M/s Kundlas Loh Udyog, Baddi V. ITO, Parwanoo

ITA 133/CHANDI/2010

• Counselvise Citation: 13321514 RSA 2010
• Duration Of Justice: 5 year(s) 8 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 12-10-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 03-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Assessee Lawyers: SUDHIR SEHGAL
• Keywords: Unexplained cash credit; Gift; Capital receipt; Condonation of delay
• Section: 131; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH,CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO. 133/CHD/2010 ASSESSMENT YEAR: 2006-07 M/S KUNDLES LOH UDYOG, VS THE ITO, VILLAGE BALYANA, PARWANOO. POST OFFICE BAROTIWALA, TEHSIL BADDI, DISTT. SOLAN. PAN: AAHFK8962A & ITA NO. 463/CHD/2011 ASSESSMENT YEAR: 2007-08 M/S KUNDLES LOH UDYOG, VS THE ITO, VILLAGE BALYANA, PARWANOO. POST OFFICE BAROTIWALA, TEHSIL BADDI, DISTT. SOLAN. PAN: AAHFK8962A (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUDHIR SEHGAL RESPONDENT BY : SHRI S.K.MITTAL DATE OF HEARING : 12.10.2015 DATE OF PRONOUNCEMENT : 21.10.2015 O R D E R PER BHAVNESH SAINI,JM BOTH THE APPEALS BY ASSESSEE ARE DIRECTED AGAINST DIFFERENT ORDERS OF LD. CIT(APPEALS) SHIMLA DATED 18.11.2009 FOR ASSESSMENT YEAR 2006-07 AND DATED 10.02.2011 FOR ASSESSMENT YEAR 2007-08. IN BOTH TH E 2 APPEALS, ASSESSEE CHALLENGED THE ADDITIONS UNDER SE CTION 68 OF THE INCOME TAX ACT ON ACCOUNT OF UNEXPLAINED CREDITS/LOANS. 2. WE HAVE HEARD LD. REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF AUTHORITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECORD. BOTH T HE APPEALS ARE DECIDED AS UNDER. ITA 133/2010 : A.Y. : 2006-07 3. IN THIS APPEAL, THE ASSESSEE CHALLENGED THE ADDI TION OF RS. 1,00,10,664/- AND ADDITION OF RS. 19,55,000/- O N ACCOUNT OF UNEXPLAINED CREDIT TREATING THE SAME AS UNEXPLAINED MONEY OF THE ASSESSEE FIRM. 4. ACCORDING TO THE REGISTRY, THE APPEAL OF ASSESSE E IS TIME BARRED BY ONE DAY. THE ASSESSEE EXPLAINED IN THE APPLICATION FOR CONDONATION OF DELAY THAT DELAY OF ONE DAY WAS DUE TO WRONG CALCULATION OF NUMBER OF DAYS WHIC H IS SUPPORTED BY AFFIDAVIT OF THE PARTNER OF THE ASSESS EE FIRM. CONSIDERING THE EXPLANATION OF ASSESSEE AND NOMINAL DELAY OF ONE DAY IN FILING THE APPEAL, WE ACCEPT EXPLANAT ION OF ASSESSEE AND CONDONE THE DELAY IN FILING THE APPEAL . 5. BRIEFLY THE FACTS OF THE CASE ARE THAT ASSESSEE IS A PARTNERSHIP FIRM AND FILED THE RETURN DECLARING NI L INCOME. THE CASE WAS SELECTED FOR SCRUTINY. THE ASSESSEE P RODUCED BOOKS OF ACCOUNT ALONGWITH BILLS AND VOUCHERS WHICH WERE TEST CHECKED. IN THIS YEAR, THE ASSESSEE HAS NOT S TARTED ITS 3 MANUFACTURING ACTIVITIES BUT IT AS IN THE PROCESS O F INSTALLING THE PLANT. THE ASSESSING OFFICER NOTED THAT ASSESSEE HAS RECEIVED UNSECURED LOANS AMOUNTING TO RS. 1,38,81,722/- FROM 68 PERSONS. THE ASSESSEE WAS AS KED TO PROVE THE IDENTITY OF THE CREDITORS, THEIR CREDIT W ORTHINESS AND GENUINENESS OF THE TRANSACTIONS. THE ASSESSEE SUBMITTED A REPLY ALONGWITH AFFIDAVITS AS CONFIRMAT IONS, COPIES OF INCOME TAX RETURNS AND COPIES OF BANK ACC OUNTS OF THE CREDITORS. BUT FROM THE PERUSAL OF THE BANK AC COUNTS AND COPIES OF THE IT RETURNS, IT WAS OBSERVED BY AS SESSING OFFICER THAT CREDIT WORTHINESS OF THE CREDITORS/LEN DERS WAS DOUBTFUL. SINCE MAXIMUM NUMBER OF LENDERS BELONG T O BHIWANI DISTRICT OF HARYANA, THEREFORE, CAMP WAS HE LD AT BHIWANI ITSELF AND ASSESSEE WAS ASKED TO PRODUCE AL L THE CREDITORS AT BHIWANI CAMP OFFICE SO THAT THE CREDIT WORTHINESS OF THE CREDITORS COULD BE EXAMINED. THE ASSESSEE PRODUCED 53 CREDITORS BEFORE ASSESSING OFFICER AND THEIR STATEMENTS HAVE BEEN RECORDED IN THE PRESENCE OF CO UNSEL FOR ASSESSEE. FROM THE STATEMENTS RECORDED AND DOC UMENTS FILED BY THE LENDERS, THE CREDIT WORTHINESS OF SOME OF THE LENDERS COULD NOT BE PROVED. 