Shri Jagdishbhai Kanaiyalal Patel, Ahmedabad V. The ACIT, Circle-6, Ahmedabad

ITA 1339/AHD/2014

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 1160 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 4 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 06-05-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K DEV
• Assessee Lawyers: K C THAKKAR
• Section: 143(3)

Judgement Text

, A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMEBR ./ I.T.A. NO. 1339/AHD/2014 ( ASSESSMENT YEAR : 2010-11) JAGDISHBHAI KANAIYALAL PATEL PROP. FAIR DEAL CONSULTANCY, 79, VAIBHAV BUNGLOW, PART- 1-II, NR. SUN-N-STEP CLUB, MEMNAGAR, AHMEDABAD- 380052 / VS. A.C.I.T. CIRCLE-6, AHMEDABAD ./ ./ PAN/GIR NO. : ACMPP1809N ( APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI K. C. THAKKAR, A.R. / RESPONDENT BY : SHRI S. K. DEV, SR.D.R. DATE OF HEARING 17/09/2018 !'# / DATE OF PRONOUNCEMENT 18/09/2018 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE ASSESSEE AGAINST THE ORDER OF THE CIT(A)-XVI, AHMED ABAD (CIT(A) IN SHORT), DATED 03.03.2014 ARISING IN THE ASSESSME NT ORDER DATED 26.12.2012 PASSED BY THE ASSESSING OFFICER (AO) UND ER S. 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT) CONCERNING AY 20 10-11. ITA NO.1339/AHD/14 [JAGDISHBHAI K. PATEL VS. ACIT] A.Y. 2010-11 - 2 - 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE READS AS UNDER: 1. THE LEARNED C.I.T.(A) HAS ERRED IN LAW AND ON F ACTS IN CONFIRMING THE DISALLOWANCE OF RS.10,50,000/- BEING THE BUSINESS PROMOTION EXPENSES. 2. THE LEARNED C.I.T.(A) HAS FURTHER ERRED IN LAW A ND ON FACTS IN CONFIRMING THE DISALLOWANCE OF RS.21,47,180/- U/S.4 1(1) OF THE ACT AS SEIZED LIABILITY. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED C.I.T.(A) OUGHT TO HAVE DELETED THE DIS ALLOWANCE OF RS.10,50,000/- AND OF RS.21,47,180/- REFERRED TO AB OVE. 4. IT IS THEREFORE PRAYED THAT THE DISALLOWANCE OF RS.10,50,000/- AND OF RS.21,47,180/- MAY BE DELETED. 3. IN THE COURSE OF HEARING, THE LEARNED AR FOR TH E ASSESSEE POINTED OUT THAT HE DOES NOT SEEK TO PRESS THE GROUND NO.1 AND GROUND NO.4 CONCERNING DISALLOWANCE OF RS.10,50,000/- TOWARDS B USINESS PROMOTION EXPENSES. CONSEQUENTLY, GROUND NOS. 1 & 4 ARE DISMISSED AS NOT PRESSED. 4. AS REGARDS REMAINING GROUND CONCERNING DISALLOWA NCE UNDER S.41(1) OF THE ACT, THE LEARNED AR FOR THE ASSESSEE REFERRED TO THE ASSESSMENT ORDER AND POINTED OUT THAT THE DISALLOWA NCE AMOUNT OF RS.21,47,180/-REPRESENTS COMMISSION EXPENDITURE INC URRED IN THE EARLIER YEAR AND REMAINED UNPAID DURING THE ASSESSM ENT YEAR. IT WAS CONTENDED THAT THE AO HAS WRONGLY TREATED THE AFORE SAID LIABILITY TO BE BOGUS AND NOT AN ACTUAL LIABILITY. THE LEARNED AR POINTED OUT THAT THE AO ACCORDINGLY TREATED THE LIABILITY SHOWN IN THE B ALANCE SHEET AS NON-GENUINE AND A CASE OF CESSATION OF LIABILITY. THE AO CONSEQUENTLY INVOKED SECTION 41(1) OF THE ACT AND PROCEEDED TO E NHANCE THE TAXABLE INCOME BY THE AGGREGATE LIABILITY OF RS.21,47,180/- . IN THIS REGARD ON BEING INQUIRED IN THE COURSE OF HEARING, THE LEARNE D AR FURNISHED LEDGER ACCOUNT OF THE VARIOUS PARTIES TO SHOW THAT THE LIABILITIES BEING ULTIMATELY REPAID WHOLLY OR PARTLY IN THE SUBSEQUEN T ASSESSMENT YEARS, ONE CANNOT SAY THAT THERE WAS CESSATION OF LIABILIT Y BY ANY MEANS AS ITA NO.1339/AHD/14 [JAGDISHBHAI K. PATEL VS. ACIT] A.Y. 2010-11 - 3 - CONTEMPLATED UNDER S.41(1) OF THE ACT. THE LEARNED AR THEREAFTER RELIED UPON THE DECISION OF THE HONBLE GUJARAT HIG H COURT IN THE CASE OF CIT VS. PURIDEVI MAHENDRAKUMAR CHAUDHARY [2014] 221 TAXMAN 367 (GUJ); CIT VS. NITIN S. GARG [2012] 208 TAXMAN 16 (GUJ) AND CIT VS. HARDIK FABRICS [2013] 86 CCH 195 (GUJ) FOR THE PROPOSITION THAT IN THE GIVEN FACTS, THE REMISSION OR CESSATION OF LIABILITY UNDER S.41(1) OF THE ACT CANNOT BE ASSUMED AND INFERRED A GAINST THE ASSESSEE. 5. THE LEARNED DR FOR THE REVENUE ON THE OTHER HAND RELIED UPON THE ORDER OF THE LOWER AUTHORITIES. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND CASE LAWS C ITED AT BAR. THE APPLICABILITY OF SECTION 41(1) OF THE ACT ON OUTSTA NDING LIABILITIES EMANATING FROM BUSINESS ACTIVITIES AS REFLECTED IN THE BALANCE SHEET HAS BEEN CALLED FOR IN QUESTION. SECTION 41(1) OF THE ACT STATES THAT WHERE AN ALLOWANCE IN RESPECT OF AN EXPENDITURE OR TRADING LIABILITY ETC. IS MADE IN A YEAR AND THE ASSESSEE OBTAINS ANY BENEFIT, WHETHER IN CASH OR OTHERWISE IN A SUBSEQUENT YEAR, SUCH BENEFI T SHALL BE DEEMED TO BE PROFITS AND GAINS OF THE BUSINESS OF THAT SUB SEQUENT YEAR, WHETHER SUCH BUSINESS IS IN EXISTENCE OR NOT IN THA T SUBSEQUENT YEAR. THE SECTION HAS AN EFFECT OF DEEMING SUCH CESSATION OR REMISSION OF LIABILITY AS INCOME IN DEPARTURE WITH THE GENERAL L AW WHERE SUCH REMISSION OR CESSATION IS NOT REGARDED AS AN INCOME . IN THIS BACKGROUND, WE EXAMINE THE FACTUAL MATRIX. THE LIA BILITY TOWARDS OUTSTANDING EXPENSES HAVE BEEN DECLARED AND SHOWN I N THE BALANCE SHEET OF THE ASSESSEE AS OUTSTANDING PAYABLE DURING THE ASSESSMENT YEAR IN QUESTION. THE PLEA OF THE ASSESSEE ARE OF THE TWO FOLD; FIRSTLY, WHEN LIABILITY IS SHOWN AS SUBSISTING AND RECKONED BY THE ASSESSEE AS PAYABLE, THE CESSATION THEREOF CANNOT BE PRESUMED A ND SECONDLY, THE LIABILITY HAS BEEN ACTUALLY PAID IN THE ENSUING YEA RS AS DEMONSTRABLE ITA NO.1339/AHD/14 [JAGDISHBHAI K. PATEL VS. ACIT] A.Y. 2010-11 - 4 - FROM THE LEDGER ACCOUNTS. WE FIND STRONG MERIT IN THE PLEA RAISED ON BEHALF OF THE ASSESSEE IN THE LIGHT OF THE FACT THA T THE LIABILITIES HAVE BEEN ACTUALLY SQUARED UP IN THE SUBSEQUENT ASSESSME NT YEAR BY PAYMENT. ALL OTHER CONSIDERATIONS THUS FADE INTO I NSIGNIFICANCE. THIS ALSO PROVES THAT THE TRADING LIABILITIES HAD NOT BE COME NON-EXISTENT. THUS, IN OUR VIEW, THE CIT(A) COMMITTED ERROR IN CO NFIRMING THE ACTION OF THE AO. THE ADDITION MADE UNDER S.41(1) OF THE ACT AMOUNTING TO RS.21,47,180/- THUS REQUIRES TO BE DEL ETED AS PLEADED ON BEHALF OF THE ASSESSEE. THE AO IS ACCORDINGLY DIRE CTED TO DO SO. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. SD/- SD/- (MAHAVIR PRASAD) (PRADIP KUMA R KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: DATED 18/09/2018 S. K. SINHA !'#' / COPY OF ORDER FORWARDED TO:- &. / REVENUE 2. / ASSESSEE (. )*+ , / CONCERNED CIT 4. ,- / CIT (A) /. 012 33*+4 *+#4 56) / DR, ITAT, AHMEDABAD 7. 289 : / GUARD FILE. BY ORDER / 4 /5 *+#4 56) THIS ORDER PRONOUNCED IN OPEN COURT ON 18/09/201 8