Shivacid India Private Limited, Ahmedabad V. The ITO, Ward-4(1)(3), Ahmedabad

ITA 349/AHD/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 1761 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 9 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 03-10-2019
• Assessment Year: 2013-2014
• Appeal Filed On: 13-02-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NK GOEL
• Keywords: Business income; Depreciation; Deemed to accrue or arise in india; Unabsorbed depreciation; Set aside
• Section: 143(1); 43

Judgement Text

- , - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ITA NO.349/AHD/2018 / ASSTT.YEAR : 2013-14 SHIVACID INDIA PRIVATE LTD. 284, 1 ST FLOOR NEW CLOTH MARKET RAIPUR, AHMEDABAD 380 002. PAN : AACCS 7353 K VS. ITO, WARD - 4(1)(3) AHMEDABAD. ( APPLICANT ) ( RESPONENT ) ASSESSEE BY : SHRI ASEEM L. THAKKAR, AR REVENUE BY : SHRI N.K. GOEL, SR.DR / DATE OF HEARING : 03/10/2019 ! / DATE OF PRONOUNCEMENT: 11/12/2019 / O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST O RDER OF LD.CIT(A)-8, AHMEDABAD DATED 22.12.2017 PASSED FOR THE ASSESSMEN T YEAR 2013-14. 2. IN THE FIRST GROUND OF APPEAL, THE ASSESSEE HAS CHALLENGED CONFIRMATION OF DISALLOWANCE OF RS.11,32,791/-MADE BY THE AO WITH HELP OF SECTION 41(1) OF THE INCOME TAX ACT, 1961. 3. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS ENG AGED IN THE BUSINESS OF PHARMACEUTICAL PRODUCTS, CHEMICALS ETC. ASSESS EE HAS E-FILED ITS RETURN ON 26.9.2013 DECLARING TOTAL INCOME AT NIL, WHICH WAS PROCESSED UNDER SECTION 143(1) OF THE ACT. THEREAFTER, THE CASE OF THE ASSESSEE ITA NO.349/AHD/2018 2 WAS SELECTED FOR SCRUTINY ASSESSMENT BY ISSUANCE OF NOTICE UNDER SECTION 143(2). DURING THE SCRUTINY ASSESSMENT IT WAS NOTI CED BY THE AO THAT THOUGH NO TRANSACTION HAS BEEN MADE WITH THE FOLLOW ING PARTIES, HOWEVER, THEIR OUTSTANDING BALANCE REMAINED REFLECT ED IN THE BALANCE SHEET SINCE LONG. THE DETAILS ARE AS UNDER: 1) BINIT DYES & CHEMICALS : RS. 64,896/- 2) INDIAN DYES & CHEMICALS : RS.3,45,369/- 3) SHREEJI MARKETING : RS.7,22,526/- RS.11,32,791/- THE LD.AO SHOW-CAUSED THE ASSESSEE TO PROVE GENUIN ENESS OF OUTSTANDING LIABILITY AND AS TO WHY SUCH LIABILITY BE NOT CONSIDERED TO HAVE CEASED TO EXIST, AND BE NOT TREATED AS DEEMED INCOME UNDER SECTION 41(1) OF THE ACT. THE LD.AO ALSO ASKED THE ASSESS EE TO FURNISH PAN AND ADDRESS OF THE ABOVE PARTIES. THE ASSESSEE AFTER R ELYING UPON VARIOUS JUDICIAL AUTHORITIES SUBMITTED THAT MERELY BECAUSE ASSESSEE HAS SHOWN THE OUTSTANDING LIABILITY FOR YEARS AND NON-FURNISH ING OF COMPLETE DETAILS, CANNOT BE THE REASON FOR CONSIDERING THE LIABILITY HAS CEASED TO EXIST. THE LD.AO DID NOT ACCEPT THE EXPLANATION OF THE ASS ESSEE, AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE UNDER SECT ION 41(1) OF THE ACT. IN APPEAL BEFORE THE LD.CIT(A), THE ASSESSEE DID NO T GET ANY RELIEF. THEREFORE, THE ASSESSEE IS BEFORE THE TRIBUNAL. 