11 PERSONS COULD NOT BE PRODUCED AT ANY POINT OF TIME BECAUSE OF ILL HEALTH OR NON- AVAILABILITY. THE ASSESSING OFFICER DISCUSSED ALL THE 53 CREDITORS IN THE ASSESSMENT ORDER FROM PAGE 2 TO 22 . THE ASSESSING OFFICER, ON EXAMINATION AND CONSIDERATION OF THE STATEMENTS OF 53 CREDITORS, FOUND THAT INCOME OF TH E CREDITORS WERE MEAGER TO ADVANCE THE LOANS OR THAT THEY HAVE FILED RETURN OF INCOME BELOW TAXABLE LIMIT AND IN S OME CASES, 4 CASH WAS DEPOSITED BEFORE ISSUING HE LOANS. THE ASS ESSEE WAS, THEREFORE, ASKED TO PROVE THE GENUINE CREDITS IN THE MATTER. 5(I) THE ASSESSEE IN REPLY BEFORE ASSESSING OFFICER SUBMITTED THAT DOCUMENTARY EVIDENCES WERE FILED IN SUPPORT OF IDENTITY OF THE PERSONS INCLUDING AFFIDAVITS FRO M THE LENDERS, THEIR RATION CARDS/PAN CARDS/DRIVING LICEN CE AND COPIES OF THE RETURN OF INCOME ALONGWITH BANK STATE MENTS WERE FILED IN SUPPORT OF GENUINENESS OF THE TRANSAC TIONS. THE ASSESSEE PRODUCED ALL THE LENDERS EXCEPT 11 PERSONS WHO WERE EXAMINED ON OATH AND THEY HAVE ADMITTED OF ADVANCING LOANS TO THE ASSESSEE ON INTEREST BY ACCO UNT PAYEE CHEQUES AND THAT INTEREST HAVE BEEN RECEIVED BY THEM AND SHOWN BY THEM IN THEIR RETURN OF INCOME. IN TH E CASE OF 35 PERSONS, THE AMOUNTS HAVE BEEN RETURNED WITH INT EREST THROUGH ACCOUNT PAYEE CHEQUES LATER ON. THE ASSESS EE FIRM HAS DEDUCTED TDS ON THE INTEREST PAID WHEREVER APPL ICABLE AND FORM NO. 15H HAS ALSO BEEN FILED WHERE NO TDS W AS DEDUCTED. ALL ARE ASSESSED TO TAX, THEREFORE, ASSE SSEE PROVED THE GENUINE LOANS IN THE MATTER. THE ASSESS ING OFFICER, HOWEVER, WAS OF THE VIEW THAT CREDIT WORTH INESS OF THE CREDITORS HAVE NOT BEEN PROVED AND ACCORDINGLY, MADE THE ADDITION OF RS. 1,00,10,664/-. AS REGARDS THE REMAINING 11 CREDITORS, THE ASSESSEE SUBMITTED THAT THESE CRE DITORS COULD NOT BE PRODUCED BECAUSE THEY ARE NOT WITHIN T HE CONTROL OF THE ASSESSEE AND ASSESSEE HAS NO LEGAL P OWER TO ENFORCE THEIR ATTENDANCE BEFORE ASSESSING OFFICER, THEREFORE, 5 ASSESSING OFFICER WAS REQUESTED TO ISSUE SUMMONS TO ALL THE ABSENTEE CREDITORS UNDER SECTION 131 AND EXAMINE TH EM. THE ASSESSING OFFICER, INSTEAD OF SUMMONING THESE 1 1 CREDITORS ON THE SAME REASONING HELD THAT ASSESSEE HAS FAILED TO PROVE THEIR CREDIT WORTHINESS AND GENUINE NESS OF THE TRANSACTION AND ACCORDINGLY, MADE ADDITION OF R S. 19,55,000/-. 6. BOTH THESE ADDITIONS WERE CHALLENGED BEFORE LD. CIT(APPEALS) AND THE ASSESSEE REITERATED THE SUBMIS SIONS MADE BEFORE ASSESSING OFFICER. IT WAS EXPLAINED TH AT ASSESSEE FIRM IS ENGAGED IN THE PROCESS OF ERECTING THE PLANT TO MANUFACTURE INGOTS AND IN THE YEAR UNDER CONSIDE RATION, RAISED LOANS FROM 68 PERSONS FOR RS. 1.38 CRORES IN CLUDING INTEREST. DURING THE YEAR, THE PLANT HAS NOT COMME NCED COMMERCIAL PRODUCTION. THE ASSESSEE FILED CONFIRMA TIONS, AFFIDAVITS, IDENTITY PROOF, COPIES OF IT RETURNS AN D THE BANK ACCOUNTS TO SUPPORT THE CREDIT WORTHINESS AND GENUI NENESS OF THE TRANSACTIONS OF CASH CREDITS. THE LENDERS I N THEIR STATEMENTS ALSO CONFIRMED TO HAVE ADVANCED LOAN TO THE ASSESSEE THROUGH BANKING CHANNELS. THE LD. CIT(APP EALS), HOWEVER, DID NOT ACCEPT CONTENTION OF THE ASSESSEE. HE HAS FOUND THAT NO DOUBT THE ASSESSEE HAS PROVED THE IDE NTITY OF THE CREDITORS BY PRODUCING 53 OF THEM FOR VERIFICAT ION BUT MERE IDENTITY IS NOT SUFFICIENT TO PROVE THE GENUIN E CREDITS IN THE MATTER. THE LD. CIT(APPEALS) DISCUSSED SOME OF THE CREDITORS IN THE IMPUGNED ORDER AND ULTIMATELY HELD THAT 6 ASSESSEE FAILED TO PROVE CREDIT WORTHINESS AND GENU INENESS OF THE TRANSACTIONS ON THE FOLLOWING REASONS : A) INCOME OF THE CREDITORS WERE TOO MEAGER TO MAKE ANY HUGE ADVANCE B) RETURNS HAVE BEEN FILED AT BELOW TAXABLE LIMIT C) SOME OF THE CREDITORS HAD NO BANK ACCOUNTS D) IN SOME CASES, CASH WAS DEPOSITED ON OR JUST BE FORE THE DATE OF ADVANCE. E) IN THE CASE OF FEMALE CREDITOR, SOURCE OF INCOM E IS PETTY GIFTS AND TAILORING ETC. BELOW TAXABLE LIMIT. 7. THE LD. CIT(APPEALS) ACCORDINGLY DISMISSED APPEA L OF THE ASSESSEE. 8. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE AUTHORITIES BELOW AND SUBMI TTED THAT IN THE YEAR UNDER CONSIDERATION, ASSESSEE HAS NOT STARTED ITS MANUFACTURING/BUSINESS ACTIVITIES BUT I T WAS IN THE PROCESS OF INSTALLING THE PLANT. OUT OF 64 CRE DITORS, ASSESSEE PRODUCED 53 CREDITORS BEFORE ASSESSING OFF ICER AND THEIR STATEMENTS HAVE BEEN RECORDED IN WHICH TH EY HAVE CONFIRMED TO HAVE ADVANCED LOAN TO THE ASSESSE E AGAINST INTEREST THROUGH BANKING CHANNEL. THE ASS ESSEE FILED THEIR CONFIRMATIONS, AFFIDAVITS, BANK STATEME NTS, INCOME TAX RECORD AND PROOF OF IDENTITY. THEREFORE, INITIAL ONUS ON ASSESSEE HAS BEEN DISCHARGED. HE HAS RELIE D UPON DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF RAM NARAIN GOYAL 224 ITR 180, DECISION OF HON'BLE SUPREME COURT IN THE CASE OF C IT V 7 CHUNNI LAL 211 ITR (STATUTE) PAGE 11, DECISION OF S UPREME COURT IN THE CASE OF ORISSA STATE CORPORATION 159 I TR 78, DECISION OF GAUHARI HIGH COURT IN THE CASE OF NEMI CHAND KOTHARI 264 ITR 254, DECISION IN THE CASE OF M/S LA KSHMI TEXTILE MILLS LTD. 100 ITR 360, DECISION IN THE CAS E OF P.K. SETHI 286 ITR 318. THE LD. COUNSEL FOR THE ASSESSE E SUBMITTED THAT SINCE NO BUSINESS ACTIVITIES HAVE BE EN CONDUCTED BY ASSESSEE, THEREFORE, NO ADDITION COULD BE MADE AGAINST ASSESSEE AND RELIED UPON DECISION OF T HE SUPREME COURT IN THE CASE OF CIT V BHARAT ENGINEERI NG & CONSTRUCTION CO. 83 ITR 187. HE HAS SUBMITTED THA T IN THE CASES OF 35 PERSONS, LOAN HAVE BEEN RETURNED AF TER TDS AND IN SOME CASES, FORM NO. 15H HAS BEEN FILED WHERE NO TDS HAS BEEN DEDUCTED. IN RESPECT OF 11 CREDITOR S, THE ASSESSEE MADE A REQUEST FOR SUMMONING THEM VIDE LET TER DATED 24.11.2008 BUT ASSESSING OFFICER DID NOT SUMM ON THEM WHICH IS MENTIONED IN THE ASSESSMENT ORDER. THEREFORE, NO ADVERSE INFERENCE COULD BE DRAWN AGAI NST THE ASSESSEE. HE HAS FILED COPY OF THE PARTNERSHIP DEED, COPY OF THE LETTER DT. 25.11.2008 ISSUED BY DEPARTM ENT OF INDUSTRIES CONFIRMING THAT DATE OF COMMENCEMENT OF COMMERCIAL PRODUCTION OF UNIT OF ASSESSEE IS 11 TH APRIL,2006. HE HAS ALSO FILED COPY OF THE PROFIT & LOSS ACCOUNT ENDING 31.03.2006 TO SHOW THAT PRE-OPERATIV E EXPENSES HAVE BEEN TRANSFERRED TO THE BALANCE SHEET AND THUS, CAPITALIZED. HE HAS ALSO RELIED UPON ORDER O F THE ITAT DELHI BENCH IN THE CASE OF M/S PUSHPAK AUTO CE NTRE V ITO DATED 16.01.2015 IN ITA 268/2008 IN WHICH H O RDER 8 OF THE LD. CIT(APPEALS) IN DELETING SIMILAR ADDITIO N WAS CONFIRMED. 9. ON THE OTHER HAND, LD. DR RELIED UPON ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSEE F AILED TO PROVE CREDIT WORTHINESS OF THE CREDITORS AND GENUINENESS OF THE TRANSACTION IN THE MATTER. SOME OF THE CREDITORS OPENED THEIR BANK ACCOUNT RECENTLY, WOULD PROVE THAT ALL THE CREDIT ENTRIES WERE BOGUS. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE ASSESSEE IS A PARTNERSHIP FIRM. THE DEED OF THE PARTNERSHIP DATED 21.08.2004 IS FILED ON RECORD. TH E ASSESSING OFFICER NOTED IN THE ASSESSMENT ORDER THA T IN THE YEAR UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2 006- 07, THE ASSESSEE HAS NOT STARTED ITS MANUFACTURING ACTIVITIES BUT IT WAS IN THE PROCESS OF INSTALLING THE PLANT. ACCORDING TO THE CERTIFICATE OF DEPARTMENT OF INDUS TRIES DATED 25.11.2008 FILED ON RECORD, THE ASSESSEE FIRM HAS BEEN ALLOCATED THE UNIT FOR MANUFACTURING ANGLES, C HANNEL AND STEEL INGOTS. THE DATE OF COMMENCEMENT OF COMMERCIAL PRODUCTION OF THE UNIT I.E. 11.04.2006 H AS BEEN TAKEN ON RECORD. THE COPY OF THE PROFIT & LOS S ACCOUNT FILED ON RECORD FOR ASSESSMENT YEAR UNDER A PPEAL SHOWS THAT ON31.03.2006, ALL THE PRE-OPERATIVE EXPE NSES HAVE BEEN TRANSFERRED TO BALANCE SHEET, WOULD MEAN THAT THE EXPENSES HAVE BEEN CAPITALIZED. THESE FACTS CL EARLY SHOW AND PROVE THAT ASSESSEE HAS NOT STARTED/COMMEN CED ITS BUSINESS ACTIVITIES IN THE YEAR UNDER CONSIDERA TION. 9 11. IN THE CASE OF CIT V BHARAT ENGINEERING & CONSTRUCTION CO. 83 ITR 187 (SUPRA) THE ISSUE WAS S AME I.E. UNEXPLAINED CASH CREDIT. THE TRIBUNAL CAME TO THE CONCLUSION THAT CASH CREDIT ENTRIES TOTALING TO RS. 2,50,000/- BROUGHT TO TAX BY ITO ON THE GROUND THAT THEY REPRESENT THE INCOME OF THE ASSESSEE FROM UNDISCLOS ED SOURCES, WAS NOT CORRECT. IT CAME TO THE CONCLUSIO N THAT THOUGH THE EXPLANATION GIVEN BY THE ASSESSEE IN RES PECT OF THOSE CASH CREDIT ENTRIES, IS NOT TRUE, YET FROM TH E PROVED CIRCUMSTANCES, THESE CASH CREDITS COULD NOT BE INCO ME OF THE ASSESSEE. THE MATTER, ULTIMATELY REACHED TO TH E HON'BLE SUPREME COURT. THE HON'BLE SUPREME COURT NOTED THE FACTS OF THE CASE THAT ASSESSEE COMPANY I S AN ENGINEERING CONSTRUCTION COMPANY WHICH COMMENCED BUSINESS IN MAY, 1943. IN THEIR BOOKS OF ACCOUNT, THERE ARE SEVERAL CASH CREDITS IN THE FIRST YEAR OF ITS B USINESS. THE HON'BLE COURT WAS CONCERNED WITH ONLY 5 OF THOS E CASH CREDIT ENTRIES. ON 01.06.1943, THERE IS A CAS H CREDIT ENTRY OF RS.1 LAC. ON JULY 6, 1943 THERE IS A CASH CREDIT ENTRY OF RS. 50,000/-. ON 30.08.1943, THERE IS A C ASH CREDIT ENTRY OF RS. 50,000/-. ON 02.12.1943, THERE IS A CASH CREDIT ENTRY OF RS. 15,000/- AND ON 15.03.1944 , THERE IS A CASH CREDIT ENTRY OF RS. 35,000/-. THES E CASH CREDIT ENTRIES TOTALING UPTO RS. 2,50,000/-. THE T RIBUNAL FELT THAT THESE CASH CREDIT ENTRIES COULD NOT REPRE SENT THE INCOME OR PROFIT OF THE ASSESSEE COMPANY AS THEY WE RE ALL MADE VERY SOON AFTER THE COMPANY COMMENCED ITS 10 ACTIVITIES. THE HON'BLE SUPREME COURT IN THE BACKG ROUND OF THESE FACTS, HELD AS UNDER : THE ASSESSEE, AN ENGINEERING-CONSTRUCTION COMPANY, COMMENCED ITS BUSINESS IN MAY, 1943. IN ITS ACCOUNTS T HERE WERE SEVERAL CASH CREDIT ENTRIES IN THE FIRST YEAR O F ITS BUSINESS TOTALLING RS. 2,50,000. THOUGH THE EXPLANATION REG ARDING THE CASH CREDIT ENTRIES WAS FOUND TO BE FALSE, THE APPE LLATE TRIBUNAL HELD THAT THESE CASH CREDITS COULD NOT REPRE SENT THE INCOME OR PROFITS OF THE ASSESSEE AS THEY WERE ALL MADE VERY SOON AFTER THE COMPANY COMMENCED ITS ACTIVITIES : HELD, THAT THE INFERENCE DRAWN FROM THE FACTS PROVE D WAS A QUESTION OF FACT AND THE TRIBUNALS FINDING ON THAT Q UESTION WAS FINAL. A CONSTRUCTION COMPANY TOOK TIME TO EARN P ROFITS AND IT COULD NOT HAVE EARNED A HUGE PROFIT WITHIN A FEW DAY S AFTER THE COMMENCEMENT OF ITS BUSINESS. HENCE, IT WAS REAS ONABLE TO ASSUME THAT THE CASH CREDIT ENTRIES REPRESENTED CAPITAL RE CEIPTS THOUGH FOR ONE REASON OR ANOTHER THE ASSESSEE HAD NOT COM E OUT WITH THE TRUE STORY AS REGARDS THE SOURCE OF THE RECEIPT S. 12. THE HON'BLE SUPREME COURT IN THE CASE OF ROSHAN DI HATTI V CIT 107 ITR 938 CONSIDERED THE SAME ISSUE O F UNEXPLAINED CASH CREDIT. IN THIS CASE, THE ASSESSE E, A HUF FAMILY OF WHICH R WAS KARTA, WAS CARRYING ON BUSINESS IN GOLD AND JEWELLERY IN LAHORE TILL JUNE, 1947. IN JUNE, 1947, R TRANSFERRED FROM LAHORE A SUM OF RS. 12,094/-, RS. 13,000/- AND RS. 6,000/- TO BANKS IN NEW