ACIT, V. Shri. S.V. Bharath, Bangalore

ITA 134/BANG/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8657 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-02-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 11-01-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 24-01-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL

Judgement Text

ITA.134/BANG/2014 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'A', BANGALORE BEFORE SHRI. ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI. VIJAYPAL RAO, JUDICIAL MEMBER I.T.A NO.134/BANG/2014 (ASSESSMENT YEAR : 2006-07) ASST. COMMISSIONER OF INCOME TAX, CIRCLE -9(1), BANGALORE .. APPELLANT V. SHRI. S. V. BHARATH, 312/7, 1 ST CROSS ROAD, MCR LAYOUT, BEANNA IND. ESTATE, VIJAY NAGAR, BANGALORE 560 079 .. RESPONDENT PAN : AEXPB3500M ASSESSEE BY : NONE REVENUE BY : DR. P. K. SRIHARI, ADDL. CIT HEARD ON : 11.01.2016 PRONOUNCED ON : 02.02.2016 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY REVENUE, ITS GRIEVANCE IS THAT CIT (A) DELETED AN ADDITION OF RS.41,25,123/- MADE BY THE AO FOR UN SECURED LOAN TAKEN BY THE ASSESSEE, INTRODUCED AS CAPITAL IN HIS PROPRIET ORSHIP BUSINESS. ITA.134/BANG/2014 PAGE - 2 02. FACTS APROPOS ARE THAT ASSESSEE HAD FILED RETUR N FOR THE IMPUGNED ASSESSMENT YEAR DECLARING LOSS OF RS.11,06,692/-. AO DURING THE COURSE OF ASSESSMENT FOUND THAT THERE WAS A CREDIT OF RS.41,2 5,123/- IN THE CAPITAL ACCOUNT OF THE ASSESSEE. THROUGH THIS CREDIT ASSES SEE HAD SQUARED UP UNSECURED LOAN OF AN EQUIVALENT AMOUNT. AO WAS OF THE OPINION THAT THERE WAS EXTINGUISHMENT OF LIABILITY TO THAT EXTENT AND HE MADE AN ADDITION OF RS.41,25,123/-. 03. IN ITS APPEAL BEFORE THE CIT (A), ARGUMENT OF T HE ASSESSEE WAS THAT IT HAD APPROACHED BANKS AND FINANCIAL INSTITUTIONS FOR LOAN AND FOR THE PURPOSE OF SHOWING A HEALTHY FINANCIAL POSITION BEF ORE SUCH AUTHORITIES, INCLUDED A PART OF THE UNSECURED LOANS FROM THE CRE DITORS IN THE CAPITAL ACCOUNT OF THE PROPRIETOR. AS PER THE ASSESSEE LOA N CREDITORS WERE ALL PROVED AND CONFIRMATIONS FILED. SINCE THE LOAN CRE DITORS WERE GENUINE, ARGUMENT OF THE ASSESSEE WAS THAT TRANSFER OF SUCH LOAN CREDITORS FROM UNSECURED LOANS TO CAPITAL ACCOUNT OF THE PROPRIETO R DID NOT GENERATE ANY REAL INCOME. 04. CIT (A) WAS APPRECIATIVE OF THESE CONTENTIONS. ACCORDING TO HIM, THERE WAS AN OPENING BALANCE OF RS.30.09 LAKHS AGAI NST NINE CREDITORS AND THERE WERE FRESH CREDITS OF RS.70.05 LAKHS FROM TWE NTY CREDITORS DURING THE ITA.134/BANG/2014 PAGE - 3 RELEVANT PREVIOUS YEAR. ASSESSEE HAD REPAID A SUM OF RS.96.45 LAKHS DURING THE RELEVANT PREVIOUS YEAR AND THE BALANCE R EMAINING AT THE END WAS RS.4.5 LAKHS, DUE TO SEVEN CREDITORS. AS PER THE C IT (A), THE SUM OF RS.96.45 LAKHS INCLUDED RS.41,25,123/- WHICH WAS A TRANSFER FROM LOAN ACCOUNT TO THE CAPITAL ACCOUNT OF THE ASSESSEE, AN D WHICH DID NOT REFLECT ANY ACTUAL REPAYMENT. ACCORDING TO HIM IT WAS ONLY A WINDOW-DRESSING OF THE FINANCIAL STATEMENTS ATTEMPTED BY THE ASSESSEE AND DID NOT REPRESENT ANY INCOME AT ALL. HE DELETED THE ADDITION MADE BY THE AO. 05. NOW BEFORE US, LD. DR SUBMITTED THAT SECTION 41 (1) OF THE ACT, SQUARELY APPLIED. ACCORDING TO HIM ASSESSEE COULD NOT DEMONSTRATE THAT THERE WAS NO CESSATION OF LIABILITY BY THE ACT OF T RANSFERRING THE LOANS DUE TO ITS CREDITORS TO THE PROPRIETORS CAPITAL ACCOUNT. 06. NOBODY APPEARED ON BEHALF OF THE ASSESSEE. 07. WE HAVE PERUSED THE ORDERS AND HEARD THE CONTEN TIONS OF THE LD. DR. SECTION 41(1) OF THE ACT, READ AS UNDER : SECTION 41 (1) WHERE AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN THE ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXP ENDITURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE (HEREINA FTER REFERRED TO AS THE FIRST-MENTIONED PERSON) AND SUBSEQUENTLY DUR ING ANY PREVIOUS YEAR, ITA.134/BANG/2014 PAGE - 4 (A) THE FIRST-MENTIONED PERSON HAS OBTAINED, WHETHE R IN CASH OR IN ANY OTHER MANNER WHATSOEVER, ANY AMOUNT IN RESPECT OF SUCH LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF SUCH T RADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF, THE AMOUN T OBTAINED BY SUCH PERSON OR THE VALUE OF BENEFIT ACCRUING TO HIM SHALL BE DEEMED TO BE PROFITS AND GAINS OF BUSINESS OR PROFE SSION AND ACCORDINGLY CHARGEABLE TO INCOME-TAX AS THE INCOME OF THE PREVIOUS YEAR, WHETHER THE BUSINESS OR PROFESSION I N RESPECT OF WHICH THE ALLOWANCE OR DEDUCTION HAS BEEN MADE IS I N EXISTENCE IN THAT YEAR OR NOT; OR (B) THE SUCCESSOR IN BUSINESS HAS OBTAINED, WHETHER IN CASH OR IN ANY OTHER MANNER WHATSOEVER, ANY AMOUNT IN RESPECT OF WHICH LOSS OR EXPENDITURE WAS INCURRED BY THE FIRST-MENTIONED PERSON OR SOME BENEFIT IN RESPECT OF THE TRADING LIABILITY REFERRE D TO IN CLAUSE (A) BY WAY OF REMISSION OR CESSATION THEREOF, THE AMOUN T OBTAINED BY THE SUCCESSOR IN BUSINESS OR THE VALUE OF BENEFIT A CCRUING TO THE SUCCESSOR IN BUSINESS SHALL BE DEEMED TO BE PROFITS AND GAINS OF THE BUSINESS OR PROFESSION, AND ACCORDINGLY CHARGEA BLE TO INCOME- TAX AS THE INCOME OF THAT PREVIOUS YEAR. 08. IN OUR OPINION, NONE OF THE AUTHORITIES HAVE VE RIFIED WHETHER THE INGREDIENTS REQUIRED TO BE SATISFIED AS PER THE ABO VE SECTION, FOR INVOKING IT HAVE BEEN SATISFIED. NO VERIFICATION HAS BEEN DONE WHETHER THE LOANS WHICH GOT SQUARED UP DUE TO THE TRANSFER FROM CREDITORS ACCOUNT TO THE PROPRIETORS CAPITAL ACCOUNT REPRESENTED ANY EXPEND ITURE FOR WHICH DEDUCTION WAS CLAIMED BY THE ASSESSEE IN ANY EARLIE R ASSESSMENT YEARS. WE ARE THEREFORE OF THE OPINION THAT THE MATTER REQUIR ES A FRESH LOOK BY THE AO. ITA.134/BANG/2014 PAGE - 5 WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AN D REMIT THE ISSUE BACK TO THE AO FOR DECIDING IT AFRESH. 09. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 2 ND DAY OF FEBRUARY, 2016. SD/- SD/- (VIJAYPAL RAO) (ABRAH AM P GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER MCN COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER ASSISTANT REGISTRAR