Indian Kanoon - Search engine for Indian Law

4. It was submitted before the learned CIT(A) inter alia that assessee- company is a manufacturer of Paracetamol powder and was suffering financial difficulties. It had availed of working capital finance from IDBI Bank Ltd. and State Bank of Hyderabad over a period, including the year under consideration. The international prices of Paracetamol plunged because of dumping of the product in the international market by China. Other Indian Manufacturer of Paracetamol also suffered. The assessee- company was not able to service its working capital facilities and as a result, bank put restriction in the operation of the bank account to prevent it from becoming of Non Performing Assets. In order to get higher working capital and to save itself from brink of collapse, the assessee-company had to file the balance sheet which showed a trend healthier than earlier years. However, in views of reduced recoveries from the customers the assessee-company was not able to pay its creditors. The result was that the working capital ratio of the company was badly affected. The company had suffered losses which resulted in erosion of capital. More loans had to be taken and as a result the debit equity ratio was bad. These two ratios form the backbone for financing of a borrower by the financial institutions. The balance sheet position of the assessee- company had become such that bankers would have declined further financing of the working capital for the operation of the company. Therefore, with a view to window dress the balance sheet, the assessee Pan Drugs Limited company requested one of its principal shareholder M/s. Shyam Mercantile Pvt. Ltd. to act as a conduit for improving the balance sheer position. The method adopted was that on 31st March of each of the accounting year, M/s. Shyam Mercantile Pvt. Ltd. undertook to pay outstanding amount due by the company to some of its creditors. The particulars of the creditors whose accounts were taken over and transferred to M/s. Shyam Mercantile Pvt. Ltd. have been given in a letter dated 16th May 2005 together with copies of the relevant accounts. The amounts due to these creditors were transferred at the end of each year to the account of M/s. Shyam Mercantile Pvt. Ltd. and the same was shown in the balance sheet as unsecured loan to the extent of the amount transferred from various creditors. These entries were reversed on the first day of April in the subsequent year. This was only a device to improve the balance sheet position. This transaction was legitimate and was carried out with the consent of the parties. There was no giving or taking of any funds and were merely book entries. The case, therefore, would not fall u/s 269SS/269T of the Income Tax Act. Similar is the position with regard to repayments. It was also submitted that the object of the above provisions was to counter the device adopted by people to explain their own unaccounted money found during search proceedings as cash loan or deposits from various persons. Since in this case there was no giving or taking of loan or deposit or repayment of loan or deposit, therefore, these provisions would not apply to the case of the assessee. The decisions of other Benches of the Tribunal were relied upon by the assessee were quoted by the learned CIT(A) in the impugned order.