DELHI. R LEFT LAHORE FOR MUSSOURI IN JUNE, 1947 AND A SEALED TRUNK CONTAINING GOLD ORNAMENTS, JEWELLERY A ND CASH WHICH HE DEPOSITED IN IMPERIAL BANK AT AMRITSA R. ULTIMATELY, R SECURED A PREMISES FOR COMMENCEMENT OF 11 BUSINESS IN FEB., 1948 AT DELHI WHERE HE STARTED A GOLD AND JEWELLERY BUSINESS ON MARCH 30, 1948. THE FIRS T ENTRY IN THE BOOKS OF ACCOUNT OF ASSESSEE WAS DATED 30.03 .1948 BRINGING IN AN AGGREGATE CAPITAL OF RS.3,33,414/- INCLUDING GOLD ORNAMENTS, GOLD RAWA, STONES, BANK A ND CASH BALANCES. THE ASSESSING OFFICER ASKED FOR THE SOURCE OF THESE CAPITALS. ON THE BASIS OF THESE FACTS, HO N'BLE SUPREME COURT HELD AS UNDER : HELD, REVERSING THE DECISION OF THE HIGH COURT, ON T HE FACTS, THAT IN REACHING THE CONCLUSION THAT OUT OF THE CAPIT AL OF RS. 3,33,414 CREDITED IN THE BOOKS OF THE ASSESSEE ON MARCH 30, 1948, ASSETS OF THE VALUE OF RS. 2,33,414 REPRESENT ED UNDISCLOSED INCOME OF THE ASSESSEE, THE TRIBUNAL ACTED WITHOUT ANY MATERIAL OR IN ANY EVENT, THE FINDING OF FACT REA CHED BY THE TRIBUNAL WAS UNREASONABLE OR SUCH THAT NO PERSON AC TING JUDICIALLY OR PROPERLY INSTRUCTED AS TO THE RELEVANT LAW COULD COME TO SUCH A FINDING. THE BUSINESS CARRIED ON BY T HE ASSESSEE AT LAHORE WAS A REASONABLY LARGE BUSINESS T HOUGH ITS EXTENT COULD NOT BE VERIFIED BY ANY RELIABLE MATERIAL PRODU CED BY THE ASSESSEE ; THERE WAS NO MATERIAL ON WHICH IT COULD BE SAID THAT THE ORNAMENTS, JEWELLERY AND CASH BROUGHT BY TH E ASSESSEE AND KEPT IN THE SEALED TRUNK WERE OF THE V ALUE OF ONLY RS. 1,00,000 AND NO MORE THE FACT THAT THE ASSESSEE DID NOT PAY INCOME-TAX AT LAHORE COULD NOT HAVE MUCH VALUE IN VI EW OF THE REMITTANCES OF MONIES AND THE DEPOSIT OF THE SEALED TRUNK IN THE BANK; THE ANSWERS GIVEN BY R BEFORE THE TRIBUNAL TO THE INFORMAL QUESTIONS PUT TO HIM COULD NOT BE RELIED UPO N FOR COMING TO ANY CONCLUSION ADVERSE TO THE ASSESSEE IN VIEW OF THE PROCEDURE PRESCRIBED BY RULES 29, 30 AND 31 OF THE A PPELLATE TRIBUNAL RULES, 1946, AND THEY COULD NOT FORM PART OF THE RECORD ; AND NO ADVERSE INFERENCE COULD BE DRAWN AG AINST THE ASSESSEE FROM THE FACT OF NON-DISCLOSURE OF THE ASSE TS DESPITE THE PRESS NOTE OF THE GOVERNMENT OF INDIA. FURTHER , THE UTTER 12 IMPROBABILITY AMOUNTING ALMOST TO IMPOSSIBILITY OF THE ASSESSEE HAVING EARNED SUCH A LARGE AMOUNT OF RS. 2,33,414/- AS PROFIT WITHIN A FEW MONTHS IN THE DISTURB ED CONDITIONS WHICH THEN PREVAILED IN INDIA WAS A CIRCUMSTAN CE WHICH OUGHT TO HAVE BEEN TAKEN INTO ACCOUNT BY THE TR IBUNAL AND THE TRIBUNAL HAD FAILED TO DO SO. 13. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF THE ABOVE DECISIONS, IT IS CLEAR THAT IN THE ASSESSMENT YEAR UNDER APPEAL, ASSESSEE HAS NOT COMMENCED ANY BUSINE SS ACTIVITY BUT WAS IN THE PROCESS OF INSTALLING THE P LANT FOR MANUFACTURING. ALL THE PRE-OPERATIVE EXPENSES WERE CAPITALIZED. THE ASSESSEE HAS TAKEN CASH CREDITS F ROM 64 PERSONS OUT OF WHICH 53 PERSONS WERE PRODUCED BEFOR E ASSESSING OFFICER AND THEIR STATEMENTS HAVE BEEN RE CORDED ON OATH IN WHICH THEY HAVE CONFIRMED TO HAVE ADVA NCED LOANS TO THE ASSESSEE FROM THEIR SOURCES. IN ALL T HESE CASES, CONFIRMATIONS, AFFIDAVITS, INCOME TAX PROOF AND SOME OF THE BANK ACCOUNTS WERE FILED. THE LD. COUN SEL FOR THE ASSESSEE RELIED UPON SEVERAL DECISIONS IN SUPPO RT OF THE CLAIM THAT ON THE BASIS OF THESE DOCUMENTS AND EXAMINATION OF THE CREDITORS BY THE ASSESSING OFFIC ER, ASSESSEE HAS PROVED THE CREDIT WORTHINESS OF THE CR EDITORS AND GENUINENESS OF THE TRANSACTIONS IN THE MATTER. IN THE CASES OF 35 PERSONS, LOANS HAVE BEEN RETURNED AFTER TDS AND IN SOME CASES, FORM NO. 15H WAS FILED WHERE NO TAX HAVE BEEN DEDUCTED. SINCE NO BUSINESS ACTIVITY HAV E COMMENCED IN THE YEAR UNDER CONSIDERATION AND THE COMMERCIAL PRODUCTION STARTED ON 11.04.2006 WOULD 13 CLEARLY PROVE ON RECORD THAT ASSESSEE WAS AT PRE-OP ERATIVE STAGE I.E. FOR INSTALLING THE PLANT FOR THE PURPOSE OF MANUFACTURING. THEREFORE, BOTH THE DECISIONS IN TH E CASES OF BHARAT ENGINEERING & CONSTRUCTION CO. AND ROSHAN DI HATTI (SUPRA) WOULD SQUARELY APPLY IN FAVOUR OF THE ASSESSEE AND WOULD ;PROVE THAT ASSESSEE HAS NOT EAR NED ANY UNDISCLOSED INCOME SO AS TO MAKE ADDITION UNDER SECTION 68 OF INCOME TAX ACT. 13(I) IN THE CASE OF BHARAT ENGINEERING & CONSTR UCTION CO. (SUPRA), THE ASSESSEE COMMENCED BUSINESS IN MAY , 1943 AND AFTER COMMENCEMENT OF THE BUSINESS, THE ASSESSEE HAS TAKEN LOANS FROM 01.06.1943 TO 15.03.1 944 I.E. DURING 11 MOTHS FROM MAY, 1943 TO MARCH,1944. IN THE CASE OF ROSHAN DI HATTI, THE KARTA OF THE HUF H AD SHIFTED FROM LAHORE TO DELHI IN JUNE 1947 AND START ED ITS BUSINESS ON 30.03.1948 I.E. AFTER A GAP OF 9 MONTHS . HOWEVER, IN THE CASE OF ASSESSEE, SINCE NO BUSINESS ACTIVITIES HAVE COMMENCED AND EVEN COMMERCIAL PRODUCTION STARTED IN NEXT ASSESSMENT YEAR, WOULD C LEARLY PROVE THAT THE ASSESSEE FIRM WOULD NOT HAVE EARNED A HUGE INCOME/PROFIT AT THE PRE-OPERATIVE STAGE I.E. INSTA LLATION OF THE PLANT, THEREFORE, IT HAS TO BE REASONABLY ASSUM ED THAT CASH CREDIT ENTRIES REPRESENTED CAPITAL RECEIPTS. WHEN THE ASSESSEE WAS IN THE PROCESS OF INSTALLING THE PLANT , IT WOULD BE IMPOSSIBLE FOR THE ASSESSEE TO EARN SUCH A HUGE PROFIT IN THE NAME OF UNEXPLAINED CASH CREDITS. TH EREFORE, THE RATIO OF BOTH THESE DECISIONS WOULD SQUARELY AP PLY TO 14 THE FACTS AND CIRCUMSTANCES OF THE CASE. THE ASSES SEE MANUFACTURING FIRM ON THE BASIS OF THE ABOVE ADMITT ED FACTS, WOULD TAKE TIME TO EARN PROFIT AND IT COULD NOT HAVE EARNED HUGE PROFIT OR UNDISCLOSED INCOME BEFORE COMMENCEMENT OF ITS BUSINESS/PRODUCTION. IT WOULD BE REASONABLE TO HOLD THAT THESE CASH CREDIT ENTRIES REPRESENTED CAPITAL RECEIPT AS IS HELD BY THE HON'B LE SUPREME COURT IN THE CASE OF BHARAT ENGINEERING & CONSTRUCTION CO. (SUPRA). THE AUTHORITIES BELOW OU GHT TO HAVE TAKEN INTO CONSIDERATION THAT IT WAS IMPOSSIBL E FOR THE ASSESSEE FIRM TO HAVE EARNED SUCH A HUGE UNACCO UNTED INCOME/PROFIT BEFORE START OF ITS MANUFACTURING ACT IVITIES. MAY BE DOCUMENTARY EVIDENCES ON RECORD WERE NOT ACCEPTABLE TO AUTHORITIES BELOW BUT IT WOULD NOT PR OVE ASSESSEE FIRM EARNED UNDISCLOSED INCOME PRIOR TO COMMENCEMENT OF BUSINESS ACTIVITIES. 14. AS REGARDS THE ADDITION ON ACCOUNT OF 11 CREDIT ORS WHO HAVE NOT APPEARED BEFORE AUTHORITIES BELOW FOR EXAMINATION ON OATH, THE ASSESSEE VIDE LETTER DAT ED 24.11.2008 REQUESTED THE ASSESSING OFFICER TO ENFOR CE THEIR ATTENDANCE FOR THEIR EXAMINATION ON OATH AN D REQUESTED TO ISSUE SUMMONS AGAINST THEM UNDER SECTI ON 131 OF THE INCOME TAX ACT BUT THE ASSESSING OFFICER DID NOT ISSUE ANY SUMMON UNDER SECTION 131 AND PROCEEDE D TO DECIDE THE CASE ON THE BASIS OF MATERIAL ON RECORD. 14(I) HON'BLE MADHYA PRADESH HIGH COURT IN THE CASE OF CIT V RAMESH CHANDER SHUKLA 10 ITJ 286 HELD THAT IT IS 15 NOW WELL SETTLED THAT WHERE THE ASSESSEE REQUEST TH E ASSESSING OFFICER TO ISSUE SUMMONS, TO ENFORCE ATTE NDANCE OF THE CREDITORS TO ESTABLISH THE GENUINENESS AND C APACITY OF THE CREDITORS, IT IS DUTY OF THE ASSESSING OFFIC ER TO ENFORCE ATTENDANCE OF THE CREDITORS BY ISSUING SUMM ONS. IF THE ASSESSING OFFICER DOES NOT CHOOSE TO ISSUE SUMM ONS AND EXAMINE THE CREDITORS, HE CANNOT SUBSEQUENTLY T REAT THE LOAN STANDING IN THE NAME OF SUCH CREDITORS AS NON GENUINE. SIMILAR VIEW TAKEN BY HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF MANNA LAL MURLIDHAR 79 ITR 540 AND RADHE SHAM JAGDISH PRASHAD 117 ITR 186 IN WHICH IT WAS HELD WHEN ASSESSING OFFICER REFUSE TO SUMMON CREDITORS ON REQUEST OF THE ASSESSEE, IT WOULD VITIATE THE AS SESSMENT PROCEEDINGS. THEREFORE, ASSESSING OFFICER WAS NOT JUSTIFIED IN DRAWING ANY ADVERSE INFERENCE AGAINST ASSESSEE IN RESPECT OF THESE 11 CREDITORS AGAINST W HOM, ASSESSING OFFICER HAS FAILED TO ISSUE SUMMONS FOR T HEIR EXAMINATION. 15. CONSIDERING THE FACTS OF THE CASE, IT IS CLEAR THAT NO ADDITION ON ACCOUNT OF UNEXPLAINED CREDIT COULD BE MADE AGAINST THE ASSESSEE OF THE AFORESAID SUM BECAUSE ASSESSEE WAS IN THE PROCESS OF INSTALLING THE PLANT AND HAS NOT COMMENCED ANY BUSINESS ACTIVITIES. THEREFO RE, THERE IS NO NEED TO DISCUS ALL THE EVIDENCES IN DET AIL ON RECORD FOR THE PURPOSE OF EXAMINING THE CREDIT WORT HINESS OF THE CREDITORS AND GENUINENESS OF THE TRANSACTION IN THE 16 MATTER IN THE LIGHT OF THE CASE LAWS RELIED UPON BY LD. COUNSEL FOR THE ASSESSEE. 16. IN VIEW OF THE ABOVE DISCUSSION, WE DO NOT FIND ANY JUSTIFICATION TO SUSTAIN THE ADDITION UNDER SECTION 68 OF THE INCOME TAX ACT AS IS MADE BY THE ASSESSING OFFI CER AND CONFIRMED BY THE LD. CIT(APPEALS). WE, ACCORDI NGLY, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND D ELETE THE ADDITIONS OF RS. 1,00,10,664/- AND RS. 19,55,00 0/-. 17. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ITA 463/2011 : A.Y. 2007-08 18. IN THIS APPEAL, ASSESSEE CHALLENGED THE ADDITIO N OF RS.1,40,83,465/- UNDER SECTION 68 OF THE INCOME TAX ACT. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSESSEE FILED RETURN OF INCOME DECLARING NIL INCOME. THE CASE W AS SELECTED FOR SCRUTINY ASSESSMENT. THE ASSESSING OF FICER ON PERUSAL OF THE LIST OF UNSECURED CREDITORS/LOANS AS ON 31.03.2007, NOTICED THAT TOTAL AMOUNT OF RS. 2,14,90,869/- WAS SHOWN TO BE RAISED AS UNSECURED L OANS FROM 87 PERSONS AS COMPARED TO S.1.38 CR FROM 68 PE RSONS AS ON 31.03.2006. THE ASSESSEE WAS ASKED TO PROVE IDENTITY OF THE CREDITORS, THEIR CREDIT WORTHINESS AND GENUINENESS OF THE TRANSACTION IN THE MATTER. THE ASSESSING OFFICER, AFTER EXAMINING THE FACTS AND DE TAILS OF ALL THE CREDITORS, OBSERVED THAT THERE HAS NOT BEEN ANY CHANGE AT ALL IN THE CIRCUMSTANCES DURING THE CURRE NT 17 YEAR. THE ASSESSING OFFICER FOUND EXPLANATION OF A SSESSEE NOT SATISFACTORY. ACCORDING TO THE LIST A OF THE CREDITORS WHO HAVE GIVEN LOANS TO THE ASSESSEE IN PRECEDING ASSESSMENT YEAR 2006-07 ALSO WERE FOUND TO BE SAME. THE ASSESSEE RAISED ADDITIONAL LOANS FROM THEM. THE ASSESSING OFFICER NOTED THAT FINDINGS HAVE ALREADY BEEN GIVEN AGAINST THEM IN ASSESSMENT YEAR 2006-07, THER EFORE, AFTER DISCUSSING THE SAME, THE ASSESSING OFFICER FO UND THAT ASSESSEE HAS FAILED TO PROVE GENUINE CREDIT IN THE MATTER. THE TOTAL AMOUNT OF SO CALLED LOANS FROM T HESE PERSONS COME TO RS. 17,15,000/- AND INTEREST PAID/PAYABLE IS RS.5,64,392/-. ACCORDINGLY, ADDITI ON OF RS. 22,79,392/- WAS MADE. AS PER B LIST, ASSESSI NG OFFICER NOTICED THAT ASSESSEE HAS RAISED LOANS FROM 38 PERSONS AMOUNTING TO RS. 80,30,000/-. THE ASSESSIN G OFFICER DID NOT ACCEPT EXPLANATION OF THE ASSESSEE AND ALSO DISALLOWED INTEREST OF RS. 7,70,560/- AND MADE ADDI TION OF RS. 88,00,560/-. SIMILARLY, AS PER LIST C WHEN T HE LOAN RAISED FROM 30 PERSONS AMOUNTING TO RS. 67,03,163/- WAS RAISED. THE ASSESSING OFFICER WAS NOT SATISFIED WI TH THE REPLY AND ALSO DISALLOWED INTEREST AMOUNTING TO RS. 8,13,245/-. FURTHER, AS PER LIST D' ASSESSEE HAD SQUARED UP LOANS FROM 12 PERSONS DURING THE YEAR AMOUNTING TO RS. 10,80,000/-. SINCE DETAILS OF THE ABOVE HAVE NO T BEEN EXPLAINED, ASSESSING OFFICER MADE ADDITION OF RS. 12,79,344/- WHICH INCLUDES INTEREST OF RS. 1,99,344 /-. THE ASSESSING OFFICER ALSO DISALLOWED PREOPERATIVE EXPENSES IN A SUM OF R. 9,10,824/-. THE LD. CIT(AP PEALS) 18 ON THE SAME REASONING AS HAVE BEEN GIVEN IN PRECEDI NG ASSESSMENT YEAR 2006-07, CONFIRMED THE ADDITION AND DISMISSED APPEAL OF THE ASSESSEE. 