Medium Packaging Pvt Ltd, New Delhi V. ITO WARD - 16(3), New Delhi

ITA 7747/DEL/2019

AI Insights

The case involves Medium Packaging Pvt. Ltd., which appealed against the orders of the Commissioner of Income Tax (Appeals)-6, Delhi, and the Assessing Officer, Ward-16(3), New Delhi. The primary issues in the appeal were the disallowance of a Rs.50,000 contribution to a trade association and the additions made under section 68 of the Income Tax Act concerning unexplained cash credits and discrepancies in reported cash balances. The Tribunal examined the contributions made to the trade association and the nature of the loans received by the assessee, ultimately finding in favor of the assessee on all grounds.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 115804 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 10 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-08-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 22-05-2023
• Assessment Year: 2014-2015
• Appeal Filed On: 22-09-2019
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Business expenditure; Additional evidence
• Section: 68; 37; 143(3); 133(6); 80G; 12A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : E : DELHI BEFORE SHRI C.M. GARG, JUDICIAL MEMBER AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER ITA No.7747/Del/2019 Assessment Year: 2014-15 Medium Packaging Pvt. Ltd., C/o S.B.G & Co., CAs, 9, Atta-ur-rehman Lane, Civil Lines, New Delhi – 110 002. PAN: AAFCM6578B Vs ITO, Ward-16(3), New Delhi. (Appellant) (Respondent) Assessee by : Shri S.B. Gupta, CA Revenue by : Ms Raja Rajeshwari R., Sr. DR Date of Hearing : 23.05.2023 Date of Pronouncement : 18.08.2023 ORDER PER M. BALAGANESH, AM: The appeal in ITA No.7747/Del/2019 for AY 2014-15, arises out of the order of the Commissioner of Income Tax (Appeals)-6, Delhi [hereinafter referred to as ‘ld. CIT(A)’, in short] in Appeal No.CIT(A)- 6/10685/2016-17 dated 09.08.2019 against the order of assessment passed u/s 143(3) of the Income- ITA No.7747/Del/2019 2 tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 29.12.2016 by the Assessing Officer, Ward-16(3), New Delhi (hereinafter referred to as ‘ld. AO’). 2. The ground No.1 raised by the assessee is challenging the action of the ld.CIT(A) in confirming the disallowance of contribution of Rs.50,000/- made to Federation of Association of Cottage and Small-scale Industries (FACSI). 3. We have heard the rival submissions and perused the material available on record. The assessee is engaged in the business of manufacturing and trading. During the year under consideration, the assessee made contribution of Rs.50,000/- for membership of trade association, namely, FACSI. This contribution was duly acknowledged by FACSI vide its letter dated 29.06.2013. This letter is enclosed in page 79 of the paper book. In the said letter, it has been stated by the said trade association that the contribution made to them is eligible for exemption u/s 80G of the Act. The purpose of making this contribution by the assessee is that, it being a small-scale industry, the trade association works for betterment of small-scale industries. Due to the efforts of trade association, the products dealt in by the assessee has been placed in reserved category for supply exclusively by small-scale industries. Hence, it was pleaded that the contribution made to the said trade association would result in betterment of assessee’s business. This was shown as donation in the Profit & Loss Account by the assessee. The assessee also pleaded that the said trade association is duly registered u/s 12A of the Act and also enjoying exemption u/s 80G of the Act. The main submission of the assessee is that this contribution made to trade association would be allowable as a business expenditure u/s 37 of the Act even though the nomenclature in the Profit & Loss Account has been mentioned as ‘donation.’ The ld. AO, however, did not agree to the contentions ITA No.7747/Del/2019 3 of the assessee and proceeded to disallow this sum of Rs.50,000/- in the assessment. The ld.CIT(A) observed that the assessee, during the appellate proceedings, also did not provide the registration u/s 12A of the Act and exemption obtained by the said payee trade association u/s 80G of the Act. Moreover, the letter dated 29.06.2013 which was placed on record by the assessee did not suggest the fact that the said amount was given as contribution towards obtaining membership of the said trade association. Accordingly, he upheld the action of the ld. AO. 4. We find, from the perusal of the said letter dated 29.06.2013 which is enclosed in page 79 of the paper book issued by FACSI to the assessee that the assessee had indeed made a contribution of Rs.50,000/- to the said trade association pursuant to the request made by the association. It is not in dispute that the assessee is engaged in the business of manufacturing and trading and is in the category of small-scale industry. Hence, any contribution made by a small-scale industry to a small-scale industry trade association could only be construed as an expenditure incurred for furtherance of business of the assessee. The assessee had already pleaded before the lower authorities that pursuant to the efforts of the trade association, the product dealt in by the assessee has been placed in reserved category for supply exclusively by small- scale industries. This fact is not controverted by the Revenue before us. Hence, it becomes an allowable expenditure u/s 37 of the Act as it is incurred wholly and exclusively for the purpose of business of the assessee, even though the nomenclature used in the accounts is ‘donation.’ Hence, we direct the Ld. AO to allow the entire contribution of Rs.50,000/- as an allowable expenditure. Accordingly, ground No.1 raised by the assessee is allowed. ITA No.7747/Del/2019 4 5. The ground Nos.2 to 6 raised by the assessee are challenging the addition made in the sum of Rs.73,80,000/- u/s 68 of the Act. 6. We have heard the rival submissions and perused the material available on record. The assessee received unsecured loan from the following parties which are in dispute before us:- i) Smt. Kamlesh Goel - Rs.17,80,000/- (Wife of Director) ii) Smt. Shiksha Goel - Rs.19,00,000/- (Dauther-in-law of Director) iii) Shri Vikas Goel - Rs.37,00,000/- (nephew of Director) Total - Rs.73,80,000/- 7. The assessee borrowed loan from the aforesaid three parties and submitted the following documents before the lower authorities:- a) ITR of the lender; b) Name and Address together with PAN of the lender; c) Bank statement of lender duly highlighting the relevant transactions and also proving the fact that no cash deposits were made prior to the issuance of cheque to the assessee; and d) Confirmation from lender agreeing to the fact of giving loan to the assessee. 8. The assessee submitted that the transaction of loan has been routed through regular banking channels. From the bank statement of the lenders, it could be seen that the lenders had sufficient credit worthiness to advance loans ITA No.7747/Del/2019 5 to the assessee. All the lenders are independently identifiable, regularly assessed to income-tax and had also duly confirmed the loan transactions, accordingly, their identity is also proved beyond doubt. Accordingly, it was pleaded that all the three ingredients of section 68 of the Act were proved by the assessee in the instant case. The ld. AO, however, observed that source of source was not proved by the assessee. Accordingly, he disbelieved the contentions of the assessee and proceeded to add the sum of Rs.73,80,000/- as unexplained cash credit u/s 68 of the Act. 9. Before the ld.CIT(A), the assessee submitted that all the documents that were called for by the ld. AO had been duly furnished by the assessee and that the source of source of the lenders were never called for by the ld. AO. Accordingly, the assessee furnished the source of source details of these lenders in the form of additional evidence before the ld.CIT(A). These additional evidences were duly admitted by the ld.CIT(A) and a remand report was called for from the ld. AO. The ld. AO rejected the additional evidences and reiterated his stand taken in the assessment order. The assessee filed rejoinder to the remand report before the ld.CIT(A). The ld.CIT(A) observed that the ld. AO had sought to issue notice u/s 133(6) of the Act to certain creditors which was either returned unserved or no reply was received from the parties. The ld.CIT(A) independently examined the additional evidences submitted by the assessee and observed as under:- a) With regard to the loan from Smt. Smt. Kamlesh Goel, it was observed that B.D. Stainless Steel Tubes of Rs.1,40,000/-, Steel Impex of Rs.2,10,000 and M/s Inox Steel of Rs.14,30,000/-, had repaid their loans to Smt. Kamlesh Goel which was used by Smt. Kamlesh Goel to advance loan to the assessee. The ld.CIT(A) concluded that credit worthiness of ITA No.7747/Del/2019 6 Smt. Kamlesh Goel was not established as money has been routed through the same entities who have given money on account of repayment of loan to Smt. Kamlesh Goel. Accordingly, he upheld the addition u/s 68 of the Act in the sum of Rs.17,80,000/- with respect to loan received from Smt. Kamlesh Goel. b) With regard to the loan received from Smt. Shiksha Goel in the sum of Rs.19,00,000/-, the ld.CIT(A) observed that source of this loan was amount received from Inox Steel of Rs.20 lakhs and since Inox Steel did not have sufficient bank balance as on the date, the credit worthiness is not proved and, hence, upheld the action of the ld.AO u/s 68 of the Act with regard to this loan. c) With regard to loan of Rs.37 lakhs received from Shri Vikas Goel, the ld.CIT(A) observed that source of this loan was amounts received from Shri Satish Goel in the sum of Rs.37 lakhs. The ld.CIT(A) observed from the bank statement of Shri Satish Goel that immediately before the transfer to Shri Vikas Goel on 18.03.2014, there was a credit by the same amount on the same date prior to which he did not have sufficient funds in