M/s. Anubhav Plast Pvt. Ltd., Kanpur V. Income Tax Officer-5(2), Kanpur

ITA 241/LKW/2007

• Counselvise Citation: 24123714 RSA 2007
• Duration Of Justice: 7 year(s) 11 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-03-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 06-02-2015
• Assessment Year: 2001-2002
• Appeal Filed On: 21-03-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: ARE BEING DISPOSED OF
• Keywords: Depreciation; Business expenditure; Principle of natural justice

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.241/LKW/2007 ASSESSMENT YEAR:2001 - 02 M/S ANUBHAV PLAST (P) LTD., 7/41 - A, BASANT TOWER, TILAK NAGAR, KANPUR. PAN:AABCA6844Q VS. INCOME TAX OFFICER - 5(2), KANPUR. (APPELLANT) (RESPONDENT) ITA NO.368/LKW/2007 ASSESSMENT YEAR:2001 - 02 INCOME TAX OFFICER - 5(2), KANPUR. VS. M/S ANUBHAV PLAST (P) LTD., 7/41 - A, BASANT TOWER, TILAK NAGAR, KANPUR. PAN:AABCA6844Q (APPELLANT) (RESPONDENT) O R D E R PER A. K. GARODIA, A.M. THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AND REVENUE, WHICH ARE DIRECTED AGAINST THE ORDER OF CIT(A) - 2, KANPUR DATED 07/03/2007 FOR ASSESSMENT YEAR 2001 - 2002. BOTH THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY WAY OF THIS COMMON ORD ER FOR THE SAKE OF CONVENIENCE. ASSESSEE BY SHRI SHASHANK DHAON, ADVOCATE REVENUE BY SHRI PUNEET KUMAR, D. R. DATE OF HEARING 06/02/2015 DATE OF PRONOUNCEMENT 10 /0 3 /2015 2 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: 1. THAT THE LEARNED CIT(A) - II, KANPUR HAS ERRED IN LAW AND ON FACTS IN SUSTAINING THE DISALLOWANCE OF COMMISSION AGGREGATING TO RS.25,62,532/ - PAID BY THE APPELLANT COMPANY TO THE FOLLOWING AGENTS ON SALES MOBILIZED THROUGH THEM: NAME OF THE COMMISSION AGENT COMMISSION PAID ------------------------------------- -------------------- I. M/S PREMIER ISPAT PVT. LTD. 16,22,708 II. M/S REKON EXTRUSION PVT. LTD. 8,64,964 III. M/S HARI ENTERPRISES 74,860 25,62,532 2. THAT THE LEARNED CIT(A) - II, KANPUR HAS ERRED IN LAW AND ON FACTS IN SUSTAINING THE ADDITION FOR ALLEGED UNEXPLAINED LOANS AGGREGATING TO RS.3,96,790/ - FROM FOLLOWING PERSONS: MR. SANTOSH KUMAR - II 49,930.00 MR. ADITYA BAJAJ 49,930.00 MR. VINAMRA GUPTA 49,930.00 MR. PRADEEP MISHRA 1,00,000.00 SMT. POONAM MISHRA 97,000.00 SMT. AKTA GUPTA 97,000.00 3,96,790.00 3. THAT THE ORDER OF THE LEARNED CIT(A) - II, KANPUR TO THE EXTENT STATED IN ABOVE GROUNDS OF APPEAL IS INSUPPORTABLE IN LAW AND ON FACTS AND IS ALSO CONTRARY TO THE PRINCIPLES OF NATURAL JUSTICE AND EQUITY. 4. THAT WITHOUT PREJUDICE TO THE ABOVE GROUNDS OF APPEAL, THE ADDI TION / DISALLOWANCE SUSTAINED BY THE LEARNED CIT(A) ARE UNWARRANTED, UNJUSTIFIED AND IN ANY CASE MUCH TOO HIGH AND EXCESSIVE. 5. THAT ANY OTHER RELIEF OR RELIEFS DEEMED FIT IN THE FACTS AND CIRCUMSTANCES OF THE CASE MAY BE GRANTED. 3. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER : 3 1. THAT THE LEARNED CIT(A) - II, KANPUR ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.2,21,730/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF COMMISSION PAID TO M/S SPACE AGE SALES IGNORING THE FACT THAT WHILE DISALLOWING THE COMMISSION, THE ASSESSING OFFICER HAD MADE THE DETAILED INVESTIGATION AND OBSERVED THAT THE ASSESSEE COULD NOT PROVE THE SERVICES RENDERED BY M/S SPACE AGE SALES TO THE ASSESSEE COMPANY TO WHOM THE SAID COMMISSION WAS PAID AND ALSO THE PURC HASER WERE GOVERNMENT DEPARTMENTS. 2. THAT THE LEARNED CIT(A) - II, KANPUR ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.96,500/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF CASH CREDIT ON UNSECURED LOAN GIVEN BY SMT. BINA GUPTA IGNORING THE FACT THAT THE GENUINENESS OF THE TRANSACTIONS COULD NOT BE ESTABLISHED BY THE DEPOSITOR BY THE ASSESSING OFFICER, IN DETAILED, IN ASSESSMENT ORDER. 3. THAT THE LEARNED CIT(A) - II, KANPUR ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.2,40,000/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF CASH CREDIT ON UNSECURED LOAN GIVEN BY SHRI PRADEEP KUMAR MISHRA IGNORING THE FACT THAT THE GENUINENESS OF TRANSACTIONS AND CREDITWORTHINESS OF SHRI PRADEEP KUMAR MISHRA HAS NOT BEEN ESTABLISHED, AS HAS BEEN DISCUSSED BY THE ASSESSING OFFICER IN DETAILED IN THE ASSESSMENT ORDER. 4. THAT THE LEARNED CIT(A) - II, KANPUR ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.7,00,000/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF CASH CREDIT ON UNSECURED LOAN GIVEN BY SHR I RAM CHANDRA STRAW PRODUCTS LTD. MURADABAD IGNORING THE FACT THAT THE GENUINENESS OF THE TRANSACTIONS COULD NOT BE ESTABLISHED BY THE DEPOSITOR AS HAS BEEN DISCUSSED BY THE ASSESSING OFFICER, IN DETAILED, IN ASSESSMENT ORDER. 5. THAT THE ORDER OF LEARNED CIT(A) BEING ERRONEOUS, UNJUST AND BAD IN LAW BE VACATED AND THE ORDER OF THE ASSESSING OFFICER RESTORED. 4. IN BOTH THE APPEALS , ONLY TWO I SSUES ARE INVOLVED. ONE ISSUE IS REGARDING DISALLOWANCE OF COMMISSION PAYMENT, WHICH WAS UPHELD BY 4 CIT(A) TO THE EXTENT OF RS.25,62,532/ - AND PART RELIEF WAS ALLOWED BY HIM TO THE EXTENT OF RS.2,21,730/ - . THE SECOND ISSUE IS REGARDING RECEIPT OF LOAN BY THE ASSESSEE, WHICH WERE UPHELD BY CIT(A) TO THE EXTENT OF RS.3,96,790/ - AND WERE DELETED BY HIM TO THE EXTENT OF RS.96,500/ - , RS.2.40 LAC AND RS.7,00,000/ - , TOTALING TO RS.10,36,500/ - . 5. REGARDING THE FIRST ISSUE I.E. REGARDING DISALLOWANCE OF COMMISSION PAYMENT, BRIEF FACTS TILL THE ASSESSMENT STAGE ARE NOTED BY LEARNE D CIT(A) AS PER PARA 3 OF HIS ORDER, WHICH IS REPRODUCED BELOW FOR THE SAKE OF READY REFERENCE: - 3. THE APPELLANT COMPANY WAS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF STEEL TUBULAR POLES. THE SALES OF COMPANY WERE MAINLY TO THE GOVERNMENT DEPARTMENT LIKE UPPCL (U.P. POWER CORPORATI ON LTD.), KESCO ETC. THE ASSESSING OFFICER NOTICED THAT THE SELLING AND DISTRIBUTION EXPENSES HAD SHOWN AN ABNORMAL RISE FROM RS. 2.64 LACS IN THE IMMEDIATELY PRECEDING YEAR TO RS. 34.07 LACS IN THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER MADE ENQU IRIES REGARDING THE CLAIM OF THESE EXPENSES AND IT CAME TO LIGHT THAT THE APPELLANT CLAIMED THAT HE HAD PAID COMMISSION ON SALES AMOUNTING TO RS.27,84,322/ - . FOR THE REASONS DISCUSSED IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS DISALLOWED THE CLAIM OF COMMISSION AMOUNTING TO RS.27,84,322/ - . THE FIRST GROUND OF APPEAL IS AGAINST THIS DISALLOWANCE. 6. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE CIT(A), WHO HAS UPHELD THE DISALLOWANCE IN RESPECT OF THREE PAYMENTS, TOTAL RS.25,62 ,532/ - AND DELETED THE DISALLOWANCE IN RESPECT OF ONE PAYMENT OF RS.2,21,730/ - . NOW THE ASSESSEE IS IN APPEAL FOR THE DISALLOWANCE CONFIRMED BY THE CIT(A) AND REVENUE IS IN APPEAL FOR THE DISALLOWANCE DELETED BY CIT(A). 7. LEARNED A.R. OF THE ASSESSEE RE ITERATED THE SAME CONTENTIONS, WHICH WERE RAISED BY HIM BEFORE THE CIT(A). HE ALSO SUBMITTED THAT THE 5 SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER BY WAY OF LETTER DATED 16/02/2004 ON THIS ISSUE IS AVAILABLE ON PAGES 59 TO 65 OF THE PAPER BOOK. HE ALSO SUBMITTED AN AFFIDAVIT UNDER RULE 10 OF I.T.A.T. RULES, 1963 ALONG WITH THE ANNEXURES , WHICH IS AVAILABLE ON PAGES 1 TO 13 OF THE COMBINED PAPER BOOK. RELIANCE WAS PLACED BY HIM ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS: ( I ) ALUMINIUM CORPORATION OF INDIA LTD . VS. CIT [1972] 86 ITR 1 (SC) ( II ) SASSOON J. DAVID AND CO. (P.) LTD. VS. CIT [1979] 118 ITR 261 (SC) ( III ) S. A. BUILDERS LTD. VS. CIT AND ANOTHER [2007] 288 ITR 1 (SC) 8. AS AGAINST THIS, LEARNED D.R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT THE DISALLOWANCE WAS CONFIRMED BY LEARNED CIT(A) ON THE BASIS THAT THE EXPENDITURE WAS INCURRED TO INFLUENCE THE DECISION MAKING PROCESS IN A CONTRACT AWARDED BY VARIOUS GOVERNMENT DEPARTMENTS. HE HA S FOLLOWED THE JUDGMENT OF HON'BLE ANDHRA PRADESH HIGH COURT RENDERED IN THE CASE OF RATANCHAND HIRACHAND VS. ASKAR NAWAZ JUNG [1975] 1 APLJ 344; AIR 1976 AP 112. ONE PARA FROM THIS JUDGMENT HAS BEEN REPRODUCED BY CIT(A) ON PAGE 13 OF HIS ORDER. AS PER T HIS PARA , IT WAS OBSERVED BY HON'BLE ANDHRA PRADESH HIGH COURT THAT AN AGREEMENT, THE OBJECT OF WHICH IS TO USE THE INFLUENCE OF A PERSON WITH MINISTERS OF THE GOVERNMENT TO OBTAIN FAVOURABLE DECISION, IS DESTRUCTIVE OF ALL SOUND AND GOOD ADMINISTRATION. I T WAS FURTHER OBSERVED THAT THERE IS NO DOUBT THAT SUCH AN AGREEMENT IS CONTRARY TO PUBLIC POLICY. BY FOLLOWING THIS JUDGMENT, THE DISALLOWANCE WAS CONFIRMED BY CIT(A). THE BASIS OF DISALLOWANCE AS PER ASSESSMENT ORDER, IS ALSO THE SAME THAT NO GOVT. DEP ARTMENT WOULD HAVE 6 ENTERTAINED ANY LIAISONING AGENT ON BEHALF OF THE ASSESSEE. THERE IS NO QUARREL ON THIS PROPOSITION THAT ANY PAYMENT MADE FOR INFLUENCING THE DECISION OF GOVT. DEPARTMENT CANNOT BE ALLOWED AS A DEDUCTION AND THIS IS ALSO AGAINST THE PUB LIC POLICY . HENCE, WE HAVE TO EXAMINE THE FACTS AS TO WHETHER IN THE FACTS OF THE PRESENT CASE , THE PAYMENT IN QUESTION WAS MADE TO INFLUENCE THE DECISION OF GOVT. DEPARTMENT. IN OUR CONSIDERED OPINION, ANY ATTEMPT MADE TO INFLUENCE THE DECISION OF A GOV ERNMENT DEPARTMENT IS A DIFFERENT MATTER AND SERVICES RENDERED FOR OBTAINING ORDERS FROM THE GOVERNMENT DEPARTMENTS BY WAY OF COMPLIANCE OF VARIOUS FORMALITIES OF THE GOVERNMENT DEPARTMENTS IS ALTOGETHER A DIFFERENT MATTER. IT HAS TO BE ACCEPTED THAT FOR OBTAINING AN ORDER FROM THE GOVERNMENT DEPARTMENTS AND EVEN FROM A PRIVATE COMPANY, VARIOUS FORMALITIES ARE TO BE COMPLETED AND FOR THAT , EITHER THE ASSESSEE COMPANY SHOULD HAVE COMPETENT PERSONS ON ITS ROLL TO COMPLY WITH SUCH FORMALITIES BY VISITING THE CONCERNED GOVERNMENT DEPARTMENT ON REGULAR BASIS OR THE COMPANY CAN OBTAIN SERVICES OF COMMISSION AGENT WHO WILL DO THE COMPLIANCE OF SUCH FORMALITIES ON BEHALF OF THE ASSESSEE AND MERELY BECAUSE SOME SERVICES ARE OBTAINED BY THE ASSESSEE FROM A COMMISSION AGENT FOR MAKING COMPLIANCE OF VARIOUS FORMALITIES, IT CANNOT BE SAID THAT SUCH PAYMENT FOR THOSE SERVICES IS FOR INFLUENCING THE DECISION OF A GOVERNMENT DEPARTMENT AND THEREFORE, AGAINST THE PUBLIC POLICY. THE CLAIM OF THE ASSESSEE IS THAT THOSE COMMIS SION AGENTS WERE APPEARING OR LIAISONING WITH VARIOUS GOVERNMENT DEPARTMENTS ON BEHALF OF THE ASSESSEE ONLY AS A PERSON OF THE ASSESSEE AND NOT AS A PERSON OF ANY INDEPENDENT AGENT APPOINTED BY THE ASSESSEE AND THEREFORE, AS PER THE REPLY RECEIVED FROM SOM E OF GOVERNMENT DEPARTMENTS, IT