ITO 12 12(1)4, MUMBAI V. GAUTAM K NEMANI, MUMBAI

ITA 2607/MUM/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3179 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 03-08-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 05-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: MADHUR AGRAWALAR
• Keywords: Additional evidence; Reasonable cause; Onus to prove
• Section: 32

Judgement Text

1 , INCOME-TAX APPELLATE TRIBUNAL -GBENCH MUMBAI , , , BEFORE S/SHRI RAJENDRA,ACCOUNTANT MEMBER AND RAM LAL NEGI,JUDICIAL MEMBER ./ITA/2607/MUM/2013, /ASSESSMENT YEARS: 2007-08 INCOME TAX OFFICER-17(1)(4) ROOM NO.115, AAYAKAR BHAVAN M.K. MARG, MUMBAI-400 020. VS. M/S. RAHUL G. NEMANI L/H. SHRI GAUTAM K. NEMANI, RAJABAHADUR MANISON, 1 ST FLOOR, 32 APOLLO STREET, FORT, MUMBAI-400 023. PAN: AAAPN 3367 P ( /APPELLANT ) ( / RESPONDENT) REVENUE BY: SHRI K.V. VISPUTE-DR ASSESSEE BY: SHRI MADHUR AGRAWAL-AR / DATE OF HEARING: 24.08.2016 / DATE OF PRONOUNCEMENT: 24.08.2016 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 04/01/2013,OF THE CIT(A )-21,MUMBAI, THE ASSESSEE HAS FILED THE PRESENT APPEAL. ASSESSEE, AN INDIVIDUAL, FILED HIS RETURN OF INCOME ON 31/10/2007, DECLARING INCOME AT RS.(-)1.75 LAKHS.THE ASSESSING OFFICE(AO) COMPLETED THE ASSESSMENT U/S.143(3) OF THE ACT,ON 30/ 12/ 2009,DETERMINING THE INCOME OF T HE ASSESSEE AT RS. 2,51, 09, 397/-. 2. EFFECTIVE GROUND OF APPEAL IS ABOUT DELETING THE AD DITION OF RS.2.52 CRORES, MADE ON ACCOUNT OF CESSATION OF LIABILITIES WITHIN THE MEAN ING OF SECTION 41 (1) OF THE ACT. DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSES SEE HAD SHOWN SUNDRY CREDITORS OF RS. 2, 52,84,405/-IN HIS BALANCE SHEET. HE DIRECTED THE AS SESSEE TO PROVIDE THE AGEWISE BREAKUP OF THE SUNDRY CREDITORS. AS PER THE AO THE ASSESSEE DI D NOT FILE THE DETAILS IN RESPECT OF THE SUNDRY CREDITORS.VIDE ORDER SHEET NOTING, DATED 20/ 11/2009, HE AGAIN DIRECTED THE ASSESSEE TO COMPLY WITH THE DIRECTIONS ISSUED ON EARLIER OCCASI ON.ONE MORE OPPORTUNITY WAS GIVEN TO THE ASSESSEE BY THE ASSESSEE VIDE ORDER SHEET NOTING DA TED 03/12/2009. ON 29/12/2009,HE ASKED THE ASSESSEE AS TO WHY THE DETAILS OF SUNDRY CREDIT ORS HAD NOT BEEN PROVIDED.IN RESPONSE TO THE QUERY BY THE AO, HE STATED THAT SUNDRY CREDITORS WE RE 12 YEARS OLD,THAT AGAINST THAT THERE WERE SUNDRY DEBTORS RECOVER -ABLE IN HIS BOOKS OF ACCOUN TS, THAT AS LONG AS THE RECOVERY FROM THE DEBTORS WAS NOT MATERIALISING IT WAS NOT POSSIBLE T O PAY THE CREDITORS. AS NOTHING WAS PLACED ON RECORD BY THE ASSESSEE DURING THE COURSE OF ASSE SSMENT PROCEEDINGS TO VERIFY THE POSITION OF THOSE CREDITORS,THE AO DECIDED THE ISSUE CONSIDE RING THE AVAILABLE MATERIAL.HE HELD THAT THE BUSINESS DEALING WITH THE CREDITORS HAD COME TO AN END, THAT THERE WAS NO RECENT DEALING WITH 2607/M/13 GAUTAM K. 2 ANY OF THEM,THAT THE NON-FURNISHING OF THE LATEST A DDRESS OF THE SUNDRY CREDITORS PROVED THAT ASSESSEE WAS NOT AWARE OF THE LATEST ADDRESSES,THAT THE ONUS TO PROVE THAT THE CREDITORS APPEARING IN THE BOOKS OF THE ASSESSEE WERE GENUINE HAD NOT BEEN DISCHARGED BY HIM,THAT HE HAD NOT PROVIDED THE LAST KNOWN ADDRESS TO MAKE FUR THER VERIFICATION, THAT THE ASSESSEE WAS GRANTED ENOUGH TIME TO FURNISH THE DETAILS, THAT HE HAD NOT PRODUCED ANY EVIDENCE WHATSOEVER TO SHOW THAT THE CREDITORS WERE PURSUING THEIR DEMA NDS, THAT NO EVIDENCE HAD BEEN PLACED ON RECORD TO SHOW THAT THE CREDITORS WERE GENUINELY OU TSTANDING AS ON 31/03/2007, THAT IT WOULD BE JUST AND FAIR TO TREAT THE LIABILITIES OF THE AS SESSEE TOWARDS THE CREDITORS AS CESSATION OF THE LIABILITIES WITHIN THE MEANING OF SECTION 41(1)(A) OF THE ACT. 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA).BEFORE HIM,THE ASSESSEE C ONTENDED THAT HE WAS HOSPITALISED DURING THE ASSESSMENT PROCEEDINGS, THAT NECESSARY D ETAILS COULD NOT BE GATHERED AND PRODUCED BEFORE THE AO. HE FILED AN APPLICATION BEFORE THE F AA AND REQUESTED HER TO ADMIT THE ADDITIONAL EVIDENCES. HE RELIED UPON THE CASE OF CA SE OF KESARIA TEA CO. LTD. (254 ITR 434) AND ARGUED THAT EVEN IF CERTAIN PARTIES WERE NOT TR ACEABLE OR SUCH AMOUNTS WERE NOT OUTSTANDING IN THE BOOKS OF THE CREDITORS IT WOULD NOT AMOUNT TO REMISSION OF LIABILITIES, THAT THE PROVISIONS OF SECTION 41(1) OF THE ACT STIPULAT ED THAT A BENEFIT HAD TO BE OBTAINED IN THE EARLIER YEARS.THE ASSESSEE ALSO FILED THE BALANCE S HEETS AND PROFIT AND LOSS ACCOUNT FROM THE ASSESSMENT YEARS 2002-03 TO 2009-10. 4. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AN D THE ASSESSMENT ORDER, THE FAA HELD THAT THE SCRUTINY OF THE PROFIT AND LOSS ACCOUNTS, FILED BY THE ASSESSEE, PROVE THAT THE ASSESSEE HAD DEBITED OR CREDITED THE NET LOSS/PROFIT ON ACCO UNT OF SHARE TRADING TRANSACTIONS, THAT IN THE P&L ACCOUNTS OF DIFFERENT YEARS HE HAD NOT DEBITED THE OPENING STOCK AND PURCHASE OF THE SHARES DURING THAT PARTICULAR YEAR, THAT HE HAD ALS O NOT CREDITED THE CLOSING STOCK AND SALES OF THE SHARES IN THE P&L ACCOUNT, THAT HE HAD DEBITED TO P&L ACCOUNT ONLY EITHER THE NET LOSS OR THE PROFIT AND ON SHARE TRADING ACTIVITY, THAT THOU GH THE PURCHASES ON ACCOUNT OF SHARES HAD NOT BEEN DEBITED IN THE P&L ACCOUNT BUT THAT DID NO T MEAN THAT HE HAD NOT DEBITED THE TRADING LIABILITY IN THE P&L ACCOUNT, THAT THERE WERE TWO M ETHODS OF PREPARING THE ACCOUNTS, THAT THE ASSESSEE HAD RIGHTLY ARGUED THAT HE HAD NOT TAKEN A NY BENEFIT OF ALLOWANCE OR DEDUCTION IN RESPECT OF THE TRADING LIABILITY IN THE P&L ACCOUNT , THAT DURING THE ASSESSMENT PROCEEDINGS THE AO HAD GIVEN REPEATED OPPORTUNITIES TO THE ASSESSEE FOR FURNISHING DETAILS OF SUNDRY CREDITORS WHICH THE ASSESSEE HAD FAILED TO FURNISH,THAT HE HA D FILED DETAILS OF SUNDRY DEBTORS ACCOUNT FOR 2607/M/13 GAUTAM K. 3 THE PERIOD 01/ 04/ 2004 TO 31/03/2007.ANALYSING THE SUNDRY CREDITORS ACCOUNT, THE FAA HELD THAT THERE WAS NO TRANSACTION DURING THE YEARS AND THE OPENING BALANCE AS ON 01/ 04/ 2004 WAS APPEARING AS CLOSING BALANCE AS ON 31/03/2007, THAT THERE WERE CERTAIN CREDITORS,THAT ONE OF THE MAJOR CREDITOR WAS PAID SUBSTANTIAL AMOUNTS IN THE EARLIER YEARS, THAT THOUGH SUNDRY CREDITORS WERE OUTSTANDING FOR MANY YEARS THEY COUL D NOT BE PAID ON ACCOUNT OF NON - AVAILABILITY OF FUNDS, THAT SUNDRY DEBTORS WERE ALS O OUTSTANDING FROM MANY YEARS.REFERRING TO THE PROVISIONS OF SECTION 41 (1) OF THE ACT AND REL YING UPON THE CASE OF SAGAULI SUGAR WORKS PRIVATE LTD.