9911796707
TMI Blog2016 (6) TMI 1295X X X X Extracts X X X X X X X X Extracts X X X X ..... is an admit ted fact that the original return of the assessee was processed u/s 143(1)(a) only at ministerial staff level and no finding had be en o r e v en can be recorded, by the AO during such processing, about the genuineness of loan transactions constituting the reasons for issue of notice u/s 148. The AO was therefore, fully justified in invoking provisions of section 147, as has been held by the Apex Court in ACIT v Rajesh Jhaveri Stock Brokers P Ltd.(2007 (5) TMI 197 - SUPREME Court) . There is thus absolutely no merit in the assessee's contention challenging the reopening of assessment u/s 147 and issue of notice u/s 148 and the same are found to be validly initiated and in accordance with law. - Decided against assessee Disallowance of interest - Held that:- The stand alone disallowance of interest without establishing such loans to be unexplained and in-genuine in assessee own case, does not have sanctity and approval of law. - Decided against revenue Disallowance u/s 14A - Held that:- Interest receipts in this case were much higher than interest paid and since the interest was mainly received on FDR which are required to be made for obtaining overdraft facility, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .63/Ind/2012 (Arising out of I.T.A.No. 202/Ind/2012), I.T.A.Nos. 389/Ind/2012, 807 & 808/Ind/2014 - - - Dated:- 27-6-2016 - Shri D.T. Garasia, Judicial Member And Shri B.C.Meena, Accountant Member Department by : Shri Rajeev Varshaney and Shri R. A. Verma, DRs Assessee by : Shri Ajay Vohra, Advocate Shri Ajay Tulsiyan, Shri Rohit Jain and Shri Kapil Shah, CAs ORDER D.T.Garasia, J.M. All these appeals pertain to the same group of assessee. Since common issues are involved, they are all heard together and decided by this common order for the sake of convenience. 2. During the course of hearing, both the parties had agreed that most of the grounds will be covered if we decide Appeal no. 294/Ind/2012. Therefore, first we will decide Departmental Appeal No.294/Ind/2012. 3. The short facts of the case are as under :- 4. The assessee company is engaged in the business of coal trading and power generation. Return of income declaring total income was filed declaring total income of ₹ 43,92,06,790/-( Book profit u/s 115JB at ₹ 43,89,86,856/-). The AO has noted the details of issue of statutory notices and broad compliances made by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total 6,69,00,000 1,03,20,567 The AO issued notice u/s 133(6) to such Kolkata based companies on the addresses given by assessee company and further deputed two inspectors attached to his Range to make enquiries and also got further enquiries made with the Investigation Wing at Kolkata and for which Commissions u/s 131(d) were issued. The AO has then incorporated the details of enquiry report submitted by the Inspectors in respect of 12 companies as per para 2.6 of assessment order on page 3 to 7. There after the AO has reproduced contents of Commission issued u/s 131 (d) in the case of the appellant and also in other cases which were simultaneously being examined by him on page 7 of the assessment order abstracted here under: On the perusal of the case records during assessment proceedings of the Companies for A. Yr. 2008-09 mentioned as under, it is observed that heavy amounts have been reflected in their Balance Sheets towards Share Application Money received. These names are mentioned in the five lists enclosed with the letter as Annexure A to E. The Notices issued to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent company and they had not shown very much profit in the financial under review. Inspite of that they had issued share at a very high premium and shares were to different companies and all these companies were incorporated recently. As a result, creditworthiness of these companies could not be ascertained. Rest of the companies has not yet made any compliance Hence, undersigned cannot ascertain the identity, genuineness creditworthiness of these companies. Furthermore you are kindly requested that depute any Inspector, so that they can collect all details which was furnished by the assessee. The AO also deputed two Inspectors attached to his range again for further enquiry on 16.12.2010 in continuation of their first visit on 3.12.2010 and has reproduced the second report submitted by IT Inspectors dated 23.12.2010.The AO, thereafter, has drawn conclusion from such enquiry report in para 2.11 to 2.12 hereunder: 2.11 A perusal of huge inflow-outflow of fund without any business rational in the accounts of the companies (claimed share applicant) clearly lead to the conclusion that such company was being used as conduit for floating of unaccounted funds and mere existence on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... serving as under :- 4.1 The first and foremost ground of appeal is directed against addition of ₹ 6.69 crores for loans taken from 12 Kolkata based companies as per chart included in para 2.3 of assessment order treated as unexplained. The AO (Addl. ClT, Range-5) had deputed two Inspectors attached to his Range in making local enquiries at Calcutta in the month of December, 2010; first time for the period 6.12.2010 to 10.12.2010 and then again for the period 20.12.2010 to 25.12.2010.The AO also took assistance of the Investigation Wing of the department based at Calcutta to make verification about the existence of these 12 Calcutta based companies from whom the appellant borrowed substantial funds during the year under consideration. The AO has taken note of the enquiry report submitted by DDIT (Inv. Wing) and on page 8 of the assessment order it will be worthwhile to reproduce the report submitted by DDIT (Inv. Wing)-13, Kolkata to appreciate the fact surrounding the transactions i.e. identity of such creditors and further genuineness and creditworthiness of such transactions. 4.1.1 The Inspectors in their enquiry report have noted that two companies M/S. Aereo Deal C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioning at the given address. Copies of the returns are also enclosed. Shri Ravin Umarethiya is the Accountant to both these Companies and in his Statement he has admitted that these Companies have not applied for any shares in M/s.Agrawal Coal Corporation Pvt. Ltd., Indore, but have provided unsecured loans/advances to it. The remaining six companies mentioned above were existing earlier and they have now merged into M/s. Middleton Goods Put. Ltd, Kolkata which is now functioning at the same address. In the statement of Shri Ramchandra Kedia, he has admitted that these six companies had advanced un-secured loans to M/s.Agrawal Coal Corporation. Pvt. Ltd., Indore and therefore, these transactions with the assessee Company M/s.Agrawal Coal Corporation Pvt. Ltd. appear to be genuine. 4.1.2 The Inspectors in their second report submitted after subsequent visit reported that M/s. Savera Distribution Pvt.Ltd. could not be located at the given address and neither any Sign Board was there and the liftman of the building expressed his ignorance about company's name and thus the Inspectors concluded that identity of such company appeared to be doubtful. The AO based on Inspectors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies which are legal and juristic persons were not in existence. 4.1.5 The AO after taking note of such factual and legal submissions made by the appellant had very elaborately discussed the provisions of Section 68 and also issues arising in case of share capital contribution in Pvt. Ltd. companies discussed in detail find legal position emerging from the dismissal of SLP by Hon'ble Supreme court in the case of Lovely Export as reported in 216CTR 195 and he has concluded that the loan aggregating to ₹ 6.69 crores were Unexplained and as a consequential finding has also disallowed interest paid payable on such loans aggregating at ₹ 1,03,20,567/-. 4.1.6 It may be observed here that much of case laws and the discussions made by AO on page 25 to 34 are more relevant and directly related to share capital contribution in the case of Purvi Finvest Pvt. Ltd. and by other Pvt. Ltd. companies for which separate additions have been made by AO at ₹ 1.55 crores as per discussion in para 4 of the assessment order referring to such detailed legal discussion. The same would be accordingly considered in deciding the ground relating to said addition of ₹ 1.55 cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lkata High Court and even the Inspectors in the initial report has certified their genuineness. The appellant in compilation filed has included copy of amalgamation order passed by Hon'ble Kolkata High Court and copy of notification of such amalgamation in news paper and consolidated final Balance sheets and Profit Loss Accounts as included in compilation on page 295 and 296 and other schedule attached to such final accounts; in particular the details of loans and advances as included in compilation on page 299 where all such loans were given to the appellant by the aforesaid six companies together with interest payable are duly reflected. The transactions with the appellant have been duly confirmed by these lender companies in response to the AO's notices u/s 133(6), before the ITIs and before DDIT (Inv.), Kolkata also against issue of summons u/s 131 compliances were made by filing of copies of audited annual accounts, photocopy of Bank statement and confirmation letters. It has to be necessarily concluded that the appellant had fully discharged the onus to establish the identity and creditworthiness of these six companies and genuineness of loan transactions and accordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the financial position of the company was dubious and nominal returned income was disclosed. 4.3.2 The appellant in another compilation (Paper Book 'D') has included a copy of NBFC registration issued by the RBI at page 836 and an intimation u/s 143(1) for the AY 2009- 10 at page 835 wherein a refund of ₹ 14.67 lacs has been issued to this company and also assessment order for Asstt. Year 2002~ 03 of this company at page 833 and 834 wherein the source of shareholders fund being share capital and share premium account was examined and found to be verifiable and detailed findings in this behalf have been recorded in the said assessment order. It will be appropriate to reproduce the same here under for ready reference: It also appeared from the said documents that the assessee company had infused fresh share capital for ₹ 47,75,OOO/-. Again assessee company had received total share premium of ₹ 4,29,75,OOO/- on account of share allotment. Thus total 'Share Capital' was raised to the tune of ₹ 4,77,5O,OOO/-. Assessee company was asked to provide list of new 'Share holders' from whom such fresh share capital was raised. The AR had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the loan of ₹ 25 lacs from CHAMAK TREXIM PVT. LTD. which is also a registered NBFC with RBI it is noted that the appellant has opening balance of more than ₹ 3.91 crores from the same company during the year under consideration. A larger amount of ₹ 78.86 lacs was repaid and substantial interest of ₹ 59.19 lacs was paid after deducting the TDS. As per the repayment char t on page 851 of paper book D the loan stand fully repaid in Feb 2010. The position in respect of enquiry report submitted by Inspectors and compliances made before DDIT is exactly the same as noted in the case of Aereo Dealcomm Pvt. Ltd. , above. As per relevant final accounts and other documents of this company are concerned, the same are filed in the compilation from page 201 to 245. In this company also the main source of income is interest and gross amount is reflected at ₹ 85.30 lacs and net prof it is in excess of ₹ 14 lacs and loan in the name of appellant company is duly reflected including opening balance of repayment is at ₹ 3.84 crores. 4.4.1 The AO of this company for Asstt. Year 2004-05 in assessment order passed u/s 143(3) on 31.01.2006 has verified the sou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company on the record of the department. 4.5.1 Coming to non-availability of the appellant company at the given address it was clarifyied by the AR present that the amount was repaid to the company in March, 2009 and thereafter there being no transaction with the said company present addresses were not available with the appellant company. It was also pointed out that the appellant has since obtained the current intimation u/s 143(1) of the appellant company wherein the changed address at 7/1A, Grant Lane, 2nd floor, Room No.206, Bau Bazar, Calcutta, is reflected and the same address is available on the site of Ministry of Corporate Affairs as downloaded and included in compilation on page 923 which also reflect that the company was having regular AGM and latest Balance sheets for financial year 2010-11 was also filed with ROC. Thus it was contended that the enquiry report on being confronted to the appellant at the fag end of limitation period, the appellant could not clarify the present address which the AO could have very well obtained by apprising the site of Ministry of Corporate Affairs as has been now done by the appellant. Reference was also made to the decision of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creditor, as the summons issued by the DDIT as wel l as by the ADIT were served on the same address on which the AO's enquiry letter u/s 133(6) was served and the said lender company duly complied with these authorities from the same address as evident from the letter head, still further referring to the repayment char t of loans at page 956 of paper book D that the amount was repaid as early as in the month July, 2008 and thereafter there was no contact with the said company and the documents were obtained from the site of ROC. Page 507 of compilation established that such company was in existence during financial year 2006-07 and 07-08 and if assuming for a moment that the said company itself discontinued its operation or changed its address thereafter no adverse inference can be drawn against the appellant in respect of loan transactions done through banking channel on which due taxes were deducted at appropriate rate of interest payment made. The E- ITR acknowledgement enclosed in compilation for AY 2007-08 reveals that the company had shown gross total income at a nominal amount of ₹ 31,318/- and has claimed a refund of ₹ 4.73 lacs on account of excess TDS dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther compilation at page 959 and 960 for Asstt. Year 2006-07 where the income returned at ₹ 14.32 lacs was accepted without variation and no adverse findings of any short were recorded in the assessment, order passed and a refund of ₹ 7.78 lacs was worked out. 4.7.1 Thus in view of the aforesaid factual position it has to be necessarily concluded that the appellant had discharged primary onus cast u/s 68 of the Act. Even though the Inspectors in the enquiry report during their visit could not locate the company at the given address but have reported that this company was not existing at that address as on that date and as per local enquiries it was gathered by them that such company was in existence about a year back from the period of their visit in December, 2011. The AR present emphasized that in the concluding para of the report of the ITIs reproduced in the assessment order on page 6, just below the findings given in respect of this company have categorical lystated that al l the locations were visited and only two companies namely Reward and Pushpak could not be located and thus have doubted the identity of these two companies and not of Paradise. It was also e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount than the amount taken during the year stand accepted in the immediately preceding year. Thus on consideration of available facts on record and in particular considering the fact the company was in existence in earlier years, it is held that the appellant has discharged the onus cast u/s 68 in this behalf and the loan of ₹ 12 Lacs is directed to be treated as explained. 4.9 Before concluding it has to be observed, as also pointed out by the AR, that there is no specific adverse comment in the assessment order on the voluminous documents filed as discussed above substantiating all the three ingredients of section 68 and detailed submissions made by the appellant during the assessment proceedings remained uncontroverted and AO has mainly banked on ITIS and DDIT'S report, which were in no way conclusive. 4.10 To sum up the entire cash loan taken during the year under consideration from 12 companies aggregating at ₹ 6.69 crores is held to be explained and accordingly the addition made by AO in this behalf is directed to be deleted. 4.11 Ground No. 2, in the matter of disallowance of interest at ₹ 1,03,20,567/- on aforesaid loans held to be unexplai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtment and also in favour of the assessee. Therefore, each case has to be decided on the facts of its own case. The ld. Departmental Representative submitted that the loan was received from 12 companies and the genuineness of the same could not be proved. Inspector was also deputed to make the enquiry at Kolkata and the AO also got enquiries conducted from Investigation Wing, Calcutta. The ld. Departmental Representative during the course of hearing has relied upon the decision of Agrawal Coal Corporation Private Limited vs. ACIT, 19 Taxman.com 209 (I.T.A.T. Indore Bench), wherein in the same group, the Tribunal has dismissed the appeal of the assessee and this is the same assessee who is in the another assessment year before this Tribunal and when once the Tribunal has decided the issue in favour of the Department, the Tribunal is bound to follow the order of the Tribunal and the present appeal deserves to be dismissed. Those appeals relate to assessment years 2005-06 and 2006-07 and in the years under consideration i.e assessment year 2008-09, the same assessee has not provided any information. Therefore, the appeal may be dismissed. Similarly, the ld. Departmental Representative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 169 (Del) 16. Ashok Mahindra Sons ( HUF) VS. CIT, 173 Taxman 178 ( Del ) 17. Jt. CIT vs. Saheli Leasing Industries Limited, 324 ITR 170(S.C.) 18. Vaibhav Cotton (P) Limited vs. ITO, 139 ITR 254 I.T.A.T., Indore Bench 19. CIT VS. Durga Prasad More, 82 ITR 540 (S.C.) 7. The ld. Departmental Representative relying upon these decisions has argued that u/s 68 of the Act, the probability has to be seen and in this case, the enquiry has been made by the ITO and no one was found at the given address. Therefore, the ld. CIT(A) is not justified in his action of deleting the addition. 8. The ld. Authorized Representative has argued orally and has also submitted the written submissions in all the appeals, which are placed on record. The ld. Authorized Representative for the assessee contended that there is no merit in the present appeal filed by the Revenue. Extensive enquiries were conducted by the AO to verify the loan transactions which may broadly be categorized in five stages. The notices were directly issued under section 133(6) of the Act in December, 2010 to the lenders calling for documentary evidences in support of the amounts advanced. In response thereto, var ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rized Representative for the assessee relied upon the following decisions :- (i) Orissa Corporation (P) Ltd., 159 ITR 78. (ii) CIT vs. Metachem Industries, 245 ITR 160 (iii) Ashok Pal Daga v. CIT: 220 ITR 452 (MP) (iv) CIT v. Khoobsurat Resorts (P.) Ltd.: 256 CTR 371(Del) (v) Orient Trading Co. Limited: 49 ITR 723 (Bom.) (vi) CIT v. Bahri Brothers: 154 ITR 247 (Pat.) (vii) DCIT v. Rohini Builders: 256 ITR 360 (Guj) (viii) CIT v. Apex Therm Packaging (P.) Ltd.: 222 Taxman 125 (Guj) (ix) Nemi chand Kothari v. CIT: 264 ITR 254 (Gauhati) (x) CIT v. Morani Automotives (P.) Ltd.: 264 CTR 86 (Raj) (xi) ACIT v. Kalani Industries Ltd.: 8 ITJ 165 (Indore). 9. The settled legal position is that the initial burden to satisfy the ingredients of section 68 of the Act is on the assessee and once the initial burden is discharged and there is nothing to controvert the evidences placed on record by the assessee, addition cannot be made by the assessing officer under that section. 10. In this regard, it was further submitted that there is no dispute that the initial burden lies on the assessee to prove the identity and creditworthiness of the creditor. However, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an repaid in February, 2010; Company registered as NBFC; Creditor responded to notices issued under section 133(6) by the assessing officer and also in response to notice under section 131 of the Act issued by the DDIT(Inv.). Kolkata. Chamak Trexim Pvt. Ltd. Documentary evidences like confirmations, bank statement, income-tax return, audited accounts, TDS certificate, Master data of company with ROC, Memorandum of Association, have been placed on record; Existence of company accepted by Inspectors in report dated 10.12.2010 and its existence has also not been disputed by the AO; Statement of the accountant was recorded by the Inspector, wherein he confirmed the loan transaction with the assessee; In assessment for A.Y. 2004-05, source of funds of the creditor company were examined and verified by the AO of the creditor company u/s 143(3), which further establishes the identity and creditworthiness. Opening balance from the company was accepted since no addition was made in A.Y. 2007-08; Company had shown interest income of ₹ 85.30 lacs and profit of ₹ 14 lacs in A.Y. 2008-09, thus, reflecting a healthy financial position Entire loan repaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsuant to order of the Hon'ble High Court after all regulatory compliances, establishes the identity and existence of the erstwhile creditors; In the books of the merged entity, amount of loans advances to the assessee-company is duly reflected. No specific finding has been recorded by the assessing officer in respect of the above six creditors and therefore, additions in respect of amount received therefrom is legally unsustainable and rightly deleted by the CIT(A). Reward Consultants Pvt. Ltd. : Documentary evidences like confirmations, bank statement, income-tax return, audited accounts, TDS certificate, Master data of company with ROC, Memorandum of Association, have been placed on record; On enquiry, Inspectors found that the current occupant of the premises was some other company and the current owner of the premises clarified that he purchased office from Sh. O.P. Agarwal, key person of Reward Consultants Pvt. Ltd. in the year 2007. Thus, existence of the creditor cannot be disputed; Opening balance from the company stands accepted, since no addition was made in A.Y. 2007-08; Entire loan repaid in September, 2010; Creditor responded to notices issued under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a; As per audited annual accounts of the company as on 31.03.2008, there were shareholders fund of ₹ 13.66 crores. Further the company showed turnover of ₹ 2.34 crores and interest income of ₹ 18.72 lacs, thus, reflecting a sound financial position. In the assessment, the assessing officer has simply referred to the report of inspector dated 23.12.2010 wherein it has been observed that identity of company is doubtful. In rebuttal, it is submitted that simply because nobody could identify the company when inspectors visited the premises cannot be the ground to doubt the transaction. The assessee had repaid the loan and hence was not aware of the change in address of the party. In view of the above, addition made by the assessing officer is legally unsustainable and rightly deleted by the CIT(A). Paradise Garments Pvt. Ltd. : : Documentary evidences like confirmations, bank statement, income-tax return, audited accounts, TDS certificate, Master data of company with ROC, Memorandum of Association, have been placed on record; On enquiry, Inspectors were informed by the current occupant of the premises that the company was in existence at the given addre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... established through various level of enquiries conducted by the AO himself. Further the creditors involved in assessment year 2005-06 were entirely different from the creditors involved in the present appeal of assessment year 2008-09. 19. The Ld. Authorized Representative for the assessee also submitted that the observation of the AO while issuing commission u/s 131D to the DDIT Investigation Kolkata were factually incorrect as the assessee has not received any share application money from Kolkata based parties but received only unsecured loans and the observation that the notices issued u/s 133(6) have been returned un-served was also not correct as all the notices were served and were also complied by the creditors. He also stated that the Inspectors in their enquiry report have not only admitted the existence of most of the companies but in some cases have also stated that the transactions with the assessee company appear to be genuine. He also submitted that the assessee was never required to produce the directors of the creditor companies. 20. We have heard the rival contentions of both the parties. We have gone through the assessment order and also the order of the CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15,06,345 10. Ranchhod Agencies Pvt. Ltd. - 14,00,000 7,746 1,595 - 14,06,151 11. Prathmesh Vanijay Pvt Ltd. - 20,00,000 21,721 4,474 - 20,17,247 12. Lambodar Barter Pvt Ltd. - 47,00,000 37,909 7,809 - 47,30,100 TOTAL 6,69,00,000 1,03,20,567 22. During the assessment proceedings, the AO has tried to verify the aforesaid unsecured loan. Notices were issued u/s 133(6) to the lenders calling for documentary evidences in support of the amounts advanced. Secondly, the Income-tax Inspectors were deputed personally to visit and make enquiries. The Commission was also issued to DDIT, Kolkata u/s 131 of the Act and Income tax inspectors were again deput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso shown the interest income of ₹ 47.83 lacs and profit of ₹ 11.20 lacs in assessment year 2008-09 reflecting a healthy financial position. 24. During the course of hearing, the ld.Authorized Representative for the assessee submitted that in assessment year 2007-08, the opening balance of the company was ₹ 98,73,663/- which has been accepted by the department as no addition was made in that year and this year interest was paid of ₹ 33,04,583/-. We find that the loan receipt from this company were repaid in February, 2010. The inspector has confirmed that the accountant of this company of whom statement was also recorded by the Inspector, has confirmed having advanced unsecured loan to the assessee. The DDIT has also issued summons u/s 131 and in response to that the Company has filed the copy of the audited annual account, photocopy of the bank statement and confirmation. Therefore, the Inspector and DDIT have confirmed the existence of such company. The assessee has also filed copy of the assessment order for assessment year 2002-03 of the said lender company, wherein the shareholder funds being shareholder capital and share premium account was examined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransactions are genuine. The fact that the companies were merged pursuant to the order of the Hon'ble High Court after all regulatory compliances, establishes the identity and existence of the erstwhile creditors. Similarly, in all the other cases, namely, Reward Consultants Private Limited, Pushpak Trading Consultancy (P) Limited, Savera Distribution Private Limited and Paradise Garments Private Limited, the assessee has filed documentary evidence like confirmations, bank statements, income tax returns, audited reports, TDS certificates, Master data of the Company with Registrar of Companies, Memorandum of Association. In the case of Reward Consultants Private Limited, on inquiry made by the Inspector, it was informed that the present occupant has purchased the office from one Shri O.P. Agrawal who was the key person of M/s. Reward Consultants Pvt. Limited. This lender company had turnover of ₹ 1.66 crores, gross interest of ₹ 32.54 lacs and net profit of ₹ 9.43 lacs in assessment year 2008-09. Opening balance from the said company stands accepted, since no addition was made in the AY 2007-08. The entire loan was repaid in September, 2010. The said credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the receipt, be it loan, advance, share application money, etc. The expression `source envisages establishing the identity and creditworthiness of the source/ person from whom the amount is received. However, once reasonable explanation is furnished by the assessee, the onus, shifts to the Revenue. 28. We find that in the case of Orissa Corporation (P) Limited, 159 ITR 78, in the context of requirement of the assessee to discharge primary onus under section 68 of the Act, observed that the assessee having given the names and addresses of the creditor who were income-tax assessees, the mere fact that such creditors did not respond pursuant to notice under section 131 of the Act could not be used against the assessee. The Hon'ble Supreme Court observed as under: In this case, the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assessees. Their index numbers were in the file of the Revenue. The Revenue, apart from issuing notices under section 131 at the instance of the assessee, did not pursue the matter further. The Revenue did not examine the source of income of the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oment the firm gives satisfactory explanation and produces the person who has deposited the amount, then the burden of the firm is discharged and in that case that credit entry cannot be treated to be income of the firm for the purposes of income-tax. It is open for the Assessing Officer to take appropriate action under section 69 of the Act against the person who has not been able to explain the investment. In the present case, there is the concurrent finding of both the Commissioner (Appeals) as well as of the Tribunal that the firm has satisfactorily explained the aforesaid entries. 30. We find that in the case of S. K. Bothra Sons, HUF v. ITO: 347 ITR 347, the assessee took loan from two persons. During the course of assessment proceedings, the assessing officer issued notice under section 131 of the Act to such parties which were duly responded. The assessing officer, however, added these loan amounts as unexplained credit simply based on the report of the Inspector and held the same as not genuine. The appeal preferred by the assessee was dismissed by the CIT(A) as well as by the Tribunal. On further appeal before the High Court, while setting aside the matter to the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion and their assessment particulars. (b) Genuineness of the transaction by pointing out that the assessee had sold shares to M/s. Yadav and Company in the immediately preceding year (which has been accepted by the Department) and that the payment received during the relevant previous year was against the debt due from M/s. Yadav and Company. (c) Creditworthiness of the creditor by pointing out that the amount was received by way of cheques drawn on the bank account of M/s. Yadav and Company maintained with Union Bank of India, Moti Bagh Branch, New Delhi, which, despite denial by the Yadavs, was, as per bank records, found to be opened and operated by Sh. O.P. Yadav/Mohinder Singh Yadav. The initial burden thus discharged, it was for the revenue to establish that the transaction in question was bogus. This would be so even if there is a denial by the creditors that the credits were not genuine as held by the Supreme Court in CIT v. Orissa Corpn. (P.) Ltd. [1986] 159 ITR 78. Mere denial by Yadavs that account in question was not operated by them would not automatically lead to the inference that assessee deposited in the said account and, therefore, it became its unaccoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reditor is assessed under the Act, the Assessing officer should enquire from the Assessing Officer of the creditor as to the genuineness of the transaction and whether such transaction has been accepted by the Assessing officer of the creditor but instead of adopting such course, the Assessing officer himself could not enter into the return of the creditor and brand the same as unworthy of credence. So long it is not established that the return submitted by the creditor has been rejected by its Assessing Officer, the Assessing officer of the assessee is bound to accept the same as genuine when the identity of the creditor and the genuineness of transaction through account payee cheque has been established. We find that both the Commissioner of Income Tax(Appeal) and the Tribunal below followed the well-accepted principle which are required to be followed in considering the effect of Section 68 of the Act and we thus find no reason to interfere with the concurrent findings of fact recorded by both the authorities. The appeal is thus devoid of any substance and is summarily dismissed. 33. On going through the above case laws and applying them on the facts of the assessee s case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the existence of the creditors. Thereafter, if the AO had any doubt, he should have issued show cause notice to the assessee to produce the creditors before him. The AO did not require the assessee to produce the creditors. Therefore, we have to decide the matter as per the facts available on record. 37. The entire addition under section 68 of the Act is, thus, without any basis and is legally unsustainable. 38. The view of the ld. CIT(A) that the loan taken by the assessee from twelve companies aggregating to ₹ 6,69,00,000/- was explained, is proper and does not require any interference and the addition was rightly deleted by the ld. CIT(A) and has also rightly deleted the disallowance of interest of ₹ 1,03,20,567/- on the above loans. Ground Nos. 2 to 4 of the Revenue are dismissed. 39. Ground No. 5 reads as under : On the facts and in the circumstances of the case, the ld. CIA(A) erred, erred in deleting the addition of ₹ 1,55,00,000/- being share capital from three companies being part of Linked group of companies which were found to be accommodation entry provider during proceeding u/s 133A of the Incometax Act, 1961. 40. The brief facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment order of assessment year 2003-04, he made addition of the share capital and share premium received from these three companies in assessment year 2008-09. 43. The matter carried to the ld. CIT(A) and the ld. CIT(A) deleted the addition made in both the years. 44. The ld. Departmental Representative relied on the order of the AO of assessment year 2003-04. 45. The ld.Authorized Representative for the assessee submitted the written submission, which is on record, the relevant portion of his reply reads as under :- It is submitted that the addition made under section 68 of the Act in A.Y 2003-04 was on account of unsecured loans and not on account of share capital as alleged by the assessing officer in the present proceedings. It is further respectfully submitted that in A.Y 2003-04, the assessment proceedings were reopened in the assessee s case, purportedly on the basis of survey conducted on Lunkad Group of companies on 02.05.2006. It was held that the assessee had received unsecured loans from the above three companies, alleged to be part of Lunkad group. In this regard, it is respectfully submitted that the above three share applicants, are not pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r how the AO has proceeded to conclude that the loan transactions of the appellant with such companies were not genuine. Then the AO has proceeded to examine such transactions from the point of view of a colorable device and in this respect has placed reliance on the decision of Hon ble Supreme Court in the case of CIT Vs. Durgaprasad More, (1971) 540 ITR page 545 (SC) and further in the case of Mc.Dowell Co. Ltd. vs. CTO (1985) 154 ITR 148 (SC), CWT vs. Arvind Narottamdas (1988) 173 ITR 479 (SC) and Union of India Vs. Playworld Electronics Pvt. Ltd. (1990) 184 ITR 308 (SC) (supra). The three aforesaid decisions related to tax evasion by tax planning whereas in appellant s case these were plain and simple loan transactions. Thus it emerges that the AO has not properly appreciated the facts and details surrounding such transactions and has considered them to be in-genuine transactions without bringing any definite details and evidences on record. 4.2.2 In the course of appeal proceedings the appellant has brought necessary details and evidences to establish the basic and primary fact that all the three Companies were not related to Lunkad Group of Companies. In course of discus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and genuineness of transaction and creditworthiness. It should be appreciated that degree of onus to explain the cash credit transaction cannot be uniform and rigid in all the situations. Degree of onus regarding genuineness of transaction in respect of receipt of share capital at huge premium in unlisted companies otherwise through public issue cannot be viewed but with suspicion and the appellant may be required to justify such receipt of money on huge premium as such transaction would defy normal financial prudence and logic. But the same degree of onus cannot be cast on the appellant to explain the loan transaction which have been repaid in a span of 1 years or so when the appellant is able to discharge his onus to establish the identity of the creditors, receipt of money through banking channel and existence and apparent financial worth of creditors as reflected from the audited accounts and I.T. returns. It may be also observed that onus to establish all the three ingredients would vary from case to case identity is first ingredients, which can be established by giving complete address, physical existence of the person and I.T. particulars i.e. PAN and details of filing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore and subsequent to the transfer of their jurisdiction vide order passed under section 127 by the CIT, Indore in 2008, are currently being assessed at Bilaspur. Copies of the assessment orders for the assessment year 2008-09 in the case of three companies were also enclosed at pages 729-800 of the paper book. Transfer order u/s 127 was passed much after the survey proceedings in the case of Lunkad Group of cases. 47. The ld.Authorized Representative for the assessee further contended that had the aforesaid three companies been closely associated with Lunkad Group, their request for transfer of cases to Bilaspur would not have been accepted. This fact also confirms that these companies are not related to Lunkad Group. Further, regular assessment u/s 143(3) of the above three companies for assessment year 2008-09 were carried out at Bilaspur, which also establish the existence and creditworthiness of these companies. The list of Directors of the three companies, as available on the website of Ministry of Corporate Affairs, submitted by the assessee also substantiate that these companies are not managed by Lunkad group. 48. Referring to the assessment order passed u/s 143(3) i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has discharged his onus of establishing all the three ingredients as required by section 68 i e. establishing the identity and creditworthiness and also the genuineness of the transactions. The CIT(A) has also drawn support from the fact that the assessee had transactions with these three companies even in earlier / later years and in the scrutiny assessments of the assessee such loan transactions were accepted as proper and genuine and there was absolutely no reason for the AO to have taken a different view for the year under consideration with the same set of companies. 53. On careful consideration of the factual and the legal premises as relied upon by AO and also the assessee it has to be observed that it has been broadly a set t led preposition in law that whether in a given case identity credit worthiness and genuineness has been established is broadly a finding of facts which has to be arrived on appreciation of cumulative facts available on records. In the instant case the identity of the three Companies stood accepted in appeal order passed for assessment year 03-04 by CIT(A) and no material has come on record in any manner to warrant a different view in the present app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umstances of the case even genuineness of the transaction is very difficult to doubt. Nevertheless, as already noted above the AO has done precisely nothing to bring on record any adverse material to even raise doubt about the three ingredients of section 68 as discussed above. 54. The Ld. Departmental Representative could not bring anything contrary to the findings of the Ld. CIT(A). We find that in assessment year 2003-04 the AO has added back the loan amount received from these three companies u/s 68 but has not disallowed the interest payment claimed by the assessee as deduction on such loans during the year under consideration. Hence on over all consideration of the facts and circumstances of the case the addition made by the AO treating the share capital contribution as unexplained is not found to be at all justified more so when such contribution in the immediate preceding year stood undisturbed in scrutiny assessment completed u/s 143(3) . Therefore the addition of ₹ 1.55 crore is rightly deleted by the CIT(A). Ground no. 5 of the Revenue is dismissed. 55. Ground No. 6 reads as under : On the facts and in the circumstances of the case, the ld. CIT(A) erre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oan in the year of receipt of loan is not justified and proper as per principle of law. The AR has rightly stressed that if the AO was not satisfied about genuineness of such loan transaction, the only and appropriate action available to him was to first take necessary steps to enquire and hold that such loans were not genuine which has prima facie not been done. The AR present in the course of discussion explained that so far the appellant has not received any fresh notice u/s 148, subsequent to such assessment order being passed in the case of the appellant, for earlier assessment year(s). Thus without going further into merit of the findings arrived by AO in disallowing such interest , disallowance deserves to be quashed. But since the AO has referred to findings in other cases these findings are also examined to the extent considered necessary on the basis of available material in this office record. 4.1.1 The AO has disallowed interest amount of ₹ 10,48,155/ - in respect of interest paid to three companies of one group viz. Trimurti Finvest P. Ltd., Purvi Finvest P. Ltd. and East West Finvest (I) Ltd. referring to the assessment order in the case of Agarwal Coal Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee further contended that the loan amount from Unno Industries was received by the assessee in earlier years which stand accepted as no addition u/s 68 was ever made in the hands of the assessee. Reference in this regard was invited to the decision of the Indore Bench of the Tribunal in case of Agrawal Transport Corporation Pvt. Ltd.: ITA No. 201/Ind./2012, wherein the Tribunal has deleted similar disallowance of interest paid to the aforesaid companies. As regards Norflox Vincon P. Ltd (S.No.5), it was stated that the said interest disallowance has been made without any discussion in the assessment order. 60. In view of the aforesaid submissions, it was stated that the CIT(A) has rightly deleted the disallowance of interest. 61. We have heard the rival contentions of both the parties. Looking to the facts and circumstances of the case, we find that the AO has disallowed interest amount o f ₹ 20,34,246/- in respect of interest paid to three companies of one group viz. Trimurti Finvest P. Ltd., Purvi Finvest P. Ltd. and East West Finvest (I) Ltd. referring to the assessment order in the case of Agarwal Coal Corporation for Asstt. Year 2003-04. In the preceding part o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,64,58,139 from investments in shares and mutual funds, which were exempt under section 10(33)/ (34) of the Act. In the assessment order, the assessing officer, without pointing out any single expenditure having relation with earning of exempt dividend income, mechanically invoked sub-section (2) of section 14A of the Act and computed disallowance of ₹ 4,95,273 by applying provisions of Rule 8D of the Rules in the following manner: On further appeal, the CIT(A) deleted the disallowance of interest of ₹ 3,23,640/- attributed by the assessing S.No. Particulars Amount (in Rs.) 1 Direct expenditure Nil 2 Interest expenditure incurred during the year (Rs.4.35 crores) attributed in the ratio of average value of investments resulting in exempt income to average value of total assets 3,23,640 3 % of average value of investments 1,71,633 Total 4,95,273 officer as per Rule 8D(2)(ii) of the Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15,81,192 50,78,607 284,97,80,086 180,19,66,259 7.1 The AR emphasized that a mere glance of the Schedule revealed that a much larger amount than the aggregate of secured and unsecured loan of Rs .159.17 crore, the investment in Fixed Deposit alone yielding interest was ₹ 278.04 crores. Thus in no way it can be considered that the borrowed funds were utilized for making investment yielding exempt income. He went to s t res s that there was a business compulsion and exigencies on the part of the appellant to have deployed such huge amount in the fixed deposit with Bank as indicated in the Balance sheet itself for obtaining mainly Letter of Credits and Buyers Line credit which would be in principle otherwise not available. The AR also emphasized had there been no business compulsion , the appellant company would have never deployed such huge amount in fixed deposit yielding interest rate about 9% also which was further subject to tax and this amount could very well be otherwise utilized for earning higher interest income or in other high returning yield avenues . It was also emphasized t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowance -u/ s 14A in respect of interest , worked out at ₹ 3,23,640/ - by the AO is directed to be deleted and the disallowance in respect of expenses worked out at ₹ 1,71,633/- @ .5% of the average investments is directed to be worked out after excluding investment made in Overseas Associate Company. The ground of appeal is accordingly partly allowed. 66. The ld. Departmental Representative relied on the order of AO and could not bring anything contrary to controvert the finding of the CIT(A). 67. The ld. Authorized Representative for the assessee regarding Interest Expenditure submitted that there is no error in the order of the CIT(A) in deleting disallowance under section 14A of the Act out of interest expenditure, for reasons explained hereunder: 68. Regarding Investments upto AY 2007-08, the ld. Authorized Representative submitted that no disallowance had been made under section 14A of the Act till the assessment year 2007-08. Therefore, it stands accepted by the Revenue that the investments held by the assessee as on 31.03.2007 were made out of own funds/ non-interest bearing funds of the assessee. The ld. Authorized Representative further contended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vour of the assessee that surplus funds have been utilized for making investments. 71. Ld. Authorised Representative in this regard placed reliance on the following decisions, wherein it has been held that where assessee had sufficient funds/ deposits for advancing interest free loans or making investment in shares, etc., and there is nothing on record to show that borrowed funds have been directly utilized for such purpose, a presumption in favour of the assessee can be drawn with respect to utilization of interest free and borrowed funds: The Gujarat High Court in the case of CIT v. UTI Bank Ltd : [2013] 32 taxmann.com 370 held that where there are sufficient interest free funds to meet tax free investments, they are presumed to be made from interest free funds and not loaned funds and no disallowance can be made under section 14A of the Act. The Supreme Court has recently dismissed the revenue s SLP in Civil Appeal No. 468/2014 against the aforesaid decision. Indian Explosives Ltd. V. CIT: 147 ITR 392 (Cal.) Woolcombers of India Ltd. v. CIT: 134 ITR 219 (Cal.) - approved by Supreme Court in the case of East India Pharmaceutical Works Ltd. v. CIT: 224 ITR 627 CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng investments for the purposes of disallowance under section 14A of the Act, much less by applying provision of Rule 8D of the Rules. The borrowed funds, it was submitted, were utilized by the assessee in carrying out other activities which cannot be apportioned for disallowance under section 14A in accordance with provisions of Sub-Rule (2)(ii) of Rule 8D of the Rules. 74. For the aforesaid reasons, considering that there were substantial interest free funds, no portion of the interest expenditure can be said to have nexus with the investments held during the year and, accordingly, no portion of interest expenditure warrants disallowance under section 14A of the Act. 75. The Ld. Authorized Representative of the assessee further submitted that the assessing officer also erred in including investments in growth mutual fund and also investment in interest bearing bonds which had not/ would not yield any exempt income while computing average investments under section 14A of the Act r.w. Rule 8D of the Rules. The ld. Authorized Representative for the assessee referred the decision of Manugraph India Ltd. v. DCIT: ITA No. 4761/Mum/2013 (Mum. Trib.); Everest Kanto Cylinders Ltd. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is bad-inlaw and the disallowance calls for being deleted for the reasons stated hereunder: The assessing officer failed to appreciate that the books of accounts maintained by the assessee are being duly audited, which has not been rejected by the assessing officer. With respect to the vouchers/bills produced for verification during the assessment proceedings, the assessing officer had simply made the bald allegation, without pointing out the specific defects, if any, relating to these vouchers/bills. The assessing officer failed to appreciate that correlation of increase in expenses with increase in turnover is not the only criteria for making disallowance. The assessing officer lost sight of the fact that the inspite of the increase in the expenses, the gross profit margin of the assessee had increased from 3.45% to 6.68%. 83. The assessing officer made the disallowance merely on the conjecture and surmises, on an ad-hoc basis, which is not permissible in law. The ld.Authorized Representative for the assessee relied on the following decisions: J J Enterprises vs. CIT: 254 ITR 216 (SC) Friends Clearing Agency P. Ltd. v. CIT: 332 ITR 269 (Del.) Dwarka Prasad Agarwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nies which were found to be accommodation entry provider during the proceedings u/s 133A of the Income-tax Act, 1961. 2(i) While holding so, the ld. CIT(A) failed to appreciate that the said three companies, no where rebutted the survey findings and its close proximity with the Lunkad group of companies and further no material was brought on record to establish that the said companies did not take accommodation entries from the companies connected with Lunkad Group of companies. 88. This issue has already been considered by us while deciding ground no. 5 in ITA No. 294/Ind/2012 for the assessment year 2008-09, wherein we have dealt with this issue in detail for the assessment year 2003-04 also. The addition made by the AO u/s 68 in respect of credits received by the assessee from the three companies was deleted by the Ld. CIT(A) holding that the three companies were not part of Lunkad Group of Companies and their identity and creditworthiness and the genuineness of the transactions was established. We have upheld the decision of the Ld. CIT(A) and dismissed the said ground of Revenue in that appeal. Following the same, we hold that the CIT(A) has rightly deleted the addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d without receiving reasons recorded. In the aforesaid facts, it is the respectful submission of the assessee that the proceedings initiated under section 147/148 of the Act are wholly without jurisdiction, illegal and bad in law. Proceedings under section 147 of the Act were initiated simply on the basis of incomplete/ insufficient material received from another authority, which could not have been the basis for forming reasonable belief of escapement of income; and, no fresh tangible material had come to the knowledge of the assessing officer which could form the basis for forming belief that income has escaped assessment. Proceedings under section 147 are barred by limitation prescribed in section 149 of the Act. Re (a): No reasons to believe Section 147 of the Act authorizes and permits an assessing officer to assess or reassess income chargeable to tax if and only if he has `reason to believe that any income for any assessment year has escaped assessment. The relevant provisions of Section 147 of the Act read as under: 147. Income escaping assessment. If the Assessing Of f icer has reason to bel ieve that any income chargeable to tax has escaped assessment fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I: 324 ITR 54 (Bom). 5. ITO vs. Lakhmani Mewal Das: 103 ITR 437, 448 (SC) 6. Arjun Singh: 246 ITR 363, 405 (MP) 7. Bombay Pharma Products vs. ITO: 237 ITR 614 (MP) 8. Lokendra Singh Rathore vs. WTO: 155 ITR 629 (MP) 9. Seth Brothers vs. JCIT: 251 ITR 270 (Guj.) 10. United Electrical Co. (P) Limited vs. CIT: 258 ITR 317 (Del.). No reason to believe Reasons based on mere presumption/suspicion It is respectfully submitted that in order to initiate proceedings under section 147 of the Act, it is incumbent on the part of the assessing officer to first possess some tangible material , on the basis of which prima facie case/ belief of any escapement of income on the part of the assessee is made out. In this regard, it is respectfully submitted that drawing adverse inference, that too, on the basis of presumption and/ or incorrect appreciation of the available facts and records, do not constitute valid reasons to believe for initiating re-assessment proceedings under section 147 of the Act. Reliance, in this regard, is also placed on the following decisions :- Shipra Srivastava vs. ACIT: 319 ITR 221. Nitin P. Shah vs. DCIT, 146 Taxman 536 (Guj) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e letter dated 13.12.2010 filed during the assessment proceedings (please refer page 45 to 49 of the paper book), copy of the so-called survey report and/or the report received from the Addl. CIT, Range-3, Indore, have not been made available to the assessee even till date. It is the respectful submission of the assessee that there was no reliable/ sufficient/ tangible information/ material available with the assessing officer to have come to a reasonable belief that any income of the assessee escaped assessment. In this regard, it is of utmost importance to note that the assessee had received unsecured loans from the following three companies: Name of the creditor Amount (Rs.) East West Finvest Ltd. 25,00,000 Trimurthi Finvest Pvt. Ltd. 35,00,000 Purvi Finvest Pvt. Ltd. 10,00,000 Total 70,00,000 The assessee, it is respectfully submitted, believes that none of the aforesaid three companies are part of the socalled Lunkad Group. Though the assessee has not been prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce in this regard is placed on the following decisions: Daulat Ram Rawatmall: 87 ITR 349 (SC) Commissioner of Agricultural Income Tax vs. M.N. Moni: 291 ITR 387 (SC) Sagar Enterprises vs. ACIT: 257 ITR 335 (Guj). ACIT v. Sharia Construction Company: 328 ITR 515 (SC) CIT v. Kamdhenu Steel Alloys Ltd. (2012) 248 CTR 33 (Del HC): Sarthak Securities Company P. Limited. Vs. ITO: 329 ITR 110 (Del HC): CIT v. SFIL Stock Broking Ltd. [2010] 325 ITR 285 (Del HC) United Electrical Co. P ltd vs. CIT: 258 ITR 317 (Del HC) Signature Hotels P. Ltd. vs. ITO: 338 ITR 51 (Del HC) CIT vs. Atul Jain and Vinita Jain: 299 ITR 383 (Del) - 148 is invalid when opened on basis of intra departmental information about accommodation entry M/s. Initmate Jewels Pvt. Ltd. vs. ITO: ITA No. 4498/Del/2010 CIT vs. Viniyas Finance Investment Pvt. Ltd : ITA No. 271/2012 (Del HC) CIT vs. Smt Paramjit Kaur: 168 Taxman 39 (P H HC) - 148 Sterlite Industries (India) Limited vs. ACIT: 305 ITR 339 (Mad) 148. It is respectfully submitted that the entire attempt on the part of the assessing officer appears to be to reopen the assessment by alleging that the assessee rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in giving accommodation entries, are not In the aforesaid circumstances, it is respectfully submitted that the assessing officer proceeded on factually incorrect/ irrelevant facts, which could not lead him to even form a prima facie opinion of escapement of income on the part of the assessee. It is submitted that the initiation of proceedings under section 147 of the Act is without jurisdiction, illegal and bad in law, without any reason to believe that any income of the assessee escaped assessment, inasmuch as: the reasons recorded are vague, not even containing fundamental / basic information; the assessing officer proceeded on factually incorrect premise that the three companies from whom the assessee received loans are part of the Lunkad Group; there is nothing in the reasons to indicate how and on what basis even a prima facie belief could be arrived at that the three companies, from whom unsecured loans were received, were engaged in providing accommodation entries; there is nothing to indicate how and on what basis a prima facie conclusion had been arrived at that the assessee routed its unaccounted money for receiving accommodation entries; the outcome of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PCIT vs Tupperware India Pvt. Ltd.: 236 Taxman 494; CIT vs. Chetan Gupta: Judgment dated 15.09.2015 in ITA no. 72 of 2014; CIT vs. Orient Craft Ltd: 354 ITR 536 (Del) Sarthak Securities Co. Pvt. Ltd. v. ITO: 329 ITR 110 (Del) CIT vs. Batra Bhatta Co: 321 ITR 526 (Del) SLP has been dismissed by the Supreme Court and is reported in 320 ITR (St.) 24. Reliance is placed in this regard on the decision of the Delhi High Court in the case of Haryana Acrylic Manufacturing Company vs. CIT: 308 ITR 38. In that case, the assessee had, by way of a writ petition, challenged the validity of proceedings initiated under section 147 of the Act. Quashing the proceedings, their Lordships, inter alia, held that if reasons are not served within the limitation period of six years, the proceedings initiated will be illegal. The pertinent observations of the court are reproduced hereunder: Thirdly, it could be argued that the reasons supplied to the petitioner in September, 2004 be disregarded so also the objections filed by it as also the impugned order dated 2-3-2005 and the reasons noted in the said form be now taken as the reasons for the issuance of the notice under section 148 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a case, where the notice has been issued within the said period of six years, but the reasons have not been furnished within that period, in our view, any proceedings pursuant thereto would be hit by the bar of limitation inasmuch as the issuance of the notice and the communication and furnishing of reasons go hand-in-hand. The expression 'within a reasonable period of time' as used by the Supreme Court in GKN Driveshafts (India) Ltd.'s case cannot be stretched to such an extent that it extends even beyond the six years stipulated in section 149. For this reason also, even assuming that we overlook all that has happened between 11-5-2004, when the petitioner sought the reasons, and 5-11-2007, when the said form annexed to the counter-affidavit was filed in this court, the validity of the notices under section 148 issued on 29-3-2004 and any proceedings pursuant thereto cannot be upheld. (emphasis supplied) Following the aforesaid decision of the Delhi High Court in the case of Haryana Acrylic (supra), the Delhi Bench of the Tribunal in the case of Shri Balwant Rai Wadhwa in ITA No. 4806/Del/10 quashed the reassessment proceedings under section 147 of the Act. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fully taken into consideration. It is an admitted fact that the return filed by the assessee was simply processed and no regular assessment was made and notice in the case of the assessee was issued within six years from the end of relevant assessment year after obtaining necessary approval in accordance with law and reasons were recorded by AO leading to formation of belief relating to escapement of income. The AO has further followed the procedure laid down in this behalf, as per which the objection raised by the assessee have been disposed of by passing the speaking order. It is settled position of law that at the time of recording of reasons a prima facie case has to be established and the appellate authority and court cannot examine sufficiency or otherwise of the reasons recorded for issue of notice u/s 148. Reference can be made to the decision of Hon'ble Supreme Court in the case of CIT Raymond Woollen Mills Ltd. 236 ITR34 (SC). Where in it has been held as under: In determining whether commencement of reassessment proceedings was valid it has only to be seen whether there was prima facie some material on the basis of which the Department could reopen the case. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) above. 96. Though the assessee filed the return of income but no assessment was made. It has been held in Phool Chand Bajarang Lal v ITO [1993] 203 ITR 456(SC) that where transaction itself, on the basis of subsequent information, is found to be bogus transaction, mere disclosure of that transaction at the time of original assessment proceedings cannot be said to be a disclosure of the 'true' and 'full' facts in the case and ITO would have jurisdiction to reopen even concluded assessment in such a case. The case of the assessee is still weaker as no assessment has been made in his case. In CIT v Mohaliram Ramjidas [1940] 8 ITR 442(PC) it has been held that the ITO is not required to convey to the assessee or to intimate him the nature of the alleged escapement or to give him an opportunity of being heard, before he decides to operate the powers conferred. 97. Still further this issue was examined in great detail by ITAT, Indore Bench in the case of Swastik Samradhitrading and Investment Limited Nagda, ITA No. 635,636,634/Ind/2006 613/Ind/2005 order of ACIT Circle 2(1), Ujjain, decided on 29.10.10 wherein issue of reopening u/s 147 under amended law has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eturn, but under the amended provisions, the requi rement of passing of an assessment order has to be dispensed with and instead of it an intimation is required to be sent . It was further elaborated that under the first proviso to the newly substituted Section 143(1) w.e.f. 1st June, 1999, except as provided in the provision itself, acknowledgement of the return shall be deemed to be intimation u/s 143(1) , where no sum is payable by the assessee or where no refund is due to him. It was categorical ly observed that acknowledgement is not done by the Assessing Of f icer, but by the ministerial staf f . Under these circumstances, it cannot be said that the assessment has been made by the ministerial staff. The intimation u/s 143(1)(a) is deemed to be a notice of demand u/s 156 fo r the apparent purpos e of making machine ry provision relat ing to recovery of tax appl icable. By such appl icat ion only re cove ry indicated to be payable in the int imat ion becomes permissible and nothing more can be inf e r red from the de eming prov is ion. Thus , the re is no assessment u/s 143(1)(a) of the Act. 100. It is crystal clear from the above decision of the Hon'ble Supreme Court wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he conditions must be fulfilled the case within the ambit of proviso to Section 147. Thus , i f more than four years have be en passed af te r completion of assessment u/s 143(3) , no reopening can be made unless there is a failure on the part of the assessee to disclose ful ly and truly al l material facts in the return of income. It was concluded by the Hon'ble Supreme Court that so long as ingredients of Section 147 are ful f i l led, the AO is free to initiate proceedings u/s 147 and failure to take steps u/s 143(3) will not render the AO powerless to initiate reassessment proceedings even when intimation u/s 143(1) had been issued. 101. Therefore, the contention of the assessee that the AO had no definite material or information before invoking provisions of sect ion 147 is not tenable. It is an admit ted fact that the original return of the assessee was processed u/s 143(1)(a) only at ministerial staff level and no finding had be en o r e v en can be recorded, by the AO dur ing such processing, about the genuineness of loan transactions constituting the reasons for issue of notice u/s 148. The AO was therefore, fully justified in invoking provisions of section 147, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e out of interest bearing funds as such provision of rule 8D is clearly applicable to the case of the assessee. 5. On the facts and in the circumstances of the case, the CIT(A) has erred in deleting the disallowance of ₹ 1,00,000/- out of general expenses and RTO expenses, when the AO has found that the vouchers of these expenses were self-made and some of them not verifiable. 6. On the facts and in the circumstances of the case, the CIT(A) has erred in deleting the disallowance of ₹ 1,50,000/- out of commission and brokerage expenses when there was disproportionate increase in the expenses, reasons which could not explained. 105. In respect of Ground no. 2 regarding deletion by CIT(A) of addition of ₹ 6,08,94,415/- made by the AO u/s 68, we find that the addition was made in this case in respect of 9 Kolkata based companies on the identical facts, as it was made in the case of M/s Agrawal Coal Corporation Pvt. Ltd. for the same assessment year i.e. 2008-09. The loan creditors in the instant appeal are also the same. 106. This issue has already been considered by us while deciding ground nos. 2 to 4 in ITA No. 294/Ind/2012 for the assessment year 2008- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s verified the chart given by the assessee and after verifying this, he has worked out the disallowance of ₹ 2,59,473/- by calculating as under :- Para of Rule D Particulars Values Disallowable 2(i) - - 2(ii) A Interest Paid (A) 3,49,39,521 A*B/C 2,59,473/- Investment on first day 27,30,272 Investment on last day 52,57,614 B Average of investment (B) 39,93,943 Assets on first day 49,38,46,384 Assets on last day ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eived should be netted off against interest payments. The CIT(A) has given a finding that the investments made by the assessee were made out of own funds and not out of interest bearing borrowed funds. Thus in the peculiar facts of the case, the CIT(A) deleted the disallowance u/s 14A of ₹ 2,59,473/- made in respect of interest paid and restricted the disallowance in respect of expenses to ₹ 19,970/- @ .5% of the average investments. The above findings of the CIT(A) remained uncontroverted and the Ld. Departmental Representative could not bring anything contrary on record. Accordingly, we uphold the order of CIT(A) on this issue and this ground of Departmental appeal is dismissed. 113. Ground No. 5 6 of the Revenue have been raised against deletion by CIT(A) of ad hoc disallowances made by the AO of ₹ 1,00,000/- and ₹ 1,50,000/- out of general and RTO expenses and commission and brokerage expenses. 114. The CIT(A) has deleted the disallowances observing that the disallowance was made without pointing out any defect in the claim of these expenses and that only observation made in the assessment order was that these expenses are not covered under FBT a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made u/s 14A and restricted to 0.5% of average investment at ₹ 18,696/- without appreciating the fact that the AO has made the calculation by applying the rule 8D and without considering the fact that the assessee could not prove that the investment were not made out of interest being funds and as such provision of rule 8D is clearly applicable to the case of the assessee. (iv) erred in deleting the disallowance of deduction of ₹ 11,90,575/- on account of bad debts where the assessee has not filed revised return but filed only revised computation and CIT(A) has not followed the settled law described by Apex Court in the case of Goetz India. (v) erred in deleting the addition made by the AO on account of conveyance expenses and repair and maintenance expenses of ₹ 1,00,000/- each and restricted the same to ₹ 25,000/- each, without considering that the AO has made addition on the basis of verification of books accounts and found that supporting bills / vouchers for some of the expenses were missing. ITA NO. 808/Ind/2014 (Admanum Finance Limited) A.Y. : 2011-12 : 118. The Revenue has raised the following grounds of appeal. On the facts and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors which were held to be in-genuine in assessment year 2008-09. Since in assessment year 2008-09 the AO made the addition u/s 68 as a consequence he disallowed the interest paid by the assessee to these parties in assessment year 2010- 11 and 2011-12. Thus, the disallowance of interest in these years was consequential to the addition made u/s 68 in assessment year 2008-09. Since we have already upheld the order of CIT(A) deleting the addition made u/s 68 in assessment year 2008-09 in the assessee s own case in ITA No. 389/Ind/2012, we uphold the order of the CIT(A) in the instant case also for assessment year 2010-11 and 2011-12 deleting the disallowance of interest. 121. Accordingly, ground nos. (i) and (ii) in both the appeals are decided against the Revenue. 122. Ground No. (iii) in both the appeals has been raised by the Revenue against the action of the CIT(A) in restricting the disallowance made by the AO made u/s 14A. This issue has also been decided by us in the assessee s own case in ITA No. 389/Ind/2012 for assessment year 2008-09 and we direct accordingly. As a result, these grounds of appeal of the Revenue are dismissed. 123. Ground No. (iv) of the Revenue has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duced from the income to arrive at correct taxable profit for the year and the return be treated as revised to this extent. Details of bad debts actually written off, provision made and copies of ledger accounts of all the debtors reflecting the actual write off in the books of accounts, as were filed before the AO, has also been filed in the paper book in these appellate proceedings. Copies of income tax returns of earlier years have also been filed to substantiate that NPA provisions were disallowed by the appellant in the respective years. 4.4 The AO rejected this claim of the assessee simply on the premise that claims made through a revised return could only be entertained. He relied on the decision of the Hon ble Supreme Court in the case of Goetze India Ltd. 4.5 On the other hand the Ld. AR vehemently argued that it is incumbent to arrive at a correct taxable income. Goetze India may be a code for the Assessing Officer s but the appellate authorities have all the power to entertain a claim to deduce the correct taxable income. Reliance has been placed on the following decisions: i) CIT vs. Ramco International (P H) 332 ITR 306. ii) Chicago Pneumatic India Ltd. vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Haryana High Court has held that:- Deduction under section 80-IB-Allowability-Claim not made in return Assessee having duly furnished the documents and submitted Form No. 10CCB during the assessment proceedings, claim for deduction under section 80-IB by way of an application was admissible There was no requirement for filing any revised return No substantial question of law arises - Goetze India Ltd. Vs. CIT (2006) 204 CTR (SC) 182 : (2006) 284 ITR 323 (SC) distinguished. 4.9 In view of the above discussion and also considering the fact that the similar claim of bad debts made by filing the revised return for immediately succeeding year i.e. AY 2011-2012 has been accepted in the assessment proceedings and also considering the legal position the said claim of ₹ 11,90,575/- is therefore directed to be allowed. 125. The Ld. Departmental Representative could not bring anything contrary on record to rebut the findings of the CIT(A). 126. We have heard the rival contention of both the parties. Looking to the facts and circumstances of the case, we find that the assessee treated debtors of ₹ 35,24,407/- as bad debts and actually written them off in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legitimate claims of the assessee should be allowed even if raised during the assessment proceedings. In the case of Commissioner of Income vs. Ramco International in (2011) 332 ITR 306. The Hon'ble Punjab and Haryana High Court has held that:- Deduction under section 80-IB-Allowability- Claim not made in return Assessee having duly furnished the documents and submitted Form No. 10CCB during the assessment proceedings, claim for deduction under section 80-IB by way of an application was admissible There was no requirement for filing any revised return No substantial question of law arises - Goetze India Ltd. Vs. CIT (2006) 204 CTR (SC) 182 : (2006) 284 ITR 323 (SC) distinguished. 4.9 In view of the above discussion and also considering the fact that the similar claim of bad debts made by filing the revised return for immediately succeeding year i.e. AY 2011-2012 has been accepted in the assessment proceedings and also considering the legal position the said claim of ₹ 11,90,575/- is therefore directed to be allowed. 127. The Ld. Departmental Representative could not bring anything contrary on record to rebut the findings of the CIT(A). 128. We have h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO is bound to assess the correct income and for this purpose the AO may grant relief suo-motu or on being pointed out by the assessee in the course of assessment proceedings. 129. We find that it has been time and again held by various courts that legitimate claims of the assessee should be allowed even if raised during the assessment proceedings. In the case of CIT vs. Ramco International in (2011) 332 ITR 306. The Hon'ble Punjab and Haryana High Court has held that:- Deduction under section 80-IB-Allowability-Claim not made in return Assessee having duly furnished the documents and submitted Form No. 10CCB during the assessment proceedings, claim for deduction under section 80-IB by way of an application was admissible There was no requirement for filing any revised return No substantial question of law arises - Goetze India Ltd. Vs. CIT (2006) 204 CTR (SC) 182 : (2006) 284 ITR 323 (SC) distinguished. 130. In view of the above discussion and also considering the uncontroverted finding of the CIT(A) that the similar claim of bad debts made by filing the revised return for immediately succeeding year i.e. AY 2011-2012 has been accepted in the assessment procee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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