Hemjay Construction Co. P. Ltd., Jamnagar. V. Income Tax Officer, Ward-2(1), Jamnagar.

ITA 401/RJT/2017

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 3312 (ITAT-RAJKOT)
• Duration Of Justice: 2 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 21-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: DM RINDANI
• Keywords: Unexplained cash credit
• Section: 143(3); 133(6); 201

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL, RAJKOT BENCH, RAJKOT (CONDUCTED THROUGH E - COURT AT AHMEDABAD) BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND MS . MADHUMITA ROY, JUDICIAL MEMBER ./ ITA NO . 401 /RJT /2017 / ASSTT. YEAR : 2012 - 20 13 HEMJAY CONSTRUCTION CO. PVT. LTD . , PANCHMUKHI SHOPPING CENTRE, P.N. MARG , JAMNAGAR . PAN: AAACH5411P VS . I.T.O , WARD - 2(1) , JAMNAGAR . (APPLICANT) (RESPON D ENT) ASSESSEE BY : SHRI D.M. RINDANI , A.R REVENUE BY : SHRI PRAVEEN VERMA , SR .D R / DATE OF HEARING : 05 / 09 / 201 9 / DATE OF PRONOUNCEMENT: 28 / 11 /201 9 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER : THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE ASSESSEE AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), JAMNAGAR DATED 07/09/2017 ( IN SHORT LD.CIT(A) ) ARISING IN THE MATTER OF A SSESSMENT ORDER PASSED UNDER S. 143(3) OF THE INCOME TAX ACT, 1961 ( HERE - IN - AFTER REFERRED TO AS 'THE ACT') DT. 27/03/2016 RELEVANT TO THE ASSESSMENT YEAR 2012 - 2013. ITA NO.401 /RJT/2017 ASSTT. YEAR 2012 - 13 2 T HE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE COMMISSIONER OF INCOME TAX(APPEALS), JAMNAGAR ERRED IN CONFIRMING THE ACTION OF ASSESSING OFFICER IN MAKING ADDITION OF RS.24,99,389/ - U/S.41(1) OF THE ACT BY WAY OF CESSATION OF LIABILITY AND/OR U/S.68 OF THE ACT AS UNEXPLAINED CREDIT ENTRIES. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER AND WITHDRAW ANY GROUND OF APPEAL ANY TIME UP TO THE HEARING OF THIS APPEAL. 2. THE ONLY ISSUE RAISED BY THE ASSESSEE IS THAT THE LEARNED CIT (A) ERRED IN CONFIRMING THE ORDER OF THE AO BY SUSTAINING THE ADDITION OF RS. 24,99,389.00 ON ACCOUNT OF CESSATION OF LIABILITY UNDER SECTION 41 ( 1 ) OF THE A CT. 3. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IN THE PRESENT CASE IS A PRIVATE LIMITED COMPANY AND DECLARED THE INCOME FROM THE SOURCE OF INTEREST AND SHORT - TERM CAPITAL GAIN. AS PER THE AO THE ASSESSEE IS GENERALLY ENGAGED IN THE BUSINESS OF CONSTRUCT ION. THE AO DURING THE ASSESSMENT PROCEEDINGS FOUND THAT THERE ARE CERTAIN SUNDRY CREDITORS SHOWN BY THE ASSESSEE IN ITS BALANCE SHEET AS ON 31 MARCH 2012 WHICH WERE OUTSTANDING MORE THAN THREE YEARS. AS PER THE AO, SUCH LIABILITY HAS CEASED TO EXIST AND A CCORDINGLY HE MADE THE ADDITION TO THE TOTAL INCOME O F THE ASSESSEE UNDER SECTION 41( 1 ) OF THE ACT. 4. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LEARNED CIT (A) W HO ALSO CONFIRMED THE ORDER OF THE AO. BEING AGGRIEVED BY THE ORDER OF THE LEARNED CIT (A), THE ASSESSEE IS IN APPEAL BEFORE US. 5. THE LEARNED AR BEFORE US FILED A PAPER BOOK RUNNING FROM PAGES 1 TO 22 AND SUBMITTED THAT THE PAYMENT TO THE IMPUGNED CREDITORS HAS NOT BEEN ITA NO.401 /RJT/2017 ASSTT. YEAR 2012 - 13 3 PAID DUE TO FINANCIA L DIFFICULTY. AS SUCH, THE AMOUNTS ARE PAYABLE TO THE CREDITORS. ACCORDINGLY, HE CLAIMED THAT THE SAME CANNOT BE TREATED AS CESSATION OF LIABILITIES UNDER SECTION 41 ( 1 ) OF THE ACT. 6. ON THE OTHER HAND, THE LEARNED DR VEHEMENTLY SUPPORTED THE ORDER OF TH E AUTHORITIES BELOW. 7. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THERE IS NO DISPUTE ABOUT THE FACT THAT THE LIABILITY SHOWN BY THE ASSESSEE HAS NOT CEASED TO EXIST IN ITS BOOKS OF ACCOUNT AND THE SAME IS VERY MUCH REFLECTED IN ITS BALANCE SHEET. THEREFORE, IN OUR CONSIDERED VIEW, THE SAME CANNOT BE ADDED TO THE TOTAL INCOME OF THE ASSESSEE U/S 41(1) OF THE ACT UNTIL AND UNLESS IT IS NOT WRITTEN OFF IN THE BOOK OF ACCOUNTS. IN THIS REGARD, WE F IND SUPPORT AND GUIDANCE FROM THE ORDER OF HON BLE ITAT IN THE CASE OF OPTO AUDIO ELECTRONICS PRODUCTS PVT. LTD . VS. ITO IN ITA NO.592/KOL/2008 FOR THE A.Y 2002 - 03 VIDE ORDER DATED 25.05.2012 WHEREIN IT WAS HELD AS UNDER: 4. WE HAVE HEARD THE RIVAL CONTEN TIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT ASSESSEE HAS DISCLOSED SUNDRY CREDITORS TO THE EXTENT OF RS.15,34,818/ - AS ON 31.03.2002. THE AO REQUIRED ASSESSEE TO FILE COMPLETE NAME AND ADDRESSES AND ON THE GIVEN ADDRESS NOTICE ISSUED BY AO U/S 133(6) OF THE ACT RETURNED UNSERVED. ACCORDING TO AO, AS ASSESSEE IS UNABLE TO PROVE THE LIABILITY HE ADDED A SUM OF RS.2,78,261/ - AS BOGUS LIABILITY ON ACCOUNT OF CESSATION OF LIABILITY WITHOUT MENTIONING PROVISION OF SECTION 41(1) OF THE ACT. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO ALSO CONFIRMED THE ACTION OF AO. AGGRIEVED, NOW ASSESSEE IS IN APPEAL BEFORE US. WE FIND THAT IT IS NOT THE CASE OF REVENUE THAT IT IS A CASE OF EXISTING LIABILITY AND ASSESSEE HAS NOT MADE ANY WRITE OFF OF ALL LIABILITIES IN ITS BOOKS OF ACCOUNTS AND IT IS A FACT THAT THE SUNDRY CREDITORS ARE CARRIED FORWARD FROM EARLIER YEARS AND NOT ARISING OR ACCRUED DURING THE RELEVANT ASSESSMENT YEAR. IN SUCH CIRCUMSTANCES WHETHER AO CAN MAKE ADDITION ON AC COUNT OF CESSATION OF LIABILITY WHETHER THE SAME EXISTS OR NOT AS PER THE BOOKS OF ACCOUNTS OF ACCOUNTS THE LIABILITY EXISTS AND HE HAS NOT MADE ANY WRITE OFF OF THE SAME. ONCE THE LIABILITY EXISTS IN THE BOOKS OF ASSESSEE AND THE CREDITOR HAS RIGHT TO CLA IM OVER THE SAME AS PER LAW, AO COULD NOT MAKE ADDITION ON ACCOUNT OF CESSATION OF LIABILITY BY INVOKING PROVISION OF SECTION 41(1) OF THE ACT. THIS ISSUE HAS BEEN SETTLED BY THE ITA NO.401 /RJT/2017 ASSTT. YEAR 2012 - 13 4 HON'BLE APEX COURT IN THE CASE OF CCIT VS. KESARIA TEA CO. LTD. (2002) 254 IT R 434 (SC), WHEREIN IT IS HELD THAT PROVISION MADE TOWARDS PURCHASE TAX LIABILITY WAS ALLOWED IN EARLIER YEARS AND SUCH PROVISION WAS WRITTEN BACK IN A SUBSEQUENT YEAR UNDER THE IMPRESSION THAT THE DISPUTE AS TO PURCHASE TAX LIABILITY WAS FINALLY SETTLED W ITH THE DISMISSAL OF THE SPECIAL LEAVE PETITION IN SOME OTHER CASE, EVEN THOUGH