La-Chem Pharmaceuticals Pvt. Ltd., New ... vs Department Of Income Tax

Income-tax Officer, vs. LA-Chem Pharmaceuticals Pvt. Ltd. Ward 4(3), 10/351, Sunder Nagar, New Delhi. Pashchim Vihar, New Delhi (PAN: AAACL2369N ) (Appellant) (Respondent)

Revenue by: Shri Gaurav Dudeja, Sr. DR Assessee by: Shri Mukesh Kohli, CA

Date of hearing : 07 .01.2015 Date of pronouncement: 31.03.2015

ORDER

PER I.C. SUDHIR: JUDICIAL MEMBER ITA No.2256/Del/2010 : The Revenue has questioned first appellate order on the following grounds:

"1. The order of the Learned CIT(Appeals) is erroneous & contrary to facts & law.

2. On the facts and in the circumstances of the case and in law, the Learned CIT(Appeals) has erred in deleting the addition of Rs.9,21,608 made by the A.O. under sec. 68 of the Income-tax Act, 1961 being the unexplained loans disclosed income.

2.1 The Learned CIT(Appeals) ignored the fact that the assessee has not produced documents/evidence in support of his claim before the A.O. during the assessment proceedings.

2

3. On the facts and in the circumstances of the case and in law, the Learned CIT(Appeals) has erred in deleting the addition of Rs.2,83,929 made by the A.O. being depreciation claimed on additions to fixed deposits.

3.1 The Learned CIT(Appeals) ignored the fact that the assessee failed to produced the bills and invoices in respect of additions made to the fixed assets.

4. On the facts and in the circumstances of the case and in law, the Learned CIT(Appeals) has erred in deleting the addition of Rs.3,89,936 made by the A.O. being unexplained commission. 4.1 The Learned CIT(Appeals) ignored the fact that the assessee failed to produce copies of agreement with consignee agents for payment of commission."

2. Heard and considered the arguments advanced by the parties in view

of orders of the authorities below, material available on record and the

decisions relied upon.

3. Ground No.1 is general in nature, hence, does not need independent

adjudication.

4. Ground Nos. 2 and 2.1: The basic facts are that the assessee company

is engaged in the business of manufacturing of basic drugs and

pharmaceuticals. During the year, the assessee filed its return of income at

Rs.6,500. The search operation was carried out at the premises of the 3

assessee by the Anti-evasion Branch of Central Excise Department which

was followed by a survey operation under sec. 133A of the Income-tax Act,

1961. The assessee company filed an application under sec, 245C(1) of the

Income-tax Act, 1961 for the assessment year 1995-96 and 1996-97 before

the learned Income-tax Settlement Commission on 20.02.1997 which was

admitted. The learned Settlement Commission abated the proceedings

relating to assessment years 1995-96 and 1996-97 on 31.3.2008. Thereafter,

the assessment was completed under sec. 143(3) determining the total

income for the assessment year 1995-96 at Rs.29,67,780.

5. The relevant facts on the issue raised in the grounds 2 and 2.1 are that

the Assessing Officer made addition of Rs.9,21,608 under sec. 68 of the Act

on account of unexplained (unsecured) loans. The Learned CIT(Appeals)

being satisfied with the explanation of the assessee and the evidence filed in

support has deleted the addition. This action of the Learned CIT(Appeals)

has been questioned in the grounds under consideration.

6. In support of the grounds, the Learned Sr. DR placed reliance on the

assessment order with this contention that the Learned CIT(Appeals) has

admitted the additional evidence filed before it without calling for remand

report from the Assessing Officer. The Learned CIT(Appeals) has also failed 4

to appreciate that the assessee was not able to establish the genuineness of

the claimed unsecured loans.

7. The Learned AR on the other hand tried to justify the First Appellate

Order on the issue. He submitted that all the necessary evidence as well as

details of unsecured loans were filed before the Assessing Officer and the

Assessing Officer has made the addition only on the basis that the assessee

could not produce bank statement without examining the veracity of the

evidence. He also referred page Nos. 3 to 37 of the paper book which are

copies of details of unsecured loans, VDIS disclosure made by the assessee

company and its directors; confirmations of the cash creditors,

acknowledgement of income-tax returns, computation of income with

statement of affairs; and audited balance sheet as on 31.3.1995 and

31.3.1996. The Learned AR also placed reliance on the decisions cited

before the authorities below including the decisions in the cases of CIT vs.

