M/s Ajanta Hosiery & Export (P) Ltd, Ludhiana V. Income Tax Officer, Ludhiana

ITA 158/CHANDI/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5126 (ITAT-CHANDIGARH)
• Duration Of Justice: 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-06-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2008-2009
• Appeal Filed On: 23-01-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Keywords: Bogus purchase; Opportunity of being heard; Bad and doubtful debts
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER ITA NO. 158/CHD/2017 ASSESSMENT YEAR: 2008-09 M/S AJANTA HOSIERY & VS THE ITO, EXPORTS (P) LTD., WARD 1(1), 148-D, PHASE-IV-A, LUDHIANA. FOCAL POINT, LUDHIANA. PAN: AACCA0137B (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUDHIR SEHGAL RESPONDENT BY : SHRI S.K.MITTAL DATE OF HEARING : 29.05.2017 DATE OF PRONOUNCEMENT : 01.06.2017 O R D E R THIS APPEAL BY ASSESSEE HAS BEEN DIRECTED AGAINST T HE ORDER OF LD. CIT(APPEALS)-I, LUDHIANA DATED 27.08.2 016 FOR ASSESSMENT YEAR 2008-09. 2. I HAVE HEARD LD. REPRESENTATIVES OF BOTH THE PAR TIES AND PERUSED THE MATERIAL ON RECORD. 3. ACCORDING TO THE OFFICE, THE APPEAL IS TIME BARR ED BY 81 DAYS. THE ASSESSEE IN THE APPLICATION FOR CONDONAT ION OF DELAY SUBMITTED THAT IMPUGNED ORDER WAS RECEIVED ON 04.09 .2016 AND APPEAL WAS TO BE FILED UPTO 03.11.2016. IT IS EXPLAINED THAT AFTER SIGNING THE PAPERS FOR FILING THE APPEAL , THE APPEAL PAPERS GOT MISPLACED AND THEN THE ASSESSEE FORGOT T O HAND OVER THE SAME TO THE COUNSEL. THE PAPERS WERE LOCA TED ON 20.01.2017 AND APPEAL IS FILED ON 23.01.2017. THE TRIBUNAL 2 FEES IS ALREADY PAID ON 07.11.2016. THE APPLICATIO N IS SUPPORTED BY AFFIDAVIT OF DIRECTOR OF THE ASSESSEE. 4. CONSIDERING EXPLANATION OF THE ASSESSEE, I AM OF THE VIEW ASSESSEE HAS EXPLAINED THE REASONS FOR DELAY IN FIL ING THE APPEAL WHICH WAS BEYOND THE CONTROL OF THE ASSESSEE . THE DELAY IN FILING APPEAL IS CONDONED. 5. ON GROUND NOS. 1 & 2, ASSESSEE CHALLENGED THE AD DITION OF RS. 20,46,020/- ON ACCOUNT OF BOGUS PURCHASES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED TH AT THE ASSESSEE HAD SHOWN SUNDRY CREDITOR M/S MUDIT INDUST RIES AMOUNTING TO RS. 20,46,020/- AS ON 31.03.2008. THE ASSESSEE EXPLAINED THAT THE AMOUNT HAD BEEN DULY ENTERED IN THE BOOKS OF ACCOUNT. THEREAFTER, THE AO ISSUED LETTER U/S 1 33(6) OF THE INCOME TAX ACT TO M/S MUDIT INTERNATIONAL ON 06.12. 2010. IN RESPONSE THEREOF, M/S MUDIT INTERNATIONAL INFORMED THAT THERE WAS NO TRANSACTION WITH THE SAID PARTY DURING THE A SSESSMENT YEAR 2008-09 AND THEIR ACCOUNT BALANCE WITH THE PAR TY IS NIL. THE AO WAS NOT SATISFIED WITH THE REPLY OF THE ASSE SSEE AND MADE ADDITION OF RS. 20,46,020/- TO THE INCOME OF T HE ASSESSEE. 