Hiravati International Pvt. Ltd., PORBANDAR V. The Assistant Commissioner of Income Tax, Circle-2, JAMNAGAR

CO 56/RJT/2011

• Counselvise Citation: [2013] 122 COUNSELVISE.COM (IT) 8585 (ITAT-RAJKOT)
• Duration Of Justice: 1 year(s) 6 month(s) 23 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 19-04-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 25-02-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 26-09-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: N R SONI
• Assessee Lawyers: PRASHANT MAHARSHI
• Keywords: Period of limitation; Condonation of delay; Capital expenditure
• Section: 37

Judgement Text

E E : : IN THE INCOME TAX APPELLATE TRIBU N AL : RAJKOT BENCH : RAJKOT D .. D .. D BEFORE SHRI T K SHARM A JM AND SHRI D K SRIVASTAVA AM ITA NO . 948 /RJ T/201 0 H H/ ASSESSMENT YEAR S 200 7 - 0 8 ACIT, CIRCLE - 2, JAMNAGAR V. M/S. HIRAVATI INTERNATIONAL PVT LTD, JAWARNAKA, PORBANDAR PAN: AAACH 5374 F C.O. NO . 56/RJT/2011 H H/ ASSESSMENT YEAR S 200 7 - 08 M/S. HIRAVATI INTERNATIONAL PV T LTD, V. ACIT, CIRCLE - 2, JAMNAGAR JAWARNAKA, PORBANDAR DATE OF LAST HEARING : 1 5 .0 4 .2013 DATE OF PRONOUNCEMENT : 19 .0 4 .2013 FOR THE REVENUE : SHRI N. R. SONI, DR FOR THE ASSESSEE : SHRI PRASHANT MAHARSHI / ORDER .. D / D. K. SRIVASTAVA : THE APPEAL BEARING ITA NO. 948/RJT/2010 FILED BY THE R EVENUE AND THE MEMORANDUM OF C ROSS - OBJECTIONS BEARING CO NO.56/RJT/2011 FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) , JAMNAGAR ON 17.03.2010. FOR THE SA KE OF CONVENIENCE, BOTH OF THEM ARE BEING DISPOSED OF BY A CONSOLIDATED ORDER. 2. BOTH THE MATTERS UNDER APPEAL WERE FULLY HEARD ON 31.10.2012. THEY WERE THEREAFTER RE - FIXED TO ASCERTAIN AS TO WHETHER THE ASSESSEE HA S FILED ANY APPL ICATION FOR CONDONATION OF DELAY OF 362 DAYS IN FILING THE MEMORANDUM OF CROSS - OBJECTIONS . BOTH THE MATTERS WERE RE - FIXED ON 17.01.2013; 08.02.2013, 25.02.2013. THEY WERE LAST RE - FIXED ON 15.4.2013. HOWEVER, APPLICATION FOR CONDONATION OF DELAY OF 362 DAYS IN FILING THE MEMORANDUM OF CROSS - OBJECTIONS WAS NOT FILED TILL THE LAST DATE FIXED FOR HEARING. IN THIS VIEW OF THE MATTER, APPLICATION FOR ADJOURNMENT FILED ON 15.4.2013 WAS REJECTED. 3 . THE ASSESSEE IS A PRIVATE LIMITED COMPANY. IT IS ENGAGED IN TH E BUSINESS OF PROCESSING AND EXPORT OF MARINE PRODUCTS. IT FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER APPEAL ON 07.11.2007 RETURNING TOTAL LOSS OF RS.37,59,703/ - 2 ITA 948 OF 201 0 & CO 56 OF 201 1 AS AGAINST WHICH TOTAL INCOME HAS BEEN ASSESSED BY THE ASSESSING OFFICER AT RS.1 ,51,19,724/ - AFTER MAKING CERTAIN ADDITIONS/DISALLOWANCES WHICH ARE NOW SUBJECT MATTER OF APPEAL BEFORE THIS TRIBUNAL. ITA NO.948/RJT/2010 : APPEAL BY REVENUE 4 . GROUND NO.1 TAKEN BY THE DEPARTMENT READS AS UNDER: - 1. THE LD CIT(A) HAS ERRED IN LAW AN D IN FACTS IN DELETING THE ADDITION OF RS.28,74,918/ - BEING THE DISALLOWANCE ON ACCOUNT OF PAYMENT OF LABOUR CHARGES. 5. THE IMPUGNED DISALLOWANCE HAS BEEN MADE BY THE ASSESSING OFFICER WITH THE FOLLOWING OBSERVATIONS: - 3.15 IN REGARDS TO LABOUR CHAR GES, THERE WERE NO SUCH EXPENSES INCURRED IN THE PRECEDING YEAR. FURTHER JUST A COPY OF LEDGER ACCOUNT WAS FURNISHED. ON PERUSAL OF THE SAME IT WAS SEEN THAT PAYMENTS WERE MADE TO LABOUR CONTRACTORS, BUT THE PURPOSE AND THE JOB AS ALSO ITS JUSTIFICATION FOR HAVING INC URRED IN THE YEAR UNDER CONSIDERATION HAVE NOT BEEN SPELLED OUT. REASON AS TO WHY SAME EXPENSES WERE NOT INCURRED IN THE PR E CEDING YEAR AND THE COMPULSION THAT LEAD TO INCURRING THE SAID EXPENSES ONLY IN THE CURRENT YEAR HAS NOT BEEN EXTENDE D. THE P & L A/C, GLARINGLY REFLECTS THIS DIFFERENCE, WHICH THE ASSESSEE MADE NO ATTEMPT TO JUSTIFY BY NARRATING THE FACTS. IT IS ASSESSEES PLOY TO KEEP THE FIST CLOSED, ELSE WOULD SPILL THE BEANS LEADING TO REVEALING OR HIGHLIGHTING THE ASPECTS WHICH IT DOES NOT INTEND TO COME OUT. AN ATTEMPT WAS MADE TO UNDERSTAND THE NATURE OF CONTRACT WORK THAT COULD HAVE BEEN DONE, WHICH LEAD TO INCURRING OF SUCH EXPENSES. FROM THE NARRATION IN THE LEDGER ACCOUNT, IT APPEARS THAT THERE WAS SOME CEMENT WORK IN FACTORY PRE MISES, BREAKING BATHROOMS, CARPENTRY WORK IN HIPL - VASHI , THE NARRATION INDICATES THAT THERE HAS BEEN SOME CONSTRUCTION WORK IN THE FACTORY FOR WHICH AN AMOUNT OF RS.28,74,918/ - HAS BEEN INCURRED. IT GOES TO PRESUME THAT THE ASSESSEE INTENTIONALLY DID NOT SPELL OUT THE NATURE OF EXPENSES, FOR THE REASON THAT THE SAME ARE IN THE NATURE OF CAPITAL EXPENSES AND ARE NOT ALLOWABLE AS REVENUE TO BE DEBITED TO P&L A/C. THE ASSESSEE HAS DURING THE 3 ITA 948 OF 201 0 & CO 56 OF 201 1 COURSE OF SCRUTINY TILL DATE HAS NOT HIGHLIGHTED THE NATURE OF EXPENSES, AND AS TO WHY THE SAME ARE ALLOWABLE. THE ASSESSEE DECEITFULLY TRIED TO CONCEAL THIS EXPENSES IN THE GUISE OF LOADING AND UNLOADING EXPENSES BY PUTTING IT UNDER THAT HEAD IN THE PROFIT AND LOSS ACCOUNT. THE ACCOUNTS OF THE ASSESSEE ARE BEING AUDITED AND ACCORDINGLY IN THE NOTES TO THE ACCOUNTS IT WAS REQUIRED OF THE AUDITOR TO SPELL OUT THIS OBSERVATION. HOWEVER THE INTENT OF THE ASSESSEE RIGHT FROM THE PREPARING OF ACCOUNTS TILL DATE CLEARLY GOES TO SHOW THAT IT HAD TRIED TO CONCEAL ITS REAL TOTAL INCOME. IN VIEW OF THE ABOVE OBSERVATION THE ENTIRE EXPENSES OF RS.28,74918/ - IS DISALLOWED FOR TWO REASONS ONE THE EXPENSES BEING CAPITAL IN NATURE AND TWO THE ASSESSEE HAS NOT DISCHARGED THE ONUS TO JUSTIFY SUCH STEEP RISE IN EXPENSES WHEN COMPA RED TO PRECEDING YEAR, WHEN THE FACT SHOWS THAT THE ASSESSEES BUSINESS HAS CONSIDERABLY REDUCED IN THE YEAR UNDER CONSIDERATION. PENALTY PROCEEDINGS U/S271(1)(C) IS SEPARATELY INITIATED FOR FURNISHING OF INACCURATE PARTICULARS. 6. ON APPEAL, THE LD CIT (A) HAS DELETED THE IMPUGNED DISALLOWANCE WITH THE FOLLOWING OBSERVATIONS: - 5. I HAVE CAREFULLY CONSIDERED SUBMISSION OF THE APPELLANT. FIRST GROUND RAISED BY APPELLANT IS AGAINST ADDITION MADE ON ACCOUNT OF PAYMENT OF LABOUR CHARGES. THE AO HAS DISALLOW ED THESE EXPENSES FOR THE REASON THAT THE EXPENSES ARE CAPITAL IN NATURE AND SECOND BEING THAT THE APPELLANT HAS NOT JUSTIFIED RISE IN EXPENSES. THE CONTENTION OF THE APPELLANT IS THAT ENTIRE EXPENDITURE IS REVENUE IN NATURE AND FULLY JUSTIFIED WHICH IS PA ID TO LABOURERS FOR MISCELLANEOUS WORK WHICH DOES NOT AMOUNT TO INCREASE IN CAPACITY OF FIXED ASSETS AND THUS THEY ARE NOT CAPITAL IN NATURE. THE APPELLANT HAS ALREADY DISALLOWED RS.2,52,356/ - IN THE COMPUTATION OF INCOME U/S 40A(IA) WHICH ARE PAID TO LABO URERS WITHOUT DEDUCTING TAX AT SOURCE OUT OF THE EXPENDITURE DISALLOWED BY THE ASSESSING OFFICER. DISALLOWING THESE EXPENSES WOULD AMOUNTS TO DISALLOWING IT TWICE. APPELLANT SUBMITTED THAT NONE OF THE EXPENDITURE IS BY WAY OF PAYMENT TO ANY RELATIVE OR OF PERSONAL OR CAPITAL NATURE. THE ENTIRE EXPENDITURE IS FULLY VERIFIABLE AS ALL THE EXPENSES HAVE BEEN PAID THROUGH CHEQUE. THE APPELLANT EXPLAINED THE NATURE OF ACTIVITIES 4 ITA 948 OF 201 0 & CO 56 OF 201 1 INVOLVED IN ITS BUSINESS. APPELLANT SUBMITTED THAT IT IS ENGAGED IN THE BUSINESS OF P ROCESSING AND EXPORTING OF MARINE PRODUCTS. PROCESSING CHARGES IS INCOME GENERATED FOR PROCESSING, PACKING, FREEZING AND SORTING OF DIFFERENT KIND OF FISHES. LABOURS ARE HIRED THROUGH CONTRACTORS FOR MAKING THESE PROCESSES, PACKING, FREEZING AND SORTING OF FISH AND OTHER MARINE PRODUCTS. THE PRODUCTION PROCESS DEPENDS UPON TYPE OF FISH, EXPECTED PRODUCTION QUALITY, DEMAND ETC. AND VARY FROM JUST CLEANING TO FILLETING OR SURIMI (MAKING PASTE OF FISH IN SOPHISTICATE MACHINES). GRADING OF FIST IS SOME TIMES DO NE MANUALLY OR SOME TIMES MECHANICALLY. IN SOME CASES PACKING IS DONE BEFORE FREEZING AND IN SOME CASES AFTER FREEZING THROUGH PLATE FREEZER OR BLAST FREEZER. HENCE, THE EXPENSES VARY ACCORDING TO THE PROCESS DONE. THUS, THE INCREASE IN THESE EXPENSES IS E XPLAINED. THE DISALLOWANCE IS MADE WITHOUT GIVING ANY JUSTIFIABLE REASON OR STATING ANY EXPENSE OF UNVERIFIABLE NATURE. ONLY REASON GIVEN BY ASSESSING OFFICER IS INCREASE IN EXPENDITURE COMPARED TO PRECEDING YEAR. APPELLANT HAS ALSO EXPLAINED THAT IN THIS YEAR THE PRODUCTION HAS BEEN DONE ON CONTRACT BASIS AND THERE IS STEEP DECREASE IN THE EXPENSES OF SALARIES AND WAGES FROM RS.79.51 LAKHS TO RS.60.58 LAKHS. APPELLANT ALSO EXPLAINED THAT THERE IS JOB WORK INCOME DURING THE YEAR OF RS.125.29 LAKHS WHICH IS GOT DONE THIS YEAR ON JOB WORK BASIS. FURTHERMORE APPELLANT HAS PAID THESE AMOUNTS TO TWO CONTRACTORS WHO HAVE SUBMITTED THEIR MONTHLY BILLS ON MAN DAYS BASIS AND ALSO TAX HAS BEEN DEDUCTED THEREON. MERE INCREASE IN EXPENDITURE IS NO CRITERIA BY ITSELF FO R DISALLOWANCE AND SUBJECTIVE SATISFACTION ABOUT EXCESSIVENESS OF EXPENDITURE IS NOT JUSTIFIABLE. I THEREFORE, DELETE THE DISALLOWANCE OF RS.28,74,918/ - MADE BY ASSESSING OFFICER. 7 . IN SUPPORT OF APPEAL, THE LD DEPARTMENTAL REPRESENTATIVE INVITED OUR A TTENTION TO THE OBSERVATIONS MADE IN THE ASSESSMENT ORDER AND SUBMITTED THAT NO EXPLANATION WAS FURNISHED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER AS REGARDS THE NATURE OF THE IMPUGNED EXPENSES. HE FURTHER SUBMITTED THAT IT WAS THE ASSESSEE WHO HAD CLA IMED THE DEDUCTION AND THEREFORE IT WAS FOR HIM TO ESTABLISH THAT THE EXPENSES SO CLAIMED BY IT WERE FULLY ALLOWABLE AND THAT THEY WERE NOT IN THE NATURE 5 ITA 948 OF 201 0 & CO 56 OF 201 1 OF CAPITAL EXPENDITURE OR PERSONAL EXPENDITURE. ACCORDING TO THE LD . DR, THE ASSESSEE DID NOT FURNISH ANY EXPLANATION BEFORE THE ASSESSING OFFICER IN THIS BEHALF AND THEREFORE THE ORDER PASSED BY THE LD CIT(A) SHOULD BE VACATED. 8 . IN REPLY, THE LD AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE SUPPORTED THE ORDER PASSED BY THE LD CIT(A). 9 . WE HAVE HEARD BOTH THE PARTIES. PERUSAL OF PARA 3.15 OF THE ASSESSMENT ORDER SHOWS THAT THE ASSESSEE HAS NOT FURNISH ED ANY EXPLANATION BEFORE THE ASSESSING OFFICER WITH REGARD TO THE NATURE OF IMPUGNED EXPENSES . HE, HOWEVER, SUBMITTED RELEVANT EXPLANATION BEFORE THE LD CIT(A) WHICH WAS ACCEPTED BY THE LD CIT(A). THE ASSESSING OFFICER HA D NO OCCASION TO VERIFY THE EXPLANATION SUBMITTED BEFORE THE CIT(A) OR TO REBUT THEM. IN THE ABSENCE OF RELEVANT DETAILS BEFORE THE ASSESSING OFFICER, IT WAS NOT POSSIBLE FOR THE ASSESSING OFFICER TO VERIFY AS TO WHETHER THE IMPUGNED EXPENSES WERE AT ALL ALLOWABLE IN TERMS OF SECTION 37 OF THE INCOME - TAX ACT. IN THIS VIEW OF THE MATTER, THE ORDER OF THE LD CIT(A) IN THIS BEHALF IS VACATED AND THE MATTER IS RESTORED TO THE FILE OF THE ASSESS ING OFFICER. THE ASSESSEE IS DIRECTED TO FURNISH RELEVANT EXPLANATION AND DETAILS BEFORE THE ASSESSING OFFICER TO SUBSTANTIATE ITS CLAIM OF IMPUGNED EXPENSES. THE ASSESSING OFFICER SHALL EXAMINE THEM AND THEREAFTER RECORD HIS FINDINGS AS TO THE ADMISSIBILI TY OF SUCH EXPENSES IN TERMS OF PROVISION OF SECTION 37 OF THE INCOME - TAX ACT. THE ISSUE RAISED IN GROUND NO.1 IS THUS RESTORED TO THE FILE OF THE ASSESSING OFFICER. GROUND NO.1 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 10 . GROUND NO.2 TAKEN BY THE DEPARTMENT READS AS UNDER: - THE LD. CIT(A) HAS ERRED IN LAW AND IN FACTS IN DELETING THE ADDITION OF RS.1,02,959/ - BEING THE DISALLOWANCE ON ACCOUNT OF PAYMENT OF INTEREST EXPENSES. 11 . THE IMPUGNED DISALLOWANCE HAS BEEN MADE BY THE ASSESSING OFFICER W ITH THE FOLLOWING OBSERVATIONS: - 3.4 ADV A NCE TO SUPPLIERS: 6 ITA 948 OF 201 0 & CO 56 OF 201 1 IN THE SCHEDULE - 9 TO THE ACCOUNTS, INDICATING LOANS AND ADVANCES IT IS SEEN THAT AN AMOUNT OF RS.76,62,288/ - IS SHOWN AS ADVANCES TO SUPPLIERS. IN THE COURSE OF SCRUTINY ASSESSEE WAS ASKED TO FILE DETAILS OF THE SAME. ON PERUSAL OF THE DETAILS FILED VIDE SUBMISSION DATED 20.11.2009, IT IS SEEN THAT AT PAGE 218 OF THE SUBMISSION, LEDGER COPY OF ITS GROUP CONCERN M/S. HIRAVATI MARINE PRODUCTS PVT LTD IS FURNISHED, WHERE IN THE OPENING BALANCE AS WELL AS CLOSING BALANCE IS SHOWN OF RS.20,59,721/ - . IT IS PERTINENT TO NOTE THAT THE SALES OF THE ASSESSEE COMPANY HAS CONSIDERABLY REDUCED FROM RS.67,99,683/ - TO RS.9,34,984/ - . I.E. DURING THE YEAR SALE TURNOVER OF FISH IS ONLY OF RS.9,34,984/ - . IN SUCH A CIRCUMSTANCE AN ADVANCE OF RS.20,59,721/ - GIVEN TO ITS GROUP COMPANY IS TOTALLY ABSURD. HOWEVER, THE ONUS WAS ON ASSESSEE TO STATE THE NATURE OF ADVANCE IF SO, AND FOR WHAT PURPOSE. PRIMA FACIE SAME APPEARS TO BE LOANS EXTENDED, ON WHICH NO INTEREST HAS B EEN CHARGED . IN THE CIRCUMSTANCES SINCE THE ASSESSEE HAS INCURRED INTEREST EXPENSES OF RS.1,02,959/ - , INTEREST WORKED OUT ON THIS LOAN FREE AMOUNT EXTENDED AT THE RATE AT WHICH ASSESSEE HAS PAID, RESTRICTED TO THE EXTENT OF INTEREST PAID TO BANKS. SINCE T HE ASSESSEE HAS NOT UTILIZED INTEREST BEARING FUNDS FOR THE PURPOSE OF BUSINESS, THIS DISALLOWANCE IS BEING MADE. 12 . THE IMPUGNED DISALLOWANCE HAS BEEN DELETED BY THE LD CIT(A) WITH THE FOLLOWING OBSERVATIONS: - 7. THIRD GROUND RAISED BY THE APPELLANT IS FOR ADDITION ON ACCOUNT OF BANK INTEREST. ASSESSING OFFICER AS PER PARA NO.3.3 MENTIONED THAT THE APPELLANT HAS GIVEN RS.20,59,721/ - TO ITS GROUP CONCERN M/S. HIRAVATI MARINE PRODUCTS PVT LTD. THE SAME IS IN THE NATURE OF LOAN AND NOT ADVANCES TO SUPPL IER. DURING THE YEAR THE APPELLANT HAS SHOWN INTEREST EXPENSE OF RS.1,02,959/ - IN ITS PROFIT & LOSS ACCOUNT AS FINANCE CHARGE AND CLAIMED THE SAME AS EXPENDITURE. ASSESSING OFFICER HAS DISALLOWED THESE EXPENSES BY CONTENDING THAT APPELLANT HAS EXTENDED INT EREST FREE LOANS TO ITS GROUP CONCERNS ON WHICH NO INTEREST IS CHARGED AND THUS IT HAS NOT USED THESE FUNDS FOR THE PURPOSE OF BUSINESS AND USED IN GRANTING INTEREST FREE LOANS. THE APPELLANT SUBMITTED THAT RS.20,59,721/ - IS IN THE NATURE OF ADVANCES AND N OT LOAN. 7 ITA 948 OF 201 0 & CO 56 OF 201 1 FURTHER IT SUBMITTED THAT IT HAS NOT UTILIZED THE BANK BORROWING FOR GIVING INTEREST FREE LOANS. DURING THE YEAR APPELLANT HAS PAID ONLY INTEREST ON LOANS FOR PURCHASE OF CAR. THE CARS ARE PURCHASED OUT OF LOAN AMOUNT FROM THE BANKS AND THEREFORE THERE IS DIRECT NEXUS BETWEEN THE AMOUNT BORROWED AND UTILIZED. APPELLANT HAS UNSECURED LOANS ON WHICH NO INTEREST IS PAID OF RS.2,28,21,903/ - AND THE BEGINNING AND RS.2,51,13042/ - AT THE END OF THE YEAR. FURTHER IT HAS NOT PAID INTEREST TO ANY OTHER PERSO N OTHER THAN BANK LOANS FOR MOTOR CARS. AND HENCE IT CANNOT BE SAID THAT THE APPELLANT HAS UTILIZED INTEREST BEARING FUNDS TO GIVE INTEREST FREE LOANS. HENCE, I DELETE DISALLOWANCE OF RS.1,02,959/ - OUT OF INTEREST EXPENSES. 13 . IN SUPPORT OF APPEAL, THE LD DR RELIED UPON THE ASSESSMENT ORDER. 14 . IN REPLY, THE LD AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE RELIED UPON THE ORDER PASSED BY THE LD CIT(A). 15 . WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY CONSIDERED THEIR SUBMISSIONS. THE LD CIT(A) HAS GIVEN COGENT REASONS FOR DELETING THE IMPUGNED DISALLOWANCE. THE FINDING OF FACTS RECORDED BY HIM IN PARA 7 OF THE APPELLATE ORDER HA S NOT BEEN REBUTTED BY THE LD DEPARTMENTAL REPRESENTATIVE. IN THIS VIEW OF THE MATTER, THE ORDER OF THE LD CIT(A) IN THIS BEHALF IS CONFIRMED. GROUND NO.2 IS DISMISSED. 1 6 . GROUND NO.3 TAKEN BY THE DEPARTMENT READS AS UNDER: - 3. THE LD CIT(A) HAS ERRED IN LAW AND IN FACTS IN DELETING THE ADDITION OF RS.1,21,44,267/ - BEING THE DISALLOWANCE ON ACCOUNT OF BALANCE STANDING AS CRED IT IN THE ACCOUNTS OF SUNDRY CREDITORS. 1 7 . THE IMPUGNED ADDITION HAS BEEN MADE BY THE ASSESSING OFFICER WITH THE FOLLOWING OBSERVATIONS: - 3.52 FROM THE ABOVE CHART IT COULD BE SEEN THAT THE PARTIES APPEARING AS SUNDRY CREDITORS, FOLLOWING ARE THE UNI QUE FEATURES OF THE TRANSACTIONS, THEY ARE: 8 ITA 948 OF 201 0 & CO 56 OF 201 1 1. THERE ARE AMOUNTS WHICH ARE OUTSTANDING FOR MORE THAN THREE YEARS, AND AS SUCH PROVISIONS OF SECTION 41 (CESSATION OF LIABILITIES) ARE ALSO APPLICABLE. 2. THERE ARE ABSOLUTELY NO TRANSACTIONS IN TWO YEARS AND THEREF ORE THE QUESTION ARISE AS REGARDING THE GENUINENESS OF THESE TRANSACTIONS, AS NO BUSINESSMAN WOULD NOT INSIST THE PAYMENT OF THE SAME IN TWO YEARS. 3. THE OPENING BALANCE AND THE CLOSING BALANCE IN TWO YEARS IS SAME. HOWEVER THERE IS TRANSACTIONS OF PAYMENT B Y CHEQUES BUT THE SAME HAS NOT BEEN DEPOSITED BY THE PARTIES AND LATER ON CANCELLED. IT IS THEREFORE SURPRISING AS TO WHY ANY PARTY WOULD NOT DEPOSIT THE PAYMENT RECEIVED AND HOLD IT FOR TWO MONTHS. THE TRANSACTIONS APPEAR SHAM. 3.53 IN VIEW OF THESE OBSERVAT IONS, VIDE QUESTIONNAIRE DTD 27.11.2009, ASSESSEE WAS ASKED TO FURNISH COMPLETE POSTAL ADDRESS OF PARTIES APPEARING AT NO.4,5,6,8,10,11,12,14,16,18,20,21,23,24,25,26 & 30. AS ALSO SPECIFICALLY ASKED TO PRODUCE ORIGINAL BILLS/VOUCHERS OF THESE PARTIES FOR T HE LAST THREE YEARS. IN RESPONSE TO THIS QUESTION RAISED THE ASSESSEES REPRESENTATIVE FILED THE DETAILS AS PER LETTER DATED 4.12.2009. ON PERUSAL OF THE SAME IT IS SEEN THAT NO POSTAL ADDRESS WAS PROVIDED FOR PARTIES APPEARING AT NO.8,11,12, 14,16,20,25. WHILE, EXCEPT PARTY APPEARING AT NO.30, IN CASE OF ALL OTHERS, THE ADDRESS IS VERY DISCREET AND VAGUE. THIS WAS POINTED TO THE ASSESSEES REPRESENTATIVE WHEN HE ATTENDED THE HEARING 11.12.2009. HE IMMEDIATELY CONTACTED THE ASSESSEE AND CONVEYED THE ABOVE O BSERVATIONS, AND WAS ASKED TO GIVE COMPLETE POSTAL ADDRESS IN RESPECT OF EACH PARTY. TILL DATE THE ASSESSEE IS YET TO FURNISH THE SAME. HENCE THE ONUS ON THE ASSESSEE TO PROVE THE GENUINENESS OF THE TRANSACTIONS HAS NOT BEEN DISCHARGED. ALSO THE ISSUE OF C ESSATION OF 9 ITA 948 OF 201 0 & CO 56 OF 201 1 LIABILITY ALSO PERSISTS. IN VIEW OF THE ON GOING DISCUSSION THIS AMOUNT OF RS.1,45,15,335/ - IS ADDED TO THE TOTAL INCOME, ON ACCOUNT OF THE FACT THAT THE GENUINENESS OF THE TRANSACTIONS RELATED TO THESE PARTIES REFLECTED AS SUNDAY CREDITORS B EING UNPROVED. 1 8 . ON APPEAL, THE LD CIT(A) HAS DELETED THE IMPUGNED ADDITIONS WITH THE FOLLOWING OBSERVATIONS: - FROM THE ABOVE TABLE IT IS EVIDENT THAT OUT OF TOTAL CREDITORS MENTIONED IN ABOVE TABLE OF RS.1,43,17,335/ - , APPELLANT HAS PAID TO PARTIES WHOSE CLAIM AMOUNTS TO RS.97,13,052/ - . APPELLANT FURTHER SUBMITTED THAT IT WAS FACING FINANCIAL CRISIS SINCE A VERY LONG PERIOD OF TIME AND WAS NOT ABLE TO DISCHARGE ITS OBLIGATIONS IN TIMELY MANNER DUE TO FINANCIAL CRUNCH. SIMPLY BECAUSE THE PERIOD OF LIM ITATION HAS COME TO AN END FOR THE PURPOSE OF FILING A SUIT FOR RECOVERY OF THE SAID AMOUNT OR FOR TAKING APPROPRIATE ACTION AGAINST THE ASSESSEE, IT COULD NOT BE SAID THAT THERE WAS A CESSATION OF LIABILITY. THE LIABILITY STILL REMAINS THOUGH IT MIGHT NOT BE ENFORCEABLE AT LAW ON ACCOUNT OF THE PROVISIONS OF LAW OF LIMITATION. THEREFORE SECTION 41 IS NOT ATTRACTED IN SUCH A CASE. DECISION RELIED UPON IN THE CASE OF LIQUIDATOR, MYSORE AGENCIES (P) LTD. VS. CIT [1978] 114 ITR 853 (KAR.), HAS HELD THAT WHEREI N IT WAS HELD THAT THE CREDITOR WOULD NOT BE ABLE TO RECOVER T HE AMOUNT BY ENFORCING HIS RIGHT IN COURT, BUT THE RIGHT WILL NOT COME TO AN END NOR WILL THE LIABILITY CEASES. THE STATUTE OF LIMITATIONS, FOR EXAMPLE, DOES NOT PROVIDE THAT AFTER A CERTAIN TIM E A DEBT SHALL BECOME EXTINCT, BUT MERELY THAT NO ACTION SHALL THEREAFTER BE BROUGHT FOR ITS RECOVERY IN THE COURT OF LAW. LAPSE OF TIME, THEREFORE, DOES NOT DESTROY THE RIGHT, BUT MERELY REDUCES IT FROM THE RANK OF ONE WHICH IS PERFECT TO THAT OF ONE WHIC H IS IMPERFECT. IT REMAINS VALID FOR ALL PURPOSES SAVE THAT OF ENFORCEMENT. IT MAY BE GOOD AS A GROUND OF DEFENSE, IT MAY SUFFICE TO SUPPORT ANY SECURITY GIVEN FOR IT, 10 ITA 948 OF 201 0 & CO 56 OF 201 1 AND IT MAY POSSESS THE CAPACITY OF BECOMING A PERFECT RIGHT. DUE TO FINANCIAL CRISIS THE APPELLANT WAS NOT ABLE TO MAKE PAYMENT OF ITS DUES ON TIMELY MANNER BUT THE APPELLANT IS GRADUALLY TRYING TO MAKE THE REPAYMENT OF ITS OVERDUE DEBTS IN COMING YEARS. APPELLANT IS A SICK UNIT WHICH IS UNABLE TO PAY TO EVEN ITS SECURED CREDITORS THEREFORE , APPELLANT CANNOT BE FAULTED FOR NONPAYMENT OF ITS UNSECURED CREDITORS. THE AO HAS ALSO NOT POINTED OUT THAT ANY SUM IS CREDITED DURING THE YEAR IN THE BOOKS OF THE COMPANY AND SAME IS CREDITED DURING THE YEAR IN THE BOOKS OF THE COMPANY AND SAME IS NOT GEN UINE, INSTEAD HE HAS MADE ADDITION ON ACCOUNT OF CREDITORS WHO ARE STANDING IN THE BOOKS OF THE COMPANY IN PREVIOUS YEARS ALSO. PAYMENT TO THE CREDITORS IN SUBSEQUENT YEARS ALSO PROVES THAT THOSE CREDITORS ARE GENUINE. FURTHER THE AS ALL THE CREDITORS HAVE ORIGINATED IN EARLIER YEARS NO ADDITION CAN BE MADE DURING THIS YEAR IN THE HANDS OF APPELLANT EVEN IF ANY OF THE CREDITOR IS FOUND NON GENUINE. THUS, THE GENUINENESS OF THE TRANSACTION IS NOT IN DOUBT IN THE PRESENT CASE. REGARDING APPLICABILITY OF PROVI SION OF SECTION 41 OF THE ACT. APPELLANT HAS NOT WRITTEN BACK ANY OF THE CREDITORS IN ITS BOOKS OF ACCOUNTS THERE FOR ETHER IS NO REASON TO TREAT THIS ITEMS AS INCOME OF THE APPELLANT. HOWEVER IN CASE OF THE PARTIES AT SERIAL NO.8,11,12,14,16,20,25 APPELL ANT HAS NOT PROVIDED EVEN THE ADDRESSES OF THE PARTIES AMOUNTING TO RS.28,18,353/ - AND THESE CREDITS CANNOT BE TREATED AS GENUINE. EXCEPT IN CASE OF MR. H N PAWALE THE AMOUNT HAS BEEN PAID ON 5.6.2008 AS STATED BY THE APPELLANT AMOUNTING TO RS.4,47,285/ - B ALANCE AMOUNTS ARE ALSO STILL UNPAID. THEREFORE ADDITION TO THE EXTENT OF RS.23,71,068/ - IS SUSTAINED AND BALANCE ADDITION OF RS.1,21,44,267/ - IS DELETED. 1 9 . IN SUPPORT OF APPEAL, THE LD DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ASSESSMENT ORDER. 11 ITA 948 OF 201 0 & CO 56 OF 201 1 20 . IN REPLY, THE LD AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE RELIED UPON THE ORDER PASSED BY THE LD CIT(A). HE ALSO RELIED ON THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN CIT V. MIRAA PROCESSORS (P) LTD [2012] 208 TAXMAN 93 (GUJ.)(MAG.) AND THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN CIT V. NITIN S. GARG [2012] 22 TAXMANN.COM 59 (GUJ.) IN SUPPORT OF THE DECISION OF THE CIT(A). 21 . WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY CONSIDERED THEIR SUBMISSIONS. IN THE CASE OF CIT V. NITIN S. GARG (SUPRA), THE HONBLE J URISDICTIONAL HIGH COURT OBSERVED AS UNDER: - 15. IN THE CASE BEFORE US, IT IS NOT BEEN ESTABLISHED THAT THE ASSESSEE HAS WRITTEN OFF THE OUTSTANDING LIABILITIES IN THE BOOKS OF ACCOUNT. THE A PPELLATE TRIBUNAL IS JUSTIFIED IN TA KING THE VIEW THAT AS ASSESSEE HAD CONTINUED TO SHOW THE ADMITTED AMOUNTS AS LIABILITIES IN ITS BALANCE SHEET THE SAME CANNOT BE TREATED AS ASSESSMENT OF LIABILITIES. MERELY BECAUSE THE LIABILITIES ARE OUTSTANDING FOR LAST MANY YEARS, IT CANNOT BE INFERRED THAT THE SAID LIABILITIES HAVE SEIZED TO EXIST. THE APPELLATE TRIBUNAL HAS RIGHTLY OBSERVED THAT THE ASSESSING OFFICER SHALL HAVE TO PROVE THAT THE ASSESSEE HAS OBTAINED THE BENEFITS IN RESPECT OF SUCH TRADING LIABILITIES BY WAY OF REMISSION OR CESSATION THEREOF WHICH IS NOT THE CASE BEFORE US. MERELY BECAUSE THE ASSESSEE OBTAINED BENEFIT OF REDUCTION IN THE EARLIER YEARS AND BALANCE IS CARRIED FORWARD IN THE SUBSEQUENT YEAR, IT WOULD NOT PROVE THAT THE TRADING LIABILITIES OF THE ASSESSEE HAVE BECOME NON E XISTENT. 16. MOREOVER, AS POINTED OUT IN THE CASE OF SUGAULI SUGAR WORKS (P) LTD. (SUPRA), VIDE THE LAST FIVE LINES OF THE PARAGRAPH - 6 OF THE JUDGMENT, THE QUESTION WHETHER THE LIABILITY IS ACTUALLY BARRED BY LIMITATION IS NOT A MATTER WHICH CAN BE DECIDE D BY CONSIDERING THE ASSESSEES CASE ALONE 12 ITA 948 OF 201 0 & CO 56 OF 201 1 BUT HAS TO BE DECIDED ONLY IF THE CREDITOR IS BEFORE THE CONCERNED AUTHORITY. IN THE ABSENCE OF THE CREDITOR, IT IS NOT POSSIBLE FOR THE AUTHORITY TO COME TO A CONCLUSION THAT THE DEBT IS BARRED AND HAS BECOME UNE NFORCEABLE. THERE MAY BE CIRCUMSTANCES WHICH MAY ENABLE THE CREDITOR TO COME WITH A PROCEEDING FOR ENFORCEMENT OF THE DEBT EVEN AFTER EXPIRY OF THE NORMAL PERIOD OF LIMITATION AS PROVIDED IN THE LIMITATION ACT. 22 . THE AFORESAID DECISION IS AN AUTHORITY FOR THE PROPOSITION THAT MERELY BECAUSE CERTAIN LIABILITIES HAVE BEEN SHOWN AS OUTSTANDING FOR LAST MANY YEARS , I T CANNOT BE INFERRED THAT THEY HAVE CEASED TO EXIST SO AS TO BRING SUCH LIABILITIES WITHIN THE MISCHIEF OF SECTION 41(1) OF THE INCOME - TAX ACT . THE AFORESAID JUDGMENT IS APPLICABLE WHEN THE LIABILITIES BEING SHOWN IN THE BALANCE SHEET ARE GENUINE AND ARE GENUINELY OUTSTANDING IN THE BOOKS OF ACCOUNTS. IN THE CASE BEFORE US, THE ASSESSEE HAS NOT FURNISHED RELEVANT DETAILS BEFORE THE ASSESSING OFF ICER AS EVIDENT FROM THE OBSERVATIONS MADE IN PARA 3.53 OF THE ASSESSMENT ORDER. THE AFORESAID JUDGMENT WOULD COME TO THE RESCUE OF THE ASSESSEE ONLY WHEN THE ASSESSEE PROVES TO THE SATISFACTION OF THE ASSESSING OFFICER THAT THE LIABILITIES BEING SHOWN BY IT ARE GENUINELY OUTSTANDING. ONCE THE ASSESSEE SO PROVE S , THEN THE MERE FACT THAT SUCH LIABILITIES HAVE BEEN OUTSTANDING FOR LAST SEVERAL YEARS WOULD NOT FALL WITHIN THE MISCHIEF OF SECTION 41(1) OF THE INCOME - TAX ACT. IN THE ABSENCE OF RELEVANT FACTS TO ESTABLISH THE GENUINENESS OF THE LIABILITIES BEING SHOWN AS OUTSTANDING IN THE BOOKS OF ACCOUNT, IT CANNOT BE INFERRED THAT THE LIABILITIES BEING SHOWN BY THE ASSESSEE ARE GENUINE. THE EXPLANATIONS FURNISHED BEFORE THE LD CIT(A) WERE NEVER OFFERED BEFORE T HE ASSESSING OFFICER. IN THIS VIEW OF THE MATTER THE ORDER PASSED BY THE LD CIT (A) IN THIS BEHALF IS VACATED AND THE MATTER IS RESTORED TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSEE IS DIRECTED TO ESTABLISH THE GENUINENESS OF THE LIABILITIES BEING SH OWN AS OUTSTANDING ITS BOOKS OF ACCOUNTS. IF THE ASSESSEE IS ABLE TO ESTABLISH THE 13 ITA 948 OF 201 0 & CO 56 OF 201 1 GENUINENESS OF THE LIABILITIES SHOWN AS OUTSTANDING IN THE BOOKS OF ACCOUNTS, THE ASSESSING OFFICER IN THAT CASE WOULD NOT MAKE ANY ADDITION U/S 41(1) ON THE SOLE GROUND THA T THE LIABILITIES SHOWN AS OUTSTANDING ARE BEING SHOWN FOR THE LAST SEVERAL YEARS IN VIEW OF THE AFORESAID DECISIONS OF THE HONBLE JURISDICTIONAL HIGH COURT. GROUND NO.3 TAKEN BY THE REVENUE IS TREATED AS ALLOWED FOR THE STATISTICAL PURPOSES. 23 . A PPEAL FILED BY THE REVENUE IS PARTLY ALLOWED. C.O. NO. 56/RJT/2011 24 . THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS: - 1. LD AO ERRED IN LAW AS WELL AS ON FACTS IN MAKING AN ADDITION OF RS.1,45,15,335/ - AS UNPROVED CREDITORS AND LD CIT (A) ERRED IN LAW AS W ELL AS ON FACTS IN CONFIRMING RS.23,71,068/ - OUT OF ABOVE ADDITION. 2. LD. AO ERRED IN LAW AS WELL AS ON FACTS IN DISALLOWING RS.30884/ - BEING ESIC DAMAGE EXPENSES AS PENALTY AND LD CIT(A) ERRED IN CONFIRMING THE SAME. 25 . THE MEMORANDUM OF CROSS - OBJECTI ONS FILED BY THE ASSESSEE IS BAR RED BY LIMITATION BY AS MANY AS 362 DAYS. IT IS NOT A QUESTION OF DELAY OF FEW DAYS BUT ALMOST OF A YEAR. THOUGH THE ASSESSEE HAS FILED A PAPER BOOK BEFORE US, THE ASSESSEE HAS NOT FILED ANY APPLICATION SEEKING CONDONATION O F DELAY IN FILING THE MEMORANDUM OF CROSS - OBJECTIONS. IN THE ABSENCE OF ANY REQUEST FOR CONDONATION OF DELAY BY THE ASSESSEE , THE DELAY IN FILING THE MEMORANDUM OF CROSS - OBJECTION CANNOT BE CONDONED. MEMORANDUM OF CROSS - OBJECTIONS FILED BY THE ASSESSEE IS THEREFORE DISMISSED IN - LIMINE. T 19 . 0 4 .201 3 T ORDER PRONOUNCED ON 19 .0 4 . 2013 SD/ - SD/ - ( E.. H / T. K. SHARMA) ( .. / D. K. SRIVASTAVA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /RAJKOT : 19 .0 4 . 2013 BJ 14 ITA 948 OF 201 0 & CO 56 OF 201 1 6 JO' IO / COPY OF ORDER FORWARDED TO: - 1.D /APPELLANT - ACIT, CIR - 2, JAMNAGAR 2 RD /RESPONDENT - M/S. HIRAVATI INTERNATIONAL PVT LTD., JAWARNAKA, PORBANDAR 3. E N / CIT, JAMNAGAR 4. N - / CIT(A) - JAMNAGAR 5. E, E E, / DR, ITAT, RAJKOT 6. H / GUARD FILE / BY ORDER , TRUE COPY PRIVATE SECRETARY, ITAT, RAJKOT