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2013 (7) TMI 1106

. Sharma, A.M. This is an appeal filed by the Revenue against the order of CIT(A) dated 27.2.2012, for the assessment year 2008-09 in the matter of order passed u/s 143(3) of the Income-tax Act, 1961. 2. Following grounds have been taken by the Revenue :- 1. On the facts and in the circumstances of the case, the order of the ld. CIT(A) is contrary to the facts and the law. 2. On the facts and in the circumstances of the case, the ld. CIT(A) has erred in deleting the addition of ₹ 50 lacs made by the Assessing Officer u/s 68 of the Income-tax Act, 1961, on account of unsecured loans from M/s. Chamak Trexim Pvt.Ltd., as the assessee failed to discharge its onus to prove the creditworthiness of the company. 2.1 While holding so, the ld. CIT(A) failed to appreciate that there were huge rotation of fund in the accounts of the company establishing no business 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 .....

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was noted form the confirmation produced by assessee that one Shri Ramchandra Kedia has signed the confirmation or M/s. Chamak Trexim P.Ltd., Kolkata. During the enquiry conducted by the inspectors they visited the address of the claimed lender of Kolkata where they found one Shri Ravin Umrethiya ( who was working as accountant since last three months only ) and whose statement was taken. The letter issued u/s 133(6) to M/s. Chamak Trexim P.Ltd., Kolkata. In reply confirmation was received which was signed by Shri Ravin Umrethiya ( who was working as accountant since last three months only ). Further during the enquiry conducted by inspectors, it was also noticed in other group cases that Shri Ramchandra Kedia ( who signed the confirmation produced by assessee on hearing dated 27.12.2010) M/s. Chamak Trexim P.Ltd., the claimed creditor in this case. 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 Assess .....

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s Calcutta based company form whom the appellant borrowed funds during the year under consideration. The Assessing Officer has taken note of the enquiry report submitted by DDIT( Inv.Wing) and on page 4 of the assessment order. It will be worthwhile to reproduce the report submitted by DDIT (Inv.Wing)-13, Kolkata to appreciate the facts surrounding the transactions i.e. identity of such creditors and further genuineness and creditworthiness of such transactions. The content of the letter is being reproduced for ready reference :- Summon u/s 131 were issued to all the companies as mentioned in Annexure A to F in the case of Keti Constructions (India) Limited, Agrawal Transport Corporations P.Ltd. Admanum Finance Ltd., Eagle Fuel P.Ltd., Agrawal Coal Corporation P.Ltd. Swastik Coal Corpn. P.Ltd. for financial year 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. .....

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, containing more than 2-3 C. As. Firms, and the three investment Companies appeared to be common ones for all the Firms/Concerns/Companies. The only, exclusive, regular employee of this company was Shri Ravin Umarethiya, Accountant, even he was serving with yet another Investment company, that too, at the same premise. He also was recruited only two-three months back. Looking to such a situation, the creditworthiness of the Co. itself appeared to be doubtful. The above company was found to be functioning at the given address. Shri Ravin Umarethiya is the Accountant of this company and in his statement he has admitted that the company has not applied for any Share Application Money for any shares in M/s. Eagle Fuel P.Ltd., Indore, 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 compa .....

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ree of onus regarding genuineness of transaction in respect of receipt of share capital at huge premium in unlisted companies otherwise through public issue cannot be viewed but with suspicion and the appellant may be required to justify such receipt of money on huge premium as such transaction would defy normal financial prudence and logic. But the same degree of onus cannot be cast on the appellant to explain the loan transaction which have been repaid in a span of 1-1/2 years or so when the appellant is able to discharge his onus to establish the identity of the creditors, receipt of money through banking channel and existence and apparent financial worth of creditors as reflected from the audited accounts and income 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 th .....

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d nominal returned income was disclosed. The Assessing Officer in the case of this lender company for assessment year 2004-05 in assessment order passed u/s 143(3) on 31.05.2006 (included in Compilation at pages 121-122) has verified the source of owners fund being share capital, share premium received which were invested by way of loans and advances. 4.2.3 It will be appropriate to refer to the decision of Hon'ble Kolkata High Court as relied and referred by appellant in the written submission decided in the case of CIT vs. Data Ware Pvt.Ltd. on 21st Sept., 2009, wherein Hon'ble Calcutta High Court, has categorically held-: After getting the PAN number and getting the information that the 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 rejecte .....

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er having the following observations :- Ground No. 5 and 6 are directed against disallowance of ₹ 2,50,000/-out of Colliery expenses claimed at ₹ 5.24 lacs and ₹ 1 lacs out Official General expenses claimed at ₹ 4.35 lacs. The Assessing Officer has made such disallowance based on increase of such expenses vis-à-vis increase in turn over. He has noted that the increase in claim of expenses were disproportionate to the increase in turn over. He has also made observations that part of such expenses were not fully supported by vouchers and thus were not fully verifiable. The appellant AR filed in detailed submissions and in course of discussion it was 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 t .....

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of audited final accounts, copy of I.T.R. acknowledgement etc. of creditor company to establish that the said loan transaction was reflected in the audited balance sheet of M/s. Chamak Trexing under the head Loans and advances loans and advances. The ld. CIT(A) also recorded a finding to the effect that the assessee has also deducted TDS at source out of the interest paid to M/s. Chamak Trexing in respect of loan taken. The TDS so deducted was also deposited in Government Treasury. Existence of Chamak Trexing has been proved by service of notice u/s 133(6) issued by the Assessing Officer as well as by DDIT (Investigation) ( at Kolkata ). The ld. CIT(A) has also found that 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 .....

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