ITO 25(2)(3), MUMBAI V. SHAILESH M SHAH, MUMBAI

ITA 4291/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56235 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 03-11-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 26-05-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A K NAYAK
• Assessee Lawyers: VIJAY KOTHARI
• Section: 143(3); 133(6); 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G, MUMBAI BEFORE SHRI J. SUDHAKAR REDDY, A.M. AND SHRI V. DU RGA RAO, J.M. ITA NO. 4291/MUM/2010 ASSESSMENT YEAR: 2007-08 INCOME TAX OFFICER-25(2)(3), APPELLANT C-11, R.NO. 105, PRATYAKSHAKAR BHAVAN, BANDRA-KURLA COMPLEX, BANDRA (EAST), MUMBAI 400 051 VS. SHAILESH M. SHAH, RESPONDENT 6D-603, PREM NAGAR, MANDAPESHWAR ROAD, BORIVALI (W), MUMBAI 400 092. (PAN AAEPS9167L) APPELLANT BY : MR. A.K. NAYAK RESPONDENT BY : MR. VIJAY KOTHARI DATE OF HEARING : 03/11/2011 DATE OF PRONOUNCEMENT: /11/2011 ORDER PER V. DURGA RAO, J.M.: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAI NST THE ORDER OF CIT(A)-35, MUMBAI, PASSED ON 12/03/2010 FOR THE AS SESSMENT YEAR 2007-08 WHEREIN THE REVENUE HAS RAISED THE FOLLOWIN G GROUND OF APPEAL:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DELETING THE ADDITION AMOUNTING TO RS. 1,7 1,40,472/- MADE ON ACCOUNT OF CESSATION OF LIABILITY WITHOUT A PPRECIATING THE FACT THAT THE ASSESSEE HAS FAILED TO PROVIDE THE BA SIC DETAILS AS CALLED FOR DURING THE COURSE OF ASSESSMENT PROCEEDI NGS AND ALSO FAILED TO PROVE THE NATURE OF CREDITS APPEARING IN HIS BOOKS. 2. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF TRADING IN DIAMONDS. THE ASSESSEE FILED HIS RETURN OF INCOME DECLARING TOTAL INCOME OF RS. 2,06 ,845/- ON ITA NO. 4291/M/2010 SHAILESH M. SHAH 2 29/07/2009. THE CASE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT, DETERMINING TH E TOTAL INCOME OF THE ASSESSEE AT RS. 1,74,58,320/-.DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED FROM THE BALANCE SHEET THAT THE FOLLOWING AMOUNTS WERE OUTSTANDING AS ADVANCE RECEIVED FROM T HE CUSTOMERS: TURBO MACHINERY ENGG. PVT. LTD. RS. 1,48,10,385 TURBO MACHINERY WORKS PVT. LTD. RS. 18,30,087 U.B. ENGG. RS. 5,00,000 RS. 1,71,40,472 ============== THE AO ASKED THE ASSESSEE TO FURNISH THE ADDRESSES OF THE ABOVE PARTIES AND BASED ON THE INFORMATION GIVEN BY THE A SSESSEE, ISSUED ENQUIRY LETTERS U/S 133(6) TO THE SAID PARTIES, HOW EVER, NO REPLY WAS RECEIVED FROM THE SAID PARTIES. THE AO HAD OBSERVED IN THE ASSESSMENT ORDER THAT THE ASESSEE DID NOT PRODUCE T HE DETAILS SUCH AS NATURE OF ADVANCE, PERIOD FOR WHICH THE SAME PERTAI NED AND CONFIRMATION FROM THE PARTIES. THE AO HELD THAT THE ONUS LIES ON THE ASSESSEE WAS NOT DISCHARGED BY HIM AND THE AFORESAI D AMOUNTS COULD NOT BE OUTSTANDING FOR A LONG PERIOD AS NO PRUDENT BUSINESS MAN WOULD ALLOW THE ADVANCE TO BE OUTSTANDING FOR SUCH A LONG PERIOD OF TIME. HE, THEREFORE, TAXED THE ENTIRE BALANCE OUTST ANDING AT RS. 1,71,40,472/- AS CEASED LIABILITY U/S 41(1) OF THE ACT. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CI T(A). 3. IT WAS SUBMITTED BEFORE THE CIT(A) THAT AS PER T HE REQUEST OF THE AO, THE ASSESSEE HAD GIVEN ALL THE DETAILS IN RESPE CT OF THE PARTIES FROM WHOM HE HAD RECEIVED THE ADVANCES. THE AO WITH OUT MAKING ANY ENQUIRY AND WITHOUT EXAMINING THE PROVISIONS OF SEC TION 41, SIMPLY INVOKED THE SECTION AND THE ENTIRE AMOUNT WAS ADDED IN THE HANDS OF THE ASSESSEE. IT WAS ALSO SUBMITTED THAT THE ADVANC ES, WHICH ARE IN DISPUTE WERE NOT TAKEN INTO CONSIDERATION DURING TH E YEAR AND SINCE THESE AMOUNTS WERE NOT CLAIMED AS DEDUCTION OR EXPE NDITURE IN THE EARLIER YEAR, SECTION 41(1) IS NOT APPLICABLE TO TH E CASE OF THE ITA NO. 4291/M/2010 SHAILESH M. SHAH 3 ASSESSEE. THE LEARNED CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, HELD AS UNDER:- 4.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE REPRES ENTATIVES AND STAND TAKEN BY THE AO. IT IS EVIDENT FROM THE B ALANCE SHEET AS ON 31/03/06 THAT THE FOLLOWING ADVANCES RECEIVED WERE OUTSTANDING IN THE BALANCE SHEET: TURBO MACHINERY ENGG. PVT. LTD. RS. 1,48,10,385 TURBO MACHINERY WORKS PVT. LTD. RS. 18,30,087 UB ENGG. RS. 5,00,000 RS. 1,71,40,472 ============= FURTHER AS SEEN FROM THE BALANCE AS ON 31/03/2007, THE SAME ADVANCES ARE OUTSTANDING AS BELOW: TURBO MACHINERY ENGG. PVT. LTD. RS. 1,48,10,385 TURBO MACHINERY WORKS PVT. LTD. RS. 18,30,087 UB ENGG. RS. 5,00,000 RS. 1,71,40,472 ============= FROM THE ABOVE IT IS CLEAR THAT THE ABOVE ADVANCES WERE NOT RECEIVED DURING THE YEAR. FURTHER THERE IS NO DISPU TE THAT IT REPRESENTS ADVANCES FROM CUSTOMERS. IN THE LIGHT OF THE ABOVE FACTS, IT SHOULD BE EXAMINED WHETHER THERE IS ANY N ECESSITY FOR ADDITION. THE AO HAS APPLIED SECTION 41(1) BUT THE SAME CAN BE INVOKED ONLY IN RESPECT OF TRADING LIABILITY WHICH WAS ALLOWED AS DEDUCTION IN THE EARLIER YEAR. ADMITTEDLY THE ADVAN CE RECEIVED BY THE APPELLANT WAS NOT ALLOWED AS DEDUCTION WHILE CO MPUTING THE INCOME OF THE APPELLANT FOR THE YEAR IN WHICH THE A DVANCES WERE RECEIVED. IN SUCH A CASE, THERE IS ABSOLUTELY NO SC OPE FOR APPLYING SECTION 41(1). EVEN ADDITION U/S 68 CANNOT BE MADE IN THIS YEAR AS THE ADVANCES ARE NOT RECEIVED IN THIS YEAR BUT I N THE EARLIER YEARS. MERELY BECAUSE THE AMOUNTS ARE OUTSTANDING I N THE BALANCE SHEET, THE AO CANNOT INVOKE SECTION 41(1) W ITHOUT EXAMINING WHETHER SUCH LIABILITY WAS ALLOWED AS DED UCTION IN THE EARLIER YEAR. IN THE CASE OF DY. CIT VS. ALLIED LEA THER FINISHERS (P) LTD. (32 SOT 549), A SIMILAR ISSUE AROSE IN WHICH T HE AO ADDED ALL THE LIABILITIES IN THE BALANCE SHEET MERELY BEC AUSE LETTERS SENT TO THEM WERE RETURNED BACK OR THEY WERE OLD. THE AO BEFORE APPLYING SECTION 41(1) DID NOT EXAMINE WHETHER THEY ARE TRADING LIABILITIES AND WHETHER THERE WAS ANY REMISSION OR CESSATION. THE HONBLE ITAT HELD THAT THE WORD CESSATION MEANS T HE TERMINATION BY OPERATION OF LAW OR BY AN ORDER OF A COURT, OF LEGAL OBLIGATION OF THE ASSESSEE TO PAY TO THE CREDITOR. A CONTRACTUAL AGREEMENT BETWEEN THE PARTIES, APPROVED BY A COURT TO WAIVE THE DEBT OR TO TERMINATE THE LEGAL OBLIGATION OF THE AS SESSEE WILL ALSO CAUSE THE CESSATION OF LIABILITY. EVEN IN A CASE WH ERE A LIABILITY CEASES TO EXIST DUE TO LIMITATION I.E. THE CLAIM OF THE CREDITOR IS BARRED BY LIMITATION UNDER THE LIMITATION ACT, 1963 BUT IF THE ITA NO. 4291/M/2010 SHAILESH M. SHAH 4 LIABILITY SUBSISTS OR HAS NOT BEEN WRITTEN OFF BY T HE ASSESSEE OR THE ASSESSEE DOES NOT OBSERVE HIMSELF FROM THE LIAB ILITY, THOUGH NOT LEGALLY ENFORCEABLE, YET IT CANNOT BE TAXED U/S 41(1). WHEN THE ABOVE DECISION IS APPLIED TO THE FACTS OF THE C ASE, I FIND THAT THE AO HAS TO PROVE THE FACTUM OF CESSATION OR REMI SSION AND UNLESS THE AO PROVED THAT THERE WAS REMISSION OR CE SSATION DURING THIS YEAR THE SAME CANNOT BE TAXED U/S 41(1) MERELY BECAUSE THE PARTY DID NOT FURNISH REPLY. IN THE CIR CUMSTANCES, I FIND THAT THE ADDITION IS TOTALLY INCORRECT AND AGA INST THE PROVISIONS OF THE ACT AND THE SAME IS DELETED. 