THIO PHARMA,MUMBAI vs. ITO 21(2)(4),

Assessee by : None Revenue by : Mr. Premanand J.,Dr सुनवाई क� तार�ख /Date of Hearing : 15-02-2016 घोषणा क� तार�ख /Date of Pronouncement : 30-03-2016 आदेश / O R D E R PER RAMIT KOCHAR, Accountant Member

This appeal, filed by the assessee-firm, being 12-04-2011 passed by the learned Commissioner of Income Tax (Appeals)- 32, Mumbai (Hereinafter called “the CIT(A)”), the appellate proceedings before the CIT(A) arose from the assessment order dated 29-12-2009 passed by the learned assessing officer (Hereinafter called “the AO”) u/s. 143(3) of the Income Tax Act,1961(Hereinafter called “the Act”), for the assessment year 2007-08.

“1.UNSECURED LOANS The learned A.O. erred in treating the unsecured loans received from friends & relatives as cash credit and further erred in adding the same to the income. And learned CIT(A) erred in confirming the same. 2. CEASED LIABILITY The learned A.O. erred in treating the Sundry Creditors to the extent of Rs.28,30,227/- as ceased liability and CIT(A) erred in not deleting the entire addition.”

K J Dadhia, HUF 152000 Rajesh Dadhia 1330000 M.J.Dadhia 560325.67 Subhlata Bohra 500000 V.J.Dadhia 1125123.33 Ramesh Bohra 15000 Pravin Jasani 179000 Anil Bohra 60000 Meena Dadhia 305134 ITA 7529/Mum/2012 3

Anish Dadhia 456670 Pravin Kumar S/o Purshottam Ji 140000 4823253 Despite sufficient opportunities given to the assessee-firm by the AO, the assessee-firm did not file any details before the AO to prove identity of the creditors and creditworthiness of the creditors taken by the assessee-firm.The assessee-firm only submitted that the friendly loans were taken from family members and no loan has been returned by the assessee-firm. The AO treated the said loan as unexplained cash credits as no details were furnished and the amount of Rs.48,23,253/- was added to the income of the assessee-firm as the assessee-firm failed to establish the identity and creditworthiness of the creditors, vide assessment order dated 29-12-2009 passed u/s 143(3) of the Act.

The CIT(A) duly considered the statement of fact filed by the assessee firm attached to grounds of appeal whereby it was stated by the assessee-firm that the loans were raised from friends and relatives and no amount was returned during the year and the assessee-firm requested for further time from the AO to get the loan confirmation from the parties who were abroad but the AO had added the entire amount without waiting for the assessee- firm to get the loan confirmations.

ITA 7529/Mum/2012 4 The CIT(A) confirmed the additions as were made by the AO , as the assessee- firm failed to file loan confirmations before the AO and CIT(A) despite sufficient and adequate opportunity given to the assessee-firm. The assessee- firm has not even furnished the addresses of the lenders during the assessment proceedings or during appellate proceedings before the CIT(A). Thus, the CIT(A) vide orders dated 12.4.2011 confirmed the additions of Rs.48,23,752/- as made to the income of the assessee-firm by the AO u/s 68 of the Act as the assessee-firm has failed to discharge its burden to prove the identity, creditworthiness and genuineness of the loans of Rs.48,23,752/- appearing in the Balance Sheet.

Ld. DR supported the orders of the authorities below and submitted that the assessee-firm has not filed any loan confirmations/details to discharge the primary onus cast u/s 68 of the Act in the assessment and/or appellate proceedings.

The primary onus is on the assessee-firm to establish the identity of the creditors, creditworthiness of the creditors and genuineness of the loans of ITA 7529/Mum/2012 5 Rs.48,23,752/- raised by the assessee-firm and stood credited in its books of accounts as per mandate of Section 68 of the Act which in our considered view , the assessee-firm has failed to discharge the burden cast on it as per provisions of Section 68 of the Act despite sufficient opportunities given to the assessee firm during the course of assessment proceedings u/s 143(2) read with Section 143(3) of the Act before the AO and the appellate proceedings before the CIT(A) and also before the Tribunal. Thus keeping in view the peculiar facts and circumstances of the case, we have no hesitation in confirming the orders of the CIT(A) sustaining the additions of Rs.48,23,752/- to the income of the assessee-firm as un-explained cash credit u/s 68 of the Act. We order accordingly.

“We are giving to our party stock on sales basis they give us payment according to sales proceeds. Some of the party not paid amount they ITA 7529/Mum/2012 6 claim rate reduction and short expiry etc. , therefore some payment in dispute.”

No details were furnished by the assessee-firm regarding details of the creditors . The AO perused the details of the purchases made during the year and creditors list and it appeared to the AO that a sum of Rs.32,68,941/- represented running accounts . The total purchases made by the assessee- firm during the year was Rs.61,41,240/-. The onus is on assessee-firm to substantiate the claim made by the assessee-firm. The AO made additions of the balance amount of Rs.28,30,227/- (Rs.60,99,168/- - Rs.32,68,941/- ) u/s 41(1) of the Act by considering the same as ceased liability ,as the assessee-firm has not furnished any details/confirmation, vide assessment order dated 29-12-2009 passed u/s 143(3) of the Act.

The CIT(A) observed from statement of facts and grounds of appeal filed before the CIT(A) wherein it was stated by the assessee-firm that it is purchasing the goods(medicines) from parties and the details of purchases were provided. It was stated by the assessee-firm that some of the creditors were not paid due to claims for rate reduction and expiry of medicine etc. which is lying to the credit of the sundry creditors and revenue cannot force the assessee-firm to make payments and payments to creditors will be made after settling disputes with the creditors.

ITA 7529/Mum/2012 7 The CIT(A) held that in line of business of medicines, there will be disputes with respect to rate differences and expiry of medicines but that does not prove the genuineness of the expenditure on account of purchases claimed in the P&L Account for purchases made from such creditors and the said dispute of rate reduction, expiry of medicine will have consequential effect on correctness of the expenditure of purchases claimed in the Profit and Loss Account. Since , no details has been given of the creditors by the assessee- firm and vague explanation has been given without specific details, genuineness of the purchases claimed cannot be accepted on the face of it. The assessee-firm itself claimed that the creditors have overcharged , which itself suggests that purchases claimed are excessive and hence 10% of purchases of Rs.61,41,240/- was considered to be excessive claim of the purchases debited in Profit and Loss Account on account of rate difference, expiry etc. and hence the additions of Rs 28,30,227/- made by the AO was restricted to Rs.6,14,124/- on account of purchases not proved in absence of the details furnished by the assessee-firm in respect of sundry creditors for purchases, vide orders dated 12.4.2011.

Ld. DR supported the orders of the authorities below.

ITA 7529/Mum/2012 8 The Revenue filed an appeal before the Tribunal, Mumbai Benches against the orders of the CIT(A) giving the relief to the assessee-firm to the tune of Rs.22,16,103/- which appeal was dismissed by the Tribunal, Mumbai ‘E’ Bench in vide orders dated 29-08-2012.

We have observed that the assessee-firm is in the business of manufacturing of medicine. The assessee-firm had made purchases to the tune of Rs.61,41,240/- and it is admitted by the assessee-firm that there are disputes with the creditors with respect to over-charging of rates as well claims of the assessee-firm with respect to expired medicines etc which is a normal trade practice. The assessee-firm there-after refrained from giving any further details about the creditors standing to the credit in its books of accounts, nature and extent of dispute existing with the creditors and its implications on the income chargeable to tax as per the Act. However, the details of purchases were given during assessment proceedings. The AO made an estimate whereby he gave credits for running accounts and made additions to the tune of Rs.28,30,227/- after reducing sundry creditors of Rs.60,99.168/- as at year end from the creditors of Rs.32,68,941/- where there was running account. The assessee-firm again chose not to file any details/clarifications before the CIT(A) and the CIT(A) made a rational estimate @10% of total purchases of Rs.61,41,240/- towards the rate over- charging claims and the claims for expired products, there-by addition of Rs.6,14,124/- was sustained by the CIT(A) towards purchases not proved. The Revenue went in appeal before the Tribunal,Mumbai Benches against the relief given by the CIT(A) and which appeal was dismissed by the Tribunal, Mumbai ‘E’ Bench in vide orders dated 29-08-2012. We have carefully perused all the orders passed by the relevant authorities and the facts as emanating from the said orders and details before us, we are of considered view that the CIT(A) has passed a well reasoned order making an rational and reasonable estimate of disallowance @10% of purchases ITA 7529/Mum/2012 9 towards disputes of the assessee-firm with creditors for purchases towards rate overcharging claim , claims for expired products etc which is very rational and reasonable estimate , more-so keeping in view that un- fortunately the assessee-firm has consistently chosen a path of non co- operative attitude during assessment proceedings as well appellate proceedings. The assessee-firm again chose not to avail opportunity of being heard before the Tribunal. We have no hesitation in confirming the well reasoned order of the CIT(A) dated 12.04.2011 making rational and reasonable estimate of disallowance of Rs.6,14,124/- @10% of purchases of Rs.61,41,240/- during the year. We order accordingly.

Order pronounced in the open court on 30th March, 2016. आदेश क� घोषणा खुले �यायालय म� �दनांकः 30-03-2016 को क� गई ।