9911796707
TMI Blog2020 (11) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... r and disallowance of the interest paid on the said loans made by the CIT (A) by way of enhancement. The chart of additions made in the hands of the respective assessees are as under: Particulars and appeal no. Amount of addition for loans(Rs) Loan taken from Glebe Trading (P) Ltd. (Rs) Loan taken from Danta Enterprises (P) Ltd.(Rs) Disallowance of Interest (Rs) Jindal ITF Ltd. ITA/1172/D/2020 167,98,00,000 151,83,70,000 16,15,00,000 9,96,04,252 Jindal Fittings Ltd. ITA/1170/D/2020 103,89,25,000 103,89,25,000 NIL 2,43,24,560 Jindal Quality Tubular Ltd ITA/1171/D/2020 20,52,00,000 20,52,00,000 3,37,315 JITF Urban Infrastructure Services Ltd. ITA/1173/D/2020 196,50,00,000 196,50,00,000 NIL 11,03,15,540 3. Since these appeals involve common issue of additions u/s 68 of the Act and that to be loans taken from the same lender NBFC Companies belonging to same group of the assessees, i.e., Jindal Group; and since the loans were taken by Jindal ITF Ltd.(ITA/ 1172/D/2020) from both the lenders; therefore, this appeal is being taken up as a lead case and the findings given therein will apply mutatis mutandis in the other appeals also. Jindal ITF Ltd. Appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cal spot enquiries conducted at the said registered office address revealed that the premises are actually a staff colony and there is no sign board/ name plate/ letter box found in the name of the lender companies on the given address. The watchman at the said premises was unaware of the existence of these two lender companies who stated that the premises were used only for the residence of staff. Thus, the assessing officer alleged that the lender companies were not found to be existing at said registered office address. 7. The assessing officer, thereafter, issued a showcause notice on 24/12/2019 to the assessee asking for various details regarding the said lenders which were submitted by the assessee as reproduced at pages 11 to 20 of the assessment order. The assessing officer stated that the assessee provided the registered office address of the lenders but no proof of the lenders having actually existed at the said address was provided. No documents such as electricity / water bills / registered rent agreement with those companies at the said address were produced. The assessing officer stated that the assessee also failed to produce any evidence of the lender companies hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viding unsecured loans to the appellant. The AO also refused to accept the New Delhi address of the lender companies mentioned in the PAN database of the income-tax department on the plea that it is self-serving information. 9. The Ld. CIT (A) has mainly reiterated the averments in the assessment order, submissions of the appellant, the remand report and rejoinder in his order. The Ld. CIT(A) observed that the assessee contended that the letter dated 28/12/2019 and its enclosures being the sanction letters were uploaded on the ITBA in e-proceedings whereas the AO denied that the same were never uploaded and therefore, it was appropriate to consider the same as additional evidence because the AO had no occasion to examine these documents while passing the order. However, he admitted the additional evidence as prima facie there was sufficient cause which prevented the appellant from producing this letter before the AO when similar letters of the similar date were considered by the AO in two other cases of the appellant's group and these were crucial and relevant for the purpose of disposal of the appeals. The AO without objecting to the admission of the additional evidences offered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Ld. CIT(A) held that the appellant failed to prove the identity and creditworthiness of the alleged lending companies and the genuineness of the transactions of unsecured loans and therefore, upheld the action of the assessing officer. Arguments on behalf of the assessee 13. The Ld. Counsel of the assessee first of all submitted that the questionnaire dated 24/12/2019 issued by the AO and the date fixed for the hearing was on 26/12/2019 asking a long list of details regarding the lender companies since the date of their incorporation, like Electricity bills, ROC filing, rent agreement, employee details, copies of ITRs and auditors reports on the basis of a commission issued in case of Jindal Saw Ltd. The assessee submitted that firstly, the AO could call for the said information for a period not exceedingly more than 3 years preceding the previous year as per the proviso to the section 142(1) of the Act, though the AO sought information that too of the lender companies since their existence which was not lawful. Secondly, even though the assessee submitted all the desired information to the AO but the assessee was not allowed sufficient and adequate opportunity of hearing fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iry by the inspector of the ADIT (Inv.) at Raipur) on the registered office address and received by the lender companies to show that the registered office of the companies situated at the Raipur address was properly functional. p) Tax audit reports of the lenders; q) Cheque book counterfoils to show that the bank accounts were maintained at New Delhi Address by the lenders; r) Registration certificate under service tax, GST and DVAT issued to lenders; s) TAN and PAN allotment letters issued to lenders; t) Notices issued by the income-tax department, CIT(A), ITAT and by CPC to the lender companies for various proceedings undertaken from time to time. 15. The Ld. Counsel of the assessee submitted that both the lenders had huge holding by way of investments in the equity shares of some listed companies of the group and the market value of such investment was Rs. 1600 Crores in the case of Glebe and Rs. 2800 Crores in the case of Danta as on 31/03/2017 as properly disclosed as per statutory requirements in their audited annual financial statements. The lender companies pledged some of its investment as security and borrowed loans from some reputed and well-known NBFCs. Thu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso properly disclosed their business address with the ROC which was the same as in the PAN database of the Revenue and at which all the income-tax proceedings were conducted from the last many years. He placed reliance on the decision in the case of Satyam Smertex (P) Ltd. Vs DCIT 2020-TIOL-722-ITAT-Kol in support of his contention that an entity which is duly assessed by the Income-tax department cannot be presumed as non-existing in other assessment and argued that, since both the lenders were duly assessed u/s 143(3) of the Act wherein huge additions were also made in their assessable incomes, those companies cannot be considered as non-existent in any manner. 18. It was further submitted that the fact that the lenders were having their principal place of business at New Delhi was within the knowledge of the assessing officer as the same was very much mentioned in all the details submitted by the assessee to the assessing officer, e.g. on the bank statements, acknowledgment for filing their income-tax returns and assessment orders passed u/s 143(3) of the Act of the lenders and the website of MCA which was visited and verified by the AO. No enquiry was conducted from the lende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing offices in the colony. Moreover, the name of the watchman who was asked is not mentioned in the alleged report. Thus, no cognizance of this flawed report sent in the case of another assessee can be taken against the appellant in any manner. The common surname 'Jindal' mentioned by the watchman for the said colony as belonging to should have alerted the inspector who was making an inquiry in the case of Jindal Saw Ltd. and he should have made further enquiries as has been held in the case of DCIT Vs M/s GDA Finvest and Trade (P) Ltd. 2014-TIOL-1485-ITAT-DEL. 20. Ld. Counsel also submitted that the Civil Procedure Code or the Income-tax Act has no provision authorizing the Commissioner to sub delegate his functions. The Commissioner appointed u/s 131(1)(d) of the Act was required to conduct investigations himself whereas in this case, the investigation was made by some unnamed Inspector. Thus, the procedure laid down for such enquiries through the Commission was not followed. Further, the copy of the Inspector's report was not provided to the appellant. It was also argued that the report of the Commissioner is a piece of evidence which can be rebutted by other evidence and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mentioned as 'extending any financial assistance to one or more entities belonging to the Promoter group' (Page 288 of the PB) or 'normal business operations and loans and advances' (Page 298E of the PB). As regards the shares pledged with the NBFCs, it was submitted that the audited financial statements of the lenders clearly show that these companies have investments in the listed equity shares of the group companies whose market value was thousands of crores of rupees and some of which only were pledged as security for borrowing the loans. The number of shares pledged for taking the loans are clearly mentioned in the balance sheets itself in the notes therein. The investments were shown as nil value in the balance sheet since the cost of acquisition of the shares was nil for the lender companies but it does not mean that said shares were not held by the lender companies or did not carry any value. These investments and borrowing of the loans by pledging the said equity shares have already been accepted in the assessments of the lender companies made u/s 143(3) of the Act by the revenue from the earlier assessment years. 