Lovely Exports (P) Ltd. ( ITA No. 1193 of 2009 dated 11.1.2008 (Delhi

High Court); CIT vs. Fair Finvest Ltd. (ITA No.232 of 2012 dated

22.11.2012 (Delhi High Court) ); CIT vs. Nova Promoters & Finlease (P)

Ltd. (2012) -206 Taxman 207(Delhi) and CIT vs. Dwarkadhese Investment

(P) Ltd. (2010) - 194 Taxmann 43 (Delhi) etc. 5

8. Considering the above submissions, we find that the Assessing Officer

had made addition of Rs.9,21,608 on the basis that the assessee had failed to

discharge its onus as required under sec. 68 of the Act to establish the

genuineness of the claimed unsecured loans. The Assessing Officer has

noted that the assessee company filed the confirmation letters from the cash

creditors. There was addition in cash creditors of Rs.35,94,608 during the

year under consideration. Out of this, addition of Rs.21,53,000 was declared

bogus by the assessee company in the VDIS Scheme 1997 and Rs.5,20,000

was declared its income in VDIS Scheme 1997 by Mr. Bansi Lal Nandwana,

director of the assessee company. He noted further that since the assessee

could not produce any documentary evidence e.g. bank statement, he was

left with no option but to hold these remaining loan transactions of

Rs.9,21,608 (Rs.35,94,608 - Rs. 21,53,000 - Rs.5,20,000) as unexplained

cash credits under sec. 68 of the Act. The Learned CIT(Appeals) after

discussing the case of the party in detail has decided the issue vide para Nos.

4.1 and 4.2 of the First Appellate Order. He mentioned that since certificate

issued by Learned C.I.T. regarding the declaration of income made by Shri

Bansi Lal Nandwana and confirmatory of Smt. Raj Kumari were made

available to the Assessing Officer during the course of assessment 6

proceedings and therefore they are not considered to be additional evidences

in terms of Rule 46A of the I.T. Rules, 1962. For a ready reference, para

Nos. 4.1 and 4.2 of the First Appellate Order is being reproduced hereunder:

"4.1 I have carefully considered the submissions made on behalf of the appellant, the findings of the A.O. and the facts on record. The Assessing Officer found that there was addition in cash creditors to the extent of Rs.35,94,608 during the year under consideration. Out of the above, the additions in cash creditors to the extent of Rs.21,53,000 and Rs.5,20,000 were accepted by the Assessing Officer on the ground that the said amounts were declared by the assessee company and Shri Bansi Lal Nandwana, Director of the company respectively under the VDIS Scheme, 1977. The balance amount of Rs.9,21,608 was disallowed by Assessing Officer on the ground that any documentary evidence e.g. Bank Statement was not produced by the assessee company. During the appellate proceedings, it was submitted on behalf of the appellant that an amount of Rs.5,82,000 was also declared by it under VDIS Scheme, 1977 in assessment year 1994-95 on account of shares in the assessee company which were held in benami names. It was further explained that an amount of Rs.1,95,000 was also declared under VDIS Scheme, 1977. In this connection, the certificate under sec. 68(2) of the VDIS, 1977 issued by the then Learned CIT(Appeals)-II on 09.02.1998 was furnished which indicates that an amount of Rs.44,55,490 for assessment year 1994-95 was declared by the assessee company and the amount of Rs.5,82,000 is included in the amount of Rs.44,55,490. It is also important to note that the amount of Rs.44,54,490 includes the amount of Rs.21,53,000 which has been 7

accepted by the Assessing Officer after examining that very certificate issued by the Ld. CIT-II on 09.02.1998. Regarding the declaration of income made by Shri Bansi Lal Nandwana, a certificate issued by CIT,Delhi-XI on 08.01.1998 was also furnished which indicates that an amount of Rs.85,02,033 was declared by him under VDIS Scheme, 1977 and the amount of Rs.1,96,000 is also included on account of equity shares in the assessee company held in the name of one Smt. Jamna. Apart from the above, a documentary letter dated 04.12.2008 was also submitted the perusal of which reveals that Smt. Raj Kumari, 27-C, LIG Flats, Ram Pura, Delhi has advanced a loan of Rs.1,24,000 during the year under consideration i.e. assessment year 1995-96. Her PAN is AAJPK4743M and she is assessed to tax with ITO, Ward- 21(3), New Delhi. It is also pertinent to mention that the aforementioned certificate and confirmatory letter of Smt. Raj Kumari were available with the Assessing Officer during the assessment proceedings and therefore, they are not considered to be additional evidences in terms of Rule 46A of I.T. Rules, 1962.

4.2 In view of the discussion made above, it is held that the amount of Rs.5,82,000, Rs.1,96,000, Rs.1,24,000 totalling Rs.9,02,000 stand explained in respect of which the addition cannot be sustained. Regarding the balance amount of Rs.19,608, it is seen in the accounts of the assessee company that there has been increase of Rs.22,608 on account of unsecured loan from Shri Bansi Lal Nandwana during the year under consideration which may be treated as the amount inclusive of Rs.5,20,000 which has been declared by Shri Bansi Lal Nandwana as loan to the company in the disclosure made under VDIS 1977.

8 Hence, the amount of Rs.19,608 also stands explained. In view of the aforesaid, I am of the considered view that the Assessing Officer was not justified in making addition of Rs.9,21,608 and accordingly, he is directed to delete the said addition. As a result, ground no.1 is allowed."

9. On perusal of the First Appellate Order on the issue, discussed above,

we find that the claimed unsecured loan was supported with sufficient

documents and the Learned CIT(Appeals) after discussing the explanation of

the assessee in this regard has deleted the addition by passing a reasoned

order. We are thus not inclined to interfere therewith. The same is upheld.

The ground Nos. 2 and 2.1 are accordingly rejected.

Ground Nos. 3 and 3.1:

10. The Assessing Officer disallowed claimed depreciation of Rs.2,83,929

on the basis that the assessee did not produce original bills/challan for

verification. The Learned CIT(Appeals) has, however, deleted the

disallowance.

11. In support of the grounds, the Learned DR submitted that the

Assessing Officer was justified in making the disallowance in question since

in response to the requirement issued by the Assessing Officer for furnishing 9

date-wise details of addition made to fix assets and original bills/challan, the

assessee could not produce original bills/challan for verification.

12. The Learned AR on the other hand tried to justify the First Appellate

Order on the issue.

13. On perusal of the orders of the authorities below on the issue, we find

that the Assessing Officer had disallowed the claimed depreciation in respect

of addition made to the fixed assets during the year, on the basis that the

assessee could not produce original bills/vouchers in support. The contention

of the assessee on the other hand remained that the fixed assets were related

to very old period and the assessee had otherwise furnished books of account

which was audited by CA with this submission that there was no adverse

remarks. Considering these facts of the case, the Learned CIT(Appeals) held

that the claim of the assessee regarding depreciation cannot be rejected

merely on the ground that bills of purchase pertaining to the acquisition of

fixed assets were not made available to the Assessing Officer. He noted that

the Assessing Officer has not given his finding to the fact that the machinery

and plants or other fixed assets have not at all been used during the

accounting year under appeal or were kept idle. He noted further that the 10

auditors have not made any adverse remarks in the tax audit report for the

assessment year under consideration. The Learned CIT(Appeals) has

accordingly directed the Assessing Officer to allow deprecation on the fixed

assets purchased during the year under consideration in accordance with the

admissibility thereof after necessary verification. We do not find infirmity in

the First Appellate Order in this regard. The same is upheld. The ground

Nos. 3 and 3.1 are accordingly rejected.

Ground Nos. 4 and 4.1:

14. The Assessing Officer disallowed Rs.3,89,936 claimed to have been

paid as commission. The addition has been made by the Assessing Officer

with this finding that he was not satisfied with the explanation furnished by

the assessee in this regard in absence of written agreement between the

assessee and consignment agents. The Learned CIT(Appeals) has deleted the

addition.

15. In support of the grounds, the Learned DR submitted that the Learned

CIT(Appeals) while deleting the addition has failed to appreciate that there

was no written agreement between the assessee and its consignment agents

to support the genuineness of the claim.

