M/S. ITO 10(2)(1), Mumbai V. M/S. COLOR COPI (I) P. LTD, Mumbai

ITA 1279/MUM/2005

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48877 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 3 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 09-05-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 15-02-2005
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: L K AGRAWAL
• Assessee Lawyers: NEERAJ GOLAS
• Keywords: Unexplained cash credit
• Section: 143(3); 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, B, MUMBAI BEFORE SHRI R V EASWAR, PRESIDENT AND SHRI T R SOOD, ACCOUNTANT MEMBER I T A NO: 1279/MUM/2005 (ASSESSMENT YEAR: 2001-02) INCOME TAX OFFICER 10(2)(1), MUMBAI APPELLANT VS M/S COLOR COPI (I) PVT. LTD., MUMBAI RESPONDENT (PAN: AABCC4351Q) APPELLANT BY: MR L K AGRAWAL RESPONDENT BY: MR NEERAJ GOLAS O R D E R R V EASWAR, PRESIDENT: THIS IS AN APPEAL BY THE DEPARTMENT AND IT RELATES TO THE ASSESSMENT YEAR 2001-02. THE ONLY GROUND TAKEN IS AS FOLLOWS: - ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A S WELL AS IN LAW, THE LEARNED COMMISSIONER OF INCOME- TAX (APPEALS) HAS ERRED IN DELETING THE ADDITION MA DE BY THE ASSESSING OFFICER AMOUNTING TO RS.3,819,500/ - U/S 68 OF THE ACT AND ALSO ERRED IN DIRECTING TO DE LETE THE DISALLOWANCE OF INTEREST ATTRIBUTABLE TO SUCH C ASH CREDITS WITHOUT APPRECIATING THE FACT THAT THOUGH T HE IDENTITY OF THE LENDERS COULD BE ESTABLISHED BY THE LOAN CONFIRMATION, THE CREDITWORTHINESS OF THE LEND ERS AND GENUINENESS WAS NOT PROVED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER. 2. THE ASSESSEE IS A PRIVATE LIMITED COMPANY TRADIN G IN COMPUTER HARDWARE. IT IS STATED TO BE NOW DEFUNCT. WHILE COMPLETING THE ASSESSMENT UNDER SECTION 143(3) OF T HE INCOME TAX ACT, 1961, THE ASSESSING OFFICER NOTICED THAT THE A SSESSEE HAD TAKEN UNSECURED LOANS FROM VARIOUS PARTIES AND REPA ID MOST OF THEM DURING THE YEAR. A TOTAL OF ` 88,49,500/- WAS TAKEN AS ITA NO: 1279/MUM/2005 2 UNSECURED LOANS FROM VARIOUS PARTIES, THE DETAILS O F WHICH ARE GIVEN IN PARAGRAPH 4.2 OF THE ASSESSMENT ORDER. HE CALLE D UPON THE ASSESSEE TO FILE LOAN CONFIRMATIONS ALONG WITH ASSE SSMENT DETAILS SUCH AS PERMANENT ACCOUNT NUMBER, COPY OF ACKNOWLED GEMENT FOR FILING RETURN OF INCOME AND ALSO EVIDENCE TO PROVE THE IDENTITY AND CREDITWORTHINESS OF THE PARTIES AND THE GENUINENESS OF THE TRANSACTIONS. 3. THE ASSESSEE FILED LOAN CONFIRMATION LETTERS, FR OM WHICH THE ASSESSING OFFICER FOUND THAT THEY CONTAINED SEVERAL DEFECTS. IN SOME OF THEM THERE WAS NO ADDRESS, ONE OR TWO WERE NOT SIGNED BY THE CREDITOR AND IN MOST OF THEM THERE WAS NO PERMA NENT ACCOUNT NUMBER. IN SOME CASES NO CONFIRMATION LETTERS WERE FILED. THE ASSESSING OFFICER THEREFORE TREATED THE SUM OF ` 88,49,500/- AS UNEXPLAINED CASH CREDIT UNDER SECTION 68 OF THE ACT AND ADDED THE SAME TO THE TOTAL INCOME. HE OBSERVED THAT THE MER E FILING OF CONFIRMATORY LETTERS WAS NOT SUFFICIENT AND THAT TH E ASSESSEE HAD FAILED TO PROVE THE IDENTITY AND CREDITWORTHINESS O F THE CREDITORS AND THE GENUINENESS OF THE TRANSACTIONS. THE INTEREST OF ` 5,00,000/- PAID ON THE LOANS WAS ALSO DISALLOWED, TAKING THE A GGREGATE ADDITION TO ` 93,49,500/-. 4. THE ASSESSEE TOOK UP THE MATTER BEFORE THE CIT(A ) AND SUBMITTED THAT THIS WAS THE FIRST YEAR OF THE BUSIN ESS OF THE ASSESSEE COMPANY WHICH HAD TAKEN OVER THE PROPRIETA RY BUSINESS OF ONE OF THE DIRECTORS AND, THEREFORE, A LARGE AMO UNT OF WORKING CAPITAL WAS REQUIRED AND THIS WAS OBTAINED THROUGH PRIVATE BORROWINGS AND FINANCE BROKERS ON HIGH INTEREST RAT ES. IT WAS ITA NO: 1279/MUM/2005 3 POINTED OUT THAT MOST OF THE CREDITORS GAVE SMALL A MOUNTS OF ABOUT ` 50,000/- EACH. IT WAS ALSO SUBMITTED THAT ALL THE CONFIRMATION LETTERS WERE FILED, THAT THE RECEIPT AND REPAYMENT OF THE AMOUNTS WERE BY CROSSED CHEQUES, THAT INTEREST WAS PAID AFT ER DEDUCTION OF TAX AND IN THESE CIRCUMSTANCES THE ASSESSEE HAD PRO VED ALL THE THREE REQUIREMENTS OF SECTION 68 OF THE ACT. 5. THE CIT(A) AFTER EXAMINING THE FACTS DELETED THE ADDITION OF ` 38,19,500/- AND SUSTAINED THE BALANCE. IN PARAGRAP H 2.5 OF HIS ORDER, HE EXAMINED THE FACTS OF 47 CREDITORS AND IN A COLUMNAR TABLE SET OUT THE REASONS IN BRIEF FOR HIS DECISION WITH REGARD TO EACH OF THEM. A PERUSAL THEREOF SHOWS THAT WHEREVER THE LO ANS WERE TAKEN AND REPAID BY CHEQUE AND THERE IS NO SERIOUS DEFECT IN THE LOAN CONFIRMATION, HE HAS DELETED THE ADDITION. WHERE N O CONFIRMATION HAS BEEN FILED OR WHERE THE CONFIRMATION LETTER CON TAINED SERIOUS DEFECTS SUCH AS LACK OF SIGNATURE, ABSENCE OF ADDRE SS OF THE CREDITOR ETC., THE CIT(A) HAS CONFIRMED THE ADDITIO N. WE MAY GIVE BY WAY OF EXAMPLE A FEW CASES. ITEM NO:18 IN THE T ABLE SET OUT BY THE CIT(A) IS THE CREDIT OF ` 17,25,000/- FROM VIJAYSHANKER GUPTA. THIS ADDITION HAS BEEN CONFIRMED BECAUSE THE LOAN C ONFIRMATION LETTER DOES NOT IDENTIFY THE LENDER AND DID NOT CON TAIN THE PERMANENT ACCOUNT NUMBER. ITEM NO:21 IS A LOAN OF ` 9,50,000/- FROM INDRAPRASTHA FASHIONS. HERE ALSO THE CONFIRMATION LETTER DOES NOT GIVE THE ADDRESS OF THE LENDER AND THERE IS NO WAY OF KNOWING THE IDENTITY OF THE PERSON WHO HAD SIGNED THE LETTER. THE CIT(A) HAS THEREFORE CONFIRMED THE ADDITION. IN THE CASE OF I TEM NO:20 WHICH IS A CREDIT OF ` 2,00,000/- IN THE NAME OF B C SARAVAGI, THE ADDITIO N ITA NO: 1279/MUM/2005 4 HAS BEEN CONFIRMED FOR SIMILAR REASONS. ITEM NO:30 IS THE LOAN OF ` 8,00,000/- FROM ANITADEVI JAIN. NO PERMANENT ACCOU NT NUMBER OR OTHER INCOME TAX IDENTITY HAS BEEN SHOWN AND THE SO URCE OF FUNDS OF ` 8,00,000/- HAS NOT BEEN DISCLOSED BY THE CREDITOR. THEREFORE, THIS AMOUNT HAS ALSO BEEN ADDED BY THE CIT(A). 