INTERNATIONAL CLOTHING INDUSTRIES LTD, MUMBAI V. ACIT RG 9(2), MUMBAI

ITA 5171/MUM/2008

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2611 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 15-12-2009
• Assessment Year: 2003-2004
• Appeal Filed On: 14-08-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VANDANA SAGAR
• Keywords: Unexplained cash credit; Proportionate interest; Corroborative evidences; Assessment record; TDS
• Section: 133(6); 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I MUMBAI BEFORE SHRI PRAMOD KUMAR (AM) AND SMT. ASHA VIJAYARA GHAVAN (JM) ITA NO. 5171/MUM/2008 ASSESSMENT YEAR- 2003-04 INTERNATIONAL CLOTHING INDUSTRIES LTD., C/O, M/S. KUCHERIA & ASSOCIATES, CHARTERED ACCOUNTANTS, 59, JOLLY MAKER CHAMBER NO.2, 225, NARIMAN POINT, MUMBAI-400 021 PAN-AAAC10333B THE ACIT, RANGE 9(2), MUMBAI (APPELLANT) VS. (RESPONDENT) ITA NO. 5548/MUM/2008 ASSESSMENT YEAR- 2003-04 THE ACIT, RANGE 9(2), MUMBAI INTERNATIONAL CLOTHING INDUSTRIES LTD., C/O, M/S. KUCHERIA & ASSOCIATES, CHARTERED ACCOUNTANTS, 59, JOLLY MAKER CHAMBER NO.2, 225, NARIMAN POINT, MUMBAI-400 021 (APPELLANT) VS. (RESPONDENT) APPELLANT BY: SHRI VIMAL PUNMIYA RESPONDENT BY: MS. VANDANA SAGAR O R D E R PER SMT. ASHA VIJAYARAGHAVAN (JM) THESE ARE CROSS APPEALS ONE FILED BY THE ASSESSEE AND THE OTHER FILED BY THE REVENUE ARE DIRECTED AGAINST THE ORDER S DT. 3/6/2008 PASSED BY THE LD. CIT(A)-IX, MUMBAI FOR THE ASSESSMENT 200 3-04. 2. THE APPELLANT IS A COMPANY ENGAGED IN THE BUSINE SS OF MANUFACTURE AND SALE OF READYMADE GARMENTS. IT HAS LOCAL AND EXPORT SALES. THE ASSESSING OFFICER HAS MADE THE ADDITION OF RS. 20,50,000/- AS UNEXPLAINED CREDIT U/S. 68 OF THE I.T. ACT SINCE NO CONFIRMATION LETTERS WERE FILED DURING THE COURSE OF ASSESSMENT PROCEEDI NGS. 3. IN RESPONSE TO NOTICE U/S. 133(6) OF THE I.T. AC T ISSUED ON 27.9.2005, NO REPLY WAS SUBMITTED. THEREFORE, THE AO HELD THAT THE CREDIT WORTHINESS AND IDENTITY OF THE LOAN GIVERS R EMAINED UNEXPLAINED AND MADE THE ADDITION. 4. ON APPEAL BEFORE THE LD. CIT(A), THE AR OF THE A SSESSEE SUBMITTED THAT THE ASSESSEES INABILITY TO REPAY THE LENDERS AS PROMISED HAD INVITED CRIMINAL COMPLAINTS. THE LENDERS REFUSED TO ISSUE LETTERS OF CONFIRMATIONS INSPITE OF THE ASSESSEES REQUEST. I N SUPPORT OF ITS CONTENTION AND THE ASSESSEES FINANCIAL CONDITION C OPIES OF CRIMINAL COMPLAINTS AND LEGAL NOTICES WERE FILED BEFORE THE LD. CIT(A). THE LD. AR FURTHER SUBMITTED THE NAMES OF THESE CREDITORS APPE ARED IN THE TAX AUDIT REPORT-ANNEXURE VI AND THE PAN NOS. FURTHER IT WAS SUBMITTED THAT THE AMOUNTS WERE BORROWED BY ACCOUNT PAYEE CHE QUES, THE RELEVANT BANK STATEMENT WERE FURNISHED AND FULL ADDRESS OF T HE LENDERS HAVE BEEN INDICATED IN THE TAX AUDIT REPORT. IT WAS FURTHER STATED THAT OUT OF SIX LENDERS, 4 LENDERS PAN NOS. ARE GIVEN IN THE TAX AU DIT REPORT. THE AR SUBMITTED THAT THE BURDEN CAST UPON THE ASSESSEE WA S SUFFICIENTLY DISCHARGED. 