Sham Exim Corporation, Salem V. ACIT, Salem

ITA 260/CHNY/2015

• Counselvise Citation: 26021714 RSA 2015
• Duration Of Justice: 8 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2015
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 15-10-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 30-01-2015
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: T S SUBRAMANIAM
• Keywords: Period of limitation
• Section: 68

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI , . ! '# , $ %& BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER ./ ITA NO. 260/MDS/2015 / ASSESSMENT YEAR : 2008-09 SHAM EXIM CORPORATION, DOOR NO. 40/106, PERAMANUR MAIN ROAD, SALEM 636007. PAN AAVFS2636K APPELLANT) V. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-I, NO.3, GANDHI ROAD, SALEM-636007. RESPONDENT) / APPELLANT BY : SHRI T.S.SUBRAMANIAM, CA / RESPONDENT BY : SHRI A.V.SREEKANTH, JCIT ! / DATE OF HEARING : 15.10.2015 '# ! / DATE OF PRONOUNCEMENT: 16.10.2015 ' / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS) DATED 28 .11.2014. - - ITA 260/15 2 2. THE ONLY GROUND RAISED BY THE ASSESSEE IN THIS A PPEAL IS WITH REGARD TO ADDITION OF ` 6,86,825/- UNDER SEC.41(1) OF THE I.T. ACT, 1961 ON ACCOUNT OF CESSATION OF LIABILITY. 3. THE BRIEF FACTS OF THE CASE ARE THAT THERE WAS A BALANCE OF ` 6,86,825/- IN THE NAME OF INDIAN TEXTILES, BOMBAY, WHICH IS CARRIED FORWARD FROM YEAR TO YEAR AND THE ASSESSEE FAILED TO RECONCILE THE SAME. THE ASSESSING OFFICER CALLED F OR DETAILS AND THE ASSESSEE FILED A LETTER DATED 7.12.2010 STATING AS UNDER: THE CREDIT BALANCE APPEARING IN THE ACCOUNT OF IND IAN TEXTILES, BOMBAY AMOUNTING TO ` 6,86,825/-, SINCE THE ASSESSEE IS NOT IN A POSITION TO GET DETAILS OF A SUM OF ` 6,86,825/- FROM THE OLD RECORDS, IT CAN BE ADDED. ACCORDINGLY, THE ASSESSING OFFICER ADDED THE SAME A S UNPROVED CREDIT. AGGRIEVED BY THIS, THE ASSESSEE WENT IN APPEAL BEFORE THE COMMISSIONER OF INCOME-TAX(APPEALS). 4. BEFORE THE COMMISSIONER OF INCOME-TAX(APPEALS), THE ASSESSEE STATED THAT IT HAS NOT AGREED FOR THIS AD DITION AND IT IS NOT A CESSATION OF LIABILITY U/S.41(1) OF THE ACT. THE ASSESSEE RELIED ON THE JUDGMENT OF THE DELHI HIGH COURT IN T HE CASE OF CIT V. VARDHMAN OVERSEAS LTD. IN ITA NO.774/2009, WHERE IN IT WAS - - ITA 260/15 3 HELD THAT THE ASSESSING OFFICER WAS NOT CORRECT IN INVOKING SEC.41(1) AS THE LIABILITY IS STILL IN THE BALANCE- SHEET. HOWEVER, THE COMMISSIONER OF INCOME-TAX(APPEALS), HAS NOT AG REED WITH THE CONTENTION OF THE ASSESSEE AND DISMISSED THE A PPEAL OF THE ASSESSEE. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 5. THE LD. AR HAS SUBMITTED THE FOLLOWING DOCUMENTS : (I). XEROX COPY OF THE LETTER DATED 7.12.2010 FILE D WITH THE ACIT, CIRCLE-I, SALEM. (II). XEROX COPY OF THE FINANCIAL STATEMENT FILED ALONG WITH RETURN OF INCOME. (III). XEROX COPY OF THE ORDER OF THE ITAT, D BE NCH, CHENNAI DATED 22.5.2015. 5.1 FURTHER, THE LD. AR RELIED ON THE ORDER OF THE TRIBUNAL IN ITA NO.338/MDS/2015 DATED 22.5.2015 IN THE CASE OF R. BADRINATH, WHEREIN IT WAS HELD AS UNDER: 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON REC ORD. ADMITTEDLY, THE ASSESSEE HAS SHOWN THE LIABILITY I N THE BALANCE SHEET AS ON 31.3.2007. NO DOUBT, UNDER THE LIMITATION ACT, THE RECOVERY OF THE AMOUNT BY THE CREDITOR IS THREE YEARS. AFTER EXPIRY OF THREE YE ARS PERIOD, THE CREDITOR MAY NOT BE ABLE TO ENFORCE THE PAYMENT THROUGH COURT OF LAW. HOWEVER, IN THIS CAS E, WHEN THE LIABILITY CONTINUES, THE CREDITOR CAN RECO VER THE AMOUNT OTHERWISE THAN A CIVIL SUIT. IN OTHER W ORDS, THE CREDITOR HAS EVERY RIGHT TO RECOVER THE MONEY WHENEVER AN OPPORTUNITY COMES TO IT OUTSIDE THE COU RT - - ITA 260/15 4 OF LAW. MOREOVER, THE ASSESSEE ACCEPTS THE LIABIL ITY IN THE BALANCE SHEET AS ON 31.3.2007. IT IS WELL SETT LED PRINCIPLES OF LAW THAT A LIABILITY IF ACCEPTED IN T HE BALANCE SHEET FILED IN THE INCOME-TAX PROCEEDINGS I S AN ACCEPTANCE OF LIABILITY UNDER THE LIMITATION ACT . THEREFORE, THE PERIOD OF LIMITATION FOR RECOVERY OF THE AMOUNT WOULD RUN FROM THE DATE ON WHICH THE LIABILI TY IS ACCEPTED IN THE BALANCE SHEET WHICH WAS FILED IN TH E INCOME TAX PROCEEDINGS. HENCE, AT NO STRETCH OF IMAGINATION, THE LIABILITY CEASED TO EXIST AND THOS E CIRCUMSTANCES, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT ADDITION OF ` 3,19,901/- IS NOT SUSTAINABLE. ACCORDINGLY THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO DELE TE THE ADDITION OF ` 3,19,901/- MADE U/S 41(1) OF THE ACT. 6. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORDE R OF THE COMMISSIONER OF INCOME-TAX(APPEALS). 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. IN THIS CASE, IN THE COURSE OF ASSESSMENT, THE ASSESSING OFFICER ASKED THE ASSESSEE TO PRODUCE ACCOUNT COPIES/CONFIRMATION LETTERS FROM THE SUNDRY CREDITO RS. THE ASSESSEE HAS FAILED TO FILE CONFIRMATION LETTERS FR OM CREDITORS. THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO RECO NCILE THE CREDITORS ACCOUNT WITH THE BOOKS OF ACCOUNTS OF THE ASSESSEE. HOWEVER, THE ASSESSEE FAILED TO EXPLAIN THE DIFFERE NCE. ON THE OTHER HAND, THE ASSESSEES AUTHORIZED REPRESENTATIV E AGREED TO - - ITA 260/15 5 ABOVE ADDITION AND FILED A LETTER OF ACCEPTANCE DAT ED 7.2.2010. CONTRARY TO THIS, THE ASSESSEE WENT IN APPEAL BEFOR E THE CIT(A) STATING THAT THE ABOVE AMOUNT WAS NOT AGREED FOR AD DITION BEFORE THE AO AND ALSO ARGUED BEFORE THE CIT(A) THAT IT CA NNOT BE CONSIDERED AS CESSATION OF LIABILITY IN THE CURRENT ASSESSMENT YEAR 2008-09. 7.1 ACCORDING TO THE ASSESSEES COUNSEL, THERE WA S NO CESSATION OF LIABILITY IN THE ASSESSMENT YEAR UNDER CONSIDERATION AND THE DEBTS ARE EXISTING IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE IN THIS ASSESSMENT YEAR AND IT CANNOT BE C ONSIDERED AS INCOME OF THE ASSESSEE FOR THE PRESENT ASSESSMEN T YEAR, 2008-09. 7.2 ADMITTEDLY, THESE CREDITS CONTINUE TO BE CARRI ED FORWARD YEAR AFTER YEAR. ON ACCOUNT OF THIS, THERE WAS A DO UBT IN THE MIND OF THE ASSESSING OFFICER REGARDING THESE CREDITS. I N THE NORMAL COURSE, NOBODY WOULD ORDINARILY NOT CLAIM HIS DUES AND USUALLY THEY TAKE STEPS TO RECOVER THE DUES IF IT IS A GENU INE LIABILITY. IN THIS CASE, THE LIABILITY REMAINS TO BE RECOVERED YE AR AFTER YEAR. FOR INVOKING THE PROVISIONS OF SEC. 68 OF THE I.T. ACT, IF ANY SUM - - ITA 260/15 6 IS FOUND CREDITED IN THE BOOKS OF ACCOUNT OF THE AS SESSEE MAINTAINED IN THE PREVIOUS YEAR, THEN ONLY IT COULD BE POSSIBLE TO MAKE ADDITION U/S. 68 OF THE I.T. ACT. IN THE CASE OF CARRY FORWARD CREDIT WHICH IS FROM EARLIER YEAR, PROVISIONS OF SE C. 68 CANNOT BE APPLIED. HOWEVER, IN THE CASE OF THE ASSESSEE, THE LIABILITY IS OUTSTANDING IN THE BOOKS OF ACCOUNT OF THE ASSESSEE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. AS PER THE REC ENT JUDGMENT OF THE DELHI HIGH COURT IN THE CASE OF CIT VS. CHIPSOFT TECHNOLOGY (P.) LTD. [2012] 210 TAXMAN 173 (DEL), T HE PROVISIONS OF SEC. 41(1) COULD BE APPLIED IN THIS T YPE OF CREDITS. 7.3 THE DELHI HIGH COURT AS PER ITS RECENT DECISIO N IN THE CASE OF CIT VS. CHIPSOFT TECHNOLOGY (P.) LTD. [2012] 210 TAXMAN 173 (DEL), EXAMINING THE LEGAL ASPECT OF THE MATTER, HA S CLARIFIED THE VIEW THAT MERELY BECAUSE A LIABILITY OUTSTANDING IN BOOKS, AND THAT LAPSE OF TIME BARS THE REMEDY BUT DOES NOT EFF ACE THE LIABILITY, IS AN ABSTRACT AND THEORETICAL ONE WHICH DOES NOT GROUND ITSELF IN REALITY. THE INTERPRETATION OF LAW, PARTI CULARLY FISCAL AND COMMERCIAL LEGISLATION, IS TO BE BASED ON PRAGMATIC REALITIES. IT WOULD BE INDEED PARADOXICAL, IF NOT ILLOGICAL, TO A LLOW THE ASSESSEE-DEBTOR TO, WHILE AVOIDING A LIABILITY ON T HE BASIS THAT IT - - ITA 260/15 7 IS NO LONGER ENFORCEABLE IN LAW, YET CLAIM HIS STAT US AS A DEBTOR, SO THAT HE WAS INDEED LIABLE FOR THE AMOUNT REFLECT ED AS A LIABILITY IN ACCOUNTS. 7.4 FURTHER, EXPLANATION 1 TO THE PROVISION TO SEC . 41(1) INSERTED BY FINANCE (NO.2) ACT, 1996 W.E.F. 01.04.1 997 PROSCRIBES AN ASSESSEE TO CLAIM AN INDEBTED STATUS WHILE WRITING BACK THE AMOUNT IN BOOKS, EVEN IF UNILATERALLY, IN ITS RESPECT. THE WORD EMPLOYED IN THE SAID EXPLANATION IS INCLUDE AND NOT MEANS, SO THAT IT IS NOT TO BE READ IN A RESTRICT IVE MANNER. THE TRIBUNAL EXPLAINED THE SCOPE OF THE SAID EXPLANATIO N IN THE CASE OF KALYANI MAAN SINGH VS. ITO (IN ITA NO. 6500/MUM( A)/2011 DATED 14.11.2013) TO MEAN THAT THE ASSESSEE, EVEN A S ACCOUNTS ARE NOT SACROSANCT, CANNOT ASSUME A STAND CONTRARY TO HIS OWN ACCOUNTS. EXPLANATION 1, ACCORDINGLY, COULD NOT BE INTERPRETED TO CONCLUDE THAT THERE IS OR COULD BE NO REMISSION OR CESSATION OF LIABILITY UNLESS THE SAME IS WRITTEN OFF IN ACCOUNT S. THE ARGUMENT THAT THERE WAS NO PERIOD OF LIMITATION IN RESPECT O F A LIABILITY BEING DISPUTED UNDER THE INDUSTRIAL DISPUTES ACT WAS ALSO REPELLED BY THE HONBLE COURT IN CHIPSOFT TECHNOLOGY (P.) LTD. (SUPRA) ON THE - - ITA 260/15 8 BASIS OF THE DECISION BY THE APEX COURT IN THE NEDU NGADI BANK LTD. VS. K. P. MADHAVANKUTTY AIR 2000 SC 839, HOLDI NG THAT A STALE DISPUTE OUSTS ITSELF FROM BEING ENTERTAINED A ND ADJUDICATED. AS WOULD BE SEEN, THE HONBLE COURT HAS SOUGHT TO R EAD THE PROVISION CONSISTENT WITH THE FACTS OF THE CASE, AN D NOT ON THE BASIS OF A THEORETICAL CONSTRUCT ALONE, DIVORCED FR OM THE FACTS OF THE CASE. REFERENCE WAS MADE BOTH BY THE HONBLE CO URT AS WELL AS THE TRIBUNAL IN THE AFORE-REFERRED DECISIONS TO THE DECISION IN THE CASE OF KESORAM INDUSTRIES & COTTON MILLS LTD. VS. CIT [1992] 196 ITR 845 (CAL.) TO THE EFFECT THAT THE NON-DISCH ARGE OF A LIABILITY OVER A LONG PERIOD OF TIME, COUPLED WITH ABSENCE OF ANY DISPUTE AND/OR OF LEGAL RECOURSE, WOULD LEAD TO A F IRM BASIS TO INFER REMISSION OR CESSATION OF LIABILITY. THE SAID DECISION BY THE HONBLE COURT STANDS FOLLOWED AND ADOPTED BY THE TR IBUNAL, AS IN ITO VS. SHAILESH D. SHAH (IN AND YUSUF R. TANWAR VS . ITO (IN I.T. ACT NO.8408/MUM/2010 DATED 28.02.2013). ACCORD INGLY, AN OMISSION TO PAY COULD GIVE RISE TO THE LEGAL INFERE NCE OF CESSATION OF LIABILITY. TRUE, AN AMOUNT MAY CONTINUE TO OUTST AND IN ACCOUNTS, SO THAT THE ASSESSEE IS PRIMA FACIE LIABL E IN ITS RESPECT. HOWEVER, IT IS THE VERACITY OR THE TRUTH OF THOSE V ERY ACCOUNTS, - - ITA 260/15 9 CONSTITUTING THE ASSESSEES EVIDENCE, THAT THE ASSE SSEE IS REQUIRED TO ESTABLISH. THE MATTER WOULD, THEREFORE, HAVE TO BE DECIDED IN LIGHT OF THE CONSPECTUS OF THE FACTS OF EACH CASE. 7.5 AS PER THE RECENT JUDGMENT OF THE DELHI HIGH C OURT, CITED SUPRA, THE PROVISIONS OF SEC. 41(1) COULD BE APPLIE D RATHER THAN SEC. 68 OF THE I.T. ACT. SECTION 