Assistant Commissioner of Income Tax, Circle-4(3)(1), Bangalore V. Sri B T Nagaraj Reddy, Bangalore

ITA 1386/BANG/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 4720 (ITAT-BANGALORE)
• Duration Of Justice: 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-06-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 16-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PADMA MEENAKSHI JT BENGALURU
• Assessee Lawyers: H GURUSWAMY ITP
• Keywords: Additional evidence
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ITA NO. 1386/BANG/2017 ASSESSMENT YEAR : 2011 - 12 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 4(3)(1), BANGALORE. VS. SHRI B.T. NAGARAJ REDDY, SY.NO.63/1, NO.671, INDL. ESTATE, HOSUR MAIN ROAD, BOMMASANDRA, ANEKAL TALUK, BENGALURU 560 099. PAN: ABXPN 1965D APP ELL ANT RESPONDENT A PP EL LANT BY : SMT. PADMAMEENAKSHI, JT.CIT(DR)(ITAT), BENGA LURU. RE SPONDENT BY : SHRI H. GURUSWAMY, ITP DATE OF HEARING : 2 2 . 0 5 .201 8 DATE OF PRONOUNCEMENT : 01.06.2018 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER DATED 27.03.2017 OF THE CIT(APPEALS)-4, BANGALORE RELATIN G TO ASSESSMENT YEAR 2011-12. 2. THE ASSESSEE IS A SUPPLIER OF READYMADE MIX CON CRETE AND OTHER CONSTRUCTION MATERIAL FOR USE IN THE CONSTRUCTION I NDUSTRY. IN THE COURSE OF ASSESSMENT PROCEEDINGS U/S. 143(3) OF THE ACT, THE AO NOTICED THAT THERE WERE CREDITORS APPEARING IN THE BALANCE SHEET OF TH E ASSESSEE WHICH WAS NOT PAID BY THE ASSESSEE FOR A LONG TIME. IT IS NO T DISPUTED THAT THE CREDITS ITA NO. ITA NO.1386/BANG/2017 PAGE 2 OF 6 IN THE BALANCE SHEET WERE OPENING BALANCES OF THE E ARLIER YEARS AND THERE WAS NO TRANSACTION DURING THE PREVIOUS YEAR. THE C REDITORS APPEARING IN THE BALANCE SHEET WHICH WAS ADDED BY THE AO WERE AS FOLLOWS:- RS . A. BHARATH CEMENT PRODUCTS RMC DIVISION 1,23,02 ,913 B. BHARATH BLUE METALS SALE OF JELLY 14,59,7 47 C. B.T. NAGARAJ STONE CRUSHER WORKS 52,44,166 D. BHARATH CEMENTS PRODUCTS CEMENT BLOCKS 28 ,00,000 E. B.T.N. TRANSPORTS 34,64,751 TOTAL 2,52,71,577 3. THE AO WAS OF THE VIEW THAT WHEREVER THERE WERE PAYMENTS MADE TO THE CREDITORS DURING THE PREVIOUS YEAR, LIABILITY I N RESPECT OF THOSE CREDITORS CAN BE SAID TO BE EXISTING; WHEREVER THERE WAS NO S UCH PAYMENT MADE DURING THE PREVIOUS YEAR, IT CAN BE CONCLUDED THAT ASSESSEE IS NO LONGER REQUIRED TO PAY THOSE LIABILITIES AND THE ASSESSEE HAS RECEIVED THE BENEFIT BY WAY OF REMISSION OF LIABILITY AND LIABILITY SO R EMITTED IS REQUIRED TO BE TAXED U/S. 41(1) OF THE ACT. SECTION 41(1) OF THE A CT READS AS FOLLOWS:- 41. (1) WHERE AN ALLOWANCE OR DEDUCTION HAS BEEN MADE I N THE ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXPENDI TURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE (HEREINAFTER REF ERRED TO AS THE FIRST- MENTIONED PERSON) AND SUBSEQUENTLY DURING ANY PREVI OUS YEAR, ( A ) THE FIRST-MENTIONED PERSON HAS OBTAINED, WHETHE R IN CASH OR IN ANY OTHER MANNER WHATSOEVER, ANY AMOUNT IN RESPECT OF S UCH LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF SUCH TRA DING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF, THE AMOUNT O BTAINED BY SUCH PERSON OR THE VALUE OF BENEFIT ACCRUING TO HIM SHAL L BE DEEMED TO BE PROFITS AND GAINS OF BUSINESS OR PROFESSION AND ACCORDINGLY CHARGEABLE TO INCOME-TAX AS THE INCOME OF THAT PREV IOUS YEAR, WHETHER THE BUSINESS OR PROFESSION IN RESPECT OF WH ICH THE ALLOWANCE OR DEDUCTION HAS BEEN MADE IS IN EXISTENC E IN THAT YEAR OR NOT; OR ( B ) THE SUCCESSOR IN BUSINESS HAS OBTAINED, WHETHER I N CASH OR IN ANY OTHER MANNER WHATSOEVER, ANY AMOUNT IN RESPECT OF W HICH LOSS OR ITA NO. ITA NO.1386/BANG/2017 PAGE 3 OF 6 EXPENDITURE WAS INCURRED BY THE FIRST-MENTIONED PER SON OR SOME BENEFIT IN RESPECT OF THE TRADING LIABILITY REFERRE D TO IN CLAUSE ( A ) BY WAY OF REMISSION OR CESSATION THEREOF, THE AMOUNT O BTAINED BY THE SUCCESSOR IN BUSINESS OR THE VALUE OF BENEFIT ACCRU ING TO THE SUCCESSOR IN BUSINESS SHALL BE DEEMED TO BE PROFITS AND GAINS OF THE BUSINESS OR PROFESSION, AND ACCORDINGLY CHARGEABLE TO INCOME-TAX AS THE INCOME OF THAT PREVIOUS YEAR. EXPLANATION 1. FOR THE PURPOSES OF THIS SUB-SECTION, THE EXPRESS ION 'LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF ANY SU CH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF' SHALL INCLUD E THE REMISSION OR CESSATION OF ANY LIABILITY BY A UNILATERAL ACT BY T HE FIRST MENTIONED PERSON UNDER CLAUSE ( A ) OR THE SUCCESSOR IN BUSINESS UNDER CLAUSE ( B ) OF THAT SUB- SECTION BY WAY OF WRITING OFF SUCH LIABILITY IN HIS ACCOUNTS.] EXPLANATION 2 .FOR THE PURPOSES OF THIS SUB-SECTION, 'SUCCESSOR IN BUSINESS' MEANS, ( I ) WHERE THERE HAS BEEN AN AMALGAMATION OF A COMP ANY WITH ANOTHER COMPANY, THE AMALGAMATED COMPANY; ( II ) WHERE THE FIRST-MENTIONED PERSON IS SUCCEEDED B Y ANY OTHER PERSON IN THAT BUSINESS OR PROFESSION, THE OTHER PERSON; ( III ) WHERE A FIRM CARRYING ON A BUSINESS OR PROFESSI ON IS SUCCEEDED BY ANOTHER FIRM, THE OTHER FIRM;] ( IV ) WHERE THERE HAS BEEN A DEMERGER, THE RESULTING C OMPANY. 4. ON THE ABOVE REASONING, THE AO TREATED THE LIABI LITY IN RESPECT OF THE AFORESAID 5 CREDITORS TOTALING TO RS.2,52,71,577 AS NO LONGER EXISTING AND ADDED THIS SUM TO THE TOTAL INCOME OF THE ASSESSEE U/S. 41(1) OF THE ACT. 5. ON APPEAL BY THE ASSESSEE, THE CIT(APPEALS) DELE TED THE ADDITION MADE BY THE AO. BEFORE THE CIT(A), THE ASSESSEE HA D SUBMITTED THAT EVEN IN RESPECT OF THE CREDITORS WHOSE LIABILITY WAS CON SIDERED AS NO LONGER EXISTING BY THE AO AND ADDED U/S. 41(1) OF THE ACT, THE ASSESSEE HAD MADE SOME PAYMENTS AND FILED EVIDENCE IN SUPPORT OF SUCH PAYMENTS DURING THE PREVIOUS YEAR ALONG WITH THE WRITTEN SUBMISSIONS FI LED BEFORE THE CIT(A). THE CIT(A) HAS, HOWEVER, DELETED THE ADDITION NOT ON THE BASIS THAT EVEN DURING THE PREVIOUS YEAR PAYMENTS WERE MADE BY THE ASSESSEE. HE ITA NO. ITA NO.1386/BANG/2017 PAGE 4 OF 6 DELETED THE ADDITION MADE BY THE AO ON THE GROUND T HAT THERE WAS NO MATERIAL EVIDENCE TO SHOW THAT LIABILITY OF THE ASS ESSEE IN RESPECT OF THE AFORESAID CREDITORS WAS EITHER REMITTED OR CEASED T O EXIST. THE FOLLOWING WERE THE CONCLUSIONS OF THE CIT(APPEALS):- HAVING CONSIDERED THE DETAILS FURNISHED AND THE WR ITTEN SUBMISSIONS MADE BY THE ASSESSEE AND THE AFTER HEAR ING THE ARGUMENTS OF THE AR I AM OF THE OPINION THAT THE DE CISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT V/S. SUGAL I SUGAR WORKS PVT LTD., (1999) 236 ITR 518 (SC) FOLLOWED BY THE JURISDICTIONAL ITAT'S ORDER DT: 26-07-2013 IN THE C ASE OF ITO WARD - 6(1) V/S. M/S CAUVERY CONCRETE PRODUCTS IN I TA NO. 641/BANG/2012 IS CLEARLY APPLICABLE TO THE FACTS OF THE APPELLANT'S CASE. THE AO HAS NOT BROUGHT ANY SUPPORTING MATERIA L EVIDENCE TO INVOKE PROVISION OF SECTION 41(1) OF THE ACT IN THE ABSENCE OF ANY REMISSION OR CESSATION OF THE LIABILITY. THE AO HAS ALSO FAILED TO MAKE ANY CROSS-VERIFICATION AS TO ASCERTAIN THE REMISSION OR CESSATION OF THE LIABILITY BEFORE INVOKING THE PROV ISION OF SECTION 41(1) OF THE ACT. THEREFORE THE ADDITION OF RS. 2,5 2,71,577/- MADE BY THE AO IS NOT SUSTAINABLE IN LAW AND HENCE THE SAID ADDITION IS DELETED AND THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 6. AGGRIEVED BY THE ORDER OF CIT(APPEALS), THE REV ENUE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. THE GROUND S OF APPEAL RAISED BY THE REVENUE READS AS FOLLOWS:- 1. THE ORDER OF THE LD. CIT (A), IN SO FAR AS IT IS P REJUDICIAL TO THE INTEREST OF THE REVENUE, IS OPPOSED TO LAW AND THE FACT AND CIRCUMSTANCES OF THE CASE. 2. ON FACTS OF THE CASE, WHETHER THE LD CIT(A) IS RIGH T IN ALLOWING THE APPEAL OF THE ASSESSEE ON THE ISSUE OF UNACCOUN TED CREDIT ENTRIES OF RS. 2,52,71,577/- BASED ON THE EVIDENCES PRODUCE D BEFORE THE LD. CIT(A), WHICH WAS NOT PRODUCED BEFORE THE AO. I N THE CIRCUMSTANCES, THE LD CIT(A) OUGHT TO HAVE GIVEN TH E OPPORTUNITY TO THE AO BEFORE GIVING THE DECISION. ITA NO. ITA NO.1386/BANG/2017 PAGE 5 OF 6 3. ON FACTS OF THE CASE, THE LD CIT (A) HAS FAILED TO APPRECIATE THAT BY NOT GIVING OPPORTUNITY TO THE AO HAS VIOLATED THE PROVI SION OF RULE 46A OF THE I T RULE. 4. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT TH E TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE CIT (A) IN SO FAR AS IT RELATES TO THE ABOVE GROUNDS MAY BE REVERSED AND TH AT OF THE ASSESSING OFFICER MAY BE RESTORED. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND / OR DELETE ANY OF THE GROUNDS THAT MAY BE URGED. 7. THE LD. DR RELIED ON THE ORDER OF THE AO AND REI TERATED THE STAND OF THE REVENUE AS REFLECTED IN THE GROUNDS OF APPEAL B EFORE THE TRIBUNAL. 8. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CIT(APPEALS) DID NOT GIVE RELIEF TO THE ASSESSEE ON THE BASIS OF ADDITIONAL EVIDENCE FILED BY THE ASSESSEE AND THE GROUNDS OF APPEAL PROJECTED BY THE REVENUE ARE MISCONCEIVED. 9. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO TH E RIVAL SUBMISSIONS. THE AO AFTER NOTING SEVERAL LIABILITIES IN THE FORM OF SUNDRY CREDITORS EXISTING IN THE BALANCE SHEET FOR A LONG TIME, TOOK THE VIEW THAT WHEREVER SOME PAYMENTS HAVE BEN MADE TO THE CREDITORS DURING THE PREVIOUS YEAR BY THE ASSESSEE, THOSE LIABILITIES CAN BE SAID TO B E EXISTING; AND WHEREVER NO PAYMENT WAS MADE TOWARDS OUTSTANDING LIABILITY D URING THE PREVIOUS YEAR, THE LIABILITY IN RESPECT OF SUCH CREDITORS CA N BE TAKEN AS EITHER HAVING BEEN REMITTED OR NO LONGER IN EXISTENCE. THIS APPR OACH WAS NOT CORRECT IN LAW AND THE CIT(APPEALS) HAS RIGHTLY DELETED THE AD DITION ON THE BASIS THAT THERE SHOULD BE EVIDENCE TO SHOW EITHER REMISSION O F LIABILITY OR CESSATION OF LIABILITY AND IN THE ABSENCE OF SUCH EVIDENCE, NO A DDITION CAN BE MADE U/S. 41(1) OF THE ACT. IT IS NO DOUBT TRUE THAT THE ASS ESSEE FILED EVIDENCE BEFORE ITA NO. ITA NO.1386/BANG/2017 PAGE 6 OF 6 THE CIT(APPEALS) TO SHOW SOME PAYMENTS WERE MADE EV EN IN RESPECT OF SOME OF THE OUTSTANDING CREDITORS DURING THE PREVIO US YEAR WHOSE LIABILITY WAS CONSIDERED AS INCOME U/S. 41(1) OF THE ACT BY T HE AO. THE CIT(APPEALS) HAS, HOWEVER, NOT DELETED THE ADDITION ON THE BASIS OF ANY ADDITIONAL EVIDENCE. THE GRIEVANCE PROJECTED BY TH E REVENUE IN THE GROUNDS OF APPEAL IS THEREFORE DEVOID OF ANY MERIT. APART FROM THE ABOVE, AS RIGHTLY HELD BY THE CIT(APPEALS), THERE IS NO MA TERIAL EVIDENCE TO SHOW REMISSION/CESSATION OF LIABILITY AND THEREFORE THE PROVISIONS OF SECTION 41(1) OF THE ACT COULD NOT HAVE BEEN INVOKED BY THE AO. IN THESE CIRCUMSTANCES, WE FIND NO MERIT IN THIS APPEAL BY THE REVENUE. AC CORDINGLY, THE SAME IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 1 ST DAY OF JUNE, 2018. SD/- SD/- ( INTURI RAMA RAO ) ( N.V. VASUDEVAN ) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 1 ST JUNE, 2018. / D ESAI S MURTHY / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.