OTHER ISSUES BEARING ON THE ELIGIBILITY OF PURCHASE TAX STILL REMAINED. ON THESE FACTS, IT HAS BEEN HELD THAT THE UNILATERAL ACT ON THE PART OF THE ASSESSEE BY WAY OF WRITING O FF THE LIABILITY IN ITS ACCOUNTS DID NOT NECESSARILY MEAN THAT THE LIABILITY CEASED IN THE EYE OF LAW. HENCE, THE PROVISIONS OF SECTION 41(1) WERE NOT ATTRACTED. HENCE, RESPECTFULLY FOLLOWING THE JUDGMENT OF HON'BLE APEX COURT AND GOING THROUGH THE FACTS O F THE PRESENT CASE, WE ARE OF THE VIEW THAT ONCE THE ASSESSEE HAS NOT MADE ANY WRITE OFF OF CREDITORS IN ITS BOOKS OF ACCOUNTS, THE AMOUNTS CANNOT BE TREATED AS CESSATION OF LIABILITY U/S.41(L) OF THE ACT. HENCE, WE ALLOW THIS ISSUE OF ASSESSEE'S APPEAL. 5. SIMILAR ARE THE CIRCUMSTANCES IN THE CASE OF CESSATION OF LIABILITY OF M/S. ARC INFOTECH PRIVATE LIMITED AMOUNTING TO RS.95,610/ - . AS THE ASSESSEE COULD NOT SUBSTANTIATE THE SUNDRY CREDITOR ARC INFOTECH PRIVATE LIMITED WHICH WAS OUTSTANDING AS ON 31.03. 2002 THE AO MADE THE ADDITION BUT ASSESSEE HAS NEVER MADE ANY WRITE OFF OF THIS LIABILITY IN ITS BOOKS OF ACCOUNT. SIMILAR ARE THE FACTS IN THE PRESENT ISSUE AS IN THE ABOVE ISSUE OF SUNDRY CREDITORS, HENCE TAKING A CONSISTENT VIEW WE DELETE THIS ADDITION. 6. AS REGARDS TO THE LIABILITY OF RS.54,918/ - ON ACCOUNT OF COMMISSION PAYABLE TO SHRI NARENDRA KUMAR DUGGAR, IT IS ALSO A FACT THAT THIS LIABILITY IS OUTSTANDING AND IT PERTAINS TO FINANCIAL YEAR 1997 - 98 RELEVANT TO A.Y.1998 - 99 AND THIS LIABILITY DOES NO T PERTAIN TO THE RELEVANT ASSESSMENT YEAR 2002 - 03. THE FACTS ARE EXACTLY IDENTICAL TO THE FACTS OF THE FIRST ISSUE OF SUNDRY CREDITORS. HENCE TAKING A CONSISTENT VIEW, WE DELETE THIS ADDITION. 7.1 WE ALSO FIND SUPPORT AN D GUIDANCE FROM THE JUDG MENT OF H ON BLE GUJARAT HIGH COURT IN THE CASE OF PCIT VS. MATRUPRASAD C. PANDEY REPORTED IN 377 ITR 363 WHEREIN IT WAS HELD AS UNDER: HOWEVER, IT IS REQUIRED TO BE NOTED THAT AS SUCH THOSE SUNDRY CREDITORS MENTIONED IN THE BALANCE SHEET OF THE ASSESSEE WERE SHOW N AS SUNDRY CREDITORS SINCE PAST SEVERAL YEARS FROM THE RELEVANT ASSESSMENT YEAR AND AT NO POINT OF TIME EARLIER THE ASSESSING OFFICER DOUBTED THE CREDITWORTHINESS AND/OR IDENTITY. IN ANY CASE THE ADDITION ON THE AFORESAID GROUND UNDER SECTION 41(1) OF THE ACT CANNOT BE MADE UNLESS AND UNTIL IT IS FOUND THAT THERE WAS REMISSION AND/OR CESSATION OF THE LIABILITY THAT TOO DURING THE PREVIOUS YEAR, RELEVANT TO THE ASSESSMENT YEAR IN QUESTION, THERE CANNOT BE ANY ADDITION INVOKING THE PROVISION OF SECTION 41(1) OF THE ACT. 7.2 IN VIEW OF ABOVE, WE HOLD THAT THERE CANNOT BE ANY INCOME ON ACCOUNT OF CESSION OF LIABILITY WHICH HAS NOT BEEN WRITTEN BACK BY THE ASSESSEE IN ITS ITA NO.401 /RJT/2017 ASSTT. YEAR 2012 - 13 5 BOOKS OF ACCOUNTS. THUS WE REVERSE THE ORDER OF AUTHORITIES BELOW. HENCE THE GROUND OF AP PEAL OF THE ASSESSEE IS ALLOWED. O RDER PRONOUNCED IN THE COURT ON 28 /11 / 2019 AT AHMEDABAD. - SD - - SD - (MS MADHUMITA ROY ) (WASEEM AHMED ) JUDICIAL MEMBER ACCOUNTANT MEMBER (TRUE CO PY) A HMEDABAD; DATED 28 / 11 /2019 MANISH