DCIT, Cir.4(2), Ahmedabad V. Shri Nrupal Narendra Shah, Ahmedabad

ITA 2655/AHD/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 5134 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 03-02-2020
• Assessment Year: 2014-2015
• Appeal Filed On: 30-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S N DIVATIA
• Keywords: Period of limitation; Deemed to accrue or arise in india
• Section: 208; 44AB

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ./ITA NO. 2655/AHD/2017 ( / ASSESSMENT YEAR : 2014-15) THE DCIT CIRCLE-4(2) AHMEDABAD / VS. SHRI NRUPAL NARENDRA SHAH A/9, KARMACHARI NAGAR-2 RANNA PARK, GHATLODIYA AHMEDABAD ./ ./ PAN/GIR NO. : APBPS 6278 L ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI VIDHYUT TRIVEDI, SR.DR / RESPONDENT BY : SHRI S.N. DIVATIA, AR / DATE OF HEARING 03/02/2020 !'# / DATE OF PRONOUNCEMENT 19 /02/2020 / O R D E R PER MAHAVIR PRASAD, JUDICIAL MEMBER: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TA X (APPEALS)4, AHMEDABAD [CIT(A) IN SHORT] VIDE APPEAL NO.CIT(A)-4 /307/DCIT/CIR- 4(2)/16-17 DATED 07 TH SEPTEMBER, 2017 ARISING IN THE ASSESSMENT ORDER PASSED UNDER S.143(3) OF THE INCOME TAX ACT, 1961( HEREINAFTER REFERRED TO AS 'THE ACT') DATED 21/12/2016 RELEVANT TO ASSE SSMENT YEAR (AY) 2014-15. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- ITA NO.265//AHD/2017 DCIT VS.NRUPAL NARENDRA SHAH ASS T.YEAR 2014-15 - 2 - 1. THAT THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.2,24,78,519/- MADE BY THE AO ON ACCOUNT OF CESSATION OF LIABILITY U/S.41(1) OF THE INCOME TAX ACT, 1961. 2. THAT THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS I N NOT APPRECIATING THE ASSESSING OFFICERS CONTENTION THA T MERELY, CREDITING OR DEBITING CERTAIN ENTRIES IN THE BOOKS OF ACCOUNTS WHICH ARE NOT SUPPORTED BY ANY EVIDENCE CANNOT BE C ONSIDERED AS TRUE. 3. THAT THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS I N NOT APPRECIATING THE FACTUAL FINDINGS OF THE A.O. THAT THE ASSESSEE DID NOT PRODUCE ANY CONFIRMATION FORM OR EVIDENCE O F PAYMENT TO THE CREDITORS BEFORE HIM EVEN FOR PAYMENTS CLAIM ED TO HAVE BEEN MADE IN SUBSEQUENT YEARS, SHOWING THAT NEITHER THE GENUINENESS NOR THE EXISTENCE OF CREDITORS WAS PROV ED. 3. FACTS OF THE CASE AS EMANATED FROM THE IMPUGNED ORDER ARE THAT DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, IT WAS THE OBSERVATION OF THE ID. AO THAT THERE WAS OPENING BALANCE OF RS. 2,24,78,516/- ON ACCOUNT OF OUTSTANDING LIABILITY OF CREDITORS, AND THEREFORE, THERE WAS A CESSATION OF LIABILITY TO PAY TO THE SAID CREDITORS . ACCORDINGLY, THE ID. AO ASKED THE APPELLANT AS TO WHY THE SAME SHOULD NO T BE ADDED BACK IN THE HANDS OF THE APPELLANT U/S 41(1) OF THE ACT. I N THIS CONNECTION, THE APPELLANT VIDE LETTER DATED 15/12/2016 SUBMITTED AN D EXPLAINED TO THE ID. AO THAT THE LIABILITIES OF THE APPELLANT TOWARDS S UCH CREDITORS HAVE NOT BEEN CEASED AND THE APPELLANT IS UNDER OBLIGATION T O MAKE PAYMENT TO THEM. 3.1. IT WAS SUBMITTED TO THE ID. AO THAT THE APPELLANT IS ENGAGED INTO THE BUSINESS PROVIDING IT ENABLED SERVICES LIKE DAT A ENTRY, DOCUMENTS ITA NO.265//AHD/2017 DCIT VS.NRUPAL NARENDRA SHAH ASS T.YEAR 2014-15 - 3 - SCANNING & DIGITIZATION, OMR SCANNING, VARIOUS KIND S OF PRINTING, SUPPLY OF VARIOUS KIND OF STATIONARY, CONFIDENTIAL PRINTING & PACKING, SOFTWARE APPLICATION DEVELOPMENT ETC. IT WAS ALSO S UBMITTED THAT OUTSTANDING LIABILITY TOWARDS SUCH CREDITORS WERE I N FACT WITH REGARD TO AMOUNT TO BE PAID TO THE TEMPORARY STAFF DEPLOYED B Y THE APPELLANT ON VARIOUS PROJECT SITES INCLUDING GOVERNMENT DEPARTME NTS. IT WAS ALSO SUBMITTED AND EXPLAINED TO THE ID. AO THAT IN FACT SUCH PAYMENT HAS BEEN MADE IN THE SUBSEQUENT YEARS I.E A.YS.2015-16 AND 2 016-17. THE CHART THEREOF IS REPRODUCED ON PG. NO.5 OF THE ASSESSMENT ORDER. IN OTHER WORDS, THE LIABILITY TOWARDS SUCH CREDITORS HAS NOT BEEN L APSED OR CEASED AND THEREFORE PROVISIONS OF 8.41(1) OF THE ACT CANNOT B E APPLIED IN THE PRESENT CASE. HOWEVER, THE ID. AO DID NOT APPRECIATE THE FA CTS OF THE CASE AND MADE HUGE ADDITION OF RS.2,24,78,519/- U/S 41(1) OF THE ACT IN THE HANDS OF THE APPELLANT. 3.2. INSOFAR AS THE OBSERVATIONS MADE BY THE AO A RE CONCERNED, IT IS MOST RESPECTFULLY SUBMITTED THAT SUCH OBSERVATIONS ARE NEITHER HERE NOR THERE TO INVOKE PROVISIONS OF S.41(L) OF THE ACT. THE APPELLANT HAS KEPT COMPLETE SET OF ACCOUNTS AND REQUIRED REGISTER TO M AINTAIN THE WORK CARRIED OUT BY THE APPELLANT. THE BOOKS OF ACCOUNTS OF THE APPELLANT ARE AUDITED U/S 44AB OF THE ACT AND NO DEFECT IN MAINTA INING OF BOOKS OF ACCOUNTS OR REQUIRED REGISTERED ARE FOUND BY THE AU DITORS MUCH LESS BY THE ID. AO. WITH REGARD TO OBSERVATION MADE IN THE ORDER, IT IS MOST RESPECTFULLY SUBMITTED THAT THE APPELLANT HAS DULY MADE PAYMENT TO SUCH CREDITORS IN A.YS.2015-16 AND 2016-17, A CHART OF W HICH IS PRODUCED ON ITA NO.265//AHD/2017 DCIT VS.NRUPAL NARENDRA SHAH ASS T.YEAR 2014-15 - 4 - PG. NO.5 OF THE ASSESSMENT ORDER. IT IS FURTHER SUB MITTED THAT THE PAYMENT HAS BEEN MADE IN CASH / CHEQUE TO THE RESPECTIVE PA RTIES IN THE SUBSEQUENT YEARS. WITH REGARD TO OBSERVATIONS MADE IN THE ASS ESSMENT ORDER, IT IS MOST RESPECTFULLY SUBMITTED THAT EXPENDITURE WITH R ESPECT TO SUCH OUTSTANDING LIABILITIES WERE INCURRED IN A.Y.2012-1 3 AND THE CASE FOR THE SAID ASSESSMENT YEAR WAS TAKEN UP FOR SCRUTINY ASSE SSMENT AND THE ID. AO HAD MADE DISALLOWANCE OF RS.10,00,000/-. IN THE SAI D ASSESSMENT YEAR, THE ID. AO HAD DULY NOTED THAT THE APPELLANT HAS PL ACED ON RECORD VARIOUS VOUCHERS AND BILLS FOR DATA ENTRY CHARGES, WHICH WERE VERIFIED BY HIM AND IT WAS NOTED BY HIM THAT THE NATURE OF BUSI NESS OF THE APPELLANT IS SUCH THAT IT CANNOT BE RUN WITHOUT THE HELP OF T HE DATA ENTRY OPERATORS, AND ACCORDINGLY, THE ID. AO ON LUMP-SUM BASIS MADE AD-HOC DISALLOWANCE OF RS.10,00,000/-. THEREFORE, IT IS MO ST RESPECTFULLY SUBMITTED THAT IN THE EARLIER YEAR, SUCH EXPENDITUR E HAS BEEN FOUND GENUINE AND ACCEPTABLE LOOKING TO THE NATURE OF BUS INESS OF THE APPELLANT, THEREFORE IN THE YEAR UNDER CONSIDERATIO N, THERE IS NO SCOPE OF DOUBTING THE GENUINENESS OF THE AMOUNT OUTSTANDING WITH RESPECT TO THE EXPENDITURE WHICH HAS ALREADY BEEN ACCEPTED BY THE LD. AO IN EARLIER ASSESSMENT YEAR. 3.3. INSOFAR AS EXISTENCE OF LIABILITIES IS CONCE RNED, IT IS MOST RESPECTFULLY SUBMITTED THAT THERE, IS NOTHING WHICH HAS HAPPENED IN THE PREVIOUS YEAR RELEVANT TO THE AY UNDER CONSIDERATIO N SO AS TO CALL FOR THE INVOCATION OF PROVISIONS OF S. 41(1) OF THE ACT. ITA NO.265//AHD/2017 DCIT VS.NRUPAL NARENDRA SHAH ASS T.YEAR 2014-15 - 5 - 3.4. AS A MATTER OF FACT THE APPELLANT HAS NOT EVE N WRITTEN BACK THESE LIABILITIES IN ITS BOOKS OF ACCOUNTS OR PASSED ANY SUCH ENTRIES OR OFFERED THE SAME FOR INCOME IN ANY MANNER SO AS TO TREAT T HE SAID LIABILITIES AS CEASED LIABILITY. THE APPELLANT THEREFORE SUBMITS T HAT IN THE ABSENCE OF ANY SUCH WRITE BACK IN THE BOOKS OF ACCOUNTS, IT IS NOT OPEN TO THE ID. AO TO ADD THESE AMOUNTS AS CESSATION OF LIABILITIES U/ S 41(1) OF THE ACT. 3.5. IN ORDER TO INVOKE PROVISIONS OF S. 41(1) OF THE ACT, IT IS OBLIGATORY TO FULFILL TWIN CONDITIONS VIZ. 'DURING THE ASSESSM ENT YEAR IN QUESTION, THE ASSESSEE MUST HAVE RECEIVED SOME BENEFITS BY WAY OF CESSATION OR REMISSION OF LIABILITY AND THE AMOUNTS MUST HAVE BE EN ALLOWED AS DEDUCTION OR ALLOWANCE IN RESPECT OF THESE EXPENDIT URE OR TRADING LIABILITY INCURRED BY THE ASSESSEE'. SO BOTH THE CONDITIONS M UST BE FULFILLED TO INVOKE THE PROVISIONS OF S. 41(1) OF THE ACT. IN TH E PRESENT CASE, ADMITTEDLY THE APPELLANT HAS NOT RECEIVED ANY BENEF IT BY WAY OF CESSATION OR REMISSION OF LIABILITY NOT ANY ACCOUNT ING ENTRY TO THE SAID EFFECT HAS BEEN PASSED. UNDER THE CIRCUMSTANCES, PR OVISIONS OF S. 41(1) OF THE ACT HAVE NO APPLICATIONS WHATSOEVER. 3.6. ADDITION U/S 41(1) OF THE ACT CANNOT BE MADE UNTIL AND UNLESS IT IS FOUND THAT THERE WAS REMISSION / CESSATION OF THE L IABILITY THAT TOO DURING THE PREVIOUS YEAR, RELEVANT TO THE ASSESSMENT YEAR IN QUESTION; EVEN THOUGH THE IDENTITY, CREDITWORTHINESS AND GENUINENE SS OF THE CREDITORS IS FOUND TO BE DOUBTFUL OR SUSPICIOUS; MERELY BECAUSE THE LIABILITIES ARE OUTSTANDING FOR LAST MANY YEARS, IT CANNOT BE INFER RED THAT THE SAID ITA NO.265//AHD/2017 DCIT VS.NRUPAL NARENDRA SHAH ASS T.YEAR 2014-15 - 6 - LIABILITIES HAVE SEIZED TO EXIST; IT IS TO BE ESTAB LISHED BY THE AO THAT THE ASSESSEE HAS WRITTEN BACK THE OUTSTANDING LIABILITY IN ITS BOOKS OF ACCOUNTS. IN THE PRESENT CASE, ADMITTEDLY THE APPEL LANT HAS NOT RECEIVED ANY BENEFIT BY WAY OF CESSATION OR REMISSION OF LIA BILITY NOT ANY ACCOUNTING ENTRY TO THE SAID EFFECT HAS BEEN PASSED . UNDER THE CIRCUMSTANCES, PROVISIONS OF S. 41(1) OF THE ACT HA VE NO APPLICATIONS WHATSOEVER. 4. THE LD.AR STATED THAT WHATEVER PAYMENTS WERE REC EIVED BY THE ASSESSEE, THE SAME HAVE BEEN REPAID BY THE ASSESSEE AND DETAILS WERE FURNISHED BEFORE THE LOWER AUTHORITIES ON PAPER-BOO K AT PAGE NO.55. IN SUPPORT HIS CONTENTION, LD.AR ALSO CITED ORDERS OF HONBLE HIGH COURT IN THE MATTER OF CIT VS. NITIN S.GARG 208 TAXMAN 16, W HEREIN THE HIGH COURT HAS HELD AS UNDER: 15. IN THE CASE BEFORE US, IT IS NOT BEEN ESTABLI SHED THAT THE ASSESSEE HAS WRITTEN OFF THE OUTSTANDING LIABILITIE S IN THE BOOKS OF ACCOUNT. THE APPELLATE TRIBUNAL IS JUSTIFIED IN TA KING THE VIEW THAT AS ASSESSEE HAD CONTINUED TO SHOW THE ADMITTED AMOU NTS AS LIABILITIES IN ITS BALANCE SHEET THE SAME CANNOT BE TREATED AS ASSESSMENT OF LIABILITIES. MERELY BECAUSE THE LIAB ILITIES ARE OUTSTANDING FOR LAST MANY YEARS, IT CANNOT BE INFER RED THAT THE SAID LIABILITIES HAVE SEIZED TO EXIST. THE APPELLATE TR IBUNAL HAS RIGHTLY OBSERVED THAT THE ASSESSING OFFICER SHALL HAVE TO P ROVE THAT THE ASSESSEE HAS OBTAINED THE BENEFITS IN RESPECT OF SU CH TRADING LIABILITIES BY WAY OF REMISSION OR CESSATION THEREO F WHICH IS NOT THE CASE BEFORE US. MERELY BECAUSE THE ASSESSEE OBTAIN ED BENEFIT OF REDUCTION IN THE EARLIER YEARS AND BALANCE IS CARRI ED FORWARD IN THE SUBSEQUENT YEAR, IT WOULD NOT PROVE THAT THE TR ADING LIABILITIES OF THE ASSESSEE HAVE BECOME NON-EXISTENT. ITA NO.265//AHD/2017 DCIT VS.NRUPAL NARENDRA SHAH ASS T.YEAR 2014-15 - 7 - 16. MOREOVER, AS POINTED OUT IN THE CASE OF SUGAU LI SUGAR WORKS (P) LTD.(SUPRA), VIDE THE LAST FIVE LINES OF THE PA RAGRAPGH-6 OF THE JUDGEMENT, THE QUESTION WHETHER THE LIABILITY IS AC TUALLY BARRED BY LIMITATION IS NOT A MATTER WHICH CAN BE DECIDED BY CONSIDERING THE ASSESSEES CASE ALONE BUT HAS TO BE DECIDED ONLY IF THE CREDITOR IS BEFORE THE CONCERNED AUTHORITY. IN THE ABSENCE OF THE CREDITOR, IT IS NOT POSSIBLE FOR THE AUTHORITY TO COME TO A CONCLUS ION THAT THE DEBT IS BARRED AND HAS BECOME UNENFORCEABLE. THERE MAY BE CIRCUMSTANCES WHICH MAY ENABLE THE CREDITOR TO COME WITH A PROCEEDING FOR ENFORCEMENT OF THE DEBT EVEN AFTER E XPIRY OF THE NORMAL PERIOD OF LIMITATION AS PROVIDED IN THE LIMI TATION ACT. 5. THE LD.AR ALSO CITED A JUDGEMENT OF JURISDICTION AL HIGH COURT IN THE MATTER OF CIT VS. BHOGILAL RAMJIBHAI ATARA 222 TAXMAN 313, WHEREIN THE HIGH COURT HAS HELD AS UNDER: 8. WE ARE IN AGREEMENT WITH THE VIEW OF THE TRIBU NAL SECTION 41(1) OF THE ACT AS DISCUSSED IN THE ABOVE THREE DE CISIONS WOULD APPLY IN A CASE WHERE THERE HAS BEEN REMISSION OR C ESSATION OF LIABILITY DURING THE YEAR UNDER CONSIDERATION SUBJE CT TO THE CONDITIONS CONTAINED IN THE STATUTE BEING FULFILLED . ADDITIONALLY, SUCH CESSATION OR REMISSION HAS TO BE DURING THE PR EVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION . IN THE PRESENT CASE, BOTH ELEMENTS ARE MISSING. THERE WAS NOTHING ON RECORD TO SUGGEST THERE WAS REMISSION OR CESSATION OF LIABILITY THAT TOO DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESS MENT YEAR 2007- 08 WHICH WAS THE YEAR UNDER CONSIDERATION. IT IS U NDOUBTEDLY A CURIOUS CASE. EVEN THE LIABILITY ITSELF SEEMS UNDE R SERIOUS DOUBT. THE ASSESSING OFFICER UNDERLOOK THE EXERCISE TO VER IFY THE RECORDS OF THE SO CALLED CREDITORS. MANY OF THEM WERE NOT FOUND AT ALL IN THE GIVEN ADDRESS. SOME OF THEM STATED THAT THEY H AD NO DEALING WITH THE ASSESSEE. IN ONE OR TWO CASES, THE RESPON SE WAS THAT THEY ITA NO.265//AHD/2017 DCIT VS.NRUPAL NARENDRA SHAH ASS T.YEAR 2014-15 - 8 - HAD NO DEALING WITH THE ASSESSEE NOR DID THEY KNOW HIM. OF COURSE, THESE INQUIRIES WERE MADE EX PART AND IN TH AT VIEW OF THE MATTER, THE ASSESSEE WOULD BE ALLOWED TO CONTEST SU CH FINDINGS. NEVERTHELESS, EVEN IF SUCH FACTS WERE ESTABLISHED T HROUGH BI-PARTE INQUIRIES, THE LIABILITY AS IT STANDS PERHAPS HOLDS THAT THERE WAS NO CESSATION OR REMISSION OF LIABILITY AND THAT THEREF ORE, THE AMOUNT IN QUESTION CANNOT BE ADDED BACK AS A DEEMED INCOME UN DER SECTION 41(C) OF THE ACT. THIS IS ONE OF THE STRANGE CASES WHERE EVEN IF THE DEBT ITSELF IS FOUND TO BE NON-GENUINE FROM THE VER Y INCEPTION, AT LEAST IN TERMS OF SECTION 41(1) OF THE ACT THERE IS NO CURE FOR IT. BE THAT AS IT MAY, INSOFAR AS THE ORDERS OF THE REVENU E AUTHORITIES ARE CONCERNED, THE TRIBUNAL NOT HAVING MADE ANY ERROR, THIS TAX APPEAL IS DISMISSED. 6. SINCE ASSESSEE HAS MADE A REPAYMENT OF THE DEBT RECEIVED BY HIM FOR THE BUSINESS PURPOSES AND RESPECTFULLY FOLLOWIN G THE AFORESAID JUDGEMENTS OF HIGH COURTS, WE DISMISS THE APPEAL OF THE REVENUE AS THE SAME DOES NOT REQUIRE ANY KIND OF INTERFERENCE AT O UR END. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. THIS ORDER PRONOUNCED IN OPEN COURT ON 19/02/2020 SD/- SD/- ( WASEEM AHMED ) ( MAHAVIR PRASAD ) ACCOUNTANT MEMBER J UDICIAL MEMBER AHMEDABAD; DATED 19/ 02 /2020 &.., .(.. / T.C. NAIR, SR. PS ITA NO.265//AHD/2017 DCIT VS.NRUPAL NARENDRA SHAH ASS T.YEAR 2014-15 - 9 - !'#' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. )*+ , / CONCERNED CIT 4. , ( ) / THE CIT(A)-4, AHMEDABAD 5. /01 ((*+ , *+# , ) / DR, ITAT, AHMEDABAD 6. 145 6 / GUARD FILE. / BY ORDER, / ( //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION 4.2.20 ( DICTATION-PAD 4- PAGES ATTACHED AT THE END OF THIS FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 5.2.20 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.19.2.20 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 19.2.20 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER