The Income-tax Officer 4(4), Indore V. M/s Vaibhav Cotton Pvt. Ltd., Indore

ITA 370/IND/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54017 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 26-04-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 10-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KESHAV SAXENA
• Assessee Lawyers: M C MEHTA
• Keywords: Source of fund
• Section: 143(3); 133(6); 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, J.M. AND SHRI R.C.SHARM A, A.M. PAN NO. : AACCV3182F I.T.A.NO. 370/IND/2010 A.Y. : 2007-08 INCOME-TAX OFFICER M/S. VAIBHAV COTTON PVT.LTD., 4(4), VS INDORE. INDORE. APPELLANT RESPONDENT APPELLANT BY : SHRI KESHAV SAXENA, CIT DR RESPONDENT BY : S/SHRI M. C. MEHTA & HITESH CHIMNANI DATE OF HEARING : 14.10.2011 DATE OF PRONOUNCEMENT : 31.10.2011 O R D E R PER R. C. SHARMA, A.M. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) DATED 15 TH MARCH, 2010, FOR THE ASSESSMENT YEAR 2007-08, IN THE MATTER OF ORDER PASSED BY THE ASSES SING OFFICER U/S 143(3) DATED 30 TH DECEMBER, 2009. 2. FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE REVENUE :- -: 2: - 2 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE ORDER OF THE LD. CIT(A) IS CONTRARY TO THE FACT S AND LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF R S. 3,30,55,000/- ( RS. 28,15,000+3,02,40,000) MADE BY THE ASSESSING OFFICER ON ACCOUNT OF UNSECURED LOANS. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUSED THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY INCORPORATED ON 12.9.2006. IN THE C OURSE OF SCRUTINY ASSESSMENT FOR THE ASSESSMENT YEAR 2007-08 , THE AO OBSERVED THAT THE ASSESSEE HAS SHOWN SHARE CAPITAL OF RS. 3,80,000/- AND RESERVE AND SURPLUS OF RS. 25,40,998 /-. IN ADDITION TO ABOVE ASSESSEE HAS ALSO SHOWN UNSECURED LOANS OF RS. 3,33,09,596/- UNSECURED LOANS WERE STATED TO BE TAKEN FROM THE FOLLOWING PARTIES :- S. NAME OF THE PARTY AMOUNT OF UNSECURED NO. LOAN 1 M/S. SHRADHA AGENCIES RS. 3,02,40,000/- 2 M/S SOURABH COTTON RS. 28,15,000 / - 3 SMT. KIRAN CHOUDHARY RS. 2,50,000/- TOTAL' RS. 3,33,05,000/- -: 3: - 3 13.2. THE INFORMATION U/S 133(6) OF THE INCOME TAX ACT WAS CALLED FOR AND PERSON WISE POSITION EMERGED AS UNDER:- 1. M/S SHARDHA AGENCIES, PROP. SHRI DISPATCH FIRST NOTIC E WAS RECEIVED UN RAJENDRA CHHAJED, 125, THROUGH SPEED SERVED WITH POSTAL COMMENT RAMCHANDRA NAGAR, INDORE POST/AD 'DIYE PAT PER NAHI HONE SE VAPAS' AND 111 THE SECOND ATTEMPT ON PROVIDING LATEST ADDRESS THE INFORMATION COMP LIED BUT AFTER DUE DATES 2. M/S SOURABH COTTON, PROP DISPATCH INFORMATION RECEIVED 111 FIRST HASTIMAL JAIN, 62, SWAMI THROUGH SPEED ATTEMPT VIVEKANAND NAGAR, KANADI A POST/AD ROAD, INDORE .., .). SMT. KIRAN CHOUDHARY, 398, DISPATCH NOTICE SERVED AND INFORMATION CLERK COLONY, INDORE THROUGH SPEED RECEIVED IN FIRST ATTEMPT POST/AD 4. TO VERIFY GENUINENESS OF TRANSACTION, T HE STATEMENT OF SHRI HASTIMAL JAIN PROP. SOURABH COTTON, 62, SWAMI VIVEKANAND NAGAR, KANADIA ROAD. INDORE WAS