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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI AMIT SHUKLA & SHRI RAMIT KOCHAR
Date of Hearing : 03.11.2015 Date of Pronouncement : 30-11-2015 O R D E R Per Ramit Kochar, Accountant Member,
This is an Appeal filed by the assessee company directed against the OrderS by the learned Commissioner of Income Tax (Appeals)-9, Mumbai (Hereinafter called ‘the CIT(A)’) dated 03.08.2011,the assessee company’s appeal contesting its assessment u/s143(3) of the Income Tax Act, 1961 (Hereinafter called ‘the Act’ ) for the assessment year 2007-08.
The Grounds of appeal raised by the assessee company in the memo of appeal filed are as under:
“ 1. In the facts and circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) ought to have- 1.1 Not confirmed the action of the Assessing Officer (AO) of assessing part of the unsecured loan received form Octal Commodities Private Limited amounting to Rs. 5,00,000/- as unexplained cash credit U/s. 68 of the Act and consequently, ought to have not confirmed the action of AO of disallowing interest expenses thereon of Rs.52,439/- in assessing the total income of the appellant for the assessment year under reference. 1.2 Adjudicated the following Grounds of Appeal preferred before him: AO ought to have not disallowed 4/5th of the salary expenses (a) amounting to Rs. 1,92,000/- paid by the appellant to Mrs. Sherry A. Khan in assessing the total income of the appellant for the assessment year under reference. (b) Without prejudice to the above and in the alternate, AO ought to have disallowed salary expenses at much lower amount than Rs.1,92,000/- as the facts and circumstances of the case justify.
2. It is humbly prayed that the reliefs as prayed for herein above should be granted.
3. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.”
3. The brief facts of the case are that the assessee company is engaged in the business of trading in Garments. The learned Assessing Officer (hereinafter called “the AO”) observed during the course of assessment proceedings u/s 143(3) read with Section 143(2) of the Act that the assessee company has received an amount of Rs.10,00,000/- as unsecured loan from M/s. Octal Commodities Pvt. Ltd.. The AO asked the assessee company to file the loan confirmation in respect of new loan of Rs.10,00,000/- received during the assessment year along with the proof of creditworthiness of the creditors by producing the bank statement and audited balance sheet of the party M/s. Octal Commodities Pvt. Ltd. who has advanced the loan of Rs10,00,000/- to the assessee company. The assessee company filed the zerox copy of confirmation in respect of the unsecured loan of Rs.10,00,000/- received during the assessment year form M/s. Octal Commodities Pvt. Ltd in which it is mentioned that they had advanced loan of Rs.10,00,000/- to the assessee company out of which Rs. 5,00,000/- loan was advanced vide DD No. 202193 and remaining Rs 5,00,000/- loan was advanced vide DD No. 212156 but no bank statement or balance sheet was filed to prove the creditworthiness of the creditors. The assessee company did not filed any further details. The AO made enquiries with the Octal Commodities P Ltd by issuing the notice u/s 133(6) dated 08.07.2009 whereby said Octal Commodities Private Limited filed loan confirmation but no bank statement or Balance Sheet was filed . The AO issued reminder notices u/s 133(6) of the Act dated 27/07/2009 and 11/08/2009 but the said notices came back from postal authorities with the remark “refused”. The assessee company was confronted with this and asked to do compliance but there was no compliance on the part of the assessee company. The AO, then made enquires with the bankers of the assessee company namely Hongkong and Shanghai Bank , Fort branch , Mumbai and it was found that both the DD were issued from ABN AMRO Bank . Notice u/s 133(6) of the Act was issued by the AO to ABN AMRO Bank to give the details of the person who has drawn the above mentioned 2 Demand Drafts of Rs.5 lacs each , copies of bank statements of the account from where the DD was issued and copy of DD requisition slip. In response to this, the ABN AMRO Bank informed that DD No. 202193 is drawn by M/s. Octal Commodities P Ltd. , 4, Balay Das Street Suite No-415, 4th Floor, Kolkatta while DD No. 212156 was drawn by M/s. Trimline Vyapaar Pvt. Ltd., 4, Balay Das Street Suite No-415, 4th Floor, Kolkatta . The assessee company was confronted about this fact and the assessee company was requested to show cause that why the amount of Rs. 5,00,000/- received form M/s. Trimline Vyapaar Pvt Ltd should not be treated as unexplained cash credit u/s 68 of the Act as no loan confirmation from the said parties has been filed by the assessee company . There was no reply submitted by the assessee company to the show cause notice issued by the AO and addition of Rs. 5,00,000/- was made by the AO and also interest of Rs. 52,439/- on this loan of Rs.5,00,000/- was also added to income of the assessee company vide assessment order dated 15.12.2009 passed u/s 143(3) of the Act.