4. THE LEARNED DR SUBMITTED THAT THE AO ASKED THE A SSESSEE TO PROVIDE INFORMATION WITH REGARD TO THE ADVANCES REC EIVED BY THE ASSESSEE AND AS PER THE INFORMATION GIVEN BY THE AS SESSEE, THE AO ISSUED NOTICES U/S 133(6) OF THE ACT AND NOBODY WAS RESPONDED. IT IS FURTHER SUBMITTED THAT THE ASSESSEE HAS ALSO NOT PR OVIDED ANY CONFIRMATIONS FROM THE PARTIES, TO WHOM HE RECEIVED THE ADVANCES AND NOT FILED ANY DETAILS REGARDING REPAYMENT OF THE LO ANS. HE CONTENDED THAT THE LEARNED CIT(A) DELETED THE ADDITION WITHOU T EXAMINING THE ISSUE IN DETAIL. 5. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE A SSESSEE SUBMITTED THAT THE AMOUNTS WHICH ARE IN DISPUTE ARE IN THE NATURE OF BUSINESS ADVANCES RECEIVED BY THE ASSESSEE AND THE SAME WERE NOT CLAIMED AS DEDUCTION IN EARLIER YEARS AND ALSO DURI NG THE YEAR UNDER CONSIDERATION, THEREFORE, SECTION 41(1) HAS NO APPL ICATION TO THE FACTS OF THE CASE. IT IS SUBMITTED THAT THE ASSESSEE HAD PAID SOME AMOUNTS TO THE PARTIES, WHICH ARE NOT IN DISPUTE. THE LEARN ED COUNSEL RELIED UPON THE DECISION OF THE MUMBAI BENCH OF TRIBUNAL I N THE CASE OF ITO VS. HITEN M. MODI IN ITA NO. 2710/M/2010, ORDER DAT ED 23/02/2011, IN SUPPORT OF ASSESSEES CASE. 6. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE RECO RD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE CA SE OF THE REVENUE IS THAT THERE ARE NO DETAILS AVAILABLE BEFORE THE AO I N RESPECT OF THE DISPUTED ADVANCES RECEIVED BY THE ASSESSEE. THE CAS E OF THE ASSESSEE IS THAT THESE RECEIPTS ARE ADVANCES RECEIVED IN THE COURSE OF BUSINESS ITA NO. 4291/M/2010 SHAILESH M. SHAH 5 AND SOME AMOUNTS WERE REPAID, THEREFORE, SECTION 41 (1) IS NOT APPLICABLE TO THE CASE OF THE ASSESSEE. WE FIND FRO M THE ORDERS OF THE AUTHORITIES BELOW THAT IT IS A FACT THAT NO INFORMA TION WITH REGARD TO THE DISPUTED ADVANCES RECEIVED BY THE ASSESSEE IS A VAILABLE WITH THE AO. IT IS ALSO THE FACT THAT THE AO HAS NOT EXAMINE D SOME OF THE AMOUNTS REPAID BY THE ASSESSEE AGAINST THE ADVANCES RECEIVED FROM THE PARTIES. THE CIT(A) WITHOUT EXAMINING THE FACTS ON RECORD, DELETED THE ADDITION MADE BY THE AO. UNDER THESE CIRCUMSTAN CES, WE ARE OF THE VIEW THAT THESE ASPECTS NEED TO BE EXAMINED BY THE AO AND, THEREFORE, WE SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE THE ISSUE BACK TO THE FILE OF THE AO WITH A DIRECTION TO DECI DE THE ISSUE AFTER EXAMINING THE DETAILS AND IN ACCORDANCE WITH LAW AF TER PROVIDING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. THE ASSESSEE IS DIRECTED TO PUT-FORTH THE INFORMATION REQUIRED BY T HE AO IN SUPPORT OF HIS CASE. ACCORDINGLY, THE GROUND BY THE REVENUE I S ALLOWED FOR STATISTICAL PURPOSES. 7. IN THE RESULT, APPEAL FILED BY THE REVENUE IS TR EATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 16 TH DAY OF DECEMBER, 2011. SD/- SD/- (J. SUDHAKAR REDDY) (V. DU RGA RAO) ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI, DATED: 16 TH DECEMBER, 2011 KV ITA NO. 4291/M/2010 SHAILESH M. SHAH 6 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, G BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI.