Income Tax Appellate Tribunal - Delhi
Ito, New Delhi vs M/S Shangrila Impex, New Delhi on 9 May, 2022
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'G', NEW DELHI
Before Dr. B. R. R. Kumar, Accountant Member
Ms. Astha Chandra, Judicial Member
ITA No.1234/Del/2017 : Asstt. Year: 2012-13
Income Tax Officer, Vs M/s Shangrila Impex,
Ward-41(2), F-13, Udyog Nagar,
New Delhi Near Peeragarhi Chowk,
New Delhi
(APPELLANT) (RESPONDENT)
PAN No. ABSFS0980N
Revenue by : Sh. Umesh Takyar, Sr. DR
Assessee by : Sh. Ajay Wadhwa, Adv. &
Ms. Ragini Handa, CA
Date of Hearing: 10.02.2022 Date of Pronouncement: 09.05.2022
ORDER
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeal has been filed by the Revenue against the order of the ld. CIT(A)-14, New Delhi dated 27.12.2016.
2. Following grounds have been raised by the Revenue:
"1. On the facts and circumstances of the case and in law, the Ld. CIT(A) is not justified in deciding the appeal by accepting the additional evidences, ignoring the findings of the AO that the assessee's case does not fall in any circumstances listed in sub Rules 1(a) to 1(d) of rule 46A of the Income Tax Rules, 1962.
2. On the facts and circumstances of the case andin law, the Ld. CIT(A) is not justified in deleting the estimated trading addition of Rs. 50,19,040/- made by the AO, being the estimated GP @12% of the total 2 ITA No.1234/Del/2017 M/s Shangrila Impex sales of Rs. 14,27,21,200/- after rejecting the books of accounts u/s 145(3) of the Act.
3. On the facts and circumstances of the case and in law, the Ld. CIT(A) is not justified in deleting the addition of Rs.4,61,12,000/- on account of unexplained unsecured loans without appreciating the findings of the Assessing Officer that the assessee could not prove the creditworthiness of the transactions.
4. On the facts and circumstances of the case and in law, the Ld. CIT(A) is not justified in deleting the addition of Rs. 10,00,000/- on account of unverifiable creditors ignoring the findings of the Assessing Officer."
3. The assessee filed return of income on 29.09.2012 declaring total income of Rs.12,67,670/-.
4. The assessment was completed u/s 144 of the Income Tax Act, 1961 on 14.03.2015 by making additions of Rs.20,19,040/- alleging the same to be undeclared Net Profit calculated @ 12% or gross sales, ad-hoc disallowance of disallowance of Rs. 10,00,000/- out of total sundry creditors of Rs. 2,84,40,485/- and addition of unsecured loan amounting to Rs 4,61,12,000/- received by the assessee firm during the assessment year under appeal on the basis that the assessee has failed to prove the creditworthiness and genuineness of the lenders from whom the loans were received by the assessee firm.
5. During the course of appellate proceedings before the ld. CIT(A), the Ld. AR vide his letter dated 26.09.2016 has submitted as under:
1. The assessment order dated 16.03.2015 in the captioned case was passed ex-parte and a huge demand of 3 ITA No.1234/Del/2017 M/s Shangrila Impex Rs.2,24,54,770/- was raised. The appellant firm was engaged in the business of export of garments to Russia federation.
However, due to intense competition, resulting in reduced markets coupled with the inflexibility of the bank to extend requisite facilities on time, the business suffered losses and had to be shut. In fact, the situation was so grave that all bank accounts of the group turned into Non Performing Assets (NPA).
2. In fact, even till date the business stands closed. There are no employees/professionals to assist the firm. When the case was opened for scrutiny for the AY 2012-13, the appellant firm had engaged M/s. S. N. Varma & Co., Chartered Accountants, to represent them.
3. The partner of the assessee firm believed that the said C.A. firm attended once or twice before Ld. Assessing officer and after which they started to ask to pay huge money as fees which resulted into dispute between assessee and the AR. The financial position was so grim that there were no ways to pay the fees although he assured them that the fees would be paid in installments. However, it appears that the assessee's terms were not agreeable to the authorized representative and without any knowledge or even intimating the assessee they stopped attending the assessment proceedings before Ld. Assessing officer.
4. The office where the notices were purportedly served by the department has been received and handed over to the said C.A firm to appear before the Ld. Assessing officer and therefore partners of the firm had no knowledge about the assessment proceedings. There were also, no employees in the 4 ITA No.1234/Del/2017 M/s Shangrila Impex firm. An affidavit from Shri Inder Pal Singh Wadhawan, partner of the assessee firm to this effect is attached herewith.
5. The assessee was shocked that the assessment order was passed ex parte and they had no knowledge of whatsoever of non compliance.
6. We further submit that if the appellant firm had known about the alleged non-compliance then the necessary steps would have definitely been taken to appear before the ld. Assessing Officer.
7. The appellant humbly submits that it has since obtained documents from its records and seeks to file them under rule 46A of the Income Tax Rules. It is submitted that the case of the appellant falls under clause (c) of Rule 46A(1) as the appellant was prevented by sufficient cause from furnishing the required evidence.
8. It is also respectfully submitted that the additional evidence sought to be filed will assist your honours in rendering substantial justice to the appellant.
Unsecured Loans:
6. Before the ld. CIT(A), the assessee furnishing detailed documentary evidence to establish the genuineness, identity and creditworthiness of M/s Crystal Exports, M/s DNK Creation, M/s ISR Exim Pvt. Ltd., M/s IRS Exports (P) Ltd. and M/s Mismo Impex.