6. IN CONTRAST, WHEREVER THE IDENTITY AND CREDITWOR THINESS OF THE LENDER HAVE BEEN ESTABLISHED AND THERE IS EVIDENCE TO PROVE THE GENUINENESS OF THE TRANSACTION, THE CIT(A) HAS DELE TED THE ADDITION. FOR INSTANCE, IN THE CASE OF ITEM NO:22, JAWAHARLAL LAXMANDAS LALCHAND & CO., THERE IS A CREDIT OF ` 22,69,500/-. THE AMOUNT WAS RECEIVED AND REPAID BY CHEQUE. IN THE LOAN CONFIRM ATION THE CREDITORS FULL ADDRESS IS GIVEN, AS ALSO HIS INCOM E TAX PERMANENT ACCOUNT NUMBER. THIS ADDITION HAS THEREFORE BEEN D ELETED. IN THE CASE OF ITEM NO:23, MEENA INVESTMENT CORPORATION, T HE CREDITOR HAS FILED A CASE AGAINST THE ASSESSEE UNDER SECTION 138 OF THE NEGOTIABLE INSTRUMENTS ACT, WHICH ACCORDING TO THE CIT(A) PROVED THE GENUINENESS OF THE LOAN TRANSACTION. THE ADDIT ION HAS BEEN ACCORDINGLY DELETED. THE CASE OF ITEM NO:28, AVINA SH WADHWA, WHO HAS LENT ` 1,00,000/- TO THE ASSESSEE IS SIMILAR TO THAT OF IT EM NO:22. IN THE CASE OF ITEM NO:35, BHAVNA RAJKUMAR, THE CREDIT OF ` 1,90,000/- HAS BEEN DELETED ON THE GROUND THAT THE AMOUNT WAS RECEIVED AND REPAID BY CHEQUE AND THE FULL ADDRESS OF THE CREDITOR IS GIVEN IN THE CONFIRMATION LETTER. THE SAME IS THE CASE OF THE CREDIT OF ` 2,50,000/- IN THE CASE OF ITEM NO:36, CITY FINANCE. 7. WE HAVE GIVEN ABOVE CERTAIN EXAMPLES OF CASES WH ERE THE CIT(A) HAS GIVEN REASONS FOR EITHER CONFIRMING OR D ELETING THE ITA NO: 1279/MUM/2005 5 ADDITION. HE HAS APPLIED THE WELL KNOWN PRINCIPLES REGARDING THE APPLICABILITY OF SECTION 68 OF THE ACT, NAMELY, THE IDENTITY AND CREDITWORTHINESS OF THE CREDITOR AND THE GENUINENES S OF THE TRANSACTIONS IN COMING TO HIS DECISION. HE HAS EXA MINED EACH AND EVERY CREDIT AND APPLIED THE SAME YARDSTICK TO THEM IN ARRIVING AT HIS DECISION. NO FAULT CAN THEREFORE BE FOUND AGAI NST HIS DECISION. WE MAY ADD THAT THE ASSESSEE HAS NOT COME IN APPEAL AGAINST THE ADDITIONS CONFIRMED BY THE CIT(A). 8. IN THE RESULT, THE DECISION OF THE CIT(A) DELETI NG THE ADDITION OF ` 38,19,500/- MADE UNDER SECTION 68 OF THE ACT IS CON FIRMED AND THE APPEAL OF THE DEPARTMENT IS DISMISSED WITH NO O RDER AS TO COSTS. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH MAY 2011. SD/- SD/- (T R SOOD) (R V EASWAR) ACCOUNTANT MEMBER PRESIDE NT MUMBAI, DATED 25 TH MAY 2011 SALDANHA COPY TO: 1. M/S COLOR COPI (I) PVT. LTD. D-4, AMOGH CO-OP. HSG. SOC. LTD. GOVANDI STATION ROAD, NEAR AMAR CINEMA CHEMBUR, MUMBAI 400 071 2. ITO 10(2)(1), MUMBAI 3. CIT-X, MUMBAI 4. CIT(A)-X, MUMBAI 5. DR B BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI