VARGHESE V DEVASSI, THANE V. ITO WD 3(4), THANE

ITA 2131/MUM/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93060 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2007-2008
• Appeal Filed On: 13-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANOJ J KUMAR
• Assessee Lawyers: DR P DANIEL
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES SMC, MUMBAI BEFORE SHRI B.R.BASKARAN (AM) ITA NO. 2131/MUM/2015 ASSESSMENT YEAR: 2007-08 SHRI. VARGHESE V. DEVASSI, M/S. VARUN FABRICATORS, PLOT NO. A-200, ROAD NO. 29, AJANTHA ENGG. COMPOUND, AMBICA NAGAR, WAGLE ESTATE, THANE(W)- 400 604. PAN- AAJPV0613P VS. THE ITO WARD 3(4) , THANE, ASHAR PARK, WAGLE ESTATE, THANE (W)- 400 604. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI. DR. P. DANIEL RESPONDENT BY : SHRI. MANOJ J. KUMAR DATE OF HEARING: 29/06/2016 DATE OF PRONOUNCEMENT: 29/06/2016 O R D E R PER B.R.BASKARAN, AM THE APPEAL FILED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER DATED 16-02- 2015 PASSED BY LD CIT(A)-2, THANE AND IT RELATES TO THE ASSESSMENT YEAR 2007- 08. THE ASSESSEE IS AGGRIEVED BY THE DECISION RENDE RED BY THE LD CIT(A) IN RESPECT OF THE FOLLOWING ADDITIONS:- (A) ADDITION OF SUNDRY CREDITORS BALANCE OF RS.5,39,258 /- U/S 41(1) OF THE ACT. (B) ADHOC DISALLOWANCE OF EXPENSES. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF FA BRICATION AND ENGINEERING WORKS AND CARRYING ON THE SAME UNDER THE NAME AND S TYLE M/S VARUN FABRICATORS. DURING THE COURSE OF ASSESSMENT PROCE EDINGS, THE AO NOTICED THAT 2 ITA NO. 2131/MUM/2015 ASSESSMENT YEAR: 2007-08 THE ASSESSEE HAS SHOWN SUNDRY CREDITORS BALANCE AT RS.38,50,678/-. IN ORDER TO VERIFY THE GENUINENESS OF THE CREDITORS, THE AO ISSUED NOTICES U/S 133(6) OF THE ACT TO ALL THE CREDITORS. THE AO DID NOT RECEI VE CONFIRMATION FROM CERTAIN CREDITORS AND HENCE THE ASSESSING OFFICER ASSESSED THE OUTSTANDING BALANCE OF THOSE PERSONS AGGREGATING TO RS.11,17,864/- AS INCO ME OF THE ASSESSEE. IT IS PERTINENT TO NOTE THAT THE ASSESSING OFFICER DID NO T SPECIFY THE SECTION UNDER WHICH THE ABOVE SAID INCOME WAS ASSESSED. 3. THE ASSESSEE HAD CLAIMED EXPENSES UNDER VARIOU S HEADS TO THE TUNE OF RS.2,60,939/-. EVEN THOUGH THE ASSESSEE PRODUCED V OUCHERS RELATING TO THE EXPENSES, YET THE AO DISALLOWED A SUM OF RS.52,188/ - COMPUTED AT 20% OF THE AGGREGATE AMOUNT OF EXPENSES BY OBSERVING THAT THEY HAVE BEEN INCURRED IN CASH AND SUPPORTED BY SELF MADE VOUCHERS. 4. BEFORE LD CIT(A), THE ASSESSEE MADE CERTAIN S UBMISSIONS AND HENCE THE LD CIT(A) CALLED FOR A REMAND REPORT. THE LD A.R SUBM ITTED THAT THE ASSESSEE HAS FURNISHED CONFIRMATION LETTERS OBTAINED FROM ALL TH E CREDITORS. IN THE REMAND PROCEEDINGS, THE AO AGAIN ISSUED NOTICES U/S 133(6) OF THE ACT AND 14 CREDITORS HAVE RESPONDED TO THE SAME. BASED ON THE SAME, THE LD CIT(A) GRANTED RELIED TO THE EXTENT OF RS.5,22,039/-. IN RESPECT OF TWO O THER CREDITORS, THERE WAS MARGINAL DIFFERENCE IN THE OUTSTANDING AMOUNT. SIN CE THE SAID TWO CREDITORS HAVE ALSO RESPONDED, THE LD CIT(A) GAVE RELIEF IN R ESPECT OF THOSE TWO CREDITORS ALSO. ALTOGETHER, THE LD CIT(A) GRANTED RELIEF OF RS.5,78,606/-. WITH REGARD TO THE REMAINING CREDITORS (ACCORDING TO LD CIT(A) IT WAS 11 CREDITORS, BUT THE LD A.R SUBMITTED THAT THE REMAINING CREDITORS ARE 12), THE LD CIT(A) CONFIRMED THE ADDITION BY OBSERVING THAT THEY HAVE FAILED TO RESP OND TO THE NOTICES ISSUED BY THE AO ON TWO OCCASIONS. ACCORDINGLY HE CAME TO TH E CONCLUSION THAT THE BALANCE AMOUNT OF RS.5,39,258/- SHOULD BE ASSESSED U/S 41(1) OF THE ACT, SINCE THE LIABILITY IS NO MORE PAYABLE AS THERE WAS NO CLAIMANT OF THIS LIABILITY. 3 ITA NO. 2131/MUM/2015 ASSESSMENT YEAR: 2007-08 5. THE LD A.R SUBMITTED THAT THE ASSESSEE IS HAV ING REGULAR TRADE RELATIONSHIPS WITH THESE CREDITORS AND IN MOST OF T HE CASES, THE ASSESSEE HAS PAID THE OUTSTANDING BALANCE EITHER IN FULL OR IN P ART. HE FURNISHED A LIST NARRATING THE EVENTS OCCURRED IN THE SUCCEEDING YEA R. OUT OF THE 12 CREDITORS, WE NOTICE THAT THE ASSESSEE HAS PAID THE OUTSTANDIN G BALANCE IN FULL IN RESPECT OF TWO CREDITORS VIZ., M/S LAXMI DESIGNING WORKS AN D M/S JINESH METAL CORPORATION. IN RESPECT OF THREE CREDITORS, VIZ., M/S CURRENT TRANSFER SYSTEMS, M/S PREMIUM ENERGY TRANSMISSION LTD AND M/S SAI STE EL TRADERS, THERE WAS NO PAYMENT AND THE OUTSTANDING BALANCE CONTINUED. IN RESPECT OF THE REMAINING CREDITORS, THE ASSESSEE HAS PAID PART OF OUTSTANDING AMOUNT. ON THE CONTRARY, THE LD D.R PLACED RELIANCE ON THE ORDER P ASSED BY LD CIT(A). HE SUBMITTED THAT THE ASSESSEE IS SHOWING OUTSTANDING CREDITORS BALANCE OF RS.38.50 LAKHS ON A TURNOVER OF RS.35.78 LAKHS AND THE SAME IS DISPROPORTIONATE. 6. IN RESPECT OF CREDITORS TO WHOM THE PAYMENTS HAVE BEEN MADE IN PART OR IN FULL, IN MY VIEW, THE PROVISIONS OF SEC. 41(1) CANN OT BE APPLIED, SINCE THE PAYMENT BY THE ASSESSEE SHOWS THAT THE LIABILITY WA S LIVE AND NOT CEASED TO EXIST. NOW, I AM LEFT WITH THREE CREDITORS, WHOSE BALANCE AGGREGATES TO RS.54,069/-. IN RESPECT OF THESE THREE CREDITORS, THE LD A.R HAS STATED THAT THE ASSESSEE HAS FURNISHED CONFIRMATION LETTERS AND THE ASSESSEE COULD NOT BE FOUND FAULT WITH, IF THE CONCERNED CREDITOR DID NOT RESPOND TO THE NOTICES ISSUED U/S 133(6) OF THE ACT. THE LD A.R SUBMITTED THAT T HE ASSESSEE WAS CONSTRAINED TO WITHHOLD THE PAYMENTS FOR GENUINE BUSINESS REASO NS AND FURTHER HE COULD NOT COMPEL THESE CREDITORS TO RESPOND TO THE NOTICE S. HE SUBMITTED THAT THE AO COULD HAVE ISSUED SUMMONS TO THEM, BUT HE FAILED TO INVOKE THOSE POWERS. HE SUBMITTED THAT THE ASSESSEE IS ACKNOWLEDGING HIS LI ABILITY AND HENCE THE TAX AUTHORITIES COULD NOT INFER THAT THE LIABILITY HAS CEASED TO EXIST. THE LD A.R ALSO PLACED RELIANCE ON THE FOLLOWING CASE LAW TO S UPPORT HIS CONTENTIONS:- 4 ITA NO. 2131/MUM/2015 ASSESSMENT YEAR: 2007-08 (A) CIT VS. NITIN S GARG (2012)(71 DTR (GUJ) 73 (B) CCIT VS. KESARIS TEA CO. LTD (254 ITR 434)(SC ) (C) CIT VS. SUGAULI SUGAR WORKS (P) LTD (1999)(23 6 ITR 518)(SC) (D) ITO VS. M/S COMPUTER FORCE & OTHERS (49 DTR ( AHD) 298) 7. THE CASE LAWS LISTED AS (B) AND (C) RELATE TO UNILATERAL WRITE OFF BALANCES AND ITS EFFECT UNDER THE PROVISIONS OF SEC. 41(1) OF TH E ACT. THE FACTS PREVAILING IN THOSE CASES ARE DIFFERENT AND HENCE THEY DO NOT APP LY TO THE FACTS OF THE PRESENT CASE. IN ANY CASE, THE ACT HAS BEEN AMENDED TO TAX EVEN UNILATERAL WRITE OFFS. IN THE CASE LAW LISTED AS (D) ABOVE, THE AHMADABAD BENCH OF TRIBUNAL HAS RECOGNISED THE FACTUM OF PAYMENTS MADE IN THE SUCCE EDING YEARS AND DELETED THE ADDITION MADE U/S 41(1) OF THE ACT. THIS PRINC IPLE HAS ALREADY BEEN APPLIED BY ME IN THE PRECEDING PARAGRAPHS. IN THE CASE OF NITIN S. GARG (SUPRA), THE HONBLE GUJARAT HIGH COURT HAS HELD THAT THE FACT T HAT THE LIABILITIES ARE OUTSTANDING FOR A LONGER PERIOD ALONE IS NOT SUFFIC IENT TO INVOKE THE PROVISIONS OF SEC. 41(1) OF THE ACT. IN THE INSTANT CASE, IT IS NOT THE CASE OF THE AO THAT THE THREE CREDITORS ARE OUTSTANDING FOR A LONG TIME. 8. IN THE INSTANT CASE, THE TAX AUTHORITIES HAV E DOUBTED ABOUT THE EXISTENCE OF LIABILITY, SINCE THE CONCERNED CREDITORS DID NOT RESPOND TO THE NOTICES ISSUED U/S 133(6) OF THE ACT TWICE. HOWEVER, I AM OF THE VIEW THAT THE NON-RESPONSE ON THE PART OF THE CREDITOR ALONE CANNOT BE SUFFICI ENT TO COME TO THE CONCLUSION THAT THE LIABILITY HAS CEASED TO EXIST. IN MY VIEW , THE AO SHOULD HAVE MADE FURTHER ENQUIRIES TO SUPPORT HIS CONCLUSION. I NOT ICE THAT THE LD CIT(A) HAS ALSO ENDORSED THE VIEW TAKEN BY THE AO WITHOUT COND UCTING ANY FURTHER ENQUIRIES. UNDER THESE SET OF FACTS, I AM OF THE V IEW THAT THE LD CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION TO THE EXTENT OF RS.5,39,258/-. ACCORDINGLY, I SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THIS I SSUE AND DIRECT THE AO TO DELETE THE ADDITION. 9. THE NEXT ISSUE RELATES TO THE ADHOC DISALLOWA NCE OF RS.25,000/- MADE OUT OF EXPENSES. AS NOTICED EARLIER, THE AO MADE ADHOC DISALLOWANCE ON THE 5 ITA NO. 2131/MUM/2015 ASSESSMENT YEAR: 2007-08 REASONING THAT THE PAYMENTS HAVE BEEN MADE BY WAY O F CASH AND CERTAIN EXPENSES ARE SUPPORTED BY SELF MADE VOUCHERS. THE LD CIT(A) REDUCED THE DISALLOWANCE FROM RS.52,188/- TO RS.25,000/-. STIL L AGGRIEVED, THE ASSESSEE IS CONTESTING THE DECISION OF LD CIT(A) 10 I HAVE HEARD THE PARTIES ON THIS ISSUE AND P ERUSED THE RECORD. THE LD A.R SUBMITTED THAT THE PAYMENT BY WAY OF CASH IS IN EVITABLE IN THE ASSESSEES BUSINESS. HE FURTHER SUBMITTED THAT PAYMENTS TOWAR DS LABOUR, TRANSPORT AND CONVEYANCE, STAFF WELFARE ETC. CAN ONLY BE SUPPORTE D BY SELF MADE VOUCHERS, SINCE THE PAYEES DO NOT ISSUE PRINTED BILLS. ON TH E CONTRARY, THE LD D.R SUBMITTED THAT THE SELF MADE VOUCHERS AND CASH PAYM ENTS ARE AMENABLE FOR CROSS VERIFICATION. 11. I FIND MERIT IN THE CONTENTIONS OF BOTH THE PARTIES. SELF MADE VOUCHERS ARE NOT AMENABLE FOR CROSS VERIFICATION AND AT THE SAME TIME, CASH PAYMENTS CANNOT ALSO BE AVOIDED. UNDER THESE CIRCUMSTANCES, THE TAX AUTHORITIES WERE CONSTRAINED TO MAKE ADHOC DISALLOWANCE, WHICH IS BE ING MADE TO TAKE CARE OF DEFICIENCIES, IF ANY, IN THE BOOKING OF EXPENSES. I NOTICE THAT THE DISALLOWANCE CONFIRMED BY THE LD CIT(A) WORKS OUT TO ABOUT 10% O F THE AGGREGATE AMOUNT OF EXPENSES. ON A CONSPECTUS OF THE MATTER, I FIND TH E SAID DISALLOWANCE TO BE REASONABLE. ACCORDINGLY I CONFIRM THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSE SSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH JUNE, 2016 SD/- (B.R.BASKARAN) ACCOUNTANT MEMBER MUMBAI; DATED: 29/06/2016 6 ITA NO. 2131/MUM/2015 ASSESSMENT YEAR: 2007-08 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A)- 4. / CIT 5. !' , $ !'% , / DR, ITAT, MUMBAI 6. &' ( / GUARD FILE. / BY ORDER, ) //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI PRAMILA