The ITO, Ward-12(2), Ahmedabad V. Gautambhai H.Parikh, Ahmedabad

ITA 286/AHD/2008

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6695 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 20-04-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 25-01-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: R K SHAH
• Section: 143(3)

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A AHMEDABAD BEFORE S/SHRI M.K. SHRAWAT, JM AND D.C.AGRAWAL, AM INCOME-TAX OFFIER, WARD 12(2), AHMEDABAD. VS. SHRI GOUTAMBHAI H. PARIKH, PROP. OF A. K. STEEL INDUSTRIES, B/H INDIAN OXYGEN LTD., NR. SONINI CHAWL, RAKHIAL, AHMEDABAD. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI ANIL KUMAR, CIT, DR RESPONDENT BY:- SHRI R. K. SHAH, AR O R D E R PER D.C. AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE REVENUE RAISING FOL LOWING GROUNDS :- (1) THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN DIRECTI NG TO DELETE THE ADDITION OF RS.3,03,80,920/- MADE BY THE AO ON ACCOUNT OF REVENUE RECEIPT. (2) THE LD. CIT(A) HAS FAILED TO APPRECIATE THE RATIO L AID DOWN BY THE APEX COURT IN THE CASE OF CIT VS. T.V. SUNDERAM IYENGAR & SONS 222 ITR 344 (SC). 2. THE FACTS OF THE CASE ARE THAT DURING THE COURSE OF RE-ASSESSMENT PROCEEDINGS THE AO OBSERVED THAT ASSESSEE HAS TAKEN AN ADVANCE OF RS.3,03,80,290/- ON VARIOUS DATES FROM M/S ARAVALI FINLEASE LTD. FOR SUPPLY OF CARGO STEEL CONTAINERS AND AGREEMENT TO T HIS EFFECT WAS ITA NO.286/AHD/2008 ASST. YEAR 2001-02 ITA NO.286/AHD/2008 ASST. YEAR 2001-02 2 EXECUTED ON 21.8.98 FOR A TOTAL CONSIDERATION OF RS .8,66,14,320/-. THE AO, HOWEVER, OBSERVED THAT THE ASSESSEE HAS ADVANCE D THE SAME MONEY TO M/S SHREE CARBONATE & OXIDE AND M/S JALARAM META LS (P) LTD. THE FORWARDING OF MONEY SO RECEIVED FROM M/S ARAVALI FI NLEASE LTD. TO OTHER TWO CONCERNS WAS FOR THE PURPOSE OF BUYING SHARES I N THOSE COMPANIES. M/S ARAVALI FINLEASE LTD. HAD FILED A CIVIL SUIT ON 19.1.2001 AND MATTER PROCEEDED FOR ARBITRATION AND AS PER FINAL AWARD OF ARBITRATOR IT WAS CONFIRMED THAT SUM OF RS.3,03,80,920/- RECEIVED FRO M M/S ARAVALI FINLEASE LTD. WAS AN ADVANCE. THE AO CARRIED OUT EN QUIRIES, RECORDED STATEMENT OF C.A. OF THE TWO BENEFICIARY COMPANIES NAMELY M/S JALARAM METALS (P) LTD. AND M/S SHREE CARBONATE & OXIDE TO FIND OUT THE TRUTH AS TO HOW AND WHY MONEY WAS TRANSFERRED FROM M/S ARAVA LI FINLEASE LTD. TO THE TWO COMPANIES MAKING THE ASSESSEE AS CONDUIT. A FTER CARRYING OUT EXAMINATION THE AO TREATED THE SUM OF RS.303,80,920 /- AS REVENUE RECEIPT BEING ADVANCE FOR SALE OF CONTAINERS TO M/S ARAVALI FINLEASE LTD. THE AO HAD OBSERVED THAT THE CLAIM OF THE ASSESSEE THAT THESE AMOUNTS WOULD BE PAYABLE IN FUTURE DID NOT CHANGE THE NATUR E OF RECEIPT AND WILL CONTINUE TO BE THE REVENUE RECEIPT. THERE IS NO DIS PUTE THAT ASSESSEE WAS LIABLE TO SUPPLY CONTAINERS