MAHAK INDUSTRIES PRIVATE LIMITED,DELHI V. INCOME TAX OFFICER, DELHI

CO 87/DEL/2024

AI Insights

The case involves the Income Tax Officer, Delhi, as the appellant, and Mahak Industries Private Limited, as the respondent, concerning the assessment year 2015-16. The primary issues revolved around the additions made by the Assessing Officer (AO) under sections 14A and 68 of the Income Tax Act, 1961, related to disallowances of interest and unexplained sundry creditors, respectively. The CIT(A) had partly allowed the assessee's appeal, leading to the Revenue's appeal and the assessee's Cross Objections. The Tribunal's decision focused on the validity of the additions and the application of the law concerning the burden of proof and the sufficiency of evidence provided by the assessee.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 707284 (ITAT-DELHI)
• Duration Of Justice: 10 month(s) 1 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 09-07-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2015-2016
• Appeal Filed On: 07-09-2024
• Other Referred Cases: CIT vs. Reliance Industries Ltd. [2019] 410 ITR 466, HDFC Bank Limited v. DCIT (2016) 363 ITR 66 (Bom)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIRENDER KUMAR SINGH
• Assessee Lawyers: SURESH K. GUPTA
• Keywords: Set aside; Business income; Additional evidence; Corroborative evidences
• Section: 143(3); 142(1); 14A

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘E’: NEW DELHI BEFORE MS. MADHUMITA ROY, JUDICIAL MEMBER AND SHRI MANISH AGARWAL, ACCOUNTANT MEMBER ITA No.661/Del/2024 (ASSESSMENT YEAR 2015-16) Income Tax Officer, Delhi. Vs. Mahak Industries Private Limited, T-1433, Kumar Complex LGF, Shop No.4, Wazir Nagar, Kotla Mubarakpur, Delhi-110003. PAN-AAICM1860H (Appellant) (Respondent) C.O. No.87/Del/2024 Arising out of ITA No.661/Del/2024 (ASSESSMENT YEAR 2015-16) Mahak Industries Private Limited, D-5/105, Awadh Complex, Laxmi Nagar, East Delhi, Lasmi Nagar S.O. (East Delhi) Delhi-110092. PAN-AAICM1860H Vs. Income Tax Officer, Delhi. (Cross Objector) (Respondent) Assessee by Shri Suresh K. Gupta, CA Department by Shri Virender Kumar Singh, Sr. DR Date of Hearing 07/05/2025 Date of Pronouncement 09/07/2025 O R D E R PER MANISH AGARWAL, AM: This appeal and the Cross Objections (CO) are filed by the Revenue and assessee respectively, against the order of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi in Appeal No. CIT(A)-Delhi - 2 ITA No.661 /Del/2016 C.O.87/Del/2024 ITO vs. Mahak Industries Pvt. Ltd. 06/10454/2017-18 dated 29.01.2024 passed u/s 250 of the Income Tax Act, 1961 for Assessment Year 2015-16. 2. Brief facts of the case are that the assessee is a private company and filed its return of income on 30.09.2015 declaring total income at Rs.4,710/- and book profit was declared at Rs.9,930/-. The case was selected under limited scrutiny for the following reasons: i. low income in comparison to high loans / advances / investment in shares, ii. Large increase in Sundry Creditors with respect to Turnover as compared to Preceding year, iii Large increase in Sundry Creditors and reduction in Business Income as compared to preceding year. 3. The assessee is engaged in the trading activity of M.S. Steel. The AO issued various issues u/s 142(1) of eh Act, from time to time which were complied with and after considering the submissions made, the assessment was completed u/s 143(3) at a total income of Rs.3,05,48,790/- by making following additions/disallowances: (i) Rs.74,55,681/- as interest on loans (ii) Rs.23,76,398/- disallowance u/s 14A (iii) Rs.2,07,10,000/- Unexplained & Unverified Sundry Creditors. 4. Against such order, the assessee filed an appeal before the Ld. CIT(A) who has partly allowed the appeal of the assessee wherein the addition on account of sundry creditors and 14A stood deleted and disallowance of interest was set aside to the file of the AO that certain directions to recalculate the disallowance. 5. Against this order, the Revenue is in appeal before us and assessee has filed the Cross Objection. The Revenue has taken following grounds of appeal: 3 ITA No.661 /Del/2016 C.O.87/Del/2024 ITO vs. Mahak Industries Pvt. Ltd. 1. Whether the Ld. CIT(A) erred in facts and circumstances in deleting the addition of Rs.2,07,10,000/- made on account of unexplained and unverified sundry creditors without confirming the transaction with supporting evidence. 2. Whether the Ld. CIT(A) erred in facts and circumstances in deleting the addition of Rs.2,07,10,000/- made on account of unexplained and unverified sundry creditors without taking into consideration the observations made by the AO during the remand proceedings.” 6. The assessee has taken following cross objections: 1. The impugned assessment is invalid and without jurisdiction as the said assessment is completed without complying with the mandatory CBDT instructions/guidelines in relation to the cases selected under limited scrutiny. 2. On the facts and circumstances of the case, the Ld. AO has erred in law in invoking provisions of see 68 of IT Act on the addition of Rs.2,07,10,000/- on account of alleged unexplained sundry creditors ignoring the fact that the above provision has no a… 3. The Ld. CIT(A) has erred both in law and circumstances of the case in directing the matter back to Ld. AO to re-compute the disallowance of interest of Rs.74.55.681/- u/s 36(1)(iii) on the basis of formula given in CIT(A) order ignoring the fact that app 4. The appellant craves leave to add, delete, modify/amend the above grounds of appeal with the permission of the Hon'ble appellate authority. 7. First we take the Revenue’s appeal in ITA No.661/Del/2024. 8. Both the grounds of appeal of the Revenue are in relation to the deletion of addition to Rs.2,07,10,000/- made by AO by holding the sundry creditors as unexplained and non-verified. 9. Before us, the Ld. Sr. DR submits that the assessee has failed to verify the sundry creditors before the AO despite of repeated opportunities given. The Ld. Sr. DR further submits that the additional evidences filed before the Ld. CIT(A) are factually lack of basic information to support the claim of the assessee. The ld. Sr. DR further submits that the creditor of Rs.10,00,000/- M/s K.D. Sales Company (KDSC) has not filed any confirmation and further in case of M/s Evergreen Steel & Metal Co. (ESMC) account was squared up by transfer entry from M/s S.S. Trading Co. He further argued that the agreement filed before the Ld. CIT(A) was neither documented on stamp paper, therefore, the same could 4 ITA No.661 /Del/2016 C.O.87/Del/2024 ITO vs. Mahak Industries Pvt. Ltd. not be treated as valid document. He therefore, prayed that the additional evidences as admitted by Ld. CIT(A) deserves to be ignored and the additions deleted by Ld. CIT(A) are to be restored. 10. On the other hand, Ld. AR of the assessee supports the order of the ld. CIT(A) and submits that in case of the creditors M/s K.D. Sales Corporation, the AO himself observed that during the year purchases of Rs.99,232/- were made from this party and the remaining amount of Rs.9,00,768/- was the opening balance. Since purchase made in the year under appeal as well as in preceding year was not doubted, therefore, the outstanding balance at the end of the year should not be treated as unexplained. With regard to the other creditor of M/s Evergreen and Steel & Metal Co., who was the agent and it was agreed between the assessee and this party that in case against the supplies made, payments were not made by M/s S.S. Trading Co., the balance lying in the account of M/s Evergreen would be used against the payment due from M/s S.S. Trading Co. Assessee also filed an agreement in this regard, thus, the Ld. AR requested that the Ld. CIT(A) after considering this facts has rightly deleted the addition, which order deserves to be uphold. 11. Heard both the parties. From the perusal of the order of Ld. CIT(A), we find that Ld. CIT(A) admitted the additional evidences filed by the assessee after due application of mind and after considering the remand report submitted by the Assessing Officer. Since these evidences are crucial and goes to the root of the matter, therefore, the action of the Ld. CIT(A) in admitting the additional evidences is hereby upheld. 12. With regard to the merits, we find that the Ld. CIT(A) has dealt this issue by making following observations: “2. Merits of the evidences. The Ld. AO after considering the additional evidence has given his comments on the merits of each of evidence. The Ld. AO during remand proceedings required the appellant vide call 5 ITA No.661 /Del/2016 C.O.87/Del/2024 ITO vs. Mahak Industries Pvt. Ltd. memo dated 18.08.2023 to furnish various information /evidence regarding the addition of Rs.2,07,10,000/- made u/s 68 of IT Act. The comment of the Ld. AO on the additional evidence and the evidences specifically required during remand proceeding and the counter comments of appellant thereon are under: A. During remand proceedings, copies of bills/vouchers for purchases made from M/s KD Sales Co having a closing balance of Rs. 10,00,000/- were required by the Ld. AO. These details/evidences were duly provided vide submission dated 28.08.2023 in the form of purchase bill duly supported with the transport bills and the bank statement through which payment to M/s KD Sales co was made. The same is submitted herewith as Annexure-A. The Ld. AO did not find fault with the evidences of purchase of Rs.99,232/- made during the year and remaining amount of Rs.9,00,768/- represents opening balance. The evidence of payment of above Rs. 10,00,000/- in succeeding year was also submitted in remand proceedings which is forming part of Annexure-A. In the absence of any adverse comment made by the Ld. AO on the above credit of Rs. 10,00,000/-, the same needs be allowed. B. Regarding the agency agreement with M/s Evergreen Steel and Metal Company (PB 12) and the ledger account of M/s S. S. Trading for FY 2013-14 to 2016-17 (PB 74-75), these are the additional evidence considered by the Ld AO on merits. During remand proceedings, the appellant also filed the confirmed ledger accounts of the above named entities namely M/s Evergreen Steel and Metal Company and M/s S. S. Trading Co (now produced in Annexure-B to this submission). Regarding the agency agreement, the objection of Ld. AO was that above agency agreement does not bear any stamp of both the guarantor firm and the assessee company. The confirmation of above entities is adversely commented for the reason that confirmations bear neither the PAN's and nor the rubber stamp of the confirming party. Taking the first objection first, it is submitted that the agency agreement under comment had been made on the letter head of M/s Evergreen Steel and Metal Company (Guarantor) with the appellant company. The signature appended by each of the above parties shows the name of the entity through typed particulars for which the signing parties have put their respective signatures. If that be the case, since, the parties represented by the signing person is clearly defined, there is no legal requirement to fix the rubber stamp. The objection taken by the Ld AO based on the so-called technical deficiency could have been resolved if the Ld. AO had issued notice to the guarantor entity for verification of the factual situation. The address of the guarantor entity appears on the letter head. In view of the fact that the Ld. AO did not opt to make. verification, the objection of the Ld. AO remains unsubstantiated and therefore no adverse view be taken based on the above objection. Regarding the objection on the confirmation of the parties, it is submitted that both the confirmations bear the rubber stamp. The address of the parties is available either on the confirmation or on agreement on record. The PAN's of the above entities could have been verified by the Ld. AO or appellant could have been specifically required to give the PAN's of the parties if the PAN's was so materially important for the Ld. AO. The appellant is submitting herewith the call memo issued by the Ld. AO In remand proceeding along with acknowledged reply and evidence attached with the reply as Annexure-C, D and E respectively. 6 ITA No.661 /Del/2016 C.O.87/Del/2024 ITO vs. Mahak Industries Pvt. Ltd. 13.4.3 Adjudication: A. The AO made this addition for the following reason. 7.3 During the course of assessment proceedings, it was observed that the assessee company had shown Sundry Creditors of Rs. 17,12,13,189/-whereas during the assessment proceedings and only on last leg vide letter dated 29,11,2017 and submitted the confirmation of M/s Neeraj Paper Marketing Limited. In response to show cause Notice, assessee had submitted the confirmation of M/s Evergreen Steel and Metal Co. M/s K. D Sales Corporation, M/s KMV Industries and M/s Neeraj Metal. However confirmation of another balance of M/s K. D Sales Corporation amounting to Rs. 10,00,000/- has not been submitted Further the ledger account which was claimed as confirmed by M/s Evergreen steel and Metal Co. reflect that No Address of the party, PAN and Stamp has been placed only the signature of some Kumar present in the said confirmation, Further, there was not a single transactions of sales & purchases were existing in the said account and only the amount received through cheque amounting to Rs 2,68,80,000/- and payments through cheque Rs. 71,50 000/- were reflected. It was further seen that on 31.03.2015 an amount of Rs 1,82,79 312/- has been transferred to M/s S. S. Trading for which No details, and why the amount transferred has been submitted. In the absence of any address of the said party, this office is also not able to verify the confirmation submitted by the assessee company. In view of above facts, I hereby held that the assessee company had failed to substantiate the Identity, genuineness and creditworthiness of M/s K. D. Sales Corporation whose outstanding of Rs. 10,00,000/- has been shown and of M/s Evergreen Steel and Metal Co. from whom amount of Rs. 2,68,60,000/- has been received out of which Rs. 71,50,000/- has been paid back, accordingly Rs. 1,97,10,000/- had remained unverified and the provision of section 68 is clearly attracted in this case. B. Decision: in relation to the addition of Rs, 10, 00,000/- the transaction during the year was only Rs.99,232/- and taking into account the development during the remand proceedings, this addition under section 68 is directed to be deleted In relation to the addition of Rs. 1,97,10,000/- on careful consideration of the evidence brought on record during the remand proceedings, the addition is not warranted. The AO is directed to delete the addition. This ground is allowed. In the result, the appellant is partly allowed.” 