4. Aggrieved by the assessment order dated 15.12.2009 passed u/s 143(3) of the Act by the AO, the assessee company filed the first appeal before the CIT(A).The assessee company submitted before the CIT(A) , additional evidences to substantiate its contentions for which the CIT(A) asked for the remand report from the AO. The AO submitted remand report dated 25.03.2011 and stated in the remand report that during remand report proceedings , the assessee company was asked to submit the ledger account of M/s. Trimline Vyapaar Pvt Ltd in the books of Octal Commodities P Ltd. and copy of balance sheet of both the companies along with the schedules for the assessment year 2007-08 so that the claim made by the assessee company can be verified from the entries recorded in their books of accounts to which the assessee company has replied that they made an effort but they are not able to obtain the required document and submitted that the entire loan has been repaid by them. Hence, on the basis of documents filed, the AO submitted that it is not possible to verify the veracity and the genuineness of the letter issued by the Octal Commodities P Ltd. instructing Trimline Vyapar Limited to issue DD of Rs 5,00,000/- on their behalf . The AO submitted in remand report that the assessee company has not produced the books of creditors neither the creditor has responded to the notice issued by the AO during assessment proceedings. The AO submitted that the assessee company has not filed loan confirmation from Trimline Vyapar Limited who has issued the DD in the name of the assessee company. Even during remand proceedings the assessee company is not able to prove the genuineness and creditworthiness of the creditors and hence, the addition was justified . The copy of remand report was forwarded to the assessee company by the CIT(A) and in reply to the remand report , the assessee company submitted that the assessee company had duly repaid the loan of Rs. 10,00,000/- to Octal Commodities P Ltd. by December 2010 and it was submitted by the assessee company that this addition should be deleted. The CIT(A) rejected the contention and held that the assessee company has failed to prove the identity, genuineness and creditworthiness of this party with respect to amount of Rs. 5,00,000/- received from M/s. Trimline Vyapaar Pvt. Ltd and even confirmation with PAN has not filed which is minimum requirement so, addition of Rs. 5 lacs made under section 68 was confirmed by the CIT(A) vide orders dated 3rd August 2011 5.Aggrieved by the orders dated 03rd August 2011 passed by the CIT(A) , the assessee company filed an appeal before the Tribunal and submitted that the assessee company has duly filed the loan confirmation of Rs. 10 lacs before the AO with respect to loan received from Octal Commodities P Ltd. which is placed at page no. 1 of the paper book .The assessee company submitted that this loan confirmation was duly submitted before the AO with Rs. 5 lacs demand draft received from Octal Commodities P Ltd. issued from their bank account directly while the other Rs. 5 lacs has been received from Octal Commodities Private Limited while the DD was issued by Octal Commodities Private Limited from the bank account of M/s. Trimline Vyapaar Pvt Ltd and a copy of instruction letter issued by the Octal Commodities Private Limited and confirmed by M/s. Trimline Vyapaar Pvt Ltd was also enclosed before the AO but the AO in the assessment order dated 15.12.2009 has not taken such documents so filed into consideration while framing assessment order dated 15.12.2009 u/s 143(3) of the Act. The assessee company submitted that these document are placed at the page 2-6 of the paper book filed by the assessee company before the Tribunal. The assessee company contended that the Revenue is asking the assessee company to prove the source of the source of the loan which is not permissible as per the Act. The assessee company also submitted that the due tax has been deducted at source on the interest accrued in favour of Octal Commodities P Ltd. on the total loan of Rs. 10 lacs raised by the assessee company from Octal Commodities Private and the TDS certificate is placed at page 8 of paper book filed before the Tribunal. The ld. Counsel of assessee company stated before us that the entire loan of Rs. 10 lacs has already been repaid by the assessee company for which the ledger account along with the bank statement were submitted by the assessee company which are placed in the paper book at page no. 9 to 18 filed before the Tribunal.
6.On the other hand the Ld. DR placed reliance on the orders of authorities below and submitted that the assessee company is not able to prove identity, creditworthiness and genuineness of the transaction of loan of Rs.5,00,000/- the DD of which was issued from the bank account of Trimline Vyapar Limited. The said amount of Rs.5 lacs stand credited in the assessee company’s books of account and the assessee company is responsible for satisfying the ingredients of Section 68 of the Act which the assessee company failed to do and hence the additions was rightly made by AO and confirmed by the CIT(A).The creditworthiness of Trimline Vyapar Limited has not been proved and deduction of tax at source is not the basis for satisfying the ingredients of Section 68 of the Act and the initial onus was on assessee company which it failed to discharge.
7 .We have considered the rival contentions and perused the material on record. We have observed that the assessee company raised loan of Rs. 10 lacs from Octal Commodities P Ltd. though banking channel in April 2006. Octal Commodities P Ltd. issued the demand draft of Rs. 5 lacs from their bank account while, for the balance amount of Rs. 5 lacs instructions were issued by the Octal Commodities P Ltd. to M/s. Trimline Vyapaar Pvt Ltd to issue the DD of Rs. 5 lacs in favour of the assessee company on behalf of Octal Commodities P Ltd. towards the of inter-se loan outstanding between them , these facts were stated to have been duly brought to the notice of AO by the assessee company vide letter dated 11.12.2009 which is again placed in the paper book page no. 5 and the assessee company has stated to have duly repaid the loan to Octal Commodities P Ltd. and due TDS on the interest payment have been deducted by the assessee company against Octal Commodities Private Limited for the assessment year 2007-08 and TDS certificate issued by the assessee company favouring Octal Commodities Private Limited is placed at paper book page no.
8. In view of the above findings , we are of the considered opinion that addition of Rs. 5 lacs is not sustainable because the transactions are through banking channels, loan confirmations have been filed, loans are already repaid and also Octal Commodities P Ltd has instructed M/s. Trimline Vyapaar Pvt Ltd to issue the DD of Rs. 5 lacs on their behalf as there was some loan outstanding inter-se between them which fact has been duly accepted by Octal Commodities Private Limited in the loan confirmation filed before the AO and since TDS was also duly deducted on the total interest payment on loan of Rs 10 lacs raised from Octal Commodities P Ltd.(including Rs 5 lacs of which DD was issued from bank account of Trimline Vyapar Limited) . Moreover, with respect to Rs. 5 lacs loan received from Octale Commodities P Ltd. , whereby DD was issued directly from the bank account of Octal Commodities Private Limited , by the assessee company has been duly accepted by the Revenue and no additions has been made by the Revenue with respect to the loan for which DD has been issued directly from bank account of Octal Commodities Private Limited. Thus, in our considered view , addition of Rs. 5 lacs cannot be sustained with respect to remaining loan of Rs 5 lacs received from Octal Commodities Private Limited but for which DD was issued from the bank account of Trimline Vyapar Limited on the instructions of Octal Commodities Private Limited to settle their inter-se loan transaction as revenue has already duly accepted the identity, creditworthiness and genuineness of loan of Rs. 5 lacs received from Octal Commodities P Ltd. whereby DD was issued directly from the bank account of Octal Commodities Private Limited and hence on the same parity , loan of Rs. 5 lacs which has come from the bank account of M/s. Trimline Vyapaar Pvt Ltd on account of settlement of inter-se loan transaction with Octal Commodities P Ltd. cannot be added into the hands of the assessee company as due loan confirmations and other documents as discussed in preceding para’s have been duly submitted to substantiate this loan transaction and thus addition of Rs. 5 lacs need to be deleted. The assessee company’s appeal is allowed on this ground and addition of Rs. 5 lacs made by the AO to the income of the assessee company on account of loan of Rs. 5 lacs received by the assessee company from Octal Commodities Private Limited of which DD was made from the bank account of Trimline Vyapar Limited stand deleted along with deletion of addition on account of interest of Rs.52,439/- on this loan of Rs.5,00,000/- made by the AO and as confirmed by the CIT(A).We order accordingly.
The second ground is related to the disallowance of 4/5th of the salary amounting to Rs. 1,92,000/- paid by the assessee company to Mrs.Sherry A. Khan. It was observed by the AO during the course of assessment proceedings u/s 143(3) read with Section 143(2) of the Act that the assessee company has paid salary of Rs.2,40,000/- to Mrs. Sherry A. Khan during the assessment year who was appointed as the Senior Sales Manager vide appointment letter dated 01.09.2006, for brand Satya Paul and Deepika Gehani which are sold through their stores located at Kemps Corner (2 stores), the Oberoi Hotel Mall Nariman Point, Juhu Tara Road and Inorbit Mall Malad at consolidated monthly salary of Rs. 40,000/- . Thus, she was appointed to manage 5 stores for which she was to receive consolidated salary of 40,000/- per month. The assessee company explained before the AO that except one showroom at Kemps corner all other showroom are owned/operated by Shri Rohit Rewari , Director of the assessee company in his proprietorship concern M/s. West Point Clothing Co.. The assessee company submitted before the AO that while later on she stated vide letter dated 02/09/2006 to work only for one showroom of the assessee company at Kemps Corner instead of working for 5 show rooms as originally accepted by her vide appointment letter dated 01/09/2006. Thus, since she was appointed to work for 5 showrooms, one operated/owned by the assessee company and four showrooms are operated /owned by the proprietor Mr. Rohit Rewari in his proprietor ship concern , the AO disallowed the 4/5th of the salary treating the letter dated 02nd September 2006 as merely afterthought.
Aggrieved by the assessment order dated 15.12.2009 passed u/s 143(3) of the Act, the assessee company filed first appeal with the CIT(A) and reiterated its submissions as made before the AO. The assesssee company submitted that the disallowance of salary is not justified and alternatively rather the disallowance of salary should be restricted to a reasonable amount. The CIT(A) vide orders dated 03.08.2011 rejected the contention of the assessee company and confirmed the additions made by the AO.
Aggrieved by the orders dated 03-08-2011 passed by the CIT(A), the assessee company has filed appeal before the Tribunal. The assessee company submitted that Mrs Sherry A Khan was appointed vide appointment letter dated 01/09/2006 to work for 5 showrooms which are dealing with the brand Satya Paul and Deepika Gehani and later on said Mrs Sherry A Khan vide letter dated 02/09/2006 agreed to work only for the Kemps Corner showroom owned/operated by the assessee company and not for other four showrooms which are owned/operated by Mr Rohit Rewari through his proprietorship concern. The assessee company submitted that since she was capable for promoting the brand Deepika Gehani and was recommended highly by the assessee company’s principle i.e. Deepika Gehani and hence , the assessee company agreed that to pay salary of Rs. 40,000/- per month originally agreed vide appointment letter dated 01/09/2006 despite that she will only look after Kemps Corner showroom instead of 5 showrooms as originally agreed by Mrs. Sherry A Khan. The assessee company produced before us letter dated 02.09.2006 signed by Mrs. Sherry A. Khan along with her appointment letter dated 01/09/2006 which are placed in the paper book page No. 19 to 22 which were stated to have also been submitted before the authorities below. The assessee company also submitted details of in-charge of other stores owned by Mr Rohit Rewari along with the certificate of store in-charge which are placed at page 23-25 of paper book filed before the Tribunal.
The Ld. DR relied upon the orders of the authorities below.
We have considered the rival contentions and perused the material on record. We have observed that the assessee company appointed Mrs. Sherry A. Khan vide appointment letter dated 01/09/2006 to look after five stores on consolidated monthly salary of Rs. 40,000/- out of which 4 stores are operated/owned by the Director of the assessee company Mr Rohit Rewari through his proprietor ship concern while it is the Kemps Corner showroom which is operated/owned by the assessee company while later on Mrs. Sherry A. Khan agreed to work only for one store at Kemps corner owned/operated by the assessee company vide letter dated 01/09/2006 as per the facts emerging from the record which has been doubted by the Revenue . The assessee company however paid salary of Rs. 40,000 per month as originally agreed with Mrs. Sherry A Khan despite she agreeing to work for only one store instead of five stores as originally agreed vide appointment letter dated 01-09-2006 . The AO has disallowed the salary expenses of Rs.1,92,000/- being 4/5 of salary expenses on the ground that initially Mrs. Sherry A Khan agreed to work for 5 stores vide appointment letter dated 01/09/2006 out of which only one store is owned/operated by the assessee company while the rest four are owned/operated by its Director Mr Rohit Rewari through his proprietor ship concern and later on vide letter dated 02/09/2006 she agreed to work for only one showroom owned/operated by the assessee company and despite this the assessee company agreed to pay full salary of Rs.40,000 per month and the AO treated the letter dated 02/09/2006 as afterthought and disallowed 4/5 salary as Mrs Sherry A Khan originally agreed to work for 5 store out of which 4 stores are not owned/operated by the assessee company but by its Director Mr Rohit Rewari in his proprietorship concern for consolidated monthly salary of Rs.40000/- to work for all the five stores. In the alternative and without prejudice, the assessee company has asked for reasonable disallowance at much lower amount than Rs.1,92,000/- In our considered view based on facts and circumstances of the case, these facts with respect to appointment of Mrs. Sherry A Khan originally to work for five stores and her change of stand to work for only store and assessee still agreeing to payments of salary as originally agreed require proper enquiry and the interest of justice will be best served if the matter is restored to the file of the AO to reconsider the entire issue de-novo and then decide the issue on merits after allowing reasonable opportunity of hearing to the assessee company in accordance with the principles of natural justice. The assessee company shall be allowed to produce relevant evidences as may be required in their defense which shall be admitted by the AO and decided on merits in accordance with law. We order accordingly. In the result, the assessee company’s appeal is partly allowed.. Order pronounced in the open court on November 30th , 2015 Sd/- sd/- (Amit Shukhla) (Ramit Kochar) Judicial Member Accountant Member Mumbai; Dated : 30.11.2015 Ps:- Pooja K. Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT – concerned 5. DR, ITAT, Mumbai 6. Guard File BY ORDER,