24. The Ld. Counsel submitted that the equity shares of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the documents and evidences filed before the assessing officer and CIT (A), it is seen that assessee company had taken loans of Rs. 167,98,70,000/- from its two associated concerns namely, Glebe Trading (P) Ltd. and Danta Enterprises (P) Ltd. during the yearfor which the addition has been made u/s 68 of the Act. 27. Undisputedly, all these three companies, i.e., the assessee and the two lender companies belong to the same Jindal group and the lender companies have lent the money to the assessee, some out of their own funds and remaining out of the loans borrowed from other reputed NBFCs. The deeming fiction under Section 68 of the Act casts an onus on the assessee to prove the nature and source of credit. The source of the credit can be established by prima facie establishing the identity and creditworthiness of the lender and genuineness of the transactions. If assessee is able to explain the nature and source with evidences then onus shifts upon the Assessing Officer to rebut the explanation with some material or inquiry on record. The assessee placed on record: i) the confirmed copies of accounts of both the lenders; ii) acknowledgments for filing their returns of income fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntion of the Ld. Counsel that showing the investment in the shares of listed companies at 'nil' does not mean that those shares were not held by the lender companies, albeit it means that the cost of acquisition of the said shares is nil which may be due to various reasons, for e.g., shares received as bonus or gift etc., but the intrinsic value or the market value of the investment has to be considered for assessing the creditworthiness of the company, particularly when those were pledged as security to borrow loans for advancing further as loans. It is well known that the loans are given on the basis of market value of the security and not on the basis of their cost. Thus, the market value / intrinsic value of the assets is a decisive factor of the determining the creditworthiness. 30. On perusal of the loans sanction letters of the NBFCs placed on record at page nos. 281-307 of the PB, it is seen that purpose of these loans was normal business or to give loans and advances to associated concerns. The lender companies took the loans by pledging the listed equity shares of some Jindal group companies and then lent the same to their associated concerns at higher rate of interest a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der companies were assessed u/s 143(3) of the Act for the AY 2017-18 and their assessment orders were placed at pages 311-324 and 328-338 of the PB. A perusal of the same clearly shows that huge addition u/s 14A was made in these cases which means that the investments were held by the lender companies and accepted by the department and the source of loans taken from the NBFCs werealso accepted in their hands. Since, the genuineness of the loans taken from NBFCs has been accepted therein, the loans given by the lender companies out of the said NBFC loans cannot be treated as unexplained cash credit in the hands of the assessee. 33. The AO has drawn out a chart which has been reproduced by the CIT (A) also at page 92 of his order which is reiterated as under. As per the said chart, Glebe has granted loans of Rs. 557.66 crores and Danta has given loans of Rs. 185.86 crores during the year which is far more than their income and reserves and surplus: Sr. No. Name of Company Unsecured loan received from Glebe Trading Pvt. Ltd. (in Rs.) Unsecured loan received from Danta Enterprise Pvt. Ltd. (in Rs.) 1. Jindal Saw Ltd. 105,44,00,000 149,19,00,000 2. Jindal ITF Ltd. 151,83,70 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the appellant to the lender companies. All these facts clearly prove the genuineness of the transactions. 37. Thus, the assessee has placed sufficient evidences to prove the identity, creditworthiness of the lenders and genuineness of the loan transactions and now the onus shifted on the assessing officer to bring evidences on record to prove otherwise. The assessing officer alleged that the appellant failed to prove the physical existence of the lender companies merely on the basis of commission report collected at the back of the appellant that too in the case of some other assessee. 38. Further, the Ld. Counsel has pointed out various flaws in the Commissioner's report. The commission was issued to make enquiries at H. No. C-2, Staff Colony, Machinery Division, 13 KM Stone, MandirHasaud, GE Road, Raipur,Chattisgarh, being the registered office of the lender companies. The Commissioner stated in the first para that H. No. C-2, Staff Colony, Machinery Division, 13 KM Stone, Mandir Hasaud, GE Road, Raipur, Chattisgarh is a residential colony. He further stated that watchman employed at the given address stated that these are staff quarters of Jindal Company and the said colony ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessing officer failed to discharge the burden shifted on him and failed to controvert the evidences placed on record by the assessee. 