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2013 (7) TMI 1106

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..... iness rationale and the company was being used as a conduit in floating unaccounted funds and was a mere paper company. 3. On the facts and in the circumstances of the case, the ld. CIT(A) erred in deleting the disallowance of interest of ₹ 5,56,148/- as creditworthiness of the company was not established to whom the interest was paid. 4. On the facts and in the circumstances of the case, the ld. CIT(A) has erred in deleting the disallowances of ₹ 2,50,000/- out of colliery expenses ₹ 1,00,000/- out of salary expenses as the vouchers regarding colliery salary expenses as the vouchers regarding colliery salary expenses were found not only self made but also unverifiable by the Assessing Officer. 3. Rival contentions have been heard and records perused. Facts in brief are that the assessee is engaged in the business of coal trading and investment. During the course of scrutiny assessment, the Assessing Officer found that the assessee has taken a loan of ₹ 50 lakhs from M/s. Chamak Trexim Private Limited. The Assessing Officer issued notice u/s 133(6) to Chamak Trexim on the address given by assessee company and further deputed two inspectors att .....

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..... 2.5 The Assessing Officer accordingly confronted the assessee with the facts collected to establish three ingredients as per requirement of Section 68 for the aforesaid Calcutta based company and has reproduced the detailed reply submitted by appellant in para 3.1 running from page 6 to 12 of assessment order. 2.6 Thereafter the Assessing Officer has discussed the legal aspects pertaining to discharge of onus u/s 68 under the heading Department s side discussion of case laws from page 12 to 20 and has finally summed up in para 3.18 as under :- 3.18 Thus, the above discussion related to facts of the case and related case laws together as made above para no.2 to 3.19 unserved loan in the books of the assessee company amounting to ₹ 50,00,000/- and interest paid on these unsecured loan amounting to ₹ 5,56,148/- totaling ₹ 55,56,148/- is found unexplained u/s 68 of the Act and is added to total income of the assessee. 2.7 Still further the Assessing Officer made disallowance u/s 14A as per discussion in para 4.1 to 4.8 from page 20 to 23 and the final working resulting into disallowance of ₹ 74,188/- has been done as per Rule 8D in para 4.9 of .....

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..... ar 2007-08 asking for. 1. Copy of Balance sheet. 2. Tax Audit Report 3. Bank Statement. 4. Personal Appearance. And the case was fixed for hearing on 15.12.2010 in all of the cases. Out of them following companies has made partly compliance of the summon issued u/s 131 of the Income-tax Act, 1961, namely. 1. Middleton Goods Private Limited. 2. Aereo Dealcom Private Limited 3. Chamak Trexim Pvt.Ltd. 4. Paceman Traders Private Limited Further, following companies were merged with Middleton Goods P.Ltd., namely 1. Lambodar Barter P.Ltd. 2. Prathmesh Vajjay P.Ltd. 3. Khantu Vanziya P.Ltd. 4. Kamal Nayan Commercial P.Ltd. 5. Panchnan Vajjay P.Ltd. 6. Ranchhod Agencies P.Ltd. Above companies (including merged companies) have submitted. 1. Copy of Audited Annual Accounts. 2. Photocopy of bank statements. 3. Confirmation of account./ None of the Directors has made personal appearance; hence, identity as well as genuineness of all the above mentioned companies could not be ascertained. All of the above mentioned companies are investment company and they had not shown very much profit in the financial under review. Inspite .....

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..... e, but has provided advances to the same. 4.1.2 The Assessing Officer based on inspectors and DDIT s reports and other material gathered concluded that there were huge rotation of funds in the accounts of such company for which there was no business rational and such company was being used as conduit in floating unaccounted funds and were mere paper companies. The Assessing Officer has further noted in para 2.12 that earlier account confirmation of the company M/s. Chamak was signed by one Shri Ramchandra Kedia but the latter confirmation was signed by the accountant Shri Ravin Umrethiya. 4.1.3 The assessee when confronted on 23.12.2010 submitted before Assessing Officer that the confirmations letter has been filed from the company alongwith its PAN and the appellant further also filed voluminous documents such as confirmation letter, Bank statement of the creditor alongwith Bank statement of appellant company, copy of audited final accounts of the said company, copy of ITR acknowledgements etc. to establish that such loan transaction was reflected in the Balance sheet of Chamak Trexim as loans and advances and copy of income-tax return filed by it and TDS certificate issued .....

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..... ncome tax returns. It may be also observed that onus to establish all the three ingredients would vary from case to case identity is first ingredients, which can be established by giving complete address, physical existence of the person and income tax particulars i.e. PAN and details of filing of return etc. In a given case, where the transaction of say a smaller amount of ₹ 50000/- or 1 lakh is involved the creditworthiness of person involving nominal income in the same range may be acceptable, but can become suspicious and doubtful if the amount advanced runs in millions and crores, without there being other verifiable derails and evidences of sources of such funds advanced. 4.2.1 Proceedings to the loan of ₹ 50 lacs from Chamak Trexim Pvt.Ltd. which is also a registered NBFC with RBI, an amount of ₹ 5 lacs was repaid and interest of ₹ 5.56 lacs was paid after deducting the TDS. As per the copy of account submitted pages 130 131 paper book the loan stood fully repaid in Feb. 2008. The inspectors in their report as noted on page 3 of assessment order has confirmed about existence of such company y at the given address. The inspectors have confirmed, a .....

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..... creditor is assessed under the Act, the Assessing Officer should enquire from the Assessing Officer of the creditor as to the genuineness of the transaction and whether such transaction has been accepted by the Assessing Officer of the creditor but instead of adopting such course, the Assessing Officer himself could not enter into the return of the creditor and brand the same as unworthy of credence. So long, it is not established that the return submitted by the creditor has been rejected by its Assessing Officer, the Assessing Officer of the assessee is bound to accept the same as genuine when the identity of the creditor and the genuineness of transaction through account payee cheque has been established. 4.2.4 In view of above factual and legal position wherein even the sources of the funds of the creditor company have been examined and verified by the concerned Assessing Officer and the transactions duly getting reflected in the audited final accounts of the creditor company y, the Assessing Officer s action in doubting such loan transaction is absolutely without any merit and substance and accordingly the Assessing Officer s action in treating such loan of ₹ 50 lacs .....

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..... emphasized that the Assessing Officer had considered only turn over for making such disallowance and conveniently ignored nearly five fold increase in net taxable income from ₹ 57.10 lacs to ₹ 183.22 lacs. He also pointed out that some of expenses were decreased compared to last year and there was over all increase of nearly two fold in gross profit rate from 2.72 % to 3.36 % and thus the Assessing Officer should not have resorted to such unwarranted ad hoc disallowance of ₹ 3.5 lacs when the appellant has over nearly three fold increase in taxable income which was now running in crores. It was also emphasized that such disallowance made broadly on similar reasoning for assessment year 2007-08 in the case of Agrawal Coal Corporation Pvt.Ltd. as associate concern in IT 364/09-10/428 were deleted in appeal order passed on 15.3.2010. 4.5.1 The contentions of the appellant are found to carry sufficient force and merits such disallowance made was deleted fully in appeal order as aforesaid, where a larger amount of disallowance of ₹ 14 lacs was made out of Colliery expenses out of ₹ 36.30 lacs claimed with broadly similar reasoning of disproportionate inc .....

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..... hat not only identity and genuineness of transaction was established, however, an amount of ₹ 5 lakhs was also repaid alongwith interest of ₹ 5.56 lakhs after deducting TDS thereon. It was also observed that entire loan was repaid in February, 2008, i.e. before end of the financial year. The ld. CIT(A) also recorded a finding to the effect that inspectors in their report has noted at page 3 of the assessment order, has confirmed the existence of such company at the given address. The ld. CIT(A) also found that main source of creditor company was from interest income, which was ₹ 85.30 lakhs. The creditor company has shown net profit of ₹ 14.03 lakhs. The loan in the name of assessee company in the year, outstanding loan from earlier years was duly reflected in the schedule of the balance sheet of creditor company under the head Loans and Advances . By referring to assessment order framed u/s 143(3) on 31.5.2006 for assessment year 2004-05, the ld. CIT(A) has also observed that in the said assessment order, the Assessing Officer has verified the sources of fund of creditor company, which was invested in the loans and advances given to various companies inclu .....

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