Income Tax Appellate Tribunal - Kolkata
Dcit, Circle-3(1), Kolkata, Kolkata vs M/S. Lal Baba Seamless Tubes Pvt. ... on 12 April, 2019
I.T.A. Nos. 1033 & 1637/KOL/2017
Assessment Year: 2014-2015
M/s. Lalbaba Seamless Tubes Pvt. Limited
IN THE INCOME TAX APPELLATE TRIBUNAL,
KOLKATA 'C' BENCH, KOLKATA
Before Shri P.M. Jagtap, Vice-President (KZ)
and Shri S.S. Viswanethra Ravi, Judicial Member
I.T .A. No. 1033/KOL/2017
Assessment Year: 2014-2015
M/s. Lalbaba Seam less Tubes Pvt. Limited,.................................Appellant
13A, Rangers C lub, Govt. Place Eas t,
Kolkata-700 069
[PAN: AABCL 2668 M]
-Vs.-
Deputy Commissioner of Income Tax,............................................... .Respondent
Circle-3(1 ), Kolkata,
Aayakar Bhawan
P-7, Chowringhee Square, Kolkata-700 069
-AND-
I.T .A. No. 1637/KOL/2017
Assessment Year: 2014-2015
Deputy Commissioner of Income Tax,............................................... .Appellant
Circle-3(1 ), Kolkata,
Aayakar Bhawan
P-7, Chowringhee Square, Kolkata-700 069
-Vs.-
M/s. Lalbaba Seam less Tubes Pvt. Limited,...................................Respondent
13A, Rangers C lub, Govt. Place Eas t,
Kolkata-700 069
[PAN: AABCL 2668 M]
Appearances by:
Shri Vikash Surana, FCA, for the assessee
Dr. P.K. Srih ari, CIT (D.R.) & Sh ri S.C . Mohanti, JCIT, Sr. D.R., for the Revenue
Date of concluding th e hearing : January 29, 2019
Date of pronouncing the order : April 12, 2019
O R D E R
Per Shri P.M. Jagtap, Vice-President (Kolkata Zone):-
These two appeals, one preferred by the assessee being ITA No.1033/KOL/2017 and the other preferred by the Revenue being ITA No. 1637/KOL/2017 are cross appeals, which are directed against the order 1 I.T.A. Nos. 1033 & 1637/KOL/2017 Assessment Year: 2014-2015 M/s. Lalbaba Seamless Tubes Pvt. Limited of ld. Commissioner of Income Tax (Appeals)-1, Kolkata dated 07.04.2017.
2. First we take up the appeal of the assessee, which involves a solitary issue relating to the addition of Rs.6.22 crores made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of unexplained cash credit under section 68 and the same is raised by the assessee by way of the following ground:-
"1.(a) Fo r th at the Ld. CIT (A) erred in Law as well as o n facts in confirming t he addition made Rs.6,22,00,000/- as unexplained cash credit u/s 68 on the gro und th at "identit y and creditwo rthiness/source of income could not be establish ed satisfact orily" when, the appellant dul y furnished cogent evidences to substantiate the capacity of the loan creditors and genuineness of th e transactions, the identit y was duly established and the loan creditors duly confirmed the t ransactions with th e appel lant as reco rded in their audit ed accounts, including repayment of lo an thereof, the appellant's onus thus gets discharged, further the loan creditors h ad sufficient networth to advance loans to the appellant.
(b) For that th e Ld. CIT CA) erred in confirming the cash credit u/s 68 when both the lower auth orities faile d to appreciat e that interest was dul y accounted for by the loan credito rs and decl ared as their Inco me in their audited account s on which T DS duly deducted by th e appellant .
(c) For that the Ld. CIT (A) erred in confirming the cash credit u/s 68, when, inspite of giving the Assessing Officer a 2 n d innings during remand proceedings, no nexus co uld be establish ed that the source of credito rs' deposits emanat ed from the Appellant".
2. The assessee in the present case is a Company, which is engaged in the business of manufacturing of Cold Drawn Seamless Pipes. The return of income for the year under consideration was filed by it on 29.09.2014 declaring a loss of Rs.6,45,82,182/-. As noted by the Assessing Officer, during the course of assessment proceedings, unsecured loans taken by the assessee-company were increased by Rs.7,74,26,996/- in the year under consideration. He, therefore, required the assessee to furnish the 2 I.T.A. Nos. 1033 & 1637/KOL/2017 Assessment Year: 2014-2015 M/s. Lalbaba Seamless Tubes Pvt. Limited details of unsecured loans taken during the year under consideration. In reply, the details of unsecured loans were furnished by the assessee along with the loan confirmations, balance-sheets, Bank statements and source of funds of the concerned loan creditors. On perusal of the said details and documents, the Assessing Officer arrived at a conclusion that the creditworthiness of the loan creditors was doubtful for the following reasons:-
"(1) Alliance Infra Properties Pvt. Ltd:- During the year the assessee received of Rs.15,00,000 as a unsecured Loan from the company. The A/R furnished loan confirmation, Bal ance sheet , Bank st atement and copy of ITR acknowledgment . Afte r perusal of records furnished by the assessee, it was appare nt th at M/s Alliance Infra Pro perties Pvt . Ltd h ad no real business activit ies and its disclosed income was onl y Rs.40,310, and the income of the earlier year was nil in revenue from o peratio n.
