TaxTMI 
TaxTMI 
TaxTMI 
2022 (10) TMI 387
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....43(2) and 142(1) of the Act were issued and served on the assessee along with the questionnaire. In response AR of the assessee attended and submitted the information as called for. 4. Assessee is engaged in the business of importers/traders of rubber, bearing and steel hardware and also providing operations and maintenance services. During assessment proceedings, Assessing Officer observed that assessee has borrowed unsecured loans of Rs.3,89,04,334/-. Since assessee has not filed confirmations in some of the cases, the assessee was asked to submit the details of the parties i.e., name, address, confirmations, loan amount, interest rate etc.,. Assessing Officer issued notice u/s. 133(6) of the Act to the loan creditors calling for confirmation with copy of ITR, bank statement etc., to the following parties: - Name of the party Borrowed / unsecured loans (Rs.) a) Trident Mercantile 7,23,000 b) Sunil More 43,75,000 c) Chinmai More 66,75,000 d) Anil More 25,00,000 e) Nirmiti Construction 40,00,000 Total 1,83,73,000 5. Since none of the parties confirmed the transactions nor submitted any documentary evidences, therefore Assessing Officer disallowed the unsecured loans....
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....essing Officer on account of bogus purchases from parties without appreciating the fact that the assessee failed to produce any evidence regarding the genuineness of purchase of goods such as delivery of goods/purchase orders/consumption details, stock register alongwith transportations details?" 10. We shall deal the above issues ground wise. 11. With regard to Ground No. 1 relating to deletion of unsecured loans by Ld.CIT(A), assessee has filed detailed submissions before the Ld.CIT(A) in which it is submitted that assessee has furnished all the details required by the Assessing Officer in relation to borrowing including confirmation of the parties whose loan amounts was considered as unsecured loans. It was submitted these loans include loans from shareholders of the company and also had opening balances. It was submitted that Assessing Officer has issued notice u/s. 133(6) of the Act and however, Assessing Officer did not give any show cause notice and information about non-compliance from these parties to the assessee. However, assessee has filed following additional evidences before the Ld.CIT(A). a. Copies of acknowledgement of ITR filed by the lenders. b. Bank stateme....
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....of section 68 i.c. identity of the lenders, genuineness of the transactions and creditworthiness of the lenders is proved and accordingly the nature and source of the loans is explained by the above mentioned documents. The source of the loans received by the appellant is already proved by the relevant extract of the bank statements and the above mentioned documents of the said lenders and there is no requirement for explaining the source of the source for the purpose of section 68 of the Act. Further, the comment in remand report that 3 parties are not giving the amount to appellant company from their own sources but they themselves are receiving amount from other sources, is totally baseless without any such material and without application of mind or further enquiry. b) As regards the comment in the remand report that the confirmation of M/s. Trident Mercantile Pvt Ltd is not stamped and in fact it is signed by Anil More, we have to state that the loan confirmation of M/s. Trident Mercantile Pvt Ltd was already submitted to the ld. AO during the assessment proceedings by the AR of the appellant vide its letter dated 28.03.2016. The said confirmation was duly stamped and signed....
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....he Assessing Officer asking for details of the replies/details submitted by the assessee during the assessment proceedings together with the copies of notices and covering letters of the replies made. 15. After considering all those details Ld.CIT(A) deleted the additions made by the Assessing Officer with the following observations: - "On examining these Copies of the notices, it is seen that all the notices issued by the AO were replied to and details asked in the notices were furnished by the appellant. With regard to the loans taken during the year, it is seen that the AO had asked the details of interest paid vide notice dated 27.10.2015 and time was fixed for Compliance on 25.01.2016. In response to this, the appellant vide letter dated 28th January, 2016 (Paper book page 49), had submitted the said details of interest paid. There was no requirement of loan confirmations in the notices dated 04.09.2014 or 31.07.2015 or 27.10.2015. The AO in remand report has not mentioned as to on which date the loan confirmations or other evidences were asked from the appellant. Considering this, the additional evidences produced by the appellant have been admitted. As regards the merit....
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....erest of Rs.29,957/- (Gross interest paid Rs.33,288/- less TDS of Rs.3,329/-).Thus, the balance as on 23.11.2012 was NIL and no further transactions took place thereafter. The maximum outstanding credit balance was Rs.7,20,000/- which was reported in Tax Audit Report (whereas Rs. 7,23,000/- has been added by the AO u/s.68 in the assessment order). All the receipts and payments are by cheque transfers as can be seen in the relevant bank statements of the appellant (Page Nos.112 to 120 of paper book) and the corresponding bank statements of Trident Mercantile Pvt. Ltd. (Page Nos. 122 to 133 of paper book). As per ITR V, acknowledgement of the return of income of Trident Mercantile P. Ltd., PAN: AAACT3330K for AY 2013-14 (Page 110 of the Paper book) it has declared total income of Rs. 11,23,040/- for AY 2013-14. The AO has not made any comment on these documents or genuineness of the transactions but has stated that the assessee did not submit the balance sheet and capital account of the lenders. The above details explain the credit and thus, in my opinion the same is in order and therefore the explanation of the assessee is accepted. 2. Loan from Sunil More : It is seen from ....
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.... by chrques as is seen from the bank statements of the appellant (Page Nos 159 to 164 of the paper book) and corresponding entries in the bank pass book of Chinmai More (Page Nos 165 to 169 of the paper book). From the Copy of the acknowledgement of return of income filed by her for AY 2013-14 (Page No. 157 of paper book), it is seen that the gross total income declared by her is Rs. 10,21,970/- and taxable total income is Rs.9,14,620/- for the said year. She also, as explained, being an Individual and not having business income, is not required to and has not filed balance sheet and capital account with return of income. The above explanation is accepted and therefore the addition u/s 68 is deleted. 3. Loan from Anil More : From confirmation of the ledger account, it is seen that there was an opening credit balance as on 01.04.2012 of Rs. 4,06,628/-. There was a credit for receipt of loan on 10.12.2012 of Rs. 25,00,000/- and there were 4 debits for repayment on various dates upto 17.12.2012 aggregating Rs. 29,06,628/-. Thus as on 17.12.2012, the balance in the account was NIL. Thereafter, again from 07.01.2013 to 27.02.2013, there were 4 credit for receipt of loan aggregatin....
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....ore the same is deleted. Thus, it is noticed that there are several mistakes in considering the amounts of loans taken by appellant and actually added by the AO in the assessment order, which have been pointed out by the appellant in its submissions. In case of M/s Trident Mercantile Pvt ltd, Sunil More, Chinmai More and Anil More the amounts added by the AO are not the amounts borrowed during the year. In case of Nirmitee construction, there is no transaction during the year, there is opening balance of Rs. 40,00,000/ which is carried forward as closing balance as on year end i.e. 31st March, 2013. It appears that the AO has simply picked up the figures shown in the column of maximum amount outstanding during the year as shown in the Tax Audit Report treating it as the amount received during the year. The appellant has also placed reliance on various decisions including CIT V M/s. Usha Stud and Agricultural Farms ltd. 301 ITR 384 (Del.) to the effect that if there is no fresh credit entry during the year, no addition can be made u/s 68 of the Act. The AO has made additions on the ground that notices u/s. 133(6) were not replied by the lenders and the suppliers. The AR has reli....
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....mpany and all these people have filed their return of income and declared gross total income of Rs.22,83,870/-, Rs.10,21,970/- and Rs.10,98,102/- respectively. We observe that Ld.CIT(A) has deleted the addition with the observation that all these transactions are only routed through banking and Assessing Officer has observed in remand report that these people have not filed balance sheet and capital account. However, he observed that these parties are individuals and not having any business income, therefore, there is no need to file any financial statements. By accepting the same he has deleted the additions. After considering the reasons for deletion, we are in agreement that since these are related parties and they are not required to file any financial statements. However, they have filed ITR and bank statement to prove the genuinety and for creditworthiness. It is argued by Ld. DR that there is no sufficient earning declared by them. In our view, to prove creditworthiness, it is enough to show that they have resources to pay loan and not necessary that it should only earned by the parties. If they can demonstrate that they have source and means to arrange funds and obviously t....