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16. The Learned AR on the other hand submitted that there was verbal

agreement for payment of commission between the assessee and the

consignment agent for so many years and similar claim was allowed by the

Assessing Officer in the assessments framed under sec. 143(3) of the Act for

the assessment year 2006-07 passed on 30.12.2008, the date on which the

assessment under sec. 143(3) of the Act was completed for the year under

consideration.

17. We find that the Learned CIT(Appeals) has deleted the addition on the

basis that in other assessment years, similar claim was allowed and the

Assessing Officer ought to have maintained consistency in this regard even

during the year under consideration. The First Appellate Order on the issue

is reasoned one, hence, we are not inclined to interfere therewith. The same

is upheld. The grounds are accordingly rejected.

18. In result, the appeal is dismissed.

ITA No.2257/Del/2010:

19. The Revenue has questioned first appellate order on the following

grounds:

"1. The order of the Learned CIT(Appeals) is erroneous & contrary to facts & law.

12 2. On the facts and in the circumstances of the case and in law, the Learned CIT(Appeals) has erred in deleting the addition of Rs.14,00,000 made by the A.O. u/s. 68 of the Income-tax Act, 1961 being the unexplained share capital.

2.1 The Learned CIT(Appeals) ignored the fact that the assessee did not discharge the onus of proving the existing/creditworthiness of the creditors and genuineness of the transactions.

3. On the facts and in the circumstances of the case and in law, Learned CIT(Appeals) has erred in deleting the addition of Rs.3,96,639 made by the A.O. being depreciation claimed on additions to fixed assets.

3.1 The Learned CIT(Appeals) ignored the fact that the assessee failed to produce the bills and invoices in respect of additions made to the fixed assets.

4. On the facts and in the circumstances of the case and in law, the Learned CIT(Appeals) has erred in deleting the addition of rs.98,560 made by the A.O. being unexplained unsecured loan. 4.1 The Learned CIT(Appeals) ignored the fact that the assessee did not discharge the onus of proving the existence/creditworthiness of the creditors and genuineness of the transactions."

20. Ground No.1 is general in nature, hence, does not need independent

adjudication.

21. Ground Nos.2 and 2.1: The Assessing Officer made addition of Rs.14

lacs under sec. 68 of the Income-tax Act, 1961 on account of unexplained 13

share capital. The Assessing Officer has made the addition in question for

want of bank statement. The Learned CIT(Appeals) has deleted the addition

on the basis of evidence filed by the assessee with this observation that the

Assessing Officer did not bother to examine the correctness of those

evidences before making the addition.

22. In support of the grounds, the Learned DR placed reliance on the

assessment order with this contention that despite having sufficient

opportunity, the assessee failed to discharge its onus to establish the

genuineness of the claimed share capital.

23. The Learned AR tried to justify the First Appellate Order on the issue.

He reiterated the submission made before him and placed reliance on the

decisions cited before the Learned CIT(Appeals).

24. Considering the above submission, we find that the assessee, about the

non-furnishing of bank statement had stated that they had approached to the

bank to get the bank statement but failed to, because it was more than 13

years old. The assessee has, however, furnished the confirmation letters from

the shareholder containing the details of amount invested, cheque no., date, 14

bank particulars, PAN and income-tax particulars. All these documents were

filed before the Assessing Officer as well as Learned CIT(Appeals). On the

basis of furnishing these documents, Learned CIT(Appeals) held that initial

burden of the assessee was discharged. We concur with this view of the

Learned CIT(Appeals). It is well established proposition of law that after

discharging of initial burden by the assessee to establish genuineness of the

transaction, the onus shifts upon the Assessing Officer to rebut those

evidences for the denial of the genuineness of the claimed transaction. No

such effort has been on the part of the Assessing Officer to examine the

correctness of above stated documents filed by the assessee to establish the

genuineness of the transactions in question. We are thus of the view that the

Learned CIT(Appeals) respectfully following the ratios laid down in several

decisions like CIT vs. Lovely Exports (P) Ltd. (2008) 206 CTR (S.C) 195,

CIT vs. Value Capital Services (2008) 307 ITR 334 (Del.), Bhav Shakti

Steel Mines (P) Ltd. vs. CIT (2009) 179 Taxman 25 (Del.) etc. has rightly

deleted the addition. The same is upheld. Ground Nos. 2 and 2.1 are

accordingly rejected.

25. Ground Nos. 3 and 3.1: The Assessing Officer disallowed Rs.3,96,639

towards the claimed depreciation in respect of the additions made to the 15

fixed assets during the year. The disallowance was made by the Assessing

Officer on the ground that the assessee could not produce original

bills/vouchers in respect of the addition to fixed assets. The Learned

CIT(Appeals) has deleted this disallowance which has been questioned by

the Revenue before us.

26. In support of the grounds, the learned Sr.DR submitted that the

Learned CIT(Appeals) has deleted the disallowance of depreciation without

appreciating that the assessee failed to establish the genuineness of the

claim.

27. The Learned AR on the other hand placed reliance on the First

Appellate Order.

28. Considering the above submissions, we find that the Assessing

Officer had disallowed the claimed depreciation of Rs.3,96,639 in respect of

additions made to the fixed assets during the year in absence of production

of original bills/vouchers of the additions made to the fixed assets by the

assessee. The submission of the assessee before the Learned CIT(Appeals)

remained that the addition to fixed assets relates to very old period, hence, 16

the assessee could not produce original bills/vouchers. It was submitted that

the books of account of the assessee company have been audited by

Chartered Accountant and there is no adverse remarks in his report. The

copy of audited balance sheet as on 31.3.1996 was also furnished. The

Learned CIT(Appeals) has deleted the disallowance of the depreciation in

question on the basis that the Assessing Officer has not given a finding that

the machinery and plant or other fixed assets have not at been used during

the accounting year under appeal or were kept idle and that the auditors have

not made any adverse remarks in the tax audit for the assessment year under

consideration. The Learned CIT(Appeals) has, however, directed the

Assessing Officer to allow the depreciation on the fixed assets purchased

during the year in accordance with the admissibility thereof only after

necessary verification. The First Appellate Order is thus reasoned one, to

which no interference is required. The same is upheld. The ground Nos. 3

and 3.1 are accordingly rejected.

29. Ground Nos. 4 and 4.1: The Assessing Officer made addition of

Rs.98,560 on account of unexplained loan under sec. 68 of the Income-tax

Act, 1961. The Assessing Officer while making the addition has held that

the assessee had not furnished any documentary evidence such as bank 17

statement. The Learned CIT(Appeals) being satisfied with the explanation of

the assessee has deleted the addition.

30. Heard and considered the arguments advanced by the parties in view

of orders of the authorities below, material available on record and the

decisions relied upon.

31. We find that the Assessing Officer had made the addition of

Rs.98,560 under sec. 68 of the Act on account of unexplained loans in

absence of bank statement. The contention of the assessee, however,

remained that it had submitted the confirmation and copies of income-tax

returns before the Assessing Officer which were not considered. It was

submitted that since the matter was old of around 13 years, the assessee

despite efforts could not get the bank statement from the bank. The Learned

CIT(Appeals) has deleted the addition on the ground that the Assessing

Officer should have examined the veracity of the confirmations issued by the

creditors before making the addition. The Learned CIT(Appeals) held that

by furnishing primary evidence the assessee had discharged its onus and the

onus thereafter was shifted upon the Assessing Officer to rebut those

evidences on verification before simply disbelieving the same. The Learned 18

CIT(Appeals) has accordingly deleted the addition. The First Appellate

Order on the issue is reasoned one and thus does not need interference. The

same is upheld. The grounds are accordingly rejected.

32. In result, the appeal is dismissed.

33. In summary, both the appeals are dismissed.

Decision pronounced in the open court on 26 .03.2015

Sd/- Sd/-

( J.S. REDDY ) ( I.C. SUDHIR ) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated: 26 /03/2015 Mohan Lal

Copy forwarded to:

1) Appellant

2) Respondent

3) CIT

4) CIT(Appeals)

5) DR:ITAT

ASSISTANT REGISTRAR 19

Date Draft dictated on computer 26.03.2015 Draft placed before author 26.03.2015 Draft proposed & placed before the second member Draft discussed/approved by Second Member. Approved Draft comes to the Sr.PS/PS 31.03.2015 Kept for pronouncement on 31.03.2015 File sent to the Bench Clerk 31.03.2015 Date on which file goes to the AR Date on which file goes to the Head Clerk. Date of dispatch of Order.