Ramesh Singh, Kolkata V. I.T.O Wd - 36(1),kolkata, Kolkata

ITA 2254/KOL/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 99695 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 11 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 14-08-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R P NAG J
• Assessee Lawyers: N M BHANSALI
• Section: 68; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH SMC KOLKATA BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER ITA NO.2254/KOL/2013 ASSESSMENT YEAR:2007-08 RAMESH SINGH 49, EZRA STREET, GR. FLOOR, KOLKATA 01 [ PAN NO.AKTPS 7334 N ] / V/S . INCOME TAX OFFICER, WARD-36(1), AAYAKAR BHAWAN (POORVA), 8 TH SHANTIPALLY, KOLKATA 700 107 /APPELLANT .. /RESPONDENT /BY APPELLANT SHRI N.M. BHANSALI, ADVOCATE /BY RESPONDENT SHRI R.P.NAG, JCIT-DR /DATE OF HEARING 15-07-2015 /DATE OF PRONOUNCEMENT 12-08-2015 /O R D E R THIS APPEAL BY THE ASSESSEE IS ARISING OUT OF ORDE R OF COMMISSIONER OF INCOME TAX (APPEALS)-XX, KOLKATA IN APPEAL NO.201/CIT(A)-X X/WD.36(1)/09-10/KOL DATED 16.04.2013. ASSESSMENT WAS FRAMED BY ITO WARD-36(1) , KOLKATA U/S 144 OF THE INCOME TAX ACT 1961 (HEREINAFTER REFERRED TO AS TH E ACT) VIDE HIS ORDER DATED 18.12.2009. 2. AT THE TIME OF HEARING LD. COUNSEL FOR THE ASSES SEE STATED THAT HE HAS BEEN INSTRUCTED BY THE ASSESSEE NOT TO PRESS THE GROUND NO. 2 & 3. HENCE, BOTH THE GROUND OF ASSESSEE IS DISMISSED AS NOT PRESSED. ITA NO. 2254/KOL/2013 A.Y. 2007-08 RAMESH SINGH V. ITO WD-36(1), KOL. PAGE 2 3. THE ONLY ISSUE WHICH REMAINS IN THIS APPEAL OF A SSESSEE IS AGAINST THE ORDER OF LD. CIT(A) IN UPHOLDING THE ADDITION OF RS.6,21,489 /- MADE BY ASSESSING OFFICER U/S 41(1) OF THE ACT, FOR WHICH ASSESSEE HAS RAISED FOL LOWING GROUND:- 1. A) THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE THE LD. CIT(APPEALS) ERRED IN UPHOLDING THE ADDITION OF RS. 6,21,489/- MADE BY THE AO U/S. 41(1) IN RESPECT OF THE FOLLOWING SUNDRY CREDI TORS. I) INDUSTRIAL SWITCH GEARS CABLE CO. RS. 94,765.00 II) RATAN TRADING CORPORATION RS.1,12,494.00 III) M.K. ELECTRICALS RS.3,94,094.66 IV) NAJAMI INDUSTRIES STORES RS. 20,135.82 HE FAILED TO APPRECIATE THAT THERE WAS NO MATERIAL ON RECORD TO SHOW THAT THE LIABILITY HAS CEASED TO EXIST IN RESPECT OF THE ABO VE PARTIES. THE ADDITION OF RS.6,21,489/- IS WRONG, ILLEGAL AND UNJUSTIFIED. B) WITHOUT PREJUDICE TO THE FOREGOING GROUND, THE A DDITION IN RESPECT OF SUNDRY CREDITOR M/S M.K. ELECTRICALS AMOUNTING TO RS.3,94, 094/66 IS FACTUALLY INCORRECT. THE OUTSTANDING LIABILITY TO M/S/. M.K. ELECTRICALS WAS RS.45,4331/- ONLY. THE ADDITION IS MADE ON THE BASIS OF WRONG FA CTS & FIGURES. 