DCIT, CIRCLE - 5, KOLKATA, KOLKATA vs. M/S. RUNGTA SONS (P) LTD., KOLKATA

I.T.A. No. 1482/KOL./2011 Assessment year: 2007-2008 & C.O. No. 35/KOL/2012 (in ITA No. 1482/KOL/2011) Assessment year: 2007-2008 Page 1 of 12

IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA ‘B’ BENCH, KOLKATA

Before Shri P.M. Jagtap, Accountant Member and Shri S.S. Viswanethra Ravi, Judicial Member

I.T.A. No. 1482/KOL/ 2011 Assessment Year : 2007-2008

Deputy Commissioner of Income Tax,.....................................Appellant Circle-5, Kolkata, Aayakar Bhawan, P-7, Chowringhee Square, Kolkata-700 069

-Vs.- M/s. Rungta Sons (P) Limited,................................................Respondent 42A, Shakespeare Sarani, Kolkata-700 017 [PAN : AABCR 2356 N] &

C.O. No. 35/KOL/2012 (arsing out of I.T.A. No. 1482/KOL/ 2011) Assessment Year : 2007-2008

M/s. Rungta Sons Pvt. Limited,..........................................Cross Objector 42A, Shakespeare Sarani, Kolkata-700 017 [PAN : AABCR 2356 N]

-Vs.-

Deputy Commissioner of Income Tax,..............................Respondent Circle-5, Kolkata, Aayakar Bhawan, P-7, Chowringhee Square, Kolkata-700 069

Appearances by: Shri Rajat Kr. Kureel, JCIT, Sr. D.R., for the Department Shri Subash Agarwal, Advocate, for the assessee

Date of concluding the hearing : March 14, 2016 Date of pronouncing the order : May 13, 2016

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O R D E R Per Shri P.M. Jagtap:- This appeal is preferred by the Revenue against the order of the ld. Commissioner of Income Tax-(Appeals)-VI, Kolkata dated 30.08.2011 for the assessment year 2007-08 and the same is being disposed of along with the Cross Objection filed by the assessee being C.O. No. 35/KOL/2012.

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M/s. V.K. Minerals were of iron ore and evidence in the form of copies of the concerned Railway receipts and the copies of ledger accounts of the said two parties were also filed by the assessee. In order to verify this stand of the assessee, enquiries were made by the Assessing Officer, which revealed that even M/s. Sahara Minerals and M/s. V.K. Minerals were not available at the address given. The Assessing Officer, therefore, treated the entire amount of Rs.2.5 crores and Rs.2.18 crores claimed to be received by the assessee from the non-existent concerns as unexplained cash credits and the said amount aggregating to Rs.4,68,02,738/- was added by him to the total income of the assessee under section 68.

“This is in respect of our Ground Nos. 4 &,5 in our Grounds of Appeal being addition of an amount of Rs.2,50,00,000/- received from M/s. Sahara Minerals and Rs.2,18,00,000/- received from M/s. V.K. Minerals on account of sales made to them. In this respect it is submitted that these additions have been made by the A.O. on the alleged ground that the above- mentioned parties were not found at the addresses provided by the assessee. The A.O. in the course of assessment had deputed an Inspector at Assansol and an Inspector at Kolkata to make enquiry in respect of the said parties. It is stated in the assessment order that on such enquiry, the above-named parties were not found at the addresses as available and provided by the assessee. During the course of assessment in response to the show cause notice issued by the A.O., the assessee furnished copies of the party's Ledger Account, copies of forwarding letters issued by the said party and copies of the 'C' Forms issued by the said parties in respect of the sales made to them, The A.O. in respect of Sahara Minerals simply dismissed the copies of 'C' forms submitted by the assessee which show that the said concern was registered under VAT and CST. He gave no reason-for coming to the said

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conclusion that the said party was non-existent, even though the assessee had clearly shown that the said concern was registered with various Govt. Authorities. It is furthermore submitted that it shall be apparent from the ledger account of M/s. Sahara Minerals, as furnished, that the assessee had shown sales of Rs.1,49,06,966/- from the said concern during the present financial year. This implied that the said amount of Rs.1,49,06,966/- already stood credited in the profit and loss account of the assesese as the income of the assessee. The A.O. by adding the same amount of Rs.1,49,06,966/- being part of the receipts of Rs..2,50,00,000/- has in effect made a double addition firstly by way of sales and again as an addition u/s.68 of the I T Act. if the A.O. was of the opinion that the said amount of Rs.1,49,06,966/- was to be added u/s.68 of the IT Act then he could have firstly reduced the sales of the assessee i.e. income of the assessee by the said amount and then added the said amount u/s.68 of the I.T Act. This would in effect have been revenue neutral since no addition in effect would have been made in the hands of the assessee. Similarly, in the case of M/s. V. K Minerals, the assessee had actually received an amount of Rs. Rs.1,18,02,215/- from M/s. V.K. Minerals during the year. Against the said receipt of Rs.1,18,02,215/-, the assessee had made sales of Rs.1,18,02,738/- to the said party implying that the said amount of Rs.1,18,02,738/- already stood included on the credit side of the Profit & Loss Account and the A.O. by adding the said amount u/s.68 has made a double addition of the same amount in the hands of the assessee. The A.O. should have firstly reduced the said amount of Rs.1,18,02,738/- from the sales of the assessee i.e. reduced the income of the assessee and then added the amount u/s.68 of the I T Act leading to no actual addition in the hands of the assessee. It is also pointed out that if the ledger account of M/s. V. K Minerals be examined then it shall be seen that an amount of Rs.1,00,00,523/- has not actually been received by the assessee in its bank account during the year but the said entry in the ledger account is simply a journal entry in the name of M/s. Bonai Industrial Co. Ltd Similarly, it shall be observed that an amount of Rs.1.00 crore has also been debited by way of journal entry in the name of M/s. Feegrade & Co. Pvt. Ltd. This clearly implies that neither the amount of Rs.1,00,00,523/- has been received by the assessee nor the amount of Rs.1.00 crore as actually been paid by the assessee, but these are simply book entries without actual movement of money in the hands of the assessee. It is clearly apparent from the same that the said amount of Rs.1,00,00,523/- cannot be treated as cash credit in the hands of the assessee u/s.68 of

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the Act since no amount has been actually received by the assessee during the year. Therefore, it is clear that even if the contention of the A.O. for the sake of argument be accepted as true, then the maximum amount which could have been added in the hands of the assessee was only Rs.1,00,93,034/- and not the amount of Rs.4,68,02,738/- as added by the A.O. u/s.68 of the IT Act. Therefore, the balance amount of Rs. 3,67,09,704/- has been added wrongly in the hands of the assessee and is required to be deleted. Therefore, it is requested that on facts as well as on law, the entire addition of Rs.4,68,02,738/- cannot be added in the hands of the assessee and your goodself is kindly requested to allow full relief to the assessee”.

“At the time of assessment proceedings it was found that the credit entries of Rs.2,50,00,000/- and Rs.2,18,02,738/- which were shown to have received from M/s. Sahara Minerals and M/s. V.K. Minerals were not found and the amount received was treated as cash credit in the hands of the assessee. From the submission made by the assessee it appears that except Rs.1,00,93,034/-, balance amount of Rs.3,67,09,704/- has been already credited in the profit and loss account, so it cannot be added twice. The contention of the assessee seems to be justified, which is a matter of verification”.

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vide paragraph nos. 15 to 23 of his impugned order, which read as under:-

“15. I have carefully considered the observations of the Assessing Officer in the assessment order, remand report and submissions of the assessee during the appellate proceedings. The Assessing Officer during the assessment proceedings received information from the Investigation Wing that during the previous year relevant to the assessment year 2007-08, some money from the bank account. of M/s. Lanxess Enterprises and M/s. Topaz Sales Corporation maintained in the ICICI bank were transferred to the assessee. The inquiry was conducted but the Concerns could not be traced. On enquiry from the assessee regarding receipt of money/cheques of M/s Lanxess Enterprises and M/s. Topaz Sales Corporation (maintained in the ICICI Bank), it submitted that it had no transactions with the said both concerns. However, the cheques have been received from both the concerns on account of sales made to M/s Sahara Minerals, Kalyaneshwari road, Kalyaneshwari and M/s V.K. Minerals, Camac Street, Kolkata. The assessee submitted the copy of forwarding letters of M/s. Sahara Minerals and M/s. V.K. Minerals vide which the cheques from M/s. Lanxess Enterprises and M/s Topaz Sales Corporation were received. The ledger accounts have been duly maintained in the name of both the concerns i.e., M/s. Sahara Minerals and M/s V.K. Minerals. The assessee received Rs.2,50,00,000/- from M/s. Sahara Minerals and Rs.2,18,02,738/- from M/s. V.K. Minerals on different dates during the financial year 2006-07 relevant to the assessment year 2007-08. The assessee claimed that the amount of Rs.2.5 Crores and Rs.2.18 Crores were received on account of sales of iron ore made to these concerns. The assessee produced the copies of some Railway Receipts which shows booking of railway wagon and dispatch of iron ore in the name of Mls Sahara Minerals and M/s V.K, Minerals. However, the Assessing Officer found that M/s. Sahara Minerals and M/s. V.K. Minerals were non-existent on the said addresses which were maintained in the records of the assessee. 16. During the appellate proceeding on enquiry the A.R. submitted that railway receipts were not sent by post or dak but were sent by hand/through person. It did not give further details of the persons. The assessee was given two opportunities by the Assessing Officer to produce both the persons but did not produce the same. Even during appellate proceedings he showed his inability to produce the said persons. However, the assessee submitted that M/s. Sahara Minerals was a genuine concern having VAT Number and CST Number and produced the copy of CST form also before the Assessing Officer. The Assessing Officer observed that cheques were received from non-existent concerns i.e., Lanxess Enterprises and Topaz Sales Corporation by the assessee through concerns M/s. Sahara Minerals and M/s. V.K. Minerals which also were non-

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existent. The Assessing Officer was not satisfied regarding the fact that money was received on account of sales. Therefore, he added the entire sum of Rs.2,50,00,000/- and Rs. 218020738/- totaling of Rs.46802738 as unexplained cash credit u/s 68 of the Income-tax Act, 1961. The assessee had submitted that out of receipt of Rs.2.5crores a sale of Rs.1,49,07,966/- was made to M/s. Sahara Minerals and the Assessing Officer was required to reduce he said sum out of cash credit because it has already been shown as income in the form of sales. There cannot be double addition on the same account. The closing balance was Rs.1,,00,93,034/- only. 17. Similarly in the case of M/s. V.K. Minerals, he submitted that out of Rs.2,18,02,738/-, the assessee has shown sales of Rs.1,18,02,000/- and, therefore, the said addition of Rs.1,18,02,738/- is a double addition i.e., on account of sales and as cash credit. He further submitted that an amount of Rs.1,00,00,523/- is just a journal entry in the ledger account in the name of M/s Bonai Industries Co. Ltd and further an amount of Rs. 1 Crore has been debited by way of journal entry in the name of Free Grade & Company (P) Ltd. He submitted that the amount of Rs.100,00,523/- has neither been received by the assessee nor has been actually paid by the assessee. But, this is a simple book entry without actual movement of money in the hands of the assessee. Therefore, he pleaded that the amount of Rs.1,00,00,523/- should not be treated as cash credit in the hands of the assessee u/s 68 of the Income-tax Act, 1961. 18. The perusal of the Ledger accounts shows that assessee was very conscious about the creditworthiness of both the parties. The money has been received in advance through large number of cheques well before dispatch of goods. The payments are received in small amounts and the sale is in bulk. There are only two sales instances in the case of M/s. Sahara Minerals and one sale instance in the case of M/s. V.K. Minerals while there are 45 cheques (Appox) and 21 Cheques/DDs received for the said sales respectively. 19. In these facts and circumstances there is a double addition i.e on account of sales and also on account of cash credit u/s 68 of I.T. Act, 1961. The conditions for addition under section are fulfilled. The identity of the creditors either who has issued cheques or who had deposited cheques/money has not been established. Similarly, the genuineness of the transactions has also not been established since it is a sale to fictitious persons w ose business particulars and receipt/dispatch of goods could not be established. The creditworthiness could also not be established as the source of deposit of money in the account of M/s. Lanxess Enterprise and M/s. Topaz Sales Corporation maintained with ICICI Bank could not be verified since the concerns are non-existent and fictitiously created to defraud the revenue by depositing unverifiable deposits. Even the identity of buyers could not be established and assessee could not produce them before Assessing Officer who had purchased such huge

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quantities of iron ore from the assessee. Therefore, the Assessing Officer was justified in making the addition. The assessee has also accepted conditionally the same before the Assessing Officer. 20. The Assessee, however, has submitted that the addition should not be double since one part of it has already come as sales in the profit and loss account as income/sale. If the parties are non- existent then sales although may be in the fictitious name have been accounted in the accounts and against that no money received except these cash credits /cheques. The undersigned agrees with the assessee on this issue and holds that double addition cannot be made of the same amount. The discretion was with the Assessing Officer, he could have treated the whole as unexplained cash credit but set-off of the sales was required to be given out of Profit & Loss Account. It does not matter during assessment for taxation purposes whether the whole addition is as unexplained Cash Credit or part of it is unexplained cash credit and part of it has come in the Profit and Loss Account as sales since tax amount will be the same. 21. The assessee has filed the copy of account of M/s. Bonai Industrial Company Ltd.; Barbil, Keonjhar, which shows that an amount of Rs.1,00,00,523/- has been transferred from the account in the name of M/s. V.K. Minerals on being a letter dated nil on 31st March, 2007. The assessee could not explain the source of this amount in the accounts as M/s. V.K. Minerals is a non-existent concern and the said amount has been transferred in the name of Feegrade & Co. Pvt. Ltd which can establish its source as received from/through M/s. Rungta Sons. Ultimately the sources of M/s. V.K. Minerals are non-explainable as held supra and it may come from anywhere. Therefore, this credit in the name of M/s. V.K. Minerals through Journal entry from account of M/s. Bonai Industrial Company Ltd., Barbil, Keonjhar is also held a cash credit and is held to be rightly added by the Assessing Officer. The only double addition to the extent of sales is considered and held as eligible for set-off vis a vis cash credits. The total debits and credits in the account of M/s. Sahara Minerals are as follows:- Debit Credits 1,49,06,966 2,50,00,000 Closing balance 1,,00,93,034/- The total debits and credits in the account of M/s. V.K. Minerals except journal entry are as follows:- Debit Credits 1,18,02,738 2,18,02,738

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Closing balance: 1,00,00,000/- Journal entry: Credit Feegrade & Co. Pvt. Ltd. 1,00,00,000/- 22. The existence of M/s. V.K. Minerals is unknown and no evidence has been produced to establish its identity. Therefore, all the money coming as credit in the non-existing entity is an unexplained cash credit. The repayment out of unexplained cash credit is not a set-off since that amount (Payment) has not come as income in the accounts of the assessee, while the sales have been treated as income. The cash credits are taxed under special provision u/s 68 in which the addition is on credited amount and not on the balance amount in the account. Section 68 provides as follows:- 68. Cash credits. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered 'by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. 23. There are held to be total cash credits as per books of accounts amounting to Rs.4,68,02,738/- and there is reflection of income in the form of sales against these credits, therefore the net addition of Rs.2,00,93,034/- can be done after giving benefit of set- off of sales amounting to Rs.2,67,09,704/-.(Total of sales income and addition of unexplained cash credit amounts to Rs.4,68,02,738/- Therefore, the net addition of Rs.2,00,93,034/- is upheld out of unexplained cash credits (amounting to Rs. 4,68,02,738/-) in the books of the assessee. This ground of appeal is partly allowed”.

The ld. CIT(Appeals) thus sustained the addition of Rs.4,68,02,738/- made by the Assessing Officer on account of unexplained cash credit under section 68 to the extent of Rs.2,00,93,034/- thereby giving relief of Rs.2,67,09,704/- to the assessee. Aggrieved by the same, the Revenue has preferred this appeal before the Tribunal.

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sales and the amounts in question, there was no case of double addition and the ld. CIT(Appeals) was not justified in giving set off of Rs.2,67,09,704/- on account of income stated to be declared by the assessee on account of corresponding sales, it is observed that the Assessing Officer himself in the remand report submitted to the ld. CIT(Appeals) had accepted that the corresponding sales having been already credited to the Profit & Loss Account, the amount of such sales could not be added twice as unexplained cash credit under section 68. This comment was offered by the Assessing Officer in his remand report when the submissions filed by the assessee in writing before him were forwarded by the ld. CIT(Appeals) to the Assessing Officer for his verification and comments. In the written submissions filed before the ld. CIT(Appeals), genuineness of the corresponding sales of iron ore claimed to be made to M/s. Sahara Minerals and M/s. V.K. Minerals was established by the assesese by producing the relevant railways receipts and the fact that the said sales were duly offered by the assessee as income by crediting the same to the Profit & Loss Account, was verifiable from the Profit & Loss Account of the assessee. On verification of the ledger accounts of M/s. Sahara Minerals (copy placed at pages 31 & 32 of the paper book) and of M/s. V.K. Minerals (copy placed at pages 33 & 34 of the paper book), the ld. CIT(Appeals) found that sales made to the said two parties amounting to Rs.1,49,06,966/- and Rs.1,18,02,738/- were duly accounted for and offered by the assessee as its income and since the amounts in question treated to be unexplained cash credits by the Assessing Officer were claimed to be received against the said sales, the ld. CIT(Appeals) held that such addition under section 68 to the extent of corresponding sales already declared by the assessee as income would result in double addition. As already noted by us, this position was accepted even by the Assessing Officer also in the remand report submitted to the ld. CIT(Appeals). The ld. CIT(Appeals) thus allowed a relief to the assessee to the extent of Rs.2,67,09,704/- being the amount

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already offered as income by the assessee in the form of sales and restricted the addition of Rs.4,68,02,738/- made by the Assessing Officer under section 68 to the extent of Rs.2,93,00,034/-. Having regard to all the facts and circumstances of the case, we find no infirmity in the impugned order of the ld. CIT(Appeals) giving this relief to the assessee and upholding his impugned order on this issue, we dismiss the appeal filed by the Revenue.

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said amount was credited on account of transfer entry. The ld. D.R., on the other hand, submitted that this claim of the assessee raised specifically for the first time before the Tribunal requires verification and the matter, therefore, may be sent back to the Assessing Officer for such verification. We find merit in this contention of the ld. D.R. and since the ld. counsel for the assessee has also not raised any objection in this regard, we restore this issue to the file of the Assessing Officer for deciding the same afresh on merit after necessary verification and after giving the assessee proper and sufficient opportunity of being heard.

(S.S. Viswanethra Ravi) (P.M. Jagtap) Judicial Member Accountant Member Kolkata, the 13th day of May, 2016 Copies to : (1) Deputy Commissioner of Income Tax, Circle-5, Kolkata, Aayakar Bhawan, P-7, Chowringhee Square, Kolkata-700 069

(2) M/s. Rungta Sons (P) Limited, 42A, Shakespeare Sarani, Kolkata-700 017

(3) Commissioner of Income-tax (Appeals)-VI, Kolkata (4) Commissioner of Income Tax, Kolkata (5) The Departmental Representative (6) Guard File

By order

Assistant Registrar, Income Tax Appellate Tribunal, Kolkata Benches, Kolkata Laha/Sr. P.S.