There was negative Reserve and Surplus balance. As per the bank statement there was peak balance onl y of Rs.l0,750. Equal amount of fund was received before its full transfer to assessee as loan. As per the do cument filled by the A/R of the afo resaid company it is apparent that th is is a zero net wo rth company with no real business, and used o nly fo r providing bogus fund in lieu of co mmission. Therefo re, I am of the opinion th at the loan creditor company h as no creditwo rth iness fo r advancing the loan. Therefo re, the amount 15,00,000 is t reated as cash credit under section 68 of the LT . Act in th e h and of the assessee. Addition: - Rs. 15 ,00,000
02. M/s Bhima Agencies Pvt . ltd: - During t he year the assessee received of Rs.40,00,0 00 as a unsecured loan from the company. The A/R furnished loan confirmation, Balance sheet , Bank statement and co py of IT R ack nowledgment. After perusal of records furnished by the assessee, it was apparent th at M/s Bhima Agencies Pvt. Ltd had no real business activities its disclosed inco me was only Rs.20,115 and the income of the earlier year was nil in revenue fro m o perat ion. There was negat ive Reserve and Surpl us balance. As per th e bank statement th ere was peak bal ance only of Rs.40,766. Equal amount of fund was received before its full transfer to assessee as loan. As per the do cument filled by the A/R of the afo resaid company it is apparent that th is is a zero net wo rth company with no real business, and used o nly fo r providing bogus fund in lieu of co mmission. Therefo re, I am of the opinion th at the loan creditor company h as no creditwo rth iness fo r advancing the loan. Therefore, t he amount Rs.40,00,0 00 is t re ated as cash credit under sect ion 68 of the I.T . Act in the hand of th e assessee Additio n:- Rs.40,00,000/-
3I.T.A. Nos. 1033 & 1637/KOL/2017 Assessment Year: 2014-2015 M/s. Lalbaba Seamless Tubes Pvt. Limited
03. M/s Cranberry Enterprises Pvt . Lt d:- During the year the assessee received of Rs.30,00,000 as a unsecured loan from the company. The A/R furnished loan confirmation, Bal ance sheet , Bank st atement and copy of ITR acknowledgment . Afte r perusal of records furnished by the assessee, it was appare nt th at M/s Cranberry Ent erprises Pvt . Ltd h ad no real business activit ies and its disclosed income was onl y Rs. 48,9 31. Equal amount of fund was received before its full t ransfer to assessee as loan. As per the document filled by th e A/R of the aforesaid co mpany it is apparent th at th is is a zero net worth company w ith no real business, and used o nly for providing bo gus fund in lieu of commission. Therefo re, I am of the opinion th at the loan credito r co mpany h as no creditworth iness for advancing the loan. Therefo re, the amount Rs.30,00,000 credit ed i n the books of the assessee is treated as cash credit under sectio n 68 of the I.T . Act in the hand of the assessee. Additio n:- Rs . 30 ,00,000
04. M/s Dal mia Industrial Development Limited:- During the year the assessee received of Rs.1,45 ,00,000 as unsecured loan from the co mpany. The A/R furnish ed loan co nfirmation, Balance sh eet, Bank statement and co py of ITR acknowledgment . Aft er perusal of reco rds furnish ed by th e assessee it was apparent that M/s Dalmia Indust rial Development limit ed had no real business activities it s disclosed income was only Rs.9,70,005 and in the earlier year the revenue from operation was nil. There was negative Reserve and Surpl us. As per t he bank st atement th ere was peak balance only Rs.1,76,664. During th e year the company M/s Dalmia Indust rial Development Limited issued 20,000,000 share at the face value Rs. 10/-per sh are. The tot al capital received during the years of Rs.20,00,00,000 out of which the co mpany give loan ent ries to other companies Rs.11,58,13,568. The assessee was one such beneficiary. The co mpany h ad no owned fund to give loan entry to other co mpanies. Th e AIR was asked to produced the director of the said co mpany to establish th e creditwo rthiness of t he transaction. Th ere was no evidence for establish ing the creditworthiness of the loan creditors except dry document s. The funds received by the credito r were given out immediatel y on t he same day to others. It h as b een ampl y documented by the Income T ax Depart ment Investigation wing and assessment o rders of assessing officers of the Depart ment that th ese co mpanies are created and exists onl y for providing bogus funds in lieu o f commission th rough layered rotation of funds in Bank s. Therefore, I am of the o pinio n th at the loan credito r co mpany h as no creditworth iness for advancing the loan. Therefo re, the amount Rs.1,45,00,000 credited in the books of the assessee is t reated as cash credit under section 68 of the I.T. Act in the hand of the assessee. Addition: -
Rs.1 ,45,00,000/-
05. M/s Derby Mercantile Pvt . ltd: - During t he year the assessee received of Rs.37 ,09,712 as unsecured loan from the company. The A/R furnished loan confirmation, Balance sheet , Bank 4 I.T.A. Nos. 1033 & 1637/KOL/2017 Assessment Year: 2014-2015 M/s. Lalbaba Seamless Tubes Pvt. Limited statement and co py of IT R ack nowledgment. After perusal of records furnished by the assessee it was apparent th at M/s Derby Mercantil Pvt . Ltd had no real business activities and its disclosed income was only Rs.16,556 and in the earlier year the revenue from o peration was nil. There was negative Reserve and Surpl us balance. As per the bank statement there was peak balance only Rs.8 ,387. Equal amount of fund was received before its full t ransfer to assessee as loan. As per the document filled by the A/R of the aforesaid company its apparent th at this is ' shell' company which exist ed solel y for pro viding bogus fund in lieu of commission. Therefo re, the creditworthiness of the loan creditor is not establish ed. Therefore, I am of the opinion th at the loan credito r company has no creditworthiness for advancing the lo an. Therefore, the amount Rs.37,09,712 credit ed in the books of the assessee is treated as cash credit under section 68 of the I.T . Act in the h and of the assessee. Additio n:- Rs. 37,09,7 12/-
06. M/s Imperial Ret ails Pvt. ltd:- During t he year the assessee received of Rs.80,00,0 00 as a unsecured loan from the company. The A/R furnished loan confirmation, Balance sheet , Bank statement and co py of IT R ack nowledgment. After perusal of records furnished by the assessee it was apparent th at M/s Imperial Ret ails Pvt . Ltd h ad no real business activit ies its disclosed income was only Rs.22,950, whil e in the earlier year there was no revenue fro m operations. There was neg ative Reserve and Surplus balance. As per the bank st atement there was peak balance of only Rs.1,62,567. Equal amount of fund was received befo re its full t ransfer to assessee as loan. As per the document filled by the A/ R of the aforesaid co mpany its apparent that th is is 'shell' company which exist ed solely for pro viding bogus fund in lieu of commission. Therefore, th e creditwo rthiness of the loan credito r is not est ablish ed. Therefo re, I am of th e opinion that the loan creditor company has no creditwo rthiness for advancing the loan. The refore, the amount Rs.80,00,000 credited in the books of the as sessee is treat ed as cash credit under sect ion 68 of the LT . Act in the hand of the assessee. Additio n:- Rs. 80,00,0 00
07. M/s Moonnight Dealers Pvt. ltd: - During the year the assessee received Rs.80,20,416 as unsecured loan from this company. The A/R furnished loan confirmation, Bal ance sheet , Bank st atement and copy of ITR acknowledgment . Afte r perusal of reco rds furnished by the assessee it was apparent that M/s Imperial Retails Pvt. Ltd h ad no real business acti vities and it s disclosed inco me of t he year was o nly Rs.22,950, while in the earlier year revenue from operation was zero. The Reserve and Surplus balance was negat ive. As per th e bank st atement there was pick balance onl y Rs.1 ,62,567. Equal amount of fund was received befo re it s full transfer to assessee as loan. As per the document filled by the A/R of the afo resaid co mpany its apparent that th is is 'shell' company which exist ed solely for 5 I.T.A. Nos. 1033 & 1637/KOL/2017 Assessment Year: 2014-2015 M/s. Lalbaba Seamless Tubes Pvt. Limited pro viding bogus fund in lieu of commission. Therefore, th e creditwo rthiness of the loan credito r is not est ablish ed. Therefo re, I am of th e opinion that the loan creditor company has no creditwo rthiness for advancing the loan. The refore, the amount Rs.80,00,000 credited in the books of the as sessee is treat ed as cash credit under section 68 of the I.T. Act in the hand of the assessee. Additio n:- Rs. 80,00,0 00/-
08. M/s Pashupat i Advisory Pvt . ltd:- During the year the assessee received of Rs.30 ,00,000 as unsecured loan from this company. The A/R furnished loan confirmation, Bal ance sheet , Bank st atement and copy of ITR acknowledgment . Afte r perusal of reco rds furnished by the assessee. Its apparent that the Mls Pashupati Advisory Pvt. Ltd h ad no real business activities its disclosed income was only Rs.8089 but wh ile last year there it was nil fro m revenue fro m operations. There was neg ative Reserve and Surplus balance. As per the bank st atement there was peak bal ance of only Rs.50,000. Equal amount of fund was received befo re it s full transfer to assessee as loan. As per the document filled by the A/ R of the afo resaid co mpany its apparent that th is is 'shell' company which exist ed solely for pro viding bogus fund in lieu of commission. Therefore, th e creditwo rthiness of the loan credito r is not est ablish ed. Therefo re, I am of th e opinion that the loan creditor company has no creditwo rthiness for advancing the loan. The refore, the amount Rs.30,00,000 credited in the books of the as sessee is treat ed as cash credit under sect ion 68 of the LT . Act in the hand of the assessee. Additio n: Rs.30 ,00,000/-