TO M/S ARAVALI FINLEASE LTD. AND THE ADVANCE SO RECEIVED WOULD BE ADJUSTED AGAINST SALE. THE AO ALSO QUESTIONED THE ACTION OF THE ASSESSEE IN SQUARING UP THE ACCOUNT O F M/S ARAVALI FINLEASE LTD. WITH THE ACCOUNT OF M/S JALARAM METALS (P) LTD . AND M/S SHREE CARBONATE & OXIDE ON THE GROUND THAT THE THREE PART IES NAMELY M/S ARAVALI FINLEASE LTD. AND OTHER THE TWO COMPANIES W ERE INTEGRALLY CONNECTED. THE AO ACCORDINGLY MADE ADDITION OF RS.3 ,03,80,920/-. 3. THE LD. CIT(A) DELETED THE ADDITION BY GIVING FO LLOWING REASONINGS:- ITA NO.286/AHD/2008 ASST. YEAR 2001-02 3 2.5 THE FACTS OF [HE CASE AND THE SUBMISSIONS OF THE APPELLANT AS WELL AS THE REMAND REPORT OF THE ASSESSING OFFICER HAVE BEEN CONSIDERED CAREFULLY. IN THIS CASE, THE ORIGINAL ASSESSMENT U/ S. 143(3) WAS COMPLETED ON 10/03/2004 DETERMINING TOTAL INCOME OF RS. 1,80, 960/- BY THE ASSESSING OFFICER. THE CASE WAS REOPENED, THEREAFTE R, ON THE BASIS OF INFORMATION RECEIVED FROM THE ACIT, RANGE-8, IN RES PECT OF THE TRANSACTIONS MADE BY THE APPELLANT WITH M/S, ARAVAL I FINLEASE LTD. AN AGREEMENT FOR SUPPLY OF CARGO STEEL CONTAINERS TO M /S. ARAVALI FINLEASC LTD. WAS ENTERED INTO BETWEEN APPELLANT AND THE SAI D -COMPANY ON 21/08/1998 FOR THE TOTAL CONSIDERATION OF RS.8,66,1 4,320/- AND AN ADVANCE OF RS.3,03,80,290/- WAS PAID BY THE SAID CO MPANY ON VARIOUS DATES DURING ASSESSMENT YEARS 1999-2000 AND 2000-01 AS PER THE AGREEMENT APPELLANT WAS TO GET AN ADVANCE AMOUNT OF RS.4,33,07,160/- BEFORE SUPPLY OF THE GOODS. AS PER DETAILS FILED BY THE APPELLANT, THE INITIAL ADVANCE PAYMENT OF RS.7,86,600/- WAS RECEIV ED ON L/9/1998 AND AFTER REALIZING THE SAME AMOUNT, IMMEDIATELY ON NEX T DAY, TRANSFERRED TO TWO COMPANIES I.E. M/S. SHREE JALARAM METALS PVT. L TD. & M/S. SHREE CARBONATE & OXIDE PVT LTD, BY WAY OF SHARE APPLICAT ION MONEY TO THESE COMPANIES AND LIKE THAT, ALL THE ADVANCE PAYMENTS R ECEIVED ON VARIOUS DATES WERE TRANSFERRED. THESE FACTS WERE ALSO VERIF IED BY THE ASSESSING OFFICER DURING THE COURSE OF RE-ASSESSMENT PROCEEDI NGS. 2.5.1. THE APPELLANT HAS FILED CERTIFIED COPIES OF DOCUMENTS FROM REGISTRAR OF COMPANIES, WHICH PROVED THAT THE APPEL LANT IS NOT A DIRECTOR OF THE AFORESAID TWO COMPANIES AND THE SHA RES HAD BEEN ALLOTTED TO THE APPELLANT AND OUT OF THE ALLOTTED SHARES, SO ME OF THE SHARES HAD BEEN TRANSFERRED, WITHIN A WEEK OF THE ALLOTMENT, T O OTHER PARTIES. THE SUBSEQUENT FORFEITURE OF THE SAID SHARES ALSO PROVE D WITH THE DOCUMENTS (RETURN OF ALLOTMENT OF SHARES) OF THE REGISTRAR OF COMPANIES. THE ASSESSING OFFICER'S CONTENTION THAT THE APPELLANT T RANSFERRED THE ADVANCE AMOUNT TO THE COMPANIES IN WHICH THE HE HAS INTERES T, IS PROVED OTHERWISE BY THE DOCUMENTS AS PER FORM NO.32 FILED BY THE APP ELLANT, IN WHICH THERE ARE NO EVIDENCES OF APPOINTMENT OF THE APPELL ANT AS A 'DIRECTOR' IN BOTH THE COMPANIES THE APPELLANT, THEREFORE, ARGUED THAT NO INCOME HAS RESULTED FROM THESE TRANSACTIONS. IF INCOME DOES NO T RESULT AT ALL, THERE CANNOT BE A TAX, EVEN THOUGH IN BOOK-KEEPING, AN EN TRY IS MADE ABOUT A HYPOTHETICAL INCOME. THIS VIEW IS UPHELD BY THE HON 'BLE APEX COURT WHILE DELIVERING THE JUDGMENT IN THE CASE OF GODHRA ELECT RICITY CO. LTD. VS. CIT REPORTED IN 225 ITR 746. 2.5.2. EVEN OTHERWISE, THE ADVANCE AMOUNT RECEIVED BY THE APPELLANT CANNOT HAVE THE CHARACTER OF INCOME TILL THE OBLIGA TION OF DELIVERY IS ITA NO.286/AHD/2008 ASST. YEAR 2001-02 4 DISCHARGED. THIS PRINCIPLE IS UPHELD BY THE HON'BLE MADRAS HIGH COURT WHILE DELIVERING THE JUDICIAL PRONOUNCEMENT IN THE CASE OF LAXMINARRIYAN VS, CIT 248 ITR 344. 2.5.3. IT IS ALSO NOTICED THAT A SETTLEMENT, THROUG H A CIVIL SUIT WITH M/S. ARAVALI KINLEASC LID. WAS MADE ON 19/03/2004, IN WH ICH REVISED RATES FOR THE SUPPLY OF STEEL CONTAINERS WERE CALCULATED AND 70% OF THE SAID AMOUNT HAD TO BE PAID BY M/S. ARAVAH FINLEASE LTD. TO THE APPELLANT AND ON RECEIPT OF THE SAID AMOUNT, APPELLANT HAVE TO DE LIVER THE STEEL CONTAINERS AND THE EARLIER ADVANCE AMOUNT OF RS,3,0 3,80,920/- HAS TO BE CONSIDERED IN THE REVISED AMOUNT THEREFORE, THE EAR LIER PAYMENT OF RS. 3,03,80,920/- REMAINED TO BE THE ADVANCE PAYMENT FO R FULFILLMENT OF THE CONTRACT THE APPELLANT ALSO STATED THAT M/S, ARAVAL I FINLEASE LTD. HAD GONE FOR LIQUIDATION, DUE TO THE LIQUIDATION PETITI ON FILED BY ITS BANKERS AND AS PER THE DIRECTIONS OF THE HON'BLE COURT/OFFI CIAL LIQUIDATOR, APPELLANT HAS TO REPAY THE ADVANCE AMOUNT, BECAUSE THERE WAS NO TERMS OF FORFEITURE OF THE ADVANCE AMOUNT IN CASE OF NON- PAYMENT OF AGREED SETTLED AMOUNT. AS THE APPELLANT IS LIABLE TO REPAY THE ADVANCE PAYMENT RECEIVED BY HIM, AS PER THE DIRECTIONS OF THE HON'B LE COURT/OFFICIAL LIQUIDATOR, THERE IS NO QUESTION OF TREATING THE SA ID AMOUNT AS A REVENUE RECEIPT. THIS ARGUMENT OF THE APPELLANT GETS SUPPOR T FROM THE DECISION QUOTED BY THE APPELLANT IN THE CASE OF CIT V/S. ASH OK CHIMANBHAI REPORTED IN 56 1TR 42 (SC) AND ANUP ENGINEERING LTD . V/S. CIT REPORTED IN 247 1TR 457 (GUJ), WHEREIN THE HON'BLC COPT HELD AS UNDER: INCOME BECOMES TAXABLE ON THE FOOLING OF ACCRUAL O NLY WHEN THE RIGHT TO RECEIVE THE INCOME BECOMES VESTED IN THE A SSESSEE. TO PUT IT DIFFERENTLY, THE BASIC CONCEPTION IS THAT THE AS SESSEE MUST HAVE ACQUIRED A RIGHT TO RECEIVE THE INCOME. IN OTHER WO RDS, THERE MUST BE A DEBT OWED TO HIM BY SOMEBODY. UNLESS AND UNTIL A DEBT IS CREATED IN FAVOUR OF THE ASSESSEE BY SOMEBODY, IT C ANNOT BE SAID THAT THE ASSESSEE HAS ACQUIRED A RIGHT TO RECEIVE T HE INCOME OR THE INCOME HAS ACCRUED TO HIM.' 2,5.4, CONSIDERING ALL DIE FACTS AS NARRATED ABOVE AND THAT THE ADVANCE PAYMENT RECEIVED DID NOT PERTAIN TO THE CURRENT ASS ESSMENT YEAR AND ALSO THAT THE APPELLANT PROVED THAT NO INCOME RESULTED F ROM THE ADVANCES RECEIVED AND ALSO FOR THE FACT THAT THE ADVANCE PAY MENT RECEIVED IS ALSO REPAYABLE AS PER THE DIRECTION OF THE HON. COURT/OF FICIAL LIQUIDATOR, THE AO IS DIRECTED TO DELETE THE ADDITION MADE OF RS.3, 03,80,920/-. ITA NO.286/AHD/2008 ASST. YEAR 2001-02 5 4. WE HAVE HEARD THE PARTIES AND CAREFULLY PERUSED THE MATERIAL ON RECORD. THE LD. DR BASICALLY RELIED ON THE ORDER OF AO WHEREAS THE LD. AR SUBMITTED THAT THERE IS NO REAL INCOME ACCRUED TO T HE ASSESSEE AS MONEY SO RECEIVED WAS ONLY AN ADVANCE TO BE ADJUSTED AGAI NST SALES TO BE MADE BY THE ASSESSEE. IT HAS BEEN SO SHOWN IN THE BALANC E SHEET OF THE ASSESSEE. FURTHER EVEN IF IT IS TREATED AS OF REVENUE NATURE THE SAME WILL BE TAXABLE ONLY WHEN EITHER SALES ARE EFFECTED OR WHEN AGREEME NT WAS EXECUTED WHEN MONEY WAS ACTUALLY RECEIVED. AS NONE OF THE TH REE EVENTS TOOK PLACE IN THE FY RELEVANT TO ASST. YEAR 2001-02 THE SAME CANNOT BE TAXEDIN THIS ASST. YEAR. WE ARE IN AGREEMENT IN THI S LINE OF ARGUMENT ADVANCED BY THE LD. CIT(A) AND THE LD. AR. FIRSTLY NO SALE HAS TAKEN PLACE BY THE ASSESSEE TO M/S ARAVALI FINLEASE LTD. THE CH ARACTER OF THE MONEY RECEIVED REMAINED AS AN ADVANCE I.E. THE LOAN WHICH WOULD BE PAYABLE IN CASE SALES ARE NOT EXECUTED. ANY MONEY RECEIVED AS AN ADVANCE AGAINST SALES CARRIES THE CHARACTER OF LOAN AND WILL BECOME A REVENUE RECEIPT ONLY WHEN SALES RELATED TO THOSE ADVANCES ARE EXECUTED O R SUCH ADVANCE IS ADJUSTED AGAINST SALES MADE BY THE ASSESSEE TO THE PARTY GIVING ADVANCE. ACCORDINGLY, ON THIS COUNT THE SUM RECEIVED BY THE ASSESSEE CANNOT BE TAXED IN THE ASST. YEAR 2001-02. FURTHER AGREEMENT FOR RECEIPT OF ADVANCE WAS EXECUTED ON 21.8.1998 RELEVANT TO ASST. YEAR 19 99-2000. EVEN IF IT IS TREATED THAT A RIGHT TO RECEIVE THE MONEY HAS ACCRU ED TO THE ASSESSEE BUT THEN IT WOULD FALL FOR CONSIDERATION IN ASST. YEAR 1999-2000. FURTHER MONEY WAS ACTUALLY RECEIVED BY THE ASSESSEE FROM M/ S ARAVALI FINLEASE LTD. IN FY 1998-99 AND 1999-2000 RELEVANT TO ASST. YEAR 1999-2000 AND 2000-01. NO CASE IS MADE OUT THAT ANY PART OF THE M ONEY WAS RECEIVED IN FY RELEVANT TO ASST. YEAR 2001-02. FROM THIS POINT OF VIEW ALSO MONEY SO RECEIVED BY THE ASSESSEE CANNOT BE CONSIDERED FO R TAXATION IN ASST. YEAR 2001-02. FROM ALL THESE COUNTS WE UPHOLD THE O RDER OF LD. CIT(A) AND DISMISS THE APPEAL FILED BY THE REVENUE. ITA NO.286/AHD/2008 ASST. YEAR 2001-02 6 5. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER WAS PRONOUNCED IN OPEN COURT ON 29/04/11. SD/- SD/- (M. K. SHRAWAT) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMB ER AHMEDABAD, DATED : 29/04/11. MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD 1.DATE OF DICTATION 20/4/2011 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 26/4/ 2011 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..