GENIUS PRINTERS P. LTD,MUMBAI vs. ASST CIT RG 6(3), MUMBAI

This is an appeal filed by the assessee and it is directed against the order of Ld. CIT(A)-12, Mumbai, dated 3.1.2011 for the assessment year 2006-07.

In the first ground, the assessee has challenged the action of ld. CIT(A) in confirming the addition of Rs.1760,000/- being the amount of unsecured loans, as unexplained cash credit u/s 68 of the Income Tax Act, 1961 and also the amount of interest disallowed on the said loans.

Brief facts of the case as emerged from the assessment order are that the assessee had shown unsecured loans of Rs.1,47,65,000/-. During the course of assessment proceeding, the AO called the assessee to prove the genuineness of the loans. The AO observed that an amount of Rs.31,40,000/- pertains to three directors and remaining amount of loan of Rs.1,20,55,000/- pertains to other 32 persons. The AO called the assessee to prove the genuineness of the transactions about 32 creditors. The AO considered the explanation tendered by the assessee and rejected the same. The AO gave benefit of doubt regarding three directors and one other person who had advanced the loans. The AO was of the opinion that creditworthiness of 28 creditors was not proved. He was of the view that the assessee failed to prove creditworthiness of the creditors, genuineness of the transactions, and also identity of the 28 creditors of loans for different amounts aggregating to Rs.73,15,000/-. Therefore, he disallowed the claim of the assessee and added the same to the total income of the assessee under section 68 of the Act as unexplained loan. Being aggrieved by the order of AO, the assessee contested the matter before the ld. CIT(A).

During the course of appeal proceeding before the ld. CIT(A), the assessee contended that the assessee has each and every document, the loans are genuine and had filed it before the AO. The ld. CIT(A) called for the remand report. In the remand report, the AO stated that he had made observations only after examining the details filed by the assessee. The AO accepted the loans of 12 persons for aggregate amount of Rs.21,55,000/-. The ld. CIT(A) accepted the finding of the AO in respect of Rs.21,55,000/-. In respect of 11 creditors, the AO observed that the loans given by them are not commensurate with the source of income of these creditors. With regard to the remaining 5 creditors, it was observed that these creditors did not have any sources of income. The AO also observed that before giving loan to the assessee, some of the creditors had deposited cash in their respective account. The AO also observed that there is no balance sheet and capital account in respect of some of the creditors. The AO also observed that there is no return of income and some of the returns are generated for this purposes only and some are identical to that of another. Therefore, the AO was of the opinioned that these documents are manufactured evidences for accepting the loans as genuine. Since the AO observed these discrepancies about 16 creditors, the AO invoked the provisions of section 68 of the Act for these creditors.

In reply to the remand report, the assessee has raised following objections: a) The AO did not communicate with the assessee that the details filed were not considered sufficient; b) The assessee does not have access to the personal details of all the lenders and has to rely on whatever they submit; c) As in the case of 2 loan creditors i.e. Mr M P Khanduri and Sameer S Kamat who were not willing to give the details of income, the assessee was not in a position to submit the details called for. It was requested that noticed be issued to these persons to verify the loans credits; d) The AO had sent the order hurriedly without intimating the assessee. The assessee was in a position to produce all the loan creditors for personal verification during the course of assessment proceedings; e) The income of one year cannot be the criteria to arrive at a decision that the creditworthiness of the lender was doubtful. Out of the 11 loans creditors, balance sheet and capital accounts had been filed for 4 of them which proves that there are sufficient capital from which funds could be advanced. The AO has ignored this fact; f) Regarding the balance 3 people, for whom no return of income had been filed, but sufficient other documents have been provided to prove that loans had been advanced by them; g) All the above 16 lenders have PAN and confirmation and their addresses have been submitted at the stage of assessment.

After considering submissions of the assessee, the ld. CIT(A) gave part relief to the assessee. Aggrieved by the order of ld. CIT(A) in confirming the addition of Rs.17.60 lakhs, the assessee has filed this appeal before this Tribunal.

During the course of hearing before us, detailed submissions have been made by the Ld. Counsel of the assessee, pointing out that complete documentary evidences were furnished and the burden laid upon the assessee u/s 68 was discharged. But the addition has wrongly been confirmed in the hands of the assessee. The assessee submitted that the addition has been confirmed by the ld. CIT(A) with respect of the following amounts :

With respect to all the parties, the Ld. Counsel submitted that the complete documentary evidences were submitted to show that these parties are assessed to income tax and the amount was received through account payee cheques. Various evidences in the form of confirmation, bank statement, copy of income tax return, copy of bank pass book, copy of balance sheet etc were given to the lower authorities. But without properly appreciating the facts, the addition has been made by the AO and confirmed by the Ld. CIT(A). The ld. Counsel has taken us through various pages of paper book to show that the assessee has discharged its onus in terms of section 68 of the Act without there being any adverse material in the possession of the lower authorities, adverse inference were drawn by both the lower authorities on the basis of presumption and guess work and the addition has been confirmed.

The ld. DR reiterated the facts of the case and relied on the orders of authorities below. In response to our specific query with respect to the documentary evidences placed by the assessee, he was not able to point out any discrepancy or defects therein.

We have gone through the submissions made by both the sides and material placed before us for our consideration. It is noted by us that the assessee has submitted various documentary evidences to explain the nature and source of the amount received by it, in terms of section 68 of the Act. With respect to the loan coeditors, following evidences have been filed: a) Confirmation; b) Copy of income tax return; c) Copy of computation of Income; d) Copy of balance sheet; e) Copy of bank statement and bank passbook. And f) Copy of ledger account.

It is further noted that there is no adverse material in the possession of the lower authorities to controvert the evidence filed by the assessee. The ld. CIT(A) has confirmed the addition on the ground that the assessee was not in a position to explain the source of source. In our view, once the transaction stands confirmed and the assessee has explained source of amount received in its possession, then the assessee cannot be compelled to explain source in the hands of the creditors beyond a particular point. It is noted that overwhelming documentary evidences furnished by the assessee have not been properly examined by the lower authorities. Therefore, we are of the view that this issue needs fresh examination at the end of the AO, therefore, we set aside the order of Ld. CIT(A) on this issue and restore the same to the file of AO with a direction to properly examine the documentary evidence furnished by the assessee. The assessee is also directed to co-operate with the AO for speedy disposal of the issue. The AO is at liberty to take judicious view after providing fair and reasonable opportunity of being heard to the assessee. This ground is allowed for statistical purposes.

In the second ground, the assessee is challenging the action of ld. CIT(A) in confirming the disallowance of additional deprecation on plant and machinery.

Brief facts of the issue are that the assessee has claimed an amount of Rs. 26,30,112/- as additional depreciation. The AO issued ‘show cause’ notice to the assessee as to why the depreciation claimed by him should not be disallowed as the assessee did not carry any manufacturing activity. In response, the assessee submitted that the activities right from the designing of the magazines, procurement of raw material such as paper , ink, chemicals etc, the printing binding and packing of magazines are akin to a manufacturing process and as such they are entitled for additional depreciation. The assessee also relied upon some judicial pronouncements, but the AO rejected the claim of the assessed and added the same to the total income of the assessee.

Being aggrieved by the above said decision of the AO, the assessee contested this matter before the Ld. CIT(A). The assessee reiterated the same submissions before the Ld. CIT(A) as were made before the AO. But he did not agree with the submissions and held the the assessee company is not a manufacturer and has not manufactured any new product from its raw material i.e. raw material paper, and chemicals and ink etc and that new product which emerges out of the printing activity is similar to that of earlier product, therefore, it cannot be said that the paper on which printing has been done by the assessee is a manufacturing activity carried on by the assessee. Therefore, the ld. CIT(A) upheld the action of AO.

Being aggrieved by the order of ld. CIT(A), the assessee is before us.

Before us, the Ld. Counsel submitted that the disallowance has wrongly been made by the AO on the ground that the assessee is involved in the printing magazines, procurement of raw material such as paper, ink, chemicals etc, and during the year the company has started new business of decorative designing, styles. It was further submitted that the Ld. CIT(A) has placed reliance upon the decision of jurisdictional High Court in the case of Jaypee Dyeing House 239 ITR 418 (Bom), which was rendered in different context. It was further submitted that subsequently, in another judgment the Hon’ble Bombay High Court has properly considered the facts and thereafter decided the issue in favour of the assessee in the case of CIT vs Emptee Poly-Yarn Pvt. Ltd. 305 ITR 309, wherein after considering the judgment of Jaypee Dyeing House (supra), it was held that process of designing, printing magazines waterproofing etc conducted in cotton fabrics, wooden fabrics and man-made fabrics, would amount to manufacture. Finally, reliance was placed on the decision of Hon’ble Delhi High Court in the case of CIT vs Delhi Press Patra Prakashan Ltd (2013) 85 CCH 0077, wherein printing of periodicals of magazines was held to be manufacturing activity, and therefore, it was contended that the case of the assessee is squarely covered by this judgment.

On the other hand, the ld. DR relied upon the orders of ld. CIT(A) and case law mentioned therein.

We have heard both the parties and perused the record. We notice that the AO has himself mentioned in the assessment order that the assessee was involved in the business of manufacturing of greetings, magazines, envelopes, etc, and therefore, the AO could not have taken contrary view while dealing with the issue of allowbility of depreciation. It is further noted by us that the Hon’ble Delhi High Court in the case of Delhi Press Patra Prakashan Ltd, (supra), has dealt with this issue at length for holding that the aforesaid activity amount to manufacturing. It has been held that printing of greetings cards on paper amount to manufacturing a new and marketable article, as a distinct product comes into existence. It was further held that it is not necessary that an industrial undertaking must manufacture a commercially new product. It was further held that, in any case, this activity shall amount to ‘production’. As per section 32, an undertaking, engaged in ‘manufacturing’ or ‘production’ shall be eligible to claim additional depreciation. Thus, in view of this, the controversy becomes narrower. Therefore, assessee is eligible for the benefit of depreciation, as it is undisputedly engaged in activity of ‘production’. We also derive support from the decision of Bombay High Court in the case of Emptee Poly-Yarn Pvt. Ltd (supra).

Thus, the position of law is squarely in favour of the assessee, if applied correctly on the facts of the case before us. Therefore, we hold that the assessee is eligible for additional depreciation as claimed by the assessee. We accordingly, set aside the order of Ld. CIT(A) and direct the AO to allow depreciation as claimed for by the assessee.

In the result, the appeal of the assessee is partly allowed. Pronounced accordingly on 4th Dec, 2015. घोषणा खुले �यायालय म� �दनांकः 4th Dec, 2015 को क� गई । Sd/- Sd/- (SAKTIJIT DEY) (ASHWANI TANEJA) JUDICIAL MEMBER ACCOUNTANT MEMBER मुंबई Mumbai: 4th Dec, 2015.