The ITO, 1(1), Ujjain V. Smt. Manorama Garg, Ujjain

ITA 296/IND/2013

• Counselvise Citation: 29622714 RSA 2013
• Duration Of Justice: 8 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-01-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 15-05-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R A VERMA
• Assessee Lawyers: ASHOK BHANUPRIYA
• Section: 133(6); 131

Judgement Text

PAGE 1 OF 13 IN THE INCOME TAX APPELLATE TRIBUNAL , INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, J.M. AND SHRI R.C.SHARM A, A.M. PAN NO. : AFEPG2763B I.T.A.NO. 296 /IND/201 3 A.Y. : 2009-10 INCOME - TAX OFFICER, 1(1), UJJAIN VS. S MT. MANORMA GARG, PROP. MAYANK TRADERS, 2, SUBHASH MARG, INDORE. APPELLANT RESPONDENT APPELLANT BY : SHRI R. A. VERMA, SR. DR RESPONDENT BY : SHRI SHARAD JAIN AND SHRI ASHOK BHANUPRIYA, ADV. DATE OF HEARING : 20 . 1 1 .201 3 DATE OF PRONOUNCEMENT : 27 . 0 1 .201 4 O R D E R PER R. C. SHARMA, A.M. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER PASSED BY THE CIT(A), DATED 18.02.2013 FOR THE ASSE SSMENT YEAR 2009-10 IN THE MATTER OF ORDER PASSED U/S 143( 3) OF THE INCOME-TAX ACT, 1961. SMT. MANORMA GARG, PROP. MAYANK TRADERS, UJJAIN. I.T.A.NO. 296/IND/2013 - A.Y. :2009-10 2 PAGE 2 OF 13 2. FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE REVENUE :- 1. WHETHER IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION U/S 41(1) OF THE INCOME-TAX ACT, 1961, WHEREAS THE CASE LAWS RELIED UPON WHERE DISTINGUISHABLE IN AS MUCH AS IN THIS CASE THERE WAS AN ADMISSION ON PART OF THE ASSESSEE AND THE INTENT FOR UNILATERAL WRITING OFF THE CREDITS AS INCOME IN SUCCEEDING YEAR AS MENTIONED IN EXPLANATION-I. 2. WHETHER IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION U/S 41(1) OF THE INCOME-TAX ACT, 1961, WHEN REGARDING ADDITION OF RS. 23,32,340/- OUT OF TOTAL DELETION OF RS. 34,77,963/- WAS RELATED TO SU CH CREDITORS WHERE NO CONFIRMATION WAS RECEIVED BY CLAIMED CREDITORS OR BUSINESS TRANSACTION WAS DENIED WHEN THE ENQUIRY WAS MADE BY THE ASSESSING OFFICER BY ISSUING LETTERS U/S 133(6) OF THE INCOME - SMT. MANORMA GARG, PROP. MAYANK TRADERS, UJJAIN. I.T.A.NO. 296/IND/2013 - A.Y. :2009-10 3 PAGE 3 OF 13 TAX ACT, 1961, ON THE ADDRESSES SUPPLIED BOOKS OF ACCOUNTS HERSELF. 3. THE RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUSED. THE BRIEF FACTS OF THE CASE ARE THAT THE A SSESSEE IS AN INDIVIDUAL AND ENGAGED IN THE BUSINESS OF MANUFACTU RING AND TRADING OF PATTAL-DONA AND PAPER ETC. RETURN DECLAR ING AN INCOME OF RS. 4,35,300/- WAS FILED ON 29-09-2009. T HE CASE WAS SELECTED FOR SCRUTINY. DURING THE YEAR, THE ASS ESSEE HAS SHOWN CREDITORS TO THE TUNE OF RS. 64,79,851/-. IN ORDER TO VERIFY THE CREDITORS INFORMATION U/S 133(6) WERE CA LLED FOR FROM THE PARTIES. INFORMATION RECEIVED FROM THE CREDITOR S TO THE EXTENT OF RS. 20,41,963/-. FOR REMAINING CREDITORS NO CONFIRMATION WAS RECEIVED, LETTER ISSUED BY THE ASS ESSING OFFICER EITHER RETURNED BACK WITH POSTAL REMARKS N OT KNOWN/INCOMPLETE ADDRESS OR DENIED BY THE CREDITOR S TO HAVE ANY TRANSACTION WITH THE ASSESSEE. THE ASSESSEE ALS O EXPRESSED HER INABILITY TO EXPLAIN THE REASON AND O FFERED THE CREDITORS OF RS. 34,77,963/- TO BE ADDED HER TAXAB LE INCOME. SMT. MANORMA GARG, PROP. MAYANK TRADERS, UJJAIN. I.T.A.NO. 296/IND/2013 - A.Y. :2009-10 4 PAGE 4 OF 13 THE ASSESSING OFFICER HAS COMPLETED THE ASSESSMENT BY ADDING CREDITORS U/S 41(1) AT RS. 34,77,963/- VIDE ORDER D ATED 22.12.2011. AGAINST THE ORDER ASSESSEE HAS PREFERRE D THE APPEAL. 4. BY THE IMPUGNED ORDER, THE LD. CIT(A) DELETED THE ADDITION AFTER HAVING THE FOLLOWING OBSERVATIONS :- 3.1.19 IT IS HELD BY THE JUDICIAL AUTHORITIES THAT BALANCE SHEET LIABILITIES CANNOT BE TREATED AS INCO ME MERELY BECAUSE, THEY ARE OLD OR LETTERS SEND TO SO ME OF THEM RETURNED UN-SERVED. THE CONTINUOUS SHOWING OF LIABILITIES IN THE BOOKS OF ACCOUNTS AS HIS/HER LIABILITIES IS ACKNOWLEDGMENT OF LIABILITIES. THE LIABILITIES SHOULD CEASE TO EXIST, EITHER BY OPERAT ION OF LAW OR BY AN ORDER OF COURT OR BY LIMITATION I.. E THERE SHOULD SOME EXTERNAL FORCE. THE LIABILITIES REFLECTED IN THE BALANCE SHEET CANNOT BE TREATED AS CESSATION OF LIABILITIES. MERELY, BECAUSE THE LIABI LITIES ARE OUTSTANDING FOR LAST MANY YEARS, IT CANNOT BE INFERRED THAT SAID LIABILITIES HAVE CEASED TO EXIST . IN SMT. MANORMA GARG, PROP. MAYANK TRADERS, UJJAIN. I.T.A.NO. 296/IND/2013 - A.Y. :2009-10 5 PAGE 5 OF 13 THE CASE OF THE APPELLANT AO HAS CALLED FOR THE INFORMATION U/S 133(6) OF THE INCOME TAX ACT AND HE HAS ADDED THE CREDITORS FROM WHOM INFORMATION U/S 133(6) WERE NOT RECEIVED OR WHOSE CONFIRMATION HE HAS NOT FOUND SATISFACTORY. THE APPELLANT HAS SUBMITTED PURCHASE BILLS IN SUPPORT OF HER CONTENTION. THE AO HAS NOT CONSIDERED THEM AND MADE THE ADDITION AFTER RECORDING STATEMENT OF THE APPELLANT U/S 131 ON 19-12-2011. 3.1.20 THE AO HAS TAKEN A VIEW THAT APPELLANT HAD DEBITED THIS AMOUNT OF RS. 34,77,963/- IN HER ACCOUNT RELATED TO EARLIER LIABILITIES AND NOW THE RELATED LIABILITIES HAVE SEIZED. IT IS OBLIGATORY O N THE PART OF THE APPELLANT TO OFFER THE SAME AS HER INCO ME U/S 41(1) OF THE INCOME TAX ACT, 1961 BY WAY OF CESSATION OF LIABILITIES. IN THE CASE OF THE APPELL ANT ALL THE LIABILITIES ARE OPENING BALANCES CARRIED FORWARD FROM EARLIER YEARS AND HAVE BEEN FURTHER CARRIED FORWARD TO NEXT YEARS. APPELLANT HAS NOT SMT. MANORMA GARG, PROP. MAYANK TRADERS, UJJAIN. I.T.A.NO. 296/IND/2013 - A.Y. :2009-10 6 PAGE 6 OF 13 OBTAINED SOME BENEFIT IN THE YEAR UNDER CONSIDERATION I.E. INCREASE IN ITS PROFIT/CAPITAL ( THAT THE LIABILITIES HAS NOT BEEN CREDITED TO THE P&L ACCOUNT AND OR CAPITAL ACCOUNT DIRECTLY, THEREFORE THEY ARE NOT LIABLE TO TAX U/S 41(1). 3.1.21 IT IS HELD BY THE JUDICIAL AUTHORITIES THAT REMISSION/CESSATION OF LIABILITY DUE TO BILATERAL A CT, BETWEEN THE CREDITOR AND DEBTOR BY WAY OPERATION OF LAW IS COVERED UNDER THE PROVISIONS OF MAIN SECTION OF 41(1). THE ACT OF SURRENDER OF LIABILITI ES U/S 131 IS A UNILATERAL ACT OF THE APPELLANT. THE TAXATION OF CESSATION/REMISSION OF LIABILITIES BY 'UNILATERAL ACT' OF DEBTOR HAS BEEN DEALT WITH BY EXPLANATION-L OF SECTION 41(1) INSERTED W.E.F. 01-0 4- 1997. THAT THE PROVISIONS OF THE ABOVE EXPLANATION- 1 ARE AS UNDER:- 'EXPLANATION-L.- FOR THE PURPOSES OF THIS SUB-SECTION, THE EXPRESSION 'LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF SMT. MANORMA GARG, PROP. MAYANK TRADERS, UJJAIN. I.T.A.NO. 296/IND/2013 - A.Y. :2009-10 7 PAGE 7 OF 13 ANY SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF' SHALL INCLUDE THE REMISSION OR CESSATION OF ANY LIABILITY BY A UNILATERAL ACT BY THE FIRST MENTIONED PERSON UNDER CLAUSE (A) OR THE SUCCESSOR IN BUSINESS UNDER CLAUSE (B) OF THAT SUB-SECTION BY WAY OF WRITING OFF SUCH LIABILITY IN HIS ACCOUNTS.' 3.1.22 THE ADDITION IN THE CASE OF THE APPELLANT CANNOT BE MADE ONLY ON THE BASIS OF THE STATEMENT OF APPELLANT, BECAUSE AS PER EXPLANATION-1 OF 41 (1 ) ONE TYPE OF 'UNILATERAL ACT' OF REMISSION/CESSATION HAS BEEN BROUGHT WITHIN THE AMBIT OF TAXATION I.E. 'UNILATERAL ACT OF WRITING OFF OF THE LIABILITY IN THE BOOKS OF ACCOUNT.' IN OTHER WORDS THE BASIC CONDITION IS THAT THE LIABILITY MUST BE CREDITED TO THE P&L ACCOUNT/DIRECTLY CAPITAL ACCOUNT IN THE BOOKS OF THE APPELLANT. THIS IS NOT THE CASE OF THE APPELLANT. SMT. MANORMA GARG, PROP. MAYANK TRADERS, UJJAIN. I.T.A.NO. 296/IND/2013 - A.Y. :2009-10 8 PAGE 8 OF 13 3.1.23 THAT THE PROVISIONS OF SECTION 41(1) AND EXPLANATION-1 TO IT ARE DEEMING PROVISIONS. THEY SHOULD BE APPLIED AS PER THE LIMITS OF THESE SECTIO NS I.E. ONLY BILATERAL TRANSACTIONS OF REMISSION/CESSATION AND ONLY UNILATERAL TRANSACTION OF WRITING OFF LIABILITIES IN THE BOOKS OF ACCOUNT SHOULD BE TAXED. IN THE CASE OF THE APPELLANT SHE HAS NOT WRITTEN OFF THE OUTSTANDING LIABILITIES IN THE BOOKS OF ACCOUNT, THEREFORE AO I S NOT JUSTIFIED TO ADD THEM IN THE TAXABLE INCOME OF THE APPELLANT U/S 41 (1) ONLY ON THE BASIS OF THE LETTERS RETURNED BACK UN-SERVED AND APPELLANT HAS ADMITTED THE SAME IN HER STATEMENT. 3.1.24 THE AO SHALL HAVE TO PROVE THAT APPELLANT HAS OBTAINED THE BENEFITS IN RESPECT OF SUCH TRADIN G LIABILITIES BYWAY OF REMISSION/CESSATION THEREOF. MERELY, BECAUSE THE APPELLANT OBTAINED BENEFIT OF DEDUCTION IN THE EARLIER YEARS AND BALANCES ARE CARRIED FORWARD IN THE SUBSEQUENT YEAR, WOULD NOT SMT. MANORMA GARG, PROP. MAYANK TRADERS, UJJAIN. I.T.A.NO. 296/IND/2013 - A.Y. :2009-10 9 PAGE 9 OF 13 PROVE THAT THE TRADING LIABILITIES OF THE APPELLANT HAVE BECOME NONEXISTENT. IT IS ALSO HELD BY THE JUDICIAL AUTHORITIES THAT EVEN, IN A CASE WHERE A LIABILITY CEASED TO EXIST DUE TO LIMITATION I.E. TH E CLAIM OF THE CREDITOR IS BARRED BY LIMITATION UNDER LIMITATION ACT 1963, BUT IF THE LIABILITY SUBSIST O R HAS NOT BEEN WRITTEN OFF BY THE ASSESSEE, OR THE ASSESSEE DOES NOT ABSOLVE HIMSELF FROM THE LIABILITY, THOUGH NOT LEGALLY ENFORCEABLE, IT CANNO T BE TAXED U/S 41(1). 3.1.25 IN THE CASE OF THE APPELLANT AO HAS SIMPLY TREATED LIABILITIES OF THE BALANCE SHEET AS REMISSI ON OR CESSATION MERELY BECAUSE, THEY WERE OLD AND LETTER SENT TO SOME OF THEM RETURNED BACK UN- SERVED. HE DID NOT ESTABLISH THAT THE APPELLANT OBTAINED ANY BENEFIT IN RESPECT OF THEM, OR THERE WAS ANY REMISSION/CESSATION THEREOF. THERE WAS NO UNILATERAL ACT OF WRITING BACK THESE TRADING LIABILITIES BY THE APPELLANT TO ATTRACT THE EXPLANA TION SMT. MANORMA GARG, PROP. MAYANK TRADERS, UJJAIN. I.T.A.NO. 296/IND/2013 - A.Y. :2009-10 10 PAGE 10 OF 13 TO SECTION 41 (1). THE APPELLANT HAS BEEN CONTINUOUSLY SHOWING THEM IN ITS BOOK AS HER LIABILITIES AND THERE IS NO MATERIAL TO HOLD THAT APPELLANT HAS NO INTENTION TO PAY BACK TO THE CREDITORS. WITHOUT PROVING THE SAME LIABILITIES OF THE BALANCE SHEET CANNOT BE TREATED AS THE INCOME OF THE APPELLANT. 3.1.26 CONSIDERING THE ABOVE FACTS ADDITION MADE BY THE AO AT RS. 34,77,963/- IS NOT SUSTAINABLE AND IT IS HEREBY DELETED. 5. AGAINST THE ABOVE ORDER OF CIT(A), THE REVENUE IS I N FURTHER APPEAL BEFORE US. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AN D FOUND FROM RECORD THAT WHILE FRAMING ASSESSMENT U/S 143(3 ), THE ASSESSING OFFICER FOUND THAT NO CONFIRMATIONS WERE RECEIVED IN RESPECT OF SOME OF THE CREDITORS SHOWN IN THE BALAN CE SHEET. IN SOME OF CASES, BUSINESS TRANSACTIONS WERE DENIED BY THE CLAIMED CREDITORS TO WHOM LETTERS U/S 133(6) WERE I SSUED. THESE LETTERS WERE RECEIVED BACK WITH POSTAL REMARK S NOT SMT. MANORMA GARG, PROP. MAYANK TRADERS, UJJAIN. I.T.A.NO. 296/IND/2013 - A.Y. :2009-10 11 PAGE 11 OF 13 KNOWN/INCOMPLETE ADDRESS. WE FOUND THAT OUT OF TOT AL ADDITION OF RS. 34,77,963/- U/S 41(1), THREE AMOUNT S REPRESENTED ADVANCE AGAINST SALE TOTALING RS. 1,19, 647/-. OUT OF BALANCE AMOUNT OF RS. 33,58,316/-, CONFIRMATIONS SO RECEIVED IN RESPECT OF CREDITORS WORTH RS. 10,25,97 6/-. HOWEVER, BALANCE AMOUNT OF RS. 23,32,340/- ( RS. 33 ,58,316 (-) RS. 10,25,976/-) WAS ACCEPTED BY THE ASSESSEE H ERSELF THAT THESE CREDITORS WERE PERTAINING TO EARLIER YEARS AN D WHEN THE ASSESSING OFFICER SENT LETTERS U/S 133(6), LETTERS CAME BACK WITH THE POSTAL REMARKS NOT KNOWN/INCOMPLETE ADDRE SS. WE ALSO FOUND THAT WHEN CONFRONTED IN THE STATEMENT OF THE ASSESSEE, SHE HERSELF ACCEPTED THAT SHE WAS INTENDI NG TO DISCLOSE THESE CREDITORS IN SUCCEEDING YEARS, BUT A S INQUIRY REVEALED THAT CREDITORS WERE NOT TRACEABLE AT THE G IVEN ADDRESS FOR WHICH SHE HAD NO EXPLANATION OR CLARIFICATION, SHE HERSELF OFFERED THE SAME AS INCOME OF THE YEAR UNDER CONSID ERATION. THUS, THERE WAS AN ADMISSION ON THE PART OF THE ASS ESSEE. HOWEVER, THE LD. CIT(A) HAS DELETED THE ADDITION BY SHIFTING THE ONUS ON THE ASSESSING OFFICER TO THE EFFECT THAT TH E ASSESSING SMT. MANORMA GARG, PROP. MAYANK TRADERS, UJJAIN. I.T.A.NO. 296/IND/2013 - A.Y. :2009-10 12 PAGE 12 OF 13 OFFICER DID NOT ESTABLISH THAT THE ASSESSEE HAS OBT AINED ANY BENEFIT IN RESPECT OF SUCH CREDITORS OR THERE WAS A NY REMISSION/CESSATION THEREOF. BY OBSERVING THAT THER E WAS NO UNILATERAL ACT OF WRITING BACK THESE TRADING LIABIL ITIES BY THE ASSESSEE TO ATTRACT EXPLANATION TO SECTION 41(1), T HE LD. CIT(A) DELETED THE ADDITION BY OBSERVING THAT THE ASSESSEE HAS BEEN CONTINUOUSLY SHOWING THEM IN ITS BOOKS AS HER LIABI LITIES AND THERE IS NO MATERIAL TO HOLD THAT THE ASSESSEE HAS NO INTENTION TO PAY BACK TO THE CREDITORS. HOWEVER, WITHOUT MAKI NG ANY INQUIRY AS TO WHETHER ASSESSEE HAS ACTUALLY PAID TH ESE LIABILITIES IN THE SUBSEQUENT YEARS, THE LD. CIT(A) HAS DELETED THE ADDITION. CONSIDERING THE FACT THAT THE ASSESSE E HERSELF HAS ACCEPTED THAT SHE WAS INTENDING TO DISCLOSE THESE C REDITORS IN SUCCEEDING YEARS, DUE TO THE FACT THAT CREDITORS WE RE NOT TRACEABLE AT THE GIVEN ADDRESS, SHE HAD NO EXPLANAT ION NOR CLARIFICATION, SHE HERSELF OFFERED THE SAME AS INCO ME OF THE YEAR UNDER CONSIDERATION. THUS, THERE IS NO MERIT IN THE ACTION OF THE CIT(A) FOR APPLYING THE PROPOSITION OF LAW DISC USSED BY HER IN HER ORDER TO THE FACTS OF THE INSTANT CASE, IN S O FAR AS THE SMT. MANORMA GARG, PROP. MAYANK TRADERS, UJJAIN. I.T.A.NO. 296/IND/2013 - A.Y. :2009-10 13 PAGE 13 OF 13 ASSESSEE HERSELF HAS ACCEPTED THE SAID CREDITORS AS HER INCOME. IN THE INTEREST OF JUSTICE, WE RESTORE THIS ISSUE T O THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO EXAMINE PAYME NT OF SUCH CREDITORS IN SUBSEQUENT YEARS, IF ANY. THE ASSESSEE IS ALSO DIRECTED TO PLACE BEFORE ASSESSING OFFICER, DETAILS OF THE SUBSEQUENT YEARS IN WHICH ACTUAL PAYMENT WAS MADE I N RESPECT OF THESE CREDITORS. IF THE ASSESSING OFFICE R FINDS THAT THE ASSESSEE HAS ACTUALLY PAID THESE CREDITORS IN S UBSEQUENT YEARS, NO ADDITION IS WARRANTED. THE ASSESSING OFFI CER IS DIRECTED TO DECIDE THE ISSUE AFRESH AS PER LAW IN T HE LIGHT OF OUR ABOVE DISCUSSION. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 27 TH JANUARY, 2014. SD/- SD/- (JOGINDER SINGH) (R. C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED :27 TH JANUARY, 2014. CPU* 21.11 16.12 27.1