Prayosha Ceramics Pvt. Ltd., Mehsana V. The Income Tax Officer, Ward-3(1)(4),

ITA 1269/AHD/2016

AI Insights

The case involves Prayosha Ceramics Pvt. Ltd., which appealed against the orders of the Income Tax Officer (ITO) and the Commissioner of Income Tax (Appeals) regarding additions made to its income for the Assessment Year 2012-13. The additions were made under Section 2(22)(e) for treating an unsecured loan as deemed dividend, and under Sections 68 and 69 for unexplained cash credits and investments, respectively. The Tribunal noted the repeated absence of the appellant's representation and proceeded ex parte. The Tribunal upheld the additions, agreeing with the lower authorities that the assessee failed to prove the identity, genuineness, and creditworthiness of the creditors, and the source of the cash deposits in the bank account.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 124732 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 year(s) 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 14-05-2023
• Assessment Year: 2012-2013
• Appeal Filed On: 12-05-2016
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Deemed dividend; Onus to prove
• Section: 68; 69; 271(1)(c); 143(3); 2(22)(e); 133(6); 250; 274

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, AHMEDABAD BEFORE SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER & Ms. MADHUMITA ROY, JUDICIAL MEMBER आयकर अपील सं./I. T. A. No . 1 269/Ahd/20 16 ( नधा रण वष / A ss es sment Year : 2012-13) Pra y o s ha Ce ra mi c s P v t . L t d. 20 , A B O N , GI D C , K a di, Me hs ana - 3 82 71 5 बनाम/ Vs . ITO War d – 3( 1) ( 4) , A h m e da b ad थायी लेखा सं./जीआइआर सं./P A N/ G I R N o . : A A E C P 2 4 0 8 E (अपीलाथ /Appellant) . . ( यथ / Respondent) अपीलाथ ओर से /Appellant by : None यथ क ओर से/Respondent by : Ms. Saumya Pandey Jain, Sr. D.R. स ु नवाई क तार ख / D a t e o f H e a r i ng 15/05/2023 घोषणा क तार ख /D a t e o f P ro n o u nc e me n t 16/06/2023 O R D E R PER Ms. MADHUMITA ROY - JM: The instant appeal filed by the assessee is directed against the order dated 01.12.2015 passed by the Ld. Commissioner of Income Tax (Appeals)- 9, Ahmedabad arising out of the order dated 11.03.2015 passed by the ITO, Ward-3(1)(4), Ahmedabad under section 143(3) of the Income Tax Act, 1961 (hereinafter referred as to ‘the Act’) for Assessment Year 2012-13. ITA No. 1269/Ahd/2016 (Prayosha Ceramics Pvt Ltd. vs. ITO) A.Y.– 2012-13 - 2 - 2. At the time of hearing of the matter, none appeared on behalf of the assessee, neither any adjournment has been sought for. It also appears from the records that on very many occasions whenever the matter was fixed for hearing, none appeared on behalf of the assessee, nor any adjournment was sought for. Having no other alternative, we have decided to proceed with the matter ex parte. 3. The appeal is time barred by 52 days. The assessee made an application for condonation of such delay. The contents whereof are as follows: “(i) The Appellant received order u/s 250 of the Act on 22/01/2016 passed by Commissioner of Income Tax (Appeals)-IX, Ahmedabad. The said order was handed over to the accountant for passing over the same to the concerned Chartered Accountant for filing appeal before the Hon'ble ITAT, Ahmedabad. However, inadvertently, the accountant forgot to pass over the same to the concerned Chartered Accountant. (ii) On inquiry by the concerned Chartered Accountant, the said accountant realized the impugned order was not passed over. On such facts coming to the knowledge of the assessee, the impugned order was immediately forwarded to the concerned Chartered Accountant on 07/05/2016, who forwarded the same to the concerned Advocate Shri Tushar Hemani on 09/05/2016, who thereafter prepared Form No.36 alongwith Grounds of Appeals, forwarded the same to the assessee on 10/05/2016 for required signatures. Shortly thereafter, the appeal is being filed before Your Honours. Under the circumstances stated above, the delay in filing the appeal is mainly on account of the fact that the accountant, inadvertently, forgot to pass over the impugned order to the concerned Chartered Accountant for preparing appeal against the same. Hence, it is prayed to Your Honours that there is good and sufficient reason to condone the delay and therefore the delay in filing the appeal may kindly be condoned and the appeal may kindly be decided on merits.” 4. It appears from the above that after receiving the order impugned the same was handed over to the Accountant for forwarding the same to the concerned Chartered Accountant for filing the appeal before us. The same could not be done by the Accountant of the assessee for the some reasons or ITA No. 1269/Ahd/2016 (Prayosha Ceramics Pvt Ltd. vs. ITO) A.Y.– 2012-13 - 3 - other. However, no negligence is found on behalf of the assessee in filing the appeal beyond time. The ‘sufficient cause’ explained by the assesse for the said delay seems to be genuine and hence, condoned. 5. Ground No.1 relates to addition of Rs.62,06,811/- under Section 2(22)(e) of the Act. 6. Before the First Appellate Authority, in spite of notices served upon the assessee, none appeared on behalf of the assessee, neither any adjournment has been sought for. In that view of the matter, the Ld. CIT(A) proceeded to finalize the matter ex parte. 7. The short issue is this that the assessee took an unsecured loan of Rs.69,79,664/- from M/s. Polo Ceramics Pvt. Ltd., which is an associate concern of the appellant. The Ld. AO issued a show cause notice as to why the said unsecured loan taken by the assessee from M/s. Polo Ceramics Pvt. Ltd. should not be treated as deemed dividend and upon considering the reply filed by the assessee, the Ld. AO observed as follows while making addition under Section 2(22)(e) of the Act treating the said loan as deemed dividend: “3.4 The reply submitted is not tenable as the assessee company is the recipient of loan from M/s. Polo Ceramics Pvt. Ltd. In the show-cause letter dated 11.02.2015 it was clearly pointed out that deemed dividend gets attracted on account of the assessee company having taken loan from M/s. Polo Ceramics Pvt. Limited in which it had approximately 34% holding and also that the lending company had accumulated profits. The assessee's reply is not in accordance to what was show caused and the same is therefore, not acceptable. 3.5 The basic conditions for treating the unsecured loan as deemed dividend us 2(22)(e) of the Act are fulfilled here as (1) Unsecured loan has been taken (2) by having 34% holding in the lending associate company, the condition having substantial stake ITA No. 1269/Ahd/2016 (Prayosha Ceramics Pvt Ltd. vs. ITO) A.Y.– 2012-13 - 4 - also fulfilled and (3) the lending associate company had accumulated profit of Rs.60,06,811/-. 3.6 It won't be out of place to mention here that the assessee company has during the year under scrutiny and also in immediate preceding year not conducted any business of manufacturing or construction as claimed in the submission or as claimed in clause 8(a) of Form 3CD of the tax audit report. The relation between assessee and of M/s Polo Ceramics is exclusively of financial transactions as evident from the ledger account. Nor could there have been any other relation of exchange of goods or services as the assessee company has not conducted any business. The assessee's "Revenue from Operations” in the P&L account for the year under consideration and also for F.Y. 2010-11 was NIL The other income of Rs 10,00,290/- pertains to creditors written off Rs.863349/-, Interest income Rs.73605/- Kasar Vatav Rs 133 and Management Fees Rs 63,203/- 3.7 In the ledger account of M/s. Polo Ceramics Pvt. Limited rom the assessee company's books of accounts the assessee has debited Polo Ceramics account by Rs.63,203/- on 15.03.2015 as "Management Fees” Even if it was to be believed that the assessee company rendered any management services to M/s. Polo Ceramics Pvt Ltd the nature of business declared is not that of providing management services Also this huge amounts totalling to more than Rs.60 lacs taken during the year has no relevance to the otherwise chargeable management fees of Rs 63,203/-. 3.8 In view of the above facts this is a fit case to treat the unsecured loan receipt as deemed dividend as not only the conditions of having substantial stake and accumulated profits gets fulfilled, it also seen that the amounts taken from Polo Ceramics Pvt. Limited were purely financial transactions and not against any goods or services. The loan of Rs.69,79.664/- taken by the assessee from M/s. Polo Ceramics Pvt. Ltd. is therefore treated as deemed dividend us. 2(22)(e) of the Act to the extent of the lending company’s accumulated profits of Rs.62,106,81/-. An addition of Rs.62,06,811/- is therefore, made u/s, 2(22)(e) of the Act to the total income of the assessee company.” 8. The addition was, in turn, confirmed by the First Appellate Authority in the absence of any reply filed by the assessee in spite of notice given to it. We also find the order passed by the Ld. AO is a reasoned one and in the absence of any assistance rendered by the appellant the confirmation of the said addition made by the Ld. CIT(A) is found to be just and proper so as to warrant interference. This ground of appeal is, therefore, found to be devoid of merit and hence, dismissed. ITA No. 1269/Ahd/2016 (Prayosha Ceramics Pvt Ltd. vs. ITO) A.Y.– 2012-13 - 5 - 9. The next ground relates to addition of Rs.42,82,512/- under Section 68 of the Act on account of unsecured loans. 10. During the course of assessment proceedings, it was found that the assessee took loans from various parties whereupon the representative of the assessee was requested to furnish the ledge account, confirmation with addresses and PANs of the persons from whom loans were taken during the year. The confirmation, address and PAN of these parties since not provided, another opportunity was given to the assessee. Neither address nor PAN of these parties were provided excepting two parties. Thereafter, repeated opportunity were given but without any result. Having no other alternative with the following observation, Ld. AO made the addition under Section 68 of the Act: “5.1 The assessee has taken loans from various parties during the year. During the course of assessment proceedings the assessee's representative was requested to submit ledger accounts, confirmation with addresses and PANs of the persons from whom loans were taken during the year. Vide submission dated 31.12.2014 the assessee submitted ledger accounts from its books of account in respect of 11 persons from whom unsecured loans were received during the year. The confirmation and addresses of the parties however, remained to be furnished although it was asked for. Thereafter, a submission dated 20.01.2015 was received from the assessee wherein, it was stated in the covering page that "a statement showing address. PAN and closing balance of all parties fa/ling under head of Unsecured Loan" was enclosed. However, in the enclosed statement addresses were not furnished in respect of all the parties from whom loans were taken during the year. 5.2 Since even basic evidences like confirmation, PAN and address were not being provided by the assessee in respect of unsecured loans despite repeated opportunities given, this issue was also confronted with the assessee in the letter dated 11.02.2015. An excerpt of the letter in respect of this issue, is as follows: As regards persons/entities whose addresses have not been provided in support of unsecured loans taken from them : the names of such parties alongwith the amount of loan taken from them during the year are as follows: ITA No. 1269/Ahd/2016 (Prayosha Ceramics Pvt Ltd. vs. ITO) A.Y.– 2012-13 - 6 - Sr No. Name of the party Remark Amount of loan taken during the year 1 Gatyatri Megnet Neither PAN nor address provided. 11,34,000/- 2 Gayatri Sepration Neither PAN nor address provided. 6,60,000/- 3 Shri Jayesh P. Kalariya Although mentioned under loans from relative, neither address nor PAN provided 11,77.700/- 4 Shir Jignesh B. Pate! Only PAN mentioned. Although mentioned under loans from relative, address not provided. 41,40,000/- 5 Shri Rasiklal D Shah Only PAN mentioned. Although mentioned under loans from relative, address not provided. 24,88,512/- Total 96,00,212/- Here too you have deliberately refrained from providing addresses of the concerned persons/entities despite being repeatedly asked for. The onus to prove the genuineness of the above loans lies with you. It is however observed that you have failed to discharge your onus in this regard. You are therefore, asked to show cause as to why the unsecured loans from the aforesaid persons aggregating to Rs. 96,00,212/- should not be treated as unexplained cash credits within the meaning of section 68 of the I. T. Act and added to the total income of the company. 5.3 In the letter dated 11.02.2015 the assessee was asked to comply with the details on 20.02.2015. The required details were not submitted on 20.02.2015 and instead the assessee company's representative attended and submitted a letter dated 20.02.2015 requesting for a week's time to submit the detail. The assessee's representative was asked to submit the details on 27.03.2015. There was no compliance on 27.03.2015 and on 05.03.2015 the assessee's representative attended and submitted a submission dated 04.03.2015. A hearing with the assessee's representative was also conducted on 04.03.2015 and during discussion it was pointed out that although details in respect of some of the persons from whom loans were taken was provided, the required details in respect of 3 parties was not provided. The details of unsecured loans pertaining to these parties are as follows: Sr. No Name of the party Remark Amount of loan taken during the year 1 Gatyatri Megnet Neither PAN nor address provided. 11,34,000/- 2 Gayatn Sepration Neither PAN nor address provided. 6, 60, 000/- 3 Shri Rasiklal D. Shah Only PAN mentioned. Although mentioned under loans from relative, address not provided 24,88,512/- Total 42,82,512/- 5.4 The contention given by the assessee in its submission dated 04.03.2015 for not being able to submit detail of the aforesaid parties is reproduced below: ITA No. 1269/Ahd/2016 (Prayosha Ceramics Pvt Ltd. vs. ITO) A.Y.– 2012-13 - 7 - Regarding loan confirmation and their addresses with their Bank statements highlighting the entries and Income Tax Acknowledgement have been submitted in almost a/I parties. So far as other three parties are concerned it may be noted that these parties are not Loan & Advances and even their industries are closed and they can not be traceable 5.5 In the final hearing conducted on 05.03.2015 the assessee's representative had nothing more to say in addition to the written submission reproduced above. As regards the contention submitted in the letter, the same is not tenable as the assessee company owed such huge amounts to these parties and yet it is contended that they are not traceable. Such a contention in itself proves that the loans/credits standing in the names of the 3 parties were not genuine. Also despite more than adequate opportunities the assessee could not submit basic details like confirmation and address of these persons. Therefore, the unsecured loans taken from them totalling to Rs.42,82,512/- as detailed above, is treated as unexplained cash credit within the meaning of section 68 of the Act and added to the total income of the assessee company. 5.6 Since the assessee has concealed particulars of income in respect of unsecured loan of Rs.42,82,512/- as discussed above penalty proceedings for concealment of income u/s. 274 r.w.s. 271(1)(c) of the Act are being initiated separately.” 11. The Ld. CIT(A) considered the order passed by the Ld. AO and found that the appellant failed to prove the identity, genuineness and creditworthiness of the creditors in spite of being given several opportunities to the appellant and thus, upheld such addition. In that view of the matter, we do not find any reason to interfere with the order passed by the Ld. CIT(A) in confirming addition made by the Ld. AO under Section 68 of the Act. The same is, therefore, upheld. This ground of appeal preferred by the assessee is dismissed. 12. The addition in respect of cash deposit to the tune of Rs.25,24,000/- in the bank of the appellant under Section 69 of the Act as unexplained investment is the subject matter before us. ITA No. 1269/Ahd/2016 (Prayosha Ceramics Pvt Ltd. vs. ITO) A.Y.– 2012-13 - 8 - 13. During the course of assessment proceeding, the bank account of the assessee lying with Kotak Mahindra Bank was called for. The bank statement was obtained under Section 133(6) of the Act from Kotak Mahindra Bank, perusal of which shows there was huge deposit of cash on various dates. 14. The source of such deposit claimed to have been made from Kotak Mahindra Bank itself to the tune of Rs.1,16,67,900/-, State Bank of India to the tune of Rs.47,000/- and advance against order Rs.34,00,000/-. So far as the source of cash from Kotak Mahindra Bank and State Bank of India is concerned, the details of withdrawal from those banks were not found matching with the deposits made by the assessee. Further that, the entries in respect of advance of Rs.34,00,000/- were also not found in assessee’s accounts. Therefore, with the following observation, the impugned addition was made by the Ld. AO, which was, in turn, confirmed by the First Appellate Authority: “6.1 During the course of assessment proceedings, the assessee's bank ledger account (bank book) in respect of account with Kotak Mahindra Bank was called for. Copy of bank statement was also obtained u/s. 133(6) of the Act from Kotak Mahindra Bank. On perusal of the same, it was found that the assessee had deposited huge amounts of cash on various dates. These deposits required explanation because there was no cash withdrawal from this bank till 22.07.2011. The opening cash on hand of the assessee was Rs.3,073/- and considering that no cash withdrawal was made before 22.07.2011, the cash deposited till this date totalling to Rs.29,66,500/- called for an explanation. This issue was also therefore confronted upon the assessee in the letter dated an excerpt of which is as follows: Your cash on hand at the beginning of the year was Rs.3,073/-. On perusal of the bank book submitted by you and bank statement of Kotak Mahindra Bank in respect of your account no. 08152120005974 it is seen that there are instances of cash deposited in the beginning part of the statement which are detailed hereunder: Sr.No. Date Amount 1 15.04.2011 550000 ITA No. 1269/Ahd/2016 (Prayosha Ceramics Pvt Ltd. vs. ITO) A.Y.– 2012-13 - 9 - 2 19.04.2011 300000 3 12.05.2011 300000 4 08.06.2011 200000 5 13.06.2011 350000 6 29.06.2011 5000 7 29.06.2011 300000 8 01.07.2011 450000 9 13.07.2011 1500 10 22.07.2011 510000 Total 29,66,500/- In the bank statement there is no entry of any cash withdrawal before 22.07.2011 and considering that there was an opening cash balance of Rs.3,073/-, the only source of cash could have been cash sale, cash receipt(loan). As per the profit and loss account there was no sale during the year and other income is shown at Rs.10,00,290/-. You are requested to explain the source of cash of Rs.29,66,500/- deposited till 22.07.2011 i.e. before any cash withdrawal was made. 6.2 In its submission dated 04.03.2015 the assessee has submitted its reply in this regard which is as follows: Regarding point six, you are also requested to note that there are various source of Cash collection as narrated below which are accounted for in Books Of Accounts out of which we have utilized the same including deposit of Rs.29,66,500/- as per your Excel Sheet mention in the notice. Thus, We had enough cash balance on hand which was utilized for above purpose. Source