ITO, New Delhi v. M/s Magic Software Pvt. Ltd.,, New Delhi

ITA 3451/DEL/2009 | 2004-2005
Pronouncement Date: 14-05-2010 | Result: Partly Allowed

Appeal Details

RSA Number 345120114 RSA 2009
Bench Delhi
Appeal Number ITA 3451/DEL/2009
Duration Of Justice 9 month(s) 9 day(s)
Appellant ITO, New Delhi
Respondent M/s Magic Software Pvt. Ltd.,, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 14-05-2010
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted E
Tribunal Order Date 14-05-2010
Date Of Final Hearing 10-02-2010
Next Hearing Date 10-02-2010
Assessment Year 2004-2005
Appeal Filed On 04-08-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E DELHI) BEFORE SHRI A.D. JAIN AND SHRI B.P. JAIN ITA NO. 3451(DEL)2009 ASSESSMENT YEAR: 2004-05 INCOME TAX OFFICER M/S. MAGIC SOFTWARE PVT. LTD. WARD 6(1) NEW DELHI. V. AKASHDEEP BLDG BARAKHAMBA ROAD NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY: MRS. BANITA DEVI NAOREM SR. DR RESPONDENT BY: SHRI H.P . AGGARWAL CA ORDER PER A.D. JAIN J.M . THIS IS DEPARTMENTS APPEAL FOR THE ASSESSMENT YEAR 2004-05 TAKING THE FOLLOWING GROUNDS:- 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IS ERRONEOUS AND CONTRARY TO THE FACTS AND LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN LAW IN DELETING THE ADDITIO N OF RS. 1 04 473/- MADE ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION WH EN THE REVALUATION OF THE DEBT WAS DONE AT THE END OF THE YEAR. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN RESTRICTING THE ADDITION O F RS. 17 46 330/- TO RS. 3 70 068/- MADE BY THE ASSESSING OFFICER ON ACC OUNT OF INTEREST PAID IGNORING THE FACTS THAT THE LOAN ADVANCED TO DIRECTORS OF THE COMPANY ARE MUCH MORE THAN THAT OF M/S. DHAMPUR ALC O CHEM LTD. ITA 3451(DEL)09 2 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS . 45 94 525/- MADE BY THE AO U/S 68 OF THE I.T. ACT WHEN THE ASSESSEE FAILED TO DISCHARGE THE ONUS OF PROVING THE IDENTITY OF THE CREDITORS A ND GENUINENESS OF THE CREDIT TRANSACTIONS. 4.1 THE LD. CIT(A) ERRED IN ACCEPTING THE ADDITIO NAL EVIDENCE UNDER RULE 46 A OF THE I.T. RULES WHEN THE ASSESSEE WAS PROVIDED AMPLE OPPORTUNITIES BY THE AO DURING THE ASSESSMENT PROCE EDINGS. 2. GROUND NO.1 IS GENERAL. 3. APROPOS GROUND NO.2 THE ASSESSEE CLAIMED EXPENS ES OF RS.1 04 473/- ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION UNDER TH E HEAD INCOME FROM OTHER SOURCES BY ADJUSTING IT AGAINST INTEREST INC OME UNDER THE SAID HEAD OF INCOME. THE AO OBSERVED THAT OTHER THAN THE ACTUA L LOSES AND GAINS ON RECEIPT OF EXPORT PROCEEDS THE ASSESSEE HAD PASSED ADJUSTMENT ENTRIES ON 31.3.2004 ON THE BASIS OF EXCHANGE RATES AS ON THAT DATE VIS--VIS THE RATE AT THE TIME ON WHICH THE BILLS WERE RAISED BY THE ASSE SSEE; THAT THE ASSESSEE HAD CREATED A TOTAL DEBIT PROVISION OF RS. 6 23 388/- A ND TOTAL CREDIT PROVISION OF RS. 71 820/- ON 31.3.2004 THEREBY CREATING A NET D EBIT PROVISION OF RS. 5 51 568/- AND A CORRESPONDING EXPENDITURE FOR PROV ISION ON ACCOUNT OF REVALUATION OF DEBTS; THAT THE ASSESSEE COULD NOT ADJUST ANY LOSS ON FOREIGN EXCHANGE FLUCTUATION AGAINST ITS INCOME FROM INTERE ST UNDER THE HEAD OF INCOME FROM OTHER SOURCES; THAT WHEREAS ACTUAL LO SS ON REALIZATION OF ITA 3451(DEL)09 3 EXPORT PROCEEDS CAN BE CLAIMED AS BUSINESS INCOME U /S 37 OF THE INCOME TAX ACT THE PROVISION BASED ON REVALUATION OF DEBTS AT THE END OF THE PREVIOUS YEAR CANNOT BE CLAIMED UNDER THE SAID SECTION TOO; THAT THE EXPENSES CLAIMED BY THE ASSESSEE WERE NOT ACTUAL LOSS BUT MERELY A PROVISION CREATED BY REVALUATION OF ITS ASSETS; AND THAT U/S 37 OF THE A CT THE CLAIM OF EXPENSES WHICH IS NOT ACTUALLY INCURRED IS NOT ALLOWABLE. THE AO THUS DISALLOWED THE ENTIRE LOSS OF RS.1 04 473/- CLAIMED UNDER INC OME FROM OTHER SOURCES. AN AMOUNT OF RS.4 47 095/- WAS ADDED TO THE ASSESSE ES INCOME AS BUSINESS INCOME OBSERVING IT TO BE THE TOTAL INCOME EARNED BY THE ASSESSEE FROM FOREIGN EXCHANGE FLUCTUATION. 4. THE LD. CIT(A) DIRECTED THE AO TO ALLOW TO THE A SSESSEE NET LOSS OF RS. 1 04 473/- ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATI ON BASING ON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT I N WOODWARD GOVERNOR INDIA (P)LTD. 162 TAXMAN 60(DELHI). 5. THE LD. DR HAS MAINTAINED THAT THE LD. CIT(A) ER RED IN DELETION OF THE ADDITION MADE ON ACCOUNT OF FOREIGN EXCHANGE FLUCTU ATION EVEN THOUGH THE REVALUATION OF THE DEBT WAS DONE AT THE END OF THE YEAR. 6. THE LEARNED COUNSEL FOR THE ASSESSEE ON THE OTH ER HAND HAS PLACED STRONG RELIANCE ON THE IMPUGNED ORDER. ITA 3451(DEL)09 4 7. WE DO NOT FIND ANY ERROR IN THE ORDER OF THE LD. CIT(A) IN THIS REGARD. WOODWARD GOVERNOR INDIA (P)LTD.(SUPRA) HAS CORR ECTLY BEEN FOLLOWED. THEREIN THE HONBLE JURISDICTIONAL HIGH COURT HAS HELD THAT LOSS ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION THOUGH NOTIONAL N EEDS TO BE ALLOWED. AS PER SCHEDULE IX TO THE BALANCE SHEET OF THE ASSESS EE THE ASSESSEE HAD INTEREST INCOME OF RS. 10 78 127/- AND A MISC. GAIN OF RS.15 024/- BESIDES THE FOREIGN EXCHANGE FLUCTUATION OF RS. 1 04 473/- TOTAL AMOUNTING TO RS. 9 88 678/- . THE ASSESSEE HAD OFFERED OTHER INCO ME TO TAX AS INCOME FROM OTHER SOURCES. THIS HAD BEEN ARRIVED AT AFTER DE DUCTING THE FOREIGN EXCHANGE FLUCTUATION LOSS AMOUNTING TO RS. 1 04 473 /- . AS SHOWN BY THE ASSESSEE THE BALANCE FOREIGN EXCHANGE FLUCTUATION ACCOUNT WAS THE NET IMPACT OF THE CREDIT ENTRIES REPRESENTING THE GAIN REALIZED DURING THE YEAR AS WELL AS THE DEBIT ENTRIES REPRESENTING LOSSES REAL IZED AND UNREALIZED. THE UNREALIZED GAIN OR LOSS REPRESENTED THE ENTRY MADE ON THE LAST DATE OF THE FINANCIAL YEAR. THE SAID ENTRY WAS PASSED TO REFL ECT THE CORRECT VALUE OF THE DEBTORS AND/OR CREDITORS AS ON THE DATE OF THE DRAW ING UP OF THE BALANCE SHEET. ON THAT DATE THE ASSESSEE HAD DEBITED RS.6 23 388/- AND HAD CREDITED RS. 71 820/- IN THE FOREIGN EXCHANGE FLUCTUATION AC COUNT. THIS GAVE THE NET DEBT PROVISION MADE ON THE BALANCE SHEET DATE AMOU NTING TO RS. 5 51 568/-. THE BALANCE OF THE FOREIGN EXCHANGE FLUCTUATION ACC OUNT BEFORE PASSING OF ITA 3451(DEL)09 5 THE SAID ENTRY WAS RS.4 47 095/- I.E. THE CREDIT ENTRY REPRESENTING THE ASSESSEES FLUCTUATION GAIN. THIS HOWEVER GOT C ONVERTED INTO THE LOSS OF RS. 1 04 473/-. IT WAS THIS LOSS WHICH WAS CLAIME D BY THE ASSESSEE AS INCOME FROM OTHER SOURCES. AN AMOUNT OF RS.5 5 1 568/- HAD BEEN DISALLOWED BY THE AO. THIS AMOUNT REPRESENTED THE NET DEBT PROVISION MADE BY THE ASSESSEE AS ON THE LAST DATE OF THE FIN ANCIAL YEAR RELATING TO THE YEAR UNDER CONSIDERATION. THE DISALLOWANCE WAS MA DE FOR THE REASON THAT WHEREAS THE ACTUAL LOSS ON REALIZATION OF EXPORT PR OCEEDS COULD BE CLAIMED AS BUSINESS INCOME U/S 37 OF THE ACT THE PROVISION BA SED ON REVALUATION OF DEBTS AT THE END OF THE PREVIOUS YEAR CANNOT ALSO B E CLAIMED UNDER THE SAID SECTION. 8. HOWEVER THE SITUATION HAS BEEN DEALT WITH BY W OODWARD GOVERNOR INDIA (P)LTD.(SUPRA). WOODWARD GOVERNOR INDIA ( P)LTD.(SUPRA) HAS SINCE BEEN APPROVED BY THE HONBLE SUPREME COURT ON APPEAL BY THE DEPARTMENT AS WELL AS IN HONDA SEIL POWER PROJECTS PVT. LTD. 223 CTR 1(SC) AS RIGHTLY TAKEN NOTE OF BY THE LD. CIT(A). 9. IN VIEW OF THE ABOVE FINDING NO MERIT IN GROUND NO.2 RAISED BY THE DEPARTMENT IN THIS REGARD THE SAME IS HEREBY REJEC TED. ITA 3451(DEL)09 6 10. COMING TO GROUND NO.3 THE AO OBSERVED THAT IN THE ASSESSMENT PROCEEDINGS FOR ASSESSMENT YEAR 2003-04 I.E. THE IMMEDIATELY PRECEDING ASSESSMENT YEAR THE AO HAD FOUND THE ASSESSEE TO H AVE TAKEN LOANS FROM SOME COMPANIES AT HIGHER RATES OF INTEREST AND HAVI NG ADVANCED THE SAME TO ITS DIRECTORS AT LOWER RATES OF INTEREST. FUNDS W ERE FOUND TO HAVE BEEN BORROWED @ 20% PER ANNUM WHEREAS THE SAME WERE ADV ANCED BY THE ASSESSEE @ 18% PER ANNUM TO ITS DIRECTORS. 2% PER ANNUM REPRESENTING THE DIFFERENCE OF INTEREST ON THE LOANS WAS THUS ADDED TO THE INCOME OF THE ASSESSEE FOR THE EXPENSES CLAIMED DO NOT RELATABLE TO THE ASSESSEES BUSINESS. FOR THE YEAR UNDER CONSIDERATION AGAIN THE SAME P RACTICE WAS FOUND TO HAVE BEEN ADOPTED BY THE ASSESSEE. INTEREST OF RS. 26 1 3 295/- WAS CLAIMED BY THE ASSESSEE IN ITS PROFIT AND LOSS ACCOUNT. THE AO O BSERVED THAT INTEREST OF CAPITAL BORROWED IS ALLOWABLE ONLY IF THE CAPITAL I S USED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE IN ACCORDANCE WITH SECTIO N 36(1)(III) OF THE ACT. THE ASSESSEE WAS FOUND TO HAVE CHARGED INTEREST @ 1 4% FROM SHRI VIVEK BIHANI ONE OF ITS DIRECTORS ON LOAN OF RS. 69 32 500/- WHEREAS NO INTEREST HAD BEEN CHARGED ON LOANS GIVEN OF RS. 36 13 750/- TO SMT. DEVIKA SINGH AND OF RS. 30 38 150/- TO SHRI VI VEK SETHI TWO OF THE DIRECTORS OF THE ASSESSEE COMPANY. OBSERVING THAT THE INTEREST CLAIMED TO THE EXTENT OF INTEREST ON CAPITAL BORROWED AND LOAN S GIVEN TO THE DIRECTORS ITA 3451(DEL)09 7 DID NOT RELATE TO THE ASSESSEES BUSINESS THE AO D ISALLOWED 6% PER ANNUM QUA THE LOANS GIVEN TO SHRI VIVEK BIHANI AND @ 20% PER ANNUM EACH APROPOS THE LOANS GIVEN TO SMT. DEVIKA SINGH AND SH RI VIVEK SETHI. INTEREST OF RS. 17 46 330/- WAS THUS DISALLOWED AS NOT RELATING TO THE ASSESSEES BUSINESS. 11. THE LEARNED CIT(A) OBSERVED INTER ALIA THAT D URING THE YEAR THE ASSESSEE HAD PAID INTEREST OF RS. 11 92 568/- TO M/ S. DHAMPUR ALCO CHEM. LTD. ON LOANS RAISED BY IT; THAT OUT OF THIS AMOUNT THE ASSESSEE HAD ADVANCED MONEY TO ITS DIRECTORS AND HAD CHARGED LESSER RATE OF INTEREST; THAT THE INTEREST PAID BY THE ASSESSEE TO M/S. DHAMPUR ALCO CHEM. LTD. IN EXCESS OF WHAT HAD BEEN RECOVERED FROM THE DIRECTORS NEEDED T O BE DISALLOWED; THAT THE ASSESSEE COMPANY WAS IN THE BUSINESS OF PROVIDI NG E-LEARNING SERVICES TO ITS CLIENT; THAT THE BUSINESS ACTIVITIES OF THE ASS ESSEE COMPANY DID NOT INCLUDE LENDING ACTIVITIES; THAT IT WAS THEREFORE THAT THE INTEREST PAID TO M/S. DHAMPUR ALCO CHEM. LTD. IN EXCESS OF THE AMOUNT RECOVERED F ROM THE DIRECTORS OF THE ASSESSEE COMPANY WAS REQUIRED TO BE DISALLOWED AMO UNTING TO RS.3 70 068/- REPRESENTING THE DIFFERENCE OF THE I NTEREST PAID OF RS.11 92 568/- AND THE INTEREST RECEIVED OF RS.8 22 500/- WAS TO BE DISALLOWED; THAT AN AMOUNT OF RS.17 46 330/- HAD BE EN DISALLOWED BY THE AO ON A PERCENTAGE BASIS WITHOUT CONSIDERING THAT T HE ASSESSEE COMPANY HAD ITA 3451(DEL)09 8 PAID TOTAL INTEREST OF RS. 26 13 295/- RS. 11 92 5 68/- OUT OF WHICH HAD BEEN PAID TO M/S. DHAMPUR ALCO CHEM. LTD. THE BALANCE A MOUNT HAVING BEEN PAID TO BANKS ON OVERDRAFT AND TERM LOAN ON CAR FI NANCE LOAN AND TO OTHER PARTIES SUCH AS INDIAN PLASTICS AL MEHTAB PROJECT S P. LTD. HEWA P. LTD. AND GOLD COIN. NOTING THAT THE AO HAD FAILED TO ES TABLISH ANY NEXUS WITH THE PAYMENT OF INTEREST TO THE SAID PARTIES WAS ON ACCOUNT OF NON BUSINESS PURPOSES THE LD. CIT(A) DIRECTED THE AO TO DISALLO W ONLY AMOUNT OF RS. 3 70 068/- REPRESENTING THE DIFFERENCE OF THE INTER EST PAID AND THE INTEREST RECEIVED AS ABOVE AND TO ALLOW THE BALANCE AMOUNT OF RS. 22 43 227/-. 12. THE LEARNED DR PLEADS THAT WHILE WRONGLY RESTRI CTING THE ADDITION CORRECTLY MADE BY THE AO OF THE AMOUNT OF RS. 17 46 330/- TO AN AMOUNT OF RS. 3 70 068/- THE LD. CIT(A) FAILED TO APPRECIATE THAT THE LOAN ADVANCED TO THE DIRECTORS OF THE COMPANY WAS MUCH MORE THAN THA T OF M/S. DHAMPUR ALCO CHEM. LTD. 13. THE LEARNED COUNSEL FOR THE ASSESSEE PER CONTR A HAS SUPPORTING THE IMPUGNED ORDER SUBMITTED THAT THE LOAN OF RS. 100 00 000/- HAD BEEN RAISED BY THE ASSESSEE COMPANY FROM M/S. DHAMPUR ALCO CHEM . LTD.; THAT OUT OF THIS INTEREST FREE LOANS AMOUNTING TO RS. 96 60 00 0/- HAD BEEN GIVEN TO THE ASSESSEES THREE DIRECTORS I.E. SHRI VIVEK BIHANI (RS. 49 35 000/-) SHRI VIVEK SETHI ( RS. 21 52 500/-) AND SMT. DEVIKA SING H ( RS. 25 72 500/-); ITA 3451(DEL)09 9 THAT THE INTEREST HAD BEEN RECOVERED FROM ALL THESE DIRECTORS @ 18% IN THE PRECEDING YEAR; THAT FOR THAT YEAR NO DISALLOWANCE HAD BEEN MADE; THAT IN THE YEAR UNDER CONSIDERATION RS. 11 92 568/- HAD BEEN PAID AS INTEREST TO M/S. DHAMPUR ALCO CHEM. LTD. RECOVERING AN AMOUNT OF RS . 8 22 500/- FROM THE ASSESSEES DIRECTORS TOWARDS THE LOAN ADVANCED TO T HEM; THAT THE AO HAD DISALLOWED RS. 17 46 330/- ON ACCOUNT OF INTEREST AS EXPENSES CONCERNING LOANS GIVEN TO THE DIRECTORS AND NOT RELATING TO TH E ASSESSEES BUSINESS; THAT THE AO COULD HAVE DISALLOWED A MAXIMUM OF RS. 11 92 568/- ONLY SINCE THIS WAS THE AMOUNT RECEIVED FROM M/S. DHAMPUR ALCO CHEM. LTD. AND GIVEN TO THE ASSESSEES DIRECTORS; THAT THE ASSESSE E HAD RECOVERED RS. 8 22 500/- FROM ITS DIRECTORS ON ACCOUNT OF INTERES T TOWARDS LOAN ADVANCED TO THEM AND AS SUCH ONLY RS. 3 70 068/- REPRESENTING DIFFERENCE BETWEEN THE ABOVE TWO AMOUNTS COULD BE DISALLOWED AS PAID IN EX CESS BY THE ASSESSEE; THAT THE LD. CIT(A) HAS NOWHERE ERRED IN RESTRICTIN G THE ADDITION FROM RS. 17 46 330/- TO RS. 3 70 068/-; THAT THE ASSESSEE HA D PAID RS. 14 20 727/- I.E. THE DIFFERENCE BETWEEN THE TOTAL INTEREST OF RS. 26 13 295/- RECEIVED BY THE ASSESSEE COMPANY AND RS. 11 92 568/- PAID TO M/S. D HAMPUR ALCO CHEM. LTD. TO BANKS ON OVERDRAFT AND TERM LOANS AND ON C AR FINANCE LOANS AND TO OTHER PARTIES I.E. INDIAN PLASTICS AL MEHTAB PRO JECTS P.LTD. HEWA P.LTD. AND GOLD COIN; AND THAT IT IS A MATTER OF RECORD TH AT THE AO DID NOT BRING ITA 3451(DEL)09 10 ANYTHING TO ESTABLISH THAT THE PAYMENT OF INTEREST TO THE SAID PARTIES WAS ON ACCOUNT OF NON-BUSINESS PURPOSES. 14. IN THIS REGARD THE LD. CIT(A) HAS OBSERVED THA T THE AO HAS NOT ESTABLISHED ANY NEXUS TO SHOW THAT THE PAYMENT OF I NTEREST BY THE ASSESSEE TO DIFFERENT PARTIES WAS ON ACCOUNT OF NON BUSINESS PU RPOSES. TO ARRIVE AT SUCH A FINDING THE LD. CIT(A) HAS OBSERVED THAT THERE W AS NO DOUBT THAT DURING THE YEAR THE ASSESSEE COMPANY HAD PAID INTEREST OF RS. 11 92 568/- TO M/S. DHAMPUR ALCO CHEM. LTD. ON THE LOAN AMOUNT RAISED B Y IT AND THAT UNDISPUTEDLY IT WAS OUT OF THIS AMOUNT THAT THE AS SESSEE COMPANY ADVANCED THE MONEY TO ITS DIRECTORS AND CHARGED LESSER RATE OF INTEREST. THE LD. CIT(A) HAS NOT DISCUSSED THE MATERIAL ON THE BASIS OF WHICH THIS OBSERVATION HAS BEEN MADE. BEFORE US ALSO NOTHING HAS BEEN B ROUGHT TO SHOW THAT THE AMOUNT WAS ADVANCED BY THE ASSESSEE COMPANY TO ITS DIRECTORS OUT OF THIS AMOUNT. WITHOUT CONSIDERING THIS ASPECT OF THE MA TTER THE ISSUE OF PAYMENT OF INTEREST TO THE PARTIES FOR NON BUSINESS PURPOSE S IS DIFFICULT TO DETERMINE. ACCORDINGLY THIS ISSUE IS REMITTED TO THE FILE OF THE LD. CIT(A) TO BE DECIDED AFRESH IN ACCORDANCE WITH LAW ON CONSIDERING THE MA TERIAL BASED ON WHICH IT HAS BEEN CONCLUDED THAT THE ASSESSEE COMPANY ADVANC ED MONEY TO ITS DIRECTORS OUT OF THE SAID AMOUNT. ITA 3451(DEL)09 11 15. TURNING TO GROUND NO. 4 DURING THE YEAR THE A SSESSEE WAS FOUND TO HAVE TAKEN FRESH UNSECURED LOANS AS FOLLOWS:- RS. M/S. GOLD COIN INVESTMENT CO. LTD. 15 64 525/- M/S. HEWA PVT. LTD. 5 00 000/- M/S. G.C. INTERNATIONAL 6 00 000/- M/S. INDIAN PLASTIC & CEMENTS LTD. 13 00 000/- M/S.KOSTUB 5 00 000/- SHRI VIMLENDU VERMA 1 30 000/- TOTAL: 45 94 525/- 16. THE AO ASKED THE ASSESSEE TO FILE CONFIRMED COP IES OF ACCOUNT OF THE SAID PARTIES. THE AO FAILED TO DO SO. IT WAS TH EREFORE THAT HOLDING THE SOURCE OF UNSECURED LOANS AS REMAINING UNESTABLISHE D THE AO MADE ADDITION OF RS.45 94 525/- REPRESENTING THESE UNSECURED LOA NS U/S 68 OF THE INCOME TAX ACT. 17. BEFORE THE LD. CIT(A) CONTENDING THAT THE AO H AD NEVER ASKED THE ASSESSEE TO PRODUCE THE CONFIRMATIONS FROM THE PART IES THE ASSESSEE CONTENDED THAT IT COULD WELL HAVE DONE SO SINCE SO ME OF THE LOANS WERE FROM ITS DIRECTORS. THE ASSESSEE BEFORE THE LD. CIT(A ) FILED CONFIRMATIONS FROM M/S.GOLD COIN M/S. HEWA PVT. LTD. M/S. G.C. INTER NATIONAL M/S. INDIAN PLASTIC AND CEMENTS LTD. AND M/S. KOSTUB INVESTMENT LTD. THE LD. CIT(A) DIRECTED THE MATTER TO THE AO TO EXAMINE THE SAID C ONFIRMATIONS. ON ITA 3451(DEL)09 12 CONSIDERING THE REMAND REPORT OF THE AO THE LD. CI T(A) DELETED THE ADDITION. 18. THE CASE OF THE DEPARTMENT IS THAT FIRSTLY THE ASSESSEE HAD FAILED TO DISCHARGE THE ONUS OF PROVING THE IDENTITY OF ITS C REDITORS AND THE GENUINENESS OF THE CREDIT TRANSACTIONS; AND THAT SE CONDLY THE ADDITIONAL EVIDENCE FILED BY THE ASSESSEE BEFORE THE LD. CIT(A ) WAS ERRONEOUSLY ACCEPTED BY THE LD. CIT(A) IN THE FACE OF THE FACT THAT THE ASSESSEE HAD NOT PRODUCED SUCH EVIDENCE BEFORE THE AO DESPITE AMPLE OPPORTUNITY PROVIDED. 19. THE LEARNED COUNSEL FOR THE ASSESSEE IN THIS R EGARD HAS STRONGLY RELIED ON THE IMPUGNED ORDER. 20. A PERUSAL OF THE IMPUGNED ORDER SHOWS THAT IN T HE REMAND REPORT THE AO WITH REGARD TO THE ADDITION AT HAND REFERRING TO THE ADDITIONAL EVIDENCE FILED BY THE ASSESSEE BEFORE THE LD. CIT(A) OBSERV ED AS FOLLOWS:- HOWEVER WITHOUT PREJUDICE TO THIS THE CONFIRMATI ON LETTERS AND ANNEXED DOCUMENTS WERE EXAMINED WITH THE DEPARTMENT AL DATA. BROADLY THEY WERE FOUND TO BE IN ORDER. MEANING THEREBY THAT THE AO HAD ACCEPTED THE MERIT S OF THE CONFIRMATIONS FILED BY THE ASSESSEE BEFORE THE LD. CIT(A) BY WAY OF ADDITIONAL EVIDENCE. NO ADVERSE COMMENT WAS OFFERED TO THESE CONFIRMATIO N LETTERS FROM THE CREDITORS OF THE ASSESSEE COMPANY. IT WAS ON THE B ASIS OF THIS UNREBUTTED EVIDENCE PLUS THE POSITION THAT ALL THE CREDITORS O F THE ASSESSEE WERE HAVING ITA 3451(DEL)09 13 PAN AND THE TRANSACTIONS WERE THROUGH REGULAR BANKI NG CHANNELS THAT THE LD. CIT(A) DELETED AND RIGHTLY SO THE ADDITION MADE BY THE AO. 21. THEREFORE HERE THE CASE OF THE DEPARTMENT DOE S NOT HOLD MUCH WATER. FINDING NO ERROR IN THE ORDER OF THE LD. CIT(A) CON CERNING THIS ISSUE THE SAME IS HEREBY UPHELD. GROUND NO.4 IS ACCORDINGL Y REJECTED. 22. IN THE RESULT THE APPEAL FILED BY THE DEPARTME NT IS PARTLY ALLOWED AS INDICATED. ORDER PRONOUNCED IN THE OPEN COURT ON 14. 05.2010 . SD/- SD/- (B.P. JAIN) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 14.05.2010 *RM COPY FORWARDED TO: 1. INCOME TAX OFFICER WARD 6(1) NEW DELHI. 2. M/S. MAGIC SOFTWARE PVT. LTD. AKASHDEEP BLDG BARAKHAMBA ROAD NEW DELHI. 3. CIT 4. CIT(A) 5. DR TRUE COPY BY ORDER DEPUTY REGISTRAR