Eximius Solutions Pvt. Ltd., Pune V. Income-tax Officer,

ITA 1475/PUN/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1280 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 17-07-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 23-07-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B C MALAKAR
• Keywords: Capital asset
• Section: 143(3)

Judgement Text

- IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH SMC, PUNE , BEFORE MS. SUSHMA CHOWLA, JUDICIAL MEMBER / ITA NO.1475/PN/2014 ! ' ' / ASSESSMENT YEAR : 2007-08 EXIMIUS SOLUTIONS PVT. LTD., 15, PARVATI CHAMBERS, SANGAM PRESS ROAD, OFF KARVE ROAD, PUNE 411038 . / APPELLANT PAN: AABCE3218J VS. THE INCOME TAX OFFICER, WARD 1(4), PUNE . RESPONDENT / APPELLANT BY : SMT. DEEPA KHARE / RESPONDENT BY : SHRI B.C. MALAKAR DATE OF HEARING : 17.07.2015 / DATE OF PRONOUNCEMENT: 12.08.2015 # / ORDER PER SUSHMA CHOWLA, JM: THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE OR DER OF CIT(A)-I, PUNE, DATED 31.01.2014 RELATING TO ASSESSMENT YEAR 2007-0 8 AGAINST ORDER PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN CON FIRMING ADDITION OF RS.11,99,658/- AS INCOME FROM OTHER SOURCES IN RESP ECT OF THE OUTSTANDING BALANCE OF ANIL DECORATORS. 2. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN CON FIRMING ADDITION OF RS.1,21,825/- TOWARDS OUTSTANDING BALANCE OF COOL C ARE AIR CONDITIONING AND ITA NO.1475/PN/2014 EXIMIUS SOLUTIONS PVT LTD 2 RS.1660/- TOWARDS OUTSTANDING BALANCE OF KOHINOOR M ETAL ARTS AS INCOME FROM OTHER SOURCES. 3. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THAT THE LIABILITIES WERE GENUINE LIABILITIES WHICH HAVE BEE N SUBSTANTIALLY PROVED BY THE APPELLANT. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE LIABILITIES ARE STILL EXISTING AND THERE IS NO MATERIAL TO PROVE THAT THE LIABILITIES HAVE BEEN CEASED. 4. THE APPELLANT CRAVES TO ADD, ALTER, MODIFY OR SUBST ITUTE ANY GROUND OF APPEAL AT THE TIME OF HEARING. 3. THE ISSUE VIDE GROUND OF APPEAL NO.1 RAISED BY T HE ASSESSEE IS AGAINST THE ADDITION MADE IN RESPECT OF OUTSTANDING BALANCE OF ANIL DECORATORS OF RS.11,99,658/-. THE ASSESSEE VIDE GROUND OF APPEAL NO.2 IS AGGRIEVED BY THE ADDITION OF RS.1,21,825/- OUTSTANDING AGAINST THE C OOL CARE AIR CONDITIONING AND RS.1660/- OUTSTANDING AGAINST THE KOHINOOR METAL AR TS. 4. BRIEFLY, IN THE FACTS OF THE PRESENT CASE, THE A SSESSEE WAS ENGAGED IN THE BUSINESS OF PROVIDING INTERACTIVE AND TECHNICAL SER VICES, WEB DESIGNING, LOGO DESIGNING AND PRINTING. FOR THE YEAR UNDER CONSIDE RATION, ASSESSEE HAD DECLARED LOSS OF RS.8,27,098/-. DURING THE COURSE OF ASSESS MENT PROCEEDINGS, THE ASSESSING OFFICER NOTED FROM THE BALANCE SHEET THAT CERTAIN AMOUNTS WERE OUTSTANDING FOR A LONG TIME UNDER THE HEAD SUNDRY CREDITORS, WHICH INCLUDED ANIL DECORATORS AT RS.11,99,658/-, COOL CARE AIR CONDITI ONING AT RS.1,21,825/- AND KOHINOOR METAL ARTS AT RS.1660/- ALONG WITH ALLIEDM EDIA SOLUTIONS AT RS.1,10,620/- AND SUJATA COMPUTERS PVT. LTD. AT RS. 1,88,814/-. THE ASSESSING