RECORDED U/S 131. AS PER STATEMENT SO RECORDED, SHRI HASTIMAL JAIN IS ENG AGED IN BUSINESS OF RUI AND BROKERSHIP OF COTTON. THE STATEMENT WAS TAKEN WITH REFERENCE TO LOAN SHOWN TO HAVE GIVEN TO M/S. VAIBHAV COTTON AND IN FLOW AND OUT FLOW OF HUGE ENTRIE S IN THE BANK ACCOUNT. THE INFLOW AND OUTFLOW OF FUNDS IN HIS ACCOUNT MAINTAINED WITH UNION BANK OF INDIA , MALHARGANJ, IS AS UND ER. IT IS PERTINENT TO MENTION HERE THAT BANK ACCOUNT OF M/S. -: 4: - 4 VAIBHAV COTTON COMPANY IS ALSO THERE IN THE SAME BANK. MA JOR ENTRIES IN THE BANK ACCOUNT OF SHRI HASTIMAL JAIN ARE AS U NDER :- ~ DATE AMOUNT OF DATE DESCRIPTION AMOUNT OF DESCRIPTION INFLOW OUTFLOW 18.01 :2007 CASH DEPOSITS RS. 4,50,0001- 18.01.2007 VAIBHAV RS. AGENCIES 4,50,0001- 19.02.2007 HIGH VALUE RS. 5,49,518/- CHEQUE FROM STI INDIA RAU. 19.02.2007 CASH RS. 1,95,0001- 19.02.2007 VARDHMAAN RS.2.50,000/-- T RADERS 19.02.2007 CASH RS.55,000/- 20.07.2007 VARDHMAAN RS.5.50,000/- TRADERS 21.02.2007 HIGH VALUE RS.2,95,357/-- 22.02.2007 VARDHMAAN RS. CLEARIN G FROM TRADERS 2,95.000/- STI INDIA RAU. 08.03.2007 M/S VAIBHAV RS. 5,00,000/-- 08.03.2007 M/S RS. COTTON VARDHRNAAN 5,00,000/- TRADERS 17.03.2007 RAI ENTERPRISES RS. 8,50,000/- 17.03.2007 M/S RS. VARDHMAAN 8,50,000/- TRADERS 17.03.2007 RAI ENTERPRISES RS. 8,50,000/-- 17.03.2007 ARIHANT RS. TRADERS 8,50,000/- 17.03.2007 RAI ENTERPRISES RS. 1 6,65,000/- 17.03.2007 M/.S RS. VAIBHAV 16.65.000/- COTTON 17.03.2007 RAI ENTERPRISES RS.15,OO,OOOI- 17.03.2007 RAI ENTERPRISES RS.1,50,OOOI- 17.03.2007 M/S RS. VAIBHAV 16,50,000/- COTTON 5. THE AO FURTHER OBSERVED THAT GENUINENESS OF TRANSACTION ENTERED WITH SHRI HASTIMAL JAIN WAS NOT -: 5: - 5 DULY PROVED. WITH REGARD TO CREDITWORTHINESS OF LEND ER, THE AO OBSERVED AS UNDER :- DURING THE ASSESSMENT PROCEEDING RELATED DETAILS WE RE PROCURED FROM SHRI HASHTIMAL JAIN. A BRIEF DESCRIPTION OF TH E SAME IS AS UNDER:- A.Y. RETURNED INCOME ( IN RS.) 2005-06 85,121/- 2006-07 83,520/- 2007-08 2,22,848/- THE AO STATED THAT PERUSAL OF THE ABOVE CLEARLY SHO WS THAT THE CLAIMED LENDER HAS NO CREDITWORTHINESS TO ADVANCE R S.28.15 LACS THAT TO A COMPANY (THE ASSESSEE COMPANY) WHO HAVE J UST STARTED THEIR BUSINESS IN THE ASSESSMENT YEAR CONCERNED ( F OR FEW DAYS OF MARCH 2007) WITH ITS DATE OF INCORPORATION ONLY ON 12/09/2006. ON THE BASIS OF ABOVE DISCUSSION, THE AO HELD THAT THE CREDITWORTHINESS OF THE CLAIMED LENDER I.E SHRI HASTIMAL JAIN IS NOT PROVED. SHRI RAJENDRA KUMAR CHHAJED PROP. SHRADHA AGENCIES -: 6: - 6 UNSECURED LOANS TAKEN RS.3,02,40,OOO/-. WITH REGARD TO THE GENUINENESS OF THE TRANSACTIONS, THE AO OBSERVED THAT T HE ASSESSEE HAS ALSO SHOWN LOAN TAKEN IN ITS BALANCE SHEET FROM SHRI RAJENDRA KUMAR CHHAJED PROP . M/S. SHRADHA AGENCIES AMOUNTING TO RS.3,02,40,000/--. THE COPY OF ACCOUNT WAS FURNISHED DURING ASSESSMENT PROCEEDINGS . CONFIRMATION LETTER WAS ALSO FILED. STATEMENT OF SH RI RAJENDRA KUMAR CHHAJED WAS RECORDED U/S.131 OF THE INCOME-TA X ACT,1961. IN THE STATEMENT IT WAS STATED IN THE INTRODUCTION THAT HE IS A BROKER OF RUI AND ALSO ENGAGED IN BUSINESS OF TRADE OF COT TON CASUALLY. THE STATEMENT WAS TAKEN WITH REFERENCE TO LOAN GIVEN TO THE ASSESSEE M/S. VAIBHAV COTTON PVT.LTD. AND INFLOW AND OUTFLOW OF HUGE ENTRIES IN THE BANK ACCOUNT WAS ALSO VERIFIED BY AO. THE IN FLOW AND OUTFLOW OF FUNDS IN HIS ACCOUNT MAINTAINED WITH UNION BANK OF INDIA, MALHARGANJ, INDORE WAS ALSO VERIFIED BY THE ASSESSI NG OFFICER. IT IS PERTINENT TO MENTION HERE THAT BANK ACCOUNT OF M/S. VAIBHAV COTTON PVT. LTD. IS ALSO THERE IN THE SAME BANK. MA JOR ENTRIES IN THE BANK ACCOUNT OF SHRI RAJENDRA KUMAR CHHAJED ARE AS UNDER :- DATE DESCRIPTION AMOUNT OF DATE DESCRIPTION AMOUNT OF INFLOW OUTFLOW 07/06/2006 VARDHAMAN 9,50,000/- 07/0612006 SURESH MEHTA 9,50,000/- TRADERS 07/06/2006 VARDHAMAN 9,50,000/- I SURESH MEHTA 9,50,000/- -: 7: - 7 TRADERS 11/0712006 --11 0-- 6,40,000/- 11/0712006 -DO- 6,30,000/- 13/07/2006 -DO- 1,50,000/- 13/07/2006 -DO- 1,50,000/- 14/07/2006 SURESH 5,25,000/- 14/0712006 VARDHAMAN TRADERS 5,25,000/- MEHTA 17/07/2006 CLEARING 3,18,021/- 17/0712006 --DO-- 3,25,000/- 20/07/20006 -DO- 13,70,000/- 20/0712006 SURESH I\LEHTA 1,00,000/ - 20/07/2006 VARDHMAN 1,00,000/- 20/07/2006 VARDHAMAN TRADERS 13,70,000 / - TRADERS 24/0712006 CLEARING 6,50,000/- 24/07/2006 --DO-- 6,50,000/- 26/0712006 SURESH 3,50,000/- 26/07/2006 --DO-- MEHTA 3,50,000/- 31107/2006 --DO-- 5,68,0001- 31/0712006 --DO-- 6,00,000/ - 22/08/2006 VAIBHAV 3,90,000/- 22/0812006 --DO-- 3,65,000/- AGENCIES 2011012006 VARDHMAN 9,70,000/- 20/10/2006 SURESH MEHTA 9,70,000/- TRADERS 26/12/2006 CASH 1,00,000/- ---- -- -- 26/12/2006 CASH 10,000/- 26/12/2006 ---DO-- 1,10,000/ - 03/0312006 VARDHARNAN 1,00,000/ - 03/0312007 CASH 1,00,000/ - TRADERS 19/03/2007 RAI 16,80,000/- 19/0312007 VAIBHAV COTTON 16,85,000/- ENTERNRISES 19/03/2007 KATTIK 8,50,000/- TRADING COMPANY 19/03/2007 RAI 8,30,000/- 19/0312007 VALBHAV COTTON 16,70,000/- - _ ENTERPRISE~ -- 19/0312007 KARTIK.: 17,00,000 / - 19/0312007 --DO-- 17,00,000/- TRADING CO. __ --- 19/03/2007 -- DO -- 17,20,000/ - 19/03/2007 -- DO -- 16,95!00 0/ - -- 20/03/2007 --DO-- 16,80,000/- 19/03/2007 --DO-- 16,80,000/- 20/03/2007 -- DO -- 20/0312007 -- DO -- 17,00,000/ - -- 17,00,000/- -- - DO -- -- DO -- 17,25,000/ - 20/031200 - DO -- 17,25,000 / - 21/03/2007 CLEARING 1,20,675/- 21/03/2007 --DO-- 17,35,000/- 21/03/2007 KARTIK 117,35,000/- 21/0311007 17,35,000/- TRADING 16,90,000 - 16,90,000/- CO. -DO- I 21/03I2007 VARDHMAN TRADERS 1,60,000/- 23/03/2007 - DO - I 1 7, .25 , 000 / - 22 03,200' VAIBHAV COTTON 17,25,000/- 22/0312007 -DO- 17,25,000'- 22 03.2007 -DO-- 17,25,000/- 23/03/2007 - DO - 16.6 5 ,000 / - 23 . 03,2007 - DO -- 16,65,000/- 17,15,000 0 - 17,15,000/- 17, 00 , 000' / - I 17 , 00 , 000/ - 24/03/2007 -DO- 16.95,000/- H/03/2007 -DO- 16,95,000/- 26/03/200-7 -DO- 16,50,000/- 26/03/2007 -DO- 16,50,000/- 17, 00,000 / - 17,00,000/- 16,75,000/- 16,75,000/- 29/031200- VALBHAV 2 90,000/- 29/0312007 VARDHAMAN TRADERS 2,90,000/- CO T TON , THE INTRODUCTION OF PROPRIETORS OR OWNERS OF THE AB OVE CONCERNS HAVE -: 8: - 8 BEEN NARRATED BY AO AS UNDER :- LOAN TAKEN FROM :- 1. SHRI VARDHAMAN TRADERS PROP. SHRI SURESH KUMAR MEH TA (DIRECTOR OF ASSESSEE COMPANY). 2. SHRI SURESH KUMAR MEHTA SAVINGS ACCOUNT. (DIRECTOR OF ASSESSEE COMPANY). 3. SHRI VAIBHAV AGENCIES PROP. SMT. KANAKLATA MEHTA ( MOTHER OF SHRI SURESH KUMAR MEHTA) 4. M/S. RAI ENTERPRISES PROP. SHRI RAKEH KUMAR RAI, NIJAR P URA UJJAIN (COTTON PURCHASED BY ASSESSEE COMPANY FROM R AI ENTERPRISES. ). 5. M/S. KARTIK TRADING CO. PROP. SHRI RAMESH AGRAWAL MAHAWA R NAGAR, ANNAPURA ROAD, INDORE ( COTTON PURCHASED BY ASSESSEE COMPANY FROM KARTIK TRADING COMPANY) LOANS GIVEN TO :- 1. SHRI SURESH KUMAR MEHTA SAVINGS ACCOUNT. (DIRECTOR OF ASSESSEE COMPANY). 2. M/S. SHRI VARDHAMAN TRADERS PROP. SHRI SURESH KUMAR MEHTA (DIRECTOR OF ASSESSEE COMPANY). 3. M/S. VAIBHAV COTTON PVT. LTD. THE ASSESSEE COMPANY IN WH ICH SHRI SURESH KUMAR MEHTA AND SMT. ANITA MEHTA ARE DIRECTORS. 5.1 IN QUESTION NO.6 HE WAS ASKED TO EXPLAIN THE L OANS TAKEN AND GIVEN DURING THE PERIOD OF F.Y.2006-07. HOW MAN Y LOANS HAVE -: 9: - 9 TAKEN FROM DIFFERENT PERSONS AND ALSO SHOWN RATE OF INTEREST AND HOW MANY AMOUNT WAS ADVANCED TO OTHER PERSONS SHOWING T HE RATE OF INTEREST. SHRI RAJENDRA CHHAJED EXPLAINED THAT DU RING THE F.Y.2006- 07 HE TAKEN LOAN OF AN AMOUNT OF RS.2.81 CRORE FROM M/S. KARTIK TRADING CO. INDORE, RS.25, 17,428/- FROM M/S . RAI ENTERPRISES, UJJAIN AND RS.39,64,742/- FROM SHRI VARDHAMAN TRADERS PROP . SHRI SURESH KUMAR MEHTA, INDORE(DIRECTOR OF THE ASSESSEE COMPAN Y) AND HE FURTHER STATED THAT HE HAS PAID INTEREST @9% PER ANNUM TO M/S. KARTIK TRADING COMPANY ONLY AND NO INTEREST IS TO BE PAID TO THE OTHER PARTIES BEING INTEREST FREE. HE ALSO STATED THAT HE HAS ADV ANCED A LOAN OF RS.3,02,40,OOO/- TO ASSESSEE M/S. VAIBHAV COTTON PVT. LTD. THIS IS ALSO INTEREST FREE LOAN. THE EXPLANATION GIVEN WAS THAT HE HAS BUSINESS RELATIONS WITH THESE PARTIES, THEREFORE NEITHER INT EREST PAID NOR TAKEN. HE ALSO DENIED ABOUT ANY CONTRACT/AGREEMENT MADE IN RESPECT OF LOAN TAKEN/GIVEN. IN FURTHER QUESTION HE REPLIED THAT HE HAS ONLY ONE BANK ACCOUNT WITH M/S. UNION BANK OF INDIA WHICH IS O.D. CURRENT ACCOUNT. HE FURTHER STATED THAT HE FORGOT TO TELL THAT INTER EST OF RS.7428/- WAS PAID TO M/S. RAI ENTERPRISES ALSO AND NO INTEREST HAS BEEN PAID TO SHRI VARDHMAN TRADERS PROP. SHRI SURESH KUMAR MEHTA WHO IS MY NEAR RELATIVE ( WIFE'S BROTHER). ON-ASKING THAT HOW HE C OULD GET A LOAN OF -: 10: - 10 RS.2.81 CRORES FROM M/S. KARTIK TRADING CO. ON WHAT BASIS LOAN WAS TAKEN. IT WAS EXPLAINED THAT THE PROPRIETOR OF M/S. KARTIK TRADING COMPANY SHRI RARNESH AGRAWAL OF MAHAWAR NAGAR ANNAPURNA ROAD, INDORE IS ALSO DOING THE BUSINESS OF COTTON AND HE IS A BROKER, THEREFORE THE RELATIONS ARE PROFESSIONAL/BUSINESS RELATIONS. THE LOAN WAS GIVEN TO HIM ON HIS PERSONAL REPUTATION. HE HAD TAKEN THIS L OAN AS SHRI SURESH KUMAR MEHTA WAS IN REQUIREMENT OF FUNDS FOR HIS COM PANY. IT WAS ASKED WHEN SHRI SURESH KUMAR MEHTA WAS ALSO KNOWING THESE PARTIES WHY DID HE NOT TAKE THESE LOANS DIRECTLY, HE STATED THAT THESE LOANS WERE PROVIDED ON HIS PERSONAL REPUTATION/GOODWILL. 6. WITH RESPECT TO M/S. VAIBHAV COTTON, THE OBSERVATIO N OF THE AO WAS AS UNDER :- 14.3. THE GIST OF QUESTION ANSWER PRODUCED ABOVE A ND TOTALITY OF FACTS AND CIRCUMSTANCES MAKES IT CLEAR HOW IN THE BUSINESS OF RS. 8,44,875/- ONLY, THERE IS INFLOW OF FUNDS OF RS. 62,16,873/- AND OUT FLOW OF RS. 70,60,696/- WITHOUT DOING ANY PROPORTIONATE BUSINESS. THUS THESE ARE MERE ENTRIES IN STATEMENT. HE REPLIED THAT ALL THE TRANSACTIONS ARE DUE TO HIS PERSONAL G OODWILL AND THE RELATED PARTIES ARE WELL KNOWN TO HIM TO WHOM CREDI T HAS BEEN -: 11: - 11 GIVEN AND FROM WHOM CREDIT HAS BEEN TAKEN. IT IS CL EAR FROM THE ABOVE THAT ASSESSEE IS ENGAGED IN ROUTING THE FUNDS OF A PARTICULAR GROUP, IN THIS CASE SHRI SURESH KUMAR ME HTA GROUP, FROM ONE CONCERN TO ANOTHER CONCERN. THE FUNDS HAV E FLOWN FROM ONE CONCERN OF MEHTA GROUP TO THE ASSESSEE COM PANY IN WHICH IN WHICH SHRI SURESH KUMAR MEHTA IS DIRECTOR. IT IS ALSO PERTINENT TO NOTE THAT SHRI HASTIMAL JAIN IS NOT CH ARGING INTEREST ON THESE HUGE TRANSACTIONS WHICH IS NOT POSSIBLE D URING THE RECENT TIMES PRESENT MARKET CONDITIONS. A PERSON GI VES, NORMALLY, A LOAN TO GET SOME PROFIT OUT OF IT. IT M EANS, SHRI SURESH KUMAR MEHTA MANAGED TO ROUTE HIS OWN FUNDS R EQUIRED FOR HIS COMPANY THROUGH SHRI HASTIMAL JAIN HAS BEEN USED AS UNSECURED LOAN PROVIDER. 14.4 IT IS NOT OUT OF PLACE TO MENTION AN EXAMPLE THAT V AIBHAV COTTON PVT. LTD, THE ASSESSEE, HAS PURCHASED COTTON BALES FROM M/S. RAI ENTERPRISES AND MADE PAYMENT TO THEM BY TA KING LOAN FROM SHRI HASTIMAL JAIN PROP. OF M/S SAURABH COTTON . THE MONEY PAID TO RAI ENTERPRISES BY THE COMPANY AGAIN CAME BACK AS LOAN TO SHRI HASTIMAL JAIN AND THEN SHRI HASTIMAL JAIN ROUTED THIS MONEY AS LOAN TO THE ASSESSEE COMPANY M /S -: 12: - 12 VAIBHAV COTTON PVT. LTD. THIS CAN BE SUITABLY DESCRIBED GRAPHICALLY AS FOLLO WS :- LOAN FROM HASTIMAL JAIN------- VAIBHAV COTTON P.LTD.-------- RAI ENTERPRISES----- -----HASTIMAL JAI N----- VAIBHAV COTTON P.LTD. THE ASSESSEE COMPANY. IN THIS WAY SAME MONEY WAS ROUTED THROUGH THESE PLA CES OR PERSONS AND CAME BACK TO THE ASSESSEE. IT IS THUS F OUND THAT THE SALE OF BALES BY RAI ENTERPRISES WAS ACTUALLY NOT A BUSINESS TRANSACTION BUT IT WAS SHOWN IN THE BOOKS JUST TO R ELEASE THE MONEY OF THE ASSESSEE COMPANY TO GET BACK SAME AGAI N AS A LOAN AND SAME MONEY WAS ROUTED AGAIN AND AGAIN AMONG THE SE THREE PARTIES. IT MEANS THESE SHOWN TRANSACTIONS ARE NOT REAL AND GENUINE TRANSACTIONS BUT ONLY CIRCULATION OF MONEY WHICH WAS MANAGED BY THE ASSESSEE I.E. M/S. VAIBHAV COTTON CO MPANY PVT. LTD. THEREFORE, THE GENUINENESS OF TRANSACTION OF T HE CLAIMED LENDER I.E SHRI HASTIMAL JAIN IS NOT PROVED. -: 13: - 13 7. IN VIEW OF THE ABOVE, DISCUSSION, ENTIRE AMOUNT OF UNSECURED LOANS WERE TREATED BY THE ASSESSING OFFIC ER AS NON- GENUINE AND THE CREDITWORTHINESS OF LOAN CREDITORS WERE HELD TO BE NOT PROVED. THUS, THE AMOUNT OF LOAN TAKEN WA S ADDED BY THE ASSESSING OFFICER IN ASSESSEES INCOME. 8. BY THE IMPUGNED ORDER, THE LD. CIT(A) DELETED THE ADDITION AFTER HAVING THE FOLLOWING OBSERVATIONS :- NOW, COMING TO GROUND NO.2, RESULTING IN ADDITION OF RS.28.15 LAKH AND RS.302.46 LAKH FROM M/S. SAURABH COTTON & SARDA AGENCIES, IT IS TO BE SEEN THAT AO HAS NOT DOUBTED THE IDENTITY OF BOTH THESE PARTIES. ALL HE HAS DOUBTED IS THE GENUINENESS OF SUCH TRANSACTION AND CREDITWORTHINESS OF BOTH SUCH PERSONS TO ADVANCE THE HUGE AMOUNT OUTSTANDING IN THEIR NAME VIS-A-VIS THE TOTAL INCOME DECLARED IN THE RETURN OF INCOME FILED. IN FACT, THE PROPRIETOR OF BOTH THE CONCERNS HAVE APPEARED BEFORE THE AO AND HAS OWNED UP SUCH TRANSACTIONS. THE AO WAS HIMSELF TAKEN NOTE OF THE FACT ABOUT THE -: 14: - 14 CIRCULAR NATURE OF SUCH TRANSACTIONS WHEREBY THE FUNDS FROM SUCH CREDITORS HAVE BEEN ROUTED THROUGH OTHER ENTITIES INCLUDING THE APPELLANT AND HAS FINALLY LANDED BACK WITH THE APPELLANT. THUS, THOUGH, THE AO'S OBSERVATION AND FINDINGS IN THE MATTER THAT THESE TRANSACTIONS ARE NOT GENUINE BUSINESS TRANSACTIONS MAY HAVE ITS OWN MERIT BUT NEVERTHELESS IT IS DIFFICULT TO UNDERSTAND THAT IN SUCH CIRCUMSTANCES WHEN THE SOURCE OF ENTIRE FUNDS ARE ESTABLISHED FROM THE BOOKS OF ACCOUNTS OF THE CREDITORS, IDENTITY THUS BEEN DISPUTED AND THE FUNDS HAVE AGAIN FLOWN BACK TO SUCH CREDITORS FROM THE ASSESSEE'S OWN RECORDS, IT IS DIFFICULT TO APPRECIATE HOW THE FINAL AMOUNT STANDING IN THEIR NAME WHICH INCLUDES FUNDS ADVANCED BY THE APPELLANT HIMSELF CAN BE TREATED AS UNEXPLAINED AND SO ADDED IN THE HANDS OF THE APPELLANT. 5.01 THE APPELLANT HAS AMPLY ESTABLISHED THE SOURCE OF SUCH TRANSACTIONS BY FILING THE COPY OF BANK ACCOUNT OF M/S. SAURABH COTTON ON -: 15: - 15 PAGE 127 OF THE COMPILATION WHERE SOURCE OF EACH AND EVERY AMOUNT ADVANCED TO THE APPELLANT IS CLEARLY ESTABLISHED. SO IS THE POSITION ABOUT THE STATEMENT PREPARED FROM THE BANK TRANSACTIONS OF M/S. SARDA AGENCIES IN COMPILATION IN PAGE 135 EXPLAINING THE TRANSACTION AS PER BANK STATEMENT INCLUDED IN COMPILATION AT PAGES 136 AND 137, WHEREBY SOURCE OF EACH AND EVERY AMOUNT CREDITED TO THE APPELLANT'S ACCOUNT ARE CLEARLY ESTABLISHED. THE AFORESAID PAGES ON PAPER BOOK BEING 127,135,136 AND 137 ARE ENCLOSED WITH THE APPEAL ORDER AND COLLECTIVELY MARKET AS ANNEXURE AL TO A4 . THE APPELLANT HAS ALSO FILED FURTHER WRITTEN SUBMISSION DATED 12.3.10 AS EXTRACTED ABOVE REPELLING AO'S OBSERVATION THAT BUSINESS TRANSACTION WITH TWO CONCERNS RAI ENTERPRISES, UJJAIN AND KARTHIK TRADING, INDORE BEING NOT GENUINE. 5.02 IN COURSE OF DISCUSSION, IT WAS -: 16: - 16 EMPHASIZED BY THE AR THAT UNDER THE VAGUE AND WRONG IMPRESSION THAT NO OUTSTANDING BALANCE SHOULD BE REFLECTED IN THE SAVINGS BANK ACCOUNT PARTICULARLY IN COTTON BUSINESS WHICH COULD BE ADVERSELY VIEWED BY I.T. AUTHORITIES, THE APPELLANT RESORTED TO SUCH CIRCULAR TRANSACTIONS TO SQUARE OFF THE BALANCE APPEARING IN TWO SAVINGS ACCOUNT NAMELY RAI ENTERPRISES AND KARTHIK TRADING CO. THE CONTENTION SO ADVANCED ARE NOT FOUND TO BE VERY CONVINCING AS HOW A PERSON COULD HOLD SUCH A WRONG NOTION BUT THEN NOTHING TURNS OUT OF IT. THIS COULD HAVE BEEN AT BEST A POINT OF INVESTIGATION FOR INQUIRING INTO THE AFFAIRS OF THE APPELLANT COMPANY IN THE MATTER OF TRANSACTIONS, BUT BASED ON SUCH FINDINGS AND OBSERVATION, THE AMOUNT OF FUNDS WHICH ARE AMPLY EXPLAINED CANNOT BE TREATED AS UNEXPLAINED SO AS TO BE ADDED IN THE HANDS OF THE APPELLANT. THUS, THE ADDITION MADE BY THE AO AT RS.28.15 LAKH FOR -: 17: - 17 THE OUTSTANDING AMOUNT STANDING IN THE NAME OF M/S. SAURABH COTTON OF RS.302.40 LAKHS STANDING IN THE NAME OF SHRADDHA AGENCIES CANNOT BE SUSTAINED, BOTH IN FACTS AND IN LAW AND ARE ACCORDINGLY DIRECTED TO BE DELETED. 9. AGGRIEVED BY THE ABOVE ORDER OF THE LD. CIT(A), TH E REVENUE IS IN FURTHER APPEAL BEFORE US. IT WAS ARGU ED BY THE LD. CIT DR THAT CREDITWORTHINESS OF LOAN CREDITOR W AS NOT PROVED IN SO FAR AS THEY WERE HAVING VERY LOW INCOM E RETURNED DURING THE LAST THREE YEARS AS NOTED BY THE ASSESSI NG OFFICER. HE FURTHER CONTENDED THAT THE LOAN TRANSACTION WAS MERELY A CIRCULAR ENTRY, THE GENUINENESS OF WHICH WAS NOT ES TABLISHED, THEREFORE, THE AO WAS JUSTIFIED IN ADDING ENTIRE AM OUNT IN ASSESSEES INCOME. 10. ON THE OTHER HAND, THE LD. AUTHORIZED REPRESENTA TIVE REITERATED THE SUBMISSION MADE BEFORE THE CIT(A) AN D ALSO DREW OUR ATTENTION TO THE OBSERVATION OF THE AO IN SUPPORT OF THE CONTENTION THAT THE AO HIMSELF HAS ACCEPTED EAC H AND -: 18: - 18 EVERY CREDIT ENTRY IN THE BANK ACCOUNT AND ALSO ISS UE OF CHEQUES OUT OF THE SAME. HE FURTHER RELIED ON THE F INDINGS RECORDED BY THE LD. CIT(A) WITH REGARD TO THE GENUI NENESS OF THE TRANSACTION AND CREDITWORTHINESS OF THE LOAN CR EDITORS. 11. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AN D ALSO DECISIONS RELIED ON BY LOWER AUTHORITIES IN THEIR R ESPECTIVE ORDERS AS WELL AS RELIED ON BY THE LD. AUTHORIZED R EPRESENTATIVE AND LD. CIT DR DURING THE COURSE OF HEARING BEFORE US IN THE CONTEXT OF FACTUAL MATRIX OF THE CASE. FROM THE RE CORD, WE FOUND THAT ASSESSEE COMPANY IS CARRYING ON BUSINESS IN COTTON AND BROKERAGE OF COTTON. THE LOAN WAS RECEIVED FROM THE CLOSE RELATIVES/FRIENDS OF THE DIRECTOR OF THE ASSESSEE C OMPANY. TO PROVE THE GENUINENESS OF CREDIT BALANCE IN THE ACCO UNT OF SAURABH COTTON AND SHARDA AGENCIES, THE ASSESSEE HA D FILED COPY OF ACCOUNTS AND BANK ACCOUNT OF CREDITORS. THE ASSESSEE AND CREDITOR HAVE EXPLAINED EACH AND EVERY ENTRY OF INFLOW OF MONEY IN THE BANK ACCOUNT AND THEIR RESPECTIVE UTIL IZATION. THE ASSESSEE HAS ALSO FILED DETAILED COPY OF ACCOUN T OF M/S. KARTHIK TRADING COMPANY AND M/S. RAI ENTERPRISES FR OM -: 19: - 19 WHOM THESE CREDITORS RECEIVED MONEY IN THEIR BANK A CCOUNT. THE ASSESSEE COMPANY HAS FILED DETAILED COPIES OF A CCOUNTS OF ALL THE FOUR PARTIES WITH THE ASSESSEE COMPANY ALON GWITH THE COPY OF ACCOUNT OF THE ASSESSEE COMPANY IN THEIR BO OKS AND SO ALSO COPIES OF THEIR BANK ACCOUNTS WITH NARRATION A GAINST EACH ENTRY. 