M/s. Harson Labs Pvt. Ltd., Vadodara V. The DCIT, Circle-1(1)(2), Vadodara

ITA 2363/AHD/2018

AI Insights

The case involves M/s. Harson Labs Pvt. Ltd., a pharmaceutical company, appealing against the order of the CIT(A)-1, Vadodara, which confirmed additions made by the Assessing Officer under Sections 41(1) and 68 of the Income Tax Act, 1961 for the Assessment Year 2015-16. The additions pertained to Rs.39,80,000 which included Rs.13,80,000 for unexplained deposits and Rs.26,00,000 as liabilities that were allegedly ceased. The Tribunal examined the nature of the deposits and the applicability of the sections invoked by the Assessing Officer, ultimately deciding in favor of the assessee based on the evidence and legal precedents cited.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 129315 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 1 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 18-12-2022
• Assessment Year: 2015-2016
• Appeal Filed On: 03-12-2018
• Other Referred Cases: CIT vs. Bhogilal Ramjibhai Atara, CIT vs. Nitin S. Gargh, CIT vs. G.K. Patel & Co., CIT vs. Shankar U. Jatwani, PCIT vs. Sheetalben Saurabh Vora
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Additional evidence; TDS
• Section: 68; 208

Judgement Text

ITA No.2363/Ahd/2018 A.Y. 2015-16 Page 1 of 6 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “SMC” BENCH, AHMEDABAD BEFORE Ms. SUCHITRA KAMBLE, JUDICIAL MEMBER ITA No.2363/Ahd/2018 Assessment Year: 2015-16 M/s. Harson Labs Pvt. Ltd., vs. Dy. Commissioner of Income Tax, Survey No.435 Paiki, Circle – 1(1)(2), Vadodara. House No.1992, Dashrath, Vadodara – 391 740. [PAN – AAACH 4614 E] (Appellant) (Respondent) Assessee by : Shri Kinjal V. Shah, CA Respondent by : Shri M. Anand Kumar, Sr. DR Date of hearing : 19.12.2022 Date of pronouncement : 30.01.2023 O R D E R This appeal is filed by the Assessee against the order dated 22.10.2018 passed by the CIT(A)-1, Vadodara for the Assessment Year 2015-16. 2. The grounds of appeal raised by the assessee are as under :- “On Legality: 1. The CIT(A) has erred both in Law and in Fact in brushing aside various judgements relied by your Appellant including binding judgements of Hon. Gujarat High Court and Hon. Ahmedabad Tribunal mainly stating "under this circumstances decisions relied upon by the Ld. AR are distinguishable on facts. Your Appellant submits that both on facts of the case and provisions of Law the decision relied by the Appellant were applicable and if they were distinguishable then the CIT(A) ought to have taken pains to distinguish them on facts of the Appellant and that those judgements relied. On Merits 1. The CIT(A) has erred both in Law and in Fact in confirming applicability of Sec.41(l) the Act and thereby confirming addition of Rs.26 Lakhs of various parties referred in para 2 of his Appellate order. ITA No.2363/Ahd/2018 A.Y. 2015-16 Page 2 of 6 2.(a) Your Appellant submits that these are Trade Credits and deposit towards purchase of goods and that the amount has not become Time Barred and that the same has not been Written off by the Appellant in his Books of Account and therefore Sec. 41(1) cannot be made applicable. (b) Further without prejudice, it is submitted that the amount so received as trade deposit or advance which have been not allowed as an expenditure in computing Total Income and therefore Sec.41(1) is not applicable. 3. The CIT(A) also erred in confirming addition of Rs.13,80,000/- added by Assessing Officer u/s.68 of the Act and your Appellant strongly submits that on facts case it being amount received as trade deposit from Trade Merchants who are known and identifiable persons amount received during course of Business and creditworthiness is proved and therefore it is not liable to be added u/s.68. It is therefore submitted that relief claimed above be allowed and the order of the CIT(A) be modified accordingly. Your Appellant reserves right to add, alter, amend to withdraw any or all Ground of Appeal” 3. The assessee is in the business of pharmaceutical products. The return of income for A.Y. 2015-16 was filed on 29.09.2015 declaring total income of nil i.e. loss of Rs.41,74,912/-. In the year under consideration, the assessee declared revenue from operation of Rs.3,22,58,341/- as against Rs.2,58,10,398/- declared in the preceding year. The assessee declared loss before tax at Rs.43,08,930/- in the A.Y. 2015-16 as against loss of Rs.91,29,526/- in the preceding year. The Assessing Officer observed that on verification of books of account of the assessee, it was seen that the assessee declared an amount of Rs.68,80,000/- as deposits from customers. The assessee submitted copy of confirmation before the Assessing Officer which was verified by the Assessing Officer and observed that the assessee has submitted confirmation totalling to Rs.24,00,000/- as against the deposits received that of Rs.37,80,000/- during the year and thus failed to explain the deposits amounting to Rs.13,80,000/-. The Assessing Officer made addition of Rs.13,80,000/- under Section 68 of the Income Tax Act, 1961. The Assessing Officer also made observation that the assessee’s declared total deposits of Rs.68,80,000/- out of which Rs.37,80,000/- were received during the year under consideration. Therefore, there is opening liability of Rs.31,00,000/- (excluding Rs.10,00,000/- repaid during the year). Out of this opening balance, the assessee submitted confirmation of Rs.5,00,000/- only. ITA No.2363/Ahd/2018 A.Y. 2015-16 Page 3 of 6 Thus, for the remaining amount that of Rs.26,00,000/- no documentary evidence was submitted and hence made the addition as liability of the assessee ceases to a exist within the meaning of provisions of Section 41(1) of the Act. Thus, the Assessing Officer made addition of Rs.39,80,000/-. The Assessing Officer also made addition of Rs.24,82,822/- towards the claim of bad debt which were not proved within the meaning of provisions of Section 36(2)(iii) of the Act. The Assessing Officer further made addition of Rs.1,87,329/- towards late payments of Provident Fund beyond the time limit. 4. Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee. 5. The Ld. AR submitted that as regards ground no.1 related to applicability of Section 41(1) of the Act, the Ld. AR submitted that the Assessing Officer has not taken cognisance of the details filed by the assessee. The Ld. AR submitted that neither Section 41(1) of the Act nor Section 68 of the Act applies to the trade depositors who have given their full name and address, PAN, and the amount of deposits is as per custom and usage and practice of business and the said deposits were received by cheque through banking channel. In both the cases interest has been paid by cheque and TDS has been deducted and paid which shows beyond doubt that none of the Section referred by the Assessing Officer are applicable in the present case. With regard to Section 41(1) of the Act, the amount being trade liability and that no remission or cessation is done, the deposit was not debited to Profit & Loss account and is neither claimed nor allowed as expenses and the amount being outstanding and not written off and payable under Section 41(1) of the Act as the same section does not apply. The Ld. AR further submitted that the amount which are credited are payable are returnable deposit and/or liable to be adjusted against supply of goods deposit and liability has not ceased. Ld. AR relied upon the decision of Hon’ble Gujarat High Court in the case of CIT vs. Bhogilal Ramjibhai Atara (2014) 222 taxman 313 (Guj), CIT vs. Nitin S. Gargh (2012) 208 Taxman 16 and CIT vs. G.K. Patel & Co. (2013) 212 Taxman 384. Ld. AR submitted that neither Section 41(1) nor Section 68 of the Act applies and the entire addition of Rs.39,80,000/- which including addition of Rs.13,80,000/- as well as Rs.26,00,000/- should be deleted. Ld. AR further ITA No.2363/Ahd/2018 A.Y. 2015-16 Page 4 of 6 submitted that the decision of Hon’ble Gujarat High Court in the case of CIT vs. Shankar U. Jatwani, Tax Appeal No. 583 of 2016 dated 27.07.2016 wherein the decision of the ITAT in ITA No.3168/Ahd/2008 was upheld is applicable in the present case. With regard to addition of Rs.13,80,000/- under Section 68 of the Act, the Ld. AR submitted that the said amount is not liable to Section 68 of the Act since both the cases of depositors amounts were received by cheque, full address and identity proved, PAN number given, interest paid and TDS deducted and paid the entire transaction is through banking channel, and audited books of the assessee are accepted and no addition to book result was made. The Ld. AR further submitted that without prejudice to these contentions, assuming without admitting, there is some element liable to be added then the entire Rs.13,80,000/- is part and parcel of turnover of business transaction of the assessee and only net profit thereon can be added as held by in binding judgement of Hon’ble Gujarat High Court in the case of PCIT vs. Sheetalben Saurabh Vora reported in 430 ITR 253 and with regard to sales, GP and NP is as under : -- Assessment Year: 2015-16 Assessment Year: 2014-15 Sales Rs.3,22,58,341/- Rs.2,58,10,398/- G.P. Rs.1,66,77,196/- Rs.94,86,403/- 51.7% 36.75% N.P. Rs.43,08,930/- Rs.91,29,526/- Rs.91,29,526/- Less 13.36% Loss 35.37% 6. The Ld. AR submitted that the assessee has not made any Net Profit and the final income is a loss and, therefore, even by way of alternative submission no profit/income is liable to be added under Section 68 of the Act. 7. The Ld. DR submitted that the assessee has filed additional evidences related to Rule 29 of Income Tax Appellate Tribunal Rules, 1963, the same should be rejected at this juncture. Ld. DR further submitted that no confirmation of the parties were filed by the assessee and there is no account or estimation of the liability. Thus, the Assessing Officer as well as the CIT(A) has rightly made addition of Rs.39,80,000/-. ITA No.2363/Ahd/2018 A.Y. 2015-16 Page 5 of 6 8. Heard both the parties and perused all the relevant material available on record. The additional evidences per se was not actual additional evidence but was the extended evidence to support assessee’s case which was already on record before the Revenue Authorities. Therefore, the same is taken on record and is admitted herein. It is pertinent to note that the assessee’s books, at no point of time, was rejected by the Assessing Officer. The Assessing Officer at no point of time stated that the trade deposits were not that of trade depositors but has element of liabilities except to that of business of the assessee. The contention of the assessee that the assessee has not paid the amount in respect of these trade depositors as it being amount received as trade deposits from trade merchants who are known and identifiable persons and the amount received during the course of business and creditworthiness is already proved through the full name, address, PAN and the amount of deposits as well as the customers usage and practice of business with these trade merchant. Merely not filing confirmation will not shun away that the trade credits and deposits were for purchase of goods and that recovery of the said amount has not become impossible and, therefore, the same was not being written off by the assessee in the books of account as element of these amounts were not coming under the purview of Section 41(1) of the Act. Thus, the ground nos.1, 2(a), 2(b) & 3 are allowed. 9. In the result, appeal of the assessee is allowed. 10 Order pronounced in the open Court on this 30 th day of January, 2023. Sd/- (SUCHITRA KAMBLE) Judicial Member Ahmedabad, the 30 th day of January, 2023 PBN/* ITA No.2363/Ahd/2018 A.Y. 2015-16 Page 6 of 6 Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY Assistant Registrar Income Tax Appellate Tribunal Ahmedabad benches, Ahmedabad