09. M/s Satvichar Promoters Pvt . ltd:- During the y ear the assessee received Rs.50,00,000 as unsecured loan from this company. The A/R furnished loan confirmation, Balance sh eet and Bank stat ement. After perusal of reco rds furnished by the assessee, it becomes apparent that the M/s Satvichar Pro moters Pvt. Ltd had no real business activit ies. The A/R could not furnish any evidence of filing of Return of Income. There was negat ive Reserve and Surpl us balance. As per th e bank statement there was peak bal ance of o nly Rs.9000. Equal amount of fund was received before its full transfer to assessee as loan. As per the do cument filled by the A/R of the afo resaid company it is apparent that th is is a zero net wo rth company with no real business, and used o nly fo r providing bogus fund in lieu of co mmission. Therefo re, I am of the opinion th at the loan creditor company h as no creditwo rth iness fo r advancing the loan. Therefore, t he amount Rs.50,00,0 00 is t re ated as cash credit under sect ion 68 of the I.T . Act in the hand of th e assessee. Addition: - Rs.50,00,000/-
10. Hardsoft Commercial Pvt .ltd: - During t he year the assessee received of Rs.30 ,00,000 as unsecured loan from the company. The A/R furnished loan confirmation, Balance sheet , Bank statement and co py of IT R ack nowledgment. After perusal of 6 I.T.A. Nos. 1033 & 1637/KOL/2017 Assessment Year: 2014-2015 M/s. Lalbaba Seamless Tubes Pvt. Limited records furnished by t he assessee, it was apparent th at the M/s Hardsoft Co mmercial Pvt. Ltd had no real business activit ies and it s disclosed inco me was only Rs.15,624 while in the earlier year the revenue fro m operation was nil . There was negative Reserve and Surplus balance. As per the bank st atement there was peak balance of only Rs.7210. Equal amount of fund was received befo re it s full transfer to assessee as loan. As per the document filled by t he A/R of the afo resaid company it is apparent that this is a zero net worth co mpany with no real business, and used o nly for providing bo gus fund in lieu of commission. Therefo re, I am of the opinion th at the loan credito r co mpany h as no creditworth iness for advancing the loan. Therefo re, the amount Rs.30,00,000 is t reated as cash credit under sect ion 68 of the I.T . Act in the hand of th e assessee. Addition: - Rs. 30 ,00,000/-
11. Swarnim Co mmosale Pvt . Ltd: - During the year the assessee received of Rs.38 ,00,000/-- as unsecured loan '" from the company. The A/R furnished loan confirmation, Bal ance sheet , Bank st atement and copy of ITR acknowledgment . Afte r perusal of reco rds furnished by the assessee, it is apparent that M/s_Swarnim Commosale Pvt. Lt d had no real business activit ies and its disclosed income of the year was only Rs.36 ,889 while the revenue from operatio n in the e arlier year was zero. There was negat ive Reserve and Surplus bal ance in the balance sheet . As per the bank st atement th ere was peak balance was only Rs.18,274. Equal amount of fund was received before its full t ransfer to assessee as loan. As per the document filled by th e A/R of the aforesaid co mpany it is apparent that this is a zero net worth co mpany with no real business, and used onl y for providing bogus fund in lieu of co mmissio n. Therefo re, I am of th e opinion that the loan creditor company has no creditwo rthiness for advancing the loan. The refore, the amount Rs.38,00,000is t reated as cash credit under sectio n 68 of the I.T. Act in t he hand of the assessee. Addition: - Rs. 38,00,000/-
12. Ut most T raders Pvt. Ltd: During the year the assessee received of Rs.45 ,00,000 as unsecured loan from the company. The A/R furnished loan confirmation, Balance sheet , Bank statement and co py of IT R ack nowledgment. After perusal of records furnished by t he assessee, it was apparent th at the M/s Swarnim Co mmosale Pvt. Ltd had no real business activities and its disclosed inco me was only Rs.6463 while revenue from operation in the earlier year was zero . There was negat ive Reserve and Surpl us balance. Equal amount of fund w as received befo re it s full transfer to assessee as loan. As per the document filled by t he A/R of the afo resaid company it is apparent that this is a zero net worth co mpany with no real business, and used o nly for providing bo gus fund in lieu of commission. Therefo re, I am of the opinion th at the loan credito r co mpany h as no creditworth iness for advancing the 7 I.T.A. Nos. 1033 & 1637/KOL/2017 Assessment Year: 2014-2015 M/s. Lalbaba Seamless Tubes Pvt. Limited loan. Therefo re, the amount Rs.45,00,000 is t reated as cash credit under sect ion 68 of the I.T . Act in the hand of th e assessee. Addition: - Rs. 45 ,00,000/-
13. Venkat eshwar Equipment Parts Pvt . ltd:- During the year the assessee received of Rs.45,00,000 as unsecured lo an from the company. The A/R furnish ed lo an confirmation, B ank statement . There was only fund received and the same day the aforesaid fund t ransfer. The A/R did not furnish copy of Balance sheet and ITR of the creditor. As per the document filed by the A/R it is apparent that this is a zero net worth company with no real business, and used only for pro viding bogus fund in lieu of commission. Therefo re, I am of the opinion that the loan credit or company h as no creditwo rthiness fo r advancing the loan. T herefo re, th e amount of Rs.45,00 ,000/- is treat ed as cash credit under section 68 of the I.T. Act in the hands of the assessee. Addition: Rs.45,00,00 0/-". On the basis of the above observations recorded by him, the Assessing Officer treated the concerned unsecured loans as unexplained cash credit and an addition of Rs.6,22,00,000/- was made by him to the total income of the assessee.
