COMMISSIONER OF INCOME TAX AHMEDABAD III V. PURIDEVI MAHENDRAKUMAR CHAUDHARY

TAXAP/944/2013

AI Insights

The case revolves around an appeal by the Commissioner of Income Tax, Ahmedabad against Puridevi Mahendrakumar Chaudhary concerning the deletion of an addition of Rs. 51,37,327 to the assessee's income under Section 41(1) of the Income Tax Act, 1961. The addition was initially made by the Assessing Officer, suspecting the genuineness of outstanding creditors' liabilities which were over three years old. The CIT(A) and subsequently the ITAT found that the mere age of the liability did not justify its cessation or deletion from the books, leading to the revenue's appeal to the High Court. The High Court, referencing precedents, upheld the ITAT's decision, dismissing the revenue's appeal.

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 741749 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 19-11-2013
• Assessment Year: misc
• Other Referred Cases: CIT Calcutta vs. Sugauli Sugar Works Pvt, CIT vs. Nitin S. Garg
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Assessee Lawyers: VARUN PATEL
• Keywords: Assessment; Cessation of liabilities; Creditors; Income Tax; Liabilities; Liabilities
• Section: 142(1); 143(2); 143(1); 133(6); 41(1)

Judgement Text

"O/TAXAP/944/2013 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 944 of 2013 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE M.R. SHAH ­ sd/­ and HONOURABLE MR.JUSTICE R.P.DHOLARIA ­ sd/­ ============================================ 1. Whether Reporters of Local Papers may be allowed to see the judgment ? NO 2. To be referred to the Reporter or not ? NO 3. Whether their Lordships wish to see the fair copy of the judgment ? NO 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 ? NO 5. Whether it is to be circulated to the civil judge ? NO ============================================= COMMISSIONER OF INCOME TAX AHMEDABAD III....Appellant(s) Versus PURIDEVI MAHENDRAKUMAR CHAUDHARY....Opponent(s) ============================================= Appearance: MR.VARUN K.PATEL, ADVOCATE for the Appellant(s) No. 1 ============================================= CORAM: HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MR.JUSTICE R.P.DHOLARIA Date : 19/11/2013 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE M.R. SHAH) 1.0. Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the learned Income Tax Appellate Tribunal (hereinafter referred to as the \"Tribunal\") dated 5.04.2013 passed in ITA No.1698/AHD/2010 for AY 2009­10, the revenue has preferred present appeal with the following proposed substantial question of law. Page 1 of 6 O/TAXAP/944/2013 JUDGMENT 2.0. The facts leading to the present appeal in nutshell are as under: 2.1. That the assessee is the proprietor of M/s. Shri Rajaram Dhanvarsha Exports, in which, she has carried out the business of wholesale of cotton grey fabrics. During the year under consideration, the assessee shown sales of Rs. 2,76,12,707/­ from which she has shown net profit of Rs.2,72,427/­ @ 0.99%. The assessee filed return of income for the assessment year under consideration declaring a total income at Rs.1,72,250/­ The said return was processed under Section 143(1) of the Income Tax Act, 1961 (hereinafter referred to as the \"Act\") and was selected for random scrutiny by issuing notice under Section 143(2) of the Act. A notice under Section 142(1) of the Act issued on 2.2.2011. Further notices under Section 142(1) of the Act were issued. That during the course of the assessment proceedings, Tax Audit Report was furnished in Form 3CD. During the course assessment proceedings, assessee was also required to be produced the books of account along with bills and vouchers and the same were produced. During the course of assessment proceedings, it was observed by the Assessing Officer that the assessee had outstanding \"creditors for goods\" Rs. 2,53,74,512/­ which according to Assessing Officer was abnormally high considering the fact that the assessee had made purchases of Rs. 2,64,14,747/­ and therefore, creditors were almost equivalent to the expenditure incurred on purchases. Therefore, to verify the genuineness of the outstanding creditors, the assessee was required to furnish details of the creditors with a comparative chart, comparing the creditors outstanding during the the FY 2006­07, 2007­08 and 2008­09, it was found that several creditors were more than three years old. The assessee was required to furnish the ledger account for the FY 2008­09, 2009­10 and 2010­11 in the case of outstanding creditors having balance sheet in excess of Rs.5 Page 2 of 6 O/TAXAP/944/2013 JUDGMENT lacs, to further examine on test check basis as to whether the creditors has been paid off in the subsequently years. It was found by the Assessing Officer from the ledger account of the subsequent years that the creditors had not been paid off except in the cases of M/s. Siranjeevi Textiles, Pakladom and Shri Vaishno Fab, Isanpur where partial payments were made in subsequent years. The assessee was also required to furnish addresses of such creditors. On the basis of the address supplied by the assessee, notice under Section 133(6) of the Income Tax Act were issued to 11 creditors calling upon for ledger account confirmations. With respect to 14 creditors referred to para 5.7 of Assessment Order, it was found that an amount of Rs.51,37,327/­ were outstanding for three years. Therefore, while passing the assessment order, the Assessment Officer made two additions i.e. additions of Rs.64,47,623/­ under Section 41(1) of the Act by observing that the said liability of Rs.64,47,623/­as reflected in the balance­sheet for the AY 2009­10 and in fact ceased to exist and the assessee had obtained a benefit in respect of such trading liability by way of cessation thereof (it is to be noted that said addition is not subject matter of present appeal). While passing the assessment order, the Assessing Officer made addition of Rs.51,37,327/­ with respect to those creditors whose liability is found to be more than three years and solely on that ground made addition. 2.2. Feeling aggrieved and dissatisfied with assessment order passed by the Assessing Officer making the addition of aforesaid two amounts under Section 41(1) of the Act, the assessee preferred appeal before the learned CIT(A) and learned CIT(A) partly allowed the said appeal deleting the addition of Rs.51,37,327/­, which was made by the AO solely on the ground that the said liability is of more than three years, however confirmed the additions of Rs.64,47,623/­. Page 3 of 6 O/TAXAP/944/2013 JUDGMENT 2.3. Feeling aggrieved and dissatisfied with the order passed by the learned CIT(A) in so far as deleting the addition of Rs. 51,37,327/­, the revenue preferred ITA No.1698 of 2012 before the learned ITAT and relying upon the decision of the Hon'ble Supreme Court in the case of CIT Calcutta vs. Sugauli Sugar Works Pvt reported in 236 ITR 518 (SC) and the decision of this Court in the case of CIT vs. Nitin S. Garg reported in (2012 208 Taxman 16 (Guj), the learned ITAT has dismissed the said appeal preferred by the revenue. It is to be noted that against the confirmation of addition of Rs.64,47,623/­ by the learned CIT (A), the assessee preferred appeal before the learned ITAT being ITA NO. 1426 of 2012 and learned ITAT has allowed the said appeal deleting the addition of Rs. 51,37,327/­, which is subject matter of Tax Appeal No. 943 of 2013 (with which we are not concerned in the present appeal). 2.4. Feeling aggrieved and dissatisfied with the judgment and order passed by the learned Tribunal in deleting the addition of Rs.51,37,327/­ under Section 41(1) of the Act, the revenue has preferred the present appeal. 3.0. Heard Shri Varun Patel, learned advocate for the appellant­ revenue and perused the impugned judgment and order passed by the learned ITAT as well as order passed by the learned CIT(A) as well as assessment order. At the outset, it is required to be noted that AO made addition of Rs.51,37,327/­ with respect to creditors liability on the ground that said liability is of more than three years. Relying upon the decision of the Hon'ble Supreme Court in the case of Sugauli Sugar Works Pvt (supra) and the decision of this Court in the case of Nitin Garg (supra), the learned CIT (A) has deleted the said addition of Page 4 of 6 O/TAXAP/944/2013 JUDGMENT Rs.51,37,327/­ made under Section 41(1) of the Act and the same has been confirmed by the learned ITAT. In the case of Sugauli Sugar Works Pvt (supra) in para 15 the Hon'ble Supreme Court has observed as under: \"14.As pointed out in the case of Sugauli Sugar Works Pvt (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 decided by considering the assessee's case alone 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 unenforceable. 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\". 4.0. In the case of Nitin S. Garg (supra) this Court has observed and held as under: \"It had not been established that the assessee had written off the outstanding liabilities in the books of account. The Tribunal was justified in taking the view that the assessee had continued to show the admitted amounts as liabilities in the balance sheet, the same could not be treated as cessation of liabilities. Merely because, the liabilities were outstanding for last many years, it could not be inferred that the said liabilities has ceased to exist. The Tribunal had rightly observed that the Assessing Officer would have to prove that the assessee had obtained the benefits in respect of such trading liabilities by way of remission or cessation thereof. Merely because, the assessee obtained benefit of reduction in the earlier years and balance was carried forward in the subsequent year, it would not prove that the trading liabilities of the assessee had become non existent.\" 5.0. Applying aforesaid ratio laid down by the Hon'ble Supreme Court as well as this Court and as the addition of Rs.51,37,327/­ was made solely on the basis that said liability is more than three years, it Page 5 of 6 O/TAXAP/944/2013 JUDGMENT cannot be said that the learned ITAT has committed any error in deleting the addition of Rs. 51,37,327/­ made under Section 41(1) of the Act. We see no reason to interfere with the impugned judgment and order passed by the learned Tribunal. No question of law much less any substantial question of law arises in the present appeal. Hence, present appeal deserves to be dismissed and is accordingly dismissed. sd/­ (M.R.SHAH, J.) sd/­ (R.P.DHOLARIA,J.) Kaushik Page 6 of 6 "