OFFICER OBSERVED THAT THE SAID SUNDRY CREDITORS SHO WN BY THE ASSESSEE WERE NON- MOVING CREDITORS, WHERE THE ASSESSEE HAD NOT TRANSA CTED WITH THE CONCERNED PARTIES FOR A SUBSTANTIAL PERIOD OF TIME. SINCE, T HERE WAS NO CHANGE OF THE CREDITORS AMOUNT FOR A SUBSTANTIAL PERIOD OF TIME AND NO INTEREST HAD BEEN DEBITED IN THE PROFIT & LOSS ACCOUNT IN RESPECT OF THE SAID OUTSTANDING BALANCE, THE ASSESSING OFFICER REJECTED THE EXPLANATION OF T HE ASSESSEE. THE ASSESSEE HAD FURNISHED THE CONFIRMATION LETTER BUT IN THE AB SENCE OF THE SAME BEING SIGNED BY THE CREDITORS, THE ADDRESS OR PAN NUMBERS NOT BE ING MENTIONED, THE ITA NO.1475/PN/2014 EXIMIUS SOLUTIONS PVT LTD 3 ASSESSING OFFICER OBSERVED THAT THE GENUINENESS OF ITS CREDITORS COULD NOT BE VERIFIED. THE ASSESSING OFFICER SHOW-CAUSED THE AS SESSEE TO EXPLAIN AS TO WHY THE LIABILITY SHOWN IN THE NAMES OF THE SAID PERSON S SHOULD NOT BE TREATED AS CESSATION OF LIABILITY UNDER SECTION 41(1) OF THE A CT. THE EXPLANATION OF THE ASSESSEE THAT THE LIABILITY WAS OUTSTANDING IN THE NAME OF ANIL DECORATORS ON ACCOUNT OF ADDITION TO CAPITAL ASSETS IN FINANCIAL YEAR 2004-05 AND NOT ON ACCOUNT OF ANY TRADING LIABILITY AND ALSO THAT THE BASIC CO NDITIONS OF SECTION 41(1) OF THE ACT WERE NOT FULFILLED, WAS REJECTED BY THE ASSESSI NG OFFICER AND THE SAME WAS ADDED AS INCOME OF THE ASSESSEE. IN RESPECT OF OTH ER BALANCES AGGREGATING TO RS.4,22,919/-, THE ASSESSING OFFICER HELD THAT THE ASSESSEE HAD FAILED TO PROVE WITH ANY DOCUMENTARY EVIDENCE THAT THE LIABILITY SH OWN STILL EXISTS AND IN THE ABSENCE OF THE SAME, THE LIABILITY WAS TREATED AS U NEXPLAINED LIABILITIES AND ADDED TO THE INCOME. 5. BEFORE THE CIT(A), THE LD. AUTHORIZED REPRESENTA TIVE FOR THE ASSESSEE POINTED OUT THAT THE AMOUNT PAYABLE TO ANIL DECORAT ORS REPRESENTED LIABILITY TOWARDS PURCHASE OF FURNITURE AND FIXTURE IN RELATI ON TO THE INTERIOR WORK CARRIED OUT IN ASSESSMENT YEAR 2005-06, WHEREIN AGAINST THE TOTAL BILL OF RS.12,24,641/-, TDS WAS DEDUCTED AT RS.24,983/- AND CONFIRMATION IN THIS REGARD WAS FILED. IT WAS FURTHER EXPLAINED BY THE ASSESSEE THAT THE PROP RIETOR OF ANIL DECORATORS HAD PASSED AWAY AND THE BALANCE WAS STILL PAYABLE, WHIC H WOULD BE PAID TO THE LEGAL HEIRS. IT WAS ALSO ARGUED BY THE ASSESSEE THAT WHE RE BOTH THE PARTIES HAD ACKNOWLEDGED THE LIABILITY EXISTED, THERE WAS NO ME RIT IN INVOKING THE PROVISIONS OF SECTION 41(1) OF THE ACT. IN RESPECT OF OTHER C REDIT BALANCE OF SUJATA COMPUTERS PVT. LTD. OF RS.1,88,814/-, IT WAS EXPLAI NED THAT THE SAME WAS AGAINST PURCHASE OF COMPUTERS AND SOFTWARE AND THERE WERE V ARIOUS TRANSACTIONS OF PURCHASES AND PAYMENTS WERE FROM FINANCIAL YEARS 20 04-05 TO 2006-07. IN RESPECT OF COOL CARE AIR CONDITIONING, IT WAS POINT ED OUT BY THE ASSESSEE THAT THE SAME WAS LIABILITY AGAINST THE PURCHASE OF AIR COND ITIONERS IN THE YEAR 2004-05 ITA NO.1475/PN/2014 EXIMIUS SOLUTIONS PVT LTD 4 AND INVOICES AND THE BILL ADDRESS OF THE SAID PARTY WAS FURNISHED BEFORE THE ASSESSING OFFICER. FURTHER, THE ASSESSEE PLACED ON RECORD THE CONFIRMATION FROM ALLIEDMEDIA SOLUTIONS IN RESPECT OF NON-PAYMENT OF THE SAID AMOUNTS. THE ASSESSEE EXPLAINED THAT IT WAS SUFFERING LOSSES AND DUE TO FINANCIAL CONSTRAINTS, THE CREDITORS COULD NOT BE PAID IN DUE COURSE. HOW EVER, FROM ASSESSMENT YEAR 2008-09 WHEN THE ASSESSEES BUSINESS STARTED MAKING PROFITS, THE LIABILITIES WERE PAID AND SETTLED. THE CIT(A) CONSIDERED THE EXPLAN ATION OF THE ASSESSEE IN RESPECT OF ALL THE SUNDRY CREDITORS INDIVIDUALLY UN DER PARA 4.3.1 AT PAGES 8 TO 13 OF THE APPELLATE ORDER. THE CIT(A) DELETED THE ADD ITION IN RESPECT OF THE LOAN OUTSTANDING AGAINST SUJATA COMPUTERS PVT. LTD. AT R S.1,88,814/- AND ALLIEDMEDIA SOLUTIONS AT RS.1,10,620/- AGAINST WHICH NO APPEAL FILED BY THE REVENUE HAVE BEEN BROUGHT TO MY NOTICE. HOWEVER, IN RESPECT OF OUTSTANDING AGAINST ANIL DECORATORS, COOL CARE AIR CONDITIONING AND KOHINOOR METAL ARTS, THE SAME WERE ADDED AS INCOME OF THE ASSESSEE AS UNPROVED LIABILI TY. 6. THE ASSESSEE IS IN APPEAL AGAINST THE AFORESAID ORDER OF THE CIT(A). 7. THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESS EE POINTED OUT THAT THE PROVISIONS OF SECTION 41(1) OF THE ACT COULD NOT BE APPLIED, WHERE THE LIABILITY HAS BEEN RECOGNIZED BY THE ASSESSEE AND FURTHER THE OUT STANDINGS WERE IN RESPECT OF CAPITAL ASSET ACQUIRED BY THE ASSESSEE. THE LD. AU THORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT IN VIEW OF THE RATIO LAID DOWN BY THE HONBLE DELHI HIGH COURT IN ROLLATAINERS LTD. VS. CIT REPORTED IN (2011) 339 ITR 54 (DELHI) AND IN LOGITRONICS P. LTD. VS. CIT REPORTED IN (2011) 3 33 ITR 386 (DELHI), WHERE THERE IS NO ENRICHING OF THE TRADING OPERATIONS, THE SAID OUTSTANDING COULD NOT BE ADDED AS INCOME OF THE ASSESSEE. 8. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVE NUE PLACED RELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW. ITA NO.1475/PN/2014 EXIMIUS SOLUTIONS PVT LTD 5 9. I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED T HE RECORD. THE ISSUE ARISING IN THE PRESENT APPEAL IS AGAINST THE ADDITI ON MADE IN RELATION TO THE OUTSTANDING CREDIT BALANCE SHOWN BY THE ASSESSEE. THE FIRST CREDIT BALANCE IS IN RELATION TO ANIL DECORATORS OF RS.11,99,658/-. THE ASSESSEE HAD SHOWN THE SAID LIABILITY IN ITS SUNDRY CREDITORS AND AS SUCH HAD R ECOGNIZED THE LIABILITY TO PAYMENT AGAINST THE ACQUISITION OF CAPITAL ASSETS LIKE FURN ITURE WORKS, PAINTING MATERIAL, GLASS FITTINGS, ETC.. THE ASSESSEE HAD GOT THE WOR KS CONTRACT DONE FROM THE SAID PARTY IN ASSESSMENT YEAR 2005-06 AND ON THE BILL RA ISED BY THE SAID PARTY, TDS WAS DEDUCTED AND THE BALANCE WAS RECOGNIZED AS OUTS TANDING AND PAYABLE TO THE CREDITORS. THE REASON FOR NON-PAYMENT OF THE S AID AMOUNT FOR PAST 2 3 YEARS AS EXPLAINED BY THE ASSESSEE WAS LOSSES INCUR RED IN THE BUSINESS BY THE ASSESSEE AND ALSO THE DEATH OF THE PROPRIETOR OF AN IL DECORATORS. HOWEVER, WHERE THE ASSESSEE HAS RECOGNIZED THE LIABILITY AND HAVE SHOWN THE SAME AS OUTSTANDING IN ITS BOOKS OF ACCOUNT, I FIND NO MERI T IN INVOKING THE PROVISIONS OF SECTION 41(1) OF THE ACT IN BRINGING THE SAME TO TA X. I FIND THAT SIMILAR ISSUE OF APPLICATION OF THE PROVISIONS OF SECTION 41(1) OF T HE ACT AROSE BEFORE THE HONBLE DELHI HIGH COURT IN LOGITRONICS P. LTD. VS. CIT (SU PRA), WHEREIN IT WAS HELD AS UNDER :- IF A LOAN WAS TAKEN FOR ACQUIRING A CAPITAL ASSET, WAIVER THEREOF WOULD NOT AMOUNT TO ANY INCOME EXIGIBLE TO TAX. ON THE OTHER HAND, IF THE LOAN WAS FOR TRADING PURPOSE AND WAS TREATED AS SUCH FROM THE VE RY BEGINNING IN THE BOOKS OF ACCOUNT THE WAIVER THEREOF MAY RESULT IN INCOME MOR E SO WHEN IT WAS TRANSFERRED TO THE PROFIT AND LOSS ACCOUNT. 10. SIMILAR PROPOSITION HAS BEEN LAID DOWN BY THE H ONBLE DELHI HIGH COURT IN ROLLATAINERS LTD. VS. CIT (SUPRA). ANOTHER DECISIO N RELIED UPON BY THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE WAS IN C IT VS. XYLON HOLDINGS PVT. LTD. REPORTED IN (2013) 90 DTR 0205 (BOM) WHEREIN T HE HONBLE JURISDICTIONAL HIGH COURT HAS LAID DOWN SIMILAR PROPOSITION. ITA NO.1475/PN/2014 EXIMIUS SOLUTIONS PVT LTD 6 11. FOLLOWING THE SAME PARITY OF REASONING AND AS I N THE FACTS OF THE PRESENT CASE, THE ASSESSEE HAD RECOGNIZED THE LIABILITY IN ITS HAND AND THE SAME HAS BEEN SHOWN AS OUTSTANDING AS ON THE CLOSE OF YEAR A ND ALSO BECAUSE THE LIABILITY PERTAINS TO A CAPITAL ASSET PURCHASE BY THE ASSESSE E, I FIND NO MERIT IN THE ORDERS OF THE AUTHORITIES BELOW IN INCLUDING THE SAID OUTS TANDING AS INCOME OF THE ASSESSEE FOR THE CAPTIONED ASSESSMENT YEARS. ACCOR DINGLY, I DELETE THE ADDITION MADE ON ACCOUNT OF OUTSTANDING AMOUNT DUE TO ANIL D ECORATORS AT RS.11,99,658/- . 12. SIMILARLY, THE OUTSTANDING AGAINST COOL CARE AI R CONDITIONING OF RS.1,21,825/- IS IN RESPECT OF PURCHASE OF AIR COND ITIONERS I.E. CAPITAL ASSET AND THE SAID LIABILITY HAS BEEN RECOGNIZED BY THE ASSES SEE AND SHOWN AS OUTSTANDING IN ITS BALANCE SHEET. IN VIEW THEREOF, THERE IS NO MERIT IN THE ORDERS OF THE AUTHORITIES BELOW IN TREATING THE SAME OUTSTANDING IN THE NAME OF COOL CARE AIR CONDITIONING AS INCOME OF THE ASSESSEE AS UNPROVED LIABILITY. 13. SIMILARLY, THE LIABILITY OF RS.1660/- AGAINST K OHINOOR METAL ARTS OUTSTANDING FOR THE LAST 3 YEARS BEING RECOGNIZED AS OUTSTANDIN G AS ON THE CLOSE OF THE YEAR CANNOT BE ADDED AS INCOME OF THE ASSESSEE AS UNPROV ED LIABILITY. THE CIT(A) IN RESPECT OF COOL CARE AIR CONDITIONING AND KOHINOOR METAL ARTS HAD HELD THE SAID LIABILITY TO HAVE CEASED TO EXIST IN VIEW OF THE TI ME GAP. HOWEVER, I FIND NO MERIT IN THE SAID OBSERVATION OF THE CIT(A) AND I REVERSE THE SAME. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED ON THIS 12 TH DAY OF AUGUST, 2015. SD/- ( SUSHMA CHOWLA ) / JUDICIAL MEMBER / PUNE ; DATED : 12 TH AUGUST, 2015 . SUJEET ITA NO.1475/PN/2014 EXIMIUS SOLUTIONS PVT LTD 7 #$%&'()(& / COPY OF THE ORDER IS FORWARDED TO : THE APPELLANT; THE RESPONDENT; & & ' () THE CIT(A)-I, PUNE; & & ' / THE CIT-I, PUNE; *+, --./, & ./ , 1 2 33 / DR SMC, ITAT, PUNE; ,45 6 / GUARD FILE. #! / BY ORDER * - // TRUE COPY // 789 -: .; / SR. PRIVATE SECRETARY & ./ ,