COMMISSIONER OF INCOME TAX-1 V. HARDIK FABRICS

TAXAP/770/2013

AI Insights

The case revolves around a dispute concerning the addition of Rs. 45,72,591 as income under Section 41(1) of the Income Tax Act, which was initially added by the Assessing Officer and upheld by the CIT(A). The ITAT, however, reversed this decision, leading to the present appeal by the revenue. The main contention was whether the sundry creditors listed by the assessee were genuine and whether the liabilities were trading liabilities that had ceased to exist. The ITAT found that the assessee had provided sufficient evidence to substantiate the existence of the creditors and that the creditors' failure to recover debts did not imply the liabilities had ceased.

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 741755 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 16-09-2013
• Assessment Year: misc
• Laws Referred To: Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: MANISH SHAH
• Assessee Lawyers: MANAV MEHTA
• Keywords: Assessment Year 2007-08; Deletion of addition; Income Tax; Section 41(1); Sundry creditors
• Section: 142(1); 143(2); 143(1); 41(1)

Judgement Text

"O/TAXAP/770/2013 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 770 of 2013 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MS JUSTICE SONIA GOKANI ====================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ====================================== COMMISSIONER OF INCOME TAX-1....Appellant(s) Versus HARDIK FABRICS....Opponent(s) ====================================== Appearance: MR MANAV A MEHTA, ADVOCATE for the Appellant(s) No. 1 MR MANISH J SHAH, ADVOCATE for the Opponent(s) No. 1 ====================================== CORAM: HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MS JUSTICE SONIA GOKANI Date : 16/09/2013 ORAL JUDGMENT Page 1 of 5 O/TAXAP/770/2013 JUDGMENT (PER : HONOURABLE MR.JUSTICE M.R. SHAH) 1. The present Tax Appeal has been preferred by the revenue challenging the impugned judgment and order passed by the Income Tax Appellate Tribunal dated 16/12/2011 in ITA No. 58/Ahd./2011 with respect to the Assessment Year 2007-08 raising the following proposed questions of law; (A) Whether on facts and circumstances of the case and in law, the tribunal has erred in law in deleting the addition of Rs.45,72,591/- made by the Assessing Officer under Section 41(1) of the Act and confirmed by the learned CIT(A)? (B) Whether on facts and circumstances of the case and in law, the tribunal has erred in law by not appreciating the fact that assessee has not furnished confirmations in respect of sundry creditors in question even after providing sufficient opportunities? (C) Whether on facts and circumstances of the case and in law, the tribunal has erred in law by not appreciating the fact that assessee has not established the existence of the trading liability in respect of these sundry creditors? 2. The facts leading to the present Tax Appeal in a nutshell are as under; 2.1. The assessee filed the return of income for the Assessment Year 2007-08 on 06/12/2007 declaring the total income as ‘NIL’. The same was processed under Section 143(1) of the Income Tax Act (hereinafter referred to as ‘the Act’). Subsequently, the case was selected for scrutiny and Page 2 of 5 O/TAXAP/770/2013 JUDGMENT notice under Section 143(2) of the Act was issued on 10/09/2008. Even the notice alongwith the questionnaire under Section 142(1) of the Act was also issued on 18/11/2008. In response to the notice, the assessee appeared before the authority. It was submitted that up to the last year and during the year, no business activity has been carried out by the assessee. The assesee was requested to furnish the confirmation of creditors list; the list of the debtors alongwith the name and address; the inventory of stock of Rs.1,97,945/- alongwith the books of accounts. The Assessing Officer passed an order of assessment and held that the amount of Rs.45,72,591/- shown as due and payable to the various sundry creditors as profit chargeable under Section 41(1) of the Act is a trading liability as existence of sundry creditors has not been established by the assessee. 2.2. Being aggrieved and dissatisfied with the order of assessment, the assessee preferred appeal before the CIT(A). The CIT(A) dismissed the appeal confirming the order of assessment passed by the Assessing Officer upholding the action of the Assessing Officer in treating the sundry creditors to the extent of Rs.45,72,591/- as ceased to exist during the accounting year for the relevant assessment year under consideration. 2.3. Being aggrieved and dissatisfied with the order passed by the CIT(A), the assessee preferred appeal before the ITAT and by impugned judgment and order ITAT has allowed the said appeal directing to delete the addition made by the Assessing Officer for Rs.45,72,591/- under Section 41(1) of the Act, which came to be further confirmed by the CIT(A). Being aggrieved Page 3 of 5 O/TAXAP/770/2013 JUDGMENT and dissatisfied with the impugned judgment and order passed by the ITAT, the revenue is before this Court by way of the present Tax Appeal with the aforesaid proposed question of law. 3. Heard Shri Manav Mehta, learned advocate appearing on behalf of the appellant and Shri Manish J. Shah, learned advocate appearing on behalf of the respondent-assessee. At the outset, it is required to be noted and it is not disputed that in the previous year also the sundry creditors were considered as sundry creditors and the existence and/or identity of the sundry creditors was never doubted. The only contention on behalf of the revenue is that they are sundry creditors since long and, therefore, it is very surprising that the sundry creditors had not taken any action to recover the amount. However, it is required to be noted and as stated hereinabove, in view of the earlier Assessment Years, those persons, who are shown as sundry creditors, the same has been accepted by the Assessment Officer. On perusal of the impugned judgment and order passed by the ITAT and while allowing the appeal, the ITAT has observed in paragraph 8 as under; “We have heard the rival submissions and perused the materials on record and the paper book submitted by the assessee running from 1 to 30 pages. From the facts before us, it is evident that the assessee had furnished the list of sundry creditors before the revenue alongwith the balance-sheet and other particulars. The assessee has also furnished confirmation statement to the extent of Rs.17 lakhs from four parties. The assessee had not conducted any business activities during the previous Page 4 of 5 O/TAXAP/770/2013 JUDGMENT year. Therefore, it is apparent that all the sundry creditors pertained to the earlier years which remain to be paid. The assessee’s submission that the creditors did not co-operate with the assessee to furnish confirmation statement since they were aggrieved for not being paid in due time by the assessee, cannot be brushed aside. When all the facts were before the revenue, the revenue had enough authority to make some enquiries on the bona fides of the creditors. Further, the revenue has not brought anything on record to show that the sundry creditors had forgone their debts in favour of the assessee. From the case laws relied upon by the assessee supra, it is obvious that such addition under Section 41(1) of the Act cannot be made by the revenue in these circumstances.” 4. In view of the aforesaid facts and circumstances, it cannot be said that the tribunal has committed any error in deleting the addition made by the Assessing Officer for Rs.45,72,591/- under Section 41(1) of the Act, which was further confirmed by the CIT(A). We see no reason to interfere with the impugned judgment and order. No question of law, much less substantial question of law, arises in the present Tax Appeal. Under the circumstances, the present Tax Appeal deserves to be dismissed and is accordingly dismissed. (M.R.SHAH, J.) (MS SONIA GOKANI, J.) Siji Page 5 of 5 "