Mr. K. Y. Ningoji Rao, Bengaluru V. Income Tax Officer, Ward- 2(3)(2), Bengaluru

ITA 2059/BANG/2019

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 1410 (ITAT-BANGALORE)
• Duration Of Justice: 2 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-12-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 10-12-2019
• Assessment Year: 2013-2014
• Appeal Filed On: 25-09-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GANESH R GHALE DEPT
• Assessee Lawyers: K Y NINGOJI RAO
• Keywords: Business income; TDS
• Section: 234B; 13; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC - A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT ITA NO.2059/BANG/2019 ASSESSMENT YEAR: 2013-14 SHRI K.Y. NINGOJI RAO, PARTNER, M/S. RAO & VENKATESULU, CHARTERED ACCOUNTANTS, NO.200, 3 RD D CROSS, II BLOCK, III STAGE, BASVESHWARANAGAR, BANGALORE 560 079. PAN: AAHPN 0794P VS. THE INCOME TAX OFFICER, WARD 2(3)(2), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI K.Y. NINGOJI RAO, CA RESPONDENT BY : SHRI GANESH R. GHALE, STANDING COUNSEL FOR DEPT. DATE OF HEARING : 10.12.2019 DATE OF PRONOUNCEMENT : 13.12.2019 O R D E R THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DATED 26.8.2019 OF THE CIT(APPEALS)-2, BENGALURU RELATING TO ASSESS MENT YEAR 2013-14. 2. THE FIRST ISSUE THAT REQUIRES CONSIDERATION BY ME IN THIS APPEAL IS WITH REGARD TO ADDITION OF RS.8,14,763 MADE BY THE AO. THIS ADDITION COMPRISES OF AN ADDITION OF RS.3,85,000 BEING LIABI LITY OF THE ASSESSEE TO ONE LATE MR. KUNSANG LAMA AND ANOTHER SUM OF RS.4,2 9,763 BEING LIABILITY OF ASSESSEE TO ONE LATE MR. AGA YEDULLAH SHIRAZI. 3. THE ASSESSEE IS A CA BY PROFESSION. FOR THE AY 2 013-14, HE FILED A RETURN OF INCOME DECLARING TOTAL INCOME OF RS.37,66 ,940. IN THE COURSE OF ITA NO. 2059/BANG/2019 PAGE 2 OF 8 ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THERE W AS A LIABILITY SHOWN IN THE BALANCE SHEET OF A SUM OF RS.3,85,000 DUE TO LA TE MR. KUNSANG LAMA AND ANOTHER SUM OF RS.4,29,763 TO LATE MR. AGA YEDU LLAH SHIRAZI. THE ASSESSEE EXPLAINED THE OUTSTANDING SHOWN IN THE BAL ANCE SHEET AS FOLLOWS:- (1) REGARDING RS.3,85,000/- DUE TO LATE MR. KUNSAN G LAMA: (A) REGARDING THE SUM OF RS.3,85,000/- SHOWN AS OUT STANDING TO MR.KUNSANG LAMA, THE ASSESSEE EXPLAINED THAT THE AS SESSEE BORROWED THE AFORESAID SUM FROM HIS FRIEND LATE MR. KUNSANG LAMA PRIOR TO 1.4.2002. SINCE MR. KUNSANG LAMA BREA THED HIS LAST IN 28TH DAY OF AUGUST, 2003, THE SAME REMAINED UNPAID FOR THE REASON THAT HIS SONS WHO WENT AWAY TO USA AND R ESIDING THERE WERE NOT AVAILABLE FOR COMMUNICATION AFTER TH E UNFORTUNATE DEATH OF THEIR MOTHER AND FATHER. HOWEVER THROUGH S OME KNOWN PEOPLE THE ASSESSEE WAS INFORMED THAT THE SAID AMOU NT BE PAID TO PENOR RINPOCHE CHARITY FOUNDATION OF BYLAKUPPE AS C ORPUS DONATION IN HIS MEMORY. HOWEVER FOR WANT OF DIRECT INFORMATION THE SAID LIABILITY WAS RETAINED IN BOOKS OF ACCOUNT AS LIABILITY, WHICH REMAINED AS THE LIABILITY OF THE ASSESSEE UNT IL IT IS REPAID; (B) THE ASSESSEE PAID THE SAID SUM OF RS.3,85,000/- UNTO THE PENOR RINPOCHE CHARITY FOUNDATION OF BYLAKUPPE ON 1 3.5.2016 BY CHEQUE NO.182446 VIDE THEIR RECEIPT NO.13167. (C) THE COPIES OF THE LEDGER ACCOUNT OF LATE KUNSAN G LAMA AS APPEARING IN THE ASSESSEE'S BOOKS FOR THE PERIOD FR OM 1.4.2002 TO 31.3.2018 AND THE RECEIPT RECEIVED FROM M/S PENOR R INPOCHE CHARITY FOUNDATION WERE FURNISHED. (2) REGARDING RS.4,29,763/- DUE TO LATE MR. AGA YED ULLA SHIRAZI: (A) THE ASSESSEE EXPLAINED THAT AS ON 31.3.2013 A SUM OF RS.4,29,763/- WAS DUE TO LATE AGA YEDULLA SHIRAZI. THE ASSESSEE SUBMITTED THAT HE RECEIVED AMOUNTS FROM MR .AGA YEDULLA SHIRAZI FOR PURCHASE OF SHARES AND DEBENTUR ES IN VARIOUS COMPANIES FROM THE OPEN MARKET AT HIS REQUEST. THE SAID SHARES WERE PURCHASED IN THE ASSESSEE'S NAME AS PER CONTRA CT NOTES. THE ITA NO. 2059/BANG/2019 PAGE 3 OF 8 TRANSFER OF THOSE SHARES TO HIM COULD NOT BE COMPLE TED OWING TO HIS NON-AVAILABILITY AND THE DELAYS CAUSED BY HIM A ND THE SAME SITUATION CONTINUED TILL HIS DEATH. HIS WIFE IS GER MAN NATIONAL AND SHE REFUSED TO RECEIVE THE MONEY AS SHE WOULD F ORFEIT SOCIAL SECURITY BENEFITS IN GERMANY. HENCE THE SAID MONEY CONTINUED IN THE ASSESSEE'S BOOKS OF ACCOUNT AS UNSECURED LOAN A ND THE SHARES PURCHASED ARE INCLUDED IN THE ASSESSEE'S INVESTMENT IN SHARES IN COMPANIES. (E) THE AMOUNT ACTUALLY DUE TO LATE AGA YEDULLA SHI RAZI AFTER SOME TRANSFERS EFFECTED ON 2.4.2015 WAS ONLY RS.3,3 4,763/-. (F) ALL HIS NEPHEWS VIZ., AGA ALI REZA SHIRAZI, AGA MURTUZA SHIRAZI, AGA MUSTAPHA SHIRAZI ARE RESIDENTS IN USA AND CANADA. THE ONLY OTHER PERSON AVAILABLE IS HIS NIECE MRS. S AMA SHAFIYEH ABDULLA NEE SAMA SHIRAZI WHO IS RESIDING AT HYDERAB AD. IN FACT MRS. SAMA HAS AGREED TO TAKE THE AMOUNT. (G) THE ASSESSEE PAID THE SAID SUM OF RS.3,34,763/- UNTO MRS. SAMA SHAFIYEH ABDULLA BY CHEQUE NO.980377 DRAWN ON CANARA BANK ON 24.8.2016 AS PER THE EMAIL DATED 27.3.2016 RECEIVED FROM HER. (H) THE COPIES OF THE LEDGER ACCOUNT OF LATE AGA YE DULLA SHIRAZI AS APPEARING IN THE ASSESSEES BOOKS FOR THE PERIOD FROM 1.4.2002 TO 31.3.2018 AND THE COPY OF HER EMAIL WER E FURNISHED. 