Shree Anugraha Chemicals Pvt.Ltd., Ahmedabad V. The Income tax Officer,Ward-8(3), Ahmedabad

ITA 2698/AHD/2010

• Counselvise Citation: 269820514 RSA 2010
• Duration Of Justice: 3 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-05-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 24-04-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 16-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P MEENA
• Assessee Lawyers: MUKESH M PATEL
• Keywords: Bonafide belief; Deemed to accrue or arise in india; Capital receipt

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH AHMEDABAD , , , , BEFORE SHRI G.C.GUPTA , VICE PRESIDENT AND .., ! '# '# '# '# SHRI T.R. MEENA, ACCOUNTANT MEMBER $%.. , &' ( & ! ) & ! ) & ! ) & ! ) ITA NO. 2698/AHD/2010 ASSESSMENT YEARS : 2007-08 SHRI ANUGRAH CHEMICALS PVT. LTD. C/O. MUKESH M. PATEL & CO., 3-4, VITHALBHAI BHAVAN, NR. S. P. COLONY RLY. CROSSING, AHMEDABAD-13. V/S . INCOME TAX OFFICER WARD-8(3), AHMEDABAD PAN NO. A AFCS7474N (APPELLANT) .. (RESPONDENT) ITA NO. 2600/AHD/2010 ASSESSMENT YEARS : 2007-08 INCOME TAX OFFICER WARD-8(3), AHMEDABAD V/S . SHRI ANUGRAH CHEMICALS PVT. LTD. 504-AB, 5 TH FLOOR, SAHJANAND SHOPPING CENTRE, SHAHIBAUG, AHMEDABAD. (APPELLANT) .. (RESPONDENT) ( * + & / BY REVENUE SHRI O. P. MEENA, SR. D.R. & * + & /BY ASSESSEE SHRI MUKESH M. PATEL, A.R. , * -%' /DATE OF HEARING 24.04.2014 ./0 * -%' /DATE OF PRONOUNCEMENT 16.05.2014 O R D E R PER : SHRI T.R.MEENA, ACCOUNTANT MEMBER THESE TWO APPEALS ARE CROSS APPEALS FILED BY THE AS SESSEE AS WELL AS REVENUE. THESE APPEALS ARE EMANATED FROM THE ORDER OF THE LD. CIT(APPEALS)- XIV, AHMEDABAD, ORDER DATED 21.06.2012 FOR A.Y. 200 7-08. BOTH APPEALS ITA NOS. 2698 & 2600/AHD/2010, A.Y. 07-08 SHRI ANURAG CHEMICALS PVT. LTD. VS. ITO PAGE 2 WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY WA Y OF THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE ASSESSEE FILED APPEAL DELAY BY 13 DAYS AND E XPLAINED THE REASONS. ACCORDINGLY, WE CONDONE THE DELAY AND APPEAL IS ALL OWED TO BE PROCEEDED. 3. FACTS OF THE CASE ARE AS UNDER: THE A.O. OBSERVED THAT ON PERUSAL OF BALANCE SHEET FOR THE YEAR UNDER CONSIDERATION THE AMOUNT OF RS.1,78,87,324/- IN THE NAME OF FOLLOWING PERSONS WAS SHOWN AS OUTSTANDING LIABILITY UNDER THE HEAD SUNDRY CREDITORS. A) SKYLARK FINANCE LTD. RS. 1,59,25,000/- B) MRUBEE EXPORTS RS. 15,00,000/- C) AJANTA CHEM & PLAST P. LTD. RS. 1,62,324 /- D) KUNJAN ENTERPRISES P. LTD. RS. 3,00,000/- --------------------------- TOTAL.. RS. 1,78,87,324/- SINCE, THE SUNDRY CREDITOR IN THE NAME OF ABOVE SAI D PERSONS WERE SHOWN AS OUTSTANDING IN THE BOOKS OF ASSESSEE COMPANY FOR TH E LAST SEVERAL YEARS AND THERE BEING NO TRANSACTIONS WITH THE PARTIES CONCER NED DURING THE LAST SEVERAL YEARS, THE ASSESSEE WAS ASKED TO SHOW CAUSE WHY THE SAID AMOUNT SHOWN AS SUNDRY CREDITORS SHOULD NOT BE TREATED AS ITS INCOM E AS THE LIABILITY FOR PAYMENT OF THE SAME HAS CEASED AND THE PARTIES CONC ERNED HAD NO LEGAL RIGHT FOR ASKING PAYMENT OF THE SAME. THE ASSESSEE SUBMI TTED BEFORE THE A.O. THAT NONE OF THE 4 CREDITORS REFERRED TO IN THE SHOW CAU SE LETTER, WERE IN RESPECT