3. The addition of Rs.6.22 crores made by the Assessing Officer was challenged by the assessee in the appeal filed before the ld. CIT(Appeals) and after considering the submissions made by the assessee as well as the material available on record including the remand report submitted by the Assessing Officer, the ld. CIT(Appeals) confirmed the addition made by the Assessing Officer under section 68 for the following reasons given in his impugned order:-
"On careful consideration of the cont entio ns of th e A/R of the appellant, it is Inferred therefrom that , firstl y, an objectio n was raised regarding non-appearance of th e directors of all the 13 companies befo re t he A.O in response to summons issued u/s 131 of the I.T. Act th at the date prescribed fo r attendance was a Sat urday i.e.25-03 -2017 at 4 p.m and th at no specific documents were requisitioned by the A.O and that the appellant had already all relevant document ary evidences in the form of a Paper Book before the A.O and absence of mentio n cross- examination in the summons fo rm. In this regard, it is inferred that appellant has been unable to co ntrovert the finding of the A.O regarding the non-existence of the companies at their given addresses intimated to the A.O and th e reason adduc ed i.e. asked to appearance by directors on a Saturday, is an after- thought as it is a matter of info rmation in the public domain that the Department had through wide publicity inti mated the 8 I.T.A. Nos. 1033 & 1637/KOL/2017 Assessment Year: 2014-2015 M/s. Lalbaba Seamless Tubes Pvt. Limited general public th at offices would be functioning on the said weekend to facilit ate the submission of t axes for the PMG KY scheme. Further, the absence of mention of examination of Directors pertains t o a procedural mat ter, which does not effect the validit y of the st atement s recorded o r their admissibility regarding the evidentiary value of the averments made by th e deponent under the CPC/Income- T ax Act .
In suppo rt of h is cont entions, the A/R relied upon the decisions of the Rajasthan High Court in Aravali Trading Co. Vs. ITO 220 CTR 622, held th at neither the pro vision of 68 nor on general principle, it can be said th at once the existence of Loan Credito rs are proved and such loan credito rs own such credits with the assessee, there is no reaso n to disbelieve the transaction. It has been held by vario us Courts th at where lender is assessed to t ax and lo an confirmat ion with part iculars of PAN are filed no addition 'could be made u/s 68 as held in CIT Vs. Orissa Corpo ratio n (P) Ltd. (159 ITR 78)(SC). The IT Department h as accepted the ret urns of t he loan credito rs it should go to mean that th e' amo unts given by these Loan Credito rs were also genuine as the concerned Assessing Officer accept ed all the loan credito r's of income and thei r correspo nding so urces of funds and investments. As far as credit -wo rthiness or sources of the creditor/subscriber is concerned, it was argued that is pro ved o nce the bank statement of the creditors/ is produced showing that it h ad sufficient bal ance in its acco unts, once t hese document s are produced, the assessee would have satisfactorily discharged it's onus cast upo n h im. It was thus submitted th at the loan credito rs h ad sufficient net wo rth of their own so as to advance loan to the assessee company A.O has to establish bring cogent material on record in case he nurt ures any do ubt about the veracit y of these documents to probe the matter further, but not merel y on basis of suspicion.
As regards the issue of est ablishing the genuinenes s of an amount credited to the books of acco unts of the appellant company, it is well establish ed th at the onus to prove his expl anation sat isfact orily to the Assessing Officer was on the assessee. The appellant h as miserably failed to disch arge such onus. From the above decision, it is apparent that the genuineness of the impugned t ransactions of receipt of th e impugned amount s from the 13 companies as Unsecured loans totalling Rs.6,22 ,00,000/- as detailed in th e above paragraphs cannot be determined witho ut looking into the h uman probability aspect s, surrounding circumstances such as relatio nship of the entities Le companies shown as cash credito rs and the recipient i.e appell ant company. It is also pertinent to mention that if the assessee fails to establish any of the essential ingredients of a cash credit i.e identity, mode of receipt and credit- worthiness / sources o f the cash credito rs, the impugned t ransactions i.e Unsecured loans cannot be 9 I.T.A. Nos. 1033 & 1637/KOL/2017 Assessment Year: 2014-2015 M/s. Lalbaba Seamless Tubes Pvt. Limited treat ed as genuine. In this regard, it is pert inent to refer to the decisio n in Sajan Dass and Sons v. C IT [20.03] 264 ITR 435 (Delhi) wh erein the Hon'ble Delhi High C ourt held that mere identificatio n and sho wing movement though banking ch annels is not sufficient . Similar view was taken in Sandee p Kumar v.
CIT (293 ITR 294) (Del), Jaspal Singh 290 ITR 306 (P & H), Yash Pal Goel ,310 ITR 75/76(P&H} and Rajeev Tandon vs. Assistant Commissioner of Income T ax in ITA No. 77 of 2007 dated 13.7.2007 as also in Subhash Chander Sekhri v: Deputy CIT [2007] 290 ITR 300 (P&H).In the present case also, it is not establish ed th at unsecured loan creditors i.e 13 companies which were found t o have meager cash balances/capit al in their books of accounts had capacit y t o make th e loans.. Therefo re, the A.O was justified in upholding the addition of the amount claimed as impugned unsecure loans. In Ram Lal Agrawal v. CIT [2006] 280 ITR 547 (All), th e Hon'ble Allah abad High Court h eld th at where there is a finding given by the Income-t ax autho rities th at creditwo rthiness of depositors was not proved, the amo unt could be assessed as inco me of the assessee. In Sunil Siddharthbh ai v. CIT [198 5] 156 ITR 509 (SC), the Hon'ble Supreme Court held that it is the right of the Income-t ax autho rit ies to consider genuineness of the transactions and to penet rate the veil and ascertain the truth. It is within th eir power to consider whether. a particular transaction was to evade t ax. In K. Ramasamy v. CIT [2003] 261 ITR 358 (Mad), it was held th at veil can be pierced in exceptional circumst ances. The Inco me-t ax authorities are entitled to look at the realit y of the t ransaction. Mo reover, th e decisio ns in ITO v. Diza Holdings P. Ltd. [2002] 255 ITR 573 (Ker); Raunaq Ram N and Lal v. CIT [2002 254 ITR 617 (P & H); Smt . Iva Gogoi v. CIT [2002] 254 ITR 576 (Gauhat i); C IT v. Precision Finance Pvt . Ltd. [1994] 208 ITR 465 (Cal); Rajshree Synth etics Pvt. Ltd. v. CIT [2002] 256 IT R 331 (Raj); R. B. Mitt al v. CIT [2000] 246 ITR 283 (AP) ; C IT v. United Commercial and Indust rial Co . P. Ltd. [1991] 187 ITR 596 (Cal); M. A. Unneeri Kutty v. C IT [1992] 1 98 ITR 147 (Ker); Nemi Chand Kothari v. CIT [2003] 264 ITR 2 54 (Gauhati); and Hindusth an Tea T rading Co. Ltd. v. CIT [2003] 263 ITR 289 (Cal) suppo rt the view that Revenue autho rities are entitled to consider genuineness of the transactions and to penet rate the veil in o rder to ascertain th e truth . They are entitled to look int o the surro unding circumst ances to find out the realities of the t ransactions shown to h ave been entered into by th e parties.
In view of the abo ve discussion, I am of th e view th at considering the inferences drawn from materials on reco rd by the A.O it is held th at the appellant was unable to establish the genuineness of the impugned Cash credit ors as th eir ident ity and credit -worth iness/sources of inco me co uld not b e establish ed satisfact orily. Therefo re, I h old that there is no infirmit y in th e finding of the A.O in treating th e impugned unsecured loans from the 13 co mpanies totalling Rs.6 ,65,09,712/- (corrected as Rs.6 ,22,00,000/-) as unexplained 10 I.T.A. Nos. 1033 & 1637/KOL/2017 Assessment Year: 2014-2015 M/s. Lalbaba Seamless Tubes Pvt. Limited cash credit s u/s 68 of the I.T . Act , 1961. As a result, th e impugned additio n o n account of t reating the cash c redit s amounting to Rs.6,2 7,00,000/- is co nfirmed. This gro und is partly allowed" .
4. We have heard the arguments of both the sides and also perused the relevant material available on record. The ld. Counsel for the assessee has submitted that the relevant documents in the form of loan confirmations of the concerned loan creditors, their balance-sheets, Bank statements, etc. were filed by the assessee during the course of assessment proceedings before the Assessing Officer, but he still doubted the creditworthiness of the concerned loan creditors without giving an y opportunity to the assessee of being heard on the issue. He has submitted that when this position was brought by the assessee to the notice of the ld. CIT(Appeals), he remanded the matter to the Assessing Officer for giving such opportunity. He has submitted that the Assessing Officer, however, asked the concerned loan creditors to appear on Saturday when only one creditor could appear. He has submitted that even though the said creditor admitted the loan given to the assessee as accommodation entry, he subsequently retracted the said admission. He has contended that proper and sufficient opportunity thus has not been given either by the Assessing Officer or by the ld. CIT(Appeals) to the assessee to prove the creditworthiness of the concerned creditors and urged that this issue may be sent back to the Assessing Officer for giving such opportunity to the assessee. Keeping in view all the relevant facts of the case, we are of the view that the assessee deserves to be given one more opportunity t o explain the relevant cash credits representing unsecured loans in terms of section 68 and since the ld. D.R. has also not raised any objection in this regard, we set aside the impugned order of the ld. CIT(Appeals) on this issue and restore the matter to the file of the Assessing Officer for deciding the same afresh after giving the assessee one more opportunity of being heard.
As undertaken by the ld. Counsel for the assessee, the assessee shall make due compliance before the Assessing Officer and produce the 11 I.T.A. Nos. 1033 & 1637/KOL/2017 Assessment Year: 2014-2015 M/s. Lalbaba Seamless Tubes Pvt. Limited concerned loan creditors along with the relevant documentary evidence for examination/verification of the Assessing Officer.