5. IN RESPECT OF LOAN TAKEN FROM SAROJ GUPTA AMOU NTING TO RS. 1,75,000/- AND S.P. CAPITAL FINANCING LTD. AMOUNTIN G TO RS. 40,000/-, THE ASSESSEE FILED THE AFFIDAVIT THAT THESE ARE OLD ADVANCES AND THE ASSESSEES RECORDS WERE LOST IN FLOODS. 6. THE LD. CIT(A) DIRECTED THE AO TO VERIFY THE ASS ESSEES CLAIM FROM THE ASSESSMENT RECORDS OF THE EARLIER YEARS AND DEL ETE THE ADDITION IF THESE ARE FOUND TO BE OLD ADVANCES REFLECTED IN THE BALANCE SHEET OF THE EARLIER YEARS. THE LD. CIT(A) HELD THAT FROM THE L IST SUBMITTED BY THE ASSESSEE A SUM OF RS. 11,00,000/- HAS BEEN TAKEN FR OM NICK LAKHANI, ALTHOUGH THE ASSESSEE HAS FURNISHED THE PAN, BUT IN SUPPORT OF THE CASH CREDIT, NO CONFIRMATION HAS BEEN FURNISHED AND ALSO OBSERVED THAT NO LEGAL ACTION HAS ALSO BEEN TAKEN AGAINST NICK LAKHA NI. 7. THE LD. CIT(A) HELD AS FOLLOWS: AFTER A CAREFUL CONSIDERATION OF THE DOCUMENTARY E VIDENCE AND OTHER DETAILS FILED BY THE ASSESSEE I COME TO T HIS CONCLUSION THAT IN THE CASE OF NICK LAKHANI, NO SATISFACTORY EXPLAN ATION OR SUPPORTING EVIDENCE HAS BEEN FILED BY THE ASSESSEE. THEREFORE, THE ADDITION OF RS. 11,00,000/- MADE BY THE AO U/S. 68 OF THE I.T. ACT IS CONFIRMED. IN RESPECT OF INDIAN TRADING CORPN. (RS. 3,75,000/- ), NAKUL JAIN (RS. 1,60,000/-) AND PREMIER ROAD SERVICE LTD. (RS.2,00,000/-), NO DOUBT, THE APPELLANT HAS SUBMITTED EVIDENCE FOR LEGAL ACTION TAKEN AGAINST THESE PARTIES, BUT IN ABSENCE OF SATI SFACTORY EXPLANATION, THE CREDITWORTHINESS AND THE GENUINENE SS OF THE TRANSACTION IS NOT ESTABLISHED. UNDER THE CIRCUMST ANCES, THE ADDITION MADE BY THE AO IN RESPECT OF INDIAN TRADIN G CORPN., NAKUL JAIN & PREMIER ROAD SERVICE LTD. IS CONFIRMED. 8. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), ASSESS EE PREFERRED AN APPEAL BEFORE US. THE LD. COUNSEL FOR THE ASSESSEE SHRI VIMAL PUNMIYA SUBMITTED A PAPER BOOK AND FROM WHICH WE FIND THAT THE AMOUNT OF RS,. 11,00,000/- FROM SHRI NICK LAKHANI, RS. 3,75,000/- FROM INDIA TRDG. CORPN., RS. 1,60,000/- FROM NAKUL JAIN AND RS. 2,0 0,000/- PREMIERE ROAD SERVICES LTD. ARE SHOWN AS OPENING BALANCE. S IMILAR TO THE FINDING OF THE LD. CIT(A) THE CASE OF SAROJ GUPTA & S.P. C APITAL FINANCING LTD., WE DIRECT THE AO TO VERIFY WHETHER THESE ARE OPENIN G BALANCES AND IF THEY ARE FOUND TO BE OPENING BALANCES THE ADDITION IS TO BE DELETED. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 5548/MUM/2008 10. THE ASSESSEE COMPANY HAD ALSO PAID INTEREST OF RS. 74,20,186/- ON SECURED AND UNSECURED LOAN OF RS. 6,38,58,708/-. NO INTEREST WAS CHARGED ON LOAN OF RS. 1,07,87,166/- AND THEREFORE PROPORTIONATE INTEREST AMOUNTING TO RS. 12,53,435/- WAS DISALLOWED SINCE T HE INTEREST FREE LOANS ADVANCED HAD DIRECT NEXUS WITH INTEREST BEARI NG LOANS. 11. FURTHER, THE AR SUBMITTED THAT NO LOANS HAVE BE EN GIVEN OR DIVERTED FOR NON BUSINESS PURPOSE. THE AMOUNT OF R S. 1,07,87,166/- INCLUDED IN THE LOANS AND ADVANCES WAS ADVANCE IN COME TAX & TDS. 12. THE LD. CIT(A) HELD THAT THE LOANS AND ADVANCES AMOUNTING TO RS. 1,07,87,166/- (SCHEDUL X) WAS ADVANCE INCOME-TAX AN D TDS, THEREFORE, THE DISALLOWANCE IS UNJUSTIFIED. 13. BEFORE US, THE DEPARTMENT HAS COME UP ON APPEAL AND RAISED THE FOLLOWING GROUNDS: 1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN DIRECTING TO DELET E THE DISALLOWANCE OF PROPORTIONATE INTEREST OF RS. 12,53,435/- ON INTEREST FREE LOANS AND ADVANCES BY THE ASSESSEE COMPANY. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E & IN LAW, THE CIT(A) ERRED IN ACCEPTING THE ASSESSEES SUBMISSIONS THAT LOANS AND ADVANCES OF RS. 1,07,87,166/- AS PER SCHEDULE 10, WAS ADVANCE INCOM E TAX AND TDS, WHEREAS SCHEDULE 10 REVEALS THAT ADVANCE INCOME TAX AND TDS IS ONLY RS. 1,91,644/- A ND THE REMAINDER SUM OF RS. 1,05,95,522/- IS THE AMOUN T OF INTEREST FREE LOANS ADVANCED BY THE ASSESSEE COMPANY. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E & IN LAW, THE CIT(A) ERRED IN HOLDING THAT INTEREST PAID ON LOANS AND ADVANCES OBTAINED TO PAY TAX IS AN ALLOWA BLE DEDUCTION, WHEN PAYMENT OF TAX IN ITSELF IS NOT AN ALLOWABLE DEDUCTION AS PER SECTION 40(A)(II) OF THE ACT. 14. WE FIND THAT IN THE ORDER OF THE CIT(A)S THERE IS A SMALL ERROR IN AS MUCH AS ALL THE FIGURES NAMELY ADVANCE IN CASH OR K IND AMOUNTING TO RS.10,329,558/- AND DEPOSITS OF RS.2,65,964/- HAS N OT BEEN MENTIONED. 15. THE LD. CIT(A) HAS MENTIONED ONLY THE AMOUNT OF RS.1,91,644/-. HOWEVER, HE IS OF THE OPINION THAT NO LOAN HAS BEEN DIVERTED FOR NON- BUSINESS PURPOSE. 16. WE FURTHER OBSERVE THAT TOTAL ADVANCE AMOUNTS T O RS.1,07,87,166/- OUT OF WHICH ADVANCES RECOVERABLE IN CASH & KIND IS RS.1,03,29,558/-, DEPOSITS WITH VARIOUS AGENCIES IS RS.2,65,964/- AND ADVANCE INCOME TAX AND TDS IS RS.1,91,644/-. WE FIN D FROM PAGE 3 OF THE PAPER BOOK SUBMITTED BY THE ASSESSEE THAT A SUM OF RS.81,61,867/- IS REFLECTED AGAINST M/S. ICL LTD. VRS ACCOUNT. THI S IS A MAJOR ITEM OUT OF THE AMOUNT OF RS.1,03,29,558/-. THE AMOUNT OF RS .2,65,964/- ARE VARIOUS DEPOSITS (PAGE 4 OF THE PAPER BOOK). IN THE SE CIRCUMSTANCES, WE DIRECT THE ASSESSING OFFICER TO VERIFY THE BALANCE SHEET AND REWORK THE DISALLOWANCE IF ANY. 17. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 30 TH DAY OF DECEMBER, 2009 SD/- SD/- (PRAMOD KUMAR) ( ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 30 TH DECEMBER, 2009 NEELAM COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR I BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI