Gran Overseas Ltd., New Delhi vs Department Of Income Tax

ACIT, Vs. Gran Overseas Ltd., Circle 12(1), 107-109, Rattan Jati Bldg., New Delhi. Rajendra Place, New Delhi. PAN: AABCG6796R

(Respondent) (Appellant)

Assessee By : Shri C.S. Agarwal, Sr. Advocate & Shri Ravi Pratap Mall, Advocate Department By : Shri T. Vasanthan, Sr. DR

Date of Hearing : 18.03.2015 Date of Pronouncement : 20 .03.2015

ORDER PER R.S. SYAL, AM:

This appeal by the Revenue is directed against the order passed by

the CIT(A) on 18.11.2010 in relation to the assessment year 2007-08. ITA No.1251/Del/2011.

2. The first ground is general which does not require any separate

adjudication.

3. Ground no. 2 is against the deletion of addition of Rs.5,66,44,000/-

made by the Assessing Officer (AO) on account of unsecured loans.

4. Briefly stated, the facts of the case are that the assessee is engaged

in the business of export of iron ore fines, steel pipes and skimmed milk

powders, etc. The AO noticed from the details furnished by the assessee

that the following amounts were received during the year under

consideration :-

M/s S.V. Liquor India Ltd. Rs.1,96,10,000/-

M/s Mudra Exports Rs.3,35,34,000/-

M/s Mudra Ceramics Pvt. Ltd. Rs. 15,00,000/-

M/s Anshu Hospital Rs. 20,00,000/-

Total Rs.5,66,44,000/-

5. The assessee was called upon to furnish confirmations from the

above parties along with their income-tax returns and balance sheets etc.

to prove the genuineness of credits. The assessee furnished a certificate 2 ITA No.1251/Del/2011.

from Mudra Exports confirming debit balance in its name at

Rs.3,15,14,000. The AO found the balance as not tallying inasmuch as

the loan was received for a sum of Rs.3.35 crore. On being called upon

to furnish particulars in respect of all the four creditors, the assessee

showed its inability to furnish any documents in respect of M/s Mudra

Exports on the ground that they refused to give any such document. The

AO issued notice u/s 133(6) to M/s Mudra Exports, but no compliance

was made. In view of the foregoing facts, the AO made addition of

Rs.5,66,44,000/-. During the course of first appellate proceedings, the

assessee furnished details regarding all the four creditors as additional

evidence. Complying with Rule 46A, the ld. CIT(A) sent such

additional evidence to the AO for comments. The AO submitted remand

report dated 13.5.2010 objecting to the admission of additional evidence

and also giving comments on the merits of the additional evidence.

After considering the entire gamut of material available on record, the

ld. CIT(A) deleted the addition of Rs.5,66,44,000/-. Here, it is pertinent

to mention that the Revenue is not aggrieved against the admission of

additional evidence in terms of Rule 46A inasmuch as there is no ground 3 ITA No.1251/Del/2011.

challenging the admission of additional evidence by the ld. CIT(A). The

reason appears to be the ld. CIT(A) calling and the AO sending remand

report on the merits of the additional evidence filed by the assessee. The

Revenue, on this issue, is aggrieved against the deletion of addition of

Rs.5,66,44,000 made by the AO.

6. We have heard the rival submissions and perused the relevant

material on record. It is noticed that the addition of Rs.5.66 crore made

by the AO u/s 68 comprises of amounts received by the assessee from

four different entities. We will deal with these four entities one by one

for determining their genuineness or otherwise.

i) Mudra Exports.

7.1. The AO picked up the figure of Rs.3,35,34,000/-, being the

amount of loan or deposit taken by the assessee from Mudra Exports, by

considering an Annexure to the tax audit report, a copy of which is

available on page 201 of the paper book. The Annexure to the tax audit

report showing receipt , inter alia, of Rs.3,35,34,000/- also shows

Repayment of loan to Mudra Exports to the tune of Rs.20.20 lac. Thus,

4 ITA No.1251/Del/2011.

the balance after deduction of the amount of repayment from the amount

of loan received comes to Rs.3,15,14,000/-, being the same amount as

was given by Mudra Exports in their confirmation. A copy of such

confirmation given by Mudra Exports is available on page 215 of the

paper book, which certifies the debit balance of the assessee in their

books of account at the same level of Rs.3,15,14,000/-. A detailed copy

of the assessee's account in the books of Mudra Exports is available at

page 51 of the paper book from which it is apparent that the closing

balance in this account at Rs.3,15,14,000/- fully tallies with the amount

given by this party in the certificate.

7.2. The position which, therefore, emerges is that Mudra Exports

advanced loan to the assessee from its books of account which is

evidenced from the copy of account of the assessee in their books of

account. Once a person pays a loan from his regular books of account to

another and the balance is shown in the balance sheet, there cannot be

any question of doubting the genuineness of the credit, more so, when

the said amount has been accepted as genuine in the assessment of that

other person. A copy of assessment order passed in the case of Mudra 5 ITA No.1251/Del/2011.

Exports is available at pages 56 and 57 of the paper book. It is

discernible from the assessment order passed u/s 143(3) of the Act in the

case of Mudra Exports that the genuineness of the transaction of

advancing loan by Mudra Exports to the assessee has not been disputed.

Be that as it may, we find from the impugned order that out of total

amount received by the assessee from Mudra Exports at Rs.3.35 crore, a

sum of Rs.2,38,34,000/- was directly advanced by this party by means of

various cheques issued on different dates, the details of which are

available on record. The remaining amount of Rs.97 lac was obtained

by the assessee indirectly from Mudra Exports by recovering the

amounts from their debtors which amounts were directly paid to the

creditors of the assessee. The details of parties from whom the assessee

received loans on behalf of Mudra Exports and paid the same to its

creditors is available in the paper book. It is apparent from such details

that all the amounts were received by means of demand drafts which

were directly issued in favour of the assessee's creditors. Such amounts

received by the assessee from the debtors of Mudra Exports are duly

recorded by Mudra Exports in its books of account.

6 ITA No.1251/Del/2011.

7.3. In view of the above overwhelming evidence filed by the assessee

establishing the genuineness of the amounts received by the assessee

from or on behalf of Mudra Exports, we have no hesitation in upholding

the impugned order deleting this addition.

(ii) S.V. Liquor India Ltd.

8. The assessee showed a receipt of Rs.1,96,10,000/- from S.V.

Liquor India Ltd., in the same Annexure to its tax audit report, as the

amount of loan or deposit taken or accepted. The AO picked up this

amount from the said Annexure of the audit report. The next column in

the Annexure shows the amount of repayment to M/s S.V. Liquor India

Ltd., at Rs.2.47 crore. Page no. 88 of the paper book is a copy of the

assessee's account in the books of S.V. Liquor India Ltd., which shows,

inter alia, debit entries of Rs.50 lac each on different dates. Page 86 of

the paper book is the account of S.V. Liquor India Ltd. in the books of

the assessee which, apart from showing three receipts of Rs.50 lac each,

also shows a sum of Rs.46,10,000/- received on 30.3.2007 with the

remarks 'Being amount received and paid to Railway.' Below the

7 ITA No.1251/Del/2011.

account of S.V. Liquor India Ltd., on page 86 of the paper book, the

assessee has drawn a reconciliation of the balance by showing a sum of

Rs.46,10,000/- as the amount debited by S.V. Liquor India Ltd., in next

year. In so far as the first three entries of Rs.50 lac each are concerned,

we find that these have emanated from the books of account of S.V.

Liquor India Ltd., and have gone into the assessee's books of account

representing a sum of Rs.1.50 crore received by the assessee from this

company by means of pay orders on three different dates. S.V. Liquor

filed its return of income, a copy of which is available on page 91 of the

paper book. The above factual position indicates that there can be no

dispute in so far as the receipt of loan of Rs.1.50 crore is concerned.

However, as regards the remaining amount of Rs.46.10 lac, we find that

Sh. Vijay Jindal, a Director of S.V. Liquor furnished an affidavit on

21.4.2010, a copy of which is available on page 89 and 90 of the paper

book. Apart from the above three amounts of Rs.50 lac each, it has been

mentioned that a sum of Rs.46,10,000/- was paid vide cheque

No.779195 dated 4.4.2007. The position which, therefore, results is that

the assessee is claiming to have received a sum of Rs.46.10 lac from 8 ITA No.1251/Del/2011.

S.V. Liquor on 30.3.2007, where this party is showing to have paid this

sum to the assessee in the next financial year on 4.4.2007. We are

unable to understand as to how the payment of Rs.46.10 lac made by

S.V. Liquor India Ltd. vide cheque dated 4.4.2007 can be received by

the assessee before that date on 30.3.2007 and recorded with the

narration of 'the amount received and paid to Railway.' One can

understand if the amount is paid by A to B and the A records transaction

in his books of account on the date of making of draft or issuance of

cheque and B records the same in his books of account later on at the

time of its actual receipt. However, the position in the instant case is

converse inasmuch as the payer is claiming to have made payment on

4.4.2007 and payee, that is the assessee, is showing to have received

this amount on 30.3.2007. Under such circumstances, we cannot accept

the genuineness of loan transaction to the tune of Rs.46.10 lac unless the

facts are properly considered and appreciated. Overturning the

impugned order on this score, we send the matter back to the file of AO

for verifying the genuineness of credit to the extent of Rs.46.10 lac

claimed to have been received from S.V. Liquor India Ltd. 9 ITA No.1251/Del/2011.

iii) Mudra Ceramics Pvt. Ltd.

9. The AO made addition for a sum of Rs.15 lac on the basis of the

entry made in the same Annexure to the tax audit report showing receipt

of loan of the said amount from Mudra Ceramics Pvt. Ltd. The ld.

CIT(A) deleted this addition by observing that the assessee had, in fact,

advanced loan to Mudra Ceramics Pvt. Ltd., for this sum instead of

receiving the same and, hence, the same ought not to have been added.

During the course of proceedings before us, we required the AR to show

the advancing of loan of Rs.15 lac to Mudra Ceramics Pvt. Ltd., from

the balance sheet of the assessee. Though apparently there is no separate

entry for any loan and advance of Rs.15 lac appearing on the asset side

of the balance sheet of the assessee, but the ld. AR contended that this

amount may have been included in the list of Loans and advances. It

was attempted to show that this payment is a part of the several

transactions undertaken by the assessee with this party. Unless the

position becomes clear about the receipt or payment of the sum of Rs.15

lac, we cannot accept the view point of the ld. CIT(A) on its face value.

The obvious reason is that the auditor of the assessee reported in the tax 10 ITA No.1251/Del/2011.

audit report that a sum of Rs.15 lac was received as amount of loan or

deposit taken by the assessee from Mudra Ceramics Pvt. Ltd. We,

therefore, overturn the impugned order on this issue and send the matter

back to the file of AO for examining this issue afresh and, thereafter,

taking an appropriate decision as per law and after allowing a reasonable

opportunity of being heard to the assessee.

iv) Anshu Hospital.

10. The AO made addition of Rs.20 lac by adopting the figure from

the same Annexure of the tax audit report which mentions it as the

amount of loan or deposit taken or accepted by the assessee from Anshu

Hospital. Here again, the ld. CIT(A) deleted this addition by accepting

the assessee's contention that the same was in the nature of loan

advanced and not loan taken. This amount of Rs.20 lac claimed to have

been advanced to Anshu Hospital is not directly traceable from the face

of the balance sheet. The ld. AR gave the same explanation as given for

Mudra Ceramics above. Following the view taken hereinabove in the

context of Mudra Ceramics Pvt. Ltd., we set aside the impugned order

11 ITA No.1251/Del/2011.

on this issue and send the matter to the AO for deciding it in conformity

with our above directions.

11.1. Ground No.3 is against the deletion of addition of

Rs.15,80,000/- made by the AO on account of pending share application

money. From the balance sheet furnished by the assessee, the AO

observed that share application money to the tune of Rs.15.80 lac was

pending allotment as on 31.3.2006. It was, therefore, opined that this

was a case of cessation of liability for which addition of Rs.15.80 lac

was made. The ld. CIT(A) ordered for the deletion of addition.

11.2. Having heard the rival submissions and perused the relevant

material on record, we find that the viewpoint of the AO treating the

amount as cessation of liability, impliedly u/s 41(1) of the Act, is not

tenable. Section 41(1) is attracted where any allowance or deduction has

been made in the assessment for any year in respect of loss, expenditure,

or trading liability incurred by the assessee and subsequently during any

previous year the assessee is benefitted by way of remission or cessation

of the amount for which it incurred loss or expenditure etc., earlier. To

12 ITA No.1251/Del/2011.

put it simply, section 41(1) can be attracted only when a trading liability

for which deduction was claimed earlier, ceases to be payable.

Obviously, receipt of share application money can, by no standard, be

construed as a trading liability for which the assessee could have been

allowed deduction in the past and its later cessation has resulted into

income. As such, the application of section 41(1) is ruled out.

11.3. It is noticeable from the assessee's balance sheet that a sum of

Rs.15.80 lac is appearing as share application money for the year ending

31.3.2007 and equal amount is appearing in the balance sheet for the

immediately preceding year ending 31.3.2006. This shows that the

amount of Rs.15.80 lac was received by the assessee in an earlier year

and not in the previous year relevant to the assessment year under

consideration. As such, this amount cannot be considered as income in

terms of section 68 of the Act because there is no fresh credit appearing

on the books of the assessee during the year on this account, which is a

condition precedent for attracting the mischief of this section. It is

further a matter of record that in the subsequent year the shares were

13 ITA No.1251/Del/2011.

issued against the said share application money of Rs.15.80 lac. We,

therefore, uphold the impugned order on this issue. This ground fails.

12.1. Ground no. 4 is against the deletion of disallowance of freight and

transportation charges amounting to Rs.3,22,90,536/-. On perusal of the

details of freight and transportation charges, the AO observed that the

assessee did not deduct tax at source on the freight charges paid to

Lakshmi and Jyothi Transport, totaling to Rs.3,22,90,536/-. By

invoking the provisions of section 40(a)(ia), he disallowed the said sum.

The ld. CIT(A) ordered for the deletion of addition.

12.2. We have heard the rival submissions and perused the

relevant material on record. The assessee incurred total freight and

transportation charges to the tune of Rs.3,77,09,424/-, the details of

which is available on page 126 of the paper book. It can be seen that the

payment to Lakshmi and Jyothi Transport is only to the extent of Rs.7

lac and odd, while a sum of Rs.3,16,50,188/- was paid to Indian

Railways and a further sum of Rs.3,14,414/- was paid to Kolkata Port

Trust towards freight for carriage of goods by Railways. Section 194C

14 ITA No.1251/Del/2011.

provides for making deduction of tax at source by any person

responsible for paying any sum to any resident for carrying out any work

in pursuance of a contract. The term 'work' has been defined in clause

(iv) in Explanation below section 194C(7) to include, inter alia, "(c)

carriage of goods or passengers by any mode of transport other than by

Railways." Thus, it is evident that freight or transportation charges paid

for carriage of goods or passengers by any mode of transport are covered

within the meaning of section 194C save and except the carriage of

goods or passengers by Railways. In other words, any payment made

for carriage of goods or passengers through Railways cannot be covered

u/s 194C of the Act. In so far as payment of Rs.3,16,50,188/- is

concerned, it was directly made by the assessee to Railways for which

there can be no default for non-deduction of tax at source. As regards

the payment for a sum of Rs.3,14,414/- paid to Kolkata Port Trust, the

same was towards 'freight for carriage of goods by Railways.' The

assessee filed a copy of bill showing that the payment was made to the

Railway Division of the Port Trust for freight charges relating to hired

wagons. Since this payment is also towards carriage of goods by 15 ITA No.1251/Del/2011.

Railways, it would not attract section 194C. As regards the remaining

amount disallowed by the AO, the assessee filed evidence before the ld.

CIT(A) showing deduction of tax at source @ 2.24% amounting to

Rs.8,258/- in respect of freight payment amounting to Rs.3,68,015/-

made to M/s Lakshmi Transport. Since the assessee deducted tax at

source from the payments made to Lakshmi Transport, there can be no

question of applying section 40(a)(ia) of the Act. The AO did not make

any disallowance in respect of transportation charges paid by the

assessee to M/s Jyothi Transport. It, therefore, becomes abundantly

apparent that the assessee deducted tax at source from the freight

payments wherever it was required under law. In view of this position,

we uphold the impugned order deleting the disallowance made u/s

40(a)(ia) of the Act.

13. The last ground is against the deletion of disallowance of service

tax amounting to Rs.82,224/-. The AO made this disallowance on the

ground that the assessee did not file proof of payment of service tax

before filing the return. The ld. CIT(A) deleted this addition by

16 ITA No.1251/Del/2011.

verifying copies of challans evidencing payment of service tax before

31.3.2007, copies of which were also sent to the AO for comments. In

the absence of any adverse comments made by the AO and the fact that

the assessee did pay service tax before the close of the year itself, we

hold that the ld. CIT(A) was right in deleting this addition.

14. In the result, the appeal is partly allowed for statistical purposes.

The order pronounced in the open court on 20.03.2015.

Sd/- Sd/- [C.M. GARG] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated, 20th March, 2015. dk Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT (A) 5. DR, ITAT

AR, ITAT, NEW DELHI.

17