5. In the result, the appeal of the assessee is accordingly treated as allowed for statistical purposes.
6. Now we shall take up the Revenue's appeal being ITA No. 1637/KOL/2017. At the outset, it is noted that there is a delay of 61 days on the part of the Revenue in filing the appeal before the Tribunal. In this regard, the Revenue has filed an application seeking condonation of the said delay and keeping in view the reasons therein, we are satisfied that there was a sufficient cause for the delay of 61 days on the part of the revenue for filing this appeal before the Tribunal. Even the ld. Counsel for the assessee has not raised any objection in this regard. The said delay is accordingly condoned and this appeal of the revenue is being disposed of on merit.
7. In Ground No. 1, the revenue has challenged the action of the ld. CIT(Appeals) in deleting the addition of Rs.4,39,92,000/- made by the Assessing Officer under section 68 read with section 158BBE on account of alleged undisclosed sales.
8. In the manufacturing of Cold Drawn Seamless Pipes, main raw materials used by the assessee-company was MS Round. As per the Tax Audit Report furnished by the assessee, the yield of finished goods from the raw materials was shown at 84%. In this regard, it was noted by the Assessing Officer that raw material in the form of MS Round consumed by the assessee during the year under consideration was 97,97,346 Kgs. As per the standard yield of 84% given in the Tax Audit Report, the finished products produced by the assessee, according to the Assessing Officer, should have been 82,29,770 Kg. As noted by the Assessing Officer, the assessee, however, had shown production of 76,01,309 of Cold Drawn Seamless Pipes only during the year under consideration. There was thus a shortage of 628.46 Metric Ton in the production shown by the assessee 12 I.T.A. Nos. 1033 & 1637/KOL/2017 Assessment Year: 2014-2015 M/s. Lalbaba Seamless Tubes Pvt. Limited and in the absence of any satisfactory explanation offered by the assesese for the said shortage, the Assessing Officer treated the same as undisclosed sale of the assessee. The value of such sale worked out at Rs.4,39,92,000/- by applying the average rate of 70,000/- per Metric Ton accordingly was added by the Assessing Officer to the total income of the assesese by treating the same as undisclosed sale under section 68 read with section 158BBE of the Act.
9. The addition of Rs.4,39,92,000/- made by the Assessing Officer on account of alleged undisclosed sale was challenged by the assessee in the appeal filed before the ld. CIT(Appeals) and after considering the submissions made by the assessee as well as the material available on record, the ld. CIT(Appeals) deleted the said addition for the following reasons given in his impugned order:-
"The rival contentio ns and judicial pro nouncement s were considered. It is found th at th e A.O h as made the additio n of the impugned amount of Rs.,4,39,92 ,200/- based on the arith metical working out of the value of the short age of 628,461 kgs 70,000 MT fro m analysis of quantit ative consumptio n of raw mat erials and production of finish ed materials by the appellant company. The appellant's AR h as mainly argued that t he AO h as made addition on arbitrarily without reference to relevant material on record and ignoring the audit ed book results, wh ich were based upo n excise records and without pointing out any mat erial defects. It was also contended th at t he AO has ignored the quant um of wo rk in progress, in wo rking out the short age, which mainl y account s for the estimated 16% sho rtage t reat ed as unexplained sales. In this regard, it was also explained that the closing stock as per audited acco unts incl uded in the valuation of invento ry of closing WIP 5 79604 kgs as per annexure in paper bo ok viz. PB-1 pg 99 & 100 thereof. It was also argued that the treat ment of the value of the purpo rted shortage of 628.46 MTs valued at 4,39,92,200/- as unexplained income u/s 68 of the I.T . Act was unwarranted as the appell ant co mpany derived income from business of manufacture of MS Pipes and additio nal income was liable to be treated as th e company' s business income as held by various higher courts.
In view of the abo ve discussion, I find that there is sufficient merit in th e submissions of th e appellant that the AO has made the addition in an arbit rary and capricious manner, without reference to the material on record, considering the fact that the AO has made th e addition of 13 I.T.A. Nos. 1033 & 1637/KOL/2017 Assessment Year: 2014-2015 M/s. Lalbaba Seamless Tubes Pvt. Limited Rs.4 ,39,92,200/- as unexplained income u/s 68 treated 16% difference between raw material and finished goods as shortage, merely on the basis of arith metical working of quant itative figures from th e annexures to the company's audit report without anal yzing the stage wise manuf acturing process and the constituents of the o pening/closing stock of raw materials, consumptio n thereof as refl ected in the work in progress (WIP) and inflow/outflow of finished materials. The AO h as neglected to factor in the quantity of WIP i ;.e. wo rk in progress amounting to 57,9604 kgs o r th e quantit y of raw material along with quant um of burning l oss & generatio n of scrap etc which are an intrinsic part of the manufacturing pmrocedss, wh ich substant ially accounts for the apparent shortage of 16% wo rked o ut at a estimated 628,461 kgs, without co nfro nting t he sasme to the appel lant to explain the reasons with reference to the book results as refle cted in the audit ed accounts.
The AO h as also not followed the proper procedure in not confronting the alleged discrepancies t o the appellant o r affording an adequate o ppo rtunity as per principles of natural justice. He h as also not made any relevant enquiries or examined the relevant suppo rting document ary evi dences viz. Excise/stock registers and related vo uchers etc relating to the manufacturing process nor made an effort to has establish ed any patent defect in the books of account o r method of accounting to substant iate the estimated addit ion. In this regard, it is well settled by judicial deci sions relied upon by the AR a nd t hat of the Hon'ble Supreme Cou rt in the case of S.N. Namasivayam Chjettiar -vs.- CIT 38 ITR 579 (SC) wherein it was held that "whether power to compute profits under proviso to section 13 of 1922 Act, arises only where no method of accounting has been regularly employed by assessee o r wh ere method employed is such th at income, profit s and gain coul d not properly be deduced therefrom - held, yes." In view of the abo ve discussion and the ratio of the cited case laws, it is held th at the AO was not just ified in arbit rarily t reat ing t he val ue of quantitat ive sho rtage based on mere arithmetical working as unexplained income u/s 68 without est ablishing any patent material defects li n the method of acco unting or the book result s of the appellant company. Accordingl y, the addition made by the AO w as unwarranted and is directed to delete the addition of Rs.4 ,39,92,200/-. This gro und is allowed" .
10. We have heard the arguments of both the sides and also perused the relevant material available on record. As submitted on behalf of the assessee before the ld. CIT(Appeals) as well as before us, only final production of 76,01,309 Kgs. was considered by the Assessing Officer to arrive at the conclusion that the actual yield was less than the standard 14 I.T.A. Nos. 1033 & 1637/KOL/2017 Assessment Year: 2014-2015 M/s. Lalbaba Seamless Tubes Pvt. Limited yield of 84% and the closing WIP of 5,79,604 Kgs. which also involved the consumption of raw material was completely ignored by the Assessing Officer. The ld. Counsel for the assessee has contended that this vital factor, however, was rightly appreciated by the ld. CIT(Appeals) and on such appreciation, he rightly deleted the addition made by the Assessing Officer after having found that the yield was normal. However, as rightly pointed out by the ld. D.R. in this regard, the Closing WIP alone cannot be taken into consideration for determining the actual yield and it is only the difference of the Closing WIP and Opening WIP that has to be considered as the increase in WIP alone will require consumption of raw material during the year under consideration. Moreover, it is also observed that no explanation whatsoever was offered by the assessee in respect of the shortage in production yield as pointed out by the Assessing Officer during the course of assessment proceedings and the Assessing Officer thus never got an opportunity to verify the explanation of the assessee in respect of the low yield or shortage in production, vis- a-vis consumption of raw material from the relevant record. Keeping in view all these facts of the case, we consider it fair and proper and in the interest of justice to restore this issue to the file of the Assessing Officer for deciding the same afresh after giving the assessee proper and sufficient opportunity of being heard and after verifying the working furnished by the assessee while explaining the low yield or shortage in production. Ground No. 1 of the revenue's appeal is accordingly treated as allowed for statistical purposes.
11. As regards Ground No. 2 of the revenue's appeal, it is observed that the issue involved therein relating to the deletion by the ld. CIT(Appeals) of the disallowance of Rs.6,25,576/- made by the Assessing Officer on account of belated payment of employees' contribution towards P.F. an d ESI is squarely covered in favour of the assessee, inter alia, by the decision of the Hon'ble Calcutta High Court in the case of Vijay Shree Limited (ITAT 245 of 2011 dated 06.09.2011), wherein it was held that 15 I.T.A. Nos. 1033 & 1637/KOL/2017 Assessment Year: 2014-2015 M/s. Lalbaba Seamless Tubes Pvt. Limited delayed payment of employees contribution towards P.F. cannot be disallowed under section 43B if the same is deposited before the due date of filing of the return of income. Respectfully following the said decision of the Hon'ble Jurisdictional High Court, we uphold the impugned order of the ld. CIT(Appeals) giving relief to the assessee on this issue and dismiss Ground No. 2 of the Revenue's appeal.
12. In the result, the appeal of the assessee is treated as allowed for statistical purposes, while the appeal of the Revenue is treated as partly allowed for statistical purposes.
Order pronounced in the open Court on April 12, 2019.
Sd/- Sd/-
(S.S. Viswanethra Ravi) (P.M. Jagtap)
Judicial Member Vice-President (KZ)
Kolkata, the 12 t h day of April, 2019
Copies to : (1) M/s. Lalbaba Seam less Tubes Pvt. Limited,
13A, Rangers C lub, Govt. Place Eas t, Ko lkata-700 069 (2) Deputy Commissioner of Income Tax, Circle-3(1 ), Kolkata, Aayak ar Bhawan P-7, Chowringhee Square, Kolkata-700 069 (3) Commissioner of Inco me T ax (Appeals)-1, Kolkata, (4) Commissio ner of Income Tax- , (5) The Depart ment al Represent ative (6) Guard File By order Assistant Registrar, Income Tax Appellate Tribunal, Kolkata Benches, Kolkata Laha/Sr. P.S. 16