge, tlie rate applied was only 2.2% of the total payment. The transport charges shown in the book is ` 19060770 which is the amount shown in the TDS certificate. As mentioned in the original submission of the ass that if it is assumed to be interest then the investment should be ` 12.70 crore and such amount is neither appearing in the B/5 of the assessee nor in the B/S of the Nandlal Enterprises Ltd. That means turnover or investment is not there in the case of Nandlal Enterprises Ltd. There was no entry of interest paid at Rs 19060770/- in the P/L A/c. Therefore that could not have taken the same as interest as the fact was verifiable from the records of that co which was also in the A.O's jurisdiction. For the AY 2006-07 in the case of Nandlal Enterprises Ltd. the present A.O. disallowed in respect of transport charges paid to the present assessee to the extent of Rs.526173/- for the reasons that there was no compliance with the tax deduction and was thus disallowed u/s 40(a)(ia). There the A.D. treated the payments as transport charges only. That order was passed on 30.12.2008. All these informations were available with him at the time of passing this order dt 22.12.09 against the present assessee. Yet he treated the amount as interest as if he was unaware of these facts and treated as interest on the plea of assessee not responding. There was therefore no reason to hold it as interest even in spite of over whelming evidence with him that it was transport receipts. In fact conclusive presumption can be made against the A. O. that he was well aware of the nature of the payment yet he made an addition without any justification apart from the fact that the A.O. is encroaching on an item of income already considered in the order u/s 143 (3), the A.O. was also fully aware of the nature of payment as transport receipt and not interest and the addition on that account as interest was uncalled for especially in view of the fact that he had not doubted the payments as bogus as in the case of Nandlal Enterprises."

9 Shri Nandlal B. Maloo

and necessary that the AD should have conducted some credible verification whether Nandlal Maloo is a creditor in the books of Mls Nandlal Enterprises Ltd. before coming to the conclusion that the amount of Rs.1,90,60,770/- has been received as interest. In appellate proceedings before me appellant has pointed out that the nomenclature of interest was mistake. This should have been verified by the AO, instead AO has chosen to reiterate the findings in the assessment order without exercising due diligence and responsibility in the matter. As pointed out by appellant in the assessment order of Mls Nandlal Enterprises Ltd. For 2006-07 an addition u/s 40(a)(ia) has been made on payment to Shri Nandlal Maloo treating the amount as transport charges. The appellant is regularly providing coal transportation services to sister concerns and is in the business for the past decade. These facts are verifiable from the records. Further it is clear that this payment was subject to tax deduction at source @ 2.2% indicating this it is a payment to uls 194C. A certificate u/s 194C was also issued in form no. 16A. It is apparent that in the certificate interest has been erroneously mentioned. Further when the AO made the assessment uls 143(3) on 30-03-2006 he treated the same payment not as interest but accepted the payment as payment for transport of coal. No fresh evidence has been brought on record by the A.O. This order made uls 143(3) on 30-03-2006 was after the search at the premises of the assessee. The AO has also given credit to the TDS deducted at Rs.4,19,337/-. AO's action is not tenable. This ground is therefore allowed.”

that the Assessing Officer has wrongly understood the amount to the

tune of ` 1,90,60,770 as interest received from M/s. Nandlal

Enterprises Ltd. In fact, the said amount was the receipt which was

subject to tax deducted at source @ 2.2% under section 194C. A

certificate under section 194C was also issued in Form no.16A. The

Assessing Officer has arrived at this conclusion about the receipt of the

interest without going through the record. The assessment of M/s

Nandlal Enterprises Ltd. has been concluded on 30th March 2006

wherein the said amount has been accepted as payment towards the

10 Shri Nandlal B. Maloo

transport of coal. In this regard, the assessment order lies at Page–12

and 13 of the paper book. The payment was also not doubted in the

case of M/s. Nandlal Enterprises Ltd., for the assessment year 2006–

(Appeals) has been placed on record at Page–9 to 11 of the paper

book. The receipt has wrongly shown as interest. At this stage, the

facts are not distinguishable at all. In view of the said circumstances,

we are of the view that the learned Commissioner (Appeals) has

passed the order judiciously and correctly which is not required to be

interfered. This issue is decided in favour of the assessee and against

the Revenue.

C.O. no.16/Nag./2012 – Assessee’s Cross Objection

following cross objection:–

“1. The learned CIT(A) erred in holding that the re–opening of assessment was valid; 2. The learned CIT(A) erred in confirming the addition of ` 2.75,000/–; and 3. The learned CIT(A) erred in disallowing the payment of commission of ` 5,05,835.

ISSUE NO.1

assessment under section 147 / 148 of the Act. The re–opening was

11 Shri Nandlal B. Maloo

made on the basis of letter dated 3rd February 2007 filed by the

learned Counsel for assessee in which he stated that the assessee

purchased the shares of ` 2.75 lakh from the withdrawal made from

M/s. Nandlal Enterprises Ltd. After examination of the accounts of M/s.

Nandlal Enterprises Ltd., the Assessing Officer nowhere found the

withdrawal of the said amount, hence, the notice was issued. The

contention of the assessee is that the facts narrated in the letter dated 3rd February 2007, was not correct in view of the letter dated 12th

September 2007. It is also mentioned that the assessee purchased the

said shares from his own funds. In the instant case, the notice under

section 148 has already been issued to the assessee by virtue of notice dated 12th May 2008. At this stage, the Assessing Officer was having the material before him which is the letter dated 3rd February 2007, in

which the assessee has admitted the fact that the assessee purchased

the shares of ` 2.75 lakh from the withdrawal of the amount from M/s.

Nandlal Transport Ltd. It is a reasonable apprehension in connection

with the income escaping assessment. It cannot be said that the

Assessing Officer was not having any tangible material with him for

invoking the provisions of section 148 of the Act. It is also not a review

of the order. It is also not passed on the opinion of the different

Assessing Officers. The assessee has placed reliance on the decision of

the Hon’ble Supreme Court in CIT v/s Kelvinator India Ltd. (2010) 320

ITR 561 (SC), the decision of the Hon’ble Jurisdictional High Court in Asian

12 Shri Nandlal B. Maloo

Paints Ltd. v/s DCIT, [2009] 308 ITR 195 (Bom.) and 234 Taxman 432.

But the factual position of the present case is quite different from the

law settled in the above said authorities. Therefore, in the said

circumstances, we are of the view that the Assessing Officer has

rightly issued the notice under section 148 of the Act, hence, the cross

objection on this ground of the assessee is hereby ordered to be

dismissed. Issue no.1 is allowed in favour of the Revenue.

ISSUE no.2

This issue is in connection with the confirmation of addition of ` 10.

2.75 lakh. Initially, the matter was taken up under section 148 on account of issuance of notice dated 12th May 2008. The assessee has explained by virtue of 3rd February 2007, that the assessee purchased

the shares from IFSL Ltd. of an amount of ` 2.75 lakh after the

withdrawal of the said amount from M/s. Nandlal Transport Ltd. On

verification, no withdrawal was found. Thereafter, the assessee filed

another letter in which he explained that the assessee did not

withdraw the said amount from M/s. Nandlal Transport Ltd., however,

the said shares were purchased from cash available to him. The

assessee was not clear about the receipt of the amount which was

invested for the purchase of shares of IFSL Ltd. To understand the

matter carefully it is necessary to advert the findings of the learned

Commissioner (Appeals) on record.

13 Shri Nandlal B. Maloo

“6. I have carefully considered the issue before me. The main reason for the addition of an amount Rs. 2,75,000/- is that the amount was not available as withdrawal in the books of M/s Nandlal Enterprises. However even during the course of reassessment proceedings appellant has not satisfactorily explained the source of investment. As pointed out by AD no books of accounts are maintained. There are no details of the shares with the date of acquisition and cost of acquisition. There are no details even of share holding as on 31-03-2003 and 31- 03-2004. Appellant has furnished a cash flow statement showing two different amounts invested in shares namely Rs. 5,90,000/- and Rs. 4,76,000/- vide cash flow statements dt. 04-09-2009 and 09-11-2009 respectively. Appellant has also agreed that the alleged cash flow statements are approximations. In submission before me appellant has claimed alternately that since amount of Rs. 6 lakhs has been declared towards possible discrepancies and amount of Rs. 3,15,000/- is available as other income purchase of shares of Rs. 2,75,000/- should be treated as out of income declared of Rs. 9,55,000/-. However in the absence of any specific details furnished even at the time of appellate stage the contention of the appellant cannot be accepted. The lack of transparency and the contradictory versions regarding source of investment vitiates the case of the appellant. AD was therefore justified in adding back Rs.2,75,000/- as unexplained investment. This ground is therefore dismissed.”

availability of cash with him. The assessee moved a letter dated 3rd

February 2007 in which he explained that he purchased the shares of

IFSL Ltd. after the withdrawal of ` 2.75 lakh from M/s. Nandlal

Transport Ltd. Therefore, the assessee filed another letter in which he

stated that he has purchased the shares of IFSL from cash which was

available with him. Now at the time of argument before us, the

assessee is taking different plea i.e., the assessee has shown the total

investment to the tune of ` 56,65,000 in his Balance Sheet for the

year ending 31st March 2004. It is pleaded that the said amount has

14 Shri Nandlal B. Maloo

been invested from the funds available to him. The contention of the

assessee is not supported by the cogent evidence on record. The

version of the assessee is contradictory. It is incumbent upon the

assessee to prove the source of investment in accordance with law

which he has failed to do so. No material of any kind has been placed

before us to which it can be assumed that the assessee has furnished

the explanation in connection with this amount clearly. In view of the

said circumstances, we are of the view that the finding of the learned

Commissioner (Appeals) is quite correct which is not required to be

interfered with the same at this appellate stage. Accordingly, this issue

is decided in favour of the Revenue.

ISSUE No.3

commission to the tune of ` 5,05,835. It is not in dispute that the said

addition was not made by the Assessing Officer. The learned

Commissioner (Appeals) raised the said addition being commission. No

doubt, no notice of any kind was given before the addition of the said

amount. In the interest of justice, it is not justifiable to add any

amount without giving any opportunity of being heard to the assessee

in accordance with law. In view of the facts and circumstances, we are

of the view that this issue is required to be examined afresh by the

Assessing Officer after giving reasonable opportunity of being heard to

15 Shri Nandlal B. Maloo

the assessee. Therefore, we set aside the finding of the learned

Commissioner (Appeals) on this issue and restore the matter to the file

of Assessing Officer to decide the issue afresh in accordance with law.

objection is partly allowed.

Order pronounced in the open Court on 30.06.2017

Sd/- Sd/- P.K. BANSAL AMARJIT SINGH VICE PRESIDENT JUDICIAL MEMBER

NAGPUR, DATED: 30.06.2017

Copy of the order forwarded to:

(1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Nagpur City concerned; (5) The DR, ITAT, Nagpur; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary

(Dy./Asstt. Registrar) ITAT, Nagpur