TMI Blog2015 (10) TMI 2682X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee of the aforesaid sum because the assessee was in the process of installing the plant and has not commenced any business activities. Therefore, there is no need to discuss all the evidences in detail on record for the purpose of examining the creditworthiness of the creditors and genuineness of the transaction in the matter in the light of the case law relied upon by learned counsel for the assessee. No justification to sustain the addition under section 68 of the Income-tax Act as is made by the Assessing Officer and confirmed by CIT(Appeals). We, accordingly, set aside the orders of the authorities below and delete the additions of ₹ 1,00,10,664 and ₹ 19,55,000. - Decided in favour of assessee. For assessment year 2007-08 held that 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 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 confirmations, copies of Income-tax returns and copies of bank accounts of the creditors. But from a perusal of the bank accounts and copies of the Income-tax returns, it was observed by the Assessing Officer that creditworthiness of the creditors/lenders was doubtful. Since maximum number of lenders belong to Bhiwani District of Haryana, therefore, camp was held at Bhiwani itself and the assessee was asked to produce all the creditors at Bhiwani Camp office so that the creditworthiness of the creditors could be examined. The assessee produced 53 creditors before the Assessing Officer and their statements have been recorded in the presence of counsel for the assessee. From the statements recorded and documents filed by the lenders, the creditworthiness of som ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 ₹ 1.38 crores including interest. During the year, the plant has not commenced commercial production. The assessee filed confirmations, affidavits, identity proof, copies of Income-tax returns and the bank accounts to support the creditworthiness and genuineness of the transactions of cash credits. The lenders in their statements also confirmed to have advanced loan to the assessee through banking channels. The learned Commissioner of Income-tax (Appeals), however, did not accept the contention of the assessee. He has found that no doubt the assessee has proved the identity of the creditors by producing 53 of them for verification but mere identity is not sufficient to prove the genuine credits in the matter. The learned Commissioner of Income-tax (Appeals) discussed some of the creditors in the impugned order and ultimately held that the assessee failed to prove creditworthiness and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 ending on March 31, 2006 to show that pre-operative expenses have been transferred to the balance-sheet and thus, capitalised. He has also relied upon the order of the Income-tax Appellate Tribunal, Delhi Bench in the case of Pushpak Auto Centre v. ITO dated January 16, 2015 in I. T. A. 268 of 2008 [2015] 38 ITR (Trib) 447 (Delhi) in which the order of the learned Commissioner of Income-tax (Appeals) in deleting similar addition was confirmed. 9. On the other hand, the learned Departmental representative relied upon the orders of the authorities below and submitted that the assessee failed to prove creditworthiness of the creditors and genuineness of the transaction in the matter. Some of the creditors opened their bank account recen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00 and on March 15, 1944, there is a cash credit entry of ₹ 35,000. These cash credit entries totalling up to ₹ 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 business in May, 1943. In its accounts there were several cash credit entries in the first year of its business totalling ₹ 2,50,000. Though the explanation regarding the cash credit entries was found to be false, the Appellate Tribunal held that these cash credits could not represent the income or profits of the assessee as they were all made very soon after the company commenced its activ ities : Held, that the inference drawn from the facts proved was a ques tion of fact and the Tribunal's finding on that question was final. A construction company took time to earn profits and it could not have earned a huge profit within a few days after the commencement of its business. Hence, it was re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 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 amount of ₹ 2,33,414 as profit within a few months in the disturbed conditions which then prevailed in India was a circumstance which ought to have been taken into account by the Tribunal and the Tribunal had failed to do so. 13. Considering the facts of the case in the light of the above decisions, it is clear that in the assessment year under appeal, the assessee has not commenced any business activity but was in the process of installing the plant for manufacturing. All the pre-operative expenses were capitalised. The assessee has taken cash credits from 64 persons out of which 53 persons were produced before the Assessing Officer and their statements ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces 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 impossible for the assessee-firm to have earned such a huge unaccounted income/profit before starting of its manufacturing activities. May be documentary evidences on record were not acceptable to the authorities below but it would not prove the assessee-firm earned undisclosed income prior to commencement of business activities. 14. As regards the addition on account of 11 creditors who have not appeared before the authorities below for examination on oath , the assessee vide letter dated November 24, 2008 requested the Assessing Officer to enforce their attendance for their examination on oath and requested to issue summons against them under section 131 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddition of ₹ 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 ₹ 2,14,90,869 was shown to be raised as unsecured loans from 87 persons as compared to ₹ 1.38 crores from 68 persons as on March 31, 2006. The assessee was asked to prove identity of the creditors, their creditworthiness and genuineness of the transaction in the matter. The Assessing Officer, after examining the facts and details of all the creditors, observed that there has not been any change at all in the circumstances during the current year. The Assessing Officer found explanation of the assessee not satisfactory. According to the list A of the creditors who have given loans to the assessee in preceding assessment year 2006-07 also were found to be same. The assessee raised additional loans from them. The Assessing Officer noted that findings have already been given against them in the assessment year 2006-07, therefore, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ken 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 during six months from the date of commencement of the production and business, i.e., from May, 2006 to October ..... X X X X Extracts X X X X X X X X Extracts X X X X
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