Zenith Steel Corporation, Surat V. The ACIT.,Circle-2, Surat

ITA 3103/AHD/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9090 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-12-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 08-12-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 01-09-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ROHIT MOHRA SRDR

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE SHRI N.S.SAINI, ACCOUNTANT MEMBER AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER ITA NO.3103/AHD/2008 ASSESSMENT YEAR:2005-06 DATE OF HEARING:8.1210 DRAFTED:213.12.10 M/S. ZENITH STEEL TRADERS, PROP. MEHTA JAGMOHANDAS DAYALJI (HUF), PLOT NO.5417, NR. WATER TANK, GIDC, SACHIN, SURAT PAN NO.AABHJ3060Q V/S . ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE-2, AAYAKAR BHAVAN, MAJURA GATE, SURAT (APPELLANT) .. (RESPONDENT) APPELLANT BY :- NONE (WRITTEN SUBMISSIONS) RESPONDENT BY:- SHRI ROHIT MOHRA, SR-DR O R D E R PER MAHAVIR SINGH JUDICIAL MEMBER:- THIS APPEAL BY ASSESSEE IS ARISING OUT OF THE ORDE R OF COMMISSIONER OF INCOME-TAX (APPEALS)-V, SURAT IN APPEAL NO.CAS-V/49 4/2006-07 DATED 27-03-2008. THE ASSESSMENT WAS FRAMED BY ITO WARD-9(1), SURAT U /S143(3) R.W.S. 145(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS T HE ACT) VIDE HIS ORDER DATED 29- 12-2006 FOR ASSESSMENT YEAR 2005-06. 2. THE FIRST ISSUE RAISED BY ASSESSEE IS GENERAL IN NATURE, HENCE, REQUIRE NO ADJUDICATION. 3. THE FIRST EFFECTIVE ISSUE IN THIS APPEAL OF ASSE SSEE IS AGAINST THE ORDER OF CIT(A) CONFIRMING THE ADDITION MADE BY ASSESSING OF FICER INVOKING THE PROVISIONS OF SECTION 41(1) ON ACCOUNT OF CESSATION OF LIABILITI ES. FOR THIS, ASSESSEE HAS RAISED THE FOLLOWING GROUND NO.2 :- ITA NO.3103/AHD.2008 A.Y 2005-06 M/S. ZENITH STEEL TRADERS V. ACIT CIR-2, SRT PAGE 2 (2) THE LEARNED CIT(APPEALS) HAS ERRED IN CONFIRMI NG THE ADDITION OF RS.3,75,780/- MADE ON ACCOUNT OF ALLEGED CESSATION OF LIABILITY U/S.41(1) OF THE ACT WITHOUT CONSIDERING THE RECORDS AVAILABLE WITH THE DEPARTMENT AS WELL THE EXPLANATION GIVEN AND HENCE, NOT JUSTIFIED. 4. AT THE OUTSET, WE HAVE GONE THROUGH THE WRITTEN SUBMISSION AND FIND THAT THE ASSESSEE RELIED ON DECISION OF THIS TRIBUNAL D B ENCH IN ASSESSEES GROUP CONCERN IN THE CASE OF M/S. SHREEJI STEELS V. ACIT CIRCLE-2 SURAT IN ITA NO.3102/AHD/2008 DATED 06-08-2-2010, WHEREIN THIS ISSUE HAS BEEN DEC IDED IN PARA-11 & 12 AS UNDER:- 11. WE HAVE HEARD THE PARTIES AND CAREFULLY PERUSE D THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW ADDITION UNDER SECTION 41(1) CA NNOT BE MADE IF AMOUNTS ARE OUTSTANDING IN THE BOOKS OF THE ASSESSEE OR EVEN IN THE BALANCE-SHEET. FOR INVOKING THE PROVISIONS OF SECTION 41(1) FOLLOWING POINTS ARE TO BE KEPT IN VIEW: (1) IN THE COURSE OF ASSESSMENT FOR AN EARLIER YEAR AN ALLOWANCE OF DEDUCTION HAS BEEN MADE IN RESPECT OF ANY TRADING LIABILITY I NCURRED BY THE ASSESSEE; (2) SUBSEQUENTLY A BENEFIT IS OBTAINED IN RESPECT O F SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF DURING THE YE AR IN WHICH SUCH EVENT HAS OCCURRED; (3) IN THAT SITUATION THE VALUE OF THE BENEFIT ACCR UING TO THE ASSESSEE WILL BE DEEMED TO BE THE PROFITS AND GAINS OF THE BUSINESS; (4) AND SUCH BENEFIT IS CHARGEABLE TO INCOME-TAX AS INCOME OF THE ASSESSEE FOR THE PREVIOUS YEAR IN WHICH SUCH BENEFIT WAS OBT AINED. 12. THE CESSATION OF A LIABILITY CAN OCCUR EITHER B Y ACTION OF THE COURT OR BY CONTRACTUAL AGREEMENT OR SETTLEMENT. IN REMISSION T HERE HAS TO BE A POSITIVE ACT ON THE PART OF OTHER PARTY IN DECIDING TO FORGO HIS ASSET (THAT IN FAVOUR OF THE ASSESSEE) RESULTING IN EXTINGUISHMENT OF THE LIABIL ITY OF THE ASSESSEE IN ITS ACCOUNT. THUS WHERE LIABILITY IS SHOWN BY THE ASSES SEE AS PAYABLE IN THE BOOKS EVEN FOR SEVERAL YEARS THEN UNLESS IT IS SHOWN THAT OTHER PARTY HAS ALSO FOREGONE ITS CLAIM AGAINST THE ASSESSEE BY POSITIVE ACT OF F OREGOING, IT COULD NOT BE HELD THAT SUCH CREDITS STANDING FOR SEVERAL YEARS IN THE BOOKS WOULD BECOME INCOME OF THE ASSESSEE. FURTHER IF SUCH CREDITS ARE STANDING FOR SEVERAL YEARS, THEN UNLESS SOME EVENT TAKES PLACE IT COULD NOT BE DECIDED AS T O WHICH YEAR SUCH AMOUNT WOULD BE TAXABLE. SITUATION IN SEVERAL YEARS WOULD BE SAME OR IDENTICAL SO FAR AS THE LIABILITY STANDING IN THE BOOKS IS CONCERNED. I T IS EQUALLY TAXABLE IN THE CURRENT YEAR AS IN EARLIER YEAR OR IN SUBSEQUENT YEARS. IT HAS TO BE SHOWN THAT SOMETHING POSITIVE HAS HAPPENED FROM THE SIDE OF CREDITOR WHI CH RESULTED IN FOREGOING HIS CLAIM IN FAVOUR OF THE ASSESSEE TO CALL IT CESSATIO N OR REMISSION OF LIABILITY. IF NOTHING HAPPENS OR NO EVENT TAKES PLACE SUCH OUTSTA NDING LIABILITY IN THE BOOKS CANNOT BE HELD TO BE TAXABLE IN THE CURRENT YEAR OR IN ANY PARTICULAR YEAR. OUR VIEW IS SUPPORTED BY THE DECISION OF HON. PUNJAB & HARYANA HIGH COURT AS REFERRED TO BY THE LD. AR ALSO IN ANOTHER DECISION OF THE SAME COURT IN CIT VS. SITA DEVI JUNEJA IN ITA NO.619 OF 2009 PRONOUNCED ON DECEMBER 2, 2009. OUR VIEW IS FURTHER SUPPORTED BY DECISION IN DSA ENGINEERS, BOMBAY VS. ITO (2009) ITA NO.3103/AHD.2008 A.Y 2005-06 M/S. ZENITH STEEL TRADERS V. ACIT CIR-2, SRT PAGE 3 30 SOT 31 (MUM). ACCORDINGLY WE DELETE THE ADDITION AND ALLOW THIS GROUND OF ASSESSEE. ON THE OTHER HAND, LD DR, SHRI ROHIT MEHRA RELIED O N THE ORDERS OF LOWER AUTHORITIES. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT ASSESSING O FFICER HAS OBSERVED THAT A SUM OF RS.3,75,780/- WAS SHOWN AS OUTSTANDING AGAINST M /S. PRIME STEELS AS ON 31-03- 2007, WHEN THE ASSESSMENT PROCEEDINGS WERE GOING ON FOR THE RELEVANT ASSESSMENT YEAR 2005-06. ON QUERY FROM THE ASSESSING OFFICER, ASSESSEE STATED THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE FOR EARLIER YEARS HAVE B EEN LOST, HENCE, IT IS NOT POSSIBLE FOR HIM TO GIVE THE ORIGINAL YEAR WHEN THIS LIABILI TY WAS ORIGINATED BUT HE ADMITTED TO HAVE THE LIABILITY OUTSTANDING. AS THE ISSUE IN ASS ESSEES ASSOCIATE CONCERN IN THE CASE OF M/S. SHREEJI STEELS (SUPRA) HAS BEEN DECIDED, WHEREIN IT IS HELD THAT ONCE THE LIABILITY IS OUTSTANDING AND THE ASSESSEE HAS NOT W RITTEN OFF IN THE ACCOUNTS, ADDITION CANNOT BE MADE. RESPECTFULLY FOLLOWING THE TRIBUNAL S DECISION IN ASSESSEES ASSOCIATE CONCERN IN THE CASE OF M/S. SHREEJI STEELS (SUPRA), WE DELETE THE ADDITION AND THIS ISSUE OF ASSESSEES APPEAL IS ALLOWED. 6. THE NEXT ISSUE IN THIS APPEAL OF ASSESSEE IS AGA INST THE ORDER OF CIT(A) CONFIRMING AD HOC DISALLOWANCE ON DIRECT OR INDIREC T SELLING AND ADMINISTRATIVE EXPENSES AT RS,1,40,047/-. FOR THIS, ASSESSEE HAS R AISED THE FOLLOWING GROUND NO.3 AND 4 :- (3) THE LEARNED CIT(APPEALS) HAS ERRED IN CONFIRMI NG THE LUMP SUM DISALLOWANCES OF DIRECT AND SELLING AND ADMINISTRAT IVE EXPENSES TO THE EXTENT OF RS.1,40,047/- AND HENCE, NOT JUSTIFIED. (4) THE LEARNED CIT(APPEALS) HAS ERRED IN OVERLOOKI NG AND IN SUMMARILY REJECTING THE DETAILED STATEMENT OF FACTS SUBMITTED ALONG WITH MEMORANDUM OF APPEAL, VARIOUS DOCUMENTS AND EVIDENCES PLACED IN T HE PAPER BOOK FILED AND OTHER MATERIALS PRODUCED DURING THE COURSE OF HEARI NG, WHILE ACCEPTING THE LOP-SIDED AND FACTUALLY INCORRECT VERSION OF THE LE ARNED AO AND HENCE, THE ORDER PASSED BY THE CIT(APPEALS) BEING PERVERSE, AR BITRARY, BASELESS AND MISLEADING, LIABLE TO BE QUASHED. 7. WE HAVE GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE TRIBUNAL IN ASSESSEES ASSOCIATE CONCERN IN THE CASE OF M/S. SHREEJI STEELS ITA NO.3103/AHD.2008 A.Y 2005-06 M/S. ZENITH STEEL TRADERS V. ACIT CIR-2, SRT PAGE 4 (SUPRA) CONFIRMED THE ADDITION OF ADMINISTRATIVE EX PENSES IN PARA-13 WHICH REPRODUCED AS UNDER:- 13. THE THIRD GROUND IS REGARDING DISALLOWANCES OF SELLING AND ADMINISTRATIVE EXPENSES OF RS.1,55,869/-. THE AO HAS DISALLOWED 5% OF THE CLAIM WHICH HAS BEEN CONFIRMED BY LD. CIT(A) ON THE GROUND THAT ENT IRE EXPENDITURE HAS NOT BEEN PROVED TO BE INCURRED FOR BUSINESS PURPOSES. E VEN BEFORE US, NO EVIDENCE IS SUBMITTED AS TO BUSINESS PURPOSES OF TH E EXPENSES ON THE GROUND THAT THE ASSESSEE DOES NOT HAVE BOOKS OF ACCOUNT, V OUCHERS ETC. THE DISALLOWANCE SO MADE BY THE AUTHORITIES BELOW IS RE ASONABLE AND, THEREFORE, CONFIRMED. WE FOLLOWING THE TRIBUNALS DECISION, EXACTLY ON SI MILAR ISSUE AND THE FACTS BEING EXACTLY IDENTICAL AS ADMITTED BY ASSESSEE, CONFIRM THE ADDITION. 8. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 24/12/2010 SD/- SD/- (N.S.SAINI) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD, DATED : 24/12/2010 *DKP COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)-V, SURAT 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD