ITO, Faridabad V. M/s. Vaibhav Industries, Faridabad

ITA 1799/DEL/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53302 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 05-12-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 20-04-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR B R R KUMAR
• Assessee Lawyers: ALOK KUMAR GUPTA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH H DELHI BEFORE SHRI C.L. SETHI AND SHRI K.G. BANSAL ITA NO. 1799(DEL)/2010 ASSESSMENT YEAR: 2007-08 INCOME-TAX OFFICER, M/S VAIBHAV INDUSTRIES, WARD II(1), NEW CGO COMPLEX, VS. PLOT NO . 63, SECTOR-24, B-BLOCK, FARIDABAD. FARIDABAD. PAN: AAFFV7908K (APPELLANT) (RESPONDENT) APPELLANT BY : DR. B.R.R. KUMAR, SR. DR . RESPONDENT BY : SHRI ALOK KUMAR GUPTA, C.A. DATE OF HEARIN G: 05.12.2011 DATE OF PRONOU NCEMENT: 09.12.2011. ORDER PER K.G. BANSAL : AM IN THIS APPEAL, THE REVENUE HAS TAKEN THREE SUBS TANTIVE GROUNDS IN RESPECT OF DELETING THE ADDITIONS OF RS. 7,54, 517/- AND RS. 3,80,215/-, HELD BY THE AO AS NON-EXISTING LIABILITIES. THE ADDITIONS WERE MADE BY INVOKING THE PROVISION CONTAINED IN SECTION 41 (1) OF THE INCOME-TAX ACT, 1961 (THE ACT FOR SHORT). HOWEVER, THE ADDITIONS WERE DELETED BY THE LD. CIT(APPEALS) BY HOLDING THAT SINCE THE ASSE SSEE HAD NOT WRITTEN OFF THE AMOUNTS TO THE CREDIT SIDE OF THE PROFIT A ND LOSS ACCOUNT AND THE ITA NO. 1799(DEL)/2008 2 LIABILITIES HAVE BEEN BROUGHT FORWARD FROM EAR LIER YEARS, THE PROVISION CONTAINED IN SECTION 41(1) IS NOT APPLICABLE. 2. BEFORE US, THE LD. SENIOR DR RELIED ON THE ORDER OF THE AO AND MENTIONED THAT ENQUIRIES MADE DURING THE COURSE OF ASSESSMENT PROCEEDINGS SHOWED THAT THE PARTIES WERE NON-EXISTENT AND, THEREFORE, THE LIABILITIES WERE BOGUS. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT CONFIRMATION LETTERS HAD BEEN FILED FROM A LL THE THREE PARTIES, THEREFORE, THE LIABILITIES COULD NOT BE HELD TO BE BOGUS. FURTHER, THE LIABILITIES DID NOT PERTAIN TO THIS YEAR AND WERE NOT WRITTEN OFF IN THE BOOKS OF ACCOUNT, THEREFORE, THE PROVISION CONTA INED IN SECTION 41(1) WAS NOT APPLICABLE. 3. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. WE MAY DEAL WITH THE LIABILITIES OF RS. 4,90,407/- AND RS. 2,64,110/-, AGGREGATING TO RS. 7,54,517/- IN RESP ECT OF AYUSHI STEEL CO. PVT. LTD. (AYUSHI FOR SHORT) AND BHAGWATI TRA DING COMPANY (BHAGWATI FOR SHORT) AT THE OUTSET. THE LEDG ER ACCOUNTS OF THESE PARTIES HAVE BEEN FILED. THE ACCOUNT OF AYUSHI SHOWS O PENING BALANCE OF RS. 4,90,407/-. THERE IS NO TRANSACTION IN THIS ACC OUNT THEREAFTER AND THIS ITA NO. 1799(DEL)/2008 3 CREDIT BALANCE HAS BEEN CARRIED FORWARD TO THE NEXT YEAR. A CONFIRMATION LETTER HAS BEEN FILED FROM AYUSHI WHICH INTER-ALI A FURNISHES THE OUTSTANDING AMOUNT AS ON 31.03.2007, ITS ADDRES S AND PERMANENT ACCOUNT NUMBER. THE LEDGER ACCOUNT OF BHAGWATI ALSO SHOWS OPENING BALANCE OF RS. 2,64,110/-. THERE IS NO TRANSACTI ON IN THIS CASE ALSO AND THIS AMOUNT HAS BEEN CARRIED FORWARD TO THE NEXT YEAR. A CONFIRMATION LETTER HAS BEEN FILED FROM BHAGWATI CONFIRMING THE BALANCE AS ON 31.03.2007. ITS ADDRESS IS MENTIONED BUT PAN IS N OT MENTIONED ALTHOUGH THERE IS A COLUMN FOR MENTIONING PAN IN THE CON FIRMATION LETTER. THIS HAS BEEN LEFT BLANK. ADMITTEDLY, BOTH THE LIABI LITIES ARE TRADING LIABILITIES. THE ACCOUNTS ALSO SHOW THAT THESE LIABILITIES DID NOT ARISE IN THIS YEAR. THEY ALSO SHOW THAT THE LIABILITIES WERE NOT WR ITTEN OFF IN THIS YEAR. SECTION 41(1) BRINGS TO TAX ONLY THAT EXPENDIT URE OR TRADING LIABILITY WHICH HAS CEASED TO EXIST ETC. IN THE YEAR UNDE R CONSIDERATION. THE FACT THAT THE ASSESSEE IS SHOWING THESE LIABILITIES I N THE BOOKS, IT CANNOT BE SAID THAT THE LIABILITIES HAVE CEASED TO EXIST. FU RTHER, EXPLANATION-1 MAKES THE UNILATERAL ACT OF WRITING OFF THE LIABILIT Y BY THE DEBTOR TO AMOUNTING TO CESSATION OF THE LIABILITY. ADMITTEDLY, THE LIABILITY HAS NOT BEEN WRITTEN IN THE BOOKS OF ACCOUNT. THUS, THE PROVISION CON TAINED IN SECTION 41(1) IS NOT APPLICABLE TO THE FACTS OF THE CASE. THEREFO RE, IT IS HELD THAT THE LD. ITA NO. 1799(DEL)/2008 4 CIT(APPEALS) RIGHTLY DELETED THESE ADDITIONS. WE FIND SUPPORT FOR THE AFORESAID CONCLUSION FROM THE DECISION OF HON BLE PUNJAB & HARYANA HIGH COURT, THE TERRITORIAL HIGH COURT, IN THE CASE OF CIT VS. SMT. SITA DEVI JUNEJA, (2010) 187 TAXMAN 96, PARAGRAPH NO . 4 OF WHICH READS AS UNDER:- 4. AFTER HEARING LEARNED COUNSEL FOR THE APPELLAN T AND GOING THROUGH THE IMPUGNED ORDER, WE DO NOT FIND ANY MERI T IN THE INSTANT APPEAL. IT IS THE CONCEDED POSITION THAT IN THE AS SESSEE'S BALANCE SHEET, THE AFORESAID LIABILITIES HAVE BEEN SHOWN, W HICH ARE PAYABLE TO THE SUNDRY CREDITORS. SUCH LIABILITIES, SHOWN IN THE BALANCE SHEET, INDICATE THE ACKNOWLEDGMENT OF THE DEBTS PAYABLE BY THE ASSESSEE. MERELY BECAUSE SUCH LIABILITY IS OUTSTANDING FOR TH E LAST SIX YEARS, IT CANNOT BE PRESUMED THAT THE SAID LIABILITIES HAVE C EASED TO EXIST. IT IS ALSO CONCEDED POSITION THAT THERE IS NO BILATERA L ACT OF THE ASSESSEE AND THE CREDITORS, WHICH INDICATES THAT TH E SAID LIABILITIES HAVE CEASED TO EXIST. IN ABSENCE OF ANY BILATERAL A CT, THE SAID LIABILITIES COULD NOT HAVE BEEN TREATED TO HAVE CEA SED. IN VIEW OF THESE FACTS, THE CIT (A) AS WELL AS THE ITAT HAVE R IGHTLY COME TO THE CONCLUSION THAT THE ASSESSING OFFICER HAS WRONGLY I NVOKED THE EXPLANATION-I OF SECTION 41 (1) OF THE ACT AND MADE THE AFORESAID ADDITION ON THE BASIS OF PRESUMPTION, CONJECTURES A ND SURMISES. IT HAS BEEN FURTHER FOUND THAT THE ASSESSING OFFICER F AILED TO SHOW THAT IN ANY EARLIER YEAR, ALLOWANCE OF DEDUCTION HA D BEEN IN RESPECT OF ANY TRADING LIABILITY INCURRED BY THE ASSESSEE. IT WAS ALSO NOT PROVED THAT ANY BENEFIT WAS OBTAINED BY THE ASSESSE E CONCERNING SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSA TION THEREOF DURING THE CONCERNED YEAR. THUS, THERE DID NOT ACCRUE ANY BENEFIT TO THE ASSESSEE WHICH COULD BE DEEMED TO BE THE PROFIT OR GAIN OF THE ASSESSEE'S BUSINESS, WHICH WOULD OTHERWISE NOT BE T HE ASSESSEE'S INCOME. IT HAS BEEN FURTHER FOUND AS FACT THAT THE ASSESSEE HAD FILED THE COPIES OF ACCOUNTS OF SUNDRY CREDITORS SI GNED BY THE CONCERNED CREDITORS. IN VIEW OF THIS FACT, IN OUR O PINION, THE ITAT HAS RIGHTLY COME TO THE CONCLUSION THAT CONFIRMATIO N FROM THE CREDITORS WERE PRODUCED. 3.1 IN THE RESULT, GROUND NOS. 1 AND 2 ARE DIS MISSED. ITA NO. 1799(DEL)/2008 5 4. THE THIRD LIABILITY IS IN RESPECT OF BARSATT UDYOG. FROM THE EVIDENCE ON RECORD, IT IS SEEN THAT THIS ACCOU NT HAD OPENING CREDIT BALANCE OF RS. 6,49,451/-. ON ACCOUNT OF VARIO US OTHER CREDITS GIVEN TO THIS PERSON IN THIS YEAR, AGGREGATING TO RS. 4,2 2,803/-, THE TOTAL OF CREDITS INCLUDING THE OPENING BALANCE WAS RS. 10,72,254 /-. PAYMENTS WERE ALSO MADE AND THERE ARE DEBITS AGGREGATING TO RS. 4 ,46,232/-. THUS, AT THE END OF THE YEAR, THE CREDIT BALANCE AMOUNTED TO RS . 6,26,022/-. THE BALANCE OF RS. 2,45,807/- HAS BEEN CONFIRMED BY BARSATT UD YOG BY WAY OF CONFIRMATION LETTER, WHICH ALSO CONTAINS ITS ADDRESS AND PAN. THIS CONFIRMATION LETTER HAS BEEN FILED BY THE ASSESS EE. THERE IS A DIFFERENCE OF RS. 3,80,215/- IN THE CREDIT BALANCE AS PER BOOKS OF THE ASSESSEE AND THE BOOKS OF BARSATT. THIS DIFFERENCE HAS NOT BEEN RECONCILED. IN VIEW OF VARIOUS DEBITS IN THIS ACCOUNT, AGGREGATING TO R S. 4,46,232/-, THE UN- RECONCILED DIFFERENCE OF RS. 3,80,215/- CANNOT B E ATTRIBUTED TO THE OPENING CREDIT. THEREFORE, THERE IS NO QUESTION OF GO ING INTO THE PROVISION CONTAINED IN SECTION 41(1) AS THE DIFFERENCE P ERTAINS TO THE TRANSACTIONS OF THIS YEAR, WHICH LED TO CREDIT OF RS. 4,22,80 3/-. IT IS SEEN THAT THE DEBITS IN THIS ACCOUNT ARE ON ACCOUNT OF PAYMEN TS BY CHEQUE AND PURCHASE RETURN. THE LD. CIT(APPEALS) PROCEEDED ON THE WRONG ASSUMPTION THAT THIS ACCOUNT WAS OF SIMILAR NATURE AS OTHER AC COUNTS AND, THEREFORE, THE ITA NO. 1799(DEL)/2008 6 PROVISION CONTAINED IN SECTION 41(1) WAS NOT A PPLICABLE. THE QUESTION HERE IS TOTALLY DIFFERENT-WHETHER, THE LIABILITY OF THIS YEAR WAS GENUINE OR NOT? THIS QUESTION HAS NOT BEEN GONE INTO BY ANY OF THE LOWER AUTHORITIES. THE FINDINGS OF THE AO IS THAT THE DIFFERENCE HAS NOT BEEN RECONCILED IN SPITE OF OPPORTUNITY GIVEN TO THE ASSESSEE. THE FINDING OF THE LD. CIT(APPEALS) IS SOMEWHAT UNCLEAR ALTH OUGH IT HAS BEEN MENTIONED THAT THE AO HAS NOT TRIED TO VERIFY T HE REASONS FOR THE DIFFERENCE IN CREDIT BALANCES. HE IS OF THE VIE W THAT THE ASSESSEE HAS SUFFICIENTLY EXPLAINED THE VERACITY OF BALANCE IN THIS ACCOUNT IN ITS BOOKS, WHICH HAS NOT BEEN REFUTED BY THE AO. ON THE BASIS OF FACTS NARRATED ABOVE, WE ARE NOT ABLE TO AGREE WITH T HIS FINDING. SINCE ALL THE FACTS TO COME TO A PROPER CONCLUSION ARE NOT AV AILABLE, THIS MATTER IS RESTORED TO THE FILE OF THE LD. CIT(APPEALS) FOR TAKING FRESH DECISION AFTER HEARING BOTH THE PARTIES. 5. IN THE RESULT, THE APPEAL IS TREATED AS PARTL Y ALLOWED FOR STATISTICAL PURPOSES. SD/- SD/- (C.L. SETHI) (K.G. BANSA L) JUDICIAL MEMBER ACCOUNTANT MEMBER SP SATIA ITA NO. 1799(DEL)/2008 7 COPY OF THE ORDER FORWARDED TO:- M/S VAIBHAV INDUSTRIES, FARIDABAD. ITO, WARD-II(1), FARIDABAD. CIT(A) CIT THE DR, ITAT, NEW DELHI. ASSISTANT REGISTRAR.