19. THE SUBMISSIONS OF BOTH THE PARTIES ARE SAME AS HAVE BEEN MADE IN PRECEDING ASSESSMENT YEAR 2006-07 . THE LD. COUNSEL FOR THE ASSESSEE HAS, HOWEVER, EXPL AINED FURTHER THAT SINCE THE PRODUCTION AND BUSINESS ACTI VITY OF THE ASSESSEE HAS STARTED ON 11.04.2006 AND LOANS HA VE BEEN TAKEN FROM APRIL, 2006 TO OCTOBER, 2006, THERE FORE, THE DECISION OF THE SUPREME COURT IN THE CASE OF BH ARAT ENGINEERING & CONSTRUCTION CO. (SUPRA) WOULD ALSO A PPLY TO THE FACTS AND CIRCUMSTANCES. HE HAS FILED SUMMAR Y OF THE LOAN TAKEN IN EACH MONTH WHICH READS AS UNDER : S . NO. PARTICULARS AMOUNT (IN RS.) 1 UP TO 11. 04.2006 25,05,000.00 2 LOANS TAKEN IN APRIL 2006 51,40,000.00 (INCLUSIVE OF RS. 25,05,000) 3. LOANS TAKEN IN MAY 2006 4,25,000.00 4. LOANS TAKEN IN JUNE 2006 23,75,000.00 5. LOANS TAKEN IN JULY 2006 9,75,000.00 6. LOANS TAKEN IN AUGUST 2006 18,30,000.00 7. LOANS TAKEN IN SEPTEMBER 2006 5,30,000.00 8. LOANS TAKEN IN OCTOBER 2006 1,50,000.00 20. AFTER CONSIDERING RIVAL SUBMISSIONS, WE ARE OF THE VIEW THE ISSUE IS SAME AS HAVE BEEN CONSIDERED IN PRECEDING ASSESSMENT YEAR 2006-07, EXCEPT THAT IN T HE YEAR UNDER CONSIDERATION, THE ASSESSEE STARTED COMM ERCIAL 19 PRODUCTION OF THE UNIT AND HAS THEREFORE, STARTED B USINESS ACTIVITIES ON 11.04.2006. THE ASSESSEE HAS TAKEN L OANS FROM APRIL, 2006 TO OCTOBER,2006 AS PER THE SUMMARY OF THE LOAN FILED BY LD. COUNSEL FOR THE ASSESSEE AND REPRODUCED ABOVE. THE SAME IS SUPPORTED BY THE COM PLETE DETAILS OF LOANS RECEIVED DATE-WISE IN THE YEAR UND ER CONSIDERATION. IT IS, THEREFORE, CLEAR THAT ASSESS EE HAS RAISED ABOVE LOANS DURING SIX MONTHS FROM THE DATE OF COMMENCEMENT OF THE PRODUCTION AND BUSINESS I.E. FR OM MAY,2006 TO OCTOBER, 2006. IN THE CASE OF BHARAT ENGINEERING & CONSTRUCTION CO. (SUPRA) THE LOANS/CA SH CREDITS WERE TAKEN AFTER COMMENCEMENT OF THE BUSINE SS IN MAY, 1943 UPTO 15.03.1944 I.E. 11 MONTHS AND ADDITI ONS HAVE BEEN DELETED. SIMILARLY, IN THE CASE OF ROSHA N DI HATTI, THERE WAS A GAP OF ABOUT 9 MONTHS FROM TRANS FER FROM LAHORE TO DELHI AND COMMENCEMENT OF THE BUSINE SS. HON'BLE SUPREME COURT IN THIS CASE HELD THAT FURTHER, THE UTTER IMPROBABILITY AMOUNTING ALMOST TO IMPOSSIBILI TY OF THE ASSESSEE HAVING EARNED SUCH A LARGE AMOUNT OF RS. 2,33,414/- AS PROFIT WITHIN A FEW MONTHS IN THE DIS TURBED CONDITIONS WHICH THEN PREVAILED IN INDIA, WAS THE CIRCUMSTANCES WHICH OUGHT TO HAVE BEEN TAKEN INTO A CCOUNT BY THE TRIBUNAL AND THE TRIBUNAL HAD FAILED TO DO S O. 21. CONSIDERING THE ISSUE IN THE LIGHT OF DISCUSSIO N MADE IN ASSESSMENT YEAR 2006-07, WE FIND THAT THE I SSUE IS IDENTICAL AND IS SQUARELY COVERED BY ABOVE JUDGE MENTS OF THE HON'BLE SUPREME COURT REFERRED TO ABOVE. WE , 20 THEREFORE, DO NOT PROPOSE TO REFER THE DOCUMENTARY EVIDENCES ON RECORD WHICH WERE FILED IN SUPPORT OF CREDIT WORTHINESS AND GENUINENESS OF TRANSACTION IN THE MA TTER. WE, THEREFORE, FOLLOWING REASONS FOR DECISION IN ASSESSMENT YEAR 2006-07, SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND DELETE THE ADDITION OF RS. 1,40,83,465/-. 22. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. 23. IN THE RESULT, BOTH APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (RANO JAIN) (BHAVNES H SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 21 ST OCT., 2015. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR ASSISTANT REGISTRAR, ITAT/CHD