Of cash: • Kotak Mahindra Bank: Rs. 1,16,67,900/- • State Bank Of India: Rs.47000/- • Advance against Order: Rs.34,00,000/- 6.3 The assessee's reply is examined carefully. As regards the contention that one of the source of the cash was from Kotak Mahindra Bank and State Bank of India, it was specifically pointed out in the show-cause letter that the cash deposit entries show- caused were cash deposited in the bank between 01.04.2011 to 22.07.2011 (1 st withdrawal appearing in the bank statement is 22.07.2011) and since there was a negligible amount of cash on hand and no business receipts, the source of the cash deposited needed assessee's explanation. The assessee has instead simply contended that the source was from Kotak Mahindra Bank. As regards the contention that withdrawals of Rs.47,000/- was from State Bank of India, the same could not be proved during the final hearing, conducted on 05.03.2015. 6.4 As regards the other contention that "Advance of Rs.34,00,000/-" was one of the source, no such entries are found in the assessee's accounts. Even if it is to be assumed that the amounts were squared off, in that case it needs to be mentioned that no business activity was conducted during the year therefore the only advance that the ITA No. 1269/Ahd/2016 (Prayosha Ceramics Pvt Ltd. vs. ITO) A.Y.– 2012-13 - 10 - company could have received could have been financial advance which would have been in contravention to section 269SS of the Act. The assessee has not submitted any evidence in support of having received cash advances. It has also not provided the concerned parties' names, addresses, confirmation etc from whom cash advance if any, was received. The assessee's contention that cash was deposited in the bank from advance received from customers is therefore, without any evidential support. However, during the final hearing conducted on 05.03.2015, the assessee's representatives pointed out that prior to 22.07.2011 there were 5 entries of cash withdrawal from Kotak Mahindra Bank Account. On perusal, the contention in respect of 2 entries is found to be correct. These two entries are detailed hereunder: Sr. No. Date Narration Amount (Rs.) 1 05.07.2011 CASA Cheque Withdrawal 342500 2 06.06.2015 CASA Cheque Withdrawal 100000 Total: 442500 15. The Ld. CIT(A) while confirming such addition observed as follows: “7.1 I have gone through the observation of the A.O. An addition of Rs.25,24,000/- is made by the A.O u/s.69 of the I.T. Act. The A.O has observed that the funds have been credited into the bank accounts of the appellant. Accordingly, the A.O gave an opportunity to the appellant to explain the cash deposited in the bank account. The bank account of the appellant at Kotak Mahindra Bank was obtained u/s.133(6) of the Act. The appellant tried to explain. However, it is seen from the order that neither the explanation of (he appellant was adequate nor the contention of the appellant, such as, advance of Rs. 34 lacs being one of the source of credit in the bank account, the entries regarding which were not found by the A.O in the books of accounts of the appellant. No evidence or documentary support was submitted by the appellant during the appellate proceedings. The A.O has given set off of Rs. 4,42,500/-against total cash deposits of Rs. 29,66,500/- as the contention of the appellant on advance received from customer was found to be correct. Thus, on account of failure of the appellant of not recording the investments in the books of accounts or not offering any explanation about the nature and source of cash in the account, the A.O made an addition of Rs.25,24,000/-. In absence of any supporting document or written submission, I have no option but to rely on the contentions of the A.O. Therefore, an addition of Rs. 25,24,000/- is hereby confirmed and this ground of appeal is dismissed.” 16. It appears that no proper evidence in support of the submission of the assessee was furnished neither the explanation rendered by the assessee in regard to the source of cash deposit was found to be tenable and in the absence of any assistance rendered by the assessee before us, we do not find any reason to interfere with the order passed by the authorities below. The ITA No. 1269/Ahd/2016 (Prayosha Ceramics Pvt Ltd. vs. ITO) A.Y.– 2012-13 - 11 - impugned order is, therefore, found to be just and proper, without any ambiguity. The addition is therefore upheld. 17. In the result, assessee’s appeal is dismissed. This Order pronounced on 16/06/2023 Sd/- Sd/- (ANNAPURNA GUPTA) (MADHUMITA ROY) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 16/06/2023 True Copy S. K. SINHA आदेश क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं%धत आयकर आय ु 'त / Concerned CIT 4. आयकर आय ु 'त(अपील) / The CIT(A)- 5. *वभागीय -त-न%ध, आयकर अपील य अ%धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड3 फाईल / Guard file. आदेशान ु सार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील$य अ%धकरण, अहमदाबाद / ITAT, Ahmedabad