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TMI Blog2025 (3) TMI 1084X X X X Extracts X X X X X X X X Extracts X X X X ..... also filed cross objections in all the aforesaid assessment years under consideration 2. Since the issues are common and the appeals are connected, therefore, the same are heard together and being disposed off by this common order. First we take up ITA No.4164/Del/2018 for AY 2011-12 as the lead case and the Revenue has taken the following grounds of appeal in Assessment Year 2011-12 :- "1. On the facts and under the circumstances of the case, the Ld.CIT (A) is justified in allowing the appeal of the assessee on late deposit of employees' contribution to PF ignoring the CBDT circular No.22/2015 dated 17.12.2018. 2. On the facts and under the circumstances of the case, the Ld. CIT (A) is justified in allowing the interest of Rs. 2,35,97,700/- ignoring the fact that the assessee on one side had invested huge amounts of Rs. 18,50,80,000/- in the company (in which director of the assessee company is owner) at without any return, on the other hand the assessee company is having loans on which it is paying. 3. On the facts and under the circumstances of the case, the Ld. CIT (A) is justified in allowing the appeal of the assessee ignoring the discrepancies found by the AO duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eturn from the investment made in M/s. XLR Capital (Cyprus) Limited, he observed that the assessee company is paying interest on unsecured loans from M/s. Global Minetec Ltd. @ 12% and interest to State Bank of Bikaner and Jaipur @ 12.75% per annum. With the above observation, AO disallowed the proportionate interest paid on unsecured loans and bank loan at the average rate of 12.75% on the investment made by the assessee in M/s. XLR Capital (Cyprus) Limited and determined the proportionate interest of Rs. 2,35,97,700/- and disallowed the same. 5. He further observed that the assessee is manufacturing 'industrial explosives' and it has made investment in some other company which is not part and parcel of the business of the assessee and also there is no profit in the business of the assessee from said investment. 6. Aggrieved with the above order, assessee preferred an appeal before the ld. CIT(A) and ld. CIT (A) after considering the detailed submissions allowed the ground raised by the assessee with the following observations:- "7.3 I have carefully considered the assessment order and written submission filed by the Ld. AR. The appellant is a Limited Company and during the ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The appellant has quoted the case of the Hon'ble Supreme Court in Madhav Prasad Jatia vs. CIT, AIR 1979 SC 1291: 118 ITR 200, 208, wherein it was held that the expression "for the purpose of business" occurring under the provision is wider in scope than the expression "for the purpose of earning income, profits or gains." 7.5. The judgment of M/s S. A. Builders Ltd. v CIT held that what is relevant is whether the amount was advanced as a measure of commercial expediency. The judgment of the Hon'ble Delhi High Court in the case of CIT v Dalmia Cement Ltd. has held that it should be established that there was nexus between the expenditure and purpose of the business. 7.6. In state of Madras vs. Coelho (GJ), the Supreme Court has held that, in ordinary commercial practice, payment of interest is taken as a revenue expenditure. The money borrowed must be for the purposes of the appellant's business or profession that is carried on during the year of account. 7.7. The issue whether borrowed capital had been actually used for business is one relating to facts and does not give rise to a question of law. The inference that borrowing is for non-business purposes on the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... project was estimated at 25 million USD and out of which, 50% of the total project cost was to be contributed by Yara Netherland B.V. and balance was to be contributed by M/s. XLR Capital (Cyprus) Ltd. M/s. XLR Capital (Cyprus) Ltd. has approached the assessee to invest 8.50 million USD in its equity for getting 32.43% stake in M/s. XLR Capital (Cyprus) Ltd.. Just because assessee has not earned any income during the year, the AO proceeded to disallow the proportionate interest relating to the above said investment. After careful consideration, we are of the view that assessee has invested in M/s. Ethiopotash B.V. for exploration of Potash Project in Musley Area in Danakhil Depression, Ethiopia. The assessee has invested 32.43% stake in M/s. XLR Capital (Cyprus) Ltd. which in turn has invested 12.5 million USD in M/s. Ethiopotash B.V. company. The controlling of the raw material supply is key to any organization and assessee has invested to control the supply of raw material from Ethiopia. Therefore, the investment made by the assessee is directly linked to the business of the assessee. Therefore, we do not see any reason to disturb the findings of the ld. CIT (A) and accordingly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regularly followed by him. Under such situation the AO may make an assessment in the manner provided u/s 144 of the Act. 8.6. In the present case, the rejection of the trading results on the basis of non- production of certain details I vouchers cannot lead to an inference that there are sales made outside the books and to draw an adverse inference against the appellant. If the AO has doubted the correctness or completeness of the account, some concrete evidence was required to be obtained. The fact of stoppage of production cannot be ignored once it was substantiated by the Ministry. 8.7. The Ld. AR has also relied on the judgements of Hon'ble Allahabad High Court in the case of Imran Ahmed vs. CIT (1982) Tax CR (NOC) III (A11) held that on account of new absence of vouchers to substantiate entry for accounts, accounts in total cannot be rejected. It is well settled that reasonableness of expenditure should be judged from the view point of the business carried on by the appellant and not from the view point of the revenue authorities. 8.8 Further, Hon'ble Supreme Court and the various High Courts in number of cases have held that before invoking the provisions of Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, in light of the above, the Appellant Company submitted additional evidences before the CIT(A), which are as under: 1) Copy of VAT returns filed for year under assessment along with reconciliation of Sales as appearing in Profit & Loss account. 2) Copy of Stock Register for the month of April 2010 & March 2011 as per excise records along its reconciliation with opening and closing stock appearing in Balance Sheet. 3) Copy of permission dt. 20.12.2010 of Chief controller of Explosives Nagpur, Ministry of Commerce & Industry, Petroleum, and Explosives Safety Organization for sale of explosives lying in factory of appellant. 4) Party wise details of sales exceeding Rs. 5 Lacs with amount of sales. 5) Party wise details of purchase exceeding Rs. 5 Lacs with amount of purchase. It may be noted that the Chief controller of Explosives Nagpur, Ministry of Commerce & Industry, Petroleum, and Explosives Safety Organization has suspended the licenses of the Appellant Company with effect from 27th August 2010 and the suspension of licenses was revoked on 29.08.2011 however the Appellant Company has obtained the permission to sale out the stock in hand. The above permission wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s submitted by the Appellant were sent to AO for remand by the CIT(A). The CIT(A) admitted the additional evidences after detailed discussion on AO's reply on remand report and rejoinder of Appellant on AO's reply. During the appellate proceedings, the Appellant Company demonstrated the errors made by the Assessing Officer as well as deficiency in the working of the yield by filing additional evidences as submitted above. The additional evidences were verified by the AO in the remand proceedings and no adverse inference is drawn and hence, the decision of the CIT(A) to delete the ad-hoc addition too ought to be sustained." 15. Considered the rival submissions and material available on record. We observed that the AO has rejected the books of account merely relying on the variation in the GP recorded by the assessee in the past three years and in remand proceedings, the AO has accepted the various details submitted by the assessee and has not made any negative observations on the details furnished by the assessee. After careful consideration, we observed that ld. CIT (A) has elaborately discussed that AO has not made preliminary verification of the information submitted b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntroduced during the relevant assessment year and assessee was asked to submit the details of subscribers along with address and payment details. In response, assessee has submitted the relevant details. On the basis of list, the Assessing Officer issued summon u/s 131(1) of the Act to the relevant applicants to attend the office along with supporting documents and their identity, creditworthiness and genuineness of the transaction. In response, M/s. Maneesha Finlease Ltd. and Ms. Indu Solanki has submitted requisite details and in respect of M/s. Blastec (India) Pvt. Ltd. summon was returned with the remarks as left. Subsequently, assessee provided the required details as the said company is a sister concern. AO observed that since the abovesaid applicant has not attended the proceedings and only documents were filed which could not prove the genuineness of the transactions by them. Further he observed certain discrepancies in documents filed by the ld. AR of the assessee. After discussing the above defects, he treated the share application money introduced by M/s. Maneesha Finlease Ltd. and M/s. Blastec (India) Pvt. Ltd. amounting to Rs. 3.62 crores as unsubstantiated and proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. Gaurav Panda, Chartered Accountant containing with complete Bank Statements for the F. Y. 10-11, Income Tax Return Acknowledgement, complete Balance Sheet as on 31.03.2011 and confirmation duly signed by above Director. 2. Applicant has not attended the proceedings and only documents were filed which could not proved their existence and genuineness of transaction with them. Mere confirmation and other documents in which even the signatures put in by the persons giving confirmation are not verifiable, cannot be relied upon in view of circumstances of the case. Summons issued to Maneesha Finlease Ltd. was duly complied by Authorized Representative of that company. Maneesha Finlease Ltd. is also sister concern of the Appellant company and the same is also evident from related party disclosure at Point no. 8 of the Notes to Accounts of Balance Sheet of Appel/ant company. Further Maneesha Finlease Ltd. is Public Limited Company promoted by Capt. K. S. Solanki, who is also common shareholder in Maneesha Finlease Ltd and Appellant. The summons were complied through Authorized representative as registered office of the company is situated at 153, Vasant Enclave, New Delhi and its di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enclosed) S.No. Particulars From Amount Date 1 Ch-092417 Bank of India Capt K.S. Solanki on behalf of Maneesha Finlease Ltd. 38,00,000/- 06/12/2010 2 Ch-092425 Bank of India Capt K.S. Solanki on behalf of Maneesha Finlease Ltd. 40,00,000/- 23/12/2010 (b) Share application money of Rs. 3,04,40,000/- transferred from the following companies on account of merger with Maneesha Finlease Limited S.No. Particulars From Opening Transfer 1 Opening as 01/04/2010 Harbour Commotrade (P) Ltd. 76,40,000/- 76,40,000/- 2 Opening as 01/04/2010 Adbhut Consultancy Services (P) Ltd. 15,00,000/- Ch-049093 09/10/2010 Adbhut Consultancy Services (P) Ltd. 9,00,000/- Ch-049097 28/12/2010 Adbhut Consultancy Services (P) Ltd. 9,00,000/- 33,00,000/- 3 Opening as 01/04/2010 Abhivadan Management & Consultancy (P) Ltd. 60,00,000/- 60,00,000/- 4 Opening as 01/04/2010 Mystery Finlease (P) Ltd. 15,00,000/- 15,00,000/- 5 Opening as 01/04/2010 Black Gold Transport (P) Ltd. 50,50,000/- 50,50,000/- 6 Opening as 01/04/2010 Sainik Cement (P) Ltd. 69,50,000/- 69,50,000/- Therefore an amount of Rs. 96,00,000/- was given as share ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,70,26,600/- and Reserves & Surplus of Rs. 1,79,73,260.85. The sum total of both figures comes to Rs. 7,49,99,860.85 which is quite more than the share application money given of Rs. 2,66,00,000/-. This figure also shows the credit worthiness of M/s Blastec (India) Pvt. Ltd. The Balance Sheet of n/s Blastec (India) Pvt. Ltd. is duly audited by their statutory auditors and there should not be any doubt in the mind of Ld. A. O. regarding Assets, Liabilities and Net Worth of M/s Blastec (India) Pvt. Ltd. 6. On perusal of bank statement of M/s Blastech India Pvt. Ltd. it was found that there were credit entries appearing just before and/or after the amount advanced to assessee company. Hence, genuineness of transaction could not proved in its case. We are unable to understand the observation of Ld. AO. How appearance of credit entries from sister concerns of group just before or after the advance make the transaction non genuine? In view of above, you are requested to delete the above additions." 23. After considering the detailed submissions of the assessee, ld. CIT (A) allowed the claim of the assessee by observing as under :- "10.3. Moreover, M/s Maneesha Finlease Ltd. is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from issuing notices under section 131 at the instance of the assessee, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy or were such who could advance the alleged loans. There was no effort made to pursue the so called alleged creditors. In those circumstances, the assessee could not do any further. In the premises, if the Tribunal came to the conclusion that the assessee had discharged the burden that lay on him then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusions based on some evidence on which a conclusion could be arrived at, no question of law as such arises." 10.5. Adverting to the facts of the case, the appellant has furnished the addresses, income tax particulars of concerns from whom share application money has been received and supported by the fact that the amounts were received through banking channels. Therefore, there cannot be valid justification to suggest that the burden of the appellant viz a viz the creditworthiness of the share applicants has not been discharged. In view thereof, and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Venkteshwar College, New Delhi on 30th January, 2014. The registered office of the company of Appellant was situated there till 1st August, 2013. The above notice may have returned due to misunderstanding by postal Department regarding change of Registered office of the Appellant as M/s Blastec (India) Pvt. Ltd was also sharing the same office premises with Appellant. The Assessing Officer was not able to trace the payment of Rs. 96,00,000/- from the Bank Statement of M/s Maneesha Finlease Ltd. as the same was not paid from Bank A/c of M/s Maneesha Finlease Ltd. However, the Assessing Officer ignored the explanations of the basis of applying for the shares of appellant company submitted during assessment proceedings, which clearly show that Rs. 96,00,000/- was paid to Appellant company by Capt. K S Solanki on behalf of Maneesha Finlease Ltd. and 2 merged companies of Maneesha Finlease Ltd. The Assessing Officer ignored the details of schedule (i.e., list I groupings) of balance sheet, wherein Rs. 3,82,40,000/- is mentioned as share application money given to appellant company as on 31.03.2011. Details of schedule (i.e. list / groupings) are part & parcels of Balance Sheet of M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the name of the person who confirmed the statement and observed that there were credit entries appearing just before and after the amount advanced to the assessee and, therefore, genuineness of the transaction could not be proved in this case and further observed that the name of the assessee is appearing as sundry creditors on liability side while the company has claimed it as obtained unsecured loan from M/s. Maneesha Finlease Ltd. With the above observation, the AO observed that assessee failed to discharge its preliminary onus of identity, creditworthiness and genuineness of transaction and accordingly he disallowed the unsecured loan of Rs. 2,10,11,198/-. 29. Aggrieved assessee preferred an appeal before the ld. CIT (A) and filed detailed submissions as under :- "The Ld. AO added back unsecured loan of Rs. 2,10,11,198/- received from M/S Maneesha Finlease Limited. Details of Unsecured Loans along with confirmation from M/s Maneesha Finlease Limited, ITR Acknowledgement of M/s Maneesha Finlease Limited and copy of A/c of M/s Maneesha Finlease Limited as appearing in the books of appellant were submitted during assessment proceedings alongwith letter dt. 08,10.2013 in respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... side of balance sheet. It seems that Ld. A.O. has ignored the details of schedule (i.e list/ groupings), wherein Rs. 2,10,11,198/- is mentioned as inter corporate deposit given to appellant company. However the same are enclosed herewith at Page No. 362, wherein we have highlighted the related portion. Further note that these details of schedule (i.e. list/ groupings) are part & parcels of Balance Sheet of M/s Maneesha Finlease Ltd. and are duly certified by their statutory auditors. 2. On perusal of bank statement of M/s Maneesha Finlease Limited this amount of loan advanced is not verifiable. It seems that the Ld. AO ignored the bank statement filed with above letter dt. 10.02.2014 filed on 14.02.2014, wherein amount of unsecured loan paid of Rs. 1,42,00,000/- is clearly mentioned. The details of amount debited in above bank statement is as under: - Sr. No. Particulars Amount Date 1 Ch-167117 Bank of India 40,00,000/- 09/08/2010 2 Ch-167134 Bank of India 1,02,00,000/- 06/12/2010 Furthermore the Ld. A.O. also ignored the copy of cheque issued for making RTGS of Rs. 1,02,00,000/- and covering letter issued by M/s. Maneesha Finlease Limited to bank for the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... servation of Ld. A0. How appearance of credit entries from Sister concerns of group just before or after the advance make the transaction non genuine? 6. On perusal of Balance Sheet of M/s Maneesha Finlease Limited it is found that appellant company is appearing as sundry creditor on liability side while appellant company has claimed that it has obtained unsecured loan from M/s Maneesha Finlease Limited. Hence, genuineness of the transaction is not proved. The Ld. A.O. is referring to details of schedules (i.e. list / groupings) of balance sheet of M/s Maneesha Finlease Limited, wherein Rs. 62,52,475/- due to appellant company is appearing in the list of sundry creditor. However, strangely the Ld. A.O. ignored the next page of details of schedule (i.e list / groupings), wherein Rs. 2,10,11,198/- is mentioned as inter corporate deposit given to appellant company. In view of above, you are requested to delete the above additions." 30. After considering the detailed submissions of the assessee, ld. CIT (A) allowed the claim of the assessee by observing as under :- "11.3. The Ld. AR submitted that details of Unsecured Loans along with confirmation from M/s Maneesha Finlease Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is mentioned as inter corporate deposit given to appellant company. Ld. AO ignored the bank statement filed during assessment proceedings, wherein amount of unsecured loan paid of Rs. 1,42,00,000/- is clearly mentioned. Ld. A.O. also ignored the copy of cheques issued for making RTGS of Rs. 1,02,00,000/- and covering letter issued by M/s Maneesha Finlease Limited to bank for the same. M/s Maneesha Finlease Ltd. is also sister concern of the Appellant company and the same is also evident from related party disclosure at Point no. 8 of the Notes to Accounts of Balance Sheet of Appellant company. Further Maneesha Finlease Ltd. is Public Limited Company promoted by Capt. K. S. Solanki, who is also a director and common share holder of Appellant Company. Following documents, which were submitted to prove the existence and genuineness of transaction: 1) Bank Statements, Income Tax Return Acknowledgement, complete Balance Sheet as on 31.03.2011 and confirmation duly signed by above Director. 2) Explanation of Unsecured Loan given to Appellant Company. The Assessing Officer in its order has referred to details of schedules (i.e., list/groupings) of balance sheet of M/s Maneesha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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