M/S. AVOCADO TRADING COMPANY PRIVATE LIMITED, Indore V. THE ITO 3(3), Indore

ITA 362/IND/2015

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 4604 (ITAT-INDORE)
• Duration Of Justice: 3 year(s) 8 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-02-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 02-01-2019
• Assessment Year: 2010-2011
• Appeal Filed On: 22-05-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KUSHAGRA JAIN
• Keywords: Unexplained cash credit; Bogus Share capital; Depreciation; Opportunity of being heard; Principle of natural justice; Accommodation entries
• Section: 142(1); 133(6); 68

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE HON'BLE I KUL BHARAT, JUDICIAL MEMBER AND HON'BLE MANISH BORAD, ACCOUNTANT MEMBER ITA NO.362/IND/2015 ASSESSMENT YEAR: 2010-11 AVOCADO TRADING COMPANY PRIVATE LIMITED G.J. SHAH & COMPANY, CHARTERED ACCOUNTANTS 404, MANAS BHAWAN, 11 RNT MARG, INDORE-452001 / VS. ITO 3(3) INDORE (APPELLANT) (REVENUE) PAN: AAGCA4206K ITA NO.363/IND/2015 ASSESSMENT YEAR: 2010-11 ASPIRA NT MERCANTILE COMPANY PRIVATE LIMITED G.J. SHAH & COMPANY,CHARTERED ACCOUNTANTS 404, MANAS BHAWAN, 11 RNT MARG, INDORE-452001 / VS. ITO 3(3) INDORE (APPELLANT) (REVENUE) PAN: AAGCA4207J AVOCADO TRADING CO. AND OTHERS ITA NOS.362 TO 364/IND/2012 2 ITA NO.364/IND/2015 ASSESSMENT YEAR: 2010-11 FROLI C REALTY PRIVATE LIMITED G.J. SHAH & COMPANY,CHARTERED ACCOUNTANTS 404, MANAS BHAWAN, 11 RNT MARG, INDORE-452001 / VS. ITO 3(3) INDORE (APPELLANT) (REVENUE) PAN: AABCF1089Q APPELLANT BY SHRI SUMIT NEMA SR. ADV. & PANKAJ SHAH ADV. REVENUE BY SHRI KUSHAGRA JAIN, CA DATE OF HEARING: 02.01.2019 DATE OF PRONOUNCEMENT: 13.02 .2019 O R D E R PER MANISH BORAD. THE ABOVE CAPTIONED THREE APPEALS FILED AT THE INSTANCE OF THREE DIFFERENT ASSESSEES PERTAINING TO ASSESSMENT YE AR 2010- 11 ARE DIRECTED AGAINST THE ORDERS OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-I (IN SHORT LD.CIT(A)], INDOR E DATED 22.12.2014 WHICH ARE ARISING OUT OF THE ORDERS U/S 1 43(3) DATED 30.03.2013 FRAMED BY ITO-3(3), INDORE. AVOCADO TRADING CO. AND OTHERS ITA NOS.362 TO 364/IND/2012 3 IN THE CASE OF AVOCADO TRADING COMPANY PRIVATE LIMITED IN ITA NO.362/IND/2015, GROUNDS RAISED BY THE ASSESSEE ARE AS FOLLOWS: GROUND 1: ADDITION OF SHARE APPLICATION MONEY U/S 68: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL)-1 INDORE ('CIT( A)') ERRED IN UPHOLDING THE ACTION OF THE INCOME TAX OFFICER 3(3), INDORE ( ' THE AO') IN MAKING ADDITION OF SHARE APPLICATION MONEY AMOUNTING TO RS . 94,00,000/- RECEIVED TOWARDS SHARE CAPITAL AND SHARE PREMIUM UNDER SECTI ON 68 ON THE ALLEGED GROUND THAT IT IS UNEXPLAINED CASH CREDIT. 2. THE APPELLANT PRAYS THAT THE SAID ADDITION BE DE LETED. GROUND 2: ADDITION OF TRADE ADVANCES AS UNEXPLAINED CREDIT 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT(A) ERRED IN THE UPHOLDING THE ACTION OF THE AO IN MAKI NG ADDITION OF TRADE ADVANCES AMOUNTING TO RS.24,77,18,200/- U/S 68 OF T HE ACT 2. THE CIT(A) FAILED TO PROVIDE AN OPPORTUNITY OF CROS S EXAMINATION OF THE PERSONS WHOSE STATEMENT WAS RELIED BY AO WHILE MAKI NG IMPUGNED ADDITIONS. 3. THE APPELLANT PRAYS THAT SINCE THE IDENTITY, CRE DIT WORTHINESS AND GENUINENESS WAS PROVED BY THE APPELLANT, THE IMPUGN ED ADDITION BE DELETED. GROUND 3: ADHOC DISALLOWANCES 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A) ERRED IN UPHOLDING THE VARIOUS ADHOC DISALLO WANCES MADE BY AO AMOUNTING TO RS.2,62,243 TOWARDS AUDIT FEES, BANK C HARGES, SALARIES, ETC. AND RS. 78,148 TOWARDS DEPRECIATION ON VEHICLE. 2. THE APPELLANT PRAYS THAT THE SAID DISALLOWANCES BE DELETED. IN THE CASE OF ASPIRANT MERCANTILE COMPANY PRIVATE LIMIT ED IN ITA NO.363/IND/2015, GROUNDS RAISED BY THE ASSESSE E ARE AS FOLLOWS: GROUND 1: ADDITION OF SHARE APPLICATION MONEY U/S 68: 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED AVOCADO TRADING CO. AND OTHERS ITA NOS.362 TO 364/IND/2012 4 COMMISSIONER OF INCOME TAX (APPEAL)-1 INDORE ('CIT( A)') ERRED IN UPHOLDING THE ACTION OF THE INCOME TAX OFFICER 3(3), INDORE ( ' THE AO') IN MAKING ADDITION OF SHARE APPLICATION MONEY AMOUNTING TO RS . 1,15,00,000 RECEIVED TOWARDS SHARE CAPITAL AND SHARE PREMIUM UNDER SECTI ON 68 ON THE ALLEGED GROUND THAT IT IS UNEXPLAINED CASH CREDIT. 2. THE APPELLANT PRAYS THAT THE SAID ADDITION BE DE LETED. GROUND 2: ADDITION OF TRADE ADVANCES AS UNEXPLAINED CREDIT 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT(A) ERRED IN THE UPHOLDING THE ACTION OF THE AO IN MAKI NG ADDITION OF TRADE ADVANCES AMOUNTING TO RS.9,03,41,500 U/S 68 OF THE ACT 2. THE CIT(A) FAILED TO APPRECIATE AND OUGHT TO HAVE H ELD THAT RS.9,03,41,500 IS ACTUALLY REPAYMENT OF TRADE ADVANCE OF RS.9,48,5 1500 LEAVING BALANCE OF RS.45,00,000 3. THE CIT(A) FAILED TO PROVIDE AN OPPORTUNITY OF CROS S EXAMINATION OF THE PERSONS WHOSE STATEMENT WAS RELIED BY AO WHILE MAKI NG IMPUGNED ADDITIONS. 4. THE APPELLANT PRAYS THAT SINCE THE IDENTITY, CREDIT WORTHINESS AND GENUINENESS WAS PROVED BY THE APPELLANT, THE IMPUGN ED ADDITION BE DELETED. GROUND 3: ADHOC DISALLOWANCES 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A) ERRED IN UPHOLDING THE VARIOUS ADHOC DISALLO WANCES MADE BY AO AMOUNTING TO RS.2,60,947 TOWARDS AUDIT FEES, BANK C HARGES, SALARIES, ETC. AND RS. 78,148 TOWARDS DEPRECIATION ON VEHICLE. 2. THE APPELLANT PRAYS THAT THE SAID DISALLOWANCES BE DELETED. IN THE CASE OF FROLIC REALTY PRIVATE LIMITED IN IITA NO.364/IND/2015, GROUNDS RAISED BY THE ASSESSEE ARE AS FOLLOWS: GROUND 1: ADDITION OF SHARE APPLICATION MONEY U/S 68: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL)-1 INDORE ('CIT( A)') ERRED IN UPHOLDING THE ACTION OF THE INCOME TAX OFFICER 3(3), INDORE ( ' THE AO') IN MAKING ADDITION OF SHARE APPLICATION MONEY AMOUNTING TO RS . 1,15,00,000 RECEIVED TOWARDS SHARE CAPITAL AND SHARE PREMIUM UNDER SECTI ON 68 ON THE ALLEGED GROUND THAT IT IS UNEXPLAINED CASH CREDIT. AVOCADO TRADING CO. AND OTHERS ITA NOS.362 TO 364/IND/2012 5 2. THE APPELLANT PRAYS THAT THE SAID ADDITION BE DE LETED. GROUND 2: ADDITION OF TRADE ADVANCES AS UNEXPLAINED CREDIT 1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN THE UPHOLDING THE ACTION OF THE AO IN MAKI NG ADDITION OF TRADE ADVANCES AMOUNTING TO RS.11,66,74,000/- U/S 68 OF T HE ACT. 2.THE CIT(A) FAILED TO PROVIDE AN OPPORTUNITY OF CR OSS EXAMINATION OF THE PERSONS WHOSE STATEMENT WAS RELIED BY AO WHILE MAKI NG IMPUGNED ADDITIONS. 3. THE APPELLANT PRAYS THAT SINCE THE IDENTITY, CRE DIT WORTHINESS AND GENUINENESS WAS PROVED BY THE APPELLANT, THE IMPUGN ED ADDITION BE DELETED. GROUND 3: ADHOC DISALLOWANCES 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A) ERRED IN UPHOLDING THE VARIOUS ADHOC DISALLOWANCES MADE BY AO AMOUNTING TO RS.78,407/- TOWARDS AUDIT FEES, BANK CHARGES, SALARIES, ETC. AND RS.33,801/- TOWARDS DEPRECIATION ON VEHICLE. 2.THE APPELLANT PRAYS THAT THE SAID DISALLOWANCES B E DELETED. 2. FROM PERUSAL OF ABOVE GROUNDS, WE OBSERVE THAT MOS T OF THE ISSUES ARE COMMON, THEREFORE, THESE APPEALS WERE H EARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORD ER FOR THE SAKE OF CONVENIENCE AND BREVITY: 3. FIRST COMMON ISSUE RAISED IN GROUND NO.1 OF EACH O F THREE APPEALS RELATES TO ADDITION U/S 68 OF THE ACT FOR UNEXP LAINED SHARE APPLICATION MONEY AT RS.94,00,000/-, RS. 1,15,00,000/- AND RS. 1,15,00,000/- IN THE CASES OF AVOCADO TRADING COMPANY PRIVATE LIMITED, ASPIRANT MERCANTILE COMPANY PRIVATE LIMITED & FROLIC REALTY PRIV ATE LIMITED, RESPECTIVELY. AVOCADO TRADING CO. AND OTHERS ITA NOS.362 TO 364/IND/2012 6 4. AT THE OUTSET LD. COUNSEL FOR THE ASSESSEE REQUEST ING FOR SETTING ASIDE THIS ISSUE TO THE FILE OF LD. ASSESSIN G OFFICER SUBMITTED THAT VARIOUS DOCUMENTS RELATING TO IDENTITY , GENUINENESS AND CREDITWORTHINESS WERE FILED BEFORE T HE LOWER AUTHORITIES. ONLY 17 DAYS WERE GIVEN TO THE ASS ESSEE TO EXPLAIN THE ALLEGED CASH CREDIT. NECESSARY DOCUMENTS WE RE FILED, HOWEVER, THE LD. AO MADE THE ADDITION JUST FOR NON- COMPLIANCE OF NOTICES ISSUED U/S 133(6) OF THE ACT AN D NON- APPEARANCE OF THE DIRECTORS OF THE ALLEGED COMPANIES GIV ING SHARE APPLICATION MONEY. 5. PER CONTRA LD. DEPARTMENTAL REPRESENTATIVE (DR) STRO NGLY OPPOSED THE REQUEST OF LD. COUNSEL FOR THE ASSESSEE AN D HEAVILY RELIED ON DETAILED FINDING OF LD. CIT(A) SUBM ITTING THAT THE ASSESSEE HAS BEEN UNABLE TO PROVE THE GENUINE NESS AND CREDITWORTHINESS OF THE SHARE APPLICANTS AS THEY ALL APPEARS TO BE BOGUS PROVIDING ACCOMMODATION ENTRIES. 6. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE RE CORD PLACED BEFORE US. THE COMMON ISSUE RAISED IN GROUND N O.1 OF EACH ALL THREE APPEALS RELATE TO ADDITION FOR UNEXPLAI NED SHARE APPLICATION MONEY U/S 68 OF THE ACT AT RS.94,00,000/-, RS. 1,15,00,000/- AND RS. 1,15,00,00 0/- IN AVOCADO TRADING CO. AND OTHERS ITA NOS.362 TO 364/IND/2012 7 THE CASES OF AVOCADO TRADING COMPANY PRIVATE LIMITED, ASPIRANT MERCANTILE COMPANY PRIVATE LIMITED & FROLIC REALTY PRIVATE LIMITED, RESPECTIVELY. BOTH THE LOWER AUTHORITIES HAVE HELD THE ALLEGED SHARE APPLICANTS AS BOGU S AND ACCOMMODATION ENTRIES PROVIDER. 7. THE LD. COUNSEL FOR THE ASSESSEE, HAS REFERRED TO VARIOUS DOCUMENTS FURNISHED IN SUPPORT TO PROVE THE IDENTIT Y, GENUINENESS AND CREDITWORTHINESS OF ALL THESE CREDITO RS. REFERENCE HAVE ALSO BEEN MADE TO THE REMAND REPORT OF T HE ASSESSING OFFICER DATED 17.09.2014 WHICH SUPPORTS THE SUBMISSIONS MADE BY LD. COUNSEL FOR THE ASSESSEE TO A WIDE EXTENT. 8. WE HOWEVER, IN THE GIVEN FACTS AND CIRCUMSTANCES O F THE CASE FIND THAT EXCEPT FOR THE NON-COMPLIANCE TO NOTICE U/S 133(6) OF THE ACT BY SOME OF THE ALLEGED SHARE APPLICAN T COMPANIES AND NON-APPEARANCE OF THE DIRECTORS AND IN SOME CASES NOTICE BEING NOT SERVED, ASSESSEE HAS TRIED ITS LEVEL BEST TO EXPLAIN THE ALLEGED SHARE APPLICATION MONE Y RECEIVED FROM VARIOUS COMPANIES BY FILING COPY OF PA N, ACKNOWLEDGMENT OF INCOME TAX RETURN, AUDITED FINANCIAL STATEMENT, CONFIRMATION FOR INVESTMENTS IN SHARES, AVOCADO TRADING CO. AND OTHERS ITA NOS.362 TO 364/IND/2012 8 CERTIFICATE OF INCORPORATION OF THE COMPANIES AND THE PROOF OF RECEIVING SHARE APPLICATION MONEY BY ACCOUNT PAYEE CHEQUES. EVEN IN THE REMAND REPORT LD. AO HAS CATEGORIC ALLY MENTIONED THAT IN THE CASE OF JODHPUR ISPAT PRIVATE LIM ITED, BHIWANDI, MAHARASHTRA, BENCO IRON STEEL PRIVATE LIMITED AND GANDHAR SPINNING MILLS PRIVATE LIMITED THE ALLEGED SHARE APPLICANTS HAVE CONFIRMED THAT THEY HAVE BEEN ALLOTTED RESPECTIVE NUMBER OF EQUITY SHARES. THUS, IT EMERGES THAT THE ASSESSEE TRIED ITS LEVEL BEST BY FUR NISHING NECESSARY DETAILS TO EXPLAIN THE SOURCE OF SHARE APPLICAT ION MONEY, BUT COULD NOT ESCAPE THE ADDITION. FURTHER LOO KING TO THE FACT THAT ONLY AROUND TWO WEEKS WERE PROVIDED T O MAKE NECESSARY COMPLIANCE, WE, BEING FAIR TO BOTH THE PARTIES AND APPLYING THE PRINCIPLES OF NATURAL JUSTICE, ARE OF THE CONSIDERED VIEW THAT THIS COMMON ISSUE DESERVES TO BE SET ASIDE TO THE FILE OF LD. AO FOR AFRESH EXAMINATION AS THE ASSESSEE DESERVES ONE MORE OPPORTUNITY IN ORDER TO S ATISFY THE ASSESSING OFFICER ABOUT IDENTITY, GENUINENESS AND CREDITWORTHINESS OF THE ALLEGED SHARE APPLICATION MONEY OF RS.94,00,000/-, RS. 1,15,00,000/- AND RS. 1,15,00,00 0/- IN THE CASES OF AVOCADO TRADING COMPANY PRIVATE LIMITED, ASPIRANT MERCANTILE COMPANY PRIVATE LIMITED & FROLIC AVOCADO TRADING CO. AND OTHERS ITA NOS.362 TO 364/IND/2012 9 REALTY PRIVATE LIMITED, RESPECTIVELY. NEEDLESS TO MEN TIONS THAT A PROPER OPPORTUNITY OF BEING HEARD AS WELL AS REASONABLE TIME TO BE PROVIDED TO THE ASSESSEE AND ALLEG ED SHARE APPLICANTS. BEFORE DECIDING THE ISSUE LD. AO SHO ULD GIVE COGNIZANCE TO REMAND REPORT DATED 17.09.2014 AND OTHER DETAILS/EVIDENCE AND DOCUMENTS FURNISHED BEFORE HIM, IN ORDER TO SATISFY ABOUT IDENTITY, GENUINENESS AND CREDITWORTHINESS OF THE ALLEGED SHARE APPLICANTS. ACCOR DINGLY THIS COMMON ISSUES RAISED IN GROUND NO.1 OF EACH OF T HE THREE APPEALS IS ALLOWED FOR STATISTICAL PURPOSES. 9. NOW WE TAKE UP COMMON ISSUE RAISED IN GROUND NO.2 OF EACH THREE APPEALS RELATING TO ADDITION OF TRADE ADVANCES TREATED AS UNEXPLAINED CASH CREDIT. 10. FOR THE PURPOSE OF ADJUDICATION WE WILL TAKE THE F ACT RELATING TO M/S. AVOCADO TRADING COMPANY PRIVATE LIMITE D. 11. BRIEF FACTS ARE THAT THE ASSESSE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF TRADING. INCOME OF RS. 1,60,889/- DECLARED IN THE E-RETURN OF INCOME FILED ON 15.10.2010. CASE SELECTED FOR SCRUTINY AND NECESSARY NOTICES U/S 143(2) AND 142(1) OF THE ACT SERVED UPON THE ASSESSEE. APART FROM THE EXAMINATION OF THE SHARE AVOCADO TRADING CO. AND OTHERS ITA NOS.362 TO 364/IND/2012 10 APPLICATION MONEY (AS HAS BEEN DISCUSSED BY US IN THE PRECEDING PARAS), THE LD. AO ALSO INQUIRED ABOUT THE TRANSACTIONS ENTERED WITH M/S SATGURU IRON & STEEL P. LTD. WHEREIN TOTAL CREDITS FOR THE YEAR AMOUNTED TO RS.13,42,08,200/-, UNSECURED LOAN FROM SHREEYAM POWER & STEEL PVT. LTD. OF RS.10,76,60,000/- AND THE AMOUNT RECEIVED AT RS.48,50,000/- FROM FROLIC REALITY PVT. L TD. AND RS.10,00,000/- FROM BENCO FINANCE AND INVESTMENT PVT. LTD. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASSE SSEE SUBMITTED THAT THESE ARE REGULAR TRADE ADVANCES HAVING DEBIT AND CREDIT TRANSACTIONS DURING THE YEAR AND THEY ARE NOT IN THE NATURE OF UNSECURED LOANS BUT LD. AO WAS NO T CONVINCED AND HE MADE THE ADDITION FOR RS.24,77,18,200 /- FOR THE ALLEGED TRADE ADVANCES/CASH CREDITS. AGAINST THEI R ADDITION ASSESSEE FAILED TO GET ANY RELIEF FROM LD. CIT (A) WHO TOO RAISED SUSPICION ON THE GENUINENESS OF THE TRANSAC TIONS AND CONFIRMED THE ADDITION OF RS.24.77 CR. OBSERVING AS FOLLOWS: 11. GR. NO.3 OF APPEAL IS AGAINST ADDITION OF UNEXP LAINED CREDIT OF RS.24,77,18,200/- U/S 68 OF THE LT. ACT. AS DISCUSSED IN PARE 10.6 OF THIS ORDER APPELLANT IS MERELY A SHELL COMP ANY OF RUCHI SOYA GROUP CONSISTING OF VARIOUS GROUP COMPANIES NA MELY M/S NATIONAL STEEL & AGRO INDUSTRIES LTD., M/S R:UCHI AGROTECH P. LTD., M/S RUCHI INTEGRATED STEEL, M/S RUCHI POWER CORPORATION LTD., AND OTHERS. THEREFORE APPELLANT COMPANY HAS N O GOAL OR AVOCADO TRADING CO. AND OTHERS ITA NOS.362 TO 364/IND/2012 11 OBJECTIVE OF ITS OWN AND ALL ITS TRANSACTIONS ARE D IRECTED & CONTROLLED BY THE RUCHI SOYA GROUP. IT DOES NOT REQ UIRE ELABORATE ARGUMENTS TO PROVE THIS POINT. APPELLANT IS NOT DOI NG ANY REAL BUSINESS AND FEW TRANSACTIONS OF TRADING OF YELLOW PEAS IS SHOWN WITH A LITTLE HELP FROM RUCHI SOYA GROUP TO C REATE A FACADE. EVEN FOR SUCH FACADE OF A SMALL TIME TRADER APPELLANT HAS NO REQUIREMENT OF ITS OWN, EITHER TO RAISE A HU GE SHARE CAPITAL & SHARE PREMIUM OF RS.24.80 CRORE OR TO TAKE UNSECURE D LOANS OF RS.10 LACS FROM M/S BENCO FINANCE & INVESTMENT P. LTD., RS.48,5O,000/- FROM M/S FROLIC REALITY P. LTD, RS.10.76 CRORE FROM M/S SHREEYAM POWER & STEEL INDUSTRIES LTD. & RS.13,42,08,200/ - FROM M/S SATGURU IRON & STEEL P. LTD. ALL THESE TRANSACTIONS THEREFORE DO NOT MAKE ANY BUSINESS SENSE, SO FAR AS APPELLANT IS CONCERNED, BUT THEY HAVE BEEN CARRIED OUT KEEPIN G IN MIND TRANSFER OF FUNDS TO BENEFICIARY COMPANIES IN GUISE OF SHARE CAPITAL/ SHARE PREMIUM/LOANS/BUSINESS TRANSACTIONS ETC. ALTHOUGH APPELLANT IS NOT A REAL TRADER & HAVE ONLY A FACADE OF A TRADER, BUT EVEN FOR A MOMENT IF WE CONSIDER, THAT IT IS A REAL TRADER OF COMMODITY, ITS NORMAL TRANSACTIONS WILL B E OF PURCHASE & SALE OF COMMODITY & FOR A TURNOVER OF RS.14.80 CRORE IN COMMODITY MARKET IN WHOLE OF THE YEAR, REQUIREMENT OF FUNDS AS LOAN/SHARE CAPITAL IS AT THE MOST 1/ 10 TH OF SUCH AMOUNT I.E. RS.L.48 CRORE AS THERE IS CONTINUOUS ROTATION IN TR ADING ACTIVITY. BUT AS AGAINST THAT REQUIREMENT, APPELLANT HAS RAIS ED A SHARE CAPITAL & SHARE PREMIUM OF RS.24.80 CRORES & OVER AND ABOVE THAT , APPELLANT IS SHOWING RECEIPT OF UNSECURED LO ANS OF RS.24.77 CRORE. SO APPELLANT HAS SHOWN TOTAL CASH C REDITS IN IT.S ACCOUNTS TO THE EXTENT OF RS.49.57 CRORES FOR ARRIV ING AT A TRADING TURNOVER OF RS.14.80 CRORE. THOUGH SOME OF LOANS WERE RETURNED BACK, BUT FACT REMAINS THAT AT SOME POINT OF TIME DURING THE YEAR, SUCH LOANS WERE OUTSTANDING & FACT THAT SUCH LOANS WERE NOT USED FOR ANY BUSINESS PURPOSE BY APP ELLANT, IS ALSO NOT CONTROVERTED BY APPELLANT. 11.1 IN FACT, ON BEING CONFRONTED WITH SUCH DAUNTING TAS K TO EXPLAIN THESE HUGE CREDITS, APPELLANT CAME UP WITH A FUNNY IDEA DURING REMAND PROCEEDINGS BEFORE THE AO, THAT TRANSACTIONS OF RS.13.42 CRORES WITH M/S SATGURU IRON & STEEL P. LTD ARE NOT UNSECURED LOANS BUT TRADE ADVANCES & WHILE THEY WANT TO PURCHASE SOME COMMODITY ITEM FROM APPELLANT, APPELL ANT WANTED TO PURCHASE STEEL FROM THEM. FIRSTLY NOT AN IOTA OF EVIDENCE IS THERE TO SHOW ANY PURCHASE OR SALE OF S TEEL/ COMMODITY BETWEEN THE TWO. SECONDLY THAT IS PITIABL E NATURE OF SUCH COMPANIES, AS BOTH THE COMPANIES HERE I.E. APP ELLANT & M/ AVOCADO TRADING CO. AND OTHERS ITA NOS.362 TO 364/IND/2012 12 S SATGURU IRON & STEEL P. LTD BEING SHELL COMPANIES OF RUCHI SOYA GROUP, WHO WERE PROJECTED AS DOING SOME TRADE, SUDDENLY CHANGED NATURE OF TRADE, AS A RESULT OF WHICH APPEL LANT WHO WAS TRADER OF YELLOW PEAS WAS SUDDENLY SHOWN AS ORD ERING CERTAIN STEEL FROM M/S SATGURU IRON & STEEL P. LTD & VI CE-VERSA. IN VIEW OF THIS THE SUBSEQUENT STATEMENT OF SOME OT HER DIRECTOR NAMELY SH. VIJAY RAO OF M /S SATGURU IRON & STEEL LTD RECORDED DURING REMAND PROCEEDING, WHO EXPLAINED THIS AS 'TR ADE ADVANCE' EVEN FURTHER EXPOSED THE MODUS OPERANDI OF APPELLANT. 11 !LIE TRANSACTIONS OF RS.13.42 CRORE WITH M/ S SATGURU IRON & STEEL P. LTD COULD NOT BE EXPLAINED AS UNSECURED LO AN, AS THERE WAS NO REQUIREMENT OF SUCH LOANS, THAN APPELLANT TR IED TO EXPLAIN IT AS 'TRADE ADVANCE'. BUT THERE ARE NO PUR CHASES OR SALES BETWEEN THESE TWO CONCERNS DURING THE YEAR. T HEN SAME QUESTION PERSISTS - WHAT IS THE NEED OF SUCH TRADE ADVANCE & WHY WILL APPELLANT AS A TRADER OF YELLOW PEAS WOULD GIVE ADVANCE FOR PURCHASE OF STEEL. SO THE QUESTION OF P URPOSE OF TAKING SUCH CREDIT OF RS.13.42 CRORE FROM M/ S SATGURU IRON & STEEL P. LTD REMAIN UNANSWERED BECAUSE APPELLANT IS A SHELL COMPANY & THIS TRANSACTION, AS WELL AS OTHER CREDIT TRANSACTI ONS DO NOT MAKE ANY SENSE FROM THE POINT OF VIEW OF APP ELLANT. 11.2 THIS POINT IS BEAUTIFULLY CAPTURED BY AO IN THE STA TEMENT OF ONE OF THE DIRECTORS SH. SHAILESH GUPTA OF M/S SATGURU IRON & STEEL P. LTD. RECORDED BY AO DURING ASSESSMENT PROC EEDINGS, IN WHICH THE DIRECTOR FAILED TO ANSWER ALL RELEVANT QU ESTIONS AS HE FAILED TO TELL AS TO WHO SIGNS THE CHEQUES OR WHO A RE SHARE HOLDERS OR WHERE ARE BANK ACCOUNTS OF M/S SATGURU IRON & STEEL P.LTD., OF WHICH HE WAS A DIRECTOR. IN A REAL COMPA NY, DIRECTOR KNOWS ANSWERS TO ALL THESE QUESTIONS. BUT NAMESAKE DIRECTORS OF PAPER I SHELL COMPANIES DO NOT KNOW ANSWERS OF SUCH SIMPLE QUESTIONS, BECAUSE SUCH COMPANIES EXIST ON PAPERS, THEY DO BUSINESS ON PAPERS ONLY, THEIR DIRECTORS MERELY EXI ST ON PAPERS & IN REALITY THEY ARE EMPLOYEES OF BENEFICIARY CO. RO TATION OF SLUSH FUNDS & TRANSFER OF THE SAME TO BENEFICIARY COS OF RUCHI SOYA GROUP IS BEING DONE BY SELECT GROUP CONFIDENT, IN THIS CASE BY SH. RAVINDRA KUMRAVAT GROUP ACCOUNTANT & THE SO CALLED DIRECTORS OF SHELL COMPANIES WARE NOT PRIVY TO SUCH ROTATION OF FUNDS & THAT IS WHY THEY HARDLY KNEW ANYTHING ABOUT SUCH SHELL COMPANIES. IN THIS CASE SH. SHAILESH GUPTA WA S AN EMPLOYEE OF M/S NATIONAL STEEL & AGRO LTD FOR PAST 18 YEARS, WAS PROJECTED AS A DIRECTOR OF M/ S SATGURU IRON & STEEL P. LTD. BUT HE EXISTED AS DIRECTOR ON PAPER AS HE HAD NO KNOWLEDGE ABOUT ACTIVITIES OF SUCH COMPANY. FURTHERMORE HE ST ATED THAT THE AVOCADO TRADING CO. AND OTHERS ITA NOS.362 TO 364/IND/2012 13 OTHER DIRECTOR OF SUCH COMPANY- WAS MRS. REENA GOME S, WHO INTERESTINGLY WAS ALSO DIRECTOR OF APPELLANT COMPAN Y NAMELY M/S AVOCADO TRADING CO. P. LTD., BUT DURING REMAND PROCEEDINGS THEY PRODUCED A THIRD PERSON MR. VIJAY RAO FOR EXAM INATION BEFORE AO. APPELLANT'S HESITATION IN PRODUCING SAME DIRECTORS NAMELY SH. SHAILESH GUPTA (FOR M / S SATGURU IRON & STEEL P. LTD.), SH. DINESH GUPTA (M/S FROLIC REALITY P. LTD) & SHRI VIJAY UNDE (M/S SHREEYAM POWER & STEEL IND.) DURING REMAND PROCEEDINGS BEFORE AO PROVED TWO THINGS FIRSTLY THA T PROVES THE IGNORANCE OF THOSE DIRECTORS REGARDING SUCH SHELL C OMPANIES AS THE STATEMENTS OF SUCH DIRECTORS RECORDED DURING AS SESSMENT BECAME FINAL, AS PROCEDURE REQUIRED THAT SAME DIREC TORS SHOULD HAVE BEEN PRODUCED BEFORE AO FOR EXAMINATION DURING REMAND PROCEEDINGS BUT APPELLANT FAILED TO DO THAT & THUS STATEMENTS OF THOSE DIRECTORS BECAME FINAL & THOSE STATEMENTS COULD NOT BE REVERSED BY STATEMENTS OF SOME OTHER DIRECTORS/EMPL OYEES RECORDED DURING REMAND PROCEEDINGS. SECONDLY DURING REMAND PROCEEDINGS AO DID NOT FOLLOW THE PROCEDURE AS HE D ID NOT DEMAND FOR PRODUCTION OF SAME DIRECTORS. AO ALSO DI D NOT ACT ON HIS BRIEF, AS IT WAS NOT SHEER CONFIRMATION OF LOAN ENTRY WHICH WAS REQUIRED TO BE ASKED IN A STATEMENT, FOR WHICH EVEN A CONFIRMATION LETTER COULD DO, BUT WHAT WAS REQUIRED HERE WAS TO EXAMINE WHETHER THERE WAS ANY NEED OF SUCH HUGE LOA NS/SHARE CAPITAL IN BUSINESS OF APPELLANT AS A TRADER & WHETHER ANY REAL BUSINESS WAS CARRIED OUT BY SUCH COMPANY AND WHETHE R SUCH DIRECTORS WERE AWARE OF VARIOUS FACTS ABOUT THE COM PANY. IN VIEW OF SUCH DISCUSSION, IT IS CLEAR THAT ENTIRE OF SUCH CREDITS OF RS.24.77 CRORE REMAINED UNEXPLAINED, AS ABSOLUTELY NO BUSINESS PURPOSE WAS SHOWN BY APPELLANT FOR TAKING SUCH LOANS. 12. AGGRIEVED ASSESSEE IS NOW IN APPEAL BEFORE THE TRI BUNAL. 13. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ALL TH E ALLEGED AMOUNTS ARE DULY EXPLAINED. ALL NECESSARY DOCUMENTS TO PROVE THE IDENTITY, GENUINENESS AND CREDITWORTHINESS OF THE CREDIT ADVANCE OF RS.58,50,00 0/- RECEIVED FROM M/S BENCO FINANCE & INVESTMENT P. LTD. & AVOCADO TRADING CO. AND OTHERS ITA NOS.362 TO 364/IND/2012 14 M/S. FROLIC REALITY P. LTD. STANDS EXPLAINED. AS REGARD S THE ADVANCE OF RS.13,42,08,200/-, IT WAS SUBMITTED THAT THE TOTAL OF THESE TRANSACTIONS WERE CARRIED OUT ON THE SAME DATE I.E. 31.03.2010 AND THEY WERE CORRESPONDING DEBIT EN TRIES OF RS.13,42,08,200/- AND THE NET DEBIT BALANCE OF THE YEAR WAS RS.20,00,000/-. WITH REGARD TO THE UNSECURED LOAN OF RS.10,76,60,000/-, IT WAS SUBMITTED THAT THE DEPUTY GENERAL MANAGER OF M/S. SHREEYAM POWER & STEEL INDUSTRIES LTD., MR. VIJAY UNDE, WAS PRODUCED BEFORE LD. ASSESSING OFFICER ALONG WITH THE NECESSARY DOCUMENTARY DETAILS AND IT WAS STATED THAT AMOUNT OF RS.10,76,60,000 /- HAS BEEN GIVEN BY SHREEYAM POWER & STEEL INDUSTRIES L TD. TO THE ASSESSEE COMPANY. LD. COUNSEL FOR THE ASSESSEE ALSO RELIED ON THE FOLLOWING WRITTEN SUBMISSION FILED DU RING THE HEARING: 1 REGARDING ADDITION ON ACCOUNT OF TRADE ADVANCES RS. 58,50,000/- DURING THE YEAR UNDER CONSIDERATION THE APPELLANT H AS RECEIVED TRADE ADVANCES FROM FOLLOWING PARTIES: NAME OF LENDER AMOUNT IN RS. M/S BENCO FINANCE PRIVATE LIMITED 10,00,000 M/S FROLIC REALITY PRIVATE 48,50,000 AVOCADO TRADING CO. AND OTHERS ITA NOS.362 TO 364/IND/2012 15 LIMITED 2.1. THAT DURING THE ASSESSMENT PROCEEDINGS APPELLA NT HAS SUBMITTED VARIOUS DOCUMENTS TO PROVE THE IDENTITY OF THE CRED ITORS, GENUINENESS AND CREDITWORTHINESS AND SOME DOCUMENTS HAS BEEN FILED ALONG WITH THE PAPER BOOK. BELOW IS THE SNAPSHOT SHOWING THE DOCUMENTS FILED B EFORE THE LD AO. 2.2 THAT DURING THE ASSESSMENT PROCEEDINGS THE APPE LLANT PRODUCED THE DIRECTORS OF M/S BENCO FINANCE AND INVESTMENTS AND M/S FROLIC REALTY PRIVATE LIMITED I.E SHRI VIJAY KOSHTI AND SHRI DINE SH GUPTA RESPECTIVELY BEFORE THE AO AND THEIR STATEMENTS WERE RECORDED AN D THE LEARNED AO MADE IMPUGNED ADDITION OF THE ADVANCES ON THE GROUN D THAT THE DIRECTORS WERE NOT ABLE TO ANSWER SOME QUESTIONS PROPERLY AND ASSUMED THAT THE IDENTITY AND CREDITWORTHINESS ARE DOUBTED. AVOCADO TRADING CO. AND OTHERS ITA NOS.362 TO 364/IND/2012 16 2.5 STRONG RELIANCE IS PLACED ON REMAND REPORT DATED 17 /09/2014 REMAND PROCEEDINGS IN THE REMAND PROCEEDINGS AS REGARDS THE ADVANCE FR OM M/S BENCO FINANCE PRIVATE LIMITED THE DIRECTOR SHRI VIJAY KOSHTI ONCE AGAIN APPEARED AND CONFIRMED THE TRANSACTION OF TRADE ADVANCE BEEN MAD E BY HIS COMPANY. ON ENQUIRY HE STATED THAT HE WAS NOT ABLE TO ANSWER CE RTAIN QUERIES IN THE ASSESSMENT PROCEEDINGS SINCE HE HAD BECAME A DIRECT OR IN THE COMPANY IN THE MONTH OF FEBRUARY 2013 ONLY AND IN SUCH SMALL T IME HE WAS NOT AWARE OF ENTIRE FRAMEWORK OF THE COMPANY. MOREOVER HE WAS NOT ALLOWED TO REFER ANY DOCUMENTS AND CONSULT HIS EMPLOYEES SINCE NOBOD Y WAS ALLOWED IN THE CABIN WHEN THE STATEMENT WAS BEING RECORDED. IN RESPECT OF TRADE ADVANCE RECEIVED FROM M/S FROLI C REALTY PRIVATE LIMITED ANOTHER DIRECTOR SHRI RAJENDRA MAGAR APPEARED AND C ONFIRMED THE TRANSACTION OF IMPUGNED LOAN AS TRADE ADVANCE. WITH REGARD TO STATEMENT OF DIRECTOR SHRI DINESH GUPTA WHICH WAS RECORDED IN OR IGINAL ASSESSMENT PROCEEDINGS HE STATED THAT SHRI GUPTA WAS LOOKING A FTER MARKETING FUNCTION OF THE COMPANY AND THEREFORE WAS NOT AWARE OF ADMIN ISTRATIVE FUNCTION OF THE COMPANY. FURTHER IN PARA 5.1.1, 5.1.2 & 5.2 OF REMAND REPORT DATED 17/09/2014 THE LD AO HAS ACCEPTED THE GENUINENESS O F THE TRANSACTION RELEVANT PARA ARE REPRODUCED AS UNDER:- 5.1. IN REPLY TO THE NOTICE U/S 133(6) OF TH ACT MENTIONED SUPRA THE SHARE APPLICANTS, JODHPUR ISPAT PVT. LTD., BHIWANDI, BENCO IRON & STEEL PVT. LTD AND GANDHAR SPINNING MILL PVT. LTD, VIDE THEIR LETTER DATED 6 TH AND 8 TH SEPTEMBER, 2014, HAVE CONFIRMED THAT THEY HAD PAID RS. 24,00,000/-, RS. 21,50,000/- AND RS, 48,50,000/- RESPECTIVELY, TOTALING TO RS. 94,00,000/-, TO THE ASSESSEE COMPANY TOWARDS SHARE APPLICATION MONEY. IT WAS ALSO CONFIRMED HA THEY HAVE BEEN ALLOTTED RESPECTIVE NUMBER OF EQUITY SHARES. IN SUPPORT OF THE CONTENTION THEY HAVE FURNISHED THE COPY OF SHARE APPLICATION AND SHARE ALLOTMENT LETTER. THE PAYMENT WAS MADE THROUGH CHEQUES. 5.1.1. SINCE THE SHARE APPLICANTS HAVE CONFIRMED TH E TRANSACTION WITH SUPPORTING DOCUMENTARY EVIDENCES. IT APPEAR THAT THE TRANSACTION WAS GENUINE. 5.1.2. REGARDING UNSECURED LOANS FROM BENCO FINANCE & INVESTMENT PVT. LTD., THE DIRECTOR, $HRI VIJAY KOSHTI, WAS ONCE AGAIN CALLED [ 131 OF THE ACT AND HIS STATEMENT WAS RECORDED. IN HIS STATEMENT HE HAS CATEGORICALLY STATED THAT HIS COMPANY, BENCO FINANCE & INVESTMENT, HAD AVOCADO TRADING CO. AND OTHERS ITA NOS.362 TO 364/IND/2012 17 GIVEN ADVANCE OF RS. 10 1AKH TO THE ASSESSEE COMPANY OUT OF ITS RESERVES AND SURPLUS. WHEN ASKED AS TO WHY HE WAS NOT ABLE TO ANSWER THE IMPORTANT QUESTIONS ASKED BY THE AO AT THE TIME OF ASSESSMENT PROCEEDINGS, HE ANS WERED THAT HE BECAME THE: DIRECTOR OF THE COMPANY IN THE MONTH OF FEBRUARY. 2013 ONLY AND, THEREFORE, AT THAT TIME HE WAS NOT AWARE OF THE ENTIRE FRAME WORK OF THE COMPANY. HE ALSO STATED THAT AT THE TIME OF RECORDING STATEM ENT NOBODY WAS ALLOWED TO SIT WITH HIM. 5.1.3. IN RESPECT OF FROLIC REALITY PVT. LTD., THE DIRECTOR, SHRI RAJENDRA MAGAR, WAS CALLED U/S 131 OF THE ACT AND HIS STATEM ENT WAS RECORDED. IN HIS STATEMENT SHRI MAGAR HAS CATEGORICALLY STATED THAT HIS COMPANY HAD GIVEN RS. 4850,000/- TO THE ASSESSEE COMPANY DURING THE PERIOD UNDER CONSIDERATION AS TRADE ADVANCE. REGARDING THE STATEMENT GIVEN BY SHRI DINESH GUPTA DURING THE COURSE OF ASSESSMENT P ROCEEDINGS, 8M MAGAR HAS STATED THAT THE REASON MAY BE THAT SINCE SHRI GUPTA WAS LOOKING AFTER MARKETING AREA OF THE COMPANY HE WAS NOT AWARE OF THE ADMINISTRATIVE SIDE OF THE BUSINESS. IN SUPPORT OF HIS CONTENTION HE HAS FURNISHED THE COPY OF BANK ACCOUNT WHEREIN THE TRAN SACTION APPEARS. 5.2. IN VIEW OF THE ABOVE FACTS, IT APPEARS THAT THE ASSESSEE HAD ACTUALLY RECEIVED THE ABOVE SUMS FROM THE TWO COMPANIES. CONCLUSION: IN VIEW OF ABOVE FACTS, CIRCUMSTANCES, AND SUBMISSI ON MADE ABOVE IT IS SUBMITTED THAT THE IMPUGNED ADDITION ON TRADE ADVANCES IS BASED ON PRESUMPTIONS AND SURMISES AND WITHOUT PREJ UDICE TO THIS IN LIGHT OF REMAND REPORT DATED 17/09/2014 THE TRADE ADVANCE S ARE GENUINE. THEREFORE IT IS HUMBLY SUBMITTED BEFORE YOUR HONOUR THAT THE ADDITION IS BAD IN LAW, WITHOUT JURISDICTION AND IN BREACH OF PRINC IPLE OF NATURAL JUSTICE AND SAME DESERVE TO BE DELETED. 3 REGARDING ADDITION OF REPAYMENT OF TRADE ADVANCES RS. 13,42,08,200 3.1. DURING THE YEAR UNDER CONSIDERATION, THE APPEL LANT HAD TAKEN AND GIVEN VARIOUS TRADE ADVANCES TO M/S SATGURU SATGURU IRON AND STEEL COMPANY PVT. LTD. TOTAL OF DEBIT SIDE OF THE ACCOUN T ARRIVES AT RS.13,62,08,200/- AND TOTAL OF CREDIT SIDE ARRIVES AT RS. 13,42,08,200/-. THE BALANCE AMOUNT OF RS. 20, 00,000/- WAS OUTSTAND ING AS ON THE YEAR END AND THEREFORE, IT WAS SHOWN AS DEBTOR IN APPELL ANTS BOOKS OF ACCOUNT. THE LEARNED AO MADE ADDITION ONLY OF THE CREDIT SID E OF THE ACCOUNT IGNORING AVOCADO TRADING CO. AND OTHERS ITA NOS.362 TO 364/IND/2012 18 THE DEBIT ENTRIES WHICH IS WITHOUT APPRECIATION OF FACTS AND IN GROSS VIOLATION OF PRINCIPLES OF NATURAL JUSTICE. 3.2. DURING THE ASSESSMENT PROCEEDINGS THE VARIOUS DOCUMENTS WERE SUBMITTED BEFORE THE AO TO IN REGARD TO TRANSACTION . BELOW IS SNAPSHOT SHOWING DETAILS OF DOCUMENTARY EV IDENCES FILED BEFORE LDAO STRONG RELIANCE IS PLACED BY THE APPELLANT ON REMAN D REPORT SENT BY THE LD. AO DATED 17/09/2014 AND THE FINDING OF REM AND REPORT IS EXTRACTED AS UNDER : 6.1. HERE IT IS WORTH MENTIONING THAT FROM THE ASSESS MENT ORDER IT APPEARS THAT THE AD MISCONCEIVED THE TRANSACTION. IN PARA 10 OF THE ASSESSMENT ORDER IT IS WRITTEN THAT 'ASSESSEE COMPANY HAD MADE PAYMENT OF RS. 13162,08.200/~ TO SATGURU IRON &: STEEL AND RECEIVED RS. 13,42,08,200/-. THUS THERE REMAINS DEBIT BALANCE OF RS. 20,OO,000/,- OF SATGURU IRON & STEEL CO. PVT. LTD.', IN FACT, AS CAN BE SEEN FROM THE DOCUMENTS ON RECORD AND AS HAS BEEN EXPLAINED BY THE DIRECTOR, WITH DOCUMENTARY EVIDENCE , THE ABOVE TRANSACTIONS WERE IN THE SHAPE OF TRADE ADVANCES. THE ASSESSEE COMPANY HAD ADVANCED SOME MONEY TO SATGURU IRON & STEEL COMPANY PVT. LTD. FOR PURCHASE OF IRON & STEEL AND SATGURU IRON & STEEL CO. PVT. LTD. HAD ALSO ADVANCED SOME MONEY FO R PURCHASE OF DAL ETC. HOWEVER, DUE TO CANCELLATION OF THE DEAL, 'THE ADVANCES WERE RETURNED BACK. THE BALANCE RS, 20 LAKH WAS REMAININ G WITH SATGURU IRON & STEEL, AS HAS BEEN EXPLAINED BY THE DIRECTOR. THIS FACT WAS ALSO CONFIRMED BY SATGURU IRON & STEEL CO. PVT. LTD. VIDE THEIR CONFI RMATION LETTER DATED 12.06.2010 WHICH WAS ALSO FILED IN REMAND PROCEEDINGS. THEREFORE, THE SUM OF RS. 13,42,08,200/ WAS NOT THE MONEY OF SAT GURU IRON & STEEL AS HAS BEEN HELD BY THE AO. AVOCADO TRADING CO. AND OTHERS ITA NOS.362 TO 364/IND/2012 19 3.5 WITHOUT PREJUDICE TO ABOVE THE ADDITION OF ONLY C REDIT ENTRIES SHOWS NON APPLICATION OF MIND CREDITORS FOR PURCHASES CREDITORS FOR PURCHASES A PPLICABILITY OF S.68 APPLICABILITY OF S.68 ONCE PURCHASES ACCEPTED AS G ENUINE ONCE PURCHASES ACCEPTED AS GENUINE OUTSTANDING CREDIT OUTSTANDIN G CREDIT LIABILITY OF SUCH PURCHASE CANNOT BE A TREATED AS UNEXPLAINED CASH CR EDIT UNEXPLAINED CASH CREDIT CIT V. PANCHAM DASS JAIN (2006) CIT V. PAN CHAM DASS JAIN (2006) 156 TAXMAN 507 (ALL); ANNAMARIA TRAVELS & TOURS (P. ) LTD. V. DCIT (2005) 95 TTJ 71 (DEL); MANOJ AGARWAL V. DCIT (2008) 113 I TD 377 (DEL) (SB) EVEN OTHERWISE, IF PURCHASE IS CONSIDERED AS NON-GENUINE , GENUINE, IT WOULD BE DISALLOWED U/S.69C OR TRADING RESULTS WOULD BE REJE CTED AND PROFITS ESTIMATED OR UNEXPLAINED CAPITAL INVESTMENT FOR MAK ING SUCH PURCHASES ADDED U/S.69, HENCE, IN ANY EVENTUALITY, SEC.68 MAY NOT BE APPLICABLE. IT IS SUBMITTED THAT THE ADDITION IS MADE WITHOUT A PPLICATION OF MIND AND BASED ON CONJECTURES AND SURMISES DESERVES TO B E DELETED. THE SUPREME COURT IN DHAKESHWARI COTTON MILLS LIMITED V. CIT (26 ITR 775) HAS HELD THAT THE ITO CANNOT MAKE ASSESSMENT ON A PURE GUESS WITHOUT ANY EVIDENCE OR MATERIAL AND HENCE, SUCH AD HOC DISALLOWANCE IS UNJUSTIFIED. IN CIT VS. RAMESH BHAYANA (296 ITR 101(P&H)): WHEREIN IT HAS BEEN HELD THAT MERE CONJECTURES AND SURMISES CA NNOT FORM BASIS FOR MAKING ADDITIONS THAT THE LEARNED AO CANNOT TREAT ONLY ONE SIDE (I.E .) CREDIT SIDE AS BOGUS AND MAKE ADDITION WHEN HE HIMSELF IS ACCEPTIN G THE DEBIT SIDE THERE OF AS CORRECT. IN CASE OF ITO V. NISHA DANISH MERCHANT (I.T.A.NO.4329/MUM/2009) IT WAS OBSERVED THAT IT IS NOT EVERY FIGURE OF CREDIT FOUND IN BANK ACCOUNTS WHICH MAY CONSTITUTE INCOME AND THE ACCOUNT NEEDS TO BE SEEN AS A WHOLE. IN THAT CASE ALSO ONLY CREDIT ENTRIES WERE CONSIDERED AND DEBIT SIDE OF BANK ACCOUNT WAS IGNOR ED BY THE AO. THE CIT(A) DELETED THE ADDITIONS AND ITAT DISMISSED THE APPEAL OF REVENUE. SIMILARLY IN CASE OF ITO V. SHUBH MEDICINE (ITA NO. 456/RJT/2008) IT IS HELD THAT THE ASSESSING OFFICER HAS GROSSLY E RRED IN TREATING ONLY ONE SIDE OF THE ACCOUNT WHEREAS HE OUGHT TO HAVE CONSID ERED BOTH THE SIDES OF THE STATEMENT, THE DEBITS AND THE CREDITS AVOCADO TRADING CO. AND OTHERS ITA NOS.362 TO 364/IND/2012 20 ALSO IN THE CASE OF ITO V. RAKESH MEHRA (ITA NO. 5463/DEL/2011) IT IS OBSERVED THAT ONLY CREDIT SIDES CANNOT BE CON SIDERED AND DEBIT ENTRIES SHOULD ALSO BE CONSIDERED BY THE ASSESSING OFFICER. 3.7. SINCE IN THE INSTANT CASE THERE IS NET DEBIT B ALANCE THEREFORE THE ADDITION MADE BY LEARNED AO IS UNWARRANTED AND UNCA LLED FOR. ACCORDINGLY THE APPELLANT PRAYS THAT THE SAME BE DELETED. ACCOR DINGLY IT IS SUBMITTED THAT THE SAID ADDITION WITHOUT ANY APPLICATION OF M IND BE DIRECTED TO BE DELETED. IN VIEW OF THE ABOVE, WE HAVE EXPLAINED TH E TRANSACTION BASED ON DOCUMENTARY EVIDENCE, THE TRANSACTION CANNOT BE TRE ATED AS UNEXPLAINED AND THEREFORE, THE APPLICATION OF SECTION 68 OF THE ACT IS NOT WARRANTED. CONCLUSION: IT IS SUBMITTED THAT THE IDENTITY, CREDITWORTHINESS AND GENUINENESS OF THE TRANSACTION IS PROVED SINCE THE DIRECTOR OF THE COMPANY APPEARED AND CONFIRMED THE TRANSACTION ALONGWITH EX PLANATION OF SOURCE OF SUCH ADVANCE. ALSO IT IS AN ADMITTED FACT THAT ALL THE TRANSACTIONS WERE CARRIED OUT THROUGH PROPER BANKING CHANNELS. ACCORD INGLY IT IS HUMBLY PRAYED THAT THE ADDITION DESERVES TO BE DELETED EVE N ON MERITS IN LIGHT OF REMAND REPORT DATED 17/09/2014. 4 REGARDING ADDITION OF UNSECURED LOAN RS. 10,76,60,000 4.1. THAT APPELLANT HAS FIELD DOCUMENTARY EVIDENCES BEFORE THE LD AO TO PROOF THE IDENTITY OF THE CREDITOR, GENUINENESS, CR EDITWORTHINESS OF THE CREDITOR. BELOW IS SNAPSHOT SHOWING THE DETAILS OF DOCUMENTAR Y EVIDENCES FILED BEFORE LD AO 4.2 DURING THE YEAR UNDER CONSIDERATION THE APPELLA NT RECEIVED RS. 10, 76, 60,000 FROM M/S SHREEYAM POWER AND STEEL THROUG H PROPER BANKING CHANNELS AS SAME IS EVIDENT FROM DOCUMENTARY EVIDEN CES. DURING THE AVOCADO TRADING CO. AND OTHERS ITA NOS.362 TO 364/IND/2012 21 ORIGINAL ASSESSMENT PROCEEDINGS THE APPELLANT PRODU CED SHRI VIJAY UNDE, DGM OF SHREEYAM POWER AND STEEL BEFORE THE AO. RELIANCE IS PLACED ON REMAND REPORT DATED 17/09/201 4: DURING THE REMAND PROCEEDINGS SHRI NAVNEET PAWAR, T HE FINANCE MANAGER OF SHREEYAM POWER AND STEEL P. LIMITED APPEARED BEF ORE THE AO AND CONFIRMED THE TRANSACTION AND EXPLAINED THE SOURCE OF SUCH LOAN GIVEN AND FURNISHED THE LEDGER ACCOUNT ALSO. AS REGARDS THE S TATEMENT OF SHRI VIJAY UNDE HE SUBMITTED THAT SHRI UNDE IS DGM OF COMPANY AND DID NOT HANDLE OVERALL WORK THEREFORE HE MAY NOT BE ABLE TO ANSWER CERTAIN QUESTIONS. SINCE THE IDENTITY WAS ESTABLISHED BY THE APPEARANCE OF A UTHORIZED PERSON WHO EXPLAINED THE CREDITWORTHINESS OF THE CREDIT BY DEM ONSTRATING THE SOURCES THE LEARNED AO HAS EXPRESSED HIS SATISFACTION IN PA RA 6.3 OF HIS REPORT ON THE GENUINENESS OF THE TRANSACTION. 14. LD. COUNSEL FOR THE ASSESSEE ALSO REFERRED AND REL IED TO THE JUDGMENT OF HON'BLE HIGH COURT OF ALLAHABAD IN T HE CASE OF CIT, GORAKHPUR VS. ABDUL HASEEB, PROP. M.S. JB SIL K & OTHERS ITANO.213 OF 2007 DATED 5 TH SEPTEMBER, 2014 SUBMITTING THAT ONLY NET EFFECT OF THE TRANSACTIONS WI TH THE CONCERN SHOULD BE CONSIDERED AND NOT ONLY THE CREDIT ENTRIES. 15. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE R ECORD PLACED BEFORE US AND CAREFULLY GONE THROUGH THE JUDGME NTS REFEREED AND RELIED BY THE LD. COUNSEL FOR THE ASSESS EE. THE ASSESSEE IS AGGRIEVED WITH THE FINDINGS OF LD. CIT(A) UPHOLDING THE ACTION OF ASSESSING OFFICER IN MAKING ADD ITION OF RS.24,77,18,200/- U/S 68 OF THE ACT AMOUNT RECEIV ED FROM FOLLOWING PARTIES; AVOCADO TRADING CO. AND OTHERS ITA NOS.362 TO 364/IND/2012 22 1. BENCO IRON & STEEL PRIVATE LIMITED RS.10,00,000/- 2. FROLIC REALITY PRIVATE LIMITED RS.48,50,000/- 3. M/S. SATGURU IRON & STEEL P. LTD. RS.13,42,08,200/- 4. M/S. SHREEYAM POWER & STEEL IND. RS.10,76,60,000/- TOTALRS.24,77,18,200/- 16. WE WILL FIRST TAKE UP THE UNEXPLAINED CREDIT OF RS.10,00,000/- & RS.48,50,000/- RECEIVED FROM BENCO IRON & STEEL PRIVATE LIMITED AND FROLIC REALITY PRIVATE LIMI TED. WE FIND THAT DURING THE COURSE OF ASSESSMENT PROCEEDI NGS ASSESSEE FILED COPY OF ACKNOWLEDGMENT OF RETURN INCOM E, AUDITED FINANCIAL STATEMENT, BANK STATEMENT REFLECTING TH E TRANSACTIONS, CONFIRMATION OF ACCOUNT AND THE LEDGER STATEMENT. BOTH THE PARTIES NAMELY M/S. BENCO IRON & S TEEL PRIVATE LIMITED AND FROLIC REALITY PRIVATE LIMITED REPL IED TO THE NOTICE ISSUED TO THEM U/S 133(6) OF THE ACT ON 22.03.2013 CONFIRMING THE TRANSACTIONS. SHRI VIJAY KO SHTI AND SHRI DINESH GUPTA APPEARED BEFORE THE ASSESSING OF FICER AND THEIR STATEMENTS WERE RECORDED. THE LD. AO MADE ADDITION ONLY FOR IMPROPER REPLY TO SOME OF THE QUEST IONS BY THESE TWO PERSONS. THE LD. CIT(A) HAS ALSO CONFIRMED THE VIEW TAKEN BY THE LD. CIT(A) AND HAVE ALSO QUESTIONED T HE AVOCADO TRADING CO. AND OTHERS ITA NOS.362 TO 364/IND/2012 23 GENUINENESS OF FINANCIAL TRANSACTIONS ENTERED INTO BY T HESE TWO COMPANIES. 17. WE FURTHER OBSERVE THAT REMAND REPORT WAS CALLED ON 17.09.2014 FROM THE ASSESSING OFFICER TO EXAMINE GENUINENESS OF THE TRANSACTIONS ENTERED WITH THESE TW O PERSONS. IN PARAS 5.1.2 & 5.1.3 OF REMAND REPORT DATED 17.09. 2014, ABSTRACT OF WHICH HAVE ALREADY BEEN MENTIO NED IN THE WRITTEN SUBMISSIONS OF THE ASSESSEE REFERRED ABOVE, WE FIND THAT IN THE CASE OF M/S. BENCO IRON & STEEL P RIVATE LIMITED, THE DIRECTOR MR. VIJAY KOSHTI WAS AGAIN CALLE D U/S 133(6) OF THE ACT FOR RECORDING STATEMENT AND HE AGAIN CONFIRMED THAT AN ADVANCE OF RS.10,00,000/- HAS BEEN G IVEN TO THE ASSESSEE COMPANY OUT OF ITS RESERVES AND SURPLU S. HE ALSO ADMITTED THAT DURING THE PREVIOUS HEARING FOR REC ORDING OF STATEMENTS HE WAS UNABLE TO GIVE REPLY TO SOME QUES TIONS BECAUSE HE WAS NEW TO THE COMPANY. SIMILARLY IN THE CAS E OF FROLIC REALITY PRIVATE LIMITED, THE DIRECTOR, SHRI RAJENDRA MAGAR, WAS CALLED U/S 131 OF THE ACT AND IN THE STATEMENT HE HAS CATEGORICALLY STATED THAT SOME OF RS. 48,50,000/- HAS BEEN GIVEN AS TRADE ADVANCE TO THE ASSESSEE COMPANY. HE ALSO STATED THAT MR. DINESH GUPTA WHO WAS PREVIOUSLY CALLED TO EXPLAIN THE AVOCADO TRADING CO. AND OTHERS ITA NOS.362 TO 364/IND/2012 24 TRANSACTION WAS NOT AWARE OF THE ADMINISTRATION WOR K BECAUSE HE LOOKS AFTER THE MARKETING AREAS. IT IS A LSO PERTINENT TO NOTE THAT IN THE REMAND REPORT LD. AO HAS SPECIFICALLY MENTIONED THAT IT APPEARS THAT ASSESS EE HAD ACTUALLY THE RECEIVED ABOVE SUMS FROM THE TWO COMPANIES. 18. FROM PERUSAL OF THE ABSTRACT OF THE REMAND REPO RT DATED 17.09.2014 AND IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE INCLUDING LIST OF DOCUMEN TS FILED BY THE ASSESSEE BEFORE LOWER AUTHORITIES, THE RE REMAINS NO DISPUTE TO THE FACT THAT THE ASSESSEE HA S BEEN SUCCESSFUL TO SATISFY THE THREE LIMBS I.E. IDE NTITY, GENUINENESS AND CREDITWORTHINESS OF THE AMOUNT RECEIVED FROM M/S. BENCO IRON & STEEL PRIVATE LIMITED AT RS.10,00,000/- AND M/S. FROLIC REALITY PRIVATE LIMITED AT RS.48,50,000/- AND THEREFORE, IN OUR CONSIDERED VIE W NO ADDITION WAS CALLED FOR U/S 68 OF THE ACT FOR THE AMOUN T OF RS.58,50,000/- AND THE SAME STANDS DELETED. 19. NOW WE TAKE UP THE ADDITION REGARDING ALLEGED CRED IT ADVANCE OF RS. 13,42,08,200/- FROM M/S. SATGURU IRON & STEEL P. LTD. DURING THE COURSE OF ASSESSMENT PROCEE DINGS AVOCADO TRADING CO. AND OTHERS ITA NOS.362 TO 364/IND/2012 25 LD. AO WHILE EXAMINING THE LEDGER ACCOUNT OF SISPL OBSERVED THAT AS ON 31.03.2010 THERE WAS VARIOUS CREDIT ENTRIES TOTALING TO RS.13,42,08,200/- RECEIVED BY CH EQUES. NONE OF THESE CHEQUES CLEARED DURING THE YEAR THERE W ERE CERTAIN DEBIT ENTRIES ALSO ON THE VERY SAME DATE I.E. 31.03.2010 BUT THE LD. AO ONLY CONSIDERED THE CREDI T ENTRIES IN ISOLATION AND TOOK A VIEW THAT THE ALLEGED CREDITS ARE NOT GENUINE AND MADE THE ADDITION, LD. CIT(A) ALSO CONFIRME D THE VIEW TREATING IT TO BE ACCOMMODATION ENTRIES. 20. WE ALSO FIND THAT THE REMAND REPORT WAS ALSO CALLED RELATING TO THIS ISSUE. ON 17.09.2014 THE REMAND REPO RT WAS SUBMITTED. IN THIS REMAND REPORT LD. AO INQUIRED ABOU T THE TRANSACTIONS WITH M/S SATGURU IRON & STEEL PVT. LTD. O N 31.03.2010 WHICH CONSISTED ENTRIES FOR CREDITS OF RS.13,42,08,200/- AND DEBIT OF RS.13,62,08,200/-. HE ALSO INQUIRED ABOUT THE SUBMISSIONS GIVEN BY THE MR. SHAILE SH GUPTA TO THE LD. ASSESSING OFFICER SHOWING HIS UNAWAR ENESS ABOUT ACTIVITIES OF THE COMPANY. LD.AO AFTER GETTING VAR IOUS DETAILS AND RECORDING STATEMENTS GAVE FOLLOWING REMARKS IN THE REMAND REPORT. 6. REGARDING SATGURU IRON & STEEL PVT. LTD., IN COMPLIANCE TO THE QUERY NO. 3 OF THE LETTER DATED 11.08.2014, THE AVOCADO TRADING CO. AND OTHERS ITA NOS.362 TO 364/IND/2012 26 ASSESSEE'S AR HAS SUBMITTED THE NAME AND ADDRESS OF THE DIRECTOR OF THE COMPANY. IN ORDER TO ASCERTAIN THE NATURE OF THE TRANSACTION AND GENUINENESS THEREOF THE DIRECTOR OF SATGURU IRON & STEEL PVT. L D., SHRI VIJAY RAE, WAS SUMMONED AND HIS STATEMENT ON OATH WAS RECORDED ON 04.09.2014. IN HIS STATEMENT, IN REPLY TO QUESTION O. 12 (A PAGE 3) HE HAS CATEGORICALLY STATED THAT BOTH HIS C OMPANY AND THE ASSESSEE COMPANY HAD USED TO GIVE AND TAKE TRADE ADVANCES FOR PURCHASE OF DAL AND IRON. SOMETIMES DU E TO SOME UNFORESEEN REASONS THE DEALS WERE CANCELLED AND THE ADVANCE AMOUNT GOT REPAID OR RECEIVED BACK AS THE CASE MAY BE. AT THE END OF THE PERIOD RELEVANT TO AY 2010-11 A SUM OF R S. 20.00,000/- WAS WITH HIS COMPANY. IN SUPPORT, HE HAS PRODUCED ACCOUNT STATEMENT OF HIS COMPANY SHOWING T HE TRANSACTIONS. 6.1. HERE IT IS WORTH MENTIONING THAT FROM THE ASSESS MENT ORDER IT APPEARS THAT THE AD MISCONCEIVED THE TRANSACTION. IN PARA 10 OF THE ASSESSMENT ORDER IT IS WRITTEN THAT 'ASSESSEE COMPANY HAD MADE PAYMENT OF RS. 13162,08.200/~ TO SATGURU IRON &: STEEL AND RECEIVED RS. 13,42,08,200/-. THUS THERE REMAINS DEBIT BALANCE OF RS. 20,OO,000/,- OF SATGURU IRON & STEEL CO. PVT. LTD.', IN FACT, AS CAN BE SEEN FROM THE DOCUMENTS ON RECORD A ND AS HAS BEEN EXPLAINED BY THE DIRECTOR, WITH DOCUMENTARY EVIDENCE , THE ABOVE TRANSACTIONS WERE IN THE SHAPE OF TRADE ADVANCES. THE ASSESSEE COMPANY HAD ADVANCED SOME MONEY TO SATGURU IRON & STEEL COMPANY PVT. LTD. FOR PURCHASE OF IRON & STEEL AND SATGURU IRON & STEEL CO. PVT. LTD. HAD ALSO ADVANCED SOME MONEY FO R PURCHASE OF DAL ETC. HOWEVER, DUE TO CANCELLATION O F THE DEAL, 'THE ADVANCES WERE RETURNED BACK. THE BALANCE RS, 20 LAK H WAS REMAINING WITH SATGURU IRON & STEEL, AS HAS BEEN EXPLAINED BY THE DIRECTOR. THIS FACT WAS ALSO CONFIRMED BY SATGURU IRON & STEEL CO. PVT. LTD. VIDE THEIR CONFIRMATION LETTER DATED 12.06.2010 WHICH WAS ALSO FILED IN REMAND PROCEEDINGS. THEREFORE, THE SUM OF RS. 13,42,08,200/ WAS NOT THE MONEY OF SAT GURU IRON & STEEL AS HAS BEEN HELD BY THE AO. 6.2. IN VIEW OF THE ABOVE FACT IT APPEARS THAT THE ADDITION OF RS. AVOCADO TRADING CO. AND OTHERS ITA NOS.362 TO 364/IND/2012 27 13,42,08,200/ WAS MADE OWING TO A MISCONCEPTION. 21. THE ABOVE REMARKS OF THE ASSESSING OFFICER IN THE REMAND REPORT, CLEAR VARIOUS FACTS, AND THUS IT EMERGES THAT THE ASSESSEE ENTERED INTO BUSINESS TRANSACTIONS WITH M /S SATGURU IRON & STEEL PVT. LTD. ON 31.03.2010. VARIOUS CHEQUES TOTALING TO RS.13,42,08,200/- WERE RECEIVED AN D ON THE VERY SAME DATED VARIOUS CHEQUES TOTALING TO RS.13,62,08,200/- WERE ISSUED LEAVING BEHIND NET DEB IT BALANCE OF RS.20,00,000/-. DOCUMENTARY EVIDENCE WERE PLACED TO PROVE THAT THE TRANSACTIONS WERE IN THE NATURE OF CREDIT ADVANCE TOWARDS PURCHASE OF IRON STEEL FROM M/S SATGURU IRON & STEEL PVT. LTD. AS WELL AS FOR PURCHASE OF PULSES. DUE TO CANCELLATION OF THE DEAL, ADVANCE WERE RETURNED BACK. ALL THESE TRANSACTIONS HAVE BEEN DULY CONFIRMED BY M/S SATGURU IRON & STEEL PVT. LTD. IT I S SURPRISING TO NOTE THAT THE ASSESSING OFFICER HAS APPL IED THE PICK AND CHOOSE THEORY BY ONLY CONCENTRATING ON THE C REDIT AMOUNT OF CHQUES TOTALING TO RS. 13,42,08,200/- RECEI VED ON 31.03.2010 BUT COMPLETELY IGNORED THE DEBIT ENTRIES IN THE FORM OF VARIOUS CHEQUES, ISSUED FOR RS.13,62,08,200/- . IN THE INSTANT CASE ALL THESE TRANSACTIONS OF DEBIT AND CRED IT HAVE TAKEN PLACE ON THE SAME DATE I.E. 31.03.2010. AVOCADO TRADING CO. AND OTHERS ITA NOS.362 TO 364/IND/2012 28 22. WE FIND THAT IN THE CASE OF ITO VS. RAKESH MEHRA (ITANO.5463/DEL/2011), IT IS OBSERVED THAT ONLY CREDIT SIDES CANNOT BE CONSIDERED AND DEBIT ENTRIES SHOULD ALSO BE CONSIDERED BY THE ASSESSING OFFICER . IN CIT VS. RAMESH BHAYANA (296 ITR 101(P&H)): WHEREIN IT HAS BEEN HELD THAT MERE CONJECTURES AND SURMISES CANNOT FORM BASIS FOR MAKING ADDITIONS. TH AT THE LEARNED AO CANNOT TREAT ONLY ONE SIDE (I.E.) CREDIT SIDE AS BOGUS AND MAKE ADDITION WHEN HE HIMSELF IS ACCEPTIN G THE DEBIT SIDE THERE OF AS CORRECT. IN CASE OF ITO V. NISHA DANISH MERCHANT (I.T.A.NO.4329/MUM/2009) IT WAS OBSERVED THAT IT IS NOT EVERY FIGURE OF CREDIT FOUND IN BANK ACCOUNTS WHICH MAY CONSTITUTE INCOME AND THE ACCOUNT NEEDS TO BE SEEN AS A WHOLE. IN THAT CASE ALSO ONLY CREDIT ENTRIES WERE CONSIDERED AND DEBIT SIDE OF BANK ACCOUNT WAS IGNORED BY THE AO. THE CIT(A) DELETED THE ADDITIONS AND ITAT DISMISSED THE APPEAL OF REVENUE. SIMILARLY COORDINATE BENCH OF RAJKOT IN THE CASE OF IT O V. SHUBH MEDICINE (ITANO.456/RJT/2008) IT IS HELD THAT THE ASSESSING OFFICER HAS GROSSLY ERRED IN TREATING ONL Y ONE SIDE OF AVOCADO TRADING CO. AND OTHERS ITA NOS.362 TO 364/IND/2012 29 THE ACCOUNT WHERE AS HE OUGHT TO HAVE CONSIDERED BO TH THE SIDES OF THE STATEMENT, THE DEBITS AND THE CREDITS . 23. HON'BLE HIGH COURT OF ALLAHABAD IN THE CASE OF CIT VS. ABDUL HASEEB, (SUPRA) ADJUDICATING SIMILAR ISSUE RELATIN G TO ADDITION U/S 68 OF THE ACT HELD THAT; THE EXPRESSION ANY SUM IS FOUND CREDITED IN THE BOOKS OF THE ASSESSEE MEANS ALL ENTRIES ON THE CREDIT SIDE AS WELL AS ON THE DEBIT SIDE IN THE BOOKS OF ACCOUNT . IN OTHER WORDS HON'BLE COURT REFERRED TO THE NET EFFECT OF THE TRANSACTION WITH A PARTICULAR CRE DITOR. 24. RESPECTFULLY FOLLOWING THE ABOVE REFERRED JUDICI AL PRONOUNCEMENTS AND ALSO IN THE GIVEN FACTS AND CIRCUMSTANCES, SHOWING THAT ON A SINGLE DATE THERE WER E MULTIPLE ENTRIES FOR DEBIT AND CREDIT BETWEEN M/S SAT GURU IRON & STEEL PVT. LTD AND ASSESSEE, THE NET EFFECT O F DEBIT AND CREDIT, IS DEBIT BALANCE RS.20,00,000/- AND THAT ALL TH E TRANSACTIONS TOOK PLACE THROUGH ACCOUNT PAYEE CHEQUE AND THE CLEAR FINDING OF THE ASSESSING OFFICER IN REMAND R EPORT DATED 17.09.2014 IN WHICH THE ALLEGED PARTY HAS BEEN D ULY SUMMONED AND THE TRANSACTIONS ENTERED INTO WITH ASSESS EE HAS BEEN ACCEPTED, WE FIND NO JUSTIFICATION IN THE FIN DING OF LD. CIT(A) SUSTAINING THE ADDITION FOR UNEXPLAINED CRE DIT AVOCADO TRADING CO. AND OTHERS ITA NOS.362 TO 364/IND/2012 30 ADVANCE RECEIVED FROM M/S SATGURU IRON & STEEL PVT. LT D AND THE SAME DESERVES TO BE DELETED. 25. NOW WE TAKE UP THE ADDITION OF UNEXPLAINED CASH CR EDIT U/S 68 OF THE ACT OF RS.10,76,60,000/- RECEIVED FRO M M/S. SHREEYAM POWER & STEEL INDUSTRIES LTD. THIS AMOUNT IS PART OF THE TOTAL ALLEGED ADDITION OF RS.24,77,18,200/-. 26. BRIEF FACTS RELATING TO THE ALLEGED UNEXPLAINED CASH CREDIT FROM M/S. SHREEYAM POWER & STEEL INDUSTRIES LTD. IS THAT DURING THE ASSESSMENT PROCEEDINGS, IT WAS OBSERVED TH AT THE ASSESSEE COMPANY GAVE ADVANCE OF RS.10,76,60,000/- BY THREE CHEQUES DATED 31.03.2010 TO FRUGAL TRADING CO. PVT. LTD. THESE CHEQUES WERE REALIZED IN THE SUBSEQUENT YEAR. ON FURTHER EXAMINATION LD. AO FOUND THAT ON 18.03.2010 UNSECURED LOAN OF RS.10,76,60,000/- WAS RECEIVED FROM M/S. SHREEYAM POWER & STEEEL INDUSTRIES LTD BY ACCOUNT PAYEE CHEQUE AND IT WAS REPAID BACK THROUGH A JOURNAL ENTRY BY CREDITING THE AMOUNT TO FRUGAL TRADING CO. PVT. LTD. IN ORDER TO EXAMINE THE IDENTITY, GENUINENESS AND CREDITWORTHINESS OF M/S. SHREEYAM POWER & STEEEL INDUSTRIES LTD. INFORMATION WAS CALLED FROM THIS CONCE RN. IN RESPONSE THERETO DEPUTY MANAGER MR. VIJAY UNDE ATTEND ED, AVOCADO TRADING CO. AND OTHERS ITA NOS.362 TO 364/IND/2012 31 LD. AO WAS NOT CONVINCED WITH THE STATEMENT OF MR. V IJAY UNDE AND ACCORDINGLY TREATED RS.10,76,60,000/- AS UNEXPLAINED CREDIT U/S 68 OF THE ACT AND ADDED TO THE INCOME OF ASSESSEE. LD. CIT(A) ALSO CONFIRMED THE VIE W TAKEN BY THE LD. AO COMPLETELY BRUSHING ASIDE THE REMAND RE PORT DATED 17.09.2014 GIVEN BY THE ASSESSING OFFICER WHERE IN LD. AO HAS MADE DETAILED EXAMINATION ABOUT IDENTITY, GENUINENESS AND CREDITWORTHINESS OF THE UNSECURED L OAN FROM M/S. SHREEYAM POWER & STEEEL INDUSTRIES LTD. GI VING FOLLOWING REMARKS IN THE REMAND REPORT DATED 17.09.201 4; 6.3. REGARDING UNSECURED LOAN FROM SHREEYAM POWER & STEEL PVT. LTD., IN ORDER TO VERIFY THE GENUINENESS OF THE TRANSACTION. THE FINANCE MANAGER OF THAT COMPANY WAS CALLED U/S 131 OF THE ACT. IN HIS STATEMENT HE HAS STATED THAT HIS COMPANY, SHREEYAM POWER & STEEL PVT. LTD., HAD GIVEN UNSECURED LOAN OF RS. 10,76,60,000/- TO THE AESEESEE COMPANY VIDE CHEQUES NOS. 785174 TO 785116 DA ED 18.03.2010. HE HAS ALSO EXPL AINED THE SOURCE OF SUCH UNSECURED LOAN. IN SUPPORT OF HIS CONTENTION H E HAS FURNISHED THE LEDGER ACCOUNT ALSO. THE AO MADE ADDITION OF THE AB OVE SUM U/$ 68 OF THE ACT DUE TO THE REASON THAT THE PERSON PRESENT COULD NOT EXPLAIN THE TRANSACTION PROPERLY. FURTHER, NO RESPONSIBLE PERSO N SUCH AS DIRECTOR ATTENDED ON BEHALF OF SHREEYAM POWER & STEEL PVT. LTD. DURING THE COURSE OF ASSESSMENT PROCEEDINGS. NOW THE DIRECTOR, WHO IS TH E RESPONSIBLE PERSON AND HAVING KNOWLEDGE OF THE DAY TO DAY AFFAIRS OF THE COMPANY, HAS EXPLAINED THE TRANSACTION WITH SUPPORTING DOCUMENTS . 7. DURING THE COURSE OF REMAND PROCE EDINGS, IT HAS BEEN EXPLAINED BY THE ASSESSEE THAT SOME OF THE NOTICES U/S 133(6) OF' THE ACT ISSUED DURING THE COURSE OF ASSESSMENT PROCEEDINGS MIGHT HAVE BEEN RE TURNED BACK DUE TO CHANGE OF ADDRESSES. THIS FACT CAME TO THE KNOWLEDG E OF THE ASSESSEE COMPANY AFTER THE COMPLETION OF THE ASSESSMENT PROC EEDINGS. HOWEVER DURING THE COURSE OF REMAND PROCEEDINGS, IN REPLY T O SPECIFIC QUERY IN QUERY LETTER, THE ASSESSEE HAS PROVIDED THE CORRECT AND COMPLETE PRESENT POSTAL ADDRESSES OF THE CONCERNED PARTIES FROM WHOM CONFIR M ACTION HAVE BEEN AVOCADO TRADING CO. AND OTHERS ITA NOS.362 TO 364/IND/2012 32 OBTAINED BY ISSUING FRESH NOTICES U/S 133(6) 0 THE ACT. THE INFORMATION SO RECEIVED IN COMPLIANCE TO SUCH NOTICES ARE PLACED O N RECORD. 27. ON PERUSAL OF THE ABOVE FINDING OF THE ASSESSING OFFICER IN HIS REMAND REPORT, WE OBSERVE THAT THERE IS A SUBST ANTIAL DIFFERENCE BETWEEN THE FINDING OF THE AO AT THE TIME OF THE ASSESSMENT PROCEEDINGS AND THE FINDING AT THE TIME OF ISSUING REMAND REPORT. DURING COURSE OF ASSESSMENT PROCEEDING WHEN THE ALLEGED CASH CREDITORS M/S. SHREE YAM POWER & STEEL INDUSTRIES LTD. WAS SENT A NOTICE CALLIN G THE DIRECTOR OF THE COMPANY TO EXPLAIN THE TRANSACTIONS, DIRECTOR COULD NOT ATTEND AND THE DEPUTY GENERAL MANAGER ATTENDED THE PROCEEDINGS. PURSUANT TO WHICH LD. AO GA VE A FINDING THAT NO RESPONSIBLE PERSON ATTENDED ON BEHALF OF M/S. SHREEYAM POWER & STEEL INDUSTRIES LTD., THEREFO RE, THE IDENTITY OF THE COMPANY IS NOT ESTABLISHED. THE OTHER FACTORS NAMELY GENUINENESS AND CREDITWORTHINESS WERE NOT EXAMINED TREATING THEM TO BE SECONDARY. WHEREAS, IN TH E REMAND PROCEEDINGS LD. AO AGAIN CALLED FOR THE FINANCE MANAGER OF THE COMPANY U/S 131 OF THE ACT WHO IN HIS STATEMENT HAS CATEGORICALLY STATED THAT UNSECURED LOAN OF RS.10,76,60,000/- HAS BEEN GIVEN TO THE ASSESSEE COMP ANY VIDE THREE SEPARATE CHEQUES DATED 18.03.2010. FINANCE MANAGER ALSO EXPLAINED THE SOURCE OF SUCH UNSECURED LOA N AVOCADO TRADING CO. AND OTHERS ITA NOS.362 TO 364/IND/2012 33 ALONG WITH FILING NECESSARY DOCUMENTS TO PROVE IDENTI TY, GENUINENESS AND CREDITWORTHINESS. WE FIND THAT IN THE REMAND PROCEEDINGS LD. AO HAD GONE TO THE ROOT FACTS O F THE ISSUE AND HAS GATHERED SUFFICIENT EVIDENCE TO VERIFY T HE TRANSACTIONS OF UNSECURED LOAN OF RS.10,76,60,000/-. IT IS ALSO PERTINENT TO NOTE THAT THE ACCOUNT OF M/S. SHREEY AM POWER & STEEL INDUSTRIES LTD. WAS SQUARED OFF DURING THE YEAR ITSELF AS THE BALANCE AMOUNT WAS TRANSFERRED TO FRUGAL TRADING CO. PVT. LTD. WHICH WAS DULY RECEIVED BACK IN THE SUBSEQUENT YEAR. 28. THERE IS NO DISPUTE TO THE FACT THAT GROSS TURN OVER OF M/S. SHREEYAM POWER & STEEL INDUSTRIES LTD. DURING THE YEAR OF GIVING LOAN WAS APPROX 95.67 CRORES AND SH ARE APPLICATION AND SHARE PREMIUM WAS APPROX 321 CRORES . THESE FIGURES OF GROSS TURN OVER AND SHARE CAPITAL AND SHARE PREMIUM STRENGTHENS THE ASSESSEE PLEA THAT CREDITWORTHINESS OF M/S. SHREEYAM POWER & STEEL INDUSTRIES LTD. IS WELL ESTABLISHED. EXCEPT FOR BEI NG NOT SATISFIED WITH THE STATEMENT OF THE EMPLOYEE OF M/S . SHREEYAM POWER & STEEL INDUSTRIES LTD. BOTH THE LOW ER AUTHORITIES HAVE BEEN UNABLE TO CONTROVERT THE FACT AND EVIDENCE OF M/S. SHREEYAM POWER & STEEL INDUSTRIES LTD. AVOCADO TRADING CO. AND OTHERS ITA NOS.362 TO 364/IND/2012 34 AND SIMILARLY THERE IS NO NEGATIVE FINDING BY BOTH LOWER AUTHORITIES ABOUT THE IDENTITY, GENUINENESS AND CREDITWORTHINESS OF FRUGAL TRADING CO. PVT. LTD. 29. IN THESE GIVEN FACTS OF THE CASE, WE FIND THAT THE ALLEGED TRANSACTIONS OF RECEIVING AMOUNT OF RS.10,76,60,000/- AND FURTHER TRANSFER THROUGH GENE RAL ENTRY TO FRUGAL TRADING CO. PVT. LTD. AND RECEIVING BACK IN THE NEXT YEAR ARE PART AND PARCEL OF THE REGULAR BUSINESS TRANSACTIONS AND THE SAME ARE DULY EXPLAIN ED. THEREFORE, NO ADDITION WAS CALLED FOR U/S 68 OF THE ACT ALLEGED UNSECURED LOAN RECEIVED FROM SHREEYAM POWER & STEEL INDUSTRIES LTD. 30. ACCORDINGLY, GROUND NO.2 OF THE ASSESSEES APPE AL IN THE CASE OF AVOCADO TRADING CO. IS ALLOWED. 31. NOW WE TAKE UP GROUND NO.2 OF THE ASSESSEES APPEAL IN THE CASE OF ASPIRANT MERCANTILE COMPANY PRIVATE LIMITED WHEREIN ASSESSEE HAS RAISED THE ISS UE RELATING TO ADDITION OF TRADE ADVANCES OF RS.9,03,41,500/- U/S 68 OF THE ACT RECEIVED FROM M/ S. SATGURU IRON & STEEL P. LTD. BOTH THE PARTIES HAVE AGREED TO THE FACT THAT THIS ISSUE IS SIMILAR TO THE ONE AVOCADO TRADING CO. AND OTHERS ITA NOS.362 TO 364/IND/2012 35 ADJUDICATED BY US IN THE CASE OF AVOCADO TRADING COMPANY PRIVATE LIMITED WHEREIN ALSO SIMILAR TYPE OF ADVANCE WAS RECEIVED. 32. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE R ECORD PLACED BEFORE US. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON OBSERVING THAT ON THE LAST DATE OF THE FINANCIAL YEAR THERE WERE VARIOUS CREDIT ENTRIES IN THE FORM OF CHEQUES RECEIVED FROM M/S. SATGURU IRON & STEEL P. LTD. EVEN THOUGH THERE WERE DEBIT ENTRIES ALSO IN THE AC COUNT ON THE VERY SAME DATE. LD. AO OPTED TO CONSIDER ONL Y THE CREDIT ENTRIES AND MADE THE ADDITION OF RS.9,03,41, 500/- U/S 68 OF THE ACT. FROM GOING THROUGH RECORDS WE FI ND THAT SIMILAR ISSUE HAS BEEN DEALT BY US IN THE CASE OF AVOCADO TRADING COMPANY PRIVATE LIMITED AND APPLYIN G THE SAME FINDING ON THE FACTS OF THIS CASE, WE FIND THAT ON 31.03.2010 VARIOUS CREDIT ENTRIES TOTALING TO RS.9,03,41,500/- WERE RECEIVED BY CHEQUES AND ON TH E VERY SAME DATE VARIOUS AMOUNT TOTALLING TO RS.9,48,51,500/- HAS BEEN DEBITED LEAVING BEHIND A NET ADVANCE OF RS.45,00,000/-. WE THEREFORE, CONSISTENT LY APPLYING OUR FINDING AS DISCUSSED IN THE PRECEDING PARAS, ARE OF THE CONSIDERED VIEW, LD. AO OUGHT TO HAVE AVOCADO TRADING CO. AND OTHERS ITA NOS.362 TO 364/IND/2012 36 CONSIDERED TOGETHER THE DEBIT AND CREDIT ENTRIES E NTERED INTO THE BOOKS OF ACCOUNTS ON SAME DATE BEFORE DEC IDING THE ISSUE. ACCORDINGLY IN OUR CONSIDERED VIEW THE N ET EFFECT OF THE DEBIT AND CREDIT ENTRIES WHICH IN THE INSTANT CASE IS DEBIT BALANCE OF RS.45,00,000/- THERE REMAI NS NO POSSIBILITY FOR MAKING ANY ADDITION U/S 68 OF THE A CT. WE, THEREFORE, ALLOW GROUND NO.2 OF ASSESSEES APPE AL IN THE CASE OF ASPIRANT MERCANTILE COMPANY PVT. LTD. A ND DELETE THE ADDITION MADE U/S 68 OF THE ACT FOR ALLE GED CASH CREDIT FROM SATGURU IRON & STEEL P. LTD. 33. NOW WE TAKE UP GROUND NO.2 OF FROLIC REALTY PRI VATE LIMITED RELATING TO ADDITION U/S 68 OF THE ACT AT RS.11,66,74,000/- 34. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE R ECORD PLACED BEFORE US. THE IMPUGNED ADDITION OF RS.11,66,74,000/- CONSIST OF TWO ITEMS; I. TRADE ADVANCE/UNSECURED LOAN FROM M/S. SATGURU IRON & STEEL P. LTD. AT RS.10,81,24,000/-. II. RS.63,00,000/- RECEIVED AS LOAN FROM M/S. SHUBH MANGAL TRADERS P. LTD. AVOCADO TRADING CO. AND OTHERS ITA NOS.362 TO 364/IND/2012 37 35. AS REGARD THE ADDITION FOR THE AMOUNT OF RS.10,81,24,000/- RECEIVED FROM M/S. SATGURU IRON & STEEL P. LTD. CONCERN, AS WE HAVE DECIDED SIMILAR I SSUE IN THE CASE OF OTHER TWO ASSESSEES NAMELY AVOCADO TRAD ING COMPANY PRIVATE LIMITED & ASPIRANT MERCANTILE COMPANY PRIVATE LIMITED, WE ARE INCLINED TO APPLY T HE SAME REASONING AND FIND THAT IN THE CASE OF FROLIC REALTY PRIVATE LIMITED AGAINST TOTAL OF CREDIT ENTRIES OF RS.10,81,24,000/-, THERE WERE CORRESPONDING DEBIT ENTRIES OF RS.10,80,81,263/- WHICH LEAVES NET CREDI T BALANCE OF RS.42,737/-. THERE DEBIT AND CREDIT ENTR IES ARE PART OF TRADE ADVANCES AND NOT UNSECURED LOAN. IN OUR CONSIDERED VIEW NO ADDITION WAS CALLED FOR U/S 68 OF THE ACT. ACCORDINGLY WE SET ASIDE THE FINDING OF BO TH THE LOWER AUTHORITIES, AND DELETE THE ADDITION FOR THE ALLEGED CASH CREDIT FROM SATGURU IRON & STEEL P. LTD. . 36. AS REGARDS THE ADDITION U/S 68 OF THE ACT OF RS.63,00,000/- RECEIVED FROM M/S. SHUBH MANGAL TRADERS P. LTD. WHICH STANDS CONFIRMED BY BOTH THE LOWER AUTHORITIES, AFTER GOING THROUGH SUBMISSIONS MADE BY THE ASSESSEE AS WELL AS THE REMAND REPORT, WE OB SERVE THAT THE DIRECTOR OF SHUBH MANGAL TRADERS PT, LTD., MR. AVOCADO TRADING CO. AND OTHERS ITA NOS.362 TO 364/IND/2012 38 SANJAY KHANDELWAL AGAIN APPEARED BEFORE THE LD. AO AND THE STATEMENT WAS RECORDED ON 04.09.2014. IN HIS STATEMENT HE CONFIRMED THAT LOAN OF RS.63,00,000/- WAS GIVEN TO THE ASSESSEE COMPANY DURING THE F.Y. 2008- 09 AND THE AMOUNT WAS RECEIVED BACK IN THE MONTH OF MA Y, 2010. HE ALSO STATED THAT SOURCE OF LOAN WAS RESERV E AND SURPLUS OF THE COMPANY. NECESSARY EVIDENCE TO PROVE IDENTITY AND GENUINENESS OF THE TRANSACTIONS STANDS ALREADY SUBMITTED. IN OUR VIEW THE STATEMENTS OF TH E DIRECTOR ALONG WITH DOCUMENTS ARE SUFFICIENT ENOUGH TO PROVE THE IDENTITY, GENUINENESS AND CREDITWORTHINES S OF THE ALLEGED TRANSACTIONS OF RS.63,00,000/- RECEIVED FROM SHUBH MANGAL TRADERS P. LTD., WHICH WAS REPAID BACK DURING THE FINANCIAL YEAR 2010-11. WE THUS FIND NO JUSTIFICATION IN THE FINDING OF BOTH LOWER AUTHORIT IES CONFIRMING THE ADDITION FOR UNEXPLAINED CASH CREDIT U/S 68 OF THE ACT AND THE SAME STANDS DELETED AND THERE FORE, GROUND NO.2 IN THE APPEAL OF ASSESSEE I.E. FROLIC R EALITY PVT. LTD. IS ALLOWED. 37. NOW WE TAKE UP GROUND NO.3 IN THE CASE OF ALL T HE THREE ASSESSEES WHICH RELATE TO DISALLOWANCE OF EXP ENSES AS WELL AS DEPRECIATION ON VEHICLES. AT THE OUTSET, LD. AVOCADO TRADING CO. AND OTHERS ITA NOS.362 TO 364/IND/2012 39 COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESSING O FFICER DISALLOWED THE EXPENDITURE FOR WANT OF NECESSARY VERIFICATION AND THEREFORE, ONE MORE OPPORTUNITY MA Y BE PROVIDED TO SATISFY THE ASSESSING OFFICER ABOUT THE GENUINENESS OF THE EXPENDITURE INCURRED. 38. LD. DR DID NOT OPPOSED TO THIS REQUEST. 39. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE R ECORD PLACED BEFORE US. WE OBSERVE THAT GROUND NO.3 RAISED SEPARATELY IN THE CASES OF ALL THREE ASSESSEES RELATE TO DISALLOWANCE OF EXPENSES. IN THE ASSESSMENT ORDER LD. AO HAS DISALLOWED THE ITEMS EITHER FOR WANT FOR VERIFICATI ON OF NECESSARY DOCUMENTS/EVIDENCES INCLUDING PURCHASE BILL S OF THE VEHICLES OR SOME AD HOC DISALLOWANCE HAS BEEN MADE WITHOUT GIVING ANY JUSTIFICATION. 40. WE THEREFORE, IN THE INTEREST OF JUSTICE AND BEI NG FAIR TO BOTH PARTIES SET ASIDE THE ISSUE RAISED IN GROUND NO.3 OF EACH ALL THREE APPEALS TO THE FILE OF LD. AO FOR AFRESH VERIFICATION WHO SHALL AFFORD REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE FOR PROVIDING NECESSARY DOCUME NTS AND EVIDENCE IN SUPPORT OF THE CLAIM OF EXPENSES. ACCORDINGLY, GROUND NO.3 OF ALL THREE APPEALS STANDS ALL OWED AVOCADO TRADING CO. AND OTHERS ITA NOS.362 TO 364/IND/2012 40 FOR STATISTICAL PURPOSES. 41. IN THE RESULT, THESE THREE APPEALS OF BY DIFFEREN T ASSESSEES IN ITANO. 362/IND/2015, ITANO. 363/IND/201 5 & ITANO. 364/IND/2015 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON 13.02.201 9. SD/- ( KUL BHARAT) SD/- (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER / DATED : 13 TH FEBRUARY, 2019 PATEL/PS COPY TO: THE APPELLANT/RESPONDENT/CIT CONCERNED/CIT (A) CONCERNED/ DR, ITAT, INDORE/GUARD FILE. BY ORDER, ASSTT.REGISTRAR, I.T.A.T., INDORE