(236 ITR518), THE FAA HELD THAT THE CRE DITS WERE PENDING FOR MORE THAN 10 YEARS, THAT IT COULD NOT BE ASSUMED THAT ASSESSEE WAS NOT TO PAY THE AMOUNT, THAT SOME OF THE CREDITORS HAD FILED CASES BEFORE THE HONBLE HIGH C OURT FOR RECOVERY. FINALLY, SHE DELETED ADDITION MADE BY THE AO U/S.41 (1) OF THE ACT. 5 . DURING THE COURSE OF HEARING BEFORE US,THE DEPARTME NTAL REPRESENTATIVE(DR) ARGUED THAT THE AO HAD PROVIDED AMPLE OPPORTUNITIES TO THE ASSE SSEE TO PROVE ITS CLAIM,THAT HE DID NOT FILE ANY EVIDENCE BEFORE THE AO DURING THE ASSESSMENT PR OCEEDINGS. THE AUTHORISED REPRESENTATIVE(AR) CONTENDED THAT ASSESSEE HAD FILE D THE NECESSARY DETAILS BEFORE THE FAA, THAT THE ASSESSEE HAD NOT AVAILED ANY BENEFIT IN TH E EARLIER YEARS, THAT THE AMOUNTS IN QUESTION WERE TRADE LIABILITIES. ON A QUERY BY BENCH, HE STA TED THAT CASES WERE PENDING BEFORE THE HONBLE BOMBAY HIGH COURT INSTITUTED BY TWO OF THE CREDITORS. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE AVAILABLE MATERIAL ON RECOD.WE FIND THAT THE AO HAD DIRECTED THE ASSESSEE TO FILE DETAI LS OF CREDITORS,THAT HE DID NOT FURNISH ANY DETAIL IN THAT REGARD,THAT BEFORE INVOKING THE PROV ISIONS OF SECTION 41(1)OF THE ACT,HE GAVE TWO MORE CHANCES TO IT TO FILE EXPLANATION IN THAT REGARED,THAT HE MADE AN APPLICATION BEFORE THE FAA TO ADMIT THE ADDITIONAL EVIDENCES,THAT THE FAA ADMITTED ADDITIONAL EVIDENCES PRODUCED BY THE ASSESSEE, THAT SHE HAD DECIDED THE ISSUE WITHOUT FOLLOWING THE MANDATE OF RULE 46A OF THE INCOME TAX RULES, 1962,(RULES).THE ASSESSEE HAD CLAIMED THAT BECAUSE OF HOSPITALIZATION NECESSARY DETAILS COULD NOT BE FILE D BEFORE THE AO.IN OUR OPINION, THAT COULD BE ONE OF THE REASONABLE CAUSES FOR ADMITTING ADDIT IONAL EVIDENCES DURING APPELLATE PROCEEDINGS. BUT, THE EVIDENCES HAVE TO BE ADMITTE D AS PER SUB-RULE 3 OR SUB RULE -4.WE DO NOT FIND ANY REFERENCE TO RULE 46A(4) OF THE RULES IN THE ORDER OF THE FAA. IN OUR OPINION, THE FAA SHOULD HAVE CALLED FOR A REMAND REPORT BEFO RE TAKING THE FINAL DECISION-ESPECIALLY WHEN THE ASSESSEE HAD NOT PRODUCED THE EVIDENCES B EFORE THE AO.THE FACTS HAVE TO BE EXAMINED AT THE LEVEL OF THE AO ONLY. IF THE FAA , HAVING CO-TERMINUS POWER OF THE AO, 2607/M/13 GAUTAM K. 4 WANTS TO UTILIZE THE ADDITIONAL EVIDENCES PRODUCED DURING APPELLATE PROCEEDINGS THEN HE SHOULD ADHERE TO SUB-RULE-4 OF THE RULE-46A, AS STA TED EARLIER.CONSIDEIRNG THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE OPINIO N THAT IN THE INTEREST OF JUSTICE THE MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE AO FOR F RESH ADJUDICATION.HE IS DIRECTED TO AFFORD A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. EFFECTIVE GROUND OF APPEAL RAISED BY AO IS DECIDED IN HIS FAVOUR, IN PART. AS A RESULT,APPEAL OF THE AO STANDS PARTLY ALLOWED. . ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH ,AUGUST,2016. 24 ! , 2016 SD/- SD/- ( / R.L.NEGI ) ( '# / RAJENDRA ) $! / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED :24.08.2016. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR G BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.