WAS STATED THAT THE AGREEMENT WAS DIRECTLY BETWEEN THE GOVERNMENT DEPARTMENTS AND THE ASSESSEE COMPANY AND NO MIDDLEMAN WAS INVOLVED. FROM THIS REPLY OF THE GOVERNMENT DEPARTMENTS, IT CANNOT BE INFERRED, WITHOUT EXAMINING T HE OTHER ASPECTS, THAT THERE WERE NO 7 SERVICES BEING RENDERED BY THE COMMISSION AGENT OR THAT THE SERVICES WERE TO INFLUENCE THE DECISION MAKING OF A GOVERNMENT DEPARTMENT. WE ALSO FIND THAT AS PER PROFIT & LOSS ACCOUNT, AVAILABLE ON PAGE NO. 152 OF THE PA PER BOOK FOR THE PRESENT YEAR, THE ASSESSEE HAS PAID DIRECTORS REMUNERATION OF RS.2.10 LAC AND SALARY TO STAFF ONLY RS.1.92 LAC. THE ASSESSEE COMPANY HAS REPORTED A TURNOVER OF RS.362.15 LAC AS AGAINST RS.213.83 LAC IN THE PRECEDING YEAR. THE EXPENSES IN THE PRECEDING YEAR WAS RS.1.62 LAC ON ACCOUNT OF DIRECTORS REMUNERATION AND RS.1.32 LAC ON ACCOUNT OF SALARY TO STAFF. IN OUR CONSIDERED OPINION, SUCH SMALL EXPENDITURE ON ACCOUNT OF DIRECTORS REMUNERATION AND SALARY TO STAFF IS NOT SUFFICIENT TO HAVE THE REQUIRED COMPETENT MAN POWER TO MAKE VARIOUS COMPLIANCES BEFORE VARIOUS GOVERNMENT DEPARTMENTS SUCH AS UPPCL, KESA, GUJARAT ELECTRICITY BOARD ETC. UNDER THESE FACTS, IN OUR CONSIDERED OPINION, SUCH A COMMISSION PAYMENT IN THE PRESENT CASE HAS TO BE ACCEPTED AS PAYMENT ON ACCOUNT OF CONSIDERATION OF COMMERCIAL EXIGENCY FOR DOING VARIOUS FORMALITIES BEFORE VARIOUS GOVERNMENT DEPARTMENTS AND IT CANNOT BE SAID, IN ABSENCE OF ANY ADVERSE MATERIAL ON RECORD, THAT SUCH PAYMENT WAS MADE TO INFLUENCE THE DECISION MAKING OF A GOVERNMENT DEPARTMENT. IN OUR CONSIDERED OPINION, UNDER THESE FACTS, THE JUDGMENT FOLLOWED BY CIT(A) IS NOT APPLICABLE. 10. WE ALSO EXAMINE THE FACTS FROM THE ASSESSMENT ORDER. IT IS NOTED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER ALSO THAT FROM THE REPLY RECEIVED FROM UPPCL, KESA AND DELHI VIDYUT BOARD, NEW DELHI, IT IS EVIDENT THAT THE COMMISSION AGENTS WERE NOT INVOLVED AND BUSINESS WAS CONDUCTED DIRECTLY WITH THE ASSESSEE COMPANY. THESE FACTS DEMOLISH THE ARGUMENT OF CIT(A) IN CONFIRMING THE DISALLOWANCE THAT THE SERVICE OF COMMISSION AGENT WAS OBTAINED FOR AFFECTING THE DECISION MAKING OF THE GOVT. DEPARTMENTS. WHEN ADMIT TEDLY THE TRANSACTION BETWEEN THE ASSESSEE COMPANY AND GOVT. 8 DEPARTMENT WAS CONDUCTED DIRECTLY, IT CANNOT BE ALLEGED WITHOUT BRINGING SOME ADVERSE MATERIAL ON RECORD THAT COMMISSION PAYMENT WAS MADE TO INFLUENCE THE DECISION MAKING OF A GOVT. DEPARTMENT. AS NOTED BY ASSESSING OFFICER IN THE ASSESSMENT ORDER ON PAGE NO. 5, IT WAS CLAIMED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER ALSO THAT THE ASSESSEE COMPANY DID NOT HAVE ADEQUATE AND EXPERIENCED FIELD STAFF TO CO - ORDINATE VARIOUS INCIDENTAL ACTIVITIES A T DIFFERENT LOCATIONS AND THEREFORE, IT HAD TO TEMPORARILY ENGAGE SERVICES OF OUTSIDE EXPERTS WHO WERE CAPABLE OF MANAGING THE SMOOTH WORKING AT DIFFERENT LEVELS AND STAGE I.E. INSPECTION OF MATERIAL AT FACTORY SITE (PRE DELIVERY) AND ENDING WITH FINAL STA GE OF FINAL PAYMENT INCLUDING ADJUSTMENT OF MARGIN MONEY/SECURITY, AS PER THE TERMS AND CONDITIONS STIPULATED UNDER DIFFERENT CIRCUMSTANCES. WE HAVE ALSO SEEN THAT THE AMOUNT ON DIRECTORS REMUNERATION AND STAFF SALARY IS INADEQUATE TO HAVE SUFFICIENT AND COMPETENT FIELD STAFF TO CO - ORDINATE THESE INCIDENTAL ACTIVITIES AT DIFFERENT LOCATIONS. UNDER THESE FACTS, WE ARE OF THE CONSIDERED OPINION THAT THE EXPENSES INCURRED BY THE ASSESSEE COMPANY ON ACCOUNT OF COMMISSION PAYMENT