TMI Blog2023 (6) TMI 512X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings and the A.O. has failed to conduct the enquiries and the A.O should have conducted independent investigation without relying on the third party statements and facts. AR demonstrated the copy of bank statements reflecting the credits from the three parties along with other evidences - A.O has failed to make further enquiries and relied on the statement recorded, which was retracted subsequently and has overlooked the factual aspects that the assessee has discharged the initial burden placed by submitting the information - DR could not controvert the findings of the CIT(A) with any new cogent material or information to take different view - Decided against revenue. - ITA No. 712/Mum/2018 - - - Dated:- 16-3-2023 - SHRI BASKARAN BR, ACCOUNTANT MEMBER AND SHIR PAVAN KUMAR GADALE, JUDICIAL MEMBER For the Appellant : Ms.Neeraja Sarma.DR For the Respondent : Mr.Devendra Jain.AR ORDER PER PAVAN KUMAR GADALE JM: The revenue has filed the appeal against the order of the Commissioner of Income Tax (Appeals) -32, Mumbai passed u/s 250 of the Act. The revenue has raised the following grounds of appeal: 1. Whether on the facts and in the circum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntity, creditworthiness and genuineness of the transactions of unsecured loan creditors. Whereas the assessee has obtained loans from three parties i.e 1) M/s. Varsha Gems, of Rs. 1.32 crores; 2) M/s Minal Gems of Rs. 2.40 Crores; 3) M/s Naman Exports of Rs. 68 lakhs, and the assessee has also paid interest on these unsecured loans aggregating to Rs.29,57,400/-.The assessee has submitted the audited financial statements and other evidences to substantiate the identity, creditworthiness and genuineness of the loan creditors and the details were referred at Para 9.1 of the assessment order, whereas the AO has dealt on the facts of the search party and the transactions of group concerns and the financial statements of the lenders. 4. Further the A.O. has issued summons u/sec 131 of the Act on the three parties and was not complied but the loan creditors have sent confirmations by speed post. Considering the facts in the assessment proceedings, the A.O. has issued notice u/s 142(1) of the Act dated 10.03.2016 to treat the loan transactions credited in the books of accounts in the name of the group concerns as unexplained cash credits and required the assessee to produce the parties. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain. The list of beneficiaries was also forwarded by the Investigation Wing. 6. From the list thus provided, the Ld. AO concluded that the Assessee firm has received bogus unsecured loans amounting to Rs. 9,34,27,815/- in the A.Y. 2013-14 from M/s. Varsha Gems, M/s. Minal Gems and M/s. Naman Exports, the parties run and managed by Shri Bhanwarlal Jain Group. 7. Pursuant to the aforesaid alleged information received from the DGIT(Inu), the assessment of the Appellant was reopened and a notice u/s. 148 of the IT Act was issued on 27th March, 2015. 8. During the course of re-assessment proceedings, the appellant submitted details according to which the amount of loan taken and interest paid on it were Rs. 4,40,00,000/- and Rs. 29,57,455/-. respectively, total amounting to Rs. 4,69,57,455/-. The appellant was asked to prove the genuineness of the loans from the above mentioned parties. The appellant provided all the available details. It was also submitted that the loan transaction was made in the ordinary course of business and substantiated the genuineness of the loan with various evidences including confirmation of accounts, ITR set, proof of repayment, etc. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant was asked to prove the genuineness of the transaction of loan received from M/s. Varsha Gems, M/s. Minal Gems and M/s. Naman Exports amounting to RS. 4,40,00,000/- and interest paid of Rs. 29,57,455/-. It was submitted that the transaction was carried out in the ordinary course of business and substantiated the genuineness with various evidences including confirmation of accounts, IT acknowledgements, proof of repayment, etc. We hereby again attach the same for the kind references of your honour vide Annexure A to this submission. The Ld. A.O. while passing the order u/s. 143(3) justified his action of disallowing the amount of loan and treating the transaction as bogus by the following reasons: i. The information was received from the DGIT(Inv.) reporting the alleged transactions from the parties listed therein to be treated as bogus. ii. The listed parties were categorized as engaged in the business of providing only accommodation entries by Shri Bhanwarlal Jain in his statement recorded during the course of search. The assessing officer made an addition of Rs.46957455/- u/s. 68 of the I.T. Act, 1961. The additions were on account of certain loans taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to its creditors and thus incurring huge exchange loss. That fact does not prove the loan to be bogus entry and it has nothing to do with assessee's case. If we go through the balance sheets of the alleged party, it can be seen that if there is creditors, there are debtors, stock etc also. It is absolutely there look out and they make payment to the creditors as per their terms, it does not prove that there is no creditworthyness. The Hon. Apex Court in the case of LAKHMANI MEWAL DAS reported in 103 ITR 437 (SC) has held that the reopening of the assessment would be justified only if there is a live nexus between the material and the escapement of income. A general and vague statement made by a third party cannot provide reason to believe that chargeable income has escaped assessment in the hands of the assessee. At page 438 439, the Hon. Apex Court held as under: The original assessment for the assessment year 1958-59 was made on the respondent after allowing deduction of a sum of Rs. 10,494/- towards interest to certain creditors. Thereafter, by a notice under section 148 of the Income tax Act, 1961 dated March 8, 1967, served on the respondent on March 14, 1967 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment order that the explanation of the assessee is not acceptable and went on to make an addition of these loans and interest paid to the income of the assessee. The A.O. did not explain/ state why the explanation of the assessee is not acceptable. Sir, it is submitted that: In order to establish the receipt of cash credit as required under Section 68, the assessee must satisfy three important conditions, namely, (i) the identity of the creditor; (ii) the genuineness of the transaction; and (iii) the financial capacity of the person giving the cash credit to the assessee, i.e. the credit worthiness of the creditor. However, the onus of the assessee is limited to the extent of proving the source from which he received the cash credit. The creditworthiness of the creditor has to be judged vis-a-vis the transaction which had taken place between the assessee and the creditor, and it is not the burden of the assessee to find out the source of creditworthy capacity in order to prove the genuineness of the transaction. As held by the Hon. Gauhati High Court in the case of CIT v. Sanghamitra Bharali (2014) 361 ITR 481 (Gau) at p. 482. The aforesaid points were als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... type of enquiries, as various tribunals have held that receiving information from the DIT (Inv.) is only a starting point for enquiries to be held; and not the final conclusion. In this case what the A.O. has done is only making an addition on the basis of an information received without making any further enquiries. Even the A.O. himself does not appear to have been satisfied with the issue of addition to be made to the income disclosed. The Hon'ble ITAT Mumbai in the case of ITO vs Anant Shelters Pvt. Ltd. (2012) 20 Taxmann.com 153 has enumerated certain principles which would be extremely useful in understanding the issue in hand. It has been stated in the said judgment that over the years, law regarding cash credits have evolved and has taken a definite shape. A few aspects of law u/s 68 can be enumerated 1. Sec. 68 can be invoked when there is a credit of amounts in the books maintained by the assessee, such credit is a sum of money during the previous year and either the assessee offers no explanation about the nature and source of such credits or the explanation by the assessee in the opinion of the AO is not satisfactory. 2. The opinion of the AO for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id that the assessee has not discharged its onus. Your honour's kind attention is invited to the following cases in support of the appellant's submission that the onus cast upon the appellant is discharged when the appellant provides details of the parties and all the related evidences to the assessing officer. ACIT vs. M/s. Ottoman Steel Tubes (P.) Ltd. 2016 (7) TMI 998, ITAT Delhi dt. 21 June, 2016 Addition u/s 68 - genuineness of transaction and the creditworthiness and identity of the subscribers not proved information received from the Investigation Wing of the department Held that:- In the present case, the AO while making the impugned addition had relied upon the information received from the Investigation Wing of the department that the aforesaid two companies were controlled by one Sh. Tarun Goyal who disclosed in his statement that the said companies were engaged in providing accommodation entries, however, the assessee was not confronted with that statement, if any. It was also claimed by the assessee that on inspection of the assessment record no such statement was found. In our opinion, the said observation of the AO is not sufficient to presume tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestigation wing - Held that:- AO has made addition merely based on the investigation carried out by the investigation wing from the order of the Ld. assessing officer without bringing out any material evidence against the assessee and not confronting assessee with that material. Contrarily evidences produced by the assessee of stalwart Realtors Limited of loan given of 46 lakhs, which is supported by the bank statement of the lender, was not anyway found false or an accommodation entry. In view of this, we reverse the finding of the CIT (A) and are of the view that appellant has discharged its onus cast upon him under section 68 of The Income Tax Act by proving the identity, creditworthiness and genuineness of the transactions and therefore the addition of 46 lakhs of loan received by it from M/s Stalwart realtors private limited cannot be added into the hands of the assessee under section 68 of the Income Tax Act, 1961. On the above factual aspects, we delete the addition made by the Ld. assessing officer. Decided in favour of assessee. M/s Narendra Polychem (P) Ltd. Formerly known as M/s Narendra Cold Storage (P) Ltd. Vs Income Tax Officer 2016 (6) TMI 936 - ITAT Delhi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee. The creditworthiness and genuineness of the loan has duly been proved on record. Therefore, in the said circumstances the CIT(A) has rightly deleted the addition of - 15,00,000/-u/s.68 of the Act. Supreme Court Of India - Orissa Corporation Pvt. Ltd. 159 ITR 78 (SC) Wherein the hon. Supreme Court has held that when the assessee furnishes names and addresses of the alleged creditors and the G.I.R. numbers, the burden shifts to the department to establish the revenue's case and in order to sustain the addition the Revenue has to pursue enquiry and to establish the lack of creditworthiness and mere issue of notice under section 131 is not sufficient. High Court Of Mumbai - Nikunj Eximp Enterprises, ITXAL No. 5604 of 2010 The High Court held that the ITAT deleted the addition on account of bogus purchases not only on the basis of stock statement i.e. reconciliation statement but also in view of the other facts. The ITAT had recorded that the books of accounts of the assessee were not rejected. Similarly the sales have not been doubted and that substantial sales were made to government departments. Further there were confirmatory letters filed by s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies were genuine suppliers and that they received payments by account payee cheques is plausible and based on evidence-No question of law arises for consideration. Rajesh P. Soni, 100 TTJ 892 (Ahd.) Income from undisclosed sources-Addition under s. 69- Unexplained investment in purchases-AO made addition merely because suppliers could not be located and were not produced for examination-Not justified-Purchases were properly recorded in books of account and supported by authenticated purchase bills/vouchers-Appellant has filed details of suppliers and their sales-tax numbers- Payments were made through banking channels-Sales against these purchases are not doubted-Hence, addition cannot be sustained. ➤ Babulal C. Borana VS. ITO (2006) 282 ITR 251 (Bom.) It was held by the Hon'ble Bombay High Court that When the identity of the person form whom goods are purchased and source of investment made has been explained by the assessee, and it was established that amounts paid by assessee by cheque for those goods had been received, and further, books maintained by assessee had been accepted by AO and in fact addition was based on entries made in those b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he loan entry has been made on the basis of list of concerns provided by Shri Bhanwarlal Jain at the time of giving statement during the search proceedings as being concerns managed and controlled by him and involved in the business of providing only accommodation entries. The department has only relied on the names such provided and had not tried anything to prove that the transactions with them were bogus. The appellant was not provided with an opportunity for cross examination of the party before making the addition of the loan amount to the income of the The appellant should have been provided with the opportunity to cross examine the parties who has given the statement or affidavit. If any person has filed any affidavit or given any statement to the department and if the department is using that statement or affidavit against the appellant then it is the right of the appellant to have an opportunity to cross examine that persons, the appellant has not been provided this opportunity. Your honour may please note that an enquiry must be conducted in accordance with the principle of natural justice and all the materials for and against the assessee must be shown to him and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dence to be used against him. Kishinchand Chellaram Vs. Commissioner Of Income Tax Income from undisclosed sources-Chargeability-T, an employee of Madras office of appellant making a telegraphic transfer of an amount of Rs. 1,07,350 to N, an employee of appellant in Bombay office-On enquiry made by ITO from Madras bank, manager of bank informing ITO that telegraphic transfer of Rs. 1,07,350 sent by appellant from Madras was received by bank at Bombay and the amount was paid to N- ITO treating the amount as undisclosed income of appellant-Not justified-Burden of proof was on the Department to prove that the amount belonged to appellant-Letters of manager, in the absence of same being supplied to the appellant, could not be used against appellant-Manager also not examined by the Department-There was no evidence for the conclusion that the amount belonged to appellant. High court of Gujarat Heirs And Lrs Of Late Laxmanbhai S. Patel Vs. Commissioner Of Income Tax 174 Taxman 206 Addition made under s. 68 placing heavy reliance on the statement of one R to the effect that the promissory note in the sum of Rs. 8,78,358 recovered during his search represented amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aforesaid sworn statement of S-It would be an infraction of the cardinal principles of natural justice to rely upon the said statement-However, the fact that about 1350sq. f t. of commercial premises with all amenities on the ground floor of a three-storeyed building in a prime location has been let out by the assessee on a monthly rent of Rs. 2 lakhs cannot be lost sight of -Hence, impugned order is set aside and the matter is remitted to the assessing authority for making a revised assessment after giving both the parties an opportunity to substantiate their respective contentions. High Court Of Madhya Pradesh Prakash Chand Nahta Vs. Commisioner Of Income Tax (2008) 218 CTR (MP) 367 AO having not summoned the person from whom the assessee is said to have purchased goods, under s. 131 for cross-examination in spite of the request of the assessee and therefore, the assessment order passed by AO making the impugned addition on the basis of the deposition of the witness is vitiated. Income Tax Tribunal Bench Of Delhi - Jindal Stainless Ltd. Vs. Assistant Commissioner Of Income Tax (2009) 122 TTJ (Del) 902 Search and seizure - Assessment under s. 153AOpportu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pendent enquiries from the customers of the assessee. Thus the addition was deleted. High court of Delhi CIT v. SMC Share Brokers, 288 ITR 345 The Delhi High Court held that since an assessing officer functions as a quasi-judicial authority, he is under an obligation to adhere to the principles of natural justice. Denial of permission to cross-examine a witness or examine the evidence is complete violation of the principles of natural justice. C.P. Adam, 105 ITR 465 (Ker.), The Hon'ble Tribunal deleted the addition made by the A.O. holding that no opportunity had been given to the assessee to cross-examine the creditors. Ashwani Gupta 322 ITR 396 (Del.) The A.O. had passed the assessment order in violation of the principles of natural justice in as much as he had neither provided copies of the seized material to the assessee nor had he allowed the assessee to crossexamine the concerned party. The honourable tribunal and the CIT(A) held that the entire addition made by the A.O. was invalid and deleted the said addition. Sunita Dhadda, 148 TTJ 719 (Jp.) It was held that as per the principles of natural justice, it was obligato ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of disproving the submissions and explanations of the appellant lied on the Ld. A.O. Neither did the Ld. A.O. provide any material evidence to support his contention nor did he verify the genuineness of the dealers by issuing summons to the said concern and ascertained genuineness. Thus the Ld. A.O., without verifying the facts has assumed the transaction in question was not genuine. The inquiry of DGIT (Inv.) is not conclusive and cannot be used against the appellant without any other corroborative evidences. The appellant would like to rely on the following judgments for this: High Court Of Mumbai Rajeev G. Kalathil Vs. DCIT Fact that alleged supplier is not traceable and has been termed a hawala dealer by the VAT authorities is not sufficient to treat the purchases as bogus The assessee claimed to have made purchases from certain parties. In support of the genuineness of the purchases, he produced bills from the parties and proof of payment by cheque. However, the AO treated the purchases as bogus purchases u/s 68 on the ground that the notices u/s 133(6) sent to the alleged suppliers at the address stated in their bills were returned unserved. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that has been manufactured. Kulwant Singh, 134 TTJ 129, The ITAT Delhi Bench held that when search and seizure has been - conducted and when the seized evidence does not contain any material to show that the assessee was carrying on accommodation entry business in a clandestine manner, no undisclosed income could be computed by the ld. A.O. merely on the basis of information received from the Sales-Tax Department. DCIT v. Beautiful Diamonds Ltd. in ITA No. 78/Mum/2000, The honourable Mumbai ITAT held that when no incriminating material is found during the search, no addition can be made on the basis of the statement by the alleged bogus suppliers of goods to the assessee before the FERA authorities. Brij Pal Sharma, 333 ITR 229 (P H), It was held that it was not open to the A.O. to determine the matter without any further investigation so as to be able to repudiate the material relied upon by the assessee. It was open to the A.O. to exercise authority vested in him u/s. 131 of the Act, to determine the veracity of A.O. to reject the material produced by the respondent-assessee. the material relied upon by the respondent-assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hind the back of the assessee unless the assessee is allowed to cross-examine them. The learned counsel further stated that the assessee has submitted affidavits made by the suppliers at the time of assessment. The AO did not examine the deponents. In the absence of examination, the contents of the subsequent, affidavits submitted before the AO are binding and there is no justification in placing reliance on earlier statements/affidavits which were obtained by the Addl. DIT/Dy. DIT under pressure and coercion. No Proof On Record To Prove That Money Was Returned To The Appellant: Your honour may note that no proof was brought on record that money was returned to the appellant. The Ld A.O. contends that the appellant had obtained bogus entry by making payments by way of cash and that the amounts paid by way of cheques was returned to your appellant. The Ld. A.O. failed to bring on record any proof in support of his contention. His contention was only based on the information received from the DGIT ( Inv.) which was not verified by the A.O. and was blindly utilized while making an addition to the purchases. In the case of G. G. Diamonds, 11 SOT 33 (Mum.)(URO), it was held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aithan Alloys Ltd. ITA No. 269 to 273/Kol/2011 The said loan creditor companies were regularly taxed on their income particularly they have shown the interest income as accrued to them. The Assessing Officer has accepted the returns of the loan creditors, it should go to mean that the amounts given by these creditors were also genuine as the concerned Assessing Officer accepted all the two loan creditors return wherein the interest has been shown as interest income. While concluding, Tribunal accepted that it is not a bogus loan and it is for the business as they have already decided the issue of addition on account of alleged bogus loan against the Department and in favour of assessee. This interest which was paid on the above loan and the payments purchases to appellant-If addition made AO is sustained suppliers produced it possible margin of purchases- 50,000. Commissioner Income Tax Vs. M.K. Brothers. (1987) 163 249 (Guj Whether the said transactions were bogus not was question of fact. The also pointed out that nothing shown indicate that part the fund given the appellant these parties came back appellant in form. further the Tribunal no evidence any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who were not filing IT returns and cash was deposited in their account before issuing cheques. There was no payment of interest also. All this points are not their in our case hence, this case is not applicable to our case. SUMATIDAYAL VS CIT The fact of this case is totally different and not applicable to our case. In view of the above mentioned submission, your appellant requests that the alleged loan transaction amounting to Rs. 4,40,00,000/- and interest of Rs. 29,57,455/- totaling to Rs. 4,69,57,455/- be considered as genuine and be deleted from the income of the appellant as computed by the Ld. Assessing 6. Further the CIT(A) has dealt on the facts, credible evidences and submissions and granted the relief observed as under: DECISION: Ground No.1 is raised against the addition made of Rs. 4,40,00,000/- as unexplained cash credit u/s 68 of IT Act, 1961. The Id AO has noticed that the appellant has during the year under consideration received unsecured loans of aggregated amount of Rs. 4,40,00,000/- as under: 1 Varsha Gems 1,32,00,000/- 2 Minal Gems 2,40,00,000/- 3 Naman exports 68,00,000/- During the appellate procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. It is also the contention of the Id AR that the AO has failed to discuss the merits of the cases cited by the appellant company during the course of assessment proceedings. 2.4.7 In the present case before me, as seen from the details filed before the AO, as evident from the paper book, do not find any inconsistency or incoherence in respect of the receipt of the unsecured loan received from the said three concerns. Primarily, as regards the transaction, the same has routed through the banking channels and the source can not be doubted. It was held in several cases that whatever may be the strength of presumption it cannot substitute the evidence. Even though the transaction is from a tainted group, the AO has not made any efforts to show that the transaction with the appellant firm was sham, fictitious or artificial except believing the statements given by the accommodation entry providers. He has failed to gather any evidence to show that the unaccounted cash of the appellant has changed hands consequently replacing the cheque payments. Further he has not provided the corroborative evidence or document which he relied on to the appellant and also failed to prove how the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated to section 68 burden of proof cannot be discharged to the hilt - such matters are decided on the particular facts of the case as well as on the basis of preponderance of probabilities. Credibility of the explanation, not the materiality of evidences, is the basis for deciding the cases falling under section 68. (v) Though confirmatory letters or account payee cheques do not prove that the amount in question is properly explained for the purpose of section 68 and assessee has to establish identity and creditworthiness of the creditor as well as the genuineness of the transaction, it is also true that money received through foreign remittance with RBI approval is a strong indicator of bona f ide of the cash credit that has to be disapproved only with positive evidence. (vi) In matters regarding cash credits, the onus of proof is not a static one. As per the provisions of the section the initial burden of proof lies on the assessee. Amount appearing in the books of account of the assessee is considered a proof against him. He can prove the identity of the creditors by either furnishing their PANS or assessment orders. Similarly, genuineness of the transaction can be p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grieved by the CIT(A) order, the revenue has filed the appeal with the Hon ble Tribunal. 7. At the time of hearing, the Ld. DR submitted that the CIT(A) has erred in deleting the addition though the assessee has not proved the ingredients of the Sec. 68 of the Act i.e identity, genuineness and creditworthiness of the lender and further unsecured loan transactions are in the nature of accommodation entries and the loan creditors have not responded to notice u/s 131 of the Act but only filed the confirmations and relied on the AO order and prayed for allowing the revenue appeal. Contra, the Ld. AR supported the order of the CIT(A) and substantiated the submissions with the factual paper book and judicial decisions. 8. We heard the rival submissions and perused the material on record. The grievance of the revenue that, the CIT(A) has erred in deleting the addition of unsecured loans from the three loan creditors and interest on loans. The Ld.AR submitted that the assessee has cooperated in submitting the information in the assessment proceedings, whereas the A.O has ignored the information, evidences and Audited financial statements and unilaterally made addition u/sec68 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. We find in spite of filing all the details, the A.O. has not conducted any investigation or enquiry in respect of the information submitted by the assessee. The CIT(A) has considered the facts, circumstances and observed that the assessee prima-facie has complied the ingredients required u/s 68 of the Act of identity, genuineness and creditworthiness. Further, the CIT(A) relied on the catena of judicial decisions and test checked the genuineness and creditworthiness of the lenders. The CIT(A) came to a reasonable conclusion that the assessee has discharged its burden on submitting the information in the assessment proceedings and the A.O. has failed to conduct the enquiries and the A.O should have conducted independent investigation without relying on the third party statements and facts. 10. The Ld.AR demonstrated the copy of bank statements reflecting the credits from the three parties along with other evidences at page 29 to 55 of the paper book which is not disputed by the revenue. The A.O has failed to make further enquiries and relied on the statement recorded, which was retracted subsequently and has overlooked the factual aspects that the assessee has discharged the i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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