THE ACIT, 5(1), Indore V. M/s. Swastik Coal Corporation Pvt. Ltd., Indore

ITA 229/IND/2017

AI Insights

The case involves the Income Tax Department (Revenue) appealing against the order of the Commissioner of Income Tax (Appeals) which had partially relieved M/s Swastik Coal Corporation Pvt. Ltd. from certain disallowances and additions made by the Assessing Officer (AO) under sections 14A and 68 of the Income Tax Act. The Tribunal examined issues related to the calculation of disallowances under section 14A, the treatment of unexplained share capital and share premium, and discrepancies in creditor balances. The Tribunal found that the CIT(A) had not adequately verified the facts and evidence presented, leading to the decision to remand the matter back to the AO for a detailed examination.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 130526 (ITAT-INDORE)
• Duration Of Justice: 6 year(s) 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2023
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 07-08-2023
• Assessment Year: 2012-2013
• Appeal Filed On: 22-03-2017
• Other Referred Cases: Shankar Industries vs. CIT, CIT vs. Precision Finance Pvt. Ltd.
• Laws Referred To: Income Tax Act, Rule 8D of the Income Tax Rules 1962
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Bogus Share capital; Opportunity of being heard; Earning of tax free income; Additional evidence; Onus to prove; Rule 8D; Set aside
• Section: 68; 14A; 133(6); 143(2); 208; 13

Judgement Text

Page 1 of 19 आयकर अपील य अ धकरण, इंदौर यायपीठ, इंदौर IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI B.M. BIYANI, ACCOUNTANT MEMBER ITA No.229/Ind/2017 (Assessment Year:2012-13) ACIT 5(1) Indore Vs. M/s Swastic Coal Corporation Pvt. Ltd. 21/3 Swastik House, Ratlam Kothi, Indore (Appellant / Revenue) (Respondent/ Assessee) PAN:AABCJ3196N Revenue by Shri P.K. Mishra, CIT-DR Respondent by Shri Vijay Bansal & Ms. Nisha Lahoti, ARs Date of Hearing 08.08.2023 Date of Pronouncement 12.09.2023 O R D E R Per Vijay Pal Rao, JM: This appeal by the Revenue is directed against the order dated 23.12.2016 of Commissioner of Income Tax(Appeals), for Assessment Year 2012-13. The revenue has raised following grounds of appeal: “1.Whether on facts and circumstances of the case, the Ld. CIT(A) was justified in restricting the disallowance u/s 14A of I.T. Act from Rs. 40,37,121/- to Rs. 6,84,471/-. 2. Whether the Ld. CIT(A) was justified in calculating disallowance u/s 14A in the ratio of exempt to taxable income while legislature has provided unambiguous and clear formula to calculate such disallowance under rule 8D. ITA No.229/Ind/2017 M/s. Swastik Coal Corporation Pvt. Ltd. Page 2 of 19 Page 2 of 19 3. Whether disallowance u/s 14A calculated as per Rule 8D, can further be apportioned in the ratio of exempt and taxable income to calculate disallowance u/s 14A. 4. Whether disallowance u/s 14A calculated as per Rule 8D can be treated as expenditure in earning taxable and exempt income. 5. Whether on facts and circumstances of the case, the Ld. CIT(A) was justified in deleting addition of Rs. 10,00,00,000/- u/s 68 on account of unexplained share capital and share premium. 6. Whether on facts and circumstances of the case, the Ld. CIT(A) was justified in deleting of Rs. 2,99,75,867/- on account of creditors as the assessee company could not reconcile the difference of credit balance of creditors despite of giving sufficient opportunity and reasonable time while passing assessment order. 7. Whether on facts and circumstances of the case, the Ld. CIT(A) was justified in allowing appeal on account of non-reconciled amount of creditors on the assessee company without asking the remand report from the concerned AO in pursuance the additional evidences furnished by the assessee company and not following the provision of Rule 46A of the I.T. Rules 1962.” 2. Ground No.1 to 4 are regarding disallowance made by the AO u/s 14A which was deleted by the CIT(A). 2.1 Ld. DR has submitted that the assessee company has received share in the profit of partnership firm which is exempt. However the assesse has not made any disallowance u/s 14A of the Act. The AO has made disallowance in respect of the interest expenditure by considering the total interest paid by the assesse as well as the average investment and average total assets. Further the AO has also computed the disallowance of administrative expenses @ 0.5% of the average investments in terms of Rule 8D of the Income Tax Rules. The AO has considered the average investment in the partnership firm of Rs.4,60,66,410/- while making disallowance. The Ld. CIT(A) has deleted the disallowance by applying formula which is not provided in Rule 8D. He has referred to the finding of the Ld. CIT(A) in para 3.5 and submitted that method applied by the Ld. CIT(A) is stranger to the provisions of Income Tax Act. He has relied upon the order of the AO. ITA No.229/Ind/2017 M/s. Swastik Coal Corporation Pvt. Ltd. Page 3 of 19 Page 3 of 19 3. On the other hand, Ld. AR has submitted that the assesse company has received income from partnership firm M/s Ganpatlal Onkarlal Agrawal and Company both share in profit of Rs.13,10,607/- and interest income of Rs.2,00,78,816/- which is taxable. Thus, the Ld. AR has submitted that the taxable income received from the investment in partnership firm is more than 15 times than the exempt income earned by the assesse from the partnership firm. He has pointed out that the Ld. CIT(A) granted partial relief and sustained the balance disallowance to the extent of Rs.6,84,471/- by following decision of this Tribunal in assesse’s own case for A.Ys.2009-10 to 2011-12. The said decision of the Tribunal has been upheld by Hon’ble jurisdictional High Court reported (2014) 23 TTJ 59(MP). 4. We have considered the rival submissions as well as relevant material on record. The AO made disallowance u/s 14A by considering interest paid by the assesse without taking into account the interest received by the assessee on the investment in the partnership firm. During the course of assessment proceedings the assessee furnished working of disallowance u/s 14A r.w. Rule 8D which is placed at page no.37 of the paper book. The AO after considering the said working of the assessee has made the disallowance by taking closing balance of investment at Rs.7,20,56,114/-. Thus, the AO has considered the investment as on 31.03.2012 by taking only capital investment in partnership firm without taking further additions to the capital account of the assessee with the partnership firm which is shown by the assessee in the calculation at page no.37 of Rs.9,18,34,914/-. Therefore, these two different amounts of investments are required to be reconciled and to find out what is the correct amount of contribution to the capital account and what is the loan given to the partnership firm. Even otherwise the interest on the loan given to the partnership firm cannot be considered as investment in partnership firm for the purpose of disallowance u/s 14A. Therefore, the correct facts are required to be examined and considered for making disallowance u/s 14A of the Act. Accordingly in the facts and ITA No.229/Ind/2017 M/s. Swastik Coal Corporation Pvt. Ltd. Page 4 of 19 Page 4 of 19 circumstances of the case the impugned order of the Ld. CIT(A) is set aside and the matter is remanded to the record of the AO for proper verification and examination of the facts regarding earning of the exempt as well as taxable income from investment made in the partnership firm and further to ascertain the amount of loan given to the partnership firm on which the interest is earned by the assesse which shall be excluded from the investment as well as income while computing disallowance u/s 14A of the Act. Needless to say the assessee be given appropriate opportunity of hearing before passing afresh order. 5. Ground no.5 is regarding the addition made u/s 68 of the Act on account of unexplained share capital and premium. 6. Ld. DR has submitted that during the year under consideration the assesse has claimed to have received share capital of Rs.10 crores which includes face value of the shares with premium received. The AO asked the assessee to furnish the details and information regarding the share capital and premium received from parties with their PAN, address confirmation, bank account statement, return of income to prove the identity, creditworthiness of the parties and genuineness of the transactions. The AO also issued commission u/s 131(1)(d) to Kolkata and Mumbai office of the Investigation Wing of the department for conducting the inquiry about the share applicants company. The AO received report from Mumbai Investigation Wing wherein very serious and incriminating findings about the genuineness of these companies are given and entire transactions which are being claimed as receipt of share capital and premium are questioned by the report of the investigation wing in response to the commission issued u/s 131(1)(d) of the Act. Further the AO also verified the financial details of share applicant companies and found that there is no business activity carried out by these companies. These are only paper companies used for providing accommodation entries/paper transactions. ITA No.229/Ind/2017 M/s. Swastik Coal Corporation Pvt. Ltd. Page 5 of 19 Page 5 of 19 6.1 Ld. DR has submitted that as per the details reproduced by the AO in the assessment order there is nil revenue from the operations consistently for last 4, 5 years. Ld. DR has submitted that neither there is any revenue nor any income nor any administrative expenses are shown in the financial statements of share applicant companies but huge security premium is shown in the books. Further the two applicant companies namely M/s Aryadeep Ispat Pvt. Ld. & M/s Ashyana Steel Pvt. Ltd. came into existence only in January 2012 then how an investment in the shares of the assessee company was made by these newly set up companies within the period of one month from incorporation. The AO has relied upon the judgment of Hon’ble Kolkata High court in case of Shankar Industries vs. CIT 114 ITR 689 as well as in case of CIT vs. Precision Finance Pvt. Ltd. 208 ITR 465. The Ld. CIT(A) has deleted the addition without verifying the creditworthiness and genuineness of the transactions. Ld.DR has submitted that no bank account statement has been filed by the assesse to show the genuineness of the transactions and the capacity of the investor companies. He has pointed out that Kolkata Investigation wing issued summons to two companies based at Kolkata namely Bishwnadevi Marketing Pvt. Ltd. & M/s Dhankiran Marketing Pvt. Ltd. having a common address at Kolkata. But there is no response on behalf of these companies to the summons issued by the investigation wing Kolkata functioning as commission issued by AO u/s 131(1)(d) of the Act. The AO conducted due inquiry and found that these are only paper companies without having any business or income from business operations. He has relied upon the order of the Assessing officer. 7. On the other hand, Ld. AR has submitted that so far as the identity of the companies are concerned the AO himself given financial statements of the investor companies and further the AO has recorded the fact that two companies came into existence in January 2012. Therefore, the identity of these companies cannot be disputed. The Ld. AR has submitted that notice issued by the investigation wing Kolkata under the ITA No.229/Ind/2017 M/s. Swastik Coal Corporation Pvt. Ltd. Page 6 of 19 Page 6 of 19 commission issued by the AO were received back unserved and therefore, there was no response to those notices. The bank statement of all investor companies were already on record and the source of making investment is evident from the statements at page no.80,113,114,148 & 181 of the paper book. The AO has not reproduced the report of the investigation wing Bombay in response to the commission issued by the AO u/s 131(1)(d) of the Act but the report of the DDIT Investigation, Kolkata only is reproduced in the assessment order based on which the AO has drawn an adverse inference without carrying out any independent/further enquiry. Ld. AR has submitted that so far as two investor companies based at Mumbai the representatives attended in person and submitted the desired documents and information and the AO has made no reference about report from Investigation Wing Mumbai. 7.1 He has further pointed out that for remaining two companies situated at Kolkata, personal attendance was sought by the AO but the same could not be given to due to preoccupancy of the concern officer. He has referred to the letter dated 25.03.2015 and 13.03.2015 at page no.182 & 183 of the paper book. Thus, Ld. AR has submitted that even these two companies have made their best efforts to attend office of the Investigation Wing Kolkata but whenever they visited the office of the Investigation Wing, Kolkata they were not entertained. Even the investor companies were also busy in their own assessment proceedings pending at that point of time. He has referred to the notice issued u/s 143(2) in the case of investor companies. Ld. AR has pointed out that the assessee produced the relevant documents, such as offer letter, acceptance letter, bank statement, Board Resolution passed by both assessee and by four investor companies. The assesse also produced the forms filed in the office of registrar of companies regarding the board resolution. He has further pointed out that it is not practically possible for companies based at Kolkata & Mumbai to provide all the details. This fact is also corroborated from report of the DDIT, Investigation Kolkata reproduced in the assessment order wherein it is specifically stated by the concerned officer ITA No.229/Ind/2017 M/s. Swastik Coal Corporation Pvt. Ltd. Page 7 of 19 Page 7 of 19 that proper verification of identity, genuineness and creditworthiness of the investor companies and also the verification of the said share transaction including large share premium as requested were not done within a short span of time. He has referred to the return of income filed by other two companies namely Vishwnadevi Marketing Pvt. Ltd and Dhankiran Marketing Private Ltd. and submitted that these companies have shown revenue of Rs.2,33,161/- & Rs.28,607/-. Thus, when the transactions are through banking channel and investment is made from the available funds with the investor companies then the addition made by the AO is not justified as the assessee discharged its onus to prove identity of the companies, capacity of these companies and genuineness of the transactions. Ld. AO has not brought any contrary material on record to show that the assessee’s on money has routed back in the shape of share capital and share premium. He has supported the impugned order of the Ld. CIT(A). 7.2 Ld. AR has also filed the financial statements of four investor companies in the shape of paper book no.-II 8. We have considered the rival submissions as well as relevant material on record. During the year under consideration the assesse has received the share application money of Rs.10 crore including share capital and share premium from four share applicant companies. The details of which are given by the AO in para 3.3 of the assessment order as under: Name Address & PAN of the Share applicant Total share capital in Rs. Bishwnadevi Marketing Pvt. Ltd.Current Address- 329, Antifill Warehousing Complex Ltd., VIT College Road, Wadala, Mumbai- 400037 Old Address- 85, Metcalfe Street, Kolkata-700013 20500000/- ITA No.229/Ind/2017 M/s. Swastik Coal Corporation Pvt. Ltd. Page 8 of 19 Page 8 of 19 PAN-AADCB4287C Dhankiran Marketing Pvt. Ltd.Current Address- 329, Antifill Warehousing Complex Ltd., VIT College Road, Wadala, Mumbai- 400037 Old Address- 85, Metcalfe Street, Kolkata-700013 PAN-AACCD8660Q 45000000 Aryadeep Ispat Pvt. Ltd. Address: 7/1A Grant Lane, 2nd floor, Kolkata-700012 PAN- AAKCA2391P 20000000 Ashyana Steel Pvt. Ltd. Address 7/1A Grant Lane 2 nd Floor, Kolkata-700012 PAN-AAKCS 2386E 14500000/- 8.1 The assessing officer has given the details of revenue/sale in respect of two Mumbai based companies namely M/s Bishwnadevi Marketing Pvt. Ltd. & M/s Dhankiran Marketing Pvt. Ltd. in para no.3.6 as under: Name of Company Financial year Revenue from operation/turnover Returned icome M/s Bishwnadevi Marketing Pvt. 2011-12 NIL Rs.9360 2010-11 NIL Rs.8210 2009-10 NIL Rs.5710 2008-09 NIL NA ITA No.229/Ind/2017 M/s. Swastik Coal Corporation Pvt. Ltd. Page 9 of 19 Page 9 of 19 M/s Dhankiran Marketing Pvt. Ltd 2011-12 NIL Rs.580 2010-11 NIL Rs.5720 2009-10 NIL Rs.7340 2008-09 NIL NA 8.2 As it is clear from above details that there is no revenue from the operations and the income shown in the return of income by these two companies appears to be only small interest amount and this is consistently for last four financial years from 2008-09 to 2011-12. These details itself cast serious doubt about the capacity of these companies to make huge investments in the shares of assessee. Similarly the AO has given the details from return of income of other two companies based at Kolkata in para 3.13 as under: Name of Company Financial year Revenue from operation /turnover Returned income Security Premium Rs. Administrat ive expenses Aryadeep Ispat Pvt. Ltd. PAN- AAKCA2391P 7/1A Grant Lane, 2nd floor, Kolkata 2011-12 NIL NIL 10,15,48,350 Nil Ashyana Steel Pvt. Ltd. PAN-AAKCS 2386E 7/1A Grant Lane 2 nd Floor, Kolkata-700012 2011-12 NIL NIL 11,17,94,075 NIL ITA No.229/Ind/2017 M/s. Swastik Coal Corporation Pvt. Ltd. Page 10 of 19 Page 10 of 19 8.3 Since these companies were incorporated in the month of January 2012 therefore, there could not be any financial statements or record of the business operations however these two companies have shown the huge amount of security premium. Considering all these facts it was incumbent upon the assesse to establish the capacity of these investor companies and genuineness of the transactions. Further the assesse is a Pvt. Ltd. company and therefore, the investment by any person in Pvt. Ltd. company is based on the personal relations with the owners and management of the company and more so when the investment is made at premium of Rs.90 per share of face value of Rs.10/-. Ld. AR has filed the financial statements of these companies which also shows that there is nil revenue from operations so far as these companies namely M/s Aryadeep Ispat Pvt. Ld. And M/s Ashyana Steel Pvt. Ltd. are concerned. Only reserves and surplus is shown in the balance sheets which represents share premium. Further the shareholding in these two Kolkata based companies are in the name of two persons in the ratio of 48.68% each. It is pertinent to note that after these investments by these four investor companies the existing promoter of the assesse company became minority shares holders and therefore, the assesse cannot take excuse or plea that due to the investor company based at Kolkata & Mumbai the requisite details and documentary evidences could not be furnished. When the transactions are between the Pvt. Ltd. companies involving the investment in the shares with huge premium of 9 times of the face value of the share then it requires a deeper investigation as how the funds have come and particularly the moments of the funds in the bank accounts of these investor companies. If these are genuine investments made by these companies then they must be continuous holding the major stake in the assessee company. Therefore, it is relevant and important to ascertain the status of the shareholding of the assessee company particularly the holding of the four investors companies in the subsequent years and ITA No.229/Ind/2017 M/s. Swastik Coal Corporation Pvt. Ltd. Page 11 of 19 Page 11 of 19 whether they are still the shareholders of the assesse company or already existed. In case they have already existed then who purchased their shares. All these facts are relevant in order to ascertain the genuineness of the transactions along with investigation and verification of other relevant record and particularly the financial statements of the investor companies and trail of money. 8.4 Having considered the above facts of the case we are of the considered view that the AO has conducted a due inquiry and did his best by issuing commission to the Investigation Wing at Mumbai and Kolkata for conducting necessary inquiry however, the reports suggest that due to time constrain a proper investigation could not be conducted. The onus is on the assessee to prove beyond doubt about the capacity of the investigating company and genuineness of the transactions. Accordingly, in the facts and circumstances of the case we set aside the impugned order of the Ld. CIT(A) qua this issue and remand the matter to the record of the AO for conducting proper verification and examination of the supporting evidence filed by the assesse as well as conducting independent inquiry if need arises. Needless to say the assessee be given appropriate opportunity of hearing before passing afresh order. 9. Ground no.6 is regarding the addition made on account of unexplained creditors which was deleted by the Ld. CIT(A). 10. The AO noted from the tax audit report and annexure thereto that the assesse has shown huge creditors as on 31.03.2012. The AO asked the assesse to furnish the information of the sundry creditors comprising of name, opening balance, closing balance, purchase, payments etc. The AO also issued notice u/s 133(6) of the Act and found that there is significant discrepancy in the closing balance shown by the assesse and the balance shown by the creditors. The assessee filed reconcile statements however, the AO noted that even after attempt to reconcile the difference still some of the creditors balance are remained non-reconciled. The details of which are given by the AO in para 4.3 are as under: ITA No.229/Ind/2017 M/s. Swastik Coal Corporation Pvt. Ltd. Page 12 of 19 Page 12 of 19 Name of Party After reconciling closing balance as shown by assesse as on 31.03.2012 Closing balance as per creditors as on 31.03.2012 Non- reconciled amount Remarks (as in reply dated 23.3.2015 of the assessee Gupta Coal India Pvt. Ltd. Nagpur AAACG4587B 1,68,71,415/- 74,01,545/- 94,69,870/- Reconciles to the tune of Rs.1,68,71,415 HJM Fuels Pvt. Ltd. Ahmedabad AACCH 4474Q 30,27,826/- Nil 30,27,826/- Non-reconciled R.S.M.M Ltd. Barmer, AAACR 7857H 9,86,154/- Not reconciled 9,86,154/- Unable to reconcile Godavari Commodities ltd. Kolkata AABCG 2253K 1,64,92,017/- Not reconciled 1,64,92,017/- Non-reconciled Total 2,99,75,867/- 10.1 After considering explanation of the assessee in respect of these four creditors balance discrepancy the AO made an addition of Rs.2,99,75,867/-. On appeal the Ld. CIT(A) deleted this addition by accepting explanation of the assesse. ITA No.229/Ind/2017 M/s. Swastik Coal Corporation Pvt. Ltd. Page 13 of 19 Page 13 of 19 11. Before the Tribunal the ld. DR has submitted that the AO has conducted inquiry by issuing notice u/s 133(6) to the creditors and found various discrepancies in the balance and outstanding amount as on 31.03.2012. He has referred to the finding of CIT(A) in para 5.1 & 5.2 and submitted that Ld. CIT(A) has deleted the addition by accepting explanation of the assesse without verifying correct facts and giving finding of fact that differences have been reconciled. Ld. DR has submitted that these differences are still not reconciled by the assesse. He has relied upon the order of the AO. 12. On the other Ld. AR has submitted that the AO has made addition in respect of four creditors on account of non-reconciled balance. He has submitted that as regards the difference of balance in respect of Gupta Coal India Ltd. Nagpur party has provided two separate ledger accounts of the assessee. One ledger reflects the transactions related to sales and other ledger reflects the transactions related to the purchase done with the various branches of the assesse. The said party has also provided one consolidated ledger for all the above referred transactions. Thus, Ld. AR submitted that if consolidated ledger is taken into account the difference is reconcile. 12.1 As regards the difference in respect of HJM Fuels Private Ltd. Ahmadabad the Ld. AR has submitted this party has provided two separate ledger accounts of the assessee. One ledger reflects the transactions related to sale and the other ledger for transactions related to purchases. The assesse has reconciled above difference before the AO and Ld.CIT(A). The CIT(A) considered and examined the reconciliation produced by the assesse and granted relief. 12.2 The next difference is regarding Rajasthan Mines & Minerals Ltd. Nagore and Ld. AR has submitted that it is a Rajasthan State Government Company. It has provided the details of payment received from sales made to the assesse company during the year under consideration. No details as to opening and closing balance have been provided by the creditor party. ITA No.229/Ind/2017 M/s. Swastik Coal Corporation Pvt. Ltd. Page 14 of 19 Page 14 of 19 The difference is due to the payment made by the assesse on 31.03.2012 of Rs.20 lac to Barmer unit which might have been accounted by the said company in the next financial year when the Cheque got cleared. Therefore, the assesse has explained the difference. Further the purchase of Rs.2,65,705/- made from Nagore unit and the bills against the same was issued by the creditor but not accounted. He has submitted that there is an accounting mistake in the books of the creditor who has wrongly debited this amount to another party M/s Subham Mines Private Limited and therefore, this account could not be reconciled. The Ld. CIT(A) after considering this facts has granted relief. 12.3 The fourth creditor namely Godavari Commodities Limited Kolkata did not furnish the relevant details and ledger account and therefore, the assesse could not obtain the ledger account from the said creditor. The assesse has shown closing balance as on 31.03.2012 at Rs.1,64,92,017/-. The ld. AR has submitted that the assessee has offered the said amount to tax for the subsequent assessment years i.e. 2014-15 to 2016-17. The Ld. CIT(A) after considering this fact that assessee has already offered this amount to tax in the subsequent years has deleted the addition. He has supported the impugned order of the Ld. CIT(A). 13. We have considered the rival submissions as well as relevant material on record. The assesse has explained the differences by citing reasons of maintaining more than one ledger account by the creditor party M/s. Gupta Coal India Pvt. Ltd. and in some cases the relevant details were not furnished by the creditor parties. The AO has given details of non-reconciled amount of these four creditors in para 4.3 as under: Name of Party After reconciling closing balance as shown by assesse as on 31.03.2012 Closing balance as per creditors as on 31.03.2012 Non- reconciled amount Remarks (as in reply dated 23.3.2015 of the assessee ITA No.229/Ind/2017 M/s. Swastik Coal Corporation Pvt. Ltd. Page 15 of 19 Page 15 of 19 Gupta Coal India Pvt. Ltd. Nagpur AAACG4587B 1,68,71,415/- 74,01,545/- 94,69,870/- Reconciles to the tune of Rs.1,68,71,415 HJM Fuels Pvt. Ltd. Ahmedabad AACCH 4474Q 30,27,826/- Nil 30,27,826/- Non-reconciled R.S.M.M Ltd. Barmer, AAACR 7857H 9,86,154/- Not reconciled 9,86,154/- Unable to reconcile Godavari Commodities ltd. Kolkata AABCG 2253K 1,64,92,017/- Not reconciled 1,64,92,017/- Non-reconciled Total 2,99,75,867/- 13.1 On appeal the Ld. CIT(A) has considered this issue in para 5 to 5.2 as under: “5. This ground of appeal is with regard to addition of Rs.2,99,75,867/- as a un-reconciled creditors. The learned AO has made an addition of Rs.2,99,75,867/- on account of un reconciled creditors which are as follows: S.No. Name of the party (Creditor) Non-reconciled amount 1 Gupta Coal India Pvt. Ltd. 94,69,870/- 2 HJM Fuels Pvt. Ltd. 30,27,826/- ITA No.229/Ind/2017 M/s. Swastik Coal Corporation Pvt. Ltd. Page 16 of 19 Page 16 of 19 3 R.S.M.M. Ltd. 9,86,154/- 4 Godavari Commodities Ltd. 1,64,92,017/- Total 2,99,75,867/- 5.1 The appellant has submitted the following facts with regard to these non reconciled amounts and the same is reproduced as below:- A. "Gupta Coal India Pvt. Ltd.: Your Honour, the unreconciled balance of Rs. 94,69,870/- in case of Gupta Coal India Pvt. Ltd. is due to the following reasons: (1) LC interest and other expenses of Rs. 10,67,722/-, Rs. 24,15,156/-,and Rs. 50,03,863/-charged by appellantbut not accepted by the Gupta Coal India Put. Ltd. This amount already offered by the appellant company as its income and therefore making addition of this amount will be double addition. (ii) Due to rent of Rs. 14,10,182/- charged by Gupta Coal India Put. Ltd but not accepted by appellant. Had this amount would have been accounted for by the appellant company the profit for the year would have been lower. (iii) Payment has been made by the appellant to Gupta Coal India Put. Ltd through bank LC which has been discounted by the said company and was not recognized by the appellant as the appellant was yet to make the payment to the bank on due date. Copy of Bank account and ledger account in our books to confirm this entries are enclosed. (Encls.) (tv) Total LC amount charged to Gupta Coal India Pvt. Ltd by the appellant but the Gupta Coal India Pvt. Ltd had made the entries in its books of accounts net off of the interest. (v) Amount charged by the appellant as travelling expenses of Rs. 6865/-but not accepted by the Gupta Coal India Pvt. Ltd.This amponut already reduced our Travelling Expenses Had this been considered our profit will be lower. Your honour, the balances that are under dispute cannot be considered as "unreconciled" balances as these charges have been accepted by one party only. The Gupta Coal India Pvt. Ltd has maintained 6 account of the company. A copy of the accounts requested u/s 133(6) by the learned AO and provided to the appellant Learned AO were showing balance of Rs. 74,01,545/- but the balance as per copies provide to the assessee company was Rs. 1,68,71,415/- are being enclosed. (Encls. 185 to 201) Relevant documents in response to these discrepancies have been submitted to the learned AO alongwith our submissions, during assessment proceedings itself, reconciling the balance as per the copy of statements provided to appellant company by the learned AO. However, the learned AO has made this addition without taking into consideration the documents submitted by appellant company and without providing appellant company a reasonable opportunity to be heard. A copy of the said reconciliation is being enclosed. (Encls. 202) ITA No.229/Ind/2017 M/s. Swastik Coal Corporation Pvt. Ltd. Page 17 of 19 Page 17 of 19 B. HJM Fuels Pvt. Ltd.: Your honour, the unreconciled balance of Rs. 30,27,826/- in case of HJM Fuels Pvt. Ltd. is due to the following reasons: (i) Payment of Rs. 3,23,27,206/- has been made by the appellant to HJM Fuels Put. Ltd. through bank LC which has been discounted by the said company and was not recognized by the appellant as the appellant was yet to make the payment to the bank on due date. Copy of Bank account and ledger account in our books to confirm this entries are enclosed. (Encls. 203 to 231) (ii) Amount charged by the appellant as travelling expenses of Rs.35,670/- but not accepted by HJM Fuels Pvt. Ltd. Had this been accounted for by the assessee company, the profit of the company would be lower. Your honour the appellant company have already submitted a detailed reconciliation along with their earlier reply to the learned AO in which they have tried to reconcile the balance in the absence of any copy of statement being provided to the appellant by the learned AO. However, it appears that this addition has also been made without appreciating the documents submitted by appellant company to the learned AO.A copy of the said reconciliation is being enclosed. (Encls. 232) C. RAJASTHAN STATE MINES AND MINERALS LTD.(RSMM): (i) Your honour, RSMM Ltd. is a state government company and assessee company purchased Lignite from the said party. The copy of statement provided by Learned AO by RSMM Ltd. was 2 separate statements, one is the sales made to assessee company and another is payment received from assessee company. M/s RSMM Ltd., while giving the creditors balance, We are enclosing copy of accounts (Barmer & Nagore) in our books, in which your honour will note that the entire sales made by them were accounted for as purchases by us, except purchase of Rs. 2,65,705/- which is accounted by us on 28.03.2012, as per bill issued by them but not appearing in their statement of sales may be due the dispatched for the same was not started by them. Copy of bill is also enclosed for your immediate ready reference. Further all payment made to them, as per payment statement were appearing in our books, except payment of Rs. 20,00,000/- made by us on 30.03.2012, which might have been received by them in the next year and therefore accounted for by them in next FY. Since no opening/closing balance provided by them, reconciliation of balance is not possible and therefore could not be added as income of the assessee. (Encls. 233 to 242) D. Godavari Commodities Ltd.: Your honour, in the absence of any statement given by the party to either appellant company or the learned AO, the appellant company was unable to reconcile the balance of Rs. 1,64,92,016/-in its books of accounts with that mentioned in party's book. In the subsequent year out of the amount of Rs. 1,64,92,016, the amount of Rs. ITA No.229/Ind/2017 M/s. Swastik Coal Corporation Pvt. Ltd. Page 18 of 19 Page 18 of 19 47,92,016/- has been already offered as income in FY 2013-14 and Rs. 16,00,000/- has been already offered as income in FY 2014-15 and balance Rs. 1,01,00,000/- has been paid in FY 2015-16. Therefore the addition of Rs. 1,64,92,016/- is requested to be deleted. (Enels. 243 to 246) 4.3 Therefore Your Honour it is most humbly requested that the above addition made by the Learned AO be deleted." 5.2 I have carefully considered the facts and figures so submitted by the appellant with regard to the reconciliation of these accounts alongwith the necessary supporting documentation so submitted by the appellant. After a detailed and thorough analysis of all the relevant transactions, it appears that the AO did not take into consideration the facts and the figures so submitted by the appellant. After an exhaustive examination and careful perusal of the transactions and the supporting evidence so submitted by the appellant, I have reached to the conclusion that no addition is warranted on this ground especially when the appellant has explained in detail the reasons for non reconciled accounts and has submitted detailed reconciliation of the same. Therefore, this addition is deleted and this ground of appeal is accordingly allowed.” 14. It is manifest from the impugned order of the Ld. CIT(A) that the Ld. CIT(A) has not verified the correctness of these explanations of the assesse either making reference to the relevant evidence or getting the same verified through the AO by calling a remand report. Even if the Ld. CIT(A) find that the explanation of the assessee is acceptable the relevant documentary evidences in support of the said explanation ought to have been examined and verified through AO. The AO has given details of the differences as per the balance shown by the assesse after reconciliation and closing balance shown by the creditors. There is nothing in the reply of the assesse to show cause notice issued by the AO that these creditor companies like Gupta Coal India Private Ltd maintained more than one ledger account but the assesse has explained the difference as per the ledger account received by the assessee from the creditor. This shows that the relevant ledger accounts were neither examined by the AO nor by the Ld. CIT(A). Similarly in case of other creditors the Ld. CIT(A) has accepted the reply and submission of the assessee whereas these are matter of difference in the balance and purely factual in nature instead of taking a view on undisputed facts. Accordingly in the facts and circumstances of the case we are of the considered opinion that this issue required a proper ITA No.229/Ind/2017 M/s. Swastik Coal Corporation Pvt. Ltd. Page 19 of 19 Page 19 of 19 verification of the relevant record regarding reconciliation of the difference based on the correct facts and the ledger accounts maintained by the assessee as well as by the creditors. In one of the cases the assesse has claimed that these differential amount has been offered to tax in the subsequent assessment years and this is also required to be verified from the record. Accordingly we set aside the impugned order of the Ld. CIT(A) and remand the matter to the record of the AO for fresh adjudication after proper verification and examination of the relevant facts and record. Needless to say the assessee be given appropriate opportunity of hearing before passing afresh order. 15. In the result, the appeal filed by the revenue is allowed for statistical purpose. Order pronounced in the open court on 12 .09.2023. Sd/- Sd/- (B.M. BIYANI) (VIJAY PAL RAO) Accountant Member Judicial Member Indore, 12.09.2023 Patel/Sr. PS Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY Sr. Private Secretary Income Tax Appellate Tribunal Indore Bench, Indore