ACIT 11(1), MUMBAI V. MARUTI INTERNAITONAL, MUMBAI

ITA 2727/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8856 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 11-09-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 07-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'B' BENCH, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI RAJENDRA, ACCOUNTANT MEMBER ITA NO. 2724 TO 2727/MUM/2011 (ASSESSMENT YEARS: 1999-2000, 2000-01, 2002-03 & 2 003-04) A C I T - 11(1) M/S. MARUTI INTERNATIONAL ROOM NO. 439, AAYAKAR BHAVAN 32, ROCK GARDEN, NEW L INK ROAD M.K. MARG, MUMBAI 400020 VS. ANDHERI (W), MUMBAI 400053 PAN - AAAFM 1823 D APPELLANT RESPONDENT APPELLANT BY: SHRI MOHIT JAIN RESPONDENT BY: SHRI ANIL THAKRAR DATE OF HEARING: 12.09.2012 DATE OF PRONOUNCEMENT: 12.09.2012 O R D E R PER D. MANMOHAN, V.P. THESE APPEALS BY THE REVENUE ARE DIRECTED AGAINST T HE COMMON ORDER DATED 21.01.2011 PASSED BY THE CIT(A)-3, MUMBAI. SI NCE THE ISSUE INVOLVED IN ALL THESE APPEALS IS COMMON, WE PROCEED TO DISPO SE OF THESE APPEALS BY A COMBINED ORDER FOR THE SAKE OF CONVENIENCE. 2. THE COMMON GROUND URGED BEFORE US READS AS UNDER: - ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) MUMBAI ERRED IN HOLDING THAT SECTION 41(1) C ANNOT BE INVOKED IN THE CASE OF THE ASSESSEE SINCE THE ASSESSEE IS FOLL OWING CASH SYSTEM OF ACCOUNTING IGNORING THE FACT THAT THE NAME OF THE P ARTY STOOD AS SUNDRY CREDITORS IN THE BOOKS OF THE ASSESSEE DURING THE R ELEVANT PERIOD AND HENCE 41(1) HAS BEEN RIGHTLY INVOKED BY THE ASSESSI NG OFFICER. 3. THE CASE OF THE AO WAS THAT THE ASSESSEE FIRM PURCH ASED MATERIAL FROM M/S. GUPTA PAINTS & HARDWARE STORES DURING THE YEARS UNDER CONSIDERATION. THOUGH THE SUM PAYABLE AS PER BILLS WAS MORE, THE ASSESSEE SETTLED THE BILLS THROUGH ACCOUNT PAYEE CHEQUE FOR A LESSER AMOUNT. THE CASE OF THE ASSESSEE WAS THAT IT WAS FOLLOWING CASH SYST EM OF ACCOUNTING AND ONLY ACTUAL PAYMENTS WERE DEBITED TO P & L ACCOUNT. THE AO, ON THE OTHER HAND, ITA NO. 2724 TO 2727/MUM/2011 M/S. MARUTI INTERNATIONAL 2 WAS OF THE OPINION THAT THE ASSESSEE FOLLOWED MERCA NTILE SYSTEM OF ACCOUNTING AND HENCE THE AMOUNT WHICH WAS NOT PAYAB LE WOULD AMOUNT TO REMISSION OF TRADE LIABILITY, WHICH IS ASSESSABLE T O TAX IN THE YEAR UNDER CONSIDERATION. DURING THE COURSE OF SURVEY THE AO N OTICED, FROM THE SALES STATEMENT FOUND AND SEIZED, THAT SHRI N.D. GUPTA HA S ISSUED SALES BILLS WITH IDENTICAL SERIAL NUMBERS AND SAME DATE TO DIFFERENT PARTIES WITH DIFFERENT AMOUNTS WHICH SHOWS THAT THE BILLS ISSUED BY SHRI G UPTA ARE NOT FREE FROM DOUBT. AT ANY RATE, SUCH BILLS ARE NOT FULLY PAID B Y THE ASSESSEE. AGGRIEVED ASSESSEE PREFERRED APPEALS BEFORE THE LEARNED CIT(A ). 4. THE CASE OF THE ASSESSEE WAS THAT THE AO ERRED IN M AKING ADDITION UNDER SECTION 41(1) OF THE ACT WHEREAS THE FACT REM AINS THAT THE ASSESSEE FOLLOWED CASH SYSTEM OF ACCOUNTING WHEREBY IT HAS N OT BOOKED ANY LIABILITY AND ONLY ACTUAL PAYMENTS WERE DEBITED TO THE P & L ACCOUNT. HAVING GONE THROUGH THE WRITTEN SUBMISSIONS AND UPON EXAMINATIO N OF THE MATERIAL ON RECORD, THE LEARNED CIT(A) OBSERVED THAT IN RESPECT OF A.Y. 1999-2000 SHRI N.D. GUPTA HAS BILLED THE ASSESSEE AN AMOUNT OF ` 4,83,267/- AGAINST WHICH THE ASSESSEE MADE A PAYMENT OF ` 3,50,000/- ONLY AND CLAIMED THE SAME UNDER CASH SYSTEM OF ACCOUNTING WHEREAS THE AO SOUG HT TO BRING THE DIFFERENTIAL AMOUNT OF ` 1,33,267/- AS CEASED LIABILITY UNDER SECTION 41(1). SIMILAR ADDITIONS WERE MADE IN OTHER ASSESSMENT YEA RS ALSO. HE FURTHER NOTICED THAT THE ADDITION WAS MADE ON THE BASIS OF THE DETAILS SUBMITTED BY SHRI N.D. GUPTA WITHOUT VERIFYING THE FACT THAT THE ASSESSEE FOLLOWED CASH SYSTEM OF ACCOUNTING AND AS SUCH DID NOT CREDIT ANY LIABILITY ON ACCRUAL BASIS. HAVING REGARD TO THE FACTUAL MATRIX OF THE C ASE THE LEARNED CIT(A) GAVE A FACTUAL FINDING THAT THE ASSESSEE FOLLOWED CASH S YSTEM OF ACCOUNTING IN WHICH EVENT THERE CANNOT BE ANY ADDITION UNDER SECT ION 41(1) OF THE ACT. IN THIS REGARD HE OBSERVED AS UNDER: - 2.6 FACTS AND MATERIAL ON RECORD ARE CONSIDERED. I T IS SEEN THAT THE APPELLANTS RECORDS AVAILABLE WITH THE AO INDIC ATE CLEARLY THAT THE METHOD OF ACCOUNTING FOLLOWED BY APPELLANT IN THE I MPUGNED MATTERS IS THE CASH METHOD OF ACCOUNTING. THIS ISSUE SEEMS TO HAVE BEEN NOT CONSIDERED NOR VERIFIED BY THE AO IN SPITE OF THE R ETURNS OF INCOME AND DETAILS BEING AVAILABLE TO HIM. THE AOS OBSERV ATION THAT NONE ATTENDED ON APPELLANTS BEHALF DURING THE COURSE OF HEARING IS CONTRADICTED IN THE IMPUGNED ORDERS THEMSELVES AS A O ALSO MENTIONS ITA NO. 2724 TO 2727/MUM/2011 M/S. MARUTI INTERNATIONAL 3 THAT APPELLANT HAD ATTENDED ON 17/12/08 WHEN THE ST ATEMENT OF MR. ND GUPTA WAS BEING RECORDED AND HAD AVAILED OF THE OPPORTUNITY TO CROSS EXAMINE MR. GUPTA. AS TO WHY AO DID NOT UTILI SE THE OPPORTUNITY OF APPELLANTS/APPELLANTS ARS PRESENC E ON 17/12/08 TO EXAMINE OR VERIFY THE NECESSARY DETAILS IN APPELLAN TS OWN CASE REMAINS UNCLEAR. AO ALSO MENTIONS THAT RECONCILIATI ON FILED BY APPELLANT WAS CONSIDERED BY HIM. IT ALSO SEEMS HIGH LY UNLIKELY THAT IN A CASE WHERE NOTICE UNDER SECTION 153C IS ISSUED , THERE IS NO ATTENDANCE FROM AN ASSESSEE OR HIS AR IN THE ENTIRE ASSESSMENT PROCEEDING. 2.7 IN THE FACTS AND CIRCUMSTANCES OF THE CASE I.E. IN VIEW OF APPELLANT HAVING FOLLOWED CASH METHOD OF ACCOUNTING , IT IS HELD THAT THERE CAN BE NO DISALLOWANCE UNDER SECTION 41(1) IN ANY OF THE IMPUGNED ASSESSMENT YEARS, AS APPELLANT HAD NOT DEB ITED IN ITS P AND L ACCOUNT, SUMS HIGHER THAN THE AMOUNT ACTUALLY PAID TO MR. N D GUPTA NOR HAD HE SHOWN ANY AMOUNTS FROM THOSE DEBIT ED AS LIABILITY REMAINING TO BE PAID (EXCEPT THE AMOUNT BROUGHT FOR WARD FROM YEARS EARLIER TO AY 99-00) IN ITS BALANCE SHEET. IN THE F ACTS AND CIRCUMSTANCES OF THE CASE THE BASIC REQUIREMENTS UN DER SECTION 41(1) HAVE NOT BEEN ESTABLISHED BY THE AO. AO HAS HIMSELF OBSERVED THAT APPELLANT HAS CONTINUED TO PAY MR. ND GUPTA IN THE YEARS LATER THAN A.Y. 03-04 ALSO AND THEREFORE IT CANNOT BE CONSIDER ED THAT LIABILITY HAD CEASED TO EXIST. MOREOVER INSOFAR AS AY 99-2000 IS CONCERNED, IT IS CLEAR THAT THE SUM OF ` 3,50,000/- WAS PAID BY APPELLANT IN FINANCIAL YEAR 99-2000 AND DISCLOSED BY APPELLANT. THE ADDITIONS UNDER SECTION 41(1) IN THE FOUR IMPUGNED ASSESSMENT YEARS ARE ACCORDINGLY DELETED. AGGRIEVED REVENUE IS IN APPEAL BEFORE US. 5. THE LEARNED D.R. SUBMITTED THAT THE ASSESSEE FOLLOW ED MERCANTILE SYSTEM OF ACCOUNTING AS CAN BE NOTICED FROM THE ASS ESSMENT ORDER UNDER SECTION 153C R.W.S. 144 OF THE ACT. 6. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSE SSEE SUBMITTED THAT THE ASSESSEE HAS BEEN CONSISTENTLY FOLLOWING T HE CASH SYSTEM OF ACCOUNTING AND EVEN IN THE TAX AUDIT REPORT IT WAS CLEARLY MENTIONED THAT IT WAS FOLLOWING CASH SYSTEM OF ACCOUNTING. FOR A.Y. 2 002-03 ASSESSMENT WAS ORIGINALLY MADE UNDER SECTION 143(3) OF THE ACT ON 21.02.2006 WHEREIN THE AO OBSERVED THAT THE ASSESSEE IS FOLLOWING CASH SYS TEM OF ACCOUNTING. AT ANY RATE, THERE IS NO EVIDENCE ON RECORD TO CONTRAD ICT THE FINDINGS OF THE LEARNED CIT(A). HE THUS STRONGLY RELIED ON THE ORDE R OF THE CIT(A). ITA NO. 2724 TO 2727/MUM/2011 M/S. MARUTI INTERNATIONAL 4 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. ADMITTEDLY, SECTION 41(1) COMES TO PLAY ONL Y WHEN ASSESSEE HAS TAKEN BENEFIT OF DEDUCTION IN THE EARLIER YEAR WHIC H WAS FOUND TO BE NOT PAYABLE IN THE SUBSEQUENT YEAR. IN THE INSTANT CASE THE LEARNED CIT(A) HAS GIVEN A CATEGORICAL FINDING THAT THE ASSESSEE FOLLO WED CASH SYSTEM OF ACCOUNTING AND CLAIMED DEDUCTION ONLY ON ACTUAL PAY MENTS. IN THE ABSENCE OF ANY EVIDENCE TO CONTRADICT THE FINDINGS OF THE L EARNED CIT(A) WE ARE OF THE VIEW THAT THE FINAL CONCLUSION OF THE LEARNED CIT(A ) THAT SECTION 41(1) IS NOT APPLICABLE IN THE YEARS UNDER CONSIDERATION DESERVE S TO BE UPHELD. UNDER THE CIRCUMSTANCES, AS PRONOUNCED IN THE OPEN COURT, THE COMMON ORDER PASSED BY THE CIT(A) IS UPHELD AND THE APPEALS FILE D BY REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH SEPTEMBER 2012. SD/- SD/- (RAJENDRA) (D. MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT MUMBAI, DATED: 12 TH SEPTEMBER 2012 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 3, MUMBAI 4. THE CIT 11, MUMBAI CITY 5. THE DR, B BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.