Gujarat High Court
The Principal Commissioner Of Income ... vs Karnavati Merchandize Pvt. Ltd on 3 October, 2023
Author: Biren Vaishnav
Bench: Biren Vaishnav, Bhargav D. Karia
NEUTRAL CITATION
C/TAXAP/295/2023 ORDER DATED: 03/10/2023
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 295 of 2023
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THE PRINCIPAL COMMISSIONER OF INCOME TAX 1
Versus
KARNAVATI MERCHANDIZE PVT. LTD.
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Appearance:
MR.VARUN K.PATEL, SENIOR STANDING COUNSEL WITH MR. DEV D.
PATEL, ADVOCATE for the Appellant(s) No. 1
for the Opponent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE BIREN VAISHNAV
and
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
Date : 03/10/2023
ORAL ORDER
(PER : HONOURABLE MR. JUSTICE BIREN VAISHNAV) 1 The appellant has preferred this appeal under Section 260-A of the Income Tax Act, 1961. This appeal is arising out of the order dated 11.11.2022 passed by the Income Tax Appellate Tribunal, Ahmedabad, in ITA No. 1801/AHD/2017 for Assessment Year 2014-15. 2 The following substantial questions of law arises for consideration of this Court:
"(a) Whether in the facts and circumstances of the case and in law, the learned ITAT has erred in deleting the addition of Rs.1,16,93,637/- u/s. 68 of Page 1 of 8 Downloaded on : Wed Oct 04 20:41:48 IST 2023 NEUTRAL CITATION C/TAXAP/295/2023 ORDER DATED: 03/10/2023 undefined the IT Act without properly appreciating the facts of the case and material brought on record?
(b) Whether in the facts and circumstances of the case and in law, the learned ITAT has erred in deleting the net profit addition of Rs.68,25,25,056/-
without properly appreciating the facts of the case and material brought on record?"
3 The brief facts of the case are as under:
3.1 The asseessee - respondent is engaged in the business of trading of all types of Chemicals, Casting and Casting Parts. The return of income was filed by the assessee on 28.11.2014 declaring total income of Rs.82,80,030/-. The case of the asseessee was selected for scrutiny and notice under Section 143(2) and 142(1) was issued. The assessee filed details and submissions from time to time before the Assessing Officer.
3.2 The Assessing Officer made disallowance of expenses of Rs.26,612/- under Section 14A r.w.r 8D of the I.T.Rules. The Assessing Officer also made addition of Rs.1,61,68,247/- as regards unsecured loans / cash credit Page 2 of 8 Downloaded on : Wed Oct 04 20:41:48 IST 2023 NEUTRAL CITATION C/TAXAP/295/2023 ORDER DATED: 03/10/2023 undefined under Section 68 of the Act. The Assessing Officer made disallowance of Rs.68,35,25,056/- of the turnover of the assessee which is 5% of total turnover.
3.3 Being aggrieved by the assessment order, the assessee filed appeal before the CIT(Appeals). The CIT (Appeals) partly allowed the appeal of the assessee holding as under:
"2.3 I have carefully considered the facts of the case, assessment order and submission of the appellant. The AO has made the addition of Rs.1,61,68,247/- in respect of two cash creditors invoking the provisions of Section 68 of the Act. The details of such cash creditors are noted as under:- Sr Name and PAN No. Address Amount Rs. NO.
1 Globex Finance 219, The Grand Rs.44,74,610/-
Services PAN NO. Monarch, Anandnagar AALFG3098F Road, Near Seema Hall, Ahmedabad.
2. Horizon Finance, A-508, Infinity Rs.1,16,93,637/-
PAN No. Corporate Road,
AAGCM6009A Satellite, Ahmedabad
TOTAL AMOUNT Rs.1,61,68,247/-
2.4 The AO made the addition for the reason that the appellant has not produced depositors alongwith evidences of their identity and books of accounts. The appellant did not submit the confirmation and bank statement depicting the loan and advances alongwith 3CD report, return of income of the depositors. Thus AO held that the appellant has not Page 3 of 8 Downloaded on : Wed Oct 04 20:41:48 IST 2023 NEUTRAL CITATION C/TAXAP/295/2023 ORDER DATED: 03/10/2023 undefined discharged its onus in establishing the identity and creditworthiness of the lenders and also the genuineness of the transactions.