40. As regards the physical existence of the lender companies, the appellant brought on record the certificate of incorporation and various forms filed with ROC. One of such forms was Form no. Inc 22A filed with ROC which is an active company tagging identities and verification form in which photograph of the registered office showing external building and inside office also showing therein at least one director are to be uploaded on the MCA website. This form was also filed by the lender companies placed at pages 81-86 and 167-173. On perusal of the said pages, it was observed even the longitude and latitude of the said premises was mentioned on the photograph. 41. Further, it is not necessary that a company undertakes its activities from the registered office which as per the section 12 of the Companies Act 2013 is just an address where necessary notices, communication and correspondence sent to the company is received and acknowledged. Even u/s 12(3) of the Companies Act 2013, a company can undertake its activities from any other address. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the evidences placed on record by the assessee. 43. Further, these lender companies owned listed equity shares worth market value of thousands of Crores of Rupees, had bank as well as demat accounts, have taken loans from the NBFCs, filed their returns of income declaring huge income in tens of crores of Rupees for the last 3 years and paid necessary applicable and due income-tax thereon, got their books audited under Companies as well as Income-tax Acts. Further some of the directors of the assessee and one of the lenders are common. These two lenders were assessed u/s 143(3) of the Act not only for the AY 2017-18 but also for the earlier 2 assessment years wherein substantial addition u/s 14A of the Act was made for the AY 2017-18. Thus, if an entity which is duly assessed by the Income-tax department cannot be presumed as non-existing in other assessment. In view of the all these evidences, the physical existence of the lender companies stands proved beyond doubt. 44. Further, on perusal of the impugned order of Ld. CIT (A), it is seen that the CIT (A) has only reiterated the averments in the assessment order, submissions of the appellant, remand report, rejoinder, synopsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest was declared as income by the lenders in their returns of income and offered the same for taxation which has been accepted in their assessment orders framed u/s 143(3) of the Act. 48. Since we have held that the loans taken from the said two lender companies are genuine in the above grounds of appeal, the interest on these loans has to be held as genuine payment. Undisputedly, these loans were used for the purpose of business, due income-tax has been deducted at source on the said interest, which has also been declared as income by the lenders, the amount of interest cannot be disallowed. The loans were also used only for the purpose of its business by the assessee. In fact the authorities below have not adverted that the said loans for not used for its business by the assessee. Thus, since the loans were used by the assessee for its business, the disallowance of interest is hereby deleted. Ground no. 5 - Disallowance of Education cess as a deduction while computing the assessable income 49. The assessee submitted that Education Cess is an allowable expenditure and therefore the Education Cess paid should be allowed as deduction. The appellant placed reliance on the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 are decided in favour of the appellant. 55. It has also been held in the above appeal that education cess paid is allowable as deduction. However, the same is not allowable to the assessee during this year as the assessee has not paid any education cess on the income-tax for this assessment year as the returned income under the normal as well MAT provisions was at loss. 56. Since the appeal has been decided on merits, the legal grounds raised by the appellant do not need adjudication. Thus, ground no. 6 is dismissed. Jindal Quality Tubular Ltd. - Appeal no. ITA/1171/D/2020 57. In this case, the loan was taken by the assessee company from Danta Enterprises (P) Ltd. The addition has been made on identical issues by raising the identical averments raised in the case of Jindal ITF Ltd. in Appeal no. ITA/1172/D/2020. 58. It has been held in the said appeal that the identity and creditworthiness of the lender, its physical existence and genuineness of the loan transaction stands proved beyond doubt and thus, the onus cast on the assessee u/s 68 of the Act stands discharged and no addition u/s 68 could be made. Thus, following the same, the addition of Rs. 20,52,00,000/- u/s 68 fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
