Madhya Pradesh High Court
Principal Commissioner Of Income Tax Ii vs Shri Karan Mittal on 20 February, 2018
1
Income Tax Appeal No.219/2017
(Principal Commissioner of Income Tax-II, Aaykar Bhawan, Indore
Versus
Shri Karan Mittal)
Indore, Dated 20.02.2018
Ms. Veena Mandlik, learned counsel for the appellant
/ revenue.
Shri Sumit Nema, learned Senior Counsel along with
Shri Piyush Parashar, learned counsel for the respondent.
Heard on the question of admission.
ORDER
This appeal under Section 260-A of the Income Tax Act, 1961 (herein after referred to as "the Act") has been filed by the appellant - Department against order dated 26.05.2017 (Annexure A/3) passed by the learned Income Tax Appellate Tribunal, Indore Bench, Indore in Income Tax Appeal No.203/Indore/2011 for the assessment year 2007-08, whereby the learned Appellate Tribunal affirmed order dated 06.06.2011 (Annexure A/2) passed by the Commissioner of Income Tax (Appeals)-II, Indore by which the learned Commissioner, Income Tax (Appeals) directed for deleting addition of payment of Rs.68,80,000/- (rupees sixty eight lakhs eighty thousand) which was assessed by the Assessing Officer as "unsecured loans"
and held that each and every detail of four companies was given by the assessee and these companies were Group Companies of the assessee and assessee has taken loan from five companies and discharged its 2 onus lay upon its shoulder to prove the identity, creditworthiness of the creditors and genuineness of the transactions.
2. Relevant paragraphs No.16 to 23 of order dated 26.05.2017 passed by the learned Appellate Tribunal read, as under: -
"16. In the light of the above allegations of the Assessing Officer when we analyze the facts of the case in view of the contentions and submissions of the assessee vis-à-vis the findings recorded by the authorities below then we hold that there is no dispute regarding existence and identity of the five companies as the assessee submitted their names, addresses and PAN along with all relevant documents in the shape of returns, financial results and accounts of these companies. Since undisputedly the amounts were received from all the five companies through cheques and genuineness of the loan transactions cannot be disputed. However, we may point out that as per the ratio of the decision of the Hon'ble Calcutta High Court in the case of CIT v. Precision Finance Limited (supra), as relied upon by the learned DR, mere payment by cheques does not prove genuineness of credit and to establish genuineness of transaction and credit worthiness of the creditor, the assessee has to step further to discharge the onus lies upon his shoulders.
17. In the present case, when we analyze the company-wise facts then we find that these companies are group companies in which the assessee is associated and in reply to notice u/s 133 (6) of the Act, confirmation letters, copies of the bank statements, copies of accounts, acknowledgment of ITRs, computation, audited annual accounts, etc. were placed on record which are available from page 11 to 53 of the assessee's paper book-I and at pages 5 to 9 and 37 to 41 of the departmental paper book. The balance sheet of both the companies has been signed by the assessee himself as director and it is important to note that the jurisdiction of both these companies lies with the same Assessing Officer. From the copies of bank statements of these two companies available at pages 8 and 40 of the departmental paper book we observe that there 3 were no major cash deposits during the FY 2006-07 pertaining to the assessment year 2007-08 in these accounts. Thus, all the allegation made in the assessment order that huge cash was deposited in the bank accounts of these companies becomes baseless and the Assessing Officer himself in his remand report (supra) stated that the loans have been advanced to the assessee by these companies by taking loan from some other party.
18. When we analyze the facts pertaining to Unno Industries Ltd. from which the assessee received Rs.10 lacs unsecured loan during the period, we observe that this company in response to notice u/s 133 (6) of the Act submitted confirmation and copy of bank statement (assessee's paper book page 55 to 57) and departmental paper book pages 13 to 36) respectively and from the copy of bank statement, we observe that there are insignificant cash deposits and no major cash deposits in its bank accounts. On being asked by the Bench, the learned DR could not controvert this fact agitated by the learned counsel for the assessee that this company is a listed company and as per the master details provided by ROC, it is clear that the company has paid up share capital of Rs.650 lacs and reserve of Rs.20 lacs as on 31.03.2007 and it has earned interest of Rs.56.05 lacs.
From the documents available at pages 92-96 of the assessee's paper book-I we observe that in the assessment order u/s 143 (3) of the Act for the assessment year 2007-08 income has been worked out at Rs.6,86,682/- and refund of Rs.4,49,400/- has been issued after setting off of losses of these companies. In regard to Siddhachal Developers Pvt. Ltd., undisputedly the opening credit balance of this company was Rs.5 lacs and the assessee received Rs.15 lacs during the period under consideration. From the copies of documents available at page 85 to 92 of the assessee's paper book-II filed along with written submissions dated 01.08.2012 we note that for the assessment year 2007-08 vide order dated 28.04.2009 passed u/s 154 of the Act refund voucher has been issued to this company and from the master details provided by the Registrar of Companies, this company is having active status with authorized capital of Rs.20 lacs, paid up capital of Rs.14.5 lacs and reserves of Rs.80.50 lacs as on 31.03.2007. In reply to the notice u/s 133 (6) of the Act, this company informed its latest address to the Assessing Officer along with confirmation, bank 4 statement and balance sheet which is available in the assessee's paper book-I pages 98 to 117. In this situation, existence, identity, creditworthiness and genuineness of transaction cannot be doubted especially when the assessee is having opening balance of Rs.5 lacs with this company which shows continuation of transactions. From the copy of bank statement available at pages 98 to 102 we clearly observe that there is no significant case deposit in that account.
19. So far as Palasia Leasing Investment Company is concerned, undisputedly there was opening debit balance against the assessee of Rs.10 lacs and the assessee also received Rs.5 lacs from this company. From the master details provided by the Registrar of companies it is clear that the assessee is an active company with authorized share capital of Rs.65 lacs, paid up share capital of Rs.64.50 lacs as on 31.03.2007 and reserve funds of Rs.130.5 lacs which is discernible from the balance sheet for FY 2006-07 available at page 133 of the assessee's paper book.
20. The learned counsel for the assessee also filed fresh certificate of incorporation consequent upon change of name issued by ROC, MP vide dated 06.04.2013 which shows that the name of Palasia Leasing Investment Company has been changed to Shri Naivedya Fincom Private Limited with effect from 26.04.2013 and copies of auditors report for F.Y.2015- 16 as on 31.03.2016 reveals that this company is still an active company having share capital of Rs.75.50 lacs reserve and surplus of Rs.2.16 crores, has earned profit before taxation and extraordinary items of Rs.13.23 lacs on the turnover of Rs.333.73 lacs. Therefore, the existence, creditworthiness and genuineness of transaction with this company cannot be doubted in any manner. At this juncture, we find it appropriate to address the contention of the learned DR wherein he contended that Hon'ble High Court of Madhya Pradesh in the case of CIT v. Rathi Fin-lease Limited has sustained the addition u/s 68 of the Act pertaining to this company. From a respectful reading of the judgment of the Hon'ble High Court in the case of Rathi Finlease Limited (supra) we observe that in this case the assessee company was asked to explain the alleged receipts of share application money from certain parties including palasia Leasing Pvt. Ltd. and the assessee submitted only copies of share application forms that too in few cases and when the assessee was required to 5 produce the subscribers to the share applications, despite several opportunities neither the confirmations were given nor the subscribers were produced for examination. In para 11, the Hon'ble High Court held that in the case of Palasia Leasing & Finance Company, entry was not accepted on the ground that by merely filing the confirmation letter, the burden could not be discharged when the inquiries reveal that the company was not in existence nor any books of accounts or directors were traceable. We respectfully point out that the present case is pertaining to unsecured loan and not to share capital. The said company has been assessed u/s 143 (3) for the assessment years 2004-05 and 2006- 07 by the Department and also filed appeal before CIT (A) who deleted the addition. From pages 118 to 136 we observe that the assessee filed confirmations, copy of account of this company, copy of relevant extract of bank account, copy of account in the books of the assessee from 01.04.2005 to 31.03.2008, copy of master data from ROC, Gwalior, copy of annual report along with balance sheet, P&L account and relevant schedule for the year ended 31.03.2007 establishing the identity, existence and creditworthiness of this company. We also find from the finding at page 4 para 1 of the assessment order that summons issued u/s 131 of the Act by ADIT (Investment) has been duly served in the case of Palasia Leasing & Finvest Limited and in turn it has filed confirmation before the ADIT (Investment), Mumbai. Further this company is still active in another name of Shree Naivedya Finco Pvt. Ltd. action. In this situation, we respectfully hold that the ratio of the decision of the Hon'ble Madhya Pradesh High Court in the case of Rathi Finlease Limited, being a case of share application money, cannot be applied to the present case pertaining to unsecured loan wherein the assessee filed the above-noted documents discharging the onus lay on his shoulders and thus the facts and circumstances of the present case are quite dis-similar to the present case. Hence, the benefit of ratio of this decision is not available in favour of the assessee.
20. It is also an allegation of the Assessing Officer that these transactions are merely accommodation entries as no interest was charged from these copies. Since by the earlier part of this order we have held that the unsecured loans given to the assessee company by 5 alleged companies were genuine transactions for temporary period and when the creditors did not insist 6 for interest then it cannot be expected from the assessee to pay interest on his own just to cloth the transaction with fabricated genuineness.
22. In the present case in view of the above foregoing discussion we observe that the assessee filed all possible documents before the Assessing Officer which were also submitted to the Assessing Officer b the respective companies in response to notices u/s 133 (6) of the Act issued during remand proceedings and thus we can safely hold that the assessee discharged its onus lay upon its shoulders to prove the identity, creditworthiness of the creditors and genuineness of the transactions. From the relevant part of the assessment order, we observe that the Assessing Officer merely proceeded to make addition u/s 68 of the Act keeping aside all the relevant documents, which were filed by the assessee and the alleged companies and alleged that the creditor companies have issued shares at high premium without any basis. In the assessment order the Assessing Officer also made allegation of cash deposits which was controverted by him in the remand report. From a reading of the assessment order we observe that the Assessing Officer himself was confused to the transaction inasmuch as at page 2 he writes "unsecured loans from various companies" whereas in the subsequent part of page 3 para 2 he asked the assessee to produce share applicants. In the last para at page 3 of the assessment order the Assessing Officer also takes legs from the assessment order of M/s. BCC Cargo Pvt. Ltd. for the assessment year 2007-08 and as we have noted that in this assessment order there is no such allegation against these companies, therefore, we hold that the Assessing Officer was initially confused and proceeded to make addition u/s 68 of the Act on the basis of incorrect and irrelevant facts which was rightly dismissed by the Commissioner of Income Tax (Appeals) while granting relief to the assessee.
23. Accordingly, we have no hesitation to hold that we are unable to see any ambiguity, perversity or any other reason to interfere with the first appellate order which granted relief to the assessee. Hence, we uphold the same. Accordingly, ground nos. 2 to 2 (iii), being de void of merit, are dismissed."
3. Ms. Veena Mandlik, learned counsel for the appellant 7 has drawn our attention to decision of Madras High Court in the case of Mangilal Jain v. Income Tax Officer reported in [2009] 315 ITR 105 (Madras) and submitted that similar question has been decided by the Indore Bench of High Court of Madhya Pradesh, Jabalpur in the case of Commissioner of Income Tax v. Rathi Fin-lease Limited reported in [2008] 215 CTR 249 (MP) and learned Appellate Tribunal has committed an error in distinguishing the same while dismissing the appeal of the Department.
4. The case of Commissioner of Income Tax v. Rathi Fin-lease Limited (supra) was related to "share capital", whereas the present case is of "unsecured loan".
5. This question has been considered by the Apex Court in the case of Commissioner of Income Tax v. Orissa Corporation (Private) Limited reported in 1986 AIR 1849 = [1986] 25 Taxman 80F (SC) = 1986 SCR (1) 979; relevant paragraph No.13 reads, as under: -
"13. In this case the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assessees. Their index number was in the file of the Revenue. The Revenue, apart from issuing notices under Section 131 at the instance of the assessee, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were credit-worthy or were such who could advance the alleged loans. There was no effort made to pursue the so called alleged creditors. In those circumstances, the assessee could not do any further. In the premises, if the Tribunal came to the conclusion that the assessee had discharged the burden that lay on him then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion is 8 based on some evidence on which a conclusion could be arrived at, no question of law as such arises."
6. Similar is the issue which was considered by a Division Bench of this Court in the case of Commissioner of Income Tax-II, Indore v. STL Extrusion (Private) Limited reported in [2011] 11 Taxmann.com 125 (Madhya Pradesh) = [2011] ITR 269 (Madhya Pradesh) and in paragraph No.9 of the aforesaid judgment, Division Bench has distinguished the judgment in the case of Commissioner of Income Tax v. Rathi Finlease Limited (supra).
7. Shri Sumit Neema, learned Senior Counsel for the respondent has submitted that the issue involved in this appeal has been considered by the Delhi High Court in detail in the case of Commissioner of Income Tax-II v. Kamdhenu Steel & Alloys Limited reported in [2012] 19 taxmann.com 26 (Delhi) = [2012] 206 Taxman 254 (Delhi) = [2014] 361 ITR 220 (Delhi) and Special Leave to Appeal (Civil) No.15640/2012 filed by the Department has been dismissed on 17.09.2012 by the Hon'ble Apex Court. He has further submitted that all the requirement under Section 68 of the Income Tax Act, 1961 has been duly proved by the assessee by giving all the details and the findings recorded by the learned Appellate Tribunal, they are the findings of fact based on proper appreciation of documents on record. No substantial question of law is arising in this appeal.
8. On due consideration of the arguments of the learned 9 counsel for the parties, so also the reasoning assigned by the learned Appellate Tribunal, we are of the view that the income tax appeal filed by the department has no merit nor any substantial question of law is arising in the matter.
9. Accordingly, Income Tax Appeal No.219/2017 is dismissed.
(P.K. Jaiswal) (Virender Singh)
Judge Judge
Pithawe RC
Digitally signed by Ramesh Chandra Pithwe
Date: 2018.02.25 12:02:24 +05'30'