2.5 On the other side, the appellant has contended that it has submitted all the details called for by the AO to establish identity, creditworthiness and genuineness of the transactions vide its letter dated 05.07.2016, 5.12.2016 and others. With regard to Globex Finance, it was submitted that the appellant vide its letter dtd. 5.12.2016 has submitted the confirmation cum contra account the name, address, PAN details, I.T.Return, balance sheet and profit and loss account, audit report, bank statement etc. Further submitted that no loans have been taken by the appellant during the year under consideration but it was the opening balance as on 1.4.2013 at Rs.1,01,11,954/- which was carried forward in the year under consideration from the preceding year and repayment of Rs.60,34,740/- was made to the party in the year under consideration. During the year there was the interest credit of Rs.3,97,396/- in its ledger accounts. So there was no question of making any addition with regard to the opening credit balance of Rs.1,01,11,954/- in respect of Globex Finance.
2.6 Now with regard to the party namely M/s. Horizon Finance, it has been submitted that the appellant vide its letter dtd.5.12.2016 has provided the confirmation cum contra account, address, PAN , IT return of the party, audit report alongwith balance sheet and profit and loss account and also the bank statement highlighting transactions of loan obtained and paid back. Since the identity, genuineness and creditworthiness of the aforesaid party is duly proved from the aforesaid documents and hence no addition u/s. 68 of the Act is called for.
2.7 Having considered the facts and submissions, it Page 4 of 8 Downloaded on : Wed Oct 04 20:41:48 IST 2023 NEUTRAL CITATION C/TAXAP/295/2023 ORDER DATED: 03/10/2023 undefined has been noticed that during the course of assessment proceedings the appellant has submitted the submission letter dtd. 5.12.2016 to the AO which are the details of the such as confirmation, bank statement, ITR acknowledgement, copy of audited accounts etc. in respect of both the parties. On going through the same it is noticed that in the case of M/s. Globex Finance, there was opening balance of Rs.1,01,11,954/- as on 1.4.2013 and the same was repaid on different dates such as Rs.25 lakhs on 28.12.2013, Rs.34.95 lakhs on 18.3.2014 which is verifiable from its ledgeer account and confirmation / contra account of the aforesaid party. Further the appellant has credited the interest of Rs.397396/- in parties ledger account by deducting the TDS of Rs.39740/-. Even the AO has not taken any adverse view about the claim of interest expenditure of the aforesaid party and granted the deduction of the interest expenditure which itself proves that the loan from the above party was genuine. Thereafter their remained closing balance at Rs.44,74,610/- in its ledger account on 31.3.2014. Since there was no new cash credits taken by the appellant from the said party during the year under consideration and only the opening balance as on 1.4.2013 was repaid in the year under consideration, hence no adverse inference could be taken in the year under consideration. Thus the addition made by the AO in respect of this aprty in uncalled for and hence the same is deleted.
2.8 Now with regard to the party namely M/s. Horizon Finance, the appellant vide its letter dtd.5.12.2016 has submitted the confirmation of the said party alongwith contra account from the books of the said party besides its return of income for A.Y.2014-15 filed on 26.11.2014, form No. 3CB and form No. 3CD with profit and loss account and balance sheet of the aforesaid party and bank statement highlighting the transactins made with Page 5 of 8 Downloaded on : Wed Oct 04 20:41:48 IST 2023 NEUTRAL CITATION C/TAXAP/295/2023 ORDER DATED: 03/10/2023 undefined the appellant etc. in the assessment proceedings to the AO. It has been noticed that in the loans and advances head of the balance sheet of the aforesaid party the appellant has been shown as a debtor for a closing balance of Rs.1,16,93,637/-. In other words the loans and advances given to the appellant have beend duly recorded in the books of accounts and balance sheet for the year under consideration of the aforesaid party. Moreover on verification of the bank account of the aforesaid party in Rajkot Nagrik Sahakari Bank, Ahmedabad Account no. 048003800003474, it has been noticed that no immediate cash deposits before granting the loans to the appellant are found credited and therefore there is no suspicion about the sources of the deposits / loans given to the appellant. Since the aforesaid party had the PAN and therefore its identity is established. Further the bank statement of the aforesaid party has also been established highlighting the cash credit transactions with the party during the year under consideration which amply establishes the genuineness of the cash credits. Further the aforesaid party has also filed the return of income and rgularly assessed to tax therefore there is no doubt on the sources of the deposits and creditworthiness. Since the appellant has discharged its onus as per the provisions of Section 68 of the Act and therefore there is no doubt on the cash credits shown by the appellant in the name of the aforesaid party. Once primarily the requisite documents were submitted by the appellant to the AO and the AO had no doubts in respect to the aforesaid documents and no inquiry have been made to controvert the authenticatin of the same. Thus as per the judgement of Hon'ble Supreme Court in the case of M/s. Orissa Corporation the primary onus cast upon the appellant is duly discharged and in these circumstances no addition in its hands is called for. Thus respectfully following the judgements and Page 6 of 8 Downloaded on : Wed Oct 04 20:41:48 IST 2023 NEUTRAL CITATION C/TAXAP/295/2023 ORDER DATED: 03/10/2023 undefined decisions of Hon'ble Courts briefly noted hereunder, the addition made by the AO in respect of this party namely M/s. Horizon Finance is not justified and hence the same is deleted."
3.4 The revenue was in appeal before the Income Tax Appellate Tribunal. The Tribunal, held as under:
"9. We have heard both the parites and perused all the relevant material available on record. It is pertinent to note that as regards the Ground No.1 the assessee has established the identity, creditworthiness and genuineness of the transactions by submitting all the details such as confirmation cum contra account the name, address, PAN details, I.T.Return, balance sheet and profit and loss account, audit report, bank statement etc. From the perusal of the record it can be seen that no loans has been taken by the assessee during the year under consideration but it was the opening balance as on 01.04.2013 at Rs.1,01,11,954/- which was carried forward and thus, the genuineness of cash credits were estaboished by the assessee. The CIT(A) has given a detail finding and there is no need to interfere with the same. Ground No.1 of Revenue'a appeal is dismissed. As regards Ground No.2 the assessee has duly furnished all the details to establish the correctness of the books of accounts and also furnished ITR, Audit Report, balance sheet and Profit & Loss Account. The detail of G.P.ratio and N.P.ratio for last three years also was shown to the Assessing Officer. It is pertinent to note that the Assessing Officer while rejecting the books of accounts has not recorded any proper satisfaction / reasons and therefore, the rejection of books of accounts was not justifiable. The G.P and N.P. rate was prejudicially decrease in the present year but the turnover has increased and therefore, the same Page 7 of 8 Downloaded on : Wed Oct 04 20:41:48 IST 2023 NEUTRAL CITATION C/TAXAP/295/2023 ORDER DATED: 03/10/2023 undefined was rightly accepted by the CIT(A). Hence, Ground No.2 of Revenue's appeal is dismissed."
4 Having considered the findings hereinabove, the CIT(A) and ITAT concurrently based on available records arrived at a finding of fact that the assessee had duly furnished details to establish the correctness of books of accounts and also furnished ITR, Audit Report, balance sheet etc. Having essentially therefore arrived at such findings based on facts, no substantial question of law, much less any substantial question of law is argued. The appeal is dismissed, accordingly.
(BIREN VAISHNAV, J) (BHARGAV D. KARIA, J) BIMAL Page 8 of 8 Downloaded on : Wed Oct 04 20:41:48 IST 2023