2021 (1) TMI 678 - AT - Income Tax

Addition u/s 68 - whether the lender parties were making some paper formalities - loan from dummy/shell/bogus/paper/briefcase entities - CIT-A deleted the addition - HELD THAT - Assessee had taken loans through banking channels from its own group entities in whose cases too, simultaneous survey proceedings were carried out u/s. 133A of the Act and during the course of such survey proceedings, the lender companies and their directors were duly found in existence. During the course of the search/survey operations, no incriminating material or evidence was found. In the entire body of the assessment order, as also, in the paper book filed by the Revenue before us, there is no reference of any incriminating document. Entire assessment order is based upon some statements recorded by the Investigation Wing or by some other authorities on some earlier occasions, and the AO has not conducted any independent inquiry at his own from the lender companies, despite the assessee s making a specific request to him to issue summons u/s. 131 or letters u/s. 133(6) to the lender companies. Recently, the Coordinate Bench of Mumbai in the case of Smt. Kalpana Mukesh Ruia vs. DCIT 2021 (1) TMI 93 - ITAT MUMBAI has deleted the addition made u/s. 68. Source of alleged amount was from liquidation of investment made in the earlier years. The dispute about the source of fund utilized for making the investment in earlier years before the tax authorities in itself cannot be the sole basis to make the addition in the hands of the assessee as unexplained cash credit for the amount received from liquidating the investments made in the shares of unlisted companies which were invested in the earlier years and were duly appearing in the audited balance sheet. The alleged sum is received from sale of shares appearing as opening balance in the investment account. There is no dispute about the identity, genuineness and creditworthiness of these companies, the equity shares of which were sold by the assessee during the year and the funds were thereafter utilized to make the fresh investments. It is a simple case of switch over of investments from one company to another and is not the case of fresh loan received during the year. We thus find no substance in the ground that since the assessee has agitated the addition qua the share capital and share premium shown to have been received by it during assessment year 2008-09 by filing an appeal the assessee cannot claim the availability of such fund for making the investments. It is not in dispute that the matter for Assessment Year 2008-09 is open and the fate of the issue of the addition for that year will have its own process. We thus find no justification in the action of Ld. A.O making the addition for unexplained cash credit and thus find no inconsistency in the finding of Ld. CIT(A) deleting the addition. Addition u/s. 68 in respect of unsecured loan claimed to have been received by it from M/s. Etima Emedia Ltd. - Assessee had furnished before the AO, copy of PAN, bank account statement of the lender company, audited financial statement, profit and loss account statement, certificate of incorporation, copy of MOA and AOA, details collected from website of Ministry of Corporate Affairs and confirmation of lender. All these documents have also been furnished by the assessee - We find that the Ld. CIT(A) has dealt in depth with the various documentary evidences furnished by the appellant and reached to the conclusion that the appellant had been able to satisfy all the three condition required for genuineness of transactions u/s. 68 of the Act. We thus find that the assessee had discharged its onus of proving the genuineness of the sum credited in its books of accounts as contemplated u/s. 68 of the Act and since, no inquiry was conducted by the AO, the addition was not sustainable as held in similar case by the Hon ble Karnataka High Court in the case of M/s. Kumar Nirman and Nivesh Pvt. Ltd. 2020 (3) TMI 340 - KARNATAKA HIGH COURT We are satisfied with the identity and creditworthiness of the cash creditor M/s Etima Emedia Ltd and also satisfied with the creditworthiness of the cash creditor - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition made under Section 68 of the Income Tax Act for unexplained cash credits.
2. Deletion of addition for delay in depositing employees' contribution to PF and ESIC.
3. Adhoc disallowance of power and fuel expenses.

Detailed Analysis:

1. Deletion of Addition under Section 68 of the Income Tax Act:

M/s Ariba Foods Pvt. Ltd (Assessment Year 2016-17):
- Background: The assessee, a food processing company, was subjected to survey proceedings. The AO made an addition of ?12,44,12,690 under Section 68, claiming the loans from three companies (Dwarkesh Finance Ltd., Famous Vanijya Pvt. Ltd., and Navyug Vyapar Pvt. Ltd.) were unexplained.
- CIT(A) Findings: The CIT(A) deleted the addition based on four reasons:
a) No opportunity for cross-examination was provided.
b) The case was converted from limited to complete scrutiny without proper justification.
c) Additions were based on suspicion without incriminating material.
d) Documentary evidence supporting the creditworthiness of lenders was ignored.
- Tribunal’s Decision: The Tribunal upheld the CIT(A)'s decision, emphasizing the need for cross-examination and the sufficiency of documentary evidence provided by the assessee. The Tribunal also noted the lack of independent inquiry by the AO and reliance on statements recorded without confronting the assessee.

M/s Vyanktesh Plastics and Packaging Pvt. Ltd (Assessment Year 2015-16):
- Background: The AO made an addition of ?3,44,79,554 under Section 68 for loans from Dwarkesh Finance Ltd. and Navyug Vyapar Pvt. Ltd.
- CIT(A) Findings: The CIT(A) deleted the addition, noting the documentary evidence provided by the assessee proving the identity and creditworthiness of the lenders and the genuineness of the transactions.
- Tribunal’s Decision: The Tribunal confirmed the CIT(A)'s decision, applying the same rationale as in the case of M/s Ariba Foods Pvt. Ltd., and found no reason to interfere with the CIT(A)'s findings.

M/s Famous Vanijya Pvt. Ltd (Assessment Year 2011-12):
- Background: The AO made an addition of ?4,16,15,000 under Section 68, questioning the genuineness of refunds received from earlier investments and loans from Etima Emedia Ltd.
- CIT(A) Findings: The CIT(A) deleted the addition, stating the assessee had provided sufficient documentary evidence to prove the identity and creditworthiness of the lenders and the genuineness of the transactions.
- Tribunal’s Decision: The Tribunal upheld the CIT(A)'s decision, emphasizing the sufficiency of the documentary evidence and the lack of incriminating material found during the survey. The Tribunal also noted the principle of avoiding double taxation and the need for independent inquiry by the AO.

2. Deletion of Addition for Delay in Depositing Employees' Contribution to PF and ESIC:

M/s Vyanktesh Plastics and Packaging Pvt. Ltd (Assessment Year 2015-16):
- Background: The AO made an addition of ?52,552 for delay in depositing employees' contribution to PF and ESIC.
- CIT(A) Findings: The CIT(A) deleted the addition, relying on judicial precedents that allowed such deductions if deposited before the due date of filing the return.
- Tribunal’s Decision: The Tribunal confirmed the CIT(A)'s decision, citing the judgment of the Hon’ble Rajasthan High Court and other precedents.

3. Adhoc Disallowance of Power and Fuel Expenses:

M/s Vyanktesh Plastics and Packaging Pvt. Ltd (Assessment Year 2015-16):
- Background: The AO made an adhoc disallowance of ?4,50,000 on power and fuel expenses, questioning the consistency of expenses despite lower production.
- CIT(A) Findings: The CIT(A) deleted the disallowance, stating it was made on a lump sum and presumption basis without finding any incriminating material.
- Tribunal’s Decision: The Tribunal upheld the CIT(A)'s decision, noting the payments were made through banking channels to a government undertaking and the AO failed to find any defect in the books of accounts.

Conclusion:
The Tribunal dismissed all the appeals raised by the Revenue, confirming the CIT(A)'s decisions in favor of the assessees, based on the sufficiency of documentary evidence, adherence to principles of natural justice, and lack of independent inquiry by the AO.