M/s Hiral Pharma Ltd v. The Dycit Com Cir-7(3)
[Citation -2006-LL-0501-4]

Citation 2006-LL-0501-4
Appellant Name M/s Hiral Pharma Ltd
Respondent Name The Dycit Com Cir-7(3)
Court ITAT-Ahmedabad
Relevant Act Income-tax
Date of Order 01/05/2006
Judgment View Judgment
Keyword Tags opportunity of being heard • unexplained cash credit • confirmation letter • overdraft facility • unexplained credit • executive director • evidentiary value • business activity • managing director • bank certificate • current account • natural justice • unsecured loan
Bot Summary: Iv) not considering the fact that the creditor was indeed having current bank account No.4479 with Sarvodaya Co. Operative Bank Limited, Ahmedabad as evident from the copy of bank account of the creditor submitted before the Learned Commissioner of Income Tax with reference to the statement of Executive Director Mr. K.B. Sasidharan that the creditor is not having any bank account with the said bank. Our bankers, Canera Bank, Overseas Branch, Tirupur has issued a legal notice on 5.08.1996 to repay the entire amount due to the bank i.e. a sum of Rs.4.56 crores within two week from the date of the legal notice. Bank Ltd. Ahmedabad when they do not have any bank account with the said bank. The course of this payment, was temporary over draft facility granted by the bank to Pappilon Exports Ltd. through its Chairman/Director Shri Bhagwan Das Premchandani and the payment was affected by Transfer in the books of bank, as current bank account of Pappilon Exports Ltd, and that of the assessee company were with the same bank. Shri Bhagwandas Premchandani being one of the Director of M/s. Pappilon Exports 18 Ltd. issued cheque in favour of the assessee company out of its bank account with Sarvodaya Co. Op. Bank Ltd. Ahmedabad. As noted above, the Assessing Officer did not examine Shri Bhagwandas Premchandani and the bank account of M/s. Pappilon Exports Ltd. with Sarvodaya Co. Op. Bank Ltd. at Ahmedabad. The details filed for the bank account had not been disputed by the Assessing Officer. The Bank certificate filed on record and reproduced in the impugned order proved that M/s. Pappilon Exports Ltd. maintained bank account with Sarvodaya Co. Op. Bank Ltd. Ahmedabad through its Director Shri Bhagwandas Premchandani. For the ends of justice, it would be relevant to restore the matter to the file of the Assessing Officer to make verification of the bank account and bank certificate issued by Sarvodaya Co. Op. Bank Ltd. Ahmedabad 19 because the Assessing Officer did not have occasion to examine such bank certificate.


IN INCOME TAX APPELLATE TRIBUNAL, AHMEDABAD D BENCH, BEFORE SHRI BHAVNESH SAINI, J.M. AND SHRI A.N.PAHUJA A.M. ITA No.1255/AHD/2001 Assessment Years: 1997-98 Hiral Pharma Ltd. V/s Dy. Commissioner of 1347/33, Kasturbhai Block, Income Tax, Chamunda Cross Road, Company Circle 7(3), Naroda, Ahmedabad. Ahmedabad. PAN No. AAACH2878N (Appellant) (Respondent) For Assessee: Shri S.N.Divetia A.R For Department: Shri C.K.Mishra, Sr.DR ORDER PER SHRI BHAVNESH SAINI, J.M. This appeal by assessee is directed against order of learned CIT(Appeals)-IX, Ahmedabad dated 21.03.2001 for AY 1997-98 on following grounds. 1. appellate order passed by Commissioner of Income Tax (Appeals)-VII, Ahmedabad on 21.03.2001 is arbitrary, illegal and bad in law. said order, therefore, deserves to be quashed or set aside. 2. Learned Commissioner of Income Tax (Appeals) has acted arbitrarily by not considering all facts and circumstances of appellant s case on record and selectively considering facts of appellant s case and as well as appellant s written submissions and arguments only to arrive at pre-determined decision, and has, therefore, acted arbitrarily and capriciously, as result of which appellate proceedings have been totally vitiated and hence rendered illegal and bad in law. appellate order is, therefore, illegal and bad in law, and reserved to be quashed and set aside. 3. Without prejudice to above primary grounds, appellate raises following further grounds of appeal:- 2 4. Learned Commissioner of Income Tax (Appeals) has erred on facts and in law in:- i) observing that It is also not case of appellant that said loan amount has been outstanding and payable by appellant Company to said bank , and ii) holding that genuineness of said transaction is not established and capacity of creditor has been totally denied. iii) further holding that said creditor was not in position to advance such big loans and that this not reflected in books of account either. iv) not considering fact that creditor was indeed having current bank account No.4479 with Sarvodaya Co. Operative Bank Limited, Ahmedabad as evident from copy of bank account of creditor submitted before Learned Commissioner of Income Tax (Appeals) with reference to statement of Executive Director Mr. K.B. Sasidharan that creditor is not having any bank account with said bank. v) observing that said bank would have certainly stake claim for recovery of said loan from creditor and no such evidence has been adduced either before Assessing Officer or Learned Commissioner of Income Tax (Appeals) that any such legal notices were issued by Sarvoday Co-op. Bank Ltd. 5. Learned Commissioner of Income Tax (Appeals) erred on facts and in law in holding that action of Assessing Officer in treating said loan of Rs.6085000/- as unexplained, and therefore, treated as income from other sources u/s.68. 6. It is prayed that on facts and circumstances of appellant s case appellate order of Learned Commissioner of Income Tax (Appeals) be quashed and set aside. Alternatively, addition of Rs.6085000/- made by Assessing Officer as unexplained credit and treated as income from other sources u/s.68 fully deleted. 2. Earlier this appeal was dismissed for default vide order dated 1.05.2006. Tribunal while allowing M.A. of assessee in M.A.No.299/2009 recalled earlier order and directed to fix 3 appeal for hearing on merit. Appeal was accordingly posted for hearing on merits. 3. We have heard learned Representatives of both parties, perused findings of authorities below and considered material available on record. 4. facts of case are that assessee company is engaged in manufacturing of drugs and as against total loss returned to Rs.6,23,260/-, income has been assessed at Rs.54,61,740/-. addition was made under section 68 in respect of unexplained cash credit of Rs.60,85,000/- claimed to be received from M/s. Pappilon Exports Ltd. During course of assessment proceedings, it was noted by Assessing Officer that during F.Y.1996-97 assessee had shown loan of Rs.60,85,000/- from M/s. Pappilon Exports Ltd., Tirupur, Tamilnadu. Assessing Officer called for confirmation letter, details of PAN No. and other evidences to examine genuineness of said credit. assessee could not give details of PAN No. either on 15.11.1999 or 13.12.1999. Thereafter, Assessing Officer issued commission under section 131 of I.T.Act to I.T.O. Erode to confirm said transaction of said creditor and assessee company. A.O.(I.T.O.) reported to Assessing Officer that no such transaction had been entered into by M/s. Pappilon Exports Ltd. and assessee, said company i.e. M/s. Pappilon Exports Ltd. was also facing financial constrains and some of cheques issued by said company had bounced. Further Counsel of assessee had also issued legal notices to said creditor for liability of Rs.4.56 crores. He conveyed that Executive Director Shri K.B.Sasidharan has denied that any loan advanced to assessee. Extract from statement of Shri K.B.Sasidharan were discussed at pages 4, 5 and 6 of 4 assessment order and replies to question No.2, 5 and 6 are reproduced below for reference. Upto 1994-95 company was functioning normally. Sometime in December 1995 Managing Director, Shri Mohan Gupta has resigned, but this resignation was not accepted. Then shri Bhagwan Premchandani has become Chairman of company. Sometime in May-June 1996, Shri Bhagwan Premchandani has stated that he has also resigned, whereas I have not received any written communication for his resignation. Therefore, company is not able to function without quorum. Our bankers, Canera Bank, Overseas Branch, Tirupur has issued legal notice on 5.08.1996 to repay entire amount due to bank i.e. sum of Rs.4.56 crores within two week from date of legal notice. Since company was unable to pay said sum of Rs. 4.56 Crores, liability, bankers M/s. Canara Branch, Overseas Branch, Tirupur have filed case before Department of recovery Tribunal at Chennai. At present, I do not have case paper in hand. All connected papers are with my lawyers Shri Kothandaraman, Chennai. After bankers have filed case against company, Pappilon Exports Ltd, no financial transactions have been carried on in books of Pappilon Exports Ltd. business of company has become standstill. 5. Thereafter, AO confronted said statement to assessee company which was discussed at para 4 and 5, page 6 of assessment order and accordingly issued show cause notice as to why said credit not be held as unexplained. Thereafter, assessee replied vide letter dated 21.02.2000 that M/s. Pappilon Exports Ltd. had issued cheque No.133279 drawn of Sarvodaya Co. Op. Bank Ltd., Ahmedabad for Rs.60,85,000/-. It was credited in company s account No.4471. After receipt of this reply, Assessing Officer again referred matter to I.T.O. Erode. This was discussed at para 4.7 page 7 of assessment order. Thereafter, he gave following report to assessee in his letter dated 1.03.2000 as under:- 5 In statement recorded under section 131 of Income Tax Act, it is stated by Shri K.B.Sasodharan, Executive Director of M/s. Pappilon Exports Ltd. Tirupur that (1) They do not have any bank account with shri Sarvodaya Co.op. Bank Ltd., Ahmedabad. (2) He has no idea who issued cheque No.133279 of Shri Sarvodaya Co.op. Bank Ltd. Ahmedabad when they do not have any bank account with said bank. (3) It is stated by him that loan confirmation dated 2.11.1999 enclosed by you, letter-pad itself is wrongly printed Papilon Exports Ltd. Instead of Pappilon Exports Ltd., 2. Angeripalayam Road Tirupur. (4) It is also stated by him that since there was no business transaction from 1-4-1996, no books of account have been maintained. confirmation letter enclosed by you appear to be signed by one Shri Bhagwan. One of Board of Directors name is Shri Bhagwan Premchandani. His signature is found in deed of Personal guarantee to financing company. copy of deed is also enclosed to verify genuineness of signature. signature in confirmation letter and deed of personal guarantee differs. confirmation letter was furnished by one of Directors/Authorised signatory on 2-11-1999. Alongwith my report dated 27-1-2000, I have also forwarded copy of statement recorded from Shri K.B.Sasidharan and also copy of legal notice issued by Canara Bank, overseas Branch, Tirupur and two letters issued one shri Jagannath Textiles Ltd. And Alvatex, Shoranur. This clearly establishes that company was not in sound financial position to lend amount of Rs.60,85,00/- as unsecured loan to M/s. Hiral Pharma Ltd. Ahmedabad. As bankers, Canara Bank, Overseas Branch, Tirupur has issued legal notice towards bank liability of Rs.4.56 Crores, it is hard to believe that M/s. Pappilon Exports Ltd., had lend amount of Rs.60,85,000/- as unsecured loan to M/s. Hiral Pharma Ltd., Ahmedabad in same period. 6. In above circumstances, assessee was again confronted and show cause notice dated 21.03.2000 was issued to assessee which is reproduced as under:- Please refer to above and show cause notice dated 1.02.2000 issued by this office. In compliance to this notice, you have furnished your rely vide letter dated 21.02.2000, wherein you have claimed that you have received unsecured loan amounting to Rs.60,85,000/- from M/s. Pappilon Exports Ltd., vide cheque No.133279 of Sarvodaya 6 Co.op. Bank Ltd., Ahmedabad. Therefore, Executive Director of M/s. Pappilon Exports Ltd., was confronted with this fact and On his own statement under section 131 of Income Tax Act, he has categorically stated that M/s. Pappilon Exports Ltd., is not having any bank account with Sarvodaya Co.op. Bank, Ahmedabad and have no idea about issuance of cheque No.133279 of Sarvodaya Co.op. Bank Ltd, Ahmedabad. Under above circumstances, it is clear that M/s. Pappilon Exports Ltd., had not extended/given any loan to you and it is also clear that you have introduced your unexplained income from undisclosed source. Therefore, you are hereby given final opportunity to show cause as to why this account should not be added to your total income as unexplained cash credit u/s.68 of Income Tax Act. 7. Thereafter, Assessing Officer again confronted this material received from I.T.O. Erode and show cause notice issued in this respect as discussed at para 4.9 page 8 and 9 of assessment order. assessee thereafter, replied vide letter dated 27.03.2000 and reiterated earlier submissions made. It also supported copies of deposit slips of Sarvodaya Co.op. Bank Ltd. However, in light of evidence collected by Assessing Officer are denial of any confirmation from M/s. Pappilon Exports Ltd. explanation of assessee was rejected and said addition made u/s.68. 8. addition was challenged before Learned Commissioner of Income Tax (Appeals) and it was submitted that counsel of assessee filed written submission reiterated submissions made before Assessing Officer and submitted that assessee filed letter to Assessing Officer and submitted certificate dated 3.01.1997 issued by Bank Manager of Sarvodaya Co.op. Bank Ltd., Ahmedabad. Photo copy of same is again submitted before him. On perusal of same, it is seen that said certificate is issued to M/s. Bhagwan Das Premchandani was Executive Director of Pappilin Exports Ltd. extract of same reads as under:- 7 To, Mr. Bhagwan Das Premchandani, Director, Popilon Exports Ltd, A-4, Garib Society, Road No.5, Juhu Scheme, Bumbai-400 049. This is to certify that on 01/01/1997 M/s. Papilon Exports Ltd has issued cheque No.133279 of Rs.60,85,000/- from its current a/c. maintained with out Bank in favour of Hiral Pharma Ltd. Bank has granted temporary overdraft facility to M/s. Pepilon Exports Ltd. through its Director Mr. Bhagwan Premchandani residing at A-Garib Society, road No.5, Juhu Scheme, Mumbai-400049 and against this facility cheque No.133279 dated 01/01/1997 issued to Hiral Pharma Ltd. was cleared by making necessary book adjustments. For Shri Sarvodaya Co.op. Bank Ltd., Sd/- Manager. 9. In further continuation of said written submission, it submitted following facts as under:- It is pertinent to mention here that during course of assessment proceedings inquires behind back of assessee company were conducted and such inquires were confirmed to only one of directors of M/s. Pappilon Exports Limited. name of such director is shri K.B. Sasidharan. assessee company has transacted sum through another director of same company namely Mr. Bhagwan Das Premchandani . said director of loaner company was never examined by Department. perusal of certificate true copy of letter dated 3.01.1997 issued by Manager of bank clearly reveals that sum involved was sourced from temporary over draft facility granted by bank to M/s. Pappilon Exports Ltd., through its Director Mr. Bhagwan Das Premchandani. sum was transacted by making necessary book adjustment only as bank accounts of 1. assessee company as well as of 2. M/s. Pappilon Exports Ltd. Were with same bank only. Assessing Officer has made disallowance of said sum in terms of provisions of section 68 of Act as per provisions when assessee offers no explanation about nature and sources thereof or explanation 8 offered by him is not satisfactory then sum so credited may be charged to Income Tax as income of assessee for that previous year. In instant case right from beginning assessee company had pleaded that sum was indeed advanced to it by loaner company, requested Assessing Officer as well as Administrator of bank to verify and/or confirm same respectively. nature of transaction was loan received by way of book adjustment and sourced from temporary over draft facility obtained by loaner. It is nobody s case that unexplained cash was introduced in bank account of M/s. Pappilon Exports and through this source cheque No.133279 of Rs.60,85,000/- issued by above company was cleared in favour of assessee company. In such eventuality, nature and sources remains satisfactorily explained. Being of loan nature it cannot partake character of income nature and, therefore, addition is liable to be deleted in full. 10. Thereafter, assessee has again submitted written submission dated 9.03.2001 referred above in which it is pleaded that said transaction was entered by Shri Surendra Rajput, Chairman of assessee company with Shri Bhagwan Das Premchandani referred above and that said loan is genuine and need following submission which are reproduced as under:- In order to protect interests of assessee company and its connected companies which had given above loan and advances, Shri Surendra Rajput, Chairman/Director of assessee company put lot of pressure on Shri Bhagwan Das Premchandani for repayment of loans and advances given by group and finally succeeded as Shri Bhagwandas Premchandani agreed to raise some temporary loan in absence of any other alternative. Shri Bhagwandas Premchandani entered into arrangement with Sarvoday Co.op. Bank Ltd. Ahmedabad and obtained temporary over draft facility in his capacity as Chairman cum Director of M/s. Pappilon Exports Ltd. Accordingly, M/s. Pappilon Exports Ltd. Issued cheque No.133279 dated 1.01.1997 on Sarvodaya Co.Op. Bank ltd., in assessee company s favour for Rs. 60,85,000/-. said cheque was signed by Shri Bhagwandas Premchandani. above payment of rs.60,85,000/- is credited and reflected in current account No.4471 of assessee company with Sarvodaya Co.op. Bank Ltd. following documents have been furnished to Assessing Officer in support of above payment and credit entry:- (i) Xerox copy of Deposit slip counterfoil bearing Account No.4471 dated 1.01.1997 with transfer Stamp dated 1.01.1997 of Sarvodaya Co. 9 Op. Bank Ltd. With details of cheque No. date and name of drawee (Peplin Export Ltd;) on reverse of said counterfoil. (ii) Copy of statement of our current account No.4471 with Sarvodaya Co. op. Bank Ltd, showing above credit entry on 2.01.1997, issued by bank in ordinary course of its business. 11. Although, above payment received by assessee company in real terms was only repayment/return of loan of Rs.73,50,000/- advanced by assessee company and its connected companies earlier, said payment constituted loan of said amount in so far as books of account of assessee company were concerned. 12. Even if said amount of Rs.60,85,000/- was considered as loan, assessee company had its onus of providing following; i. identity of person from whom loan was taken i.e. Paplion Exports Ltd, through its chairman and Director Bhagwan Das Premchandani, A-4, Garib Society, Road No.5, Juhu scheme, Bombay-400 049. ii. Genuineness of credit entry i.e. received by cheque No.133279 dated 1.01.1997Sarvodaya co.op. Bank Ltd., drawn by Pappilon Exports Ltd. And signed by Shri Bhagwan Das Premchandani and duly honoured bank as reflected in audited book so accounts of assessee company. iii. course of this payment, was temporary over draft facility granted by bank to Pappilon Exports Ltd. through its Chairman/Director Shri Bhagwan Das Premchandani and payment was affected by Transfer in books of bank, as current bank account of Pappilon Exports Ltd, and that of assessee company were with same bank. In other words, bank debited current account of Pappilon Exports Ltd. by Rs. 60,85,000/- and credited appellant company s bank account by making corresponding entry of equal amount for cheque amount issued by Pappilon Exports Ltd; AND 10 iv. Finally, appellant company has filed certified copy of certificate dated 3/1/1997 issued by Sarvoday Co.op. Bank Ltd., confirming that: a. Pepilon Exports Ltd, was granted Temporary Overdraft facility. b. Pepilon Exports Ltd. was having current account No.4479 with Bank (a copy of which or part period is available with appellant company and can be produced, if desired.) c. Papilon Exports Ltd, issued Cheque No.133279 dated 01/01/1997 for Rs.60,85,000/- from its current account in favour in Hiral Pharma Ltd., appellant company and d. cheque was issued by Bhagwan Das Premchandani Papilon Expert Ltd. In this connection reliance is placed on following judgement of Supreme Court and high Courts: i. Daulat Ram Rawatmal (1973) ITR 349 (SC) ii. Precision Finance P. Ltd. (1994) 208 ITR 465 (Cal.) iii. Oriential Wire Ind. Pvt. Ltd. (1981) 131 ITR 688 (Cal) He also relied on case laws referred above. In addition to decision of Guwahati high Court 227 ITR 900 and copy of judgement of 52 ITD 286 in case of Raj Moti Industries Vs. ITO in support of its submissions. 13. Learned Commissioner of Income Tax (Appeals) considering submissions of assessee, and material on record, dismissed appeal of assessee. His findings in para 5 and 6 of impugned order are reproduced as under:- I have carefully considered and perused that all facts brought on record before Assessing Officer as well as undersigned and have also perused judicial decisions referred by appellant s counsel and also facts brought on record by Assessing Officer. It is noted that appellant s case that Assessing Officer has collected material at back of appellant is not correct in as much as both occasions when he collected commission report under section 131. same was duly confronted to appellant as discussed already. It is well settled that for acceptance of cash credit appellant has to prove identity, genuineness and capacity of creditor. In instant case while 11 appellant has contending that loan has been received from M/s. Pappilon Exports Ltd. as per said banking transaction, it is strange that said creditor has been denying. Obviously, no creditor would deny genuine loan that has been given, as it would be against its interest. Further, even assuming that bank has advanced loan to M/s. Papilon Export Limited, and there was change in Directors of Company M/s. Pappilon Exports Ltd., said transaction on loan would have been appearing in books of accounts of said creditor. This has been denied by said creditor as discussed in preceding paragraphs. appellant is replying on fact that transaction is true banking channel, it should be accepted in this respect. It would be relevant to note that in case of Precision Finance P. Ltd. reported in 208 ITR 465 (Cal) High Court it has been held that banking transaction are not conclusive. This is very relevant to fact of instant case. case-laws cited by appellant s counsel do not help appellant s case in view of fact that principle of natural justice have been followed by A.O. and sufficient time was also allowed to appellant to discharge burden cast upon it to provide essential ingredients on acceptable cash credits. Detailed inquires have also been conducted in present case by A.O. On reference to written submission made by appellant dated 3rd March 2001 referred above plea of appellant that identity and genuineness of loan stand established is not convincing. It is clear from above facts that said creditor was not in position to advance such huge loans to appellant company. A.O. has also referred to report to A.O. Erode and also statement of Executive Director of said creditor stating that Creditor did not have capacity to advance such big loans. This is not reflected in books of accounts either. real terms is to examine is as to whose funds were used while crediting said amount of Rs.60,85,000/- in current account of appellant company, while appellant takes argument that there was contra entry in books of accounts of Sarvodaya Co.op. Bank ltd., and account of said creditor were debited and account of appellant company were credited. As per said letter of bank dated 3.01.1997 referred above. Then in that situation said bank would have certainly stake claim for recovery of said loan from creditor. No such evidence has been adduced either before A.O. or before undersigned that any such legal notices were issued by said Sarvodaya Co. Op. Bank Ltd. It is also not case of appellant that said loan amount has been outstanding and payable by appellant company to said bank. This clearly establishes that genuineness of said transaction is 12 not established and capacity of creditor has been totally denied. 6. In recent decision of Andhra Pradesh High Court in case of R.B. Mittal, Vs. CIT reported in 165 CTR page 366, it has been held that burden is upon appellant to prove capacity as well as genuineness of creditor. Both elements have not been proved by appellant and mere reference to transaction being channelled through bank. Even if it is accepted for sake of argument would not lead to conclusion that both were essential ingredients of cash credits have been establishes. In view of above reasons, I am inclined to hold that action of A.O. in treating said loan of Rs.60,85,000/- as unexplained and therefore, treated as income from other sources u/s. 68 is upheld. 14. Learned Counsel for assessee reiterated submissions made before Authorities below and submitted that assessee has filed confirmation letter from M/s. Pappilon Exports Ltd. duly signed by one of its Director, Shri Bhagwandas Premchandani in which it was admitted that amount of Rs.60,85,000/- is given to assessee. It was also explained that said amount was given vide cheque no.133279 dated 01.01.1997 drawn on Sarvodaya Co.op. Bank Ltd., Ahmedabad. Copy of bank certificate confirming above fact was also filed. He has therefore, submitted that since cheque issued by Shri Bhagwandas Premchandani for settlement of dues on account of amount given by assessee to connected group companies at instance of Shri Bhagwandas Premchandani. Therefore, Shri K. B. Sasidharan another Director of M/s. Pappilon Exports Ltd. may not be knowing issue of cheque. There was no need to examine Shri K. B. Sasidharan. statement of K. B. Sasidharan was never subjected to cross examination by assessee. Shri Bhagwandas Premchandani was never examined by Assessing Officer despite giving specific submission. He has submitted that assessee has therefore proved identity of creditor, genuineness of transaction and source of creditor. Copies of confirmation and copies of bank certificate are filed. He has referred to PB-17 which is reply filed before Learned Commissioner 13 of Income Tax (Appeals) in which in para 5.5, details are explained about amounts given by assessee to group/sister concerns at instance of Shri Bhagwandas Premchandani. It is also explained that in order to protect interest of assessee company, Shri Bhagwandas Premchandani was pressurised to repay amount and ultimately Shri Bhagwandas Premchandani obtained some overdraft from Sarvodaya Co.op. Bank Ltd. Ahmedabad and paid amount in question to assessee company through cheque and cheque was also signed by Shri Bhagwandas Premchandani. details of bank slip, copy of bank statement are also filed. He has submitted that since it was return of amount, therefore assessee is not concerned why it was not recorded in books of that company. PB-29 is copy of bank slip and PB-30 and 31 are bank statements. PB-35 to 37 are copies of accounts. On other hand, learned DR replied upon orders of authorities below and submitted that assessee did not give PAN no. of M/s. Pappilon Exports Ltd. Commission was issued to I.T.O. Erode to make inquiry from M/s. Pappilon Exports Ltd. and report is filed in which Director of M/s. Pappilon Exports Ltd. Shri K.B . Sasidharan denied any transaction with assessee company and also denied giving of any cheque. No books of account are maintained by M/s. Pappilon Exports Ltd. signature of Bhagwandas Premchandani differed as noted by authorities below. Ld DR therefore, submitted that authorities below were justified in confirming addition on account of unexplained credit under section 68 of Act. 16. We have considered rival submissions and perused materials available on record. Assessing Officer noted that assessee has obtained unsecured loan of Rs.60,85,000/- in assessment year in question from M/s. Pappilon Exports Ltd., Tirupur, Tamilnadu. Assessee was asked to file complete details 14 alongwith confirmation from above party. Commission was also issued to I.T.O. Erode, (Tamilnadu) to make inquiry from concern party regarding giving of loan. One of Director of this concern Shri K. B. Sasidharan was examined in which he has denied giving of any cheque of amount in question to assessee company. Any transaction with assessee was also denied. No books of accounts are maintained. said statement of Shri K. B. Sasidharan was never put to assessee for purpose of allowing any cross examination on behalf of assessee. We may also note that his statement would also not be relevant because in his statement he has stated that he has no idea about cheque issued on behalf of their company from Sarvodaya Co. Op. Bank Ltd. Ahmedabad. He has not disputed confirmation letter filed by Shri Bhagwandas Premchandani. In such circumstances, verification of bank account at Ahmedabad should have been made either by I.T.O. Erode or by Assessing Officer himself at Ahmedabad. assessee admittedly filed confirmation letter signed by Shri Bhagwandas Premchandani one of Director/Authorised signatory of M/s. Pappilon Exports Ltd. from whom amount was received in which he has admitted to have given amount in question to assessee company. Copy of bank certificate is also filed, which is reproduced in impugned order and copy of same is also filed at PB-12. said bank certificate is issued by Shri Sarvodaya Co.op. Bank Ltd. to Shri Bhagwandas Premchandani Director of M/s. Pappilon Exports Ltd. and copy of same was also given to assessee in which bank has certified that cheque no.133279 dated 01.01.1997 of Rs.60,85,000/- has been issued in favour of M/s. Hiralal Pharma Ltd. i.e. assessee s company. It was also certified that M/s. Pappilon Exports Ltd. maintained bank account with this bank and has been granted Temporary Overdraft facility. confirmation filed by assessee company have not been examined by Assessing Officer, similarly Learned Commissioner of Income 15 Tax (Appeals) did not examine bank certificate or directed Assessing Officer to file remand report. Assessing Officer also did not examine Shri Bhagwandas Premchandani in order to elicit truth. aforesaid bank account of M/s. Pappilon Export Ltd. is maintained at Ahmedabad Branch and Assessing Officer also have its office at Ahmedabad, despite that fact, Assessing Officer did not verify facts at Ahmedabad and chose to get issue examined at Tamilnadu through I.T.O. Erode. I.T.O. Erode also did not examine Shri Bhagwandas Premchandani and bank account at Ahmedabad despite sufficient material available before him also. Further report of I.T.O. Erode, was confronted to assessee vide letter dated 21.03.2000 by Assessing Officer and assessee vide letter dated 27.03.2000 (PB-11) again explained before him that M/s. Pappilon Exports Ltd. had advanced sum of Rs.60,85,000/- through above cheque no. of Sarvodaya Co.op. Bank Ltd. and again requested Assessing Officer to issue notice to banker and get statement of account of M/s. Pappilon Exports Ltd. and verify facts. It was also submitted that assessee has already filed bank statement and copy of bank slip, therefore, it is responsibility of department to verify correctness of evidence from available sources. assessee therefore requested to summon bank for getting matter verified. Assessing Officer did not act upon on request of assessee and did not summon banker to verify above facts and also did not allow any cross examination to statement of Shri K.B. Sasidharan and passed assessment order within 2 days on 29.03.2000. Cross examination of Shri K. B. Sasidharan on behalf of assessee, examination of Shri Bhagwandas Premchandani and Bank account on request of assessee was necessary to bring truth on record. Assessing Officer however, instead of taking any proper recourse in accordance with law made addition by treating advance through banking 16 channel as unexplained bank deposit. Hon ble M. P. high Court in case of CIT Vs. Rameshchandra Shukla [MAIT No.71/2003 decided on 1.04.2005] reported in 10 ITJ 286 held as under:- It is now well settled that where assessee requests Assessing Officer to issue summons, to enforce attendance of creditors to establish genuineness and capacity of creditors, it is duty of Assessing Officer to enforce attendance of creditors by issuing summons. If Assessing Officer does not choose to issue summons and examine creditors, he cannot subsequently treat loans standing in name of such creditors as non- genuine, nor add amount thereof to assessee s Income vide decision of Allahabad high Court in (1963 49 ITR 561 Nathu Ram Premchand vs. Commissioner of Income Tax U.P. and decision of this Court in 1971 Tax LR 355- R.S. Seth Gopikisan Agrawal Vs. Assistant Commissioner of S.T. Hon ble Delhi High Court in case of CIT Vs. SMC Share Brokers Ltd. 288 ITR 345 held there is no doubt that statement of Manoj Agarwal had evidentiary value but weight could not be given to it in proceedings against assessee without it being tested under cross examination. In absence of statement being tested, it cannot be said that it should be believed completely to prejudice of assessee. Considering above discussion, it is clear that statement of Shri K. B. Sasidharan recorded by I.T.O. Erode and his report would not be relevant to matter in issue as well as cannot be read in evidence against assessee because assessee was never allowed any cross examination to such statement at assessment stage. We therefore, exclude statement of Shri K. B. Sasidharan and report of I.T.O. Erode from consideration in present appeal. 17. assessee in written submission filed before Learned Commissioner of Income Tax (Appeals) (PB-17) explained that 17 assessee company and its sister companies gave loans and advances to Supreme Money Management Limited controlled by its Chairman and Director Shri Bhagwandas Premchandani. Despite several efforts by assessee, amount was not repaid by Shri Bhagwandas Premchandani and no effort was made by him to help assessee. assessee therefore, pressurised Bhagwandas Premchandani for repayment of amount and ultimately Shri Bhagwandas Premchandani Director of M/s. Pappilon Exports Ltd. issued cheque of Rs. 60,85,000/- in favour of assessee after obtaining overdraft facility from Sarvodaya Co. Op. Bank Ltd. above submissions of assessee have not been properly appreciated by Learned Commissioner of Income Tax (Appeals). Learned Commissioner of Income Tax (Appeals) did not appreciate that assessee was concerned with repayment of amount in question which was given to group concern through Shri Bhagwandas Premchandani. If another account is maintained by Shir Bhagwandas Premchandani on behalf of M/s. Pappilon Exports Ltd. with Sarvodaya Co. Op. Bank Ltd. Ahmedabad, as Chairman/Director and he has issued cheque in question in favour of assessee company for settlement of dues, where is fault of assessee. assessee in best interest of business activity of its company was required to receive back money. Similarly, if M/s. Pappilon Exports Ltd. did not maintained any books of account at time of issue of cheque in favour of assessee, how assessee could be blamed because assessee has no control over internal affairs of M/s. Pappilon Export Ltd. and two of its Directors. assessee has explained identity of M/s. Pappilon Exports Ltd. and complete address is also given before Assessing Officer. ITO Erode also examined one of Director of M/s. Pappilon Exports Ltd. and confirmed identity and existence of M/s. Pappilon Exports Ltd. at Tamilnadu. Shri Bhagwandas Premchandani being one of Director of M/s. Pappilon Exports 18 Ltd. issued cheque in favour of assessee company out of its bank account with Sarvodaya Co. Op. Bank Ltd. Ahmedabad. As noted above, Assessing Officer did not examine Shri Bhagwandas Premchandani and bank account of M/s. Pappilon Exports Ltd. with Sarvodaya Co. Op. Bank Ltd. at Ahmedabad. details filed for bank account had not been disputed by Assessing Officer. Bank certificate filed on record and reproduced in impugned order proved that M/s. Pappilon Exports Ltd. maintained bank account with Sarvodaya Co. Op. Bank Ltd. Ahmedabad through its Director Shri Bhagwandas Premchandani. It is also not disputed that Shri Bhagwandas Premchandani was also one of Director and Chairman of creditor company. transaction in question is therefore, not disputed. source of issue of cheque is explained to be overdraft facility granted to M/s. Pappilon Exports Ltd. by Sarvodaya Co. Op. Bank Ltd. Thus, assessee has been prima facie able to prove creditworthiness of creditor in issuing cheque in question in favour of assessee company. 18. However, we may also note here that assessee despite making request to Assessing Officer to summon banker for verification of bank account of M/s. Pappilon Exports Ltd. with Sarvodaya Co.op. Bank Ltd. Ahmedabad vide letter dated 27.03.2000 (PB-11), did not file bank certificate before Assessing Officer. This fact is also recorded by Learned Commissioner of Income Tax (Appeals) in impugned order at page 6, para-4, in which submission of assessee is recorded that said bank certificate could not be furnished before Assessing Officer before order was passed. Therefore, for ends of justice, it would be relevant to restore matter to file of Assessing Officer to make verification of bank account and bank certificate issued by Sarvodaya Co. Op. Bank Ltd. Ahmedabad 19 because Assessing Officer did not have occasion to examine such bank certificate. 19. Considering above discussion, we set aside orders of authorities below and restore this issue to file of Assessing Officer to re-decide issue by verifying bank account of M/s. Pappilon Exports Ltd. maintained with Shri Sarvodaya Co. Op. Bank Ltd. Ahmedabad and certificate issued by them on matter in issue as is reproduced in order of Learned Commissioner of Income Tax (Appeals) as well as page 7 of this order. Assessing Officer shall redecide issue as per observation given in this order by giving reasonable sufficient opportunity of being heard to assessee within period of 6 months from receipt of order. 20. As result, appeal of assessee is allowed for statistical purposes. Order pronounced in open court on 29th January, 2010. Sd/- Sd/- (A.N.Pahuja) (Bhavnesh Saini) ACCOUNTANT MEMBER JUDICIAL MEMBER Date : 29-01-2010 Paras* Copy of order forwarded to : 1. Respondent 2. DCIT, (Appellant). 3. CIT concerned 4. CIT(A) 5. DR, ITAT, 6. Guard File BY ORDER //True Copy// DY.R/AR, ITAT, AHMEDABAD M/s Hiral Pharma Ltd v. Dycit Com Cir-7(3)
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