OF ANY EXPENDITURE OR TRADING LIABILITY INCURRED BY TH E ASSESSEE IN THE PAST. IT IS FURTHER STATED THAT THE OUTSTANDING AMOUNT IN THIS CASE APPEARING AS SUNDRY ITA NOS. 2698 & 2600/AHD/2010, A.Y. 07-08 SHRI ANURAG CHEMICALS PVT. LTD. VS. ITO PAGE 3 CREDITORS WERE IN FACT REPRESENTING CURRENT ACCOUNT LIABILITIES TOWARDS FINANCE RECEIVED FROM THEM. ACCORDINGLY, THE ASSESSEE OBJE CTED BEFORE THE A.O. THAT IT CANNOT BE SUBJECTED TO TAX U/S. 41(1) AS NO DEDU CTION HAD BEEN CLAIMED IN RESPECT OF THE AMOUNTS AT ANY POINT OF TIME IN THE PAST. THE A.O. FURTHER ANALYZED THE FACTS OF THE CASE AS UNDER: I) SKYLARK FINANCE LTD. RS.1,59,25,000/- THE ASSESSEE RECEIVED RS.1.5 CRORE FROM SKYLARK FIN ANCE PVT. LTD. IN THE FINANCIAL YEAR ENDING ON 31.03.1996 AND THE BALANCE OUTSTANDING WAS RS.1.5 CRORE. NO INTEREST WAS PAID ON THE AMOUNT RECEIVED DURING THE FINANCIAL YEAR ENDING ON 31.03.1997. THE ASSESSEE HAS RECEIVED FU RTHER SUM OF RS.9,25,000/- FROM THE SAID PARTY AND THE OUTSTANDI NG BALANCE AS ON 31.03.1997 WAS RS.1,59,25,000/-. NO INTEREST WAS C HARGED BY THE SAID SKYLARK NOR THE ASSESSEE HAD PAID ANY INTEREST ON S UCH HUGE BALANCE OF RS.1,59,25,000/- WHICH HAD BEEN CARRY FORWARDED FRO M YEAR TO YEAR AND IS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE COMP ANY FOR THE YEAR ENDED ON31.03.2007 AS LIABILITY UNDER THE HEAD SUNDRY CR EDITORS. EVEN AFTER 11 YEARS, THE SAID SKYLARK FINANCE LTD. HAD NOT CHARGE D ANY INTEREST AND NEITHER PAID BY THE ASSESSEE. THE LENDER HAD NOT TAKEN ANY ACTION FOR RECOVERY OF THE SAID AMOUNT. IN 11 YEARS, THERE IS NO TRANSACTION BETWEEN THEM. THE A.O. OPINED THAT THE LIABILITY IN RESPECT OF THE SAID SU M HAD COME TO AN END. THUS, THERE IS A CESSATION OF LIABILITY TO PAY THE ABOVE SAID CREDITOR. THE A.O. WROTE A LETTER TO M/S. SKYLARK FINANCE LTD. ON 20.11.2009 TO FURNISH THE COPY OF LEDGER ACCOUNT OF THE ASSESSEE COMPANY FROM THE BOO KS FOR THE YEAR ENDED ITA NOS. 2698 & 2600/AHD/2010, A.Y. 07-08 SHRI ANURAG CHEMICALS PVT. LTD. VS. ITO PAGE 4 31.03.2005, 31.03.2006, 31.03.2007 AND 31.03.2008. IN RESPONSE TO THE SAID LETTER, SHRI KETAN SHAH, ADVOCATE OF SKYLARK FINANC E LTD. HAS FILED A LETTER DATED 25.11.2009. THE RELEVANT PORTION OF THE SAID LETTER IS REPRODUCED AS UNDER: IN REFERENCE TO THE ABOVE, AS PER THE INSTRUCTION GIVEN TO ME, I SAY THAT THE ASSESSED IS NOT FILING ANY INCOME-TAX RETURN SI NCE THE COMPANY HAS ALREADY BEEN CLOSED AND MADE DEFUNCT AND THE LAST A SSESSMENT YEAR FOR WHICH THE RETURN FILED WAS PROBABLY ASSTT. YEAR 199 7-98. THUS, WE SAY THAT SINCE THE COMPANY IS DEFUNCT UNDER SECTION 560 OF THE COMPANIES ACT, I SAY THAT NO DETAILS ARE AVAILABLE ON OUR REC ORD. IT IS EVIDENT FROM THE REPLY OF THE CREDITOR THAT T HE COMPANY HAS CLOSED ITS BUSINESS AND BECOME DEFUNCT SINCE A.Y. 97-98 AND TH AT THE NAME OF THE COMPANY HAS BEEN STRUCK OF U/S.560 OF THE COMPANIES ACT. THUS, IT IS QUITE OBVIOUS THAT THE SKYLARK FINANCE LTD. IS NOW NO MOR E IN EXISTENCE AND THEREFORE, THE ASSESSEES LIABILITY IN SO FAR AS TH E MONEY DUE TO THE SAID PARTY TO THE EXTENT OF RS.1,59,25,000/- HAS CEASED. THE LD. A.O. FURTHER HELD THAT THERE IS NO DISPUTE OVER THE FACT THAT THE AMOUNT I N QUESTION WAS RECEIVED BY THE ASSESSEE IN THE COURSE OF ITS TRADE. BY REASON OF CESSATION OF LIABILITY, THE ASSESSEE IS ENRICHED BY AN AMOUNT OF RS.1,59,25,000 /- SINCE THE AMOUNT IN QUESTION WAS ORIGINALLY RECEIVED IN CONNECTION WITH AND IN THE COURSE OF THE ASSESSEES BUSINESS, THE BENEFIT DERIVED BY THE ASS ESSEE ON ACCOUNT OF CESSATION OF LIABILITY IS TAXABLE AS ITS INCOME. T HE SAME IS TAXABLE IN VIEW OF THE PROVISIONS OF SECTION 28(IV) OF THE IT ACT. TH E ARGUMENT MADE BY THE APPELLANT BEFORE THE A.O. THAT AMOUNT IN QUESTION W AS NOT CLAIMED DEDUCTION ITA NOS. 2698 & 2600/AHD/2010, A.Y. 07-08 SHRI ANURAG CHEMICALS PVT. LTD. VS. ITO PAGE 5 AS EXPENDITURE IN ANY OF THE EARLIER YEARS AND THER EFORE, THE SAME CANNOT BE TAXED U/S.41(1) IS DEVOID OF ANY MERIT. HE RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN CASE OF CIT VS. T.V.SUNDARAM IYENGAR AND SONS LTD., 222 ITR 344 (SC). THE HONBLE SUPREME COURT AFTER REFERRING VARIOUS C ASE LAWS, IN THE AFORESAID CASE HAD OBSERVED AS UNDER: THE ASSESSEE HAD RECEIVED DEPOSITS IN THE COURSE O F ITS BUSINESS WHICH WERE ORIGINALLY TREATED AS CAPITAL RECEIPTS. SOME OF THE DEPOSITS WERE NEITHER CLAIMED BY NOR RETURNED TO THE DEPOSITORS. THERE IS NO DISPUTE THAT THE DEPOSITS WERE RECEIVED IN THE COURSE OF THE CAR RYING ON OF THE BUSINESS OF THE ASSESSEE. THE ONLY POINT TO BE DECIDED IS T HAT EVEN THOUGH THE DEPOSITS WERE OF CAPITAL NATURE AT THE POINT OF TIM E OF RECEIPT BY THE ASSESSEE, COULD THEIR CHARACTER CHANGE BY EFFLUX OF TIME. IN OTHER TRADING TRANSACTION, EVEN THOUGH IT IS NO T TAXABLE IN THE YEAR OF RECEIPT AS BEING OF REVENUE CHARACTER, THE AMOUN T CHANGES ITS CHARACTER WHEN THE AMOUNT BECOMES THE ASSESSEES OWN MONEY BE CAUSE OF LIMITATION OR BY ANY OTHER STATUTORY OR CONTRACTUAL RIGHT. WHEN SUCH A THING HAPPENS, COMMONSENSE DEMANDS THAT THE AMOUNT SHOULD BE TREATED AS INCOME OF THE ASSESSEE. BY CONSIDERING THE HONBLE SUPREME COURT DECISION, THE A.O. ADDED THIS IN ASSESSEES INCOME U/S. 28(IV) OF THE IT ACT AND SAM E IS ALSO TAXABLE U/S.41(1). II) MRUBEE EXPORTS IMPORTS PVT. LTD. RS.15,00,000/- THE ASSESSEE HAD SHOWN CLOSING BALANCE OF RS.20,00, 000/- IN THE NAME OF ASSESSEE AS ON 31.03.1996. DURING THE FINANCIAL YE AR ENDED 31.03.1997, THERE IS REPAYMENT OF RS.5,00,000/- AND AN AMOUNT O F RS.15,00,000/- IS SHOWN AS PAYABLE TO THE SAID PARTY AS ON 31.03.1997 . FROM 01.04.1997 ONWARDS THE SUM OF BALANCE OF RS.15 LACS WAS CARRY FORWARDED FROM YEAR TO ITA NOS. 2698 & 2600/AHD/2010, A.Y. 07-08 SHRI ANURAG CHEMICALS PVT. LTD. VS. ITO PAGE 6 YEAR AND WAS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE COMPANY. NO INTEREST HAD BEEN CHARGED BY THE ASSESSEE COMPANY N OR THE ASSESSEE COMPANY HAD PAID ANY INTEREST ON THE SAID BALANCE. THERE HAS BEEN NO TRANSACTION BETWEEN THE PARTIES. THE LD. A.O. HELD THAT THE LIABILITY HAD CEASED FOR THE REASONS MENTIONED IN THE PRECEDING PARAGRAP HS IN THIS CASE. THE AMOUNT IN QUESTION IS THEREFORE, LIABLE TO TAX IN T HE HANDS OF THE ASSESSEE AS INCOME U/S. 28(IV) BY RELYING UPON THE DECISION OF HONBLE SUPREME COURT IN CASE OF