Dy.C.I.T., Circle-1, Aligarh V. M/s Darshan Agro Oils Ltd., Aligarh

ITA 26/AGR/2013

• Counselvise Citation: 2620314 RSA 2013
• Duration Of Justice: 1 year(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 04-02-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 23-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: WASEEM ARSHAD
• Assessee Lawyers: SHRI
• Keywords: Deemed to accrue or arise in india; Tax effect; Revenue expenditure
• Section: 43B; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, AGRA BENCH, AGRA BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI PRAMOD KUMAR, ACCOUNTANT MEMB ER ITA NO. 26/AGRA/2013 ASST. YEAR :2008-09 D.C.I.T., CIRCLE 1, VS. M/S. DARSHAN AGRO OILS LTD., ALIGARH. 13 TH KM. G.T. ROAD, ALIGARH. (PAN: AAACD 5946 K) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI WASEEM ARSHAD, SR. DR RESPONDENT BY` : SHRI PANKAJ GARGH, ADVOCATE DATE OF HEARING : 04.02.2014 DATE OF PRONOUNCEMENT : 14.02.2014 ORDER PER BHAVNESH SAINI, J.M.: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A), GHAZIABAD DATED 19.10.2012 FOR THE ASSESSMENT YEAR 2008-09, CHALLENGING THE CANCELLATION OF PENALTY U/S. 271(1)(C) OF THE IT AC T. 2. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSE SSEE FILED RETURN OF INCOME AT LOSS OF RS.22,55,692/-. THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF CRUSHING AND PROCESSING OF MUSTARD SEEDS AND SALE OF MUSTARD OIL AND CAKES AT ALIGARH. THE AO FOUND THAT THE ASSESSEE HAS SHOWN SUNDRY CREDITORS, OTHER CREDITORS AND ADVANCE FOR CUSTOMERS IN THE BALANCE SHEET. THE ASSESSEE WAS A SKED TO FURNISH THE DETAILS OF ITA NO. 26/AGRA/2013 2 SUNDRY CREDITORS SHOWN WITH THEIR PAN AND TO SUBMIT THE CONFIRMATION OF ACCOUNTS AND DETAILS AS TO HOW MANY OF THEM WERE OUTSTANDING FOR MORE THAN THREE YEARS AND TO PRODUCE ANY CORRESPONDENCE IN REGARD TO THEIR OU TSTANDING BALANCES SHOWN WITH REASONS AND IT WAS ALSO DIRECTED THAT WHY THE SAME BE NOT DISALLOWED U/S. 41(1) OF THE IT ACT BEING REMISSION / CESSATION OF TRADING L IABILITY. THE ASSESSEE IN HIS REPLY DISCLOSED THE NAMES AND FULL ADDRESSES OF THE SUNDR Y CREDITORS AND IT WAS SUBMITTED THAT THE BUSINESS HAS BEEN CLOSED DOWN AND THE FACT ORY IS UNDER LOCK AND KEY OF FINANCIAL INSTITUTION, THEREFORE, NO BUSINESS DEALI NGS HAVE BEEN DONE WITH THESE PARTIES. IT WAS ALSO SUBMITTED THAT PART OF THE AMO UNT WAS ALREADY ADDED BACK IN ASSESSMENT PROCEEDINGS IN ASSESSMENT YEAR 2006-07 O N ACCOUNT OF SUNDRY CREDITORS. IT WAS ALSO SUBMITTED THAT SINCE THE BUS INESS WAS CLOSED IN ASSESSMENT YEAR AND DUE TO POOR FINANCIAL CONDITION, THE AMOUN T COULD NOT BE PAID AND REMAINED OUTSTANDING. THEREFORE, FULL PARTICULARS W ERE SHOWN AND THE ASSESSEE HAS SHOWN INABILITY TO FURNISH ANY CONFIRMATION FROM AN Y OF THE OLD SUNDRY CREDITORS. SINCE THE ASSESSEE WAS SUFFERING FROM HEAVY ACCUMUL ATED LOSSES OF THE PAST AND TO PURCHASE PEACE OF MIND, THE ASSESSEE SURRENDERED TH E AMOUNT OF OLD CREDITORS U/S. 41(1) FOR THE PURPOSE OF TAXATION BECAUSE THE SAME WILL NOT CREATE ANY ADDITIONAL TAX LIABILITY TO THE ASSESSEE COMPANY. THE NAMES OF 8 PARTIES ARE GIVEN AT PAGE 3 OF THE ASSESSMENT ORDER TO SHOW OUTSTANDING BALANCES A GAINST THEM IN A SUM OF RS.69,64,254/- AND THE AO IN VIEW OF THE ABOVE FACT S STATED BY THE ASSESSEE MADE ITA NO. 26/AGRA/2013 3 THE ADDITION OF RS.69,64,254/- U/S. 41(1) ON ACCOUN T OF REMISSION / CESSATION OF TRADING LIABILITY. 2.1 SIMILARLY, THE ADDITION OF RS.4,09,914/- WAS M ADE U/S. 43-B OF THE IT ACT. THE DETAILS OF SAME ARE NOTED AT PAGE 4 OF THE ASSE SSMENT ORDER BECAUSE STATUTORY PAYMENTS COULD NOT BE MADE AS PER SECTION 43-B. THE SAME WERE ACCORDINGLY DISALLOWED. 2.2 THE AO ALSO MADE ADDITION OF RS.30,969/- ON ACC OUNT OF DHARMADA, WHICH WAS COLLECTED ON SALE INVOICES TO BE SPENT FOR CHAR ITABLE PURPOSE, BUT THE SAME REMAINED OUTSTANDING AT THE END OF THE YEAR. THE AO FOUND THAT SINCE THE AMOUNT WAS NOT SPENT, THEREFORE, THE ADDITION WAS MADE. TH E AO ON ALL THESE ADDITIONS, LEVIED PENALTY U/S. 271(1)(C) OF THE IT ACT, SUBJEC T MATTER IN THIS APPEAL. 3. THE ASSESSEE CHALLENGED THE LEVY OF PENALTY ON A LL THE ABOVE ADDITIONS BEFORE THE LD. CIT(A).THE WRITTEN SUBMISSIONS OF THE ASSES SEE IS NOTED IN THE APPELLATE ORDER IN WHICH THE ASSESSEE BRIEFLY EXPLAINED THAT SURRENDER U/S. 41(1) WAS MADE OF OUTSTANDING BALANCES ALONG WITH DHARMADA, AS THE DH ARMADA WAS PAYABLE OF PREVIOUS YEAR AND THESE WERE OLD BALANCES, WHICH WE RE COMING UP FROM EARLIER ITA NO. 26/AGRA/2013 4 YEARS. FULL PARTICULARS WERE DISCLOSED TO THE REVEN UE DEPARTMENT. AS REGARDS THE ADDITION MADE U/S. 43-B OF THE IT ACT, IT WAS EXPLA INED THAT AN AMOUNT OF RS.2,20,997/- PERTAINED TO SERVICE TAX PAYABLE. THE ASSESSEE MADE PROVISION OF THIS AMOUNT OF SERVICE TAX ON JOB WORK DONE DURING THE Y EAR. HOWEVER, AFTER FINALIZATION OF THE BALANCE SHEET, THE ASSESSEE CAM E TO KNOW THAT NO SERVICE TAX IS PAYABLE ON JOB WORK CHARGES. PART OF THE ADDITIONS ON THIS ISSUE WERE MADE FOR NON- PRODUCTION OF EVIDENCES OF PAYMENTS DUE U/S. 43-B O F THE IT ACT. IT WAS SUBMITTED THAT SINCE THE ASSESSEE WAS ACCUMULATING LOSSES AND THERE WAS NO TAX EFFECT, THEREFORE, THE ADDITIONS WERE AGREED AND THAT IS WH Y NO APPEAL ON QUANTUM WAS FILED. THE ASSESSEE DISCLOSED ALL THE PARTICULARS O F INCOME AND NONE OF THE ABOVE ADDITIONS WOULD DISCLOSE CONCEALMENT OF ANY INCOME OR FILING OF INACCURATE PARTICULARS OF INCOME. THE BALANCES OUTSTANDING AGA INST SUNDRY CREDITORS ARE VERY OLD AND WERE CARRIED FORWARD FROM EARLIER YEARS. DU E TO DISPUTE AND WEAK FINANCIAL POSITION, THE AMOUNTS COULD NOT BE PAID AND SUCH FA CT WOULD NOT JUSTIFY LEVY OF PENALTY. SIMILARLY, ON DHARMADA, COMPLETE FACTS WER E DISCLOSED AND THE SAME PERTAINED TO THE EARLIER YEARS AND ADDITION WAS MAD E FOR NON UTILIZATION OF DHARMADA ACCOUNT. THEREFORE, SAME CANNOT BE TREATED AS CONCEALED INCOME. THE ASSESSEE RELIED UPON CERTAIN DECISIONS IN SUPPORT O F THE CONTENTION THAT ON DISALLOWANCE OF EXPENSES U/S. 43B, PENALTY IS NOT L EVIABLE. THE ASSESSEE FILED FURTHER SUBMISSIONS TO SHOW THAT SUNDRY CREDITORS C AME FROM SEVERAL EARLIER YEARS. ITA NO. 26/AGRA/2013 5 THE DETAILS OF SAME ARE NOTED AT PAGE 18 OF THE APP ELLATE ORDER TO SHOW THAT ADDITION U/S. 41(1) IS NOT JUSTIFIED. 3.1 ON CONSIDERATION OF THE SUBMISSIONS OF THE ASSE SSEE AND MATERIAL ON RECORD, THE LD. CIT(A) CANCELLED THE PENALTY U/S. 271(1)(C) OF THE IT ACT. THE LD. CIT(A) FOUND THAT ADDITION ON ACCOUNT OF SECTION 41(1) IS ADDITION PURELY ON LEGAL INTERPRETATION OF THE PROVISIONS AND THE ASSESSEE D ISCLOSED ALL THE FACTS THAT THE OUTSTANDING BALANCES OF THE CREDITORS WERE BROUGHT FORWARD FROM EARLIER YEARS. THUS, THE ASSESSEE HAS GIVEN REASONABLE EXPLANATION AND DETAILS OF THE SAME. THE ASSESSEE, THEREFORE, CANNOT BE HELD TO BE GUILTY OF CONCEALMENT OF INCOME OR FILING OF INACCURATE PARTICULARS OF INCOME. THE LD. CIT(A) RELIED UPON SEVERAL DECISIONS IN SUPPORT OF HIS FINDINGS. THE LD. CIT(A) ALSO FOUND THAT ADDITION MADE ON ACCOUNT OF DEEMED INCOME WOULD ALSO NOT LEAD TO LEVY OF PEN ALTY. THE LD. CIT(A) CONSIDERING THE DETAILS FOUND THAT EVEN THE ADDITIO N IS DOUBTFUL IN ITSELF AND AS SUCH WOULD NOT LEAD TO LEVY OF PENALTY. THE OTHER ADDITI ONS ON ACCOUNT OF DHARMADA AND DISALLOWANCE OF EXPENSES, THE LD. CIT(A) FOUND THAT DISALLOWANCE OF DHARMADA DOES NOT ATTRACT PENALTY SINCE IT IS NOT THE EXPEND ITURE OF THIS YEAR AND THE BALANCE WAS CARRIED FORWARD FROM EARLIER YEARS. FURTHER DIS ALLOWANCE OF EXPENSES U/S. 43-B WOULD NOT ATTRACT LEVY OF PENALTY. PENALTY WAS ACCO RDINGLY CANCELLED. ITA NO. 26/AGRA/2013 6 4. THE LD. DR RELIED UPON THE ORDER OF THE AO AND S UBMITTED THAT WHEN THE ASSESSEE AGREED FOR ADDITION ON THE ABOVE HEADS, TH E AO WAS JUSTIFIED IN LEVY OF PENALTY. HE HAS RELIED UPON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. ZOOM COMMUNICATION (P) LTD., 327 ITR 510 , IN WHICH IT WAS HELD THAT THE ASSESSEE COMPANY WAS HAVING PROFESSIONAL ASSIST ANCE IN COMPUTATION OF ITS INCOME AND ACCOUNTS WERE COMPULSORILY SUBJECTED TO AUDIT, THEN THE ASSESSEE WOULD NOT BE UNDER BONA FIDE BELIEF TO CLAIM CERTAI N EXPENSES AS REVENUE EXPENDITURE. THEREFORE, LEVY OF PENALTY IS JUSTIFIE D. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSEE AGREED FOR AD DITIONS BECAUSE OF THE HEAVY LOSSES ACCUMULATED FROM EARLIER YEARS. SUNDRY CREDI TORS ARE OLD BALANCES CARRIED FORWARD FROM EARLIER YEARS AND THERE IS NO CESSATIO N OF LIABILITY IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. THEREFORE, PENALTY WAS COR RECTLY CANCELLED BY THE LD. CIT(A). HE HAS RELIED UPON THE FOLLOWING DECISIONS : (I). DECISION OF MADRAS HIGH COURT IN THE CASE OF C IT VS. SOUTHERN ROADWAYS LTD, 282 ITR 379, IN WHICH IT WAS HELD THAT THE ADDITION UNDER SECTION 41(1) AMOUNTING TO RS.6,21,863/- COULD NOT BE TREATED AS A CESSATION O F LIABILITY, WHEN THE AMOUNTS WERE BEING MERELY CARRIED FORWARD FOR YEARS AND NO DETAILS WERE SUBMITTED BY THE ASSESSEE. ITA NO. 26/AGRA/2013 7 (II). DECISION OF PUNJAB & HARYANA HIGH COURT IN TH E CASE OF CIT VS. G.P. INTERNATIONAL LTD., 325 ITR 25, IN WHICH IT WAS HEL D HELD, DISMISSING THE APPEAL, (I) THAT DURING THE PROCEEDI NGS UNDER SECTION 143(3) READ WITH SECTION 250 OF THE A CT, THE ASSESSEE FURNISHED A CONFIRMATION CERTIFICATE FROM A ALONG W ITH PAN NUMBER. THE ASSESSEE HAD CONFIRMED THAT THE LIABILITY WAS S TILL OUTSTANDING. HENCE SECTION 41(1)WAS NOT APPLICABLE. (III). DECISION OF DELHI HIGH COURT IN THE CASE OF CIT VS. SHRI VARDHMAN OVERSEAS LTD., 343 ITR 408, IN WHICH IT WAS HELD HELD, DISMISSING THE APPEAL, THAT THE ASSESSEE HAD NOT UNILATERALLY WRITTEN BACK THE ACCOUNTS OF THE SUNDR Y CREDITORS IN ITS PROFIT AND LOSS ACCOUNT. THE LIABILITY WAS SHOWN IN THE BALANCE SHEET AS ON MARCH 31, 2002. THE ASSESSEE BEING A LIMITED COMPANY, THIS AMOUNTED TO ACKNOWLEDGING THE DEBT IN FAVOUR OF THE CREDITORS FOR PURPOSES OF SECTION 18 OF THE LIMITATION ACT, 1963. THE ASSESSEES LIABILITY TO THE CREDITORS, THUS, SUBSISTED AND DID NOT CEASE NOR WAS IT REMITTED BY THE CREDITORS. THE LIABILITY WAS ENFORC EABLE IN A COURT OF LAW. THE AMOUNT WAS NOT ASSESSABLE UNDER SECTION 41 (1). 4.1 THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMIT TED THAT ON MERE DISALLOWANCE OF EXPENDITURE AND DHARMANDA COLLECTED FOR CHARITAB LE PURPOSE BUT NOT SPENT, NO PENALTY IS LEVIABLE AND RELIED UPON THE DECISION OF MADRAS HIGH COURT IN THE CASE OF CIT VS. MSK CONSTRUCTIONS P. LTD., 296 ITR 18, I N WHICH IT WAS HELD HELD, DISMISSING THE APPEAL, THAT THE TRIBUNAL AFTER GOIN G THROUGH THE RECORDS OBSERVED THAT THE DISALLOWANCE OF INTEREST UNDER SECTION 43-B OF THE ACT DID NOT AMOUNT TO CONCEALME NT OF INCOME AND ITA NO. 26/AGRA/2013 8 THAT WHEN THERE IS NO TAX PAYABLE, PENALTY COULD NO T BE LEVIED. THE CANCELLATION OF PENALTY WAS JUSTIFIED. 4.2 THE LD. COUNSEL FOR THE ASSESSEE ALSO FILED COP Y OF ACKNOWLEDGEMENT OF FLING OF RETURN FOR SUBSEQUENT ASSESSMENT YEAR 2009-10 AN D BALANCE SHEET TO SHOW THAT THE AMOUNT OF SUNDRY CREDITORS OUTSTANDING IN ASSES SMENT YEAR UNDER APPEAL WAS ALSO CARRIED FORWARD IN SUBSEQUENT ASSESSMENT YEAR 2009-10. THEREFORE, PENALTY WAS CORRECTLY CANCELLED. WITH REGARD TO SERVICE TAX PAYABLE OF RS.2,20,997/-, HE HAS STATED THAT SINCE NO SERVICE TAX WAS PAYABLE ON THI S AMOUNT, THE ASSESSEE OFFERED THE SAME AMOUNT FOR TAXATION IN THE ASSESSMENT YEAR 2009-10. HE HAS, THEREFORE, SUBMITTED THAT THE PENALTY WAS RIGHTLY CANCELLED IN THE MATTER. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE MATERIAL ON RECORD AND DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE OR DER OF THE LD. CIT(A) IN CANCELLING THE PENALTY. FOR MAKING ADDITION U/S. 41(1), IT HAS TO BE PROVED THAT THE ASSESSEE HAS OBTAINED SOME BENEFIT IN RESPECT OF THE TRADING LIABILITY BY WAY OF REMISSION / CESSATION OF THE AMOUNT IN QUESTION. IT IS NOT IN D ISPUTE THAT ADDITION U/S. 41(1) IS MADE IN THIS CASE IN RESPECT OF OLD BALANCES CARRIE D FORWARD FROM THE EARLIER YEARS AND EVEN THE SAME WERE CARRIED FORWARD IN SUBSEQUEN T ASSESSMENT YEAR 2009-10. THE ASSESSEE HAS BEEN, THUS, ABLE TO OFFER AN EXPLA NATION WHICH SHOULD NOT BE FOUND TO BE BOGUS OR FALSE. HONBLE SUPREME COURT I N THE CASE OF CIT VS. SUGAULI ITA NO. 26/AGRA/2013 9 SUGAR WORKS PVT. LTD., 236 ITR 518 HELD THAT UNILAT ERAL ACTION CANNOT BRING ABOUT A CESSATION OR REMISSION OF LIABILITY. IN THIS CAS E, SINCE THE ASSESSEE HAS SHOWN OUTSTANDING BALANCES CARRIED FORWARD FROM THE EARLI ER YEARS AND EVEN CARRIED FORWARD IN THE SUBSEQUENT ASSESSMENT YEAR, WOULD SH OW THAT THE PROVISIONS OF SECTION 41(1) MAY NOT BE ATTRACTED IN THE CASE OF T HE ASSESSEE. THE ADDITION IS THUS BASED UPON LEGAL INTERPRETATION OF PROVISIONS OF SE CTION 41(1) OF THE IT ACT AND ON MERE SURRENDER OF AMOUNT BY THE ASSESSEE FOR TAXATI ON AND THE REASONS GIVEN FOR SUCH SURRENDER WAS ON ACCOUNT OF HEAVY LOSSES ACCUM ULATED IN THE YEAR UNDER CONSIDERATION. THE LD. CIT(A) WAS, THEREFORE, JUSTI FIED IN HOLDING THAT EVEN THE ADDITION IS DOUBTFUL IN NATURE. IT IS, THEREFORE, C LEAR THAT THE ASSESSEE HAS BONA FIDE EXPLANATION AND IS SUPPORTED BY THE ABOVE JUDGMENTS CITED. THEREFORE, IT IS NOT A FIT CASE OF LEVY OF PENALTY U/S. 271(1)(C) OF THE IT AC T. SIMILARLY, IT WAS FUND THAT DHARMADA WAS NOT EXPENDITURE OF THIS YEAR AND IT WA S MERELY CARRIED FORWARD FROM THE EARLIER YEARS. ON MERE DISALLOWANCE OF EXPENSES U/S. 43B OF THE IT ACT, PENALTY WOULD NOT BE LEVIABLE AS PER JUDGMENT OF MADRAS HIG H COURT IN THE CASE OF MSK CONSTRUCTION PVT. LTD. (SUPRA). THE ASSESSEE HAS BE EN FURTHER ABLE TO EXPLAIN THAT THE MAJOR ITEM OF DISALLOWANCE U/S. 43B WAS ADDITIO N ON ACCOUNT OF SERVICE TAX ON PROCESSING CHARGES PAYABLE OF RS.2,20,997/-, WHICH AMOUNT WAS NOT PAYABLE AS SERVICE TAX AND WAS, THEREFORE, OFFERED FOR TAXATIO N IN SUBSEQUENT YEAR BY THE ASSESSEE. THESE FACTS WOULD CLEARLY DISCLOSE THAT T HE ASSESSEE HAS NOT FURNISHED ANY ITA NO. 26/AGRA/2013 10 INACCURATE PARTICULARS OF INCOME AND HAS ALSO NOT C ONCEALED THE PARTICULARS OF INCOME. THE LD. CIT(A) WAS, THEREFORE, JUSTIFIED IN CANCELING THE PENALTY. IN VIEW OF THE ABOVE DISCUSSION, WE DO NOT FIND ANY MERIT I N THE DEPARTMENTAL APPEAL. THE SAME IS ACCORDINGLY DISMISSED. WE CLARIFY THAT FIND INGS IN THIS ORDER ARE RELEVANT TO PENALTY MATTER ONLY. 6. IN THE RESULT, THE DEPARTMENTAL APPEAL IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (PRAMOD KUMAR) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER *AKS/- COPY OF THE ORDER FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A), CONCERNED BY ORDER 4. CIT, CONCERNED 5. DR, ITAT, AGRA 6. GUARD FILE SR. PRIVATE SECRETARY TRUE COPY