68 OF THE ACT IS N OT APPLICABLE TO THE CASH CREDITS RECORDED IN THE BOOKS OF ACCOUNT O F THE ASSESSEE IN THE EARLIER PREVIOUS YEAR NOT RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. WHEN THE CASH CREDITS PERTAIN TO THE EARLIER PREVIOUS YEAR, NO ADDITION C AN BE MADE U/S. 68 OF THE I.T. ACT IN THIS ASSESSMENT YEAR. IN THIS BACKGROUND, THE APPLICABILITY OF SEC. 41(1) IS TO BE CONSIDERED. 7.6 AS RIGHTLY HIGHLIGHTED BY THE LOWER AUTHORITIE S, IN THE PRESENT CASE, THE ASSESSEE HAS DRAWN BALANCE SHEET BASED ON ITS BOOKS OF ACCOUNTS IN WHICH THE ABOVE AMOUNTS WE RE BEING CLAIMED AS LIABILITIES DUE TO THE VARIOUS PARTIES A S AT THE END OF THE ACCOUNTING YEAR UNDER DISPUTE. HOWEVER, THE ASS ESSEE FAILED TO ESTABLISH THE GENUINENESS OF THESE LIABILITIES B Y CITING CREDIBLE EVIDENCE. SIMPLY THE LIABILITIES BEING REFLECTED AG AINST CERTAIN - - ITA 260/15 10 NAMES IN ITS BOOKS OF ACCOUNTS WOULD NOT ESTABLISH THE GENUINENESS OF SUCH LIABILITIES. THE ASSESSEE CHOSE NOT TO RECONCILE THE BALANCE IN THE ASSESSEES BOOKS OF AC COUNTS WITH THE PARTIES ACCOUNTS AND AGREED TO OFFER THE ABOVE AMOUNT AS INCOME UNDER SECTION 41(1) OF THE I.T. ACT. THE ASS ESSEES AUTHORIZED REPRESENTATIVE ACCEPTED BEFORE THE AO, T HE ADDITION U/S. 41(1) OF THE ACT. THIS SHOWS THAT THE ASSESSE E HAS NO EXPLANATION TO PROVE THAT THE CREDITORS IN ITS BOOK S OF ACCOUNT ARE GENUINE. TO PUT IT DIFFERENTLY, THE ASSESSEE HAS FA ILED TO DISCHARGE ITS ONUS CAST ON IT TO SUBSTANTIATE ITS C LAIM. BEING SO, THE LOWER AUTHORITIES ARE JUSTIFIED IN HOLDING THAT SUCH LIABILITIES DID NOT EXIST AT THE END OF THE ACCOUNTING YEAR UND ER DISPUTE AND RIGHTLY ADDED THE SAID LIABILITIES WHICH HAD CEASED TO EXIST. ACCORDINGLY, THE ADDITION SUSTAINED BY THE CIT(A) I S CONFIRMED. 8. IN OUR OPINION, IN VIEW OF THE JUDGMENT OF THE J URISDICTIONAL HIGH COURT IN THE CASE OF JAYASHREE CHIT FUNDS AND SERVICES (P) LTD. VS. CIT (127 ITR 740), THE ACCEPTANCE OF THE A SSESSEES AUTHORIZED REPRESENTATIVE IS CLEARLY BINDING UPON T HE ASSESSEE AND THE ASSESSEE CANNOT HAVE ANY GRIEVANCE EVEN ON THIS COUNT ALSO. - - ITA 260/15 11 9. SINCE, WE HAVE PLACED RELIANCE ON HIGH COURT JUDGMENTS, WE ARE DECLINED TO COMMENT ON THE DECISI ON OF THE CO-ORDINATE BENCH OF THE TRIBUNAL. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON FRIDAY, THE 16 TH OF OCT., 2015 AT CHENNAI. SD/- SD/- ( . $ % ) ( & ' ( ) ) *+,-./01023 45067.082290.:3 ; $< /JUDICIAL MEMBER ! $<=>>2-6?06?@ABCA. &; /CHENNAI, D$ /DATED, THE 16 TH OCT., 2015. MPO* $E FGHG /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. I3 /CIT(A) 4. I /CIT 5. GJ% K /DR 6. %LM /GF.