CIT VS. T.V.SUNDARAM IYENGAR AND SONS (SUPR A). III) KUNJAN ENTERPRISES P. LTD. 3,00,000/- THE A.O. OBSERVED THAT THE AMOUNT WAS RECEIVED TO H IM DURING THE F.Y. 1996- 97 AND THE CLOSING BALANCE AS ON 31.03.1997 WAS RS. 3,00,000/-. HERE ALSO THE SAID BALANCE HAD BEEN CARRY FORWARDED FROM 01.0 4.1997 AND THE SAME APPEARED IN THE BALANCE SHEET AS ON 31.03.2007 ALSO . NO INTEREST HAS BEEN PAID OR PROVIDED OR CHARGED. THERE HAD BEEN NO TRA NSACTION BETWEEN THE PARTIES. THE LIABILITY HAS COME TO AN END BECAUSE AS MENTIONED IN THE PRECEDING PARA, THE PARTY HAS NOT TAKEN ANY ACTION FOR RECOVERY OF THE DEMAND AND IT CANNOT NOW INITIATE ANY ACTION. THE AMOUNT IN QUESTION HAS BEEN RECEIVED IN THE COURSE OF THE BUSINESS OF THE ASSES SEE FOR THE REASON MENTIONED IN THE PRECEDING PARA DEALING WITH THE LI ABILITY IN THE CASE OF SKYLARK FINANCE LTD. THIS AMOUNT WAS ALSO CHARGEABLE TO INC OME TAX U/S. 28(IV) OF THE IT ACT. IV) ANANTA CHEM. & PLASTIC P. LTD. RS.1,62,324/- ITA NOS. 2698 & 2600/AHD/2010, A.Y. 07-08 SHRI ANURAG CHEMICALS PVT. LTD. VS. ITO PAGE 7 THE ASSESSEE HAD FILED A COPY OF THE AUDITED PROFIT AND LOSS ACCOUNT AND BALANCE SHEET OF ANANTA CHEM. & PLASTIC P. LTD. FOR THE YEAR ENDED31.03.2007. IN THE BALANCE SHEET OF THE ASSES SEE COMPANY THE NAME OF THE SAID ANANTA CHEM & PLAST. P. LTD. APPEARS UN DER THE HEAD SUNDRY CREDITORS AND AN AMOUNT OF RS.1,62,324/- HAS BEEN SHOWN AS LIABILITY TO THE SAID COMPANY. HOWEVER, ON PERUSAL OF THE BALANCE S HEET PARTICULARLY, SCHEDULE VII OF ANANTA CHEM. & PLAST. P. LTD., THER E IS NO MONEY RECOVERABLE FROM THE ASSESSEE COMPANY AS ON 31.03.2007. AS PER THE SAID SCHEDULE VII GIVING LIST OF LOANS & ADVANCES AN AMOUNT OF RS.1,5 8,072/- WAS RECOVERABLE FROM THE ASSESSEE ANUGRAHA CHEMICALS P. LTD. HOWEV ER, DURING THE YEAR ENDED 31.03.2007, AS PER THE SAID SCHEDULE, NO AMOU NT IS DUE FROM THE ASSESSEE. IN OTHER WORDS, THE LIABILITY HAS BEEN D ISCHARGED EITHER BY PAYMENT OR OTHERWISE. AS THE LIABILITY HAS COME TO AN END DURING THE YEAR, THE SAME IS TAXABLE AS INCOME OF THE ASSESSEE FOR THIS YEAR U/S .28(IV) R.W.S. 41(1) OF THE I.T. ACT. THE LD. A.O. AGAIN RELIED UPON THE HONB LE SUPREME COURT DECISION IN CASE OF CIT VS. T.V.SUNDARAM IYENGAR AND SONS (SUPR A). THUS, TOTAL ADDITION OF RS.1,78,87,324/- MADE IN THE INCOME OF THE ASSES SEE. 4. BEING AGGRIEVED BY THE ORDER OF THE A.O., THE AS SESSEE CARRIED THE MATTER BEFORE THE CIT(A) WHO HAD PARTLY ALLOWED THE APPEAL BY OBSERVING AS UNDER: 2.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND TH E SUBMISSIONS OF THE APPELLANT. I AM INCLINED TO ACCEPT THE CONTENTIONS OF THE APPELLANT BASED ON FACTS AND DULY SUPPORTED BY EVIDENCES AND LEGAL PROPOSITION. THE A.O. CANNOT ASSUME THE POWER OF THE BUSINESSMAN AND UNIL ATERALLY DECIDE ITA NOS. 2698 & 2600/AHD/2010, A.Y. 07-08 SHRI ANURAG CHEMICALS PVT. LTD. VS. ITO PAGE 8 ABOUT HOW TO CONDUCT BUSINESS, WHICH LIABILITY STIL L EXIST ETC, THE A.O HAS POWER TO INVESTIGATE ALL THE TRANSACTIONS OF AN ASS ESSEE KEEPING IN VIEW VARIOUS BUSINESS EXPEDIENCY OF SUCH BUSINESS FROM B USINESSMAN'S ANGLE. THE APPELLANT'S CLAIM THAT MAJORITY OF THE OUTSTAND ING AMOUNT OF RS. L,78,87,324/-(EXCEPT THAT OF AJANTA CHEM & PLAST PV T. LTD.) IS IN RESPECT OF MONEY BORROWED TO ADVANCE A LOAN TO M/S. AMBICA MIL LS AND M/S. SHATMURTI INV. & TRADING PVT. LTD. IS SUPPORTED BY OUTSTANDING BALANCE SHOWN AGAINST THEM IN BALANCE SHEET. THE BALANCE OF M/S. AMBICA MILLS IS RS. 1,41,75,626/- WHILE THAT OF M/S. SHATMURTI IS R S. 30,10,478/-. FURTHER, THE APPELLANT WAS DEALING IN THE BUSINESS OF TRADIN G OF TEXTILES RELATED TO AMBICA MILLS AND SUCH KIND OF ADVANCEMENT OF LOAN WAS A NORMAL BUSINESS TRANSACTION WHICH WERE USED BY ASSESSEE IN SUCH TRADE TO FURTHER/ENHANCE THEIR BUSINESS. HOWEVER, BECAUSE OF CERTAIN PROBLEMS AND FINANCIAL CONSTRAINT, BOTH THESE PARTIES HAD GO NE UNDER LIQUIDITIES. THE APPELLANT BEING SECURED CREDITOR FILED A CASE FOR R ECOVERY OF AMOUNT THROUGH LIQUIDATOR. THE APPELLANT SUBMITTED COPY OF A LETTER DT: 01-10-09 FROM SHRI PRASHANT J. GATHA, C.A. OF GATHA & CO., A 'BAD STATING THEREIN THAT CLAIM OF APPELLANT IN FORM NO. 8 AND 13 FOR TH E CHARGE CREATED BY SHRI AMBICA MILLS LTD. (IN LIQ.) FOR ORIGINAL PRINCIPAL LOAN AMOUNT OF RS. 1,75,00,000/- + INTEREST THEREON RS. 82,04,019/- = RS. 2,57,04,019 FOR THE CHARGE CREATED ON THE OFFICE PREMISE OF M/S. AMBICA MILLS LTD. SITUATED AT 122, MAKER'S CHAMBERS, NARIMAN POINT IS FILED. THE APPELLANT ALSO FILED A COPY OF CIVIL SUIT NO. 5028 OF 1997 FILED BY M/S. S HATMURTI INVESTMENT AND TRADING PVT. LTD., AGAINST M/S. AMBICA MILLS LTD. F OR AN AMOUNT OF RS. 1,14,12,473/- TO SUBSTANTIATE THAT IT IS ALSO FACIN G SAME PROBLEM AS THAT OF APPELLANT AND THEREFORE, NOT ABLE TO PAY BACK TO AP PELLANT. THE APPELLANT SUBMITTED COPIES OF CONFIRMATION FROM SKYLARK FINAN CE LTD. (PAN AACCS9634G) SHOWING OUTSTANDING BALANCE AS ON 31-3- 98 FROM THE BOOKS OF SKYLARK FINANCE LTD. (REFERENCE OF LEDGER PAGE NO. 24) NOTARISED TRUE COPY DT: 30-11-09 TO SUBSTANTIATE THE CLAIM TH AT APPELLANT STILL TREAT IT AS OUTSTANDING AND M/S. SKYLARK HAS NOT INTIMATED T HE APPELLANT ABOUT ITS CLOSURE OR WRITE OFF. FURTHER, APPELLANT OBJECTED T HAT THE A.O. HAS DONE ITA NOS. 2698 & 2600/AHD/2010, A.Y. 07-08 SHRI ANURAG CHEMICALS PVT. LTD. VS. ITO PAGE 9 INQUIRY BEHIND THE APPELLANT AND HAS NOT AFFORDED A NY OPPORTUNITY TO CROSS EXAMINE SHRI KETAN SHAH. I AM FURTHER INCLINED TO ACCEPT THE CONTENTION OF T HE APPELLANT THAT RATIO OF HON'BLE SUPREME COURT JUDGEMENT, 222 ITR 3 44 IS NOT APPLICABLE IN THE CASE OF APPELLANT BEING THERE WERE DIFFERENT FACTS. THE ASSESSEE IN THAT CASE VOLUNTARILY CREDITED DEPOSIT IN ITS P&L A /C. WHEREAS APPELLANT HAS NOT DONE ANY SUCH THING IN A BONAFIDE BELIEF THAT W HATEVER AMOUNT WILL BE RECOVERED FROM M/S. AMBICA MILS, THE SAME WILL BE R ETURNED BACK. THE OTHER ASPECT IS RELATED TO ARGUMENT CONTENDED D URING APPELLATE PROCEEDINGS BY THE APPELLANT THAT WITHOUT PREJUDICE IF AO'S CONTENTION IS ACCEPTED, THIS WILL NOT GIVE ANY BENEFIT IN REAL MA NNER TO APPELLANT TO ENJOY SUCH BENEFIT OR ADVANTAGE. IF CONSIDERED FROM THE A NGLE OF REAL INCOME THEORY, THE A.O. THEN TREAT THE CORRESPONDING LOANS AND ADVANCES TO M/S. AMBICA MILLS AND M/S. SHATMURTI INV. & TRADING PVT. LTD. AS BAD DEBT SINCE THE SAME ARE ALSO NOT RECOVERABLE SINCE PERIOD AS T HAT OUTSTANDING CREDITOR. THIS WILL GIVE NIL ADDITION. THE A,O. CAN NOT UNILATERALY TAKE ONLY ONE SIDE OF SAME TRANSACTION WHILE NOT CONSIDERING OTHER LEGAL SIDE. FURTHER, IF THE A.O, IS INVOKING LIMITATION ACT FOR SUCH OUTSTANDING CREDITORS THEN WHY NOT SUCH ADDITIONS WERE MADE IN ANY OF THE EARLIER YEAR. THESE TRANSACTIONS ARE RELEATED TO F.Y. 96-97 AND WHY A.O . AS CHOSEN ONLY THIS YEAR THOUGH FACTS AND CIRCUMSTANCES WERE EXISTING I N EARLIER YEARS ALSO WHICH WERE ACCEPTED BY DEPTT. AS SUCH. IT IS, THERE FORE, THE A.O. ABRUPTLY MADE SUCH ADDITION WITHOUT APPRECAITING THE FACTS A ND LEGAL PROPOSITION AND DOES NOT AMOUNT TO PROOPER ASST. OF INCOME OF T HE APPELLANT AS PER SETTLED PRINCIPLE OF JURISPRUDENCE. THE A.O. CAN IN VOKE SUCH SECTION IF APPELLANT RECOVER SOME AMOUNT OR IF HE RECEIVES SUC H INFORMATION OF WRITE OFF OF DEBT FROM THESE THREE PARTIES AFTER CONFRONT ING THE APPELLANT. IN ANY CASE, IF APPELLANT IS NOT RETURNING SUCH AMOUNT, IT HAS TO BE REFLECTED AS INCOME BY APPELLANT BUT THE TIME FACTOR IS IMPORTAN T AS THE SAME HAS TO BE VIEWED FROM THE ANGLE OF APPELLANT. I AM INCLINED TO ACCEPT SUCH CONTENTIONS OF THE AP PELLANT. AS PER ESTABLISHED REAL INCOME THEORY, SUCH ADDITIONS AND ASST. OF INCOME OF THE ITA NOS. 2698 & 2600/AHD/2010, A.Y. 07-08 SHRI ANURAG CHEMICALS PVT. LTD. VS. ITO PAGE 10 APPELLANT IS NOT TENABLE IN THE EYES OF LAW. THEREF ORE, ADDITIONS U/S. 41(1) OF THE ACT IN RESPECT OF FOLLOWING THREE PARTIES AR E DIRECTED TO BE DELETED:- M/S. SKYLARK FINANCE LTD. RS. 1,59,25,000 M/S. MRUBEE EXPORT RS. 15,00,000 M/S. KUNJAII ENTP. PVT. LTD. RS. 3,00,000 HOWEVER, IN RESPECT OF M/S. ANANTA CHEM. & PLAST PV T. LTD., THE APPELLANT HAS SHOWN WITH EVIDENCE AS DISCUSSED ABOVE THAT THE OUTSTANDING BALANCE OF RS. 1,62,324/- IS NOT MORE THAN TWO YEAR S OLD AS PER ACCOUNTS RELATED TO THESE PARTIES, BUT THE APPELLANT HAS NOT SUBMITTED ANY EVIDENCE OR CONTROVERTED THE A.O'S FINDING THAT AS PER THE B ALANCE SHEET OF M/S. ANANTA CHEM. & PLASTIC P. LTD. FOR THE YEAR ENDING 31-3-07, NO SUCH AMOUNT IS SHOWN DUE FROM APPELLANT. THE APPELLANT H AS NOT FILED ANY CONFIRMATION FROM SUCH PARTY OR MADE ANY SATISFACTO RY EXPLANATION. IT IS, THEREFORE, THE A.O. IS JUSTIFIED IN INVOKING SECTIO N 41(1) OF THE ACT, BASED ON FACTUAL FINDING IN RESPECT OF THIS PARTY AND ADD ITION OF RS. 1,62,324/- IS THEREFORE, UPHELD. IN CONCLUSION, THE GROUND OF APPEAL APPELLANT IS P ARTLY ALLOWED WHERE RELIEF OF RS.1,77,25,000/- IS GIVEN IN RESPEC T OF THREE PARTIES AND UPHOLDING THE ADDITION OF RS.1,62,324/-. 5. NOW BOTH THE PARTIES ARE BEFORE US. LD. SR. D.R . VEHEMENTLY SUPPORTED THE ORDER OF THE A.O. IN REVENUES APPEAL BUT IN AS SESSEES APPEAL, HE SUPPORTED THE ORDER OF CIT(A). AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDER OF CIT(A) IN REVENUES APPEAL A ND IN ASSESSEES APPEAL, LD. COUNSEL FOR THE ASSESSEE ARGUED THAT DETAILED R EPLY WAS SUBMITTED BEFORE THE A.O. THAT THE CASE LAW CITED BY THE A.O. I.E. CIT VS. T.V.SUNDARAM IYENGAR AND SONS LTD (SUPRA) IS NOT SQUARELY APPLICABLE IN THE CASE OF ASSESSEE BECAUSE IN THAT CASE, THE ASSESSEE ITSELF HAD CREDITED CERTAIN ITA NOS. 2698 & 2600/AHD/2010, A.Y. 07-08 SHRI ANURAG CHEMICALS PVT. LTD. VS. ITO PAGE 11 DEPOSITS RECEIVED IN THE COURSE OF CARRYING ON ITS BUSINESS TO ITS P&L ACCOUNT AND KEEPING IN VIEW THIS PECULIAR FACT, THE HONBLE SUPREME COURT HELD THAT WHEN THE ASSESSEE HAD ITSELF TREATED THIS AMOUNT AS ITS OWN MONEY, THERE WAS NO REASON AS TO WHY THE SAME SHOULD NOT BE MADE CHA RGEABLE TO TAX. THE CASE LAW CITED BY THE A.O. IS DISTINGUISHABLE ON BO TH FACTS OF THE CASE AS WELL AS LAW. REASONS BEHIND NOT SHOWING THIS AMOUNT BY THE LENDER ANANTA CHEM. & PLAST. P. LTD. IN BALANCE SHEET WERE NOT KNOWN TO THE APPELLANT. THERE MAY BE A NUMBER OF REASONS BUT AS SUCH LIABILITY IS STA NDING IN THE APPELLANTS BALANCE SHEET AS A CREDITOR. HE FURTHER RELIED UPO N FOLLOWING DECISIONS: I. CIT VS. NITIN GARG 208 TAXMAN 16 (GUJ.) (2012) II. ITO VS. BHAVESH PRINTS 46 SOT 268 (AHD.) (2011) III. CIT VS. CHETAN CHEMICALS (P.) LTD. 267 ITR 770 (2004) IV. CIT VS. MIRAA PFROCESSORS (P.) LTD. 208 TAXMAN 93 (GUJ.) (2012) V. PIC (GUJARAT) LTD. VS. DCIT 48 SOT 132 (AHD.) 20 11. WHEREIN, IDENTICAL ISSUE HAS BEEN DECIDED I.E. THE APPELLANT HAD CONTINUE TO SHOW ADMITTED AMOUNT AS LIABILITY IN THE BALANCE SH EET CANNOT BE ADDED U/S. 41(1) OF THE IT ACT ON THE GROUND REMISSION OR CESS ATION OF TRADING LIABILITY. HE FURTHER RELIED UPON RECENT DECISION OF HONBLE GUJA RAT HIGH COURT IN TAX APPEAL NO. 588 OF 2013, DECIDED ON 04.02.2014 IN CASE OF CIT VS. BHOGILAL RAMJIBHAI ATARA, WHEREIN A.O. MADE ADDITION U/S. 41(1) AT RS.37,52,7 52/-, AFTER CONDUCTING DETAILED INQUIRY WHERE PARTY HAS N ON RESPONDED OR NOT FOUND ON THE GIVEN ADDRESS. THE HONBLE GUJARAT HIGH COU RT HAD HELD THAT CESSATION OR REMISSION HAS TO BE DURING THE PREVIOUS YEAR REL EVANT TO ASSESSMENT YEAR ITA NOS. 2698 & 2600/AHD/2010, A.Y. 07-08 SHRI ANURAG CHEMICALS PVT. LTD. VS. ITO PAGE 12 UNDER CONSIDERATION AND THIS ACTION SHOULD NOT BE U NILATERAL. THE HONBLE HIGH COURT FURTHER OBSERVED AS UNDER: IT IS UNDOUBTEDLY A CURIOUS CASE. EVEN THE LIABILI TY ITSELF SEEMS UNDER SERIOUS DOUBT. THE ASSESSING OFFICER UNDERTOOK THE EXERCISE TO VERIFY THE RECORDS OF THE SO CALLED CREDITORS. MANY OF THEM WE RE NOT FOUND AT ALL IN THE GIVEN ADDRESS. SOME OF THEM STATED THAT THEY HA D NO DEALING WITH THE ASSESSEE. IN ONE OR TWO CASES, THE RESPONSE WAS THA T THEY HAD NO DEALING WITH THE ASSESSEE NOR DID THEY KNOW HIM. OF COURSE, THESE INQUIRIES WERE MADE EX PARTE AND IN THAT VIEW OF THE MATTER, THE A SSESSEE WOULD BE ALLOWED TO CONTEST SUCH FINDINGS. NEVERTHELESS, EVE N IF SUCH FACTS WERE ESTABLISHED THROUGH BI-PARTE INQUIRIES, THE LIABILI TY AS IT STANDS PERHAPS HOLDS THAT THERE WAS NO CESSATION OR REMISSION OF L IABILITY AND THAT THEREFORE, THE AMOUNT IN QUESTION CANNOT BE ADDED B ACK AS A DEEMED INCOME UNDER SECTION 41(C) F THE ACT. THIS IS ONE O F THE STRANGE CASES WHERE EVEN IF THE DEBT ITSELF IS FOUND TO BE NON-GE NUINE FROM THE VERY INCEPTION, AT LEAST IN TERMS OF SECTION 41(1) OF TH E ACT THERE IS NO CURE FOR IT. BE THAT AS IT MAY, INSOFAR AS THE ORDERS OF THE REV ENUE AUTHORITIES ARE CONCERNED, THE TRIBUNAL NOT HAVING MADE ANY ERROR, THIS TAX APPEAL IS DISMISSED. 6. WE HAVE HEARD THE RIVAL CONTENTION AND PERUSED T HE MATERIAL ON RECORD. THE ASSESSEE HAS NOT CREDITED THE LIABILITY IN THE BOOK OF ACCOUNT AND HAD NOT SHOWN AS INCOME DURING THE YEAR. THE A.O. FOUND TH AT THE LENDERS HAD NOT SHOWN THIS AMOUNT IN THE BALANCE SHEET AS DEBTORS. BUT FACTS ARE THAT THE APPELLANTS INTENTION IS TO PAY THE AMOUNT TO THE L ENDERS. THE CASE LAWS CITED BY THE APPELLANT ARE SQUARELY APPLICABLE ON THIS IS SUE. THEREFORE, WE DO NOT FIND ANY REASON TO CONFIRM THE ORDER OF THE CIT(A). ACCORDINGLY, ASSESSEES APPEAL IS ALLOWED. ITA NOS. 2698 & 2600/AHD/2010, A.Y. 07-08 SHRI ANURAG CHEMICALS PVT. LTD. VS. ITO PAGE 13 6(I). BUT IN REVENUES APPEAL, THE LD. CIT(A) HAD G IVEN DETAILED FINDINGS ON THIS ISSUE, WHICH HAS NOT BEEN CONTROVERTED BY THE LD. A.R. THE APPELLANTS OUTSTANDING AMOUNT WAS IN RESPECT OF MONEY BORROWED FROM THE 3 PARTIES ARE ADVANCES AND LOAN BUT WHICH WAS ADVANCED TO M/S. AM BICA MILLS AND M/S. SHATMURTI INVESTMENT AND TRADING PVT. LTD., WHICH W AS SUPPORTED BY THE BALANCE SHEET OF THE APPELLANT FOR THE YEAR UNDER C ONSIDERATION AS OUTSTANDING. THE BALANCE OF M/S. AMBICA MILLS WAS RS.1,41,75,626/- AND OF M/S. SHATMURTI INVESTMENT AND TRADING PVT. LTD. WAS RS. 30,10,478/-. THE APPELLANT WAS DEALING IN THE BUSINESS OF TRADING OF TEXTILE LTD. TO M/S. AMBICA MILLS AND ADVANCES WERE IN THE NORMAL COURSE OF BUS INESS, WHICH WERE USED BY THE ASSESSEE IN FURTHERANCE OF BUSINESS. BOTH T HE PARTIES M/S. AMBICA MILLS AND M/S. SHATMURTI INVESTMENT AND TRADING PVT . LTD. HAD GONE INTO LIQUIDATION. THE APPELLANT BEING SECURED CREDITOR, FILED A CASE FOR RECOVERY OF AMOUNT THROUGH LIQUIDATOR FOR AMOUNT OF RS.2,57,04, 019/- (PRINCIPAL + INTEREST). THE DETAILS OF THE CASE FILED BY BOTH THE PARTIES, WERE CONSIDERED BY THE LD. CIT(A) IN HIS FINDINGS. M/S. SHATMURTI INVESTMENT AND TRADING PVT. LTD. ALSO FILED CIVIL SUIT AGAINST M/S. AMBICA MILLS LTD. FOR RECOVERY OF RS.1,14,12,473/-. THE SKYLARK FINANCE LTD. HAD CONFIRMED THE OUTSTAND ING BALANCE AS ON 31.03.1998 FROM ITS BOOKS OF ACCOUNT. THE CASE LAW S CITED BY THE REVENUE IS SQUARELY NOT APPLICABLE IN THE PRESENT CASE. AS IN CASE OF CIT VS. T.V.SUNDARAM IYENGAR AND SONS (SUPRA), THE APPELLAN T ITSELF CREDITED DEPOSITS IN ITS P&L ACCOUNT. THEREFORE, HONBLE SUPREME COU RT HAD CONFIRMED THE ADDITION. THUS, WE HAVE CONSIDERED VIEW THAT LD. C IT(A) WAS JUSTIFIED IN ITA NOS. 2698 & 2600/AHD/2010, A.Y. 07-08 SHRI ANURAG CHEMICALS PVT. LTD. VS. ITO PAGE 14 DELETING THE ADDITION FOR ABOVE 3 PARTIES. ACCORDI NGLY, WE DISMISS THE APPEAL OF THE REVENUE. 7. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED AND THE REVENUES APPEAL IS DISMISSED. THESE ORDERS PRONOUNCED IN OPEN COURT ON 16.05.2014 SD/- SD/- (G.C.GUPTA) (T.R. MEENA) VICE PRESIDENT ACCOUNTANT MEMBER TRUE COPY S.K.SINHA &1 &1 &1 &1 * ** * 2-3 2-3 2-3 2-3 4&30- 4&30- 4&30- 4&30- / COPY OF ORDER FORWARDED TO:- 1. (/ REVENUE 2. & / ASSESSEE 3. ## - 9 / CONCERNED CIT 4. 9- / CIT (A) 5. 3= 2- , , / DR, ITAT, AHMEDABAD 6. ? @A / GUARD FILE. BY ORDER/ &1 &, / # , )