4. BEFORE US, THE LD.COUNSEL FOR THE ASSESSEE REITE RATED SUBMISSIONS MADE BEFORE THE LD.REVENUE AUTHORITIES. HE ALSO RE LIED UPON THE JUDGMENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF DATTATRAY POULTRY BREEDING FARM P.LTD. VS. ACIT, 104 TAXMANN.COM 366 (GUJ). HE SUBMITTED THAT HONBLE GUJARAT HIGH COURT AGAIN REI TERATED POSITION OF ITA NO.349/AHD/2018 3 LAW AS WAS PROPOUNDED IN THE CASE OF CIT VS. BHOGIL AL RAMJIBHAI ATARA REPORTED IN 43 TAXMANN 313. ON THE OTHER HAND, THE LD.DR RELIED UPON THE ORDER OF THE AO. 5. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND GONE TH ROUGH THE RECORD CAREFULLY. SECTION 41(1) OF THE INCOME TAX ACT HAS BEEN INCORPORATED TO COVER A PARTICULAR FACT SITUATION. THE SECTION APPL IES WHERE A TRADING LIABILITY WAS ALLOWED AS A DEDUCTION IN AN EARLIER YEAR IN COMPUTING THE BUSINESS INCOME OF THE ASSESSEE AND T HE ASSESSEE HAS OBTAINED A BENEFIT IN RESPECT OF SUCH TRADING LIABI LITY IN A LATER YEAR BY WAY OF REMISSION OR CESSATION OF THE LIABILITY. IN SUCH A CASE THE SECTION SAYS THAT WHATEVER BENEFIT HAS ARISEN TO THE ASSESS EE IN THE LATER YEAR BY WAY OF REMISSION OR CESSATION OF THE LIABILITY WILL BE BROUGHT TO TAX IN THAT YEAR. THE PRINCIPLE BEHIND THE SECTION IS THAT THE PROVISION IS INTENDED TO ENSURE THAT THE ASSESSEE DOES NOT GET A WAY WITH A DOUBLE BENEFIT - ONCE BY WAY OF DEDUCTION IN AN EARLIER AS SESSMENT YEAR AND AGAIN BY NOT BEING TAXED ON THE BENEFIT RECEIVED BY HIM IN A LATER YEAR WITH REFERENCE TO THE LIABILITY EARLIER ALLOWED AS A DEDUCTION. 6. AT THIS STAGE, WE WOULD LIKE TO TAKE NOTE OF THE FOLLOWING FINDING OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF BH OGILAL RAMJIBHAI ATARA (SUPRA). IT READS AS UNDER: 8. WE ARE IN AGREEMENT WITH THE VIEW OF THE TRIBUN AL. SECTION 41(1) OF THE ACT AS DISCUSSED IN THE ABOVE THREE DECISIONS WOULD APPLY IN A CASE WHERE THERE HAS BEEN REMISSION OR CESSATION OF LIABILITY DURING THE YEAR UNDER CONSIDERATION SUBJECT TO THE CONDITIONS CONTAINED I N THE STATUTE BEING FULFILLED. ADDITIONALLY, SUCH CESSATION OR REMISSIO N HAS TO BE DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. IN THE PRESENT CASE, BOTH ELEMENTS ARE MISSING. THERE WAS NOTHING ON RECORD TO SUGGEST THERE WAS REMISSION OR CESSATION OF LIABILI TY THAT TOO DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2007- 08 WHICH WAS THE YEAR ITA NO.349/AHD/2018 4 UNDER CONSIDERATION. IT IS UNDOUBTEDLY A CURIOUS CA SE. EVEN THE LIABILITY ITSELF SEEMS UNDER SERIOUS DOUBT. THE ASSESSING OFFICER UN DERTOOK THE EXERCISE TO VERIFY THE RECORDS OF THE SO CALLED CREDITORS. MANY OF THEM WERE NOT FOUND AT ALL IN THE GIVEN ADDRESS. SOME OF THEM STATED THAT THEY HAD NO DEALING WITH THE ASSESSEE. IN ONE OR TWO CASES, THE RESPONSE WAS THAT 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, EVEN IF SUC H FACTS WERE ESTABLISHED THROUGH BI-PARTE INQUIRIES, THE LIABILITY AS IT STA NDS PERHAPS HOLDS THAT THERE WAS NO CESSATION OR REMISSION OF LIABILITY AND THAT THEREFORE, THE AMOUNT IN QUESTION CANNOT BE ADDED BACK AS A DEEMED INCOME UN DER SECTION 41(C) OF THE ACT. THIS IS ONE OF THE STRANGE CASES WHERE EVE N IF THE DEBT ITSELF IS FOUND TO BE NON-GENUINE FROM THE VERY INCEPTION, AT LEAST IN TERMS OF SECTION 41(1) OF THE ACT THERE IS NO CURE FOR IT. BE THAT AS IT M AY, INSOFAR AS THE ORDERS OF THE REVENUE AUTHORITIES ARE CONCERNED, THE TRIBUNAL NOT HAVING MADE ANY ERROR, THIS TAX APPEAL IS DISMISSED. 7. IN THE LIGHT OF THE ABOVE, IF WE EXAMINE FACTS O F THE PRESENT CASE, THEN IT WOULD REVEAL THAT LIABILITY HAS NOT CEASED. THE FACTS REMAIN UNDISPUTED BY BOTH AUTHORITIES ARE THAT THESE AMOUN TS WERE DEBITED BY THE ASSESSEE AND ALLOWED BY THE REVENUE. WE FIND T HAT THE IMPUGNED ADDITION WAS MADE BY THE REVENUE AUTHORITIES BY DOU BTING EXISTENCE OF THESE LIABILITIES AND THAT THE ASSESSEE HAS NOT WRI TTEN BACK AND CONTINUE TO SHOW THESE LIABILITIES AS OUTSTANDING IN THE BALANC E SHEET. THE AO HAS NOT BROUGHT ANY EVIDENCE ON THE RECORD TO SHOW THAT LIABILITY HAS CEASED. THE ASSESSEE HAS NOT WRITTEN OFF THE LIABIL ITY IN THE ACCOUNTS. THEREFORE, THERE WOULD NOT BE ANY ADDITION UNDER SE CTION 41(1) OF THE ACT. HON'BLE HIGH COURT IN THE CASE OF BHOGILAL RAM JIBBHAI ATARA (SUPRA) CONSIDERED THIS ASPECT AND OBSERVED T HAT EVEN IF DEBT ITSELF IS FOUND TO BE NON-GENUINE FROM THE VERY INC EPTION THAT ALSO IN TERMS OF SECTION 41(1) OF THE ACT, THERE IS NO SOLU TION FOR THAT. IN OTHER WORDS, ADDITION CANNOT BE MADE UNLESS LIABILITY IN THE ACCOUNTS HAS BEEN WRITTEN OFF. THEREFORE, FOLLOWING THE DECISION OF THE HON'BLE ITA NO.349/AHD/2018 5 GUJARAT HIGH COURT IN THE CASE OF BHOGILAL RAMJIBHA I ATARA (SUPRA), WE ALLOW THIS GROUND OF APPEAL AND DELETE DISALLOWANCE . 8. SO FAR AS SECOND GROUND REGARDING NON-GRANTING O F SET OFF OF UNABSORBED DEPRECIATION AND CARRY FORWARD OF SHORT TERM CAPITAL LOSS ARE CONCERNED, WE FIND THAT THE LD.CIT(A) HAS RECORDED A FINDING THAT NO DISCUSSION ON THESE ISSUES HAS BEEN MADE BY THE AO, AND ALSO THE ASSESSEE HAS NOT MADE ANY SUBMISSION ON THIS GROUND . THE LD.CIT(A) HAS SET ASIDE THIS ISSUE TO THE FILE OF THE AO WITH DIRECTION TO VERIFY THE RECORDS AND ALLOW THE CLAIM IF ALLOWABLE AS PER LAW . WE ARE OF THE VIEW THAT NO PREJUDICE WILL BE CAUSED TO THE ASSESSEE WI TH THIS DIRECTION OF THE LD.CIT(A) TO THE AO, AND THEREFORE, NO INTERFERENCE IS CALLED FOR ON THIS ISSUE. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 11 TH DECEMBER, 2019 AT AHMEDABAD. S D / - (AMARJIT SINGH) ACCOUNTANT MEMBER S D - (RAJPAL YADAV) JUDICIAL MEMBER