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....1.2016 furnished the details of interest paid and TDS deducted before the Ld. A.O. The confirmation letters of all these parties were also filed vide letter dated 28.03.2016. The Ld. A.O. has wrongly mentioned in the assessment order that no confirmations are filed in some of the cases. 2.3 As mentioned in para 1.2 hereinabove, the Ld. A.O. has made additions of the loans u/s.68 and also has disallowed the interest paid to the said parties, on the reasoning that they did not comply with the notices issued u/s 133(6) of the Act. Hence, the said addition of interest expense is consequential to the above addition of unsecured loans u/s 68. 2.4 Further the Ld. A.O. has wrongly added the interest expense of Rs. 6,24,000/- on adhoc basis (ie. aprrox. 15.60% on Rs. 40,00,000/- being o/s loan from Nirmitee constructions & Design Pvt. Ltd.) even though no interest has been paid to the said party or claimed by the appellant which is evident from the ledger account confirmation of Nirmitee constructions & Design Pvt. Ltd. The Ld. A.O. cannot add a particular amount which is neither debited in the profit and loss account nor claimed as deduction by the appellant company. 2.5 In view of t....
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....es of Rs. 1,49,87,000/- by treating it as bogus purchases. 3.1 Appellant has during the year purchased material and paid labour charges amounting to Rs. 3,12,32,263. The Ld. AO had during the assessment proceedings asked for details of purchases made during the year. The AR of the appellant vide letter dated 08.02.2016 submitted the details of purchases, including labour charges, for the F.Y. 2012-13 alongwith the names and addresses of the parties. Ledger account of labour charges was also submitted to the Ld. AO. The Ld. AO has apparently, as mentioned in the assessment order, issued notices u/s 133(6) of the Act to all the parties from whom purchases were made and labour charges were paid. According to the Ld. A.O. no compliance was received from 3 parties till the date of his passing the order as under: Sr. No. Name of the Party Amount of purchase / labour charges(Rs.) a) J. J. Enterprises 43.86 lakhs b) Phifer India P. Ltd. 66.15 lakhs c) Jay Engg. Works 39.86 lakhs Total 149.87 lakhs The ld. A.O. treated the entire amount of purchases and labour charges of above three parties as non genuine purchases and added to the total income, without as....
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....by him u/s 133(6) is wrong. We also enclose the sample copies of sales invoices at Sr. No.3(a)(u) of the paper book (Index-II) reflecting sales of fabrics purchased from Phifer, the copies of bank statement showing payments made to Phifer at Sr. No. 3(a)(iv) of the Paper book (Index-II). Sample copies of credit notes for commission earned by the appellant on sales directly executed by Phifer in the western region are enclosed as Additional evidence at Sr. No. 3(a)(v) of the paper book (Index- II). It will be appreciated that no sales (which has not been doubted by the Ld. AO) could have been, made by the appellant without the corresponding purchases made from Phifer and hence the said purchases from Phifer cannot be treated as bogus purchase. On perusal of the ledger account of the appellant in the books of Phifer, sample invoices issued/sent by Phifer and relevant extract of the bank statements of the appellant company highlighting the payments made to Phifer it is evident that purchases made by the appellant from Phifer is genuine. Thus, in view of the above facts, the addition made in respect of purchases from Phifer amounting to Rs. 66.15 lakhs by treating it as bogus for the....
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....ement that these parties did not reply to his notices under section 133(6) of the Act. 3.7 Appellant had submitted during the assessment proceedings whatever details asked by the AO in connection with said purchases and labour charges. AO did not ask for any further details. If he had asked for said details, appellant could have provided the same as said details were readily available with the appellant. Further, appellant could have asked or followed up with the said parties to send response to the notice u/s 133(6). AO passed the order without giving any opportunity to the appellant or issuing show cause notice of his intention to make additions and without considering the details and submissions made by the appellant. 3.8 We enclose herewith the ledger accounts of these two parties duly confirmed by them as additional evidence at Sr. No. 3(b)(i) of the paper book (Index-II). Further relevant extracts of the bank statements of the appellant highlighting the payments made to J.J. Enterprises and Jay Engineering Works for labour services provided by them, sample copies of invoices issued to the appellant by the parties and the copies of TDS certificates issued by the appellant ....
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....d the remand report dated 10.10.2012 and in reply assessee has submitted as under: - "Reg. Ground of Appeal No. 3 - Disallowance of purchases/labour charges paid of Rs. 1,49,87,000/ The Ld. AO in the remand report made various comments such as: a) That the appellant company did not submit the invoices during the assessment proceedings. - In this regard we have to state that ld. AO vide his notice dated 27.10.2015 issued u/s 142(1) of the Act called for the details of purchase and sales during the year and fixing the date of hearing on 25.01.2016. In response to the same, AR of the appellant company on 28.01.2016 submitted the basic details of purchases. Further, the AR of the appellant company vide letter dated 08.02.2016 submitted the partywise details of purchases including labour charges, alongwith addresses of the parties for the F.Y. 2012-13. It is submitted that thereafter the ld. AO never asked for any other requirements with regards to the purchases made from the said parties during the assessment proceedings. If the ld. AO would have asked for the purchase invoices of the said purchase parties during the assessment proceedings, the same would have been submitted by....
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....are found to be bogus by anybody. Further, it will be appreciated that no services at airports could have been provided by the appellant to the customers without procuring the labour services from Jay Engineering Works and J.J. Enterprises and hence the said purchase/ labour charges cannot be treated as bogus. This is not the case that parties are not available or they are not ready to confirm their supplies. It is submitted that the confirmation on the ledger account by them submitted as additional evidences would not have been available if the parties were bogus. Further, the appellant has deducted TDS from the payments made to them and the copies of Form 16A have also been submitted as additional evidences. c) That the appellant company has not furnished any proof of delivery in form of transportation invoices to show the movement of goods from purchase parties to the appellant company. That the assessee has to establish the link leading to purchases right form placing order with the suppliers till the receipt of good to it location which will appear in its stock register and after the sale of the same / consumption of the same shall stand reduced. The above comments of th....
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....purchase/ labour charges cannot be treated as bogus. II) Reg.: Phifer India P Ltd: M/s Phifer Ltd. is a 100% subsidiary of US based multinational company. During the financial year the appellant company had made purchases of Rs. 66,15,000/- from Phifer India P. Ltd. The id AO has treated this party also as non genuine party by alleging that the said party has not replied the notice issued u/s 133(6) of the Act. However, as explained in point 1.6 above, Phifer India P. Ltd had already replied to the notice issued u/s 133(6) of the Act and hence the basis of making the addition of purchase made form Phifer India P Ltd by treating it as non-genuine for the reason of non-compliance to notice issued u/s 133(6) of the Act, does not survive. Further, we have also submitted the following additional evidences to prove the genuineness of the purchase transactions: (i) Letter written by Phifer India P. Ltd to the AO in response to notice u/s. 133(6) alongwith sample invoices provided by them to the appellant. (ii) Ledger account of M/s. Phifer India Pvt. Ltd in the books of appellant company for the F.Y. 2012-13, (iii) Relevant extract of the bank statements of the appellant compa....
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....t evidence to prove the genuineness of the purchases made by the appellant from Phifer India P Ltd. In view of the above, we request your goodself to kindly admit the additional evidences filed by the appellant and consider them and provide appropriate relief to the appellant." 27. After considering the remand report and submissions of the assessee Ld.CIT(A) decided the issue in favour of the assessee by observing that Assessing Officer has made the addition as non-genuine purchases on the sole ground that in response to notice u/s. 133(6) of the Act he has not received any replies from all the three parties. When the Assessing Officer was asked the party wise details of purchases made during the year assessee vide letter dated 08.02.2016 submitted the details of purchases and labour charges, giving names and addresses of each parties. Accordingly, Assessing Officer issued notices u/s. 133(6) of the Act to all the three parties since he has not received any response from these parties Assessing Officer treated the same as non-genuine. However, assessee has claimed that these parties are regular supplier's/service providers of the assessee company in earlier and also in subsequen....
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....mation on the ledger accounts, relevant bank statements, the invoices and the TDS Certificates. Further, it is submitted that it was never alleged in the assessment order that these parties are found to be bogus by any authority or anybody else. Further, as explained by the appellant, it could not have provided maintenance services at air ports and services to other customers without procuring the labour services from these two parties. The appellant states that the parties continue to be at the given address even now. Their confirmations have been obtained and provided by the appellant as additional evidences. It is seen that the appellant has earned income from labour charges of Rs.2,12,50,599/- during the year which is reported as Revenue from operations/sales in the profit and loss account. This revenue is not doubted by the AO. On examination of the bills, it is seen that the bills raised by these parties are for particular sites and the appellant has raised invoices as per the man power and maintenance services provided at different sites. Thus, the purchase of labour from these two parties and its corresponding sales/revenue are linked. Thus, the above evidence proves that t....