12. AFTER GOING THROUGH ALL THESE ACCOUNTS, WE FOUND TH AT ENTRIES IN THE ACCOUNT OF ALL THESE FOUR PARTIES AN D THOSE IN THE BOOKS OF THE ASSESSEE WERE THROUGH ACCOUNT PAYEE CH EQUES. ALL THESE ENTRIES WERE CLEARLY REFLECTING ROTATION OF FUNDS FROM ONE CONCERN TO ANOTHER AND THAT TOO BY ACCOUNT PAYE E CHEQUES. SOURCE OF DEPOSIT IN BANK WAS NOT IN DOUBT . ALL THESE CONCERNS ARE REGULAR INCOME TAX PAYERS AND HAVE FIL ED CONFIRMATIONS IN RESPECT OF THEIR ACCOUNTS WITH THE ASSESSEE COMPANY. THE SOURCE OF EACH OF THESE ENTRIES WERE F ULLY PROVED. THE STATEMENT OF THE CREDITORS WAS ALSO REC ORDED BY THE ASSESSING OFFICER BY CALLING THEM U/S 131 WHERE IN THEY HAVE OWNED THE FUNDS GIVEN TO THE ASSESSEE COMPANY, THEIR RELATION WITH THE DIRECTOR OF THE ASSESSEE COMPANY AND THE SOURCE OF FUND IN THEIR RESPECTIVE BANK ACCOUNT. TH E AO IN ITS -: 20: - 20 ORDER ITSELF HAS OBSERVED INFLOW OF FUNDS IN RESPEC TIVE DATES IN THE BANK ACCOUNT AND OUT FLOW OF THE SAME OUT OF TH E SUFFICIENT BALANCE IN THEIR BANK ACCOUNT. PROPRIETO R OF BOTH THE CONCERNS SHRI HASHTIMAL JAIN AND SHRI RAJENDRA KUMA R CHHAJED IN THEIR STATEMENT ACCEPTED THE AMOUNT OF A DVANCES GIVEN BY THEM TO THE ASSESSEE. THERE IS NO DISPUTE TO THE WELL SETTLED LEGAL PROPOSITION THAT IN CASE OF CASH CRED IT NOT ONLY IDENTITY AND GENUINENESS OF THE LOAN TRANSACTION IS REQUIRED TO BE PROVED BUT AT THE VERY SAME TIME, CREDITWORTHINE SS OF LOAN CREDITOR IS EQUALLY IMPORTANT TO BE PROVED. WITH RE GARD TO THE IDENTITY OF THE CREDITORS, WE FOUND THAT BOTH THE C REDITORS ARE INCOME TAX PAYERS AND COPIES OF THEIR ASSESSMENT OR DERS FOR THE PAST THREE YEARS HAVE BEEN FILED TO PROVE THEIR IDENTITY AND THEY ALSO PERSONALLY APPEARED BEFORE THE AO AND THE IR STATEMENT WAS ALSO RECORDED. THE GENUINENESS OF THE TRANSACTION STAND PROVED BY THE PERSONAL APPEARANCE OF THE CREDITOR AND THEIR ACCEPTANCE IN RESPECT OF THEIR C REDITS APPEARING IN THE BOOKS OF THE ASSESSEE AND THE LOAN WAS GIVEN OUT OF THEIR BANK ACCOUNT. THE CREDITWORTHINESS OF CREDITORS ARE PROVED BY THEIR REGULAR BOOKS OF ACCOUNT WHICH INDICATED -: 21: - 21 THAT ALL ENTRIES IN THEIR ACCOUNTS HAVE TRAVELED TH ROUGH BANK ACCOUNT THROUGH ACCOUNT PAYEE CHEQUES. THE RESPECTI VE DEPOSIT IN THE BANK ACCOUNT WAS ALSO VERIFIED BY TH E ASSESSING OFFICER. BY FILING VARIOUS DETAILS, THESE CREDITORS HAVE PROVED THEIR CAPACITY TO ADVANCE THESE LOANS. THE DETAILED FINDING RECORDED BY THE LD. CIT(A) HAS NOT BEEN CONTROVERTE D BY THE DEPARTMENT BY BRINGING ANY POSITIVE MATERIAL ON REC ORD, WHICH CLEARLY ESTABLISHES THE FULFILLMENT OF ALL THE THRE E INGREDIENTS OF CASH CREDIT. ACCORDINGLY, NO INTERFERENCE IS REQUIR ED IN THIS PART OF THE CIT(A)S ORDER. 13. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 31 ST OCTOBER, 2011. SD/- SD/- (JOGINDER SINGH) ( R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 31 ST OCTOBER, 2011. CPU* 1925