TMI Blog2020 (11) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... mentioned against Jindal Saw Ltd. were for the preceding financial year i.e. AY 2016-17. Further, only the figure of loans given has been mentioned therein and the figure of loans refunded during the year have not at all been mentioned therein. Thus, this list is misleading and does not give a correct picture of the amounts of loans given by the lender companies and cannot be relied upon at all. Lender companies owned listed equity shares worth market value of thousands of Crores of Rupees, had bank as well as demat accounts, have taken loans from the NBFCs, filed their returns of income declaring huge income in tens of crores of Rupees for the last 3 years and paid necessary applicable and due income-tax thereon, got their books audited under Companies as well as Income-tax Acts. These two lenders were assessed u/s 143(3) of the Act not only for the AY 2017-18 but also for the earlier 2 assessment years wherein substantial addition u/s 14A of the Act was made for the AY 2017-18. Thus, if an entity which is duly assessed by the Income-tax department cannot be presumed as non-existing in other assessment. In view of the all these evidences, the physical existence of the lende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecent decision in the case of M/s Agrawal Coal Corporation (P) Ltd. [ 2020 (8) TMI 719 - ITAT INDORE] has also held that education cess is an allowable expenditure. The same is not allowable to the assessee during this year as the assessee has not paid any education cess on the income-tax for this assessment year as the returned income under the normal as well MAT provisions was at loss. - ITA. Nos.1170/DEL/2020, ITA. Nos.1171/DEL/2020, ITA. Nos.1172/DEL/2020 And ITA. Nos.1173/DEL/2020 - - - Dated:- 28-9-2020 - Shri Amit Shukla, Judicial Member And Dr. B.R.R. Kumar, Accountant Member For the Appellant : Shri V.K. Bindal, CA, Ms. Rinki Sharma, CA For the Respondent : Ms. Sunita Singh, CIT DR ORDER PER AMIT SHUKLA, J.M.: 1. The aforesaid appeals have been filed by the above named four assessees against separate appellate orders of even date, 18.05.2020, passed by Ld. Commissioner of Income Tax (Appeals)-V, New Delhi for the quantum of assessment passed u/s 143(3) of the Act for the Assessment Year 2017-18. 2. In all the appeals, common grounds and issues are involved with similar set of facts; hence they were heard together and are being disposed- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he year under consideration: a) Glebe Trading (P) Ltd. (hereinafter referred to as Glebe ) ₹ 151,83,70,000/-; b) Danta Enterprises (P) Ltd. (hereinafter referred to as Danta ) ₹ 16,15,00,000/- and called together as lender companies. Both the lender companies are having their registered office at H. No. C-2, Staff Colony, Machinery Division, 13 KM Stone, Mandir Hasaud, GE Road, Raipur, Chattisgarh and their principal place of business is at the same address at 28, Najafgarh Road,(called Shivaji Road also) New Delhi 110015 (referred to as New Delhi address ) where the books of accounts of the lender companies are kept and the loan transaction was executed during the relevant period. The assessee company was also carrying on its business and maintaining its books of account at the same New Delhi address. 6. Another pertinent fact is that, the assessing officer of the assessee company is also the assessing officer of Jindal Saw Ltd. another group company which also had taken loans from these two lender companies during the period relevant to the preceding A.Y. 2016-17. In that case due to Transfer Pricing proceedings, the limitation in the said case g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as conduits in availing the unsecured loans. The NBFCs provided loans to the two sham bogus entities, who had nothing to show as actual business activity, had no physical existence on any of their addresses, no paid director and no employees, owned no fixed assets. Thus, the identity and creditworthiness of the lenders and genuineness of the transaction of unsecured loans are not established. Thereafter, the assessing officer made addition of the amounts of loans taken by the assessee from the said two lender companies u/s 68 of the Act r.w.s. 115BBE of the Act. 8. In the appellate proceedings before the Ld. CIT(A), all the evidences and submissions of the assessee were sent by him to the assessing officer for a remand report and his comments. The AO negated the contention of the appellant and stated that the sanction letters of loans issued by various NBFCs were submitted during the assessment proceedings vide letter dated 28/12/2019 and denied the receipt of the said letter and therefore, stated the same to be additional evidences. However, the AO filed comments on merits on the said loans sanction letters. The AO also stated that no details regarding the exact number, v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt vide its rejoinder were filed before the AO as there was no reference of these documents either in the assessment order or in the appellate submissions or the remand report. Therefore, he did not consider the said Demat accounts while adjudicating the issue.The Ld. CIT(A) held that on perusal of the financial statements of the lending companies, it is evident that the lending companies were not having adequate securities or funds available to meet the various exigencies like top-up / drop of security cover /dip in the market price of securities pledged to fulfill the conditions stipulated in the sanction letters which showed that there was no due diligence by the NBFC in this regard. Even the purpose of some of these loans as per the sanction letters did not include the purpose for providing unsecured loans to the assessee company. Further, the amount of unsecured loan provided by the lender companies is much higher than their net worth / reserves and surplus. The returned income of the lender companies is significantly lower than the loans furnished by them. Thus, the lender companies do not have sufficient internal resources to provide such huge loans. 11. The Ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17-18 wherever applicable. d) Audited financial statements for the years ended 31/03/2015 to 31/03/2017 filed by the lenders to show that both the companies had annual income of approximately ₹ 30 crores each in each of the last three years including the exempt income from dividends. e) Incorporation certificates of the lenders; f) Documents regarding the registered office address and change therein along with board resolutions; g) Details of directors; h) NOC from the owner of the premises used as Registered office; i) Board resolution and relevant form AOC-5 filed with ROC for notice of the address at which books of accounts (effectively the business premises) were to be maintained by the lenders; j) Form no. Inc 22A filed with ROC (active company tagging identities and verification alongwith photos of their directors) k) Various other forms like AOC-4, DIR -12, Inc 22, MGT -7 filed with ROC by the lenders for filing of the audited financial statements, annual returns, details of directors; l) Photocopies of the assessment orders passed u/s 143(3) of the Act for the AYs 2015-16, 2016-17 and 2017-18in the case of both the lender companies m) Pho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , but also the source of source of the lenders. Thus, all evidences necessary to discharge the onus u/s 68 of the Act have been placed on record to prove the identity, creditworthiness of the lenders and genuineness of the transactions and the onus cast on it has been fully discharged. 16. The Ld. Counsel further argued that payment of the rent or electricity expenses or owning fixed assets are not the criterion which proves the physical existence of a company. Even the assessee also did not pay any rent or electricity as the lender companies for the New Delhi. The assessee also submitted that some of the directors of Danta, a lender company are the directors of the assessee. Even Glebe was a shareholder of the assessee company since this year. The fact that the lender companies are associated companies is very much disclosed in the audited annual accounts of the assessee as well as of the lender companies as this disclosure is statutorily required under the Companies Act 2013. 17. The Ld. Counsel also submitted that all these documentary evidences prove beyond doubt not only the physical existence of the businesses of the lender companies but also prove that they had bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port he relied upon the judgments in the case of PCIT vs I-Ven Interactive Ltd. Civil Appeal No. 8132 of 2019 arising out of SLP (C) No. 3530/2019 date of judgment 18/10/2019 and Harjeet Surajprakash Girotravs UOI 2019-TIOL-1561- HC-MUM-IT. 19. Ld. Counsel submitted that the assessing officer merely relied upon the flawed enquiry report sent by a Commissioner appointed u/s 131(1)(d) of the Act in the case of Jindal Saw Ltd. and did not make any enquiry u/s 133(6) or 131 of the Act regarding the said loans either from the lenders at their actual registered offices at Raipur or at their New Delhi address or from the assessing officer of lender companies situated in the same CR building. He argued that otherwise also the Commissioner was required to investigate on the specific issues regarding the H. No. C-2, Staff Colony, its area, present status, sign boards, name plates etc. of Danta and Glebe and to take photographs of the location and surrounding and make enquiries from the locals in the vicinity of H.No. C-2. However, on perusal of the contents of the alleged report it is clear that the Inspector of the ADIT (Inv.) Raipur never visited the H. No. C-2 but had only visited to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vidence without allowing an opportunity to cross-examine him in view of the Order XXVI Rule 10(2) of the CPC and placed reliance on the undernoted authorities: i) Vij Kamagar Sahakari Patsanstha Ltd. vs Ramkrushna Dhondiram in Writ Petition no. 4974 of 2008 (Bombay High court) ii) Smt. Vadda Rajeswaramma Vs Dr. V.L. Narrasmiha Charyulu AIR 1998 AP 202 iii) Tima Menghre and Others Vs The collector in Writ Petition no. 808 of 2018 (Bombay High Court) iv) Sketch @Palanichamy Vs Azhagu Mali in CRP (NPD)(MD) Nos. 1607 and 1608 of 2015 (Madras High Court) v) A Narayani Vs Kittan @ Krishnan (Original Petition no. 10521 of 1996 in High Court of Kerela) vi) Amiya Bala Paul vs CIT (2003) 262 ITR 407 (SC) 22. He further submitted that assessee was not allowed any opportunity to confront and cross-examine the Commissioner appointed u/s 131(1)(d) of the Act and his inspector who prepared the report was allowed though the appellant specifically requested for the same before the CIT(A) and thus, the said report loses its evidentiary value and cannot be relied in any manner even as per the law in view of the Apex Court s judgment in the case Andaman Timber Industries vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts of the lender companies. Photocopies of the Demat account showing lien marked were also placed on record. He further placed photocopies of the ledger accounts of the lenders in its books of account from 01/04/2016 till date to show that the entire loan was repaid by the assessee to Glebe as well as Danta in the FY 2018-19. Rather some loan was given by the appellant to both Glebe and Danta in the FY 2019-20 and argued that no addition u/s 68 of the Act can be made for the loans which have been repaid in view of Pr.CIT Vs Skylark Build 2018-TIOL-2323-HC-MUM-IT as the onus under the said section stands discharged. The identity and creditworthiness of the lenders and genuineness of the loan transaction stands proved beyond doubt. The assessing officer neither made enquiries nor issued summons nor brought any evidence on record to controvert the evidences placed on record by the assessee. Thus, the addition so made should be deleted. Arguments of DR 25. The Ld. DR vehemently relied on the orders of the lower authorities and submitted that, here in this case the AO on the basis of report did found that the lender companies were not found at their registered office he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment proceedings; viii) their GST and VAT registration certificate; ix) their PAN and TAN allotment letters and various other evidences. Thus, these evidences clearly shows that these companies are registered under the Companies Act and have been regular in filing all the statutory forms before the ROC. Even the securities pledged with the NBFCs have been duly declared to the ROC by filing relevant forms creating statutory charges in favour of the NBFCs and is very much visible on the master data / card of the companies itself maintained by the ROC. The lender companies are registered under various statutes like VAT and GST. The financial statements of these companies are audited under the Income-tax as well as Companies Act. These companies have been regularly filing their returns of income and are being assessed u/s 143(3) of the Act. PAN database of the assessee with the income-tax department is also sufficient to accept the existence of the assessee at the said address unless proved contrary by the revenue by making proper enquiries. Here in this case, the revenue failed to prove that the lender companies did not physically exist at their PAN addresses in terms of Rule 127 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed from the NBFCs. The shares pledged as security has also been mentioned in the Notes to account attached to audited balance sheet where the details of loans and securities are also properly disclosed. Thus, the sanction letters, audited balance sheets as well as the demat accounts placed on record clearly show that these shares were owned by the lender companies in their own name, had huge intrinsic value and were pledged as security for borrowing the loans from the NBFCs. In view of the above facts and evidences, it is established beyond doubt that that these companies owned shares of the listed companies worth thousand crores of Rupees and had huge net worth. 31. The creditworthiness of a company is proved by its intrinsic value. It is not necessary that a company should give loan out of own funds. There is no bar that a company cannot give loan by borrowing loans. However, even for borrowing loan, creditworthiness of the company has to be seen as to whether the company has received loan on the basis of its own value or just as a pass-through entity. A company can be creditworthy even if a company gives a loan out of the loans taken from others if the said loans have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Tubular Ltd. NA 20,52,00,000 5. Jindal Fittings Ltd. 103,89,25,000 NA Total 557,66,95,000 185,86,00,000 34. In respect of the same, the Ld. Counsel of the assessee clarified that this chart is not correct because; firstly, as in the case of Jindal Saw Ltd., it mentions the gross amount of loans relevant for the AY 2016-17 and in case of other parties being the 4 appellants here, the gross amounts of loans relevant for the AY 2017-18; and secondly, this chart shows the amount of loans given by the lenders but did not consider the amounts refunded by the borrower which became available for lending again in the next year to the appellants here and also some amounts refunded by some of the appellants which were given to other appellants here. Thus, in absence of a telescoping the gross amounts have been mentioned which undisputedly becomes double as compared to the actual amounts lent at a particular time. 35. On perusal of the relevant evidences and reconciliation placed on record, the contentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s stated that these are staff quarters of Jindal Company and the said colony is only residence of the staff of Jindal Company. On perusal of the Commissioner s report, it is clear that the inspector never visited House no. C-2 but just visited the main gate of the staff colony. Thus, the enquiry is incomplete and unreliable. The name of the watchman from whom enquiries were made, name of the inspector who visited the premises, premises actually visited etc. have not been mentioned in the Commissioner s report which creates doubt about the authenticity of the said report. Even when the appellant pointed out many flaws, neither the AO nor the CIT (A) tried to substantiate the findings of the said report in any manner. The appellant also asked for the cross-examination of the Inspector as well as the ADIT (Inv.) who made the enquiries and gave report. However, no opportunity was granted to the appellant despite specifically requested for. In view of the Order XXVI Rule 10(2) of the Civil Procedure Code, such commission cannot be admitted as evidence in the court of law without providing cross-examination of person preparing the report. In view of the settled position of law in this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Companies Act 2013, a company can undertake its activities from any other address. In fact even the form no. 49A, being the application for allotment of PAN under the Income-tax Rules, does not require that the address of a company in PAN data with the revenue should be the registered office of the company. It just mentions the same as office address. There is no provision under the Income-tax Act for an assessee to have any such registered office and the company can opt any address under the Income-tax Act for communication by the revenue with the assessee as is specifically mentioned in the Rule 127 of the Income-tax Rules where the revenue is barred to issue any communication on any address mentioned in the sub rule (2) therein when the assessee has given a specific address in writing other than the address mentioned in the said sub rule (2). Here the lender companies have specifically mentioned their New Delhi addresses to the Revenue through their PAN applications. Only under the Companies Act, it is statutorily required. Thus, it means that under the Income-tax Act, the same should be the business address of the company where the income-tax department can quickly access un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erments in the assessment order, submissions of the appellant, remand report, rejoinder, synopsis, case laws etc. Even while drawing conclusion, these things have been reiterated again. The Ld. CIT (A) has not brought on record his any findings to rebut the evidences placed on record by the assessee. The Ld. CIT (A) has not given any finding regarding the authenticity of the commissioner s report, its admission as evidence, why the onus cast on the appellant was not discharged in view of the evidences placed on record. Any appellate authority cannot reject the evidences without any discussion or reason. The CIT (A) has not mentioned as to what more evidence were needed to be produced by the assessee to substantiate its contention or what are the material or information to rebut the assessee s explanation and evidences as discussed above. Thus, the AO as well as the CIT(A) failed to appreciate or consider the more than sufficient evidences placed on record by the assessee to discharge the onus u/s 68 of the Act. 45. In view of the all the evidences placed on record by the appellant and in the absence of any contrary evidence brought on record by the Revenue to substantiate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowable expenditure and therefore the Education Cess paid should be allowed as deduction. The appellant placed reliance on the decision in the case of Voltas Limited vs ACIT in ITA no. 6612/ Mum/2018 wherein relying upon the Bombay High Court judgment in the case of Sesa Goa Ltd. Vs JCIT (2020) 107 CCH 375 (Bom) it was held that Education cess is not disallowable u/s 40(a)(ii) of the Act. 50. We have heard the rival contention. In view of the above judicial position, we are of the view that the education cess has to be allowed as deduction. The ITAT, Indore Bench, in a recent decision in the case of M/s Agrawal Coal Corporation (P) Ltd. Vs ACIT in ITA no. 776/Ind/2019 vide its order dated 24/08/2020 has also held that education cess is an allowable expenditure. However, the same is not allowable to the assessee during this year as the assessee has not paid any education cess on the income-tax for this assessment yearas the returned income under the normal as well MAT provisions was at loss. Ground no. 6 51. The appellant also raised a legal issue in ground no. 6 that the limited scrutiny was converted into full scrutiny without prior permission from the PCIT. Howev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and thus, the onus cast on the assessee u/s 68 of the Act stands discharged and no addition u/s 68 could be made. Thus, following the same, the addition of ₹ 20,52,00,000/- u/s 68 for the loan taken from Danta and disallowance of interest of ₹ 3,37,315/- paid on this loan are hereby deleted. Thus, Ground nos. 1-3 are decided in favour of the appellant. 59. It has also been held in the above appeal that education cess paid is allowable as deduction. However, the same is not allowable to the assessee during this year as the assessee has not paid any education cess on the income-tax for this assessment year as the returned income under the normal as well MAT provisions was at loss. 60. Since the appeal has been decided on merits, the legal grounds raised by the appellant do not need adjudication. Thus, ground no. 5 is dismissed. JITF Urban Infrastructure Services Ltd. Appeal no. ITA/1173/D/2020 61. In this case, the loan has been taken by the appellant company from Glebe Trading (P) Ltd. The addition has been made on identical issues by raising identical averments as raised in the case of Jindal ITF Ltd. in Appeal no. ITA/1172/D/2020. 62. It has been ..... X X X X Extracts X X X X X X X X Extracts X X X X
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