M/s. Kaypee Vanijya Pvt.Ltd., Baroda V. The ACIT.,Circle-1(2), Baroda

ITA 1855/AHD/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1029 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 08-06-2016
• Assessment Year: 2002-2003
• Appeal Filed On: 27-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: M K PATEL
• Keywords: Rejection of books of accounts; Business income; Depreciation; Deemed to accrue or arise in india; Question of law
• Section: 145

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER ./ ITA.NO.1855 AND 1856/AHD/2012 / ASSTT. YEAR: 2002-2003 AND 2003-2004 M/S.KAYRPEE VANIJYA P.LTD. SYNERGY HOUSE-II, GORWA SUBHAPURA ROAD BARODA. PAN : AAACK 8161 H VS ACIT, CIR.1(2) BARODA. ! / (APPELLANT) '# ! / (RESPONDENT) ASSESSEE BY : SHRI M.K. PATEL REVENUE BY : MR.PRASOON KABRA, SR.DR / DATE OF HEARING : 08/06/2016 / DATE OF PRONOUNCEMENT: 27/07/2016 $%/ O R D E R PRESENT TWO APPEALS ARE DIRECTED AT THE INSTANCE OF THE ASSESSEE AGAINST SEPARATE ORDERS OF THE LD.CIT(A)-IV, BARODA DATED 1 1.6.2012 PASSED IN THE ASSTT.YEAR 2002-03 AND 2003-04. 2. FIRST I TAKE UP THE APPEAL FOR THE ASSTT.YAR 200 2-03. 3. THOUGH THE ASSESSEE HAS TAKEN FOUR GROUNDS OF AP PEAL, BUT ITS GRIEVANCES REVOLVES AROUND A SINGLE ISSUE VIZ. THE LD.FIRST APPELLATE AUTHORITY HAS ERRED IN CONFIRMING THE DISALLOWANCE OF LOSS OF RS.19,71,880/- AFTER UPHOLDING THE REJECTION OF BOOKS OF ACCOUNTS UNDER SECTION 145 OF THE INCOME TAX ACT, 1961. ITA NO.1855 AND 1856/AHD/2012 2 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE-CO MPANY AT THE RELEVANT TIME WAS MANUFACTURING AND SELLING BORAX, BORIC ACI D AND VARIOUS CHEMICALS. IT HAS FILED ITS RETURN OF INCOME ON 31.10.2002 DEC LARING TOTAL LOSS OF RS.19,71,880/-. THE CASE OF THE ASSESSEE WAS SELEC TED FOR SCRUTINY ASSESSMENT AND NOTICE UNDER SECTION 143(2) WAS ISSUED ON 16.10 .2003 WHICH WAS DULY SERVED UPON THE ASSESSEE. ON SCRUTINY OF THE ACCOU NTS, IT REVEALED TO THE AO THAT THE ASSESSEE HAS SHOWN GROSS PROFIT RATE AT (- )164% AS AGAINST GP OF 0.85% SHOWN IN THE PRECEDING YEAR. THE AO FOUND A FALL IN GP AT THE RATE OF 164%. THE LD.AO IN BRIEF ASSESSMENT ORDER HAS OBSE RVED THAT THE ASSESSEE FAILED TO GIVE THE BASIS OF VALUATION OF THE STOCK. IT COULD NOT FILE LEDGER ACCOUNTS OF ALL THE CREDITORS. THE SO-CALLED LEDGE R ACCOUNT PRODUCED BY THE ASSESSEE WAS NOT SUPPORTED WITH OTHER EVIDENCES I.E . TRANSPORTATION DETAILS, PAYMENT DETAILS ETC. THE LD.AO, ACCORDINGLY, REJEC TED THE BOOK RESULT OF THE ASSESSEE AND DISALLOWED THE LOSS. HE DETERMINED TH E TAXABLE INCOME OF THE ASSESSEE AT NIL. APPEAL TO THE CIT(A) DID NOT BRIN G ANY RELIEF TO THE ASSESSEE. 5. BEFORE ME, THE LD.COUNSEL FOR THE ASSESSEE SUBMI TTED THAT THE ASSESSEE HAS PRODUCED COMPLETE DETAILS BEFORE THE AO. HE TO OK ME THROUGH PAGE NO.6 OF THE CIT(A)S ORDER. AS PER THE LETTER DATED 19. 10.2004, THE ASSESSEE HAS SUBMITTED LIST OF CREDITORS ABOVE RS.50,000/-. IT HAS SUBMITTED DETAILS OF SALES AND PURCHASES ABOVE RS.25,000/-. THE ASSESSEE HAS SUBMITTED THE DETAILS OF STAFF AND LABOUR WELFARE EXPENSES IN ANNEXURE-3. A LL THESE DOCUMENTS HAVE BEEN PLACED IN THE PAPER BOOK. THE CASE OF THE ASS ESSEE IS THAT IN THE LAST YEAR, IT HAS SALE OF OVER RS.2 CRORES, THEREFORE, I T HAS SHOWN GP OF 0.85%. IN THIS YEAR, TOTAL SALE MADE BY THE ASSESSEE WAS OF R S.8.25 LAKHS. THE LOSS HAS RESULTED TO THE ASSESSEE ON ACCOUNT OF MINIMUM CHAR GE PAID FOR POWER CONNECTION AND SALARY ACCOUNT. ACCORDING TO THE AS SESSEE, THE BORAX SALE HAS SUFFERED VERY BADLY IN THE INDIAN MARKET, BECAUSE O F THE ENTRY OF THE CHINA ITA NO.1855 AND 1856/AHD/2012 3 PRODUCTS. THE RATE OF FINISHED PRODUCTS OF CHINA W AS AT PAR WITH THE RATE OF RAW-MATERIAL PURCHASED IN INDIA. DUE TO THIS REASO N, THE ASSESSEE HAS TEMPORARILY STOPPED MANUFACTURING ACTIVITY. IT HAS TO RECRUIT UNTRAINED STAFF FOR TAKING CARE OF THE STOCK LYING AT THE FACTORY P REMISES. THE LD.DR, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE AO. 6. I HAVE DULY CONSIDERED RIVAL CONTENTIONS AND GON E THROUGH THE RECORD CAREFULLY. THE DETAILS OF MONTH-WISE QUANTITY HAV E BEEN PLACED IN ANNEXURE- I AT PAGE NO.42 OF THE PAPER BOOK. A PERUSAL OF TH ESE DETAILS WOULD INDICATE THAT IN MONTHS OF JUNE TO SEPTEMBER, THE ASSESSEE D ID NOT MAKE ANY SALE. SIMILARLY, IN NOVEMBER AND JANUARY, 2002 AGAIN IT C OULD NOT MAKE ANY SALES. THUS, NOMINAL SALE MADE BY THE ASSESSEE WAS IN OTHE R SIX MONTHS. IT HAS PLACED MONTH-WISE DETAILS OF PURCHASE OF RAW-MATERI AL AND OTHER ITEMS IN ANNEXURE-II AVAILABLE AT PAGE NO.43. THE ASSESSEE HAS FILED LEDGER ACCOUNT OF CREDITORS. IT HAS FILED PURCHASE REGISTERS. A PER USAL OF ALL THESE DETAILS WOULD INDICATE THAT NO HINDRANCE WAS CREATED IN WAY OF TH E LD.AO TO DETERMINE TRUE INCOME OF THE ASSESSEE. THE LOSS WHICH WAS OCCURRE D TO THE ASSESSEE WAS ON ACCOUNT OF CHANGING SCENARIO OF THE MARKET. THE AO COULD NOT MAKE OUT A CASE THAT OUT OF THE TOTAL SALES MADE AT RS.8.25 LA KHS, THE ASSESSEE COULD EARN A HIGHER RATE OF GP. A PERUSAL OF THE RECORD WOULD G IVE AN INFERENCE THAT TOTAL EXERCISE MADE BY THE AO FOR DISBELIEVING THE BOOKS OF THE ASSESSEE IS TO JUSTIFY THE DISALLOWANCE OF LOSS. THE LOSS WAS NOT THE RESULT OF ALLEGED NON- MAINTENANCE OF THE ACCOUNTS, BUT, BECAUSE OF THE MA RKET CONDITIONS. THEREFORE, IN MY OPINION, THE LD.CIT(A) SHOULD HAVE NOT CONFIRMED THE REJECTION OF THE BOOKS OF ACCOUNTS AND DISALLOWANCE OF LOSS. I ALLOW THE APPEAL OF THE ASSESSEE AND DELETE THE DISALLOWANCE OF LOW AT RS.19,71,880/-. 7. NOW I TAKE UP ITA NO.1186/AHD/2012. ITA NO.1855 AND 1856/AHD/2012 4 8. IN THIS APPEAL, THE FIRST GRIEVANCE OF THE ASSES SEE IS THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.1,76 ,822/- WHICH WAS MADE BY THE AO WITH THE AID OF SECTION 41(1) OF THE INCOME TAX ACT. 9. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S SHOWN OUTSTANDING TRADE LIABILITY OF RS.1,76,822/- IN THE NAME OF M/S.BORAX MORAJI LTD. THE LD.AO HAS DIRECTED THE ASSESSEE TO SUBMIT CONFIRMATION FR OM THIS CONCERN. ACCORDING TO THE AO, THE ASSESSEE FAILED TO SUBMIT CONFIRMATION AND NO CORRESPONDENCE SHOWING EFFORTS MADE BY M/S.BORAX MO RAJI LTD. TO RECOVER THIS AMOUNT FROM THE ASSESSEE. IT IS ALSO PERTINEN T TO MENTION HERE THAT LIABILITY WAS OUTSTANDING FOR MORE THAN SIX MONTHS ONLY. THE LD.AO ASSUMED THAT LIABILITY MUST HAVE BEEN CEASED, AND THEREFORE , HE MADE ADDITION UNDER SECTION 41(1) OF THE INCOME TAX ACT. 10. APPEAL TO THE LD.CIT(A) DID NOT BRING ANY RELIE F TO THE ASSESSEE. 11. THE LD.COUNSEL FOR THE ASSESSEE, AT THE VERY OU TSET, BROUGHT TO MY NOTICE THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COU RT IN THE CASE OF CIT VS. BHOGILAL RAMJIBHAI ATARA IN TAX APPEAL NOS.588 OF 2 013. HE SUBMITTED THAT IF THE FACTS OF THE ASSESSEES CASE ARE SEEN IN THE LIGHT OF THE PROPOSITION LAID DOWN IN THIS DECISION, THEN, IT WOULD REVEAL THAT T HE AO HAS ERRED IN MAKING THE ADDITION. THE LD.DR, ON THE OTHER HAND, RELIE D UPON THE ORDERS OF THE REVENUE AUTHORITIES. 12. IN THE CASE OF BHOGILAL RAMJIBHAI ATARA (SURPA) , A LIABILITY OF RS.37.52 LAKHS BY WAY OF DEBT WAS OUTSTANDING. IT PERTAINS TO 27 DIFFERENT CREDITORS. THE AO HAD ISSUED SUMMONS TO THESE SO-CALLED CREDIT ORS AND QUESTIONED THEM ABOUT THE ALLEGED CREDITS TO THE ASSESSEE. A NUMBE R OF PARTIES WERE NOT FOUND AT THE GIVEN ADDRESS. MANY OF THEM STATED THAT THE Y HAD NO CONCERN WITH THE ASSESSEE. SOME OF THEM CONVEYED THAT THEY DID NOT EVEN KNOW THE ASSESSEE. ITA NO.1855 AND 1856/AHD/2012 5 THE AO HAS MADE ADDITION, WHICH TRAVELLED UPTO THE TRIBUNAL AND THE TRIBUNAL DELETED THE ADDITION. WHEN THE DISPUTE FU RTHER TRAVELLED TO THE HONBLE HIGH COURT, THE HONBLE COURT HAS AFFIRMED THE ORDER OF THE TRIBUNAL. THE RELEVANT OBSERVATION OF THE HONBLE HIGH COURT READS AS UNDER: (III) IN THE CASE OF CIT V. G.K. PATEL & CO. (2013) 212 TAXMAN 384 (GUJ)., IN WHICH A DIVISION BENCH OF THIS COURT HEL D AND OBSERVED AS UNDER: TO THE EXTENT THE SAID DECISION HOLDS THAT A UNILA TERAL ACT ON THE PART OF THE DEBTOR CANNOT BRING ABOUT A CESSATION O F HIS LIABILITY, THE SAME WOULD NOT BE APPLICABLE TO THE FACTS OF TH E PRESENT CASE, IN VIEW OF THE INSERTION OF EXPLANATION 1. HOWEVER, AT THE COST OF REPETITION IT MAY BE STATED THAT IN THIS CASE THERE IS NO UNILATERAL ACT ON THE PART OF THE DEBTOR SO AS TO BRING ABOUT A CESSATION OF ITS LIABILITY. THEREFORE, THE OTHER PART OF THE DEC ISION WOULD STILL APPLY TO THE FACTS OF THE PRESENT CASE, NAMELY THAT THE CESSATION OF LIABILITY HAS TO BE EITHER BY REASON OF OPERATIO N OF LAW, I.E., ON THE LIABILITY BECOMING UNENFORCEABLE AT LAW BY THE CREDITOR AND THE DEBTOR DECLARING UNEQUIVOCALLY HIS INTENTION NO T TO HONOUR HIS LIABILITY WHEN PAYMENT IS DEMANDED BY THE CREDI TOR, OR A CONTRACT BETWEEN THE PARTIES, OR BY DISCHARGE OF TH E DEBT THE DEBTOR MAKING PAYMENT THEREOF TO HIS CREDITOR. IN T HE PRESENT CASE, ADMITTEDLY THERE IN NO DECLARATION BY THE ASS ESSEE THAT IT DOES NOT INTEND TO HONOUR ITS LIABILITIES NOR IS TH ERE ANY DISCHARGE OF THE DEBT. IN THE AFORESAID PREMISES, A S NO EVENT HAD TAKEN PLACE IN THE YEAR UNDER CONSIDERATION TO INDI CATE REMISSION OR CESSATION OF THE LIABILITIES IN QUESTION, THE PR OVISIONS OF SECTION 41(1) OF THE ACT COULD NOT HAVE BEEN INVOKE D. THE REASONING ADOPTED BY THE TRIBUNAL WHILE HOLDING THA T SECTION 41(1) WOULD NOT BE APPLICABLE TO THE FACTS OF THE P RESENT CASE IS IN LINE WITH THE PRINCIPLES ENUNCIATED IN THE ABOVE DECISION. THE TRIBUNAL, THEREFORE, COMMITTED NO LEGAL ERROR SO AS TO GIVE RISE TO ANY QUESTION OF LAW WARRANTING INTERFERENCE BY THIS COURT. WE ARE IN AGREEMENT WITH THE VIEW OF THE TRIBUNAL. SECTION 41(1) OF THE ACT AS DISCUSSED IN THE ABOVE THREE DECISIONS WOULD APPLY IN A CASE WHERE THERE HAS BEEN REMISSION OR CESSATION OF LIAB ILITY DURING THE YEAR UNDER CONSIDERATION SUBJECT TO THE CONDITIONS CONTA INED IN THE STATUTE BEING FULFILLED. ADDITIONALLY, SUCH CESSATION OR RE MISSION HAS TO BE ITA NO.1855 AND 1856/AHD/2012 6 DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. IN THE PRESENT CASE, BOTH ELEMENTS A RE MISSING. THERE WAS NOTHING ON RECORD TO SUGGEST THERE WAS REMISSIO N OR CESSATION OF LIABILITY THAT TOO DURING THE PREVIOUS YEAR RELEVAN T TO THE ASSESSMENT YEAR 2007-08 WHICH WAS THE YEAR UNDER CONSIDERATION . IT IS UNDOUBTEDLY A CURIOUS CASE. EVEN THE LIABILITY ITSE LF SEEMS UNDER SERIOUS DOUBT. THE ASSESSING OFFICER UNDERTOOK THE EXERCISE TO VERIFY THE RECORDS OF THE SO CALLED CREDITORS. MANY OF THE M WERE NOT FOUND AT ALL IN THE GIVEN ADDRESS. SOME OF THEM STATED THAT THEY HAD NO DEALING WITH THE ASSESSEE. IN ONE OR TWO CASES, THE RESPONS E WAS THAT THEY HAD NO DEALING WITH THE ASSESSEE NOR DID THEY KNOW HIM. OF COURSE, THESE INQUIRIES WERE MADE EX PARTE AND IN THAT VIEW OF TH E MATTER, THE ASSESSEE WOULD BE ALLOWED TO CONTEST SUCH FINDINGS. NEVERTHELESS, EVEN IF SUCH FACTS WERE ESTABLISHED THROUGH BI-PARTE INQ UIRIES, THE LIABILITY AS IT STANDS PERHAPS HOLDS THAT THERE WAS NO CESSATION OR REMISSION OF LIABILITY AND THAT THEREFORE, THE AMOUNT IN QUESTIO N CANNOT BE ADDED BACK AS A DEEMED INCOME UNDER SECTION 41(C) F THE A CT. THIS IS ONE OF THE STRANGE CASES WHERE EVEN IF THE DEBT ITSELF IS FOUND TO BE NON- GENUINE FROM THE VERY INCEPTION, AT LEAST IN TERMS OF SECTION 41(1) OF THE ACT THERE IS NO CURE FOR IT. BE THAT AS IT MAY, INS OFAR AS THE ORDERS OF THE REVENUE AUTHORITIES ARE CONCERNED, THE TRIBUNAL NOT HAVING MADE ANY ERROR, THIS TAX APPEAL IS DISMISSED. 13. IN THE LIGHT OF THE ABOVE, IF I EXAMINE THE FAC TS OF THE PRESENT CASE, THEN, IT WOULD REVEAL THAT LIABILITY TO PAY HAS NOT CEASE D. IT IS JUST OUTSTANDING FROM THE LAST SIX MONTHS ONLY. THE AO HAS ASSUMED CESSA TION OF LIABILITY MERELY ON ACCOUNT OF NON-FILING OF THE CONFIRMATION. ACCO RDING TO THE JUDGMENT OF THE HONBLE GUJARAT HIGH COURT CITED SUPRA, THE ADD ITION UNDER SECTION 41(1) CAN BE MADE IN THE CASE WHERE THERE HAS BEEN REMISS ION OR CESSATION OF THE LIABILITY DURING THE YEAR UNDER CONSIDERATION SUBJE CT TO FULFILLMENT OF CONDITIONS CONTAINED IN THIS SECTION. NON-FURNISHI NG OF CONFIRMATION IS NOT A CRITERIA FOR ASSUMING CESSATION OF THE LIABILITY. THEREFORE, I ALLOW THE GROUND OF APPEAL RAISED BY THE ASSESSEE AND DELETE THE ADD ITION. 14. IN THE NEXT GROUND OF APPEAL, THE GRIEVANCE OF THE ASSESSEE IS THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF CLAIM OF DEPRECIATION. ITA NO.1855 AND 1856/AHD/2012 7 THE ASSESSEE HAS CLAIMED DEPRECIATION OF RS.4,18,41 3/-. THIS CLAIM WAS DISALLOWED ON THE GROUND THAT THIS YEAR ASSET WAS N OT USED FOR THE PURPOSE OF BUSINESS, BECAUSE NO MANUFACTURING ACTIVITY WAS CAR RIED OUT. 15. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, I HAVE GONE THROUGH THE RECORD CAREFULLY. THE ASSESSEE HAS NOT CLOSED DOWN ITS BUSINESS PERMANENTLY. THERE IS A TEMPORARILY SUSPENSION OF PRODUCTION ACT IVITY ON ACCOUNT OF ADVERSE MARKET CONDITION. THE PLANT &MACHINERY ARE READY TO BE USED FOR THE PURPOSE OF THE BUSINESS. THUS, THE AO WAS NOT JUST IFIED IN DISALLOWING THE CLAIM OF THE ASSESSEE. I ALLOW THIS GROUND AND DEL ETE THE DISALLOWANCE. 16. IN THE RESULT, APPEALS OF THE ASSESSEE ARE ALLO WED. ORDER PRONOUNCED IN THE COURT ON 27 TH JULY, 2016 AT AHMEDABAD. SD/- (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 27/07/2016