his account to give the said loan. Accordingly, he disbelieved the credit worthiness and upheld the action of the ld. AO in making an addition u/s 68 of the Act with respect to this loan. 10. Let us examine as to whether the assessee had fulfilled the source of source with regard to each party as under:- Smt. Kamlesh Goel – Rs.17,80,000/- Admittedly, Smt. Kamlesh Goel is wife of Director of the assessee company. There is no dispute that the assessee had furnished the preliminary ITA No.7747/Del/2019 7 documents to prove the veracity of the said loan. The only grievance of the lower authorities is that the source of source of credit is not proved by the assessee. In fact, we hold that source of source for unsecured loan is to be proved by the assessee only from AY 2023-24 onwards and not earlier. In any case, we find that the assessee, in the instant case, had given the complete details as to how the creditors had received the money in their bank account which, in turn, had been utilized by those creditors to advance loan to the assessee, as under:- i) A sum of Rs.1,40,000/- has been received back by Smt. Kamlesh Goel from B.D. Stainles Steel Tubes. M/s B.D. Stainless Steel Tubes owes Rs.15,72,425/- to Smt. Kamlesh Goel as on 01.04.2013 and against these dues, this sum of Rs.1,40,000/- was paid on 05.12.2013. This is evident from page 110 of the paper book. This sum of Rs.1,40,000/- was used by Smt. Kamlesh Goel to advance loan to the assessee. The bank statement of M/s B.D. Stainless Steel Tubes for the relevant period is enclosed in page 112 of the paper book. In other words, Smt. Kamlesh Goel received back the loan dues from M/s B.D. Stainless Steel Tubes and used the same for advancing loan to the assessee company. ii) A sum of Rs.2,10,000/- was received from Shri Mukesh Kumar Goel, proprietor of Steel Impex against repayment of loans by Steel Impex to Smt. Kamlesh Goel. The bank statement of Steel Impex for the period from 01.12.2013 to 31.12.2013 is enclosed in page 116 of the paper book. Hence, Smt. Kamlesh Goel had received back her loan dues from Steel Impex of Rs.2,10,000/- and utilized the same for advancing loan to the assessee. iii) A sum of Rs.14,30,000/- was received from M/s Inox Steel (proprietor Shri Vikas Goel) against repayment of loan payable by Inox Steel to Smt. ITA No.7747/Del/2019 8 Kamlesh Goel. The bank statement of Inox Steel for the period 01.12.2013 to 31.12.2013 is enclosed in page 120 of the paper book. Smt. Kamlesh Goel received back the loan dues payable to her by Inox Steel in the sum of Rs.14,30,000/- and utilized the same for advancing loan to the assessee company. 10.1. All these three parties totaled to Rs.17,80,000/- representing the loans received back by Smt. Kamlesh Goel and the same was utilized by Smt. Kamlesh Goel to advance loan to the assessee company. Hence, source of source, though not required to be proved for the year under consideration, is also proved by the assessee, in the instant case. Hence, all the three ingredients of section 68 of the Act have been proved beyond doubt in the instant case in respect of the loan received from Smt. Kamlesh Goel. Hence, no addition could be made for the sum of Rs.17,80,000/-. 10.2. Loan received from Smt. Shiksha Goel – Rs.19 lakhs. Admittedly, Smt. Shiksha Goel is the daughter-in-law of the Director of the assessee company. There is no dispute with regard to furnishing of preliminary documents from the side of the assessee to prove the veracity of the loan. The only grievance of the Revenue is that the source of source of Smt. Shiksha Goel is not proved by the assessee. The source of the source of lender is required to be proved by the assessee only from AY 2023-24 onwards. In any case, we find that a sum of Rs.20 lakh was received from Shri Vikas Goel, proprietor of Inox Steel on 27.02.2014 by Smt. Shiksha Goel towards repayment of loan and out of this, a sum of Rs.19 lakhs was paid by her as loan to the assessee company. The bank statement of Impex Steel for the period from 01.02.2014 to 28.02.2014 is enclosed in page 138 of the paper book. Hence, source of source, though not required to be proved for the year under consideration, is also proved ITA No.7747/Del/2019 9 by the assessee, in the instant case. Hence, all the three ingredients of section 68 of the Act have been proved beyond doubt in the instant case in respect of the loan received from Smt. Shiksha Goel. Hence, no addition could be made for the sum of Rs.19,00,000/-. 10.3. Loan received from Shri Vikas Goel – Rs.37 lakhs Admittedly, Shri Vikas Goel is the proprietor of Inox Steel and nephew of Director of the assessee company. We find that a sum of Rs.37 lakhs was received by Shri Vikas Goel from Shri Satish Goel on 19.03.2014 towards repayment of loan. The bank statement of Shri Satish Goel for the relevant period is enclosed in page 181 of the paper book. In other words, Shri Vikas Goel received money of Rs. 37 lakhs from Shri Satish Goel and utilized the same for advancing loan to the assessee company. Hence, source of source, though not required to be proved for the year under consideration, is also proved by the assessee, in the instant case. Hence, all the three ingredients of section 68 of the Act have been proved beyond doubt in the instant case in respect of the loan received from Shri Vikas Goel. Hence, no addition could be made for the sum of Rs.37,00,000/-. 11. In view of the aforesaid observations, we have no hesitation to hold that the Revenue had not made out any case for upholding the addition u/s 68 of the Act in the facts and circumstances of the instant case as all the three ingredients of section 68 of the Act have been proved beyond reasonable doubt by the assessee on facts. Accordingly, the grounds No.2 to 6 raised by the assessee are hereby allowed. ITA No.7747/Del/2019 10 12. The grounds No.7 to 9 raised by the assessee are challenging the addition of Rs.35,61,100/- on account of alleged cash difference. 13. We have heard the rival submissions and perused the material available on record. The ld. AO noted that there was a difference in the cash balance as per cash book vis-à-vis cash available in hand as per the balance sheet. The cash balance as per balance sheet was reflected at Rs.1,88,862/-, whereas as per the cash book submitted on 28.03.2016, the cash balance was reflected at Rs.37,49,962/-. The assessee, when confronted with this difference, submitted that there was no transaction in cash payments exceeding Rs.20,000/- and that the mistake had occurred because of the print out of the documents being taken from corrupted version of tally package. A complete set of cash book along with ledger of Aristo Paper Mart and R.C. Enterprises are submitted by the assessee. The ld. AO, however, held that the books of accounts were not reliable and rejected the cash book and added the difference of Rs.35,65,100/- [Rs.37,49,962/- (-) Rs.1,88,862/-] on account of alleged cash difference. The ld.CIT(A), however, disregarded the action of the ld. AO in rejecting the books of account as the ld. AO, after rejecting the books of account had not resorted to estimation of profits of the assessee. However, he upheld the addition made in the sum of Rs.35,65,100/- on the ground that the assessee could not satisfactorily explain the alleged cash difference. It is a fact that the assessee had sought to explain the alleged cash difference by stating that the original print out of cash book was taken from the corrupted version of tally package. Later, the full cash book for the whole year was duly submitted before the ld. AO. There was no receipt in cash of more than Rs.20,000/- in a day and there was no payment of more than Rs.20,000/-in a day. The assessee had only submitted the extract of the cash book containing entries of cash receipts and ITA No.7747/Del/2019 11 payments exceeding Rs.20,000/- from which the cash balance as on 31.03.2014 was reflected at Rs.37,49,962/-. However, from the full extract of the cash book furnished by the assessee which are enclosed in pages 182-205 of the paper book, we find that the cash balance as on 31.03.2014 was only Rs.1,88,862/- which has been duly subjected to audit and reflected in the audited balance sheet. This fact was also duly brought to the notice of the lower authorities. In other words, in the extract of the cash book submitted by the assessee, the assessee had merely applied the filter of cash transactions (both receipts and payments) exceeding Rs.20,000/- alone and submitted before the ld. AO as directed by the ld. AO. In that extracted version of the cash book, the cash balance was reflected at Rs.37,49,962/-. Obviously, that cannot be the closing cash balance of the assessee as it is taken from the filtered version of the cash transactions without considering the cash receipts and cash payments less than Rs.20,000/-. We find from page 80 of the paper book that the assessee, vide letter dated 30.08.2016 filed before the ld. AO had only enclosed the filtered version of the cash transactions of more than Rs.20,000/- by way of a separate annexure vide point No.3 thereon. Similarly, the assessee vide another letter dated 13.12.2016 filed before the ld. AO which is enclosed in pages 81-84 of the paper book had also drawn the attention of the ld. AO that the earlier cash book which is submitted is not the actual cash book and, accordingly, submitted the whole cash book for the whole year which only contained the cash balance of Rs.1,88,862/-. When these facts are staring on us, there cannot be any addition that could be made on account of alleged cash difference of Rs.35,61,100/-. Hence, we have no hesitation in directing the ld. AO to delete the addition made in the sum of Rs.35,61,100/- on account of alleged cash difference. Accordingly, ground Nos.7 to 9 are allowed. ITA No.7747/Del/2019 12 14. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 18.08.2023 Sd/- Sd/- (C.M. GARG) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 18 th August, 2023. dk Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asstt. Registrar, ITAT, New Delhi