6. THE ASSESSEE FILED WRITTEN SUBMISSION WHICH IS REPRODUCED IN THE IMPUGNED ORDER IN WHICH THE ASSES SEE EXPLAINED THAT ASSESSEE HAS MADE PURCHASES FROM M/S MUDIT INTERNATIONAL AGAINST FIVE PURCHASE BILLS WHICH HAV E BEEN ENTERED INTO THE BOOKS OF ACCOUNT ON 02.04.2007. T HE ASSESSEE FILED COPY OF THE LEDGER ACCOUNT ETC. THE INQUIRY MADE FROM M/S MUDIT INTERNATIONAL CONFIRMED THE ABO VE FACT, 3 THEREFORE, CONTENTION OF THE AO IS NOT CORRECT. TH E ASSESSEE FILED COPY OF THE LEDGER ACCOUNT FOR THE FINANCIAL YEAR 2006-07 AND FINANCIAL YEAR 2007-08 IN THE BOOKS OF ACCOUNT OF M/S MUDIT INTERNATIONAL WHICH IS REPRODUCED AT PAGES 2 TO 5 OF THE IMPUGNED ORDER. THE ASSESSEE, THEREFORE, EXPLAINED THAT M/S MUDIT INTERNATIONAL HAD SOLD KNITTED CLOTH TO THE A SSESSEE COMPANY AMOUNTING TO RS. 20,46,020/- IN FINANCIAL Y EAR 2006- 07 BUT ASSESSEE COMPANY HAS ENTERED THESE BILLS IN ITS BOOKS OF ACCOUNT IN NEXT FINANCIAL YEAR 2007-08 I.E. YEAR IN QUESTION. THEREFORE, THE AFORESAID FACT IS EXPLAINED. THE LD . CIT(A) HOWEVER, DID NOT ACCEPT CONTENTION OF THE ASSESSEE AND NOTED THAT ASSESSEE DID NOT REQUEST FOR ANY CROSS-EXAMINA TION OF THE SAID PARTY AND ACCORDINGLY, DISMISSED THIS GROUND O F APPEAL OF THE ASSESSEE. 7. AFTER CONSIDERING RIVAL SUBMISSIONS, I AM OF THE VIEW MATTER REQUIRES RE-CONSIDERATION AT THE LEVEL OF TH E AO. THE ASSESSEE HAS FILED COPY OF THE LEDGER ACCOUNT IN TH E BOOKS OF ACCOUNT OF M/S MUDIT INTERNATIONAL WHICH CLEARLY RE VEALED THAT THE SELLER PARTY HAS ENTERED INTO THE BILLS IN THE FINANCIAL YEAR 2006-07 WHEREAS ASSESSEE HAS ENTERED INTO THE SAME BILLS OF PURCHASES IN SUBSEQUENT FINANCIAL YEAR 2007-08. TH IS AMBIGUITY SHOULD HAVE BEEN CLARIFIED BY SEEKING MOR E CLARIFICATION FROM THE CONCERNED PARTY OR AO SHOULD HAVE EXAMINED M/S MUDIT INTERNATIONAL IN THIS REGARD AND SHOULD HAVE ALLOWED CROSS-EXAMINATION ON BEHALF OF THE ASS ESSEE BECAUSE MATERIAL COLLECTED AT THE BACK OF ASSESSEE CANNOT BE USED AGAINST ASSESSEE UNLESS CONFRONTED.HOWEVER, NO THING HAS 4 BEEN DONE. THE DETAILS NOTED IN THE LEDGER ACCOUNT CLEARLY SUPPORT THE EXPLANATION OF THE ASSESSEE THAT THE DI FFERENCE ARISE DUE TO THE ENTRIES MADE IN TWO FINANCIAL YEAR S. THEREFORE, MATTER REQUIRES RE-CONSIDERATION AT THE LEVEL OF THE AO. I, ACCORDINGLY, SET ASIDE THE IMPUGNED ORDER AN D RESTORE THE MATTER IN ISSUE TO THE FILE OF AO WITH DIRECTIO N TO RE-DECIDE THIS ISSUE AFRESH IN THE LIGHT OF THE MATERIAL AVAI LABLE ON RECORD BY CALLING FRESH EXPLANATION OF M/S MUDIT IN TERNATIONAL IN THIS REGARD OR THIS PARTY MAY BE SUMMONED TO EXA MINE ON OATH WITH REFERENCE TO THE ENTRIES MADE IN THE BOO KS OF ACCOUNT BY THEM. THE AO SHALL GIVE REASONABLE SUFF ICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THESE GROUNDS ARE ALLOWED FOR STATISTICAL PURPOSES. 8. ON GROUND NO.3, ASSESSEE CHALLENGED THE ADDITION OF RS. 15,94,458/- ON ACCOUNT OF ADDITION U/S 41(1)(A) OF THE INCOME TAX ACT. DURING THE ASSESSMENT PROCEEDINGS, ASSESS EE HAD BEEN CATEGORICALLY ASKED TO SUBMIT DATE-WISE ACCOUN TS OF ALL BROUGHT FORWARD SUNDRY CREDITORS/ADVANCES ALONGWITH RESPECTIVE NATURE OF LIABILITY, SINCE WHEN OUTSTAND ING, REASONS FOR NON PAYMENT, DATE OF SQUARING UP OF ACCOUNTS, I F ANY AND CONFIRMATION OF ACCOUNTS. THE ASSESSEE SUBMITTED R ELEVANT DETAILS OF BROUGHT FORWARD CREDITORS TOTALING AMOUN TING TO RS. 15,94,458/-. THE AO FURTHER NOTICED THAT ASSESSEE HAD CLAIMED DEDUCTION ON ACCOUNT OF BAD DEBTS AMOUNTING TO RS. 83,86,582/- IN THE ASSESSMENT YEAR 2007-08 ADJUDICA TED UPON U/S 143(3) OF THE ACT. HOWEVER, BROUGHT FORWARD CR EDITORS WERE STILL CLAIMED AS LIABILITY EVEN THOUGH EXISTIN G IN THE 5 BOOKS OF ACCOUNT SINCE LONG. THE AO DISALLOWED THE ABOVE AMOUNT U/S 41(1)(A) OF THE ACT. 9. THE ASSESSEE REITERATED THE SUBMISSIONS BEFORE C IT(A) AND IT WAS SUBMITTED THAT CONDITIONS OF SECTION 41( 1) OF THE ACT ARE NOT SATISFIED IN THIS CASE. THE TRADE CRED ITORS ARE REFLECTED IN THE LIABILITY SIDE OF THE BALANCE SHEE T AND THESE WERE NOT WRITTEN OFF AND THEY HAD NOT CEASED TO EXI ST. THE CREDITORS HAVE BEEN PAID IN SUBSEQUENT YEAR. THE L D. CIT(A), HOWEVER, DISMISSED THIS GROUND OF APPEAL OF THE ASS ESSEE. 10. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE AUTHORITIES BELOW AND SUBMI TTED THAT THE CONDITIONS OF SECTION 41(1) OF THE ACT ARE NOT FULFILLED IN THIS CASE. THE TRADE CREDITORS WERE REFLECTED IN TH E BALANCE SHEET AS LIABILITY WHICH WERE EVEN BROUGHT FORWAR D FROM THE EARLIER YEARS. THE AMOUNTS WERE NOT WRITTEN OFF AN D THEY HAVE NOT CEASED TO EXIST. THE CREDITORS HAVE BEEN PAID IN SUBSEQUENT YEAR. THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY ORDER OF ITAT, CHANDIGARH BENCH IN THE CASE OF SHRI MOHINDER SINGH VS ITO (ITA NO. 349/2013) FOR ASSESSMENT YEAR 2009-10 DATED 21.07.2016. THE TRIBU NAL IN PARAS 12 TO 14 HELD AS UNDER : 12. I HAVE CONSIDERED RIVAL SUBMISSIONS. THE FACTS NOTED ABOVE ARE NOT IN DISPUTE THAT IN RESPECT OF ALL THE PARTIE S, THERE WERE CLOSING BALANCES COMING FROM THE EARLIER YEARS. IN T HE CASES OF M/S G.M. ENTERPRISES, M/S SUNNY STEEL AND M/S KANWAL JIT SALES, NO CREDIT WAS TAKEN DURING THE ASSESSMENT YEA R UNDER APPEAL. IN THE CASE OF M/S B.K. INDUSTRIES, M/S G.M. ENTE RPRISES, M/S SUNNY STEEL AND M/S BEESON INDUSTRIES, CONFIRMED COPY OF THE ACCOUNTS HAVE BEEN FILED BY THE PARTIES. THESE A RE 6 OUTSTANDING BALANCES FROM EARLIER YEARS ON ACCOUNT OF PURCHASES MADE. COPY OF THE ACCOUNT OF M/S B.K. INDUSTRIES IS F ILED IN THE PAPER BOOK AT PAGE 63 IN WHICH ON 08.08.2008, THERE IS A CREDIT BALANCE OF RS. 1,04,223/- WHICH WAS ON ACCOUNT OF PURCH ASES MADE FROM THIS PARTY. IN THE CASE OF M/S BEESON IND USTRIES, COPY OF ACCOUNT IS FILED AT PAGE 70 IN WHICH ON 23.03.2009, THERE IS A CREDIT BALANCE OF RS. 1,34,903/- ON ACCOUNT OF PURCHASE S MADE FROM THIS PARTY. COPY OF ACCOUNT OF M/S SUNNY STEEL COMPANY IS FILED AT PAGE 77 OF THE PAPER BOOK IN WHICH ON 22.08.20 08, THERE IS A CREDIT BALANCE OF RS. 1,50,015/- ON ACCOUNT OF PURC HASES MADE BY ASSESSEE. COPIES OF PURCHASE BILLS ARE ALSO FI LED. THE ASSESSING OFFICER DID NOT CONSIDER THE DIFFERENCE IN THE OPENING BALANCE IN THE CASE OF M/S B.K. INDUSTRIES. IN THE CAS ES OF M/S G.M. INDUSTRIES AND M/S SUNNY STEELS, M/S KANWALJIT SALE S, NO CREDITS HAVE BEEN TAKEN IN ASSESSMENT YEAR UNDER AP PEAL AND THESE WERE OLD BALANCES. THE LD. CIT(APPEALS) CONFIRMED THE ADDITION BY APPLYING PROVISIONS OF SECTION 41(1) OF T HE ACT WITHOUT APPRECIATING THE ABOVE FACTS. 12(I) HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF G.P. INTERNATIONAL LTD. (SUPRA) HELD AS UNDER ASSESSEE HAVING SHOWN THE AMOUNT PAYABLE BY IT TO ANOTHER COMPANY AS AN EXISTING LIABILITY IN ITS BOOKS AND N OT WRITTEN BACK THE SAME, IT CANNOT BE SAID THAT THE AFORESAID LIABILIT Y HAS CEASED TO EXIST AND, THEREFORE IT CANNOT BE TREATED AS INCOME BY IN VOKING THE PROVISIONS OF S. 41(1). 12(II) HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF SMT. SITA DEVI JUNEJA (SUPRA) HELD AS UNDER: ASSESSEE HAVING SHOWN THE IMPUGNED LIABILITIES IN ITS BALANCE SHEET AND FILED COPIES OF ACCOUNTS OF SUNDRY CREDITORS SI GNED BY THE CONCERNED CREDITOR, SUCH LIABILITIES CANNOT BE TREA TED TO HAVE CEASED MERELY BECAUSE THEY ARE OUTSTANDING FOR SIX YEARS A ND, THEREFORE, THE ADDITION MADE BY INVOKING S. 41(1) CANNOT BE SUSTAI NED, MORE SO WHEN THE ASSESSING OFFICER HAS FAILED TO SHOW THAT DEDUCTION HAS BEEN ALLOWED IN RESPECT OF ANY TRADING LIABILITY OR THAT THE ASSESSEE HAS OBTAINED ANY BENEFIT CONCERNING SUCH LIABILITIE S BY WAY OF REMISSION OR CESSATION THEREOF IN THE RELEVANT YEAR . 12(III) HON'BLE SUPREME COURT IN THE CASE OF SUGAULI SUGAR WORKS PVT. LTD. (SUPRA) HELD AS UNDER : UNILATERAL ENTRY BY ASSESSEE IN THE ACCOUNTS TRANS FERRING THE AMOUNT TO THE CAPITAL RESERVE ACCOUNT WOULD NOT BRI NG THE MATTER WITHIN THE SCOPE OF S. 41(1). 7 13. THE ASSESSEE HAS SHOWN THE ABOVE AMOUNTS AGAIN ST THESE PARTIES AS AN EXISTING LIABILITY AND HAS NOT WR ITTEN BACK THE SAME. THEREFORE, IT COULD NOT BE SAID THAT AFORESAID LIABILITY HAS CEASED TO EXIST, THEREFORE, IT CANNOT BE TREATED AS I NCOME BY INVOKING PROVISIONS OF SECTION 41(1) OF THE ACT. FUR THER, THE ASSESSING OFFICER HAS FAILED TO SHOW THAT DEDUCTION HAS BEEN ALLOWED IN RESPECT OF ANY TRADING LIABILITY OR THAT ASS ESSEE HAS OBTAINED ANY BENEFIT CONCERNING SUCH LIABILITIES BY WAY OF REVISION OR CESSATION THEREOF IN THE RELEVANT YEAR. THEREFORE, THE ENTIRE ADDITION IS UNJUSTIFIED BY APPLYING PROVISIONS OF SECTION 41(1) OF THE ACT. IT MAY ALSO BE NOTED HERE THAT IN TH E CASES OF M/S B.K. INDUSTRIES AND M/S BEESON INDUSTRIES, THE ASS ESSING OFFICER DID NOT MAKE ANY ADDITION OF THE CREDIT TAKE N DURING THE YEAR UNDER CONSIDERATION. 14. IN THE TOTALITY OF THE FACTS AND CIRCUMSTANCES, I AM OF THE VIEW THAT NO ADDITION COULD BE MADE AGAINST THE ASSES SEE. I, THEREFORE, SET ASIDE THE ORDERS OF AUTHORITIES BELOW AN D DELETE THE ENTIRE ADDITION. 11. ON THE OTHER HAND, LD. DR RELIED UPON ORDERS OF THE AUTHORITIES BELOW. 12. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF THE ABOVE DECISION IN THE CASE OF SHRI MOHINDER SINGH (SUPRA) , IT IS CLEAR THAT TRADE CREDITORS WERE REFLECTED IN THE LIABILIT Y SIDE OF THE BALANCE SHEET FOR THE YEAR UNDER CONSIDERATION AND THESE WERE NOT WRITTEN OFF AND THEY HAVE NOT CEASED TO EXIST. EVEN THE AO ASKED FOR THE DETAILS OF BROUGHT FORWARD SUNDRY CREDITORS/ADVANCES. THE ASSESSEE HAS, THUS, SHOWN THE ABOVE AMOUNTS AGAINST THESE PARTIES AS AN EXISTING LIABIL ITY BROUGHT FORWARD FROM EARLIER YEAR AND HAS NOT WRITTEN BACK THE SAME. THEREFORE, IT COULD NOT BE SAID THAT THE AFORESAID LIABILITY HAS CEASED TO EXIST, THUS, IT CANNOT BE TREATED AS INCO ME BY 8 INVOKING PROVISIONS OF SECTION 41(1) OF THE INCOME TAX ACT. THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY O RDER OF ITAT CHANDIGARH BENCH IN THE CASE OF SHRI MOHINDER SINGH (SUPRA). 13. IN VIEW OF THE ABOVE DISCUSSION, I SET ASIDE TH E ORDERS OF AUTHORITIES BELOW AND DELETE THE ADDITION. THIS GR OUND IS ALLOWED. 14. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED, AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT. SD/- (BHAVNESH SAINI) JUDICIAL MEMBER DATED : 1 ST JUNE,2017. POONAM COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT,DR ASSISTANT REGISTRAR, ITAT CHANDIGARH