TaxTMI 
TaxTMI 
TaxTMI 
2015 (10) TMI 2682
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.... unexplained money of the assessee-firm. 4. According to the registry, the appeal of the assessee is time barred by one day. The assessee explained in the application for condonation of delay that delay of one day was due to wrong calculation of number of days which is supported by affidavit of the partner of the assessee-firm. Considering the explanation of the assessee and nominal delay of one day in filing the appeal, we accept the explanation of the assessee and condone the delay in filing the appeal. 5. Briefly the facts of the case are that the assessee is a partnership firm and filed the return declaring "nil" income. The case was selected for scrutiny. The assessee produced the books of account along with the bills and vouchers which were test checked. In this year, the assessee has not started its manufacturing activities but it was in the process of installing the plant. The Assessing Officer noted that the assessee has received unsecured loans amounting to Rs. 1,38,81,722 from 68 persons. The assessee was asked to prove the identity of the creditors, their creditworthiness and genuineness of the transactions. The assessee submitted a reply along with the affidavits as ....
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....ors have not been proved and accordingly, made the addition of Rs. 1,00,10,664. As regards the remaining 11 creditors, the assessee submitted that these creditors could not be produced because they are not within the control of the assessee and the assessee has no legal power to enforce their attendance before the Assessing Officer, therefore, the Assessing Officer was requested to issue summons to all the absentee creditors under section 131 and examine them. The Assessing Officer, instead of summoning these 11 creditors on the same reasoning held that the assessee has failed to prove their creditworthiness and genuineness of the transaction and accordingly, made addition of Rs. 19,55,000. 6. Both these additions were challenged before the learned Commissioner of Income-tax (Appeals) and the assessee reiterated the submissions made before the Assessing Officer. It was explained that the assessee-firm is engaged in the process of erecting the plant to manufacture ingots and in the year under consideration, raised loans from 68 persons for Rs. 1.38 crores including interest. During the year, the plant has not commenced commercial production. The assessee filed confirmations, affida....
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.... 254 (Gauhati), decision in the case of CIT v. Mahalakshmi Textiles Mills Ltd. [1975] 100 ITR 360 (Mad), decision in the case of P. K. Sethi v. CIT [2006] 286 ITR 318 (Gauhati). Learned counsel for the assessee submitted that since no business activities have been conducted by the assessee, therefore, no addition could be made against the assessee and relied upon the decision of the Supreme Court in the case of CIT v. Bharat Engineering and Construction Co. [1972] 83 ITR 187 (SC). He has submitted that in the cases of 35 persons, loan have been returned after TDS and in some cases, Form 15H has been filed where no TDS has been deducted. In respect of 11 creditors, the assessee made a request for summoning them vide letter dated November 24, 2008 but the Assessing Officer did not summon them which is mentioned in the assessment order. Therefore, no adverse inference could be drawn against the assessee. He has filed copy of the partnership deed, copy of the letter dated November 25, 2008 issued by the Department of Industries confirming that date of commencement of commercial production of unit of the assessee is April 11, 2006. He has also filed copy of the profit and loss account e....
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....roved circumstances, these cash credits could not be income of the assessee. The matter, ultimately reached the hon'ble Supreme Court. The hon'ble Supreme Court noted the facts of the case that the assessee- company is an engineering construction company which commenced business in May, 1943. In their books of account, there are several cash credits in the first year of its business. The hon'ble court was concerned with only 5 of those cash credit entries. On June 1, 1943, there is a cash credit entry of Rs. 1 lakh. On July 6, 1943 there is a cash credit entry of Rs. 50,000. On August 30, 1943, there is a cash credit entry of Rs. 50,000. On December 2, 1943, there is a cash credit entry of Rs. 15,000 and on March 15, 1944, there is a cash credit entry of Rs. 35,000. These cash credit entries totalling up to Rs. 2,50,000. The Tribunal felt that these cash credit entries could not represent the income or profit of the assessee-company as they were all made very soon after the company commenced its activities. The hon'ble Supreme Court in the background of these facts, held as under (headnote) : "The assessee, an engineering-construction company, commenced its busine....
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....g judicially or properly instructed as to the relevant law could come to such a finding. The business carried on by the assessee at Lahore was a reasonably large business though its extent could not be verified by any reliable material produced by the assessee ; there was no material on which it could be said that the ornaments, jewellery and cash brought by the assessee and kept in the sealed trunk were of the value of only Rs. 1,00,000 and no more ; the fact that the assessee did not pay Income-tax at Lahore could not have much value in view of the remittances of monies and the deposit of the sealed trunk in the bank ; the answers given by R before the Tribunal to the informal questions put to him could not be relied upon for coming to any conclusion adverse to the assessee in view of the procedure prescribed by rules 29, 30 and 31 of the Appellate Tribunal Rules, 1946, and they could not form part of the record ; and no adverse inference could be drawn against the assessee from the fact of non-disclosure of the assets despite the press note of the Government of India. Further, the utter improbability amounting almost to impossibility of the assessee having earned such a large am....
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....months. However, in the case of the assessee, since no business activities have commenced and even commer cial production started in next assessment year, would clearly prove that the assessee-firm would not have earned a huge income/profit at the pre-operative stage, i.e., installation of the plant, therefore, it has to be reasonably assumed that cash credit entries represented capital receipts. When the assessee was in the process of installing the plant, it would be impossible for the assessee to earn such a huge profit in the name of unex plained cash credits. Therefore, the ratio of both these decisions would squarely apply to the facts and circumstances of the case. The assessee manufacturing firm on the basis of the above admitted facts, would take time to earn profit and it could not have earned huge profit or undisclosed income before commencement of its business/production. It would be reasonable to hold that these cash credit entries represented capital receipt as is held by the hon'ble Supreme Court in the case of CIT v. Bharat Engi neering and Construction Co. [1972] 83 ITR 187 (SC)). The authorities below ought to have taken into consideration that it was impossib....
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....enuineness of the transaction in the matter in the light of the case law relied upon by learned counsel for the assessee. 16. In view of the above discussion, we do not find any justification to sustain the addition under section 68 of the Income-tax Act as is made by the Assessing Officer and confirmed by the learned Commissioner of Income-tax (Appeals). We, accordingly, set aside the orders of the authorities below and delete the additions of Rs. 1,00,10,664 and Rs. 19,55,000. 17. In the result, the appeal of the assessee is allowed. I. T. A. 463 of 2011 : assessment year 2007-08 18. In this appeal, the assessee challenged the addition of Rs. 1,40,83,465 under section 68 of the Income-tax Act. Briefly the facts of the case are that the assessee filed return of income declaring "nil"' income. The case was selected for scrutiny assessment. The Assessing Officer on perusal of the list of unsecured creditors/loans as on March 31, 2007, noticed that total amount of Rs. 2,14,90,869 was shown to be raised as unsecured loans from 87 persons as compared to Rs. 1.38 crores from 68 persons as on March 31, 2006. The assessee was asked to prove identity of the creditors, their creditw....
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....R 187 (SC) would also apply to the facts and circumstances. He has filed summary of the loan taken in each month which reads as under : S. No. Particulars Amount (in Rs.) 1 Up to 11.04.2006 25,05,000.00 2 Loans taken in April 2006 (inclusive of Rs. 25,05,000) 51,40,000.00 3. Loans taken in May 2006 4,25,000.00 4. Loans taken in June 2006 23,75,000.00 5. Loans taken in July 2006 9,75,000.00 6. Loans taken in August 2006 18,30,000.00 7. Loans taken in September 2006 5,30,000.00 8. Loans taken in October 2006 1,50,000.00 20. After considering the rival submissions, we are of the view the issue is same as have been considered in preceding assessment year 2006-07, except that in the year under consideration, the assessee started commercial production of the unit and has therefore, started business activities on April 11, 2006. The assessee has taken loans from April, 2006 to October, 2006 as per the summary of the loan filed by learned counsel for the assessee and reproduced above. The same is supported by the complete details of loans received date-wise in the year under consideration. It is, therefore, clear that the assessee has raised the above loans duri....