7. The additional evidences sought to be admitted were as follows:5 ITA No.1234/Del/2017
M/s Shangrila Impex Sr. No. Particulars Internal Page ref. Page no. I In respect of addition on account no. 51-121 of unsecured loan amounting to Rs.46,112,000/- under section 68 of the Income Ta x Act, 1961 Regarding M/s Crystal Exports :a. Copy of ledger acc ount of M/s Crystal 51
Exports in the books of Shangrila Impex.b. Copy of balance confirmation of 52
accounts of M/s Crystal Exports c. Copy of bank statement of Shangrila 53-55 Impex d. Copy of bank statement of Crystal 56-58 Exports e. ITR Acknowledgment and computation 59-60 of income of Crysta l Exports f. Financial statements of M/s. Crystal 61-64 Exports for the yea r ended 31 s t March 2012.
Regarding M/s DNK Creation:a. Copy of l edger account of DN K 65
Creation in the books of Shangrila Impex.
b. Copy of balance confirmation of 66
accounts of DNK Creation
c. Copy of bank statement of Shangrila 67
Impex
d. Copy of bank statement of DNK 68
Creation
e. ITR Acknowledgment of Inder Pal 69
Singh Wadhawan
f. Financial statements of M/s. DNK 70-75
Creation for the year ended 31 s t
March 2012.
Regarding M/s ISR Exim Pvt. Ltd.:
6 ITA No.1234/Del/2017
M/s Shangrila Impex
a. Copy of ledger account of M/s ISR 76
Exim Pvt. Ltd. in the books of M/s.
Shangrila Impex
b. Copy of balance confirmation of 77
accounts of M/s IS R Exim Pvt. Ltd.
c. Copy of bank s tatement of M/s. 78
Shangrila Impex
d. Copy of bank statement of M/s ISR 79
Exim Pvt. Ltd.
e. ITR Acknowledgment of M/s. ISR 80
Exim Pvt. Ltd.
f. Financial statements of M/s. ISR 81-89
Exim Pvt. Ltd. for the year ended
31 s t March 2012.
Regarding M/s ISR Exports Pvt.
Ltd.:
a. Copy of ledger account of M/s ISR 90
Exports Pvt. Ltd. in the books of M/s .
Shangrila Impex
b. Copy of balance confirmation of 91
accounts of M/s IS R Exports Pvt. Ltd.
c. Copy of bank s tatement of M/s. 92-101
Shangrila impex
d. Copy of bank statement of M/s ISR 102-112
Exports Pvt. Ltd.
e. ITR Acknowledgment of M/s. ISR 113
Exports Pvt. Ltd.
f. Financial statements of M/s. ISR 114-121
Exports Pvt. Ltd. for the year ended
31 s t March 2012.
7 ITA No.1234/Del/2017
M/s Shangrila Impex
II In respect of addition of Rs. 122-180
10,00,000/- on account of Sundry
creditors
a) Copy of ledger account of 122
sundry creditors
b) Ledger accounts, balance
confirmations, copy of bank 123-180
statements, copy of bills of th e
foll owing creditors:
• Committed Logistic s (INDIA)
Pvt. Ltd.
• Ganesh Fabrics
• Molycoddl e Fashion Pvt. Ltd.
• Nupur Sales Corporation
• S.A.V. Trans International
• Sona Plus Trading Co.
• Surya Fabrics
• Surya Garments
III In respect of addition on account 181-210
of estimati on of Gr oss Profit
amounting to Rs.50,19,040/-
1. Financial statements for year
ended 31.03.2011.
I. Regarding addition of Rs. 4,61,12,000/- under section 68
of Income Tax Act 1961 on account of unsecured loan received.
i) An addition of unsecured loan amounting to Rs.4,61,12,000/- received by the assessee firm during the impugned assessment year under appeal. The addition has been made by the Ld. Assessing Officer on the basis that the assessee has failed to prove the creditworthiness and genuineness of the lenders from whom the loan were received by the assessee firm and the addition were made under section 68 of the Income tax Act, 1961. No documents were filed during assessment because of the facts mentioned above.8 ITA No.1234/Del/2017
M/s Shangrila Impex
8. Regarding details/ information of M/s Crystal Exports for your kind reference and record:
a.) Copy of ledger account of M/s Crystal Exports in the books of appellant (refer P/b page no. 51) b.) Copy of balance confirmation of accounts of Crystal Exports (refer P/b page no. 52) c.) Copy of bank statement of Shangrila Impex (refer P/b page no. 53-55) which shows that the amount has duly received through proper banking channel from M/s Crystal Exports.
d.) Copy of bank statement of Crystal Exports (refer P/b page no. 56-58) to prove the creditworthiness of the firm.
e.) ITR Acknowledgment and computation of income of Crystal Exports (refer P/b page no. 59-60) to prove the identity and genuineness.
f.) Financial statements of M/s. Crystal Exports for the year ended 31st March 2012. (refer P/b page no. 61-64) which shows that the loan is given and duly accounted in the books' of accounts.
9. Regarding details/ information of M/s DNK creation for your kind reference and record:
a.) Copy of ledger account of DNK Creation in the books of appellant (refer P/b page no. 65) b.) Copy of balance confirmation of accounts of DNK Creation, (refer P/b page no. 66) 9 ITA No.1234/Del/2017 M/s Shangrila Impex c.) Copy of bank statement of Shangrila lmpex (refer P/b page no. 67) which shows that the amount has duly received through proper banking channel from M/s DNK Creation.
d.) Copy of bank statement of DNK Creation (refer P/b page no.
68) to prove the creditworthiness of the firm.
e.) ITR Acknowledgment of Inder Pal Singh Wadhawan (refer P/b page no. 69) to prove the identity and genuineness.
f.) Financial statements of M/s. DNK Creation for the year ended 31st March 2012. (refer P/b page no. 70-75) which shows that the loan is given and duly accounted in the books of accounts.
10. Regarding details/ information of M/s ISR Exim Pvt. Ltd. for your kind reference and record.
a.) Copy of ledger account of M/s ISR Exims Pvt. Ltd. in the books of appellant (refer P/b page no. 76) b.) Copy of balance confirmation of accounts of M/s ISR Exim Pvt. Ltd. (refer P/b page no. 77) c.) Copy of bank statement of M/s Shangrila lmpex (refer P/b page no. 78) which shows that the amount has duly received through proper banking channel from M/s. ISR Exim Pvt. Ltd.
d.) Copy of bank statement of ISR Exim Pvt. Ltd. (refer P/b page no. 79) to prove the creditworthiness of the firm.
e.) ITR Acknowledgment of ISR Exim Pvt. Ltd. (refer P/b page no. 80) to prove the identity and genuineness.
10 ITA No.1234/Del/2017M/s Shangrila Impex f.) Financial statements of M/s. ISR Exim Pvt. Ltd. for the year ended 31st March 2012.- (refer P/b page no. 81-89) which shows that the loan is given and duly accounted in the books of accounts.
11. Regarding details/ information of M/s ISR Exports Pvt. Ltd for your kind reference and record:
a.) Copy of ledger account of M/s ISR Exports Pvt. Ltd. in the books of appellant (refer P/b page no. 90) b.) Copy of balance confirmation of accounts of M/s ISR Exports Pvt. Ltd. (refer P/b page no. 91) c.) Copy of bank statement of M/s. Shangrila Impex (refer P/b page no. 92- Id) which shows that the amount has duly received through proper banking channel from M/s ISR Exports Pvt. Ltd.
d.) Copy of bank statement of M/s ISR Exports Pvt. Ltd. (refer P/b page no. 102-112) to prove the creditworthiness of the firm.
e.) Copy of ITR Acknowledgment of M/s. ISR Exports Pvt. Ltd. (refer P/b page no. 113) to prove the identity and genuineness.
f.) financial statements of M/s. ISR Exports Pvt. Ltd. for the year ended 31st March 2012. (refer P/b page no. 114-121) which shows that the loan is given and duly accounted in the books of accounts. Therefore, said addition is completely unjustified, unwarranted and deserves to be deleted.
12. With regard to admittance of additional evidences under rule 46A of the Income Tax Rules, the assessee submitted 11 ITA No.1234/Del/2017 M/s Shangrila Impex various judicial pronouncements before the ld. CIT(A) which are as under:
a. It is submitted that the judicial authorities must passed orders effectively and the objective is to unfold the actual controversy and appraise the correct facts so that there is no miscarriage of justice. Therefore, if the documents sought to be produced are of such a nature that they render assistance to the authorities in passing order or are required to be admitted for any other substantial cause, it would be the duty of the appellate authority to admit them. This proposition was law upheld by the Hon'ble Tribunal in the case of Abhay Kumar Shroff Vs. Income-tax Officer 63 ITD 144 (Pat) where in, the Tribunal admitted additional evidence even when not even a whisper of the same was made before the first appellate authority.
b. The Hon'ble Mumbai High Court in the case of Smt. Prabhavati S. Shah Vs. CIT, 231 ITR 278 held that if the assessee had been informed by the ITO in the course of the assessment proceedings that he was not inclined to accept the loans as genuine because of the non availability of the creditors, the assessee could have tried to satisfy him about the genuineness of the loan by producing other evidence. Therefore, the additional evidence sought to be filed under Rule 46 A was admissible.
This is actually the case of the assessee company where the Ld. Assessing officer never disclosed his intention of making such disallowances.12 ITA No.1234/Del/2017
M/s Shangrila Impex c. It is further submitted that your honour has powers that are coterminous with that of the Ld. Assessing officer. By refusing to admit additional evidence which is of such a primary nature and importance, the doors of justice will be shut on the face of the appellant at the very initial stage. The Hon'ble Supreme Court in the case of Collector Land Katji, 167 ITR 471 (SC) have held that when technical considerations are pitted against the cause of substantial justice it is the cause of substantial justice that must prevail.
13. The above written submissions were sent to the AO vide office letter F. No. CIT (A)- 14/ RR/16-17/172 dated 26.09.2016 for his comments U/R 46A of the IT Rules, 1962 who vide his office letter No. ITO Ward 41(2)/ Remand Report/127 dated 06.10.2016 has submitted as under:
"Kindly refer to your letter No. CIT(A)-14/RR/16-17/172 dated 26.9,2016 received in this office on 30th September 2016 on the subject cited above, requiring Remand Report within two week's time. In this context, point wise reply on admissibility of additional evidence and merits of the case is as under-
It is pertinent to refer to Rule 46A which states the provisions related to production of additional evidence before the Commissioner (Appeals):
"Rule 46A. (i) The assessee shall not be entitled to produce before the Commissioner (Appeals), any evidence, whether oral or documentary, other than the evidence produced by him 13 ITA No.1234/Del/2017 M/s Shangrila Impex during the course of proceedings before the Assessing Officer, except fn the following circumstances, namely:-
(a) where the Assessing Officer has refused to admit evidence which ought to have been admitted; or
(b) where the appellant was prevented by sufficient cause from producing the evidence which he was called to produce by the Assessing Officer; or
(c) where the appellant was prevented by sufficient cause from producing the before the Assessing Officer any evidence which Is relevant to any ground of appeal; or
(d) where the Assessing Officer has made the order appealed against without giving sufficient opportunity to the appellant to adduce evidence relevant to any ground of appeal.
(2) No evidence shall be admitted under sub-rule (1) unless the Commissioner (Appeals) records in writing the reasons for its admission.
(a) To examine the evidence or documents or to cross-examine the witness produced by the assessee, or (3) The Deputy Commissioner (Appeals) or as the case may be, the Commissioner (Appeals) shall not take into count any evidence produced under sub-rule (I) unless the Assessing Officer has been allowed a reasonable opportunity-
Natural justice, cannot be perverted into anything unnatural or unjust and cannot therefore be treated as a set of dogmatic prescriptions applicable without reference to the circumstances 14 ITA No.1234/Del/2017 M/s Shangrila Impex of the case. The question merely is, in all conscience have you been fair in dealing with that man? If you have not been arbitrary, not absent minded not unreasonable, or not unspeaking, you cannot deny that there has been no 'natural justice' breached, rather fullest natural justice has been followed but it is the person who has not availed any chances for the reasons best known to him.' In the interest of natural justice following opportunities were provided:-
1 Notice dated 30.7.2014 fixing the case for 19.8.2014 2 Notice dated 3.9.2014 fixing the case for 18.9.2014 3 Notice dated 10.10.2014 fixing the case for 3.11.2014 4 Notice dated 10.2.2015 fixing the case for 17.2.2015 5 Notice dated 20.2.2015 fixing the case for 26 .2.2015 Further, in the submissions dated 26.9.2016, assessee has also cited certain case laws in his favour for admitting additional evidence. But on going through the case laws, it was found that case Laws of Abhay Kumar Shroff Vs. Income Tax Officer 63 ITD 144 (Pat), Smt. Prabhavati S. Shah Vs. CIT 231 ITR 278 & Collector Land Katjir 167, ITR 471 (SC) does not apply to the assessee's case as facts of assessee's case are entirely different. Therefore, it is humbly prayed that additional evidence submitted by the assessee may please be rejected.
6 In light of the objections raised and observations made in Para 3 and 5 of this report and case laws cited above, you are requested to reject the application of the assessee for production of any additional evidence.15 ITA No.1234/Del/2017
M/s Shangrila Impex
14. The ld. CIT(A) accepted the additional evidences and proceeded to adjourn the case. The observations of the AO are as under:
Unsecured loans received from M/s Crystal Exports
15. The assessee has submitted confirmation from M/s Crystal Exports in respect of unsecured loans amounting to Rs. 69,60,000/-. But on going through the financial statements from page 51 to 64 of the Paper Book, it was found that the Firm M/s Crystal Firm is claiming loss amounting to Rs, 4,32,502/-. Further on page 60 of the paper book except loss of Rs. 4,32,502/-. In the computation also of the firm, nothing has been written and it has been signed by Sh. Inder Pal Singh Wadhawan.
16. On going through the balance sheet of M/s Crystal Exports, page no. 61 of the Paper Book, it is found that the Partner's Capital Account is in negative. Moreover, the Firm is having assets only to the tune of Rs. 6,18,257/- Prima facie, on going through the balance sheet of M/S Crystal Exports, it seems like an entry provider firm. Coincidently, M/s S.N. Verma Chartered Accountants Firm, who according to the assessee did not comply properly during the assessment proceedings in it's case, is an auditor of M/S Crystal Exports.
17. In addition to this, on going through the copy of Indian Overseas CD PUB bank statement of M/s Crystal Exports, it was found that between 1.5.2011 and 6.6.2011, Rs.69,50,000 had been transferred through cheque No. 576898 but no specific date has been mentioned & complete bank statement of the firm 16 ITA No.1234/Del/2017 M/s Shangrila Impex has not been filed. The bank statement of M/s Crystal Exports as on 6.6.2011 shows that the Firm's bank balance was only to the tune of Rs. 347.27. Therefore, credit worthiness of the firm is doubtful.
18. A copy of bank statement of the firm with Bank of India has been submitted for the period 01.05.2011 to 06.06.2011 wherein only credit of Rs. 2,44,997/- through RTGS is reflected. In this case also the bank statement is not complete. On going through the paper book at page No. 68, bank statement is written for the period 01.04.2011 to 31.03.2012 but it ends on 20.05.2011, just part of the bank statement, which creates doubts regarding the creditworthiness of the firm.
Unsecured Loans MIS DNK Creation
19. The assessee has submitted confirmation from M/s DNK Creation in respect of unsecured loans amounting to Rs.1.5 Crores. But on going through the financial statements from pages 65 to 75 of the Paper Book, it was found that particularly nothing specific on the assets side of DNK regarding loans given to M/S Shangrita Impex has been entered. Only general financial statements of the firm M/S DNK Creation has been written, and therefore cannot be taken as a transparent confirmation from the concerned firm. Therefore, the confirmation should not be accepted.
20. Further, it is seen that the ITR of Sh. Inderpal Singh has been filed with ITO, Ward 33(2), New Delhi but as the monetary limit exceeds Rs. 20 lakhs, it should have filed with ACIT/DCIT Circle 33(1), New Delhi.
17 ITA No.1234/Del/2017M/s Shangrila Impex
21. In addition to this, on going through the bank statement of M/s DNK Creation, it was seen that Rs. 50 lac and Rs. 1 Crore had been given to the assessee on 13.05.2011 and 16.05.2011 respectively, as unsecured loan. It is quite obvious that a Firm which is giving huge unsecured loans to other Firms must be flourishing and having a large bank balance. However, surprisingly the Bank balance on 09.06.2011 of DNK Creations is only Rs. 40,746/-. Complete Bank statement of the Firm has not been filed therefore the complete picture is missing. However, the credit worthiness of the firm is doubtful as proved by the above facts.
22. Furthermore, as per the audit report of the Auditor of M/s DNK Creation for the A.Y. 2012-13, it was seen that there was a huge demand against M/s DNK Creation for the A.Ys. 2007-08 & 2008-09 amounting to Rs.15,20,83,199/- and Rs.13,29,46,938/- respectively. It is also to bring to your kind notice that the Bank Balance of M/s DNK Creation as on 31.3.2012 is only 57,646/- which proves that the Firm does not have the credit worthiness to provide such huge loans to the assessee's firm.
Unsecured Loan - M/s ISR Exim Pvt. Ltd.
23. In this case also, the assessee has only submitted a ledger account confirmation amounting to Rs. 3 lacs and one part bank statement of Indian Overseas Bank for the period 01.03.2012 to 31.03.2012 showing an amount of Rs. 3 lacs. No proof regarding the creditworthiness of the Firm to provide the loan to the assessee has been filed by the assessee, in the absence of which the genuineness of the transaction cannot be verified.
18 ITA No.1234/Del/2017M/s Shangrila Impex
24. The assessee has submitted confirmation from ISR Exports Ltd. However, on going through the schedule 'N' it is seen that no interest has been paid. It is highly Improbable that ISR Exports Ltd. would give the huge amount of Rs. 2,51,02,000/- as interest free loan to the assessee Firm. Therefore, genuineness of the unsecured loan given to the assessee Firm is not proved. Another interesting fact noticed is that the Auditor of- this Company is once again M/s S.N. Verma Chartered Accountants Firm, who according to the assessee did not comply properly during the assessment proceedings in its case and Is also an auditor of M/S Crystal Export who has also given unsecured loans to the assessee Firm.
25. The copy of the above report was given to the Ld. AR for his comments who vide his letter filed on 27.10.2016 has submitted as under:
"The appellant has perused the remand report of the AO dated 06.10.2016. The appellant's response in respect of the AO's observations is as follows:
b. The decision of Hon'ble ITAT Delhi in the case of Gajinder Singh Chabra vs. ITO reported in 66 SOT 52(2014) whereby following has been held:
"The assessee had filed the affidavit stating that neither any notice under Section 143(2) was issued nor the assessment under Section 143(3) was completed for the year under consideration. Since such affidavit remained uncontroverted from the side of the Revenue, we accept the same and hold that no regular assessment was completed under Section 143(3) 19 ITA No.1234/Del/2017 M/s Shangrila Impex and, therefore, sub-section (2) of Section 151 would be applicable.
ON MERITS OF THE CASE:
I. Regarding unsecured loans of Rs. 4,61,12,000/-:
1. Unsecured loans include loans from following parties:
- M/s Crystal Exports
- M/s DNK Creation
- M/s ISR Exim Pvt. Ltd.
- M/s ISR Exports Pvt. Ltd.
2. Following is the point wise reply to AO's observation on documents filed for establishing creditworthiness, identity and genuineness of loan taken from M/s Crystal Exports :-
AO's CONTENTIONS APPELLANT'S CONTENTIONS That the firm is having assets of Rs. Wrong statement by AO. Kindly refer 6,18,2571- only copy of balance s heet on page no. 61 of PB where assets are of Rs.
14,25,25,207.70/-.
That the firm is having losses of Rs. Can anyone be compelled t o earn pr ofit 4,32,502/-. and moreover how can loss/profit be suggestive of cred itworthiness of an y person? it is hereb y submitted that low income cannot be the sufficient ground to doubt the creditworthiness of the loan providers. F or this proposition reliance is placed on the judgment of the Hon'ble High Court of Delhi in the case of CIT v. Vr indavan Farms Pvt.
Ltd. dated 12.08.2015 (ITA No.
71,72,84 of 2015).
20 ITA No.1234/Del/2017
M/s Shangrila Impex
That M/s Crystal Exports is an entry Sweeping and unsubstantiated
provider firm. statements have been passed by the
Id. AO. Just because the firm is
running into losses how can that lead
to presumption that M/s Crystal
Exports is an entry provider firm.
"2.........Coincidental y, M/s S.N. Does this fact has anything to do with
Verma, Chartered Accountants Firm, the fact that M/s S.N Verma didn't who according to the assessee did comply properly during assessment not comply properly during the proceedings of the appellant company? assessment proceedings in its case, How is this hel ping the assessi ng is an auditor of M/s Crystal officer v iew? Exports."
Yes, M/s S.N. V erma was auditor of the company because they were appointed as CA of the whole group.
"3.........Rs. 69,50, 000 had been Wrong statement. Kindly refer page no.
transferred through cheque no. 56 of PB. Date is c l ear i.e. 10.05 .2011. 576898 but no specific date has been mentioned & complete bank Further, assessee is bound to statement of the firm has not been verify/justify its transactions with the filed. " party which has been done by fi ling the relevant portion of bank statement.
"3.........the Firm's bank balance was How can bank balance on a particular only to the tune of Rs. 347.27. day be the basis to judge the Therefore, credit worthiness of the creditworthiness of a person? firm is doubtful."
"4........A copy of bank statement of Wrong statement. Kindly refer page no. the firm with Bank of India has been 57 of PB. Bank statement of Bank of submitted for the period 01.05.2011 India has been sub mitted for the p eri od to 06.06.2011 wherein only credit of 01.11.2011 to 01. 12.2011 and there is Rs. 2,44,997/- t hrough RTGS is no credit entry of Rs. 2,44,997/- reflected. In this c ase also the bank through RTGS. statement is not complete."
Statement was filed as a proof of repayment of Rs. 12,50,000/- to M/s Crystal Exports.
21 ITA No.1234/Del/2017M/s Shangrila Impex "4...........On going through the paper Kindly refer page n o. 68 of the PB.
book at page no. 68, bank statement is written for the period This bank statement related to M/s DNK 1.4.2011 to 31.03. 2012 but it ends Creation, another p arty. on 20.05.2011, just part of the bank statement, which creates doubts Bank statement of M/s DNK Creations regarding the credit worthiness of is the reason of doubting the the firm." creditworthiness of M/s Cr ystal Exports. It clearly shows that there has This bank statement related to M/s been no applicati on of mind. DNK Creation
26. In view of the above, it is quite clear that the Id. AO is adamant to not accept the additional evidences on the basis of baseless reasons.
27. Following is the point wise reply to AO's observation on documents filed for establishing creditworthiness, identity and genuineness of loan taken from M/s DNK Creations:-
AO's CONTENTIONS APPELLANT'S CONTENTIONS "But on g oing through the financial Wrong statement by AO. Kindly ref er statements from page 65 to 75 of Schedule B on page number 73 of the the Paper Book, i t was found that paper book where advances recoverable particularly nothing on the assets in cash or kind includes the amount side of the DNK regarding loans given to appellant. given to M/s Sha ngrila Impex has been entered. "
"Further, it is seen that the ITR of How does it affect i ts veracity? Sh. Inderpal Singh has been filed with ITO Ward 33(2), New Delhi but as the monetary limit exceeds Rs.
20 lakhs, it should have been filed with ACIT/DCI T Ci rcle 33( 1), New Delhi.
"It is quit e obv i ous that a Firm Bank statement is fil ed to show th at which is giving huge unsecured transaction was genuine. How can bank loans to other firms must be balance on a particular day be the flourishing and having a large bank basis to judge the creditworthiness of a balance. However, surprisingly the person. Kindly look at the sales figure Bank balance on 9/6/2011 of DNK in P&L A/c on pg. no. 71 of paper book Creations is only 4 0,746/-." which is approximately 23 crores.22 ITA No.1234/Del/2017
M/s Shangrila Impex "4.......it was seen that there was Firstly, the huge demands raised huge demand against M/s DNK against M/s DNK Creation have b een Creation for the A sstt. Years 2007- deleted by the Hon 'ble ITAT vide order 08 & 2008-09amounting to Rs. dated Secondly how can the dema nd 15,20,83,199/- and Rs. 13,29,48,9- raised in assess ment proceedings is 38/- respectively. It is also to bring linked to creditwort hiness of a party. to your kind notice that the Bank Balance of M/s DN K Creation as on 31.03.2012 is only 57,646/- which proves that the Firm does not have the creditworthiness to provide such huge loans to the.. ."
4. In respect of unsecured loan from Nils ISR Exim Pvt. Ltd.:
a. The Id. AO has observed as under regarding the additional evidences filed in respect of unsecured loan from M/s ISR Exim Pvt. Ltd.:
"In this case also, the assessee has only submitted a ledger account confirmation amounting to Rs. 3 lacs and one part bank statement of Indian Overseas Bank for the period 1.3.2012 to 31.3.2012 showing an amount of Rs. 3 lacs. No proof regarding the creditworthiness of the Firm to provide the loan to the assessee has been filed by the assessee, in the absence of which the genuineness of the transaction cannot be verified."
b. Following documents were filed as additional evidences in respect of loan from ISR Exim Pvt. Ltd.:
• Copy of ledger account of M/s ISR Exims Pvt. Ltd. in the books of Ms/ Shangrila Impex.
• Copy of balance confirmation of accounts of M/s ISR Exim Pvt. Ltd.
• Copy of bank statement of M/s Shangrila Impex 23 ITA No.1234/Del/2017 M/s Shangrila Impex • Copy of bank statement of ISR Exim Pvt. Ltd.
• ITR Acknowledgment of ISR Exim Pvt. Ltd.
• Financial statements of M/s. ISR Exim Pvt. Ltd. for the year ended 31st March 2012 c. The Id. AO has written unsubstantiated statements in his remand report. Every possible detail has been filed as additional evidence and the Id. AO is alleging that except bank statement and confirmation nothing has been filed.
d. Copy of ITR acknowledgement as well as audited financial statements have also been filed, (refer page no. 80-89 of PB)
5. Following is the point wise reply to AO's observation on documents filed for establishing creditworthiness, identity and genuineness of loan taken from M/s ISR Exports Ltd.:
AO's CONTENTIONS APPELLANT'S CONTENTIONS "the assessee has submitted Loan was given by related party in the confirmation from ISR Exports Ltd. course of busin ess. Further, the However, on goi ng through the connotation of L OAN is defin ed in schedule 'N' it is seen that no Black's law dictionary as "where loan interest has been paid. It is highly means a lending, deliv ery by one part y improbable that ISR Exports Ltd. to an receipt off a nother party of some would give the huge amount of of money upon agreement, expressed Rs.2,51,02,000/- as interest free or implied, to repay with or without loan to the assessee fir m. interest.
Therefore, genui neness off the
unsecured loan given to the
assessee f irm is not proved."
24 ITA No.1234/Del/2017
M/s Shangrila Impex
"the Auditor of this company is once Does this fact has anything to do wi th again M/s S.N. Verma Chartered the fact that M/s S.N. Verma didn't Accountants Firm, who according to comply properly during assessment the assessee d id not comply proceedings of the appellant company? properly during the assessment How is this hel ping the Assessi ng proceedings in its c ase................" Officer vi ew?
Yes, M/s S. N. Verma was auditor of the company because they were appointed as CA of the whole group.
6. The impugned addition has been made solely for the reason that evidences to establish genuineness, creditworthiness and identity were not filed during assessment proceedings. While making the addition the AO held as under:
"Even the basic details of name, address, confirmation, copy of ITR, copy of computation of income, copy of bank statement of lenders have not been furnished in spite of specific enquiry."
7. We have filed confirmation, copy of bank statements, copy of ITR to establish genuineness, creditworthiness and identity of loan parties. When all the information have been provided by the assessee sufficient to establish the creditworthiness, genuineness & identity of the party then addition cannot be made under section 68. For this proposition reliance is placed on the following decisions of various judicial authorities:
a. In the case of Commissioner vs. Orissa Corporation Ltd. reported in (1986) 159 ITR 78, the Hon'ble Supreme Court has observed that where in the case the assessee has given the names and address of the alleged creditors and it was in knowledge ©f the Revenue that they are Income tax assessees and GIR No. were also given if the Revenue did not examine the 25 ITA No.1234/Del/2017 M/s Shangrila Impex source of income of alleged creditors, the assessee could not be held responsible and he cannot do anything more than this.
b. The view is further supported by the judgment of the Hon'ble Delhi High Court in the case of CIT v. Flex Plastic & Packaging (P.) Ltd. [2007] 211 CTR 607 (DELHI) which held as under in para 5:
"5. We find that the assessing officer glossed over certain facts which had been taken note of by both the Commissioner (Appeals) as well as by the Tribunal. The assessee had provided the bank statement of the creditor which had shown sufficient balance at the relevant point of time and given all material particulars to the assessing officer with regard to her creditworthiness and the genuineness of the transaction. On the facts of the case, both authorities held that the transaction was a genuine transaction. We cannot find any fault with the view taken by both the Commissioner (Appeals) as well as by the Tribunal. "
c. Where identity and creditworthiness of parties had been established from whom assessee had taken loans and advances, no addition under section 68 could be made. The view is supported by the judgment of the Hon'ble High Court of Delhi in the case of Cit vs. Lalit Kumar Poddar (2015) 231 taxman 819 (Delhi) which held as under in para 6:
"6. So far as the second question i.e. addition under Section 68 is concerned this Court notices and both the CIT and ITAT examined the question in detail. All the seven creditors of the assessee had confirmed the transactions. Their creditworthiness 26 ITA No.1234/Del/2017 M/s Shangrila Impex was established in the sense that relevant documents in support of their possessing and requisite funds to advance loans to the assessee were examined. It was also noticed that this amount was represented by the assessee to the said creditors. In the circumstances, the appropriate course - if the Assessing Officer felt that being interest-free, certain amounts were deemed to be included as income-was to do so in accordance with law rather than proceeding under Section 68 as he did. The mandate of the law as explained in CIT vs. Lovely Exports (P) Ltd. [2008] 216 CTR 195 (SC) is that onus is upon the assessee to disclose the true identity of the creditor and the creditworthiness of the said party. In this case since the identity and creditworthiness had been established, genuineness was a matter of inference. This Court is satisfied that both the CIT and ITAT acted in consonance with law. No substantial question of law arises in this count."
d. The decision of Hon'ble High Court of Delhi in the case of CIT vs. Gangeshwari Metal (P.) Ltd. reported in 361 ITR 10 (2014), whereby following has been held:
"9. As can be seen from the above extract, two types of cases have been indicated. One in which the assessing officer carries out the exercise which is required in law and the other in which the assessing officer 'its back with folded hands' till the assessee exhausts all the evidence or material in his possession and then comes forward to merely reject the same on the presumptions. The present case falls in the latter category. Here the assessing officer, after noting the facts, merely rejected the same.27 ITA No.1234/Del/2017
M/s Shangrila Impex After going through the submissions, the ld. CIT(A) allowed the appeal of the assessee. Aggrieved the revenue filed appeal before the Tribunal. During the course of hearing, the ld. Sr. DR relied on the Assessment Order and the ld. AR relied on the order of the ld. CIT(A). Heard the arguments of both the parties and perused the material available on record.
28. With regard to unsecured loans for M/s DNK Creation, M/s ISR Exim Pvt. Ltd., M/s Crystal Exports and M/s ISR Exports Pvt. Ltd. having gone through the entire factum, we find that the entire issues have been examined in details by the ld. CIT(A). The observations of the AO are more of allegations and less of ev idences and hence, we dec line to interfere with th e order of the ld. CIT(A).
Sundry Creditors:
29. The Assessing officer has made ad-hoc disallowance of Rs.10,0,000/- out of total sundry creditors of Rs. 2,84,40,485/.
The additional evidences submitted by the assessee are a. Copy of ledger accounts b. Copy of bank statements c. Copy of bills d. Confirmations Which have been sent to the AO.
30. In the remand report, the AO held that assessee has submitted confirmations from 15 parties. From a random test check basis of the above parties M/d Aggarwal Trading Co. Rs. 16,38,300/-, Ganesh Fabrics Rs.31,20,000/-, Jagdish Fab Rs.51,21,196/-, Krishna Exports Rs./85,35,185/-, Mismo Impex 28 ITA No.1234/Del/2017 M/s Shangrila Impex Rs. 34,43,230 & Shri Radha Cloth Gallery Rs.7,87,990/-, it was found that there were only one or two transactions for either purchase of raw materials or any other material. But in the regular business in a complete financial year, there are 10 to 25 transactions and finally closing balance of the creditor is ascertained. But in the assessee's case creditors confirmations are reflecting only one or two transactions, which is highly improbable and hence not acceptable. Therefore, it is requested that addition made in respect of sundry creditors may be confirmed.
31. The reminder to the remand report submitted by the assessee is as under:
Following is the point wise reply to AO's observation on confirmations filed:
AO's Observation s Assessee's repl y "On going through the paper Wrong statement. book from pages 81 to 153, it is found that assessee has Additional evid ences relating to sundry submitted confirmations from 15 creditors are on page no. 122-180 . parties.'' Also, we hav e fil ed confirmations from 8 parties not 15 as has been alleged by the Id. AO.29 ITA No.1234/Del/2017
M/s Shangrila Impex rom a random test check basis Firstly random test check basis cannot of the abov e parties, M/s be applied under section 68. Each and Aggarwal Trading Co. Rs. every entry has to be adverted.
16,38,300/-, Ganesh Fabrics 31,20,000/-, Jagdish Fab Rs. Secondly, the parties mentioned in this 51,21.196/-, Krishna Exports para are not the parties who were the 85,35,185/-, Mism o Impex JFs. creditors of the assessee fir m. 34,43,230/- & Shri Radha Cloth Follow ing are the sundry creditors:
Gallery 7,87,990/-, it was found • Committed Logistics (INDIA) Pvt.
Ltd.
• Ganesh Fabrics
• Molycoddl e Fashion Pvt. Ltd.
• Nupur Sales Corporation
• S.A.V. Trans International
• Sona Plus Trading Co.
• Surya Fabrics
• Surya Garments
"......It was found there were How can number of transactions during only one or two transactions for the year can be the basis to accept or either purchase of raw material reject the conf irmation? or any other materi al. But in the regular business in a complete Mere presumptions and vague basis f or financial year, there are 10 to rejecting the confir mations filed. 25 transactions........."
It is not a standard that there should be at l east 10 to 25 transactions during a financial year.
4. When all the information have been provided by the assessee sufficient to establish the creditworthiness, genuineness & identity of the party then addition cannot be made under section 68. For this proposition reliance is placed on the following decisions of various judicial authorities:
30 ITA No.1234/Del/2017M/s Shangrila Impex a. In the case of Commissioner vs. Orissa Corporation Ltd. reported in (1986) 159 ITR 78, the Hon'ble Supreme Court has observed that where in the case the assessee has given the names and address of the alleged creditors and it was in knowledge of the Revenue that they are Income tax assessees and GIR No. were also given if the Revenue did not examine the source of income of alleged creditors, the assessee could not be held responsible and he cannot do anything more than this.
b. The view is further supported by the judgment of the Hon'ble Delhi High Court in the case of CIT v. Flex Plastic & Packaging (P.) Ltd. [2007] 211 CTR 607 (DELHI) which held as under in para 5:
"5. We find that the assessing officer glossed over certain facts which had been taken note of by both the Commissioner (Appeals) as well as by the Tribunal. The assessee had provided the bank statement of the creditor which had shown sufficient balance at the relevant point of time and given all material particulars to the assessing officer with regard to her creditworthiness and the genuineness of the transaction. On the facts of the case, both authorities held that the transaction was a genuine transaction. We cannot find any fault with the view taken by both the Commissioner (Appeals) as well as by the Tribunal. "
c. Where identity and creditworthiness of parties had been established from whom assessee had taken loans and advances, no addition under section 68 could be made. The view is supported by the judgment of the Hon'ble High Court of Delhi in 31 ITA No.1234/Del/2017 M/s Shangrila Impex the case of CIT vs. Lalit Kumar Poddar (2015) 231 taxman 819 (Delhi) which held as under in para 6:
Ld. AR has explained the circumstances/reasons in the letter which resulted into non-compliance to notices issued and resultantly an ex-parte order:
32. The ld. CIT(A) Keeping into consideration the entirety of the facts and circumstances of the appellant's case held that there was the sufficient cause which prevented the appellant from producing the evidences during assessment proceedings and the above mentioned additional evidences and therefore, the same are admitted Under Rule 46A of the IT Rules, 1962 and the appeal is being decided on the merit and material available on record.
33. Having gone through the reasons given by the assessee and also by the ld. CIT(A) for admitting the evidences under Rule 46A(1), we decline to interfere with the order of ld. CIT(A) in admitting the additional evidences.
34. With regard to the addition on account of sundry creditors, we hold that the ld. CIT(A) has rightly deleted the disallowance owing to the submission of all the relevant confirmations and evidences proving the sundry creditors as genuine transactions.32 ITA No.1234/Del/2017
M/s Shangrila Impex Estimation of G.P.:
35. The Assessing officer has made addition on the basis of estimation of gross profit at 12% on Gross Turnover at Rs.
14,27,21,200/- which was worked out Rs. 1,71,26,544/-. Thereafter the Assessing officer has made addition of amounting to Rs. 50,19,040/- i.e. (1,71,26,544/- - 1,21,07,504/-) after deducting the declared gross profit of Rs. 1,21,07,504/- by the assessee in the profit and loss account.
36. During the current financial year assessee failed to produce any books of accounts inspite of being granted numerous opportunities. The assessing officer therefore rejected the books of the assessee under section 145(3) of the Income Tax Act as the correctness or the completeness of the accounts could not be verified. Considering this fact, GP ratio @ 12% was applied, normally adopted in the type of business of manufacturing, trading and export, of readymade garments and fabrics.
37. The GP of the appellant during the AY 2011-12 was 8.17% which has increased at 8.48% during the year under consideration. The AO has not brought on record any comparable figures of any other entity to arrive at GP of 12%. The basis of estimation @ 12% and the reasoning thereof is conspicuously absent.
38. The ld. CIT(A) deleted the addition holding that the AO is not justified in rejecting the books of accounts by applying provisions of Section 145(3). Hence, we decline to interfere with the order of the ld. CIT(A).
33 ITA No.1234/Del/2017M/s Shangrila Impex
39. In the result, the appeal of the Revenue is dismissed. Order Pronounced in the Open Court on 09/05/2022.
Sd/- Sd/-
(Astha Chandra) (Dr. B. R. R. Kumar)
Judicial Member Accountant Member
Dated: 09/05/2022
*Subodh Kumar, Sr. PS*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR