M/s. Prakash Metal Industries, Pune V. ITO, Ward 2(1), Pune

ITA 1124/PUN/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79848 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 23-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJEEV HARIT
• Assessee Lawyers: K SRINIVASAN
• Keywords: Additional evidence
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHE A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA NO.1124/PN/2013 (ASSESSMENT YEAR : 2009-10) M/S PRAKASH METAL INDUSTRIES, 427/6, GULTEKADI INDUSTRIAL ESTATE, GULTEKADI, PUNE 411 037. PAN : AADFP8869K . APPELLANT VS. INCOME TAX OFFICER, WARD- 2(1), PUNE. . RESPONDENT ASSESSEE BY : MR. K. SRINIVASAN DEPARTMENT BY : MR. RAJEEV HARIT DATE OF HEARING : 20-05-2014 DATE OF PRONOUNCEMENT : 30-05-2014 ORDER PER G. S. PANNU, AM THE CAPTIONED APPEAL BY THE ASSESSEE IS DIRECTED AG AINST AN ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-II, PUNE D ATED 18.12.2012 WHICH, IN TURN, HAS ARISEN FROM AN ORDER DATED 28.12.2011 PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT), PERTAINING TO THE ASSESSMENT YEAR 2009-10. 2. IN THIS APPEAL, THE SOLITARY DISPUTE IS WITH REG ARD TO AN ADDITION OF RS.22,51,686/- SUSTAINED BY THE CIT(A) AFFIRMING TH E ACTION OF THE ASSESSING OFFICER INVOKING SECTION 41(1) OF THE ACT. 3. IN BRIEF, THE RELEVANT FACTS ARE THAT ASSESSEE I S A PARTNERSHIP FIRM WHICH IS ENGAGED IN THE MANUFACTURE AND JOB WORK OF ENGIN EERING PRODUCTS. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFF ICER NOTICED FROM THE BALANCE SHEET OF THE FIRM THAT ON THE LIABILITIES S IDE UNDER THE HEAD CREDITORS A SUM OF RS.12,00,000/- WAS APPEARING AS PAYABLE TO I NDOSWE ENGINEERING LTD. ITA NO.1124/PN/2013 A.Y. 2009-10 AND A SUM OF RS.10,51,686/- WAS APPEARING AS PAYABL E TO ONE M/S INDIA COPPER INDUSTRIES. THE ASSESSING OFFICER CALLED FO R CERTAIN DETAILS IN RESPECT OF THE AFORESAID CREDITORS, SUCH AS CONFIRMATIONS, ETC. AND REQUIRED THE ASSESSEE TO ESTABLISH THE GENUINENESS OF THE CREDIT ORS. THE ASSESSING OFFICER FOUND THAT THE DETAILS FURNISHED BY THE ASSESSEE WE RE INCONCLUSIVE TO ESTABLISH THE GENUINENESS OF THE CREDITORS APPEARING IN THE B ALANCE SHEET AND HE HELD THAT THE LIABILITY TO REPAY THE AFORESAID CREDITORS HAD CEASED TO EXIST AND ACCORDINGLY HE INVOKED SECTION 41(1) OF THE ACT AND ADDED THE AFORESAID AMOUNTS AS CESSATION OF LIABILITY. 4. BEFORE THE CIT(A), ASSESSEE SUBMITTED THAT BOTH THE LIABILITIES WERE EXISTING AND THAT THERE WAS NO CESSATION OF LIABILI TY WITHIN THE MEANING OF SECTION 41(1) OF THE ACT. WITH RESPECT TO THE M/S INDOSWE ENGINEERING LTD., ASSESSEE EXPLAINED TO THE CIT(A) THAT DURING THE AS SESSMENT PROCEEDINGS AN EXPLANATION WAS FURNISHED TO THE EFFECT THAT THE CR EDIT WAS ON ACCOUNT OF PURCHASES MADE FROM THE SAID PARTY IN AN EARLIER YE AR. BEFORE THE CIT(A), IT WAS CLARIFIED THAT SINCE THE MATTER WAS VERY OLD TH E BOOKS OF ACCOUNT WERE CHECKED UP AND IT WAS FOUND THAT THE SAID AMOUNT WA S INDEED A BORROWING MADE DURING THE PERIOD 1999-2000. HOWEVER, DUE TO TECHNICAL MISTAKE OF THE ACCOUNTANT, THE SAID AMOUNT WAS WRONGLY INCLUDED IN THE LIST OF SUNDRY CREDITORS OVER THE YEARS AND THEREFORE A WRONG EXPL ANATION WAS FURNISHED BEFORE THE ASSESSING OFFICER AT THE TIME OF ASSESSM ENT PROCEEDINGS. THE ASSESSEE ATTEMPTED TO CORRECT THE POSITION BEFORE T HE CIT(A) AND ALSO POINTED OUT THAT CORRESPONDING TO THE CREDIT OF RS.12,00,00 0/- ON ACCOUNT OF INDOSWE ENGINEERING LTD., AND EQUAL AMOUNT RECOVERABLE FROM A SISTER CONCERN OF THE SAID PARTY M/S FULCHAND DANMAL & COMPANY WAS ALSO A PPEARING IN THE BALANCE SHEET ON THE DEBIT SIDE, AND THEREFORE THE TWO AMOUNTS WERE SQUARED-UP. IN ANY CASE, IT WAS SOUGHT TO BE POINT ED OUT THAT THE LIABILITY STILL PERSISTED AND IN SUPPORT, ASSESSEE FURNISHED ITS AC COUNT EXTRACT RIGHT FROM BEGINNING I.E. FINANCIAL YEARS 1999-2000 TO 2006-07 TO POINT OUT THAT THE ITA NO.1124/PN/2013 A.Y. 2009-10 AMOUNTS WERE OUTSTANDING. FURTHER, WITH REGARD TO RS.10,51,686/- IN RESPECT OF ANOTHER CREDITOR, M/S INDIA COPPER INDUSTRIES, A SSESSEE SUBMITTED THAT THE SAID AMOUNT WAS OUTSTANDING AGAINST MATERIAL PURCHA SED IN THE EARLIER YEARS. HOWEVER, THE CIT(A) WAS NOT IMPRESSED BY THE ARGUME NT PUT-FORTH BY THE ASSESSEE AND HAS SUSTAINED THE ADDITION AS MADE BY THE ASSESSING OFFICER. AGAINST THE AFORESAID ACTION OF THE CIT(A), ASSESSE E IS IN FURTHER APPEAL BEFORE US. 5. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE POINTED OUT THAT THE EXPLANATION OF THE ASSESSEE HAS BEEN UNJUSTLY DISRE GARDED BY THE LOWER AUTHORITIES INASMUCH AS THE AMOUNTS WERE BEING SHOW N AS LIABILITIES IN THE BALANCE SHEET WHICH CLEARLY IMPLIED THAT THERE WAS NO CESSATION OF LIABILITY WITHIN THE MEANING OF SECTION 41(1) OF THE ACT. FU RTHERMORE, IT IS POINTED OUT THAT THE ASSESSING OFFICER HAS TREATED AMOUNTS AS C ESSATION OF LIABILITY ON MERE SURMISES AND CONJECTURES. IN THE COURSE OF HE ARING, A PAPER BOOK HAS ALSO BEEN FILED WHICH INTER-ALIA, CONTAINED THE MAT ERIAL PUT-FORTH BEFORE THE ASSESSING OFFICER AS WELL AS BEFORE THE CIT(A) DURI NG THE APPELLATE PROCEEDINGS. THE LEARNED COUNSEL HAS ALSO FURNISHE D A COPY OF THE REMAND REPORT SUBMITTED BY THE ASSESSING OFFICER TO THE CI T(A) WHEREBY THE ADDITIONAL EVIDENCE FURNISHED BEFORE THE CIT(A) HAS BEEN COMPL ETELY DISREGARDED WITHOUT ANY JUSTIFICATION OR REASONING. 6. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPR ESENTATIVE HAS POINTED OUT THAT THE EXPLANATION OF THE ASSESSEE TH AT THE AFORESAID CREDIT AMOUNTS COULD BE DEMANDED BY THE RESPECTIVE CREDITO RS AFTER A LONG PERIOD OF TIME IS NOT PLAUSIBLE AND ACCORDING TO HIM, SUCH LA PSE OF TIME SHOWED THAT THE LIABILITIES HAD INDEED CEASED TO EXIST WITHIN THE M EANING OF SECTION 41(1)(A) OF THE ACT. ITA NO.1124/PN/2013 A.Y. 2009-10 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. THE BONE OF CONTENTION BETWEEN THE ASSESSEE AND THE REVENUE IN THE PRESENT CASE REVOLVES AROUND SECTION 41(1)(A) OF THE ACT. SHORN OF OTHER DETAILS IT WOULD SUFFICE FOR THE PRESENT TO NOTICE THAT SECTION 41(1 )(A) OF THE ACT PRESCRIBES THAT WHERE AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN TH E ASSESSMENT FOR ANY YEAR IN RESPECT OF ANY EXPENDITURE OR TRADING LIABI LITY INCURRED BY THE ASSESSEE AND SUBSEQUENTLY DURING ANY PREVIOUS YEAR A BENEFIT ACCRUES IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF CESSATION THEREOF THEN SUCH AN AMOUNT SHALL BE DEEMED TO BE PROFITS AND GAINS OF BUSINESS AND PROF ESSION FOR THE RELEVANT PREVIOUS YEAR. IN THE PRESENT CASE, THE CHARGE MAD E BY THE REVENUE AGAINST THE ASSESSEE IS THAT THE AFORESAID AMOUNTS REFLECTE D AGAINST THE NAME OF THE TWO CREDITORS ARE OUTSTANDING FOR A LONG PERIOD OF TIME AND THEREFORE THE LIABILITY TO REPAY SUCH LIABILITIES HAS CEASED TO EXIST. IN THIS CONTEXT, FACTUALLY, IT IS QUITE CLEAR THAT THE AFORESAID CREDITS ARE APPEARING IN T HE BALANCE SHEET OF THE ASSESSEE AS LIABILITIES FOR A LONG PERIOD OF TIME. PERTINENTLY, WE ARE NOT GOING INTO THE DISPUTE REGARDING THE NATURE OF THE CREDIT IN RESPECT OF M/S INDOSWE ENGINEERING LTD., WHICH WAS CLAIMED BY THE ASSESSEE TO BE A LOAN LIABILITY OUTSIDE THE PURVIEW OF SECTION 41(1)(A) OF THE ACT BEFORE THE CIT(A) WHEREAS THE SAID EXPLANATION WAS NOT BEFORE THE ASSESSING O FFICER. FOR A MOMENT, WE ARE PROCEEDING ON THE BASIS THAT BOTH THE CREDITS A RE ON ACCOUNT OF TRADING LIABILITY INCURRED BY THE ASSESSEE IN THE PAST YEAR S AND THUS ARE LIABLE TO BE EXAMINED IN THE LIGHT OF SECTION 41(1)(A) OF THE AC T. EVEN THEN, WE ARE UNABLE TO APPRECIATE THE JUSTIFICATION FOR THE INCOME-TAX AUTHORITIES TO INVOKE SECTION 41(1)(A) OF THE ACT IN THE PRESENT CASE. WE SAY SO FOR THE REASON THAT THERE IS NO MATERIAL BROUGHT ON RECORD BY THE ASSESSING OFFI CER TO SUGGEST THAT THE DEBT HAS BEEN EXTINGUISHED OR THAT THE PARTIES CONC ERNED HAVE GIVEN UP THEIR CLAIMS WITH RESPECT TO THE IMPUGNED AMOUNTS. IN-FA CT, IN SO FAR AS THE ASSESSEES POSITION IS CONCERNED, THE CREDITS ARE B EING DULY DEPICTED IN THE BALANCE SHEET FROM YEAR TO YEAR AND SUCH DEPICTION CLEARLY SUGGEST THAT THE ASSESSEE ACCEPTS THE LIABILITY TO REPAY. IN THE AF ORESAID BACKGROUND, AND ITA NO.1124/PN/2013 A.Y. 2009-10 COUPLED WITH THE FACT THAT THERE IS NO CLINCHING MA TERIAL AGAINST THE ASSESSEE, THE ADDITION IS UNSUSTAINABLE. OSTENSIBLY, THE ONU S IS ENTIRELY ON THE REVENUE TO ESTABLISH THAT THE LIABILITIES HAD CEASED TO EXI ST WITHIN THE MEANING OF SECTION 41(1)(A) OF THE ACT. IN THIS CONTEXT, THE RELIANCE PLACED BY THE LEARNED COUNSEL FOR THE ASSESSEE ON THE JUDGEMENT OF THE HONBLE DE LHI HIGH COURT IN THE CASE OF CIT VS. HOTLINE ELECTRONICS LTD., (2012) 205 TAX MAN 245 (DELHI) IS QUITE APT. AS PER THE HONBLE DELHI HIGH COURT, SECTION 41(1)( A) OF THE ACT CANNOT BE INVOKED UNLESS THE ASSESSING OFFICER BRINGS ON RECO RD EVIDENCE OR MATERIAL TO SHOW THAT THE DEBT HAS BEEN EXTINGUISHED AND THE LI ABILITY OF THE ASSESSEE TO PAY THE SAME HAS CEASED. IN THE PRESENT CASE, THE A SSERTIONS OF THE ASSESSEE ALL ALONG HAVE BEEN THAT THE AMOUNTS ARE PAYABLE AN D THERE IS NO EFFORT MUCH LESS ANY VERIFICATION CARRIED OUT BY THE ASSESSING OFFICER FROM THE RESPECTIVE CREDITORS, WHICH COULD SHOW THAT THEY HAVE GIVEN UP THEIR CLAIM AGAINST THE ASSESSEE. THEREFORE, CONSIDERING THE FACTUAL SITUA TION AND THE PARITY OF REASONING LAID DOWN BY THE HONBLE DELHI HIGH COURT IN THE CASE OF HOTLINE ELECTRONICS LTD. (SUPRA) WE DO NOT FIND ANY JUSTIFI CATION FOR THE COMMISSIONER TO HAVE UPHELD THE ADDITION MADE BY THE ASSESSING OFFI CER OF RS.22,51,686/- BY INVOKING OF SECTION 41(1)(A) OF THE ACT. 8. BEFORE PARTING, WE MAY ALSO REFER TO THE RELIANC E PLACED BY THE CIT(A) ON THE JUDGEMENT OF THE HONBLE MADRAS HIGH COURT I N THE CASE OF SUNDARAM INDUSTRIES LTD. VS. CIT, 253 ITR 396 (MAD.) TO SUST AIN THE IMPUGNED ADDITION. THE HONBLE MADRAS HIGH COURT FOUND THAT THE FACTS BEFORE IT WERE IDENTICAL TO THOSE CONSIDERED BY THE HONBLE SUPREME COURT IN TH E CASE OF CIT VS. T.V. SUNDARAM IYENGAR AND SONS LTD., (1996) 222 ITR 344 (SC) AND THEREFORE, UPHELD THE ADDITION. THE SITUATION BEFORE THE SUPR EME COURT WAS THAT THE ASSESSEE ITSELF TREATED THE MONEY AS ITS OWN MONEY AND CREDITED THE AMOUNTS IN PROFIT & LOSS ACCOUNT; AND, IN SUCH A SITUATION THERE WAS NO EXPLANATION COMING FROM THE ASSESSEE AS TO WHY IT SHOWED SO, IF IT WAS SOMEBODY ELSES MONEY. IN SUCH A SITUATION, THE AMOUNTS WERE HELD TO BE RIGHTLY TREATED BY THE ITA NO.1124/PN/2013 A.Y. 2009-10 REVENUE AS INCOME OF THE ASSESSEE. IN THE PRESENT CASE, THE FACTS STANDS ON A COMPLETELY DIFFERENT FOOTING AS THERE IS NO ACTIO N TAKEN BY THE ASSESSEE TO TRANSFER THE CREDITS IN QUESTION TO ITS PROFIT & LO SS ACCOUNT. THEREFORE, THE JUDGEMENT OF THE HONBLE MADRAS HIGH COURT IN THE C ASE OF SUNDARAM INDUSTRIES LTD. (SUPRA) RELIED UPON BY THE CIT(A) D OES NOT HELP THE CASE OF THE REVENUE IN THE PRESENT CASE AS THE SAME IS APPLICAB LE IN A DIFFERENT FACT- SITUATION. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH MAY, 2014. SD/- SD/- (SHAILENDRA KUMAR YADAV) (G . S. PANNU) JUDICIAL MEMBER ACCOUNT ANT MEMBER PUNE, DATED : 30 TH MAY, 2014. SUJEET COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-II, PUNE; 4) THE CIT-II, PUNE; 5) THE DR A BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// SR. PRIVATE SECRETARY I.T.A.T., PUNE