TO VARIOUS PERSONS IS NOT FOR INFLUENCING OR AFFECTING THE DECISION MAKING OF THE GOVT. DEPARTMENTS BUT FOR CONDUCTING INCIDENTAL ACTIVITIES AT DIFFERENT LOCATIONS BY WAY OF ENGAGING OUTSIDE EXPERTS AND THEREFORE, SUCH EXPENSES ARE ALLOWABLE BUSINESS EXPENSES ON ACCOUNT OF COMMERCIAL EXIGENCIES. HENCE, WE HOLD THAT NO DISALLOWANCE IS CALLED FOR OUT OF THE COMMISSION PAYMENT BY THE ASSESSEE IN THE FACTS OF THE PRESENT CASE. ACCORDINGLY, GROUND NO. 1 OF THE REVENUE IS REJECTED AND GROUND NO. 1 OF THE ASSESSEE IS ALLOWED. 11. REGARDING THE SECOND ISSUE I.E. REGARDING UNSECURED LOANS, WE FIND THAT THE DECISION OF CIT(A) ON THIS ISSUE IS CONTAINED IN PARA 31 TO 38 OF HIS ORDER, WHICH ARE REPRODUCED BELOW FOR THE SAKE OF READY REFERENCE: - 31. EVIDENCE RELATED LO THESE LOANS IS DISCUSSED AS FOLLOWS: 9 SHRI SANTOSH KUMAR II AND SRI ADITYA BAJAJ: THE ASSESSING OFFICER HAD EXAMINED SHRI SANTOSH KUMAR SON OF SHRI BHAGWATI PRASAD. IT IS CLAIMED THAT SHRI SANTOSH KUMAR HAD DEPOSITED THIS AMOUNT BY WAY OF DEMAND DRAFT. SHRI SANTOSH KUMAR APPEARED BEFORE THE ASSESSING OFFICER AND STATED THAT HE WAS AN EMPLOYEE OF THE APPELLANT COMPANY GETTING A MONTHLY SALARY OF RS.2,700/ - PER MONTH. IN HIS FAMILY THERE WERE 6 MEMBERS. IT WAS ALSO NOTED BY THE ASSESSING OFFICER THAT HE QUOTED A WRONG DEMAND DRAFT NUMBER THROUGH WHICH THIS AMOUNT OF RS.49,930/ - WAS GIVEN AS A LOAN. HE HAD NOT FILLED THE FORM FOR MAKING THE DEMAND DRAFT, NOR THE SAID FORM WAS SIGNED BY HIM. HE DID NOT KNOW THE PERSON WHO HAD FILLED FORM FOR PURCHASING THE DRAFT. HE DID NOT RECEIVE THIS DRAFT FROM THE BANK. ANOTHER FEATURE WHICH MERITS ATTENTION IS THAT THE DRAFTS TOR IDENTICAL AMOUNTS OF RS.49,910/ - WERE MADE ON BEHALF OF MR VINAMRA GUPTA, MR. DIWAKAR GUPLA, MR. RADHEY SHYAM AND SHRI SANTOSH KUMAR ALL FROM THE S AME BANK. EVEN THE DEMAND DRAFT NUMBERS ARE IN RUNNING SERIAL. THE APPELLANT HAS ALREADY SURRENDERED THE LOAN FROM SHRI RADHEY SHYAM AND SHRI DIWAKAR MISRA AS INCOME. THE FACTS RELATED TO ADITYA BAJAJ ARE ALSO SIMILAR. IN MY VIEW, THERE IS OVE RWHELMING EVIDENCE AGAINST THE LOANS FROM MR SANTOSH KUMAR - II, A N D MR ADITYA BAJAJ. THE ADDITION OF (RS.49,930+RS.49930/ - ) =RS. 99940/ IS THEREFORE CONFIRMED. THE DEPOSIT IN THE NAME OF VINAMRA GUPTA (RS.49,930/ - ) IS ALSO NOT PROPERLY EXPLAINED AND IS TH EREFORE CONFIRMED. 32. AS FAR AS THE LOAN FROM SMT. VEENA GUPTA IS CONCERNED, IT WAS FOUND T HAT SMT. VEENA GUPTA HAD DEPOSITED CASH IN HER BANK ACCOUNT. HER STATEMENT WAS RECORDED. THE AO HAS NOT BEEN ABLE TO FIND ANY WEAKNESS IN HER STATEMENT. SHE IS TH E WIFE OF THE ONE OF THE DIRECTORS OF THE APPELLANT COMPANY A N D IT IS NOT THE CASE OF THE AO THAT HER CREDIT WORTHINESS WAS IN DOUBT. SHE ADMITTED THAT SHE WAS ALSO RUNNING A BOUTIQUE AND SHE WAS A TAXPAYER. IF THE DEPOSITS IN HER BANK ACCOUNT ARE NOT PROP ERLY EXPLAINED, THESE HAVE TO BE EXAMINED IN HER CASE . THE ADDITION OF RS.96,500/ - IS THEREFORE DELETED. 10 33. COMING TO THE ADDITION OF RS.3,20,000/ - , BEING THE LOAN FROM SHRI PRADEEP KUMAR MISRA SON OF SHRI R. L . MISRA, WHEN HIS STATEMENT WAS RECORDED, IT WAS STATED THAT HE HAD GIVEN LOAN TO APPELLANT COMPANY FROM TIME TO TIME OUT OF HIS AGRICULTURAL INCOME AND SAVINGS. IT IS CLAIMED THAT HE HAD GIVEN AN INTEREST FREE LOAN OF RS.3,40,000/ - TO THE APPELLANT COMPANY . HE HAS ALSO STATED THAT HE WAS GETTING RENT OF RS.60,000/ - PER ANNUM. ONE IMPORTANT FACT TO B E NOTED IS THAT THE APPELLANT HAD EARLIER ALSO TAKEN LOANS FROM THE SAID PERSON. AT THE BEGINNING OF THE PREVIOUS YEAR, THERE WAS AN OPENING BALANCE IN THE SAID ACCOUNT AMOUNTING TO RS.2,10,000/ - . THIS AMOUNT WAS PAID TO THE CREDITOR ON 25 - 10 - 2000. BUT SUBSEQUENTLY, FRESH LOANS WERE TAKEN FROM HIM AMOUNTING TO RS.2,40,000/ - AND RS.1,00,000/ - . 34. AS FAR AS THE LOAN OF RS.50,000/ - FROM SMT POONAM MISRA IS CONCERNED, SHE IS THE WIFE OF SRI PRADEEP KUMAR MISRA. SHE DOES NOT HAVE THE FINANCIAL CAPACITY TO GIVE THIS LOAN. THE AC HAS CORRECTLY DISBELIEVED THE CREDIT. THE ADDITION IS CONFIRMED. 35. AS FAR AS THE LOAN FROM SMT. EKTA, GUPTA IS CONCERNED, THE APPEL LANT HAS FAILED TO PRODUCE HER FOR EXAMINATION BY THE AO. THE GENUINENESS OF LOAN HAS NOT BEEN PROVED. THE ADDITION IS THEREFORE CONFIRMED. 36. ONE OF THE ARGUMENTS OF THE APPELLANT IS THAT THE LOAN AMOUNT IS SUBSTANTIALLY COVERED BY THE REPAYMENT OF EARLIER LOAN. TO QUOTE THE ARGUMENTS O F THE APPELLANT : 'FURTHER, IT IS ALSO CLEAR THAT FRESH LOANS TAKEN DURING THE YEAR WERE SUBSTANTIALLY COVERED BY THE REPAYMENTS MADE EARLIER TO THE DATE OF TAKING NEW LOANS. THUS, THE SOURCE OF MONEY AND CAPACITY CANNO T BE DOUBTED. THE FRESH LOANS FROM SHN PRADEEP KUMAR MISRA, IS THEREFORE, FULLY EXPLAINED AND THE ADDITION MADE ON THIS ACCOUNT DESERVES TO BE DELETED. ALTERNATIVELY AND WITHOUT PREJUDICE THE NEW LOA NS AT LEAST TO THE EXTENT COVERED BY REPAYMENTS MADE DURI NG THE SAME FINANCIAL YEAR IMMEDIATELY PRIOR TO TAKING OF THE NEW LOANS DESERVE TO BE TREATED AS EXPLAINED AND ADDITION DELETED ACCORDINGLY.' 11 AS FAR AS THE OPENING BALANCE IN THE ACCOUNT IS CONCERNED, THOUGH THE SOURCE OF THE SAID DEPOSIT IS NOT PROPERLY EXPLAINED, THE ADDITION CANNOT BE MADE IN THIS YEAR. BUT, AS FAR AS THE LOAN OF RS.2,40,000/ - IS CONCERNED, IT MAY BE TREATED AS COVERED BY THE REPAYMENT OF RS.2,10,000 / - AND SOME POSSIBLE CASH SAVINGS. BUT THE SECOND LOAN OF RS.1,00,000/ - IS NOT EXPLAINED . THEREFORE, OUT OF TOTAL ADDITION OF RS.3,40,000/ - ADDITION TO THE EXTENT OF RS . 1,00,000 / - IS CONFIRMED. THE APPELLANT GETS RELIEF OF RS.2,40,000/ - . 37. AS FAR AS THE LOAN OF RS . 7,00,000 / - FROM M / S SRI RAM CHANDRA STRAW PRODUC TS LTD , MORADABAD IS CONCERNED, THE AO HAS NOT GIVEN ANY REASONS FOR DISBELIEVING THE CREDIT FROM THE SAID PARTY. THE CREDITOR IS A COMPANY AND I T HAS FILED THE COPY OF IT'S RETURNS OF INCOME AND BANK ACCOUNT. THE SAID COMPANY HAS FILED A RETURN OF INCOME IN WHICH PROFIT BEFOR E DEPRECIATION IS MORE THAN RS.5,00,000/ - . IF THE DEPOSITS IN THE BANK ACCOUNT OF THE SAID COMPANY ARE NOT PROPERLY EXPLAINED, IT HAS TO BE CONSIDERED IN THE CASE OF THAT COMPANY. IT IS NOT A CASE WHERE THE AO HAS PROVED THAT THE CREDITOR HAD NO CREDITWORT HINESS. IN MY VIEW, THE ADDITION IS UNJUSTIFIED AND THE SAME IS DELETED. THE APPELLANT GETS RELIEF OF RS.7,00,000/ - . 38. THUS OUT OF TOTAL ADDITION OF RS.14, 33,270/ - MADE BY THE AO, THE APPELLANT GETS RELIEF OF (RS.96,500/ - + RS.2,40,000/ - + RS.7,00,000/ - ) = RS. 10,36,500/ - . THE ADDITION TO THE EXTENT OF (RS.49,930+ RS . 49,930+ RS . 49,930+ RS . 1,00,000 / - + RS.50,000/ - + RS.97,000/ - )= RS.3,96,790/ - IS CONFIRMED. 12. LEARNED A.R. OF THE ASSESSEE REITERATED THE SAME CONTENTIONS, WHICH WERE RAISED BEFORE CIT(A). IT WAS ALSO SUBMITTED THAT THE AFFIDAVITS OF THESE PERSONS ARE AVAILABLE ON PAGES 119 TO 130 OF THE PAPER BOOK. RELIANCE WAS PLACED ON A JUDGMENT OF HON'BLE AP EX COURT RENDERED IN THE CASE OF MEHTA PARIKH AND CO. VS. CIT [1956] 30 ITR 181 (SC). 12 13. AS AGAINST THIS, LEARNED D.R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT AS PER THE FINDING OF LEARNED CIT(A) IN PARA 31 TO 38 OF HIS ORDER, AS REPRODUCED ABOVE, A CLEAR FINDING HAS BEEN GIVEN BY HIM REGARDING UNSECURED LOAN OF RS.7 LAC FROM M/S SRI RAM CHANDRA STRAW PRODU CTS LTD., MORADABAD THAT THE ASSESSING OFFICER HAS NOT GIVEN ANY REASON FOR DISBELIEVING THE CREDIT FROM THE SAID PARTY. HE HAS ALSO GIVEN A FINDING THAT THE CREDITOR IS A COMPANY AND IT HAS FILED THE COPY OF ITS RETURNS OF INCOME AND BANK ACCOUNT. HE HA S ALSO NOTED THAT AS PER THE RETURN OF INCOME OF THIS COMPANY, PROFIT BEFORE DEPRECIATION IS MORE THAN RS.5,00,000/ - . CONSIDERING ALL THESE FACTS, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) ON THIS ISSUE I.E. REGARDING DELETION OF ADDITION IN RES PECT OF UNSECURED LOAN OF RS.7,00,000/ - . HENCE, GROUND NO. 4 OF THE REVENUE IS REJECTED. 15. REGARDING THE DELETION OF ADDITION MADE BY THE ASSESSING OFFICER OF RS.2.40 LAC OUT OF UNSECURED LOAN OF RS.3.40 LAC FROM SHRI PRADEEP KUMAR MISHRA, SON OF SHRI R. L. MISRA, WE FIND THAT IT IS NOTED BY THE ASSESSING OFFICER AS WELL AS LEARNED CIT(A) THAT A LOAN OF RS.2.10 LAC WAS TAKEN BY THE ASSESSEE FROM THIS PERSON IN EARLIER YEARS AND THIS AMOUNT OF RS.2.10 LAC WAS OPENING BALANCE IN HIS ACCOUNT IN THE BEGINNI NG OF THE PRESENT YEAR. THIS IS ALSO NOTED THAT THIS AMOUNT WAS PAID TO THE CREDITOR ON 25/10/2000 AND SUBSEQUENTLY FRESH LOAN WAS TAKEN FROM HIM AMOUNTING TO RS.2.40 LAC AND RS. 1 LAC. IN THE LIGHT OF THESE FACTS, IT WAS HELD BY CIT(A) THAT SO FAR THIS LOAN IS CONCERNED, IT IS TREATED AS COVERED BY THE REPAYMENT OF RS.2.10 LAC AND SOME POSSIBLE CASH SAVING. SINCE THIS FACT IS UNDISPUTED, ON THIS ASPECT ALSO, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF LEARNED CIT(A). GROUND NO. 3 OF THE REVE NUE IS REJECTED. 13 16. REGARDING THE BALANCE AMOUNT OF RS.1 LAC FROM TH IS PERSON FOR WHICH ADDITION HAS BEEN UPHELD BY LEARNED CIT(A), WE FIND THAT THE CONFIRMATION GIVEN BY SHRI PRADEEP KUMAR MISHRA IS AVAILABLE ON PAGES 107 TO 109 OF THE PAPER BOOK. ON PAGE NO. 108 OF THE PAPER BOOK IS COPY OF ACCOUNT OF SHRI PRADEEP KUMAR MISHRA IN THE BOOKS OF THE ASSESSEE COMPANY FOR THE PERIOD FROM FEBRUARY 98 TO MARCH 2001 AND AS PER THE SAME, THE CLOSING BALANCE AS ON 31/03/2000 WAS RS.2.15 LAC AFTER REDUCING THE W ITHDRAWAL OF RS.80,000/ - ON 15/11/99 AND RS.80,000/ - ON 07/12/99. THEREAFTER, THERE WAS WITHDRAWAL OF RS.2.10 LAC DURING THE PRESENT YEAR AS NOTED ABOVE WHILE DECIDING THE GROUND RAISED BY THE REVENUE. IN OUR CONSIDERED OPINION, THE WITHDRAWAL IN THE MONTH OF OCTOBER AND DECEMBER 99 IS ALSO TO BE CONSIDERED TO EXAMINE THE SOURCE OF MONEY IN THE HANDS OF THE CREDITOR IN THE PRESENT YEAR. WHEN WE DO SO, WE FIND THAT NO PORTION OF LOAN FROM THIS PERSON CAN BE SAID TO BE UNEXPLAINED AND HENCE WE D ELETE THE ADDITION UPHELD BY CIT(A) OF RS.1 LAC IN RESPECT OF LOAN FROM SHRI PRADEEP KUMAR MISHRA. 17. THE REMAINING GROUND OF REVENUES APPEAL IS GROUND NO. 2 REGARDING DELETION OF RS.96,500/ - BE IN G ADDITION MADE BY THE ASSESSING OFFICER IN RESPECT OF L OAN GIVEN BY SMT. VEENA GUPTA . REGARDING THIS LOAN, IT IS NOTED BY CIT(A) IN PARA 32 THAT HER STATEMENT WAS RECORDED BY THE ASSESSING OFFICER AND ASSESSING OFFICER HAS NOT BEEN ABLE TO FIND ANY WEAKNESS IN HER STATEMENT. IT IS ALSO NOTED THAT SHE IS WIFE OF ONE OF THE DIRECTORS OF THE ASSESSEE COMPANY AND IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT HER CREDITWORTHINESS WAS IN DOUBT. HE FURTHER NOTED THAT SHE ADMITTED THAT SHE WAS ALSO RUNNING A BOUTIQUE AND SHE WAS A TAXPAYER. CONSIDERING ALL THESE FACTS, WE ARE OF THE CONSIDERED OPINION THAT NO INTERFERENCE IS CALLED FOR IN THE ORDER OF CIT(A) ON THIS ISSUE. GROUND NO. 2 IS REJECTED. 14 18. NOW THERE I S NO MORE ISSUE IN THE APPEAL OF THE REVENUE BUT IN THE APPEAL OF THE ASSESSEE THERE ARE FIVE OTHER LOANS, WHICH WERE CONFIRMED BY CIT(A) FOR RS.49,930/ - EACH IN THREE CASES I.E. SHRI SANTOSH KUMAR II, SHRI ADITYA BAJAJ AND SHRI VINAMRA GUPTA, RS.50,000/ - FROM SMT. POONAM MISHRA AND RS.90,000/ - FROM SMT. AKTA GUPTA. REGARDING THESE LOANS, WE FIND THAT ADDITION WAS UPHELD BY CIT(A) ON THE BASIS THAT THESE PERSONS WERE NOT HAVING CREDITWORTHINESS. THE AFFIDAVITS OF THESE PERSONS ARE AVAILABLE IN THE PAPER BOOK ON PAGES 119 & 121 FOR TWO PERSONS OUT OF TOTAL 5 PERSONS. IN THESE AFFIDAVITS ALSO, IT IS STA TED BY SHRI VINAMRA GUPTA AND SHRI SANTOSH KUMAR THAT TH EY ARE NOT INCOME TAX PAYER. WE ALSO FIND THAT IN PARA 31 OF HIS ORDER, A CLEAR FINDING IS GIVEN BY CIT(A) THAT SHRI SANTOSH KUMAR APPEARED BEFORE THE ASSESSING OFFICER AND STATED THAT HE WAS AN EMPL OYEE OF THE ASSESSEE COMPANY AND GETTING A MONTHLY SALARY OF RS.2,700/ - PER MONTH AND IN HIS FAMILY, THERE WERE SIX MEMBERS. THIS FINDING IS ALSO GIVEN BY LEARNED CIT(A) THAT THE DRAFTS BY SHRI SANTOSH KUMAR, SHRI VINAMRA GUPTA AND THREE OTHER PERSONS ARE FOR THE SAME AMOUNT AND THE DEMAND DRAFTS NUMBERS ARE RUNNING SERIALLY. HE FURTHER NOTED THAT THE ASSESSEE HAS ALREADY SURRENDERED THE LOAN FROM SHRI RADHEY SHYAM AND SHRI DIWAKAR MISRA AS INCOME. HE FURTHER NOTED THAT THE FACTS IN THE CASE OF SHRI ADIT YA BAJAJ ARE ALSO SIMILAR. HE HAS GIVEN A FINDING THAT THERE IS SUFFICIENT EVIDENCE AGAINST THE LOANS FROM MR. SANTOSH KUMAR, SHRI ADITYA BAJAJ AND SHRI VINAMRA GUPTA. IT IS CLEAR THAT THE CREDITWORTHINESS OF THESE THREE PERSONS COULD NOT BE ESTABLISHED BY THE ASSESSEE BEFORE THE AUTHORITIES BELOW. BEFORE US ALSO, THE ASSESSEE HAS FURNISHED AFFIDAVITS OF TWO PERSONS I.E. SHRI VINMRA GUPTA AND SHRI SANTOSH KUMAR BUT AS PER THESE AFFIDAVITS ALSO, THEY ARE NOT INCOME TAX PAYERS AND CONSIDERING THESE AFFIDAV ITS ALSO, WE FIND THAT THE ASSESSEE COULD NOT ESTABLISH THE CREDITWORTHINESS OF THESE PERSONS. REGARDING REMAINING TWO PERSONS I.E. RS.50,000/ - FROM SMT. POONAM MISRA AND RS.97,000/ - FROM SMT. AKTA 15 GUPTA, A CLEAR FINDING IS GIVEN BY CIT(A) IN PARA 34 OF HIS ORDER THAT THEY DID NOT HAVE FINANCIAL CAPACITY TO GIVE LOAN. THESE FINDINGS OF CIT(A) COULD NOT BE CONTROVERTED BY LEARNED A.R. OF THE ASSESSEE AND THEREFORE, WITH REGARD TO THESE FIVE LOANS, WE FIND NO REASON TO INTERFERE IN THE ORDER OF CIT( A). HENCE, WE CONFIRM THE ADDITION FOR THESE FIVE LOANS AND HENCE, THE ASSESSEE GETS PART RELIEF OF RS.1 LAC IN RESPECT OF GROUND NO. 2 OF THE ASSESSEES APPEAL BEING LOAN FROM SHRI PRADEEP KUMAR MISHRA AND FOR REMAINING FIVE LOANS TOTALING TO RS.2,96,790 / - , ADDITION IS CONFIRMED. GROUND NO. 2 IS PARTLY ALLOWED. 19. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED AND APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) SD/. SD/. (SUNIL KUMAR YADAV) ( A. K. GARODIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 10 /0 3 /2015 *C.L.SINGH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. D.R., I.T.A.T., LUCKNOW ASSTT. REGISTRAR