TYHE ITO-4(5), INDORE vs. M/S. URVASHI WORLD WIDE P. LTD., INDORE

per the requirement of business and copies of the accounts with confirmation

certificate and bank statement proves the rotation of funds on the same day through

banking channel from one company to another. The ld.CIT(A), after considering

various judgements on the issue including the judgement of the Hon’ble Supreme

Court in the case of CIT vs. Orissa Corporation Pvt. Ltd. (supra) and order of the ITAT

Indore Bench in the case of CIT vs. Dwekam Industries Ltd. (supra) and order in the

case of ACIT vs. Mittal Appliances (supra) held that the identity, capacity as well as

genuineness of the loan transaction have been proved by submission of relevant

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documents by the assessee in the form of confirmation certificates along with copy of

accounts appearing in the books of lenders, copy of income-tax returns, bank

statements of lender company, audited balance sheet of lender company and copy of

accounts of the companies as appearing in the books of account.

supported by documentary evidence as noted by the ld.CIT(A). We may also point

out that in the later part of the first appellate order, the ld.CIT(A) noted in para 4.12

which shows that all the companies had not only reasonable turnover/income, but,

also had sufficient capital and reserve to advance loans to the assessee company and

the lender companies were regularly assessed to tax, thus, identity of the companies

were duly established and the genuineness of the transactions made through account

payee cheques had also been proved by giving necessary details including the bank

statements/financial statements, confirmation of accounts and fund details. The ld.

CIT-DR could not point out any defect or deficiency in the said findings arrived at by

the ld.CIT(A) and could not controvert that no cash was deposited in the bank prior to

issuance of cheque and there was no cash transaction in the bank statement of all

lender companies and all transactions have been undertaken through account payee

cheques by using banking channels. These facts have not been controverted by the

ld.CIT-DR by way of any positive adverse material.

merely on the basis of returned income the AO jumped to a conclusion that many

lenders were not having sufficient funds to give the money to the assessee and the

AO, without considering the audited accounts and other relevant documents has

invoked the provisions of section 68 of the Act. It is a settled proposition of tax 19

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jurisprudence that financial worth of a company could not be judged mainly on the

basis of its returned income, but, entire financial statement has to be seen to consider

that how much amounts/funds were available with the lending company in its bank

account at the time of advancing the loan. Therefore, in view of the foregoing

discussion, we are compelled to hold that the AO, invoking the provisions of section

68 of the Act keeping aside the documentary evidence and explanation of the

assessee which were considered by the ld. CIT(A) on right perspective before deleting

the addition of Rs.1167.50 lakhs. We are unable to see any defect or discrepancy in

the findings recorded by the ld. First appellate authority. Thus, we uphold the same.

Accordingly, ground No.1 of the Revenue being devoid of merits is dismissed.

Ground No.2.

relief to the assessee with the following findings:-

“Ground No. iii to vi, viii & ix:

4.0 All these grounds related to addition made under section 68 of the unsecured loan received from various group companies.

4.1 I have carefully gone through the assessment order as well as the submissions of the appellant in this regard. Details submitted by the appellant above relating to unsecured loans are repeated for clarity as under:-

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(Rs. In lacs) Name of the Co. Opening Closing Repayment Loan taken Assessed by balance balance during the year of Loan AO Kandla Steels Pvt Ltd Rs. 695.00 Rs. 30.00 Rs. = Rs. 725.00 Rs. 725.00

Rs. 575.00 Rs. 577.55 Rs. 20.00 Rs. 17.45 Rs. 575,00 ------ Ruchi Stock & Securities P. Ltd Rs. 575.00 Rs.562.50 Rs. 575.00 Rs.562.50 Rs.562.50 Ruchi Corporation Limited Rs. 15.00 Rs. Rs. 15.00 Rs. = Rs. 15.00 Ruchi Equity Growth Pvt Ltd. Rs. 15.00 Rs. = Rs. 15.00 Rs. = Rs. 15.00 Ruchi Portfolio Management Pvt Ltd TOTAL Rs. 1320.00 Rs. 1167.50 Rs. 1182.55 Rs. 1304.95 Rs. 1892.50

4.2. To prove the identity, capacity, creditworthiness and genuineness of the loans accepted during the year, the appellant had submitted- various documents in case of above five companies viz. Confirmation certificates, copies of account of the appellant as appearing in the books of lender; Copies of Income tax return and Bank statement of lender company, Audited Balance sheets of lender company and Copies of account of all the companies in the books of the appellant both at the time of assessment to the AO and then in the appellate proceedings also. It has been claimed by the appellant that all the companies are associated companies and hence genuineness of the transactions cannot be doubted upon because the funds were routed from one account to another on the same day through banking channel only.

4.3 Loans taken from companies assessed to tax can be divided in two parts : (a) opening balances and (b) Loans taken during the year which are analyzed as under:-

a ) Opening balances of loans:-

As per these regular books of accounts and confirmation certificates so placed on record, it is clear that the appellant had accepted loans from three companies in the earlier year which are appearing as opening balances from (i) M/s. Kandla Steels Limited Rs.695 lacs (ii) M/s. Ruchi Corporation Limited Rs.15 lacs and (iii) M/s. Ruchi Equity Growth Pvt Ltd Rs. 15 lacs. It had accepted new loan of Rs.30 lacs on 26.12.2011 from

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M/s. Kandla Steels Limited during the year which has been claimed to have been utilized to repay the loans to remaining two companies of Rs. 15.00 lacs each on 26.12.2011 itself. The AO had assessed opening balances of these loans accepted from above three companies, without considering the fact that such opening balances not only appeared in the audited accounts of all the companies but were also duly confirmed as per the statement of accounts so submitted by the appellant. Although the identity, capacity, creditworthiness and genuineness of the loans have been proved by giving the copy of Income Tax Return, bank statement of the lender company, audited balance sheet of the lender company and copies of accounts of all the companies as appearing in the books of appellant; the facts remains that the opening balances of loans taken from aforesaid three companies cannot be assessed to tax u/s 68 of the Act for the year under appeal. It would be relevant hear to reproduce section 68 as provided in the Income Tax Act, 1961:

Cash Credits

"68. Where any sum is found credited in the books of an assessee maintained for arty 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 the previous year.”

From the plain reading of the section itself, it is quite clear that only the sums found credited during the previous year relevant to the assessment year in question can be added u/s 68. Also, there are various judicial decisions which clearly state that the opening balances cannot be added u/s 68.

It has now become a settled law that genuine loans taken in earlier year from identified persons appearing as opening balances inaudited books of account cannot be taxed in subsequent years u/s 68 of the Act as held in the case of CIT vs Usha Stud Agricultural Farms(2018) 301 ITR 384(Delhi), DCIT vs. Hotel Excelsior Ltd (2011) 141 TTJ 248 (Del), ITO vs Kumari Sumedha Karmahe (2015) 26 ITJ 648 (Trib. Raipur) & Shri Gurumukhdas Saluja vs. AC1T (2013) 21 ITJ 168 (Indore Trib.) The lender companies are otherwise also group companies of Ruchi Group and associated with each other. Under the circumstances, addition made u/s 68 of the Act being the amount of loans taken in earlier year from three companies aggregating to Rs. 725 lacs appearing as opening balances are deleted.”

brought forward from the preceding financial period as opening balance as on 22

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01.04.2011. In view of the various judgements of Hon’ble High Courts and coordinate

Benches of the Tribunal including the judgement of the Hon’ble High Court of Delhi in

the case of CIT vs. Usha Stud Agricultural Farms (supra) and order of the ITAT Indore

Bench in the case of Shri Gurmukhdas Saluja (supra), the addition u/s 68 of the Act

cannot be made being the amount of loan taken in the earlier years which were

brought forward as opening balance in the current financial period. We may also

point out that the AO in para 6(i) alleged that the liability ceases to exist which

pertains to addition u/s 41(1) of the Act but the AO invoked the provisions of section

68 of the Act. Therefore, the AO himself might not be sure about the action to be

taken against the assessee on this issue while dealing with the issue and making

addition/disallowance. Therefore, we are unable to see any ambiguity, perversity or

any other valid reason to interfere with the order of the ld.CIT(A). Accordingly, we

uphold the same. Ground No.2 of the Revenue is also dismissed.

Order pronounced u/r 34(4) of the Income-tax (Appellate Tribunal) Rules,

1963 on 30.01.2023.

Sd/- Sd/- (BHAGIRATH MAL BIYANI) (C.M. GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 30th January, 2023.

dk

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