4. BRIEFLY STATED FACTS ARE THAT ASSESSEE RUNS A BU SINESS IN TRADING ELECTRICAL GOODS. THE ASSESSMENT ORDER WAS FRAMED U/S 144 OF THE ACT BY THE ASSESSING OFFICER. THE AO ON THE BASIS OF AVAILABLE RECORD ON THE FILE INC LUDING WRITTEN SUBMISSION RECEIVED INCLUDING BALANCE SHEET AND SCHEDULES THEREOF AS WE LL AS ON PERUSAL OF THE LIST OF SUNDRY CREDITORS FOR THE YEAR UNDER ASSESSMENT AND IMMEDIATELY PRECEDING YEAR MADE A FINDING THAT SOME OF THE SUNDRY CREDITORS BALANC ES ARE COMING FROM LAST YEAR AND THERE HAS BEEN NO TRANSACTION WITH THE SUNDRY CREDI TORS DURING THE YEAR UNDER ASSESSMENT THAT FOLLOWING ARE THE PARTIES, WHOSE BA LANCES REMAIN THE SAME:- 1. INDUSTRIAL SWITCH GEAR CABLE CO. RS. 94,765/- 2. RATAN TRADING CORPORATION RS.1,12,494/- 3. M.K. ELECTRICALS RS.3,94,094.66 4. NAJAMI INDUSTRIES STORES RS. 20,135.82 RS.6,21,489.48 AS THERE WAS NO TRANSACTION ENTERED INTO BY ASSESSE E WITH THIS ABOVE FOUR PARTIES DURING THE YEAR UNDER ASSESSMENT AND THE BALANCE HA D BEEN CARRIED FORWARD FROM THE EARLIER YEAR AND ON VERIFICATION REGARDING THE GENU INENESS OF THE CREDITORS NOTHING COULD BE CONDUCTED FOR NON AVAILABILITY OF THE PRES ENT ADDRESSES OF THE ABOVE SAID ITA NO. 2254/KOL/2013 A.Y. 2007-08 RAMESH SINGH V. ITO WD-36(1), KOL. PAGE 3 CREDITORS. AS THIS LIABILITY COULD NOT BE ESTABLISH ED AND SINCE THERE WAS NO TRANSACTION HELD DURING THE YEAR, THE AO TREATED THIS LIABILITY AS CEASED TO EXIST AND APPLIED THE PROVISION OF SEC.41(1) OF THE ACT AND TREATED IT AS ASSESSEES INCOME CHARGEABLE TO TAX. AGGRIEVED, ASSESSEE WENT IN APPEAL BEFORE LD. CIT(A ) AND DURING THE APPELLATE PROCEEDING BEFORE LD. CIT(A) ASSESSEE SUBMITTED THA T DUE TO PAUCITY OF FUND, THESE FOUR CREDITORS COULD NOT PAY DURING THE YEAR UNDER ASSESSMENT. HOWEVER, THEY HAVE BEEN PAID IN SUBSEQUENT YEAR SO THE QUESTION OF CES SATION OF LIABILITY DOES NOT ARISE AS THESE ARE GENUINE CREDITORS BUT LD. CIT(A) CONFIRME D THE ACTION OF AO BY GIVING FOLLOWING FINDING:- 5-3 I HAVE PERUSED THE ASSESSMENT ORDER AND CONSID ERED THE SUBMISSION OF THE APPELLANT. THE ACT OF THE CASE IS THAT THE AO TRIED TO VERIFY THE GENUINENESS OF THE AFORESAID CREDITORS SHOWN BY THE APPELLANT. HOW EVER, ON VERIFICATION, HE FOUND THAT THE WHEREABOUTS OF THE PERSONS CONCERNED WERE NOT TRACEABLE IN ABSENCE OF THEIR ADDRESSES. THEREFORE, HE CONCLUDED THAT THE LIABILITIES WERE NO MORE IN EXISTENCE, HE INVOKED PROVISION OF SECTION 41 OF THE IT ACT. I FIND THAT THE APPELLANT COULD NOT GIVE WHEREABOUTS OF THE SAI D CREDITORS TO PROVE THEIR EXISTENCES. IN SUCH SITUATION, THE CONCLUSION DRAWN BY THE AO DOES NOT REQUIRE ANY INTERFERENCE, HENCE, THE APPEAL ON THIS GROUND IS DISMISSED. AGGRIEVE, NOW ASSESSEE CAME IN SECOND APPEAL BEFORE THE TRIBUNAL. 5. AT THE TIME OF HEARING LD. COUNSEL FOR ASSESSEE SUBMITTED THAT FOUR CREDITORS REFERRED ABOVE COULD NOT BE PAID DUE TO P AUCITY OF FUND AND AS THEY HAVE BEEN PAID IN SUBSEQUENT YEARS. THE QUESTION O F CESSATION OF LIABILITY DOES NOT ARISE AND HE ALSO POINTED OUT THAT THERE WAS A WRONG ADDITION IN CASE OF ONE OF THE SUNDRY CREDITOR M/S M.K. ELECTRICALS. AS PER THE ASSESSMENT ORDER PASSED BY AO THE AMOUNT OF SUNDRY CREDITOR M/S M.K. ELECTR ICALS HAS BEEN TAKEN AT RS.3,94,094.66, HOWEVER THE ACTUAL AMOUNT OF SUNDRY CREDITOR OF M/S M.K. ELECTRICALS AS ON 31 ST MARCH, 2007 AS PER THE AUDITED BALANCE SHEET IS AT RS.45,331/-. THE BALANCE OF M/S M.K. ELECTRICALS AT RS.45,31/- IS VERIFIABLE FROM THE AUDITED BALANCE SHEET FILED ALONG WITH PAP ER BOOK. THE CORRECT FIGURE OF THE FOUR CREDITORS IS WORKED OUT AS UNDER:- I) INDUSTRIAL SWITCH GEARS CABLE CO. RS. 94,765 .00 ITA NO. 2254/KOL/2013 A.Y. 2007-08 RAMESH SINGH V. ITO WD-36(1), KOL. PAGE 4 II) RATAN TRADING CORPORATION RS.1,12,494.00 III) M.K. ELECTRICALS RS. 45,331.00 IV) NAJAMI INDUSTRIAL STORES RS. 20,135.82 RS.2,72,725.82 AS SUCH, THE FIGURE OF RS.6,21,489/- SHOULD BE REPL ACED BY RS.2,72,725.82. IN THIS REGARD, I HAVE GONE THROUGH THE PAPER BOOK FIL ED BY ASSESSEE AND RELEVANT DETAILS OF SUNDRY CREDITORS AND I FIND THAT THE CON TENTION OF LD. COUNSEL FOR ASSESSEE IS CORRECT. LD. DR SUPPORTED THE VIEW OF L D. AR AND AS SUCH THE FIGURE OF ADDITION OF RS.6,21,489.48 IS TO BE REPLACED BY RS.2,72,725.82. LD. COUNSEL FOR ASSESSEE FURTHER SUBMITTED THAT AS THE LIABILITY WAS EXISTING AND NONE OTHER OF THE SUNDRY CREDITORS HAVE GIVEN ANY REPLY TO THE CONTRARY AND FURTHER AS THE SUNDRY CREDITORS HAVE BEEN PAID OFF IN A SUBSEQ UENT YEAR SO THE ADDITION MADE BY AO AND UPHELD BY LD. CIT(A) U/S 41(1) OF TH E ACT NEEDS TO BE DELETED. 6. LD. DR SUPPORTED THE ORDERS OF AUTHORITIES BELOW AND HE CONCEDED THE VIEW TAKEN BY LD. AR OF ASSESSEE AT THE TIME OF HEA RING BEFORE ME. 7. THE MAIN ISSUE IN THIS APPEAL OF ASSESSEE IS IN REGARD TO APPLICATION OF PROVISION OF SEC. 41(1) OF THE ACT BY THE AO THE PR OVISION OF SECTION 41(1) HAVE APPLICATION ONLY IF (I) AN ALLOWANCE OR DEDUCT ION HAS BEEN MADE IN A COMPUTATION OF PROFITS AND GAINS TO A BUSINESS OR P ROFESSION IN HIS ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXPENDITURE OR TRA DING LIABILITY INCURRED BY ASSESSEE; AND (II) SUBSEQUENTLY, DURING ANY PREVIO US YEAR THE ASSESSEE HAD OBTAINED, WHETHER ANY CASH OR ANY OTHER MANNER WHAT SOEVER, ANY AMOUNT IN RESPECT OF SUCH LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF . RELATING FACTS OF THE CASE UNDER APPEAL BEFORE ME, THE FIRST CONDITION IS CLEA RLY FULFILLED AS THE AMOUNT RELATES TO THE OUTSTANDING PAYMENT FOR PURCHASES MA DE FROM SUNDRY CREDITORS. THEREFORE, IN THE ASSESSMENT OF THE ASSESSEE, THE A LLOWANCE OR DEDUCTION HAS ITA NO. 2254/KOL/2013 A.Y. 2007-08 RAMESH SINGH V. ITO WD-36(1), KOL. PAGE 5 BEEN MADE IN RESPECT OF ANY LOSS, EXPENDITURE OR TR ADING LIABILITY INCURRED BY HIM. NOW, I GO TO THE SECOND CONDITION AND I CAN CA TEGORIZE THE SECOND CONDITION IN FOLLOWING POINTS:- (I) WHETHER ANY AMOUNT IS OBTAINED IN RESPECT OF S UCH LOSS OR EXPENDITURE; (II) WHETHER ANY BENEFIT IS OBTAINED IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF. LOOKING TO THE FACTS OF THE PRESENT CASE, THE CONDI TION (II) IS NOT FULFILLED AS NEITHER ANY AMOUNT IS PROVED TO HAVE BEEN OBTAINED IN RESPECT OF SUCH LOSS OR EXPENDITURE AND NOR ANY BENEFIT HAS BEEN OBTAINED I N RESPECT OF SUCH TRADING LIABILITY BECAUSE SUNDRY CREDITORS HAVE NOT REFUSED FOR THEIR CLAIM OF THE DUE PAYMENT FOR THE PURCHASE AND AN ADDITIONALLY THE AS SESSEE HAS CONFIRMED THAT THESE SUNDRY CREDITORS HAVE BEEN ACTUALLY PAID IN T HE SUBSEQUENT YEAR. 8. HONBLE SUPREME COURT IN THE CASE OF BYEING AND MANUFACTURING LTD V. STATE OF BOMBAY AIR 58 28 (SC) HAS CLEARLY HELD THAT EVEN IN CASES WHERE THE REMEDY OF A CREDITOR IS BARRED BY LIMITATION THE DE BT ITSELF IS NOT EXTINGUISHED BUT MERELY BECOMES UNENFORCEABLE GIVEN OBSERVATION AS UNDER:- THE POSITION THEN IS THAT UNDER THE LAW A DEBT SUB SISTS NOTWITHSTANDING THAT ITS RECOVERY IS BARRED BY LIMITATION. THIS VIE W HAS ALSO BEEN TAKEN BY HONBLE SUPREME COURT IN THE CASE OF CIT V. SAGAULI SUGAR WORKS PVT. LTD. (1963) 49 ITR 578 (SC) IN THE SAID CASE, IT WAS CONTENDED ON BEHALF OF REVENUE THAT THE LIABILITY HAS COME TO AN END AS THE CREDITORS IN THE SAID CASE HAD NOT TAKEN ANY ACTION TO RECOVER THE A MOUNTS DUE TO THEM FOR 20 YEARS. FURTHER THE HONBLE SUPREME COURT AFFIRMED THE DECI SION OF BOMBAY HIGH COURT IN THE CASE OF J.K. CHEMICALS LTD. V. CIT (1966) 62 ITR 34 (BOM), WHEREIN THE WORDS CESSATION OR REMISSION HAD BEEN INTERPRETED. IN ORDER TO ATTRACT THE PROVISION OF U/S 41(1) OF THE ACT, IT I S NECESSARY THAT THERE SHOULD HAVE BEEN AN CESSATION OR REMISSION OF LIABILITY CE SSATION OF LIABILITY MAY OCCUR EITHER BY THE REASON OF THE LIABILITY BECOMING UNEN FORCEABLE IN LAW BY THE ITA NO. 2254/KOL/2013 A.Y. 2007-08 RAMESH SINGH V. ITO WD-36(1), KOL. PAGE 6 CREDITOR COUPLE WITH DEBTOR DECLARING HIS INTENTION NOT TO OWNER HIS LIABILITY OR BY A CONTRACT BETWEEN PARTIES OR BY DISCHARGE OF DE BT. IN THE PRESENT CASE, THERE IS NO MATERIAL TO INDICATE THAT THE PARTIES HAVE CO NTRACTED TO EXTINGUISH THE LIABILITY. ALTHOUGH, ENFORCEMENT OF A DEBT BEING BA RRED BY LIMITATION DOES NOT IF SO FACTO LEAD TO THE CONCLUSION THAT THERE IS CESSA TION OR REMISSION OF LIABILITY. 9. FURTHER RELIANCE THE DECISION OF DELHI BENCH OF ITAT IN THE CASE OF PERFECT PARADISE EMPORIUM PVT. LTD. V. ITO IN ITA NO.159/DEL/2011 DATED 22.04.2015, WHEREIN IT IS HELD SIMILAR FACTS AS IN THE CASE OF ASSESSEES UNCLAIMED LIABILITY TO THE CREDITORS EVEN IF FICTIT IOUS AND BOGUS CANNOT BE ASSESSED U/S 41(1) OF THE ACT IN THE ABSENCE OF A W RITE BACK. THE BOGUS CREDIT CAN BE ASSESSED U/S 68 OF THE ACT ONLY IN THE YEAR SUCH CREDITS WERE MADE AND NOT IN THE YEAR THEY ARE FOUND TO BE NOT PAYABLE. 10. IN THE FACTS OF THE PRESENT CASE, IT IS ALSO NO T POSSIBLE TO CONCLUDE THAT THE DEBT HAS BECOME UNENFORCEABLE. IT IS WELL SETTLED T HAT REFLECTING AN AMOUNT AS OUTSTANDING IN THE BALANCE SHEET BY A CONCERN AMOUN TS TO THE CONCERN ACKNOWLEDGING THE DEBT FOR THE PURPOSE OF SEC. 18 O F THE LIMITATION ACT, 1963. FURTHER, SUNDRY CREDITORS HAVE BEEN REFLECTED IN TH E BALANCE SHEET OF THE ASSESSEE AND AO HAS CONFIRMED THAT THERE WAS A LIABILITY STA NDING AT THE END OF THE YEAR. THE OUTSTANDING BALANCES REFLECTED AS PAYABLE TO TH E FOUR SUNDRY CREDITORS ARE THE OPENING BALANCES WHICH HAD BEEN CARRIED FORWARD FROM PREVIOUS YEAR. THE ISSUE AS TO THE GENUINENESS OF A CREDIT ENTRY THUS DOES NOT ARISE IN THE CURRENT YEAR AND THIS ISSUE COULD ONLY BE EXAMINED IN THE Y EAR IN WHICH THE LIABILITY WAS RECORDED AS HAVING ARISEN. THE DEPARTMENT HAVING AC CEPTED THE BALANCES OUTSTANDING IN THE PREVIOUS YEAR, IT WAS NOT OPEN B Y LD. CIT(A) TO CONFIRM THE ADDITION ON THE GROUND THAT ASSESSEE COULD NOT PROV E THE GENUINENESS OF THE SAID ITA NO. 2254/KOL/2013 A.Y. 2007-08 RAMESH SINGH V. ITO WD-36(1), KOL. PAGE 7 TRANSACTIONS WHICH WERE UNDERTAKEN. AS SUCH, ON THE BASIS OF ABOVE FINDINGS, I HEREBY DELETE THE ADDITION OF RS.6,21,489.48 MADE B Y AO U/S 41(1) OF THE ACT U/S. 41(1) OF THE ACT. HENCE, THIS GROUND OF ASSESS EES APPEAL IS ALLOWED. 9. IN THE RESULT, APPEAL FILED BY ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 12/08/2015 SD/- (MAHAVIR SINGH) JUDICIAL MEMBE R KOLKATA, *DKP - 12/08/2015 / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT RAMESH SINGH, 49, EZRA ST. GR.FLOOR, KOL-01 2. / RESPONDENT- INCOME TAX OFFICER, WARD-36(1), AAYA KAR BHAWAN, (POORVA), SHA NTIPALLY, KOLKATA 700 107 3. ' % / CONCERNED CIT KOLKATA 4. % - / CIT (A) KOLKATA 5. & ))' , ' / DR, ITAT, KOLKATA 6. + / GUARD FILE. BY ORD ER/ , /TRUE COPY/ / ',