The ACIT, Circle-1, Surat V. M/s. HIMSON KNITTING IND.PVT.LTD., Surat

ITA 2029/AHD/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 6114 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-06-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 26-05-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 29-05-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: H P MEENA
• Keywords: Unexplained cash credit; Fair market value; Corroborative evidences; Onus to prove; Set aside
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL : D BENCH : A HMEDABAD CAMP AT SURAT (BEFORE HONBLE SHRI T.K. SHARMA, J.M. & HON'BLE SH RI D.C. AGRAWAL , A.M.) I.T.A. NO. 2029/AHD./2008 ASSESSMENT YEAR : 2004-2005 ASSISTANT COMMISSIONER OF INCOME TAX, -VS.- M/ S. HIMSON KNITTING INDUSTRIES PVT. LTD., CIRCLE-1, SURAT SURAT (PAN : AAACH 5827 M) (APPELLANT) (RESPONDENT) APPELLANT BY : NONE (WRITTEN SUBMIS SION FILED) RESPONDENT BY : SHRI H.P. MEENA, SR. D .R. O R D E R PER SHRI T.K. SHARMA, JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE IS AGAINST THE OR DER DATED 27.03.2008 OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-I, SURAT FOR TH E ASSESSMENT YEAR 2004-05 ON THE FOLLOWING GROUNDS :- (1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A.) HAS ERRED IN DELETING THE ADDITION ON ACCOUNT OF DISALL OWANCE U/S. 40A(2)(B) OF THE ACT OF RS.36,62,765/-. (2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A.)HAS ERRED IN DELETING THE ADDITION ON ACCOUNT OF UNEXPL AINED CREDITORS OF RS.2,55,110/-. (3) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A.) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. (4) IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE CIT( A.) BE SET ASIDE AND THAT OF ASSESSING OFFICER BE RESTORED. 2. NONE APPEARED ON BEHALF OF THE ASSESSEE, WHEN TH E CASE WAS CALLED FOR HEARING. THOUGH A WRITTEN SUBMISSION DATED 22.04.2010 WAS FILED BY TH E DIRECTOR OF THE ASSESSEE-COMPANY. THEREFORE, WE HAVE DECIDED TO DISPOSE OF THE APPEAL AFTER HEARING THE LD. DEPARTMENTAL REPRESENTATIVE AND THE MATERIAL AVAILABLE ON RECORD . 2 ITA NO. 2029/AHD/2008 3. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSEE I S A COMPANY ENGAGED IN THE BUSINESS OF TEXTURISING OF YARN AND WEAVING & KNITTING OF FABRI CS. FOR THE ASSESSMENT YEAR UNDER APPEAL, IT FILED THE RETURN OF INCOME DECLARING TOTAL LOSS OF RS.16,98,549/- ON 30.10.2004. THE SAID RETURN OF INCOME WAS ACCOMPANIED BY THE AUDITED FINAL ACCOUNT S AND TAX AUDIT REPORT IN FORM NO. 3CA AND 3CD AS PER THE PROVISIONS OF SECTION 44AB OF TH E INCOME TAX ACT. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER MADE THE FOLLOWING ADDITIONS TO THE INCOME OF THE ASSESSEE :- (I) ADDITION ON ACCOUNT OF DISALLOWANCE U/S. 40A(2)(B) OF THE ACT [RS.9,27,501/- +RS.27,35,264/-] RS.36,62,765/- (II) ADDITION ON ACCOUNT OF UNEXPLAINED CREDITORS RS. 2,55,110/- 4. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TA X(APPEALS) DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 40A(2)( B) OF THE ACT OBSERVING THAT THE ASSESSING OFFICER MADE ADHOC DISALLOWANCE OF 10% WITHOUT GIVI NG ANY BASIS OF THIS FIGURE. THE LD. LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ALSO OBSERVED T HAT NO ADHOC DISALLOWANCE CAN BE MADE WITHOUT BRINGING ANY MATERIAL ON RECORD TO SHOW THA T THE PAYMENT MADE BY THE ASSESSEE INDEED WAS EXCESSIVE COMPARED TO FAIR MARKET VALUE OF GOOD S OR SERVICES. FOR THIS PROPOSITION, THE LD. CIT(A.) RELIED ON THE DECISION OF ITAT, AHMEDABAD B ENCH IN THE CASE OF BINIT CORPORATION REPORTED IN 24 TTJ 571. AGGRIEVED BY THE ORDER OF L D. CIT(A.), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 5. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER A LSO DISALLOWED THE AMOUNTS OF 2,55,110/- IN RESPECT OF SUNDRY CREDITORS ON THE GROUND THAT T HESE AMOUNTS SHOWN IN THE BALANCE-SHEET WERE OUTSTANDING FOR MORE THAN THREE YEARS. THE ASSESSIN G OFFICER IN THE ASSESSMENT ORDER ALSO STATED THAT THE ASSESSEE HAS NOT FURNISHED COMPLETE ADDRES S, CONFIRMATION OR ANY EVIDENCE REGARDING THE NATURE OF DISPUTE FOR JUSTIFYING THE REASONS OF OUT STANDING AMOUNT IN RESPECT OF SUNDRY CREDITORS FOR MORE THAN THREE YEARS. ON APPEAL, THE LD. CIT(A .) DELETED THE SAID DISALLOWANCE FOLLOWING THE JUDGMENT OF THE HON'BLE APEX COURT IN THE CASE OF C IT VS.- SUGAULI SUGAR WORKS PVT. LTD. REPORTED IN 236 ITR 518. AGGRIEVED BY THE ORDER OF LD. CIT(A.), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL VIDE GROUND NO. 2. 3 ITA NO. 2029/AHD/2008 6. AT THE TIME OF HEARING BEFORE US, ON BEHALF OF R EVENUE, SHRI H.P. MEENA, LD SR. D.R. APPEARED AND CONTENDED THAT UNDER PROVISIONS OF SEC TION 40A(2)(A) OF THE ACT, WHERE THE ASSESSEE INCURRED ANY EXPENDITURE IN RESPECT OF WHI CH PAYMENT HAS BEEN MADE TO THE PERSONS REFERRED TO IN CLAUSE (B) OF SECTION 40A(2)(B) OF T HE ACT AND THE ASSESSING OFFICER IS OF THE OPINION THAT SUCH EXPENDITURE IS EXCESSIVE OR UNREA SONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE, SO MUCH OF THE EXPENDITURE AS IS SO CONSIDERED BY THE ASSESSING OFFICER TO BE EXC ESSIVE OR UNREASONABLE SHALL NOT BE ALLOWED AS DEDUCTION. IN THIS CASE, THE ASSESSEE HAD GIVEN SUF FICIENT OPPORTUNITIES TO PROVE THE REASONABLENESS OF THE PAYMENTS MADE TO THE SPECIFIE D PERSONS. BEFORE THE ASSESSING OFFICER, THE ASSESSEE HAS FAILED TO DO SO. THE LD. D.R. POINTED OUT THAT IT IS THE DUTY CAST UPON THE ASSESSEE TO PROVE THE GENUINENESS AND THE REASONABLENESS OF THE EXPENDITURE CLAIMED BY IT WITH SUPPORTING EVIDENCES. DESPITE SUFFICIENT OPPORTUNITIES AFFORDE D BY THE ASSESSING OFFICER, THE ASSESSEE HAS FAILED TO DISCHARGE ITS ONUS TO PROVE THE REASONABL ENESS OF THE PAYMENTS MADE TO THE SPECIFIED PERSONS. THEREFORE, THE ASSESSING OFFICER RIGHTLY D ISALLOWED 10% FOR BOTH THE EXPENSES BY INVOKING THE PROVISIONS OF SECTION 40A(2)(B) OF THE INCOME TAX ACT, 1961 AND THE LD. CIT(A.) IS NOT JUSTIFIED IN DELETING THE SAME. 7. IN THE WRITTEN SUBMISSION, THE ASSESSEE CONTENDE D THAT THE ASSESSING OFFICER MADE ADHOC 10% DISALLOWANCE ON THE PLEA THAT NO COMPARATIVE RA TES WERE GIVEN OUT OF TOTAL WORK OF RS.3.66 CRORES. IT WAS SUBMITTED THAT IT IS THE DUTY OF THE ASSESSING OFFICER TO PIN POINT EXCESSIVE RATES, IF ANY, BEFORE COMING TO THE CONCLUSION THAT MARKET RA TE IS LOWER THAN THE PAYMENT MADE TO SISTER CONCERNS. NO SUCH EXERCISE HAS BEEN DONE BY THE ASS ESSING OFFICER. IT WAS FURTHER CONTENDED THAT ON SIMILAR FACTS AND CIRCUMSTANCES OF THE CASE, ITA T, AHMEDABAD BENCH IN ITA NO. 4117/AHD/2007 FOR AY 2004-05 VIDE ORDER DATED 01.06 .2008 AND ITA NO. 1800/AHD/2009 VIDE ORDER DATED 31.08.2009 FOR AY 2006-07 DISMISSED TH E DEPARTMENTAL APPEALS IN THE CASE OF HIMSON FADIS MACHINERY PVT. LTD., SISTER CONCERN OF THE ASSESSEE. THE COPY OF THE SAID ORDER WAS ENCLOSED WITH THE WRITTEN SUBMISSION. 8. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY G ONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT ITAT, AHMEDABAD BENCH IN THE CASE OF ASSESSEES SISTER CONCERN NAMELY HIMSON FADIS MACHINERY PVT. LTD. (SU PRA) DELETED THE SIMILAR ADDITION BY RELYING ON THE FOLLOWING DECISIONS :- 4 ITA NO. 2029/AHD/2008 (1) UPPER INDIA PUBLISHING HOUSE P. LTD. 117 ITR 56 9; (2) BINIT CORPORATION 24 TTJ 571; (3) SHREE CONSTRUCTION & INVESTMENT CO. VS.- ACI T [2003] 263 ITR 73 (GAU.). IT IS ALSO PERTINENT TO NOTE THAT IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS NOT POINTED OUT THE PAYMENT MADE TO THE SPECIFIED PERSONS IS EXCESS IVE AND UNREASONABLE. NO COMPARATIVE FIGURE WAS GIVEN BY THE ASSESSING OFFICER IN THE ASSESSMEN T ORDER. IN THESE CIRCUMSTANCES, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WAS HAVING NO O PTION BUT TO DELETE THE ADHOC DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SE CTION 40A(2)(B) OF THE ACT. WE, THEREFORE, DECLINE TO INTERFERE WITH THE ORDER OF LEARNED COMM ISSIONER OF INCOME TAX(APPEALS). RESULTANTLY, GROUND NO. 1 OF THIS APPEAL IS REJECTE D. 9. WITH REGARD TO THE GROUND NO. 2, THE LD. D.R. PO INTED OUT THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS SUPPOSED T O EXPLAIN EACH AND EVERY ENTRY APPEARING IN THE BOOKS OF ACCOUNTS TO THE SATISFACTION OF ASSESS ING OFFICER. DESPITE SUFFICIENT OPPORTUNITY AFFORDED BY THE ASSESSING OFFICER, THE ASSESSEE FAI LED TO DO SO. THEREFORE, DISALLOWANCE OF RS.2,55,110/- ON ACCOUNT OF UNEXPLAINED CREDITORS WAS RIGHTLY MADE BY THE ASSESSING OFFICER BY INVOKING THE PROVISIONS CONTAINED IN SECTION 40A(2) (B) OF THE INCOME TAX ACT, 1961. AS AGAINST THIS, IN THE WRITTEN SUBMISSION THE ASSESSEE CONTEN DED THAT THE CREDITORS WERE DISPUTED IN NATURE AND, THEREFORE, THEY WERE NOT OFFERED TO TAX UNDER SECTION 41(1) OF THE ACT. IT WAS FURTHER POINTED OUT THAT RECENTLY ITAT, AHMEDABAD IN THE CASE OF AS SESSEES SISTER CONCERN VIZ. HIMSON FADIS MACHINERY PVT. LTD. ALLOWED THE APPEAL VIDE PARA 14 FOLLOWING THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF AMBICA MILLS REPO RTED IN 54 ITR 167.THEREFORE, THE VIEW TAKEN BY THE LEARNED COMMISSIONER OF INCOME TAX(APP EALS) BE UPHELD. 10. WE HAVE HEARD THE LD. DEPARTMENTAL REPRESENTATI VE, GONE THROUGH THE ORDERS OF AUTHORITIES BELOW AND PERUSED THE MATERIAL AVAILABL E ON RECORD. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) DELETED THE ADDITION OF RS.2,55 ,110/- FOR THE DETAILED REASONS GIVEN IN PARA 3.6, WHICH READS AS UNDER :- 3.6. I HAVE CONSIDERED THE SUBMISSION MADE BY THE APPELLANT AND OBSERVATION OF THE A.O. ADMITTEDLY, THE CREDITORS A RE OLD IN RESPECT OF WHICH PURCHASES WERE MADE IN EARLIER YEARS. EVEN AF TER THE REMAND 5 ITA NO. 2029/AHD/2008 PROCEEDINGS THE A.O. HAS BEEN UNABLE TO BRING ON RE CORD ANY MATERIAL TO SAY THAT THE CREDITORS LIABILITY IS CEASED. IF THE CREDITORS ARE BOGUS, THE SAME CAN BE ADDED ONLY IN THE YEAR IN WHICH THEY AR OSE BY REOPENING THE ASSESSMENT OF THE RELEVANT YEAR. AS REGARDS CESSATI ON OF LIABILITY IS CONCERNED, APPLICATION OF SECTION 41(1) OF THE IT A CT ON THE BASIS OF NON- SERVICE OF NOTICE UNDER SECTION 133(6) IS NOT ENOUG H. IN VIEW OF THE DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF AMBICA MILLS LTD. [54 ITR 167], NO ADDITION CAN BE MADE IF UNCLAIMED LIABILITY WAS SHOWN AS SUBSISTING DEBT IN THE ANNUAL BALANCE SHEET. IN SUCH CASES, THE A.O. CANNOT MAKE THE DISALLOWANCE EVEN IF THE LIMITATION DATE FOR FILING SUIT HAS PASSED. IN THE CASE OF T.V. SUNDARAM IYENGAR & SONS LTD. [222 ITR 344], THE HON'BLE SUPREME COURT STATED THAT THE ADD ITION OF OLD ADVANCES AND DEPOSITS OF OTHER PARTIES HAS TO BE MADE ONLY I F THE ASSESSEE HAS WRITTEN OFF THE CREDITORS BECAUSE DUE TO EFFLUX OF TIME THE LIABILITY IS CEASED TO BE OPERATIVE AND ACCORDINGLY THE SAME IS REQUIRED TO BE TAXED U/S. 41(1). FURTHER, IN VIEW OF THE DECISION OF HON 'BLE SUPREME COURT IN THE CASE OF SUGAULI SUGAR WORKS (SUPRA), NO ADDITIO N U/S. 41(1) CAN BE MADE. THEREFORE, THE ADDITION MADE BY THE A.O. IS D ELETED AND THIS GROUND OF APPEAL IS ALLOWED. 11. IN OUR OPINION, THE LD. CIT(A.) HAS GIVEN COGEN T REASON FOR DELETING THE ADDITION MADE BY THE ASSESSING OFFICER. WE, THEREFORE, INCLINE TO UP HOLD THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS). RESULTANTLY, THIS GROUND OF AP PEAL IS REJECTED. 12. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON 04.06.201 0 SD/- SD/- (D.C. AGRAWAL) (T.K. SHARMA ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 04 / 06 / 2010 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT. 3) CIT(A) CONCERNED, (4) CIT CONCERNED, (5) D.R., ITAT, AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGISTRAR, ITAT, AHMEDABAD LAHA/SR.P.S.