4. THE AO, HOWEVER, DID NOT ACCEPT THE EXPLANATION PROVIDED BY THE ASSESSEE FOR THE FOLLOWING REASONS:- THE EXPLANATION SUBMITTED BY THE ASSESSEE IS NOT ACCEPTABLE FOR THE FOLLOWING REASONS: - AS ADMITTED BY THE ASSESSEE HIMSELF VIDE HIS LETTER DATED 27.01.2016, THE OUTSTANDING LOAN TAKEN FROM LATE SH RI AGA YEDULLA SHIRAZI HAD NO CLAIMANT TILL THAT DATE. - THE ASSESSEE HAS NOT PRODUCED ANY DOCUMENTARY EVIDE NCE TO SHOW THAT THE CREDITOR'S WIFE REFUSED TO RECEIVE TH E OUTSTANDING AMOUNT DUE TO HER LATE HUSBAND. ITA NO. 2059/BANG/2019 PAGE 4 OF 8 - AS REGARDS ASSESSEE'S SUBMISSIONS DATED 28.03.2016 REGARDING THE OPTION EXERCISED BY THE CREDITOR'S NI ECE TO RECEIVE THE MONEY DUE TO THE CREDITOR, IT IS NOT KN OWN WHETHER SHE IS A LEGAL HEIR TO THE DECEASED CREDITOR IN THE ABSENCE OF DOCUMENTARY EVIDENCE. - AS REGARDS AMOUNTS DUE TO LATE SHRI KUNSANG LAMA, THE ASSESSEE HIMSELF HAS ADMITTED THAT THERE ARE NO CLA IMANTS FOR THE AMOUNTS DUE TO THE SAID CREDITOR. THAT THE AMOU NT WOULD BE PAID TO SOME CHARITY FOUNDATION ON A FUTURE DATE IS MERELY AN AFTERTHOUGHT. - BOTH THE OUTSTANDING LOANS UNDER QUESTION HAVE NOT BEEN PAID AS ON DATE. UNDER THE CIRCUMSTANCES, THE AMOUNTS OF RS.4,29,763 / - AND RS.3,85,000/ - SHOWN IN THE ASSESSEE'S BALANCE SHEE T AS OUTSTANDING UNSECURED LOANS DUE TO LATE SHRI AGA YE DULLA SHIRAZI AND LATE SHRI KUNSANG LAMA RESPECTIVELY ARE TREATED AS NON- EXISTING LIABILITY AND ARE ADDED TO THE TOTAL INCOM E OF THE ASSESSEE. 5. BEFORE THE CIT(APPEALS), THE ASSESSEE SPECIFICAL LY MADE A SUBMISSION THAT THE AO DID NOT SPECIFY THE PROVISIO N OF LAW UNDER WHICH THE IMPUGNED ADDITIONS WERE MADE. ASSESSEE POINTED OUT THAT GOING BY THE STAND TAKEN BY THE AO IN THE ORDER OF ASSESSMENT, T HE AO HAD RELIED UPON THE PROVISIONS OF SECTION 41(1) OF THE ACT FOR MAKI NG THE IMPUGNED ADDITION. THE ASSESSEE POINTED OUT THAT THOSE PROVISIONS CANN OT BE APPLIED TO THE FACTS OF ASSESSEES CASE FOR THE FOLLOWING REASONS: - SECTION 41(1) WILL COME INTO PLAY ONLY WHEN: (A) THE ASSESSEE HAS OBTAINED REMISSION OF ANY TRAD ING LIABILITY; (B) AS A RESULT OF REMISSION THE SAID TRADING LIABI LITY CEASES TO EXISTS BY CESSATION; AND (C) THE ASSESSEE MUST HAVE OBTAINED SOME BENEFIT BY SUCH REMISSION AND CESSATION FOR WHICH HE HAD ENJOYED DE DUCTION IN COMPUTATION OF HIS BUSINESS INCOME IN THE EARLIER Y EARS. ITA NO. 2059/BANG/2019 PAGE 5 OF 8 UNLESS ALL THE AFORESAID CONDITIONS ARE SATISFIED, SECTION 41(1) HAS NO APPLICATION. 6. THE ASSESSEE POINTED OUT THAT THERE WAS NEITHER A DEDUCTION ON THE AFORESAID SUMS CLAIMED BY THE ASSESSEE IN THE PAST IN COMPUTING ITS INCOME NOR DID THE ASSESSEE DERIVE ANY BENEFIT OF R EMISSION OR CESSATION OF THE SAID LIABILITY AND THEREFORE THE PROVISIONS OF SECTION 41(1) ARE NOT APPLICABLE. THE ASSESSEE SUBMITTED THAT IF THE ADD ITION IS BEING MADE U/S. 68 OF THE ACT, THEN THE SUMS IN QUESTION WERE NOT R ECEIVED DURING THE PREVIOUS YEAR AND CANNOT BE CONSIDERED FOR ADDITION IN THE PRESENT ASSESSMENT YEAR. 7. THE CIT(APPEALS) HOWEVER UPHELD THE ORDER OF AO FOR THE FOLLOWING REASONS:- 6. I HAVE CONSIDERED THE ABOVE GROUNDS OF APPEAL , STATEMENT OF FACTS AND WRITTEN SUBMISSIONS FILED BY THE APPEL LANT. THE AO HAS TREATED THE AMOUNTS OF RS. 4,29,763/- AND 3,85, 000/- APPEARING IN HIS BALANCE SHEET AS PAYABLE TO LATE S HRI AGA YEDULLAH SHIRAZI AND LATE SHRI KUNSANG LAMA RESPECT IVELY AS NON EXISTING LIABILITY AND ADDED TO THE TOTAL INCOM E FOR THE FOLLOWING REASONS: AS ADMITTED BY THE ASSESSEE HIMSELF VIDE HIS LETTER DATED 27.01.2016, THE OUTSTANDING LOAN TAKEN FROM LATE SH RI AGA YEDULLA SHIRAZI HAD NO CLAIMANT TILL THAT DATE. THE ASSESSEE HAS NOT PRODUCED ANY DOCUMENTARY EVIDE NCE TO SHOW THAT THE CREDITOR'S WIFE REFUSED TO RECEIVE THE OUTSTANDING AMOUNT DUE TO HER LATE HUSBAND. AS REGARDS ASSESSEE'S SUBMISSIONS DATED 28.03.2016 REGARDING THE OPTION EXERCISED BY THE CREDITOR'S NI ECE TO RECEIVE THE MONEY DUE TO THE CREDITOR, IT IS NOT KN OWN WHETHER SHE IS A LEGAL HEIR TO THE DECEASED CREDITO R IN THE ABSENCE OF DOCUMENTARY EVIDENCE. AS REGARDS AMOUNTS DUE TO LATE SHRI KUNSANG LAMA, TH E ASSESSEE HIMSELF HAS ADMITTED THAT THERE ARE NO CLA IMANTS FOR THE AMOUNTS DUE TO THE SAID CREDITORS. THAT THE AMOUNT ITA NO. 2059/BANG/2019 PAGE 6 OF 8 WOULD BE PAID TO SOME CHARITY FOUNDATION ON A FUTUR E DATE IS MERELY AN AFTERTHOUGHT. BOTH THE OUTSTANDING LOANS UNDER QUESTION HAVE NOT BEEN PAID AS ON DATE. I HAVE FURTHER NOTICED THAT THE ABOVE EXISTING LIAB ILITIES ARE PRAYER TO 2003 AND NO INTEREST HAS BEEN PAID TILL DATE AND BOTH THE CREDITORS ARE DECEASED. I DO NOT FIND ANY INFIRMITY IN THE FINDINGS GIVEN BY THE ASSESSING OFFICER AND THEREFORE THE GR OUNDS ON THIS ISSUE ARE DISMISSED. 8. AGGRIEVED BY THE ORDER OF THE CIT(APPEALS), THE ASSESSEE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 9. I HAVE HEARD THE RIVAL SUBMISSIONS. THE LD. COU NSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. THE LD. DR RELIED ON THE ORDER OF AO AND CIT(APPEAL S). 10. AFTER CONSIDERING THE RIVAL SUBMISSIONS, I AM O F THE VIEW THAT THE ADDITION SUSTAINED BY THE CIT(A) DESERVES TO BE DEL ETED. AS RIGHTLY CONTENDED BY THE ASSESSEE, THE ADDITION IN QUESTION COULD NOT HAVE BEEN MADE U/S. 41(1) OF THE ACT BECAUSE THE ASSESSEE SHO ULD HAVE GOT THE BENEFIT OF A DEDUCTION OR ALLOWANCE IN AN ASSESSMEN T IN RESPECT OF LOSS, EXPENDITURE OR TRADING LIABILITY. ADMITTEDLY, THIS CONDITION IS NOT SATISFIED IN THE CASE OF ASSESSEE. THE SECOND CONDITION IS THA T SUBSEQUENTLY THE ASSESSEE SHOULD HAVE OBTAINED REMISSION OF LIABILIT Y OR CESSATION OF LIABILITY DURING THE PREVIOUS YEAR. THERE IS NO MATERIAL ON RECORD TO SHOW THAT THE ASSESSEE DERIVED THE BENEFIT OF ANY REMISSION OR CE SSATION OF LIABILITY. THE FACT THAT THE ASSESSEE HAS SHOWN THE LIABILITY IN T HE BALANCE SHEET ONLY MEANS THAT HE ACKNOWLEDGES THE LIABILITY AS EXISTIN G. NONE OF THE CONDITIONS FOR INVOKING THE PROVISIONS OF SECTION 4 1(1) ARE PRESENT IN THE INSTANT CASE AND THEREFORE THE ADDITION CANNOT BE S USTAINED U/S. 41(1) OF THE ACT. ITA NO. 2059/BANG/2019 PAGE 7 OF 8 11. EVEN IF THE SAID ADDITION IS TESTED ON THE PARA METERS OF SECTION 68 OF THE ACT, THE SAME CANNOT BE SUSTAINED BECAUSE THE C REDIT IN QUESTION IS NOT IN RELATION TO PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2013-14. THEREFORE, THE VERY BASIS OF THE ADDITION MADE BY T HE AO AND SUSTAINED BY THE CIT(APPEALS) IS ERRONEOUS AND CANNOT BE SUSTAIN ED. IN VIEW OF THE ABOVE CONCLUSION, I AM OF THE VIEW THAT THE SUBSEQU ENT DISCHARGE OF THE LIABILITY IN FUTURE BY THE ASSESSEE AND THE FACTS R ELATING TO THE SAME ARE NOT DISCUSSED, THOUGH THOSE FACTS WOULD SUPPORT THE PLE A OF THE ASSESSEE THAT THERE WAS NO CESSATION OF LIABILITY IN AY 2013-14. FOR THE REASONS GIVEN ABOVE, THE ADDITION MADE BY THE AO IS HEREBY DELETE D. 12. THE OTHER GROUNDS OF APPEAL ARE WITH REGARD TO LEVY OF INTEREST U/S. 234B OF THE ACT. I AM OF THE VIEW THAT A DIRECTION TO THE AO TO VERIFY THE CLAIM OF ASSESSEE THAT PROPER CREDIT HAS NOT BEEN G IVEN TO PRE-PAID TAXES AND TDS WOULD BE JUST AND APPROPRIATE. I DIRECT TH E AO ACCORDINGLY. 13. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS PA RTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 13 TH DAY OF DECEMBER, 2019. SD/- ( N V VASUDEVAN ) VICE PRESIDENT BANGALORE, DATED, THE 13 TH DECEMBER, 2019. / DESAI S MURTHY / ITA NO. 2059/BANG/2019 PAGE 8 OF 8 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FIL E BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.