13. From the perusal of the observations made by Ld. CIT(A), we find that the Ld. CIT(A) has discussed the issue at length with respect to the evidences filed including the agency agreement between the assessee and M/s Evergreen Steel & Metal Co. according to which it was agreed between the parties that in the event M/s S. S. Trading Co. failed to make the payments against the sales made to it, the assessee would be entitles to recover the same from M/s Evergreen 7 ITA No.661 /Del/2016 C.O.87/Del/2024 ITO vs. Mahak Industries Pvt. Ltd. Steel & Metal Co. In terms of this agreement only, outstanding balance was adjusted against the outstanding of M/s S.S. Trading Co. from the account of M/s M/s Evergreen Steel & Metal Co. Further the AO has not doubted the sales made against which balance was outstanding, therefore, in view of these facts, we find no infirmity in the order of Ld. CIT(A) in deleting the addition made on account of sundry creditor which order is hereby upheld. Both the grounds of appeal of the revenue are dismissed. 14. In the result, the appeal of the Revenue is dismissed. 15. Now we take up the Cross Objections filed by the assessee in C.O. No. 87/Del/2024. 16. The first ground of cross objections is on the jurisdiction of the AO in limited scrutiny assessment. After considering the submissions of both the parties, we find that one of the reasons of the limited scrutiny was “larger increase in sundry credit with respect turn over as compared to preceding year”, thus, the Assessing Officer has jurisdiction to verify the genuineness of the sundry creditors. However, it is seen that an addition was made on account of disallowance of interest u/s 14A. Since this additions u/s 14A has already been deleted by Ld. CIT(A) and not challenged by the Revenue before us, thus, the issue had attained finality. 17. With regard to the issue of disallowance of interest, we find that this issue is also covered in the limited scrutiny reason where one of the reason is “low income in comparison to high loans advances which investment in share” thus, we find no merit in ground No. 1 taken in cross objection by the assessee. Accordingly, ground No.1 of C.O. is dismissed. 18. In Cross Objection No.2, the assessee has supported the deletion of addition of Rs.2,07,10,00/- made by holding sundry creditors as explained. 8 ITA No.661 /Del/2016 C.O.87/Del/2024 ITO vs. Mahak Industries Pvt. Ltd. Since, we have already dismissed the appeal of the Revenue wherein the revenue has challenged the deletion of addition of Rs. 2,07,10,000/-, therefore, this Cross Objections is also decided in view of the observations made therein. 19. In Cross Objection No.3, the assessee has challenged the action of the Ld. CIT(A) in remanding back the issue of disallowance u/s 36(1)(iii) out of interest expenses to the file of Ld. AO for making disallowance in terms of formula given in the appellate order. 20. After hearing both the parties, we find that the claim of the assessee was that it had sufficient interest free funds in the shape of capital which were utilized for making advances. However, Ld. CIT(A) by observing that assessee has failed to link the advance with the borrowed funds, therefore, the Ld. CIT(A) has directed the AO to re-compute the amount of disallowance of interest on the basis of formula given at page 47 of the order. Such observations of Ld. CIT(A) are contrary to the judgments of Hon’ble Supreme Court in the case of CIT vs. Reliance Industries Ltd. [2019] 410 ITR 466 wherein it has held that where the assessee has sufficient interest free funds, it could be presumed that investments/advances was made out of interest free funds available with the assessee. This view is also expressed by the Hon’ble Bombay High Court in the case of HDFC Bank Limited v. DCIT (2016) 363 ITR 66 (Bom). In the instant case, assessee has successfully demonstrated that it had interest free funds of Rs.3.15 Cr. and the interest free advances made were of Rs.2.23 crores, thus, by following the aforesaid judgment of Hon’ble Supreme Court and Hon’ble Bombay High Court, no disallowance could be made. In view of this discussion the disallowance made by the ld. AO of Rs. 74,55,681/- is hereby deleted. Accordingly, the Cross Objections No.3 of the assessee is allowed. 21. In the result the cross objection of the assessee is allowed. 9 ITA No.661 /Del/2016 C.O.87/Del/2024 ITO vs. Mahak Industries Pvt. Ltd. 22. In the final results, the appeal filed by the Revenue is dismissed and Cross Objections of the assessee are allowed. Order pronounced on 09.07.2025. Sd/- Sd/- (MADHUMITA ROY) (MANISH AGARWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 09.07.2025 PK/Ps Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI "